Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Management's Discussion and Analysis of Financial Condition and Results of Operations and audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2025 filed with the SEC on June 10, 2025 (the "Company's Annual Report on Form 10-K"). As discussed in the section titled "Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such difference include, but are not limited to, those identified below and those discussed in our risk factors disclosed in "Item 1A. Risk Factors" of our Annual Report on Form 10-K and in "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q.
Our fiscal year end is April 30, and our fiscal quarters end on July 31, October 31, January 31, and April 30. Our fiscal year ended April 30, 2025 is referred to as fiscal 2025, and our fiscal year ending April 30, 2026 is referred to as fiscal 2026.
Overview
Elastic, the Search AI Company, enables its customers to transform data into answers, actions, and outcomes with Search AI. Our platform combines the precision of search with the intelligence of AI to help our customers and community solve real-time business problems, unlock potential value, and achieve better outcomes. Our platform, available as either a cloud service or a self-managed software, allows our customers to find insights and drive AI and machine learning use cases from large amounts of data.
We offer three Search AI-powered solutions-Elasticsearch, Elastic Observability, and Elastic Security-that are built on our platform. We help organizations, their employees, and their customers find what they need faster, while keeping mission-critical applications and infrastructure running smoothly and protecting against cyber threats.
Our platform is able to ingest data from any source, in any format, and perform search, analysis, and visualization of that data. With Elasticsearch at its core, our platform is a highly scalable document store and search engine and is the unified data store for all of our solutions and use cases. Featuring a common, solution-agnostic user interface with powerful drag-and-drop visual analytics and centralized management capabilities, our platform gives developers a full suite of sophisticated retrieval algorithms and the ability to integrate with large language models. It delivers the comprehensive set of capabilities developers need to build, maintain, and secure next-generation applications and services. Our platform can be used by developers and IT decision makers to power a variety of use cases.
We make our platform available as a service across major cloud providers. Customers can also deploy our platform across hybrid clouds, public or private clouds, and multi-cloud environments. As digital transformation continues to drive mission-critical business functions to the cloud, we believe that every company must incorporate search AI capabilities across IT and line-of-business organizations to find the answers that matter from all of its data in real time and at scale.
Our business model is based primarily on a combination of paid service offerings (Elastic Cloud Hosted and Elastic Cloud Serverless) and free and paid proprietary self-managed software (Elastic Self-Managed). Our paid offerings for our platform are sold via subscription through resource-based pricing, and all customers and users have access to varying levels of features across all solutions. In Elastic Cloud, our family of cloud-based offerings, we offer various subscription tiers tied to different features. For users who download our software, we make some of the features of our software available free of charge, allowing us to engage with a broad community of developers and practitioners and introduce them to the value of our platform.
We believe in the importance of an open software development model, and we develop the majority of our software in public repositories under an open source GNU Affero General Public License v3 ("AGPL") license, as well as under a proprietary license. Unlike some companies, we do not build an enterprise version that is separate from our free distribution. We maintain a single code base across both our self-managed software and Elastic-hosted services. All of these actions help us build a powerful commercial business model that we believe is optimized for product-driven growth. Elastic has always been committed to open source and an open development process with transparent and direct engagement with our community. The core of Elasticsearch and Kibana (a user interface) are open source under an AGPL license, and our open source code is housed in public repositories.
We generate revenue primarily from sales of subscriptions to our platform. We offer various paid subscription tiers that provide different levels of rights to use proprietary features and access to support. We do not sell support separately. Our subscription agreements typically range from one to three years and are usually billed annually in advance. Our subscription agreements are both term-based and consumption-based, with the vast majority of Elastic Cloud subscriptions being consumption-based. We sell subscriptions in various currencies, with the majority of our subscriptions contracted in U.S. dollars, and a smaller portion contracted in Euro, British Pound Sterling, and other currencies. Elastic Cloud customers may also purchase subscriptions on a month-to-month basis without a commitment, with usage billed at the end of each month. Subscriptions accounted for 94% and 93% of total revenue for the nine months ended January 31, 2026 and 2025, respectively. We also generate revenue from consulting and training services.
We make it easy for users to begin using our products in order to drive rapid adoption. Users can either sign up for a free trial on Elastic Cloud, or download our software directly from our website without any sales interaction and immediately begin using the full set of features. Users can also sign up for Elastic Cloud through public cloud marketplaces. We conduct low-touch campaigns to keep users and customers engaged once they have begun using Elastic Cloud or have downloaded our software. We define a customer as an entity that generated revenue in the quarter ending on the measurement date from an annual or month-to-month subscription. Affiliated entities are typically counted as a single customer.
Many of these customers start with limited initial spending on our products but can significantly increase their spending over time. We drive high-touch engagement with qualified prospects and customers to drive further awareness, adoption, and expansion of our products with paid subscriptions. Expansion includes increasing the number of developers and practitioners using our products, increasing the utilization of our products for a particular use case, and utilizing our products to address new use cases. The number of customers who represented greater than $100,000 in annual contract value ("ACV") was over 1,660 and over 1,460 as of January 31, 2026 and 2025, respectively. The ACV of a customer's commitments is calculated based on the terms of that customer's subscriptions, and represents the total committed annual subscription amount as of the measurement date. Month-to-month subscriptions are not included in the calculation of ACV.
Our sales teams are organized primarily by geography and secondarily by customer segments. They focus on both seeking to obtain new customers and on pursuing additional sales to existing customers. In addition to our direct sales efforts, we maintain partnerships to further extend our reach and awareness of our products around the world.
