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, 2021

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

(State or other jurisdiction of

incorporation or organization)

Not Applicable

(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 24, 2021, the registrant had 89,764,796 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 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	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
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	74
Item 3.	Defaults Upon Senior Securities	74
Item 4.	Mine Safety Disclosures	74
Item 5.	Other Information	74
Item 6.	Exhibits	75
Signatures		76

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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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:

•the impact of the 2019 novel coronavirus disease (“COVID-19”) on our business, operations, hiring and financial results, and on the businesses of our customers and partners, including their spending priorities, the effect of governmental lockdowns, restrictions and new regulations;

•our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses (which include 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 and SaaS offerings;

•the impact of changes to our licensing of our products, specifically Elasticsearch and Kibana;

•our assessments of the strength of our solutions and products;

•customer acceptance and purchase of our existing offerings and new offerings, including the expansion and adoption of our SaaS offerings;

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

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

•the market for our products continuing to develop;

•competition from other products and companies with more resources, recognition and presence in our industry;

•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, including any changes to our pace of hiring;

•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. and its subsidiary (“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 and reliance on 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 execute our go-to-market strategy, including the positioning of our solutions and products, and expand in our existing markets and into new markets;

3

•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;

•our ability to onboard, provide training to and integrate new employees;

•the effect of the loss of key personnel;

•our expectations about the impact of natural disasters and public health epidemics and pandemics, on our business, results of operations and financial condition;

•expectations about seasonality;

•the future trading prices of our ordinary shares;

•and general market, political, economic and business conditions (including developments and volatility arising from the ongoing COVID-19 pandemic).

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. Any additional or unforeseen effect from the ongoing COVID-19 pandemic may exacerbate these risks. 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)

	As of January 31, 2021		As of April 30, 2020
Assets
Current assets:
Cash and cash equivalents	$	393,134	$	297,081
Restricted cash	2,355		2,308
Accounts receivable, net of allowance for credit losses of $1,831 and $1,247 as of January 31, 2021 and April 30, 2020, respectively	120,049		128,690
Deferred contract acquisition costs	29,596		19,537
Prepaid expenses and other current assets	28,906		32,623
Total current assets	574,040		480,239
Property and equipment, net	8,665		7,760
Goodwill	198,665		197,877
Operating lease right-of-use assets	29,340		32,783
Intangible assets, net	39,823		50,455
Deferred contract acquisition costs, non-current	42,591		24,012
Deferred tax assets	3,970		3,164
Other assets	2,886		7,621
Total assets	$	899,980	$	803,911
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	5,825	$	11,485
Accrued expenses and other liabilities	25,224		22,210
Accrued compensation and benefits	42,507		48,409
Operating lease liabilities	8,176		7,639
Deferred revenue	289,689		243,324
Total current liabilities	371,421		333,067
Deferred revenue, non-current	44,321		16,378
Operating lease liabilities, non-current	23,769		27,827
Other liabilities, non-current	4,888		12,992
Total liabilities	444,399		390,264
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, 2021 and April 30, 2020	—		—
Ordinary shares, par value €0.01 per share: 165,000,000 shares authorized; 89,644,940 and 82,856,978 shares issued and outstanding as of January 31, 2021 and April 30, 2020, respectively	937		856
Treasury stock	(369)		(369)
Additional paid-in capital	1,033,598		898,788
Accumulated other comprehensive loss	(8,568)		(1,377)
Accumulated deficit	(570,017)		(484,251)
Total shareholders’ equity	455,581		413,647
Total liabilities and shareholders’ equity	$	899,980	$	803,911

