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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________________________________________________________________________________________________________________________
FORM 10-Q
____________________________________________________________________________________________________________________________________________________________________________________________
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(Mark One) |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended January 31, 2023
OR
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☐ | 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)
____________________________________________________________________________________________________________________________________________________________________________________________
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The Netherlands | Not Applicable |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Not Applicable1
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: Not Applicable1
____________________________________________________________________________________________________________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Ordinary shares, Par Value €0.01 Per Share | | ESTC | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | ☒ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
Emerging growth company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of February 28, 2023, the registrant had 96,492,357 ordinary shares, €0.01 par value per share, outstanding.
1 We are a distributed company. Accordingly, we do not maintain a headquarters. For purposes of compliance with applicable requirements of the Securities Act of 1933, as amended, or the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, any shareholder communication required to be sent to our principal executive offices may be directed to the email address ir@elastic.co.
Table of Contents
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PART I. | | |
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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PART II. | | |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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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 actions that we are taking to reduce our costs and rebalance investments;
•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 effects 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, and new regulations;
•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;
•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 Russia’s invasion of Ukraine and the ongoing effects of the COVID-19 pandemic).
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should not rely upon forward-looking statements expressed or implied by us 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 or implied 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.
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Elastic N.V.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
| | | | | | | | | | | |
| As of January 31, 2023 | | As of April 30, 2022 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 877,683 | | | $ | 860,949 | |
Restricted cash | 2,362 | | | 2,688 | |
Accounts receivable, net of allowance for credit losses of $2,195 and $2,700 as of January 31, 2023 and April 30, 2022, respectively | 200,790 | | | 215,228 | |
Deferred contract acquisition costs | 50,436 | | | 43,628 | |
Prepaid expenses and other current assets | 33,457 | | | 41,215 | |
Total current assets | 1,164,728 | | | 1,163,708 | |
Property and equipment, net | 3,951 | | | 7,207 | |
Goodwill | 303,853 | | | 303,906 | |
Operating lease right-of-use assets | 22,523 | | | 25,437 | |
Intangible assets, net | 33,175 | | | 45,800 | |
Deferred contract acquisition costs, non-current | 84,601 | | | 74,419 | |
Deferred tax assets | 5,668 | | | 5,811 | |
Other assets | 9,470 | | | 16,643 | |
Total assets | $ | 1,627,969 | | | $ | 1,642,931 | |
Liabilities and Shareholders’ Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 29,246 | | | $ | 28,403 | |
Accrued expenses and other liabilities | 58,091 | | | 53,930 | |
Accrued compensation and benefits | 67,884 | | | 68,002 | |
Operating lease liabilities | 12,839 | | | 11,219 | |
Deferred revenue | 449,049 | | | 431,776 | |
Total current liabilities | 617,109 | | | 593,330 | |
Deferred revenue, non-current | 34,960 | | | 33,518 | |
Long-term debt, net | 567,283 | | | 566,520 | |
