Summary
Elastic reported total revenue of $310.6 million for FY2024 Q2, up 17.5% from the prior-year quarter. Gross profit rose 21.6% to $230.5 million, and gross margin expanded to 74.2%, up 2.5 percentage points. The company still posted an operating loss of $21.5 million, but that loss narrowed from the prior-year quarter, and operating margin improved to -6.9%, up 11.6 percentage points. Net loss narrowed to $24.8 million, or -$0.25 per diluted share. For the first six months of fiscal 2024, revenue was $604.4 million, up 17.5% from the prior-year period.
Operational momentum centered on customer growth and product releases. Total subscription customer count was approximately 20,700, compared with approximately 20,500 in Q1 FY24 and over 19,700 in Q2 FY23. Customers with annual contract value greater than $100,000 numbered over 1,220, up from over 1,190 in Q1 FY24 and over 1,050 in Q2 FY23. Net Expansion Rate was approximately 110%. Elastic announced general availability of the updated Elastic Learned Sparse EncodeR, introduced Elasticsearch Query Language, launched Universal Profiling for Elastic Observability, and expanded vector database capabilities. It also acquired Opster, signed a new global Strategic Collaboration Agreement with AWS, and was recognized as a Leader in the IDC MarketScape Worldwide General-Purpose Knowledge Discovery Software 2023 Vendor Assessment.
Cash generation weakened in the quarter. Operating cash flow was -$2.4 million, down 122.4% from the prior-year quarter. Capital expenditures were $0.9 million, up 161.2%. Adjusted free cash flow, a non-GAAP measure, was -$3 million. Cash, cash equivalents, and marketable securities totaled $966 million as of October 31, 2023. Deferred revenue was $511.0 million, up 24.4%, and remaining performance obligations were $1.12 billion, up 23.9%. For the first six months, operating cash flow was $35.4 million, up 3680.7% from the prior-year period.
Guidance points to steady growth with lower non-GAAP margins than the just-reported quarter. For the third quarter of fiscal 2024, Elastic expects revenue growth of 17% year-over-year at the midpoint, or 16% on a constant currency basis. Non-GAAP operating margin is expected to be 11.5% to 12.0%, and non-GAAP earnings per share is expected to be $0.30 to $0.32. For the full fiscal year 2024, the company expects revenue growth of 17% year-over-year at the midpoint, 16% in constant currency, with non-GAAP operating margin of 10.25% to 10.75% and non-GAAP earnings per share of $1.06 to $1.15. The guidance assumes exchange rates of 1 Euro to 1.089 US Dollars and 1 Great British Pound to 1.249 US Dollars.
Risks remain tied to the macroeconomic backdrop and the cost of cloud growth. Management cited inflation, slower economic growth, political unrest, rising interest rates, unpredictable and decreased spending, and layoffs. Those conditions could lead to longer and more unpredictable sales cycles, increased scrutiny of deals, slowing consumption, and foreign exchange pressure. Elastic also said that a higher mix of Elastic Cloud revenue could have a modest adverse impact on gross margin because of third-party hosting costs. The company maintains a full valuation allowance against U.S. federal and state deferred tax assets. A release of that allowance could reduce income tax expense by an estimated $220 million to $270 million in the fiscal period it is recorded, but the timing and amount depend on sustained U.S. profitability. The restructuring plan announced in November 2022 reduced the workforce by approximately 13% and was substantially completed as of October 31, 2023.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2024 | Q1 FY2024 | QoQ | Q2 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $310.6M | $293.8M | +5.7% | $264.4M | +17.5% |
| Gross profit | $230.5M | $216.3M | +6.6% | $189.6M | +21.6% |
| Gross margin | 74.2% | 73.6% | +0.6 pp | 71.7% | +2.5 pp |
| Research & development | $80.1M | $80.7M | -0.7% | $75.6M | +6.0% |
| Sales & marketing | $133.2M | $133.2M | +0.0% | $128.2M | +3.9% |
| General & administrative | $38.7M | $37.9M | +2.0% | $34.9M | +10.8% |
| Total operating expenses | $252.1M | $252.5M | -0.2% | $238.7M | +5.6% |
| Operating income (loss) | -$21.5M | -$36.2M | +40.6% | -$49.0M | +56.1% |
| Operating margin | -6.9% | -12.3% | +5.4 pp | -18.5% | +11.6 pp |
| Net income (loss) | -$24.8M | -$48.5M | +48.9% | -$47.3M | +47.6% |
| Net margin | -8.0% | -16.5% | +8.5 pp | -17.9% | +9.9 pp |
| Customers | 20,700 | 20,500 | +1.0% | 19,700 | +5.1% |
Risks
Elastic has incurred losses since inception and had an accumulated deficit of $1.1 billion as of October 31, 2023. It reported a net loss of $24.80 million for the quarter ended October 31, 2023, narrowed from $47.30 million in the prior-year quarter, and operating cash flow was negative $2.39 million for that quarter, down 122.4% from positive $10.64 million in the prior-year quarter, though year-to-date operating cash flow was positive $35.42 million.
Macroeconomic conditions including inflation, slower economic growth, rising interest rates, the conflict in Israel and Gaza, and Russia's invasion of Ukraine have negatively affected IT spending and demand. MD&A states Elastic has experienced longer and more unpredictable sales cycles, increased scrutiny of deals, slowing consumption, and foreign exchange impacts, and the risk factors say these have negatively affected results of operations since the first quarter of fiscal 2023.
Sales cycles can extend to more than a year for some customers and are variable due to deal complexity and channel partner involvement. The filing says customers have been scrutinizing spending and reducing consumption in the current uncertain economic environment, and large transactions have occurred in quarters later than expected or not at all.
A growing portion of Elastic Cloud subscriptions are consumption-based, and the company lacks adequate history to predict long-term adoption, renewal, or revenue impact. It has experienced slowing consumption as customers optimize usage and seen newer customers increase consumption more slowly than tenured customers, making revenue less predictable.
The decision to stop offering Elasticsearch and Kibana under an open source license may harm adoption, and Amazon's OpenSearch fork competes directly. The filing also notes that the Elastic License and SSPL have not been court-interpreted and may be unenforceable, and limited technological barriers from source-available licensing could facilitate more competition.
Future success depends on Elastic Cloud adoption, but the company has non-cancelable multi-year cloud hosting capacity commitments that require payment irrespective of usage. MD&A says Elastic Cloud grew 31% in the quarter ended October 31, 2023 and increased to 43% of total revenue from 39%, and expects the rising cloud mix to have a modest adverse impact on gross margin due to third-party hosting costs.
As a security solutions provider, Elastic has been and may continue to be specifically targeted by threat actors, and it faces heightened risk from nation-state and affiliated actors due to Russia's invasion of Ukraine and its decision to stop selling to Russia and Belarus while supporting Ukraine. It also relies on third-party vendors that have been subject to phishing attacks and other security incidents.
Privacy and data protection obligations are rapidly evolving, including GDPR fines of up to 20 million Euros or 4% of global annual turnover and the U.K. equivalent. The filing notes Ireland's DPC fined another company approximately $1.3 billion over SCC data transfers and that the EU-U.S. Data Privacy Framework is being challenged, which may increase compliance costs or affect cross-border data transfers.
As of October 31, 2023, Elastic had $575.0 million aggregate principal amount of Senior Notes outstanding. The indenture contains restrictive covenants, and holders can require repurchase at 101% upon a change of control; insufficient cash flows could force asset sales, refinancing on worse terms, or default.
The company depends on senior management, particularly CEO Ashutosh Kulkarni and CTO Shay Banon, and faces significant competition for skilled sales, engineering, and technical support personnel. It reduced its workforce by approximately 13% starting November 30, 2022 and incurred $0.8 million in restructuring charges during the six months ended October 31, 2023.
Elastic maintains a full valuation allowance against U.S. federal and state deferred tax assets due to cumulative U.S. losses. MD&A states that release of the valuation allowance could decrease income tax expense by an estimated $220 million to $270 million if sustained U.S. profitability is achieved, but the timing and amount are uncertain and could change based on actual results.
SaaS KPIs
All quarters →Net Expansion Rate
Non-GAAP Operating Margin
Adjusted Free Cash Flow
Total subscription customer count
Total remaining performance obligations
Summary, forecast, risks and KPIs are extracted from Elastic N.V.'s SEC filings for Q2 FY2024 (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 1, 2026.