Elastic N.V. (NYSE:ESTC) is the leading provider of search-powered solutions that enable organizations to find insights and drive AI and machine learning use cases from large amounts of data. The company's flagship Elastic Stack platform, available as both a hosted, managed service and self-managed software, allows customers to find what they need faster, keep mission-critical applications running smoothly, and protect against cyber threats.

Financials

In fiscal year 2024, Elastic delivered impressive financial results, reporting annual revenue of $1,267,321,000 and net income of $61,720,000. The company generated strong operating cash flow of $148,762,000 and free cash flow of $145,312,000, showcasing its ability to convert its top-line growth into profitability and cash generation.

Quarterly Performance Highlights

Elastic's fourth quarter of fiscal 2024 was a standout, with revenue growing 20% year-over-year to $335 million. Subscription revenue, which accounts for 93% of total revenue, increased 21% to $311 million, with Elastic Cloud contributing $148 million, a 32% year-over-year jump. The company's strong performance was driven by continued momentum in its land, expand, and consolidate strategy, as well as increasing adoption of its innovative search and generative AI capabilities.

Generative AI Adoption Accelerates

A key highlight of the quarter was the rapid adoption of Elastic's generative AI capabilities, with the company now boasting over 1,000 distinct paying customers using its vector database and retrieval augmented generation (RAG) features to build real-time AI applications. Notably, more than 145 of Elastic's customers with annual contract values over $100,000 are already leveraging these generative AI tools, representing a more than threefold increase in the past year.

Customers are using Elastic's search-powered generative AI solutions to transform a wide range of business processes and experiences, from improving wealth management services at a major financial institution to enhancing employee productivity and product quality at a large global electronics company. Elastic's unique ability to combine the precision of search with the intelligence of AI is resonating strongly with organizations seeking to harness the power of generative AI.

Expanding Competitive Moat through Innovation

Elastic continued to strengthen its competitive position during the quarter through a series of product innovations. The company launched its groundbreaking Search AI Lake, a cloud-native architecture with built-in search and vector database capabilities optimized for real-time, low-latency applications. This offering, which will be expanded to all major cloud providers in the coming quarters, simplifies the user experience and is expected to be a key growth driver for Elastic Cloud.

In the area of search and generative AI, Elastic delivered enhancements to its Elasticsearch open inference API, including integrations with leading vector embedding and language models. The company also released vector search-optimized instance types across all three major cloud platforms, further strengthening its position as the platform of choice for building real-time generative AI applications.

Elastic's innovation extends beyond search and AI, with the company also making significant strides in observability and security. The company open-sourced its profiling agent under the Apache 2 license and contributed it to the Cloud Native Computing Foundation, solidifying its commitment to the OpenTelemetry standard. In security, Elastic unveiled its groundbreaking Attack Discovery solution, which leverages the company's search and AI capabilities to dramatically reduce the time and effort required by security teams to triage and investigate threats.

Balanced Growth Across Segments and Geographies

Elastic's strong performance was balanced across its solutions and geographies. The company maintained a consistent mix of annual contract values across its search, observability, and security offerings, with observability contributing slightly more than 40% of the mix, security around 25%, and search making up the remainder.

Geographically, Elastic saw the fastest growth in EMEA, followed by the Americas and APJ. The company continued to see customers make strong multi-year commitments, reflecting their confidence in Elastic's platform and the company's ability to consolidate workloads and drive innovation.

Robust Customer Metrics and Expansion

Elastic's customer metrics remained strong, with the company ending the quarter with over 1,330 customers spending more than $100,000 annually, up from over 1,110 in the prior year period. The number of customers with annual contract values exceeding $1 million also grew, reaching over 165 compared to over 140 in the prior year.

The company's net expansion rate was approximately 110%, in line with its expectations, as the effects of the consumption optimization headwinds that impacted prior quarters have largely abated.

Outlook

For the first quarter of fiscal 2025, Elastic expects total revenue in the range of $343 million to $345 million, representing 17% year-over-year growth at the midpoint. The company anticipates non-GAAP operating margin in the range of 9.2% to 9.4% and non-GAAP diluted earnings per share between $0.24 and $0.26.

For the full fiscal year 2025, Elastic provided guidance for total revenue in the range of $1.468 billion to $1.480 billion, reflecting 16% year-over-year growth at the midpoint. The company expects non-GAAP operating margin between 11.7% and 12.3% and non-GAAP diluted earnings per share in the range of $1.35 to $1.47.

While Elastic is not modeling significant revenue contribution from its generative AI capabilities in the near term, the company remains confident in the long-term potential of this transformative technology and its ability to drive further adoption and consolidation of its platform.

Conclusion

Elastic's strong fourth quarter and fiscal 2024 results, coupled with its innovative product roadmap and robust customer metrics, position the company well to capitalize on the growing demand for search-powered solutions and the transformative potential of generative AI. As the "Search AI Company," Elastic is uniquely poised to help organizations harness the power of AI to drive business transformation, solidifying its status as a long-term beneficiary of the generative AI revolution.