Summary
Elastic posted revenue of $264.4 million for its second quarter of fiscal 2023, up 28% from a year earlier and up 34% in constant currency. Elastic Cloud revenue of $103.2 million grew 50% year over year, or 52% in constant currency, and reached 39% of total revenue, compared with 34% a year ago. The subscription customer count was approximately 19,700, up from over 17,000. Customers with annual contract value above $100,000 totaled over 1,050, versus over 830 a year earlier. Net Expansion Rate was approximately 125%. Gross profit of $189.6 million rose 24.7%, but gross margin slipped to 71.7%, down 2.1 percentage points, as hosting costs and the growing share of Elastic Cloud revenue weighed on the mix. The product side stayed busy: the company announced a serverless roadmap, launched a private beta of Universal Profiling, added vector search capabilities, and hosted more than 1,500 customers and prospects at ElasticON events.
GAAP profitability remains negative. The operating loss widened to $49.0 million, and operating margin was -18.5%, down 0.5 percentage points from the prior-year quarter. The net loss widened slightly to $47.3 million. Non-GAAP operating income was $4.9 million, non-GAAP operating margin was 2%, and non-GAAP earnings per share was $0.00. Operating cash flow was $10.6 million, a swing from the prior-year outflow, while adjusted free cash flow was $10.3 million. Capital expenditures were $0.3 million. Deferred revenue rose 11.1% to $433.6 million, and remaining performance obligations rose 8.4% to $901.2 million, signs that customers are still committing to longer deals. The quarter also benefited from other income tied to a favorable legal settlement, while the tax provision rose on growth in foreign jurisdictions and a one-time charge from acquisition integration.
Management paired the results with a restructuring plan. Elastic announced a selective workforce reduction and facilities-related cost optimization actions, and it expects those moves to accelerate non-GAAP operating income growth in the second half of fiscal 2023 and to reach a non-GAAP operating margin of 10% in fiscal 2024. For the third quarter of fiscal 2023, guidance calls for 22% year-over-year revenue growth at the midpoint, or 26% in constant currency, with a non-GAAP operating margin between 4.3% and 4.7% and non-GAAP earnings per share between $0.04 and $0.07. For the full fiscal year 2023, guidance calls for 24% year-over-year revenue growth at the midpoint, or 28% in constant currency, a non-GAAP operating margin between 2.2% and 2.6%, and non-GAAP earnings per share between -$0.03 and $0.03. The outlook assumes exchange rates of 1 Euro to 1.035 US Dollars and 1 Great British Pound to 1.208 US Dollars.
The macro backdrop is the main overhang. Management cited COVID-19 effects, inflation, rising interest rates, a strengthening U.S. dollar, longer sales cycles, and more scrutiny of deals, and warned that consumption and overall customer spending could slow. The migration of revenue toward Elastic Cloud carries a modest drag on gross margin because of third-party hosting costs, and services gross margin may fluctuate or decline as the company adds headcount. Elastic expects to keep posting operating losses and may need more capital. For the first six months of fiscal 2023, revenue was $514.5 million, up 29%, while the net loss widened to $116.9 million and operating cash flow was $0.9 million, down from the prior-year period. The company had 3,233 employees as of October 31, 2022, and says it will curtail spending where needed and reinvest some savings selectively.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $264.4M | $250.1M | +5.7% | $206.0M | +28.4% |
| Gross profit | $189.6M | $177.1M | +7.1% | $152.1M | +24.7% |
| Gross margin | 71.7% | 70.8% | +0.9 pp | 73.8% | -2.1 pp |
| Research & development | $75.6M | $78.6M | -3.9% | $63.8M | +18.5% |
| Sales & marketing | $128.2M | $125.0M | +2.5% | $95.0M | +35.0% |
| General & administrative | $34.9M | $34.1M | +2.5% | $30.6M | +14.3% |
| Total operating expenses | $238.7M | $237.7M | +0.4% | $189.3M | +26.1% |
| Operating income (loss) | -$49.0M | -$60.6M | +19.2% | -$37.2M | -31.9% |
| Operating margin | -18.5% | -24.3% | +5.7 pp | -18.1% | -0.5 pp |
| Net income (loss) | -$47.3M | -$69.6M | +32.0% | -$47.0M | -0.6% |
| Net margin | -17.9% | -27.8% | +9.9 pp | -22.8% | +4.9 pp |
| Customers | 19,700 | 19,300 | +2.1% | 17,000 | +15.9% |
Risks
Current adverse macroeconomic conditions, including inflation, rising interest rates, supply chain disruptions and recessionary fears, have extended and made sales cycles less predictable and increased scrutiny of deals, and MD&A states these factors negatively affected results for Q2 fiscal 2023. The filing warns that revenue may be disproportionately affected by longer sales cycles, delays or reductions in customer consumption, and reductions in information technology spending.
