What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-06-14 compared with 2023-06-16 · 131 added, 139 removed, 352 unchanged (43% of the section changed)

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A discussion of our financial condition and results of operations for the year ended April 30, 2022 and year-to-year comparisons between the years ended April 30, 2023 and 2022 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, 2023, filed with the SEC on June 16, 2023.

Elastic is a data analytics company built on the power of search.

Our platform, which is available as both a hosted, managed service across public clouds as well as self-managed software, allows our customers to find insights and drive 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.

Elastic, the Search AI Company, enables our customers to find the answers they need in real time, using all of their data, at scale.

Our platform, combines the power of search with AI to help companies solve real-time business problems, unlock potential value, and achieve better outcomes.

Our platform, 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 on 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.

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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.

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

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

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

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

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

As digital transformation drives mission-critical business functions to the cloud, we believe that every company must incorporate search AI capabilities across IT and line-of-business organizations to find the answers that matter from all of its data in real-time and at scale.

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

Our paid offerings for our platform are sold via subscription through resource-based pricing, and all customers and users have access to all solutions.

In Elastic Cloud, our family of cloud-based offerings under which we offer our software as a hosted, managed service, we offer various subscription tiers tied to different features.

For users who download our software, we make some of the features of our software available for free, allowing us to engage with a broad community of developers and practitioners and introduce them to the value of the Elastic Stack.

Our paid offerings for our platform are sold via subscription through resource-based pricing, and all customers and users have access to varying levels of features across all solutions.

In Elastic Cloud, our family of cloud-based offerings, 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 free of charge, 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.

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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.

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

We generate revenue primarily from sales of subscriptions to our platform.

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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.

We sell subscriptions in various currencies, with the majority of our subscriptions contracted in U.S.

dollars, and a smaller portion contracted in Euro, British Pound Sterling, and other currencies.

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

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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.

As of April 30, 2024, we had approximately 21,000 customers compared to approximately 20,200 customers as of April 30, 2023.

The majority of our new customers use Elastic Cloud.

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Affiliated entities are typically counted as a single customer.

Many of these customers start with limited initial spending, but can significantly grow their spending.

Many of these customers start with limited initial spending on our products but can significantly increase their spending over time.

We drive high-touch engagement with qualified prospects and customers to drive further awareness, adoption, and expansion of our products with paid subscriptions.

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

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

The number of customers who represented greater than $100,000 in annual contract value (“ACV”) was over 1,330 and over 1,160 as of April 30, 2024 and 2023, 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.

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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.

They focus on both seeking to obtain new customers and on pursuing 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 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 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.

We have experienced significant growth, with revenue increasing to $1.267 billion for the year ended April 30, 2024 from $1.069 billion for the year ended April 30, 2023 and $862.4 million for the year ended April 30, 2022, representing year-over-year growth of 19% for the year ended April 30, 2024 and 24% for the year ended April 30, 2023.

For the years ended April 30, 2024, 2023 and 2022, revenue from outside the United States accounted for 42%, 41%, and 44% of our total revenue, respectively.

We had net income of $61.7 million for the year ended April 30, 2024, while we incurred net losses of $236.2 million and $203.8 million for the years ended April 30, 2023 and 2022, respectively.

Our net cash provided by operating activities was $148.8 million, $35.7 million, and $5.7 million for the years ended April 30, 2024, 2023 and 2022, 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 whether, or when, we may become profitable.

We had an accumulated deficit of $991.6 million as of April 30, 2024 due to losses in all prior years.

We may incur net losses in the future and there can be no assurance whether, or when, we may become profitable on a consistent basis.

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

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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.

Macroeconomic events, including continued inflation, slower economic growth, and political unrest, 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 have experienced and, if economic conditions do not reflect a sustained recovery, 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.

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

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.

During the three months ended April 30, 2024, we initiated a plan to realign business and strategic priorities which resulted in a reduction of our workforce.

In connection with this plan, we incurred a charge of $4.2 million primarily consisting of employee-related severance and termination benefits during the three months ended April 30, 2024.

The execution of this plan is expected to be substantially completed during the first quarter of fiscal 2025.

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.

In connection with this restructuring plan, we recorded $0.8 million and $31.3 million of restructuring and other related charges during the years ended April 30, 2024 and 2023, respectively.

The execution of this restructuring plan was completed during the first quarter of fiscal 2024.

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

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

Key Factors Affecting our Performance

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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.

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

Growing the Elastic community.

Our strategy consists of providing access to source available software, on both a paid and free basis, and fostering a community of users and developers.

