What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-06-16 compared with 2022-06-21 · 156 added, 183 removed, 335 unchanged (50% of the section changed)

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This section of our Annual Report on Form 10-K discusses our financial condition and results of operations for the years ended April 30, 2023 and 2022 and year-to-year comparisons between the years ended April 30, 2023 and 2022.

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.

A discussion of our financial condition and results of operations for the year ended April 30, 2021 and year-to-year comparisons between the years ended April 30, 2022 and 2021 that are 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, 2022, filed with the SEC on June 21, 2022.

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.

Our platform, which is available as both a hosted, managed service across public clouds as well as self-managed software, allows our customers to find insights and drive AI and machine learning use cases from large amounts of data.

We offer three search-powered solutions – Search, Observability, and Security – that are built into the platform.

We help organizations, their employees, and their customers find what they need faster, while keeping mission-critical applications running smoothly, and protecting against cyber threats.

Our platform is built on the Elastic Stack, a powerful set of software products that ingest data from any source, in any format, and perform search, analysis, and visualization of that data.

At the core of the Elastic Stack is Elasticsearch - a highly scalable document store and search engine, and the only data store for all of our solutions and use cases.

At the core of the Elastic Stack is Elasticsearch - a highly scalable document store and search engine, and the unified data store for all of our solutions and use cases.

Our platform also includes the ESRE, which combines advanced AI with Elastic’s text search to give developers a full suite of sophisticated retrieval algorithms and the ability to integrate with large language models.

The Elastic Stack can be used by developers to power a variety of use cases.

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

We make our platform available as a hosted, managed service.

We make our platform available as a hosted, managed service across major cloud providers.

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

As digital transformation 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.

As digital transformation drives mission critical business functions to the cloud, we believe that every company will need to build around a search-based relevance engine to find the answers that matter, from all of their data, in real-time, and at scale.

Our business model is based primarily on a combination of a paid Elastic-managed hosted service offering and paid and free proprietary self-managed software.

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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.

We maintain a single code base across both our self-managed software and Elastic-hosted services.

All of these actions help us build a powerful commercial business model that we believe is optimized for product-led growth.

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We do not sell support separately.

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

Our subscription agreements typically range from one to three years and are usually billed annually in advance.

Our subscription agreements are both term-based and consumption-based, with the vast majority of Elastic Cloud subscriptions being consumption-based.

We sell subscriptions in various currencies, with the majority of our subscriptions contracted in US dollars, and a smaller portion contracted in Euro, British Pound Sterling, and other currencies.

Elastic Cloud customers may also purchase subscriptions on a month-to-month basis without a commitment, with usage billed at the end of each month.

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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.

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

As of April 30, 2023, we had approximately 20,200 customers compared to over 18,600 customers and over 15,000 customers as of April 30, 2022 and 2021, respectively.

The majority of our new customers use Elastic Cloud.

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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.

Expansion includes increasing the number of developers and practitioners using our products, increasing the utilization of our products for a particular use case, and utilizing our products to address new use cases.

The number of customers who represented greater than $100,000 in annual contract value (“ACV”) was over 1,160, over 960, and over 730 as of April 30, 2023, 2022, and 2021 respectively.

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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 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.

We have experienced significant growth, with revenue increasing to $1.1 billion for the year ended April 30, 2023 from $862.4 million for the year ended April 30, 2022 and $608.5 million for the year ended April 30, 2021, representing year-over-year growth of 24% for the year ended April 30, 2023 and 42% for the year ended April 30, 2022.

For the year ended April 30, 2023, revenue from outside the United States accounted for 41% 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 for the years ended April 30, 2022, 2021, and 2020.

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

No customer accounted for more than 10% of our total revenue for the years ended April 30, 2023, 2022, and 2021.

We have not been profitable to date.

For the years ended April 30, 2023, 2022 and 2021, we incurred net losses of $236.2 million, $203.8 million and $129.4 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.

