Elastic N.V. Q1 FY2026 Earnings Call

Good day, and welcome to the Elastic N.V. First Quarter Fiscal 2026 Earnings Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Eric Prengel, Global Vice President of Finance. Please go ahead.

Good afternoon and thank you for joining us on today's conference call to discuss Elastic's first quarter fiscal 2026 Financial Results. My name is Eric Prengel, Global Vice President of Finance. On the call, we have Ash Kulkarni, Chief Executive Officer; and Navam Welihinda, Chief Financial Officer. Following their prepared remarks, we will take questions. Our press release was issued today after market close and is posted on our website. Slides, which are supplemental to the call, can also be found on the Elastic Investor Relations website at ir.elastic.co. Our discussion will include forward-looking statements, which may include predictions, estimates, our expectations regarding the demand for our products and solutions and our future revenue and other information. These forward-looking statements are based on factors currently known to us, speak only as of the date of this call and are subject to risks and uncertainties that could cause actual results to differ materially. We disclaim any obligation to update or revise these forward-looking statements unless required by law. Please refer to the risks and uncertainties included in the press release that we issued earlier today, included in the slides posted on the Investor Relations website and those more fully described in our filings with the Securities and Exchange Commission. We will also discuss certain non-GAAP financial measures. Disclosures regarding non-GAAP measures, including reconciliations with the most comparable GAAP measures, can be found in the press release and slides. Unless specifically noted otherwise, all results and comparisons are on a fiscal year-over-year basis. The webcast replay of this call will be available on our company website under the Investor Relations link. Our second quarter fiscal 2026 quiet period begins at the close of business on Friday, October 17. We will be participating in Citi's Global TMT Conference on September 4, the Goldman Sachs Communacopia and Technology Conference on September 8, and the Piper Sandler Growth Frontiers Conference on September 11. Finally, Elastic will host a Financial Analyst Day in combination with our New York City ElasticON event on October 9, and we hope many of you will join us in person. With that, I'll turn it over to Ash.

