Form S-1

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

S-1 1 d588632ds1.htm FORM S-1 Form S-1

As filed with the Securities and Exchange Commission on September 5, 2018.

Registration No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

ELASTIC N.V.¹

(Exact name of Registrant as specified in its charter)

The Netherlands

7372

Not Applicable

(State or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification Number)

800 West El Camino Real, Suite 350

Mountain View, California 94040

(650) 458-2620

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Shay Banon

Chief Executive Officer and Chairman

Elastic N.V.

800 West El Camino Real, Suite 350

Mountain View, California 94040

(650) 458-2620

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Steven E. Bochner, Esq.

Steven V. Bernard, Esq.

Andrew D. Hoffman, Esq.

Wilson Sonsini Goodrich & Rosati, P.C.

650 Page Mill Road

Palo Alto, California 94304

(650) 493-9300

W.H. Baird Garrett, Esq.

Elastic N.V.

800 West El Camino Real, Suite 350

Mountain View, California 94040

(650) 458-2620

Alan F. Denenberg, Esq.

Stephen Salmon, Esq.

Davis Polk & Wardwell LLP

1600 El Camino Real

Menlo Park, California 94025

(650) 752-2000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒

CALCULATION OF REGISTRATION FEE



Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price⁽¹⁾⁽²⁾	Amount of Registration Fee
Ordinary shares, par value €0.01 per share	$100,000,000	$12,450

⁽¹⁾	Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act.

⁽²⁾	Includes the aggregate offering price of additional shares that the underwriters have the option to purchase.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

Immediately prior to the completion of this offering, we intend to change our corporate form from a Dutch private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) into a Dutch public limited company (naamloze vennootschap) and change our corporate name from Elastic B.V. to Elastic N.V.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated , 2018.

LOGO

Elastic N.V.

Ordinary Shares

This is an initial public offering of ordinary shares of Elastic N.V. All of the ordinary shares are being sold by Elastic.

Prior to this offering, there has been no public market for the ordinary shares. It is currently estimated that the initial public offering price per share will be between $ and $ . Elastic intends to apply to list the ordinary shares on the New York Stock Exchange under the symbol “ESTC”.

We are an “emerging growth company” as defined under the federal securities laws. Investing in our ordinary shares involves risks. See “Risk Factors” beginning on page 19.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.


	Per Share	Total
Initial public offering price	$	$
Underwriting discount⁽¹⁾	$	$
Proceeds, before expenses, to Elastic	$	$

⁽¹⁾	See “Underwriting” for a description of the compensation payable to the underwriters.

To the extent that the underwriters sell more than ordinary shares, the underwriters have an option to purchase up to an additional shares from Elastic at the initial public offering price, less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on , 2018.


Goldman Sachs & Co. LLC		J.P. Morgan		Barclays		RBC Capital Markets



BofA Merrill Lynch	Citigroup	Jefferies	Canaccord Genuity

Prospectus dated , 2018.

LOGO

Speed, Scale,
Relevance
Elastic is a search company.
We focus on value to users by producing fast results that operate at scale and are relevant. This is our DNA. We believe search is an experience. It is what defines us, binds us, and makes us unique.
Elastic

TABLE OF CONTENTS


	Page
Prospectus Summary		1
Risk Factors		19
Special Note Regarding Forward-Looking Statements		53
Market and Industry Data		55
Use of Proceeds		56
Dividend Policy		57
Capitalization		58
Dilution		61
Selected Consolidated Financial Data		63
Management’s Discussion and Analysis of Financial Condition and Results of Operations		69
Business		104
Management		128
Executive Compensation		137
Certain Relationships and Related Party Transactions		146
Principal Shareholders		148
Description of Share Capital		151
Shares Eligible for Future Sale		174
Taxation		177
Underwriting		188
Legal Matters		195
Experts		195
Enforceability of Civil Liabilities		195
Where You Can Find Additional Information		196
Index to Consolidated Financial Statements		F-1

Through and including , 2018 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

Neither we nor the underwriters have authorized anyone to provide you with information or make any representations other than those contained in this prospectus or in any free writing prospectus we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under the circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our ordinary shares.

For investors outside of the United States: Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.

PROSPECTUS SUMMARY

This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our ordinary shares. You should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Immediately prior to the completion of this offering, Elastic B.V. will change its corporate form from a Dutch private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) into a Dutch public limited company (naamloze vennootschap) and change its corporate name from Elastic B.V. to Elastic N.V. Unless otherwise indicated or the context otherwise requires, the terms “Elastic,” “Elastic B.V.,” “Elastic N.V.,” “the company,” “we,” “us” and “our” in this prospectus refers (i) prior to the corporate conversion, to Elastic B.V. and its consolidated subsidiaries and (ii) after the corporate conversion, to Elastic N.V. and its consolidated subsidiaries. Our fiscal year end is April 30, and our fiscal quarters end on July 31, October 31, January 31, and April 30. Our fiscal years ended April 30, 2017 and 2018 are referred to herein as fiscal 2017 and fiscal 2018, respectively.

ELASTIC

Overview

Elastic is a search company.

Search is foundational to a wide variety of experiences. Elastic makes the power of search—the ability to instantly find relevant information and insights from large amounts of data—available for a diverse set of applications and use cases.

When you hail a ride home from work with Uber, Elastic helps power the systems that locate nearby riders and drivers. When you shop online at Walgreens, Elastic helps power finding the right products to add to your cart. When you look for a partner on Tinder, Elastic helps power the algorithms that guide you to a match. When you search across Adobe’s millions of assets, Elastic helps power finding the right photo, font, or color palette to complete your project. As Sprint operates its nationwide network of mobile subscribers, Elastic helps power the logging of billions of events per day to track and manage website performance issues and network outages. As SoftBank monitors the usage of thousands of servers across its entire IT environment, Elastic helps power the processing of terabytes of daily data in real time. When Indiana University welcomes a new student class, Elastic helps power the cybersecurity operations protecting thousands of devices and critical data across collaborating universities in the BigTen Security Operations Center. All of this is search.

Why we search remains constant: we’re looking for insight, information, and answers. But how and what we search changes over time, from the Dewey Decimal System for libraries to Google for the World Wide Web to conversations with virtual assistants for everyday inquiries. Today, what we search has grown to include a rapidly increasing amount of structured and unstructured data from a multitude of sources such as databases, websites, applications, and mobile and connected devices. While search experiences often begin with search boxes, they are not confined to them. Dragging your finger across a map on a smartphone screen is search. Zooming into a specific time frame in a histogram is search. Mining log files for errors is search. Forecasting storage capacity two weeks into the future is search. Using natural language processing to analyze user sentiment is search.

Elastic created the Elastic Stack (previously known as the ELK Stack), a powerful set of software products that ingest and store data from any source, and in any format, and perform search, analysis, and visualization in milliseconds or less. Developers build on top of the Elastic Stack to apply the power of search to their data and solve business problems. We have also built software solutions on the Elastic Stack that address a wide variety of use cases including app search, site search, enterprise search, logging, metrics, application performance monitoring (APM), business analytics, and security analytics. The Elastic Stack and our solutions are designed to run on premises, in public or private clouds, or in hybrid environments. As the technology landscape shifts, our products grow and adapt. In that sense, we believe that our company is truly elastic.

Our origins are rooted in open source, which facilitates rapid adoption of our software and enables efficient distribution of our technology. Developers can download our software directly from our website for use in development and production environments. Since January 1, 2013, our products have been downloaded over 350 million times. These downloads include both free and paid products. Open source also fosters our vibrant community of developers who help improve our products and build on top of them. As of July 31, 2018, our community included over 100,000 Meetup members across 194 Meetup groups in 46 countries. Meetup members are individuals who opt into an Elasticsearch Meetup group on meetup.com, an independent third-party website.

Our business model is based on a combination of open source and proprietary software. Many features of our software can be used free of charge. Some are only available through paid subscriptions, which include access to specific proprietary features and also include support. Unlike some open source companies, we do not build a separate enterprise version of an original open source project. Instead, we develop and test one robust codebase, over which we maintain control. We believe that maintaining full control over the source code enables us to develop better products for our users and customers. Our sales and marketing efforts start with developers who have already adopted our software and then evolve to departmental decision-makers and senior executives who have broad purchasing power in their organizations. All of these actions help us build a powerful commercial business model on top of open source.

Our customers often significantly expand their usage of our products over time. Expansion includes increasing the number of developers using our products, increasing the utilization of our products for a particular use case, and applying our products to new use cases. We focus some of our direct sales efforts on encouraging these types of expansion within our customer base. We believe that a useful indicator of our customers’ tendency to expand their usage of our products is our Net Expansion Rate, which measures expansion in existing customers’ annual subscriptions over a twelve month period. Our Net Expansion Rate was 142% as of July 31, 2018 and over 130% at the end of each of our last seven fiscal quarters. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Performance—Expanding within our current customer base” for more information on our Net Expansion Rate.

Our business has experienced rapid growth around the world. As of July 31, 2018, we had over 5,500 customers across over 80 countries and in a wide range of industries, compared to over 5,000 and 2,800 customers as of April 30, 2018 and 2017, respectively. Our revenue was $159.9 million and $88.2 million in fiscal 2018 and 2017, respectively, representing year-over-year growth of 81% for fiscal 2018. Our revenue was $56.6 million and $31.6 million in the three months ended July 31, 2018 and 2017, respectively, representing period-over-period growth of 79%. Subscriptions accounted for 93% and 90% of our total revenue in fiscal 2018 and 2017, respectively. Subscriptions accounted for 91% of our total revenue in the three months ended July 31, 2018. In fiscal 2018, revenue from outside the United States accounted for 39% of our total revenue.

In fiscal 2018 and 2017, we incurred net losses of $52.7 million and $52.0 million, respectively, and our operating cash flow was $(20.8) million and $(16.1) million, respectively. In the three months ended July 31, 2018 and 2017, we incurred net losses of $18.6 million and $10.0 million, respectively, and our operating cash flow was $5.1 million and $0.9 million, respectively.

Industry Background

Search refers to rapidly obtaining relevant information and insights from large amounts of data. It is foundational to a wide variety of endeavors. Search is characterized by requirements relating to:

•

the speed at which relevant information must be identified;

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the scale of input data that must be examined; and

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the relevance of results and the ability to analyze and summarize the data.

Multiple trends are driving increased demand for search technology across an expanding array of applications, as well as improving the capabilities of search technology and the value that it is able to generate.

•

Users demanding more of applications. Over the last two decades, technology trends such as social networking, local interest directories, geospatial data, and mobile computing have revolutionized experiences on the Internet. Business users and consumers have grown accustomed to on-demand functionality and the ability to transact within seconds. Search enables application providers to tailor content and functionality to individuals quickly and deliver superior user experiences, even as data volumes have skyrocketed and the pace of change has accelerated.

•

Increasing complexity in enterprise IT. While the volume of different types of data within and outside the enterprise is increasing exponentially, the complexity of enterprise IT environments is also increasing dramatically. At the same time, IT departments have to respond faster than ever before to issues such as security breaches, application performance degradation, and system outages. Search makes it possible to derive insight for many use cases across large and disparate IT environments.

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Growing need for data-driven insights across a broadening set of business functions. Leaders across all industries are focused on how they can use data to improve their businesses. Early business intelligence tools focused on ad hoc analyses and reporting on relatively small datasets. In recent years, demands for more intelligence and analytics have elevated to require real-time, actionable insights from various data sources to benefit multiple functions across an organization. Search is what makes that possible.

•

Increasing supply of data. The volume, velocity, variety, and value of information in today’s digital world are rapidly increasing. Enterprises are digitizing an increasing number of business activities and expanding their technology infrastructures. At the same time, consumers are engaging in an increasing variety of digital experiences using a broader array of devices. This flood of data represents an expanding opportunity for search to identify relevant and valuable information across an expanding variety of domains.

•

Advances in analytical techniques. Search is based on algorithms and computing power. In the past decade, advances in computer engineering have resulted in increased availability of powerful analytical techniques such as machine learning and natural language processing. Search technologies can harness these analytical techniques, in addition to advanced data structure and storage approaches, to enhance the relevance of the results they identify and expand the size and types of the datasets they are able to process.

Our Opportunity

Developers and organizations apply our technology to a wide variety of use cases representing what we estimate to be a total addressable market of $45 billion in 2018 according to information from IDC. Our total addressable market is driven by expansion in the use cases to which our technology is applied, as well as the following market drivers defined by IDC: digital transformation, availability of data, demand for predictive and prescriptive analytics, cloud infrastructure adoption, and increases in software and security-related spending.

When we were founded, users initially applied our offerings predominantly for search, content analytics, and cognitive/AI use cases. Based on IDC’s sizing of the market for search systems, content analytics, and cognitive/AI software platforms, this represented a total addressable market of $3 billion in 2012. Since then, we estimate that our total addressable market has grown to $45 billion in 2018 based on the sum of four market segments:

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Search, content analytics, and cognitive/AI software. We estimate our opportunity in this market segment to be $8 billion in 2018 based on IDC’s sizing of the market for search systems, content analytics, and cognitive/AI software platforms.

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IT operations management. We estimate our opportunity in this market segment to be $9 billion in 2018 based on IDC’s sizing of the market for IT Operations Management.

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Big data and analytics software. We estimate our opportunity in this market segment to be $23 billion in 2018 based on IDC’s sizing of the markets for End-User Query, Reporting, and Analysis; Advanced and Predictive Analytics; Spatial and Location Analytics; Nonrelational Analytic Data Stores; and Analytic Data Integration and Integrity.

•

Security analytics. We estimate our opportunity in this market segment to be $5 billion in 2018 based on IDC’s sizing on the markets for Security Information and Event Management (SIEM), Policy and Compliance, and Forensics and Incident Investigation.

In the future, we expect our users to continue to apply our technology in new ways, helping us create more innovative products, features, and solutions. As a result, we expect our total addressable market to continue to expand.

Our Products

We founded Elastic to bring the power of search to a broad range of business and consumer use cases. Our products enable our users and customers to instantly find relevant information and insights in large amounts of data.

We offer the Elastic Stack (previously known as the ELK Stack), a powerful set of software products that ingest and store data from any source, and in any format, and perform search, analysis, and visualization in milliseconds or less. The Elastic Stack is designed for direct use by developers to power a variety of use cases. We also offer software solutions built on the Elastic Stack that address a wide variety of use cases. The Elastic Stack and our solutions are designed to run on premises, in public or private clouds, or in hybrid environments.

The Elastic Stack

The Elastic Stack is comprised of four primary products:

•

Elasticsearch. Elasticsearch is the heart of the Elastic Stack. It is a distributed, real-time search and analytics engine and datastore for all types of data, including textual, numerical, geospatial, structured, and unstructured.

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Kibana. Kibana is the user interface for the Elastic Stack. It is the visualization layer for data stored in Elasticsearch. It is also the management and configuration interface for all parts of the Elastic Stack.

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Beats. Beats is the family of lightweight, single-purpose data shippers for sending data from edge machines to Elasticsearch or Logstash.

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Logstash. Logstash is the dynamic data processing pipeline for ingesting data into Elasticsearch or other storage systems from a multitude of sources simultaneously.

Some features of the Elastic Stack are open source, while others are proprietary. Some proprietary features, such as monitoring and live infographics, are licensed to users at no cost, while others, such as machine learning, security, and alerting, require paid subscriptions. Paid proprietary features enable capabilities such as automating anomaly detection on time series data at scale, facilitating compliance with data security and privacy regulations, and allowing real-time notifications and alerts. The source code of all free and paid features in the Elastic Stack is visible to the public in the form of “open code.”

Our Solutions

We have built a number of solutions on top of the Elastic Stack to make it easier for organizations to use our software for certain common use cases. Like the Elastic Stack, our solutions comprise a combination of open source features, free proprietary features, and paid proprietary features. The solutions we offer include: app search, site search, enterprise search, logging, metrics, APM, business analytics, and security analytics.

Our Deployment Options

The Elastic Stack and our solutions generally can be deployed on premises, in public or private clouds, or in hybrid environments, to satisfy various user and customer needs.

Today, most users manage their own deployments of the Elastic Stack and our solutions. To help with more complex deployment scenarios, we offer Elastic Cloud Enterprise (ECE), a paid proprietary product, to deliver centralized provisioning, management, and monitoring across multiple deployments.

Many customers are becoming increasingly interested in software-as-a-service, or SaaS, deployment alternatives that reduce the burden of administration. For these customers we have developed Elastic Cloud, a family of SaaS products. We host and manage our Elastic Cloud products on infrastructure from multiple public cloud providers.

Our Business Model

Our business model refers to how we make our software available, including our open source distribution and go-to-market strategy, and how we charge our customers. We believe our business model creates significant value for our users, our customers, and our company.

Our business model is based on a combination of open source and proprietary software. We market and distribute the Elastic Stack and our solutions using an open source distribution strategy. Developers are able to download our software directly from our website. Many features of our software can be used free of charge. Some are only available through paid subscriptions, which include access to specific proprietary features and also include support.

Our use of open source licensing fosters a vibrant developer community around our products and solutions, which drives adoption of our products and increased interaction among users. Further, this approach enables community review of our code and products, which allows us to improve the reliability and security of our software.

We believe in building products that provide value and appeal to the people who use them, including developers, architects, DevOps personnel, IT professionals, and security analysts. At the same time, a software company should be able to engage and build relationships with departmental or organizational leaders who make large technology purchasing decisions. At Elastic, we do both.

Strengths of Our Products

The strengths of our products include the following:

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Speed. The Elastic Stack can find matches for search criteria in milliseconds within even the largest structured and unstructured datasets. Its schema-less structure and inverted indices enable real-time search of high volumes of structured, unstructured, and time series data.

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Scale. The Elastic Stack is a distributed system and can scale massively. It has the ability to subdivide search indices into multiple pieces called shards, which enables data volume to be scaled horizontally and operations to be distributed across hundreds of systems or more. A developer running hundreds of nodes has the same user experience as a developer running a single node on a laptop.

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Relevance. Elasticsearch uses multiple analytical techniques to determine the similarity between stored data and queries, generating highly relevant results reflecting a deep understanding of text and context. Its sophisticated yet developer-friendly query language permits advanced search and analytics. Additionally, the speed of the Elastic Stack permits query iteration, further enhancing the relevance of search results.

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Ease of use. The Elastic Stack is engineered to take a user from data to dashboard or inquiry to insight in minutes and features an easy getting started experience. Administrative tasks such as securing the Elastic Stack are intuitive and integrated into the experience, as are investigative tasks such as data visualization.

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Flexibility. The Elastic Stack is able to ingest, filter, store, search, and analyze data in any form, whether structured or unstructured. These capabilities enable the Elastic Stack to generate insights from a wide variety of data sources for a range of use cases. The flexibility of the Elastic Stack also enables users to begin using our products along with their existing systems, which lowers barriers to adoption.

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Extensibility. Developers can use the Elastic Stack as a foundation for addressing a wide variety of use cases. Our open source approach to building the Elastic Stack empowers developers to innovate and utilize it to fit their specific needs. Additionally, our developer community actively engages with us to improve and expand the Elastic Stack.

Growth Strategies

We intend to pursue the following growth strategies:

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Increase product adoption by improving ease of use and growing our open source community.

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Expand our customer base by acquiring new customers.

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Expand within our existing customer base through new use cases and larger deployments.

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Extend our product leadership through continued investment in our technology.

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Increase usage of Elastic Cloud.

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Expand our strategic and regional partnerships.

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Selectively pursue acquisitions and strategic investments.

Risks Associated with Our Business and Investments in Our Ordinary Shares

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. These risks include, but are not limited to, the following:

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

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We have a history of losses and may not be able to achieve profitability or positive cash flows on a consistent basis. If we cannot achieve profitability or positive cash flows, our business, financial condition, and results of operations may suffer.

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We may not be able to compete successfully against current and future competitors.

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Our limited operating history makes it difficult to evaluate our current business and prospects and may increase the risks associated with your investment.

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If we are not able to keep pace with technological and competitive developments, our business will be harmed.

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The markets for some of our products are new, unproven and evolving, and our future success depends on the growth and expansion of these markets and our ability to adapt and respond effectively to evolving markets.

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Our operating results are likely to fluctuate from quarter to quarter, which could adversely affect the trading price of our ordinary shares.

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If we are unable to increase sales of our subscriptions to new customers, sell additional subscriptions to our existing customers, or expand the value of our existing customers’ subscriptions, our future revenue and results of operations will be harmed.

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If our existing customers terminate or do not renew their subscriptions, it could have an adverse effect on our business and results of operations.

