UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________________________________________________________________________________________________________________________________________

FORM 10-Q

____________________________________________________________________________________________________________________________________________________________________________________________

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2023

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.)

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:

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

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

As of August 21, 2023, the registrant had 98,419,072 ordinary shares, par value €0.01 per share, outstanding.

1 We are a distributed company. Accordingly, we do not have a principal executive office. For purposes of compliance with applicable requirements of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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

		Page
	Note Regarding Forward-Looking Statements	3
PART I.	FINANCIAL INFORMATION	5
Item 1.	Financial Statements (Unaudited)	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Comprehensive Loss	7
	Condensed Consolidated Statements of Shareholders’ Equity	8
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36
PART II.	OTHER INFORMATION	37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities	70
Item 4.	Mine Safety Disclosures	70
Item 5.	Other Information	70
Item 6.	Exhibits	70
Signatures		71

2

Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•our business strategy and our plan to build our business;

•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 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, particularly 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 threat actors;

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

•continued development of the market for our products;

•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 ability to effectively manage our growth, including any changes to our pace of hiring;

•our international expansion strategy;

•our strategy of acquiring complementary businesses and our ability to successfully integrate acquired businesses and technologies;

•the impact of acquisitions on our future product offerings;

•our beliefs and objectives for future operations;

•our relationships with and reliance on third parties, including partners;

•our ability to protect our intellectual property rights;

•our ability to develop our brands;

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

•the sufficiency of our capital resources;

•our ability to successfully defend litigation brought against us;

3

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

•sufficiency of cash to meet our cash needs for at least the next 12 months;

•our ability to comply with laws and regulations that currently apply or may become applicable to our business both in the United States and internationally;

•our ability to attract and retain qualified employees and key personnel;

•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;

•the seasonality of our business;

•the future trading prices of our ordinary shares; and

•our ability to service our debt obligations.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions. 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 this information forms a reasonable basis for such statements, the 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. Our forward-looking statements may not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

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 regarding future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” in Part II, Item 1A and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. 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 or circumstances as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements after the date on which they are made 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.

4

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Elastic N.V.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)
(unaudited)

	As of July 31, 2023		As of April 30, 2023
Assets
Current assets:
Cash and cash equivalents	$	630,565	$	644,167
Restricted cash	2,677		2,473
Marketable securities	326,528		271,041
Accounts receivable, net of allowance for credit losses of $3,333 and $3,409 as of July 31, 2023 and April 30, 2023, respectively	185,372		260,919
Deferred contract acquisition costs	60,214		55,813
Prepaid expenses and other current assets	35,008		39,867
Total current assets	1,240,364		1,274,280
Property and equipment, net	5,042		5,092
Goodwill	303,836		303,642
Operating lease right-of-use assets	17,427		19,997
Intangible assets, net	24,896		29,104
Deferred contract acquisition costs, non-current	95,357		95,879
Deferred tax assets	7,064		7,412
Other assets	7,424		8,076
Total assets	$	1,701,410	$	1,743,482
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	16,035	$	35,151
Accrued expenses and other liabilities	64,453		63,532
Accrued compensation and benefits	72,700		76,483
Operating lease liabilities	11,627		12,749
Deferred revenue	506,919		528,704
Total current liabilities	671,734		716,619
Deferred revenue, non-current	27,214		34,248
Long-term debt, net	567,806		567,543
Operating lease liabilities, non-current	11,994		13,942
Other liabilities, non-current	10,939		12,233
Total liabilities	1,289,687		1,344,585
Commitments and contingencies (Notes 7 and 8)
Shareholders’ equity:
Convertible preference shares, €0.01 par value; 165,000,000 shares authorized, 0 shares issued and outstanding as of July 31, 2023 and April 30, 2023	—		—
Ordinary shares, par value €0.01 per share: 165,000,000 shares authorized; 98,377,727 shares issued and outstanding as of July 31, 2023 and 97,366,947 shares issued and outstanding as of April 30, 2023	1,035		1,024
Treasury stock	(369)		(369)
Additional paid-in capital	1,532,543		1,471,584
Accumulated other comprehensive loss	(19,651)		(20,015)
Accumulated deficit	(1,101,835)		(1,053,327)
Total shareholders’ equity	411,723		398,897
Total liabilities and shareholders’ equity	$	1,701,410	$	1,743,482

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

5

Elastic N.V.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)
(unaudited)

	Three Months Ended July 31,
	2023		2022
Revenue
Subscription	$	270,247	$	231,814
Services	23,506		18,267
Total revenue	293,753		250,081
Cost of revenue
Subscription	57,266		53,551
Services	20,211		19,428
Total cost of revenue	77,477		72,979
Gross profit	216,276		177,102
Operating expenses
Research and development	80,690		78,649
Sales and marketing	133,169		125,006
General and administrative	37,939		34,088
Restructuring and other related charges	725		—
Total operating expenses	252,523		237,743
Operating loss	(36,247)		(60,641)
Other income (expense), net
Interest expense	(6,306)		(6,401)
Other income, net	7,300		339
Loss before income taxes	(35,253)		(66,703)
Provision for income taxes	13,255		2,848
Net loss	$	(48,508)	$	(69,551)
Net loss per share attributable to ordinary shareholders, basic and diluted	$	(0.50)	$	(0.74)
Weighted-average shares used to compute net loss per share attributable to ordinary shareholders, basic and diluted	97,942,049		94,621,365

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

6

Elastic N.V.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)
(unaudited)

	Three Months Ended July 31,
	2023		2022
Net loss	$	(48,508)	$	(69,551)
Other comprehensive income (loss):
Unrealized loss on available-for-sale securities	(1,411)		—
Foreign currency translation adjustments	1,775		(2,624)
Other comprehensive income (loss)	364		(2,624)
Total comprehensive loss	$	(48,144)	$	(72,175)

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 April 30, 2023	97,366,947	$	1,024	$	(369)	$	1,471,584	$	(20,015)	$	(1,053,327)	$	398,897
Issuance of ordinary shares upon exercise of stock options	263,828	3		—		3,840		—		—		3,843
Issuance of ordinary shares upon release of restricted stock units	746,952	8		—		(8)		—		—		—
Stock-based compensation	—	—		—		57,127		—		—		57,127
Net loss	—	—		—		—		—		(48,508)		(48,508)
Other comprehensive income	—	—		—		—		364		—		364
Balances as of July 31, 2023	98,377,727	$	1,035	$	(369)	$	1,532,543	$	(19,651)	$	(1,101,835)	$	411,723
	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	225,263	3		—		3,394		—		—		3,397
Issuance of ordinary shares upon release of restricted stock units	570,450	6		—		(6)		—		—		—
Stock-based compensation	—	—		—		46,883		—		—		46,883
Net loss	—	—		—		—		—		(69,551)		(69,551)
Other comprehensive loss	—	—		—		—		(2,624)		—		(2,624)
Balances as of July 31, 2022	94,970,627	$	999	$	(369)	$	1,300,379	$	(20,754)	$	(886,717)	$	393,538

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

8

Elastic N.V.