Our net cash provided by operating activities was $35.7 million, $5.7 million, and $22.5 million for the years ended April 30, 2023, 2022 and 2021, respectively.

We have experienced losses in each year since our incorporation and as of April 30, 2023, had an accumulated deficit of $1.1 billion.

We expect we will continue to incur net losses for the foreseeable future.

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

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

There can be no assurance whether, or when, we may become profitable.

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

With a distributed team spanning over 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 2,886 employees as of April 30, 2023.

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.

Current Economic Conditions

Recent and current macroeconomic events, including inflation, slower economic growth, political unrest, and concerns about the stability of banks, continue to evolve and negatively impact worldwide economic activity.

Governmental and corporate responses to these factors including rising interest rates, unpredictable and decreased spending, and layoffs, have added to the highly volatile macroeconomic landscape.

We have experienced and, if economic conditions continue to decline, we may continue to experience longer and more unpredictable sales cycles, increased scrutiny of deals, slowing consumption and overall customer expenditures, and the impacts of changing foreign exchange rates with a strengthening or weakening U.S.

We continue to closely monitor the macroeconomic environment and its effects on our business and on global economic activity, including customer spending behavior.

Notwithstanding the potential and actual adverse impacts described above, as the pandemic has caused more of our customers to shift to a virtual workforce or accelerate their digital transformation efforts, we believe the value of our solutions has become even more evident.

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.

Restructuring

To navigate the current economic environment, we have realigned our resources internally to drive greater efficiencies and rebalance investments across all functions of the organization and reinvest some savings in key priority areas to drive growth.

On November 30, 2022, we announced and began implementing a plan to align our investments more closely with our strategic priorities by reducing our workforce by approximately 13% and implementing certain facilities-related cost optimization actions.

We incurred $31.3 million in restructuring and other related charges during the year ended April 30, 2023.

We expect that the implementation of the workforce reductions and facilities cost optimization will be substantially completed by the end of the first quarter of fiscal 2024.

See Note 16 “Restructuring and other related charges” in our accompanying Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information about this plan.

We will continue to adjust, monitor, and curtail spending when and where needed to adapt to the current macroeconomic landscape and will reinvest some of the savings selectively in areas that we believe best position us to drive profitable growth.

See “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K for a discussion of additional risks.

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For the years ended April 30, 2023, 2022, and 2021, Elastic Cloud contributed 40%, 35%, and 27% 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.

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

However, we expect that an increase in the relative contribution of Elastic Cloud to our business will have a modest adverse impact on our gross margin as a result of the associated third-party hosting costs.

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The Elastic Stack is applied to various use cases by customers, including through the solutions we offer.

Our revenue is derived primarily from subscriptions of Enterprise Search, Observability and Security built into the Elastic Stack.

Our revenue is derived primarily from subscriptions of Search, Observability and Security built into the Elastic Stack.

We believe that releasing additional features of the Elastic Stack, including our solutions, drives usage of our products and ultimately drives our growth.

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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.

A customer’s annualized spend is measured as its ACV, or in the case of customers charged on usage-based arrangements, by annualizing the usage for that month.

We then calculate the annualized spend from these same customers as of the given month end, or Current Period Value, which includes any growth in the value of their subscriptions or usage and is net of contraction or attrition over the prior twelve months.

We then divide the Current

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Period Value by the Prior Period Value to arrive at an expansion rate.

We then divide the Current Period Value by the Prior Period Value to arrive at an expansion rate.

The Net Expansion Rate at the end of any period is the weighted average of the expansion rates as of the end of each of the trailing twelve months.

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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% for the year ended April 30, 2022.

Our Net Expansion Rate was approximately 117% as of April 30, 2023.

As large organizations expand their use of the Elastic Stack across multiple use cases, projects, divisions and users, they often begin to require centralized provisioning, management and monitoring across multiple deployments.

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Subscriptions provide the right to use paid proprietary software features and access to support for our paid and unpaid software.

