ESTC 10-K & 10-Q changes, risk factors and insider trading

A description of the risks and uncertainties associated with our business, industryindustry, and ownership of our ordinary shares is set forth below. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that could adversely affect our business, financial condition, operating resultsresults, and prospects.

Our business and operations have experienced rapidsignificant growth, and if we do not appropriately manage our future growth or are unable to improve our systems and processes, our business, financial condition, results of operations, and prospects may be adversely affected.

We have experienced rapidsignificant growth and increased demand for our offerings. The growth and expansion of our business and offerings place a significant strain on our management, operational, and financial resources. In addition, as customers adopt our technology for an increasing number of use cases, we have had to support more complex commercial relationships. We may not be able to leverage, developdevelop, and retain qualified employees effectively enough to realize our growth plans. Any failure by us to continue to improve our information technologyIT and financial infrastructure, our operating and administrative systems, our relationships with our partners and other third parties, and our ability to manage headcount and processes in an efficient manner could result in increased costs, negatively affect our customers’ satisfaction with our offerings, and harm our results of operations.

We incurred a net lossesloss of $108.1 million and $236.2 million for the yearsyear ended April 30, 2025 and 2023, respectively, and have incurred losses in all but one of our priortwo fiscal years since our inception. As a result, we had an accumulated deficit of $1.100$732.0 billionmillion as of April 30, 2025.2026. Although we had net income of $367.8 million and $61.7 million for the yearyears ended April 30, 2026 and 2024, respectively, we would have incurred net losses in such years as well without the releases of valuation allowances against deferred tax assets and we may incur net losses in future years. Our operating expenses will continue to increase substantially in the foreseeable future as we continue to enhance our offerings, broaden our customer base and pursue larger transactions, expand our sales and marketing activities and other operations, hire additional employees, and continue to develop our technology. These efforts may prove more expensive than we currently expect, and we may not succeed in increasing our revenue sufficiently, or at all, to offset these higher expenses. Revenue growth may slow or revenue may decline because of slowing demand for our offerings, increasing competition, economic downturns, or other factors, including as a result of rising rates of inflationinflation, economic downturns, and other macroeconomic events. You should not consider our revenue growth in prior periods as indicative of our future performance. Any failure by us to continue to increase our revenue and grow our business could prevent us from achieving profitability at all or on a consistent basis.

Unfavorable or uncertain conditions in our industry or the global economy or reductions in information technologyIT spending, including as a result of adverse macroeconomic conditions, international trade policies, or geopolitical conflicts, could limit our ability to grow our business and negatively affect our results of operations.

Our results of operations may vary based on the impact of changes in our industry or the global economy on us or our customers. Current, future, or sustained economic uncertainties or downturns, whether actual or perceived, could adversely affect our business and results of operations. Negative conditions in the general economy both in the United States and in international markets, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, international trade policies, changes in inflation, foreign exchange and interest rate environments, recessionary fears, supply chain constraints, energy costs, political instability and conflict, natural catastrophes, warfare, infectious diseasesdiseases, and terrorist attacks, could cause a decrease in business investments by our customers and potential customers, including their spending on information technology,IT, and negatively affect the growth of our business. For example, inflation rates recently reached levels not seen in decades and have continued to create economic volatility as governments adjust interest rates in an attempt to manage the inflationary environment, which may further lead to our customers tighteningreducing their technology expenditures and investment. Further, the evolving conflicts inand geopolitical turmoil around the Middle East and Russia’s war with Ukraineworld could continue to have significant negative macroeconomic consequences, including on the businesses of our customers, which could negatively impact their spending on our offerings.

As a result of the foregoing conditions, our revenue may be disproportionately affected by longer and more unpredictable sales cycles, delays or reductions in customer consumption or in general information technologyIT spending, and furtheradditional impacts of changing foreign exchange rates. Further, current and potential customers may choose to develop in-house software as an alternative to using our paid products. These factors could increase the amount of customer attrition we have experienced recently and further slow consumption and overall customer expenditure. Moreover, competitors may respond to market conditions by lowering prices. If the economic conditions of the general economy or markets in which we operate do not improve, or worsen from present levels, our business, results of operations, and financial condition could be adversely affected.

AI presents new risks and challenges that may affect our business. We are increasingly utilizing and building AI and machine learning (“ML”) capabilities into our business and have made, and expect to continue to make, continued investments to integrate AI and machine learningML technology into our offerings, including increasing our technical operations and engineering in these applications. Rapid technological progress in the industry regarding new and emerging AI technologies, such as generative and agentic AI, may require additional investment in the development, integration, and maintenance of our product offerings, as well as the development of appropriate technical protections and safeguards to maintain a responsible and ethical AI framework. These requirements may add costs and could increase our expenses as we continue to expand the breadth of use and applications of AI technologies, including generative and agentic AI, further into our product offerings, or to address changes to AI technologies, frameworks, or regulations. InFurthermore, addition,as we expand the number and variety of LLMs and other AI models integrated into or made available through our products and offerings, we face compounding uncertainties arising from the dynamic and evolving performance characteristics of such models. Such performance characteristics may incurinclude substantial costschanges in ourmodel salesoutputs, capabilities, accuracy, and marketingbehavior effortsintroduced by third-party model providers without advance notice to promoteus. These changes may generate novel risks, including risks related to product reliability, customer trust, data integrity, third-party claims, and sellregulatory ourcompliance, offeringsthat based on AI technologies, including costs for branding, product promotion, and demand generation, as well as for technical training, training material generation, and investments in resources for our sales personnel and partners. Despite such investments in building our product offerings and in sales and marketing, our product offeringswe may not be adopted by customers. We may not achieve significant revenue directly relatedable to allanticipate, ofadequately assess, or promptly mitigate to avoid harmful effects on our AI-related initiatives for several years, if at all.business.

