UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 July 31, 2022

OR

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

FOR THE TRANSITION PERIOD FROM                      TO

Commission File Number 001-38675

_____________________________________________________________________________________________________________________________________________________________________________________________

Elastic N.V.

(Exact name of registrant as specified in its Charter)

____________________________________________________________________________________________________________________________________________________________________________________________

The Netherlands	Not Applicable
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

800 West El Camino Real, Suite 350

Mountain View, California 94040

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (650) 458-2620

____________________________________________________________________________________________________________________________________________________________________________________________

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

Securities registered pursuant to Section 12(g) of the Act: None

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 August 19, 2022, the registrant had 94,986,619 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	9
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
PART II.	OTHER INFORMATION	36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	70
Item 4.	Mine Safety Disclosures	70
Item 5.	Other Information	70
Item 6.	Exhibits	70
Signatures		71

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;

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

•the impact of Russia’s invasion of Ukraine on our business and 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 that increased adoption of consumption-based arrangements could have on our revenue or operating results;

•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 operate 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;

3

•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;

•inflation;

•our ability to service our debt obligations; and

•general market, political, geopolitical, economic and business conditions (including developments and volatility arising from the ongoing COVID-19 pandemic and Russia’s invasion of 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” in Part II, Item 1A 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 July 31, 2022		As of April 30, 2022
Assets
Current assets:
Cash and cash equivalents	$	848,761	$	860,949
Restricted cash	2,387		2,688
Accounts receivable, net of allowance for credit losses of $2,250 and $2,700 as of July 31, 2022 and April 30, 2022, respectively	168,020		215,228
Deferred contract acquisition costs	44,636		43,628
Prepaid expenses and other current assets	36,410		41,215
Total current assets	1,100,214		1,163,708
Property and equipment, net	6,408		7,207
Goodwill	303,655		303,906
Operating lease right-of-use assets	24,904		25,437
Intangible assets, net	41,591		45,800
Deferred contract acquisition costs, non-current	74,720		74,419
Deferred tax assets	5,075		5,811
Other assets	14,452		16,643
Total assets	$	1,571,019	$	1,642,931
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	38,062	$	28,403
Accrued expenses and other liabilities	47,300		53,930
Accrued compensation and benefits	56,054		68,002
Operating lease liabilities	11,408		11,219
Deferred revenue	407,499		431,776
Total current liabilities	560,323		593,330
Deferred revenue, non-current	27,553		33,518
Long-term debt, net	566,772		566,520
Operating lease liabilities, non-current	15,530		16,482
Other liabilities, non-current	7,303		17,648
Total liabilities	1,177,481		1,227,498
Commitments and contingencies (Notes 8 and 9)
Shareholders’ equity:
Convertible preference shares, €0.01 par value; 165,000,000 shares authorized, 0 shares issued and outstanding as of July 31, 2022 and April 30, 2022	—		—
Ordinary shares, par value €0.01 per share: 165,000,000 shares authorized; 94,970,627 shares issued and outstanding as of July 31, 2022 and 94,174,914 shares issued and outstanding as of April 30, 2022	999		990
Treasury stock	(369)		(369)
Additional paid-in capital	1,300,379		1,250,108
Accumulated other comprehensive loss	(20,754)		(18,130)
Accumulated deficit	(886,717)		(817,166)
Total shareholders’ equity	393,538		415,433
Total liabilities and shareholders’ equity	$	1,571,019	$	1,642,931

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 July 31,
	2022		2021
Revenue
Subscription	$	231,814	$	177,185
Services	18,267		15,910
Total revenue	250,081		193,095
Cost of revenue
Subscription	53,551		37,520
Services	19,428		12,142
Total cost of revenue	72,979		49,662
Gross profit	177,102		143,433
Operating expenses
Research and development	78,649		59,382
Sales and marketing	125,006		88,033
General and administrative	34,088		27,052
Total operating expenses	237,743		174,467
Operating loss	(60,641)		(31,034)
Other expense, net
Interest expense	(6,401)		(1,820)
Other income, net	339		1,018
Loss before income taxes	(66,703)		(31,836)
Provision for income taxes	2,848		2,653
Net loss	$	(69,551)	$	(34,489)
Net loss per share attributable to ordinary shareholders, basic and diluted	$	(0.74)	$	(0.38)
Weighted-average shares used to compute net loss per share attributable to ordinary shareholders, basic and diluted	94,621,365		91,201,372

