Elastic Reports Strong Second Quarter Fiscal 2022 Financial Results
Q2 Elastic Cloud Revenue of $69.0 million, Up 84% year-over-year
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Elastic Corporate Communications
Elastic (NYSE: ESTC) ("Elastic"), the company behind Elasticsearch and the Elastic Stack, announced strong results for its second quarter of fiscal 2022 (ended October 31, 2021).
Second Quarter Fiscal 2022 Financial Highlights
- Total revenue was $206.0 million, an increase of 42% year-over-year, or 41% on a constant currency basis
- Elastic Cloud revenue was $69.0 million, an increase of 84% year-over-year, as reported and on a constant currency basis
- Calculated billings was $231.2 million, an increase of 30% year-over-year, or 29% on a constant currency basis
- Deferred revenue was $390.3 million, an increase of 26% year-over-year
- GAAP operating loss was $37.2 million; GAAP operating margin was -18%
- Non-GAAP operating profit was $1.4 million; non-GAAP operating margin was 1%
- GAAP net loss per share was $0.51; non-GAAP loss per share was $0.09
- Operating cash flow was -$10.4 million with free cash flow of -$12.2 million
- Cash and cash equivalents were $876.1 million as of October 31, 2021
“Our strong second-quarter results were fueled by the rapid adoption of Elastic Cloud, the increased strategic relevance of our solutions, and continued expansion across our customer base,” said Shay Banon, Elastic founder and chief executive officer. “Customers are increasingly choosing Elastic Cloud to reduce complexity, automate operations, and make faster, data-driven decisions. Given the ongoing momentum, we expect Elastic Cloud revenue to exceed 50% of our total revenue in the next three years.”
Second Quarter Fiscal 2022 Key Metrics and Recent Business Highlights
Key Customer Metrics:
- Total subscription customer count was over 17,000, compared to over 16,000 in Q1 FY22, and over 12,900 in Q2 FY21
- Total customer count with Annual Contract Value (ACV) greater than $100,000 was over 830, compared to over 780 in Q1 FY22, and over 650 in Q2 FY21
- Net Expansion Rate was consistent with Q1 FY22 and slightly below 130%
Product Releases and Recent Business Highlights
In Q2, Elastic continued to deliver enhancements to the Elastic Search Platform with the launch of Elastic 7.15, featuring cloud-first innovations and new capabilities across the company’s observability, security, and enterprise search solutions. In addition, the company expanded native integration with Google Cloud to provide customers with faster data ingestion in Elastic Cloud.
A key component of 7.15 was the general availability of the Elastic App Search web crawler in Elastic Enterprise Search, enabling customers to quickly and securely ingest content from publicly accessible websites and create enhanced web search experiences for any use case.
Elastic 7.15 also featured enhancements to Limitless Extended Detection and Response (XDR) in Elastic Security, including malicious behavior protection for Windows, macOS, and Linux hosts to strengthen existing malware and ransomware preventions and stop advanced threats.
- Released major enhancements to improve data resiliency and reduce network latency across all cloud providers, enabling customers to deliver results fast while reducing data transfer costs
- Expanded native integration with Google Cloud Dataflow to provide customers with faster data ingestion in Elastic Cloud
- Joined the Amazon Web Services (AWS) Independent Software Vendor (ISV) Workload Migration Program (WMP) as a certified Partner to simplify customer migrations to Elastic Cloud on AWS, and added a new AWS FireLens integration to help customers reduce time to value from their data
- Added support for Amazon ARM-based EC2 instances
- Launched three new AWS regions: Middle East, Europe South, and Africa
Elastic Enterprise Search
- Announced the general availability of the Elastic App Search web crawler to optimize customer’s search experiences
- Added new customization features in Elastic Workplace Search enabling customers to unify internal search experiences, meet infrastructure demands, and deliver relevant real-time results to meet the needs of their organizations
- Introduced the general availability of correlations in Elastic APM to help customers accelerate root cause analysis and reduce mean time to resolution
- Expanded unified observability with new APM troubleshooting views across logs, third-party dependencies, and backend services
- Completed the acquisition of Optimyze, a continuous profiling platform for infrastructure, applications and services
- Enhanced Limitless XDR capabilities including malicious behavior protection to stop advanced threats at the endpoint for Windows, macOS and Linux hosts
- Added memory threat protection for Windows endpoints to add another layer of prevention against cyber attacks
- Launched integrations with products from Carbon Black, CrowdStrike, Cloudflare, HashiCorp, and Palo Alto Networks to help security teams achieve visibility across their attack surface
- Completed the acquisitions of build.security, a policy definition and enforcement platform, and Cmd, a leader in infrastructure detection and response
- Recognized by Forrester Research in The Forrester New Wave™: Extended Detection and Response (XDR) Providers, Q4 2021
Recent Business Highlights
- Elected Shelley Leibowitz to the Elastic Board of Directors; Leibowitz brings 30 years of real-world security domain expertise and extensive corporate board and advisory experience
- Held virtual ElasticON Global event featuring customer presentations by Adobe, General Motors, IBM, Microsoft, SAP, and Twitter