Further, AI presents risks, challenges, and unintended consequences that could affect our ability to continue to incorporate the use of AI successfully in our business and solutions in new ways. Further, givenGiven the complex nature of AI technology, we face an evolving regulatory landscape and significant competition from other companies. Competitors may incorporate AI and ML into their productsproducts, offerings, and solutions more quickly or more successfully than we do, which could impair our ability to compete effectively and adversely affect our financial results. Our ability to effectively implement and market our AI and ML solutions and features will depend, in part, on our ability to attract and retain employees with AI and ML expertise in competition with other enterprises for professionals with the skills and technical knowledge we will require. Data practices by us or others that result in controversy could also impair the acceptance of AI solutions, which could undermine confidence in the decisions, predictions, analysis, or other content thatproduced by our AI-related initiativesinitiatives. produce.In Anyaddition, the rapid adoption of generative and agentic AI tools may change how software developers design, build and deploy applications, including through increased automation of coding, infrastructure configuration and application architecture. Because a portion of our strategy is focused on being a platform of choice for developers, changes in developer workflows, tooling or decision-making processes resulting from the foregoingadoption of AI-enabled development tools could adverselyaffect affecthow developers select databases or other data platforms. The demand for our business,products reputation,and services could be negatively affected if these evolving development patterns reduce developer engagement with, or financialpreference results.for, our platform or favor alternative technologies or architectures.

We view our continued investment in AI and generative AI research and development as an opportunity to enhance our products and services, strengthen our competitive advantage, and contribute to the responsible advancement of AI and generative AI technology. While we aim to do so in a responsible manner, the use of AI and generative AI in our products and services presents ethical and legal risks to our business, financial condition, and results of operations. If our use of AI becomes controversial, we may experience loss of user trust, as well as brand or reputational harm, competitive injury, or legal liability. Potential government regulation related to AI and ML use and ethics may also increase the burden and cost of research and development in this area, and failure to properly remediate AI and ML usage or ethics issues may cause public confidence in AI and ML to be undermined. The rapid evolution of AI and ML will require the application of resources to develop, test and maintain any potential offerings or partnerships to help ensure that AI and ML are implemented ethically to minimize unintended, harmful impact. The use of AI technologies also could expose us to an increased risk of cybersecurity threats and incidents and claims or other adverse effects from infringements or violations of intellectual property or other regulated activity. Our use of such technologies could increase the risk of exposure of our or other parties’ proprietary confidential information, or other confidential or sensitive information, to unauthorized recipients, including inadvertent disclosure of confidential or sensitive information into publicly available third-party training sets. Such risks related to the use of AI could,AI, whether directly or indirectly, could harm our results of operations, competitive position and business.

If we experience a security incident, or if unauthorized access to or other unauthorized processing of confidential information, including personal data, otherwise occurs, our software may be perceived as not being secure, customers may reduce the use of or stop using our products, and we may incur significant liabilities.

If our security measures are compromised, we may face a loss inof intellectual property protection, our data, or our customers’ data, and our reputation may be damaged, our business may suffer, and we could be subject to claims, demands, regulatory investigations, and other proceedings and indemnity obligations and otherwise incur significant liability. Even the perception of inadequate security or an inability to maintain security certifications, maintain a security program in line with industry standards, or to comply with our customer or user agreements, contracts with third-party vendors or service providers, or other contracts may damage our reputation, cause a loss of confidence in our security solutions and negatively affect our ability to win new customers and retain existing customers. Further, we could be required to expend significant capital and other resources to address any security incident, and we may face difficulties or delays in identifying and responding to any cybersecurity incident. If our systems or networks or those on which we rely suffer severe damage, disruption, or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, we could experience delays in reporting our financial results, and we may lose revenue and profits as a result of our inability to timely produce, distribute, invoice and collect payments for our products and services.

In addition, manyMany of our customers may use our software for processing their confidential information, including business strategies, financial and operational data, personal information and other related data. As a result, unauthorized access to or use of our software or such data could result in the loss, compromise, corruption or destruction of our customers’ confidential information. Such access or use could also hinder our ability to obtain and maintain information security certifications that support customers’ adoption of our products and our retention of those customers. We expect to continue incurring significant costs in connection with our implementation of administrative, technical, and physical measures designed to protect the integrity of our customers’ data and prevent data loss, misappropriation, and other security incidents.

Techniques used to sabotage or obtain unauthorized access to systems or networks are constantly evolving and, in some instances, are not identified until launched against a target. We and our third-party vendors and service providers may be unable to anticipate these techniques, react to them in a timely manner, or implement adequate preventative measures. Because of the complexity and interconnectedness of our systems and networks and those on which we rely, the process of upgrading or patching our protective measures could itself create a risk of cybersecurity intrusions or system disruptions, including for customers who rely upon, or have exposure to, such systems and networks.

Our revenue growth rate may decline or even become negative if we are unable to increase sales of our subscriptions to new customers, sell additional subscriptions to our existing customers,customers or renew current subscriptions, or expand the value of our existing customers’ subscriptions.

We offer certain features of our products with no payment required. Customers purchase subscriptions to gain access to additional functionality and support. OurWe futuremay successnot dependssucceed onin our ability to sellselling our subscriptions to new and existing customers, including to large enterprises, andor toin expandexpanding the deployment of our offerings with existing customers by selling paid subscriptions to our existing users and expanding the value and number of existing customers’ subscriptions. Our ability to sell new subscriptions depends on a number of factors, including the prices of our offerings, the prices of products offered by our competitors, and the budgets of our customers. We also facemust difficulty in displacingdisplace the products of incumbent competitors. In addition, a significant aspect of our sales and marketing focus is to expand deployments within existing customers. The rate at which our existing customers purchase additional subscriptions and expand the value of existing subscriptions depends upon customers’ level of satisfaction with our offerings, the nature and size of the deployments, the desire to address additional use cases, the perceived need for additional features, and general economic conditions. If our existing customers do not purchase additional subscriptions or expand the value of their subscriptions, our Net Expansion Rate may decline. We rely in large part on our customers to identify new use cases for our products in order to expand such deployments and grow our business. IfFurthermore, our customers may choose not to renew their subscriptions with us or may choose to renew for shorter subscription terms or on terms less advantageous to us for a number of factors, including their budgets, their satisfaction with our products and customer support, our products’ ability to integrate with new and changing technologies, frequency and severity of product outages, our product uptime or latency, and the pricing of our products or competing products. Our business could be materially and adversely affected if our customers do not recognize the potential of our offerings, ouror business would be materially and adversely affected. Ifif our efforts to sell subscriptions to new customerscustomers, to renew subscriptions with existing customers, and to expand deployments with existing customers are not successful, our total revenue may decline and revenue growth rate may decline or even become negative, and our business could suffer.successful.