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Because of the rights accorded to third parties under open source software licenses, there are limited technological barriers to entry into the markets in which we compete and it may be relatively easy for competitors, some of whom may have greater resources than we have, to enter our markets and compete with us.

•

If we do not effectively expand and train our sales force, we may be unable to add new customers, increase sales to existing customers or expand the value of our existing customers’ subscriptions and our business will be adversely affected.

•

The concentration of our share ownership with insiders will likely limit your ability to influence corporate matters, including the ability to influence the outcome of director elections and other matters requiring shareholder approval. We anticipate that our executive officers, directors, current 5% or greater shareholders and affiliated entities will hold approximately % of the voting power of the Company following this offering.

Corporate Information

We were incorporated in the Netherlands as a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) on February 9, 2012 as Searchworkings Global B.V. On June 19, 2012 we changed our name to Elasticsearch global B.V., on December 11, 2013 we changed our name to Elasticsearch Global B.V., and on May 29, 2018 we changed our name to Elastic B.V. Immediately prior to the completion of this offering, we intend to convert into a public company with limited liability (naamloze vennootschap) under Dutch law pursuant to a deed of amendment of the articles of association and conversion, which we refer to as the Deed of Amendment and Conversion, and upon such conversion our legal name will be Elastic N.V. Our principal executive offices are located at 800 West El Camino Real, Suite 350, Mountain View, California 94040, and our telephone number is (650) 458-2620. We are registered with the trade register of the Dutch Chamber of Commerce under number 54655870. Our corporate seat is in Amsterdam, the Netherlands, and our registered office is at Rijnsburgstraat 11, 1059 AT, Amsterdam, the Netherlands.

Our website address is www.elastic.co. Information contained on, or that can be accessed through, our website does not constitute part of this prospectus and inclusions of our website address in this prospectus are inactive textual references only.

The Elastic design logo, “Elastic” and our other registered or common law trademarks, service marks or trade names appearing in this prospectus are the property of Elasticsearch B.V. Other trademarks and trade names referred to in this prospectus are the property of their respective owners.

Implications of Being an Emerging Growth Company

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise applicable generally to public companies. These reduced reporting requirements include:

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the requirement to present only two years of audited financial statements and only two years of related management’s discussion and analysis in this prospectus;

•

an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting;

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reduced disclosure about our executive compensation arrangements; and

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an exemption from the requirements to obtain a non-binding advisory vote on executive compensation or shareholder approval of any golden parachute arrangements.

We will remain an emerging growth company until the earliest to occur of: (i) the first fiscal year following the fifth anniversary of our initial public offering; (ii) the first fiscal year after our annual gross revenue is $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) as of the end of any fiscal year after the first anniversary of our initial public offering in which the market value of our ordinary shares held by non-affiliates exceeded $700.0 million as of the end of the second quarter of that fiscal year.

We may choose to take advantage of some, but not all, of the available benefits under the JOBS Act. We are choosing to irrevocably “opt out” of the extended transition periods available under the JOBS Act for complying with new or revised accounting standards, but we intend to take advantage of the other exemptions discussed above. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold shares.

THE OFFERING

Ordinary shares offered by us

Underwriters’ option to purchase additional shares from us

Ordinary shares to be outstanding after this offering

shares ( shares, if the underwriters exercise their option to purchase additional shares in full)

Use of proceeds

We estimate that the net proceeds from the sale of ordinary shares in this offering will be approximately $ million (or approximately $ million if the underwriters exercise their option to purchase additional shares in full), based upon the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds from this offering for general corporate purposes, including working capital, research and development, sales and marketing activities, general and administrative matters, and capital expenditures, although we do not currently have any specific plans with respect to the use of proceeds for such purposes. In addition, we may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions, products or businesses that complement our business, although we have no present commitments or agreements to enter into any acquisitions or investments. See “Use of Proceeds” for additional information.

Proposed NYSE trading symbol

“ESTC”

The number of ordinary shares that will be outstanding after this offering is based on 62,492,729 ordinary shares outstanding as of July 31, 2018, and excludes:

•

23,785,510 ordinary shares issuable upon the exercise of options to purchase ordinary shares under our 2012 Stock Option Plan, or our 2012 Plan, that were outstanding as of July 31, 2018, with a weighted-average exercise price of $9.48 per share;

•

934,680 ordinary shares issuable upon the exercise of options to purchase ordinary shares under our 2012 Plan that were granted after July 31, 2018, with a weighted-average exercise price of $19.87 per share;

•

244,498 ordinary shares issuable upon satisfaction of a performance-based vesting condition pursuant to restricted stock awards outstanding as of July 31, 2018; and

•

ordinary shares available for future issuance under our 2012 Plan.

Our 2012 Plan provides for annual automatic increases in the number of shares available for issuance thereunder, as more fully described in the section titled “Executive Compensation—Employee Benefit and Share Plans.”

Except as otherwise indicated, all information in this prospectus assumes:

•

the execution of the Deed of Amendment and Conversion immediately prior to the completion of this offering, which will amend and restate our articles of association;

•

the automatic conversion upon the resolution of our board of directors of all 28,939,466 outstanding redeemable convertible preference shares as of July 31, 2018 into an aggregate of 28,939,466 ordinary shares, which will occur immediately prior to the completion of this offering;

•

no exercise of outstanding options subsequent to July 31, 2018; and

•

no exercise of the underwriters’ option to purchase up to an additional shares.

SUMMARY CONSOLIDATED FINANCIAL DATA

The following table summarizes our consolidated financial data. The summary consolidated statements of operations data presented below for the years ended April 30, 2017 and 2018 (except for the pro forma share and pro forma net loss per share information) and the consolidated balance sheet data as of April 30, 2018 are derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The summary consolidated statements of operations data presented below for the three months ended July 31, 2017 and 2018 and the consolidated balance sheet data as of July 31, 2018 are derived from our unaudited interim consolidated financial statements that are included elsewhere in this prospectus. In management’s opinion, the unaudited interim consolidated financial statements include all adjustments necessary to state fairly our financial position as of July 31, 2018 and the results of operations and cash flows for the three months ended July 31, 2017 and 2018. You should read this data together with our consolidated financial statements and related notes included elsewhere in this prospectus and the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of our future results, and our results for the three months ended July 31, 2018 are not necessarily indicative of the results that may be expected for the full fiscal year ending April 30, 2019 or any other period. The summary consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus.


	Year Ended April 30,				Three Months Ended July 31,
	2017		2018		2017		2018
	(in thousands, except share and per share data)
Consolidated Statements of Operations Data:
Revenue
License – self-managed	$	14,503	$	25,759	$	4,649	$	7,240
Subscription – self-managed and SaaS		65,243		123,623		24,742		44,369

Total subscription revenue		79,746		149,382		29,391		51,609
Professional services		8,431		10,553		2,253		5,035

Total revenue		88,177		159,935		31,644		56,644

Cost of revenue⁽¹⁾⁽²⁾
Cost of license – self-managed		55		387		97		97
Cost of subscription – self-managed and SaaS		13,161		27,920		4,982		10,201

Total cost of revenue – subscription		13,216		28,307		5,079		10,298
Cost of professional services		6,629		12,433		2,335		5,259

Total cost of revenue		19,845		40,740		7,414		15,557

Gross profit		68,332		119,195		24,230		41,087

Operating expenses^(1)(2)(3)
Research and development		32,601		55,641		10,824		18,981
Sales and marketing		56,612		82,606		17,047		30,422
General and administrative		26,291		28,942		5,533		10,099

Total operating expenses		115,504		167,189		33,404		59,502


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017			2018
	(in thousands, except share and per share data)
Operating loss⁽¹⁾⁽²⁾⁽³⁾		(47,172	)		(47,994	)		(9,174	)		(18,415	)
Other income (expense), net		(583	)		(1,357	)		(724	)		596

Loss before income taxes		(47,755	)		(49,351	)		(9,898	)		(17,819	)
Provision for income taxes		4,213			3,376			69			759

Net loss	$	(51,968	)	$	(52,727	)	$	(9,967	)	$	(18,578	)

Net loss per share attributable to ordinary shareholders, basic and diluted⁽⁴⁾	$	(1.71	)	$	(1.65	)	$	(0.32	)	$	(0.56	)

Weighted-average shares used to compute net loss per share attributable to ordinary shareholders, basic and diluted⁽⁴⁾		30,359,419			32,033,792			31,439,156			32,978,163

Pro forma net loss per share, basic and diluted⁽⁴⁾				$	(0.86	)				$	(0.30	)

Weighted-average shares used in computing pro forma net loss per share, basic and diluted⁽⁴⁾					60,973,258						61,917,629

⁽¹⁾	Includes stock-based compensation expense as follows:


	Year Ended April 30,				Three Months Ended July 31,
	2017		2018		2017		2018
	(in thousands)
Cost of revenue
Cost of subscription – self-managed and SaaS	$	268	$	699	$	119	$	413
Cost of professional services		98		329		42		177
Research and development		3,302		5,045		983		2,097
Sales and marketing		3,420		3,560		732		1,852
General and administrative		11,798		3,109		378		1,126

Total stock-based compensation expense	$	18,886	$	12,742	$	2,254	$	5,665

⁽²⁾	Includes amortization of acquired intangible assets as follows:


	Year Ended April 30,				Three Months Ended July 31,
	2017		2018		2017		2018
	(in thousands)
Cost of revenue
Cost of license – self-managed	$	55	$	387	$	97	$	97
Cost of subscription – self-managed and SaaS		404		1,521		197		576
Sales and marketing		70		119		22		37

Total amortization of acquired intangible assets	$	529	$	2,027	$	316	$	710

⁽³⁾	Includes acquisition-related expenses as follows:


	Year Ended April 30,				Three Months Ended July 31,
	2017		2018		2017		2018
	(in thousands)
Research and development	$	—	$	655	$	140	$	174
General and administrative		235		608		305		206

Total acquisition-related expenses	$	235	$	1,263	$	445	$	380

⁽⁴⁾

Refer to Note 10 to our consolidated financial statements elsewhere in this prospectus for an explanation of the method used to calculate our basic and diluted net loss per share attributable to ordinary shareholders, our basic and diluted pro forma net loss per share, and the weighted-average number of shares used in the computation of the per share amounts.


	July 31, 2018
	Actual			Pro Forma⁽¹⁾			Pro Forma As Adjusted⁽²⁾⁽³⁾
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	51,071		$	51,071		$
Working capital (deficit)	$	(5,367	)	$	(5,367	)	$
Total assets	$	177,299		$	177,299		$
Deferred revenue, current and non-current	$	103,591		$	103,591		$
Redeemable convertible preference shares	$	200,921		$	—		$
Accumulated deficit	$	(233,352	)	$	(236,211	)	$
Total shareholders’ (deficit) equity	$	(166,319	)	$	34,602		$

⁽¹⁾

The pro forma column reflects the (i) automatic conversion upon the resolution of our board of directors of all outstanding redeemable convertible preference shares into 28,939,466 ordinary shares immediately prior to the completion of this offering, (ii) change in par value of ordinary shares from €0.001 per share to €0.01 per share as required by Dutch law at the time of the Company’s conversion to Elastic N.V. immediately prior to the completion of this offering, (iii) stock-based compensation expense of approximately $1.5 million associated with restricted stock awards (“RSAs”) subject to service-based and performance-based vesting conditions, which we will recognize upon the completion of this offering, as further described in Note 2 to our consolidated financial statements included elsewhere in this prospectus, and (iv) stock-based compensation expense of approximately $1.4 million associated with stock options granted to our Chief Executive Officer subject to a performance-based vesting condition, which we will recognize upon the completion of this offering, as further described in Note 2 to our consolidated financial statements included elsewhere in this prospectus. The pro forma adjustments related to stock-based compensation expense of approximately $2.9 million have been reflected as an increase to additional paid-in capital and accumulated deficit.

⁽²⁾

The pro forma as adjusted column further reflects the receipt of $ million in net proceeds from our sale of ordinary shares in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

⁽³⁾

shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. We may also increase or decrease the number of shares we are offering. An increase or decrease of 1.0 million in the number of shares we are offering would increase or decrease, respectively, the amount of cash and cash equivalents, working capital, total assets and total shareholders’ equity by approximately $ million, assuming the initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP. In particular, free cash flow is not a substitute for cash used in operating activities. Additionally, the utility of free cash flow as a measure of our financial performance and liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with U.S. GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, operating results or future outlook.

Non-GAAP Gross Profit and Non-GAAP Gross Margin

We define non-GAAP gross profit and non-GAAP gross margin as GAAP gross profit and GAAP gross margin, respectively, excluding stock-based compensation expense and amortization of acquired intangible assets. We believe non-GAAP gross profit and non-GAAP gross margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations, as these metrics generally eliminate the effects of certain variables from period to period for reasons unrelated to overall operating performance.


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017			2018
	(in thousands)
Gross profit	$	68,332		$	119,195		$	24,230		$	41,087
Stock-based compensation expense		366			1,028			161			590
Amortization of acquired intangible assets		459			1,908			294			673

Non-GAAP gross profit	$	69,157		$	122,131		$	24,685		$	42,350

Gross margin		77	%		75	%		77	%		73	%
Non-GAAP gross margin (non-GAAP gross profit as a percentage of revenue)		78	%		76	%		78	%		75	%

Non-GAAP Operating Loss and Non-GAAP Operating Margin

We define non-GAAP operating loss and non-GAAP operating margin as GAAP operating loss and GAAP operating margin, respectively, excluding stock-based compensation expense, amortization of acquired intangible assets, and acquisition-related expenses. We believe non-GAAP operating loss and non-GAAP operating margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations, as these metrics generally eliminate the effects of certain variables from period to period for reasons unrelated to overall operating performance.


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017			2018
	(in thousands)
Operating loss	$	(47,172	)	$	(47,994	)	$	(9,174	)	$	(18,415	)
Stock-based compensation expense		18,886			12,742			2,254			5,665
Amortization of acquired intangible assets		529			2,027			316			710
Acquisition-related expenses		235			1,263			445			380

Non-GAAP operating loss	$	(27,522	)	$	(31,962	)	$	(6,159	)	$	(11,660	)

Operating margin		(53	)%		(30	)%		(29	)%		(33	)%
Non-GAAP operating margin (non-GAAP operating loss as a percentage of revenue)		(31	)%		(20	)%		(19	)%		(21	)%

Free Cash Flow and Free Cash Flow Margin

Free cash flow is a non-GAAP financial measure that we define as net cash (used in) provided by operating activities less purchases of property and equipment. Free cash flow margin is calculated as free cash flow divided by total revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our core operations that, after the purchases of property and equipment, can be used for strategic initiatives, including investing in our business and selectively pursuing acquisitions and strategic investments. We further believe that historical and future trends in free cash flow and free cash flow margin, even if negative, provide useful information about the amount of cash generated (or consumed) by our operating activities that is available (or not available) to be used for strategic initiatives. For example, if free cash flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. One limitation of free cash flow and free cash flow margin is that they do not reflect our future contractual commitments. Additionally, free cash flow does not represent the total increase or decrease in our cash balance for a given period.

The following table presents our cash flows for the periods presented and a reconciliation of free cash flow and free cash flow margin to net cash (used in) provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP:


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017			2018
	(in thousands)
Net cash (used in) provided by operating activities	$	(16,107	)	$	(20,819	)	$	850		$	5,126
Less: Purchases of property and equipment		(843	)		(2,968	)		(394	)		(336	)

Free cash flow	$	(16,950	)	$	(23,787	)	$	456		$	4,790


Net cash (used in) provided by investing activities	$	(20,331	)	$	8,330		$	4,055		$	(2,322	)
Net cash provided by financing activities	$	59,761		$	3,427		$	529		$	129

Net cash used in operating activities (as a percentage of total revenue)		(18	)%		(13	)%		2	%		9	%
Less: Purchases of property and equipment (as a percentage of total revenue)		(1	)%		(2	)%		(1	)%		(1	)%

Free cash flow margin		(19	)%		(15	)%		1	%		8	%

Calculated Billings

We define calculated billings as total revenue plus the increase in total deferred revenue as presented on or derived from our consolidated statements of cash flows less the (increase) decrease in total unbilled accounts receivable in a given period. For annual contracts, we generally invoice customers at the time of entering into the contract. For multi-year contracts, we generally invoice customers for the first year at the time of entering into the contract, and then annually prior to each anniversary of the contract start date. Some Elastic Cloud customers purchase subscriptions on a month-to-month basis, which are usually invoiced monthly in arrears. Training and consulting services are invoiced either at the time of contract or at the time of delivery, based on the arrangement with the customer. Our management uses calculated billings to understand and evaluate our near term cash flows and operating results.

The following table presents our calculated billings for the periods presented and a reconciliation of calculated billings to total revenue, the most directly comparable financial measure calculated in accordance with GAAP:


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017		2018
	(in thousands)
Total revenue	$	88,177		$	159,935		$	31,644	$	56,644
Add: Increase in total deferred revenue		26,951			45,814			1,522		2,368
Less: (Increase) decrease in unbilled accounts receivable		(558	)		(25	)		486		206

Calculated billings	$	114,570		$	205,724		$	33,652	$	59,218

Calculated billings increased 80% for fiscal 2018 over fiscal 2017 and 76% for the three months ended July 31, 2018 over the three months ended July 31, 2017. As calculated billings continue to grow in absolute terms, we expect our calculated billings growth rate to trend down over time. We also expect that calculated billings will be affected by quarterly fluctuations and seasonality based on the timing of entering into new agreements with customers, the timing of renewals, and the mix between annual and monthly contracts entered in each reporting period. Foreign exchange rate movements may also impact calculated billings.

RISK FACTORS

Investing in our ordinary shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this prospectus, including our consolidated financial statements and the related notes thereto, before making a decision to invest in our ordinary shares. 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 affect us. If any of the following risks occur, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the price of our ordinary shares could decline, and you could lose part or all of your investment.

Risks Related to the Business

We have experienced rapid growth and increased demand for our offerings. Our employee headcount and number of customers have increased significantly, and we expect to continue to grow our headcount significantly over the next year. For example, our total number of customers has grown from over 2,800 as of April 30, 2017 to over 5,000 as of April 30, 2018 to over 5,500 as of July 31, 2018. The growth and expansion of our business and offerings places a continuous 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 must continue to improve and expand our information technology and financial infrastructure, our operating and administrative systems, and our relationships with various partners and other third parties, and our ability to manage headcount and processes in an efficient manner to manage our growth to date and any future growth effectively.

We may not be able to sustain the diversity and pace of improvements to our offerings successfully or implement systems, processes, and controls in an efficient or timely manner or in a manner that does not negatively affect our results of operations. Our failure to improve our systems, processes, and controls, or their failure to operate in the intended manner, may result in our inability to manage the growth of our business and to forecast our revenue, expenses, and earnings accurately, or to prevent losses.

As we expand our business and operate as a public company, we may find it difficult to maintain our corporate culture while managing our employee growth. Any failure to manage our anticipated growth and related organizational changes in a manner that preserves our culture could negatively impact future growth and achievement of our business objectives. Additionally, our productivity and the quality of our offerings may be adversely affected if we do not integrate and train our new employees quickly and effectively. Failure to manage any future growth effectively could result in increased costs, negatively affect our customers’ satisfaction with our offerings, and harm our results of operations.

We have incurred losses in all years since our incorporation. We incurred a net loss of $52.7 million in fiscal 2018, $52.0 million in fiscal 2017 and $18.6 million in the three months ended July 31, 2018. As a result, we had an accumulated deficit of $233.4 million as of July 31, 2018. We anticipate that our operating expenses will increase substantially in the foreseeable future as we

continue to enhance our offerings, broaden our customer base, expand our sales and marketing activities, expand our operations, hire additional employees, and continue to develop our technology. These efforts may prove more expensive than we currently anticipate, 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 for a number of possible reasons, including slowing demand for our offerings or increasing competition. Any failure to increase our revenue as we grow our business could prevent us from achieving profitability or positive cash flow at all or on a consistent basis, which would cause our business, financial condition, and results of operations to suffer.

We may not be able to compete successfully against current and future competitors.

The market for our products is highly competitive, quickly evolving, and subject to rapid changes in technology. We believe that our ability to compete depends upon many factors both within and beyond our control, including the following:

•

product capabilities, including speed, scale, and relevance, with which to power search experiences;

•

an extensible product “stack” that enables developers to build a wide variety of solutions;

•

powerful and flexible technology that can manage a broad variety and large volume of data;

•

ease of deployment and ease of use;

•

ability to address a variety of evolving customer needs and use cases;

•

strength of sales and marketing efforts;

•

flexible deployment model across on-premises, cloud, or hybrid environments;

•

productized solutions engineered to be rapidly adopted to address specific applications;

•

mindshare with developers and IT executives;

•

adoption of products by many types of users (developers, architects, DevOps personnel, IT professionals, security analysts, and departmental and organizational leaders);

•

enterprise-grade technology that is secure and reliable;

•

size of customer base and level of user adoption;

•

quality of training, consulting, and customer support;

•

brand awareness and reputation; and

•

low total cost of ownership.