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 July 31,
	2022		2021
Net loss	$	(69,551)	$	(34,489)
Other comprehensive income (loss):
Foreign currency translation adjustments	(2,624)		(1,864)
Other comprehensive income (loss)	(2,624)		(1,864)
Total comprehensive loss	$	(72,175)	$	(36,353)

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)

	Ordinary Shares			Treasury Shares Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balances as of April 30, 2022	94,174,914	$	990	$	(369)	$	1,250,108	$	(18,130)	$	(817,166)	$	415,433
Issuance of ordinary shares upon exercise of stock options	225,263	3		—		3,394		—		—		3,397
Issuance of ordinary shares upon release of restricted stock units	570,450	6		—		(6)		—		—		—
Stock-based compensation	—	—		—		46,883		—		—		46,883
Net loss	—	—		—		—		—		(69,551)		(69,551)
Foreign currency translation	—	—		—		—		(2,624)		—		(2,624)
Balances as of July 31, 2022	94,970,627	$	999	$	(369)	$	1,300,379	$	(20,754)	$	(886,717)	$	393,538
	Ordinary Shares			Treasury Shares Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balances as of April 30, 2021	90,533,985	$	948	$	(369)	$	1,071,675	$	(8,105)	$	(613,318)	$	450,831
Issuance of ordinary shares upon exercise of stock options	840,208	10		—		10,969		—				10,979
Issuance of ordinary shares upon release of restricted stock units	396,035	5		—		(5)		—				—
Stock-based compensation	—	—		—		30,206		—				30,206
Net loss	—	—		—		—		—		(34,489)		(34,489)
Foreign currency translation	—	—		—		—		(1,864)				(1,864)
Balances as of July 31, 2021	91,770,228	$	963	$	(369)	$	1,112,845	$	(9,969)	$	(647,807)	$	455,663

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

8

Elastic N.V.

Condensed Consolidated Statements of Cash Flows

(in thousands)
(unaudited)

	Three Months Ended July 31,
	2022		2021
Cash flows from operating activities
Net loss	$	(69,551)	$	(34,489)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization	5,214		4,404
Amortization of deferred contract acquisition costs	17,444		13,878
Amortization of debt issuance costs	252		77
Non-cash operating lease cost	3,005		1,854
Stock-based compensation expense, net of amounts capitalized	46,883		30,178
Deferred income taxes	667		(143)
Foreign currency transaction loss (gain)	1,779		(1,127)
Other	22		98
Changes in operating assets and liabilities:
Accounts receivable, net	45,991		48,324
Deferred contract acquisition costs	(19,676)		(14,781)
Prepaid expenses and other current assets	4,729		(4,597)
Other assets	2,114		(6,097)
Accounts payable	9,873		10,660
Accrued expenses and other liabilities	(16,741)		(170)
Accrued compensation and benefits	(11,521)		(1,454)
Operating lease liabilities	(3,204)		(1,945)
Deferred revenue	(26,985)		(30,619)
Net cash provided by (used in) operating activities	(9,705)		14,051
Cash flows from investing activities
Purchases of property and equipment	(479)		(660)
Capitalization of internal-use software	—		(974)
Net cash used in investing activities	(479)		(1,634)
Cash flows from financing activities
Proceeds from the issuance of debt	—		575,000
Proceeds from issuance of ordinary shares upon exercise of stock options	3,397		10,979
Payments of debt issuance costs	—		(7,188)
Repayment of notes payable	—		—
Net cash provided by financing activities	3,397		578,791
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(5,702)		(1,235)
Net increase (decrease) in cash, cash equivalents, and restricted cash	(12,489)		589,973
Cash, cash equivalents, and restricted cash, beginning of period	863,637		403,708
Cash, cash equivalents, and restricted cash, end of period	$	851,148	$	993,681
Supplemental disclosures of cash flow information
Cash paid for interest	$	12,079	$	—
Cash paid for income taxes, net	$	2,558	$	629
Cash paid for operating lease liabilities	$	3,278	$	2,335
Supplemental disclosures of non-cash investing and financing information
Changes in property and equipment included in accounts payable	$	(158)	$	124
Operating lease right-of-use assets for new lease obligations	$	2,725	$	1,458
Debt issuance costs accrued, unpaid	$	—	$	2,048

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

9

Elastic N.V.