- Participated in AWS re:Invent, Google Next, KubeCon, Microsoft Ignite, and Black Hat Europe industry conferences
- Recognized as the Best Technology Company for Women in 2021, Best Company for Women (overall), and Best Company Where CEOs Support Gender Diversity by workplace review site Fairygodboss
- Named to the Inc. Best Led Companies List 2021
The Company is providing the following guidance:
For the third quarter of fiscal 2022 (ending January 31, 2022):
- Total revenue is expected to be between $207 million and $209 million
- Non-GAAP operating margin is expected to be between -6.0% and -5.0%
- Non-GAAP net loss per share is expected to be between $0.24 and $0.20, assuming between 92.5 million and 93.5 million weighted average ordinary shares outstanding
For fiscal 2022 (ending April 30, 2022):
- Total revenue is expected to be between $826 million and $832 million
- Non-GAAP operating margin is expected to be between -3.0% and -2.0%
- Non-GAAP net loss per share is expected to be between $0.61 and $0.51, assuming between 92.0 million and 93.0 million weighted average ordinary shares outstanding
See the section titled “Forward-Looking Statements” below for information on the factors that could cause our actual results to differ materially. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty regarding, and the potential variability of, many of the costs and expenses that may be incurred in the future. These items necessary to reconcile such non-GAAP measures could be material and have a significant impact on the Company’s results computed in accordance with GAAP.
Conference Call and Webcast
Elastic’s executive management team will host a conference call today at 2:00 p.m. PT/5:00 p.m. ET to discuss the Company’s financial results and business outlook. A live audio webcast of the conference call will be available through Elastic’s Investor Relations website at ir.elastic.co. Slides will accompany the webcast. The replay of the webcast and slides will be available for two months.
Elastic is a search company built on a free and open heritage. Anyone can use Elastic products and solutions to get started quickly and frictionlessly. Elastic offers three solutions for enterprise search, observability, and security, built on one technology stack that can be deployed anywhere. From finding documents to monitoring infrastructure to hunting for threats, Elastic makes data usable in real time and at scale. Founded in 2012, Elastic is a distributed company with Elasticians around the globe. Learn more at elastic.co.
Elastic and associated marks are trademarks or registered trademarks of Elastic N.V. and its subsidiaries. All other company and product names may be trademarks of their respective owners.
Use of Non-GAAP Financial Measures
Reconciliations of non-GAAP financial measures to Elastic’s financial results as determined in accordance with U.S. GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of this press release titled “About Non-GAAP Financial Measures.”
This press release contains forward-looking statements that involve substantial risk and uncertainties, which include, but are not limited to, statements regarding our expected financial results for the fiscal quarter ending January 31, 2022 and the fiscal year ending April 30, 2022, our expectations regarding demand for our products and solutions and our future revenue, our assessments of the strength of our solutions and products, the expected performance or benefits of our offerings, our expectations regarding the growth and adoption of our Elastic Cloud offering, and our expectations regarding the benefits of our investments. These forward-looking statements are subject to the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Our expectations and beliefs in light of currently available information regarding these matters may not materialize. Actual outcomes and results may differ materially from those contemplated by these forward-looking statements due to uncertainties, risks, and changes in circumstances, including but not limited to those related to: our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses (which include changes in sales and marketing, research and development and general and administrative expenses), and our ability to achieve and maintain future profitability; our ability to continue to deliver and improve our offerings and develop new offerings, including security-related product and Elastic Cloud offerings; customer acceptance and purchase of our existing offerings and new offerings, including the expansion and adoption of our Elastic Cloud offerings; our inability to realize value from investments in the business, including R&D investments and strategic transactions; our ability to maintain and expand our user and customer base; the impact of the COVID-19 pandemic, including any variants, on the macroeconomic environment, on our business, operations, hiring and financial results, and on businesses of our customers and partners, including their spending priorities, the effect of lockdowns, restrictions and new regulations; the impact of our licensing model on the use and adoption of our software; the impact of foreign currency exchange rate and interest rate fluctuations on our results; our international expansion strategy; our operating results and cash flows; our beliefs and objectives for future operations; the sufficiency of our capital resources; our ability to successfully execute our go-to-market strategy, including by expanding our relationships with our partners, and expand in our existing markets and into new markets, and our ability to forecast customer retention and expansion; and general market, political, economic and business conditions.