We continue to make substantial investments in developing our platform and expanding our global sales and marketing footprint. With a distributed team spanning over 40 countries, we are able to recruit, hire, and retain high-quality, experienced technical and sales personnel and operate at a rapid pace to drive product releases, fix bugs, and create and market new products. We had 3,921 employees as of January 31, 2026.
Current Economic Conditions
Macroeconomic events, including a possible resurgence in inflation, fluctuations in economic growth, changes in and uncertainty of international trade policies, and political unrest, continue to evolve and impact worldwide economic activity. Governmental and corporate responses to these factors, including changing interest rates and unpredictable and decreased spending, will continue to affect the macroeconomic conditions. We have experienced and, if economic conditions remain uncertain or deteriorate, may continue to experience longer and more unpredictable sales cycles, increased scrutiny of prospective sales, slowing consumption and overall customer expenditures, and the impacts of changing foreign exchange rates with a strengthening or weakening U.S. dollar. We continue to closely monitor the macroeconomic environment and its effects on our business and on global economic activity, including customer spending behavior. See "Item 1A. Risk Factors" of the Company's Annual Report on Form 10-K.
Recent Developments
On July 4, 2025, OBBBA was enacted into law, introducing significant changes to U.S. federal tax law. The legislation includes provisions that impacted us in the nine months ended January 31, 2026, and other provisions that will be effective in future periods. We will continue to assess the impact of the laws as further clarifications and interpretive guidance become available. See Note 13, "Income Taxes," of our accompanying Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information.
Key Factors Affecting our Performance
We believe that the growth and future success of our business depend on many factors, including those described below. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations.
Developing new features for the Elastic Search AI Platform.Our platform is applied to various use cases by customers, including through the solutions we offer. Our revenue is derived primarily from subscriptions of Search, Observability and Security built into our platform. We believe that releasing additional features of our platform, including our solutions, drives usage of our products and ultimately drives our growth. To that end, we plan to continue to invest in building new features and solutions that expand the capabilities of our platform. These investments may adversely affect our operating results prior to generating benefits, to the extent that they ultimately generate benefits at all.
Growing the Elastic community. Our strategy consists of providing access to source available software, on both a paid and free-of-charge basis, and fostering a community of users and developers. Our strategy is designed to pursue what we believe to be significant untapped potential for the use of our technology. After developers begin to use our software and start to participate in our developer community, they become more likely to apply our technology to additional use cases and promote our technology within their organizations. This reduces the time required for our sales force to educate potential customers on our solutions. To capitalize on our opportunity, we intend to make further investments to keep our platform accessible and well known to software developers around the world. We intend to continue to invest in our products and support and engage our user base and developer community through content, events, and conferences in the United States and internationally. Our results of operations may fluctuate as we make these investments.
Growing our customer base by converting users of our software to paid subscribers.Our financial performance depends on growing our paid customer base by converting free users of our software into paid subscribers. Our distribution model has resulted in rapid adoption by developers around the world. We have invested, and expect to continue to invest, heavily in sales and marketing efforts to convert additional free users to paid subscribers. Our investment in sales and marketing is significant given our large and diverse user base. These investments are likely to occur before we realize the anticipated benefits of such investments, such that they may adversely affect our operating results in the near term.
On November 12, 2024, we added the AGPL as an option to license the free part of our Elasticsearch and Kibana source code that has been available under the Elastic License 2.0 and Server Side Public License Version 1.0. AGPL is an Open Source Initiative-approved open source license. We anticipate that the addition of this license will drive further engagement and adoption of our software in areas such as vector search within our large community, further increasing our appeal for driving AI and machine learning use cases from large amounts of data. Subject to compliance with the conditions of AGPL, anyone may also redistribute our software in modified or unmodified form or use it to provide a competitive product or service offering.
Expanding within our current customer base.Our future growth and profitability depend on our ability to drive additional sales to existing customers. Customers often expand the use of our software within their organizations by increasing the number of developers using our products, increasing the utilization of our products for a particular use case, and expanding use of our products to additional use cases. We focus some of our direct sales efforts on encouraging these types of expansion within our customer base.
We believe that a useful indication of how our customer relationships have expanded over time is through our Net Expansion Rate, which is based upon trends in the rate at which customers increase their spend with us. To calculate an expansion rate as of the end of a given month, we start with the annualized spend from all such customers as of twelve months prior to that month end, which we refer to as Prior Period Value. A customer's annualized spend is measured as its ACV, or in the case of customers charged on usage-based arrangements, by annualizing the usage for that month. We then calculate the annualized spend from these same customers as of the given month end, which we refer to as Current Period Value, which includes any growth in the value of their subscriptions or usage and is net of contraction or attrition over the prior twelve months. We then divide the Current Period Value by the Prior Period Value to arrive at an expansion rate. The Net Expansion Rate at the end of any period is the weighted average of the expansion rates as of the end of each of the trailing twelve months. The Net Expansion Rate includes the dollar-weighted value of our subscriptions or usage that expand, renew, contract, or experience attrition. For instance, if each customer had a one-year subscription and renewed its subscription for the same amount, the Net Expansion Rate would be 100%. Customers who reduced their annual subscription dollar value (contraction) or did not renew their annual subscription (attrition) would adversely affect the Net Expansion Rate. Our Net Expansion Rate was approximately 112% as of January 31, 2026.
