Elastic N.V. Q4 FY2026 Earnings Call

Good afternoon, and welcome to the Elastic 4th Quarter Fiscal 2026 Earnings Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Eric Pringle, 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 fourth quarter fiscal 2026 financial results. On the call, we have Ashkel Carney, Chief Executive Officer, and Navamwili Hinda, Chief Financial Officer. Following their prepared remarks, the press release was issued today after the close of market and is posted and can also be found on the Elastic Investor Relations website at ir.elastic.co regarding the demand for our provider information. These forward-looking statements are based on factors currently known to us that differ materially. Any obligation to update or revise these forward-looking statements unless required by law. Uncertainties included in the press release that we issued earlier today This is described in our filings with the Securities and Exchange Commission. Non-GAAP financial measures with the most comparable GAAP measures can be found in the press release and slides on over a year basis. All will be available on our company website until the 2027 quiet period begins at the close of business on Friday, July 17, 2026. Participating in the Bank of America Global Technology Conference on June 4 and the Rosenblatt Technology Summit on June 10.

Thank you, Eric, and good afternoon, everyone. Thank you for joining us today. Elastic finished the year strong, beating our guidance across every key metric. This was our seventh consecutive quarter of disciplined field execution, and we saw very strong commitments, resulting in CRPO growth accelerating to 20%. Organizations are increasingly choosing Elastic and making larger multi-RPO growth and sets us up well for the future. Operating margin of section revenue grew 19%. are leading the shift. As a record Q4 26, we added more than 30 net new customers to our million dollar plus ACV cohort. Over $1,700,000 in Asia by several marquee wins in security as we continue displacing legacy vendors. In the public sector, our partnership with their security offerings to cloud affected our in-quarter Q4 revenue. This shift to cloud will be a positive for the future as these agencies ramp their usage toward their commitment levels. The broader AI cycle is actively driving our growth. Customers rely on us not only as a context platform for AI, but to modernize their operations with our AI-driven SOC and SRE for security and observability, respectively. Our customers using our AI solutions continue to grow. We now have over 600 customers with an ACV of over 100,000 or greater using our AI capabilities. This includes more than 40 serverless customers who were previously not captured in this count. Cumulatively, AI use cases have now penetrated more than a third of our $100,000 ACV customer cohort. We see demand ranging from the largest global organizations. The option of AI will be universal, spanning across organizations of every scale. This represents a fundamental market evolution that provides a consistent tailwind, And the software stack is being rewritten as the new operating system. And agentic automation is becoming the prerequisite for every mission. We are capitalizing on this AI-driven disruption to come to the data, not the other way around. Moving perabytes of proprietary information as a non-starter for enterprises, we are ensuring that Elasticsearch remains one of the most efficient data stores for all unstructured data and video. By delivering massive compression and significant ingest speed-ups, We provide the price. We recently introduced cross teams and regions, allowing users to query. We have built, we are reducing costs, party models, like our GINA V5 Omni family for multimodal search, now in general availability. This ensures that enterprise AI is grounded in real-time business reality. In a recent blog, we compared agent performance using Elastic as a context layer versus an LLM interacting with the data directly. We saw a 70% reduction on tokens used and the ability to answer questions more accurately. We are widening our competitive real-time context from enabling zero traditional observability and security into the Argentic SRE and the Argentic SOC. We were one of the first observability and security products, and we have now automated the entire lifecycle, from detection to analysis and remediation. These security and observability are designed to be embeddable in any AI tool, whether our customers use Enthropic MCP apps for security and observability, domain-specific, enabling users to investigate it. As the market matures, they can leverage AI across multiple domains on a single data tier will win the consolidation race. We are accelerating the consolidation trend with metrics offering. Prometheus is one of the most, especially in cloud-native environments. We now offer Nate's time series data in Elasticsearch. And AI coding importantly, we are delivering this familiar experience performance gains, providing storage efficiency and query speeds up to 30 times faster than Prometheus. Our customer wins in Q4. Our data gravity advantage is winning consolidation deals in the 7-figure New Logo win, a global provider of over 2 billion documents. dual vendor setup recent acquisition of Gina AI proved essential getting high quality multilingual support its massive scale is reimagining the search experience for their millions of subs context engineering the essential retrieval layer seven-figure expansion a serving as the essential context elastic enables the delivery of grounded permission aware incitement and secure largest platform can be secured a key eight-figure win this quarter where we are redefining the modern stock experience financial services firm is modernizing their security operations in critical workloads the firm is leveraging our platform to dramatically improve their cyber incident response teams will be deploying our AI driven capabilities including attack discovery and AI assistant to proactively mitigate threats we are setting ourselves up we are evolving increased capacity through automation as we evolve the organization to better align our teams expect to simplify how as our business growth in meaningfully in FY27. Navam will address this topic in more detail. Importantly, the strong sales performance with Accelerate has set us up to excel across Elastic in our future. We enter the new fiscal year energized and are ready to drive our employees for their dedication. With that, I will turn the call over to Navam to review our financial results. Thank you, Ash.

