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Item 7. Management’s Discussion and Analysis

2022-06-21 compared with 2021-06-25 · 230 added, 584 removed, 288 unchanged (74% of the section changed)

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 consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

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” included elsewhere in this Annual Report on Form 10-K.

Our fiscal year end is April 30.

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A discussion of our financial condition and results of operations for the year ended April 30, 2020 and year-to-year comparisons between years ended April 30, 2021 and 2020 that is not included in this Annual Report on Form 10-K can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended April 30, 2021, filed with the SEC on June 25, 2021, and is incorporated by reference herein.

Elastic is a search company.

We deliver technology that enables users to search through massive amounts of structured and unstructured data for a wide range of use cases.

Our primary offering is 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.

The Elastic Stack is designed for direct use by developers to power a variety of use cases.

We also offer three software solutions – Enterprise Search, Observability, and Security – built on the Elastic Stack.

Our solutions are designed to be deployed everywhere:

in public or private clouds, in hybrid environments, or in traditional on-premises environments.

Our products are used by individual developers and organizations of all sizes across a wide range of industries.

Elasticsearch is the heart of the Elastic Stack.

It is a distributed, real-time search and analytics engine and datastore for exploring all types of data including textual, numerical, geospatial, structured, and unstructured.

The first public release of Elasticsearch was in 2010 by our co-founder Shay Banon as an open source project.

The Company was formed in 2012.

Since then, we have added new products, released new features, acquired companies, and created new solutions to expand the functionality of our products.

Our business model is based on a combination of free and paid proprietary software.

We market and distribute the Elastic Stack and our solutions using a free and open distribution strategy.

Developers are able to download our software directly from our website.

Some features of our software can be downloaded and used free of charge.

Others are only available through paid subscriptions, which include access to specific proprietary features and also include support.

These paid features can be unlocked without the need to re-deploy the software.

There is no free subscription tier in our cloud offerings, where all subscriptions are paid.

In February 2021, with the release of version 7.11 of the Elastic Stack, we changed the way we license Elasticsearch and Kibana, the visualization layer for data stored in Elasticsearch.

We moved the source code that had historically been licensed under the Apache License, Version 2.0 open source license (“Apache 2.0”), to be dual licensed under ELv2, our proprietary source available license, and SSPL, at the user’s election.

ELv2 is a permissive source available license, allowing free use, modification, creation of derivative works, and redistribution, while providing protection from cloud service providers who offer these products as a service without collaborating with us.

SSPL is a source available license that provides many of the freedoms of an open source license, but with certain restrictions.

This source code license change had no effect on our customers or the vast majority of our users.

We believe that our free and open distribution strategy drives a number of benefits for our users, our customers, and our company.

It facilitates rapid and efficient developer adoption, particularly by empowering individual developers to download and use our software without payment, registration, or the friction of a formal sales interaction.

It fosters a vibrant developer community around our products and solutions, which drives adoption of our products and increased interaction among users.

Further, this approach enables community review of our code and products, which allows us to improve the reliability and security of our software.

We generate revenue primarily from sales of subscriptions for our software.

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 almost instantly find insights from large amounts of data and take action.

We offer three search-powered solutions – Enterprise 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 only data store for all of our solutions and use cases.

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.

Customers can also deploy our platform across hybrid clouds, public or private clouds, and multi-cloud environments.

As digital transformation and cloud adoption drive mission critical business functions online and to the cloud, we believe that every company will need to build around a search-based data analytics platform, one which brings speed, scale, and relevance to the vast volumes of data being generated.

During the year ended April 30, 2022, we acquired 100% of the share capital of cmdWatch Security Inc.

(“Cmd”), Build Security Ltd.

(“build.security”) and Optimyze.cloud Inc.

(“Optimyze”) for a combined total consideration of $135.0 million.

With these acquisitions, we will be able to extend cloud security protections for our customers from endpoint to cloud workload and provide our customers with cloud security protections from build-time, to deployment-time, to runtime, and extend our Observability solution to enable “always on” continuous profiling for infrastructure, applications, and services.

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 offer 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 for self-managed and Elastic Cloud deployments typically have terms of one to three years and we usually bill for them annually in advance.

Our subscription agreements typically have terms of one to three years and we usually bill for them annually in advance.

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 93%, 92% and 91% of total

revenue in the years ended April 30, 2021, 2020, and 2019, respectively.

Subscriptions accounted for 93%, 93% and 92% of total revenue for the years ended April 30, 2022, 2021, and 2020, respectively.

We also generate revenue from consulting and training services.

We had over 15,000 customers, over 11,300 customers and over 8,100 customers as of April 30, 2021, 2020, and 2019, respectively.

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.

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low-touch campaigns to keep users and customers engaged once they have begun using Elastic Cloud or downloaded our software.

As of April 30, 2022, we had over 18,600 customers compared to over 15,000 customers and over 11,300 customers as of April 30, 2021 and 2020, respectively.

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.

The annual contract value (“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.

Many of these customers start with limited initial spending, 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 applying our products to new use cases.

The number of customers who represented greater than $100,000 in annual contract value (“ACV”) was over 960, over 730, and over 610 as of April 30, 2022, 2021 and 2020, 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.

The number of customers who represented greater than $100,000 in ACV was over 730, over 610, and over 440 as of April 30, 2021, 2020 and 2019, respectively.

We engage in various sales and marketing efforts to extend our free and open distribution model.

We employ multi-touch marketing campaigns to nurture our users and customers and keep them engaged after they download our software.

Additionally, we maintain direct sales efforts focused on users and customers who have adopted our software, as well as departmental decision-makers and senior executives who have broad purchasing power in their organizations.

Our sales teams are primarily segmented by geographies and secondarily by the employee count of our customers.

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 our solutions 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 2,179 employees as of April 30, 2021.

We have experienced significant growth, with revenue increasing to $608.5 million in the year ended April 30, 2021 from $427.6 million in the year ended April 30, 2020 and $271.7 million in the year ended April 30, 2019, representing year-over-year growth of 42% for the year ended April 30, 2021 and 57% for the year ended April 30, 2020.

In the year ended April 30, 2021, revenue from outside the United States accounted for 45% of our total revenue.

We have experienced significant growth, with revenue increasing to $862.4 million for the year ended April 30, 2022 from $608.5 million for the year ended April 30, 2021 and $427.6 million for the year ended April 30, 2020, representing year-over-year growth of 42% for each of the years ended April 30, 2022 and 2021.

For the year ended April 30, 2022, revenue from outside the United States accounted for 44% of our total revenue.

For our non-U.S.

operations, the majority of our revenue and expenses are denominated in currencies such as the Euro and British pound.

No customer represented more than 10% of our total revenue in the years ended April 30, 2021, 2020, and 2019.

No customer represented more than 10% of our total revenue for the years ended April 30, 2022, 2021, and 2020.

We have not been profitable to date.

In the years ended April 30, 2021, 2020 and 2019, we incurred net losses of $129.4 million, $167.2 million and $102.3 million, respectively.

Our net cash provided by operating activities was $22.5 million in the year ended April 30, 2021 and cash used in operating activities in the years ended April 30, 2020 and 2019 was $30.6 million and $23.9 million, respectively.

For the years ended April 30, 2022, 2021 and 2020, we incurred net losses of $203.8 million, $129.4 million and $167.2 million, respectively.

Our net cash provided by operating activities was $5.7 million and $22.5 million for the years ended April 30, 2022 and 2021, respectively and cash used in operating activities for the year ended April 30, 2020 was $30.6 million.

We have experienced losses in each year since our incorporation and as of April 30, 2022, had an accumulated deficit of $817.2 million.

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There can be no assurance as to when we may become profitable.

In March 2020, the World Health Organization declared COVID-19 a pandemic.

Efforts to control its spread have significantly curtailed the movement of people, goods and services worldwide, including in most or all of the regions in which we sell our products and services and conduct our business operations, negatively impacting worldwide economic activity.

The ongoing impact of the COVID-19 pandemic on our operational and financial performance will depend on certain developments, including the duration and spread of the virus, success of preventative measures to contain or mitigate the spread of the virus and emerging variants, effectiveness, distribution and acceptance of COVID-19 vaccines, impact on our customers and our sales cycles, impact on our customer, employee or industry events, effect on our vendors, and the uneven impact of the COVID-19 pandemic to certain industries, all of which continue to remain uncertain and cannot be predicted.

The continuing COVID-19 pandemic has resulted in a global slowdown of economic activity and its impact has varied significantly across different industries with certain industries experiencing increased demand for their products and services, while others have struggled to maintain demand for their products and services consistent with historical levels.

There have been delays in purchasing decisions from existing and prospective customers, longer sales cycles, delayed implementation of professional services, reduced renewals of subscriptions by existing customers, and changes in approaches to creating sales pipeline in the absence of in-person marketing events, resulting in headwinds for calculated billings and our Net Expansion Rate.

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 is becoming even more evident.