A portion of the revenue from self-managed subscriptions is generally recognized up front at the point in time when the license is delivered.

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.

Our subscription agreements are both term-based and consumption-based, with the vast majority of Elastic Cloud subscriptions being consumption-based.

A portion of the revenue from self-managed subscriptions is generally recognized up front at the point in time when the license is delivered and the remainder is recognized ratably over the subscription term.

Revenue from subscriptions that require access to the cloud or that are hosted and managed by us is recognized ratably over the subscription term or on a usage basis for consumption-based arrangements;

both are presented within Subscription – self-managed and SaaS in our consolidated statements of operations.

Professional services.

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

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

both are presented within Subscription revenue in our consolidated statements of operations.

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

Revenue for services is recognized as these services are delivered.

Cost of Revenue

Subscription.

Cost of license – self-managed consists of amortization of certain intangible assets.

Cost of subscription – self-managed and SaaS consists primarily of personnel and related costs for employees associated with supporting our subscription arrangements, certain third-party expenses, and amortization of certain intangible and other assets.

Cost of subscription consists primarily of personnel and related costs for employees associated with supporting our subscription arrangements, certain third-party expenses, and amortization of certain intangible and other assets.

Personnel and related costs, or personnel costs, comprise cash compensation, benefits and stock-based compensation to employees, costs of third-party contractors, and allocated overhead costs.

Third-party expenses consist of cloud hosting costs and other expenses directly associated with our customer support.

We expect our cost of subscription – self-managed and SaaS to increase in absolute dollars as our subscription revenue increases.

Professional services.

Cost of professional services revenue consists primarily of personnel costs directly associated with delivery of training, implementation and other professional services, costs of third-party contractors, facility rental charges and allocated overhead costs.

We expect our cost of professional services revenue to increase in absolute dollars as we invest in our business and as professional services revenue increases.

We expect our cost of subscription to increase in absolute dollars as our subscription revenue increases.

Cost of services revenue consists primarily of personnel costs directly associated with delivery of training, implementation and other services, costs of third-party contractors, facility rental charges and allocated overhead costs.

We expect our cost of services to increase in absolute dollars as we invest in our business and as services revenue increases.

Gross profit and gross margin.

Gross profit represents revenue less cost of revenue.

Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including the timing of our acquisition of new customers and our renewals with existing customers, the average sales price of our subscriptions and professional services, the amount of our revenue represented by hosted services, the mix of subscriptions sold, the mix of revenue between subscriptions and professional services, the mix of professional services between consulting and training, transaction volume growth and support case volume growth.

Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including the timing of our acquisition of new customers and our renewals with existing customers, the average sales price of our subscriptions and services, the amount of our revenue represented by hosted services, the mix of subscriptions sold, the mix of revenue between subscriptions and services, the mix of services between consulting and training, transaction volume growth and support case volume growth.

We expect our gross margin to fluctuate over time depending on the factors described above.

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Research and development.

Research and development expense mainly consists of personnel costs and allocated overhead costs for employees and contractors.

Research and development expense primarily consists of personnel costs and allocated overhead costs.

We expect our research and development expense to increase in absolute dollars for the foreseeable future as we continue to develop new technology and invest further in our existing products.

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Sales and marketing.

Sales and marketing expense mainly consists of personnel costs, commissions, allocated overhead costs and costs related to marketing programs and user events.

Sales and marketing expense primarily consists of personnel costs, commissions, allocated overhead costs and costs related to marketing programs and user events.

Marketing programs consist of advertising, events, brand-building and customer acquisition and retention activities.

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General and administrative.

General and administrative expense mainly consists of personnel costs for our management, finance, legal, human resources, and other administrative employees.

General and administrative expense primarily consists of personnel costs for our management, finance, legal, human resources, and other administrative employees.

Our general and administrative expense also includes professional fees, accounting fees, audit fees, tax services and legal fees, as well as insurance, allocated overhead costs, and other corporate expenses.

