0001707753-25-000056
SEC filingElastic delivered 16% revenue growth to $423M in Q2 FY26, with gross margin expanding to 76%, though net loss widened to $51M on higher operating investments and a $53M tax provision.
For the three months ended October 31, 2025 (Q2 FY26), Elastic reported total revenue of $423.5 million, a 16% increase from $365.4 million in the prior-year period. Subscription revenue, which accounts for 94% of total revenue, grew 17% to $397.7 million, driven by a 22% increase in Elastic Cloud revenue (total Elastic Cloud revenue was $205.7 million, up from $168.8 million). Annual Elastic Cloud subscriptions grew 27%, reflecting strong enterprise adoption. Services revenue increased 5% to $25.8 million.
Gross profit rose 18% to $321.5 million, and gross margin expanded 200 basis points to 76%, primarily due to efficiencies in cloud infrastructure costs (subscription gross margin improved to 81% from 79%). Services gross margin declined to 1% from 5% due to higher personnel and travel costs.
Operating loss widened to $8.2 million from $4.4 million, as operating expenses grew 19% to $329.7 million. Research and development expenses increased 23% to $108.2 million, sales and marketing rose 20% to $173.6 million, and general and administrative expenses grew 9% to $48.0 million. The increase reflects higher personnel costs (including stock-based compensation) and continued investment in go-to-market and product development.
Net loss more than doubled to $51.3 million compared to $25.5 million in the prior year, largely due to a $52.6 million provision for income taxes (up 122%), which included the impact of the newly enacted One Big Beautiful Bill Act (OBBBA). The effective tax rate was not meaningful due to near break-even pre-tax income. Diluted EPS was ($0.48) versus ($0.25) in the prior year.
As of October 31, 2025, Elastic held $1.40 billion in cash, cash equivalents, and marketable securities, down from $1.40 billion as of April 30, 2025 (not materially changed). Total assets were $2.48 billion, with current assets of $1.83 billion. Accounts receivable decreased $115 million to $261 million, reflecting improved collections. Deferred revenue declined to $733 million from $852 million at year-end, typical for the seasonal pattern.
Total liabilities were $1.59 billion, including $570.3 million in senior notes (net of issuance costs). Shareholders' equity was $891 million, down from $927 million at April 30, 2025, primarily due to share repurchases and accumulated losses.
Operating cash flow for the six months ended October 31, 2025 was $131.4 million, up from $91.1 million in the prior-year period, driven by improvements in accounts receivable and higher non-cash charges (stock-based compensation of $142.8 million). Capital expenditures were $1.3 million, resulting in free cash flow of $130.1 million for the six-month period.
Investing activities provided $38.4 million, largely from net sales of marketable securities. Financing activities used $96.7 million, primarily for $109.2 million in share repurchases, partially offset by $12.5 million from stock option exercises and employee stock purchases.
In October 2025, the board authorized a $500 million share repurchase program. During Q2, the company repurchased 1.35 million shares for $114.2 million at an average price of $84.45 per share, leaving $385.9 million remaining under the program. No dividends were declared, and there were no changes to long-term debt.
Management attributed revenue growth to continued adoption of Elastic Cloud and strong renewal activity, with a net expansion rate of approximately 112%. The company is investing heavily in AI capabilities and expanding its sales force to capture market opportunities in search, observability, and security. The addition of the AGPL open-source license for Elasticsearch and Kibana is expected to drive further community engagement.
Key risks highlighted include macroeconomic uncertainty, which may prolong sales cycles and reduce customer spending, and geopolitical tensions (Middle East conflicts and Russia-Ukraine war) that could impact global IT budgets. Foreign currency fluctuations also pose a risk. The company expects to maintain its investment trajectory in R&D and sales & marketing, which may pressure near-term profitability. No specific forward guidance was provided.
The company operates as a single reportable segment, with revenues derived from subscriptions (94%) and services (6%). Subscription revenue is further broken down into Elastic Cloud (49% of total revenue) and other subscriptions (45%). One channel partner accounted for 11% of total revenue.
Remaining performance obligations (RPO) stood at $1.51 billion as of October 31, 2025, with 64% expected to be recognized as revenue over the next twelve months. Deferred contract acquisition costs were $206 million (current and non-current).
Stock-based compensation expense totaled $72.9 million for the quarter, up from $64.1 million in the prior year, and is included in all operating expense categories. The company amortized $2.2 million in acquired intangible assets and recognized $53.2 million in deferred contract acquisition cost amortization.
Goodwill increased to $359.7 million, driven by the acquisitions of Jina AI ($33.6 million) and Keep ($6.6 million). The company recorded no impairment of goodwill or intangibles.
The effective tax rate was not meaningful due to a near break-even pre-tax income and valuation allowances in certain jurisdictions. The provision for income taxes was elevated due to the OBBBA and profitable operations in certain jurisdictions.