estc-10q_20191031.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-38675

Elastic N.V.

The Netherlands	Not Applicable
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
800 West El Camino Real, Suite 350
Mountain View, California 94040
(Address of principal executive offices)
(650) 458-2620

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Ordinary shares, Par Value €0.01 Per Share		ESTC		New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☒

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 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 30, 2019, the registrant had 80,621,016 ordinary shares, €0.01 par value per share, outstanding.

Table of Contents

		Page
	Note Regarding Forward-Looking Statements	3
PART I.	FINANCIAL INFORMATION	5

Item 1.	Financial Statements (Unaudited)	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Comprehensive Loss	7
	Condensed Consolidated Statements of Convertible Redeemable Preference Shares and Shareholders’ Equity (Deficit)	8
	Condensed Consolidated Statements of Cash Flows	10
	Notes to Condensed Consolidated Financial Statements (Unaudited)	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44

PART II.	OTHER INFORMATION	46

Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities	70
Item 4.	Mine Safety Disclosures	70
Item 5.	Other Information	70
Item 6.	Exhibits	71
Signatures		72

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risk and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•

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;

•

our ability to continue to deliver and improve our offerings and successfully develop new offerings, including security-related product offerings;

•

customer acceptance and purchase of our existing offerings and new offerings;

•

our service performance and security, including the resources and costs required to prevent, detect and remediate potential security breaches;

•

our ability to maintain and expand our user and customer base;

•

the market for our products not continuing to develop;

•

competition from other products;

•

the impact of foreign currency exchange rate and interest rate fluctuations on our results;

•

the pace of change and innovation in the markets in which we participate and the competitive nature of those markets;

•

our business strategy and our plan to build our business;

•

our ability to effectively manage our growth;

•

our international expansion strategy;

•

our operating results and cash flows;

•

our strategy of acquiring complementary businesses and our ability to successfully integrate acquired businesses and technologies, including the successful integration of Endgame, Inc. (“Endgame”);

•

the potential impact on our operating margin from the acquisition of Endgame;

•

the impact of acquisitions, including the acquisition of Endgame, on our future product offerings;

•

our beliefs and objectives for future operations;

•

our relationships with third parties, including partners;

•

our ability to protect our intellectual property rights;

•

our ability to develop our brands;

•

the impact of expensing stock options and other equity awards;

•

the sufficiency of our capital resources;

•

our ability to successfully defend litigation brought against us;

•

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

•

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

•

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

•

our ability to attract and retain qualified employees and key personnel; and

•

the future trading prices of our ordinary shares.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing

environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform such statements to actual results or revised expectations, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Elastic N.V.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

	October 31, 2019			April 30, 2019
Assets
Current assets:
Cash and cash equivalents	$	305,246		$	298,000
Restricted cash		2,302			2,280
Accounts receivable, net of allowance for doubtful accounts of $1,495 and $1,411 as of October 31, 2019 and April 30, 2019, respectively		78,920			81,274
Deferred contract acquisition costs		14,778			17,215
Prepaid expenses and other current assets		31,859			30,872
Total current assets		433,105			429,641
Property and equipment, net		8,002			5,448
Goodwill		198,797			19,846
Operating lease right-of-use assets		40,177			-
Intangible assets, net		58,463			6,723
Deferred contract acquisition costs, non-current		14,456			8,935
Deferred tax assets		2,255			1,748
Other assets		11,534			13,397
Total assets	$	766,789		$	485,738