I am also incredibly proud of the team's FY26 performance. Not only did we beat our guidance throughout the entire year, but importantly, we We laid the foundation for revenue acceleration in FY27 by growing customer commitments in FY26 as evidenced by our growth in both CRPO and RPO over the course of the year. Our sales-led subscription revenue continues to be durable, and we've consistently delivered strong growth, including a 20% growth rate in FY26. Our total revenue for the fourth quarter was $451 million, growing approximately 16% as reported and 14% on a constant currency basis. Sales-led subscription revenue in the fourth quarter was $375 million, representing growth of 19% as reported and 16% on a constant currency basis. We saw another quarter of strong customer commitments alongside stable consumption patterns, a direct outcome of our sales strategy focusing on high-potential mid-market and strategic enterprise customers. Our sales team continues to meet customers where they are in terms of deployment preferences, be it self-managed or cloud. Each quarter will show some variability in customer preferences between self-managed and cloud, and those variances impact in-quarter revenue. This quarter, our sales team delivered a significantly larger mix of cloud commitments compared to historical patterns, partially driven by the U.S. public sector agencies increasingly adopting CISA's SIM as a service. We anticipate U.S. public sector cloud momentum will continue in FY27. The variability in cloud commitment mix is important to keep in mind in the context of our revenues reported here in Q4. As you may recall, revenue from cloud commitments ramp over the course of the year, whereas self-managed commitments have a portion of revenue recognized up front when the license is delivered. Strength in customer commitments is now visible in our Accelerating Cost and Currency CRPO. In Q4, we grew CRPO to $1.2 billion, which was 20% growth both as reported and on a constant currency basis, as compared to 15% on a constant currency basis in Q3 FY26. The acceleration in our CRPO is a direct result of customers increasing their commitments of search, security, and observability solutions. The acceleration of CRPO is also what gives us confidence in our expected revenue acceleration over the next 12 months as increasing commitment volumes accelerates constant currency CRPO and constant currency revenue. While there continues to be noise and questions in the market regarding AI's impact on software, there is clarity among our customers with respect to Elastic being an essential long-term component. This sentiment is reflected in their multi-year commitments. These multi-year commitments are visible in our Q4 Remaining Performance obligations, or RPO. In Q4, our RPO accelerated to $1.98 billion, growing 28% as reported and 27.4% in constant currency. This was an exceptional quarter for multi-year commitments, driving our highest year-over-year growth in total RPO. If we look at RPO beyond the 12-month horizon, the strength of our long-term positioning becomes even clearer. Our non-current RPO, which represents RPO, less our current RPO, or the portion of RPO that will be recognized beyond 12 months, grew 43% year-over-year in Q4. The non-current RPO has been progressively improving over the last year. This increase underscores a deepening of customer relationships as they increasingly execute contracts with multi-year commitments. We secured these multi-year commitments without any material change in our discount practices, underscoring the genuine customer commitment to our products and its associates. We also saw continued deal momentum with high-value customers. Customers with more than a million dollars of ACV grew approximately 14%, where we added more than 30 net new customers this year. We are particularly pleased with the growth of our grade length $5 million in ACV customers, which grew 30%, as we continue to see strong expansion among our customer base. Turning to margins and profitability, I will discuss all measures on a non-GAAP basis. We successfully expanded our sales capacity to capture the AI opportunity while simultaneously improving margins across the board. We continue to demonstrate the efficiency of our underlying model by balancing these strategic investments. During the quarter, we exceeded our guidance and delivered an operating margin of 14.8%. For the full year, we delivered over 120 basis points of operating margin expansion, finishing at 16.4%. Note that this quarter, our GAAP net income was impacted by a valuation allowance release against the Netherlands, UK, and certain U.S. state-deferred tax assets created a