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, 2022

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 28, 2022, the registrant had 93,468,991 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	40
Item 4.	Controls and Procedures	40
PART II.	OTHER INFORMATION	42
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75
Item 3.	Defaults Upon Senior Securities	75
Item 4.	Mine Safety Disclosures	75
Item 5.	Other Information	75
Item 6.	Exhibits	76
Signatures		77

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,” “might,” “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 (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 hosted offerings and security-related product offerings;

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

•the impact of Russia’s invasion of Ukraine on the businesses of our customers and partners, including their spending priorities;

•the impact of the 2019 coronavirus disease, including any current and future variants thereof (“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, new regulations and vaccine distribution and efficacy;

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

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

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

•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;

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•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;

•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;

•our ability to service our debt obligations; and

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

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 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, 2022		As of April 30, 2021
Assets
Current assets:
Cash and cash equivalents	$	864,363	$	400,814
Restricted cash	3,928		2,894
Accounts receivable, net of allowance for credit losses of $2,729 and $2,344 as of January 31, 2022 and April 30, 2021, respectively	146,218		160,415
Deferred contract acquisition costs	38,938		36,089
Prepaid expenses and other current assets	39,405		37,002
Total current assets	1,092,852		637,214
Property and equipment, net	6,739		8,881
Goodwill	304,155		198,851
Operating lease right-of-use assets	21,454		25,464
Intangible assets, net	49,948		36,286
Deferred contract acquisition costs, non-current	62,980		50,263
Deferred tax assets	3,765		3,697
Other assets	17,403		12,516
Total assets	$	1,559,296	$	973,172
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	21,792	$	7,248
Accrued expenses and other liabilities	42,110		28,909
Accrued compensation and benefits	56,181		52,525
Operating lease liabilities	8,983		8,528
Deferred revenue	362,287		352,805
Total current liabilities	491,353		450,015
Deferred revenue, non-current	33,395		44,895
Long-term debt, net	566,271		—
Operating lease liabilities, non-current	14,879		19,649
Other liabilities, non-current	21,089		7,782
Total liabilities	1,126,987		522,341
Commitments and contingencies (Note 8 and 9)
Shareholders’ equity:
Convertible preference shares, €0.01 par value; 165,000,000 shares authorized, 0 shares issued and outstanding as of January 31, 2022 and April 30, 2021	—		—
Ordinary shares, par value €0.01 per share: 165,000,000 shares authorized; 93,420,927 and 90,533,985 shares issued and outstanding as of January 31, 2022 and April 30, 2021, respectively	982		948
Treasury stock	(369)		(369)
Additional paid-in capital	1,197,570		1,071,675
Accumulated other comprehensive loss	(14,318)		(8,105)
Accumulated deficit	(751,556)		(613,318)
Total shareholders’ equity	432,309		450,831
Total liabilities and shareholders’ equity	$	1,559,296	$	973,172

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,
	2022		2021		2022		2021
Revenue
License - self-managed	$	20,119	$	15,280	$	54,457	$	45,673
Subscription - self-managed and SaaS	189,495		131,969		522,599		357,127
Total subscription revenue	209,614		147,249		577,056		402,800
Professional services	14,330		9,866		45,963		28,079
Total revenue	223,944		157,115		623,019		430,879
Cost of revenue
Cost of license - self-managed	501		346		1,242		1,039
Cost of subscription - self-managed and SaaS	47,076		31,426		126,097		86,464
Total cost of revenue - subscription	47,577		31,772		127,339		87,503
Cost of professional services	13,707		10,196		37,491		27,744
Total cost of revenue	61,284		41,968		164,830		115,247
Gross profit	162,660		115,147		458,189		315,632
Operating expenses
Research and development	71,749		51,400		194,894		143,766
Sales and marketing	105,069		71,087		288,055		191,712
General and administrative	31,691		27,121		89,298		72,555
Total operating expenses	208,509		149,608		572,247		408,033
Operating loss	(45,849)		(34,461)		(114,058)		(92,401)
Other income (expense), net
Interest expense	(6,175)		(65)		(14,327)		(78)
Other income (expense), net	(861)		(2,312)		(509)		8,502
Loss before income taxes	(52,885)		(36,838)		(128,894)		(83,977)
Provision for income taxes	3,841		1,136		9,344		2,156
Net loss	$	(56,726)	$	(37,974)	$	(138,238)	$	(86,133)
Net loss per share attributable to ordinary shareholders, basic and diluted	$	(0.61)	$	(0.43)	$	(1.50)	$	(1.00)
Weighted-average shares used to compute net loss per share attributable to ordinary shareholders, basic and diluted	93,015,185		88,341,038		92,140,919		86,296,028