Our strategy consists of providing access to source available software, on both a paid and free-of-charge basis, and fostering a community of users and developers.

Our strategy is designed to pursue what we believe to be significant untapped potential for the use of our technology.

After developers begin to use our software and start to participate in our developer community, they become more likely to apply our technology to additional use cases and evangelize our technology within their organizations.

This reduces the time required for our sales force to educate potential leads on our solutions.

In order to capitalize on our opportunity, we intend to make further investments to keep the Elastic Stack accessible and well known to software developers around the world.

We intend to continue to invest in our products and support and engage our user base and developer community through content, events, and conferences in the U.S.

and internationally.

After developers begin to use our software and start to participate in our developer community, they become more likely to apply our technology to additional use cases and promote our technology within their organizations.

This reduces the time required for our sales force to educate potential customers on our solutions.

To capitalize on our opportunity, we intend to make further investments to keep the Elastic Stack accessible and well known to software developers around the world.

We intend to continue to invest in our products and support and engage our user base and developer community through content, events, and conferences in the United States and internationally.

Our results of operations may fluctuate as we make these investments.

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Our investment in sales and marketing is significant given our large and diverse user base.

The investments are likely to occur in advance of the anticipated benefits resulting from such investments, such that they may adversely affect our operating results in the near term.

These investments are likely to occur before we realize the anticipated benefits of such investments, such that they may adversely affect our operating results in the near term.

Expanding within our current customer base.

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

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

For instance, if each customer had a one-year subscription and renewed its subscription for the exact same amount, then the Net Expansion Rate would be 100%.

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

For instance, if each customer had a one-year subscription and renewed its subscription for the same amount, 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.

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

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

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

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

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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.

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

Revenue for services is recognized as these services are delivered.

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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.

Personnel and related 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.

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

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

We expect our revenue from Elastic Cloud to continue to increase as a percentage of total revenue, which we expect will continue to have a modest unfavorable impact on our gross margin as a result of the associated third-party hosting costs.

Operating Expenses

Research and development.

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

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

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

Sales and marketing.

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

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

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

We expect our sales and marketing expense to increase in absolute dollars as we expand our salesforce and increase our investments in marketing resources.

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

Sales commissions costs are amortized over the expected benefit period.

We expect our sales and marketing expense to increase in absolute dollars as we expand our sales force 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 certain customer contracts.

Deferred contract acquisition costs are amortized over the expected benefit period.

General and administrative.

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

General and administrative expense primarily consists of personnel and related 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.

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Interest expense.

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

Interest expense primarily consists of interest on our Senior Notes.

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.

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.

(Benefit from) Provision for Income Taxes

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

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

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

federal and certain states’ deferred tax assets.

Results of Operations

The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our total revenue.

The period-to-period comparison of results is not necessarily indicative of results for future periods.

The following table sets forth our results of operations for the periods presented.

Year Ended April 30,

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Loss before income taxes (122,756) (216,877) (197,789)

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

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

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

Year Ended April 30,

2023 2022 2021

(in thousands)

Cost of revenue

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

Services 9,435 6,463 4,824

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

Sales and marketing 68,943 45,798 31,581

General and administrative 37,183 20,654 14,903

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

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

(Benefit from) provision for income taxes (184,476) 19,284 6,059

Net income (loss) $ 61,720 $ (236,161) $ (203,848)

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

Year Ended April 30,

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General and administrative 47,519 38,593 21,619

Total employer payroll tax on stock transactions $ 7,133 $ 9,961 $ 14,376

Total stock-based compensation expense and related employer taxes $ 250,459 $ 211,172 $ 151,155

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

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Loss before income taxes (9) % (21) % (23) %

Provision for income taxes 1 % 1 % 1 %

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

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

Year Ended April 30,

2023 2022 2021

Cost of revenue

Subscription 1 % 1 % 1 %

Services 1 % 1 % 1 %

Research and development 8 % 7 % 6 %

Sales and marketing 6 % 5 % 5 %

General and administrative 3 % 2 % 2 %

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

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

(Benefit from) provision for income taxes (14) % 1 % 1 %

Net income (loss) 5 % (22) % (24) %

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

Year Ended April 30,

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General and administrative 4 % 3 % 2 %

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

Total stock-based compensation expense and related employer taxes 20 % 20 % 17 %

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

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Research and development — % 1 % 1 %

General and administrative — % — % — %

Total acquisition-related expenses — % 1 % 1 %

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Subscription revenue increased by $191.8 million, or 19%, for the year ended April 30, 2024 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.