one-time benefit of $435 million to our GAAP net income. This did not impact any of our operating results, non-GAAP diluted earnings per share, adjusted free cash flow, or a strong adjusted free cash flow margin of approximately 20% in FY26. Together, our FY26 adjusted free cash flow margin and total revenue growth is well on the way to reaching our mid-term target of Rule of 40, an important milestone that validates our strategy of driving durable growth and compounding value. We also continue to make significant progress on the $500 million share repurchase program that we announced in October. During the fourth quarter, we returned approximately $40 million to shareholders, representing purchases of approximately 650,000 shares. As of the end of the fiscal year, we have used approximately 68% of our $500 million authorized amount, putting us ahead of our goal of using half of the authorized amount in FY26. Since the beginning of our repurchase program in October, we have repurchased approximately 4.4 million shares. Financial analysis day in October, our current capital allocation strategy is to return 50% of our free cash flow through share repurchases, unless we have attractive acquisition opportunities that require us to use cash. FY27, we close FY26 with a foundation that positions us to accelerate revenue growth while expanding profitability throughout FY27 for CRPO reflects the significant buildup of committed backlog that will fuel our next phase of revenue growth both revenue and sales led subscription revenue to build the momentum throughout the year with Q1 showing the lowest quarterly growth and specific drivers namely CRPO which turns into recognized revenue through the year as well as increasing ramp sales capacity which drives new commitments The high-value commitments that we secured in FY26 will drive acceleration throughout FY27 as reflected in our constant currency revenue and sales-led subscription revenue guidance. With these assumptions in mind, for the first quarter of FY27, we expect total revenue in the range of $469 million to $470 million, representing 13.1% year-over-year growth at the midpoint, or 12.8% year-over-year constant currency growth at the midpoint. sales-led subscription revenue in the range of $392 million to 15.9% growth at the midpoint, or 15.6% in constant currency growth. We expect non-GAAP operating margin for the first quarter of fiscal 27 to be approximately 14%. We expect non-GAAP diluted earnings per share in the range of $0.57 to $0.59. Using between $106 million and $107 million, by 27, we expect total revenue in the range of year-over-year growth at the midpoint or 14.5% year-over-year constant currency growth at the midpoint. Sales-led subscription revenue in the range of $1.673 billion, 9% year-over-year growth at the midpoint. We expect non-GAAP operating margin for fiscal 27 to be approximately 19%. We expect non-GAAP diluted earnings per share in the range of $3.21 to $3.29, cents, using between $107.5 million and $108.5 million diluted weighted average ordinary shares outstanding. Regarding cash flow, we expect to increase our adjusted pre-cash flow margins to 21.5% in Fiscal 27, excluding any acquisitions or any other one-time charges. Our level of cash generation combined with our planned revenue acceleration keeps us firmly on track to exceed rule of 40 by FY29. As Ash mentioned, just as we drive AI innovation for our customers, we are using AI to transform how we work across all functions. We are beginning to see productivity gains from AI, which will evolve the structure of our organization and allow us to expand our operating margins. In FY27, we are expanding our operating margins approximately 2.5 percentage points. Furthermore, we're raising our medium-term FY29 non-GAAP operating margin target from more than 20% to approximately 25%. These targets are now well ahead of our prior financial analyst day targets. We still expect to grow our headcount on a net basis this year, continuing to invest in our growth. We remain on track to achieve our medium-term sales-led subscription revenue growth target of 20% plus in FY29. In summary, we have seen markedly improved sales execution in FY26, and we're seeing more sales capacity come online, driving improving commitments and accelerating CRPO. The dynamic of commitments and CRPO improving gives us confidence in our ability to accelerate revenue growth and drive further margin expansion in the future. Thank you for your continued support for joining us today. With that, I'll open it up for Q&A.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Our first question today comes from Rob Owens with Piper Sandler. Please go ahead.

