Elastic NV Q3 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Pinjalim Bora - J.P. Morgan Securities LLC - Analyst : Great. Thank you so much for taking the question, and congrats on a spectacular quarter here. I wanted to understand the cloud strength a bit, because when we were going into the second half, I guess you were talking about the potential moderation given the Q1 execution issues. But seems like the sequential growth was higher than even the quarter a year ago. So it sounds like Elastic found a new gear somewhere. So trying to understand what surprised you positively, specifically on the cloud strength? And how should we think of the sustainability of that strength?

Question: Pinjalim Bora - J.P. Morgan Securities LLC - Analyst : Yeah, understood. Thanks, Eric. And one for Ash. Ash, the Serverless product, I want to understand something from a long-term perspective. What is the vision around that? I'm trying to think -- Serverless obviously dramatically improves kind of the ease of use, aligns resources cost to usage more linearly. So is the long-term vision to essentially have Serverless as the core product with kind of a set of migration plan for existing customers over multiple years, or will it just exist as a choice across your self-managed as well as cloud? And help us understand kind of the impact on the P&L, how should we see it as Serverless becomes a bigger part of the mix.

Question: Raimo Lenschow - Barclays Capital Inc. - Analyst : Hey, thank you. Congrats for me as well. The two questions I have. One is on the -- if you think about the self-service part of the business, like how do you think about what you saw this quarter? How does that kind of relate also for what we saw -- how the sales change at the beginning of the year kind of impact things there? Can you speak to that part of the business? And I have one follow-up.

Question: Raimo Lenschow - Barclays Capital Inc. - Analyst : Perfect. And then a more technical one on the security and events management space, you talked about the evolution there. What are you seeing there in terms of willingness of customers to think about kind of moving not just the logs to you, but kind of going there as well. Obviously, it's a legacy player that is now part of a bigger entity were -- like the discussion becomes like, well, actually, do you need to continue to pay the higher price there. What are you seeing there on the SIEM space? Thank you.

Question: Sanjit Singh - Morgan Stanley & Co. LLC - Analyst : Yeah. Thank you for taking the questions and congrats on Q4. Just talking about the stronger growth in cloud, I wonder if you just get a sense of how much of it has been driven by sort of consolidation opportunities, whether it's on the security side or the REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 27, 2025 / 10:00PM, ESTC.N - Q3 2025 Elastic NV Earnings Call observability side versus, let's say, Gen AI -- is Gen AI and ESRE starting to move the needle when we think about either year-over-year or sequential dollar growth?

Question: Sanjit Singh - Morgan Stanley & Co. LLC - Analyst : Understood. And then just a follow-up on sort of the vector search opportunity. A lot of this has been focused on early RAG-style use cases, chatbots, and the like. As we sort of move to agentic architectures sort of serving as a memory for agents, is that a bigger opportunity? Is that more sort of compute intensive in some sense than what we've seen thus far in terms of some of these early RAG use cases? I just want to get a sense of if the team has a point of view on what supporting agents from a memory perspective -- what that opportunity looks like for Elastic?

Question: Matt Hedberg - RBC Capital Markets Wealth Management - Analyst : Great. Thanks for taking my question. Congrats from me on the quarter as well. Really great to see the momentum, especially after Q1. Ash, for you, Gen AI continues to resonate, vector continues to resonate. I guess I'm wondering, to me, it feels like that's now the tip of the spear. I'm kind of curious, is that the case for like a lot of new customer inbound? And then ultimately, how does that help the other aspects of your business like observability and security?

Question: Matt Hedberg - RBC Capital Markets Wealth Management - Analyst : Well, that's kind of what I'm hearing from some of the field work that we're doing, just makes the entire Elastic platform more relevant. And I guess, maybe just as a follow-up, I know especially now with Elastic Cloud more than 50% of the mix, you have a better sense for usage on the platform. Do you have a rough approximation just given how really it feels like all kind of three aspects of the business are growing fast, what the rough mix is these days between search, observability, and security? Thanks again for the questions, guys.

Question: Rob Owens - Piper Sandler & Co. - Analyst : Great, thanks for taking my question. In your prepared remarks, you did talk about your progress from a go-to-market perspective around land and expand. Clearly, the larger deals are showing momentum. But I was curious from a land perspective, the customer count was a little weaker than you had seen previously. So any color you could add would be helpful. Thanks.

Question: Howard Ma - Guggenheim Securities, LLC - Analyst : Great. Thanks so much, And I want to add my congratulations as well on the strong quarter. I have two questions. The first is how would you describe the number and the average deal size of potential displacement of competing better databases within your pipeline? And are you baking in any uptick in vector database displacements in your Q4 guide?

Question: Howard Ma - Guggenheim Securities, LLC - Analyst : Okay. That makes sense. Thanks, Ash. And as a follow-up for Eric, could you help us understand what caused the sequential growth decline in the other subscription revenue line? Is there anything to call out in terms of renewal timing that could impact this line in Q4? And more broadly, just how we should think about the sustainable growth rate of the self-managed business? Thanks.

Question: Koji Ikeda - BofA Global Research - Analyst : Hey, guys. Thanks so much for taking the question. Maybe just one for me in the interest of time. A question for you, Ash. And I recall we had a conversation a couple of months ago about customers that were seeing multiples of ACV uplift on adopting certain AI features from Elastic, which it can be great from a revenue perspective, but maybe not so much from a long-term customer cost perspective. So I guess the question here is how much of the revenue upside was driven by bursting ACV from customers adopting AI features? And how are you managing the long-term value proposition for your customers?