We face competition from both established and emerging competitors. Our current primary competitors generally fall into the following categories:

•

For our app search, site search, and enterprise search solutions: incumbent offerings such as Solr (open source offering), search tools including Google Custom Search Engine (an advertisement-based site search tool with limited user controls), Google Site Search and Google Search Appliance (both of which Google has declared to be end-of-life and stopped selling), and enterprise search tools including Endeca (acquired by Oracle), FAST (acquired by Microsoft), and Autonomy (acquired by HP and now offered by Micro Focus).

•

For our logging and security analytics solutions: point solutions including Splunk and ArcSight SIEM (offered by Micro Focus).

•

For our metrics, APM and business analytics solutions: software vendors with specific solutions to analyze metrics, typically with Internet of Things, or IoT, data, APM data, and business analytics data.

•

Certain cloud infrastructure providers, including Amazon Web Services, that offer SaaS products based on Elastic’s open source components. These offerings are not supported by Elastic and come without any of Elastic’s proprietary features, whether free or paid.

Some of our current and potential competitors have longer operating histories, significantly greater financial, marketing and other resources and larger customer bases than we do. These factors may allow our competitors to respond more quickly than we can to new or emerging technologies and changes in customer preferences. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns, and adopt more aggressive pricing policies which may allow them to build larger customer bases than we have. New start-up companies that innovate and large competitors that are making significant investments in research and development may develop similar offerings that compete with our offerings or that achieve greater market acceptance than our offerings. This could attract customers away from our offerings and reduce our market share. If we are unable to anticipate or react to these competitive challenges, our competitive position would weaken, which would adversely affect our business and results of operations.

Our limited operating history makes it difficult to evaluate our current business and prospects and may increase the risks associated with your investment.

We were founded in 2012. Our limited operating history makes it difficult to evaluate our current business and our future prospects, including our ability to plan for and model future growth. We have encountered and will continue to encounter risks and difficulties frequently experienced by rapidly growing companies in constantly evolving industries, including the risks described in this prospectus. If we do not address these risks successfully, our business and results of operations will be adversely affected, and the market price of our ordinary shares could decline.

Further, we have limited historical financial data and we operate in a rapidly evolving market. As such, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history or operated in a more predictable market.

If we are not able to keep pace with technological and competitive developments, our business will be harmed.

The market for search technologies is subject to rapid technological change, evolving industry standards, and changing regulations, as well as changing customer needs, requirements and preferences. Our success depends upon our ability to enhance existing products, expand the use cases of our products, respond to changing customer needs, requirements and preferences, and develop and introduce in a timely manner new offerings that keep pace with technological and competitive developments. We have in the past 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 those of our competitors instead.

Additionally, the success of new product introductions depends on a number of factors including, but not limited to, timely and successful product development, market acceptance, our ability to manage the risks associated with new product releases, 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 bugs, errors, or other defects or deficiencies in the early stages of introduction. We have in the past experienced bugs, errors, or other defects or deficiencies in new products and product updates and may have similar experiences in the future. Furthermore, 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 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. Additionally, even if we are able to develop new products and product enhancements, we cannot ensure that they will achieve market acceptance. If we are unable to successfully enhance our existing products to meet evolving customer requirements, increase adoption and usage of our products, develop new products, or if our efforts to increase the usage of our products are more expensive than we expect, then our business, results of operations and financial condition would be adversely affected.

The markets for certain of our products, such as our security analytics and APM solutions, are relatively new, rapidly evolving and unproven. Accordingly, it is difficult to predict customer adoption and renewals for these products, customers’ demand for these products, the size, growth rate, expansion, and longevity of these markets, the entry of competitive products, or the success of existing competitive products. Our ability to penetrate these new and evolving markets depends on a number of factors, including the cost, performance, and perceived value associated with our products. If these markets do not continue to grow as expected, or if we are unable to anticipate or react to changes in these markets, our competitive position would weaken, which would adversely affect our business and results of operations.

Our operating results are likely to fluctuate from quarter to quarter, which could adversely affect the trading price of our ordinary shares.

Our results of operations, including our revenue, cost of revenue, gross margin, operating expenses, cash flow 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. Accordingly, our financial results in any one quarter should not be 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:

•

our ability to attract and retain new customers;

•

the loss of existing customers;

•

customer renewal rates;

•

our ability to successfully expand our business in the U.S. and internationally;

•

our ability to foster an ecosystem of developers and users to expand the use cases of our products;

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our ability to gain new partners and retain existing partners;

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fluctuations in the growth rate of the overall market that our products address;

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fluctuations in the mix of our revenue, which may impact our gross margins and operating income;

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the amount and timing of operating expenses related to the maintenance and expansion of our business and operations, including investments in sales and marketing, research and development and general and administrative resources;

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network outages or performance degradation of Elastic Cloud;

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breaches of, or failures relating to, security, privacy, or data protection;

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general economic, industry and market conditions;

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increases or decreases in the number of elements of our subscriptions or pricing changes upon any renewals of customer agreements;

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changes in our pricing policies or those of our competitors;

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the budgeting cycles and purchasing practices of customers;

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decisions by potential customers to purchase alternative solutions;

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decisions by potential customers to develop in-house solutions as alternatives to our products;

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insolvency or credit difficulties confronting our customers, which could adversely affect their ability to purchase or pay for our offerings;

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our ability to collect timely on invoices or receivables;

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delays in our ability to fulfill our customers’ orders;

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the cost and potential outcomes of future litigation or other disputes;

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future accounting pronouncements or changes in our accounting policies;

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our overall effective tax rate, including impacts caused by any reorganization in our corporate tax structure and any new legislation or regulatory developments;

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fluctuations in stock-based compensation expense;

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fluctuations in foreign currency exchange rates;

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the timing and success of new offerings introduced by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers or partners;

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the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies; and

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other risk factors described in this prospectus.

The impact of one or more of the foregoing or other factors may cause our operating results to vary significantly. Such fluctuations 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 we could face costly lawsuits, including securities class action suits.

We offer certain features of our products as open source software with no payment required, and also offer some of our proprietary features with no payment required. Customers purchase

subscriptions in order to gain access to additional functionality and support. Our future success depends on our ability to sell our subscriptions to new customers and to expand 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. In addition, a significant aspect of our sales and marketing focus is to expand deployments within existing customers. The rate at which our customers purchase additional subscriptions and expand the value of existing subscriptions depends on a number of factors, including customers’ level of satisfaction with our offerings, the nature and size of the deployments, the desire to address additional use cases, and the perceived need for additional features, as well as general economic conditions. 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. If our customers do not recognize the potential of our offerings, our business would be materially and adversely affected. If our efforts to sell subscriptions to new customers and to expand deployments at existing customers are not successful, our total revenue and revenue growth rate may decline and our business will suffer.

If our existing customers do not renew their subscriptions, it could have an adverse effect on our business and results of operations.

We expect to derive a significant portion of our revenue from renewals of existing subscriptions. As a result, achieving a high renewal rate of our subscriptions will be critical to our business. Our customers have no contractual obligation to renew their subscriptions after the completion of their subscription term. Our subscriptions for self-managed deployments typically range from one to three years, while many of our Elastic Cloud customers purchase subscriptions either on a month-to-month basis or on a committed contract of at least one year in duration.

Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their satisfaction with our products and our customer support, our products’ ability to integrate with new and changing technologies, the frequency and severity of product outages, our product uptime or latency, and the pricing of our, or competing, products. If our customers renew their subscriptions, they may renew for shorter subscription terms or on other terms that are less economically beneficial to us. We have limited historical data with respect to rates of customer renewals, so we may not accurately predict future renewal trends. If our customers do not renew their subscriptions, or renew on less favorable terms, our revenue may grow more slowly than expected or decline and our Net Expansion Rate may decline.

Anyone may obtain access to the source code for our open source features and then redistribute it (either in a modified or unmodified form) and use it to compete in our markets. Additionally, we make the source code of our proprietary features for the Elastic Stack available, which may enable others to compete more effectively. Such competition can develop without the degree of overhead and lead time required by traditional proprietary software companies, due to the permissions allowed under open source licensing. It is possible for competitors to develop their own software, including software based on our products, potentially reducing the demand for our products and putting pricing pressure on our subscriptions. For example, Amazon offers some of our open source features as part of its Amazon Web Services offering. As such, Amazon competes with us for potential customers, and while Amazon cannot provide our proprietary software, the pricing of Amazon’s offerings may limit our ability to adjust

the price of our products. We cannot guarantee that we will be able to compete successfully against current and future competitors or that competitive pressure or the availability of new open source software will not result in price reductions, reduced operating margins and loss of market share, any one of which could harm our business, financial condition, results of operations and cash flows.

We depend on our sales force to obtain new customers and to drive additional sales to existing customers by selling them new subscriptions and expanding the value of their existing subscriptions. We believe that there is significant competition for sales personnel, including sales representatives, sales managers, and sales engineers, with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of sales personnel to support our growth. New hires require significant training and may take significant time before they achieve full productivity. Our recent hires and planned hires 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. In addition, particularly if we continue to grow rapidly, a large percentage of our sales force will have relatively little experience working with us, our subscriptions, and our business model. If we are unable to hire and train sufficient numbers of effective sales personnel, our sales personnel do not reach significant levels of productivity in a timely manner, or our sales personnel are not successful in obtaining new customers or increasing sales to our existing customer base, our business will be harmed.

Our ability to increase sales of our offerings is highly dependent on the quality of our customer support, and our failure to offer high quality support would have an adverse effect on our business, reputation and results of operations.

After our products are deployed within our customers’ IT environments, our customers depend on our technical support services to resolve issues relating to our products. If we do not succeed in helping our customers quickly resolve post-deployment issues or provide effective ongoing support and education on our products, our ability to sell additional subscriptions to existing customers or expand the value of existing customers’ subscriptions would be adversely affected and our reputation with potential customers could be damaged. Many larger enterprise and government entity customers have more complex IT environments and require higher levels of support than smaller customers. If we fail to meet the requirements of these enterprise customers, it may be more difficult to grow sales with them.

Additionally, it can take several months to recruit, hire, and train qualified technical support employees. We may not be able to hire such resources fast enough to keep up with demand, particularly if the sales of our offerings exceed our internal forecasts. 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 offerings, will be adversely affected. Our failure to provide and maintain high-quality support services would have an adverse effect on our business, financial condition, and results of operations.

We rely significantly on revenue from subscriptions and, because we recognize a significant portion of the revenue from subscriptions over the term of the relevant subscription period, downturns or upturns in sales are not immediately reflected in full in our results of operations.

Subscription revenue accounts for the substantial majority of our revenue, comprising 93% of total revenue in fiscal 2018, compared to 90% of total revenue in fiscal 2017. We recognize a

significant portion of our subscription revenue monthly over the term of the relevant time period. As a result, much of the subscription revenue we report each fiscal quarter is 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 in that fiscal quarter and will negatively affect our revenue in future fiscal quarters. Accordingly, 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.

The estimates of market opportunity and expectations about market growth included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the expected growth, our business could fail to grow at similar rates, if at all.

Market opportunity estimates and expectations about market growth included in this prospectus are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Even if the markets in which we compete meet the size estimates and growth expectations included in this prospectus, our business could fail to grow for a variety of reasons, which would adversely affect our results of operations. For more information regarding the estimates of market opportunity and the expectations about market growth included in this prospectus, see “Market and Industry Data.”

A real or perceived defect, security vulnerability, error, or performance failure in our software could cause us to lose revenue, damage our reputation, and expose us to liability.

Our products are inherently complex and, despite extensive testing and quality control, have in the past and may in the future contain defects or errors, especially when first introduced, or not perform as contemplated. These defects, security vulnerabilities, errors or performance failures could cause damage to our reputation, loss of customers or revenue, product returns, order cancellations, service terminations, or lack of market acceptance of our software. As the use of our products, including products that were recently acquired or developed, expands to more sensitive, secure, or mission critical uses by our customers, we may be subject to increased scrutiny, potential reputational risk, or potential liability should our software fail to perform as contemplated in such deployments. We have in the past and may in the future need to issue corrective releases of our software to fix these defects, errors or performance failures, which could require us to allocate significant research and development and customer support resources to address these problems.

Any limitation of liability provisions that may be contained in our customer and partner agreements may not be effective as a result of existing or future applicable law or unfavorable judicial decisions. The sale and support of our products entail the risk of liability claims, which could be substantial in light of the use of our products in enterprise-wide environments. In addition, our insurance against this liability may not be adequate to cover a potential claim.

Incorrect implementation or use of, or our customers’ failure to update, our software could result in customer dissatisfaction and negatively affect our business, operations, financial results, and growth prospects.

Our products are often operated in large scale, complex IT environments. Our customers and some partners require training and experience in the proper use of and the benefits that can be derived from our products to maximize their potential. If our customers do not implement, update or use our products correctly or as intended, inadequate performance and/or security vulnerabilities may result. Because our customers rely on our software to manage a wide range of operations, the incorrect implementation, use of, or our customers’ failure to update, our software or our failure to train customers on how to use our software productively may result in customer dissatisfaction, negative

publicity and may adversely affect our reputation and brand. Failure by us to effectively provide training and implementation services to our customers could result in lost opportunities for follow-on sales to these customers and decrease subscriptions by new customers, and adversely affect our business and growth prospects.

If third parties offer inadequate or defective implementations of our open source software, our reputation could be harmed.

Certain cloud infrastructure providers, including Amazon Web Services, provide SaaS offerings based on open source components of the Elastic Stack, using the names of those open source components in marketing such offerings. These offerings are not supported by us and come without any of our proprietary features. We do not control how these third parties may use or offer our open source technology. These third parties could inadequately or incorrectly implement our open source technology, or fail to update such technology in light of changing technological or security requirements, which could result in real or perceived defects, security vulnerabilities, errors, or performance failures with respect to their open source offerings. Users, customers, and potential customers could confuse these third party products with our own products, and attribute such defects, security vulnerabilities, errors, or performance failures to our products. Any damage to our reputation and brand from defective implementations of our open source software could result in lost sales and lack of market acceptance of our products and could adversely affect our business and growth prospects.

We rely on traditional web search engines to direct traffic to our website. If our website fails to rank prominently in unpaid search results, traffic to our website could decline and our business would be adversely affected.

Our success depends in part on our ability to attract users through unpaid Internet search results on traditional web search engines such as Google. The number of users we attract to our website from search engines is due in large part to how and where our website ranks in unpaid search results. These rankings can be affected by a number of factors, many of which are not in our direct control, and they may change frequently. For example, a search engine may change its ranking algorithms, methodologies or design layouts. As a result, links to our website may not be prominent enough to drive traffic to our website, and we may not know how or otherwise be in a position to influence the results. Any reduction in the number of users directed to our website could reduce our revenue or require us to increase our customer acquisition expenditures.

If our security measures are breached or unauthorized access to private or proprietary data is otherwise obtained, 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.

Any security breach, including those resulting from a cybersecurity attack, phishing attack, or any unauthorized access, unauthorized usage, virus or similar breach or disruption could result in the loss of confidential information, damage to our reputation, litigation, regulatory investigations or other liabilities. These attacks may come from individual hackers, criminal groups, and state-sponsored organizations. If our security measures are breached as a result of third-party action, employee error, defect or bug in our products, malfeasance or otherwise and, as a result, someone obtains unauthorized access to our confidential information or personal information or the confidential information or personal information of our customers, our reputation may be damaged, our business may suffer and we could incur significant liability. Even the perception of inadequate security may damage our reputation and negatively impact 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 data security incident or breach.

In addition, many of our customers may use our software for processing their sensitive and proprietary information, including business strategies, financial and operational data, personal or identifying information and other related data. As a result, unauthorized access or use of this data could result in the loss, compromise, corruption or destruction of our customers’ sensitive and proprietary information and lead to litigation, regulatory investigations and claims, indemnity obligations, and other liabilities. We have implemented administrative, technical and physical measures designed to protect the integrity of customer information and prevent data loss, misappropriation and other security breaches and incidents and may incur significant costs in connection with the implementation of additional preventative measures in the future.

We engage third-party vendors and service providers to store and otherwise process some of our and our customers’ data, including sensitive and personal information. Our vendors and service providers may also be the targets of cyberattacks, malicious software, phishing schemes, and fraud. Our ability to monitor our vendors and service providers’ data security is limited, and, in any event, third parties may be able to circumvent those security measures, resulting in the unauthorized access to, misuse, disclosure, loss or destruction of our and our customers’ data, including sensitive and personal information.

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 service providers may be unable to anticipate these techniques, react in a timely manner, or implement adequate preventative measures.

Further, we cannot assure that any limitations of liability provisions in our customer and user agreements, contracts with third-party vendors and service providers or other contracts would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim relating to a security breach or other security-related matter. We also cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or will be available in sufficient amounts to cover claims related to a security incident or breach, or that the insurer will not deny coverage as to any future claim. The successful assertion of claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.

Interruptions or performance problems associated with our technology and infrastructure, and our reliance on technologies from third parties, may adversely affect our business operations and financial results.

We rely on third-party cloud platforms to host our cloud offerings. If we experience an interruption in service for any reason, our cloud offerings would similarly be interrupted. An interruption in our services to our customers could cause our customers’ internal and consumer-facing applications to not function properly, which could have a material adverse effect on our business, results of operations, customer relationships and reputation.

In addition, our website and internal technology infrastructure may experience performance issues due to a variety of factors, including infrastructure changes, human or software errors, website or third-party hosting disruptions, capacity constraints, technical failures, natural disasters or fraud or security attacks. Our use and distribution of open source software may increase this risk. If our website is unavailable or our users are unable to download our products or order subscriptions or services within a reasonable amount of time or at all, our business could be harmed. We expect to continue to make significant investments to maintain and improve website performance and to enable rapid

releases of new features and applications for our products. To the extent that we do not effectively upgrade our systems as needed and continually develop our technology to accommodate actual and anticipated changes in technology, our business and results of operations may be harmed.

We also rely on cloud technologies from third parties in order to operate critical functions of our business, including financial management services, relationship management services and lead generation management services. If these services become unavailable due to extended outages or interruptions or because they are no longer available on commercially reasonable terms or prices, our expenses could increase, our ability to manage our finances could be interrupted, our processes for managing sales of our offerings and supporting our customers could be impaired, and our ability to generate and manage sales leads could be weakened until equivalent services, if available, are identified, obtained and implemented, any of which could harm our business and results of operations.

We depend on our executive officers and other key employees, and the loss of one or more of these employees or an inability to attract and retain highly skilled employees could harm our business.

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. 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 services and continuing contributions of our senior management, particularly our Chief Executive Officer and Chairman, Shay Banon, to execute on our business plan 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 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.

Additionally, the industry in which we operate is generally characterized by significant competition for skilled personnel as well as high employee attrition. We may not be successful in attracting, integrating, or retaining qualified personnel to fulfill our current or future needs. Also, 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.

If we are not able to maintain and enhance our brand, especially among developers, our business and operating results may be adversely affected.

We believe that developing and maintaining widespread awareness of our brand, especially with developers, is critical to achieving widespread acceptance of our software and attracting new users and customers. Brand promotion activities may not generate user or customer awareness or increase revenue, and even if they do, any increase in revenue may not offset the expenses we incur in building our brand. For instance, our continued focus and investment in Elastic{ON} and similar investments in our brand, user engagement, and customer engagement may not generate 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 realize a sufficient return on our brand-building efforts, or to achieve the widespread brand awareness that is critical for broad customer adoption of our products.

Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and entrepreneurial spirit we have worked to foster, which could harm our business.

We believe that our culture has been and will continue to be a key contributor to our success. We expect to continue to hire aggressively as we expand. If we do not continue to maintain our corporate culture as we grow, we may be unable to foster the innovation, creativity, and entrepreneurial spirit we believe we need to support our growth. Moreover, many of our existing employees may be able to receive significant proceeds from sales of our ordinary shares in the public markets after this offering, which could lead to employee attrition and disparities of wealth among our employees that adversely affects relations among employees and our culture in general. Our substantial anticipated headcount growth and our transition from a private company to a public company may result in a change to our corporate culture, which could harm our business.

We rely on channel partners to execute a portion of our sales; if our channel partners fail to perform, our ability to sell our solution will be more limited, and our results of operations could be harmed.