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,
	2022		2021		2022		2021
Net loss	$	(56,726)	$	(37,974)	$	(138,238)	$	(86,133)
Other comprehensive loss:
Foreign currency translation adjustments	(4,937)		3,346		(6,213)		(7,190)
Other comprehensive loss	(4,937)		3,346		(6,213)		(7,190)
Total comprehensive loss	$	(61,663)	$	(34,628)	$	(144,451)	$	(93,323)

 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, 2021	92,566,025	$	972	$	(369)	$	1,153,408	$	(9,381)	$	(694,830)	$	449,800
Issuance of ordinary shares upon exercise of stock options	473,442	6		—		6,703		—		—		6,709
Issuance of ordinary shares upon release of restricted stock units	381,460	4		—		(4)		—		—		—
Stock-based compensation	—	—		—		37,463		—		—		37,463
Net loss	—	—		—		—		—		(56,726)		(56,726)
Foreign currency translation	—	—		—		—		(4,937)		—		(4,937)
Balances at January 31, 2022	93,420,927	$	982	$	(369)	$	1,197,570	$	(14,318)	$	(751,556)	$	432,309
						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

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, 2021	90,533,985	948		(369)		1,071,675		(8,105)		(613,318)		450,831
Fair value of replacement equity awards attributable to pre-acquisition service	—	—		—		1,266		—		—		1,266
Issuance of ordinary shares upon exercise of stock options	2,004,188	24		—		27,516		—		—		27,540
Issuance of ordinary shares upon release of restricted stock units	882,754	10		—		(10)		—		—		—
Stock-based compensation	—	—		—		97,123		—		—		97,123
Net loss	—	—		—		—		—		(138,238)		(138,238)
Foreign currency translation	—	—		—		—		(6,213)		—		(6,213)
Balances at January 31, 2022	93,420,927	$	982	$	(369)	$	1,197,570	$	(14,318)	$	(751,556)	$	432,309
						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 of accounting change	—	—		—		—		—		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

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,
	2022		2021
Cash flows from operating activities
Net loss	$	(138,238)	$	(86,133)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization	14,558		12,856
Amortization of deferred contract acquisition costs	43,373		28,455
Amortization of debt issuance costs	554		—
Non-cash operating lease cost	6,259		5,256
Stock-based compensation expense, net of amounts capitalized	96,971		65,305
Deferred income taxes	(219)		(288)
Foreign currency transaction (gain) loss	1,707		(9,463)
Other	98		11
Changes in operating assets and liabilities:
Accounts receivable, net	9,801		15,246
Deferred contract acquisition costs	(61,234)		(54,612)
Prepaid expenses and other current assets	(2,650)		4,817
Other assets	(803)		5,237
Accounts payable	14,452		(6,321)
Accrued expenses and other liabilities	17,539		1,696
Accrued compensation and benefits	4,686		(5,859)
Operating lease liabilities	(6,438)		(5,402)
Deferred revenue	8,306		53,309
Net cash provided by operating activities	8,722		24,110
Cash flows from investing activities
Purchases of property and equipment	(987)		(2,732)
Capitalization of internal-use software	(4,227)		—
Business acquisitions, net of cash acquired	(119,854)		—
Other	—		1,320
Net cash used in investing activities	(125,068)		(1,412)
Cash flows from financing activities
Proceeds from the issuance of debt	575,000		—
Proceeds from issuance of ordinary shares upon exercise of stock options	27,540		67,554
Payments of debt issuance costs	(9,283)		—
Net cash provided by financing activities	593,257		67,554
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(12,328)		5,848
Net increase in cash, cash equivalents, and restricted cash	464,583		96,100
Cash, cash equivalents, and restricted cash, beginning of period	403,708		299,389
Cash, cash equivalents, and restricted cash, end of period	$	868,291	$	395,489
Supplemental disclosures of cash flow information
Cash paid for interest	$	12,785	$	—
Cash paid for operating lease liabilities	$	7,346	$	6,628
Cash paid (refund received) for income taxes	$	3,059	$	(1,217)
Supplemental disclosures of non-cash investing and financing information
Property and equipment included in accounts payable	$	30	$	175
Acquisition-related indemnity holdback	$	6,000	$	—
Operating lease right-of-use assets for new lease obligations	$	2,440	$	1,120