Question: Mike Cikos - Needham & Company, LLC - Analyst : Hey, guys. Thanks for taking the questions here. I wanted to cycle back. I believe it was Rob Owens, who was asking about the customer count. And I just wanted to get a better understanding. I would have thought that the customer count in some way would be benefiting from industry M&A out there. So are you guys benefiting from industry M&A at this point? And maybe is it more mixed because previous -- customers who were previously dual-sourcing their solution are now bringing more of their estate to you? Like how do we think about how industry M&A might be benefiting you guys where we sit today? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 27, 2025 / 10:00PM, ESTC.N - Q3 2025 Elastic NV Earnings Call

Question: Mike Cikos - Needham & Company, LLC - Analyst : And so if that's the case, is it fair to think, hey, an existing customer, Mike Cikos, is already using Elastic for search and a consolidation takes place, but it's not necessarily going to benefit that customer count because that was already with you in the first place? Is that a fair conclusion (multiple speakers) ?

Question: Kash Rangan - Goldman Sachs & Co. LLC - Analyst : Hey, thank you very much. Congrats on the quarter. Ash, I'm just curious to get your perspective on the whole lot of generative AI, if it moves from training to post training and inference, how does the opportunity set change or not change for Elastic? Thank you so much.

Question: Kash Rangan - Goldman Sachs & Co. LLC - Analyst : Got it. And in this world -- that's fascinating -- as we move into agentic applications being deployed at run time or inference time, how does Elastic differentiate in that marketplace where you have companies with MongoDB and others that are likely to embed RAG capabilities in their architecture? What is the unique proposition that Elastic will have at that point in time? Thank you so much, and that's it for me.

Question: Andrew Nowinski - Wells Fargo Securities, LLC - Analyst : Thank you. I wanted to ask a question on the $100,000-plus customers. So it looks like GenAI added about 30 out of the 40 large new customers. And I'm wondering, are those existing customers that brought on a new GenAI workload and subsequently pushed their spend to over $100,000, are those new customers coming to Elastic, and they're just starting at a much larger scale than your non-GenAI customers?

Question: Andrew Nowinski - Wells Fargo Securities, LLC - Analyst : Okay, thank you. And then as it relates to those GenAI customers, do you see the cross-sell opportunity to sell them Observability as a higher percentage maybe of versus a non-GenAI customer, just given that how much they've invested in these GenAI workload? I would think they'd want to monitor those more so than maybe any other workloads they had in their environment. And that's it for me. Thanks.

Question: Jake Roberge - William Blair & Company, L.L.C. - Analyst : Yeah. Thanks for taking questions. Ash, sounds like the go-to-market transition is going pretty smoothly at this point. What were some of the changes that you were able to make to really stabilize that motion after Q1? And how are you thinking about the opportunity that new model unlocks for you moving forward?

Question: Jake Roberge - William Blair & Company, L.L.C. - Analyst : That's helpful. And then I know you recently moved the licensing model back to more of an open source model. Can you talk about how that shift has impacted recent top-of-funnel activity, especially as it relates to the vector search and database opportunity?

Question: Andrew Sherman - TD Cowen - Analyst : Great. Thanks. Thanks for squeezing me in, and congrats on the quarter. Eric, maybe just -- Ash and Eric, sales and marketing growth of 9% was -- it's below revenue growth, clearly. And the head count adds sequentially were a bit down versus the past couple of quarters. Maybe just talk about where you stand from a sales capacity standpoint as you close out this year and head into next year. How do you make sure you have enough capacity to keep this level of revenue growth higher? Thanks.

Question: Shrenik Kothari - Robert W. Baird & Co. Incorporated - Analyst : Hey, yeah, thanks for taking my question and congrats for the great quarter. Hey, Ash. So you mentioned the advanced AI features, you mentioned Logsdb mode index, Rerank, vector search, are driving upgrades from lower-tier subscription to enterprise tier, and it's not all kind of consumption and expansion driven. Can you provide any insights into how these up-tier expansions you're seeing, especially this quarter or the last few quarters compared to some of the historical rates? And between AI observative functionalities, could you help us unpack that? What are the most consistent catalyst for customers moving up the tiering? And then I had a follow-up for Eric.

Question: Shrenik Kothari - Robert W. Baird & Co. Incorporated - Analyst : Got it. And just a quick follow-up, Ash and Eric, can chime in. On the segmentation changes, the go-to-market, right? Have those affected the time lines for these up-tier transitions compared to trends or have you established any kind of internal success metrics, incentives, constructing around that, which helps kind of drive faster up-tiering? Are you seeing that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 27, 2025 / 10:00PM, ESTC.N - Q3 2025 Elastic NV Earnings Call

Question: Joel Fishbein - Truist Securities - Analyst : Thanks for squeezing me in. Eric, you've touched on this a few times, but I really wanted to home in a little bit on Q4 renewals. Can you just remind us how big the renewal cohort is in 4Q? And with your -- it seems like your capacity is there and the pipelines are there, so I'd just love to get a little bit more color around that. That would be helpful.

Question: Joel Fishbein - Truist Securities - Analyst : But is there a pretty big large customer renewal in 4Q?