Operating lease liabilities, non-current | 16,725 | | | 16,482 | |
Other liabilities, non-current | 6,903 | | | 17,648 | |
Total liabilities | 1,242,980 | | | 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 January 31, 2023 and April 30, 2022 | — | | | — | |
Ordinary shares, par value €0.01 per share: 165,000,000 shares authorized; 96,435,276 shares issued and outstanding as of January 31, 2023 and 94,174,914 shares issued and outstanding as of April 30, 2022 | 1,014 | | | 990 | |
Treasury stock | (369) | | | (369) | |
Additional paid-in capital | 1,410,944 | | | 1,250,108 | |
Accumulated other comprehensive loss | (20,004) | | | (18,130) | |
Accumulated deficit | (1,006,596) | | | (817,166) | |
Total shareholders’ equity | 384,989 | | | 415,433 | |
Total liabilities and shareholders’ equity | $ | 1,627,969 | | | $ | 1,642,931 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Elastic N.V.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, | | Nine Months Ended January 31, | | |
| 2023 | | 2022 | | 2023 | | 2022 | | |
Revenue | | | | | | | | | |
Subscription | $ | 255,613 | | | $ | 209,614 | | | $ | 728,638 | | | $ | 577,056 | | | |
Services | 18,953 | | | 14,330 | | | 60,410 | | | 45,963 | | | |
Total revenue | 274,566 | | | 223,944 | | | 789,048 | | | 623,019 | | | |
Cost of revenue | | | | | | | | | |
Subscription | 56,146 | | | 47,577 | | | 164,798 | | | 127,339 | | | |
Services | 19,062 | | | 13,707 | | | 58,146 | | | 37,491 | | | |
Total cost of revenue | 75,208 | | | 61,284 | | | 222,944 | | | 164,830 | | | |
Gross profit | 199,358 | | | 162,660 | | | 566,104 | | | 458,189 | | | |
Operating expenses | | | | | | | | | |
Research and development | 77,472 | | | 71,749 | | | 231,689 | | | 194,894 | | | |
Sales and marketing | 126,717 | | | 105,069 | | | 379,902 | | | 288,055 | | | |
General and administrative | 34,711 | | | 31,691 | | | 103,724 | | | 89,298 | | | |
Restructuring and other related charges | 29,805 | | | — | | | 29,805 | | | — | | | |
Total operating expenses | 268,705 | | | 208,509 | | | 745,120 | | | 572,247 | | | |
Operating loss | (69,347) | | | (45,849) | | | (179,016) | | | (114,058) | | | |
Other income (expense), net | | | | | | | | | |
Interest expense | (6,265) | | | (6,175) | | | (18,875) | | | (14,327) | | | |
Other income (expense), net | 5,460 | | | (861) | | | 20,774 | | | (509) | | | |
Loss before income taxes | (70,152) | | | (52,885) | | | (177,117) | | | (128,894) | | | |
Provision for income taxes | 2,422 | | | 3,841 | | | 12,313 | | | 9,344 | | | |
Net loss | $ | (72,574) | | | $ | (56,726) | | | $ | (189,430) | | | $ | (138,238) | | | |
Net loss per share attributable to ordinary shareholders, basic and diluted | $ | (0.76) | | | $ | (0.61) | | | $ | (1.99) | | | $ | (1.50) | | | |
Weighted-average shares used to compute net loss per share attributable to ordinary shareholders, basic and diluted | 96,052,025 | | | 93,015,185 | | | 95,327,131 | | | 92,140,919 | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Elastic N.V.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, | | Nine Months Ended January 31, |
| 2023 | | 2022 | | 2023 | | 2022 | | |
Net loss | $ | (72,574) | | | $ | (56,726) | | | $ | (189,430) | | | $ | (138,238) | | | |
Other comprehensive income (loss): | | | | | | | | | |
Foreign currency translation adjustments | 7,032 | | | (4,937) | | | (1,874) | | | (6,213) | | | |
Other comprehensive income (loss) | 7,032 | | | (4,937) | | | (1,874) | | | (6,213) | | | |
Total comprehensive loss | $ | (65,542) | | | $ | (61,663) | | | $ | (191,304) | | | $ | (144,451) | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 October 31, 2022 | | | | | | 95,575,775 | | | $ | 1,005 | | | $ | (369) | | | $ | 1,351,987 | | | $ | (27,036) | | | $ | (934,022) | | | $ | 391,565 | |
Issuance of ordinary shares upon exercise of stock options | | | | | | 289,098 | | | 3 | | | — | | | 4,507 | | | — | | | — | | | 4,510 | |
Issuance of ordinary shares upon release of restricted stock units | | | | | | 570,403 | | | 6 | | | — | | | (6) | | | — | | | — | | | — | |
Stock-based compensation | | | | | | — | | | — | | | — | | | 54,456 | | | — | | | — | | | 54,456 | |
Net loss | | | | | | — | | | — | | | — | | | — | | | — | | | (72,574) | | | (72,574) | |
Foreign currency translation | | | | | | — | | | — | | | — | | | — | | | 7,032 | | | — | | | 7,032 | |
Balances as of January 31, 2023 | | | | | | 96,435,276 | | | $ | 1,014 | | | $ | (369) | | | $ | 1,410,944 | | | $ | (20,004) | | | $ | (1,006,596) | | | $ | 384,989 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | Ordinary Shares | | Treasury Shares Amount | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Shareholders' Equity |