Notes to Condensed Consolidated Financial Statements
(unaudited)

Note		Page
1.	Organization and Description of Business	11
2.	Summary of Significant Accounting Policies	11
3.	Revenue and Performance Obligations	12
4.	Fair Value Measurements	13
5.	Acquisitions	13
6.	Balance Sheet Components	14
7.	Senior Notes	17
8.	Commitments and Contingencies	18
9.	Leases	18
10.	Ordinary Shares	19
11.	Equity Incentive Plans	20
12.	Net Loss Per Share Attributable to Ordinary Shareholders	21
13.	Income Taxes	22
14.	Employee Benefit Plans	22
15.	Segment Information	22

10

1. Organization and Description of Business

Elastic N.V. (“Elastic” or the “Company”) was incorporated under the laws of the Netherlands in 2012. The Company 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 on that data. Developers build on top of the Elastic Stack to apply the power of search to their data and solve business problems. The Company offers three software solutions built into 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 multi-cloud environments.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated balance sheet as of July 31, 2022, the interim condensed consolidated statements of operations and of comprehensive loss, interim condensed statements of shareholders’ equity for the three months ended July 31, 2022 and 2021 and the interim condensed consolidated statements of cash flows for the three months ended July 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 July 31, 2022, and the results of the Company’s operations, its statements of shareholders’ equity for the three months ended July 31, 2022 and 2021, and its statements of cash flows for the three months ended July 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 month periods are also unaudited. The results for the three months ended July 31, 2022 are not necessarily indicative of the operating results expected for the fiscal year ending April 30, 2023, 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, 2022 filed with the SEC on June 21, 2022 (“the Company's Annual Report on Form 10-K”).

Fiscal Year

The Company’s fiscal year ends on April 30. References to fiscal 2023, for example, refer to the fiscal year ending April 30, 2023.

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 Coronavirus disease (“COVID-19”) a pandemic. The ongoing COVID-19 pandemic has resulted in a global slowdown of economic activity and its impact has varied significantly across different industries with certain industries experiencing increased demand for their products and services, while others have struggled to maintain demand for their products and services consistent with historical levels. The full extent to which COVID-19 may impact the Company’s financial condition or results of operations is uncertain.

11

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 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

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.

Recently Adopted Accounting Pronouncements

Equity Awards: In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU No. 2021-04”), which clarifies the accounting for modifications or exchanges of a freestanding equity-classified written call option that is not within the scope of another topic. It addresses how an entity should treat, measure the effect of, and recognize the effect of a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. The Company adopted ASU No. 2021-04 on May 1, 2022. The Company’s adoption of this ASU did not have a material impact on its 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 category (in thousands):

	Three Months Ended July 31,
	2022				2021
	Amount		% of Total Revenue		Amount		% of Total Revenue
Elastic Cloud	$	97,729	39	%	$	61,530	32	%
Other subscription	134,085		54	%	115,655		60	%
Total subscription	231,814		93	%	177,185		92	%
Services	18,267		7	%	15,910		8	%
Total revenue	$	250,081	100	%	$	193,095	100	%

Remaining Performance Obligations

As of July 31, 2022, the Company had $912.5 million of remaining performance obligations. As of July 31, 2022, the Company expects to recognize approximately 88% of its remaining performance obligations as revenue over the next 24 months and the remainder thereafter.

12

4. Fair Value Measurements

Financial Assets

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 July 31, 2022 (in thousands):

	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and cash equivalents:
Money market funds	$	560,404	$	—	$	—	$	560,404

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

	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and cash equivalents:
Money market funds	$	559,462	$	—	$	—	$	559,462

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.

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 July 31, 2022 was approximately $519.5 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

Fiscal 2022 Acquisitions

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 $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.

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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 $58.7 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 condensed 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 $46.7 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 condensed 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 are for post-combination services and 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

Property and Equipment, Net

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

	Useful Life (in years)	As of July 31, 2022		As of April 30, 2022
Leasehold improvements	Lesser of estimated useful life or remaining lease term	$	11,168	$	10,863
Computer hardware and software	3	2,104		1,473
Furniture and fixtures	3-5	5,914		5,753
Assets under construction		208		1,119
Total property and equipment		19,394		19,208
Less: accumulated depreciation		(12,986)		(12,001)
Property and equipment, net		$	6,408	$	7,207

Depreciation expense related to property and equipment was $1.0 million and $1.0 million for the three months ended July 31, 2022 and 2021, respectively.