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,
	2021		2020		2021		2020
Revenue
License - self-managed	$	15,280	$	14,495	$	45,673	$	36,674
Subscription - self-managed and SaaS	131,969		89,703		357,127		241,593
Total subscription revenue	147,249		104,198		402,800		278,267
Professional services	9,866		8,983		28,079		25,730
Total revenue	157,115		113,181		430,879		303,997
Cost of revenue
Cost of license - self-managed	346		347		1,039		602
Cost of subscription - self-managed and SaaS	31,426		23,196		86,464		60,832
Total cost of revenue - subscription	31,772		23,543		87,503		61,434
Cost of professional services	10,196		9,862		27,744		26,983
Total cost of revenue	41,968		33,405		115,247		88,417
Gross profit	115,147		79,776		315,632		215,580
Operating expenses
Research and development	51,400		46,119		143,766		119,779
Sales and marketing	71,087		54,829		191,712		160,860
General and administrative	27,121		21,096		72,555		71,472
Total operating expenses	149,608		122,044		408,033		352,111
Operating loss	(34,461)		(42,268)		(92,401)		(136,531)
Other income (expense), net	(2,377)		(1,339)		8,424		1,276
Loss before income taxes	(36,838)		(43,607)		(83,977)		(135,255)
Provision for income taxes	1,136		674		2,156		768
Net loss	$	(37,974)	$	(44,281)	$	(86,133)	$	(136,023)
Net loss per share attributable to ordinary shareholders, basic and diluted	$	(0.43)	$	(0.55)	$	(1.00)	$	(1.75)
Weighted-average shares used to compute net loss per share attributable to ordinary shareholders, basic and diluted	88,341,038		80,737,237		86,296,028		77,713,604

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,
	2021		2020		2021		2020
Net loss	$	(37,974)	$	(44,281)	$	(86,133)	$	(136,023)
Other comprehensive income (loss):
Foreign currency translation adjustments	3,346		1,876		(7,190)		825
Other comprehensive income (loss)	3,346		1,876		(7,190)		825
Total comprehensive loss	$	(34,628)	$	(42,405)	$	(93,323)	$	(135,198)

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

7

Elastic N.V.

Condensed Consolidated Statements of Shareholders’ Equity

(in thousands, except share data)

(unaudited)

						Additional Paid-in Capital		Accumulated Other Comprehensive Loss				Total Shareholders' Equity
	Ordinary Shares			Treasury Shares						Accumulated Deficit
	Shares	Amount
Balances at October 31, 2020	87,204,991	$	908	$	(369)	$	986,076	$	(11,914)	$	(532,043)	$	442,658
Issuance of ordinary shares upon exercise of stock options	2,157,149	26		—		22,298		—		—		22,324
Issuance of ordinary shares upon release of restricted stock units	282,800	3		—		(3)		—		—		—
Stock-based compensation	—	—		—		25,227		—		—		25,227
Net loss	—	—		—		—		—		(37,974)		(37,974)
Foreign currency translation	—	—		—		—		3,346		—		3,346
Balances at January 31, 2021	89,644,940	$	937	$	(369)	$	1,033,598	$	(8,568)	$	(570,017)	$	455,581
						Additional Paid-in Capital		Accumulated Other Comprehensive Loss				Total Shareholders' Equity
	Ordinary Shares			Treasury Shares						Accumulated Deficit
	Shares	Amount
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

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

8

Elastic N.V.

Condensed Consolidated Statements of Shareholders’ Equity

(in thousands, except share data)

(unaudited)

						Additional Paid-in Capital		Accumulated Other Comprehensive Loss				Total Shareholders' Equity
	Ordinary Shares			Treasury Shares						Accumulated Deficit
	Shares	Amount
Balances at April 30, 2020	82,856,978	$	856	$	(369)	$	898,788	$	(1,377)	$	(484,251)	$	413,647
Cumulative-effect adjustment from adoption of ASU 2016-13	—	—		—		—		—		367		367
Issuance of ordinary shares upon exercise of stock options	6,192,264	73		—		67,481		—		—		67,554
Issuance of ordinary shares upon release of restricted stock units	595,698	8		—		(8)		—		—		—
Stock-based compensation	—	—		—		64,634		—		—		64,634
Reclassification of liability-classified awards	—	—		—		2,703		—		—		2,703
Net loss	—	—		—		—		—		(86,133)		(86,133)
Foreign currency translation	—	—		—		—		(7,191)		—		(7,191)
Balances at January 31, 2021	89,644,940	$	937	$	(369)	$	1,033,598	$	(8,568)	$	(570,017)	$	455,581
						Additional Paid-in Capital		Accumulated Other Comprehensive Loss				Total Shareholders' Equity
	Ordinary Shares			Treasury Shares						Accumulated Deficit
	Shares	Amount
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