Our ability to grow our businessWe may suffernot ifbe we are unableable to expand adoption of or realize expected return on investments in our Elastic Cloudcloud-based offerings.

We believe that we must offer cloud-based products to address the market segment that prefers a cloud-based solution, and that our future success will depend significantly on the growth in adoption of Elastic Cloud, our family of cloud-based offerings. For the years ended April 30, 2026, 2025, 2024, and 2023,2024, Elastic Cloud contributed 48%, 46%, 43%, and 40%43% of our total revenue, respectively. As the use of cloud-based computing solutions is rapidly evolving, it is difficult to predict the potential growth, if any, of general market adoption, customer adoption, and retention rates of our cloud-based offerings. We have incurred and will continue to incur substantial costs to develop, sell and support our Elastic Cloud offerings. We have entered into non-cancelable multi-year cloud hosting capacity commitments with some third-party cloud providers, which require us to pay for such capacity irrespective of actual usage. Further, as our cloud offeringofferings makesmake up an increasing percentage of our total revenue, we expect to see increased associated cloud-related costs, such as hosting and infrastructure costs, which may adversely impact our gross margins. Demand for thesecloud-based offerings could decrease for reasons within or outside of our control, including, among other factors, lack of customer acceptance, technological and security challenges with bringing cloud offerings to market and maintaining those offerings, information security, data protection, or privacy concerns,incidents, our inability to properly manage and support our cloud-based offerings, competing technologies and products, weakening economic conditions, and decreases in corporate spending. If we are not able to develop, market, or deliver cloud-based offerings that satisfy customer requirements technically or commercially, if our investments in cloud-based offerings do not yield the expected return, or if we are unable to decrease the cost of providing our cloud-based offerings, our business, competitive position, financial condition, and results of operations may be harmed.

Our results of operations, including our revenue, cost of revenue, gross margin, operating expenses, cash flows and deferred revenue, have fluctuated from quarter to quarter in the past and may continue to vary significantly in the future so that period-to-period comparisons of our results of operations may not be meaningful. These variations may be further impacted as more of our Elastic Cloud customers adopt consumption-based arrangements or as Elastic Cloud customers already on consumption-based arrangements adjust their usage in response to the current macroeconomic environment. These variations may also be impacted by internal reorganizations, including reassignment of personnel to new roles or to new sales territories. Accordingly, our financial results in any one quarter should not be unduly relied upon as indicative of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, may be difficult to predict, and may or may not fully reflect the underlying performance of our business. Factors that may cause fluctuations in our quarterly financial results include the risks and uncertainties described in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K. Fluctuations in our results could cause us to fail to meet the expectations of investors or securities analysts, which could cause the trading price of our ordinary shares to fall substantially and result in costly lawsuits, including securities class action suits against us, which could have an adverse effect on our business.us.

We do not have an adequate history with ourOur consumption-based arrangements for our Elastic Cloud offerings make it difficult to predict accurately predict the long-term rate of customer adoption or renewal, or the impact those arrangements will have on our near-term or long-term revenue or operating results.

Because we recognize revenue under a consumption-based arrangement based on actual customer consumption, we do not have the same ability to predict the timing of revenue recognition as we do under subscription arrangements in which revenue is recognized on a predetermined schedule over the subscription term. Moreover, customers may consume our products at a different pace than we expect. For example, we have experienced and, if adverse economic conditions persist, may continue to experience slowing consumption as customers look to optimize their usage. Additionally, we have seen and may continue to see newer customers increase their consumption of our solutions at a slower pace than our more tenured customers. For these reasons, our revenue in future periods may be less predictable or more variable than ourin historicalpast revenue,periods, and our actual results may differ materially from our forecasts.

We believe that developing and maintaining widespread awareness of our brand, especially with developers and executives with budgetary control within their organizations, is critical to achieving widespread acceptance of our software and attracting new users and customers. We also believe that the importance of brand recognition will increase as competition in our market increases. Successfully maintaining and enhancing our brand will depend largely on the effectiveness of our marketing and branding efforts, our ability to maintain our customers’ trust, our ability to continue to develop new functionality and use cases, and our ability to successfully differentiate our products and platform capability from competitive products. Brand promotion activities may not generate user or customer awareness or increase revenue. Even if theythose activities do increase revenue, any such increase may not offset the expenses we incur in building our brand. For instance, our continued focus and investment in our ElasticON user conferences and similar investments in our brand, user engagement, and customer engagement may not generate the desired customer awareness or a sufficient financial return. If we fail to successfully promote and maintain our brand, we may fail to attract or retain users and customers necessary to achieve the widespread brand awareness that is critical for broad customer adoption of our products, which would adversely affect our business and results of operations.

Some of our current and potential competitors have longer operating histories, significantlysubstantially greater financial, technical, marketing and other resources, strongergreater brand recognition, larger sales forces and marketing budgets, broader globaldistribution distributionnetworks and presence, more established relationships with current or potential customers and partners, more diverse product and services offerings, and larger customerand basesmore thanmature weintellectual do.property portfolios. Our competitors may be able to leverage these resources to gain business in a manner that discourages customers from purchasing our offerings. These factors may allow our competitors to respond more quickly than we can to new or emerging technologies and changes in customer preferences. TheseCompared to us, these competitors may engage in more extensive research and development efforts, undertake more far-reaching and successful sales and marketing campaigns, have more experienced sales professionals, execute more successfully on their go-to-market strategy and have greater access to more markets and decision makers, and adopt more aggressive pricing policies, which may allow them to build larger customer bases than we have. Claims made about our products by current and future competitors, even if misleading, may also negatively impact customer perceptions about us. New start-upStart-up companies that innovate and large competitors that are making significant investments in research and development may develop offerings that compete with or achieve greater market acceptance than our offerings, which could attract customers away from our offerings and reduce our market share. As market segments become increasingly crowded and competition intensifies, we could potentially face increasing costs of goods and services sold. If we are unable to anticipate or react effectively to these competitive challenges, our competitive position would weaken, which could adversely affect our business and results of operations.