In addition, we have benefited from lower spending on travel due to COVID-19 travel restrictions and from holding events virtually, and we expect lower travel costs to continue in the near-term.

the virus to our employees, our customers, and the communities in which we operate, including modifying our business practices, such as suspending employee travel, adapting employee work locations, and holding events and trainings virtually.

Further, we also temporarily reduced the pace of our investments in our business in response to the COVID-19 pandemic in the first quarter of fiscal 2021, but began to gradually increase our investments in our business since then.

We intend to continue to increase the pace of our investments in the business in fiscal 2022.

We continue to make substantial investments in developing the Elastic Stack and our solutions and expanding our global sales and marketing footprint.

With a distributed team spanning over 40 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 2,978 employees as of April 30, 2022.

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

We intend to continue to use the net proceeds from the offering of the Senior Notes for general corporate purposes, which may include capital expenditures, investments and working capital.

In addition, in the past we have considered, and may continue to consider, acquisitions and strategic transactions, and we may use the net proceeds of this offering for such purposes.

The ongoing COVID-19 pandemic continues to evolve and negatively impact worldwide economic activity.

Efforts to control its spread have significantly curtailed the movement of people, goods and services worldwide, including in many of the regions in which we sell our products and services and conduct our business operations, negatively impacting worldwide economic activity.

The impact of the COVID-19 pandemic has varied significantly across different industries with certain industries experiencing increased demand for their products and services, while others have struggled to maintain demand for their products and services consistent with historical levels.

The ongoing impact of the COVID-19 pandemic on our operational and financial performance will depend on certain developments, including the duration and spread of the virus, success of preventative measures to contain or mitigate the spread of the virus and emerging variants, effectiveness, distribution and acceptance of COVID-19 vaccines, impact on our customers and our sales cycles, impact on our customer, employee or industry events, effect on our vendors, and the uneven impact of the COVID-19 pandemic on certain industries, all of which continue to remain uncertain and cannot be predicted.

In addition, we have benefited from lower spending on travel by our employees due to COVID-19 travel restrictions and from holding events virtually, however we expect live events and travel costs to trend back higher in the near-term.

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In response to the COVID-19 pandemic and in an effort to focus on maintaining business continuity and preparing for the future and long-term success of our business, we have taken precautionary measures intended to help minimize the risk of the virus to our employees, customers, and the communities in which we operate, including modifying our business practices, such as suspending employee travel, adapting employee work locations, and holding events and trainings virtually.

Further, we also temporarily reduced the pace of investments in our business in response to the COVID-19 pandemic in the first quarter of fiscal 2021, but began to gradually increase our investments in our business in subsequent quarters.

We intend to continue to make additional investments in the business in fiscal 2023.

We continue to monitor the major impacts of the COVID-19 pandemic and make changes in our business as appropriate, in response to such impacts.

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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.

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 years ended April 30, 2022, 2021 and 2020, Elastic Cloud contributed 35%, 27% and 22% 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 increase over time.

However, we expect that an increase in the relative contribution of Elastic Cloud to our business will 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 free and paid basis, and fostering a community of users and developers.

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.

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We focus some of our direct sales efforts on encouraging these types of expansion within our customer base.

An indication of how our customer relationships have expanded over time is through our Net Expansion Rate, which is based upon trends in the ACV of customers that have entered into annual subscription agreements.

To calculate an expansion rate as of the end of a given month, we start with the ACV from all such customers as of twelve months prior to that month end, or Prior Period Value.

We then calculate the ACV from these same customers as of the given month end, or Current Period Value, which includes any growth in the value of their subscriptions 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.

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 their 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

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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.

We believe that our Net Expansion Rate provides useful information about the evolution of our business’ existing customers.

The Net Expansion Rate includes the dollar-weighted value of our subscriptions that expand, renew, contract, or attrit.

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 slightly below 130% at the end of fiscal 2021.

Our Net Expansion Rate was slightly below 130% for the year ended April 30, 2022.

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, we offer the Elastic Enterprise subscription.

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.

Increasing adoption of Elastic Cloud .

Elastic Cloud, our family of SaaS products that includes Elasticsearch Service and Site Search Service, is an important growth opportunity for our business.

Organizations are increasingly looking for SaaS 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.

In the years ended April 30, 2021, 2020 and 2019, Elastic Cloud contributed 27%, 22% and 17% of our total revenue, respectively.

We believe that offering a SaaS deployment alternative is important for achieving our long-term growth potential, and we expect Elastic Cloud’s contribution to our subscription revenue to increase over time.

However, an increase in the relative contribution of Elastic Cloud to our business could adversely impact our gross margin as a result of the associated hosting costs.

Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S.

GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance.

We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes.

We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance.

However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with U.S.

In particular, free cash flow is not a substitute for cash used in operating activities.

Additionally, the utility of free cash flow as a measure of our financial performance and liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period.

In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison.

A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with U.S.

Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, operating results or future outlook.

Non-GAAP Gross Profit and Non-GAAP Gross Margin

We define non-GAAP gross profit and non-GAAP gross margin as GAAP gross profit and GAAP gross margin, respectively, excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, and amortization of acquired intangible assets.

We believe non-GAAP gross profit and non-GAAP gross margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations, as these metrics generally eliminate the effects of certain variables from period to period for reasons unrelated to overall operating performance.

Year Ended April 30,

2021 2020 2019

(in thousands)

Gross profit $ 447,435 $ 304,930 $ 193,643

Stock-based compensation expense 11,929 7,127 4,591

Employer payroll taxes on employee stock transactions 1,335 527 38

Amortization of acquired intangibles 8,437 6,768 2,808

Non-GAAP gross profit $ 469,136 $ 319,352 $ 201,080

Gross margin 74 % 71 % 71 %

Non-GAAP gross margin (non-GAAP gross profit as a percentage of revenue)

77 % 75 % 74 %

Non-GAAP Operating Loss and Non-GAAP Operating Margin

We define non-GAAP operating loss and non-GAAP operating margin as GAAP operating loss and GAAP operating margin, respectively, excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, amortization of acquired intangible assets, and acquisition-related expenses.

We believe non-GAAP operating loss and non-GAAP operating margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations, as these metrics generally eliminate the effects of certain variables from period to period for reasons unrelated to overall operating performance.

Year Ended April 30,

2021 2020 2019

(in thousands)

Operating loss $ (129,478) $ (171,105) $ (101,356)

Stock-based compensation expense 93,680 60,007 39,942

Employer payroll taxes on employee stock transactions 14,376 7,493 1,814

Amortization of acquired intangibles 14,167 10,068 2,956

Acquisition-related expenses — 17,974 948

Non-GAAP loss from operations $ (7,255) $ (75,563) $ (55,696)

Operating margin (21) % (40) % (37) %

Non-GAAP operating margin (non-GAAP loss from operations as a percentage of revenue)

(1) % (18) % (21) %

Free Cash Flow and Free Cash Flow Margin

Free cash flow is a non-GAAP financial measure that we define as net cash provided by (used in) operating activities less purchases of property and equipment and capitalized internal-use software costs.

Free cash flow margin is calculated as free cash flow divided by total revenue.

We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our core operations that, after the purchases of property and equipment, can be used for strategic initiatives, including investing in our business and selectively pursuing acquisitions and strategic investments.

We further believe that historical and future trends in free cash flow and free cash flow margin, even if negative, provide useful information about the amount of net cash provided by (used in) operating activities that is available (or not available) to be used for strategic initiatives.

For example, if free cash flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives.

One limitation of free cash flow and free cash flow margin is that they do not reflect our future contractual commitments.

Additionally, free cash flow does not represent the total increase or decrease in our cash balance for a given period.

The following table presents our cash flows for the periods presented and a reconciliation of free cash flow and free cash flow margin to net cash provided by (used in) operating activities, the most directly comparable financial measure calculated in accordance with GAAP:

Year Ended April 30,

2021 2020 2019

(in thousands)

Net cash provided by (used in) operating activities $ 22,545 $ (30,564) $ (23,937)

Purchases of property and equipment (3,912) (5,063) (3,447)

Capitalization of internal-use software (317) — —

Free cash flow $ 18,316 $ (35,627) $ (27,384)

Net cash used in investing activities $ (1,518) $ (29,187) $ (8,283)

Net cash provided by financing activities $ 77,258 $ 58,539 $ 281,788

Net cash used in operating activities (as a percentage of total revenue)

4 % (7) % (9) %

Purchases of property and equipment (as a percentage of total revenue)

(1) % (1) % (1) %

Capitalization of internal-use software (as a percentage of total revenue) — % — % — %

Free cash flow margin 3 % (8) % (10) %

Calculated Billings

We define calculated billings as total revenue plus the increase in total deferred revenue as presented on or derived from our consolidated statements of cash flows less the (increase) decrease in total unbilled accounts receivable in a given period.

Calculated billings exclude deferred revenue and unbilled accounts receivable acquired through acquisitions in the period of the acquisition.

We typically invoice our customers annually in advance, and to a lesser extent multi-year in advance, quarterly in advance, monthly in advance, monthly in arrears or upon delivery.