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

9

Elastic N.V.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended January 31,
	2021		2020
Cash flows from operating activities
Net loss	$	(86,133)	$	(136,023)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization	12,856		8,573
Amortization of deferred contract acquisition costs	28,455		20,581
Non-cash operating lease cost	5,256		5,170
Stock-based compensation expense	65,305		42,775
Non-cash acquisition expense settled with shares	—		8,834
Deferred income taxes	(288)		(621)
Foreign currency transaction gain	(9,463)		—
Other	11		1,132
Changes in operating assets and liabilities:
Accounts receivable, net	15,246		10,873
Deferred contract acquisition costs	(54,612)		(26,441)
Prepaid expenses and other current assets	4,817		(4,345)
Other assets	5,237		3,780
Accounts payable	(6,321)		7,104
Accrued expenses and other liabilities	1,696		1,520
Accrued compensation and benefits	(5,859)		3,377
Operating lease liabilities	(5,402)		(4,586)
Deferred revenue	53,309		33,666
Net cash provided by (used in) operating activities	24,110		(24,631)
Cash flows from investing activities
Purchases of property and equipment	(2,732)		(4,237)
Business acquisition, net of cash acquired	—		(24,373)
Other	1,320		—
Net cash used in investing activities	(1,412)		(28,610)
Cash flows from financing activities
Proceeds from issuance of ordinary shares upon exercise of stock options	67,554		50,622
Payment of withholding taxes related to acquisition expense settled in shares	—		(2,834)
Repayment of notes payable	—		(90)
Net cash provided by financing activities	67,554		47,698
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	5,848		1,630
Net increase (decrease) in cash, cash equivalents, and restricted cash	96,100		(3,913)
Cash, cash equivalents, and restricted cash, beginning of period	299,389		300,280
Cash, cash equivalents, and restricted cash, end of period	$	395,489	$	296,367
Supplemental disclosures of cash flow information
Cash paid (refund received) for income taxes	$	(1,217)	$	3,333
Cash paid for operating lease liabilities	$	6,628	$	5,415
Supplemental disclosures of non-cash investing and financing information
Property and equipment included in accounts payable	$	175	$	487
Operating lease right-of-use assets for new lease obligations	$	1,120	$	11,373
Vesting of shares subject to repurchase	$	—	$	2,730
Issuance of ordinary shares for business combination	$	—	$	178,329
Assumption of stock option plan as consideration for business combination	$	—	$	9,309

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

10

Elastic N.V.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note		Page
1.	Organization and Description of Business	12
2.	Summary of Significant Accounting Policies	12
3.	Revenue and Performance Obligations	14
4.	Fair Value Measurements	15
5.	Acquisitions	15
6.	Balance Sheet Components	17
7.	Commitments and Contingencies	20
8.	Leases	21
9.	Ordinary Shares	22
10.	Equity Incentive Plans	22
11.	Net Loss Per Share Attributable to Ordinary Shareholders	24
12.	Income Taxes	25
13.	Employee Benefit Plans	25
14.	Segment Information	25

11

1.Organization and Description of Business

Elastic N.V. (“Elastic” or the “Company”) was incorporated under the laws of the Netherlands in 2012. Elastic is a search company. It created the Elastic 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. The Company also offers software solutions built on the Elastic Stack: Enterprise Search, Observability, and Security. The Elastic Stack and the Company’s solutions are designed to run in public or private clouds, in hybrid environments, or in traditional on-premises environments.