We have experienced delays in releasing new products, deployment options, and product enhancements and may experience similar delays in the future. As a result, in the past, some of our customers deferred purchasing our products until the next upgrade was released. Future delays or problems in the installation or implementation of our new releases may cause customers to forgo purchases of our products and purchase products of our competitors instead.or not upgrade our products to higher performing levels.

The success of new product introductions depends on a number of factors that include timely and successful product development, market acceptance, our ability to manage the risks associated with new product releases,releases and their maintenance, the availability of software components for new products, the effective management of development and other spending in connection with anticipated demand for new products, the availability of newly developed products, and the risk that new products may have defects in the early stages of introduction. We have experienced bugs, errors, or other defects in new products and product updates and may have similar experiences in the future. Further, our ability to increase the usage of our products depends, in part, on the development of new use cases for our products, which is typically driven by our developer community and may be outside of our control. We also have invested, and may continue to invest, in the acquisition of complementary businesses, technologies, services, products, and other assets that we expect will expand the products that we can offer our customers. We may make these investments without being certain that they will result in products or enhancements that will be accepted by existing or prospective customers. If we are unable to enhance our existing products to meet evolving customer requirements, increase adoption and usage of our products, or develop new products, or if our efforts to increase the usage of our products are more expensive than we expect, our business, results of operations, and financial condition could be adversely affected.

Our results of operations may fluctuate, in part, because of the length and variability of the sales cycle of our subscriptions and the difficulty in making short-term adjustments to our operating expenses. Our results of operations depend upon sales to new customers, including large customers, and increasing sales to existing customers. The length of our sales cycle, from initial contact with our sales team to contractually committing to our subscriptions, can vary substantially from customer to customer based on the complexity of our offerings as well as whether a sale is made directly by us or through a channel partner. Our sales cycle can extend to more than a year for some customers, and the length of sales cycles may be further extended as a result of worsening economic conditions. In addition, some customers have been scrutinizing their spending more carefully and reducing their consumption spending givenin the current uncertain economic environment, and we generally expect this caution to continue. We have also experienced and, if adverse economic conditions persist, may continue to experience longer and more unpredictable sales cycles. As we target more of our sales efforts at larger enterprise customers, we may face greater costs, longer sales cycles, greater competition and less predictability in completing some of our sales. A customer’s decision to use our solutions may be an enterprise-wide decision, which could require greater levels of education regarding the use cases of our products or protracted negotiations. In addition, larger customers may demand more configuration, integration services, and features. It is difficult to predict exactly when, or even if, we will make a sale to a potential customer or if we can increase sales to our existing customers. As a result, large individual sales in some cases have occurred in quarters subsequent to those we expected, or have not occurred at all. Lengthened or unpredictable sales cycles that cause a loss or delay of one or more large transactions in a quarter could affect our cash flows and results of operations for that quarter and for future quarters. These impacts are amplified in the short term when customers slow their consumption in response to the uncertain macroeconomic environment. Because a substantial proportion of our expenses are relatively fixed in the short term, our cash flows and results of operations could suffer if revenue falls below our expectations in a particular quarter.

Subscription revenue accounts for the substantial majority of our revenue, constituting 94% of our total revenue for the year ended April 30, 2026 and 93% of our total revenue for the years ended April 30, 2025 and 2024, and 92% of total revenue for the year ended April 30, 2023.2024. The effect of significant downturns in new or renewed sales of our subscriptions is not reflected in full in our results of operations until future periods. We recognize the vast majority of our subscription revenue either based on actual consumption or ratably over the term of the relevant time period. As a result, much of the subscription revenue we report each fiscal quarter represents the recognition of deferred revenue from subscription contracts entered into during previous fiscal quarters. Consequently, a decline in new or renewed subscriptions in any one fiscal quarter will not be fully or immediately reflected in revenue infor that fiscal quarter and will negatively affect our revenue infor future fiscal quarters.

We expect our revenue mix to vary over time as a result of a number of factors, any one of which or the cumulative effect of which may result in significant fluctuations in our gross margin and operating results. We expect that revenue from Elastic Cloud, which contributed 48%, 46%, 43%, and 40%43% of our total revenue infor fiscalthe years ended April 30, 2026, 2025, 2024 and 2023,2024, respectively, will continue to become a larger part of our revenue mix. We may experience a shift in revenue mix from cloud to self-managed in areas particularly affected by evolving international trade policies. Under the differing revenue recognition policies applicable to our subscriptions and services, shifts in our business mix from quarter to quarter could produce substantial variation in the revenue we recognize. The variation in our revenue also may result from the growth of consumption-based arrangements for our Elastic Cloud offerings, where the revenue we recognize is tied to our customers’ actual usage of our products, and from a further reduction in usage by customers already using a consumption-based arrangement due to the uncertain macroeconomic environment. Further, our gross margins and operating results could be harmed by changes in revenue mix and costs, together with numerous other factors, including our entry into new markets or growth in lower margin markets; our entry into markets with different pricing and cost structures; pricing discounts; and increased price competition.

Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. The loss of the services of any of our key personnel, the inability to attract or retain qualified personnel, or delays in hiring required personnel, particularly in engineering and sales, may seriously harm our business, financial condition, and results of operations. Our ability to attract additional qualified personnel may be impacted by the economic uncertainty and insecurity caused by macroeconomic factors and geopolitical events.events or a shortage of qualified personnel, particularly in the technology sector for skilled AI workers. The loss of services of any of our key personnel also increases our dependencydependence on other key personnel who remain with us. Although we have entered into employment offer letters with our key personnel, their employment is for no specific duration and constitutes at-will employment. We are also substantially dependent on the continued service of our existing engineering personnel because of the complexity of our products.

Our future performance also depends on the continued service and continuing contributions of our senior management to execute our business strategy and to identify and pursue new opportunities and product innovations. We do not maintain key person life insurance policies on any of our employees. The loss of services of members of our senior management could significantly delay or prevent the achievement of our development and strategic objectives, which could adversely affect our business, financial condition, and results of operations.objectives. Any search for senior managers in the future or any search to replace the loss of any senior managers may be protracted, and we may not be able to attract a qualified candidate or replacement in a timely manner or at all, particularly as potential candidates may be less willing to change jobs in periods of unstable economic conditions caused by macroeconomic and geopolitical events.

