Elastic N.V. (ESTC)
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Earnings Call: Q3 2025

Feb 27, 2025

Operator

Good day, and welcome to the Elastic Third Quarter Fiscal 2025 earnings results call. All participants will be in a listen-only mode. Should you need assistance, please signal 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 touch-tone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Anthony Luscri, Vice President, Investor Relations. Please go ahead, sir.

Anthony Luscri
VP of Investor Relations, Elastic

Thank you. Good afternoon, and thank you for joining us on today's conference call to discuss Elastic's Third Quarter Fiscal 2025 financial results. On the call, we have Ash Kulkarni, Chief Executive Officer, and Eric Prengel, Interim CFO and GVP of Finance. Following their prepared remarks, we will take questions. Our press release was issued today after the closing market 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 of 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 on the press release and slides. The webcast replay of this call will be available on our company website under the Investor Relations link. Our Fourth Quarter Fiscal 2025 quiet period begins with the close of business on Wednesday, April 16, 2025. We will be participating in the Morgan Stanley Technology Media and Telecom Conference on March 5th and the Wells Fargo Software Symposium on April 10th.

With that, I'll turn it over to Ash.

Ash Kulkarni
CEO, Elastic

Thank you, Anthony, and thank you all for joining us today. Our Q3 results reflect ongoing momentum across all aspects of our business, led by our strong sales execution, continued market demand for our products, and our relentless pace of innovation. With strong contributions across all solution areas, search, observability, and security, we delivered an outstanding quarter, outperforming our guidance metrics. Total revenue grew 17% year over year, with cloud revenue growing 26% year over year, and our non-GAAP operating margin represented 17% of revenue. The number of customers spending over $100,000 with us increased to over 1,460 during the quarter, demonstrating the strength of our land and expand motion. Consolidation and generative AI are powerful tailwinds driving momentum at Elastic and at the forefront of our interactions with customers and prospects, especially as customers continue to prioritize innovation and efficiency across their businesses.

During the quarter, we saw continued progress in our go-to-market motion. At the start of this fiscal year, we implemented field segmentation changes that increased our focus on landing and expanding enterprise and high-potential mid-market customers. These changes resulted in some unanticipated sales execution issues in Q1 that we have since been addressing. Our performance in Q3 demonstrates that we are now back to the levels of sales execution that we have seen in the past, and we are even starting to see the expected positive impact from the earlier segmentation changes. Q3 performance benefited from our maniacal focus on these customer segments, and deal flow remained strong during the quarter as we grew commitments from new and existing customers across all of our solutions.

To that point, we have already added significantly more customers spending over $1 million with us through the first three quarters of this fiscal year versus all of last year. Generative AI is enabling organizations to extract value from unstructured data, documents, and logs. Search is core to value extraction, and we saw outperformance from search in Q3, with our search business once again accelerating year over year. We are seeing an evolution of search, with customers moving from textual search to semantic search, and then building conversational applications using retrieval augmented generation, or RAG. As enterprises experiment with and adopt agentic workflows to automate multi-step business processes, the importance of search for powering AI will continue to grow.

Customers are choosing the Elasticsearch AI Platform as an essential layer on which to build all of these flavors of new search-powered applications, and we expect this momentum will continue to form a tailwind for our business for many years to come. Our vector database resonates with customers. In addition to our best-in-class vector database, we are taking a distinct approach, offering customers an efficient way to create, store, and search vector embeddings beyond those provided by point solution vector databases. In Q3, we signed a seven-figure deal with a digital native career platform, displacing a competitor's vector database as the company scales their business globally and creates new GenAI-based customer experiences. The Elasticsearch AI Platform provides a complete search experience within a single platform, allowing the customer to evolve and deploy critical functionality without the complications of managing third-party APIs.

We are seeing a positive impact from our leadership position in GenAI on our business. In the quarter, we signed five deals of greater than $1 million in annual contract value where customers are building GenAI applications using Elastic, building upon our momentum in Q2. Now, over 1,750 Elastic Cloud customers are using us for GenAI use cases, with over 270 of these customers spending $100,000 or more with us annually. We believe that as more companies leverage large language models to create new customer experiences, automate business processes involving unstructured information, and evolve work streams toward agentic AI use cases, we will benefit. Elastic has the power to bring all these pieces together to be the runtime platform for GenAI applications that simplifies developer experiences and drives greater efficiency and accuracy.

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