Our management uses calculated billings to understand and evaluate our near-term cash flows and operating results.

The following table presents our calculated billings for the periods presented and a reconciliation of calculated billings to total revenue, the most directly comparable financial measure calculated in accordance with GAAP:

Year Ended April 30,

2021 2020 2019

(in thousands)

Total revenue $ 608,489 $ 427,620 $ 271,653

Increase in total deferred revenue 115,937 85,670 71,876

Increase in unbilled accounts receivable (2,582) (592) (571)

Calculated billings $ 721,844 $ 512,698 $ 342,958

Components of Results of Operations

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This revenue is presented as License – self-managed in our consolidated statements of operations.

The remainder of revenue from self-managed subscriptions is recognized ratably over the subscription term while revenue from subscriptions that require access to the cloud or that are hosted and managed by us or by a partner on our behalf in the cloud is recognized ratably over the subscription term or on a usage basis;

The remainder of revenue from self-managed subscriptions 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 – self-managed and SaaS in our consolidated statements of operations.

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Professional services is composed of consulting services as well as public and private training.

Consulting services are generally time-based arrangements.

Revenue for professional services is recognized as these services are performed.

Revenue for professional services is recognized as these services are delivered.

Cost of Revenue

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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.

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Sales and marketing.

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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.

We capitalize sales commissions and associated payroll taxes paid to internal sales personnel that are related to the acquisition of customer contracts.

Sales commissions costs are amortized over the expected benefit period.

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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.

We also anticipate that we will continue to incur additional costs for employees and third-party consulting services related to operating as a public company.

Other Income, Net

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

Other Income (Expense), Net

Other income (expense), net primarily consists of interest expense, gains and losses from transactions denominated in a currency other than the functional currency, and interest income.

Provision for (Benefit from) Income Taxes

2 unchanged sentences

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, and non-deductible stock-based compensation.

T a b l e o f C o ntents

Results of Operations

24 unchanged sentences

Other income (expense), net

Interest expense (20,716) (185) —

Other income (expense), net (3,393) 7,949 1,963

Loss before income taxes (197,789) (121,714) (169,142)

12 unchanged sentences

Total stock-based compensation expense $ 141,194 $ 93,680 $ 60,007

T a b l e o f C o ntents

(2) Includes employer payroll taxes on employee stock transactions as follows:

9 unchanged sentences

Total employer payroll tax on stock transactions $ 9,961 $ 14,376 $ 7,493

(3) Includes amortization of acquired intangibles as follows:

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

Year Ended April 30,

14 unchanged sentences

Total acquisition-related expenses $ 7,632 $ — $ 17,974

T a b l e o f C o ntents

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

19 unchanged sentences

Operating loss (1)(2)(3)(4)

Other income (expense), net 1 % 0 % 1 %

Loss before income taxes (20) % (40) % (36) %

Provision for (benefit from) income taxes 1 % (1) % 2 %

Net loss (21) % (39) % (38) %

Comparison of Fiscal Years Ended April 30, 2021 and 2020

Year Ended April 30, Change

(20) % (21) % (40) %

(in thousands)

License - self-managed $ 67,994 $ 53,536 $ 14,458 27 %

Subscription - self-managed and SaaS 499,345 338,634 160,711 47 %

Total subscription revenue 567,339 392,170 175,169 45 %

Professional services 41,150 35,450 5,700 16 %

Total revenue $ 608,489 $ 427,620 $ 180,869 42 %

Total subscription revenue increased $175.2 million, or 45%, in the year ended April 30, 2021 compared to the prior year.

The increase in revenue was primarily caused by volume-driven increases from new business, as existing customers purchased additional subscriptions, and we grew our subscription customer base to over 15,000 customers in the year ended April 30, 2021 compared to over 11,300 customers in the prior year.

Professional services revenue increased by $5.7 million, or 16%, in the year ended April 30, 2021 compared to the prior year.

The increase in professional services revenue was attributable to increased adoption of our professional services consulting offerings.

Cost of Revenue and Gross Margin

Year Ended April 30, Change

2021 2020 $ %

(in thousands)

Cost of revenue

Cost of license - self-managed $ 1,386 $ 948 $ 438 46 %

Cost of subscription - self-managed and SaaS 121,127 84,819 36,308 43 %

Total cost of revenue - subscription 122,513 85,767 36,746 43 %

Cost of professional services 38,541 36,923 1,618 4 %

Total cost of revenue $ 161,054 $ 122,690 $ 38,364 31 %

Gross profit $ 447,435 $ 304,930 $ 142,505 47 %

Gross margin:

License - self-managed 98 % 98 %

Subscriptions - self-managed and SaaS 76 % 75 %

Total subscription margin 78 % 78 %

Professional services 6 % (4) %

Total gross margin 74 % 71 %

Total cost of subscription revenue increased by $36.7 million, or 43%, in the year ended April 30, 2021 compared to the prior year.

This increase was primarily due to an increase of $26.2 million in cloud infrastructure costs and an increase of $8.1 million in personnel and related charges from growth in headcount in our support organization.

In addition, amortization of acquired intangible assets increased $1.2 million.

These increases were partially offset by a decrease of $1.7 million in travel expenses due to COVID-19 related travel restrictions.

The increase in personnel and related costs includes an increase of $4.3 million in salaries and related taxes and an increase of $3.0 million in stock-based compensation expense.

Total subscription margin remained flat at 78% in the year ended April 30, 2021 compared to the prior year.

Cost of professional services revenue increased by $1.6 million, or 4%, in the year ended April 30, 2021 compared to the prior year.

This increase was primarily due to an increase of $5.9 million in personnel and related costs, including increases of $3.8 million in salaries and related taxes and $1.8 million in stock-based compensation driven by an increase in headcount in our consulting and training organizations.

In addition, subcontractor costs increased $0.5 million.

These increases were partially offset by a decrease of $3.4 million in travel expenses and a decrease of $1.3 million in training facility costs due to COVID-19 related restrictions.

Gross margin for professional services revenue was 6% in the year ended April 30, 2021 compared to (4)% for the prior year.

The increase in margin is primarily due to the increase in revenue, and a lower than proportionate increase in cost of professional services.

The cost of professional services remained relatively flat due to a decrease in travel related costs as we shifted to virtual delivery of professional services in light of travel restrictions due to COVID-19.

In recent periods, we have invested in headcount for our professional services organization that we believe will be needed as we continue to grow and expect travel related costs will increase in the future once travel restrictions lift.

Our gross margin for professional services may fluctuate, decline or be negative in the near-term as we seek to expand our professional services business.

Operating Expenses

Research and development

Year Ended April 30, Change

2021 2020 $ %

(in thousands)

Research and development $ 199,203 $ 165,370 $ 33,833 20 %

Research and development expense increased by $33.8 million, or 20%, in the year ended April 30, 2021 compared to the prior year as we continued to invest in the development of new and existing offerings.

Personnel and related costs increased by $35.0 million, and software and equipment expense increased by $2.9 million, primarily as a result of growth in headcount.

In addition, cloud infrastructure costs related to our research and development activities increased $1.8 million.

These increases were partially offset by a decrease in travel expenses of $7.6 million due to COVID-19 travel restrictions and holding events virtually.

The increase in personnel and related costs includes an increase of $21.1 million in salaries and related taxes, an increase of $11.6 million in stock-based compensation expense and an increase of $2.4 million in employee benefits expense.

Sales and marketing

Year Ended April 30, Change

2021 2020 $ %

(in thousands)

Sales and marketing $ 273,877 $ 219,040 $ 54,837 25 %

Sales and marketing expense increased by $54.8 million, or 25%, in the year ended April 30, 2021 compared to the prior year.

This increase was primarily due to an increase of $53.8 million in personnel related costs and a $1.1 million increase in software and equipment charges as we continued to increase our sales and marketing headcount.

In addition, marketing expenses increased by $7.6 million and amortization of intangible assets increased by $2.4 million.

These increases were partially offset by a decrease of $13.3 million in travel expenses due to COVID-19 travel restrictions and holding events virtually.

The increase in personnel and related costs includes an increase of $26.3 million in salaries and related taxes, an increase of $12.2 million in stock-based compensation expense, an increase of $11.6 million in commissions expense related to the amortization of contract acquisition costs and an increase of $3.3 million in employee benefits expense.

General and administrative

Year Ended April 30, Change

2021 2020 $ %

(in thousands)

General and administrative $ 103,833 $ 91,625 $ 12,208 13 %

General and administrative expense increased by $12.2 million, or 13%, in the year ended April 30, 2021 compared to the prior year.

This increase was primarily due to an increase of $3.3 million in personnel related costs and a $0.6 million increase in software and equipment charges as we continued to increase our general and administrative headcount.

In addition, bad debt expense related to expected credit losses on accounts receivable and write-off of uncollectible balances increased by $4.2 million, consulting expense increased by $1.8 million and insurance, business taxes, and charitable donations increased by $2.6 million.

These increases were largely offset by a decrease of $1.6 million in travel expenses due to COVID-19 travel restrictions.