Thank you, Eric, and thank you all for joining us today. Elastic had an excellent Q1 and a strong start to the fiscal year, delivering 20% revenue growth for the first quarter, surpassing the high end of our guidance. Sales-led subscription revenue, calculated as subscription revenue, excluding monthly Elastic Cloud, grew by 22% and was driven by strength in both our cloud and self-managed offerings. Our growth was supported by the ongoing demand for our highly differentiated search AI platform and our sales team's solid execution. The inherent leverage in our business model and our disciplined execution continue to fuel our profitability, resulting in a non-GAAP operating margin of 16%. We ended the quarter with more than 1,550 customers spending over $100,000 as enterprises continue to choose Elastic for their search, observability, and security needs. Amidst today's rapidly changing global landscape and with AI now clearly shaping technology decisions, our Q1 performance directly demonstrates the value that the Elasticsearch AI platform delivers to customers. Market demand for our solutions has strengthened, contributing to our overall success this quarter. Our strong market position is further deepened by the operational strength of our sales team with the territory changes we made now fully benefiting our execution. Our go-to-market momentum is building across the board. In the U.S. public sector, we are seeing signs of stabilization. In the U.S. public sector win from the quarter, an intelligence agency adopted Elasticsearch and Observability for their AI-powered enterprise services, consolidating on to Elastic due to our reputation as a trusted mission partner and owing to the strength of our AI capabilities. Our strategic agreement with the U.S. General Services Administration, or GSA, which we signed in Q1 and ongoing progress on FedRAMP high certification for Elastic Cloud are helping build positive momentum. Both initiatives are boosting interest among U.S. civilian and defense agencies who aim to modernize with scalable, productive, and efficient technology. With our sales team fully primed for this environment, we are well-positioned to execute and capitalize on the federal government's efforts to digitally transform and advance its infrastructure with our innovative platform. A year ago, we revamped our sales segmentation model to build for the future, focusing our team on expanding enterprise accounts and landing high-potential mid-market customers, measures which are proving very effective today. This tactical alignment continues to drive progress in our strategic segment, where we enable generative AI application development and consolidation for our largest customers. For example, a global professional services organization expanded their commitment by choosing to migrate to Elastic Cloud in Q1. They rely on Elasticsearch as their vector database to power 40 different internal and client-facing applications. The transition to Elastic Cloud will enable them to achieve greater operational efficiencies and seamlessly access our more advanced search features. Critically, as they advance their generative AI initiatives for clients, Elastic's advanced search technology will be instrumental in unlocking insights from unstructured data at scale. In Q1, we saw significant activity around generative AI with many customers choosing Elastic as a runtime platform for building generative AI applications using our vector database, embedding and reranking models, MCP server, and other platform capabilities for building conversational AI and agentic applications. Now over 2,200 Elastic Cloud customers are using Elastic for generative AI use cases, with over 330 of these customers spending $100,000 or more annually. In Q1, we added more million ACV Elastic Cloud customers using Elastic for generative AI use cases than the prior two quarters combined. We are also excited to witness AI-native businesses being built on Elastic to introduce entirely new business models. In Q1, an AI-native music company expanded their use of Elasticsearch, upgrading from a monthly cloud subscription to an annual agreement as they see growing adoption of their applications. They leverage Elastic to manage vast amounts of song data, supporting full text and semantic search for millions of users as they continue to grow and launch new products. The company chose our Search AI technology for its performance, speed, and ability to scale alongside their rapid growth, which in turn drives their Elastic consumption. Our customers' requirements for speed, scale, and relevance drive our continued investment in product features to ensure that every query happens in real time with accuracy and reliability. This quarter, we launched new capabilities to improve performance and cost efficiency of our vector database, now making our Better Binary Quantization, or BBQ, and ACORN-1, a smart filtering algorithm, available to all users by default. BBQ and vector search with ACORN-1 helped us land a seven-figure expansion deal with a global wholesale provider of machinery parts for Elasticsearch and observability. They rely on Elastic to drive their e-commerce platform, which consists of over 1 million stock items and a database of nearly 50 million SKUs. The retailer is implementing a hybrid search system, which requires a platform capable of interpreting natural language queries and performing exact and semantic matches to deliver more accurate and relevant search results. They chose Elastic due to our extensive experience in retail search transformation and our customizable search AI functionalities, all within one platform. AI is reshaping the software stack and LLMs are becoming the new operating system for defining business logic. In the past, most software relied on data and data platforms optimized for structured data. Today, LLMs operate on all data and need a data platform optimized for all forms of data, structured and unstructured, text in spoken and programming