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 October 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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

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

As of November 30, 2022, the registrant had 95,605,341 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	39
Item 4.	Controls and Procedures	40
PART II.	OTHER INFORMATION	40
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	Defaults Upon Senior Securities	76
Item 4.	Mine Safety Disclosures	76
Item 5.	Other Information	76
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:

•the impact of macroeconomic conditions, including declining rates of economic growth, supply chain disruptions, inflationary pressures, increased interest rates, and other conditions discussed in this report, on information technology spending, sales cycles, and other factors affecting the demand for our offerings and our results of operations;

•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;

3

•the impact of expensing stock options and other equity awards;

•the sufficiency of our capital resources;

•our ability to successfully defend litigation brought against us;

•our ability to successfully execute our go-to-market strategy, including the positioning of our solutions and products, and expand in our existing markets and into new markets;

•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 herein. 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 October 31, 2022		As of April 30, 2022
Assets
Current assets:
Cash and cash equivalents	$	856,237	$	860,949
Restricted cash	2,385		2,688
Accounts receivable, net of allowance for credit losses of $1,801 and $2,700 as of October 31, 2022 and April 30, 2022, respectively	185,906		215,228
Deferred contract acquisition costs	45,418		43,628
Prepaid expenses and other current assets	33,030		41,215
Total current assets	1,122,976		1,163,708
Property and equipment, net	5,696		7,207
Goodwill	303,742		303,906
Operating lease right-of-use assets	29,840		25,437
Intangible assets, net	37,384		45,800
Deferred contract acquisition costs, non-current	77,544		74,419
Deferred tax assets	5,395		5,811
Other assets	11,655		16,643
Total assets	$	1,594,232	$	1,642,931
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	41,055	$	28,403
Accrued expenses and other liabilities	62,350		53,930
Accrued compensation and benefits	60,501		68,002
Operating lease liabilities	12,348		11,219
Deferred revenue	410,718		431,776
Total current liabilities	586,972		593,330
Deferred revenue, non-current	22,867		33,518
Long-term debt, net	567,026		566,520
Operating lease liabilities, non-current	19,127		16,482
Other liabilities, non-current	6,675		17,648
Total liabilities	1,202,667		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 October 31, 2022 and April 30, 2022	—		—
Ordinary shares, par value €0.01 per share: 165,000,000 shares authorized; 95,575,775 shares issued and outstanding as of October 31, 2022 and 94,174,914 shares issued and outstanding as of April 30, 2022	1,005		990
Treasury stock	(369)		(369)
Additional paid-in capital	1,351,987		1,250,108
Accumulated other comprehensive loss	(27,036)		(18,130)
Accumulated deficit	(934,022)		(817,166)
Total shareholders’ equity	391,565		415,433
Total liabilities and shareholders’ equity	$	1,594,232	$	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 October 31,				Six Months Ended October 31,
	2022		2021		2022		2021
Revenue
Subscription	$	241,211	$	190,257	$	473,025	$	367,442
Services	23,190		15,723		41,457		31,633
Total revenue	264,401		205,980		514,482		399,075
Cost of revenue
Subscription	55,101		42,242		108,652		79,762
Services	19,656		11,642		39,084		23,784
Total cost of revenue	74,757		53,884		147,736		103,546
Gross profit	189,644		152,096		366,746		295,529
Operating expenses
Research and development	75,568		63,763		154,217		123,145
Sales and marketing	128,179		94,953		253,185		182,986
General and administrative	34,925		30,555		69,013		57,607
Total operating expenses	238,672		189,271		476,415		363,738
Operating loss	(49,028)		(37,175)		(109,669)		(68,209)
Other income (expense), net
Interest expense	(6,209)		(6,332)		(12,610)		(8,152)
Other income (expense), net	14,975		(666)		15,314		352
Loss before income taxes	(40,262)		(44,173)		(106,965)		(76,009)
Provision for income taxes	7,043		2,850		9,891		5,503
Net loss	$	(47,305)	$	(47,023)	$	(116,856)	$	(81,512)
Net loss per share attributable to ordinary shareholders, basic and diluted	$	(0.50)	$	(0.51)	$	(1.23)	$	(0.89)
Weighted-average shares used to compute net loss per share attributable to ordinary shareholders, basic and diluted	95,307,146		92,206,199		94,964,423		91,703,786