As large organizations expand their use of our platform across multiple use cases, projects, divisions, and users, they often begin to require centralized provisioning, management and monitoring across multiple deployments. To satisfy these requirements, our Enterprise subscription tier provides access to key orchestration and deployment management capabilities. We will continue to focus some of our direct sales efforts on driving adoption of our paid offerings.
Increasing adoption of Elastic Cloud. Elastic Cloud, our family of cloud-based offerings, is an important growth opportunity for our business. Organizations are increasingly looking for hosted deployment alternatives with reduced administrative burdens. In some cases, users of our source available software that have been self-managing deployments of our platform subsequently become paying subscribers of Elastic Cloud. For the nine months ended January 31, 2026 and 2025, Elastic Cloud contributed 48% and 46% of our total revenue, respectively. We believe that offering Elastic Cloud is important for achieving our long-term growth potential, and we expect Elastic Cloud's contribution to our subscription revenue to continue to increase over time. However, we expect that an increase in the relative contribution of Elastic Cloud to our business will continue to have a modest adverse impact on our gross margin as a result of the associated third-party hosting costs.
Components of Results of Operations
Revenue
Subscription. Our revenue is primarily generated through the sale of subscriptions to software, which is either self-managed by the user or hosted and managed by us in the cloud. Subscriptions provide the right to use paid proprietary software features and access to support for our paid and unpaid software. Our subscription agreements are either term-based or consumption-based, with the vast majority of Elastic Cloud subscriptions being consumption-based.
A portion of the revenue from self-managed subscriptions is generally recognized up front at the point in time when the license is delivered and the remainder is recognized ratably over the subscription term. Revenue from subscriptions that require access to the cloud or that are hosted and managed by us is recognized ratably over the subscription term or on a usage basis for consumption-based arrangements. Both are presented within Subscription revenue in our condensed consolidated statements of operations.
Services.Services is composed of implementation and other consulting services as well as public and private training. Revenue for services is recognized as these services are delivered.
Cost of Revenue
Subscription.Cost of subscription consists primarily of personnel and related costs for employees associated with supporting our subscription arrangements, certain third-party expenses, and amortization of certain intangible and other assets. Personnel and related costs comprise cash compensation, benefits and stock-based compensation to employees, costs of third-party contractors, and allocated overhead costs. Third-party expenses consist of cloud hosting costs and other expenses directly associated with our customer support. We expect our cost of subscription to increase in absolute dollars as our subscription revenue increases.
Services.Cost of services revenue consists primarily of personnel costs directly associated with delivery of training, implementation and other services, costs of third-party contractors, facility rental charges and allocated overhead costs. We expect our cost of services to increase in absolute dollars as we invest in our business and as services revenue increases.
Gross profit and gross margin.Gross profit represents revenue less cost of revenue. Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including the timing of our acquisition of new customers and our renewals with existing customers, the average sales price of our subscriptions and services, the amount of our revenue represented by hosted services, the mix of subscriptions sold, the mix of revenue between subscriptions and services, the mix of services between consulting and training, transaction volume growth and support case volume growth. We expect our gross margin to fluctuate over time depending on the factors described above. We expect our revenue from Elastic Cloud to continue to increase as a percentage of total revenue, which we expect will continue to have a modest unfavorable impact on our gross margin as a result of the associated third-party hosting costs.
Operating Expenses
Research and development.Research and development expense primarily consists of personnel and related costs and allocated overhead costs. We expect our research and development expense to increase in absolute dollars for the foreseeable future as we continue to develop new technology and invest further in our existing products.
Sales and marketing.Sales and marketing expense primarily consists of personnel and related costs, commissions, allocated overhead costs and costs related to marketing programs and user events. Marketing programs consist of advertising, events, brand-building and customer acquisition and retention activities. We expect our sales and marketing expense to increase in absolute dollars as we expand our sales force and increase our investments in marketing resources. We capitalize sales commissions and associated payroll taxes paid to internal sales personnel that are related to the acquisition of certain customer contracts. Deferred contract acquisition costs are amortized over the expected benefit period.
General and administrative.General and administrative expense primarily consists of personnel and related costs for our management, finance, legal, human resources, and other administrative employees. Our general and administrative expense also includes professional fees, accounting fees, audit fees, tax services and legal fees, as well as insurance, allocated overhead costs, and other corporate expenses. We expect our general and administrative expense to increase in absolute dollars as we increase the size of our general and administrative functions to support the growth of our business.
Restructuring and other related charges.Restructuring and other related charges primarily consist of employee-related severance and other termination benefits as well as lease impairment and other facilities-related charges.
Other Income, Net
Interest expense.Interest expense primarily consists of interest on our Senior Notes.
Other income, net. Other income, net primarily consists of interest income, gains and losses from transactions denominated in a currency other than the functional currency, and miscellaneous other non-operating gains and losses.
(Benefit from) Provision for Income Taxes
(Benefit from) provision for income taxes consists primarily of income taxes related to the Netherlands, U.S. federal and state, and foreign jurisdictions in which we conduct business. Our effective tax rate is affected by recurring items, such as tax rates in jurisdictions outside the Netherlands and the relative amounts of income we earn in those jurisdictions, non-deductible stock-based compensation, one-time tax benefits, and BEAT legislation in the United States.
