Elastic Announces Layoffs With Q2 Earnings; Hundreds Of Workers Cut
Wade Tyler Millward
‘I didn‘t take this decision lightly,’ Elastic CEO Ash Kulkarni says in a post online.
Enterprise search and cybersecurity tools vendor Elastic plans to reduce its workforce by about 13 percent, eliminating hundreds of employees, the company announced during its latest quarterly earnings call and in a regulatory filing Wednesday.
CRN has reached out to Elastic for comment.
Elastic Announces Layoffs Alongside Q2 Earnings
In an online post, Elastic CEO Ash Kulkarni said that “the vast majority” of affected employees were notified and that the company will pay for a minimum of 14 weeks of severance, an additional week per completed full year of service and six months of existing health care premiums, among other payments. The company will also provide resume and job search support plus immigration support, he said.
“I didn’t take this decision lightly,” Kulkarni said. “Since becoming CEO, I have had the opportunity to spend time with Elasticians around the globe. It’s been an honor getting to know so many of you. Your passion and commitment humble me.”
He continued: “We are fortunate that security, observability, and search are mission-critical to our customers. However, it has become clear that the global macroeconomic environment is forcing our customers to tighten budgets and review investments more closely. This is especially true in certain segments of the market like small and medium businesses where the current appetite to spend in uncertain times is limited.”
In June, the company reported having about 3,000 employees. Elastic operates in 45 countries.
The company has a partner program for regional partners, channel partners, resellers, managed service providers (MSPs), original equipment manufacturers (OEMs), global systems integrators (GSIs) and other business types.
In its regulatory filing, Elastic said it plans to implement “certain facilities-related cost optimization actions” in addition to cutting workers.
The employee severance and termination costs will reach between $25 million and $28 million. Total charges under the restructuring plan will reach $32 million to $36 million. Most of the charges will come in the third quarter of fiscal year 2023 – a quarter that ends Jan. 31. The workforce and office space reductions will finish by the first quarter of fiscal year 2024.
“It still feels like I wasn’t in the right place at the right moment or that this is all a big misunderstanding,” an Elastic SMB account executive for Canada wrote on LinkedIn. “It’s even harder to deal with this news when literally a minute before I was celebrating my success.”
Elastic Q2 Earnings
Meanwhile, the company reported earnings Wednesday for the second quarter of its 2023 fiscal year – a quarter that ended Oct. 31.
The reduction in workforce and office space comes despite total revenue of $264.4 million, up 34 percent ignoring foreign exchange.
Elastic Cloud revenue was $103.2 million, up 52 percent year over year. The company had an operating loss of $49 million following generally accepted accounting principles (GAAP). The company had $856.2 million in cash on Oct. 31.
Following the company’s own accounting principles, Elastic saw operating income of $4.9 million and an operating margin of 2 percent. The goal is to reach 10 percent operating margin under these accounting principles next fiscal year, according to a company statement.
Elastic reached 19,700 total subscription customers and more than 1,050 customers with annual contract value (ACV) above $100,000. The company continued to develop partnerships with Google Cloud, Microsoft Azure and Amazon Web Services, according to a statement.
Elastic expects total revenue for the third quarter of the 2023 fiscal year – a quarter that ends Jan. 31 – to reach between $272 million and $274 million. The company expects total revenue for the current fiscal year to reach about $1 billion, according to a statement.
Kulkarni said on the earnings call Wednesday that he has “continued confidence in our long-term market opportunity and the core fundamental strengths of our business,” according to a call transcript.
“During the quarter, we continue to make progress across our three key focus areas: driving durable growth, widening our competitive moat, and continuing our focus on profitable growth,” he said. “We also saw our customers continue to show preference for consolidation onto our platform for multiple use cases.”
Despite this, in October, small and midsize business (SMB) customers slowed consumption and tightened their spending, with more deal scrutiny, he said. Customers in countries especially hit by a strengthening U.S. dollar were especially hit, he said, according to the transcript.
“That effort that‘s being spent on the SMB area is really not giving us commensurate returns,” Kulkarni said. “And we are not expecting the SMB environment to change either in the near future. We expect that that’s going to be an area where there will be continued stress in the economy. On the other hand, we continue to see on the enterprise side long-term opportunity for us to continue to do well.”
Along with reduced headcount, the company is investing in more self-service and automation for SMB customers, he said. The company will hire more technicians with cloud and serverless experience.
During the earnings call, Janesh Moorjani, Elastic’s chief financial officer and chief operating officer, said that customer appetite for cloud over on-premises did not change with the uncertain economy.
Elastic’s stock traded at $57.13 Thursday afternoon Eastern time, down about 7 percent from market close Wednesday.