The increase in personnel and related costs includes an increase of $9.5 million in salaries and related taxes, an increase of $5.0 million in stock-based compensation expense, an increase of $0.7 million in employee benefits expense and an increase of $0.5 million in recruiting costs, which were partially offset by a decrease in acquisition related compensation of $12.5 million.

Other Income, Net

Year Ended April 30, Change

2021 2020 $ %

(in thousands)

Other income, net $ 7,764 $ 1,963 $ 5,801 296 %

Other income, net increased by $5.8 million, or 296%, in the year ended April 30, 2021 compared to the prior year.

This increase was due to a net increase in foreign currency gains of $9.9 million related primarily to remeasurement of certain asset and liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded.

The foreign currency gains were partially offset by a decrease of $4.0 million in interest income due to lower interest rates.

Provision for (Benefit from) Income Taxes

Year Ended April 30, Change

2021 2020 $ %

(in thousands)

Provision for (benefit from) income taxes $ 7,720 $ (1,968) $ 9,688 (492) %

The provision for income taxes was $7.7 million in the year ended April 30, 2021 compared to a benefit from income taxes of $2.0 million in the prior year.

The additional tax expense is primarily due to an increase of $4.6 million in income taxes from foreign subsidiaries.

A tax benefit associated with stock-based compensation of $100.0 million was offset by the provision of a valuation allowance of $100.0 million for deferred tax assets in the United States, the Netherlands, and the United Kingdom.

Our effective tax rate was (6.3)% and 1.2% of our net loss before taxes for the years ended April 30, 2021 and 2020, respectively.

Quarterly Results of Operations

The following tables set forth our unaudited quarterly consolidated statements of operations data for each of the quarters indicated, as well as the percentage that each line item represents of our total revenue for each quarter presented.

The information for each quarter has been prepared on a basis consistent with our audited consolidated financial statements included in this Annual Report on Form 10-K, and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair statement of the financial information contained in those financial statements.

Our historical results are not necessarily indicative of the results that may be expected in the future.

The following quarterly financial data should be read in conjunction with our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Three Months Ended

April 30, 2021 January 31, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019

License - self-managed $ 22,321 $ 15,280 $ 15,514 $ 14,879 $ 16,862 $ 14,495 $ 12,272 $ 9,907

Subscription - self-managed and SaaS

142,218 131,969 118,695 106,463 97,041 89,703 79,407 72,483

Total subscription revenue 164,539 147,249 134,209 121,342 113,903 104,198 91,679 82,390

Professional services 13,071 9,866 10,685 7,528 9,720 8,983 9,427 7,320

Total revenue 177,610 157,115 144,894 128,870 123,623 113,181 101,106 89,710

Cost of revenue (1)(2)(3)

Cost of license - self- managed

347 346 347 346 346 347 158 97

Cost of subscription - self- managed and SaaS

34,663 31,426 29,148 25,890 23,987 23,196 19,741 17,895

Total cost of revenue - subscription

35,010 31,772 29,495 26,236 24,333 23,543 19,899 17,992

Cost of professional services 10,797 10,196 8,953 8,595 9,940 9,862 8,862 8,259

Total cost of revenue 45,807 41,968 38,448 34,831 34,273 33,405 28,761 26,251

Gross profit 131,803 115,147 106,446 94,039 89,350 79,776 72,345 63,459

Operating expenses (1)(2)(3)(4)

Research and development 55,437 51,400 46,688 45,678 45,591 46,119 38,478 35,182

Sales and marketing 82,165 71,087 64,474 56,151 58,180 54,829 54,020 52,011

General and administrative 31,278 27,121 23,705 21,729 20,153 21,096 31,808 18,568

Total operating expenses

168,880 149,608 134,867 123,558 123,924 122,044 124,306 105,761

Operating loss (1)(2)(3)(4)

(37,077) (34,461) (28,421) (29,519) (34,574) (42,268) (51,961) (42,302)

Other income (expense), net

(660) (2,377) (84) 10,885 687 (1,339) 1,684 931

Interest expense (3) % 0 % 0 %

Other income (expense), net 0 % 1 % 0 %

Loss before income taxes (23) % (20) % (40) %

(37,737) (36,838) (28,505) (18,634) (33,887) (43,607) (50,277) (41,371)

Provision for (benefit from) income taxes 1 % 1 % (1) %

5,564 1,136 653 367 (2,736) 674 (304) 398

Net loss (24) % (21) % (39) %

Net loss per share attributable to ordinary shareholders, basic and diluted

$ (0.48) $ (0.43) $ (0.34) $ (0.23) $ (0.38) $ (0.55) $ (0.64) $ (0.56)

Weighted-average shares used to compute net loss per share attributable to ordinary shareholders, basic and diluted

90,028,822 88,341,038 86,373,166 84,175,287 82,123,381 80,737,237 77,772,406 74,643,782

(1) Includes stock-based compensation expense as follows:

Three Months Ended

April 30, 2021 January 31, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019

Year Ended April 30,

2022 2021 2020

(in thousands)

Cost of revenue

Cost of subscription - self managed and SaaS 1 % 1 % 1 %

$ 2,040 $ 1,839 $ 1,860 $ 1,366 $ 1,278 $ 1,008 $ 946 $ 915

Cost of professional services 1 % 1 % — %

1,537 1,359 976 952 902 879 638 561

Research and development 7 % 6 % 6 %

10,958 9,516 7,663 7,130 6,534 6,256 5,870 4,961

Sales and marketing 5 % 5 % 5 %

9,062 8,372 7,955 6,192 5,828 4,540 4,658 4,308

General and administrative 2 % 2 % 2 %

4,778 4,141 3,033 2,951 2,690 2,905 2,304 2,026

Total stock-based compensation expense 16 % 15 % 14 %

$ 28,375 $ 25,227 $ 21,487 $ 18,591 $ 17,232 $ 15,588 $ 14,416 $ 12,771

T a b l e o f C o ntents

(2) Includes employer payroll taxes on employee stock transactions as follows:

Three Months Ended

April 30, 2021 January 31, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019

Year Ended April 30,

2022 2021 2020

(in thousands)

Cost of Revenue

Cost of subscription - self managed and SaaS — % — % — %

$ 187 $ 267 $ 77 $ 143 $ 28 $ 21 $ 166 $ 134

Cost of professional services — % — % — %

237 322 25 77 42 16 86 34

Research and development — % — % 1 %

968 1,243 465 994 293 238 888 760

Sales and marketing 1 % 1 % 1 %

1,905 1,723 614 1,157 421 335 1,887 594

General and administrative — % 1 % — %

643 2,130 462 737 61 129 753 607

Total stock-based compensation expense

Total employer payroll tax on stock transactions 1 % 2 % 2 %

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

Year Ended April 30,

2022 2021 2020

(3) Includes amortization of acquired intangibles as follows:

Three Months Ended

April 30, 2021 January 31, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019

(in thousands)

Cost of Revenue

Cost of license - self-managed — % — % — %

$ 347 $ 346 $ 347 $ 346 $ 346 $ 347 $ 158 $ 97

Cost of subscription - self-managed and SaaS 1 % 1 % 1 %

1,762 1,764 1,762 1,763 1,763 2,660 861 536

Sales and marketing 1 % 1 % 1 %

Total amortization of acquired intangibles 2 % 2 % 2 %

$ 3,537 $ 3,538 $ 3,542 $ 3,550 $ 3,550 $ 4,458 $ 1,398 $ 662

(4) Includes acquisition-related expenses as follows:

Three Months Ended

April 30, 2021 January 31, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019

Year Ended April 30,

2022 2021 2020

(in thousands)

Research and development 1 % — % — %

2 unchanged sentences

Total acquisition-related expenses 1 % — % 4 %

Comparison of Fiscal Years Ended April 30, 2022 and 2021

Year Ended April 30, Change

2022 2021 $ %

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

Three Months Ended

April 30, 2021 January 31, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019

(in thousands)

License - self-managed $ 76,964 $ 67,994 $ 8,970 13 %

Subscription - self-managed and SaaS 721,806 499,345 222,461 45 %

80 % 84 % 82 % 83 % 78 % 79 % 79 % 81 %

Total subscription revenue 798,770 567,339 231,431 41 %

93 % 94 % 93 % 94 % 92 % 92 % 91 % 92 %

Professional services 63,604 41,150 22,454 55 %

Total revenue $ 862,374 $ 608,489 $ 253,885 42 %

Total subscription revenue increased by $231.4 million, or 41%, for the year ended April 30, 2022 compared to the prior year.

The increase in revenue was primarily caused by volume-driven increases from new business, as existing customers purchased additional subscriptions, and we grew our subscription customer base to over 18,600 customers for the year ended April 30, 2022 compared to over 15,000 customers in the prior year.

T a b l e o f C o ntents

Professional services revenue increased by $22.5 million, or 55%, for the year ended April 30, 2022 compared to the prior year.

The increase in professional services revenue was attributable to increased adoption of our professional services offerings.