We expect our general and administrative expense to increase in absolute dollars as we increase the size of our general and administrative functions to support the growth of our business.

Restructuring and other related charges.

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

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

Provision for (benefit from) income taxes consists primarily of income taxes related to the Netherlands, U.S.

federal, state and foreign jurisdictions in which we conduct business.

Our effective tax rate is affected by recurring items, such as tax rates in jurisdictions outside the Netherlands and the relative amounts of income we earn in those jurisdictions, and non-deductible stock-based compensation.

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Interest expense.

Primarily consists of interest on our 4.125% Senior Notes due 2029.

Other income (expense), net.

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

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes related to the Netherlands, U.S.

federal and state, and foreign jurisdictions in which we conduct business.

Results of Operations

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(in thousands)

License - self-managed $ 76,964 $ 67,994 $ 53,536

Subscription - self-managed and SaaS 721,806 499,345 338,634

Total subscription revenue 798,770 567,339 392,170

Professional services 63,604 41,150 35,450

Subscription $ 984,762 $ 798,770 $ 567,339

Services 84,227 63,604 41,150

Total revenue 1,068,989 862,374 608,489

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

Cost of license - self-managed 1,548 1,386 948

Cost of subscription - self-managed and SaaS 176,656 121,127 84,819

Total cost of revenue - subscription 178,204 122,513 85,767

Cost of professional services 53,990 38,541 36,923

Subscription 219,306 178,204 122,513

Services 77,320 53,990 38,541

Total cost of revenue 296,626 232,194 161,054

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General and administrative 143,247 123,441 103,833

Restructuring and other related charges 31,297 — —

Total operating expenses 991,535 803,860 576,913

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Loss before income taxes (216,877) (197,789) (121,714)

Provision for (benefit from) income taxes 6,059 7,720 (1,968)

Provision for income taxes 19,284 6,059 7,720

Net loss $ (236,161) $ (203,848) $ (129,434)

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Cost of revenue

Cost of subscription - self managed and SaaS $ 8,368 $ 7,105 $ 4,147

Cost of professional services 6,463 4,824 2,980

Subscription $ 8,308 $ 8,368 $ 7,105

Services 9,435 6,463 4,824

Research and development 80,170 59,911 35,267

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Total stock-based compensation expense $ 204,039 $ 141,194 $ 93,680

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

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Cost of revenue

Cost of subscription - self managed and SaaS $ 681 $ 674 $ 349

Cost of professional services 712 661 178

Subscription $ 422 $ 681 $ 674

Services 423 712 661

Research and development 2,458 3,316 3,670

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Cost of revenue

Cost of license - self-managed $ 1,548 $ 1,386 $ 948

Cost of subscription - self-managed and SaaS 8,955 7,051 5,820

Subscription $ 11,781 $ 10,503 $ 8,437

Sales and marketing 4,887 5,280 5,730

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Research and development $ 5,875 $ 6,104 $ —

Sales and marketing — — 522

General and administrative 103 1,528 —

Total acquisition-related expenses $ 5,978 $ 7,632 $ —

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:

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2023 2022 2021

License - self-managed 9 % 11 % 13 %

Subscription - self-managed and SaaS 84 % 82 % 79 %

Total subscription revenue 93 % 93 % 92 %

Professional services 7 % 7 % 8 %

Subscription 92 % 93 % 93 %

Services 8 % 7 % 7 %

Total revenue 100 % 100 % 100 %

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

Cost of license - self-managed 0 % 0 % 0 %

Cost of subscription - self-managed and SaaS 21 % 20 % 20 %

Total cost of revenue - subscription 21 % 20 % 20 %

Cost of professional services 6 % 6 % 9 %

Subscription 21 % 21 % 20 %

Services 7 % 6 % 6 %

Total cost of revenue 28 % 27 % 26 %

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General and administrative 14 % 14 % 17 %

Restructuring and other related charges 3 % — % — %

Total operating expenses 93 % 93 % 95 %

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Loss before income taxes (21) % (23) % (20) %

