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 January 31, 2020

OR

☐ 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 February 29, 2020, the registrant had 81,720,602 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	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	43
Item 4.	Controls and Procedures	43
PART II.	OTHER INFORMATION	45
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
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

2

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 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;

• the effect of the loss of key personnel, including Aaron Katz, who has transitioned from the position of Chief Revenue Officer and is expected to serve in an advisory role until August 2020;

• our expectations about the impact of natural disasters and public health epidemics, such as the coronavirus (COVID-19), on our business, results of operations and financial condition;

• the future trading prices of our ordinary shares; and

• general market, political, economic and business conditions.

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.

3

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.

4

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Elastic N.V.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

	January 31, 2020			April 30, 2019
Assets
Current assets:
Cash and cash equivalents	$	294,076		$	298,000
Restricted cash		2,291			2,280
Accounts receivable, net of allowance for doubtful accounts of $1,583    and $1,411 as of January 31, 2020 and April 30, 2019, respectively		72,557			81,274
Deferred contract acquisition costs		14,885			17,215
Prepaid expenses and other current assets		34,697			30,872
Total current assets		418,506			429,641
Property and equipment, net		7,958			5,448
Goodwill		198,774			19,846
Operating lease right-of-use assets		33,814			-
Intangible assets, net		54,005			6,723
Deferred contract acquisition costs, non-current		17,015			8,935
Deferred tax assets		2,205			1,748
Other assets		9,572			13,397
Total assets	$	741,849		$	485,738
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	13,098		$	4,450
Accrued expenses and other liabilities		19,351			18,740
Accrued compensation and benefits		31,607			22,147
Operating lease liabilities		7,292			-
Deferred revenue		189,208			158,243
Total current liabilities		260,556			203,580
Deferred revenue, non-current		20,586			12,423
Operating lease liabilities, non-current		29,034			-
Other liabilities, non-current		13,231			6,723
Total liabilities		323,407			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 January 31, 2020 and April 30, 2019		-			-
Ordinary shares, par value €0.01 per share: 165,000,000 shares authorized;     81,574,811 and 73,675,083 shares issued and outstanding as of January 31,     2020 and April 30, 2019, respectively		842			754
Treasury stock		(369	)		(369	)
Additional paid-in capital		871,675			581,135
Accumulated other comprehensive loss		(606	)		(1,431	)
Accumulated deficit		(453,100	)		(317,077	)
Total shareholders’ equity		418,442			263,012
Total liabilities and shareholders’ equity	$	741,849		$	485,738

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

5

Elastic N.V.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

	Three months ended January 31,						Nine months ended January 31,
	2020			2019			2020			2019
Revenue
License - self-managed	$	14,495		$	9,406		$	36,674		$	26,850
Subscription - self-managed and SaaS		89,703			55,180			241,593			147,781
Total subscription revenue		104,198			64,586			278,267			174,631
Professional services		8,983			6,249			25,730			16,423
Total revenue		113,181			70,835			303,997			191,054
Cost of revenue
Cost of license - self-managed		347			96			602			290
Cost of subscription - self-managed and SaaS		23,196			13,941			60,832			37,012
Total cost of revenue - subscription		23,543			14,037			61,434			37,302
Cost of professional services		9,862			6,387			26,983			17,266
Total cost of revenue		33,405			20,424			88,417			54,568
Gross profit		79,776			50,411			215,580			136,486
Operating expenses
Research and development		46,119			25,850			119,779			70,163
Sales and marketing		54,829			37,196			160,860			102,252
General and administrative		21,096			11,151			71,472			33,342
Total operating expenses		122,044			74,197			352,111			205,757
Operating loss		(42,268	)		(23,786	)		(136,531	)		(69,271	)
Other income (expense), net		(1,339	)		1,877			1,276			2,737
Loss before income taxes		(43,607	)		(21,909	)		(135,255	)		(66,534	)
Provision for (benefit from) income taxes		674			(558	)		768			934
Net loss	$	(44,281	)	$	(21,351	)	$	(136,023	)	$	(67,468	)
Net loss per share attributable to ordinary shareholders, basic    and diluted	$	(0.55	)	$	(0.30	)	$	(1.75	)	$	(1.37	)
Weighted-average shares used to compute net loss per share    attributable to ordinary shareholders, basic and diluted		80,737,237			70,725,336			77,713,604			49,261,240

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

6

Elastic N.V.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

	Three months ended January 31,						Nine months ended January 31,
	2020			2019			2020			2019
Net loss	$	(44,281	)	$	(21,351	)	$	(136,023	)	$	(67,468	)
Other comprehensive income (loss):
Foreign currency translation adjustments		1,876			(365	)		825			(1,199	)
Other comprehensive income (loss)		1,876			(365	)		825			(1,199	)
Total comprehensive loss	$	(42,405	)	$	(21,716	)	$	(135,198	)	$	(68,667	)

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

7

Elastic N.V.

Condensed Consolidated Statements of Redeemable Convertible Preference Shares

and Shareholders’ Equity

(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 October 31, 2019		-	$	-		80,412,842	$	829	$	(369	)	$	843,997		$	(2,482	)	$	(408,819	)	$	433,156
Issuance of ordinary shares upon     exercise of stock options		-		-		1,090,261		12		-			11,040			-			-			11,052
Issuance of ordinary shares upon     release of restricted stock units		-		-		71,708		1		-			-			-			-			1
Vesting of ordinary shares subject to     repurchase		-		-		-		-		-			1,118			-			-			1,118
Stock-based compensation		-		-		-		-		-			15,520			-			-			15,520
Net loss		-		-		-		-		-			-			-			(44,281	)		(44,281	)
Foreign currency translation		-		-		-		-		-			-			1,876			-			1,876
Balances at January 31, 2020		-	$	-		81,574,811	$	842	$	(369	)	$	871,675		$	(606	)	$	(453,100	)	$	418,442
															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 October 31, 2018		-	$	-		70,948,987	$	722	$	(369	)	$	546,219		$	(1,795	)	$	(260,891	)	$	283,886
Issuance of ordinary shares upon     exercise of stock options		-		-		140,620		2		-			753			-			-			755
Issuance of ordinary shares upon     subscription of restricted stock     awards		-		-		244,498		3		-			(3	)		-			-			-
Stock-based compensation		-		-		-		-		-			9,174			-			-			9,174
Net loss		-		-		-		-		-			-			-			(21,351	)		(21,351	)
Foreign currency translation		-		-		-		-		-			-			(365	)		-			(365	)
Balances at January 31, 2019		-	$	-		71,334,105	$	727	$	(369	)	$	556,143		$	(2,160	)	$	(282,242	)	$	272,099

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

8

Elastic N.V.

Condensed Consolidated Statements of Redeemable Convertible Preference Shares

and Shareholders’ Equity

(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		-		-		5,560,487			64		-			50,558		-			-			50,622
Issuance of ordinary shares upon release     of restricted stock units		-		-		125,132			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		-		-		-			-		-			2,730		-			-			2,730
Stock-based compensation		-		-		-			-		-			40,803		-			-			40,803
Net loss		-		-		-			-		-			-		-			(136,023	)		(136,023	)
Foreign currency translation		-		-		-			-		-			-		825			-			825
Balances at January 31, 2020		-	$	-		81,574,811		$	842	$	(369	)	$	871,675	$	(606	)	$	(453,100	)	$	418,442