Elastic N.V. CFO Discusses Q4 2025 Results and Strategic Outlook at Bank of America Global Technology Conference

Key Takeaways

TL;DR: Elastic reported a strong Q4 w/ +16% YoY rev. growth, +19% growth in its new subscription rev. less monthly cloud metric, and a 400bps OP margin expansion despite US public sector softness and SMB flatness. Guidance is cautious amid macro uncertainties, but significant LT tailwinds from GenAI and a balanced sales strategy underpin growth prospects.

• Q4 Financial Highlights & Metrics
  • Rev. Growth & Margins: Reported +16% YoY rev. growth and a 400bps improvement in OP margin; FCF margin at 19%.
  • New Metric Disclosures: Launched two key metrics: subscription rev. less monthly cloud (+19% YoY) and cRPO (+17% YoY), providing greater visibility into sales performance and subscription runoff.
  • Management Quote: “We delivered strong top, bottom and FCF margin numbers” – underlining the strength of Q4 results.
• Guidance & Macro Assumptions
  • Conservative Posture: Full-year guidance incorporates conservative assumptions, particularly reflecting U.S. public sector softness driven by spending moratoriums and personnel shifts (e.g., impacts from DOGE and USPS civilian changes).
  • Key Guidance Drivers: Three main factors inform the guidance:▪ U.S. public sector dynamics (impacted by March purchasing slowdowns).▪ SMB / self-serve biz remains roughly flat, contributing around 12% of rev.▪ Macro uncertainties in Q2–Q4 could further drag forecasts downward if budget constraints and additional optimizations occur.
  • Flexibility in Investment: Management emphasized their ability to adjust spending (sales, R&D) dynamically – if the oppt'y expands, they’re willing to trade a little margin for growth.
• Sales Strategy & Biz Model
  • Sales Team Organization: Sales are segmented by geography (North America, EMEA, APJ, U.S. public sector) and customer type (strategic, enterprise, high-propensity mid-market).
  • Selling Motion: Elastic’s reps incentivize both cloud and self-managed sales. Although there is an incentive to push cloud through spiffs and quota attainment, the overall rev. mix is expected to grow from both channels.
  • Sales Productivity: Consistent performance seen in Q4 bookings w/ increased headcount in security sales; productivity remains robust compared to a year ago.
• Public Sector & SMB Performance
  • Public Sector Exposure: While the U.S. public sector experienced a slowdown in purchasing (notably in March), Elastic maintains a diversified customer base to mitigate overreliance on any single vertical.
  • SMB Biz: The self-serve SMB segment has been flat, reflecting broader market trends; Elastic expects this to remain stable, w/ more focus on larger enterprise and mid-market oppt'ys.
• GenAI Adoption & LT Tailwinds
  • Growing Influence of GenAI: Elastic is benefiting from increased GenAI adoption. Examples cited include DocuSign’s Navigator for document queries and Cisco’s AI-driven customer support tools.
  • Early Stage, Significant Oppt'y: Although GenAI adoption is in its early phases across enterprise app portfolios, Elastic sees it as the “tip of the iceberg,” which is already contributing to an acceleration in its search biz.
  • Key Insight: “It’s 100% becoming production experiences” as customers transition from testing to full-scale deployment.
• Cloud Rev. & Seasonality
  • Cloud Net New Rev. Clarification: Although cloud net new rev. added $1.5M was below some expectations, when adjusted for Q length (89 days vs. 92), performance parity w/ Q3 is evident at ~+24% YoY growth.
  • Seasonal Trends: Emerging seasonality may drive differing Q-over-Q incremental rev. levels, w/ potential retail tailwinds in later periods.
• Investing in Growth & Margin Trade-Off
  • Balanced Investment Approach: Management is investing in sales and R&D to capture the growth oppt'y, targeting an OP margin near 16%.
  • Dynamic Cost Management: The strategy is to “pull down spend” if macro conditions worsen, ensuring flexibility between growth and profitability.
• Management Observations & Product Strength
  • Platform Advantage: Despite offering three solutions (search, observability, security), Elastic leverages a single code base that enhances product velocity and operational efficiency, similar to peers like HashiCorp.
  • Leadership Insight: The CFO highlighted the robust R&D strength and product innovation, which he sees as “incredibly powerful” for LT competitive advantage.

Overall, Elastic’s Q4 performance and forward guidance reflect both strong fundamentals and cautious macro planning, while substantial tailwinds from GenAI innovation and a balanced sales strategy position the co for LT growth amid current market uncertainties.

Call Q&A

• Koji Ikeda: What were the key highlights from the results last week?
  • Navam Welihinda: Elastic delivered +16% YoY growth in rev., introduced a new metric called subscription rev. less monthly cloud w/ +19% growth, and improved OP margin by 400bps. The guidance reflects macro conservatism due to uncertainties.
• Koji Ikeda: Why is there so much conversation around public sector softness in the guidance?
  • Navam Welihinda: The U.S. public sector, particularly civilian agencies, faced spending moratoriums and personnel changes, impacting deal cycles. This was a significant factor in Q4 and continues to date.
• Koji Ikeda: What's happening in SMB right now, and what's the path to recovery?
  • Navam Welihinda: The SMB biz has been roughly flat due to the environment. Elastic is not focusing sales efforts there, and recovery depends on the broader SMB segment's strength.