Condensed Consolidated Statements of Cash Flows

(in thousands)
(unaudited)

	Three Months Ended July 31,
	2023		2022
Cash flows from operating activities
Net loss	$	(48,508)	$	(69,551)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization	5,053		5,214
Amortization of premium and accretion of discount on marketable securities, net	(2,468)		—
Amortization of deferred contract acquisition costs	17,572		17,444
Amortization of debt issuance costs	263		252
Non-cash operating lease cost	2,652		3,005
Stock-based compensation expense	57,127		46,883
Deferred income taxes	392		667
Foreign currency transaction loss	1,200		1,779
Other	(34)		22
Changes in operating assets and liabilities:
Accounts receivable, net	75,871		45,991
Deferred contract acquisition costs	(21,145)		(19,676)
Prepaid expenses and other current assets	4,896		4,729
Other assets	680		2,114
Accounts payable	(19,233)		9,873
Accrued expenses and other liabilities	(411)		(16,741)
Accrued compensation and benefits	(3,885)		(11,521)
Operating lease liabilities	(3,100)		(3,204)
Deferred revenue	(29,110)		(26,985)
Net cash provided by (used in) operating activities	37,812		(9,705)
Cash flows from investing activities
Purchases of property and equipment	(632)		(479)
Purchases of marketable securities	(83,579)		—
Maturities of marketable securities	29,116		—
Net cash used in investing activities	(55,095)		(479)
Cash flows from financing activities
Proceeds from issuance of ordinary shares upon exercise of stock options	3,843		3,397
Net cash provided by financing activities	3,843		3,397
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	42		(5,702)
Net decrease in cash, cash equivalents, and restricted cash	(13,398)		(12,489)
Cash, cash equivalents, and restricted cash, beginning of period	646,640		863,637
Cash, cash equivalents, and restricted cash, end of period	$	633,242	$	851,148
Supplemental disclosures of cash flow information
Cash paid for interest	$	11,972	$	12,079
Cash paid for income taxes, net	$	3,037	$	2,558
Cash paid for operating lease liabilities	$	3,310	$	3,278
Supplemental disclosures of non-cash investing and financing information
Changes in property and equipment included in accounts payable	$	109	$	(158)
Operating lease right-of-use assets for new lease obligations	$	—	$	2,725

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

9

Elastic N.V.

Notes to Condensed Consolidated Financial Statements
(unaudited)

Note		Page
1.	Organization and Description of Business	11
2.	Summary of Significant Accounting Policies	11
3.	Revenue	12
4.	Fair Value Measurements	13
5.	Balance Sheet Components	15
6.	Senior Notes	17
7.	Commitments and Contingencies	18
8.	Leases	18
9.	Ordinary Shares	19
10.	Equity Incentive Plans	19
11.	Net Loss Per Share Attributable to Ordinary Shareholders	21
12.	Income Taxes	22
13.	Employee Benefit Plans	22
14.	Segment Information	22
15.	Restructuring and Other Related Charges	23

10

1. Organization and Description of Business

Elastic N.V. (“Elastic” or the “Company”) was incorporated under the laws of the Netherlands in 2012. The Company created the Elastic Stack, a powerful set of software products that ingest and store data from any source and in any format, and perform search, analysis, and visualization on that data. Developers build on top of the Elastic Stack to apply the power of search to their data and solve business problems. The Company offers three software solutions built into the Elastic Stack: Search, Observability, and Security. The Elastic Stack and the Company’s solutions are designed to run in public or private clouds, in hybrid environments, or in multi-cloud environments.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated balance sheet as of July 31, 2023, interim condensed consolidated statements of operations, comprehensive loss, and shareholders’ equity for the three months ended July 31, 2023 and 2022, and interim condensed consolidated statements of cash flows for the three months ended July 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 July 31, 2023; results of the Company’s operations for the three months ended July 31, 2023 and 2022; statements of shareholders’ equity for the three months ended July 31, 2023 and 2022; and statements of cash flows for the three months ended July 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 month periods are also unaudited. The results for the three months ended July 31, 2023 are not necessarily indicative of the operating results expected for the fiscal year ending April 30, 2024, 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, 2023 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, 2023 filed with the SEC on June 16, 2023 (“the Company’s Annual Report on Form 10-K”).

Fiscal Year

The Company’s fiscal year ends on April 30. References to fiscal 2024, for example, refer to the fiscal year ended April 30, 2024.

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, 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.

11

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 condensed consolidated financial statements and related notes.

Recently Adopted Accounting Pronouncements

Acquisitions: In October 2021, the Financial Accounting Standards Board (“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 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 Company adopted ASU No. 2021-08 on May 1, 2023. The Company’s adoption of this ASU did not have any impact on its condensed consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

There have been no new accounting pronouncements or changes in accounting pronouncements during the three months ended July 31, 2023 that are significant or potentially significant to the Company.

3. Revenue

Disaggregation of Revenue

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

	Three Months Ended July 31,
	2023				2022
	Amount		% of Total Revenue		Amount		% of Total Revenue
Elastic Cloud	$	121,172	41	%	$	97,729	39	%
Other subscription	149,075		51	%	134,085		54	%
Total subscription	270,247		92	%	231,814		93	%
Services	23,506		8	%	18,267		7	%
Total revenue	$	293,753	100	%	$	250,081	100	%

Concentration of Credit Risk

One customer, a channel partner, accounted for 15% and 12% of net accounts receivable as of July 31, 2023 and April 30, 2023, respectively. The same customer accounted for 10% of total revenue during the three months ended July 31, 2023. No customer accounted for more than 10% of the Company’s total revenue for the three months ended July 31, 2022.