languages, audio, video, graphs, vectors, and more. Elastic is the world's leading vector database. Crucially, our continued leadership stems from the foresight that what matters most is relevance in data retrieval, irrespective of the language, type, and messiness of the data. When you get relevance right, you provide accurate context to LLMs to do their job, and this accuracy matters even more as agentic AI gets used for automating increasingly more complex business tasks. With Elasticsearch, relevance is our true competitive advantage, fortifying a defensible moat around our business. As enterprises build more agents and develop software in new ways, the importance of getting context and search relevance right will only grow. This is why we have invested for years in developing our own embedding models, reranker models, data chunking strategies, and more, all with the goal of being the absolute best at search relevance. It is this innovation that gives us the confidence to be the leading data retrieval and context engineering platform for the AI era. This also forms our asymmetric advantage in the other markets we play in, including observability and security. In anchoring our observability and security solutions on Elasticsearch, we fuse the immense power of Search AI into both and automate the observability and security processes of our users with our AI capabilities like attack discovery, auto import, and our AI assistance for observability and security. It is precisely these advanced capabilities that contributed to our security business achieving strong results this quarter. As AI reshapes the SIEM landscape, Elastic Security unifies SIEM and XDR into a single AI-powered platform, extending protection across customers' data infrastructure and eliminating the need for multiple stand-alone tools. In Q1, one-third of our new and expansion wins in security involved competitive displacements. In one such deal from the quarter, one of the largest integrated academic health systems in the U.S. selected Elastic Security to replace its existing SIEM solution. This seven-figure expansion deal marks the customer making a strategic shift from an incumbent solution towards a more scalable AI-driven security approach, driven by their need for a flexible platform to unify data. Elastic stood out due to our ability to support a broad set of data sources and our market-leading AI features, including attack discovery, demonstrating our leadership in defining the future of SIEM. Our consistent vision of solving security as a data problem while driving innovation in AI positions Elastic at the forefront of the market. In doing so, we are being rightly recognized by independent research, and we are delighted that Elastic has been named a leader in the Forrester Wave: Security Analytics Platform in Q1. Our promise in security is further demonstrated by Elastic Security's 100% score in AV Comparatives Business Security test for endpoint security, where we were the sole participant among 17 vendors to achieve a perfect score in both the real-world protection and malware protection tests. In pairing Elastic anti-malware prevention with our ransomware defense and leading SIEM features, we achieved world-class XDR. And our innovation has not stopped. Earlier this month, we introduced the Elastic AI SOC Engine or EASE. Many SOC teams today rely on SIEM and endpoint detection and response or EDR, solutions that generate valuable alerts but lack mature built-in AI capabilities to conduct investigations. EASE integrates with existing SIEM and EDR platforms to connect our advanced AI tools into their environment, allowing for AI-powered alert correlation with attack discovery and access to our AI assistant. Architected as an agentless integration on top of a customer's existing stack, EASE is an on-ramp to Elastic Security. This commitment to AI-driven innovation extends beyond security. Our AI capabilities and powerful analytics also earned us recognition as a leader in the 2025 Gartner Magic Quadrant for Observability Platforms for the second year in a row. Elastic's leadership reflects how we are transforming observability from a reactive tool into a solution for real-time investigations through the power of our Search AI platform. We are shipping new tools like EASE and our recently announced Logs Essentials, a new low-price tier of Elastic Observability within Elastic Cloud Serverless for customers wanting a fully managed offering. Serverless is now generally available on all three cloud hyperscalers, including on Microsoft Azure. Serverless is gaining traction with contributions surpassing our Q1 targets as more customers adopt this deployment. The Elasticsearch AI platform meets customers where they are with deployment options for cloud, hosted, serverless, and self-managed environments. This quarter, I visited India, Australia, Singapore, and Japan to meet with customers across numerous industries. Despite vastly different businesses, every conversation I had revealed the common desire to do more with their data. Enterprises are all looking to leverage their information more effectively. This consistent feedback reinforces the universal need for powerful data solutions like ours, especially one that is optimized to address the need for search relevance and context in an LLM-centric world. In closing, Q1 was an outstanding quarter, fueled by focused execution and strong demand. Our platform is more differentiated than ever, providing us a competitive advantage in generative AI and platform consolidation across all industries. We have the ability to win in every market where we are playing, and I'm excited to see our progress unfold. This quarter's performance highlights the talent and dedication of our team. Navam and I are truly grateful for the continuous hard work Elasticians put in daily. Thank you as well to our customers, partners, and investors for their ongoing support and trust. I'll now turn it over to Navam to review our financial results in more detail.