2.Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated balance sheet as of January 31, 2021, the interim condensed consolidated statements of operations and of comprehensive loss, interim condensed statements of shareholders’ equity for the three and nine months ended January 31, 2021 and 2020 and the interim condensed consolidated statements of cash flows for the nine months ended January 31, 2021 and 2020, are unaudited. These interim condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, include all adjustments necessary to fairly state the Company’s financial position as of January 31, 2021, and the results of the Company’s operations, its statements of shareholders’ equity for the three and nine months ended January 31, 2021 and 2020, and its statements of cash flows for the nine months ended January 31, 2021 and 2020. The financial data and other financial information disclosed in the notes to these interim condensed consolidated financial statements related to the three and nine month periods are also unaudited. The results for the nine months ended January 31, 2021 are not necessarily indicative of the operating results expected for the fiscal year ending April 30, 2021, or any future period.

The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the financial statements of the Company and its wholly-owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation.

Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, these unaudited interim condensed consolidated financial statements and accompanying footnotes should be read in conjunction with the Company’s annual consolidated financial statements and related footnotes included in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2020 filed with the SEC on June 26, 2020 (“the Company's Annual Report on Form 10-K”).

Fiscal Year

The Company’s fiscal year ends on April 30. References to fiscal 2021, for example, refer to the fiscal year ending April 30, 2021.

Use of Estimates and Judgments

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Such estimates include, but are not limited to, allocation of revenue between recognized and deferred amounts, deferred contract acquisition costs, allowance for credit losses, valuation of stock-based compensation, fair value of ordinary shares in periods prior to the Company’s initial public offering, fair value of acquired intangible assets and goodwill, useful lives of acquired intangible assets and property and equipment, whether an arrangement is or contains a lease, the discount rate used for operating leases and valuation allowance for deferred income taxes. The Company bases these estimates on historical and anticipated results, trends and various other assumptions that it believes are reasonable under the circumstances, including assumptions as to future events.

In March 2020, the World Health Organization declared the 2019 novel Coronavirus Disease (“COVID-19”) a pandemic. The pandemic has resulted in a global slowdown of economic activity that is likely to decrease demand for a broad variety of goods and services, including from certain of the Company’s customers, while also disrupting sales channels and marketing activities for an unknown period of time. The full extent to which COVID-19 may impact the Company’s financial condition or results of operations is uncertain.

Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these financial statements, the Company is not aware of any

12

specific event or circumstance that would require the Company to update its estimates, judgments or revise the carrying value of the Company’s assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s financial statements.

Significant Accounting Policies

Other than as described below, there have been no changes to the Company’s significant accounting policies described in the Company’s Annual Report on Form 10-K that have had a material impact on its consolidated financial statements and related notes.

Accounts Receivable and Allowance for Credit Losses

The Company records a receivable when an unconditional right to consideration exists, such that only the passage of time is required before payment of consideration is due. Timing of revenue recognition may differ from the timing of invoicing to customers. If revenue recognized on a contract exceeds the billings, then the Company records an unbilled receivable for that excess amount, which is included as part of accounts receivable, net in the Company’s condensed consolidated balance sheets.

The Company is exposed to credit losses primarily through the sales of subscriptions and services, which are recorded as accounts receivable, inclusive of unbilled receivables. The Company performs initial and ongoing evaluations of its customers’ financial position and generally extends credit without collateral. Accounts receivable are recorded at amortized cost, net of an allowance for credit losses, and do not bear interest.

The allowance for credit losses represents the best estimate of lifetime expected credit losses against the existing accounts receivable, inclusive of unbilled receivables, based on certain factors including past collection experience, credit quality of the customer, current aging of the receivable balance, current economic conditions, reasonable and supportable forecasts, as well as specific circumstances arising with individual customers. Judgment is required in assessing these factors. Due to the short-term nature of the Company’s accounts receivable, forecasts have limited relevance to the Company’s expected credit loss estimates. Accounts receivable are written off against the allowance when management determines a balance is uncollectible and the Company no longer actively pursues collection of the receivable. The Company’s estimates of the allowance for credit losses may not be indicative of the Company’s actual credit losses requiring additional charges to be incurred to reflect the actual amount collected.

Recently Adopted Accounting Pronouncements

Goodwill Impairment:  In January 2017, the FASB issued ASU No. 2017-4, Intangibles— Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new standard will simplify the measurement of goodwill impairment by eliminating step two of the two-step impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The new guidance requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The Company adopted ASU No. 2017-4 on May 1, 2020. The Company's adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements.