Deferred Revenue

The Company recognized revenue of $210.3 million and $169.3 million during the three months ended July 31, 2023 and 2022, respectively, that was included in the deferred revenue balance at the beginning of each of the respective periods.

Unbilled Accounts Receivable

Unbilled accounts receivable is recorded as part of accounts receivable, net in the Company’s condensed consolidated balance sheets. As of July 31, 2023 and April 30, 2023, unbilled accounts receivable was $2.8 million and $2.2 million, respectively.

Remaining Performance Obligations

As of July 31, 2023, the Company had $1.118 billion of remaining performance obligations. As of July 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.

12

Deferred Contract Acquisition Costs

Amortization expense with respect to deferred contract acquisition costs was $17.6 million and $17.4 million for the three months ended July 31, 2023 and 2022, respectively. The Company did not recognize any impairment of deferred contract acquisition costs during the three months ended July 31, 2023 and 2022.

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 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. Its marketable securities are classified as available for sale and, as they are available to support current operations, are classified as short-term. The Company uses quoted prices in active markets for identical assets to determine the fair value of its Level 1 investments in money market funds.

The following table summarizes assets that are measured at fair value on a recurring basis as of July 31, 2023 (in thousands):

	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and cash equivalents:
Money market funds	$	197,298	$	—	$	—	$	197,298
U.S. treasury securities	40,816		—		—		40,816
U.S. agency securities	—		4,978		—		4,978
Certificates of deposit	—		6,595		—		6,595
Commercial paper	—		2,998		—		2,998
Total included in cash and cash equivalents	238,114		14,571		—		252,685
Marketable Securities:
Certificates of deposit	—		40,347		—		40,347
Commercial paper	—		39,516		—		39,516
U.S. treasury securities	68,573		—		—		68,573
Corporate debt securities	—		138,471		—		138,471
U.S. agency bonds	—		39,621		—		39,621
Total marketable securities	68,573		257,955		—		326,528
Total financial assets	$	306,687	$	272,526	$	—	$	579,213

13

The following table summarizes assets that are measured at fair value on a recurring basis as of April 30, 2023 (in thousands):

	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and cash equivalents:
Money market funds	$	194,261	$	—	$	—	$	194,261
U.S. agency securities	—		27,406		—		27,406
Certificates of deposit	—		21,750		—		21,750
Commercial paper	—		60,750		—		60,750
Total included in cash and cash equivalents	194,261		109,906		—		304,167
Marketable Securities:
Certificates of deposit	—		31,645		—		31,645
Commercial paper	—		33,735		—		33,735
U.S. treasury securities	47,627		—		—		47,627
Corporate debt securities	—		118,228		—		118,228
U.S. agency bonds	—		39,806		—		39,806
Total marketable securities	47,627		223,414		—		271,041
Total financial assets	$	241,888	$	333,320	$	—	$	575,208

For the three months ended July 31, 2023 and 2022, interest income from the Company’s cash and cash equivalents and marketable securities was $6.0 million and $1.3 million, respectively, and is included in other income, net in the condensed consolidated statement of operations.

As of July 31, 2023 and April 30, 2023, net unrealized losses on the marketable securities were immaterial. The fluctuations in market interest rates impact the unrealized losses or gains on these securities.

As of July 31, 2023 and April 30, 2023, the contractual maturities of the Company’s available-for-sale debt securities, excluding those securities classified within cash and cash equivalents on the condensed consolidated balance sheet, did not exceed 36 months. The fair values of available-for-sale securities, by remaining contractual maturity, are as follows (in thousands):

	As of July 31, 2023		As of April 30, 2023
Due within 1 year	$	180,067	$	168,264
Due between 1 year and 3 years	143,971		102,777
Due between 3 years and 5 years	2,490		—
Total marketable securities	$	326,528	$	271,041

Financial Liabilities

In July 2021, the Company issued $575.0 million aggregate principal amount of 4.125% Senior Notes due July 15, 2029 (the “Senior Notes”) in a private placement. Based on the trading prices of the Senior Notes, the fair value of the Senior Notes as of July 31, 2023 was approximately $497.0 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.

14

5. Balance Sheet Components

Property and Equipment, Net

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

	Useful Life (in years)	As of July 31, 2023		As of April 30, 2023
Leasehold improvements	Lesser of estimated useful life or remaining lease term	$	11,197	$	10,081
Computer hardware and software	3	2,980		2,220
Furniture and fixtures	3-5	6,663		6,093
Assets under construction		174		1,734
Total property and equipment		21,014		20,128
Less: accumulated depreciation		(15,972)		(15,036)
Property and equipment, net		$	5,042	$	5,092

Depreciation expense related to property and equipment was $0.8 million and $1.0 million for the three months ended July 31, 2023 and 2022, respectively.

Intangible Assets, Net

Intangible assets consisted of the following as of July 31, 2023 (in thousands):

	Gross Fair Value		Accumulated Amortization		Net Book Value		Weighted Average Remaining Useful Life (in years)
Developed technology	$	70,130	$	46,112	$	24,018	2.5
Customer relationships	19,598		18,766		832		0.2
Trade names	2,872		2,793		79		0.2
Total	$	92,600	$	67,671	$	24,929	2.4
Foreign currency translation adjustment					(33)
Total					$	24,896

Intangible assets consisted of the following as of April 30, 2023 (in thousands):

	Gross Fair Value		Accumulated Amortization		Net Book Value		Weighted Average Remaining Useful Life (in years)
Developed technology	$	70,130	$	43,136	$	26,994	2.7
Customer relationships	19,598		17,641		1,957		0.4
Trade names	2,872		2,686		186		0.4
Total	$	92,600	$	63,463	$	29,137	2.5
Foreign currency translation adjustment					(33)
Total					$	29,104

Amortization expense for the intangible assets for the three months ended July 31, 2023 and 2022 was as follows (in thousands):

	Three Months Ended July 31,
	2023		2022
Cost of revenue – subscription	$	2,976	$	2,964
Sales and marketing	1,232		1,231
Total amortization of acquired intangible assets	$	4,208	$	4,195

15

The expected future amortization expense related to the intangible assets as of July 31, 2023 was as follows (in thousands, by fiscal year):

Remainder of 2024	$	9,775
2025	8,018
2026	5,057
2027	2,046
2028	—
Thereafter	—
Total	$	24,896

Goodwill

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

	Carrying Amount
Balance as of April 30, 2023	$	303,642
Foreign currency translation adjustment	194
Balance as of July 31, 2023	$	303,836

There was no impairment of goodwill during the three months ended July 31, 2023 and 2022.