| | | | | | Shares | | Amount | | | | | |
Balances as of October 31, 2021 | | | | | | 92,566,025 | | | $ | 972 | | | $ | (369) | | | $ | 1,153,408 | | | $ | (9,381) | | | $ | (694,830) | | | $ | 449,800 | |
| | | | | | | | | | | | | | | | | | |
Issuance of ordinary shares upon exercise of stock options | | | | | | 473,442 | | | 6 | | | — | | | 6,703 | | | — | | | — | | | 6,709 | |
Issuance of ordinary shares upon release of restricted stock units | | | | | | 381,460 | | | 4 | | | — | | | (4) | | | — | | | — | | | — | |
Stock-based compensation | | | | | | — | | | — | | | — | | | 37,463 | | | — | | | — | | | 37,463 | |
Net loss | | | | | | — | | | — | | | — | | | — | | | — | | | (56,726) | | | (56,726) | |
Foreign currency translation | | | | | | — | | | — | | | — | | | — | | | (4,937) | | | — | | | (4,937) | |
Balances as of January 31, 2022 | | | | | | 93,420,927 | | | $ | 982 | | | $ | (369) | | | $ | 1,197,570 | | | $ | (14,318) | | | $ | (751,556) | | | $ | 432,309 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 | | | | | | 773,174 | | | 9 | | | — | | | 12,225 | | | — | | | — | | | 12,234 | |
Issuance of ordinary shares upon release of restricted stock units | | | | | | 1,487,188 | | | 15 | | | — | | | (15) | | | — | | | — | | | — | |
Stock-based compensation | | | | | | — | | | — | | | — | | | 148,626 | | | — | | | — | | | 148,626 | |
Net loss | | | | | | — | | | — | | | — | | | — | | | — | | | (189,430) | | | (189,430) | |
Foreign currency translation | | | | | | — | | | — | | | — | | | — | | | (1,874) | | | — | | | (1,874) | |
Balances as of January 31, 2023 | | | | | | 96,435,276 | | | $ | 1,014 | | | $ | (369) | | | $ | 1,410,944 | | | $ | (20,004) | | | $ | (1,006,596) | | | $ | 384,989 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | 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 | | | | | | 2,004,188 | | | 24 | | | — | | | 27,516 | | | — | | | — | | | 27,540 | |
Issuance of ordinary shares upon release of restricted stock units | | | | | | 882,754 | | | 10 | | | — | | | (10) | | | — | | | — | | | — | |
Stock-based compensation | | | | | | — | | | — | | | — | | | 97,123 | | | — | | | — | | | 97,123 | |
Net loss | | | | | | — | | | — | | | — | | | — | | | — | | | (138,238) | | | (138,238) | |
Foreign currency translation | | | | | | — | | | — | | | — | | | — | | | (6,213) | | | — | | | (6,213) | |
Balances as of January 31, 2022 | | | | | | 93,420,927 | | | $ | 982 | | | $ | (369) | | | $ | 1,197,570 | | | $ | (14,318) | | | $ | (751,556) | | | $ | 432,309 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Elastic N.V.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| | | | | | | | | | | | | |
| Nine Months Ended January 31, |
| 2023 | | 2022 | | |
Cash flows from operating activities | | | | | |
Net loss | $ | (189,430) | | | $ | (138,238) | | | |
Adjustments to reconcile net loss to cash provided by operating activities: | | | | | |
Depreciation and amortization | 15,475 | | | 14,558 | | | |
Amortization of deferred contract acquisition costs | 51,495 | | | 43,373 | | | |
Amortization of debt issuance costs | 763 | | | 554 | | | |
Non-cash operating lease cost | 8,354 | | | 6,259 | | | |
Asset impairment charges | 6,242 | | | — | | | |
Stock-based compensation expense, net of amounts capitalized | 148,626 | | | 96,971 | | | |
| | | | | |
Deferred income taxes | 68 | | | (219) | | | |
Foreign currency transaction loss | 2,261 | | | 1,707 | | | |
Other | 67 | | | 98 | | | |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable, net | 14,050 | | | 9,801 | | | |
Deferred contract acquisition costs | (68,184) | | | (61,234) | | | |
Prepaid expenses and other current assets | 7,671 | | | (2,650) | | | |
Other assets | 7,106 | | | (803) | | | |
Accounts payable | 511 | | | 14,452 | | | |
Accrued expenses and other liabilities | (6,272) | | | 17,539 | | | |
Accrued compensation and benefits | (161) | | | 4,686 | | | |
Operating lease liabilities | (8,404) | | | (6,438) | | | |
Deferred revenue | 17,869 | | | 8,306 | | | |
Net cash provided by operating activities | 8,107 | | | 8,722 | | | |
Cash flows from investing activities | | | | | |
Purchases of property and equipment | (1,019) | | | (987) | | | |
Business acquisitions, net of cash acquired | — | | | (119,854) | | | |
Capitalization of internal-use software | — | | | (4,227) | | | |
| | | | | |
Net cash used in investing activities | (1,019) | | | (125,068) | | | |
Cash flows from financing activities | | | | | |
