Elastic Earnings 2020-10-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

estc-20201031

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended October 31, 2020


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

Commission File Number: 001-38675

Elastic N.V.

The Netherlands

(State or other jurisdiction of

incorporation or organization)

Not Applicable

(I.R.S. Employer

Identification No.)

800 West El Camino Real, Suite 350

Mountain View, California 94040

(Address of principal executive offices)

(650) 458-2620

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Ordinary shares, Par Value €0.01 Per Share

ESTC

New York Stock Exchange

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of November 30, 2020, the registrant had 87,403,657 ordinary shares, €0.01 par value per share, outstanding.

Table of Contents


		Page
	Note Regarding Forward-Looking Statements	3
PART I.	FINANCIAL INFORMATION	5

Item 1.	Financial Statements (Unaudited)	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Comprehensive Loss	7
	Condensed Consolidated Statements of Shareholders’ Equity	8
	Condensed Consolidated Statements of Cash Flows	10
	Notes to Condensed Consolidated Financial Statements (Unaudited)	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	43

PART II.	OTHER INFORMATION	44

Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
Item 3.	Defaults Upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	72
Item 6.	Exhibits	73
Signatures		74

Table of Contents

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,” “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 the 2019 novel coronavirus disease (“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;

•our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses (which include changes in sales and marketing, research and development and general and administrative expenses), and our ability to achieve and maintain future profitability;

•our ability to continue to deliver and improve our offerings and successfully develop new offerings, including security-related product offerings and SaaS offerings;

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

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

•our service performance and security, including the resources and costs required to prevent, detect and remediate potential security breaches, including by bad actors;

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

•the market for our products continuing to develop;

•competition from other products and companies with more resources, recognition and presence in our industry;

•the impact of foreign currency exchange rate and interest rate fluctuations on our results;

•the pace of change and innovation in the markets in which we participate and the competitive nature of those markets;

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

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

•our international expansion strategy;

•our operating results and cash flows;

•our strategy of acquiring complementary businesses and our ability to successfully integrate acquired businesses and technologies, including the successful integration of Endgame, Inc. and its subsidiaries (“Endgame”);

•the potential impact on our operating margin from the acquisition of Endgame;

•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;

Table of Contents

•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;

•and general market, political, economic and business conditions (including developments and volatility arising from the ongoing 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 as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. Any additional or unforeseen effect from the ongoing COVID-19 pandemic may exacerbate these risks. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform such statements to actual results or revised expectations, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Elastic N.V.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)


	As of October 31, 2020		As of April 30, 2020
Assets
Current assets:
Cash and cash equivalents	$	348,986	$	297,081
Restricted cash	2,325		2,308
Accounts receivable, net of allowance for credit losses of $1,505 and $1,247 as of October 31, 2020 and April 30, 2020, respectively	132,523		128,690
Deferred contract acquisition costs	28,487		19,537
Prepaid expenses and other current assets	31,805		32,623
Total current assets	544,126		480,239
Property and equipment, net	8,004		7,760
Goodwill	198,196		197,877
Operating lease right-of-use assets	30,277		32,783
Intangible assets, net	43,362		50,455
Deferred contract acquisition costs, non-current	35,996		24,012
Deferred tax assets	3,685		3,164
Other assets	3,915		7,621
Total assets	$	867,561	$	803,911
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	9,213	$	11,485
Accrued expenses and other liabilities	21,824		22,210
Accrued compensation and benefits	46,975		48,409
Operating lease liabilities	7,863		7,639
Deferred revenue	262,257		231,681
Total current liabilities	348,132		321,424
Deferred revenue, non-current	46,959		28,021
Operating lease liabilities, non-current	25,032		27,827
Other liabilities, non-current	4,781		12,992
Total liabilities	424,904		390,264
Commitments and contingencies (Note 7)
Shareholders’ equity:
Convertible preference shares, €0.01 par value; 165,000,000 shares authorized, 0 shares issued and outstanding as of October 31, 2020 and April 30, 2020	—		—
Ordinary shares, par value €0.01 per share: 165,000,000 shares authorized; 87,204,991 and 82,856,978 shares issued and outstanding as of October 31, 2020 and April 30, 2020, respectively	908		856
Treasury stock	(369)		(369)
Additional paid-in capital	986,075		898,788
Accumulated other comprehensive loss	(11,914)		(1,377)
Accumulated deficit	(532,043)		(484,251)
Total shareholders’ equity	442,657		413,647
Total liabilities and shareholders’ equity	$	867,561	$	803,911