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	13
4.	Fair Value Measurements	14
5.	Acquisitions	14
6.	Balance Sheet Components	15
7.	Senior Notes	15
8.	Commitments and Contingencies	19
9.	Leases	20
10.	Ordinary Shares	21
11.	Equity Incentive Plans	21
12.	Net Loss Per Share Attributable to Ordinary Shareholders	23
13.	Income Taxes	24
14.	Employee Benefit Plans	24
15.	Segment Information	24

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, 2022, 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, 2022 and 2021 and the interim condensed consolidated statements of cash flows for the nine months ended January 31, 2022 and 2021, 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, 2022, and the results of the Company’s operations, its statements of shareholders’ equity for the three and nine months ended January 31, 2022 and 2021, and its statements of cash flows for the nine months ended January 31, 2022 and 2021. 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, 2022 are not necessarily indicative of the operating results expected for the fiscal year ending April 30, 2022, 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, 2021 filed with the SEC on June 25, 2021 (“the Company's Annual Report on Form 10-K”).

Fiscal Year

The Company’s fiscal year ends on April 30. References to fiscal 2022, for example, refer to the fiscal year ending April 30, 2022.

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 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.

Debt Issuance Costs

Costs incurred in connection with the issuance of debt are deferred and amortized as interest expense over the term of the related debt using the effective interest method. To the extent that the debt is outstanding, these amounts are reflected in the consolidated balance sheets as direct deductions from the carrying amount of the outstanding borrowings.

Recently Adopted Accounting Pronouncements

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

New Accounting Pronouncements Not Yet Adopted

Acquisitions:  In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, improving consistency in accounting for acquired revenue contracts with customers in a business combination by requiring that acquirers apply ASC Topic 606 to recognize contract assets and contract liabilities as if it had originated the contracts. If the acquiree prepared its financial statements in accordance with GAAP, the resulting acquired contract assets and liabilities should generally be consistent with acquiree’s financial statements. The new guidance becomes effective for the Company for the fiscal year ending April 30, 2024. 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 product category (in thousands):

	Three Months Ended January 31,								Nine Months Ended January 31,
	2022				2021				2022				2021
	Amount		% of Total Revenue		Amount		% of Total Revenue		Amount		% of Total Revenue		Amount		% of Total Revenue
Elastic Cloud	$	80,402	36	%	$	44,929	29	%	$	210,963	34	%	$	114,984	27	%
Other subscription	129,212		58	%	102,320		65	%	366,093		59	%	287,816		66	%
Total subscription revenue	209,614		94	%	147,249		94	%	577,056		93	%	402,800		93	%
Professional services	14,330		6	%	9,866		6	%	45,963		7	%	28,079		7	%
Total revenue	$	223,944	100	%	$	157,115	100	%	$	623,019	100	%	$	430,879	100	%

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During the first quarter of fiscal 2022, the Company updated its disaggregation of revenue breakdown to present revenue by product category. The prior period presentation for the three and nine months ended January 31, 2021, has been updated to conform to the current period presentation.

Remaining Performance Obligations

As of January 31, 2022, the Company had $860.6 million of remaining performance obligations. As of January 31, 2022, the Company expects to recognize approximately 86% 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.