Results of Operations
The following table sets forth our results of operations for the periods presented:
| Three Months Ended January 31, | Nine Months Ended January 31, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Subscription | $ | 425,727 | $ | 358,198 | $ | 1,212,009 | $ | 1,022,779 | |||||||||||||||
| Services | 24,154 | 23,885 | 76,641 | 72,085 | |||||||||||||||||||
| Total revenue | 449,881 | 382,083 | 1,288,650 | 1,094,864 | |||||||||||||||||||
Cost of revenue (1)(2) | |||||||||||||||||||||||
| Subscription | 81,352 | 72,205 | 227,292 | 210,493 | |||||||||||||||||||
| Services | 25,087 | 24,947 | 77,920 | 71,595 | |||||||||||||||||||
| Total cost of revenue | 106,439 | 97,152 | 305,212 | 282,088 | |||||||||||||||||||
| Gross profit | 343,442 | 284,931 | 983,438 | 812,776 | |||||||||||||||||||
Operating expenses (1)(2)(3) | |||||||||||||||||||||||
| Research and development | 114,390 | 93,598 | 331,664 | 271,093 | |||||||||||||||||||
| Sales and marketing | 176,796 | 153,749 | 524,426 | 455,380 | |||||||||||||||||||
| General and administrative | 51,645 | 42,222 | 144,413 | 128,980 | |||||||||||||||||||
| Restructuring and other related charges | - | - | - | 225 | |||||||||||||||||||
| Total operating expenses | 342,831 | 289,569 | 1,000,503 | 855,678 | |||||||||||||||||||
Operating income (loss) (1)(2)(3) | 611 | (4,638) | (17,065) | (42,902) | |||||||||||||||||||
| Other income, net | |||||||||||||||||||||||
| Interest expense | (6,254) | (6,475) | (18,897) | (19,463) | |||||||||||||||||||
| Other income, net | 11,808 | 15,184 | 43,426 | 35,498 | |||||||||||||||||||
| Income (loss) before income taxes | 6,165 | 4,071 | 7,464 | (26,867) | |||||||||||||||||||
| (Benefit from) provision for income taxes | (1,588) | 21,127 | 75,598 | 64,866 | |||||||||||||||||||
| Net income (loss) | $ | 7,753 | $ | (17,056) | $ | (68,134) | $ | (91,733) | |||||||||||||||
(1)Includes stock-based compensation expense and related employer taxes as follows:
| Three Months Ended January 31, | Nine Months Ended January 31, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription | $ | 2,730 | $ | 2,597 | $ | 7,946 | $ | 7,478 | |||||||||||||||
| Services | 4,209 | 4,057 | 12,296 | 11,393 | |||||||||||||||||||
| Research and development | 30,050 | 25,900 | 86,257 | 76,399 | |||||||||||||||||||
| Sales and marketing | 24,724 | 22,946 | 72,979 | 66,829 | |||||||||||||||||||
| General and administrative | 18,138 | 11,554 | 48,479 | 38,203 | |||||||||||||||||||
| Total stock-based compensation expense and related employer taxes | $ | 79,851 | $ | 67,054 | $ | 227,957 | $ | 200,302 | |||||||||||||||
(2) Includes amortization of acquired intangible assets as follows:
| Three Months Ended January 31, | Nine Months Ended January 31, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription | $ | 2,598 | $ | 1,577 | $ | 6,332 | $ | 7,687 | |||||||||||||||
| Total amortization of acquired intangibles | $ | 2,598 | $ | 1,577 | $ | 6,332 | $ | 7,687 | |||||||||||||||
(3)Includes acquisition-related expenses as follows:
| Three Months Ended January 31, | Nine Months Ended January 31, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Research and development | $ | 238 | $ | 22 | $ | 310 | $ | 76 | |||||||||||||||
| General and administrative | 198 | 7 | 885 | 105 | |||||||||||||||||||
| Total acquisition-related expenses | $ | 436 | $ | 29 | $ | 1,195 | $ | 181 | |||||||||||||||
The following table sets forth selected condensed consolidated statements of operations data for each of the periods indicated as a percentage of total revenue:
| Three Months Ended January 31, | Nine Months Ended January 31, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Subscription | 95 | % | 94 | % | 94 | % | 93 | % | |||||||||||||||
| Services | 5 | % | 6 | % | 6 | % | 7 | % | |||||||||||||||
| Total revenue | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||
Cost of revenue (1)(2) | |||||||||||||||||||||||
| Subscription | 18 | % | 19 | % | 18 | % | 19 | % | |||||||||||||||
| Services | 6 | % | 6 | % | 6 | % | 7 | % | |||||||||||||||
| Total cost of revenue | 24 | % | 25 | % | 24 | % | 26 | % | |||||||||||||||
| Gross profit | 76 | % | 75 | % | 76 | % | 74 | % | |||||||||||||||
Operating expenses (1)(2)(3) | |||||||||||||||||||||||
| Research and development | 25 | % | 25 | % | 26 | % | 25 | % | |||||||||||||||
| Sales and marketing | 39 | % | 40 | % | 40 | % | 41 | % | |||||||||||||||
| General and administrative | 12 | % | 11 | % | 11 | % | 12 | % | |||||||||||||||
| Restructuring and other related charges | - | % | - | % | - | % | - | % | |||||||||||||||
| Total operating expenses | 76 | % | 76 | % | 77 | % | 78 | % | |||||||||||||||
Operating income (loss) (1)(2)(3) | - | % | (1) | % | (1) | % | (4) | % | |||||||||||||||
| Other income, net | |||||||||||||||||||||||
| Interest expense | (2) | % | (2) | % | (1) | % | (2) | % | |||||||||||||||
| Other income, net | 3 | % | 4 | % | 3 | % | 4 | % | |||||||||||||||
| Income (loss) before income taxes | 1 | % | 1 | % | 1 | % | (2) | % | |||||||||||||||
| (Benefit from) provision for income taxes | (1) | % | 5 | % | 6 | % | 6 | % | |||||||||||||||
| Net income (loss) | 2 | % | (4) | % | (5) | % | (8) | % | |||||||||||||||
(1)Includes stock-based compensation expense and related employer taxes as follows:
| Three Months Ended January 31, | Nine Months Ended January 31, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription | 1 | % | 1 | % | - | % | 1 | % | |||||||||||||||