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

Table of Contents

Elastic N.V.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)


	Three Months Ended October 31,				Six Months Ended October 31,
	2020		2019		2020		2019
Revenue
License - self-managed	$	15,514	$	12,272	$	30,393	$	22,179
Subscription - self-managed and SaaS	118,695		79,407		225,158		151,890
Total subscription revenue	134,209		91,679		255,551		174,069
Professional services	10,685		9,427		18,213		16,747
Total revenue	144,894		101,106		273,764		190,816
Cost of revenue
Cost of license - self-managed	347		158		693		255
Cost of subscription - self-managed and SaaS	29,148		19,741		55,038		37,636
Total cost of revenue - subscription	29,495		19,899		55,731		37,891
Cost of professional services	8,953		8,862		17,548		17,121
Total cost of revenue	38,448		28,761		73,279		55,012
Gross profit	106,446		72,345		200,485		135,804
Operating expenses
Research and development	46,688		38,478		92,366		73,660
Sales and marketing	64,474		54,020		120,625		106,031
General and administrative	23,705		31,808		45,434		50,376
Total operating expenses	134,867		124,306		258,425		230,067
Operating loss	(28,421)		(51,961)		(57,940)		(94,263)
Other income (expense), net	(84)		1,684		10,801		2,615
Loss before income taxes	(28,505)		(50,277)		(47,139)		(91,648)
Provision for (benefit from) income taxes	653		(304)		1,020		94
Net loss	$	(29,158)	$	(49,973)	$	(48,159)	$	(91,742)
Net loss per share attributable to ordinary shareholders, basic and diluted	$	(0.34)	$	(0.64)	$	(0.56)	$	(1.20)
Weighted-average shares used to compute net loss per share attributable to ordinary shareholders, basic and diluted	86,373,166		77,772,406		85,275,474		76,202,865

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

Table of Contents

Elastic N.V.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)


	Three Months Ended October 31,				Six Months Ended October 31,
	2020		2019		2020		2019
Net loss	$	(29,158)	$	(49,973)	$	(48,159)	$	(91,742)
Other comprehensive loss:
Foreign currency translation adjustments	(479)		(1,433)		(10,537)		(1,051)
Other comprehensive loss	(479)		(1,433)		(10,537)		(1,051)
Total comprehensive loss	$	(29,637)	$	(51,406)	$	(58,696)	$	(92,793)

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

Table of Contents

Elastic N.V.

Condensed Consolidated Statements of Shareholders’ Equity

(in thousands, except share data)

(unaudited)


						Additional Paid-in Capital		Accumulated Other Comprehensive Loss				Total Shareholders' Equity
	Ordinary Shares			Treasury Shares						Accumulated Deficit
	Shares	Amount
Balances at July 31, 2020	85,737,645	$	890	$	(369)	$	946,178	$	(11,435)	$	(502,885)	$	432,379

Issuance of ordinary shares upon exercise of stock options	1,379,823	16		—		15,962		—		—		15,978
Issuance of ordinary shares upon release of restricted stock units	87,523	2		—		(2)		—		—		—
Stock-based compensation	—	—		—		21,235		—		—		21,235
Reclassification of liability-classified awards	—	—		—		2,702		—		—		2,702
Net loss	—	—		—		—		—		(29,158)		(29,158)
Foreign currency translation	—	—		—		—		(479)		—		(479)
Balances at October 31, 2020	87,204,991	$	908	$	(369)	$	986,075	$	(11,914)	$	(532,043)	$	442,657