Thank you, Ash. Q1 was an excellent quarter with solid execution across the business. We exceeded the revenue and profitability metrics we set out to achieve, and our go-to-market team is executing well on all fronts. Our Q1 results provided a promising start to the year. This performance positioned Elastic to enter Q2 and the remainder of fiscal 2026 from a position of strength. Our total revenue in the first quarter was $415 million. We grew 20% as reported and 18% on a constant currency basis. Our sales-led subscription revenue, calculated as subscription revenue, excluding monthly Elastic Cloud, was $339 million, growing 22% as reported and 20% on a constant currency basis. Q1 '26 marked the fourth consecutive quarter of strong performance since we made the sales segmentation changes last year. Our sales-led subscription revenue grew 22% in Q2 '25, 18% in Q3 '25, 19% in Q4 '25, and now 22% this quarter. These consistent results demonstrate the durability of our team's execution. The revenue performance we saw this quarter was broad-based across both our cloud and self-managed environments. We saw strong customer commitments with key wins across all our solution areas. Both generative AI and platform consolidation continue to be powerful tailwinds benefiting search, observability, and security. As Ash mentioned, we saw competitive success in security with one-third of new and expansion deals in security coming from replacing an incumbent solution. Our traction is further supported by new product releases, including our Elastic AI SOC Engine or EASE, which uses AI to enhance threat detection. As you heard from Ash, our team continued to operate effectively in all areas, and we saw strength across all our geos. In the U.S. public sector, we're seeing stabilization, and the team is fully primed to execute. Even with ongoing shifts in select civilian agencies, Elastic's cost-to-value proposition remains a compelling incentive for our public sector customers to consider our products as they look to consolidate mission-critical tools and increase efficiency. Our current remaining performance obligations, or CRPO, which is the portion of RPO that we expect to recognize as revenue within the next 12 months, remains solid. At the end of Q1, CRPO was approximately $956 million and grew 18% year-over-year and 17% in constant currency. CRPO is a useful supplemental measure of commitments when evaluated in conjunction with sales-led subscription revenue. During the quarter, our $100,000 annual contract value customer count grew approximately 13% year-over-year, representing approximately 180 net new customers over the past four quarters. Quarter-over-quarter, we added approximately 40 net new customers and continue to see strong expansion from our existing customer base. Our total customer count reached approximately 21,550 at the end of July. Approximately 80% of our annual recurring revenue comes from $100,000 annual contract value customers. Moving forward, we will only disclose our total customer count annually as this metric does not fully represent our quarterly total revenue performance. On the consumption front, we are happy to see that consumption remains strong. In May, we increased prices on our cloud and self-managed environments, and demand for our solutions remains high as we continue to deliver more value to our customers through new product features and functionality. Now turning to Q1 margins and profitability. I will discuss all measures on a non-GAAP basis. We delivered strong profitability across the board with a gross margin of 79% and an operating margin of 16%. In Q1, we recognized a one-time credit of approximately $4 million related to our cloud infrastructure costs. The credit caused a one-time gross margin benefit of 1%. Additional margin expansion is representative of the inherent leverage in our model. Our disciplined approach to costs, combined with increasing revenue, underpins our strong profitability, further supported by our cash generation. In Q1, we achieved an adjusted free cash flow margin of 28%. Historically, we experienced quarter-over-quarter seasonality related to the magnitude of the prior quarter's bookings and the collection of those bookings. Keeping these fluctuations in mind, we expect Q2 to follow normal seasonal patterns, representing a sequential decline in FCF. We manage and view adjusted free cash flow on a full-year basis and believe we have the potential to maintain and expand our free cash flow margin over time. Now for our outlook for the second quarter and the remainder of fiscal 2026. We are pleased with our strong execution in the quarter and the momentum we've built heading into the balance of fiscal 2026. While we continue to operate in a complex macro environment, conditions did not deteriorate to the degree we had factored into our guidance in May. As such, we are raising our fiscal 2026 revenue guidance. Note that our Q2 2026 assumptions factor in benefit from our price increase, which I discussed earlier. We do not formally guide to adjusted free cash flow. Still, for fiscal 2026, we expect to sustain the level of adjusted free cash flow margins that we achieved in fiscal 2025. With these assumptions in mind, for the second quarter of fiscal 2026, we expect 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. We expect non-GAAP operating margin to be approximately 16%. We expect 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. For fiscal 2026, we are raising our total revenue, which improves our expected non-GAAP diluted EPS. We expect total revenue in the range of $1.679 billion to $1.689 billion, representing approximately 14% growth at the midpoint or 13% constant currency growth at the midpoint. We expect non-GAAP operating margin for the full fiscal 2026 to be approximately 16%. We expect 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. We will continue to provide updates as we move throughout the year. This quarter's performance is a testament to the dedication of our team. Ash and I are thankful for the hard work of our employees to deliver these strong results. As a reminder, we are hosting our Financial Analyst Day on October 9 in New York City, where we will showcase the power of the Elasticsearch AI platform and the business opportunity ahead. With that, I'll open it up for Q&A.