| Services | 1 | % | 1 | % | 1 | % | 1 | % | |||||||||||||||
| Research and development | 7 | % | 7 | % | 7 | % | 7 | % | |||||||||||||||
| Sales and marketing | 5 | % | 6 | % | 6 | % | 6 | % | |||||||||||||||
| General and administrative | 4 | % | 3 | % | 4 | % | 3 | % | |||||||||||||||
| Total stock-based compensation expense and related employer taxes | 18 | % | 18 | % | 18 | % | 18 | % | |||||||||||||||
(2) Includes amortization of acquired intangible assets as follows:
| Three Months Ended January 31, | Nine Months Ended January 31, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription | 1 | % | - | % | - | % | 1 | % | |||||||||||||||
| Total amortization of acquired intangibles | 1 | % | - | % | - | % | 1 | % | |||||||||||||||
(3)Includes acquisition-related expenses as follows:
| Three Months Ended January 31, | Nine Months Ended January 31, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Research and development | - | % | - | % | - | % | - | % | |||||||||||||||
| General and administrative | - | % | - | % | - | % | - | % | |||||||||||||||
| Total acquisition-related expenses | - | % | - | % | - | % | - | % | |||||||||||||||
Comparison of Three Months Ended January 31, 2026 and 2025
Revenue
| Three Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Subscription | $ | 425,727 | $ | 358,198 | $ | 67,529 | 19 | % | |||||||||||||||
| Services | 24,154 | 23,885 | 269 | 1 | % | ||||||||||||||||||
| Total revenue | $ | 449,881 | $ | 382,083 | $ | 67,798 | 18 | % | |||||||||||||||
Subscription revenue increased by $67.5 million, or 19%, for the three months ended January 31, 2026 compared to the same period of the prior year. This increase was primarily driven by continued adoption of both Elastic Cloud and Other subscriptions, which grew 21% and 16%, respectively, over the same period of the prior year. The increase in Elastic Cloud revenue was primarily attributable to an increase in revenue from Annual Elastic Cloud by 27%.
Services revenue increased by $0.3 million, or 1%, for the three months ended January 31, 2026 compared to the same period of the prior year. The increase in services revenue was attributable to increased adoption of our services offerings.
Cost of Revenue and Gross Margin
| Three Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription | $ | 81,352 | $ | 72,205 | $ | 9,147 | 13 | % | |||||||||||||||
| Services | 25,087 | 24,947 | 140 | 1 | % | ||||||||||||||||||
| Total cost of revenue | $ | 106,439 | $ | 97,152 | $ | 9,287 | 10 | % | |||||||||||||||
| Gross profit | $ | 343,442 | $ | 284,931 | $ | 58,511 | 21 | % | |||||||||||||||
| Gross margin: | |||||||||||||||||||||||
| Subscription | 81 | % | 80 | % | |||||||||||||||||||
| Services | (4) | % | (4) | % | |||||||||||||||||||
| Total gross margin | 76 | % | 75 | % | |||||||||||||||||||
Cost of subscription revenue increased by $9.1 million, or 13%, for the three months ended January 31, 2026 compared to the same period of the prior year. The increase was primarily due to an increase of $6.6 million in cloud infrastructure costs, $1.0 million in intangible assets amortization, $1.0 million in personnel and related costs, and $0.5 million in third-party costs. Subscription gross margin increased to 81% for the three months ended January 31, 2026 compared to 80% for the same period of the prior year primarily due to efficiencies realized in managing our cloud infrastructure costs relative to revenue growth.
Cost of services revenue and gross margin for services revenue remained relatively flat for the three months ended January 31, 2026 compared to the same period of the prior year. We continue to make investments in our services organization that we believe will be needed to support our continued growth. Our gross margin for services may fluctuate or decline in the near term as we seek to expand our services business.
Operating Expenses
Research and development
| Three Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Research and development | $ | 114,390 | $ | 93,598 | $ | 20,792 | 22 | % | |||||||||||||||
Research and development expense increased by $20.8 million, or 22%, for the three months ended January 31, 2026 compared to the same period of the prior year as we continued to invest in the development of new and existing offerings. The increase was primarily due to increases of $17.1 million in personnel and related costs and $2.7 million in cloud infrastructure costs related to our research and development activities. The increase in personnel and related costs included increases of $11.0 million in salaries and related taxes, $4.5 million in stock-based compensation, and $1.6 million in employee benefits expense.
Sales and marketing
| Three Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Sales and marketing | $ | 176,796 | $ | 153,749 | $ | 23,047 | 15 | % | |||||||||||||||
Sales and marketing expense increased by $23.0 million, or 15%, for the three months ended January 31, 2026 compared to the same period of the prior year. The increase was primarily due to an increase of $19.4 million in personnel and related costs, $2.1 million in travel expenses, and $1.1 million in marketing expenses. The increase in personnel and related costs included increases of $10.6 million in salaries and related taxes, $4.5 million in commission expense, $2.1 million in employee benefits expense, and $2.0 million in stock-based compensation.