Great. So good afternoon, and thanks for taking my question. With the success you guys are seeing from a booking standpoint, when we look at CRP or RPS specifically, what do you think is the unlock with customers? Is this just maturation relative to where people are in their AI journey? Do you think that there's something from a product standpoint that's really driven this unlock? And then as a second question, you mentioned the CESA SIM as a service, just to over-acronym it a little bit. But where you're seeing success in the federal government, have you been able to affect that in the commercial markets as well?

Rob, thank you very much for the question. Yes, so let me answer each in turn. So if you think about our applications, just the fact that we have an incredibly efficient platform, that's driving a lot of momentum, everything that we're doing around AI. The second reason is clearly because we are really strong at context. Whenever you're building AI applications, you need the right kind of content you've made and available. That is also driving a lot of momentum. It's becoming more and more widely adopted within our agents that we have built for security. you know the skills that we have built that can be invoked from cloud code or github copilot or wherever you work from and that is really driving a lot of automation for our customers and that's ability and security wins for us that's allowing us to consolidate more workloads onto our platform your commitments it's making us more entrenched the question about point that you made we are seeing tremendous success there matter of fact Lee and over a 12 month period of traction, and that's the same kind of unlock in commercial organizations as well. Even in my prepared remarks, I talked about the Fortune 50 global bank that has platform and really important facilities that I mentioned. Their incident response team really liked the things that we have built. So we are seeing that unlock. We are displacing incumbents in more and more cases. I feel that we're just getting started. So this is great.

Thank you for the color.

The next question is from Matt Hedberg with RBC Capital Markets. Please go ahead.

Great, guys. Thanks for taking my questions. You know, it was great to see CRPO growth accelerate. I think it was 500 basis points, so 20%. Yeah, I was looking at your fiscal 27 guidance for subscription-led sales growth. It looks like about 16.8 on a constant currency basis. That is a slight deceleration versus, I think, the 18% we reported this past year. So, thanks to my question, how should we think about CRPO growing 20% really as a leading indicator? Could that accelerate your path to the 20% sales list, your subscription girl target you had?

Yeah, absolutely. I mean, first of all, I think that what you're seeing is that our products are resonating with the customers, and that's driving commitments, and that's the underlying cause of the CRPO and also RPO acceleration. And all of that turned into revenue into the next year. And second, we're going into the year with more sales capacity than in 26. So what you're seeing on a sales-led subscription comparison is basically an accelerating trajectory for both revenue and sales-led revenue from the Q1 guide number progressively upward to the Q4 quarterly revenue growth number as you play that annual target number that we gave you. And to your second question of does that put you in track to the 20% growth target, Absolutely, we feel good about the mid-term targets and continuing to accelerate.

Got it. Maybe just a quick follow-up. Are there any significant or meaningful or noteworthy go-to-market changes that you expect for this year? I know you've had those in the past. Just want to kind of understand that dynamic as we go into the year. Thanks again, guys.

No, let me be very clear on this. So, you know, the changes that we made about eight quarters ago, like you've seen through this entire past year, really strong sales execution. It's only getting better. You can see it in our CRPO and RPO numbers. We are very happy with working and the way it's structured. So we plan to make no changes this year, just add. And that's, you know, something that we feel really good about.

The next question is from Miller Jump with Truist Securities. Please go ahead.

Hey, great. Thank you for taking the question. I wanted to come back to the internal evolution that you called out and some of the reduced operational complexity. Can you give more details specifically on what segments are seeing the most productivity gains from AI right now and where are you going to be leaning in on hiring for that net headcount ad?