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Intangible Assets, Net

Intangible assets consisted of the following as of July 31, 2022 (in thousands):

	Gross Fair Value		Accumulated Amortization		Net Book Value		Weighted Average Remaining Useful Life (in years)
Developed technology	$	70,130	$	34,319	$	35,811	3.8
Customer relationships	19,598		14,303		5,295		1.9
Trade names	2,872		2,368		504		1.9
Total	$	92,600	$	50,990	$	41,610	3.6
Foreign currency translation adjustment					(19)
Total					$	41,591

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

	Gross Fair Value		Accumulated Amortization		Net Book Value		Weighted Average Remaining Useful Life (in years)
Developed technology	$	70,130	$	31,355	$	38,775	3.9
Customer relationships	19,598		13,177		6,421		3.3
Trade names	2,872		2,263		609		3.3
Total	$	92,600	$	46,795	$	45,805	3.8
Foreign currency translation adjustment					(5)
Total					$	45,800

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

	Three Months Ended July 31,
	2022		2021
Subscription	$	2,964	$	2,012
Sales and marketing	1,231		1,429
Total amortization of acquired intangible assets	$	4,195	$	3,441

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

Remainder of 2023	$	12,488
2024	13,985
2025	8,018
2026	5,057
2027	2,043
Thereafter	—
Total	$	41,591

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Goodwill

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

	Carrying Amount
Balance as of April 30, 2022	$	303,906
Foreign currency translation adjustment	(251)
Balance as of July 31, 2022	$	303,655

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

Accrued Expenses and Other Liabilities

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

	As of July 31, 2022		As of April 30, 2022
Accrued expenses	$	20,007	$	24,066
Value added taxes payable	3,896		8,926
Accrued interest	988		6,918
Income taxes payable	8,235		4,286
Other	14,174		9,734
Total accrued expenses and other liabilities	$	47,300	$	53,930

Accrued Compensation and Benefits

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

	As of July 31, 2022		As of April 30, 2022
Accrued vacation	$	28,125	$	27,280
Accrued commissions	12,999		23,806
Accrued payroll and withholding taxes	7,348		9,030
Other	7,582		7,886
Total accrued compensation and benefits	$	56,054	$	68,002

Contract Balances

The following table provides information about unbilled accounts receivable, deferred contract acquisition costs, and deferred revenue from contracts with customers (in thousands):

	As of July 31, 2022		As of April 30, 2022
Unbilled accounts receivable, included in accounts receivable, net	$	4,389	$	9,244
Deferred contract acquisition costs	$	119,356	$	118,047
Deferred revenue	$	435,052	$	465,294

The following table summarizes the activity of the deferred revenue (in thousands):

	Deferred Revenue
	Three Months Ended July 31,
	2022		2021
Beginning balance	$	465,294	$	397,700
Increases due to invoices issued, excluding amounts recognized as revenue during the period	139,035		102,688
Revenue recognized that was included in deferred revenue balance at beginning of period	(169,277)		(136,028)
Ending balance	$	435,052	$	364,360

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Deferred Contract Acquisition Costs

The following table summarizes the activity of the deferred contract acquisition costs (in thousands):

	Three Months Ended July 31,
	2022		2021
Beginning balance	$	118,047	$	86,352
Capitalization of contract acquisition costs	18,753		14,144
Amortization of deferred contract acquisition costs	(17,444)		(13,878)
Ending balance	$	119,356	$	86,618

The Company did not recognize any impairment of deferred contract acquisition costs during the three months ended July 31, 2022 and 2021.

Allowance for Credit Losses

	Three Months Ended July 31,
	2022		2021
Beginning balance	$	2,700	$	2,344
Bad debt expense	186		524
Accounts written off	(636)		(294)
Ending balance	$	2,250	$	2,574

7. Senior Notes

In July 2021, the Company issued $575.0 million aggregate principal amount of 4.125% Senior Notes due July 15, 2029 in a private placement.