Accrued Expenses and Other Liabilities

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

	As of July 31, 2023		As of April 30, 2023
Accrued expenses	$	31,368	$	24,163
Income taxes payable	20,440		9,738
Value added taxes payable	4,005		9,403
Accrued interest	988		6,918
Other	7,652		13,310
Total accrued expenses and other liabilities	$	64,453	$	63,532

Accrued Compensation and Benefits

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

	As of July 31, 2023		As of April 30, 2023
Accrued vacation	$	30,638	$	30,026
Accrued commissions	15,368		26,175
Accrued payroll and withholding taxes	8,175		6,586
Other	18,519		13,696
Total accrued compensation and benefits	$	72,700	$	76,483

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Allowance for Credit Losses

The following is a summary of the changes in the Company’s allowance for credit losses (in thousands):

	Three Months Ended July 31,
	2023		2022
Beginning balance	$	3,409	$	2,700
Bad debt expense	628		186
Accounts written off	(704)		(636)
Ending balance	$	3,333	$	2,250

6. Senior Notes

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

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

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

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

The net carrying amount of the Senior Notes was as follows (in thousands):

	As of July 31, 2023		As of April 30, 2023
Principal	$	575,000	$	575,000
Unamortized debt issuance costs	(7,194)		(7,457)
Net carrying amount	$	567,806	$	567,543

The following table sets forth the interest expense recognized related to the Senior Notes (in thousands):

	Three Months Ended July 31,
	2023		2022
Contractual interest expense	$	5,930	$	5,930
Amortization of debt issuance costs	263		252
Total interest expense related to the Senior Notes	$	6,193	$	6,182

17

7. Commitments and Contingencies

Cloud Hosting Commitments

During the three months ended July 31, 2023, there were no material changes, outside the ordinary course of business, to the Company’s contractual obligations and commitments reported in the Company's Annual Report on Form 10-K.

Letters of Credit

The Company had a total of $2.3 million in letters of credit outstanding in favor of certain landlords for office space as of July 31, 2023.

Legal Matters

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

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

Indemnification

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

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

8. Leases

The Company’s leases are composed of corporate office spaces under non-cancelable operating lease agreements that expire at various dates through fiscal 2029. The Company does not have any finance leases.

Lease Costs

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

	Three Months Ended July 31,
	2023		2022
Operating lease cost	$	2,855	$	3,133
Short-term lease cost	474		783
Variable lease cost	237		230
Total lease cost	$	3,566	$	4,146

Lease term and discount rate information are summarized as follows:

	As of July 31, 2023
Weighted average remaining lease term (in years)	2.46
Weighted average discount rate	4.97	%

18

Future minimum lease payments under non-cancelable operating leases on an undiscounted cash flow basis as of July 31, 2023 were as follows (in thousands):

Years Ending April 30,
Remainder of 2024	$	9,809
2025	8,426
2026	4,472
2027	1,024
2028	1,106
Thereafter	281
Total minimum lease payments	25,118
Less imputed interest	(1,497)
Present value of future minimum lease payments	23,621
Less current lease liabilities	(11,627)
Operating lease liabilities, non-current	$	11,994

9. Ordinary Shares

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

Each holder of ordinary shares has the right to one vote per ordinary share. The holders of ordinary shares are also entitled to receive dividends whenever funds are legally available and when declared by the Company’s board of directors, subject to the prior rights of holders of all classes of shares outstanding having priority rights to dividends. No dividends have been declared by the board of directors from inception through July 31, 2023.

Ordinary Shares Reserved for Issuance

The Company had reserved ordinary shares for issuance as follows:

	As of July 31, 2023	As of April 30, 2023
Stock options issued and outstanding	3,723,556	4,038,238
RSUs issued and outstanding	6,976,012	7,494,399
Available for future grants	22,253,640	17,564,133
Available for employee stock purchases	6,000,000	6,000,000
Total ordinary shares reserved	38,953,208	35,096,770

Convertible Preference Shares

The Company’s board of directors has the authority, for a period of five years from October 10, 2018, without further action by the Company’s shareholders, to issue up to 165 million shares of undesignated convertible preference shares with rights and preferences, including voting rights, designated from time to time by the board of directors. As of July 31, 2023, there were no convertible preference shares issued or outstanding.

10. Equity Incentive Plans

2022 Employee Stock Purchase Plan

In August 2022, the Company’s board of directors adopted and, in October 2022, the Company’s shareholders approved the 2022 Employee Stock Purchase Plan (“2022 ESPP”). The Company reserved 6.0 million of the Company’s ordinary shares for future purchase and issuance under the 2022 ESPP in January 2023. The 2022 ESPP allows eligible employees to acquire ordinary shares of the Company at a discount at periodic intervals through accumulated payroll deductions. Eligible employees purchase ordinary shares of the Company during a purchase period at 85% of the market value of the Company’s ordinary shares at either the beginning or end of an offering period, whichever is lower. Offering periods under the 2022 ESPP are approximately six months long and begin on each of March 16 or September 16 or the next trading day thereafter. The first offering period under the 2022 ESPP began on March 16, 2023 and will end on September 15, 2023.

19

2012 Stock Option Plan

In September 2012, the Company’s board of directors adopted and the Company’s shareholders approved the 2012 Stock Option Plan, which was amended and restated in September 2018 and further amended in December 2021 (as amended and restated, the “2012 Plan”). Under the 2012 Plan, the board of directors, the compensation committee, as administrator of the 2012 Plan, and any other duly authorized committee may grant stock options and other equity-based awards, such as Restricted Stock Awards (“RSAs”) or Restricted Stock Units (“RSUs”), which include performance-based RSUs (“PSUs”), to eligible employees, directors, and consultants to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors and consultants, and to promote the success of the Company’s business.

The Company’s board of directors, compensation committee or other duly authorized committee determines the vesting schedule for all equity-based awards. Stock options and RSUs granted to employees generally vest over four years, subject to the employees’ continued service to the Company. During the three months ended July 31, 2023, the Company granted PSUs that vest over three years with a one-year performance period. The Company’s compensation committee may explicitly deviate from the general vesting schedules in its approval of an equity-based award, as it may deem appropriate. Stock options expire ten years after the date of grant. Stock options, RSAs and RSUs (including PSUs) that are canceled under certain conditions become available for future grant or sale under the 2012 Plan unless the 2012 Plan is terminated.