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

Provision for income taxes 1 % 1 % 1 %

Net loss (22) % (24) % (21) %

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2023 2022 2021

(in thousands)

Cost of revenue

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

Cost of professional services 1 % 1 % — %

Subscription 1 % 1 % 1 %

Services 1 % 1 % 1 %

Research and development 8 % 7 % 6 %

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Total stock-based compensation expense 19 % 16 % 15 %

T a b l e o f C o ntents

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

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2023 2022 2021

(in thousands)

Cost of revenue

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

Cost of professional services — % — % — %

Subscription — % — % — %

Services — % — % — %

Research and development 1 % — % — %

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2023 2022 2021

(in thousands)

Cost of revenue

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

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

Subscription 1 % 1 % 1 %

Sales and marketing 1 % 1 % 1 %

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2023 2022 2021

(in thousands)

Research and development 1 % 1 % — %

Sales and marketing — % — % — %

General and administrative — % — % 4 %

Total acquisition-related expenses 1 % 1 % — %

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(in thousands)

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

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

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

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

Subscription $ 984,762 $ 798,770 $ 185,992 23 %

Services 84,227 63,604 20,623 32 %

Total revenue $ 1,068,989 $ 862,374 $ 206,615 24 %

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.

Subscription revenue increased by $186.0 million, or 23%, for the year ended April 30, 2023 compared to the prior year.

This increase was primarily driven by continued adoption of Elastic Cloud which grew 42% over the same period and increased to 40% of total revenue for the year ended April 30, 2023 from 35% for the year ended April 30, 2022.

Services revenue increased by $20.6 million, or 32%, for the year ended April 30, 2023 compared to the prior year.

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

Cost of Revenue and Gross Margin

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Cost of revenue

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

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

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

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

Subscription $ 219,306 $ 178,204 $ 41,102 23 %

Services 77,320 53,990 23,330 43 %

Total cost of revenue $ 296,626 $ 232,194 $ 64,432 28 %

1 unchanged sentence

Gross margin:

License - self-managed 98 % 98 %

Subscriptions - self-managed and SaaS 76 % 76 %

Total subscription margin 78 % 78 %

Professional services 15 % 6 %

Subscription 78 % 78 %

Services 8 % 15 %

Total gross margin 72 % 73 %

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.

Cost of subscription revenue increased by $41.1 million, or 23%, for the year ended April 30, 2023 compared to the prior year.

This increase was primarily due to an increase of $38.3 million in cloud infrastructure costs due to increased Elastic Cloud subscription revenue.

Additionally, intangible asset amortization increased by $1.3 million due to a full year of amortization on the intangibles acquired during the year ended April 30, 2022.

Cost of services revenue increased by $23.3 million, or 43%, for the year ended April 30, 2023 compared to the prior year.

This increase was primarily due to an increase of $15.5 million in personnel and related costs, including increases of $10.5 million in salaries and related taxes, $3.0 million in stock-based compensation, and $1.7 million in employee benefits expense driven by an increase in headcount in our services organization.

In addition, subcontractor costs increased by $6.2 million and travel costs increased by $0.8 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.

Gross margin for services revenue was 8% for the year ended April 30, 2023 compared to 15% for the prior year.

The decrease in margin was primarily due to the cost of services, including personnel and related costs and subcontractor costs, growing at a higher rate than services revenue.

We continue to make investments in our services organization that we believe will be needed as we continue to grow.

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

Operating Expenses

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Personnel and related costs increased by $29.7 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

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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.

In addition, travel costs increased by $4.6 million, cloud infrastructure costs related to our research and development activities increased by $3.0 million, and consulting costs increased by $1.5 million.

The increase in personnel and related costs includes an increase of $20.3 million in stock-based compensation, an increase of $6.9 million in salaries and related taxes, and an increase of $2.8 million in employee benefits expense.