The first question comes from Matt Hedberg with RBC Capital Markets.

Congratulations on the impressive results. It's great to see such success early in the fiscal year, especially for you, Ash. I appreciated hearing about the relevance of AI with Elastic Cloud and the progress made on serverless so far. I'm curious if there's a way to evaluate the increase in customer spending when they start to scale up their use of Elastic for AI support. It seems like your company is becoming a central player in this space. Could you provide insight into how this impacts customer spending or usage, particularly with serverless?

Yes, Matt, thanks for the question. And like you said, our generative AI momentum is something that we feel really, really good about. The customer adoption has been strong. 2,200 customers in Elastic Cloud now using us for generative AI use cases. What we are seeing is as customers start to use us for all of these AI applications, these workloads tend to be more compute-intensive. And that obviously means that the growth sort of helps. And when we've described it as a tailwind, that's really what it is. Now the extent to which that growth manifests itself, the workload cost depends upon the kind of data, depends upon the kind of use case because these AI computations tend to take up more CPU, tend to take up more memory. And as you know, our consumption model is biased towards that. So it's hard to give a precise number, but what we can say is that there is definitely an improvement in sort of the overall consumption that we see as customers use us for AI. Now let me repeat that fundamentally, we are still early in the AI journey. So we are seeing some contribution from AI, but we are very early, and I see a long path here, where by being the core foundation for AI for our customers as they are making multiyear decisions here, this is going to be a tailwind for us for many years to come.

It's great to hear. I have a quick question for Navam. You mentioned the May price increase, which is now included in the guidance. Can you help us understand how this is benefiting the year? Any quantification would be appreciated.

Sure thing. Thanks, Matt. So first of all, just starting with Q1, you look at the performance, it was a broad-based overperformance across consumption and across commitments from both our cloud customers and our self-managed customers. When you think about our normal course of business, from time to time, we do price increases, and we've done one last year for self-managed. We did one this year for self-managed and cloud. The increase in Q1 was mostly related to consumption performance and the goodness of our business. But we did have a benefit from the price increase. And the way you should think about it is a price increase lifts the floor year-over-year. So you get a benefit year-over-year as you think about the growth from year-over-year, but the majority comes from performance rather than price increase. And then quarter-over-quarter, you'd see a more muted effect of prices as you've now got a floor that you will grow from. So that's how I think about the price increase. Overall, Q1 was, like I said, broad-based from a performance perspective, and macro was in a much better spot than where we had originally assumed. So feeling good about the year.

The next question comes from Koji Ikeda with Bank of America Securities.

This is George McGreen representing Koji. I really appreciate the opportunity to speak. I have a question regarding the growth mix. Given the current momentum with generative AI in search, could you provide a ranking or a framework for us to understand how growth is developing across the business in areas like observability and security?

Yes, George, thanks for the question. So this was a really strong quarter with a very broad performance strength that we saw across all solution areas. Search, driven by generative AI continues to be a very strong tailwind for us. But this quarter, we also saw security and the platform consolidation motion that we've been describing work very, very nicely for us. I think one of the stats that I talked about was the fact that one-third of the business in security this quarter came from competitive displacements. And these deals take some time to build, but we are starting to see that momentum. And this is primarily because customers are looking to consolidate onto platforms that tend to see security and observability as a data problem. And we've always done that incredibly well. And as the amount of data, the complexity of data is growing as it's becoming more and more important to use AI techniques to try and drive automation, even in security and observability, we are seeing our ability to compete and take share really improve, and that's something that we see as a very exciting thing for the future.

Appreciate it. And if I could ask another question here. Navam, since you joined, how would you describe maybe the predictability of the model today versus when you joined? Has it changed much? And if so, why?

Yes. Now I'm about two quarters in since I joined. I think the big learning for me is on the sales-led subscription side. And I think I mentioned this during my prepared remarks. The execution there and the durability of execution was very strong, right? We had 22% growth a year ago, followed by 18%, 19%, and 22% again this year. This is a testament to the consistency of growth we're seeing from our sales-led motion across both cloud and self-managed. So I'd say that the underlying execution from the team remains very good and very predictable on the sales-led side. We're a consumption business, and that's the one place where there is a little bit of unpredictability on what could happen on a quarter-over-quarter basis. Overall, we had a good quarter in Q1 given what we expected. So I feel like we have more data now than we did a quarter ago.

The next question comes from Rob Owens with Piper Sandler.

I really want to drill down on the success that you're seeing on the security front. I think you said one-third of it was coming from competitive displacements. And obviously, we're seeing a lot of success, I think, across the board from vendors that are competing for this next-generation SIEM opportunity. So I guess relative to the unlock that happened this quarter, was there anything in particular that drove that momentum? Was it more just how the pipeline set up? And as we look forward, maybe what are some of the different key ingredients to further unlock customers that have been with some of those legacy vendors for some time?