A portion of our revenue is generated by sales through our channel partners, especially to U.S. federal government customers and in certain international markets. We provide certain of our channel partners with specific training and programs to assist them in selling our offerings, but there can be no assurance that these steps will be effective. In addition, our channel partners may be unsuccessful in marketing and selling our offerings. If we are unable to develop and maintain effective sales incentive programs for our channel partners, we may not be able to incentivize these partners to sell our offerings to customers.

Some of these partners may also market, sell, and support offerings that are competitive with ours, may devote more resources to the marketing, sales, and support of such competitive offerings, may have incentives to promote our competitors’ offerings to the detriment of our own or may cease selling our offerings altogether. Our agreements with our channel partners typically have a duration of one to three years, and generally may be terminated for any reason by either party with advance notice prior to each renewal date. We cannot assure you that we will retain these channel partners or that we will be able to secure additional or replacement channel partners. The loss of one or more of our significant channel partners or a decline in the number or size of orders from any of them could harm our results of operations. In addition, many of our new channel partners require extensive training and may take several months or more to achieve productivity. Our channel partner sales structure could subject us to lawsuits, potential liability, and reputational harm if, for example, any of our channel partners misrepresents the functionality of our offerings to customers or violates laws or our or their corporate policies. If our channel partners are unsuccessful in fulfilling the orders for our offerings, or if we are unable to enter into arrangements with and retain high quality channel partners, our ability to sell our offerings and results of operations could be harmed.

If we are unable to maintain successful relationships with our partners, our business operations, financial results and growth prospects could be adversely affected.

We maintain partnership relationships with a variety of partners, including cloud providers, systems integrators, channel partners, referral partners, OEM and MSP partners, and technology partners, to jointly deliver offerings to our end customers and complement our broad community of users. In particular, we work with systems integrators and referral partners to market and sell our subscriptions.

Our agreements with our partners are generally non-exclusive, meaning our partners may offer customers the offerings of several different companies, including offerings that compete with ours, or

may themselves be or become competitors. If our partners do not effectively market and sell our offerings, choose to use greater efforts to market and sell their own offerings or those of our competitors, or fail to meet the needs of our customers, our ability to grow our business and sell our offerings may be harmed. Our partners may cease marketing our offerings with limited or no notice and with little or no penalty. The loss of a substantial number of our partners, our possible inability to replace them, or the failure to recruit additional partners could harm our results of operations.

Our ability to achieve revenue growth in the future will depend in part on our success in maintaining successful relationships with our partners and in helping our partners enhance their ability to market and sell our subscriptions. If we are unable to maintain our relationships with these partners, our business, results of operations, financial condition or cash flows could be harmed.

The sales prices of our offerings may decrease, which may reduce our gross profits and adversely affect our financial results.

The sales prices for our offerings may decline for a variety of reasons, including competitive pricing pressures, discounts, anticipation of the introduction of new offerings, or promotional programs. For example, we recently reduced prices for some of our Elastic Cloud offerings in conjunction with launching new offerings. Competition continues to increase in the market segments in which we participate, and we expect competition to further increase in the future, thereby leading to increased pricing pressures. Larger competitors with more diverse offerings may reduce the price of offerings that compete with ours or may bundle them with other offerings. Additionally, currency fluctuations in certain countries and regions may negatively impact actual prices that customers and channel partners are willing to pay in those countries and regions. Any decrease in the sales prices for our offerings, without a corresponding decrease in costs or increase in volume, would adversely impact our gross profit. Gross profit could also be adversely impacted by a shift in mix of our subscriptions from self-managed to our cloud offering, which has a lower gross margin, as well as any increase in our mix of professional services relative to subscriptions. We cannot assure you that we will be able to maintain our prices and gross profits at levels that will allow us to achieve and maintain profitability.

We expect our revenue mix to vary over time, which could harm our gross margin and operating results.

We expect our revenue mix to vary over time due to a number of factors, including the mix of our subscriptions for self-managed and our cloud offerings, and our professional services revenue. Due to the differing revenue recognition policies applicable to our subscriptions and professional services, shifts in our business mix from quarter to quarter could produce substantial variation in revenue recognized. Further, our gross margins and operating results could be harmed by changes in revenue mix and costs, together with numerous other factors, including entry into new markets or growth in lower margin markets; entry into markets with different pricing and cost structures; pricing discounts; and increased price competition. Any one of these factors or the cumulative effects of certain of these factors may result in significant fluctuations in our gross margin and operating results. This variability and unpredictability could result in our failure to meet internal expectations or those of securities analysts or investors for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our ordinary shares could decline.

The length of our sales cycle can be unpredictable, particularly with respect to sales through our channel partners or sales to large customers, and our sales efforts may require considerable time and expense.

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 in part on sales to large subscription 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 deal complexity 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. 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 have, in some cases, occurred in quarters subsequent to those we anticipated, or have not occurred at all. The 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. Because a substantial proportion of our expenses are relatively fixed in the short term, our results of operations will suffer if revenue falls below our expectations in a particular quarter, which could cause the price of our ordinary shares to decline.

Failure to protect our proprietary technology and intellectual property rights could substantially harm our business and results of operations.

Our success depends to a significant degree on our ability to protect our proprietary technology, methodologies, know-how and brand. We rely on a combination of trademarks, copyrights, patents, contractual restrictions, and other intellectual property laws and confidentiality procedures to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property rights may be inadequate. We will not be able to protect our intellectual property rights if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property rights. If we fail to protect our intellectual property rights adequately, our competitors may gain access to our proprietary technology and our business may be harmed. In addition, defending our intellectual property rights might entail significant expense. Any patents, trademarks, or other intellectual property rights that we have or may obtain may be challenged by others or invalidated through administrative process or litigation. As of April 30, 2018, we had five issued U.S. patents, 19 pending U.S. patent applications, no pending U.S. provisional applications, and four pending non-U.S. filings, including four patent cooperation treaty patent applications. There can be no assurance that our patent applications will result in issued patents. Even if we continue to seek patent protection in the future, we may be unable to obtain further patent protection for our technology. In addition, any patents issued in the future may not provide us with competitive advantages, or may be successfully challenged by third parties. Furthermore, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create offerings that compete with ours. Effective patent, trademark, copyright, and trade secret protection may not be available to us in every country in which our products are available. We may be unable to prevent third parties from acquiring domain names or trademarks that are similar to, infringe upon, or diminish the value of our trademarks and other proprietary rights. The laws of some countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. As we expand our international activities, our exposure to unauthorized copying and use of our products and proprietary information will likely increase. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.

We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with other parties. No assurance can be given that these agreements will be effective in controlling access to and distribution of our proprietary information. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products.

In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect our intellectual property rights. Litigation may be necessary in the

future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management, and could result in the impairment or loss of portions of our intellectual property. Further, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our products, impair the functionality of our products, delay introductions of new products, result in our substituting inferior or more costly technologies into our products, or injure our reputation.

We could incur substantial costs as a result of any claim of infringement, misappropriation or violation of another party’s intellectual property rights.

In recent years, there has been significant litigation involving patents and other intellectual property rights in the software industry. Companies providing software are increasingly bringing and becoming subject to suits alleging infringement, misappropriation or violation of proprietary rights, particularly patent rights, and to the extent we gain greater market visibility, we face a higher risk of being the subject of intellectual property infringement, misappropriation or violation claims. We do not currently have a large patent portfolio, which could prevent us from deterring patent infringement claims through our own patent portfolio, and our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. The risk of patent litigation has been amplified by the increase in the number of a type of patent holder, which we refer to as a non-practicing entity, whose sole or principal business is to assert such claims and against whom our own intellectual property portfolio may provide little deterrent value. We could incur substantial costs in prosecuting or defending any intellectual property litigation. If we sue to enforce our rights or are sued by a third party that claims that our products infringe, misappropriate or violate their rights, the litigation could be expensive and could divert our management resources.

Any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to do one or more of the following:

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cease selling or using products that incorporate the intellectual property rights that we allegedly infringe, misappropriate or violate;

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make substantial payments for legal fees, settlement payments or other costs or damages;

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obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology; or

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redesign the allegedly infringing products to avoid infringement, misappropriation or violation, which could be costly, time-consuming or impossible.

If we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement, misappropriation or violation claims against us or any obligation to indemnify our customers for such claims, such payments or actions could harm our business.

Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, misappropriation, violation and other losses.

Our agreements with customers and other third parties may include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, misappropriation or violation, damages caused by us to property or

persons, or other liabilities relating to or arising from our software, services or other contractual obligations. Large indemnity payments could harm our business, results of operations and financial condition. Although we normally contractually limit our liability with respect to such indemnity obligations, we may still incur substantial liability related to them. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other existing customers and new customers and harm our business and results of operations.

Our use of open source software could negatively affect our ability to sell our products and subject us to possible litigation.

Our technologies incorporate open source software, and we expect to continue to incorporate open source software in our products in the future. Few of the licenses applicable to open source software have been interpreted by courts, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. Moreover, we cannot assure you that we have not incorporated additional open source software in our software in a manner that is inconsistent with the terms of the applicable license or our current policies and procedures. If we fail to comply with these licenses, we may be subject to certain requirements, including requirements that we offer our solutions that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software and that we license such modifications or derivative works under the terms of applicable open source licenses. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our products that contained the open source software and required to comply with onerous conditions or restrictions on these products, which could disrupt the distribution and sale of these products. In addition, there have been claims challenging the ownership rights in open source software against companies that incorporate open source software into their products, and the licensors of such open source software provide no warranties or indemnities with respect to such claims. In any of these events, we and our customers could be required to seek licenses from third parties in order to continue offering our products, and to re-engineer our products or discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis. We and our customers may also be subject to suits by parties claiming infringement, misappropriation or violation due to the reliance by our solutions on certain open source software, and such litigation could be costly for us to defend or subject us to an injunction. Some open source projects have known vulnerabilities and architectural instabilities and as provided on an “as-is” basis which, if not properly addressed, could negatively affect the performance of our product. Any of the foregoing could require us to devote additional research and development resources to re-engineer our solutions, could result in customer dissatisfaction, and may adversely affect our business, results of operations and financial condition.

One of our marketing strategies is to offer open source and free trials of our products, and we may not be able to realize the benefits of this strategy.

We are dependent upon lead generation strategies, including offering open source and free trials of our products, to generate sales opportunities. These strategies may not be successful in continuing to generate sufficient sales opportunities necessary to increase our revenue. Many users never convert from the open source or free trials to the paid versions of our products. To the extent that users do not become, or we are unable to successfully attract, paying customers, we will not realize the intended benefits of these marketing strategies and our ability to grow our revenue will be adversely affected.

Our software development and licensing model could be negatively impacted if the Apache License, Version 2.0 is not enforceable.

Important components of our software have been provided under the Apache License 2.0. This license states that any work of authorship licensed under it, and any derivative work thereof, may be reproduced and distributed provided that certain conditions are met. It is possible that a court would hold this license to be unenforceable or that someone could assert a claim for proprietary rights in a program developed and distributed under it. Any ruling by a court that this license is not enforceable, or that open source components of our products may not be reproduced or distributed, may negatively impact our distribution or development of all or a portion of our products.

In connection with the operation of our business, we may collect, store, transfer and otherwise process certain personal data and personally identifiable information. As a result, our business is subject to a variety of government and industry regulations, as well as other obligations, related to privacy, data protection and information security.

Privacy, data protection and information security have become significant issues in various jurisdictions where we offer our products. The regulatory frameworks for privacy, data protection and information security issues worldwide are rapidly evolving and are likely to remain uncertain for the foreseeable future. Federal, state, or non-U.S. government bodies or agencies have in the past adopted, and may in the future adopt, new laws and regulations or may make amendments to existing laws and regulations affecting data protection, data privacy and/or information security and/or regulating the use of the Internet as a commercial medium. Industry organizations also regularly adopt and advocate for new standards in these areas. If we fail to comply with any of these laws or standards, we may be subject to investigations, enforcement actions, civil litigation, fines and other penalties, all of which may generate negative publicity and have a negative impact on our business.

In the United States, we may be subject to investigation and/or enforcement actions brought by federal agencies and state attorneys general and consumer protection agencies. We publicly post policies and other documentation regarding our practices concerning the processing, use and disclosure of personally identifiable information. Although we endeavor to comply with our published policies and documentation, we may at times fail to do so or be alleged to have failed to do so. The publication of our privacy policy and other documentation that provide promises and assurances about privacy and security can subject us to potential state and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices.

Internationally, virtually every jurisdiction in which we operate has established its own data security, privacy and data protection legal frameworks with which we or our customers must comply. Within the European Union, the European General Data Protection Regulation, or GDPR, became fully effective on May 25, 2018, and applies to the processing (which includes the collection and use) of certain personal data. As compared to previously-effective data protection law in the European Union, the GDPR imposes additional obligations and risk upon our business and increases substantially the penalties to which we could be subject in the event of any non-compliance. Administrative fines under the GDPR can amount up to 20 million Euros or four percent of the group’s annual global turnover, whichever is highest. We have incurred substantial expense in complying with the obligations imposed by the GDPR and we may be required to make significant changes in our business operations, all of which may adversely affect our revenue and our business overall. Additionally, because the GDPR’s standards have not been previously enforced against companies, we are unable to predict how they will be applied to us. Despite our efforts to attempt to comply with the GDPR, a regulator may determine that we have not done so and subject us to fines and public censure, which could harm our company.

Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States. We have undertaken certain efforts to conform transfers of personal data from the European Economic Area, or EEA, to the United States and other jurisdictions based on our understanding of current regulatory obligations and the guidance of data protection authorities. Despite this, we may be unsuccessful in establishing or maintaining conforming means of transferring such data from the EEA, in particular as a result of continued legal and legislative activity within the European Union that has challenged or called into question the legal basis for existing means of data transfers to countries that have not been found to provide adequate protection for personal data.

We may also experience hesitancy, reluctance, or refusal by European or multi-national customers to continue to use our products due to the potential risk exposure to such customers as a result of shifting business sentiment in the EEA regarding international data transfers and the data protection obligations imposed on them. We may find it necessary to establish systems to maintain personal data originating from the EEA in the EEA, which may involve substantial expense and may cause us to need to divert resources from other aspects of our business, all of which may adversely affect our business. We and our customers may face a risk of enforcement actions taken by European data protection authorities until the time, if any, that personal data transfers to us and by us from the EEA are legitimized under European law.

In June 2016, a referendum was passed in the United Kingdom to leave the European Union, commonly referred to as “Brexit.” This creates an uncertain political and economic environment in the United Kingdom and other European Union countries, even though the formal process for leaving the European Union may take years to complete. For example, it is unclear whether the United Kingdom will enact data protection laws or regulations designed to be consistent with GDPR and how data transfers to and from the United Kingdom will be regulated. A Data Protection Bill is undergoing the legislative process in the United Kingdom that generally would be consistent with the GDPR, but it is unclear whether this bill ultimately will be enacted. The full effect of Brexit is uncertain and depends on any agreements the United Kingdom may make to retain access to European Union markets. Consequently, no assurance can be given about the impact of the outcome and our business may be seriously harmed.

In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that may legally or contractually apply to us. One example of such a self-regulatory standard is the Payment Card Industry Data Security Standard, or PCI DSS, which relates to the processing of payment card information. In the event we fail to comply with the PCI DSS, fines and other penalties could result, and we may suffer reputational harm and damage to our business. Further, our customers may expect us to comply with more stringent privacy and data security requirements than those imposed by laws, regulations or self-regulatory requirements, and we may be obligated contractually to comply with additional or different standards relating to our handling or protection of data on or by our offerings. We also expect that there will continue to be changes in interpretations of existing laws and regulations, or new proposed laws, regulations, and other obligations concerning privacy, data protection and information security, which could impair our or our customers’ ability to collect, use or disclose information relating to consumers, which could decrease demand for our offerings, increase our costs and impair our ability to maintain and grow our customer base and increase our revenue.

Because the interpretation and application of many laws and regulations relating to privacy, data protection and information security, along with industry standards, are uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our products, and we could face fines, lawsuits, regulatory investigations and other claims and penalties, and we could be required to fundamentally change our

products or our business practices, which could have an adverse effect on our business. Any inability to adequately address privacy, data protection and data security concerns, even if unfounded, or any actual or perceived failure to comply with applicable privacy, data protection and information security laws, regulations and other obligations, could result in additional cost and liability to us, damage our reputation, inhibit sales and adversely affect our business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our products. Privacy, data protection and information security concerns, whether valid or not valid, may inhibit market adoption of our products, particularly in certain industries and countries outside of the United States. If we are not able to adjust to changing laws, regulations and standards related to the Internet, our business may be harmed.

Unfavorable conditions in our industry or the global economy or reductions in information technology spending 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 or future economic uncertainties or downturns could adversely affect our business and results of operations. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, political turmoil, natural catastrophes, warfare and terrorist attacks on the United States, Europe, the Asia Pacific region or elsewhere, could cause a decrease in business investments by our customers and potential customers, including spending on information technology, and negatively affect the growth of our business. To the extent our offerings are perceived by customers and potential customers as discretionary, our revenue may be disproportionately affected by delays or reductions in general information technology spending. Also, customers may choose to develop in-house software as an alternative to using our products. Moreover, competitors may respond to market conditions by lowering prices. We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry. 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.

We are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we violate these controls.

Our software may be subject to U.S. export control laws and regulations including the Export Administration Regulations, or EAR, and trade and economic sanctions maintained by the Office of Foreign Assets Control, or OFAC. As such, an export license may be required to export or reexport our products to certain countries, end-users and end-uses. Because we incorporate encryption functionality into our products, we also are subject to certain U.S. export control laws that apply to encryption items. If we were to fail to comply with such U.S. export controls laws and regulations, U.S. economic sanctions, or other similar laws, we could be subject to both civil and criminal penalties, including substantial fines, possible incarceration for employees and managers for willful violations, and the possible loss of our export or import privileges. Obtaining the necessary export license for a particular sale or offering may not be possible and may be time-consuming and may result in the delay or loss of sales opportunities. Furthermore, U.S. export control laws and economic sanctions prohibit the export of products to certain U.S. embargoed or sanctioned countries, governments and persons, as well as for prohibited end-uses. Monitoring and ensuring compliance with these complex U.S. export control laws is particularly challenging because our offerings are widely distributed throughout the world and are available for download without registration. Even though we take precautions to ensure that we and our partners comply with all relevant export control laws and regulations, any failure by us

or our partners to comply with such laws and regulations could have negative consequences for us, including reputational harm, government investigations and penalties.

In addition, various countries regulate the import of certain encryption technology, including through import permit and license requirements, and have enacted laws that could limit our ability to distribute our products or could limit our end-customers’ ability to implement our products in those countries. Changes in our products or changes in export and import regulations in such countries may create delays in the introduction of our products into international markets, prevent our end-customers with international operations from deploying our products globally or, in some cases, prevent or delay the export or import of our products to certain countries, governments or persons altogether. Any change in export or import laws or regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing export, import or sanctions laws or regulations, or change in the countries, governments, persons, or technologies targeted by such export, import or sanctions laws or regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential end-customers with international operations. Any decreased use of our products or limitation on our ability to export to or sell our products in international markets could adversely affect our business, financial condition and operating results.

Our international operations and expansion expose us to several risks.

As of April 30, 2018, we had customers located in over 80 countries, and our strategy is to continue to expand internationally. In addition, as a result of our strategy of leveraging a distributed workforce, as of April 30, 2018, we had employees located across 35 countries. Our current international operations involve and future initiatives will involve a variety of risks, including:

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unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions;

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different labor regulations, especially in the European Union, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations;

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exposure to many stringent and potentially inconsistent laws and regulations relating to privacy, data protection and information security, particularly in the European Union;

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changes in a specific country’s or region’s political or economic conditions;

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risks resulting from changes in currency exchange rates;

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challenges inherent to efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs;

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risks relating to the implementation of exchange controls, including restrictions promulgated by the OFAC, and other similar trade protection regulations and measures in the United States or in other jurisdictions;

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reduced ability to timely collect amounts owed to us by our customers in countries where our recourse may be more limited;

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limitations on our ability to reinvest earnings from operations derived from one country to fund the capital needs of our operations in other countries;

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limited or unfavorable intellectual property protection; and

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exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, and similar applicable laws and regulations in other jurisdictions.

If we are unable to address 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.

If we are not successful in sustaining and expanding our international business, we may incur additional losses and our revenue growth could be harmed.