General and administrative
| Three Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| General and administrative | $ | 51,645 | $ | 42,222 | $ | 9,423 | 22 | % | |||||||||||||||
General and administrative expense increased by $9.4 million, or 22%, for the three months ended January 31, 2026 compared to the same period of the prior year. The increase was primarily due to increases of $9.6 million in personnel and related costs, offset by a net decrease of $0.2 million in miscellaneous business expenses. The increase in personnel and related costs included increases of $6.6 million in stock-based compensation, $2.0 million in salaries and related taxes, and $0.7 million in employee benefits expense.
Other Income, Net
Interest expense
| Three Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Interest expense | $ | (6,254) | $ | (6,475) | $ | 221 | (3) | % | |||||||||||||||
Interest expense remained relatively flat for the three months ended January 31, 2026 compared to the same period of the prior year.
Other income, net
| Three Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Other income, net | $ | 11,808 | $ | 15,184 | $ | (3,376) | (22) | % | |||||||||||||||
Other income, net decreased by $3.4 million, or (22)%, for the three months ended January 31, 2026 compared to the same period of the prior year. The decrease was primarily due to an increase of $2.0 million in net foreign currency exchange losses and a decrease of $1.2 million in interest and other investment income primarily from our marketable securities.
(Benefit from) Provision for Income Taxes
| Three Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| (Benefit from) provision for income taxes | $ | (1,588) | $ | 21,127 | $ | (22,715) | (108) | % | |||||||||||||||
The benefit from income taxes was $1.6 million for the three months ended January 31, 2026 compared to a provision for income taxes of $21.1 million for the same period of the prior year. Our effective tax rate was (26)% and 519% of our income before income taxes for the three months ended January 31, 2026 and 2025, respectively. Our interim tax provision excludes pre-tax losses in jurisdictions where a valuation allowance is maintained, which causes the provision to reflect only tax provisions in jurisdictions with profitable operations and results in a disproportionate effective tax rate. Our effective tax rate is affected by recurring items, such as tax rates in jurisdictions both within and outside the Netherlands and the relative amounts of income that is earned in those jurisdictions, non-deductible stock-based compensation, one-time tax benefits or charges, and BEAT legislation in the United States.
We maintain a full valuation allowance against our deferred tax assets in the Netherlands, the United Kingdom, and certain states in the United States. We have determined it is reasonably possible that within the next 12 months there may be sufficient positive evidence to release a portion or all of the valuation allowance in one or more future periods. A release of valuation allowance, if any, would result in the recognition of certain deferred tax assets and a material non-cash income tax benefit for the period in which such release is recorded, which could have a material impact on net income (loss). The timing and amount of a potential release of the valuation allowance are subject to significant management judgment regarding future earnings, future market conditions, and our ability to successfully execute our business plans and tax planning activities.
Comparison of Nine Months Ended January 31, 2026 and 2025
Revenue
| Nine Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Subscription | $ | 1,212,009 | $ | 1,022,779 | $ | 189,230 | 19 | % | |||||||||||||||
| Services | 76,641 | 72,085 | 4,556 | 6 | % | ||||||||||||||||||
| Total revenue | $ | 1,288,650 | $ | 1,094,864 | $ | 193,786 | 18 | % | |||||||||||||||
Subscription revenue increased by $189.2 million, or 19%, for the nine months ended January 31, 2026 compared to the same period of the prior year. This increase was primarily driven by continued adoption of both Elastic Cloud and Other subscriptions, which grew 22% and 15%, respectively, over the prior year. The increase in Elastic Cloud revenue was primarily attributable to an increase in revenue from Annual Elastic Cloud by 28% over the prior year.
Services revenue increased by $4.6 million, or 6%, for the nine months ended January 31, 2026 compared to the same period of the prior year. The increase in services revenue was attributable to increased adoption of our services offerings.
Cost of Revenue and Gross Margin
| Nine Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription | $ | 227,292 | $ | 210,493 | $ | 16,799 | 8 | % | |||||||||||||||
| Services | 77,920 | 71,595 | 6,325 | 9 | % | ||||||||||||||||||
| Total cost of revenue | $ | 305,212 | $ | 282,088 | $ | 23,124 | 8 | % | |||||||||||||||
| Gross profit | $ | 983,438 | $ | 812,776 | $ | 170,662 | 21 | % | |||||||||||||||
| Gross margin: | |||||||||||||||||||||||
| Subscription | 81 | % | 79 | % | |||||||||||||||||||
| Services | (2) | % | 1 | % | |||||||||||||||||||
| Total gross margin | 76 | % | 74 | % | |||||||||||||||||||
Cost of subscription revenue increased by $16.8 million, or 8%, for the nine months ended January 31, 2026 compared to the same period of the prior year. This increase was primarily due to an increase of $13.2 million in cloud infrastructure costs, $2.8 million in personnel and related costs, and $1.7 million in third-party costs. These increases were partially offset by a decrease of $1.4 million in intangible assets amortization. Subscription gross margin increased to 81% for the nine months ended January 31, 2026 compared to 79% for the same period of the prior year primarily due to efficiencies realized in managing our cloud infrastructure costs relative to revenue growth.