Yes, that's a great question. And what's driving that unlock is really a greater and greater appreciation for the fact that security really is a data problem. In the modern landscape today, with attacks getting more and more sophisticated, it is becoming incredibly important to make sure that you're bringing in all of the data, all of the security-related signals, analyzing all of them, correlating across all of them and then using AI automation to really try and make it easier for the SOC analysts to identify what the issues might be. And the way we think about it is you miss 100% of the threats and attacks in the data that you don't see. And for that reason, we've always had this mentality of thinking of security from a data-first perspective. Our back end is designed for that. Our AI capabilities are designed for that. And as customers are appreciating this, we are seeing them make multiyear decisions to consolidate onto our platform, and that's driving the momentum. And we are really leaning in. So one of the announcements that we made, the Elastic Security, the AI SOC Engine or EASE, as we call it. What it lets you do is even if you're using an incumbent different SIEM solution, it allows you to take all of the alerts that might be generated in that solution and then use our AI capabilities to identify attacks within that alert data, which is incredibly powerful because what that means is you don't have to change your current infrastructure. You can use Elastic on top of it to get significantly more incremental value, and that becomes a stepping stone sort of an on-ramp for customers to then eventually displace, completely take out their existing incumbent and move completely to our solution. So it's things like that, that we've been working on that give me a lot of confidence on how this is going to progress in the coming years.

The next question comes from Raimo Lenschow with Barclays.

Perfect. Congrats from me as well. It's nice to see the cloud reacceleration, but the bigger upside in my model was actually on self-service. Can you speak to the factors there that drove that reacceleration of growth and what drove that? Was that like you mentioned several times, broad-based, so I take broad-based, but like still there was a very decent step-up on the growth rate there.

Thank you, Raimo. I'll address that. I want to emphasize that this is the second consecutive quarter in which we've experienced strong self-managed growth. Our focus is on combining self-managed growth with cloud growth to enhance our subscription revenue driven by sales. This is a key area for the company as we aim for growth. The increase in self-managed this quarter was indeed broad-based, coming from various geographies and solutions, all contributing to the self-managed cloud. That’s a significant advantage for us.

Sorry, I don't know if you were also referring to self-service cloud or our monthly cloud business, I think that, as you know, it's generally been trending around the same way. But to Navam's point, our focus really is on the sales-led subscription revenue, which we are very excited about.

Yes. Okay. And then Ash, one follow-up is like all the other vendors, like a lot of the other vendors struggling around AI with kind of how to price it properly, etc. But you guys have been on consumption for a long time. Like how does that help you at the moment in customer conversations and driving that AI message from you guys forward? Congrats again.

Thank you. So the reason why consumption as a metric works incredibly well in AI is fundamentally because it makes it very easy for customers to sort of connect the dots between their usage of our platform and the value that they're getting out of it. So as opposed to a per-user price or something that's a flat fee, this really is completely dependent on how much of the AI functionality they use. And from our experience, that's been something that customers really like. As their usage grows, as they get more value from the usage of the platform, they need to pay more, and they're more than happy to pay more. And so we feel that we've got exactly the right mix when it comes to the pricing model. And you can see some of that in terms of just the adoption and the growth that we are seeing.

The next question comes from Mike Cikos with Needham & Co.

Congrats on the strong quarter here. The first question I wanted to ask was for Ash. And coming back, again, I think people are hanging on the one-third of the new and expansion wins in security were competitive displacements. But if I could try to drive it that slightly differently. I think all of us are aware of the industry M&A that's out there. You're also talking about the sustained execution on the go-to-market front. So I wanted to ask, what is the thought around how durable these competitive displacements are when thinking about what's taking place on the security front? I think about the amount of time that these deals might be sitting in your pipeline; they might mature. What is the durability for these continuing to convert on a go-forward basis from where we sit today?