Cost of Revenue and Gross Margin

Year Ended April 30, Change

2022 2021 $ %

(in thousands)

Cost of revenue

Cost of license - self-managed $ 1,548 $ 1,386 $ 162 12 %

0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 %

Cost of subscription - self-managed and SaaS 176,656 121,127 55,529 46 %

20 % 20 % 20 % 20 % 20 % 21 % 20 % 20 %

Total cost of revenue - subscription 178,204 122,513 55,691 45 %

20 % 20 % 20 % 20 % 20 % 21 % 20 % 20 %

Cost of professional services 53,990 38,541 15,449 40 %

6 % 7 % 7 % 7 % 8 % 9 % 8 % 9 %

Total cost of revenue $ 232,194 $ 161,054 $ 71,140 44 %

Gross profit $ 630,180 $ 447,435 $ 182,745 41 %

Gross margin:

License - self-managed 98 % 98 %

Subscriptions - self-managed and SaaS 76 % 76 %

Total subscription margin 78 % 78 %

Professional services 15 % 6 %

Total gross margin 73 % 74 %

Total cost of subscription revenue increased by $55.7 million, or 45%, for the year ended April 30, 2022 compared to the prior year.

This increase was primarily due to an increase of $42.1 million in cloud infrastructure costs and an increase of $6.8 million in personnel and related charges.

In addition, third-party consulting and partner costs increased by $2.9 million and amortization of acquired intangible assets increased by $1.9 million.

The increase in personnel and related costs includes an increase of $4.9 million in salaries and related taxes and an increase of $1.3 million in stock-based compensation expense.

Total subscription margin remained flat at 78% for the year ended April 30, 2022 compared to the prior year.

Cost of professional services revenue increased by $15.4 million, or 40%, for the year ended April 30, 2022 compared to the prior year.

This increase was primarily due to an increase of $7.6 million in personnel and related costs, including increases of $5.2 million in salaries and related taxes and $1.6 million in stock-based compensation driven by an increase in headcount in our professional services organization.

In addition, subcontractor costs increased by $6.4 million and travel costs increased by $0.6 million.

Gross margin for professional services revenue was 15% for the year ended April 30, 2022 compared to 6% for the prior year.

The increase in margin is primarily due to the increase in revenue, and a lower than proportionate increase in cost of professional services revenue.

We continue to invest in headcount for our professional services organization that we believe will be needed as we continue to grow and expect travel related costs will increase in the future as COVID-19 risks and travel restrictions abate.

Our gross margin for professional services may fluctuate, decline or be negative in the near-term as we seek to expand our professional services business.

Operating Expenses

Research and development

Sales and marketing

46 % 45 % 45 % 44 % 47 % 48 % 53 % 58 %

General and administrative

18 % 17 % 16 % 17 % 16 % 18 % 31 % 21 %

Total operating expenses

95 % 95 % 93 % 96 % 100 % 107 % 122 % 118 %

Operating loss (1)(2)(3)(4)

(21) % (22) % (20) % (23) % (28) % (37) % (50) % (47) %

Other income (expense), net — % (1) % 0 % 9 % 1 % (2) % 0 % 1 %

Loss before income taxes (21) % (23) % (20) % (14) % (27) % (39) % (50) % (46) %

Provision for (benefit from) income taxes

3 % 1 % 0 % 1 % (2) % 0 % (1) % 1 %

Net loss (24) % (24) % (20) % (15) % (25) % (39) % (49) % (47) %

(1) Includes stock-based compensation expense as follows:

Three Months Ended

April 30, 2021 January 31, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019

Cost of Revenue

Cost of subscription - self managed and SaaS

1 % 1 % 1 % 1 % 1 % 1 % 1 % 1 %

Cost of professional services

Year Ended April 30, Change

2022 2021 $ %

(in thousands)

Research and development $ 273,761 $ 199,203 $ 74,558 37 %

Research and development expense increased by $74.6 million, or 37%, for the year ended April 30, 2022 compared to the prior year as we continued to invest in the development of new and existing offerings.

Personnel and related costs increased by $64.9 million as a result of growth in headcount.

In addition, cloud infrastructure costs related to our research and development activities increased by $3.1 million, consulting costs increased by $3.1 million, and travel costs increased by $2.6 million.

The increase in personnel and related costs includes an increase of $29.7 million in salaries and related taxes, an

T a b l e o f C o ntents

increase of $24.6 million in stock-based compensation expense, an increase of $6.1 million in acquisition related compensation, and an increase of $2.8 million in employee benefits expense.

Sales and marketing

5 % 5 % 6 % 5 % 5 % 4 % 5 % 5 %

General and administrative

3 % 3 % 2 % 2 % 2 % 3 % 2 % 2 %

Total stock-based compensation expense

16 % 16 % 15 % 14 % 14 % 14 % 14 % 15 %

(2) Includes employer payroll taxes on employee stock transactions as follows:

Three Months Ended

April 30, 2021 January 31, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019

Cost of Revenue

Cost of subscription - self managed and SaaS

0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 %

Cost of professional services

0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 %

Research and development

Year Ended April 30, Change

2022 2021 $ %

(in thousands)

Sales and marketing $ 406,658 $ 273,877 $ 132,781 48 %

1 % 1 % 1 % 1 % 1 % 1 % 2 % 1 %

Sales and marketing expense increased by $132.8 million, or 48%, for the year ended April 30, 2022 compared to the prior year.

This increase was primarily due to an increase of $110.2 million in personnel related costs and a $4.1 million increase in software and equipment charges due to growth in headcount.

In addition, marketing expenses increased by $9.3 million and travel costs increased by $7.4 million.

The increase in personnel and related costs includes an increase of $60.1 million in salaries and related taxes, an increase of $23.8 million in commission expense, an increase of $14.2 million in stock-based compensation expense and an increase of $7.4 million in employee benefits expense.

General and administrative

0 % 2 % 0 % 0 % 0 % 0 % 1 % 1 %

Total stock-based compensation expense

2 % 4 % 1 % 2 % 1 % 1 % 4 % 3 %

(3) Includes amortization of acquired intangibles as follows:

Three Months Ended

April 30, 2021 January 31, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019

Cost of Revenue

Cost of license - self- managed

0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 %

Cost of subscription - self- managed and SaaS

1 % 1 % 1 % 2 % 2 % 3 % 1 % 1 %

Sales and marketing 1 % 1 % 1 % 1 % 1 % 1 % 0 % 0 %

Total amortization of acquired intangibles

Year Ended April 30, Change

2022 2021 $ %

(4) Includes acquisition-related expenses as follows:

Three Months Ended

April 30, 2021 January 31, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019

Research and development 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 %

Sales and marketing 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 %

(in thousands)

General and administrative $ 123,441 $ 103,833 $ 19,608 19 %

Total acquisition-related expenses

General and administrative expense increased by $19.6 million, or 19%, for the year ended April 30, 2022 compared to the prior year.

This increase was primarily due to an increase of $10.3 million in personnel related costs and a $1.1 million increase in software and equipment charges due to headcount growth.

In addition, legal and professional fees increased by $7.0 million, consulting expense increased by $1.2 million and travel costs increased by $1.1 million.

These increases were partially offset by a $2.2 million decrease in bad debt expense related to expected credit losses on accounts receivable and write-off of uncollectible balances.

The increase in personnel and related costs includes an increase of $5.8 million in stock-based compensation expense, an increase of $4.3 million in salaries and related taxes, an increase of $1.1 million in employee benefits expense which were partially offset by a decrease of $1.4 million in recruiting costs.

Other Income, Net

Year Ended April 30, Change

2022 2021 $ %

Quarterly Trends in Revenue and Expense

Our quarterly total subscription revenue increased sequentially in each of the periods presented due to the expansion of our existing customer subscription footprint and an increase in the number of new customers.

Historically, we have experienced quarterly fluctuations and seasonality based on the timing of entering into new agreements with customers, the timing of renewals, and the mix between annual and monthly contracts entered in each reporting period.

Revenue trends are impacted by seasonality in our sales cycle which generally reflects a trend to greater revenue in our second and fourth quarters and lower revenue in our first and third quarters, though we believe this trend has been somewhat masked by our overall revenue growth.

Because we generally invoice annually in advance for subscription agreements at least one year in duration, but we recognize the majority of the revenue ratably over the term of those agreements, a substantial portion of the revenue that we report in each period is attributable to the recognition of deferred revenue relating to subscriptions invoiced during previous periods.

Consequently, increases or decreases in subscriptions in any one period typically will not be fully reflected in our revenue for that period and will positively or negatively affect our revenue in future periods.

Accordingly, the effect of downturns in sales and market acceptance of our products may not be fully reflected in our results of operations until future periods.

We may also experience greater variability and reduced comparability of our quarterly revenue and results with respect to timing and size of our monthly SaaS subscription contracts, particularly for smaller customers.

The increase in professional services revenue was a result of an increase in standalone consulting and training services due to increased adoption of our offerings.