Cost of services revenue increased by $6.3 million, or 9%, for the nine months ended January 31, 2026 compared to the same period of the prior year. This increase was primarily due to increases of $4.0 million in personnel and related costs, $1.5 million in travel expenses, and $0.8 million in miscellaneous other expenses. Gross margin for services revenue was (2)% for the nine months ended January 31, 2026 compared to 1% for the same period of the prior year. The decrease in gross margin was primarily attributable to increases in travel expenses and personnel and related costs. We continue to make investments in our services organization that we believe will be needed to support our continued growth. Our gross margin for services may fluctuate or decline in the near term as we seek to expand our services business.
Operating Expenses
Research and development
| Nine Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Research and development | $ | 331,664 | $ | 271,093 | $ | 60,571 | 22 | % | |||||||||||||||
Research and development expense increased by $60.6 million, or 22%, for the nine months ended January 31, 2026 compared to the same period of the prior year as we continued to invest in the development of new and existing offerings. The increase was primarily due to increases of $45.2 million in personnel and related costs, $5.7 million in cloud infrastructure costs, $5.4 million in travel expenses, and $3.1 million in software and equipment costs. The increase in personnel and related costs included increases of $29.0 million in salaries and related taxes, $10.4 million in stock-based compensation, and $5.3 million in employee benefits expense.
Sales and marketing
| Nine Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Sales and marketing | $ | 524,426 | $ | 455,380 | $ | 69,046 | 15 | % | |||||||||||||||
Sales and marketing expense increased by $69.0 million, or 15%, for the nine months ended January 31, 2026 compared to the same period of the prior year. The increase was primarily due to increases of $53.7 million in personnel and related costs, $7.1 million in travel expenses, and $5.1 million in marketing expenses. The increase in personnel and related costs included increases of $24.8 million in salaries and related taxes, $13.1 million in commission expense, $6.9 million in employee benefits expense, and $6.6 million in stock-based compensation.
General and administrative
| Nine Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| General and administrative | $ | 144,413 | $ | 128,980 | $ | 15,433 | 12 | % | |||||||||||||||
General and administrative expense increased by $15.4 million, or 12%, for the nine months ended January 31, 2026 compared to the same period of the prior year. The increase was primarily due to increases of $14.6 million in personnel and related costs and $2.1 million in legal and professional fees. These increases were partially offset by a decrease of $1.6 million in charitable donations. The increase in personnel and related costs included increases of $10.3 million in stock-based compensation and $3.5 million in salaries and related taxes.
Restructuring and other related charges
| Nine Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Restructuring and other related charges | $ | - | $ | 225 | $ | (225) | NM | ||||||||||||||||
NM = Not Meaningful
Restructuring and other related charges decreased by $0.2 million for the nine months ended January 31, 2026 compared to the same period of the prior year, as there were no employee-related severance and termination benefit charges pursuant to any restructuring plan for the nine months ended January 31, 2026.
Other Income, Net
Interest expense
| Nine Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Interest expense | $ | (18,897) | $ | (19,463) | $ | 566 | (3) | % | |||||||||||||||
Interest expense remained relatively flat for the nine months ended January 31, 2026 compared to the same period of the prior year.
Other income, net
| Nine Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Other income, net | $ | 43,426 | $ | 35,498 | $ | 7,928 | 22 | % | |||||||||||||||
Other income, net increased by $7.9 million, or 22%, for the nine months ended January 31, 2026 compared to the same period of the prior year. The increase was due to increases of $6.8 million in interest and other investment income primarily from our marketable securities and $1.3 million in net foreign currency exchange gains.
Provision for Income Taxes
| Nine Months Ended January 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Provision for income taxes | $ | 75,598 | $ | 64,866 | $ | 10,732 | 17 | % | |||||||||||||||
The provision for income taxes increased by $10.7 million, or 17%, for the nine months ended January 31, 2026 compared to the same period of the prior year. Our effective tax rate for the nine months ended January 31, 2026 was not meaningful due to near break-even net income before income taxes. Our effective tax rate was (241)% of our net loss before income taxes for the nine months ended January 31, 2025. Our interim tax provision excludes pre-tax losses in jurisdictions where a valuation allowance is maintained, which causes the provision to reflect only tax provisions in jurisdictions with profitable operations and results in a disproportionate effective tax rate. Our effective tax rate is affected by recurring items, such as tax rates in jurisdictions both within and outside the Netherlands and the relative amounts of income that is earned in those jurisdictions, non-deductible stock-based compensation, one-time tax benefits or charges, and BEAT legislation in the United States.
We maintain a full valuation allowance against our deferred tax assets in the Netherlands, the United Kingdom, and certain states in the United States. We have determined it is reasonably possible that within the next 12 months there may be sufficient positive evidence to release a portion or all of the valuation allowance. A release of valuation allowance, if any, would result in the recognition of certain deferred tax assets and could result in a material non-cash income tax benefit for the period in which such release is recorded, which could have a material impact on net income (loss). The timing and amount of a potential release of the valuation allowance are subject to significant management judgment regarding future earnings, future market conditions, and our ability to successfully execute our business plans and tax planning activities.
Liquidity and Capital Resources
As of January 31, 2026, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $1.248 billion. Our cash, cash equivalents, and marketable securities consist of highly liquid investment-grade fixed-income securities. We believe that the credit quality of the securities portfolio is strong and diversified among industries and individual issuers.
We have generated significant operating losses from our operations as reflected in our accumulated deficit of $1.168 billion as of January 31, 2026. We have historically incurred, and expect to continue to incur, operating losses and may generate negative cash flows from operations in the future due to the investments we intend to make. As a result, we may require additional capital resources to execute our strategic initiatives to grow our business.
