0001707753-26-000006
SEC filingElastic's Q3 FY26 revenue grew 18% YoY to $449.9M, with subscription margin expanding to 81% and net income turning positive.
For the three months ended January 31, 2026, Elastic reported total revenue of $449.9 million, up 18% year-over-year. Subscription revenue grew 19% to $425.7 million, while services revenue increased modestly 1% to $24.2 million. Gross profit rose 21% to $343.4 million, with total gross margin expanding to 76% from 75% in the prior year quarter. The improvement was driven entirely by subscription gross margin, which increased to 81% from 80%, reflecting efficiencies in cloud infrastructure costs relative to revenue growth. Services gross margin remained negative at -4%. Operating income swung to a slight profit of $0.6 million from a loss of $4.6 million a year ago, as operating expenses grew 18%—slower than gross profit growth. Net income reached $7.8 million compared to a net loss of $17.1 million in Q3 FY25, aided by a $1.6 million income tax benefit versus a $21.1 million provision last year.
Subscription revenue, accounting for 95% of total revenue in the quarter, remains the primary growth engine. Elastic Cloud revenue grew 21% over the prior year, with annual Elastic Cloud subscriptions rising 27%. Other subscriptions (self-managed) grew 16%. For the nine-month period, Elastic Cloud contributed 48% of total revenue, up from 46% a year ago, indicating an ongoing mix shift toward cloud. The Net Expansion Rate stood at approximately 112% as of January 31, 2026, reflecting strong upselling and cross-selling within the existing customer base. The number of customers with over $100,000 in annual contract value increased to over 1,660 from over 1,460, demonstrating continued enterprise adoption. Services revenue growth lagged at 1% for the quarter and 6% for the nine months, with negative gross margins due to investments in the services organization.
Management continues to invest heavily in product development and sales expansion, with R&D and sales & marketing expenses growing 22% and 15% year-over-year, respectively, for both the quarter and nine-month periods. These investments are expected to persist as Elastic focuses on growing its community, converting free users to paid subscribers, and expanding within existing customers. The company anticipates that Elastic Cloud's revenue contribution will increase over time, which may exert modest pressure on gross margins due to third-party hosting costs. No quantitative guidance was provided; however, management believes existing cash, cash equivalents, and marketable securities of $1.248 billion will fund operations for at least the next 12 months. The board authorized a $500 million share repurchase program in October 2025, with $300 million expended through January 31, 2026.
As of January 31, 2026, Elastic N.V. held $737.2 million in cash and cash equivalents and $510.8 million in marketable securities, totaling $1.25 billion in liquid assets. Total assets were $2.44 billion, with shareholders' equity of $791.0 million. The company's total debt (net carrying amount of 4.125% Senior Notes due 2029) stood at $570.6 million, resulting in a net cash position of approximately $677.4 million. Deferred revenue was $808.7 million ($763.9 million current, $44.9 million non-current).
The Notes disclose $1.6 million in letters of credit outstanding as of January 31, 2026. Cloud hosting commitments had no material changes outside the ordinary course of business. Operating lease liabilities totaled $21.1 million (present value), with future minimum lease payments of $24.8 million. The company also disclosed $7.9 million in undiscounted future minimum lease payments for a newly executed office lease commencing in fiscal 2027. Remaining performance obligations (RPO) were $1.651 billion, with 64% expected to be recognized over the next twelve months.
In October 2025, the board authorized a $500.0 million share repurchase program. Through January 31, 2026, the company repurchased 3.8 million shares for $300.0 million (weighted-average price $79.62), leaving $200.0 million remaining. No dividends have been declared. Capital expenditures were $2.2 million for the nine months ended January 31, 2026 (0.2% of sales). Debt remained unchanged at $575.0 million principal, with $4.4 million in unamortized issuance costs.
The company operates as a single reportable segment. Note 15 confirms the CODM uses consolidated net income (loss) to evaluate performance. Revenue disaggregation (Note 3) shows Elastic Cloud revenue of $218.5 million (49% of total) for Q3 fiscal 2026, up 21.4% YoY. Other subscription revenue was $207.2 million (46%), and services revenue was $24.2 million (5%). Geographically, the United States contributed $239.8 million (53% of total revenue) for the quarter, with no other country exceeding 10%.
Operating cash flow (CFO) of $174.2M comfortably exceeded the net loss of $68.1M, reflecting strong non-cash add-backs including stock-based compensation ($221.0M), amortization of deferred contract acquisition costs ($81.3M), and deferred income taxes ($61.1M). The modest year-over-year CFO decline of $5.0M was driven by a significant working capital headwind from deferred revenue ($51.0M decrease vs. a $17.2M increase in the prior period), partly offset by favorable movements in accounts receivable and accounts payable.
Capital intensity remained negligible (capex/CFO ratio ~1.3%), consistent with the company's asset-light model. Free cash flow (CFO minus capex) approximated $172.0M. The company used its strong investing cash inflow ($121.7M, mainly from net sales of marketable securities) and cash reserves to fund $300.1M in share repurchases, resulting in net cash outflow from financing activities of $287.1M. Total cash increased by $9.7M.
Anomalies: The large swing in deferred revenue (negative $50.1M vs. positive $17.2M in prior year) warrants monitoring. Business acquisitions consumed $36.8M in cash during the period. Tax payments were $19.97M, up from $15.87M. No free cash flow is explicitly stated in the filing; the above is a computed proxy.