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01/10 23:05
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
Revenue Total revenue for the second quarter was $423 million, representing growth of 16% as reported and 15% on a constant currency basis. This growth was driven by strong consumption, deal momentum, and traction with customers spending over $100,000 annually.
Sales-led Subscription Revenue Sales-led subscription revenue in the second quarter was $349 million, growing 18% as reported and 17% on a constant currency basis. This reflects the strategic advantages of the Elastic search AI platform in addressing critical consolidation and generative AI use cases.
Current Remaining Performance Obligation (CRPO) CRPO was approximately $971 million at the end of Q2, growing 17% as reported and 15% in constant currency over Q2 of the prior year. This growth was supported by strong deal momentum and healthy consumption trends.
Operating Margin Non-GAAP operating margin was 16.5% for the second quarter. This was achieved through disciplined cost management and increasing revenue.
Free Cash Flow Adjusted free cash flow was approximately $26 million in Q2, representing a margin of 6%. This quarter is typically a seasonally low free cash flow margin period for the company.
Customer Growth The number of customers spending over $100,000 annually grew approximately 13% year-over-year, with 180 net new customers added over the past 4 quarters. Quarter-over-quarter, approximately 50 net new customers were added.
Large Deals Over 30 commitments greater than $1 million in annual contract value were closed in Q2, with 5 of them representing greater than $10 million in total contract value and 2 of those greater than $20 million in total contract value. This was driven by platform consolidation and Gen AI use cases.
Share Repurchase Program Approximately $114 million in cash was returned to shareholders during Q2, representing purchases of approximately 1.4 million shares at an average price per share of $84.45.
Elastic Security: Chosen by a major chemical manufacturer for its XDR platform, delivering advanced threat protection and a 35% increase in operational efficiency. Also selected by CISA for a $26 million commitment to secure U.S. federal civilian agencies with a unified SIEM as-a-service offering.
Agent Builder: Introduced as a new product to simplify the operational lifecycle of AI agents, enabling users to interact with data in Elastic search and build AI agents with robust workflow capabilities.
Streams: Launched as an agentic AI solution to simplify working with logs, helping SRE teams rapidly understand issues for faster resolution.
DiskBBQ: Released as a new disk-friendly vector similarity search algorithm for more efficient vector search at scale.
Generative AI (GenAI) Adoption: Strong demand for Elastic's platform for semantic search and Agentic applications. Over 2,450 customers on Elastic Cloud use it for GenAI use cases, with 370 spending over $100,000 annually. Signed 4 GenAI deals exceeding $1 million in annual contract value.
Large Deals: Secured over 30 commitments valued at over $1 million, including 5 deals exceeding $10 million and 2 surpassing $20 million in total contract value.
Sales Execution: Fifth consecutive quarter of disciplined sales execution, focusing on high-value opportunities and achieving strong subscription revenue growth of 18%.
AutoOps: Made available to self-managed customers, simplifying cluster management through real-time issue detection and resolution.
Acquisition of Jina AI: Acquired Jina AI to enhance multilingual and multimodal embedding and reranker models, accelerating Elastic's strategy in AI and vector search.
Share Repurchase Program: Initiated a $500 million share repurchase program, with $114 million already returned to shareholders in Q2.
Market Conditions: The company faces competitive pressures in the AI and security markets, as evidenced by the need to outperform competitors in securing large deals, such as the 8-figure deal with a chemical manufacturer and the $26 million commitment with CISA.
Regulatory Hurdles: The company operates in sectors like security and public infrastructure, which are subject to stringent regulatory requirements, as seen in the deal with CISA for securing U.S. federal civilian agencies.
Economic Uncertainties: Despite strong performance, the company acknowledges risks and uncertainties that could impact future results, as highlighted in their forward-looking statements disclaimer.
Strategic Execution Risks: The company’s reliance on large deals and strategic realignment of the sales team to focus on high-value opportunities could pose risks if these strategies do not yield consistent results.
Supply Chain Disruptions: No explicit mention of supply chain disruptions was made in the transcript.
Technological Challenges: The company’s success in AI and GenAI applications depends on continuous innovation and maintaining technological leadership, which could be challenging in a rapidly evolving market.
Revenue Expectations: For Q3 FY2026, total revenue is expected to range between $437 million and $439 million, representing 15% growth at the midpoint. For FY2026, total revenue is projected to range between $1.715 billion and $1.721 billion, representing approximately 16% growth at the midpoint.
Sales-Led Subscription Revenue: For Q3 FY2026, sales-led subscription revenue is expected to range between $364 million and $366 million, representing 17% growth at the midpoint. For FY2026, sales-led subscription revenue is projected to range between $1.417 billion and $1.423 billion, representing 18% growth at the midpoint.
Non-GAAP Operating Margin: For Q3 FY2026, the non-GAAP operating margin is expected to be approximately 17.5%. For FY2026, the non-GAAP operating margin is projected to be approximately 16.25%.
Non-GAAP Diluted Earnings Per Share: For Q3 FY2026, non-GAAP diluted EPS is expected to range between $0.63 and $0.65. For FY2026, non-GAAP diluted EPS is projected to range between $2.40 and $2.46.
Capital Allocation: The company has initiated a $500 million share repurchase program, with more than 50% of the authorized amount expected to be used in FY2026.
Share Repurchase Program: In October, during the Analyst Day, Elastic announced a $500 million share repurchase program as part of its capital allocation framework. The program is already underway, and during Q2, the company returned approximately $114 million in cash to shareholders. This represents purchases of approximately 1.4 million shares at an average price per share of $84.45. Elastic expects to use more than 50% of the $500 million authorized amount in fiscal 2026.
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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