Financial Assets

The following table summarizes assets that are measured at fair value on a recurring basis as of January 31, 2022 and April 30, 2021 (in thousands):

 

January 31, 2022	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and cash equivalents:
Money market funds	$	559,337	$	—	—		$	559,337
Short-term bank deposit	—		1,700		—		1,700
Total	$	559,337	$	1,700	$	—	$	561,037

April 30, 2021	Level 1		Level 2	Level 3	Total
Financial Assets:
Cash and cash equivalents:
Money market funds	$	175,007	—	—	$	175,007

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. The Company classifies its short-term bank deposit within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security which may not be actively traded.

Financial Liabilities

In July 2021, the Company issued $575.0 million aggregate principal amount of 4.125% Senior Notes due July 15, 2029 (the “Senior Notes”) in a private placement. Based on the trading prices of the Senior Notes, the fair value of the Senior Notes as of January 31, 2022 was approximately $537.8 million. While the Senior Notes are recorded at cost, the fair value of the Senior Notes was determined based on quoted prices in markets that are not active; accordingly, the Senior Notes are categorized as Level 2 for purposes of the fair value measurement hierarchy.

5.Acquisitions

Nine months ended January 31, 2022

cmdWatch Security Inc.

On September 17, 2021, the Company acquired 100% of the share capital of cmdWatch Security Inc. (“Cmd”) for a total purchase consideration of $77.8 million. The purchase consideration includes an amount of $13.4 million which is being held in an indemnity escrow fund for 18 months after the acquisition close date. Pursuant to the merger agreement, Cmd’s vested stock options were paid in cash and unvested stock options held by Cmd employees were assumed by the Company. The fair value of the replacement equity awards associated with pre-acquisition service period of $4.3 million, consisting of

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$3.0 million paid in cash to vested option holders and $1.3 million of non-cash consideration, was included in the total purchase consideration. Approximately $6.6 million of the fair value of replacement equity awards was allocated to post-acquisition services that will be recognized as stock-based compensation expense over the remaining service period and was excluded from the total purchase consideration. Additionally, an amount of $6.5 million for post-combination services, which is payable at future dates upon completion of the underlying required service period, has been excluded from the purchase consideration. This amount will be recorded as a post-combination expense over the requisite service period.

The acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations, and accordingly, the total purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. The total preliminary purchase price allocated to developed technology and goodwill was $15.5 million and $59.0 million, respectively. The fair value assigned to developed technology was determined using the cost to recreate approach. The developed technology asset is being amortized on a straight-line basis over the useful life of 5 years, which approximates the pattern in which the developed technology is utilized. Goodwill resulted primarily from the expectation of enhancing the Company's current security solutions and is not deductible for income tax purposes.

Cmd has been included in the Company’s consolidated results of operations since the acquisition date. Pro forma and historical results of operations for this acquisition have not been presented because they were not material to the condensed consolidated results of operations.

Other Acquisitions

On September 2, 2021 and November 1, 2021, the Company acquired 100% of the share capital of Build Security Ltd. (“build.security”) and Optimyze.cloud Inc. (“Optimyze”), respectively, for a combined total purchase consideration of $57.2 million. The purchase consideration includes an amount of $5.4 million held in Indemnity escrow and $6.0 million held back by the Company for indemnity and will be released upon the 18-month anniversary of the respective acquisitions. These acquisitions were accounted for as business combinations. The total preliminary purchase price allocated to developed technology and goodwill was $9.8 million and $46.9 million, respectively. The developed technology intangible assets from these acquisitions are being amortized on a straight-line basis over a useful life of 5 years which approximates the pattern in which the respective developed technologies are utilized. Goodwill resulted primarily from the expectation of enhancing the Company's current security solutions and the value of the acquired workforce. This goodwill is not deductible for income tax purposes. Build.security and Optimyze have been included in the Company’s consolidated results of operations since their respective acquisition dates. Pro forma and historical results of operations for these acquisitions have not been presented because they were not material to the condensed consolidated results of operations.

Excluded from the combined purchase consideration from these two acquisitions is an amount of $6.3 million, payable in equal installments at the first and the second anniversary of each of the acquisitions, to certain employees of build.security and Optimyze. These amounts will be recorded as a post-combination expense over the requisite service periods.