The company announced on November 30, 2022 a plan to reduce its workforce by approximately 13% and optimize facilities-related costs; the plan may not achieve anticipated savings or operational efficiencies, may result in costs greater than expected, and could disrupt operations. Implementation could cause attrition beyond planned reductions and reduced employee morale.
Elastic Cloud contributed 39% of total revenue for the six months ended October 31, 2022, up from 33%; increasing adoption is expected to modestly adversely affect gross margin because of third-party hosting costs. Gross margin was 71.7% for Q2 FY2023, down 2.1 percentage points from 73.8%, and 71.3% year to date, down 2.8 percentage points from 74.1%.
The decision to stop offering Elasticsearch and Kibana under an open source license may harm adoption and creates competition from forked versions such as Amazon OpenSearch based on the Elastic Stack. The filing also states that permissive open source and source available licenses provide limited technological barriers to entry and enable competitors to use the software to compete.
The increasing mix of consumption-based Elastic Cloud arrangements reduces visibility into the timing of revenue recognition, and the company states it does not have adequate history to accurately predict long-term customer adoption or renewal. MD&A notes revenue may be less predictable or more variable than historical revenue as a result.
The workforce reduction and growth plans create risk of failing to attract and retain qualified management, sales and marketing personnel; the filing notes that unplanned additional expense could be required if employees not affected by the reduction seek alternative employment. Sales and marketing expense increased 35% in Q2 FY2023 compared with the prior-year quarter, partly from personnel-related costs and headcount growth.
The company had a net loss of $47.3 million for Q2 FY2023 and $116.9 million for the six months ended October 31, 2022, and an accumulated deficit of $934.0 million; operating loss widened to $49.0 million in Q2 FY2023 and $109.7 million year to date. MD&A expects it to continue incurring operating losses and possibly negative annual operating cash flows.
A substantial portion of subscription revenue and operating expenses is outside the United States; the strengthening U.S. dollar is a headwind to year-over-year growth and increases the real cost of offerings to non-U.S. dollar customers, leading to delays in purchases and a lengthening sales cycle. The company currently does not hedge foreign currency exchange exposure.
As of October 31, 2022, the company had $575.0 million aggregate principal amount of Senior Notes outstanding; the indenture contains restrictive covenants, and holders can require repurchase upon a change of control. Failure to comply could result in acceleration of indebtedness and liquidity problems.
Privacy and data protection regulations, including GDPR, CCPA/CPRA and other U.S. state laws, impose significant compliance costs and potential fines; cross-border data transfer uncertainty may require contract changes or data localization. The filing notes GDPR fines can reach 20 million Euros or 4% of annual global turnover, whichever is higher.
SaaS KPIs
All quarters →Net Expansion Rate
Non-GAAP Operating Margin
Adjusted Free Cash Flow
Adjusted Free Cash Flow Margin
Total subscription customer count
Total remaining performance obligations
Non-GAAP gross margin
Customers with ACV > $100,000
Non-GAAP Operating Income
Summary, forecast, risks and KPIs are extracted from Elastic N.V.'s SEC filings for Q2 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.