Interest on the Senior Notes is payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2022. The Company received net proceeds from the offering of the Senior Notes of $565.7 million after deducting underwriting commissions of $7.2 million and incurred additional issuance costs of $2.1 million. Total debt issuance costs of $9.3 million are being amortized to interest expense using the effective interest method over the term of the Senior Notes. The Company may redeem the Senior Notes, in whole or in part, at any time prior to July 15, 2024 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium and accrued and unpaid interest, if any. The Company may at its election redeem all or a part of the Senior Notes on or after July 15, 2024, on any one or more occasions, at the redemption prices set forth in the indenture governing the Senior Notes (the “Indenture”), plus, in each case, accrued and unpaid interest thereon, if any, to, but excluding, the applicable redemption date. In addition, at any time prior to July 15, 2024, the Company may on any one or more occasions redeem up to 40% of the aggregate principal amount of the Senior Notes outstanding under the Indenture with the net cash proceeds of one or more equity offerings at a redemption price equal to 104.125% of the principal amount of the Senior Notes then outstanding, plus accrued and unpaid interest thereon, if any, to, but excluding, the applicable redemption date. The Company may also at its election redeem the Senior Notes in whole, but not in part, at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, if certain changes in tax law occur as set forth in the Indenture.

If the Company experiences a change of control triggering event (as defined in the Indenture), the Company must offer to repurchase the Senior Notes at a repurchase price equal to 101% of the principal amount of the Senior Notes to be repurchased, plus accrued and unpaid interest, if any, to the repurchase date.

The indenture governing the Senior Notes contain covenants limiting the Company’s ability and the ability of certain subsidiaries to create liens on certain assets to secure debt; grant a subsidiary guarantee of certain debt without also providing a guarantee of the Senior Notes; and consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of its assets to, another person. These covenants are subject to a number of limitations and exceptions. Certain of these covenants will not apply during any period in which the notes are rated investment grade by Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services. As of July 31, 2022, the Company was in compliance with all of its financial covenants under the Indenture associated with the Senior Notes.

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The net carrying amount of the Senior Notes was as follows:

	As of July 31, 2022
Principal	$	575,000
Unamortized debt issuance costs	(8,228)
Net carrying amount	$	566,772

The following table sets forth the interest expense recognized related to the Senior Notes:

	Three Months Ended July 31, 2022
Contractual interest expense	$	5,930
Amortization of debt issuance costs	252
Total interest expense related to the Senior Notes	$	6,182

8. Commitments and Contingencies

Cloud Hosting Commitments

During the three months ended July 31, 2022, there were no material changes, outside the ordinary course of business, to the Company’s contractual obligations and commitments reported in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2022.

Letters of Credit

The Company had a total of $2.4 million in letters of credit outstanding in favor of certain landlords for office space as of July 31, 2022.

Legal Matters

From time to time, the Company has become involved in claims and other legal matters arising in the ordinary course of business. The Company investigates these claims as they arise. Although claims are inherently unpredictable, the Company is currently not aware of any matters that, if determined adversely to the Company, would individually or taken together have a material adverse effect on its business, results of operations, financial position or cash flows.

The Company accrues estimates for resolution of legal and other contingencies when losses are probable and reasonably estimable.

Although the results of litigation and claims are inherently unpredictable, the Company does not believe that there were any matters under litigation or claims with a reasonable possibility of the Company incurring a material loss as of July 31, 2022.

Indemnification

The Company enters into indemnification provisions under its agreements with other companies in the ordinary course of business, including business partners, landlords, contractors and parties performing its research and development. Pursuant to these arrangements, the Company agrees to indemnify, hold harmless, and reimburse the indemnified party for certain losses suffered or incurred by the indemnified party as a result of the Company’s activities. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the fair value of these agreements is not material. The Company maintains commercial general liability insurance and product liability insurance to offset certain of the Company’s potential liabilities under these indemnification provisions.

In addition, the Company indemnifies its officers, directors and certain key employees against certain liabilities that may arise as a result of their affiliation with the Company. To date, there have been no claims under any indemnification provisions.

9. Leases

The Company’s leases are composed of corporate office spaces under non-cancelable operating lease agreements that expire at various dates through 2025. The Company does not have any finance leases.