Fair Value Measurements:  In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies, removes and adds certain disclosure requirements on fair value measurements based on the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted ASU No. 2018-13 on May 1, 2020. The Company's adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements.

Intangible Assets:  In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU. The Company adopted ASU No. 2018-15 on May 1, 2020 and applied it prospectively to implementation costs incurred after the

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date of adoption. The Company’s adoption of this ASU had no material impact on the Company's condensed consolidated financial statements.

Credit Losses:  In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and has since issued various amendments including ASU No. 2018-19, ASU No. 2019-4, and ASU No. 2019-5. The standard and related amendments modify the accounting for credit losses for most financial assets and requires an entity to utilize a new impairment model known as current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized costs basis of the financial asset, presents the amount expected to be collected on the financial asset. Additionally, ASU No. 2016-13 amends the current available-for-sale security impairment model for debt securities held for investment. The new model requires an estimate of expected credit losses when the fair value is below the amortized cost of the asset. The credit-related impairment (and subsequent recoveries) are recognized as an allowance on the balance sheet with a corresponding adjustment to the income statement. Non-credit related losses will continue to be recognized through OCI. This guidance also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company adopted ASU No. 2016-13 on May 1, 2020. The Company’s adoption of this ASU resulted in a $0.4 million reduction to accumulated deficit.

Reclassification

In connection with the preparation of the Company’s condensed consolidated financial statements for the quarter ended January 31, 2021, the Company identified an immaterial misclassification in the prior year balance sheet, which understated short term deferred revenue and overstated long term deferred revenue by $11.6 million as of April 30, 2020. The Company has corrected for this immaterial misclassification in the accompanying condensed consolidated balance sheet by revising the April 30, 2020 deferred revenue balances. This change in classification has no effect on previously reported cash flows in the condensed consolidated statement of cash flows and has no effect on previously reported condensed consolidated statements of operations for any period.

New Accounting Pronouncements Not Yet Adopted

Income Taxes:  In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, eliminating certain exceptions to the general principles in ASC 740 related to intra-period tax allocation, deferred tax liability and general methodology for calculating income taxes. Additionally, the ASU makes other changes for matters such as franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. The new guidance becomes effective for the Company for the fiscal year ending April 30, 2022. Early adoption is permitted. The Company does not expect the adoption of the new accounting standard to have a material impact on its consolidated financial statements.

3.Revenue and Remaining Performance Obligations

Disaggregation of Revenue

The following table presents revenue by category (in thousands):

	Three Months Ended January 31,								Nine Months Ended January 31,
	2021				2020				2021				2020
	Amount		% of Total Revenue		Amount		% of Total Revenue		Amount		% of Total Revenue		Amount		% of Total Revenue
Self-managed subscription	$	102,320	65	%	$	79,105	70	%	$	287,816	66	%	$	214,947	71	%
License	15,280		10	%	14,495		13	%	45,673		11	%	36,674		12	%
Subscription	87,040		55	%	64,610		57	%	242,143		55	%	178,273		59	%
SaaS	44,929		29	%	25,093		22	%	114,984		27	%	63,320		21	%
Total subscription revenue	147,249		94	%	104,198		92	%	402,800		93	%	278,267		92	%
Professional services	9,866		6	%	8,983		8	%	28,079		7	%	25,730		8	%
Total revenue	$	157,115	100	%	$	113,181	100	%	$	430,879	100	%	$	303,997	100	%

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Remaining Performance Obligations

As of January 31, 2021, the Company had $705.7 million of remaining performance obligations. As of January 31, 2021, the Company expects to recognize approximately 84% of its remaining performance obligations as revenue over the next 24 months and the remainder thereafter.