						Additional Paid-in Capital		Accumulated Other Comprehensive Loss				Total Shareholders' Equity
	Ordinary Shares			Treasury Shares						Accumulated Deficit
	Shares	Amount
Balances at July 31, 2019	76,259,361	$	782	$	(369)	$	614,532	$	(1,049)	$	(358,846)	$	255,050
Issuance of ordinary shares upon exercise of stock options	1,936,335	23		—		19,433		—		—		19,456
Issuance of ordinary shares upon release of restricted stock units	3,037	1		—		—		—		—		1
Ordinary shares issued in connection with the acquisition of Endgame	1,983,663	21		—		167,316		—		—		167,337
Ordinary shares issued in connection with the acquisition of Endgame held in escrow	235,031	2		—		19,824		—		—		19,826
Assumption of stock option plan as consideration for acquisition of Endgame	—	—		—		9,309		—		—		9,309
Repurchase of unvested RSAs	(4,585)	—		—		—		—		—		—
Stock-based compensation	—	—		—		13,583		—		—		13,583
Net loss	—	—		—		—		—		(49,973)		(49,973)
Foreign currency translation	—	—		—		—		(1,433)		—		(1,433)
Balances at October 31, 2019	80,412,842	$	829	$	(369)	$	843,997	$	(2,482)	$	(408,819)	$	433,156

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

Table of Contents

Elastic N.V.

Condensed Consolidated Statements of Shareholders’ Equity

(in thousands, except share data)

(unaudited)


						Additional Paid-in Capital		Accumulated Other Comprehensive Loss				Total Shareholders' Equity
	Ordinary Shares			Treasury Shares						Accumulated Deficit
	Shares	Amount
Balances at April 30, 2020	82,856,978	$	856	$	(369)	$	898,788	$	(1,377)	$	(484,251)	$	413,647
Cumulative-effect adjustment from adoption of ASU 2016-13	—	—		—		—		—		367		367
Issuance of ordinary shares upon exercise of stock options	4,035,115	47		—		45,183		—		—		45,230
Issuance of ordinary shares upon release of restricted stock units	312,898	5		—		(5)		—		—		—
Stock-based compensation	—	—		—		39,407		—		—		39,407
Reclassification of liability-classified awards	—	—		—		2,702		—		—		2,702
Net loss	—	—		—		—		—		(48,159)		(48,159)
Foreign currency translation	—	—		—		—		(10,537)		—		(10,537)
Balances at October 31, 2020	87,204,991	$	908	$	(369)	$	986,075	$	(11,914)	$	(532,043)	$	442,657
						Additional Paid-in Capital		Accumulated Other Comprehensive Loss				Total Shareholders' Equity
	Ordinary Shares			Treasury Shares						Accumulated Deficit
	Shares	Amount
Balances at April 30, 2019	73,675,083	$	754	$	(369)	$	581,135	$	(1,431)	$	(317,077)	$	263,012
Issuance of ordinary shares upon exercise of stock options	4,470,226	51		—		39,517		—		—		39,568
Issuance of ordinary shares upon release of restricted stock units	53,424	1		—		—		—		—		1
Ordinary shares issued in connection with the acquisition of Endgame	1,983,663	21		—		167,316		—		—		167,337
Ordinary shares issued in connection with the acquisition of Endgame held in escrow	235,031	2		—		19,824		—		—		19,826
Assumption of stock option plan as consideration for acquisition of Endgame	—	—		—		9,309		—		—		9,309
Repurchase of unvested RSAs	(4,585)	—		—		—		—		—		—
Vesting of ordinary shares subject to repurchase	—	—		—		1,612		—		—		1,612
Stock-based compensation	—	—		—		25,284		—		—		25,284
Net loss	—	—		—		—		—		(91,742)		(91,742)
Foreign currency translation	—	—		—		—		(1,051)		—		(1,051)
Balances at October 31, 2019	80,412,842	$	829	$	(369)	$	843,997	$	(2,482)	$	(408,819)	$	433,156