Yeah, so what I'd say is that when we look at different functions, pretty much every function is taking advantage of AI-led automation, and you're seeing this, we are building a platform that's helping our customers. The same thing internally, engineering teams using coding platforms for improving their pace to our marketing teams using AI capabilities for marketing automation. We are leveraging AI. These functions, such as in sales, you know, enterprise selling is still looking at interpersonal interactions. Capacity in our sellers, we expect to keep adding headcount meaningfully through this year. But then in other functions, there might be, it's going to be different from, so the number of people that we might need to continue scaling and growing the business might be slightly different than what we might have needed in the past. So those are the kinds of adjustments. But I want to be very, very clear when it comes to our selling capacity, that we expect to be net employee headcount positive.

Yeah, that makes a lot of sense. If I could just squeeze in a follow-up for Navam. The enterprise success sounds really encouraging, but it does look like there was a little bit of churn in the monthly cloud business. So can you just talk about the dynamics you're seeing in enterprise versus SMB, and what are your expectations kind of for the year ahead across those segments?

Yeah, it's sales-led subscription revenue, and that tends to be the area that we're most focused on, and that's where the sales team is focused on. So when you think about the growth and the success and the commitments we're seeing there, you're seeing the results of that in the commitment volume we've built in the CRPO and the RPO numbers. Monthly Elastic Cloud this past quarter, you know, grew 3%, which is in line with what we've been thinking about and in line with what we've been modeling. We've always assumed that this is going to be a flattish business driven by smaller customer and SMB dynamics, and these are self-serve motion SMB customers, which tend to be less of a focus area for us. So we exclude monthly from our core sales-led subscription business. The annual cloud business grew very well at 26%. So that's sort of the dynamics. Hopefully a flat monthly cloud business or slightly above less.

Got it. Thanks very much.

The next question is from Kingsley Crane with Canaccord. Please go ahead.

Thanks for taking the question. One for me, so it was encouraged by this Omni V5 release. I think big picture, there's been a lot of talk about multimodal models kind of a few quarters ago, and some of the Frontier Labs have pulled back from focusing on multimodal. So I'm curious what kind of demand signals for Omni you're seeing in your customers right now. And then when an existing test customer swapped in Omni and starts vectorizing video, audio, how could that affect usage on the platform?

Yeah, thanks for the question. So we are very excited about the Omni models. So keep in mind that these are embedding models and embedding and re-ranking models. That's where we focus as opposed to language models for generation. But in these models, as you can imagine, there is so much information out there that is multimodal in nature. You know, you have PDFs that have graphs and charts in them. You have audio and video where you might – in video there might be, you know, specific images that you want to extract from it. There's a lot that effectively is multimodal just by nature. This effectively opens the aperture for us. So it increases the total, you know, the opportunities where we can go after taking that data, vectorizing it, and then, you know, allowing people to do all kinds of search. So it's not necessarily that it drives, you know, that it consumes more than the Elastic platform for.

The next question is from Brian Essex with J.P. Morgan. Please go ahead.

Hi, this is Alex Essex on for Brian. Thanks for taking my question. I wanted to ask about around the FY29 framework that you laid out and reaffirmed, In terms of exiting FY27 around 17%, how do you think about the bridge from there to the 20% plus growth in 29? How do we think about where we should be exiting 27 into 28?

Yeah, so we've laid out the guidance number on a constant currency basis, which I'd encourage you to take a look at. So when you think about where the Q1 guidance number is for FY27 and where the full-year guidance is, mathematically it's a step up. It's an implied step up, which we also talked about during our prepared remarks, from Q1 to Q4. So you see an accelerating growth trajectory, both for sales-led subscription revenue and total revenue, with Q1 being the lowest growth number and Q4 being the highest growth number from a constant currency perspective. So that Q4 number is going to be higher than the average growth or the full-year growth, and that's the exit value that you go into FY28 with. And the confidence we have going into 27, again, is around the commitments that we have that turn into revenue, and that's the coverage of we're entering the year with, frankly, an adequately large number of ramped reps who have been ramping across 2026, and they are going to continue to add commitments in the same way that they added commitments in FY26. So both those dynamics are going to continue towards 26 through 27, building the constant currency growth rate from Q1 to Q4. And that dynamic continues into next year as well, right? We are continuing to add sellers and we will continue to add commitments. And that's the buildup to the 20% plus revenue midterm target that we've laid out. And all the activity in 26 is just validating that progression through 26 into 27 and to the midterm. So we feel good about the setup in 27 and look forward to updating you as we go along.