Our future results depend, in part, on our ability to sustain and expand our penetration of the international markets in which we currently operate and to expand into additional international markets. We depend on direct sales and our channel partner relationships to sell our offerings in international markets. Our ability to expand internationally will depend upon our ability to deliver functionality and foreign language translations that reflect the needs of the international clients that we target. Our ability to expand internationally involves various risks, including the need to invest significant resources in such expansion, and the possibility that returns on such investments will not be achieved in the near future or at all in these less familiar competitive environments. We may also choose to conduct our international business through other partnerships. If we are unable to identify partners or negotiate favorable terms, our international growth may be limited. In addition, we have incurred and may continue to incur significant expenses in advance of generating material revenue as we attempt to establish our presence in particular international markets.

Our failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new offerings could reduce our ability to compete and could harm our business.

We expect that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next twelve months. After that, we may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all. If we raise additional equity financing, our shareholders may experience significant dilution of their ownership interests and the per share value of our ordinary shares could decline. Furthermore, if we engage in debt financing, the holders of debt would have priority over the holders of our ordinary shares, and we may be required to accept terms that restrict our ability to incur additional indebtedness. We may also be required to take other actions that would otherwise be in the interests of the debt holders and force us to maintain specified liquidity or other ratios, any of which could harm our business, results of operations, and financial condition. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:

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develop or enhance our products;

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continue to expand our sales and marketing and research and development organizations;

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acquire complementary technologies, products or businesses;

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expand operations in the United States or internationally;

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hire, train, and retain employees; or

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respond to competitive pressures or unanticipated working capital requirements.

Our failure to have sufficient capital to do any of these things could harm our business, financial condition, and results of operations.

We may acquire other businesses which could require significant management attention, disrupt our business, dilute shareholder value and adversely affect our results of operations.

As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies. The identification of suitable acquisition candidates is difficult,

and we may not be able to complete such acquisitions on favorable terms, if at all. If we do complete future acquisitions, we may not ultimately strengthen our competitive position or achieve our goals and business strategy, we may be subject to claims or liabilities assumed from an acquired company, product, or technology, and any acquisitions we complete could be viewed negatively by our customers, investors, and securities analysts. In addition, if we are unsuccessful at integrating future acquisitions, or the technologies associated with such acquisitions, into our company, the revenue and results of operations of the combined company could be adversely affected. Any integration process may require significant time and resources, which may disrupt our ongoing business and divert management’s attention, and we may not be able to manage the integration process successfully. We may not successfully evaluate or utilize the acquired technology or personnel, realize anticipated synergies from the acquisition, or accurately forecast the financial impact of an acquisition transaction and integration of such acquisition, including accounting charges. We may have to pay cash, incur debt, or issue equity or equity-linked securities to pay for any future acquisitions, each of which could adversely affect our financial condition or the market price of our ordinary shares. The sale of equity or issuance of equity-linked debt to finance any future acquisitions could result in dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations. The occurrence of any of these risks could harm our business, results of operations, and financial condition.

Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws could subject us to penalties and other adverse consequences.

We are subject to the Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act and other anti-corruption, anti-bribery and anti-money laundering laws in various jurisdictions both domestic and abroad. We leverage third parties, including channel partners, to sell our offerings and conduct our business abroad. We and our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities. While we have policies and procedure to address compliance with such laws, we cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. Any violation of the FCPA or other applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, business, operating results and prospects.

A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.

Sales to government entities are subject to a number of risks. Selling to government entities can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. Government certification requirements for products like ours may change, thereby restricting our ability to sell into the U.S. federal government, U.S. state government, or non-U.S. government sectors until we have attained the revised certification. Government demand and payment for our offerings may be affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our offerings.

Additionally, we rely on certain partners to provide technical support services to certain of our government entity customers to resolve any issues relating to our products. If our partners do not

effectively assist our government entity customers in deploying our products, succeed in helping our government entity customers quickly resolve post-deployment issues, or provide effective ongoing support, our ability to sell additional offerings to new and existing government entity customers would be adversely affected and our reputation could be damaged.

Government entities may have statutory, contractual, or other legal rights to terminate contracts with us or our channel partners for convenience or due to a default, and any such termination may adversely affect our future results of operations. Governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government refusing to continue buying our subscriptions, a reduction of revenue, or fines or civil or criminal liability if the audit uncovers improper or illegal activities, which could adversely affect our results of operations in a material way.

Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could expose us to greater than anticipated tax liabilities.

Our income tax obligations are based in part on our corporate structure and intercompany arrangements, including the manner in which we develop, value, and use our intellectual property and the valuations of our intercompany transactions. The tax laws applicable to our business, including the laws of the Netherlands, the United States and other jurisdictions, are subject to interpretation and certain jurisdictions may aggressively interpret their laws in an effort to raise additional tax revenue. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements, which could increase our worldwide effective tax rate and harm our financial position and results of operations. It is possible that tax authorities may disagree with certain positions we have taken and any adverse outcome of such a review or audit could have a negative effect on our financial position and results of operations. Further, the determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our condensed consolidated financial statements and may materially affect our financial results in the period or periods for which such determination is made.

Our corporate structure and intercompany arrangements are subject to the tax laws of various jurisdictions, and we could be obligated to pay additional taxes, which would harm our results of operations.

Based on our current corporate structure, we may be subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents. In the United States, newly enacted legislation commonly referred to as the Tax Cuts and Jobs Act introduced a number of changes to U.S. federal income tax laws, the impact of which is uncertain. In addition, the authorities in the jurisdictions in which we operate could review our tax returns or require us to file tax returns in jurisdictions in which we are not currently filing, and could impose additional tax, interest and penalties. These authorities could also claim that various withholding requirements apply to us or our subsidiaries, assert that benefits of tax treaties are not available to us or our subsidiaries, or challenge our methodologies for valuing developed technology or intercompany arrangements, including our transfer pricing. The relevant taxing authorities may determine that the manner in which we operate our business does not achieve the intended tax consequences. If such a disagreement was to occur, and our position was not sustained, we could be required to pay additional taxes, and interest and penalties. Such authorities could claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not

available to us or our subsidiaries. Any increase in the amount of taxes we pay or that are imposed on us could increase our worldwide effective tax rate and harm our business and results of operations.

Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.

As of April 30, 2018 and 2017, we had net operating loss carryforwards in various jurisdictions of $223.0 million and $135.9 million, respectively, which may be utilized against future income taxes. Limitations imposed by the applicable jurisdictions on our ability to utilize net operating loss carryforwards could cause income taxes to be paid earlier than would be paid if such limitations were not in effect and could cause such net operating loss carryforwards to expire unused, in each case reducing or eliminating the benefit of such net operating loss carryforwards. Furthermore, we may not be able to generate sufficient taxable income to utilize our net operating loss carryforwards before they expire. If any of these events occur, we may not derive some or all of the expected benefits from our net operating loss carryforwards.

Catastrophic events, or man-made problems such as terrorism, may disrupt our business.

A significant natural disaster, such as an earthquake, fire, flood, or significant power outage could have an adverse impact on our business, results of operations, and financial condition. We have a number of our employees and executive officers located in the San Francisco Bay Area, a region known for seismic activity. In the event our or our partners abilities are hindered by any of the events discussed above, sales could be delayed, resulting in missed financial targets for a particular quarter. In addition, acts of terrorism and other geo-political unrest could cause disruptions in our business or the business of our partners, customers or the economy as a whole. Any disruption in the business of our partners or customers that affects sales in a given fiscal quarter could have a significant adverse impact on our quarterly results for that and future quarters. All of the aforementioned risks may be further increased if our disaster recovery plans prove to be inadequate.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.

A portion of our subscriptions are generated and operating expenses are incurred outside the United States and denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates. The strengthening of the U.S. dollar increases the real cost of our offerings to our customers outside of the United States, leading to delays in the purchase of our offerings and the lengthening of our sales cycle. If the U.S. dollar continues to strengthen, this could adversely affect our financial condition and results of operations. In addition, increased international sales in the future, including through our channel partners, may result in greater foreign currency denominated sales, increasing our foreign currency risk. Moreover, operating expenses incurred outside the United States and denominated in foreign currencies are increasing and are subject to fluctuations due to changes in foreign currency exchange rates. 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. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedging transactions may be limited and we may not be able to successfully hedge our exposure, which could adversely affect our financial condition and results of operations.

If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below expectations of securities analysts and investors, resulting in a decline in the trading price of our ordinary shares.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue, and expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our ordinary shares. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, measurement of stock-based compensation expense, accounting of intangible assets, goodwill impairment test, and accounting for income taxes including deferred tax assets and liabilities.

Risks Related to the Offering and Ownership of our Ordinary Shares

There has been no prior market for our ordinary shares, the market price for our ordinary shares may be volatile or may decline regardless of our operating performance, an active public trading market may not develop or be sustained following this offering, and you may not be able to resell our ordinary shares at or above the initial public offering price.

There has been no public market for our ordinary shares prior to this offering. The initial public offering price for the ordinary shares will be determined through negotiations between the underwriters and us and may vary from the market price of our ordinary shares following this offering. If you purchase ordinary shares in this offering, you may not be able to resell those ordinary shares at or above the initial public offering price. Although we intend to apply to list our ordinary shares on the New York Stock Exchange, we cannot assure you that a trading market for our ordinary shares will develop, or, if a trading market does develop, that it will be maintained. The stock markets, and securities of technology companies in particular, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, shareholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business. The market price of our ordinary shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

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actual or anticipated changes or fluctuations in our operating results;

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the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

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announcements by us or our competitors of new offerings or new or terminated significant contracts, commercial relationships or capital commitments;

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industry or financial analyst or investor reaction to our press releases, other public announcements, and filings with the SEC;

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rumors and market speculation involving us or other companies in our industry;

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future sales or expected future sales of our ordinary shares;

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investor perceptions of us and the industries in which we operate;

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price and volume fluctuations in the overall stock market from time to time;

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changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;

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the expiration of market stand-off or contractual lock-up agreements and sales of shares of our ordinary shares by us or our shareholders;

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failure of industry or financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

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actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;

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litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;

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developments or disputes concerning our intellectual property rights or our solutions, or third-party proprietary rights;

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announced or completed acquisitions of businesses or technologies by us or our competitors;

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breaches of, or failures relating to, security, privacy or data protection;

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new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

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any major changes in our management or our board of directors, particularly with respect to Mr. Banon;

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general economic conditions and slow or negative growth of our markets; and

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other events or factors, including those resulting from war, incidents of terrorism or responses to these events.

We anticipate that our executive officers, directors, current 5% or greater shareholders and affiliated entities will together beneficially own approximately % of our ordinary shares outstanding after this offering (or % if the underwriters exercise their option to purchase additional shares in full). As a result, these shareholders, acting together, will have control over most matters that require approval by our shareholders, including matters such as adoption of the financial statements, declarations of dividends, the appointment and dismissal of directors, capital increases, amendment to our articles of associations and approval of significant corporate transactions. Corporate action might be taken even if other shareholders, including those who purchase shares in this offering, oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of us that other shareholders may view as beneficial.

In addition, four of our non-executive directors are affiliated with a holder of greater than 5% of our ordinary shares.

The issuance of additional shares in connection with financings, acquisitions, investments, our share incentive plans or otherwise will dilute all other shareholders.

Our articles of association that will be in effect upon completion of this offering authorize us to issue up to million ordinary shares and up to million preference shares with such rights and preferences as included in our articles of association. Subject to compliance with applicable rules and regulations, we may issue ordinary shares or securities convertible into ordinary shares from time to time in connection with a financing, acquisition, investment, our share incentive plans or otherwise. Any such issuance could result in substantial dilution to our existing shareholders and cause the market price of our ordinary shares to decline, unless pre-emptive rights exist.

Certain holders of our ordinary shares may not be able to exercise pre-emptive rights and as a result may experience substantial dilution upon future issuances of ordinary shares.

Holders of our ordinary shares in principle have a pro rata pre-emptive right with respect to any issue of ordinary shares or the granting of rights to subscribe for ordinary shares, unless Dutch law or the articles of association state otherwise or unless explicitly provided otherwise in a resolution by the General Meeting of Shareholders of the company, or the General Meeting, or—if authorized by the General Meeting—by a resolution of our board of directors. Our General Meeting has empowered our board of directors, subject to execution of the Deed of Amendment and Conversion, to limit or exclude pre-emptive rights on shares for a period of eighteen months from the date of our Extraordinary General Meeting on , which could cause existing shareholders to experience substantial dilution of their interest in us.

Pre-emptive rights do not exist with respect to the issue of preference shares and holders of preference shares, if any, have no pre-emptive right to acquire newly issued ordinary shares. Also, pre-emptive rights do not exist with respect to the issue of shares or grant of rights to subscribe for shares to employees of the company or contributions in kind.

Because the initial public offering price of our ordinary shares will be substantially higher than the pro forma net tangible book value per share of our outstanding ordinary shares following this offering, new investors will experience immediate and substantial dilution.

The initial public offering price of our ordinary shares will be substantially higher than the pro forma net tangible book value per share of our ordinary shares immediately following this offering, based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase shares of our ordinary shares in this offering, you will experience immediate dilution of $ per share, the difference between the price per share you pay for our ordinary shares and its pro forma net tangible book value per share as of July 31, 2018, after giving effect to the issuance of ordinary shares in this offering and assuming an initial public offering price of $ per share, the midpoint of the range on the cover page of this prospectus. Furthermore, if the underwriters exercise their option to purchase additional shares in full, outstanding options are exercised, we issue awards to our employees under our equity incentive plans or we otherwise issue additional ordinary shares, you could experience further dilution. See “Dilution” for more information.

Sales of substantial amounts of our ordinary shares in the public markets, or the perception that they might occur, could reduce the price that our ordinary shares might otherwise attain and may dilute your voting power and your ownership interest in us.

Sales of a substantial number of shares of our ordinary shares in the public market after this offering, particularly sales by our directors, executive officers and significant shareholders, or the perception that these sales could occur, could adversely affect the market price of our ordinary shares

and may make it more difficult for you to sell your ordinary shares at a time and price that you deem appropriate. Based on the total number of outstanding ordinary shares as of July 31, 2018, upon completion of this offering, we will have ordinary shares outstanding, assuming no exercise of our outstanding share options after July 31, 2018 and assuming no exercise by the underwriters of their option to purchase additional shares.

All of the ordinary shares sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares held by our affiliates as defined in Rule 144 under the Securities Act.

Subject to certain exceptions described in the section titled “Underwriting,” we, all of our directors and executive officers and holders of substantially all of our ordinary shares, or securities exercisable for or convertible into our ordinary shares outstanding immediately prior to this offering, are subject to market stand-off agreements or lock-up agreements pursuant to which they have agreed not to offer, sell or agree to sell, directly or indirectly, any ordinary shares without the prior written consent of Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC on behalf of the underwriters for a period of 180 days after the date of this prospectus. However, the lock-up restrictions will no longer apply to 25% of the shares subject to each lock-up agreement with our directors, executive officers and securityholders if, at any time beginning 90 days after the date of this prospectus, (i) we have filed at least one quarterly report on Form 10-Q or annual report on Form 10-K and (ii) the last reported closing price of our ordinary shares is at least 33% greater than the initial public offering price of our ordinary shares for 10 out of any 15 consecutive trading days, including the last day, ending on or after the 90th day after the date of this prospectus (which 15 day trading period may begin prior to the 90th day after the date of this prospectus). If the conditions for early lock-up termination described in the preceding sentence are met when our trading window is closed, the lock-up restriction will continue to apply until the opening of trading on the second business day following the date that (i) we are no longer in a closed trading window and (ii) the reported closing price of our ordinary shares on such date is at least 33% greater than the initial public offering price of our ordinary shares. The lock-up agreements are subject to additional exceptions, and Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC may, in their sole discretion, release any of the securities subject to these lock-up agreements at any time. See “Underwriting.” When the lock-up period expires, we and our securityholders subject to a lock-up agreement or market stand-off agreement will be able to sell our shares in the public market. Sales of a substantial number of such shares upon expirations, in whole or in part, of the lock-up and market stand-off agreements, or the perception that such sales may occur, or early release of these agreements, could cause our market price to fall or make it more difficult for you to sell your ordinary shares at a time and price that you deem appropriate.

In addition, following this offering, holders of an aggregate of up to 54,174,612 ordinary shares, based on shares outstanding as of July 31, 2018, will be entitled to rights with respect to registration of these shares under the Securities Act pursuant to our amended and restated investors’ rights agreement. If these holders of our ordinary shares, by exercising their registration rights, sell a large number of shares, they could adversely affect the market price for our ordinary shares. We also intend to register the offer and sale of all ordinary shares that we may issue under our equity compensation plans.

Upon the completion of this offering, we will be a Dutch public company with limited liability (naamloze vennootschap). The rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions.

Upon the completion of this offering, we will be a Dutch public company with limited liability (naamloze vennootschap). Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in the Netherlands. The rights of shareholders and the

responsibilities of members of our board of directors may be different from the rights and obligations of shareholders in companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our board of directors is required by Dutch law to consider the interests of our company, its shareholders, its employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder. See “Description of Share Capital—Corporate Governance.”

Certain anti-takeover provisions in our articles of association and under Dutch law may prevent or could make an acquisition of our company more difficult, limit attempts by our shareholders to replace or remove members of our board of directors or current management and may adversely affect the market price of our ordinary shares.

Our articles of association that will be in effect upon completion of this offering contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficult for shareholders to appoint directors that are not nominated by the current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions include:

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the staggered four-year terms of the members of our board of directors, as a result of which only approximately one-fourth of the members of our board of directors will be subject to election in any one year;

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a provision that the members of our board of directors may only be removed by the General Meeting by a two-thirds majority of votes cast representing at least 50% of our issued share capital if such removal is not proposed by our board of directors;

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a provision that the members of our board of directors may only be appointed upon binding nomination of the board of directors, which can only be overruled with two-thirds majority of votes cast representing at least 50% of our issued share capital;

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the inclusion of a class of preference shares in our authorized share capital that may be issued by our board of directors, in such a manner as to dilute the interest of shareholders, including any potential acquirer or activist shareholder, in order to delay or discourage any potential unsolicited offer or shareholder activism;

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requirements that certain matters, including an amendment of our articles of association, may only be brought to our shareholders for a vote upon a proposal by our board of directors; and

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minimum shareholding thresholds, based on nominal value, for shareholders to call General Meetings of our Shareholders or to add items to the agenda for those meetings.

See “Description of Share Capital—Anti-takeover provisions.”

We are subject to the Dutch Corporate Governance Code but do not comply with all the suggested governance provisions of the Dutch Corporate Governance Code. This may affect your rights as a shareholder.

As a Dutch company we are subject to the Dutch Corporate Governance Code, or DCGC. The DCGC contains both principles and suggested governance provisions for management boards, supervisory boards, shareholders and general meetings, financial reporting, auditors, disclosure, compliance and enforcement standards. The DCGC is based on a “comply or explain” principle. Accordingly, public companies are required to disclose in their annual reports, filed in the Netherlands, whether they comply with the suggested governance provisions of the DCGC. If they do not comply with those provisions (e.g., because of a conflicting requirement), the company is required to give the

reasons for such noncompliance. The DCGC applies to all Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere, including the New York Stock Exchange. The principles and suggested governance provisions apply to our board of directors (in relation to role and composition, conflicts of interest and independency requirements, board committees and remuneration), shareholders and the General Meeting (for example, regarding anti-takeover protection and our obligations to provide information to our shareholders) and financial reporting (such as external auditor and internal audit requirements). Upon becoming a listed company, we will comply with all applicable provisions of the DCGC except where such provisions conflict with U.S. exchange listing requirements or with market practices in the United States or the Netherlands. See “Description of Share Capital—Corporate Governance.” This may affect your rights as a shareholder and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the suggested governance provisions of the DCGC.

We do not intend to pay dividends in the foreseeable future. As a result, your ability to achieve a return on your investment will depend on appreciation in the price of our ordinary shares.

We have never declared or paid any cash dividends on our shares. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our ordinary shares in the foreseeable future. Were this position to change, payment of future dividends may be made only if our equity exceeds the amount of the paid-in and called-up part of the issued share capital, increased by the reserves required to be maintained by Dutch law or by our articles of association. Accordingly, investors must rely on sales of their ordinary shares after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

If industry or financial analysts do not publish research or reports about our business, or if they issue inaccurate or unfavorable research regarding our ordinary shares, our share price and trading volume could decline.