The equity awards available for grant were as follows: 

	Three Months Ended July 31, 2023
Available at beginning of fiscal year	17,564,133
Awards authorized	4,868,347
Options canceled	49,725
RSUs granted (1)	(534,660)
RSUs canceled	306,095
Available at end of period	22,253,640

(1) Includes 132,960 PSUs granted during the three months ended July 31, 2023.

Stock Options

The following table summarizes stock option activity:

	Stock Options Outstanding
	Number of Stock Options Outstanding	Weighted- Average Exercise Price		Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Balance as of April 30, 2023	4,038,238	$	32.74	5.35	$	134,778
Stock options exercised	(263,828)	$	14.57
Stock options canceled	(49,725)	$	90.38
Stock options assumed in acquisition canceled	(1,129)	$	76.29
Balance as of July 31, 2023	3,723,556	$	33.25	4.97	$	149,684
Exercisable as of July 31, 2023	3,255,392	$	26.01	4.58	$	145,744

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

As of July 31, 2023, the Company had unrecognized stock-based compensation expense of $23.2 million related to unvested stock options that the Company expects to recognize over a weighted-average period of 1.96 years.

20

RSUs

The following table summarizes RSU activity under the 2012 Plan:

	Number of Awards	Weighted-Average Grant Date Fair Value
Outstanding and unvested at April 30, 2023	7,494,399	$	74.52
RSUs granted (1)	534,660	$	68.44
RSUs released	(746,952)	$	81.40
RSUs canceled	(306,095)	$	74.83
Outstanding and unvested at July 31, 2023	6,976,012	$	73.31

(1) Includes 132,960 PSUs granted during the three months ended July 31, 2023.

During the three months ended July 31, 2023, the Company granted 132,960 PSUs subject to performance and service conditions, with a grant-date fair value of $9.1 million, to certain executives. The PSUs become eligible to vest based on the level of the Company’s achievement against a revenue-based performance goal for fiscal 2024. The amount that may be earned ranges from 0% to 200% of the eligible PSUs. Subject to the executives’ continued service to the Company through the applicable vesting date, one-third of the eligible PSUs will vest following the end of fiscal 2024 and, thereafter, one-eighth of the remaining eligible PSUs will vest on a quarterly basis over two years. Compensation expense related to PSUs is measured at the fair value on the date of grant and recognized over the requisite service period. In the event that an executive’s continuous service to the Company ceases, any associated unvested PSUs will immediately terminate and be forfeited. The Company recognizes forfeitures as they occur.

As of July 31, 2023, the Company had unrecognized stock-based compensation expense of $476.5 million related to RSUs that the Company expects to recognize over a weighted-average period of 2.95 years.

Stock-Based Compensation Expense

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

	Three Months Ended July 31,
	2023		2022
Cost of revenue
Subscription	$	2,183	$	2,160
Services	2,796		2,225
Research and development	22,436		18,710
Sales and marketing	18,839		15,647
General and administrative	10,873		8,141
Total stock-based compensation expense	$	57,127	$	46,883

11. Net Loss Per Share Attributable to Ordinary Shareholders

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

	Three Months Ended July 31,
	2023		2022
Numerator:
Net loss	$	(48,508)	$	(69,551)
Denominator:
Weighted-average shares used in computing net loss per share attributable to ordinary shareholders, basic and diluted	97,942,049		94,621,365
Net loss per share attributable to ordinary shareholders, basic and diluted	$	(0.50)	$	(0.74)

21

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

	Three Months Ended July 31,
	2023	2022
Stock options	3,723,556	4,950,306
RSUs	6,976,012	4,413,451
Employee stock purchase plan	196,399	—
Total	10,895,967	9,363,757

12. Income Taxes

The Company is incorporated in the Netherlands but operates in various countries with differing tax laws and rates. The Company recorded a provision for income taxes of $13.3 million and $2.8 million for the three months ended July 31, 2023 and 2022, respectively. For the three months ended July 31, 2023, the provision for income taxes includes a one-time charge of $7.4 million for income taxes associated with acquisition-related integration. The remaining increase was primarily due to foreign taxes. The calculation of income taxes is based upon the estimated annual effective tax rates for the year applied to the current-period loss before tax plus the tax effect of any significant unusual items, discrete events, or changes in tax law.

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

13. Employee Benefit Plans

The Company has a defined-contribution plan in the United States intended to qualify under Section 401 of the Internal Revenue Code (the “401(k) Plan”). The Company has contracted with a third-party provider to act as a custodian and trustee, and to process and maintain the records of participant data. Substantially all the expenses incurred for administering the 401(k) Plan are paid by the Company. The 401(k) Plan covers substantially all U.S. employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company makes contributions to the 401(k) Plan up to 6% of the participating employee’s W-2 earnings and wages. The Company recorded $4.8 million and $4.6 million of expense related to the 401(k) Plan during the three months ended July 31, 2023 and 2022, respectively.

The Company also has defined-contribution plans in certain other countries for which the Company recorded $3.1 million and $2.3 million of expense during the three months ended July 31, 2023 and 2022, respectively.

14. Segment Information

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

	Three Months Ended July 31,
	2023		2022
United States	$	170,239	$	145,367
Rest of world	123,514		104,714
Total revenue	$	293,753	$	250,081

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

22

The following table presents the Company’s long-lived assets, including property and equipment, net, and operating lease right-of-use assets, by geographic region (in thousands):

	As of July 31, 2023		As of April 30, 2023
United States	$	12,412	$	13,476
The Netherlands	4,316		4,597
United Kingdom	2,341		2,797
India	1,345		1,803
Rest of world	2,055		2,416
Total long-lived assets	$	22,469	$	25,089

15. Restructuring and Other Related Charges

On November 30, 2022, the Company announced and began implementing a plan to align its investments more closely with its strategic priorities by reducing the Company’s workforce by approximately 13% and implementing certain facilities-related cost optimization actions. For the three months ended July 31, 2023, the Company recorded employee-related severance and other termination benefits of approximately $0.7 million.