Thanks. That's my first. I appreciate the color there. And then just a quick follow-up. On the AI attached side, especially around the 100K-plus customers, how does the spend profile look on the AI attached customers relative to non-AI customers? and which of the AI products are you seeing the most traction or adoption, especially over the past, let's say, year-to-date, as AI models have really accelerated in their ability to act authentically?

Yeah, so this is Ashir. Maybe let me answer that one. So as I mentioned in our prepared remarks, we have a 100K ACV customer cohort, 600 customers that are using us for AI use cases. And, you know, that is a really – That also includes about 40 customers from serverless that we are counting now. You know, our serverless continues to grow in traction, and we are seeing, you know, customers come on to that and use us for AI use cases as well. And we are seeing AI being used across the board, you know, as we get used as a vector database. We are seeing AI getting used as Elastic being used as a context platform for building agents, using agent builder and so on, as well as our AI, SRE, and AI stock capabilities in our observability and security platform. So we are seeing benefit across all three solutions when it comes to AI. And that cohort, the AI users within our 100K cohort, like that cohort continues to grow at a faster clip, expand at a faster clip than other cohorts. Like we had mentioned in our financial landless day, a little over 5% faster than the rest of the cohorts, and that trend is continuing. So as more of the 100K cohort adopts us for AI, we expect that that's going to be a continuing and increasing tailwind for our business overall.

The next question is from Koji Ikeda with Bank of America Securities. Please go ahead.

Hi, this is George McGrian on for Koji Ikeda. I appreciate you taking our question. I wanted to ask, you know, really great to see the acceleration in constant currency, see RPO growth and RPO growth as well. Could you kind of maybe qualitatively kind of give some color on, you know, between search, observability, and security? What is seeing, like, the most uptick? And then as it relates to RPO growth, in conversations with customers, how are they kind of sounding now about viewing Elastic more strategically and in a longer-term roadmap for their own use cases? Thank you.

Yeah, thanks for the question. You know, and just in terms of the solution mix, we saw growth across all three solutions. are searching for security was outstanding in terms of growth so both of those are sort of leading the charge all three segments when it comes to the the pattern that we see with customer ability we need with log analytics and then we expand from there you know we just recently announced our metrics our new metrics offering which I'm very very excited about forms out there so expect that that will also contribute but you know we are in observability seeing strength and security we are displacing which is seeing a lot of success in government I gave the example of the the fortune 50 bank as we are maturing and getting stronger and being seen as one of the the best term bets typically is a signal to us partner continued growth so very excited about that and it's it's across the board it's across all regions which is also the The next question is from Howard Ma with Guggenheim Securities.

Please go ahead.

Hey, thanks for taking the question. This is Joe DiBardo-Mayo on for Howard. So just in terms of the sales-led fiscal 27 guide, is it fair to assume that within that constant currency number, about 500 basis points is from AI contribution, which would be in line with your long-term guidance? And just how can that number drive upside throughout the year?

Yeah, so the 500 basis points of acceleration from customers using our AI features and AI products continues to be the case both in 26 and 27. So what's happening is more of our customers are using our AI features that's driving that tailwind to be across a broader set of customers. So I wouldn't say that it's just the guidance number minus 500. It's just a growing proportion of our customers are now consuming at a faster rate because of the AI features that they're using on our platform. So that's the way I would think about it. You know, we're seeing a very nice, steady uptick of 100K customers that are using our Gen AI features. We've been disclosing that every quarter, and that's been progressively moving up. So that's going according to how we would expect and driving more acceleration across the entirety of customer base over time.

Got it. Thanks for that color. And just a quick follow-up, if I may. Are you guys factoring in any meaningful contribution from new products and features in fiscal 27? And just in particular, how big of an expansion opportunity is your revamped metrics engine among existing customers? Thanks.