This increase was primarily driven by continued adoption of Elastic Cloud, which grew 29% over the prior year and increased to 43% of total revenue for the year ended April 30, 2024 from 40% for the year ended April 30, 2023.

Services revenue increased by $6.5 million, or 8%, for the year ended April 30, 2024 compared to the prior year.

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Cost of subscription revenue increased by $27.0 million, or 12%, for the year ended April 30, 2024 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.

This increase was primarily due to an increase of $24.7 million in cloud infrastructure costs, $1.5 million in other third-party costs, $0.9 million in software and equipment expense, and $0.6 million in intangible assets amortization.

These increases were partially offset by a $1.2 million decrease in third-party consulting costs.

Total subscription gross margin improved to 79% for the year ended April 30, 2024 compared to 78% for the prior year, primarily due to efficiencies realized in managing our subscription costs relative to revenue growth.

Cost of services revenue increased by $6.5 million, or 8%, for the year ended April 30, 2024 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 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.

This increase was primarily due to an increase of $7.2 million in personnel and related costs.

These costs were partially offset by decreases of $1.1 million in training and facility costs.

The increase in personnel and related costs included increases of $4.0 million in salaries and related taxes and $3.1 million in stock-based compensation.

Gross margin for services revenue was flat at 8% for the year ended April 30, 2024 compared to the prior year.

We continue to make investments in our services organization that we believe will be needed to support our continued growth.

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

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Research and development expense increased by $28.5 million, or 9%, for the year ended April 30, 2024 compared to the prior year as we continued to invest in the development of new and existing offerings.

Personnel and related costs increased by $29.7 million as a result of growth in headcount.

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.

Personnel and related costs increased by $22.1 million for the current year, while cloud infrastructure costs related to our research and development activities increased by $4.4 million and travel costs increased by $1.4 million.

The increase in personnel and related costs included increases of $13.4 million in stock-based compensation, $10.7 million in salaries and related taxes, and $2.0 million in employee benefits expense.

These increases were offset in part by a decrease in acquisition-related compensation of $4.4 million.

Sales and marketing

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Sales and marketing expense increased by $56.1 million, or 11%, for the year ended April 30, 2024 compared to the prior year.

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.

This increase was primarily due to increases of $34.8 million in personnel and related costs, $12.5 million in marketing expenses, and $9.3 million in travel costs.

These increases were partially offset by a decrease of $2.7 million in intangible assets amortization.

The increase in personnel and related costs included increases of $14.5 million in salaries and related taxes, $9.6 million in commissions expense, and $9.1 million in stock-based compensation.

General and administrative

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General and administrative expense increased by $17.4 million, or 12%, for the year ended April 30, 2024 compared to the prior year.

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.

This increase was primarily due to increases of $13.8 million in personnel and related costs, $1.8 million in other miscellaneous non-income based taxes, $1.5 million in legal and professional fees, and $1.3 million in bad debt expense and allowance for credit losses.

These increases were partially offset by a decrease of $1.5 million in insurance costs.

The increase in personnel and related costs included increases of $9.0 million in stock-based compensation expense and $4.3 million in salaries and related taxes.

Restructuring and other related charges

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Restructuring and other related charges $ 4,917 $ 31,297 $ (26,380) (84) %

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

For the year ended April 30, 2024, we recorded restructuring and other related charges comprising employee-related severance and other termination benefits of approximately $4.9 million.

Other Income, Net

Interest expense

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Interest expense $ (26,132) $ (25,159) $ (973) 4 %

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

Interest expense primarily related to interest on our Senior Notes and remained relatively flat for the year ended April 30, 2024 compared to the prior year.

Other income, net

Year Ended April 30, Change

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(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

Other income, net $ 33,278 $ 27,454 $ 5,824 21 %

Other income, net increased by $5.8 million to $33.3 million for the year ended April 30, 2024 from $27.5 million for the prior year.

The increase was primarily due to an increase of $19.7 million in investment income due to new investments in marketable securities and higher interest earned on money market funds.

The effects of these increases were partially offset by an increase in net foreign currency transaction losses of $3.7 million.

Additionally, during the year ended April 30, 2023, a one-time favorable settlement of a legal claim increased other income by $10.2 million, further offsetting the year-over-year increase in investment income.

(Benefit from) Provision for Income Taxes

Year Ended April 30, Change

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(in thousands)

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

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.

(Benefit from) provision for income taxes $ (184,476) $ 19,284 $ (203,760) NM

NM = Not Meaningful

The benefit from income taxes was $184.5 million for the year ended April 30, 2024 compared to a provision for income taxes of $19.3 million for the prior year.