The following table presents the total amount incurred and the liability, which is recorded in accrued compensation and employee benefits in the condensed consolidated balance sheet, for restructuring-related employee termination benefits as of July 31, 2023 (in thousands):

	Three Months Ended July 31, 2023
Beginning balance	$	738
Incurred during the period	725
Paid during the period	(539)
Foreign currency translation adjustment	8
Ending balance	$	932

23

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Management’s Discussion and Analysis of Financial Condition and Results of Operations and audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2023. As discussed in the section titled “Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such difference include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q. Our fiscal year end is April 30, and our fiscal quarters end on July 31, October 31, January 31, and April 30. Our fiscal year ended April 30, 2023 is referred to as fiscal 2023, and our fiscal year ending April 30, 2024 is referred to as fiscal 2024.

Overview

Elastic is a data analytics company built on the power of search. Our platform, which is available as both a hosted, managed service across public clouds as well as self-managed software, allows our customers to find insights and drive artificial intelligence (“AI”) and machine learning use cases from large amounts of data. We offer three search-powered solutions – Search, Observability, and Security – that are built into the platform. We help organizations, their employees, and their customers find what they need faster, while keeping mission-critical applications running smoothly, and protecting against cyber threats.

Our platform is built on the Elastic Stack, a powerful set of software products that ingest data from any source, in any format, and perform search, analysis, and visualization of that data. At the core of the Elastic Stack is Elasticsearch - a highly scalable document store and search engine, and the unified data store for all of our solutions and use cases. Our platform also includes the ESRE, which combines advanced AI with Elastic’s text search to give developers a full suite of sophisticated retrieval algorithms and the ability to integrate with large language models. The Elastic Stack can be used by developers to power a variety of use cases. It is a distributed, real-time search and analytics engine and data store for all types of data, including textual, numerical, geospatial, structured, and unstructured.

We make our platform available as a hosted, managed service across major cloud providers. Customers can also deploy our platform across hybrid clouds, public or private clouds, and multi-cloud environments. As digital transformation drives mission critical business functions to the cloud, we believe that every company will need to build around a search-based relevance engine to find the answers that matter, from all of their data, in real-time, and at scale.

Our business model is based primarily on a combination of a paid Elastic-managed hosted service offering and paid and free proprietary self-managed software. Our paid offerings for our platform are sold via subscription through resource-based pricing, and all customers and users have access to all solutions. In Elastic Cloud, our family of cloud-based offerings under which we offer our software as a hosted, managed service, we offer various subscription tiers tied to different features. For users who download our software, we make some of the features of our software available for free, allowing us to engage with a broad community of developers and practitioners and introduce them to the value of the Elastic Stack. We believe in the importance of an open software development model, and we develop the majority of our software in public repositories as open code under a proprietary license. Unlike some companies, we do not build an enterprise version that is separate from our free distribution. We maintain a single code base across both our self-managed software and Elastic-hosted services. All of these actions help us build a powerful commercial business model that we believe is optimized for product-led growth.

We generate revenue primarily from sales of subscriptions to our platform. We offer various paid subscription tiers that provide different levels of rights to use proprietary features and access to support. We do not sell support separately. Our subscription agreements typically range from one to three years and are usually billed annually in advance. Our subscription agreements are both term-based and consumption-based, with the vast majority of Elastic Cloud subscriptions being consumption-based. We sell subscriptions in various currencies, with the majority of our subscriptions contracted in U.S. dollars, and a smaller portion contracted in Euro, British Pound Sterling, and other currencies. Elastic Cloud customers may also purchase subscriptions on a month-to-month basis without a commitment, with usage billed at the end of each month. Subscriptions accounted for 92% and 93% of total revenue for the three months ended July 31, 2023 and 2022, respectively. We also generate revenue from consulting and training services.

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We make it easy for users to begin using our products in order to drive rapid adoption. Users can either sign up for a free trial on Elastic Cloud or download our software directly from our website without any sales interaction, and immediately begin using the full set of features. Users can also sign up for Elastic Cloud through public cloud marketplaces. We conduct low-touch campaigns to keep users and customers engaged once they have begun using Elastic Cloud or have downloaded our software. As of July 31, 2023, we had approximately 20,500 customers compared to over 19,300 customers as of July 31, 2022. The majority of our new customers use Elastic Cloud. We define a customer as an entity that generated revenue in the quarter ending on the measurement date from an annual or month-to-month subscription. Affiliated entities are typically counted as a single customer.

Many of these customers start with limited initial spending on our products but can significantly grow their spending. We drive high-touch engagement with qualified prospects and customers to drive further awareness, adoption, and expansion of our products with paid subscriptions. Expansion includes increasing the number of developers and practitioners using our products, increasing the utilization of our products for a particular use case, and utilizing our products to address new use cases. The number of customers who represented greater than $100,000 in annual contract value (“ACV”) was over 1,190 and over 1,010 as of July 31, 2023 and 2022, respectively. The ACV of a customer’s commitments is calculated based on the terms of that customer’s subscriptions, and represents the total committed annual subscription amount as of the measurement date. Month-to-month subscriptions are not included in the calculation of ACV.

Our sales teams are organized primarily by geography and secondarily by customer segments. They focus on both initial conversion of users into customers and additional sales to existing customers. In addition to our direct sales efforts, we also maintain partnerships to further extend our reach and awareness of our products around the world.

We continue to make substantial investments in developing the Elastic Stack and expanding our global sales and marketing footprint. With a distributed team spanning over 35 countries, we are able to recruit, hire, and retain high-quality, experienced technical and sales personnel and operate at a rapid pace to drive product releases, fix bugs, and create and market new products. We had 2,995 employees as of July 31, 2023.

Current Economic Conditions

Recent and current macroeconomic events, including inflation, slower economic growth, political unrest, and concerns about the stability of banks, continue to evolve and negatively impact worldwide economic activity. Governmental and corporate responses to these factors, including rising interest rates, unpredictable and decreased spending, and layoffs, have added to the highly volatile macroeconomic landscape. We have experienced and, if economic conditions continue to decline, we may continue to experience longer and more unpredictable sales cycles, increased scrutiny of deals, slowing consumption and overall customer expenditures, and the impacts of changing foreign exchange rates with a strengthening or weakening U.S. dollar. We continue to closely monitor the macroeconomic environment and its effects on our business and on global economic activity, including customer spending behavior. Notwithstanding the potential and actual adverse impacts described above, as the pandemic has caused more of our customers to shift to a virtual workforce or accelerate their digital transformation efforts, we believe the value of our solutions has become even more evident.