The trading market for our ordinary shares will be influenced by the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts, or the content and opinions included in their reports. As a new public company, we may be slow to attract research coverage and the analysts who publish information about our ordinary shares will have had relatively little experience with our company, which could affect their ability to accurately forecast our results and make it more likely that we fail to meet their estimates. In the event we obtain industry or financial analyst coverage, if any of the analysts who cover us issues an inaccurate or unfavorable opinion regarding our company, our stock price would likely decline. In addition, the stock prices of many companies in the technology industry have declined significantly after those companies have failed to meet, or significantly exceed, the financial guidance publicly announced by the companies or the expectations of analysts. If our financial results fail to meet, or significantly exceed, our announced guidance or the expectations of analysts or public investors, analysts could downgrade our ordinary shares or publish unfavorable research about us. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, our visibility in the financial markets could decrease, which in turn could cause our stock price or trading volume to decline.

We have broad discretion to determine how to use the funds raised in this offering, and we may use them in ways that may not enhance our operating results or the price of our ordinary shares.

marketplace. We currently intend to use a significant portion of the net proceeds from this offering for general corporate purposes, including for any of the purposes described in “Use of Proceeds.” However, we do not currently have any specific plans for the net proceeds from this offering and will have broad discretion in how we use the net proceeds of this offering. We could spend the proceeds from this offering in ways that our shareholders may not agree with or that do not yield a favorable return. You will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Investors in this offering will need to rely upon the judgment of our management with respect to the use of proceeds. If we do not use the net proceeds that we receive in this offering effectively, our business, financial condition, results of operations and prospects could be harmed, and the market price of our ordinary shares could decline.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our ordinary shares less attractive to investors.

For so long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We may take advantage of these exemptions until we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of: (i) the first fiscal year following the fifth anniversary of our initial public offering; (ii) the first fiscal year after our annual gross revenue is $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) as of the end of any fiscal year after the first anniversary of our initial public offering in which the market value of our ordinary shares held by non-affiliates exceeded $700.0 million as of the end of the second quarter of that fiscal year. We cannot predict if investors will find our ordinary shares less attractive because we may rely on these exemptions. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our stock price may be more volatile.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

As a public company, we will be subject to the reporting and corporate governance requirements of the Exchange Act, the listing requirements of the New York Stock Exchange and other applicable securities rules and regulations, including the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company” as defined in the JOBS Act. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and results of operations and maintain effective disclosure controls and procedures and internal control over financial reporting. In order to improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business, financial condition, results of operations and prospects. Although we have already hired additional personnel to help comply with these requirements, we may need to further expand our legal and finance departments in the future, which will increase our costs and expenses.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expense and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business and prospects may be harmed. As a result of disclosure of information in the filings required of a public company and in this prospectus, our business and financial condition will become more visible, which may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business, financial condition, results of operations and prospects could be materially harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and materially harm our business, financial condition, results of operations and prospects.

We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified executive officers and members of our board of directors, particularly to serve on our audit committee and compensation committee.

In addition, as a result of our disclosure obligations as a public company, we will have reduced strategic flexibility and will be under pressure to focus on short-term results, which may materially and adversely affect our ability to achieve long-term profitability.

If we fail to establish or maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our ordinary shares may, therefore, be adversely affected.

As a public company in the United States, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. In addition, beginning with our annual report for the year ending April 30, 2020, we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting pursuant to Section 404. We are in the process of designing, implementing, and testing the internal control over financial reporting required to comply with these obligations. This process is time-consuming, costly, and complicated. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting beginning with our annual report following the date on which we are no longer an “emerging growth company”, which may be up to five fiscal years following the date of our initial public offering. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our ordinary shares may be adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.

Claims of U.S. civil liabilities may not be enforceable against us.

We are incorporated under the laws of the Netherlands and substantial portions of our assets are located outside of the United States. In addition, one member of our board of directors and certain experts named herein reside outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or such other persons residing outside the United States, or to enforce outside the United States judgments obtained against such persons in U.S. courts in any action, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. In addition, it may be difficult for investors to enforce, in original actions brought in courts in jurisdictions located outside the United States, rights predicated upon the U.S. federal securities laws.

There is no treaty between the United States and the Netherlands for the mutual recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Therefore, a final judgment rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, would not be enforceable in the Netherlands unless the underlying claim is re-litigated before a Dutch court of competent jurisdiction. In such proceedings, however, a Dutch court may be expected to recognize the binding effect of a judgment of a federal or state court in the United States without re-examination of the substantive matters adjudicated thereby, if (i) the jurisdiction of the U.S. federal or state court has been based on internationally accepted principles of private international law, (ii) that judgment resulted from legal proceedings compatible with Dutch notions of due process, (iii) that judgment does not contravene public policy of the Netherlands and (iv) that judgment is not incompatible with (x) an earlier judgment of a Dutch court between the same parties, or (y) an earlier judgment of a foreign court between the same parties in a dispute regarding the same subject and based on the same cause, if that earlier foreign judgment is recognizable in the Netherlands.

Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce against us or members of our board of directors, officers or certain experts named herein who are residents of the Netherlands or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.

In addition, there can be no assurance that a Dutch court would impose civil liability on us, the members of our board of directors, our officers or certain experts named herein in an original action predicated solely upon the U.S. federal securities laws brought in a court of competent jurisdiction in the Netherlands against us or such members, officers or experts, respectively.

U.S. holders of our ordinary shares may suffer adverse tax consequences if we are characterized as a passive foreign investment company.

A non-U.S. corporation will generally be considered a passive foreign investment company, or PFIC, for U.S. federal income tax purposes, in any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during such year) is attributable to assets that produce or are held for the production of passive income. For purposes of the PFIC asset test, the value of our assets will generally be determined by reference to our market capitalization. However, if we are considered to be a “controlled foreign corporation,” or CFC, that is not “publicly traded” for purposes of the PFIC rules during the tested period, the value of our assets will generally be determined by reference to our adjusted bases in our assets. Due in part to changes in the CFC attribution rules as part of recently enacted legislation commonly referred to as the Tax Cuts and Jobs Act, we may be a CFC prior to this offering. However, based on our past and current projections of our income and assets, as well as our projected use of proceeds from this offering, we do not expect to be a PFIC for

the taxable year ending April 30, 2019 or for the foreseeable future. Nevertheless, a separate factual determination as to whether we are or have become a PFIC must be made each year (after the close of such year). Since our projections may differ from our actual business results and our market capitalization and value of our assets may fluctuate, we cannot assure you that we will not be or become a PFIC in the current taxable year or any future taxable year. If we are a PFIC for any taxable year during which a U.S. holder (as defined in “Taxation—Material U.S. Federal Income Tax Considerations to U.S. Holders”) holds our ordinary shares, the U.S. holder may be subject to adverse tax consequences. Each U.S. holder is strongly urged to consult its tax advisor regarding the application of these rules and the availability of any potential elections. See “Taxation—Material U.S. Federal Income Tax Considerations to U.S. Holders”.

If a U.S. holder is treated as owning at least 10% of our ordinary shares, such holder may be subject to adverse U.S. federal income tax consequences.

If a U.S. holder is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our ordinary shares, such holder may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group (if any). Under changes implemented recently by legislation commonly referred to as the Tax Cuts and Jobs Act, because our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as controlled foreign corporations (regardless of whether we are treated as a controlled foreign corporation). A United States shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. We cannot provide any assurances that we will assist investors in determining whether any of our non-U.S. subsidiaries is treated as a controlled foreign corporation or whether any investor is treated as a United States shareholder with respect to any such controlled foreign corporation or furnish to any investor who may be a United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. Failure to comply with these reporting obligations may subject a U.S. holder who is a United States shareholder to significant monetary penalties and may prevent from starting the statute of limitations with respect to such holder’s U.S. federal income tax return for the year for which reporting was due. A U.S. holder should consult its advisors regarding the potential application of these rules to an investment in our ordinary shares.

We may not be able to make distributions or repurchase shares without subjecting our shareholders to Dutch withholding tax.

Dutch dividend withholding tax may be levied on dividends and similar distributions made by us to our shareholders at the statutory rate of 15%. If dividend distributions are structured as a repayment of capital or a repurchase of shares, Dutch withholding tax may still be due at 15%. Such repayment of capital or repurchase of shares will be exempt from dividend withholding tax only in limited circumstances. See “Taxation—Material Dutch Tax Considerations”.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” and contains forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning the following:

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our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses (including changes in sales and marketing, research and development and general and administrative expenses), and our ability to achieve, and maintain, future profitability;

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market acceptance of our products;

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the effects of increased competition in our markets and our ability to compete effectively;

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our ability to maintain the security and availability of our software;

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our ability to maintain and expand our customer base, including by attracting new customers;

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our ability to maintain or increase our Net Expansion Rate;

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our ability to develop new offerings, or enhancements to our existing offerings, and bring them to market in a timely manner;

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anticipated trends, growth rates and challenges in our business and in the markets in which we operate;

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our business model and our ability to effectively manage our growth and associated investments;

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beliefs and objectives for future operations, including regarding our estimated total addressable market;

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our relationships with third parties, including partners;

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our ability to maintain, protect and enhance our intellectual property rights;

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our ability to successfully defend litigation brought against us;

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our ability to successfully expand in our existing markets and into new markets;

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sufficiency of cash to meet cash needs for at least the next 12 months;

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our ability to comply with laws and regulations that currently apply or become applicable to our business both in the United States and internationally;

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the attraction and retention of qualified employees and key personnel;

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our use of the net proceeds from this offering; and

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the future trading prices of our ordinary shares.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.

These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in “Risk Factors” and elsewhere in this prospectus. Moreover,

we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations, except as required by law.

You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

MARKET AND INDUSTRY DATA

This prospectus includes industry and market data, estimates and forecasts that we obtained from industry publications and research, surveys, studies conducted by third parties as well as other information based on our internal sources. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosure contained in this prospectus and we believe these industry publications and third-party research, surveys and studies are reliable. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of important factors, including those described in the section titled “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

Certain information in the text of this prospectus is contained in independent industry publications. The sources of these independent industry publications are provided below:

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IDC Market Forecast: Worldwide Problem Management Software Forecast, 2017-2021 (February 2017)

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IDC Market Forecast: Worldwide IT Operations Management Software Forecast, 2018-2022: First Look (February 2018)

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IDC Market Forecast: Worldwide Big Data and Analytics Software Forecast, 2017-2021 (July 2017)

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IDC Market Forecast: Worldwide Security and Vulnerability Management Forecast, 2017-2021 (January 2018)

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Data Age 2025: The Evolution of Data to Life-Critical (IDC 2017)

USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of our ordinary shares in this offering at the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $ million, or approximately $ million if the underwriters exercise their option to purchase additional shares in full.

Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, respectively, the net proceeds to us from this offering by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us. Similarly, each 1.0 million increase or decrease in the number of shares offered by us would increase or decrease, respectively, the net proceeds to us from this offering by approximately $ million, assuming the initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us.

The principal purposes of this offering are to increase our capitalization and financial flexibility, to create a public market for our shares and thereby enable access to the public equity markets for our employees and shareholders and to increase our visibility in the marketplace. We currently intend to use the net proceeds from this offering primarily for general corporate purposes, including working capital, research and development, sales and marketing activities, general and administrative matters and capital expenditures, although we do not currently have any specific plans with respect to the use of proceeds for such purposes. In addition, we may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions, products, or businesses that complement our business, although we have no present commitments or agreements to enter into any material acquisitions or investments. We will have broad discretion over the uses of the net proceeds of this offering. Pending these uses, we intend to invest the net proceeds in short-term, investment grade, interest-bearing instruments.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our shares. We currently intend to retain all available funds and any future earnings, if any, for use in the operation of our business, to finance the growth and development of our business and to provide additional liquidity and as a result, we do not expect to pay any dividends in the foreseeable future. Any future determination to declare dividends will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant.

Dividend payments are subject to withholding tax in the Netherlands. See “Taxation—Material Dutch Tax Considerations” for additional information.

CAPITALIZATION

The following table sets forth cash and cash equivalents, as well as our capitalization, as of July 31, 2018 on:

•

an actual basis;

•

a pro forma basis, to reflect the (i) automatic conversion upon the resolution of our board of directors of all outstanding redeemable convertible preference shares into 28,939,466 ordinary shares immediately prior to the completion of this offering, (ii) change in par value of ordinary shares from €0.001 per share to €0.01 per share as required by Dutch law at the time of the Company’s conversion to Elastic N.V. immediately prior to the completion of this offering, (iii) stock-based compensation expense of approximately $1.5 million associated with restricted stock awards (“RSAs”) subject to service-based and performance-based vesting conditions, which we will recognize upon the completion of this offering, as further described in Note 2 to our consolidated financial statements included elsewhere in this prospectus, and (iv) stock-based compensation expense of approximately $1.4 million associated with stock options granted to our Chief Executive Officer subject to a performance-based vesting condition, which we will recognize upon the completion of this offering, as further described in Note 2 to our consolidated financial statements included elsewhere in this prospectus. The pro forma adjustments related to stock-based compensation expense of approximately $2.9 million have been reflected as an increase to additional paid-in capital and accumulated deficit.

•

a pro forma as adjusted basis, to give effect to the adjustments described above and the sale and issuance by us of ordinary shares in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this information together with our consolidated financial statements and related notes, and the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included elsewhere in this prospectus.


	As of July 31, 2018
	Actual			Pro Forma			Pro Forma As Adjusted⁽¹⁾
	(in thousands, except share and per share data)
Cash and cash equivalents	$	51,071		$	51,071		$

Redeemable convertible preference shares, par value €0.001 per share; 29,026,193 shares authorized, 28,939,466 shares issued and outstanding, actual; no shares authorized, issued, and outstanding, pro forma and pro forma as adjusted	$	200,921		$	—		$

Shareholders’ (deficit) equity:
Preference shares, par value €0.01 per share; no shares authorized, issued, and outstanding, actual; shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted		—			—
Ordinary shares, par value €0.001 per share; 72,000,000 shares authorized, 33,553,263 shares issued and outstanding, actual; no shares authorized, issued, and outstanding, pro forma and pro forma as adjusted		33			—
Ordinary shares, par value €0.01 per share; no shares authorized, issued, and outstanding, actual; shares authorized, 62,492,729 shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted		—			624
Treasury shares, 35,937 shares (repurchased at an average price of $10.30 per share)		(369	)		(369	)
Additional paid-in capital		69,068			272,257
Accumulated other comprehensive loss		(1,699	)		(1,699	)
Accumulated deficit		(233,352	)		(236,211	)

Total shareholders’ (deficit) equity		(166,319	)		34,602

Total capitalization	$	34,602		$	34,602		$

⁽¹⁾

Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, respectively, the amount of cash and cash equivalents, additional paid-in capital, total shareholders’ equity and total capitalization by $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. We may also increase or decrease the number of shares we are offering. An increase or decrease of 1.0 million in the number of shares we are offering would increase or decrease, respectively, the amount of cash and cash equivalents, additional paid-in capital, total shareholders’ equity and total capitalization by approximately $ million, assuming the initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

If the underwriters exercise their option to purchase additional shares in full, pro forma as adjusted cash and cash equivalents, additional paid-in capital, total shareholders’ (deficit) equity, total capitalization and ordinary shares outstanding as of July 31, 2018, would be $ million, $ million, $ million, $ million and shares, respectively.

The number of ordinary shares that will be outstanding after this offering is based on 62,492,729 ordinary shares outstanding as of July 31, 2018, and excludes:

•

23,785,510 ordinary shares issuable upon the exercise of options to purchase ordinary shares under our 2012 Plan that were outstanding as of July 31, 2018, with a weighted-average exercise price of $9.48 per share;

•

244,498 ordinary shares issuable upon satisfaction of a performance-based vesting condition pursuant to restricted stock awards outstanding as of July 31, 2018; and

•

ordinary shares available for future issuance under our 2012 Plan.

DILUTION

If you invest in our ordinary shares, your interest will be diluted to the extent of the difference between the amount per share paid by purchasers of ordinary shares in this offering and the pro forma as adjusted net tangible book value per share immediately after this offering.

As of July 31, 2018, our pro forma net tangible book value was approximately $(15.0) million, or $(0.24) per share. Our pro forma net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of ordinary shares outstanding as of July 31, 2018, assuming the conversion of all outstanding redeemable convertible preference shares into 28,939,466 ordinary shares.

After giving effect to our sale in this offering of ordinary shares, at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of July 31, 2018 would have been approximately $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to our existing shareholders and an immediate dilution of $ per share to investors purchasing shares in this offering at the assumed initial offering price. The following table illustrates this dilution:


Assumed initial public offering price per share				$
Pro forma net tangible book value per share as of July 31, 2018	$	(0.24	)
Increase in pro forma net tangible book value per share attributable to new investors in this offering

Pro forma as adjusted net tangible book value per share, after this offering				$

Dilution in pro forma net tangible book value per share to new investors in this offering				$

The dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. A $1.00 increase or decrease in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, respectively, our pro forma net tangible book value per share after this offering by $ , and the dilution in pro forma net tangible book value per share to new investors in this offering by $ , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. Each 1.0 million increase or decrease in the number of shares offered by us as set forth on the cover page of this prospectus would increase or decrease our pro forma net tangible book value per share after this offering by $ , and the dilution in pro forma net tangible book value per share to new investors in this offering by $ per share, assuming that the assumed initial public offering price of $ , which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions.

If the underwriters exercise their option to purchase additional shares in full, the pro forma as adjusted net tangible book value per share after this offering would be $ per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be $ per share.

The following table summarizes, on a pro forma as adjusted basis as of July 31, 2018 after giving effect to the sale of our ordinary shares in this offering at an assumed initial public offering price of

$ per share, which is the midpoint of the estimated offering price range on the cover page of this prospectus, the difference between existing shareholders and new investors with respect to the number of ordinary shares purchased from us, the total consideration paid to us and the average price per share paid or to be paid to us at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us:


	Shares Purchased					Total Consideration					Average Price Per Share
	Number		Percent			Amount		Percent			Average Price Per Share
						(in thousands)
Existing shareholders		62,492,729			%	$	228,611			%	$	3.66
New public investors

Total				100	%				100	%

To the extent that any outstanding options are exercised, or we issue any securities or convertible debt in the future, investors will experience further dilution.

Except as otherwise indicated, the above discussion and tables assume no exercise by the underwriters of their option to purchase additional shares. If the underwriters exercise their option to purchase additional shares in full, our existing shareholders would own % and the investors purchasing ordinary shares in this offering would own % of the total number of ordinary shares outstanding immediately after completion of this offering.

The number of ordinary shares that will be outstanding after this offering is based on 62,492,729 ordinary shares outstanding as of July 31, 2018, and excludes:

•

244,498 ordinary shares issuable upon satisfaction of a performance-based vesting condition pursuant to restricted stock awards outstanding as of July 31, 2018; and

•

ordinary shares available for future issuance under our 2012 Plan.

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated statements of operations data presented below for the years ended April 30, 2017 and 2018 and the consolidated balance sheet data as of April 30, 2017 and 2018 (except for the pro forma share and pro forma net loss per share information) are derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The selected consolidated statements of operations data presented below for the three months ended July 31, 2017 and 2018 and the consolidated balance sheet data as of July 31, 2018 are derived from our unaudited interim consolidated financial statements that are included elsewhere in this prospectus. In management’s opinion, the unaudited interim consolidated financial statements include all adjustments necessary to state fairly our financial position as of July 31, 2018 and the results of operations and cash flows for the three months ended July 31, 2017 and 2018. The selected consolidated financial data below should be read in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results, and our results for the three months ended July 31, 2018 are not necessarily indicative of the results that may be expected for the full fiscal year ending April 30, 2019, or any other period. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and the related notes, and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus.