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

Table of Contents

Elastic N.V.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended October 31,
	2020		2019
Cash flows from operating activities
Net loss	$	(48,159)	$	(91,742)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization	8,566		3,338
Amortization of deferred contract acquisition costs	18,173		13,921
Non-cash operating lease cost	3,434		3,014
Stock-based compensation expense	40,078		27,187
Non-cash acquisition expense settled with shares	—		8,834
Deferred income taxes	(286)		(671)
Foreign currency transaction gain	(10,924)		—
Other	(11)		323
Changes in operating assets and liabilities:
Accounts receivable, net	63		4,850
Deferred contract acquisition costs	(37,872)		(17,025)
Prepaid expenses and other current assets	1,100		(819)
Other assets	4,040		1,906
Accounts payable	(2,638)		4,204
Accrued expenses and other liabilities	(1,061)		3,372
Accrued compensation and benefits	(691)		16,214
Operating lease liabilities	(3,535)		(2,788)
Deferred revenue	34,432		24,478
Net cash provided by (used in) operating activities	4,709		(1,404)
Cash flows from investing activities
Purchases of property and equipment	(1,656)		(3,230)
Business acquisition, net of cash acquired	—		(24,373)
Other	1,320		—
Net cash used in investing activities	(336)		(27,603)
Cash flows from financing activities
Proceeds from issuance of ordinary shares upon exercise of stock options	45,230		39,568
Payment of withholding taxes related to acquisition expense settled in shares	—		(2,834)
Repayment of notes payable	—		(60)
Net cash provided by financing activities	45,230		36,674
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	2,319		(399)
Net increase in cash, cash equivalents, and restricted cash	51,922		7,268
Cash, cash equivalents, and restricted cash, beginning of period	299,389		300,280
Cash, cash equivalents, and restricted cash, end of period	$	351,311	$	307,548
Supplemental disclosures of cash flow information
Cash paid (refund received) for income taxes	$	(1,708)	$	1,132
Cash paid for operating lease liabilities	$	4,363	$	3,083

Supplemental disclosures of non-cash investing and financing information
Property and equipment included in accounts payable and accrued liabilities	$	10	$	444
Operating lease right-of-use assets for new lease obligations	$	575	$	11,296
Vesting of shares subject to repurchase	$	—	$	1,612
Issuance of ordinary shares for business combination	$	—	$	178,329
Assumption of stock option plan as consideration for business combination	$	—	$	9,309

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

Table of Contents

Elastic N.V.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Table of Contents

1.Organization and Description of Business

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

2.Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated balance sheet as of October 31, 2020, the interim condensed consolidated statements of operations and of comprehensive loss, interim condensed statements of shareholders’ equity for the three and six months ended October 31, 2020 and 2019 and the interim condensed consolidated statements of cash flows for the six months ended October 31, 2020 and 2019, are unaudited. These interim condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, include all adjustments necessary to fairly state the Company’s financial position as of October 31, 2020, and the results of the Company’s operations, its statements of shareholders’ equity for the three and six months ended October 31, 2020 and 2019, and its statements of cash flows for the six months ended October 31, 2020 and 2019. The financial data and other financial information disclosed in the notes to these interim condensed consolidated financial statements related to the three and six month periods are also unaudited. The results for the six months ended October 31, 2020 are not necessarily indicative of the operating results expected for the fiscal year ending April 30, 2021, or any future period.

The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the financial statements of the Company and its wholly-owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation.

Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, these unaudited interim condensed consolidated financial statements and accompanying footnotes should be read in conjunction with the Company’s annual consolidated financial statements and related footnotes included in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2020 filed with the SEC on June 26, 2020 (“the Company's Annual Report on Form 10-K”).

Fiscal Year

The Company’s fiscal year ends on April 30. References to fiscal 2021, for example, refer to the fiscal year ending April 30, 2021.

Use of Estimates and Judgments

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Such estimates include, but are not limited to, allocation of revenue between recognized and deferred amounts, deferred contract acquisition costs, allowance for credit losses, valuation of stock-based compensation, fair value of ordinary shares in periods prior to the Company’s initial public offering, fair value of acquired intangible assets and goodwill, useful lives of acquired intangible assets and property and equipment, whether an arrangement is or contains a lease, the discount rate used for operating leases and valuation allowance for deferred income taxes. The Company bases these estimates on historical and anticipated results, trends and various other assumptions that it believes are reasonable under the circumstances, including assumptions as to future events.

In March 2020, the World Health Organization declared the 2019 novel Coronavirus Disease (“COVID-19”) a pandemic. The pandemic has resulted in a global slowdown of economic activity that is likely to decrease demand for a broad variety of goods and services, including from certain of the Company’s customers, while also disrupting sales channels and marketing activities for an unknown period of time. The full extent to which COVID-19 may impact the Company’s financial condition or results of operations is uncertain.

Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these financial statements, the Company is not aware of any

Table of Contents

specific event or circumstance that would require the Company to update its estimates, judgments or revise the carrying value of the Company’s assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s financial statements.

Significant Accounting Policies

Other than as described below, there have been no changes to the Company’s significant accounting policies described in the Company's Annual Report on Form 10-K that have had a material impact on its consolidated financial statements and related notes.

Accounts Receivable and Allowance for Credit Losses

The Company records a receivable when an unconditional right to consideration exists, such that only the passage of time is required before payment of consideration is due. Timing of revenue recognition may differ from the timing of invoicing to customers. If revenue recognized on a contract exceeds the billings, then the Company records an unbilled receivable for that excess amount, which is included as part of accounts receivable, net in the Company’s condensed consolidated balance sheets.

The Company is exposed to credit losses primarily through the sales of subscriptions and services, which are recorded as accounts receivable, inclusive of unbilled receivables. The Company performs initial and ongoing evaluations of its customers' financial position and generally extends credit without collateral. Accounts receivable are recorded at amortized cost, net of an allowance for credit losses, and do not bear interest.

The allowance for credit losses represents the best estimate of lifetime expected credit losses against the existing accounts receivable, inclusive of unbilled receivables, based on certain factors including past collection experience, credit quality of the customer, current aging of the receivable balance, current economic conditions, reasonable and supportable forecasts, as well as specific circumstances arising with individual customers. Judgment is required in assessing these factors. Due to the short-term nature of the Company’s accounts receivable, forecasts have limited relevance to the Company’s expected credit loss estimates. Accounts receivable are written off against the allowance when management determines a balance is uncollectible and the Company no longer actively pursues collection of the receivable. The Company’s estimates of the allowance for credit losses may not be indicative of the Company’s actual credit losses requiring additional charges to be incurred to reflect the actual amount collected.

Recently Adopted Accounting Pronouncements

Goodwill Impairment: In January 2017, the FASB issued ASU No. 2017-4, Intangibles— Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new standard will simplify the measurement of goodwill impairment by eliminating step two of the two-step impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The new guidance requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The Company adopted ASU No. 2017-4 on May 1, 2020. The Company's adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements.

Fair Value Measurements: In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies, removes and adds certain disclosure requirements on fair value measurements based on the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted ASU No. 2018-13 on May 1, 2020. The Company's adoption of this ASU did not have a material impact on the Company's condensed consolidated financial statements.