Yeah, so I'll talk about the metrics piece, and then I'll ask Navam to weigh in on how the guide's been constructed. But, you know, on the metrics piece, look, the way I think about it is if I just look at the technology that we've built, the metrics back-end store that we've built, it's highly, highly optimized for time series data. And, you know, as we've benchmarked it against the leaders out there, we find that our solution perform just about anybody in terms of efficiency, in terms of ingest performance, and inquiry performance. I'm really excited about the opportunity there. As you know, our go-to-market motion has always been a land and expand motion, so it's highly likely that various uses, that will probably be the same, as you can imagine. The infrastructure monitoring and metrics is a meaningful and overall observability market and expensive for us.

Guidance side, it's the organic growth given the product set that we have to sell to our customers. It's not assuming any new products. It's not looking at what we use.

This is from Ramo Linshaw with Barclays. Please go ahead.

This is Amy Cogginal from Ramo. Thanks for giving the question. Navam, can you help us understand how much of the back half acceleration is driven by execution of increased ramp sales capacity and how much of it is driven by CRPO or expected near-term closed deals? Just try to understand the conservatism, the betting, and the guide, and then maybe how much might require solid execution from ranch sales reps.

Yeah, I'll start with the guidance side first and then go to the next question. Philosophically, what I'm giving you, I'm focused on giving you, is a credible projection based on what I'm seeing today with the appropriate risk adjustment related to FFAC. Those are embedded in there as we provide the guide. As I said before, I feel good about the setup for in 26. So how you should think about it is we have a CRPO number which is going to be recognized over the next 12 months, and that's the coverage of the revenue that you have from existing commitments that are just going to be recognized. The cloud commitments in Q4, for example, will be more, which will be more ratably. The back half acceleration, as I said, is a combination of two things, ramping and commitment volume that they've already committed to, increasing number of reps that are becoming ramped, and the coverage amount on the sales. The sales capacity increase going into the year, sales execution is tail-end weighted because it's a combination of both.

Please, and one more, just thinking about last year's pricing adjustment, are there any anticipated pricing or packaging changes that might be embedded in this year's guide?

Yeah, so from a price increase perspective, we've always been adding new features and improving performance of our platform. Given the changes we've made in FY26, we felt confident to re-look at our prices again. So we did a 3% increase for cloud and a 5% increase for self-managed, and we make these decisions based on the new features and capabilities we add, and the product is also becoming more efficient, reduce cost as well to make Elastic a more efficient place to put in their data. So that's sort of the puts and takes of pricing for usage-based models like ours. What matters most, and we've said this before, is the net consumption trend over a period of time. In any given quarter, we expect to see the benefit of more consumption pricing, and that's offset by optimization and efficiencies that our customers do on a quarterly basis. and because of the new product features that we've added to our platform in the past year. So the price increases that we do don't necessarily change revenue in a perfectly correlated way. The usage model, given that usage trend, since this price range is smaller than what it was last year, we don't expect it to be meaningful.

Great. Thanks, guys. The next question is from Mike Seacos with Needham & Company. Please go ahead.

Hey, guys. This is Matt Kletrion from Mike Seacross over at Needham. Thanks for taking our questions. What assumptions are you baking into the fiscal 27 guide around U.S. federal contribution? And is there any way to think about the expected impact from the CISA contract or the FedRAMP authorization?

Yeah, I'll start with the U.S. public sector and the federal business. It It remains a strong business, and we continue to expect that business to be strong in 27 as well in the way it was performing in 26. So nothing specifically different about the relative performance of the public sector in 27 was assumed in the business. But we're very pleased with the way the system as a service platform has been adopted through civilian agencies against that total commitment number. we're continuing to see more and more agencies added and consuming against those commitments. So we're very pleased about that.

Thank you. And then curious as to what you're seeing regarding cohort expansion rates. Like, are newer customers growing, say, six to eight years ago did over the span? Anything you can give on the dynamics of just different eras of customers, so to speak?

Yeah, so the base cohorts continue to be expanding very nicely because of, as As mentioned, the normal trajectory cross-cell motion. So that up-cell cross-cell continues to expand year over year as commitments increase, and then products are added and more commitments happen in the situation that you adopted. So that machine is driving nicely on the core land expand motion. What's increasing is obviously the tailoring more of our AI features. you see that additional benefit of MERS. And we detailed some of that during our financial analyst day.