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 October 31,				Six Months Ended October 31,
	2022		2021		2022		2021
Net loss	$	(47,305)	$	(47,023)	$	(116,856)	$	(81,512)
Other comprehensive income (loss):
Foreign currency translation adjustments	(6,282)		588		(8,906)		(1,276)
Other comprehensive income (loss)	(6,282)		588		(8,906)		(1,276)
Total comprehensive loss	$	(53,587)	$	(46,435)	$	(125,762)	$	(82,788)

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 Shareholders' Equity
	Shares	Amount
Balances as of July 31, 2022	94,970,627	$	999	$	(369)	$	1,300,379	$	(20,754)	$	(886,717)	$	393,538
Issuance of ordinary shares upon exercise of stock options	258,813	3		—		4,324		—		—		4,327
Issuance of ordinary shares upon release of restricted stock units	346,335	3		—		(3)		—		—		—
Stock-based compensation	—	—		—		47,287		—		—		47,287
Net loss	—	—		—		—		—		(47,305)		(47,305)
Foreign currency translation	—	—		—		—		(6,282)		—		(6,282)
Balances as of October 31, 2022	95,575,775	$	1,005	$	(369)	$	1,351,987	$	(27,036)	$	(934,022)	$	391,565
	Ordinary Shares			Treasury Shares Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Shareholders' Equity
	Shares	Amount
Balances as of July 31, 2021	91,770,228	$	963	$	(369)	$	1,112,845	$	(9,969)	$	(647,807)	$	455,663
Fair value of replacement equity awards attributable to pre-acquisition service	—	—		—		1,266		—		—		1,266
Issuance of ordinary shares upon exercise of stock options	690,538	8		—		9,844		—		—		9,852
Issuance of ordinary shares upon release of restricted stock units	105,259	1		—		(1)		—		—		—
Stock-based compensation	—	—		—		29,454		—		—		29,454
Net loss	—	—		—		—		—		(47,023)		(47,023)
Foreign currency translation	—	—		—		—		588		—		588
Balances as of October 31, 2021	92,566,025	$	972	$	(369)	$	1,153,408	$	(9,381)	$	(694,830)	$	449,800

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)

	Ordinary Shares			Treasury Shares Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Shareholders' 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	484,076	6		—		7,718		—		—		7,724
Issuance of ordinary shares upon release of restricted stock units	916,785	9		—		(9)		—		—		—
Stock-based compensation	—	—		—		94,170		—		—		94,170
Net loss	—	—		—		—		—		(116,856)		(116,856)
Foreign currency translation	—	—		—		—		(8,906)		—		(8,906)
Balances as of October 31, 2022	95,575,775	$	1,005	$	(369)	$	1,351,987	$	(27,036)	$	(934,022)	$	391,565
	Ordinary Shares			Treasury Shares Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Shareholders' Equity
	Shares	Amount
Balances as of 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	1,530,746	18		—		20,813		—		—		20,831
Issuance of ordinary shares upon release of restricted stock units	501,294	6		—		(6)		—		—		—
Stock-based compensation	—	—		—		59,660		—		—		59,660
Net loss	—	—		—		—		—		(81,512)		(81,512)
Foreign currency translation	—	—		—		—		(1,276)		—		(1,276)
Balances as of October 31, 2021	92,566,025	$	972	$	(369)	$	1,153,408	$	(9,381)	$	(694,830)	$	449,800

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)

	Six Months Ended October 31,
	2022		2021
Cash flows from operating activities
Net loss	$	(116,856)	$	(81,512)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization	10,430		9,325
Amortization of deferred contract acquisition costs	35,674		28,570
Amortization of debt issuance costs	506		307
Non-cash operating lease cost	5,649		3,842
Stock-based compensation expense, net of amounts capitalized	94,170		59,578
Deferred income taxes	(80)		(249)
Foreign currency transaction loss	48		4
Other	67		98
Changes in operating assets and liabilities:
Accounts receivable, net	25,193		519
Deferred contract acquisition costs	(43,569)		(39,277)
Prepaid expenses and other current assets	7,909		2,218
Other assets	4,809		(3,337)
Accounts payable	12,320		10,485
Accrued expenses and other liabilities	(1,645)		16,719
Accrued compensation and benefits	(5,947)		3,823
Operating lease liabilities	(5,573)		(3,983)
Deferred revenue	(22,168)		(3,462)
Net cash provided by operating activities	937		3,668
Cash flows from investing activities
Purchases of property and equipment	(822)		(751)
Business acquisitions, net of cash acquired	—		(108,104)
Capitalization of internal-use software	—		(2,713)
Net cash used in investing activities	(822)		(111,568)
Cash flows from financing activities
Proceeds from the issuance of debt	—		575,000
Proceeds from issuance of ordinary shares upon exercise of stock options	7,724		20,831
Payments of debt issuance costs	—		(9,234)
Net cash provided by financing activities	7,724		586,597
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(12,854)		(3,407)
Net increase (decrease) in cash, cash equivalents, and restricted cash	(5,015)		475,290
Cash, cash equivalents, and restricted cash, beginning of period	863,637		403,708
Cash, cash equivalents, and restricted cash, end of period	$	858,622	$	878,998
Supplemental disclosures of cash flow information
Cash paid for interest	$	12,104	$	—
Cash paid for income taxes, net	$	3,861	$	1,905
Cash paid for operating lease liabilities	$	6,605	$	4,829
Supplemental disclosures of non-cash investing and financing information
Property and equipment included in accounts payable	$	64	$	39
Operating lease right-of-use assets for new lease obligations	$	10,770	$	2,330
Debt issuance costs accrued, unpaid	$	—	$	28

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 Remaining Performance Obligations	13
4.	Fair Value Measurements	13
5.	Acquisitions	14
6.	Balance Sheet Components	15
7.	Senior Notes	18
8.	Commitments and Contingencies	19
9.	Leases	20
10.	Ordinary Shares	20
11.	Equity Incentive Plans	21
12.	Net Loss Per Share Attributable to Ordinary Shareholders	23
13.	Income Taxes	23
14.	Employee Benefit Plans	24
15.	Segment Information	24
16.	Subsequent Events	25

11

1. Organization and Description of Business

Elastic N.V. (“Elastic” or the “Company”) was incorporated under the laws of the Netherlands in 2012. 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 October 31, 2022; interim condensed consolidated statements of operations, comprehensive loss, and shareholders’ equity for the three and six months ended October 31, 2022 and 2021; and interim condensed consolidated statements of cash flows for the six months ended October 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 normal recurring adjustments necessary to fairly state the Company’s financial position as of October 31, 2022; results of the Company’s operations for the three and six months ended October 31, 2022 and 2021; statements of shareholders’ equity for the three and six months ended October 31, 2022 and 2021; and statements of cash flows for the six months ended October 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 six month periods are also unaudited. The results for the three and six months ended October 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”). The condensed balance sheet data as of April 30, 2022 was derived from the Company’s audited financial statements, but does not include all disclosures required by U.S. GAAP. 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.

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.

12

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 Financial Accounting Standards Board (“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 they had originated the contracts. If the acquiree prepared its financial statements in accordance with U.S. GAAP, the resulting acquired contract assets and liabilities should generally be consistent with the 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 October 31,								Six Months Ended October 31,
	2022				2021				2022				2021
	Amount		% of Total Revenue		Amount		% of Total Revenue		Amount		% of Total Revenue		Amount		% of Total Revenue
Elastic Cloud	$	103,237	39	%	$	69,031	34	%	$	200,966	39	%	$	130,561	33	%
Other subscription	137,974		52	%	121,226		58	%	272,059		53	%	236,881		59	%
Total subscription	241,211		91	%	190,257		92	%	473,025		92	%	367,442		92	%
Services	23,190		9	%	15,723		8	%	41,457		8	%	31,633		8	%
Total revenue	$	264,401	100	%	$	205,980	100	%	$	514,482	100	%	$	399,075	100	%

Remaining Performance Obligations

As of October 31, 2022, the Company had $901.2 million of remaining performance obligations. As of October 31, 2022, the Company expects to recognize approximately 89% of its remaining performance obligations as revenue over the next 24 months and the remainder thereafter.

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.

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

	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and cash equivalents:
Money market funds	$	566,258	$	—	$	—	$	566,258

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 October 31, 2022 was approximately $480.7 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.

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 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.

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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 an indemnity escrow for the build.security acquisition, which was released on the 12-month anniversary of such acquisition, and $6.0 million held back by the Company for indemnity for the Optimyze acquisition, which will be released upon the 18-month anniversary of such acquisition. These acquisitions were accounted for as business combinations. The total 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.

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 October 31, 2022		As of April 30, 2022
Leasehold improvements	Lesser of estimated useful life or remaining lease term	$	11,017	$	10,863
Computer hardware and software	3	2,186		1,473
Furniture and fixtures	3-5	5,979		5,753
Assets under construction		21		1,119
Total property and equipment		19,203		19,208
Less: accumulated depreciation		(13,507)		(12,001)
Property and equipment, net		$	5,696	$	7,207

Depreciation expense related to property and equipment was $1.0 million and $2.0 million for the three and six months ended October 31, 2022, respectively, and $1.0 million and $2.0 million for the three and six months ended October 31, 2021, respectively.

Intangible Assets, Net

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

	Gross Fair Value		Accumulated Amortization		Net Book Value		Weighted Average Remaining Useful Life (in years)
Developed technology	$	70,130	$	37,279	$	32,851	3.1
Customer relationships	19,598		15,428		4,170		0.9
Trade names	2,872		2,476		396		0.9
Total	$	92,600	$	55,183	$	37,417	3.0
Foreign currency translation adjustment					(33)
Total					$	37,384

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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	3.6
Customer relationships	19,598		13,177		6,421		1.4
Trade names	2,872		2,263		609		1.4
Total	$	92,600	$	46,795	$	45,805	3.2
Foreign currency translation adjustment					(5)
Total					$	45,800

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

	Three Months Ended October 31,				Six Months Ended October 31,
	2022		2021		2022		2021
Cost of revenue - subscription	$	2,961	$	2,498	$	5,925	$	4,510
Sales and marketing	1,232		1,428		2,463		2,857
Total amortization of acquired intangible assets	$	4,193	$	3,926	$	8,388	$	7,367

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

Remainder of 2023	$	8,280
2024	13,985
2025	8,018
2026	5,057
2027	2,044
Total	$	37,384

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	(164)
Balance as of October 31, 2022	$	303,742

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

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Accrued Expenses and Other Liabilities

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

	As of October 31, 2022		As of April 30, 2022
Accrued expenses	$	24,787	$	24,066
Income taxes payable	11,352		4,286
Accrued interest	6,918		6,918
Value added taxes payable	5,329		8,926
Other	13,964		9,734
Total accrued expenses and other liabilities	$	62,350	$	53,930

Accrued Compensation and Benefits

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

	As of October 31, 2022		As of April 30, 2022
Accrued vacation	$	28,628	$	27,280
Accrued commissions	15,654		23,806
Accrued payroll and withholding taxes	7,302		9,030
Other	8,917		7,886
Total accrued compensation and benefits	$	60,501	$	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 October 31, 2022		As of April 30, 2022
Unbilled accounts receivable, included in accounts receivable, net	$	3,236	$	9,244
Deferred contract acquisition costs	$	122,962	$	118,047
Deferred revenue	$	433,585	$	465,294

Deferred Contract Acquisition Costs

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

	Six Months Ended October 31,
	2022		2021
Beginning balance	$	118,047	$	86,352
Capitalization of contract acquisition costs	40,589		38,255
Amortization of deferred contract acquisition costs	(35,674)		(28,570)
Ending balance	$	122,962	$	96,037

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

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Deferred Revenue

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

	Six Months Ended October 31,
	2022		2021
Beginning balance	$	465,294	$	397,700
Increases due to invoices issued, excluding amounts recognized as revenue during the period	269,645