Sales and marketing

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Sales and marketing expense increased by $96.9 million, or 24%, for the year ended April 30, 2023 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.

This increase was primarily due to an increase of $83.6 million in personnel and related costs and a $2.8 million increase in software and equipment charges due to growth in headcount.

In addition, travel expenses increased by $6.2 million and marketing expense increased by $4.8 million.

The increase in personnel and related costs included an increase of $37.9 million in salaries and related taxes, an increase of $23.1 million in stock-based compensation, an increase of $10.7 million in commission expense, and an increase of $8.2 million in employee benefits expense.

General and administrative

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General and administrative expense increased by $19.8 million, or 16%, for the year ended April 30, 2023 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

This increase was primarily due to an increase of $27.7 million in personnel and related costs and a $0.8 million increase in software and equipment charges due to headcount growth.

In addition, travel costs increased by $0.7 million.

These increases were partially offset by a $9.2 million decrease in legal and professional fees and a $0.8 million decrease in consulting expense.

The increase in personnel and related costs includes an increase of $16.5 million in stock-based compensation expense, an increase of $9.1 million in salaries and related taxes, and an increase of $2.1 million in employee benefits expense.

Restructuring and other related charges

Year Ended April 30, Change

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(in thousands)

Restructuring and other related charges $ 31,297 $ — $ 31,297 100 %

For the year ended April 30, 2023, we recorded restructuring and other related charges comprising employee-related severance and other termination benefits of approximately $23.3 million, facilities-related charges of approximately $6.2 million, and $1.8 million of other restructuring-related charges while we had no such charges in the prior year.

Other Income (Expense), Net

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.

Interest expense

Year Ended April 30, Change

2023 2022 $ %

(in thousands)

Interest expense $ (25,159) $ (20,716) $ (4,443) 21 %

Interest expense increased by $4.4 million, or 21%, for the year ended April 30, 2023 compared to the prior year.

This increase was primarily due to interest expense associated with the 4.125% Senior Notes due 2029, which we issued in July 2021 in a private placement, as well as a full year of amortization of the related debt discount and issuance costs.

Other income (expense), net

Year Ended April 30, Change

2023 2022 $ %

(in thousands)

Other income (expense), net $ 27,454 $ (3,393) $ 30,847 (909) %

Other income, net was $27.5 million for the year ended April 30, 2023 compared to Other expense, net of $3.4 million for the prior year.

This change of $30.8 million was primarily due to an increase in interest income of $17.4 million as a result of higher interest earned on our investments and income from a favorable settlement of a legal claim in the amount of $10.4 million during the year ended April 30, 2023.

In addition, we recognized a foreign currency transaction loss of $0.4 million in the current fiscal year compared to a foreign currency transaction loss of $3.6 million in the prior year.

Provision for Income Taxes

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Provision for income taxes $ 19,284 $ 6,059 $ 13,225 218 %

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.

The provision for income taxes increased $13.2 million, or 218%, for the year ended April 30, 2023 compared to the prior year.

Our effective tax rate was (8.9)% and (3.1%) of our net loss before taxes for the years ended April 30, 2023 and 2022, respectively.

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The increase in tax expense is driven primarily by growth in business operations in jurisdictions where we generate taxable income and do not have any available tax credits or net operating losses to offset that income, and a one-time charge of $2.8 million related to the completion of acquisition-related integration, reduced by a one-time benefit of $1.2 million related to our restructuring plan.

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 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.

As of April 30, 2023, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $915.2 million.

Our cash and cash equivalents and marketable securities consist of highly liquid investment-grade fixed-income securities.

We believe that the credit quality of the securities portfolio is strong and diversified among industries and individual issuers.

We have generated significant operating losses from our operations as reflected in our accumulated deficit of $1.1 billion as of April 30, 2023.

We have historically incurred, and expect to continue to incur, operating losses and may generate negative cash flows from operations on an annual basis for the foreseeable future due to the investments we intend to make as described above, and as a result, we may require additional capital resources to execute on our strategic initiatives to grow our business.