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Lease Costs

Components of lease costs included in the condensed consolidated statement of operations were as follows (in thousands):

	Three Months Ended July 31,
	2022		2021
Operating lease cost	$	3,133	$	2,285
Short-term lease cost	783		541
Variable lease cost	230		205
Total lease cost	$	4,146	$	3,031

Lease term and discount rate information are summarized as follows:

	As of July 31, 2022
Weighted average remaining lease term (years)	2.70
Weighted average discount rate	4.83	%

Future minimum lease payments under non-cancelable operating leases on an undiscounted cash flow basis as of July 31, 2022 were as follows (in thousands):

Years Ending April 30,
Remainder of 2023	$	8,977
2024	10,110
2025	6,086
2026	3,523
2027	—
Thereafter	—
Total minimum lease payments	28,696
Less imputed interest	(1,758)
Present value of future minimum lease payments	26,938
Less current lease liabilities	(11,408)
Operating lease liabilities, non-current	$	15,530

10. Ordinary Shares

The Company’s articles of association designated and authorized the Company to issue 165 million ordinary shares at a par value per ordinary share of €0.01 per share.

Each holder of ordinary shares has the right to one vote per ordinary share. The holders of ordinary shares are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors, subject to the prior rights of holders of all classes of shares outstanding having priority rights to dividends. No dividends have been declared by the Company’s board of directors from inception through July 31, 2022.

Ordinary Shares Reserved for Issuance

The Company had reserved ordinary shares for issuance as follows:

	As of July 31, 2022	As of April 30, 2022
Stock options issued and outstanding	4,950,306	5,219,124
RSUs issued and outstanding	4,413,451	4,717,548
Remaining shares available for future issuance under the 2012 Plan	22,132,919	17,647,684
Total ordinary shares reserved	31,496,676	27,584,356

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Convertible Preference Shares

The Company’s board of directors has the authority, for a period of five years from October 10, 2018, without further action by the Company’s shareholders, to issue up to 165 million shares of undesignated convertible preference shares with rights and preferences, including voting rights, designated from time to time by the board of directors. As of July 31, 2022, there were no convertible preference shares issued or outstanding.

11. Equity Incentive Plans

In September 2012, the Company’s board of directors adopted and the Company’s shareholders approved the 2012 Stock Option Plan, which was amended and restated in September 2018 and further amended in December 2021 (as amended and restated, the “2012 Plan”). Under the 2012 Plan, the board of directors, the compensation committee, as administrator of the 2012 Plan, and a duly authorized committee may grant stock options and other equity-based awards, such as Restricted Stock Awards (“RSAs”) or Restricted Stock Units (“RSUs”), to eligible employees, directors, and consultants to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors and consultants, and to promote the success of the Company’s business. The Company’s board of directors, compensation committee or a duly authorized committee determines the vesting schedule for all equity-based awards. Stock options and RSUs granted to employees generally vest over four years, subject to the employees’ continued service to the Company. The Company’s compensation committee may explicitly deviate from the general vesting schedules in its approval of an equity-based award, as it may deem appropriate. Stock options expire ten years after the date of grant. Stock options, RSAs and RSUs that are canceled under certain conditions become available for future grant or sale under the 2012 Plan unless the 2012 Plan is terminated.

The equity awards available for grant were as follows: 

	Three Months Ended July 31, 2022
Available at beginning of fiscal year	17,647,684
Awards authorized	4,708,746
Options granted	(37,620)
Options cancelled	80,462
RSUs granted	(581,862)
RSUs cancelled	315,175
Shares withheld for taxes	334
Available at end of period	22,132,919

Stock Incentive Plans Assumed in Acquisitions

In connection with acquisitions completed in prior years, the Company assumed certain unvested stock options that were outstanding on the date of the respective acquisitions.

The assumed stock options will continue to be outstanding and will be governed by the provisions of their respective plan and are included in the stock option activity table below.

Stock Options

The following table summarizes stock option activity (in thousands, except share and per share data):

	Stock Options Outstanding
	Number of Stock Options Outstanding	Weighted- Average Exercise Price		Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Balance as of April 30, 2022	5,219,124	$	29.41	6.22	$	266,021
Stock options granted	37,620	$	78.30
Stock options exercised	(225,263)	$	15.19
Stock options cancelled	(80,462)	$	79.88
Stock options assumed in acquisition cancelled	(713)	$	41.88
Balance as of July 31, 2022	4,950,306	$	29.61	5.98	$	267,301
Exercisable as of July 31, 2022	3,941,611	$	20.31	5.52	$	240,555

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Stock options exercisable include 4,167 stock options that were unvested as of July 31, 2022.

Aggregate intrinsic value represents the difference between the exercise price of the stock options to purchase ordinary shares and the fair value of the Company’s ordinary shares. The weighted-average grant-date fair value per share of stock options granted was $46.44 for the three months ended July 31, 2022.