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017			2018
	(in thousands, except share and per share data)
Consolidated Statements of Operations Data:
Revenue
License – self-managed	$	14,503		$	25,759		$	4,649		$	7,240
Subscription – self-managed and SaaS		65,243			123,623			24,742			44,369

Total subscription revenue		79,746			149,382			29,391			51,609
Professional services		8,431			10,553			2,253			5,035

Total revenue		88,177			159,935			31,644			56,644

Cost of revenue⁽¹⁾⁽²⁾
Cost of license – self-managed		55			387			97			97
Cost of subscription – self-managed and SaaS		13,161			27,920			4,982			10,201

Total cost of revenue – subscription		13,216			28,307			5,079			10,298
Cost of professional services		6,629			12,433			2,335			5,259

Total cost of revenue		19,845			40,740			7,414			15,557

Gross profit		68,332			119,195			24,230			41,087

Operating expenses^(1)(2)(3)
Research and development		32,601			55,641			10,824			18,981
Sales and marketing		56,612			82,606			17,047			30,422
General and administrative		26,291			28,942			5,533			10,099

Total operating expenses		115,504			167,189			33,404			59,502

Operating loss^(1)(2)(3)		(47,172	)		(47,994	)		(9,174	)		(18,415	)


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017			2018
	(in thousands, except share and per share data)
Other income (expense), net		(583	)		(1,357	)		(724	)		596

Loss before income taxes		(47,755	)		(49,351	)		(9,898	)		(17,819	)
Provision for income taxes		4,213			3,376			69			759

Net loss	$	(51,968	)	$	(52,727	)	$	(9,967	)	$	(18,578	)

Net loss per share attributable to ordinary shareholders, basic and diluted⁽⁴⁾	$	(1.71	)	$	(1.65	)	$	(0.32	)	$	(0.56	)

Weighted-average shares used to compute net loss per share attributable to ordinary shareholders, basic and diluted⁽⁴⁾		30,359,419			32,033,792			31,439,156			32,978,163

Pro forma net loss per share, basic and diluted⁽⁴⁾				$	(0.86	)				$	(0.30	)

Weighted-average shares used in computing pro forma net loss per share, basic and diluted⁽⁴⁾					60,973,258						61,917,629

⁽¹⁾	Includes stock-based compensation expense as follows:


	Year Ended April 30,				Three Months Ended July 31,
	2017		2018		2017		2018
	(in thousands)
Cost of revenue
Cost of subscription – self-managed and SaaS	$	268	$	699	$	119	$	413
Cost of professional services		98		329		42		177
Research and development		3,302		5,045		983		2,097
Sales and marketing		3,420		3,560		732		1,852
General and administrative		11,798		3,109		378		1,126

Total stock-based compensation expense	$	18,886	$	12,742	$	2,254	$	5,665

⁽²⁾	Includes amortization of acquired intangible assets as follows:


	Year Ended April 30,				Three Months Ended July 31,
	2017		2018		2017		2018
	(in thousands)
Cost of revenue
Cost of license – self-managed	$	55	$	387	$	97	$	97
Cost of subscription – self-managed and SaaS		404		1,521		197		576
Sales and marketing		70		119		22		37

Total amortization of acquired intangible assets	$	529	$	2,027	$	316	$	710

⁽³⁾	Includes acquisition-related expenses as follows:


	Year Ended April 30,				Three Months Ended July 31,
	2017		2018		2017		2018
	(in thousands)
Research and development	$	—	$	655	$	140	$	174
General and administrative		235		608		305		206

Total acquisition-related expenses	$	235	$	1,263	$	445	$	380

⁽⁴⁾

Refer to Note 10 to our consolidated financial statements elsewhere in this prospectus for an explanation of the method used to calculate our basic and diluted net loss per share attributable to ordinary shareholders, our basic and diluted pro forma net loss per share and the weighted-average number of shares used in the computation of the per share amounts.


	As of April 30,						As of July 31, 2018
	2017			2018			As of July 31, 2018
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	59,640		$	50,941		$	51,071
Working capital (deficit)	$	56,889		$	7,116		$	(5,367	)
Total assets	$	144,347		$	183,013		$	177,299
Deferred revenue, current and non-current	$	54,152		$	102,561		$	103,591
Redeemable convertible preference shares	$	200,921		$	200,921		$	200,921
Accumulated deficit	$	(162,047	)	$	(214,774	)	$	(233,352	)
Total shareholders’ deficit	$	(128,538	)	$	(153,529	)	$	(166,319	)

Non-GAAP Financial Measures

Non-GAAP Gross Profit and Non-GAAP Gross Margin


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017			2018
	(in thousands)
Gross profit	$	68,332		$	119,195		$	24,230		$	41,087
Stock-based compensation expense		366			1,028			161			590
Amortization of acquired intangible assets		459			1,908			294			673

Non-GAAP gross profit	$	69,157		$	122,131		$	24,685		$	42,350

Gross margin		77	%		75	%		77	%		73	%
Non-GAAP gross margin (non-GAAP gross profit as a percentage of revenue)		78	%		76	%		78	%		75	%

Non-GAAP Operating Loss and Non-GAAP Operating Margin


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017			2018
	(in thousands)
Operating loss	$	(47,172	)	$	(47,994	)	$	(9,174	)	$	(18,415	)
Stock-based compensation expense		18,886			12,742			2,254			5,665
Amortization of acquired intangible assets		529			2,027			316			710
Acquisition-related expenses		235			1,263			445			380

Non-GAAP operating loss	$	(27,522	)	$	(31,962	)	$	(6,159	)	$	(11,660	)

Operating margin		(53	)%		(30	)%		(29	)%		(33	)%
Non-GAAP operating margin (non-GAAP operating loss as a percentage of revenue)		(31	)%		(20	)%		(19	)%		(21	)%

Free Cash Flow and Free Cash Flow Margin

and strategic investments. We further believe that historical and future trends in free cash flow and free cash flow margin, even if negative, provide useful information about the amount of cash generated (or consumed) by our operating activities that is available (or not available) to be used for strategic initiatives. For example, if free cash flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. One limitation of free cash flow and free cash flow margin is that they do not reflect our future contractual commitments. Additionally, free cash flow does not represent the total increase or decrease in our cash balance for a given period.

The following table presents our cash flows for the periods presented and a reconciliation of free cash flow and free cash flow margin to net cash used in operating activities, the most directly comparable financial measure calculated in accordance with GAAP:


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017			2018
	(in thousands)
Net cash (used in) provided by operating activities	$	(16,107	)	$	(20,819	)	$	850		$	5,126
Less: Purchases of property and equipment		(843	)		(2,968	)		(394	)		(336	)

Free cash flow	$	(16,950	)	$	(23,787	)	$	456		$	4,790


Net cash (used in) provided by investing activities	$	(20,331	)	$	8,330		$	4,055		$	(2,322	)
Net cash provided by financing activities	$	59,761		$	3,427		$	529		$	129

Net cash (used in) provided by operating activities (as a percentage of total revenue)		(18	)%		(13	)%		2	%		9	%
Less: Purchases of property and equipment (as a percentage of total revenue)		(1	)%		(2	)%		(1	)%		(1	)%

Free cash flow margin		(19	)%		(15	)%		1	%		8	%

Calculated Billings


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017		2018
	(in thousands)
Total revenue	$	88,177		$	159,935		$	31,644	$	56,644
Add: Increase in total deferred revenue		26,951			45,814			1,522		2,368
Less: (Increase) decrease in unbilled accounts receivable		(558	)		(25	)		486		206

Calculated billings	$	114,570		$	205,724		$	33,652	$	59,218

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled “Selected Consolidated Financial Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion 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 the section titled “Risk Factors” included elsewhere in this prospectus. Our fiscal year end is April 30.

Overview

Elastic is a search company. We deliver technology that enables users to search through massive amounts of structured and unstructured data for a wide range of consumer and enterprise applications. Our primary offering is the Elastic Stack (previously known as the ELK Stack), a powerful set of software products that ingest and store data from any source, and in any format, and perform search, analysis, and visualization in milliseconds or less. The Elastic Stack is designed for direct use by developers to power a variety of use cases. We have also built software solutions on the Elastic Stack that address a wide variety of use cases, including app search, site search, enterprise search, logging, metrics, APM, business analytics, and security analytics. Our products are used by individual developers and organizations of all sizes across a wide range of industries.

Elasticsearch is the heart of the Elastic Stack. It is a distributed, real-time search and analytics engine and datastore for exploring all types of data including textual, numerical, geospatial, structured, and unstructured. The first public release of Elasticsearch was in 2010. Since then, we have added new products, released new features, acquired companies, and created new solutions to expand the functionality of our products:

•

2010: First public Elasticsearch release, version 0.4, by our co-founder Shay Banon as an open source project

•

2012: Elastic is founded by Shay Banon, Steven Schuurman, Uri Boness, and Simon Willnauer in Amsterdam

•

2013: New visualization capabilities added with Kibana

•

2013: New collection and enrichment capabilities added with Logstash

•

2014: Elasticsearch 1.0 released

•

2015: Security features for the Elastic Stack launched, representing Elastic’s first significant paid proprietary features

•

2015: Found (an Elasticsearch SaaS offering) acquired; Elastic Cloud launched

•

2015: New lightweight data collection capabilities added with Packetbeat; Beats product line launched

•

2016: Prelert, a machine learning company, acquired

•

2016: Elastic Stack 5.0 released to unify versions and release schedules of all products

•

2017: Elastic partners with Google; Google Cloud Platform added as a deployment option on Elastic Cloud

•

2017: Elastic Cloud Enterprise, a proprietary product, released for provisioning, managing, and monitoring multiple Elastic Stack deployments

•

2017: Opbeat, an APM company, acquired

•

2017: Elastic partners with Alibaba; Alibaba Elasticsearch Cloud with Elastic’s paid proprietary features released in the China market

•

2017: Swiftype acquired; Elastic adds new SaaS product into Elastic Cloud offering with Site Search

•

2017: Elastic Stack 6.0 released

•

2018: Elastic APM released

•

2018: Elastic App Search Service released on Elastic Cloud

•

2018: Elastic Stack 6.3 released; Elastic opens the code for its free and paid proprietary features

•

2018: Lambda Lab Corp., makers of Insight.io, a code search product, acquired

We believe that open source drives a number of benefits for our users, our customers, and our company. It facilitates rapid and efficient developer adoption, particularly by empowering individual developers to download and use our software without payment, registration, or the friction of a formal sales interaction. Our use of open source licensing fosters a vibrant developer community around our products and solutions, which drives adoption of our products and increased interaction among users. Further, this approach enables community review of our code and products, which allows us to improve the reliability and security of our software. We believe that the number of times our products have been downloaded and the size of our developer community are indicative of the benefits of our open source strategy and the growth in adoption of our products. However, we typically do not have visibility into whether our products are being actively used unless the user opts to interact with us. As a result, we cannot accurately determine how much of our downloaded software is being actively used. Since January 1, 2013, our products have been downloaded over 350 million times (these downloads include both free and paid products), and our community included over 100,000 Meetup members across 194 Meetup groups in 46 countries as of July 31, 2018.

LOGO

We generate revenue primarily from sales of subscriptions for our software. We offer various subscription tiers that provide different levels of access to paid proprietary features and support. We do not sell support separately. Our subscription agreements for self-managed deployments typically have terms of one to three years and we bill for them annually in advance. Elastic Cloud customers may purchase subscriptions either on a month-to-month basis or on a committed contract of at least one year in duration. Subscriptions accounted for 93% and 90% of our total revenue in fiscal 2018 and 2017, respectively. Subscriptions accounted for 91% of our total revenue in the three months ended July 31, 2018. We also generate revenue from consulting and training services.

We had over 5,500 customers, over 5,000 customers, and over 2,800 customers as of July 31, 2018, April 30, 2018, and April 30, 2017, respectively. 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. All affiliated entities are typically counted as a single customer. Our customers represented 32% of the Fortune 500 and 21% of the Forbes Global 2000 as of July 31, 2018. The annual contract value, or ACV, of a customer’s commitments is calculated based on the terms of that customer’s 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. The number of customers who represented greater than $100,000 in ACV was over 300, over 275, and over 150 as of July 31, 2018, April 30, 2018, and April 30, 2017, respectively.

We engage in various sales and marketing efforts to extend our open source distribution model. We employ multi-touch marketing campaigns to nurture our users and customers and keep them engaged after they download our software. Additionally, we maintain direct sales efforts focused on users and customers who have adopted our software, as well as departmental decision-makers and senior executives who have broad purchasing power in their organizations. Our sales teams are primarily segmented by geographies and secondarily by the employee count of our customers. They focus on both initial conversion of users into customers and additional sales to existing customers. In addition to our direct sales efforts, we also maintain partnerships to further extend our reach and awareness of our products around the world.

We continue to make substantial investments in developing the Elastic Stack and the solutions we address and expanding our global sales and marketing footprint. With a distributed team spanning 35 countries, we are able to recruit, hire, and retain high-quality, experienced developers, tech leads, product managers and sales personnel and operate at a rapid pace to drive product releases, fix bugs, and create and market new products. We had 994 employees as of July 31, 2018.

We have experienced significant growth, with revenue increasing to $159.9 million in fiscal 2018 from $88.2 million in fiscal 2017, representing year-over-year growth of 81% for fiscal 2018. Our revenue increased to $56.6 million in the three months ended July 31, 2018 from $31.6 million in the three months ended July 31, 2017, representing period-over-period growth of 79%. In fiscal 2018, revenue from outside the United States accounted for 39% of our total revenue. For our non-U.S. operations, the majority of our revenue and expenses are denominated in currencies such as the Euro and British Pound Sterling. No customer represented more than 10% of our revenue in fiscal 2018 or fiscal 2017 or the three months ended July 31, 2018 and 2017. We have not been profitable to date. In fiscal 2018 and 2017, we incurred net losses of $52.7 million and $52.0 million, respectively, and our operating cash flow was $(20.8) million and $(16.1) million, respectively. In the three months ended July 31, 2018 we incurred a net loss of $18.6 million and our operating cash flow was $5.1 million. We have experienced losses in each quarter since our incorporation and as of July 31, 2018, had an accumulated deficit of $233.4 million. We expect we will continue to incur net losses for the foreseeable future. There can be no assurance as to when we may become profitable.

Key Factors Affecting Our Performance

We believe that the growth and future success of our business depends 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.

Growing the Elastic community. Our open source strategy consists of providing a combination of open source, free proprietary and paid proprietary software and fostering a community of users and developers. Our strategy is designed to pursue what we believe to be significant untapped potential for the use of our technology. After developers begin to use our software and start to participate in our developer community, they become more likely to apply our technology to additional use cases and evangelize our technology within their organizations. This reduces the time required for our sales force to educate potential leads on our solutions, increasing their efficiency and shortening the sales process. In order to capitalize on our opportunity, we intend to make further investments to keep the Elastic Stack accessible and well known to software developers around the world. We intend to continue to invest in our products and support and engage our user base and developer community through content, events, and conferences in the U.S. and internationally. Our results of operations may fluctuate as we make these investments.

Developing new features and solutions to expand the use cases to which the Elastic Stack can be applied. The Elastic Stack is applied to various use cases both directly by developers and through the solutions we offer. Our revenue is derived primarily from subscriptions of the Elastic Stack and our solutions. We believe that releasing additional open source and proprietary features of the Elastic Stack and additional solutions on top of the stack 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 the Elastic Stack and make it easier to apply to additional use cases. 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 converting users of our software to paid subscribers. Our financial performance depends on growing our paid customer base by converting free users of our software into paid subscribers. Our open source distribution model has resulted in rapid adoption by developers around the world. We have invested, and expect to continue to invest, heavily in sales and marketing efforts to convert additional free users to paid subscribers. Our investment in sales and marketing is significant given our large market opportunity and our large and diverse user base. The investments are likely to occur in advance of the anticipated benefits resulting from such investments, such that they may adversely affect our operating results in the near term.

Expanding within our current customer base. Our future growth and profitability depend on our ability to drive additional sales to existing customers. Customers often expand the use of our software within their organizations by increasing the number of developers using our products, increasing the utilization of our products for a particular use case, and expanding use of our products to additional use cases. We focus some of our direct sales efforts on encouraging these types of expansion within our customer base.

The chart below illustrates this expansion by presenting the total ACV from each cohort over our history. Each cohort represents customers who made their initial purchase from us in a given fiscal year. For example, the fiscal 2016 cohort represents all customers who made their initial purchase from us between May 1, 2015 and April 30, 2016. This cohort increased their ACV from $20.6 million as of April 30, 2016 to $37.7 million as of April 30, 2018, representing a multiple of 1.8x over 2 years.

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A further indication of how our customer relationships have expanded over time is through our Net Expansion Rate, which is based upon trends in the ACV of customers that have entered into annual subscription agreements. To calculate an expansion rate as of the end of a given month, we start with the ACV from all such customers as of twelve months prior to that month end, or Prior Period Value. We then calculate the ACV from these same customers as of the given month end, or Current Period Value, which includes any growth in the value of their subscriptions 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. We believe that our Net Expansion Rate provides useful information about the evolution of our business’ existing customers. The Net Expansion Rate includes the dollar-weighted value of our subscriptions that expand, renew, contract, or attrit. For instance, if each customer had a one-year subscription and renewed its subscription for the exact same amount, then 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 142% as of July 31, 2018 and was over 130% at the end of each of our last seven fiscal quarters.

As large organizations expand their use of the Elastic Stack 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, we offer Elastic Cloud Enterprise, a proprietary product. We will continue to focus some of our direct sales efforts on driving adoption of our Elastic Cloud Enterprise offering.

Increasing adoption of Elastic Cloud. Elastic Cloud, our family of SaaS products that includes Elasticsearch Service, Site Search Service, and App Search Service, is an important growth opportunity for our business. Organizations are increasingly looking for SaaS deployment alternatives with reduced administrative burdens. In some cases, open source users that have been self-managing deployments of the Elastic Stack subsequently become paying subscribers of Elastic Cloud. In fiscal 2017, fiscal 2018, and for the three months ended July 31, 2018, Elastic Cloud contributed 11%, 16% and 18% of our total revenue, respectively. We believe that offering a SaaS deployment alternative is important for achieving our long-term growth potential, and we expect Elastic Cloud’s contribution to our subscription revenue to increase over time. However, an increase in the relative contribution of Elastic Cloud to our business could adversely impact our gross margin as a result of the associated hosting and managing costs.

Components of Results of Operations

Revenue

Subscription. Our revenue is primarily generated through the sale of time-based subscriptions to software which is either self-managed by the user or hosted and managed by us in the cloud. Subscriptions provide access to paid proprietary software features and access to support for our paid and unpaid proprietary software.

A portion of the revenue from self-managed subscriptions is generally recognized up front at the point in time when the license is delivered. This revenue is presented as License – self-managed in our consolidated statements of operations. The remainder of revenue from self-managed subscriptions, and revenue from subscriptions that require access to the cloud or that are hosted and managed by us in the cloud, is recognized ratably over the subscription term and is presented within Subscription – self-managed and SaaS in our consolidated statements of operations.

Professional services. Professional services revenue comprises consulting services as well as public and private training. Professional services revenue is typically recognized at the point in time the services are delivered.

Cost of Revenue

Subscription. Cost of license – self-managed consists of amortization of certain intangible assets. Cost of subscription – self-managed and SaaS consists primarily of personnel and related costs for employees associated with supporting our subscription arrangements, certain third-party expenses, and amortization of certain intangible and other assets. Personnel and related costs, or personnel 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 infrastructure costs and other expenses directly associated with our customer support. We expect our cost of subscription – self-managed and SaaS to increase in absolute dollars as our subscription revenue increases.

Professional services. Cost of professional services revenue consists primarily of personnel costs directly associated with delivery of training, implementation and other professional services, costs of third-party contractors, facility rental charges and allocated overhead costs. We expect our cost of professional services revenue to increase in absolute dollars as we invest in our business and as professional services 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 professional services, the amount of our revenue represented by hosted services, the mix of subscriptions sold, the mix of revenue between subscriptions and professional services, the mix of professional services between consulting and training, transaction volume growth 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 increase as a percentage of total revenue, which could adversely impact our gross margin as a result of the associated hosting and managing costs.

Operating Expenses

Research and development. Research and development expense mainly consists of personnel costs and allocated overhead costs for employees and contractors. 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 mainly consists of personnel costs, commissions, allocated overhead costs and costs related to marketing programs and user events. Marketing programs consist of advertising, events, brand-building and customer acquisition and retention activities. We expect our sales and marketing expense to increase in absolute dollars as we expand our salesforce 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 customer contracts. Sales commissions costs are amortized over the period that the performance obligation they relate to are satisfied. These performance obligations primarily relate to our subscription contracts, which are typically sold for a one to three year duration.

General and administrative. General and administrative expense mainly consists of personnel 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 services 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. We also anticipate that we will incur additional costs for employees and third-party consulting services related to our preparation to become and operate as a public company.

Other Income (Expense), Net

Other income (expense), net primarily consists of gains and losses from transactions denominated in a currency other than the functional currency and interest income (expense).

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes related to the Netherlands, U.S. federal, state and foreign jurisdictions in which we conduct business. Our effective tax rate was (6.8)% during fiscal 2018. Our effective tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions. In addition, non-deductible stock-based compensation and changes in our valuation allowance had the most significant impact on the difference between the statutory Dutch tax rate and our effective tax rate.