Intangible Assets: In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU. The Company adopted ASU No. 2018-15 on May 1, 2020 and applied it prospectively to implementation costs incurred after the

Table of Contents

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

Credit Losses: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and has since issued various amendments including ASU No. 2018-19, ASU No. 2019-4, and ASU No. 2019-5. The standard and related amendments modify the accounting for credit losses for most financial assets and requires an entity to utilize a new impairment model known as current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized costs basis of the financial asset, presents the amount expected to be collected on the financial asset. Additionally, ASU No. 2016-13 amends the current available-for-sale security impairment model for debt securities held for investment. The new model requires an estimate of expected credit losses when the fair value is below the amortized cost of the asset. The credit-related impairment (and subsequent recoveries) are recognized as an allowance on the balance sheet with a corresponding adjustment to the income statement. Non-credit related losses will continue to be recognized through OCI. This guidance also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company adopted ASU No. 2016-13 on May 1, 2020. The Company's adoption of this ASU resulted in a $0.4 million reduction to accumulated deficit.

New Accounting Pronouncements Not Yet Adopted

Income Taxes: In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, eliminating certain exceptions to the general principles in ASC 740 related to intra-period tax allocation, deferred tax liability and general methodology for calculating income taxes. Additionally, the ASU makes other changes for matters such as franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. The new guidance becomes effective for the Company for the fiscal year ending April 30, 2022. Early adoption is permitted. The Company does not expect the adoption of the new accounting standard to have a material impact on its consolidated financial statements.

3.Revenue and Remaining Performance Obligations

Disaggregation of Revenue

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


	Three Months Ended October 31,								Six Months Ended October 31,
	2020				2019				2020				2019
	Amount		% of Total Revenue		Amount		% of Total Revenue		Amount		% of Total Revenue		Amount		% of Total Revenue
Self-managed subscription	$	96,781	67	%	$	71,030	71	%	$	185,496	67	%	$	135,842	71	%
License	15,514		11	%	12,272		12	%	30,393		11	%	22,179		11	%
Subscription	81,267		56	%	58,758		59	%	155,103		56	%	113,663		60	%
SaaS	37,428		26	%	20,649		20	%	70,055		26	%	38,227		20	%
Total subscription revenue	134,209		93	%	91,679		91	%	255,551		93	%	174,069		91	%
Professional services	10,685		7	%	9,427		9	%	18,213		7	%	16,747		9	%
Total revenue	$	144,894	100	%	$	101,106	100	%	$	273,764	100	%	$	190,816	100	%

Remaining Performance Obligations

As of October 31, 2020, the Company had $643.5 million of remaining performance obligations, which is composed of product and services revenue not yet delivered. As of October 31, 2020, the Company expects to recognize approximately 85% of its remaining performance obligations as revenue over the next 24 months and the remainder thereafter.

4.Fair Value Measurements

The Company measures financial assets and liabilities that are measured at fair value on a recurring basis at each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Table of Contents

The following table summarizes assets that are measured at fair value on a recurring basis as of October 31, 2020 and April 30, 2020 (in thousands):


October 31, 2020	Level 1		Level 2	Level 3	Total
Financial Assets:
Cash and cash equivalents:
Money market funds	$	175,007	—	—	$	175,007


April 30, 2020	Level 1		Level 2	Level 3	Total
Financial Assets:
Cash and cash equivalents:
Money market funds	$	197,314	—	—	$	197,314

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.

5.Acquisitions

Fiscal Year Ended April 30, 2020

Endgame, Inc.