As of July 31, 2022, the Company had unrecognized stock-based compensation expense of $38.9 million related to unvested stock options that the Company expects to recognize over a weighted-average period of 2.21 years.

RSUs

The following table summarizes RSU activity under the 2012 Plan:

	Number of Awards	Weighted-Average Grant Date Fair Value
Outstanding and unvested at April 30, 2022	4,717,548	$	108.44
RSUs granted	581,862	$	78.29
RSUs released	(570,784)	$	101.66
RSUs cancelled	(315,175)	$	110.83
Outstanding and unvested at July 31, 2022	4,413,451	$	105.18

As of July 31, 2022, the Company had unrecognized stock-based compensation expense of $428.2 million related to RSUs that the Company expects to recognize over a weighted-average period of 2.74 years.

Stock-Based Compensation Expense

Total stock-based compensation expense recognized in the Company’s condensed consolidated statements of operations was as follows (in thousands):

	Three Months Ended July 31,
	2022		2021
Cost of revenue
Subscription	$	2,160	$	2,134
Services	2,225		1,575
Research and development	18,710		12,097
Sales and marketing	15,647		9,850
General and administrative	8,141		4,522
Stock-based compensation expense, net of amounts capitalized	46,883		30,178
Capitalized stock-based compensation expense	—		28
Total stock-based compensation expense	$	46,883	$	30,206

12. Net Loss Per Share Attributable to Ordinary Shareholders

The following table sets forth the computation of basic and diluted net loss per share attributable to ordinary shareholders (in thousands, except share and per share data):

	Three Months Ended July 31,
	2022		2021
Numerator:
Net loss	$	(69,551)	$	(34,489)
Denominator:
Weighted-average shares used in computing net loss per share attributable to ordinary shareholders, basic and diluted	94,621,365		91,201,372
Net loss per share attributable to ordinary shareholders, basic and diluted	$	(0.74)	$	(0.38)

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Since the Company is in a net loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods. The following outstanding potentially dilutive ordinary shares were excluded from the computation of diluted net loss per share attributable to ordinary shareholders for the periods presented because the impact of including them would have been antidilutive:

	Three Months Ended July 31,
	2022	2021
Stock options	4,950,306	6,698,415
RSUs	4,413,451	3,148,574
Total	9,363,757	9,846,989

13. Income Taxes

The Company is incorporated in the Netherlands but operates in various countries with differing tax laws and rates. The Company recorded a provision for income taxes of $2.8 million and $2.7 million for the three months ended July 31, 2022 and 2021, respectively. The provision for income taxes was primarily due to foreign taxes. The calculation of income taxes is based upon the estimated annual effective tax rates for the year applied to the current period loss before tax plus the tax effect of any significant unusual items, discrete events or changes in tax law.

The Company assesses uncertain tax positions in accordance with ASC 740-10, Accounting for Uncertainties in Tax. The Company anticipates that the amount of reasonably possible unrecognized tax benefits that could decrease over the next twelve months due to the expiration of certain statutes of limitations and settlement of tax audits is not material to the Company’s interim unaudited condensed consolidated financial statements.

14. Employee Benefit Plans

The Company has a defined-contribution plan in the U.S. intended to qualify under Section 401 of the Internal Revenue Code (the “401(k) Plan”). The Company has contracted with a third-party provider to act as a custodian and trustee, and to process and maintain the records of participant data. Substantially all the expenses incurred for administering the 401(k) Plan are paid by the Company. This 401(k) Plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company makes contributions to the 401(k) Plan up to 6% of the participating employee’s W-2 earnings and wages. The Company recorded $4.6 million and $3.5 million of expense related to the 401(k) Plan during the three months ended July 31, 2022 and 2021, respectively.

The Company also has defined-contribution plans in certain other countries for which the Company recorded $2.3 million and $1.6 million of expense during the three months ended July 31, 2022 and 2021, respectively.

15. Segment Information

The following table summarizes the Company’s total revenue by geographic area based on the billing address of the customers (in thousands):

	Three Months Ended July 31,
	2022		2021
United States	$	145,367	$	103,140
Rest of world	104,714		89,955
Total revenue	$	250,081	$	193,095

Other than the United States, no other individual country exceeded 10% or more of total revenue during the periods presented.

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