The industry in which we operate is generally characterized by significant competition for skilled personnel as well as high employee attrition. The increased availability of hybrid or remote working arrangements within our industry has further expanded the pool of companies that can compete for our employees and employment candidates. We may not be successful in attracting, integrating, or retaining qualified personnel to fulfill our current or future needs. Changes to immigration laws or the availability of work visas could adversely affect our ability to attract, hire, and retain qualified personnel. We may need to invest significant amounts of cash and equity to attract and retain new employees, and we may nevernot realize returns on these investments. Further, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited, that they have divulged proprietary or other confidential information, or that their former employers own their inventions or other work product.

We may not achieve revenue growth from expanding our sales force if we are unable to hire, train, and retain talented and effective sales personnel. We depend upon our sales force to obtain new customers and to drive additional sales to existing customers. We believe that there is significant competition for sales personnel, including sales representatives, sales managers, and sales engineers, with the requisite skills and technical knowledge. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training and retaining sufficient sales personnel to support our growth, and as we introduce new products, solutions, and marketing strategies, we may need to re-train existing sales personnel. Newly hired employees also require extensive training, which may take significant time before they achieve full productivity. Employees we have recently hired may not become productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. As we continue to grow rapidly,significantly, a large portion of our sales force will have relatively little experience working with us, our subscriptions, and our business model. Additionally, we may need to evolve our sales compensation plans to drive the growth of our subscription-based offerings, including our Elastic Cloud offerings with consumption-based arrangements. Such changes may have adverse consequences if they are not designed effectively. Our growth and results of operations could be negatively impacted if we are unable to hire and train sufficient numbers of effective sales personnel, our new and existing sales personnel are unable to achieve desired productivity levels in a reasonable period of time, our sales personnel are not successful in obtaining new customers or increasing sales to our existing customer base, or our sales and marketing programs, including our sales compensation plans, are not effective.

In addition, it can take several months to recruit, hire, and train qualified technical support employees. We may not be able to hire such employees fast enough to keep up with demand, particularly if the sales of our offerings exceed our internal forecasts. The uncertainty related to macroeconomic conditions may result in more competition for qualified employees and delays in hiring, onboarding, and training new employees. To the extent that we are unsuccessful in hiring, training, and retaining adequate support resources, our ability to provide adequate and timely support to our customers, and our customers’ satisfaction with our offeringsofferings, will be adversely affected. Our failure to provide and maintain, or a market perception that we do not provide or maintain, high-quality support services could have an adverse effect on our business and results of operations.

•political and economic instability related to international disputes, such as the evolving conflicts in the Middle Eastdisputes and Russia’s war with Ukraineconflicts and the related impact on macroeconomic conditions as a result of such conflicts, which may negatively impact our customers, partners, and vendors;

•more expansive legal rights of foreign unions and works councils as well as different labor regulations, especially in the European Union, where labor laws are generally more advantageous to employees than in the United States, including hourly wage and overtime regulations in these locations;

•exposure to many stringent regulations relating to privacy, data protection, advertising and information security, particularly in the European Union, and potentially inconsistent laws and regulations in these areas across countries;

•exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended (“FCPA”), the U.K. Bribery Act of 2010, and similar applicable laws and regulations in other jurisdictions.

If we are unable to addresseffectively manage these difficulties and challenges or other problems encountered in connection with our international operations and expansion, we might incur unanticipated liabilities or we might otherwise suffer harm to our business generally.

A portion of our revenue is generated, and a portion of our expenses is incurred, outside the United States in foreign currencies, which exposes us to risk of fluctuations in foreign currency markets. Specifically, ourOur results of operations and cash flows are subject to currency fluctuations primarily in the Euro, British Pound Sterling, Japanese Yen, and Australian Dollar against the USU.S. Dollar. Exchange rates have been volatile as a result of geopolitical conflicts and uncertain macroeconomic conditions, and this volatility may continue. The fluctuation of currencies in which we conduct business can both increase and decrease our overall revenue and expenses for any fiscal period. In addition, increased international sales and operating expenses incurred in future periods outside the United States in foreign currencies will increase our foreign currency risk. If we are not able to successfully hedge against the risks associated with currency fluctuations, our financial condition and results of operations could be adversely affected.

We offer three Search AI-poweredElasticsearch-powered solutions—Elasticsearch,Search & AI, 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 storestore, columnar database, and search engine,engine and is the unified data store for all of our solutions and use cases. Featuring a common, solution-agnostic user interface with an embedded AI agent and support for third-party AI agents, our platform offers powerful drag-and-drop visual analytics, centralized management capabilities, and the world's most downloaded open source vector database, our platformwhich gives developers a full suite of sophisticated retrieval algorithms and the ability to integrate with large language models (“LLM”).LLMs. 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 totowards theincreasingly cloud,complex data landscapes, 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.

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.independently. Our subscription agreements typically range from one to three years and are usually billed annually in advance. Our subscription agreements are botheither term-based andor 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 years ended April 30, 20252026 and 2024.2025, 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. As of April 30, 2025, we had approximately 21,500 customers compared to approximately 21,000 customers as of April 30, 2024. The majority of our new customers use Elastic Cloud. 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 1,5101,720 and over 1,3301,510 as of April 30, 20252026 and 2024,2025, respectively. In addition, we had over 240 customers who represented greater than $1.0 million in ACV as of April 30, 2026. The ACV of a customer’s commitments is calculated based on the terms of that customer’s subscriptions,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.

We have experienced significant growth, with revenue increasing to $1.739 billion for the year ended April 30, 2026 from $1.483 billion for the year ended April 30, 2025 fromand $1.267 billion for the year ended April 30, 2024 and $1.069 billion for the year ended April 30, 2023,2024, representing year-over-year growth of 17% for the yearyears ended April 30, 20252026 and 19% for the year ended April 30, 2024.2025. For the years ended April 30, 2026, 2025, 2024 and 2023,2024, revenue from outside the United States accounted for 46%, 44%, 42%, and 41%42% of our total revenue, respectively.