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	10,064		$	4,450
Accrued expenses and other liabilities		21,818			18,740
Accrued compensation and benefits		44,978			22,147
Operating lease liabilities		7,733			-
Deferred revenue		180,156			158,243
Total current liabilities		264,749			203,580
Deferred revenue, non-current		21,175			12,423
Operating lease liabilities, non-current		34,137			-
Other liabilities, non-current		13,572			6,723
Total liabilities		333,633			222,726
Commitments and contingencies (Note 7)
Shareholders’ equity:
Convertible preference shares, €0.01 par value; 165,000,000 shares authorized, 0 shares issued and outstanding as of October 31, 2019 and April 30, 2019		-			-
Ordinary shares, par value €0.01 per share: 165,000,000 shares authorized; 80,412,842 and 73,675,083 shares issued and outstanding as of October 31, 2019 and April 30, 2019, respectively		829			754
Treasury stock		(369	)		(369	)
Additional paid-in capital		843,997			581,135
Accumulated other comprehensive loss		(2,482	)		(1,431	)
Accumulated deficit		(408,819	)		(317,077	)
Total shareholders’ equity		433,156			263,012
Total liabilities and shareholders’ equity	$	766,789		$	485,738

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Elastic N.V.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

	Three Months Ended October 31,						Six Months Ended October 31,
	2019			2018			2019			2018

Revenue
License - self-managed	$	12,272		$	10,204		$	22,179		$	17,444
Subscription - self-managed and SaaS		79,407			48,232			151,890			92,601
Total subscription revenue		91,679			58,436			174,069			110,045
Professional services		9,427			5,139			16,747			10,174
Total revenue		101,106			63,575			190,816			120,219
Cost of revenue
Cost of license - self-managed		158			97			255			194
Cost of subscription - self-managed and SaaS		19,741			12,870			37,636			23,071
Total cost of revenue - subscription		19,899			12,967			37,891			23,265
Cost of professional services		8,862			5,620			17,121			10,879
Total cost of revenue		28,761			18,587			55,012			34,144
Gross profit		72,345			44,988			135,804			86,075
Operating expenses
Research and development		38,478			25,332			73,660			44,313
Sales and marketing		54,020			34,634			106,031			65,056
General and administrative		31,808			12,092			50,376			22,191
Total operating expenses		124,306			72,058			230,067			131,560
Operating loss		(51,961	)		(27,070	)		(94,263	)		(45,485	)
Other income, net		1,684			264			2,615			860
Loss before income taxes		(50,277	)		(26,806	)		(91,648	)		(44,625	)
Provision for (benefit from) income taxes		(304	)		733			94			1,492
Net loss	$	(49,973	)	$	(27,539	)	$	(91,742	)	$	(46,117	)
Net loss per share attributable to ordinary shareholders, basic and diluted	$	(0.64	)	$	(0.63	)	$	(1.20	)	$	(1.20	)
Weighted-average shares used to compute net loss per share attributable to ordinary shareholders, basic and diluted		77,772,406			43,978,770			76,202,865			38,471,641

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Elastic N.V.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

	Three Months Ended October 31,						Six Months Ended October 31,
	2019			2018			2019			2018
Net loss	$	(49,973	)	$	(27,539	)	$	(91,742	)	$	(46,117	)
Other comprehensive loss:
Foreign currency translation adjustments		(1,433	)		(96	)		(1,051	)		(834	)
Other comprehensive loss		(1,433	)		(96	)		(1,051	)		(834	)
Total comprehensive loss	$	(51,406	)	$	(27,635	)	$	(92,793	)	$	(46,951	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Elastic N.V.

Condensed Consolidated Statements of Redeemable Convertible Preference Shares

and Shareholders’ Equity (Deficit)

(in thousands, except share data)

(unaudited)