Our cost of revenue increased sequentially in each of the quarters presented, primarily driven by expanded adoption of Elastic Cloud by existing and new customers, which resulted in increased hosting costs, as well as growth in personnel costs as we grew our support and professional services teams.

Our total gross margin increased in the year ended April 30, 2021 due to an increase in our professional services margin, which may fluctuate, decline or be negative in the near-term as we seek to expand our professional services business.

We expect our revenue from Elastic Cloud to continue to increase as a percentage of total revenue, which may adversely impact our gross margin as a result of the associated hosting costs.

Our operating expenses generally increased sequentially over the periods presented as we grew the associated headcount and other costs.

We are subject to income taxes in the Netherlands, the United States, and numerous other jurisdictions.

Our tax expense fluctuates between quarters primarily as a result of seasonally higher earnings in the second and fourth quarters and due to the impact of tax rates in foreign jurisdictions, and the relative amounts of income we earn in those jurisdictions.

(in thousands)

Other income (expense), net $ (24,109) $ 7,764 $ (31,873) (411) %

Other expense was $24.1 million for the year ended April 30, 2022 compared to other income of $7.8 million in the prior year.

This was primarily due to a net increase in interest expense of $20.6 million related to the issuance of our Senior Notes during the current fiscal year.

In addition, we recognized a foreign currency transaction loss of $3.6 million in the current fiscal year compared to a foreign currency transaction gain of $7.7 million in the prior year.

Provision for Income Taxes

Year Ended April 30, Change

2022 2021 $ %

(in thousands)

Provision for income taxes $ 6,059 $ 7,720 $ (1,661) (22) %

The provision for income taxes decreased $1.7 million, or 22%, for the year ended April 30, 2022 compared to the prior year.

The decrease in tax expense is primarily due to a decrease in income taxes from foreign subsidiaries.

The tax benefit for stock-based compensation was partially offset by a valuation allowance for deferred tax assets in the United States, the Netherlands, and the United Kingdom.

Our effective tax rate was (3.1)% and (6.3)% of our net loss before taxes for the years ended April 30, 2022 and 2021, respectively.

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Liquidity and Capital Resources

As of April 30, 2022, we had cash and cash equivalents and restricted cash of $860.9 million and $2.7 million, respectively, and working capital of $570.4 million.

Our restricted cash constitutes cash deposits with financial institutions in support of letters of credit in favor of landlords for non-cancelable lease agreements.

Our restricted cash consists primarily of cash deposits with financial institutions in support of letters of credit in favor of landlords for non-cancelable lease agreements.

We have generated significant operating losses from our operations as reflected in our accumulated deficit of $817.2 million as of April 30, 2022.

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We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect.

We may be required to seek additional equity or debt financing.

In July 2021, we issued long-term debt of $575.0 million, and we may be required to seek additional equity or debt financing.

In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.

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$ 602,127 $ 77,258 $ 58,539

Net Cash Provided By (Used in) Operating Activities

Net Cash Provided By Operating Activities

Net cash provided by operating activities during the year ended April 30, 2022 was $5.7 million, which resulted from a net loss of $203.8 million adjusted for non-cash charges of $230.2 million and net cash outflow of $20.6 million from changes in operating assets and liabilities.

Non-cash charges primarily consisted of $140.6 million for stock-based compensation expense, $60.7 million for amortization of deferred contract acquisition costs, $19.7 million of depreciation and intangible asset amortization expense, $8.6 million in non-cash operating lease costs, net foreign currency transaction loss of $2.0 million, amortization of debt issuance costs of $0.8 million, and $0.1 million of other expenses which were partially offset by an increase of $2.4 million in deferred tax assets.

The net cash outflow from changes in operating assets and liabilities was the result of an increase of $62.2 million in accounts receivable due to higher billings and timing of collections from our customers, an increase in deferred contract acquisition costs of $96.8 million as our sales commissions increased due to increased business volume, a decrease of $8.9 million in operating lease liabilities, and an increase of $2.6 million in prepaid and other assets.

These outflows were partially offset by an $83.8 million increase in deferred revenue due to higher billings and a net increase of $66.0 million in accounts payable, accrued expenses and accrued compensation and benefits due to growth in our business and higher headcount.

Net cash provided by operating activities during the year ended April 30, 2021 was $22.5 million, which resulted from a net loss of $129.4 million adjusted for non-cash charges of $150.2 million and net cash inflow of $1.8 million from changes in operating assets and liabilities.

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The net cash inflow from changes in operating assets and liabilities was the result of a $115.9 million increase in deferred revenue due to higher billings and a net increase of $7.2 million in accounts payable, accrued expenses and accrued compensation and benefits due to growth in our business and higher headcount.

These inflows were partially offset by an increase of $24.0 million in accounts receivable due to higher billings and timing of collections from our customers, an increase in deferred contract acquisition costs of $81.1 million as our sales commissions increased due to the addition of new customers and expansion of our existing customer subscriptions, an increase of $8.3 million in prepaid and other assets and a decrease of $7.9 million in operating lease liabilities.

Net cash used in operating activities during the year ended April 30, 2020 was $30.6 million, which resulted from a net loss of $167.2 million adjusted for non-cash charges of $117.0 million and net cash inflow of $19.6 million from changes in operating assets and liabilities.

Non-cash charges primarily consisted of $60.0 million for stock-based compensation expense, $28.3 million for amortization of deferred contract acquisition costs, $12.9 million of depreciation and intangible asset amortization expense, $8.8 million of non-cash acquisition expense, $7.4 million in non-cash operating lease costs and $1.1 million of other non-cash transactions which were partially offset by a $1.5 million increase in deferred income taxes.

The net cash inflow from changes in operating assets and liabilities was the result of a $85.7 million increase in deferred revenue due to higher billings and a net increase of $30.9 million in accounts payable, accrued expenses and accrued compensation and benefits due to growth in our business and higher headcount, and a decrease of $2.7 million in prepaid and other assets.

These inflows were partially offset by a $46.8 million increase in accounts receivable due to higher billings and timing of collections from our customers, an increase in deferred contract acquisition costs of $46.2 million as our sales commissions increased due to the addition of new customers and expansion of our existing customer subscriptions and a $6.7 million decrease in operating lease liabilities relating to the adoption of the new lease accounting standard.

These inflows were partially offset by an increase of $24.0 million in accounts receivable due to higher

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billings and timing of collections from our customers, an increase in deferred contract acquisition costs of $81.1 million as our sales commissions increased due to the addition of new customers and expansion of our existing customer subscriptions, an increase of $8.3 million in prepaid and other assets and a decrease of $7.9 million in operating lease liabilities.

Net Cash Used in Investing Activities

Net cash used in investing activities of $1.5 million during the year ended April 30, 2021 was primarily due $3.9 million of capital expenditures and capitalization of $0.3 million in internal-use software costs during the period, partially offset by cash provided by other investing activities of $2.7 million .

Net cash used in investing activities of $29.2 million during the year ended April 30, 2020 was primarily due to $24.4 million cash used for the acquisition of Endgame and $5.1 million of capital expenditures during the period.

Net cash used in investing activities of $127.3 million during the year ended April 30, 2022 was primarily due to cash used in acquisitions of $119.9 million, capitalization of $4.9 million in internal-use software costs, and $2.5 million of capital expenditures during the period.

Net cash used in investing activities of $1.5 million during the year ended April 30, 2021 was primarily due to $3.9 million of capital expenditures and capitalization of $0.3 million in internal-use software costs during the period, partially offset by cash provided by other investing activities of $2.7 million.

Net Cash Provided by Financing Activities

Net cash provided by financing activities of $602.1 million during the year ended April 30, 2022 was due to the proceeds of $575.0 million from the issuance of our Senior Notes and $36.4 million of proceeds from stock option exercises, partially offset by $9.3 million payments of debt issuance costs.

Net cash provided by financing activities of $77.3 million during the year ended April 30, 2021 was due to proceeds from option exercises during the period.

Net cash provided by financing activities of $58.5 million during the year ended April 30, 2020 was due to $61.5 million proceeds from option exercises during the period, which was partially offset by payment of withholding taxes of $2.8 million for an acquisition-related expense that was settled in ordinary shares of the Company.

Off Balance Sheet Arrangements

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Contractual Obligations and Commitments

Our principal commitments consist of obligations under operating leases for office space and purchase obligations.

The following table summarizes our contractual obligations as of April 30, 2021:

Total Less than

1 year 1-3 years 3-5 years More than

(in thousands)

Purchase obligations (1)

$ 348,478 $ 56,346 $ 182,132 $ 110,000 $ —

Operating lease commitments (2)

31,024 8,981 14,148 7,895 —

Total $ 379,502 $ 65,327 $ 196,280 $ 117,895 $ —

(1) Primarily consists of our purchase obligations under non-cancellable agreements for cloud hosting, subscription software, and sales and marketing.

Actual payments under the cloud hosting capacity commitments may be higher than the total minimum depending on services used.

(2) Consists of future non-cancelable minimum rental payments under operating leases for our offices, excluding rent payments from our sub-tenants and variable operating expenses.