Awesome. Thank you. The next question is from Sanjit Singh with Morgan Stanley. Please go ahead.

Hey, this is Jamie. I'm for Sanjit. Thank you for taking the question. Could you just comment on, you know, how you view the Splunk displacement opportunity today and to what extent that could be an upside catalyst for this year relative to the guidance?

Yeah, let me answer that. So the opportunity displays, sales teams displays, these are big markets. You know, when you look at the overall set, lots of interesting things happening because of the significantly and the sophistication increasing significantly. Customers are looking for modern platforms that leverage AI effectively, sitting on a data store that is efficient so all the data that needs to be brought in and analyze can be done at a reasonable cost, and we are exactly that answer. So we are seeing these incumbents, revenue acceleration over the next 12 months, and even beyond that because the market share that these incumbents have is still meaningful, and I believe that this is going to continue to accelerate.

The next question is from Matthew Martino with Goldman Sachs. Please go ahead.

Hey, guys. Thanks for taking the question. Ash, maybe just on MCP, you know, you've leaned into making Elastic easy for agents to reach through standards like MCP. You launched MCP apps recently. As more agents pull data that way, like how big of a distribution and growth vector do you think that can become? And does being that agent-accessible and retrieval layer turn into a durable advantage over time, or do you see this as sort of table stakes moving forward?

I think it's going to be a durable advantage, especially because we are able to not just provide access to data, but we are able to provide smart access to data. And what I mean by that is that allow you to understand exactly what you need and get that information from within our systems, adding capabilities that allow you to do that in a distributed and federated manner so you don't have to move your data into a central location. So there's a lot of smart... recently published a blog, token usage cost by 70% by pre-computing some of the context that you need for sort of naive retrieval augmented generation or RAC techniques. And that's exactly why I believe is so durable and is only going to continue to grow because data volumes are growing for not just speed, but cost management is going to be incredibly important. And to do this in a way, that's exactly what we do very well.

I really appreciate it. All the color there. Navam, I know in the past you disclosed, you know, the AI customers are growing several points faster, and I presume a lot of that initial momentum likely came from the search side, but curious whether you're starting to see that AI growth really broaden out with some of the newer AI features you've brought to market on the security and observability side. Thanks.

Yeah, I'd say that a lot of the initials, initial growth is specifically that 5% growth momentum that we referred to during on right now comes from mostly search, but as you mentioned, there's newer AI products that have been penetrating, that have been going across, and also observability, so you're seeing the benefits of that across the board, but I'd say the predominant, numerically what we've disclosed was predominantly the search side, but we're beginning to see momentum in security, particularly the selections are because of the AI feature set that we have in the product.

Thank you both. The next question will be from Robert Galvin with Stiefel. Please go ahead.

Hi, thanks for taking the question. I had a follow-up on the go-to-market strategy for FY27. A key thing you've been hearing from some other infrastructure peers is that AI selling motions to be much more technical. As AI use cases and pipe ones build as Elastic, are you seeing a similar need for more technical sales teams? And if so, do you have the right team in place, or do you need to change your sales or hiring profile in FR27?

Yeah, that's a great question. So, you know, AI buyers are really technical, but here's the thing. Elastic, our platform, has always good development teams that are trying to build all kinds of search applications. We sell to infrastructure engineering teams that are building observability solutions. And security specialists in the CISO office, we have had a DNA ever since the foundation of the company, not just a form that is really optimized for these kinds of use cases for use, but a motion and a selling motion that knows how to target these buyers and sell effectively to them. So the AI motion is very natural for our team that has variations off the ground. Every small team brought a field, as you can see from the commitments.

Great, thank you.

This concludes our question and answer session. I would like to turn the conference back over to Ashkwakarni for any closing remarks.

Thank you all for joining us today. We are entering FY27 energized and ready to drive our momentum forward. The continuous innovation across our platform and the increasing adoption of AI gives us great confidence in our future. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.