The purchase price allocation for the acquisitions is preliminary and is based on the best estimates of management. The Company continues to collect information with regard to its estimates and assumptions, primarily related to intangible assets and certain tax-related, contingent liability and working capital items. The Company will record adjustments to the fair value of the assets acquired, liabilities assumed and goodwill within the 12 month measurement period, if necessary.

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, 2022		As of April 30, 2021
Prepaid hosting costs	$	9,701	$	11,122
Prepaid software subscription costs	7,656		5,636
Prepaid value added taxes	5,394		9,408
Deposits	2,538		2,410
Prepaid taxes	3,323		1,694
Other	10,793		6,732
Total prepaid expenses and other current assets	$	39,405	$	37,002

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 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, 2022		As of April 30, 2021
Leasehold improvements	Lesser of estimated useful life or remaining lease term			$	10,740	$	10,342
Computer hardware and software		3		1,377		2,319
Furniture and fixtures	3	-	5	5,418		5,971
Assets under construction				345		707
Total property and equipment				17,880		19,339
Less: accumulated depreciation				(11,141)		(10,458)
Property and equipment, net				$	6,739	$	8,881

Depreciation expense related to property and equipment was $1.0 million and $0.8 million for the three months ended January 31, 2022 and 2021, respectively and $2.9 million and $2.2 million for the nine months ended January 31, 2022 and 2021, respectively.

Intangible Assets, Net

Intangible assets consisted of the following as of January 31, 2022 and April 30, 2021 (in thousands):

January 31, 2022	Gross Fair Value		Accumulated Amortization		Net Book Value		Weighted Average Remaining Useful Life (in years)
Developed technology	$	70,130	$	28,406	$	41,724	3.5
Customer relationships	19,598		12,090		7,508		2.2
Trade names	2,872		2,160		712		2.2
Total	$	92,600	$	42,656	49,944		3.3
Foreign currency translation adjustment					4
Total					$	49,948

April 30, 2021	Gross Fair Value		Accumulated Amortization		Net Book Value		Weighted Average Remaining Useful Life (in years)
Developed technology	$	44,830	$	20,850	$	23,980	3.3
Customer relationships	19,598		8,382		11,216		2.4
Trade names	2,872		1,780		1,092		2.4
Total	$	67,300	$	31,012	36,288		3.0
Foreign currency translation adjustment					(2)
Total					$	36,286

Amortization expense for the intangible assets for the three and nine months ended January 31, 2022 and 2021 was as follows (in thousands):

	Three Months Ended January 31,				Nine Months Ended January 31,
	2022		2021		2022		2021
Cost of revenue—cost of license—self-managed	$	501	$	346	$	1,242	$	1,039
Cost of revenue—cost of subscription—self-managed and SaaS	2,545		1,764		6,314		5,289
Sales and marketing	1,231		1,428		4,088		4,302
Total amortization of acquired intangible assets	$	4,277	$	3,538	$	11,644	$	10,630

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The expected future amortization expense related to the intangible assets as of January 31, 2022 was as follows (in thousands, by fiscal year):

Remainder of 2022	$	4,147
2023	16,696
2024	13,985
2025	8,017
2026	5,057
2027	2,046
Total	$	49,948

Goodwill

The following table represents the changes to goodwill (in thousands):

	Carrying Amount
Balance as of April 30, 2021	$	198,851
Additions from acquisitions	105,904
Foreign currency translation adjustment	(600)
Balance as of January 31, 2022	$	304,155

There was no impairment of goodwill during the nine months ended January 31, 2022 and 2021.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in thousands):

	As of January 31, 2022		As of April 30, 2021
Accrued expenses	$	27,281	$	12,772
Value added taxes payable	5,258		8,493
Accrued interest on Senior Notes	989		—
Income taxes payable	3,519		1,596
Other	5,063		6,048
Total accrued expenses and other liabilities	$	42,110	$	28,909

Accrued Compensation and Benefits

Accrued compensation and benefits consisted of the following (in thousands):

As of
January 31, 2022 As of
April 30, 2021