We incurredrecorded net lossesincome of $108.1$367.8 million and $236.2$61.7 million for the years ended April 30, 20252026 and 2023,2024, respectively, while we hadincurred a net incomeloss of $61.7$108.1 million for the year ended April 30, 2024.2025. Our net cash provided by operating activities was $266.2$326.9 million, $148.8$266.2 million, and $35.7$148.8 million for the years ended April 30, 2026, 2025, 2024 and 2023,2024, respectively. We had an accumulated deficit of $1.100$732.0 billionmillion as of April 30, 20252026 due to losses in all but onetwo offiscal years since our prior years.inception. We may incur net losses in the future and there can be no assurance whether, or when, we may become profitable on a consistent basis.

Macroeconomic events, including a possible resurgence in inflation, fluctuations in economic growth, changes in and uncertainty of international trade policies, and politicalgeopolitical unrest,turmoil, 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 “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K for a discussion of additional risks.

We believe that the growth and future success of our business dependsdepend 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 Elastic’sthe Search AIElasticsearch 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,Search Observability& AI, Elastic Observability, and Elastic 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.platform, specifically including investments in context engineering, AI models, and agentic workflows. We also intend to continue to pursue acquisitions selectively to enhance the technology in our platform and our solutions. These investments may adversely affect our operating results prior to generating benefits, to the extent that they ultimately generate benefits at all.

Growing our customer base by convertingacquiring usersnew of our software to paid subscribers.customers. Our financial performance depends on growing our paid customer base by convertingacquiring freenew users of our software into paid subscribers. Our distribution model has resulted in rapid adoption by developers around the world.customers. We have invested, and expect to continue to invest, heavily in sales and marketing efforts toand convertleverage additionalour freenetwork usersof partners to paidtarget subscribers.new customers and drive further awareness and adoption within our user community. Our investment in sales and marketing is significant given our large and diverse user base.base Theseand our efforts to engage prospects in executive-level conversations. Because 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.

WeOn recentlyNovember 12, 2024, we added the Affero General Public LicenseAGPL 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.SSPL. AGPL is an Open Source InitiativeInitiative-approved approvedopen open-sourcesource 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.

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, orwhich 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, orwhich 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 April 30, 2025.2026.

As large organizations expand their use of our platform across multiple use cases, projects, divisionsdivisions, 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.

Subscription. Cost of subscription consists primarily of cloud hosting costs, personnel and related costs for employees associated with supporting our subscription arrangements, certain third-party expenses,expenses associated with our customer support, 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.

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 growthgrowth, 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 cloud hosting costs.

Research and development. Research and development expense primarily consists of personnel and related costscosts, cloud hosting 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 costscosts, and costs related to marketing programs and user events. Marketing programs consist of advertising, events, brand-buildingbrand-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 servicesservices, 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.

(Benefit from) Provision for Income Taxes (benefitBenefit from) provision for income taxes consists primarily of income taxes related to the Netherlands, U.S. federal and state,state jurisdictions, 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, BEAT legislation in the United States, and one-time tax benefits, such as the release of a valuation allowance, or charges as well as the BEAT legislation in the United States.charges.

The following table sets forth our results of operations for the periods presented.presented:

Subscription revenue increased by $207.9$249.9 million, or 18%, for the year ended April 30, 20252026 compared to the prior year. This increase was primarily driven by continued adoption of both Elastic Cloud and Other subscriptions, which grew 22% and 14%, respectively, over the prior year. The increase in Elastic Cloud revenue was primarily attributable to an increase in revenue from Annual Elastic Cloud, which grew 26%by 28% over the prior year and increased to 46% of total revenue for the year ended April 30, 2025 from 43% for the year ended April 30, 2024.year.

Cost of subscription revenue increased by $36.3$27.6 million, or 15%,10%, for the year ended April 30, 20252026 compared to the prior year. This increase was primarily due to an increase of $38.4$20.6 million in cloud infrastructurehosting costs, partially offset by a decrease of $3.1$4.2 million in intangiblepersonnel assetsand amortization.related costs, and $2.0 million in third-party costs. Subscription gross margin increased nominally to 80%81% for the year ended April 30, 20252026 compared to 79%80% for the prior year.year primarily due to efficiencies realized in managing our cloud hosting costs relative to revenue growth.

Cost of services revenue increased by $13.5$8.8 million, or 16%,9%, for the year ended April 30, 20252026 compared to the prior year. This increase was primarily due to increases of $6.8$6.0 million in personnel and related costscosts, and $6.4$1.8 million in subcontractortravel costs.expenses, and $1.0 million in miscellaneous other expenses. Gross margin for services revenue was 2%(1)% for the year ended April 30, 20252026 compared to 8%2% 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 and subcontractor costs growing at a higher rate than the growth in services revenue.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-termnear term as we seek to expand our services business.

Research and development expense increased by $23.8$86.2 million, or 7%,24%, for the year ended April 30, 20252026 compared to the prior year as we continued to invest in the development of new and existing offerings. ThisThe increase was primarily due to increases of $22.2$64.2 million in personnel and related costscosts, and $4.7$8.9 million in cloud infrastructurehosting costscosts, related to our research and development activities. These increases were partially offset by a decrease of $3.4$7.1 million in travel expenses, and $4.0 million in software and equipment costs. The increase in personnel and related costs included increases of $16.5$39.8 million in salaries and related taxes, $3.8$15.2 million in stock-based compensation, and $3.1$7.5 million in employee benefits expense, partially offset by a decrease of $1.4 million in acquisition-related compensation.expense.

Sales and marketing expense increased by $57.5$93.0 million, or 10%,15%, for the year ended April 30, 20252026 compared to the prior year. ThisThe increase was primarily due to an increaseincreases of $55.8$75.6 million in personnel and related costs.costs, $9.5 million in travel expenses, and $4.3 million in marketing expenses. The increase in personnel and related costs included increases of $22.4$37.6 million in salaries and related taxes, $15.5$17.0 million in commission expense, $8.7 million in stock-based compensation, and $6.8$10.7 million in employee benefits expense.expense, and $8.2 million in stock-based compensation.