In addition to the contractual obligations set forth above, as of April 30, 2021, we had $2.1 million in letters of credit outstanding in favor of certain landlords for office space.

Our principal commitments consist of our purchase obligations under non-cancellable agreements for cloud hosting, subscription software, and sales and marketing, future non-cancelable minimum rental payments under operating leases for our offices, and interest payments due on our Senior Notes.

As of April 30, 2022, we had purchase commitments of $415.7 million related to cloud hosting services, future minimum lease payment commitments of $29.8 million, and purchase commitments of $36.2 million related to other contracts.

See Note 8 “Commitments and contingencies” and Note 9 “Leases” of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional discussion of our cloud hosting obligations and future non-cancelable minimum rental payments, respectively.

In July 2021, we 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.

See Note 7 “Senior Notes” of our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Additionally, as of April 30, 2022, we had $2.5 million in letters of credit outstanding in favor of certain landlords for office space.

These letters of credit renew annually and expire on various dates through 2023.

The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding.

Obligations under contracts that we can cancel without a significant penalty are not included in the table above.

Purchase orders issued in the ordinary course of business are not included in the table above, as our purchase orders represent authorizations to purchase rather than binding agreements.

We have also excluded unrecognized tax benefits from the contractual obligations table above.

Our contractual commitment amounts are associated with agreements that are enforceable and legally binding and do not include obligations under contracts that we can cancel without a significant penalty.

Purchase orders issued in the ordinary course of business are also excluded, as our purchase orders represent authorizations to purchase rather than binding agreements.

We have also excluded unrecognized tax benefits from the contractual obligations.

A variety of factors could affect the timing of payments for the liabilities related to unrecognized tax benefits.

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We believe that these matters will likely not be resolved in the next 12 months and accordingly we have classified the estimated liability as non-current in the consolidated balance sheet.

For further information see Note 13 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Critical Accounting Policies

We prepare our financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”).

The preparation of financial statements in accordance with GAAP requires certain estimates, assumptions and judgments to be made that may affect our consolidated financial statements.

Accounting policies that have a significant impact on our results are described in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

The accounting policies discussed in this section are those that we consider to be the most critical.

We consider an accounting policy to be critical if the policy is subject to a material level of judgment and if changes in those judgments are reasonably likely to materially impact our results.

For further information see Note 13 “Income taxes” of our accompanying Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

In preparing our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we are required to make estimates, assumptions and judgments that affect the amounts reported on our financial statements and the accompanying disclosures.

Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment.

We base our estimates, assumptions

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and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances.

These estimates may change in future periods and will be recognized in the consolidated financial statements as new events occur and additional information becomes known.

Actual results could differ from those estimates and any such differences may be material to our financial statements.

We believe that the critical accounting policies and estimates set forth below involve a higher degree of judgment and complexity in their application than our other significant accounting policies.

Accounting policies that have a significant impact on our results are described in Note 2 “Summary of Significant Accounting Policies” to our accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

The accounting policies discussed in this section are those that we consider to involve a greater degree of judgment and complexity.

Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

As the impact of the COVID-19 pandemic continues to evolve, estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require increased judgment.

These estimates and assumptions may change in future periods and will be recognized in the consolidated financial statements as new events occur and additional information becomes known.

To the extent our actual results differ materially from those estimates and assumptions, our future financial statements could be affected.

Revenue Recognition

We generate our revenue primarily from the sale of self-managed subscriptions (which include licenses for proprietary features, support, and maintenance) and SaaS subscriptions.

We also generate revenue from professional services, which consist of consulting and training.

Under ASC Topic 606, Revenue from Contracts with Customers , we recognize revenue when our customer obtains control of promised products or services in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.

Our contracts include varying terms and conditions, and identifying and evaluating the impact of these terms and conditions on revenue recognition requires significant judgment.

In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our agreements, we perform the following steps:

(i) identification of the contract with a customer;

We contract with customers through order forms, which in some cases are governed by master sales agreements.

We determine that we have a contract with a customer when the order form has been approved, each party’s rights regarding the products or services to be transferred can be identified, the payment terms for the services can be identified, we have determined the customer has the ability and intent to pay, and the contract has commercial substance.

Our contracts with customers include varying terms and conditions, and identifying and evaluating the impact of these terms and conditions on revenue recognition requires significant judgment.

We apply judgment in determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, credit, reputation, and financial or other information pertaining to the customer.

At contract inception we evaluate whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation.

We have concluded that our contracts with customers do not contain warranties that give rise to a separate performance obligation.

(ii) identification of the performance obligations in the contract;

Performance obligations promised in a contract are identified based on the products and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the products or services either on their own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the products and services is separately identifiable from other promises in the contract.

Our self-managed subscriptions include both license providing the right to use proprietary features in our software, as well as an obligation to provide support (on both open source and proprietary features) and maintenance.

Our SaaS products provide access to hosted software as well as support, which we consider to be a single performance obligation.

Services-related performance obligations relate to the provision of consulting and training services.

These services are distinct from subscriptions and do not result in significant customization of the software.

(iii) determination of the transaction price;

The transaction price is the total amount of consideration we expect to be entitled to in exchange for the subscriptions and services in a contract.

Variable consideration is included in the transaction price if, in our judgment, it is probable that a

significant future reversal of cumulative revenue under the contract will not occur.

None of our contracts contain a significant financing component.

(iv) allocation of the transaction price to the performance obligations;

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.

For contracts that contain multiple performance obligations, we allocate the transaction price to each performance obligation based on a relative standalone selling price (“SSP”).

The SSP is determined based on the prices at which we separately sell these products assuming the majority of these fall within a pricing range.

We have concluded that our contracts with customers generally do not contain warranties that give rise to a separate performance obligation.

Our contracts often contain multiple performance obligations.

For these contracts, we account for individual performance obligations separately if they are distinct.

We apply significant judgment in identifying and accounting for each performance obligation, as a result of evaluating the terms and conditions in contracts.

The transaction price is allocated to the separate performance obligations on a relative standalone selling price (“SSP”) basis.

We determine the SSP based on the prices at which we separately sell these products assuming the majority of these fall within a pricing range.

In instances where SSP is not directly observable, such as when we do not sell the software license separately, we derive the SSP using information that may include market conditions and other observable and unobservable inputs which can require significant judgment.

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We also consider if there are any additional material rights inherent in a contract, and if so, we allocate a portion of the transaction price to such rights based on a relative SSP.

(v) recognition of revenue when we satisfy each performance obligation.

Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised product or service to the customer.

Our self-managed subscriptions include both upfront revenue recognition when the license is delivered, as well as revenue recognized ratably over the contract period for support and maintenance based on the stand-ready nature of these subscription elements.

Revenue from our SaaS products is recognized ratably over the contract period as we satisfy the performance obligation.

Professional services comprise consulting services as well as public and private training.

Consulting services are generally time-based arrangements.

Revenue from professional services is recognized as these services are performed.

We generate sales directly through our sales team and through our channel partners.

Sales to channel partners are made at a discount and revenues are recorded at this discounted price once all the revenue recognition criteria above are met.

To the extent that we offer rebates, incentives, or joint marketing funds to such channel partners, recorded revenues are reduced by this amount.

Channel partners generally receive an order from an end-customer prior to placing an order with us.

Payment from channel partners is not contingent on the partner’s collection from end-customers.

Contract Balances

The timing of revenue recognition may differ from the timing of invoicing to customers.

For annual contracts, we typically invoice customers at the time of entering into the contract.

For multi-year agreements, we generally invoice customers on an annual basis prior to each anniversary of the contract start date.

We record unbilled accounts receivable related to revenue recognized in excess of amounts invoiced as we have an unconditional right to invoice and receive payment in the future related to those fulfilled obligations.

Contract liabilities consist of deferred revenue which is recognized over the contractual period.

Deferred Contract Acquisition Costs

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We determine whether costs should be deferred based on sales compensation plans if the commissions are in fact incremental and would not have occurred absent the customer contract.

Effective May 1, 2019, we updated our sales commissions plan by incorporating different commission rates for contracts with new customers and incremental sales to existing customers, and for subsequent subscription renewals.

Subsequent to this change, sales commissions for renewal of a subscription contract are not considered commensurate with the commissions paid for contracts with new customers and incremental sales to existing customers given the substantive difference in commission rates in proportion to their respective contract values.

Our sales commissions plan incorporates different commission rates for contracts with new customers and incremental sales to existing customers, and for subsequent subscription renewals.

Sales commissions for renewal of a subscription contract are not considered commensurate with the commissions paid for contracts with new customers and incremental sales to existing customers given the substantive difference in commission rates in proportion to their respective contract values.

Commissions paid for contracts with new customers and incremental sales to existing customers are amortized over an estimated period of benefit of five years while commissions paid for renewal contracts are amortized based on the pattern of the associated revenue recognition over the related contractual renewal period for the pool of renewal contracts.

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Amortization of deferred contract acquisition costs is recognized in sales and marketing expense in the consolidated statement of operations.