We believe that our existing cash, cash equivalents, and marketable securities and cash from our future operations will be sufficient to fund our operating and capital needs for at least the next 12 months, despite the uncertainty in the changing market and macroeconomic conditions. Our assessment of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties. Our actual results could vary as a result of, and our future capital requirements, both near-term and long-term, will depend on many factors, including our growth rate, the timing and extent of spending to support our research and development efforts, the expansion of sales and marketing activities, the timing of new introductions of solutions or product features, and the continuing market acceptance of our solutions and services.
We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. We have based our estimate of the adequacy of our financial resources on assumptions that may prove to be wrong, and we could use our available resources sooner than we currently expect.
In July 2021, we issued long-term debt of $575.0 million, represented by our Senior Notes, and we may be required to seek additional equity or debt financing. As market conditions warrant, we may from time to time seek to purchase our outstanding debt securities or loans, including the Senior Notes, in privately negotiated or open market transactions, by tender offer or otherwise.
In the event that additional financing is required from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, operating results and financial condition would be adversely affected.
Share Repurchase Program
In October 2025, our board of directors authorized the Share Repurchase Program for up to $500.0 million of our outstanding ordinary shares. Repurchases may be effected, from time to time, through open market purchases, block trades, accelerated or other structured share repurchase programs, or through other transactions in accordance with applicable securities laws. The timing and amount of any repurchases will be determined by management based on the share price, business and market conditions, and other factors. The Share Repurchase Program does not obligate us to acquire any particular amount of ordinary shares, and the Share Repurchase Program may be modified, suspended, or terminated at any time at our discretion.
During the nine months ended January 31, 2026, we repurchased 3.8 million of our outstanding ordinary shares for an aggregate purchase price of $300.0 million, excluding transaction costs associated with the repurchases, at a weighted-average price of $79.62 per share. All repurchases were made in open market transactions. As of January 31, 2026, $200.0 million remained available for future repurchases under the Share Repurchase Program. See Note 10, "Ordinary Shares," to our accompanying Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional details.
Cash Flows
The following table summarizes our cash flows for the periods presented:
| Nine Months Ended January 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by operating activities | $ | 174,184 | $ | 179,189 | |||||||
| Net cash provided by (used in) investing activities | $ | 121,741 | $ | (148,011) | |||||||
| Net cash (used in) provided by financing activities | $ | (287,092) | $ | 18,477 | |||||||
Net Cash Provided By Operating Activities
Net cash provided by operating activities during the nine months ended January 31, 2026 was $174.2 million, which resulted from adjustments for non-cash charges of $378.0 million, partially offset by a net loss of $68.1 million and a net cash outflow of $135.7 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $221.0 million for stock-based compensation expense, $81.3 million for amortization of deferred contract acquisition costs, and $61.1 million for deferred income taxes. The net cash outflow from changes in operating assets and liabilities resulted from a $97.2 million increase in deferred contract acquisition costs, a $51.0 million decrease in deferred revenue, a $14.2 million net increase in prepaid expenses and other assets, and a $8.3 million decrease in operating lease liabilities. These outflows were partially offset by inflows from a $20.6 million decrease in accounts receivable, net and a $14.4 million net increase in accounts payable, accrued expenses, and accrued compensation and benefits.
Net cash provided by operating activities during the nine months ended January 31, 2025 was $179.2 million, which resulted from adjustments for non-cash charges of $334.0 million, partially offset by a net loss of $91.7 million and a net cash outflow of $63.1 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $192.2 million for stock-based compensation expense, $71.5 million for amortization of deferred contract acquisition costs, $56.2 million in deferred income taxes, and $10.0 million of depreciation and intangible asset amortization expense. The net cash outflow from changes in operating assets and liabilities resulted from a $67.0 million increase in deferred contract acquisition costs as our sales commissions increased due to increased business volume, a $39.7 million decrease in accounts payable, accrued expenses, and accrued compensation and benefits, a $15.6 million increase in prepaid expenses and other assets, and a $9.5 million decrease in operating lease liabilities.These outflows were partially offset by inflows from a $51.5 million decrease in accounts receivable, net and a $17.2 million increase in deferred revenue.
Net Cash Provided By (Used In) Investing Activities
Net cash provided by investing activities of $121.7 million during the nine months ended January 31, 2026 was primarily due to sales, maturities, and redemptions of marketable securities of $523.7 million, partially offset by purchases of marketable securities of $362.4 million and cash paid for business acquisitions, net of cash acquired, of $36.8 million.
Net cash used in investing activities of $148.0 million during the nine months ended January 31, 2025 was primarily due to purchases of marketable securities of $388.8 million, partially offset by sales, maturities, and redemptions of marketable securities of $243.0 million.
Net Cash (Used In) Provided By Financing Activities
Net cash used in financing activities of $287.1 million during the nine months ended January 31, 2026 was due to repurchases of ordinary shares of $300.1 million, partially offset byproceeds from stock option exercises and ESPP purchases of $13.0 million.
Net cash provided by financing activities of $18.5 million during the nine months ended January 31, 2025 was due to the proceeds from stock option exercises and ESPP purchases.
Contractual Obligations and Commitments
Our principal commitments consist of obligations under our operating leases, which are primarily for office space, and purchase commitments to our cloud hosting providers. There have been no material changes to our contractual obligations and commitments discussed in the Company's Annual Report on Form 10-K.
Recently Issued Accounting Pronouncements
See Note 2, "Summary of Significant Accounting Policies" of our accompanying Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for recently adopted accounting pronouncements and new accounting pronouncements not yet adopted as of the date of this report.