Proceeds from the issuance of debt | — | | | 575,000 | | | |
Proceeds from issuance of ordinary shares upon exercise of stock options | 12,234 | | | 27,540 | | | |
Payments of debt issuance costs | — | | | (9,283) | | | |
| | | | | |
| | | | | |
Net cash provided by financing activities | 12,234 | | | 593,257 | | | |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (2,914) | | | (12,328) | | | |
Net increase in cash, cash equivalents, and restricted cash | 16,408 | | | 464,583 | | | |
Cash, cash equivalents, and restricted cash, beginning of period | 863,637 | | | 403,708 | | | |
Cash, cash equivalents, and restricted cash, end of period | $ | 880,045 | | | $ | 868,291 | | | |
Supplemental disclosures of cash flow information | | | | | |
Cash paid for interest | $ | 24,041 | | | $ | 12,785 | | | |
Cash paid for income taxes, net | $ | 6,536 | | | $ | 3,059 | | | |
Cash paid for operating lease liabilities | $ | 9,814 | | | $ | 7,346 | | | |
Supplemental disclosures of non-cash investing and financing information | | | | | |
Property and equipment included in accounts payable | $ | 25 | | | $ | 30 | | | |
Operating lease right-of-use assets for new lease obligations | $ | 10,901 | | | $ | 2,440 | | | |
| | | | | |
Acquisition-related indemnity holdback | $ | — | | | $ | 6,000 | | | |
| | | | | |
| | | | | |
| | | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Elastic N.V.
Notes to Condensed Consolidated Financial Statements
(unaudited)
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Note | Page |
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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 January 31, 2023; interim condensed consolidated statements of operations, comprehensive loss, and shareholders’ equity for the three and nine months ended January 31, 2023 and 2022; and interim condensed consolidated statements of cash flows for the nine months ended January 31, 2023 and 2022 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 January 31, 2023; results of the Company’s operations for the three and nine months ended January 31, 2023 and 2022; statements of shareholders’ equity for the three and nine months ended January 31, 2023 and 2022; and statements of cash flows for the nine months ended January 31, 2023 and 2022. The financial data and other financial information disclosed in the notes to these interim condensed consolidated financial statements related to the three and nine month periods are also unaudited. The results for the three and nine months ended January 31, 2023 are not necessarily indicative of the operating results expected for the fiscal year ending April 30, 2023, or any other 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.
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 January 31, | | Nine Months Ended January 31, | | | | |
| 2023 | | 2022 | | 2023 | | 2022 | | |
| Amount | | % of Total Revenue | | Amount | | % of Total Revenue | | Amount | | % of Total Revenue | | Amount | | % of Total Revenue | | | | |
Elastic Cloud | $ | 110,743 | | | 40 | % | | $ | 80,402 | | | 36 | % | | $ | 311,709 | | | 40 | % | | $ | 210,963 | | | 34 | % | | | | |
Other subscription | 144,870 | | | 53 | % | | 129,212 | | | 58 | % | | 416,929 | | | 52 | % | | 366,093 | | | 59 | % | | | | |
Total subscription | 255,613 | | | 93 | % | | 209,614 | | | 94 | % | | 728,638 | | | 92 | % | | 577,056 | | | 93 | % | | | | |
Services | 18,953 | | | 7 | % | | 14,330 | | | 6 | % | | 60,410 | | | 8 | % | | 45,963 | | | 7 | % | | | | |
Total revenue | $ | 274,566 | | | 100 | % | | $ | 223,944 | | | 100 | % | | $ | 789,048 | | | 100 | % | | $ | 623,019 | | | 100 | % | | | | |
Remaining Performance Obligations
As of January 31, 2023, the Company had $997.2 million of remaining performance obligations. As of January 31, 2023, 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.
The following table summarizes assets that are measured at fair value on a recurring basis as of January 31, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
Financial Assets: | | | | | | | |
Cash and cash equivalents: | | | | | | | |
Money market funds | $ | 570,485 | | | $ | — | | | $ | — | | | $ | 570,485 | |
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 January 31, 2023 was approximately $493.4 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 is being 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 upon completion of the underlying required service period, has been excluded from the purchase consideration. This amount is being 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.
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 January 31, 2023 | | As of April 30, 2022 |
Leasehold improvements | Lesser of estimated useful life or remaining lease term | | $ | 10,026 | | | $ | 10,863 | |
Computer hardware and software | 3 | | 2,306 | | | 1,473 | |
Furniture and fixtures | 3-5 | | 6,064 | | | 5,753 | |
Assets under construction | | | 79 | | | 1,119 | |
Total property and equipment | | | 18,475 | | | 19,208 | |
Less: accumulated depreciation | | | (14,524) | | | (12,001) | |
Property and equipment, net | | | $ | 3,951 | | | $ | 7,207 | |
Depreciation expense related to property and equipment was $0.8 million and $2.9 million for the three and nine months ended January 31, 2023, respectively, and $1.0 million and $2.9 million for the three and nine months ended January 31, 2022, respectively. During the three and nine months ended January 31, 2023, the Company recorded asset impairment charges related to the exit from leased office space which included $1.1 million of furniture, equipment, and leasehold improvements. See Note 16 for further details.
Intangible Assets, Net
Intangible assets consisted of the following as of January 31, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Gross Fair Value | | Accumulated Amortization | | Net Book Value | | Weighted Average Remaining Useful Life (in years) |
Developed technology | $ | 70,130 | | | $ | 40,256 | | | $ | 29,874 | | | 2.9 |
Customer relationships | 19,598 | | | 16,553 | | | 3,045 | | | 0.7 |
Trade names | 2,872 | | | 2,583 | | | 289 | | | 0.7 |
Total | $ | 92,600 | | | $ | 59,392 | | | $ | 33,208 | | | 2.8 |
Foreign currency translation adjustment | | | | | (33) | | | |
Total | | | | | $ | 33,175 | | | |
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 nine months ended January 31, 2023 and 2022 was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, | | Nine Months Ended January 31, | | |
| 2023 | | 2022 | | 2023 | | 2022 | | |
Cost of revenue - subscription | $ | 2,977 | | | $ | 3,046 | | | $ | 8,902 | | | $ | 7,556 | | | |
Sales and marketing | 1,232 | | | 1,231 | | | 3,695 | | | 4,088 | | | |
Total amortization of acquired intangible assets | $ | 4,209 | | | $ | 4,277 | | | $ | 12,597 | | | $ | 11,644 | | | |
The expected future amortization expense related to the intangible assets as of January 31, 2023 was as follows (in thousands, by fiscal year):
| | | | | |
Remainder of 2023 | $ | 4,071 | |
2024 | 13,985 | |
2025 | 8,018 | |
2026 | 5,057 | |
2027 | 2,044 | |
| |
Total | $ | 33,175 | |
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 | (53) | |
Balance as of January 31, 2023 | $ | 303,853 | |
There was no impairment of goodwill during the nine months ended January 31, 2023 and 2022.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
| | | | | | | | | | | |
| As of January 31, 2023 | | As of April 30, 2022 |
Accrued expenses | $ | 23,514 | | | $ | 24,066 | |
Income taxes payable | 11,715 | | | 4,286 | |
Value added taxes payable | 7,487 | | | 8,926 | |
Accrued interest | 988 | | | 6,918 | |
Other | 14,387 | | | 9,734 | |
Total accrued expenses and other liabilities | $ | 58,091 | | | $ | 53,930 | |
Accrued Compensation and Benefits
Accrued compensation and benefits consisted of the following (in thousands):
| | | | | | | | | | | |
| As of January 31, 2023 | | As of April 30, 2022 |
Accrued vacation | $ | 27,144 | | | $ | 27,280 | |
Accrued commissions | 19,319 | | | 23,806 | |
Accrued payroll and withholding taxes | 8,056 | | | 9,030 | |
Other | 13,365 | | | 7,886 | |
Total accrued compensation and benefits | $ | 67,884 | | | $ | 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 January 31, 2023 | | As of April 30, 2022 |
Unbilled accounts receivable, included in accounts receivable, net | $ | 2,554 | | | $ | 9,244 | |
Deferred contract acquisition costs | $ | 135,037 | | | $ | 118,047 | |
Deferred revenue | $ | 484,009 | | | $ | 465,294 | |
Deferred Contract Acquisition Costs
The following table summarizes the activity of the deferred contract acquisition costs (in thousands):
| | | | | | | | | | | | | |
| Nine Months Ended January 31, | | |
| 2023 | | 2022 | | |
Beginning balance | $ | 118,047 | | | $ | 86,352 | | | |
Capitalization of contract acquisition costs | 68,485 | | | 58,939 | | | |
Amortization of deferred contract acquisition costs | (51,495) | | | (43,373) | | | |
Ending balance | $ | 135,037 | | | $ | 101,918 | | | |
| | | | | |
| | | | | |
| | | | | |
The Company did not recognize any impairment of deferred contract acquisition costs during the nine months ended January 31, 2023 and 2022.
Deferred Revenue
The following table summarizes the deferred revenue activity (in thousands):