We did not recognize any impairment of deferred contract acquisition costs during the years ended April 30, 2021, 2020 and 2019.

Stock-Based Compensation Expense

Compensation expense related to stock-based awards granted to employees is calculated based on the fair value of such awards on the date of grant.

We determine the grant date fair value of the awards using the Black-Scholes option-pricing model.

The related stock-based compensation expense is recognized on a straight-line basis over the period in which an employee is required to provide service in exchange for the stock-based award, which is generally four years.

Our use of the Black-Scholes option pricing model requires the input of highly subjective assumptions, including the fair value of the underlying ordinary shares, the expected term of the option, the expected volatility of the price of our ordinary shares, risk-free interest rates and the expected dividend yield of our ordinary shares.

The assumptions used to determine the fair value of the awards represent management’s best estimates.

These estimates involve inherent uncertainties and the application of management’s judgment.

These assumptions and estimates are as follows:

• Fair value of ordinary shares.

See “Ordinary Share Valuations” below.

• Expected term.

The expected term represents the period that our stock-based awards are expected to be outstanding.

The expected term assumptions were determined based on the vesting terms, exercise terms and contractual lives of the options.

For option grants that are considered “plain vanilla,” the expected term was estimated using the simplified method.

The simplified method calculates the expected term as the midpoint between the vesting date and the contractual expiration date of the award.

• Expected volatility.

Since we have a limited trading history of our ordinary shares, the expected volatility is derived from the average historical stock volatilities of several unrelated public companies within our industry that we consider to be comparable to its own business over a period equivalent to the option’s expected term.

• Risk-free interest rate.

We base the risk-free interest rate used in the Black-Scholes option pricing model on the implied yield available on U.S.

Treasury zero-coupon issues with a remaining term equivalent to that of the options for each expected term.

• Dividend yield.

The expected dividend assumption is based on our current expectations about our anticipated dividend policy.

As we have no history of paying any dividends, we used an expected dividend yield of zero.

The following table summarizes the assumptions used in the Black-Scholes option pricing model to determine the fair value of our stock options granted and assumed:

Year Ended April 30,

2021 2020 2019

Expected term (in years) 6.02 - 6.08 2.00 - 7.27 6.02 - 6.08

Expected stock price volatility 62.6% - 63.9% 54.8% 40.5% - 46.7%

Risk-free interest rate 0.4% - 1.1% 1.4% - 2.0% 2.4% - 3.1%

Dividend yield 0% 0% 0%

We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis.

As we continue to accumulate additional data related to our ordinary shares, we may refine our estimation process, which could materially impact our future stock-based compensation expense.

Prior to our IPO, we also assessed the need to record stock-based compensation expense when certain of our affiliated shareholders purchased shares from our employees and founders in excess of fair value of such shares.

We recognized any such excess value as stock-based compensation expense in our consolidated statements of operations.

Ordinary Share Valuations

For valuations after the completion of the IPO, our compensation committee determines the fair value of the ordinary shares underlying equity awards based on the closing price of our ordinary shares as reported on the date of the grant.

Our ordinary shares are publicly traded and are therefore subject to potentially significant fluctuations in the market price.

Increases and decreases in the market price of our ordinary shares will also increase and decrease the fair value of our stock-based awards granted in future periods.

Prior to the completion of our IPO, the fair value of the ordinary shares underlying our equity awards was determined by our board of directors, after considering contemporaneous third-party valuations and input from management.

valuations of our ordinary shares were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

In the absence of a public trading market, our board of directors, with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of our ordinary shares as of the date of each option grant, including the following factors:

• contemporaneous valuations performed at periodic intervals by unrelated third-party valuation firms;

• the prices, rights, preferences and privileges of our redeemable convertible preference shares relative to those of our ordinary shares;

• the lack of marketability of our ordinary shares;

• our actual and expected operating and financial performance;

• current business conditions and projections;

• our hiring of key personnel and the experience of our management;

• our history and the timing of the introduction of new products;

• our stage of development;

• the likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our business given prevailing market conditions;

• the illiquidity of stock-based awards involving securities in a private company;

• the market performance of comparable publicly traded companies;

• secondary stock transactions, including a secondary stock purchase transaction that included certain of our employees, founders and certain of our affiliated shareholders;

and global capital markets conditions.

In valuing our ordinary shares, the fair value of our business, or enterprise value, was determined using both the income approach and market approach.

The income approach estimates value based on the expectation of future cash flows that a company will generate.

These future cash flows are discounted to their present values using a discount rate based on the capital rates of return for venture-backed early stage companies and is adjusted to reflect the risks inherent in our cash flows.

The market approach estimates value based on a comparison of the company to comparable public companies in a similar line of business.

From the comparable companies, a representative market value multiple is determined and then applied to the company’s financial results to estimate the value of the subject company.

The resulting equity value was then allocated to each class of stock using an option pricing methodology and Probability Weighted Expected Return Method or PWERM.

The option pricing method is based on a binomial lattice model, which allows for the identification for a range of possible future outcomes, each with an associated probability.

The option pricing method is appropriate to use when the range of possible future outcomes is difficult to predict and thus creates highly speculative forecasts.

PWERM involves a forward-looking analysis of the possible future outcomes of the enterprise.

This method is particularly useful when discrete future outcomes can be predicted at a relatively high confidence level with a probability distribution.

Discrete future outcomes considered under the PWERM include an IPO, as well as non-IPO market based outcomes.

Determining the fair value of the enterprise using the PWERM requires us to develop assumptions and estimates for both the probability of an IPO liquidity event and stay private outcomes, as well as the values we expect those outcomes could yield.

We apply significant judgment in developing these assumptions and estimates, primarily based upon the enterprise value we determined using the income approach and market approach, our knowledge of the business and our reasonable expectations of discrete outcomes occurring.

After the equity value is determined and allocated to the various classes of shares, a discount for lack of marketability, or DLOM, is applied to arrive at the fair value of ordinary shares.

A DLOM is applied based on the theory that as an owner of a private company stock, the stockholder has limited opportunities to sell this stock and any such sale would involve significant transaction costs, thereby reducing overall fair market value.

Our assessments of the fair value of ordinary shares for grant dates between the dates of the valuations were based in part on the current available financial and operational information and the ordinary share value provided in the most recent valuation as compared to the timing of each grant.

For financial reporting purposes, we considered the amount of time between the valuation date and the grant date to determine whether to use the latest ordinary share valuation.

This determination included an evaluation of whether the subsequent valuation indicated that any significant change in valuation had occurred between the previous valuation and the grant date.

Acquisitions, Goodwill and Intangible Assets

We allocate the fair value of purchase consideration in a business combination to tangible assets, liabilities assumed and intangible assets acquired based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is allocated to goodwill.

The allocation of the purchase consideration requires management to make significant estimates and assumptions, especially with respect to intangible assets.

These estimates can include, but are not limited to, future expected cash flows from acquired customers and acquired technology from a market participant perspective, useful lives and discount rates.

Management’s estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable, and, as a result, actual results may differ from estimates.

During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

We assess goodwill for impairment at least annually, in the fourth quarter, and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

For the purposes of impairment testing, we have determined that we have one reporting unit.

Our test of goodwill impairment starts with a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test.

If qualitative factors indicate that the fair value of the reporting unit is more likely than not less than its carrying amount, then a quantitative goodwill impairment test is performed.

For the quantitative analysis, we compare the fair value of our reporting unit to its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.

Acquired intangible assets are amortized over their estimated useful lives.

We evaluate the recoverability of our intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable.

Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the intangible assets are expected to generate.

If such review indicates that the carrying amount of our intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value.

We are subject to income taxes in the Netherlands and numerous other jurisdictions including federal, state, and local jurisdictions in the United States and all other tax jurisdictions or countries in which we conduct business.

Earnings from our non-Dutch activities are subject to local country income tax.

We follow the asset and liability method of accounting for income taxes.

This method requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities.

We assess whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

We record a valuation allowance to our deferred tax assets to the extent we believe they are not more likely than not to be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.

We recognize the tax benefit from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position.

The tax benefit is measured based on the largest benefit that is more likely than not of being realized upon ultimate settlement.

We adjust reserves for our uncertain tax positions due to changing facts and circumstances.

We recognize interest and penalties due to taxing authorities as a component of provision for income taxes.

We make estimates and judgments about our future taxable income based on assumptions that are consistent with our plans and estimates.

Should the actual amounts differ from estimates, the amount of valuation allowance could be materially impacted.

Any adjustment to the deferred tax asset valuation allowance would be recorded in the consolidated statement of operations for the periods in which the adjustment is determined to be required.

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Acquired Intangible Assets

We apply significant judgment in determining the fair value of the intangible assets acquired, which involves the use of significant estimates and assumptions.

These estimates can include, but are not limited to, future expected cash flows from acquired customers and acquired technology from a market participant perspective, costs to rebuild developed technology, useful lives and discount rates.

While we use our best estimates and judgments, our estimates are inherently uncertain.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis