Summary
Elastic closed the January 31, 2023 quarter with total revenue of $274.6 million, up 22.6% from the prior-year quarter. Year-to-date revenue reached $789.0 million, up 26.6% from the prior-year period. Elastic Cloud accounted for 40% of total revenue versus 36% a year earlier. The company ended the period with approximately 19,900 subscription customers, up from over 17,900. Customers with annual contract value above $100,000 rose to over 1,110 from over 890. Net Expansion Rate was roughly 120%.
Profitability remained under pressure. Gross profit was $199.4 million, up 22.6%, and gross margin was flat at 72.6%. GAAP operating loss widened to $69.3 million from the prior-year quarter, and operating margin fell to -25.3%. GAAP net loss widened to $72.6 million from the prior-year quarter. Diluted GAAP loss per share was $0.76 for the quarter. The year-to-date picture shows the same trend: operating loss widened to $179.0 million from the prior-year period, net loss widened to $189.4 million, and diluted loss per share widened to $1.99.
Management pointed to cost discipline alongside growth. Non-GAAP operating income was $22 million with an 8% margin, and non-GAAP diluted earnings per share was $0.17. Adjusted free cash flow was $19 million. Operating cash flow was $7.2 million for the quarter, up 41.9% from the prior-year quarter, though year-to-date operating cash flow slipped 7.1% to $8.1 million. Capital expenditures were $0.2 million for the quarter, down 16.5%, and $1.0 million year to date, up 3.2%. Deferred revenue rose 22.3% to $484.0 million, while remaining performance obligations rose 15.9% to $997.2 million.
Elastic also moved to resize its cost base. On November 30, 2022, it announced a plan to cut roughly 13% of its workforce and optimize facilities. The company expects $32 million to $36 million in total pre-tax charges. The restructuring is expected to be substantially complete by the end of the first quarter of fiscal 2024. Risks include a challenging macro backdrop, longer and more unpredictable sales cycles, increased deal scrutiny, slowing customer consumption, foreign exchange swings, and the execution risk around the restructuring. Management said it continues to monitor spending and will reinvest selectively.
Guidance for the fourth quarter of fiscal 2023 points to total revenue growth of 16% year over year at the midpoint, or 18% in constant currency. Non-GAAP operating margin is expected between 4.8% and 5.2%, and non-GAAP earnings per share between $0.08 and $0.10 on 100 million to 101 million diluted weighted average shares. For the full fiscal year 2023, the company guides to total revenue growth of 24% year over year at the midpoint, or 28% in constant currency. Full-year non-GAAP operating margin is expected between 3.3% and 3.4%, with non-GAAP earnings per share between $0.11 and $0.14 on 99 million to 100 million diluted weighted average shares. The guidance assumes exchange rates of 1 Euro to 1.059 US Dollars and 1 Great British Pound to 1.208 US Dollars.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $274.6M | $264.4M | +3.8% | $223.9M | +22.6% |
| Gross profit | $199.4M | $189.6M | +5.1% | $162.7M | +22.6% |
| Gross margin | 72.6% | 71.7% | +0.9 pp | 72.6% | -0.0 pp |
| Research & development | $77.5M | $75.6M | +2.5% | $71.7M | +8.0% |
| Sales & marketing | $126.7M | $128.2M | -1.1% | $105.1M | +20.6% |
| General & administrative | $34.7M | $34.9M | -0.6% | $31.7M | +9.5% |
| Total operating expenses | $268.7M | $238.7M | +12.6% | $208.5M | +28.9% |
| Operating income (loss) | -$69.3M | -$49.0M | -41.4% | -$45.8M | -51.3% |
| Operating margin | -25.3% | -18.5% | -6.7 pp | -20.5% | -4.8 pp |
| Net income (loss) | -$72.6M | -$47.3M | -53.4% | -$56.7M | -27.9% |
| Net margin | -26.4% | -17.9% | -8.5 pp | -25.3% | -1.1 pp |
| Customers | 19,900 | 19,700 | +1.0% | 17,900 | +11.2% |
Risks
Adverse macroeconomic conditions, including inflation, rising interest rates, and Russia's invasion of Ukraine, have negatively impacted IT spending and customer consumption, leading to longer and more unpredictable sales cycles and increased deal scrutiny. The company states these impacts have negatively affected results of operations since the first quarter of fiscal 2023.
The company lacks adequate history with consumption-based arrangements for Elastic Cloud to accurately predict customer adoption and renewal rates. Elastic Cloud contributed 40% of total revenue for the nine months ended January 31, 2023, up from 34% in the prior-year period, but customers have slowed consumption in response to the uncertain macroeconomic environment, making revenue less predictable than under subscription arrangements.
The decision to no longer offer Elasticsearch and Kibana under an open source license, and Amazon's launch of the OpenSearch fork based on a forked version of the Elastic Stack, may harm adoption, reduce brand awareness, and lead to a decline in paying customers. The company relies on the enforceability of the Elastic License and SSPL to protect its proprietary interests.
Sales cycles have lengthened and become more unpredictable due to economic uncertainty, with customers scrutinizing spending more carefully. The company expects this to continue, potentially causing loss or delay of large transactions and impacting quarterly cash flows and results of operations.
The company announced a plan on November 30, 2022 to reduce its workforce by approximately 13% and optimize facilities costs, incurring $29.8 million in charges during the third quarter of fiscal 2023. Risks include failure to realize anticipated savings, disruption to operations, and unplanned attrition beyond the planned reductions.
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
Summary, forecast, risks and KPIs are extracted from Elastic N.V.'s SEC filings for Q3 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 1, 2026.