General and administrative expense increased by $14.6$19.2 million, or 9%,11%, for the year ended April 30, 20252026 compared to the prior year. ThisThe increase was primarily due to increases of $11.8$19.3 million in personnel and related costs and $2.0 million in software and equipment expense.costs. The increase in personnel and related costs included increases of $5.8$15.4 million in stock-based compensation and $3.8 million in salaries and related taxes, $3.2 million in stock-based compensation, and $1.5 million in employee benefits expense.taxes.

Restructuring and other related charges decreased by $4.7$0.2 million for the year ended April 30, 20252026 compared to the prior yearyear, dueas tothere lowerwere no employee-related severance and termination benefit charges.charges pursuant to any restructuring plan for the year ended April 30, 2026.

Other income, net increased by $15.4$7.7 million, or 46%,16%, for the year ended April 30, 20252026 compared to the prior year. The increase was due to increases of $10.3$4.8 million in interest and other investment incomeincome, primarily from our marketable securities and $5.4$2.4 million in net foreign currency exchange gains.

Provision for (Benefit from) Provision for Income Taxes

The provisionbenefit forfrom income taxes was $76.5$370.1 million for the year ended April 30, 20252026 compared to a benefitprovision fromfor income taxes of $184.5$76.5 million for the prior year. Our effective tax rate for the year ended April 30, 2026 was not meaningful due to near break-even net loss before income taxes. Our effective tax rate for the year ended April 30, 2025 was (242)% and 150% of our net loss before income taxes for the years ended April 30, 2025 and 2024, respectively.taxes. 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 wethat earnis earned in those jurisdictions andjurisdictions, non-deductible stock-based compensationcompensation, asBEAT welllegislation asin the United States, and one-time tax benefits or charges. The benefit from income taxes for the year ended April 30, 2026 was driven primarily by the release of valuation allowances against deferred tax assets in the Netherlands, the United Kingdom, and California for $390.5 million, $23.7 million, and $20.7 million, respectively, partially offset by tax expense in jurisdictions where we are not subject to a valuation allowance or NOLs.

As of April 30, 2025,2026, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $1.397$1.370 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 portfolioportfolio, which is strong and diversified among industries and individual issuers.issuers, is strong.

We have generated significant operating losses from our operations as reflected in our accumulated deficit of $1.100$732.0 billionmillion as of April 30, 2025.2026. 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 on 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,long-term capital requirements will depend onon, many factors,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 enter into arrangements in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. We have based thisour estimate of the adequacy of our financial resources on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect.

Net Cash Provided By (Used In) Investing Activities

Net Cash (Used In) Provided By Financing Activities

Net cash providedused byin financing activities of $40.9$312.3 million during the year ended April 30, 20252026 was due to repurchases of ordinary shares of $340.1 million, partially offset by proceeds from stock option exercises and ESPP purchases underof our$27.8 employee stock purchase plan.million.

Net cash provided by financing activities of $40.1$40.9 million during the year ended April 30, 20242025 was due to proceeds from stock option exercises and purchasesESPP under our employee stock purchase plan.purchases.

Our principal commitments consist of our purchase obligations under non-cancelable agreements primarily for cloud hosting, subscription software, sales and marketing, and general corporate services, future non-cancelable minimum rental payments under operating leases for our offices, and interest payments due on our Senior Notes. As of April 30, 2025,2026, we had purchase commitments of $812.3$613.6 million related to cloud hosting services, future minimum lease payment commitments of $29.9$24.2 million, and purchase commitments of $73.2$96.0 million related to other contracts. See Note 8, “Commitments and contingencies,Contingencies,” and Note 9, “Leases,” of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

We have also excluded unrecognized tax benefits from the contractual obligations. A variety of factors could affect the timing of payments for the liabilities related to unrecognized tax benefits. Therefore, we cannot reasonably estimate the timing of such payments. We believe that these matters will likely not be resolved in the next 12 months andand, accordinglyaccordingly, we have classified the estimated liability as non-current in the consolidated balance sheets. See Note 13, “Income Taxes,” of our accompanying Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

In preparing our consolidated financial statements in accordance with accountingU.S. principles generally accepted in the United States of America,GAAP, we are required to make estimates, assumptionsassumptions, and judgments that affect the amounts reported on our financial statements and the accompanying disclosures. Estimates and assumptions about future events and their effects cannot be determined with certainty andand, thereforetherefore, require the exercise of judgment. We base our estimates, assumptionsassumptions, and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. These estimates may change in future periods and will be recognized in the consolidated financial statements as new events occur and additional information becomes known. Actual results could differ from those estimatesestimates, and any such differences may be material to our financial statements. We believe that the critical accounting policies and estimates set forth below involve a higher degree of judgment and complexity in their application than our other significant accounting policies.

ThereExcept as set forth below, there have been no material changes to the risk factors disclosed in “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K, as amended by the risk factor disclosed in our Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2025.10-K. The risks described in the Company’s Annual Report on Form 10-K, such Quarterly Report on Form 10-Q,10-K and our subsequent SEC reports are not the only risks facing us. There are additional risks and uncertainties not currently known to us or that we currently deem to be immaterial that also may materially adversely affect our business, operating results, financial condition, or prospects.

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, 20252026 filed with the SEC on June 10,8, 20252026 (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 ourthe Company’s Annual Report on Form 10-K and in “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q.

We offer three Search AI-poweredElasticsearch-powered solutions—Elasticsearch,Search & AI, 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 storestore, columnar database, 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 an embedded AI agent and support for third-party AI agents, our platform offers powerful drag-and-drop visual analytics andanalytics, centralized management capabilities, ourand platformthe world's most downloaded open source vector database, which 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 totowards theincreasingly cloud,complex data landscapes, 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.

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.independently. Our subscription agreements typically range from one to three years and are usually billed annually in advance. Our subscription agreements are botheither term-based andor 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 ninethree months ended JanuaryJuly 31, 2026 and 2025, respectively.2025. 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,Cloud or download our software directly from our website without any sales interactioninteraction, 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 1,6601,800 and over 1,4601,550 as of JanuaryJuly 31, 2026 and 2025, respectively. The ACV of a customer’s commitments is calculated based on the terms of that customer’s subscriptions,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.