Yes, that's a great question. And generally, what I'd say is that in the last few years, we've been seeing a constant, steady drumbeat, and it's been growing of customers that are really looking for a change from their incumbent solutions. Most of the incumbent solutions that have been around really thought about SIEM as sort of just the dashboards and the alerts. They didn't think about the effort that is involved in automating the job of the SOC analyst and things that need to be done to really make it easier to spot the attacks as opposed to just the alerts. And for that reason, we are seeing sort of a secular shift and a migration onto what I would describe as the next generation of SIEM platforms and SIEM technologies that tend to have a bias towards treating security as a data problem. So we are seeing more and more of these conversations happening. That's the reason why we introduced capabilities like attack discovery. We introduced capabilities like automatic import, which make it easier for people to migrate their workflows over onto Elastic. And most recently, we introduced our Elastic Security AI SOC engine so you can get started by using our AI functionality on top of your existing SIEM and making that sort of an easy on-ramp to eventually replace your SIEM provider. We feel very good about this being a tailwind for us for many years to come. And I see this as a really good ongoing motion, and our sales team is leaning into it.

The next question comes from Raimo Lenschow with Barclays.

Perfect. Congrats from me as well. It's nice to see the cloud reacceleration, but the bigger upside in my model was actually on self-service. Can you speak to the factors there that drove that reacceleration of growth and what drove that? Was that like you mentioned several times broad-based, so I take broad-based, but like still there was a very decent step-up on the growth rate there.

Thank you, Raimo. I'll address that. This is the second consecutive quarter where we've experienced significant self-managed growth. Our aim is to strengthen our subscription revenue through the combination of self-managed and cloud growth. This focus is vital for the company's growth strategy. The self-managed growth this quarter was widespread, with contributions coming from various geographical regions and solutions, highlighting the overall advantage of this approach.

Sorry, I don't know if you were also referring to self-service cloud or our monthly cloud business, I think that, as you know, it's generally been trending around the same way. But to Navam's point, our focus really is on the sales-led subscription revenue, which we are very excited about.

Yes. Okay. And then Ash, one follow-up is like all the other vendors, like a lot of the other vendors struggling around AI with kind of how to price it properly, etc. But you guys have been on consumption for a long time. Like how does that help you at the moment in customer conversations and driving that AI message from you guys forward? Congrats again.

Thank you. So the reason why consumption as a metric works incredibly well in AI is fundamentally because it makes it very easy for customers to sort of connect the dots between their usage of our platform and the value that they're getting out of it. So as opposed to a per-user price or something that's a flat fee, this really is completely dependent on how much of the AI functionality they use. And from our experience, that's been something that customers really like. As their usage grows, as they get more value from the usage of the platform, they need to pay more, and they're more than happy to pay more. And so we feel that we've got exactly the right mix when it comes to the pricing model. And you can see some of that in terms of just the adoption and the growth that we are seeing.

The next question comes from Mike Cikos with Needham & Co.

Congrats on the strong quarter here. The first question I wanted to ask was for Ash. And coming back, again, I think people are hanging on the one-third of the new and expansion wins in security were competitive displacements. But if I could try to drive it that slightly differently. I think all of us are aware of the industry M&A that's out there. You're also talking about the sustained execution on the go-to-market front. So I wanted to ask, what is the thought around how durable these competitive displacements are when thinking about what's taking place on the security front? I think about the amount of time that these deals might be sitting in your pipeline; they might mature. What is the durability for these continuing to convert on a go-forward basis from where we sit today?

Yes, that's a great question. And generally, what I'd say is that in the last few years, we've been seeing a constant, steady drumbeat, and it's been growing of customers that are really looking for a change from their incumbent solutions. Most of the incumbent solutions that have been around really thought about SIEM as sort of just the dashboards and the alerts. They didn't think about the effort that is involved in automating the job of the SOC analyst and things that need to be done to really make it easier to spot the attacks as opposed to just the alerts. And for that reason, we are seeing sort of a secular shift and a migration onto what I would describe as the next generation of SIEM platforms and SIEM technologies that tend to have a bias towards treating security as a data problem. So we are seeing more and more of these conversations happening. That's the reason why we introduced capabilities like attack discovery. We introduced capabilities like automatic import, which make it easier for people to migrate their workflows over onto Elastic. And most recently, we introduced our Elastic Security AI SOC engine so you can get started by using our AI functionality on top of your existing SIEM and making that sort of an easy on-ramp to eventually replace your SIEM provider. We feel very good about this being a tailwind for us for many years to come. And I see this as a really good ongoing motion, and our sales team is leaning into it.

The next question comes from Raimo Lenschow with Barclays.