																		Accumulated
	Redeemable Convertible														Additional			Other						Total
	Preference Shares						Ordinary Shares					Treasury			Paid-in			Comprehensive			Accumulated			Shareholders'
	Shares			Amount			Shares			Amount		Shares			Capital			Loss			Deficit			Equity
Balances at July 31, 2019		-		$	-			76,259,361		$	782	$	(369	)	$	614,532		$	(1,049	)	$	(358,846	)	$	255,050
Issuance of ordinary shares upon exercise of stock options		-			-			1,936,335			23		-			19,433			-			-			19,456
Issuance of ordinary shares upon release of restricted stock units		-			-			3,037			1		-			-			-			-			1
Ordinary shares issued in connection with the acquisition of Endgame		-			-			1,983,663			21		-			167,316			-			-			167,337
Ordinary shares issued in connection with the acquisition of Endgame held in escrow		-			-			235,031			2		-			19,824			-			-			19,826
Assumption of stock option plan as consideration for acquisition of Endgame		-			-			-			-		-			9,309			-			-			9,309
Repurchase of unvested RSAs		-			-			(4,585	)		-		-			-			-						-
Stock-based compensation		-			-			-			-		-			13,583			-			-			13,583
Net loss		-			-			-			-		-			-			-			(49,973	)		(49,973	)
Foreign currency translation		-			-			-			-		-			-			(1,433	)		-			(1,433	)
Balances at October 31, 2019		-		$	-			80,412,842		$	829	$	(369	)	$	843,997		$	(2,482	)	$	(408,819	)	$	433,156

																		Accumulated
	Redeemable Convertible														Additional			Other						Total
	Preference Shares						Ordinary Shares					Treasury			Paid-in			Comprehensive			Accumulated			Shareholders'
	Shares			Amount			Shares			Amount		Shares			Capital			Loss			Deficit			(Deficit) Equity
Balances at July 31, 2018		28,939,466		$	200,921			33,553,263		$	33	$	(369	)	$	69,068		$	(1,699	)	$	(233,352	)	$	(166,319	)
Change in par value upon conversion from B.V. to N.V.		-			-			-			303		-			(303	)		-			-			-
Conversion of redeemable convertible preference shares to ordinary shares upon initial public offering		(28,939,466	)		(200,921	)		28,939,466		$	289	$	-		$	200,632		$	-		$	-			200,921
Issuance of ordinary shares upon initial public offering, net of underwriting discounts and issuance costs		-			-			8,050,000			93		-			263,749			-			-			263,842
Issuance of ordinary shares upon exercise of stock options		-			-			406,258			4		-			2,130			-			-			2,134
Vesting of early exercised stock options		-			-			-			-		-			1,019			-			-			1,019
Stock-based compensation		-			-			-			-		-			9,924			-			-			9,924
Net loss		-			-			-			-		-			-			-			(27,539	)		(27,539	)
Foreign currency translation		-			-			-			-		-			-			(96	)		-			(96	)
Balances at October 31, 2018		-		$	-			70,948,987		$	722	$	(369	)	$	546,219		$	(1,795	)	$	(260,891	)	$	283,886

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Elastic N.V.

Condensed Consolidated Statements of Redeemable Convertible Preference Shares

and Shareholders’ Equity (Deficit)

(in thousands, except share data)

(unaudited)

															Accumulated
	Redeemable Convertible												Additional		Other						Total
	Preference Shares				Ordinary Shares					Treasury			Paid-in		Comprehensive			Accumulated			Shareholders'
	Shares		Amount		Shares			Amount		Shares			Capital		Loss			Deficit			Equity
Balances at April 30, 2019		-	$	-		73,675,083		$	754	$	(369	)	$	581,135	$	(1,431	)	$	(317,077	)	$	263,012
Issuance of ordinary shares upon exercise of stock options		-		-		4,470,226			51		-			39,517		-			-			39,568
Issuance of ordinary shares upon release of restricted stock units		-		-		53,424			1		-			-		-			-			1
Ordinary shares issued in connection with the acquisition of Endgame		-		-		1,983,663			21		-			167,316		-						167,337
Ordinary shares issued in connection with the acquisition of Endgame held in escrow		-		-		235,031			2		-			19,824		-						19,826
Assumption of stock option plan as consideration for acquisition of Endgame		-		-		-			-		-			9,309		-						9,309
Repurchase of unvested RSAs		-		-		(4,585	)		-		-			-		-						-
Vesting of ordinary shares subject to repurchase		-		-		-			-		-			1,612		-