4.Fair Value Measurements

The Company measures financial assets and liabilities that are measured at fair value on a recurring basis at each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following table summarizes assets that are measured at fair value on a recurring basis as of January 31, 2021 and April 30, 2020 (in thousands):

January 31, 2021	Level 1		Level 2	Level 3	Total
Financial Assets:
Cash and cash equivalents:
Money market funds	$	175,007	—	—	$	175,007

April 30, 2020	Level 1		Level 2	Level 3	Total
Financial Assets:
Cash and cash equivalents:
Money market funds	$	197,314	—	—	$	197,314

The Company considers all highly liquid investments, including money market funds with an original maturity of three months or less at the date of purchase, to be cash equivalents. The Company uses quoted prices in active markets for identical assets to determine the fair value of its Level 1 investments in money market funds.

5.Acquisitions

Fiscal Year Ended April 30, 2020

Endgame, Inc.

On October 8, 2019, the Company acquired all outstanding shares of Endgame, a security company offering endpoint protection technology, for a total acquisition price of $234.0 million. Elastic paid the purchase price through (i) the issuance of 2,218,694 ordinary shares in respect of Endgame’s outstanding capital stock, warrants, convertible notes, and certain retention awards, (ii) the cash repayment of Endgame’s outstanding indebtedness of $20.4 million, (iii) the assumption of Endgame’s outstanding stock options, (iv) a $0.4 million cash deposit to an expense fund for the fees and expenses of the representative and agent of Endgame securityholders, (v) the cash payment of Endgame’s transaction expenses of $5.9 million, and (vi) the cash payment of withholding taxes related to acquisition expense settled in shares of $2.8 million. Approximately 11% of the ordinary shares issued, or 235,031 shares, is being held in an indemnity escrow fund for 18 months after the acquisition close date. For purposes of determining the total acquisition price of $234.0 million, the Company used the ordinary share price of $89.3836 which was determined on the basis of the volume weighted average price per share rounded to four decimal places for the twenty (20) consecutive trading days ending with the complete trading day ending five (5) trading days prior to the date upon which the acquisition was consummated.

The fair value of the shares transferred as consideration was $84.12 per share and was determined on the basis of the closing stock price of the Company’s ordinary shares on the date of acquisition. The fair value of the assumed stock options was determined by using a Black-Scholes option pricing model with the applicable assumptions as of the acquisition date.

The stock options assumed on the acquisition date will continue to vest as the Endgame employees provide services in the post-acquisition period. The fair value of these awards will be recorded as share-based compensation expense over the respective vesting period of each stock option.

The acquisition was accounted for as a business combination and the total purchase price was allocated to the net tangible and intangible assets and liabilities based on their respective fair values on the acquisition date and the excess was recorded as goodwill.  

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The following table summarizes the components of the U.S. GAAP purchase price and the allocation of the purchase price at fair value (in thousands):

Cash paid	$	26,633
Ordinary shares	178,331
Assumption of stock option plan	9,309
Total consideration	$	214,273

The above U.S. GAAP purchase price consideration does not include ordinary shares of Elastic issued as part of acceleration of equity awards and participation in the retention bonus pool.

The following table summarizes the fair values of assets acquired and liabilities assumed (in thousands):

Cash and cash equivalents	$	2,220
Restricted cash	40
Accounts receivable	2,661
Prepaid and other current assets	549
Operating lease right-of-use assets	4,363
Property and equipment	503
Intangible assets	53,800
Other assets	58
Goodwill	178,764
Accounts payable	(1,112)
Accrued expenses and other current liabilities	(3,035)
Accrued compensation and benefits	(5,042)
Operating lease liabilities, current	(981)
Deferred revenue, current	(3,532)
Deferred revenue, non-current	(2,661)
Operating lease liabilities, non-current	(3,551)
Other liabilities, non-current	(8,771)
Total purchase consideration	$	214,273

Identifiable intangible assets include (in thousands):

	Total		Estimated life (in years)
Developed technology	$	32,700	5
Customer relationships	19,200		4
Trade name	1,900		4
Total intangible assets	$	53,800

Developed technology consists of software products and security platform developed by Endgame. Customer relationships consists of contracts with platform users that purchase Endgame’s products and services that carry distinct value. Trade names represent the Company’s right to the Endgame trade names and associated design, as it exists as of the acquisition date.