Any additional or unforeseen effect from the COVID-19 pandemic may exacerbate these risks. Additional risks and uncertainties that could cause actual outcomes and results to differ materially are included in our filings with the Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the fiscal year ended April 30, 2021 and any subsequent reports filed with the SEC. SEC filings are available on the Investor Relations section of Elastic’s website at ir.elastic.co and the SEC’s website at www.sec.gov. Elastic assumes no obligation to, and does not currently intend to, update any such forward-looking statements, except as required by law.
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About Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. GAAP, we believe the non-GAAP measures listed below are useful in evaluating our operating performance. We use these non-GAAP financial measures to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP. In particular, free cash flow is not a substitute for cash used in operating activities. Additionally, the utility of free cash flow as a measure of our liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation of our historical non-GAAP financial measures to their most directly comparable financial measure stated in accordance with U.S. GAAP has been provided in the financial statement tables included in this press release. Investors are cautioned that there are a number of limitations associated with the use of non-GAAP financial measures and key metrics as analytical tools. Investors are encouraged to review these reconciliations, and not to rely on any single financial measure to evaluate our business.
Non-GAAP Gross Profit and Non-GAAP Gross Margin
We define non-GAAP gross profit and non-GAAP gross margin as GAAP gross profit and GAAP gross margin, respectively, excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, and amortization of acquired intangible assets. We believe non-GAAP gross profit and non-GAAP gross margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations, as these metrics generally eliminate the effects of certain variables from period to period for reasons unrelated to overall operating performance.
Non-GAAP Operating Income (Loss) and Non-GAAP Operating Margin
We define non-GAAP operating income (loss) and non-GAAP operating margin as GAAP operating loss and GAAP operating margin, respectively, excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, amortization of acquired intangible assets, and acquisition-related expenses. We believe non-GAAP operating income (loss) and non-GAAP operating margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations, as these metrics generally eliminate the effects of certain variables from period to period for reasons unrelated to overall operating performance.
Non-GAAP Net Earnings (Loss) Per Share
We define non-GAAP net earnings (loss) per share as GAAP net loss per share, excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, amortization of acquired intangible assets, acquisition-related expenses and the tax effects related to the foregoing. We believe non-GAAP net earnings (loss) per share provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this metric generally eliminates the effects of certain variables from period to period for reasons unrelated to overall operating performance.
Free Cash Flow and Free Cash Flow Margin
Free cash flow is a non-GAAP financial measure that we define as net cash (used in) provided by operating activities less purchases of property and equipment and capitalized internal-use software costs. Free cash flow margin is calculated as free cash flow divided by total revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our core operations that, after the purchases of property and equipment, can be used for strategic initiatives, including investing in our business and selectively pursuing acquisitions and strategic investments.
We define calculated billings as total revenue plus the increase (decrease) in total deferred revenue as presented on or derived from our consolidated statements of cash flows less the (increase) decrease in total unbilled accounts receivable in a given period. Calculated billings exclude deferred revenue and unbilled accounts receivable acquired through acquisitions in the period of acquisition. We typically invoice our customers annually in advance, and to a lesser extent multi-year in advance, quarterly in advance, monthly in advance, monthly in arrears or upon delivery. Our management uses calculated billings to understand and evaluate our near-term cash flows and operating results.
We compare the percent change in certain results from one period to another period using constant currency information to provide a framework for assessing how our business performed excluding the effect of foreign currency rate fluctuations. In presenting this information, current and comparative prior period results are converted into United States dollars at the exchange rates in effect on the last day of our prior fiscal year, rather than the actual exchange rates in effect during the respective periods.