Results of Operations

The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our total revenue:


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017			2018
	(in thousands)
Revenue
License – self-managed	$	14,503		$	25,759		$	4,649		$	7,240
Subscription – self-managed and SaaS		65,243			123,623			24,742			44,369

Total subscription revenue		79,746			149,382			29,391			51,609
Professional services		8,431			10,553			2,253			5,035

Total revenue		88,177			159,935			31,644			56,644

Cost of revenue⁽¹⁾⁽²⁾
Cost of license – self-managed		55			387			97			97
Cost of subscription – self-managed and SaaS		13,161			27,920			4,982			10,201

Total cost of revenue – subscription		13,216			28,307			5,079			10,298
Cost of professional services		6,629			12,433			2,335			5,259

Total cost of revenue		19,845			40,740			7,414			15,557

Gross profit		68,332			119,195			24,230			41,087

Operating expenses^(1)(2)(3)
Research and development		32,601			55,641			10,824			18,981
Sales and marketing		56,612			82,606			17,047			30,422
General and administrative		26,291			28,942			5,533			10,099

Total operating expenses		115,504			167,189			33,404			59,502

Operating loss⁽¹⁾⁽²⁾⁽³⁾		(47,172	)		(47,994	)		(9,174	)		(18,415	)
Other income (expense), net		(583	)		(1,357	)		(724	)		596

Loss before income taxes		(47,755	)		(49,351	)		(9,898	)		(17,819	)
Provision for income taxes		4,213			3,376			69			759

Net loss	$	(51,968	)	$	(52,727	)	$	(9,967	)	$	(18,578	)

⁽¹⁾	Includes stock-based compensation expense as follows:


	Year Ended April 30,				Three Months Ended July 31,
	2017		2018		2017		2018
	(in thousands)
Cost of revenue
Cost of subscription – self-managed and SaaS	$	268	$	699	$	119	$	413
Cost of professional services		98		329		42		177
Research and development		3,302		5,045		983		2,097
Sales and marketing		3,420		3,560		732		1,852
General and administrative		11,798		3,109		378		1,126

Total stock-based compensation expense	$	18,886	$	12,742	$	2,254	$	5,665

⁽²⁾	Includes amortization of acquired intangible assets as follows:


	Year Ended April 30,				Three Months Ended July 31,
	2017		2018		2017		2018
	(in thousands)
Cost of revenue
Cost of license – self-managed	$	55	$	387	$	97	$	97
Cost of subscription – self-managed and SaaS		404		1,521		197		576
Sales and marketing		70		119		22		37

Total amortization of acquired intangible assets	$	529	$	2,027	$	316	$	710

⁽³⁾	Includes acquisition-related expenses as follows:


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017			2018
	(in thousands)
Research and development	$	—		$	655		$	140		$	174
General and administrative		235			608			305			206

Total acquisition-related expenses	$	235		$	1,263		$	445		$	380


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017			2018
Revenue
License – self-managed		16	%		16	%		15	%		13	%
Subscription – self-managed and SaaS		74	%		77	%		78	%		78	%

Total subscription revenue		90	%		93	%		93	%		91	%
Professional services		10	%		7	%		7	%		9	%

Total revenue		100	%		100	%		100	%		100	%

Cost of revenue⁽¹⁾⁽²⁾
Cost of license – self-managed		0	%		0	%		0	%		0	%
Cost of subscription – self-managed and SaaS		15	%		17	%		16	%		18	%

Total cost of revenue – subscription		15	%		17	%		16	%		18	%
Cost of professional services		8	%		8	%		7	%		9	%

Total cost of revenue		23	%		25	%		23	%		27	%

Gross profit		77	%		75	%		77	%		73	%

Operating expenses^(1)(2)(3)
Research and development		37	%		35	%		34	%		34	%
Sales and marketing		63	%		52	%		54	%		54	%
General and administrative		30	%		18	%		18	%		18	%

Total operating expenses		130	%		105	%		106	%		106	%

Operating loss^(1)(2)(3)		(53	)%		(30	)%		(29	)%		(33	)%
Other income (expense), net		(1	)%		(1	)%		(2	)%		1	%

Loss before income taxes		(54	)%		(31	)%		(31	)%		(32	)%
Provision for income taxes		5	%		2	%		0	%		1	%

Net loss		(59	)%		(33	)%		(31	)%		(33	)%

⁽¹⁾	Includes stock-based compensation expense as follows:


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017			2018
Cost of revenue
Cost of subscription – self-managed and SaaS		0	%		1	%		1	%		1	%
Cost of professional services		0	%		0	%		0	%		0	%
Research and development		4	%		3	%		3	%		4	%
Sales and marketing		4	%		2	%		2	%		3	%
General and administrative		13	%		2	%		1	%		2	%

Total stock-based compensation expense		21	%		8	%		7	%		10	%

⁽²⁾	Includes amortization of acquired intangible assets as follows:


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017			2018
Cost of revenue
Cost of license – self-managed		0	%		0	%		0	%		0	%
Cost of subscription – self-managed and SaaS		1	%		1	%		1	%		1	%
Sales and marketing		0	%		0	%		0	%		0	%

Total amortization of acquired intangible assets		1	%		1	%		1	%		1	%

⁽³⁾	Includes acquisition-related expenses as follows:


	Year Ended April 30,						Three Months Ended July 31,
	2017			2018			2017			2018
Research and development		0	%		1	%		0	%		0	%
General and administrative		0	%		0	%		1	%		1	%

Total acquisition-related expenses		0	%		1	%		1	%		1	%

Comparison of Three Months Ended July 31, 2017 and 2018

Revenue


	Three Months Ended July 31,				Change
	2017		2018		$		%
	(in thousands)
Revenue
License – self-managed	$	4,649	$	7,240	$	2,591		56	%
Subscription – self-managed and SaaS		24,742		44,369		19,627		79	%

Total subscription revenue		29,391		51,609		22,218		76	%
Professional services		2,253		5,035		2,782		123	%

Total revenue	$	31,644	$	56,644	$	25,000		79	%

Total revenue increased by $25.0 million, or 79%, in the three months ended July 31, 2018, compared to the same period of the prior year.

Total subscription revenue increased $22.2 million, or 76%, in the three months ended July 31, 2018 compared to the same period of the prior year. Over 40% of this increase was due to sales to new customers, and the remaining increase resulted from an increase in sales to existing customers.

Professional services revenue increased by $2.8 million, or 123%, in the three months ended July 31, 2018, compared to the same period of the prior year. The increase in professional services revenue was attributable to increased adoption of our professional services offerings.

Cost of Revenue and Gross Margin


	Three Months Ended July 31,						Change
	2017			2018			$		%
	(in thousands)
Cost of revenue
Cost of license – self-managed	$	97		$	97		$	—		0	%
Cost of subscription – self-managed and SaaS		4,982			10,201			5,219		105	%

Total cost of revenue – subscription		5,079			10,298			5,219		103	%
Cost of professional services		2,335			5,259			2,924		125	%

Total cost of revenue	$	7,414		$	15,557		$	8,143		110	%

Gross profit	$	24,230		$	41,087		$	16,857		70	%

Gross margin:
License – self-managed		98	%		99	%
Subscription – self-managed and SaaS		80	%		77	%
Total subscription margin		83	%		80	%
Professional services		(4	)%		(4	)%
Total gross margin		77	%		73	%

Total cost of subscription revenue increased by $5.2 million, or 103%, in the three months ended July 31, 2018 compared to the three months ended July 31, 2017. This increase was primarily due to an increase of $2.0 million in cloud infrastructure costs, an increase of $1.8 million in personnel and related charges from growth in headcount in our support organization, and an increase of $0.4 million in amortization of acquired intangible assets.

Total subscription margin decreased to 80% in the three months ended July 31, 2018 from 83% in the three months ended July 31, 2017. This decrease is due to the growth of our SaaS offerings which incur higher costs related to cloud infrastructure and the increased costs associated with scaling our support organization.

Cost of professional services revenue increased by $2.9 million, or 125%, in the three months ended July 31, 2018 compared to the three months ended July 31, 2017. This increase was primarily due to an increase of $1.6 million in personnel and related costs driven by an increase in headcount in our consulting and training organization and an increase of $0.8 million in subcontractor costs to supplement our internal resources providing services to our customers.

Gross margin for professional services revenue was (4)% in the three months ended July 31, 2018 and the three months ended July 31, 2017. Historically, our professional services offerings have primarily consisted of training. We have recently experienced increased demand for consulting services. In fiscal 2018 and continuing in the three months ended July 31, 2018, we have invested in our professional services organization, primarily in consulting resources that we believe will be needed as we continue to grow. This investment is mainly in headcount as we continue to ramp our consulting team in advance of expected associated revenue. Our gross margin for professional services revenue may fluctuate or decline in the near-term as we seek to expand our professional services business.

Operating Expenses

Research and development


	Three Months Ended July 31,				Change
	2017		2018		$		%
	(in thousands)
Research and development	$	10,824	$	18,981	$	8,157		75	%

Research and development expense increased by $8.2 million, or 75%, in the three months ended July 31, 2018 compared to the same period of the prior year as we continued to invest in the development of new and existing offerings. Personnel and related costs increased by $6.4 million and software and equipment expense increased by $1.1 million, primarily as a result of growth in headcount. Stock-based compensation expense, included within personnel and related costs, increased by $1.1 million year over year.

Sales and marketing


	Three Months Ended July 31,				Change
	2017		2018		$		%
	(in thousands)
Sales and marketing	$	17,047	$	30,422	$	13,375		78	%

Sales and marketing expense increased by $13.4 million, or 78%, in the three months ended July 31, 2018 compared to the same period of the prior year. This increase was primarily due to an increase of $10.2 million in personnel and related costs as we continued to increase our sales and marketing headcount. This increase in personnel and related costs includes an increase of $1.8 million in commissions expense related to the amortization of contract acquisition costs, and an increase of $1.1 million in stock-based compensation expense. The increased headcount also resulted in an increase of $1.4 million in travel expenses.

General and administrative


	Three Months Ended July 31,				Change
	2017		2018		$		%
	(in thousands)
General and administrative	$	5,533	$	10,099	$	4,566		83	%

General and administrative expense increased by $4.6 million, or 83%, in the three months ended July 31, 2018 compared to the same period of the prior year. As a result of our continued investment in headcount, personnel and related costs increased by $3.2 million, including an increase in stock-based compensation of $0.7 million. Legal and professional advisory expenses increased by $1.7 million in the three months ended July 31, 2018 compared to the same period of the prior year as we invested in preparing to be a public company as well as in international expansion. These increases were partially offset by a decrease of $0.3 million in other expenses.

Other Income (Expense), Net


	Three Months Ended July 31,					Change
	2017			2018		$		%
	(in thousands)
Other income (expense), net	$	(724	)	$	596	$	1,320		(182	)%

Other income was $0.6 million in the three months ended July 31, 2018 compared to other expense of $0.7 million in the three months ended July 31, 2017. This increase was primarily due to a positive $1.4 million impact from foreign currency fluctuations.

Provision for Income Taxes


	Three Months Ended July 31,				Change
	2017		2018		$		%
	(in thousands)
Provision for income taxes	$	69	$	759	$	690		1,000	%

Provision for income taxes increased by $0.7 million in the three months ended July 31, 2018 compared to the same period in the prior year. Our effective tax rate was (4.3)% and (0.7)% of our net loss before taxes for the three months ended July 31, 2018 and 2017, respectively. Our effective tax rate was affected by recurring items, such as tax rates in jurisdictions outside the Netherlands and the relative amounts of income we earned in those jurisdictions.

Comparison of Fiscal Years Ended April 30, 2017 and 2018

Revenue


	Year Ended April 30,				Change
	2017		2018		$		%
	(in thousands)
Revenue
License – self-managed	$	14,503	$	25,759	$	11,256		78	%
Subscription – self-managed and SaaS		65,243		123,623		58,380		89	%

Total subscription revenue		79,746		149,382		69,636		87	%
Professional services		8,431		10,553		2,122		25	%

Total revenue		88,177		159,935		71,758		81	%

Total revenue increased by $71.8 million, or 81%, in fiscal 2018 compared to the prior year.

Total subscription revenue increased $69.6 million, or 87%, in fiscal 2018 compared to the prior year. Over 25% of the increase was due to sales to new customers added during fiscal 2018, and the remaining increase resulted from an increase in sales to existing customers.

Professional services revenue increased by $2.1 million, or 25%, in fiscal 2018 compared to the prior year. The increase in professional services revenue was attributable to an increase in our consulting services due to increased adoption of our offerings.

Cost of Revenue and Gross Margin


	Year Ended April 30,						Change
	2017			2018			$		%
	(in thousands)
Cost of revenue
Cost of license – self-managed	$	55		$	387		$	332		604	%
Cost of subscription – self-managed and SaaS		13,161			27,920			14,759		112	%

Total cost of revenue – subscription		13,216			28,307			15,091		114	%
Cost of professional services		6,629			12,433			5,804		88	%

Total cost of revenue	$	19,845		$	40,740		$	20,895		105	%

Gross profit	$	68,332		$	119,195		$	50,863		74	%
Gross margin:
License – self-managed		100	%		98	%
Subscription – self-managed and SaaS		80	%		77	%
Total subscription margin		83	%		81	%
Professional services		21	%		(18	)%
Total gross margin		77	%		75	%

Total cost of subscription revenue increased by $15.1 million, or 114%, in fiscal 2018 compared to the prior year. This increase was primarily due to an increase of $7.2 million in cloud infrastructure costs, an increase of $5.0 million in personnel and related charges from growth in headcount in our support organization, and an increase of $1.4 million in amortization of acquired intangible assets.

Total subscription margin decreased to 81% in fiscal 2018 from 83% in fiscal 2017. This decrease is due to the growth of our SaaS offerings which incur higher costs related to cloud infrastructure, and the costs associated with scaling our support organization.

Cost of professional services revenue increased by $5.8 million, or 88%, in fiscal 2018 compared to the prior year. This increase was primarily due to an increase of $4.2 million in personnel and related costs driven by an increase in headcount in our consulting and training organization, and an increase of $0.9 million in travel costs resulting from the higher number of employees traveling to provide services to customers.

Gross margin for professional services revenue decreased to (18)% for fiscal 2018 from 21% for fiscal 2017. Historically, our professional services offerings have primarily consisted of training. We have recently experienced increased demand for consulting services. In fiscal 2018 we invested in our professional services organization, primarily in consulting resources that we believe will be needed as we continue to grow. This investment was mainly in headcount as we ramped our consulting team in advance of expected associated revenue. Our gross margin for professional services revenue may fluctuate or decline in the near-term as we seek to expand our professional services business.

Operating Expenses

Research and development


	Year Ended April 30,				Change
	2017		2018		$		%
	(in thousands)
Research and development	$	32,601	$	55,641	$	23,040		71	%

Research and development expense increased by $23.0 million, or 71%, in fiscal 2018 compared to the prior year as we continued to invest in the development of new and existing offerings. Personnel and related costs increased by $18.9 million and software and equipment expense increased by $1.7 million, primarily as a result of growth in headcount. Stock-based compensation expense included within personnel and related costs increased by $1.7 million year over year.

Sales and marketing


	Year Ended April 30,				Change
	2017		2018		$		%
	(in thousands)
Sales and marketing	$	56,612	$	82,606	$	25,994		46	%

Sales and marketing expense increased by $26.0 million, or 46%, in fiscal 2018 compared to the prior year. This increase was primarily due to an increase of $18.1 million in personnel and related costs as we continued to increase our sales and marketing headcount. This increase in personnel and related costs includes an increase of $4.0 million in commissions expense related to the amortization of contract acquisition costs, and an increase of $0.1 million in stock-based compensation expense. The increased headcount also resulted in an increase of $2.7 million in travel expenses. Marketing expenses increased $3.1 million primarily due to our expanded user conference program in fiscal 2018.

General and administrative


	Year Ended April 30,				Change
	2017		2018		$		%
	(in thousands)
General and administrative	$	26,291	$	28,942	$	2,651		10	%

General and administrative expense increased by $2.7 million, or 10%, in fiscal 2018 compared to the prior year. As a result of our continued investment in headcount, personnel and related costs (excluding stock-based compensation expense) increased by $7.1 million, offset by an $8.7 million decrease in stock-based compensation expense. This decrease in stock-based compensation was due to an $11.0 million charge in fiscal 2017 related to a tender offer allowing certain employees and founders to sell ordinary shares. Legal and professional advisory expenses increased by $3.5 million in fiscal 2018 as we invested in preparing to be a public company as well as in international expansion. In addition, our bad debt expense increased $0.8 million as our accounts receivable balance increased.

Other Income (Expense), Net


	Year Ended April 30,						Change
	2017			2018			$			%
	(in thousands)
Other income (expense), net	$	(583	)	$	(1,357	)	$	(774	)		133	%

Other expense increased by $0.8 million, or 133%, in fiscal 2018 compared to the prior year. This increase was primarily due to a negative $0.6 million impact from foreign currency fluctuations.

Provision for Income Taxes


	Year Ended April 30,				Change
	2017		2018		$			%
	(in thousands)
Provision for income taxes	$	4,213	$	3,376	$	(837	)		(20	)%

Provision for income taxes decreased by $0.8 million, or 20%, in fiscal 2018 compared to the prior year. Our effective tax rate was (6.8)% and (8.8)% of our net loss before taxes for fiscal 2018 and 2017, respectively. Our effective tax rate was affected by recurring items, such as tax rates in jurisdictions outside the Netherlands and the relative amounts of income we earned in those jurisdictions.

Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP. In addition, other companies, including companies in our industry, may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. Investors are encouraged to review the related U.S. GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

Non-GAAP Gross Profit and Non-GAAP Gross Margin


	Three Months Ended July 31,						Change
	2017			2018			$		%
	(in thousands)
Gross profit	$	24,230		$	41,087		$	16,857		70	%
Stock-based compensation expense		161			590			429		266	%
Amortization of acquired intangible assets		294			673			379		129	%

Non-GAAP gross profit	$	24,685		$	42,350		$	17,665		72	%

Gross margin		77	%		73	%
Non-GAAP gross margin (non-GAAP gross profit as a percentage of revenue)		78	%		75	%


	Year Ended April 30,						Change
	2017			2018			$		%
	(in thousands)
Gross profit	$	68,332		$	119,195		$	50,863		74	%
Stock-based compensation expense		366			1,028			662		181	%
Amortization of acquired intangible assets		459			1,908			1,449		316	%

Non-GAAP gross profit	$	69,157		$	122,131		$	52,974		77	%

Gross margin		77	%		75	%
Non-GAAP gross margin (non-GAAP gross profit as a percentage of revenue)		78	%		76	%

Non-GAAP Operating Loss and Non-GAAP Operating Margin


	Three Months Ended July 31,						Change
	2017			2018			$			%
	(in thousands)
Operating loss	$	(9,174	)	$	(18,415	)	$	(9,241	)		101	%
Stock-based compensation expense		2,254			5,665			3,411			151	%
Amortization of acquired intangible assets		316			710			394			125	%
Acquisition-related expenses		445			380			(65	)		(15	)%

Non-GAAP operating loss	$	(6,159	)	$	(11,660	)	$	(5,501	)		89	%

Operating margin		(29	)%		(33	)%
Non-GAAP operating margin (non-GAAP operating loss as a percentage of revenue)		(19	)%		(21	)%


	Year Ended April 30,						Change
	2017			2018			$			%
	(in thousands)
Operating loss	$	(47,172	)	$	(47,994	)	$	(822	)		2	%
Stock-based compensation expense		18,886			12,742			(6,144	)		(33	)%
Amortization of acquired intangible assets		529			2,027			1,498			283	%
Acquisition-related expenses		235			1,263			1,028			437	%

Non-GAAP operating loss	$	(27,522	)	$	(31,962	)	$	(4,440	)		16	%

Operating margin		(53	)%		(30	)%
Non-GAAP operating margin (non-GAAP operating loss as a percentage of revenue)		(31	)%		(20	)%

Free Cash Flow and Free Cash Flow Margin

cash generated from our core operations that, after the purchases of property and equipment, can be used for strategic initiatives, including investing in our business and selectively pursuing acquisitions and strategic investments. We further believe that historical and future trends in free cash flow and free cash flow margin, even if negative, provide useful information about the amount of cash generated (or consumed) by our operating activities that is available (or not available) to be used for strategic initiatives. For example, if free cash flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. One limitation of free cash flow and free cash flow margin is that they do not reflect our future contractual commitments. Additionally, free cash flow does not represent the total increase or decrease in our cash balance for a given period.


	Three Months Ended July 31,						Change
	2017			2018			$			%
	(in thousands)
Net cash provided by operating activities	$	850		$	5,126		$	4,276			503	%
Less: Purchases of property and equipment		(394	)		(336	)		58			(15	)%

Free cash flow	$	456		$	4,790		$	4,334			950	%


Net cash provided by (used in) investing activities	$	4,055		$	(2,322	)	$	(6,377	)		(157	)%
Net cash provided by financing activities	$	529		$	129		$	(400	)		(76	)%

Net cash provided by operating activities (as a percentage of total revenue)