We believe that our existing cash and cash equivalents will be sufficient to fund our operating and capital needs for at least the next 12 months, despite the uncertainty in the changing market and economic conditions related to COVID-19.

We believe that our existing cash, cash equivalents, and marketable securities will be sufficient to fund our operating and capital needs for at least the next 12 months, despite the uncertainty in the changing market and macroeconomic conditions.

Our assessment of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties.

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(in thousands)

Net cash provided by (used in) operating activities

Net cash provided by operating activities

$ 35,662 $ 5,672 $ 22,545

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Net Cash Provided By Operating Activities

Net cash provided by operating activities during the year ended April 30, 2023 was $35.7 million, which resulted from adjustments for non-cash charges of $307.2 million, mostly offset by a net loss of $236.2 million and net cash outflow of $35.4 million from changes in operating assets and liabilities.

Non-cash charges primarily consisted of $204.0 million for stock-based compensation expense, $68.9 million for amortization of deferred contract acquisition costs, $20.2 million of depreciation and intangible asset amortization expense, $10.9 million in non-cash operating lease costs, and $6.2 million of asset impairment charges .

The net cash outflow from changes in operating assets and liabilities was the result of an increase in deferred contract acquisition costs of $102.0 million as our sales commissions increased due to increased business volume, an increase of $46.4 million in accounts receivable, and a decrease of $11.4 million in operating lease liabilities.

These outflows were partially offset by a $95.6 million increase in deferred revenue, a net increase of $18.9 million in accounts payable, accrued expenses and accrued compensation and benefits, and a decrease of $9.8 million in prepaid expenses and other assets.

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.

Non-cash charges primarily consisted of $93.7 million for stock-based compensation expense, $41.0 million for amortization of deferred contract acquisition costs, $17.2 million of depreciation and intangible asset amortization expense and $7.9 million in non-cash operating lease costs, which were partially offset by net foreign currency transaction gains of $9.5 million and $0.1 million of other non-cash transactions.

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

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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 $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 used in investing activities of $273.0 million during the year ended April 30, 2023 was primarily due to the purchase of marketable securities of $270.3 million .

In addition, we incurred $2.7 million of capital expenditures during the year.

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.

Off Balance Sheet Arrangements

We did not have, during the periods presented, nor do we currently have any off balance sheet financing arrangements or any relationships with any unconsolidated entities or financial partnerships, including entities referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off balance sheet arrangements or other contractually narrow or limited purposes.

Net cash provided by financing activities of $17.5 million during the year ended April 30, 2023 was due to the proceeds from stock option exercises.

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 long-term debt and $36.4 million of proceeds from stock option exercises, partially offset by $9.3 million payments of debt issuance costs.

Contractual Obligations and Commitments

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.

Our principal commitments consist of our purchase obligations under non-cancelable 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, 2023, we had purchase commitments of $542.8 million related to cloud hosting services, future minimum lease payment commitments of $28.4 million, and purchase commitments of $43.8 million related to other contracts.

During the year ended April 30, 2023, we entered into an amendment to a non-cancelable cloud hosting capacity agreement, effective December 31, 2022, for a total purchase commitment of $270.0 million payable over the four years following the date of the agreement.

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.

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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.

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 for additional information about the Senior Notes.

As of April 30, 2023, we had $2.3 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 2025.

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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.

We base our estimates, assumptions 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.

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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.

Due to current macroeconomic developments and conditions, 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.

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We determine the period of benefit for commissions paid for contracts with new customers and incremental sales to existing customers by taking into consideration its initial estimated customer life and the technological life of its software and related significant features.

Commissions paid on professional services are typically amortized in accordance with the associated revenue as the commissions paid on new and renewal professional services are commensurate with each other.

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

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Commissions paid on services are typically amortized in accordance with the associated revenue as the commissions paid on new and renewal services are commensurate with each other.

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

Acquired Intangible Assets

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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