On October 8, 2019, the Company acquired all outstanding shares of Endgame, a security company offering endpoint protection technology, for a total acquisition price of $234.0 million. Elastic paid the purchase price through (i) the issuance of 2,218,694 ordinary shares in respect of Endgame’s outstanding capital stock, warrants, convertible notes, and certain retention awards, (ii) the cash repayment of Endgame’s outstanding indebtedness of $20.4 million, (iii) the assumption of Endgame’s outstanding stock options, (iv) a $0.4 million cash deposit to an expense fund for the fees and expenses of the representative and agent of Endgame securityholders, (v) the cash payment of Endgame’s transaction expenses of $5.9 million, and (vi) the cash payment of withholding taxes related to acquisition expense settled in shares of $2.8 million. Approximately 11% of the ordinary shares issued, or 235,031 shares, is being held in an indemnity escrow fund for 18 months after the acquisition close date. For purposes of determining the total acquisition price of $234.0 million, the Company used the ordinary share price of $89.3836 which was determined on the basis of the volume weighted average price per share rounded to four decimal places for the twenty (20) consecutive trading days ending with the complete trading day ending five (5) trading days prior to the date upon which the acquisition was consummated.

The fair value of the shares transferred as consideration was $84.12 per share and was determined on the basis of the closing stock price of the Company’s ordinary shares on the date of acquisition. The fair value of the assumed stock options was determined by using a Black-Scholes option pricing model with the applicable assumptions as of the acquisition date.

The stock options assumed on the acquisition date will continue to vest as the Endgame employees provide services in the post-acquisition period. The fair value of these awards will be recorded as share-based compensation expense over the respective vesting period of each stock option.

The acquisition was accounted for as a business combination and the total purchase price was allocated to the net tangible and intangible assets and liabilities based on their respective fair values on the acquisition date and the excess was recorded as goodwill.

The following table summarizes the components of the U.S. GAAP purchase price and the preliminary allocation of the purchase price at fair value (in thousands):


Cash paid	$	26,633
Ordinary shares	178,331
Assumption of stock option plan	9,309
Total consideration	$

Price	82.90	EPS	-2
Shares	80	P/E	-45
MCap	6,666	P/FCF	-315
Net Debt	-308	EBIT	-147
TEV	6,359	TEV/EBIT	-43
TTM 2019-10-31, in MM, except price, ratios

10-Q	2020-10-31	Filed 2020-12-07
10-Q	2020-07-31	Filed 2020-09-03
10-K	2020-04-30	Filed 2020-06-26
10-Q	2020-01-31	Filed 2020-03-09
10-Q	2019-10-31	Filed 2019-12-09
10-Q	2019-07-31	Filed 2019-09-10
10-K	2019-04-30	Filed 2019-06-28
10-Q	2019-01-31	Filed 2019-03-01
S-1	2018-09-05	Public Filing

8-K	2021-01-14	Other Events, Exhibits
8-K	2020-12-02	Other Events
8-K	2020-12-02	Earnings, Exhibits
8-K	2020-10-21
8-K	2020-08-28
8-K	2020-08-26
8-K	2020-08-26
8-K	2020-06-03
8-K	2020-02-26
8-K	2020-02-25
8-K	2020-01-10
8-K	2019-12-04
8-K	2019-11-12
8-K	2019-10-29
8-K	2019-10-04
8-K	2019-08-28
8-K	2019-06-05
8-K	2019-06-05
8-K	2019-04-25
8-K	2019-03-20
8-K	2019-02-27

EX-31.1	estc-10312020ex311.htm
EX-31.2	estc-10312020ex312.htm
EX-32.1	estc-10312020ex321.htm
EX-32.2	estc-10312020ex322.htm


Note		Page
1.	Organization and Description of Business	12
2.	Summary of Significant Accounting Policies	12
3.	Revenue and Performance Obligations	14
4.	Fair Value Measurements	14
5.	Acquisitions	15
6.	Balance Sheet Components	17
7.	Commitments and Contingencies	20
8.	Leases	21
9.	Ordinary Shares	22
10.	Equity Incentive Plans	22
11.	Net Loss Per Share Attributable to Ordinary Shareholders	24
12.	Income Taxes	24
13.	Employee Benefit Plans	25
14.	Segment Information	25

ESTC 10Q Quarterly Report

Elastic Earnings 2020-10-31