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 3,9213,834 employees as of JanuaryJuly 31, 2026.

Macroeconomic events, including a possible resurgence inof inflation, fluctuations in economic growth, changes in and uncertainty of international trade policies, and politicalgeopolitical unrest,turmoil, 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.

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 AIElasticsearch 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,Search Observability& AI, Elastic Observability, and Elastic 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.platform, specifically including investments in context engineering, AI models, and agentic workflows. We also intend to continue to pursue acquisitions selectively to enhance the technology in our platform and our solutions. These investments may adversely affect our operating results prior to generating benefits, to the extent that they ultimately generate benefits at all.

Growing our customer base by convertingacquiring usersnew of our software to paid subscribers.customers. Our financial performance depends on growing our paid customer base by convertingacquiring freenew users of our software into paid subscribers. Our distribution model has resulted in rapid adoption by developers around the world.customers. We have invested, and expect to continue to invest, heavily in sales and marketing efforts toand convertleverage additionalour freenetwork usersof partners to paidtarget subscribers.new customers and drive further awareness and adoption within our user community. Our investment in sales and marketing is significant given our large and diverse user base.base Theseand our efforts to engage prospects in executive-level conversations. Because 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.

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%111% as of JanuaryJuly 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 somea significant portion of our direct sales efforts on driving adoption of our paid offerings.

Subscription. Cost of subscription consists primarily of cloud hosting costs, personnel and related costs for employees associated with supporting our subscription arrangements, certain third-party expenses,expenses associated with our customer support, 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.

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 growthgrowth, 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 modestmodestly unfavorable impact on our gross margin as a result of the associated third-party cloud hosting costs.

Research and development. Research and development expense primarily consists of personnel and related costscosts, cloud hosting 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 costscosts, and costs related to marketing programs and user events. Marketing programs consist of advertising, events, brand-buildingbrand-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 servicesservices, 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.benefits.

(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,state jurisdictions, and foreign jurisdictions in which we conduct business. 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 wethat earnis earned in those jurisdictions, non-deductible stock-based compensation, one-time tax benefits,benefits or charges, and BEAT legislation in the United States.

Comparison of Three Months Ended JanuaryJuly 31, 2026 and 2025

Subscription revenue increased by $67.5$60.2 million, or 19%,15%, for the three months ended JanuaryJuly 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%20% and 16%,11%, 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 CloudCloud, which grew by 27%.27% over the prior year.

Services revenue increased by $0.3$2.7 million, or 1%,10%, for the three months ended JanuaryJuly 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 subscription revenue increased by $9.1$22.5 million, or 13%,32%, for the three months ended JanuaryJuly 31, 2026 compared to the same period of the prior year. TheThis increase was primarily due to an increase of $6.6$16.0 million in cloud infrastructurehosting costs, $3.9 million in partner reseller expense, $1.0 million in intangible assets amortization, and $1.0 million in personnel and related costs, and $0.5 million in third-party costs. Subscription gross margin increaseddecreased to 81%80% for the three months ended JanuaryJuly 31, 2026 compared to 80%82% for the same period of the prior year primarily due to efficienciesa realizedhigher increase in managing our cloud infrastructurehosting costs relative to revenue growth.

Cost of services revenue increased by $2.7 million, or 10%, for the three months ended July 31, 2026 compared to the same period of the prior year. This increase was primarily due to increases of $2.0 million in personnel and grossrelated costs and $1.2 million in subcontractor costs, partially offset by a decrease of $0.5 million in travel expenses. Gross margin for services revenue remained relatively flat forat the three months ended January 31, 2026(2)% 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.

Research and development expense increased by $20.8$3.4 million, or 22%,3%, for the three months ended JanuaryJuly 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$3.0 million in cloud hosting costs, $0.7 million in travel expenses, and $0.5 million in software and equipment costs, partially offset by a decrease of $0.8 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.costs.

Sales and marketing expense increased by $23.0$24.9 million, or 15%,14%, for the three months ended JanuaryJuly 31, 2026 compared to the same period of the prior year. The increase was primarily due to an increaseincreases of $19.4$19.7 million in personnel and related costs, $2.1 million in travel expenses, and $1.1$1.5 million in marketing expenses.expenses, and $1.4 million in software and equipment costs. The increase in personnel and related costs included increases of $10.6$11.6 million in salaries and related taxes, $4.5$6.0 million in commission expense, $2.1 million in employee benefits expense, and $2.0$2.1 million in stock-based compensation.

General and administrative expense increased by $9.4$3.5 million, or 22%,8%, for the three months ended JanuaryJuly 31, 2026 compared to the same period of the prior year. The increase was primarily due to increases of $9.6$6.1 million in personnel and related costs, partially offset by a net decrease of $0.2$2.7 million in miscellaneousbad businessdebt expenses.expense. The increase in personnel and related costs included increases of $6.6$4.2 million in stock-based compensation,compensation $2.0and $1.4 million in salaries and related taxes, and $0.7 million in employee benefits expense.taxes.

InterestInterest, primarily related to our Senior Notes, expense remained relatively flat for the three months ended JanuaryJuly 31, 2026 compared to the same period of the prior year.

Other income, net decreased by $3.4$3.2 million, or (22)%,20%, for the three months ended JanuaryJuly 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$2.9 million in interest and other investment incomeincome, primarily from our marketable securities.securities, and an increase of $0.3 million in other expense, net.

The benefit from income taxes was $1.6$0.5 million for the three months ended JanuaryJuly 31, 2026 compared to a provision for income taxes of $21.1$24.6 million for the same period of the prior year. Our effective tax rate for the three months ended July 31, 2026 was (26)%3%. andOur 519%effective oftax our income before income taxesrate for the three months ended JanuaryJuly 31, 20262025 andwas 2025,not respectively.meaningful Ouras our interim tax provision excludesexcluded pre-tax losses in jurisdictions where a valuation allowance iswas maintained, which causescaused the provision to reflect only tax provisions in jurisdictions with profitable operations and resultsresulted 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.