The fair value assigned to developed technology was determined primarily using the multi-period excess earnings model, which estimates the revenue and cash flows derived from the asset and then deducts portions of the cash flow that can be attributed to supporting assets otherwise recognized. The fair value of the Company’s customer relationships was determined using the income approach, which discounts expected future cash flows to present value using estimates and assumptions determined by management. The fair value assigned to trade name was determined using the relief from royalty method, where the owner of the asset realizes a benefit from owning the intangible asset rather than paying a rental or royalty rate for use of the asset. The acquired intangible assets are being amortized on a straight-line basis over their respective useful lives, which approximates the pattern in which these assets are utilized.  

Recognized goodwill of $178.8 million is not deductible for tax purposes and is primarily attributed to planned growth in new markets, synergies arising from the acquisition and the value of the acquired workforce.

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Net tangible assets and liabilities assumed were valued at their respective carrying amounts as of the acquisition date, as the Company believes that these amounts approximate their current fair values.

Endgame has been included in the Company’s consolidated results of operations since the acquisition date. Endgame’s results were immaterial to the Company’s consolidated results for the three and nine months ended January 31, 2021.

The following unaudited pro forma condensed consolidated financial information gives effect to the acquisition of Endgame as if it were consummated on May 1, 2018, including pro forma adjustments related to the valuation and allocation of the purchase price, primarily amortization of acquired intangible assets and deferred revenue fair value adjustments; share-based compensation expense; alignment of accounting policies; the impact of applying ASC Topic 606, Revenue From Contracts With Customers, to Endgame’s historical financial statements; and direct transaction costs reflected in the historical financial statements. This data is presented for informational purposes only and is not intended to represent or be indicative of the results of operations that would have been reported had the acquisition occurred on May 1, 2018. It should not be taken as representative of future results of operations of the combined company.

	Three Months Ended January 31, 2020		Nine Months Ended January 31, 2020
Pro forma revenue (1)	$	111,757	$	312,598
Pro forma net loss (1)	$	(45,685)	$	(141,147)

(1) As if the acquisition of Endgame were consummated on May 1, 2018.

6.Balance Sheet Components

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

	As of January 31, 2021		As of April 30, 2020
Prepaid hosting costs	$	8,342	$	12,228
Deposits	2,454		1,857
Prepaid software subscription costs	4,043		3,104
Prepaid taxes	1,451		3,612
Prepaid value added taxes	5,574		5,167
Other	7,042		6,655
Total prepaid expenses and other current assets	$	28,906	$	32,623

 Property and Equipment, Net

The cost and accumulated depreciation of property and equipment were as follows (in thousands):

	Useful Life (in years)			As of January 31, 2021		As of April 30, 2020
Leasehold improvements	Lesser of estimated useful life or remaining lease term			$	8,281	$	8,405
Computer hardware and software		3		5,197		5,687
Furniture and fixtures	3	-	5	5,223		5,072
Assets under construction				3,057		1,661
Total property and equipment				21,758		20,825
Less: accumulated depreciation				(13,093)		(13,065)
Property and equipment, net				$	8,665	$	7,760

Depreciation expense related to property and equipment was $0.8 million for each of the three months ended January 31, 2021 and 2020, respectively. Depreciation expense related to property and equipment was $2.2 million and $2.1 million for the nine months ended January 31, 2021 and 2020, respectively.

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Intangible Assets, Net

Intangible assets consisted of the following as of January 31, 2021 and April 30, 2020 (in thousands):

January 31, 2021	Gross Fair Value		Accumulated Amortization		Net Book Value		Weighted Average Remaining Useful Life (in years)
Developed technology	$	44,830	$	18,742	$	26,088	3.5
Customer relationships	19,598		7,091		12,507		2.7
Trade names	2,872		1,644		1,228		2.7
Total	$	67,300	$	27,477	$	39,823	3.2

April 30, 2020	Gross Fair Value		Accumulated Amortization		Net Book Value		Weighted Average Remaining Useful Life (in years)
Developed technology	$	44,830	$	12,412	$	32,418	4.1
Customer relationships	19,598		3,210