Restructuring

To navigate the current economic environment, we have realigned our resources internally to drive greater efficiencies and rebalanced investments across all functions of the organization to reinvest some savings in key priority areas to drive growth. On November 30, 2022, we announced and began implementing a plan to align our investments more closely with our strategic priorities by reducing our workforce by approximately 13% and implementing certain facilities-related cost optimization actions. We incurred $0.7 million in restructuring and other related charges during the three months ended July 31, 2023. As of July 31, 2023, the implementation of the workforce reductions and facilities cost optimization was substantially completed.

See Note 15 “Restructuring and other related charges” in our accompanying Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information about this plan. We will continue to adjust, monitor, and curtail spending when and where needed to adapt to the current macroeconomic landscape and will reinvest some of the savings selectively in areas that we believe best position us to drive profitable growth. See “Risk Factors” included in Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of additional risks.

Key Factors Affecting our Performance

We believe that the growth and future success of our business depends on many factors, including those described below. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations.

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Increasing adoption of Elastic Cloud. Elastic Cloud, our family of cloud-based offerings, is an important growth opportunity for our business. Organizations are increasingly looking for hosted deployment alternatives with reduced administrative burdens. In some cases, users of our source available software that have been self-managing deployments of the Elastic Stack subsequently become paying subscribers of Elastic Cloud. For the three months ended July 31, 2023 and 2022, Elastic Cloud contributed 41% and 39% of our total revenue, respectively. We believe that offering Elastic Cloud is important for achieving our long-term growth potential, and we expect Elastic Cloud’s contribution to our subscription revenue to continue to increase over time. However, we expect that an increase in the relative contribution of Elastic Cloud to our business will continue to have a modest adverse impact on our gross margin as a result of the associated third-party hosting costs.

Growing the Elastic community. Our strategy consists of providing access to source available software, on both a paid and free basis, and fostering a community of users and developers. Our strategy is designed to pursue what we believe to be significant untapped potential for the use of our technology. After developers begin to use our software and start to participate in our developer community, they become more likely to apply our technology to additional use cases and evangelize our technology within their organizations. This reduces the time required for our sales force to educate potential leads on our solutions. In order to capitalize on our opportunity, we intend to make further investments to keep the Elastic Stack accessible and well known to software developers around the world. We intend to continue to invest in our products and support and engage our user base and developer community through content, events, and conferences in the United States and internationally. Our results of operations may fluctuate as we make these investments.

Developing new features for the Elastic Stack. The Elastic Stack is applied to various use cases by customers, including through the solutions we offer. Our revenue is derived primarily from subscriptions of Search, Observability and Security built into the Elastic Stack. We believe that releasing additional features of the Elastic Stack, including our solutions, drives usage of our products and ultimately drives our growth. To that end, we plan to continue to invest in building new features and solutions that expand the capabilities of the Elastic Stack. These investments may adversely affect our operating results prior to generating benefits, to the extent that they ultimately generate benefits at all.

Growing our customer base by converting users of our software to paid subscribers. Our financial performance depends on growing our paid customer base by converting free users of our software into paid subscribers. Our distribution model has resulted in rapid adoption by developers around the world. We have invested, and expect to continue to invest, heavily in sales and marketing efforts to convert additional free users to paid subscribers. Our investment in sales and marketing is significant given our large and diverse user base. The investments are likely to occur in advance of the anticipated benefits resulting from such investments, such that they may adversely affect our operating results in the near term.

Expanding within our current customer base. Our future growth and profitability depend on our ability to drive additional sales to existing customers. Customers often expand the use of our software within their organizations by increasing the number of developers using our products, increasing the utilization of our products for a particular use case, and expanding use of our products to additional use cases. We focus some of our direct sales efforts on encouraging these types of expansion within our customer base.

We believe that a useful indication of how our customer relationships have expanded over time is through our Net Expansion Rate, which is based upon trends in the rate at which customers increase their spend with us. To calculate an expansion rate as of the end of a given month, we start with the annualized spend from all such customers as of twelve months prior to that month end, or Prior Period Value. A customer’s annualized spend is measured as its ACV, or in the case of customers charged on usage-based arrangements, by annualizing the usage for that month. We then calculate the annualized spend from these same customers as of the given month end, or Current Period Value, which includes any growth in the value of their subscriptions or usage and is net of contraction or attrition over the prior twelve months. We then divide the Current Period Value by the Prior Period Value to arrive at an expansion rate. The Net Expansion Rate at the end of any period is the weighted average of the expansion rates as of the end of each of the trailing twelve months. The Net Expansion Rate includes the dollar-weighted value of our subscriptions or usage that expand, renew, contract, or attrit. For instance, if each customer had a one-year subscription and renewed its subscription for the exact same amount, then the Net Expansion Rate would be 100%. Customers who reduced their annual subscription dollar value (contraction) or did not renew their annual subscription (attrition) would adversely affect the Net Expansion Rate. Our Net Expansion Rate was approximately 113% as of July 31, 2023.

As large organizations expand their use of the Elastic Stack across multiple use cases, projects, divisions and users, they often begin to require centralized provisioning, management and monitoring across multiple deployments. To satisfy these requirements, our Enterprise subscription tier provides access to key orchestration and deployment management capabilities. We will continue to focus some of our direct sales efforts on driving adoption of our paid offerings.

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Components of Results of Operations

Revenue

Subscription.  Our revenue is primarily generated through the sale of subscriptions to software, which is either self-managed by the user or hosted and managed by us in the cloud. Subscriptions provide the right to use paid proprietary software features and access to support for our paid and unpaid software. Our subscription agreements are either term-based or consumption-based, with the vast majority of Elastic Cloud subscriptions being consumption-based.

A portion of the revenue from self-managed subscriptions is generally recognized up front at the point in time when the license is delivered and the remainder is recognized ratably over the subscription term. Revenue from subscriptions that require access to the cloud or that are hosted and managed by us is recognized ratably over the subscription term or on a usage basis for consumption-based arrangements; both are presented within Subscription revenue in our condensed consolidated statements of operations.

Services.  Services is composed of implementation and other consulting services as well as public and private training. Revenue for services is recognized as these services are delivered.

Cost of Revenue

Subscription. Cost of subscription consists primarily of personnel and related costs for employees associated with supporting our subscription arrangements, certain third-party expenses, and amortization of certain intangible and other assets. Personnel and related costs, or personnel costs, comprise cash compensation, benefits and stock-based compensation to employees, costs of third-party contractors, and allocated overhead costs. Third-party expenses consist of cloud hosting costs and other expenses directly associated with our customer support. We expect our cost of subscription to increase in absolute dollars as our subscription revenue increases.

Services. Cost of services revenue consists primarily of personnel costs directly associated with delivery of training, implementation and other services, costs of third-party contractors, facility rental charges and allocated overhead costs. We expect our cost of services to increase in absolute dollars as we invest in our business and as services revenue increases.

Gross profit and gross margin. Gross profit represents revenue less cost of revenue. Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including the timing of our acquisition of new customers and our renewals with existing customers, the average sales price of our subscriptions and services, the amount of our revenue represented by hosted services, the mix of subscriptions sold, the mix of revenue between subscriptions and services, the mix of services between consulting and training, transaction volume growth and support case volume growth. We expect our gross margin to fluctuate over time depending on the factors described above. We expect our revenue from Elastic Cloud to continue to increase as a percentage of total revenue, which we expect will continue to have a modest impact on our gross margin as a result of the associated third-party hosting costs.

Operating Expenses

Research and development. Research and development expense primarily consists of personnel costs and allocated overhead costs. We expect our research and development expense to increase in absolute dollars for the foreseeable future as we continue to develop new technology and invest further in our existing products.

Sales and marketing. Sales and marketing expense primarily consists of personnel costs, commissions, allocated overhead costs and costs related to marketing programs and user events. Marketing programs consist of advertising, events, brand-building and customer acquisition and retention activities. We expect our sales and marketing expense to increase in absolute dollars as we expand our salesforce and increase our investments in marketing resources. We capitalize sales commissions and associated payroll taxes paid to internal sales personnel that are related to the acquisition of customer contracts. Deferred contract acquisition costs are amortized over the expected benefit period.

General and administrative. General and administrative expense primarily consists of personnel costs for our management, finance, legal, human resources, and other administrative employees. Our general and administrative expense also includes professional fees, accounting fees, audit fees, tax services and legal fees, as well as insurance, allocated overhead costs, and other corporate expenses. We expect our general and administrative expense to increase in absolute dollars as we increase the size of our general and administrative functions to support the growth of our business.

Restructuring and other related charges. Restructuring and other related charges primarily consist of employee-related severance and other termination benefits as well as lease impairment and other facilities-related charges.

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Other Income (Expense), Net

Interest expense. Interest expense primarily consists of interest on our 4.125% Senior Notes due 2029.

Other income, net. Other income, net primarily consists of interest income, gains and losses from transactions denominated in a currency other than the functional currency, and miscellaneous other non-operating gains and losses.

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes related to the Netherlands, U.S. federal and state, and foreign jurisdictions in which we conduct business. Our effective tax rate is affected by recurring items, such as tax rates in jurisdictions outside the Netherlands and the relative amounts of income we earn in those jurisdictions, non-deductible stock-based compensation, as well as one-time tax benefits or charges.

Results of Operations

The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our total revenue. The period-to-period comparison of results is not necessarily indicative of results for future periods.

	Three Months Ended July 31,
	2023		2022
	(in thousands)
Revenue
Subscription	$	270,247	$	231,814
Services	23,506		18,267
Total revenue	293,753		250,081
Cost of revenue (1)(2)
Subscription	57,266		53,551
Services	20,211		19,428
Total cost of revenue	77,477		72,979
Gross profit	216,276		177,102
Operating expenses (1)(2)(3)
Research and development	80,690		78,649
Sales and marketing	133,169		125,006
General and administrative	37,939		34,088
Restructuring and other related charges	725		—
Total operating expenses	252,523		237,743
Operating loss (1)(2)(3)	(36,247)		(60,641)
Other income (expense), net
Interest expense	(6,306)		(6,401)
Other income, net	7,300		339
Loss before income taxes	(35,253)		(66,703)
Provision for income taxes	13,255		2,848
Net loss	$	(48,508)	$	(69,551)

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(1) Includes stock-based compensation expense and related employer taxes as follows:

	Three Months Ended July 31,
	2023		2022
	(in thousands)
Cost of revenue
Subscription	$	2,381	$	2,383
Services	3,013		2,369
Research and development	23,405		19,672
Sales and marketing	19,669		16,422
General and administrative	11,146		8,419
Total stock-based compensation expense and related employer taxes	$	59,614	$	49,265

(2) Includes amortization of acquired intangible assets as follows:

	Three Months Ended July 31,
	2023		2022
	(in thousands)
Cost of revenue
Subscription	$	2,976	$	2,964
Sales and marketing	1,232		1,231
Total amortization of acquired intangibles	$	4,208	$	4,195

(3) Includes acquisition-related expenses as follows:

	Three Months Ended July 31,
	2023		2022
	(in thousands)
Research and development	$	780	$	2,480
General and administrative	—		37
Total acquisition-related expenses	$	780	$	2,517

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The following table sets forth selected condensed consolidated statements of operations data for each of the periods indicated as a percentage of total revenue:    

	Three Months Ended July 31,
	2023		2022
Revenue
Subscription	92	%	93	%
Services	8	%	7	%
Total revenue	100	%	100	%
Cost of revenue (1)(2)
Subscription	19	%	21	%
Services	7	%	8	%
Total cost of revenue	26	%	29	%
Gross profit	74	%	71	%
Operating expenses (1)(2)(3)
Research and development	28	%	31	%
Sales and marketing	45	%	50	%
General and administrative	13	%	14	%
Restructuring and other related charges	—	%	—	%
Total operating expenses	86	%	95	%
Operating loss (1)(2)(3)	(12)	%	(24)	%
Other income (expense), net
Interest expense	(2)	%	(2)	%
Other income, net	2	%	—	%
Loss before income taxes	(12)	%	(26)	%
Provision for income taxes	5	%	2	%
Net loss	(17)	%	(28)	%

(1) Includes stock-based compensation expense and related employer taxes as follows:

	Three Months Ended July 31,
	2023		2022
Cost of revenue
Subscription	1	%	1	%
Services	1	<