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01/11 06:18
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary and Q&A session highlight strong financial performance, with significant growth in Elastic Cloud revenue and customer expansion. The strategic partnerships with AWS and Google, along with product innovations, further strengthen the outlook. Although there is some unpredictability in the consumption business, the overall sentiment is positive due to strong AI adoption and promising guidance for FY 2026. The price increase and competitive displacements in security contribute to a positive outlook, despite management's reluctance to provide precise quantifications. The sentiment is rated as 'Positive' with expected stock price movement of 2% to 8%.
Total Revenue $415 million, grew 20% as reported and 18% on a constant currency basis. Growth was driven by strong customer commitments and key wins across solution areas, including generative AI and platform consolidation.
Sales-led Subscription Revenue $339 million, grew 22% as reported and 20% on a constant currency basis. Growth was attributed to the durability of the sales team's execution and consistent results across quarters.
Non-GAAP Operating Margin 16%, supported by inherent leverage in the business model and disciplined cost management.
Adjusted Free Cash Flow Margin 28%, driven by disciplined cost management and strong cash generation.
Current Remaining Performance Obligations (CRPO) $956 million, grew 18% year-over-year and 17% in constant currency. Growth reflects solid commitments and sales-led subscription revenue.
$100,000 Annual Contract Value Customers More than 1,550 customers, representing approximately 13% year-over-year growth. Growth was driven by strong expansion from the existing customer base and new customer additions.
Total Customer Count Approximately 21,550 at the end of July. Growth reflects strong customer acquisition and retention.
Gross Margin 79%, with a one-time credit of approximately $4 million related to cloud infrastructure costs contributing to a 1% benefit.
Elasticsearch AI platform: The platform is driving significant growth, with over 2,200 Elastic Cloud customers using it for generative AI use cases. New capabilities like Better Binary Quantization (BBQ) and ACORN-1 have been launched to improve performance and cost efficiency.
Elastic AI SOC Engine (EASE): Introduced to enhance threat detection by integrating AI tools into existing SIEM and EDR platforms. It allows for AI-powered alert correlation and attack discovery.
Logs Essentials: A new low-price tier of Elastic Observability within Elastic Cloud Serverless, aimed at customers seeking a fully managed offering.
U.S. public sector: Stabilization observed with increased adoption of Elastic solutions by U.S. civilian and defense agencies. A strategic agreement with the U.S. General Services Administration (GSA) and progress on FedRAMP high certification are boosting interest.
Global expansion: Elastic is gaining traction in markets like India, Australia, Singapore, and Japan, driven by the universal need for data solutions optimized for search relevance and context in an LLM-centric world.
Revenue growth: Achieved 20% revenue growth in Q1 2026, surpassing guidance. Sales-led subscription revenue grew by 22%.
Customer base: Added approximately 40 net new $100,000 annual contract value customers in Q1, bringing the total to over 1,550 customers spending more than $100,000 annually.
Profitability: Non-GAAP operating margin reached 16%, supported by disciplined execution and inherent leverage in the business model.
Sales segmentation model: Revamped a year ago to focus on expanding enterprise accounts and high-potential mid-market customers, proving effective in driving growth.
Generative AI initiatives: Elastic is positioning itself as a leader in generative AI applications, with customers leveraging its vector database and search technology for advanced AI use cases.
Market Conditions: The company operates in a complex macro environment, which could impact revenue growth and customer demand. While conditions did not deteriorate as expected, the uncertainty remains a risk.
Competitive Pressures: 1/3 of new and expansion deals in security involved replacing incumbent solutions, indicating strong competition in the market. The company must continue to differentiate its offerings to maintain its competitive edge.
Regulatory Hurdles: Ongoing progress on FedRAMP high certification for Elastic Cloud is critical for building momentum in the U.S. public sector. Delays or failures in achieving certifications could hinder growth in this segment.
Economic Uncertainties: The company faces economic uncertainties that could affect customer spending and contract renewals, particularly in the U.S. public sector where stabilization is noted but not guaranteed.
Strategic Execution Risks: The company has made significant changes to its sales segmentation model and pricing structure. While these have shown positive results, any missteps in execution could impact revenue and customer retention.
Supply Chain Disruptions: Not explicitly mentioned in the transcript, but the reliance on cloud infrastructure and potential cost fluctuations could pose risks.
Revenue Guidance for Q2 2026: Elastic expects total revenue in the range of $415 million to $417 million, representing 14% growth at the midpoint or 14% constant currency growth at the midpoint.
Revenue Guidance for Fiscal 2026: Elastic has raised its total revenue guidance to a range of $1.679 billion to $1.689 billion, representing approximately 14% growth at the midpoint or 13% constant currency growth at the midpoint.
Non-GAAP Operating Margin Guidance for Q2 2026: Elastic expects a non-GAAP operating margin of approximately 16%.
Non-GAAP Operating Margin Guidance for Fiscal 2026: Elastic expects a non-GAAP operating margin for the full fiscal 2026 to be approximately 16%.
Non-GAAP Diluted EPS Guidance for Q2 2026: Elastic expects non-GAAP diluted earnings per share in the range of $0.56 to $0.58, using between 108.5 million and 109.5 million diluted weighted average ordinary shares outstanding.
Non-GAAP Diluted EPS Guidance for Fiscal 2026: Elastic expects non-GAAP diluted earnings per share in the range of $2.29 to $2.35, using between 109 million and 111 million diluted weighted average ordinary shares outstanding.
Free Cash Flow Margin for Fiscal 2026: Elastic expects to sustain the level of adjusted free cash flow margins achieved in fiscal 2025.
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The earnings call reveals strong financial performance with raised revenue guidance and significant shareholder returns. The Q&A section addresses concerns about seasonality and government shutdown impacts, but emphasizes strong commitments and consumption. The company's focus on AI capabilities and market expansion is promising, despite some renewal delays. The positive sentiment is reinforced by a robust shareholder return plan and optimistic guidance, suggesting a positive stock price movement over the next two weeks.
The earnings call highlights several concerns: a decline in quarterly net income due to lower revenue, reluctance to provide guidance amid market uncertainties, and delays in project greenlighting. Despite some positive aspects, like improved full-year net income and strategic plans for IP development, the lack of guidance and revenue decline overshadow these. The Q&A section further underscores uncertainties, especially with tariffs and market disruptions, leading to a negative sentiment overall. The absence of market cap data limits the impact assessment, but the overall sentiment is negative.
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