Our effective tax rate was 150% and (9)% of our loss before income taxes for the years ended April 30, 2024 and 2023, respectively.

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 as well as one-time tax benefits or charges.

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.

The increase in tax benefit during the year ended April 30, 2024 was driven primarily by the release of a valuation allowance against U.S.

federal and certain states’ deferred tax assets of $250.7 million, partially offset by tax expense in the current year resulting from growth in business operations in jurisdictions where we are subject to tax.

Liquidity and Capital Resources

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.

As of April 30, 2024, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $1.084 billion.

Our cash, 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, 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.

We have generated significant operating losses from our operations as reflected in our accumulated deficit of $991.6 million as of April 30, 2024.

We have historically incurred, and expect to continue to incur, operating losses and may generate negative cash flows from operations in the future due to the investments we intend to make 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, cash equivalents, and marketable securities and cash from our future operations 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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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.

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 July 2021, we issued long-term debt of $575.0 million, represented by our Senior Notes, 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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Net Cash Provided by Operating Activities

Net cash provided by operating activities during the year ended April 30, 2024 was $148.8 million, which resulted from net income of $61.7 million and adjustments for non-cash charges of $123.7 million, partially offset by a net cash outflow of $36.6 million from changes in operating assets and liabilities.

Non-cash charges primarily consisted of $239.1 million for stock-based compensation expense, $78.5 million for amortization of deferred contract acquisition costs, $18.0 million of depreciation and intangible asset amortization expense, $11.0 million in non-cash operating lease costs, $1.9 million from foreign currency transaction loss, and $1.1 million for amortization of debt issuance costs, the effects of which were partially offset by $217.2 million in deferred income taxes primarily related to the release of a valuation allowance, net and $8.8 million from amortization of premium and accretion of discount on marketable securities, net .

The net cash outflow from changes in operating assets and liabilities resulted from an increase in deferred contract acquisition costs of $119.8 million as our sales commissions increased due to increased business volume, an increase of $63.5 million in accounts receivable, a decrease of $12.4 million in operating lease liabilities, and an increase of $1.0 million in prepaid expenses and other assets .

These outflows were partially offset by inflows from a $134.6 million increase in deferred revenue and a net increase of $25.5 million in accounts payable, accrued expenses, and accrued compensation and benefits.

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 expenses 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.

The net cash outflow from changes in operating assets and liabilities resulted from 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 inflows from 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 Used in Investing Activities

Net cash used in investing activities of $288.0 million during the year ended April 30, 2024 was primarily due to the purchase of marketable securities of $536.8 million, business acquisitions, net of cash acquired, of $19.1 million, and capital expenditures of $3.5 million .

These expenditures were offset by cash provided by maturities and redemptions of marketable securities of $271.4 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 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 year.

Net Cash Provided by Financing Activities

Net cash provided by financing activities of $40.1 million during the year ended April 30, 2024 was due to the proceeds from stock option exercises and purchases under our employee stock purchase plan.

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-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.

Our principal commitments primarily 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, 2024, we had purchase commitments of $424.6 million related to cloud hosting services, future minimum lease payment commitments of $26.7 million, and purchase commitments of $47.8 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.

Subsequent to April 30, 2024, we executed an operating lease agreement for an office space with an expected commencement date in the third quarter of fiscal 2025.

The lease term is approximately 11 years with undiscounted future minimum lease payments of approximately $12.4 million.

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.

In July 2021, we issued $575.0 million aggregate principal amount of Senior Notes in a private placement.

Interest on the Senior Notes is payable semi-annually in arrears on January 15 and July 15 of each year.

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

Deferred income tax balances reflect the effects of temporary differences between the financial reporting and tax bases of our assets and liabilities using enacted tax rates expected to apply when taxes are actually paid or recovered.

In addition, deferred tax assets are recorded for net operating loss and credit carryforwards.

A valuation allowance is provided against deferred tax assets unless it is more likely than not that they will be realized based on all available positive and negative evidence.

Such evidence, which requires management's judgment, includes, but is not limited to, recent cumulative earnings or losses, expectations of future taxable income by taxing jurisdiction, and the carry-forward periods available for the utilization of deferred tax assets.

To the extent sufficient positive evidence becomes available, we may release all or a portion of our valuation allowance in one or more future periods.

During the year ended April 30, 2024, we evaluated the realizability of our deferred tax assets, which resulted in releasing part of our valuation allowance for our U.S.

federal and certain U.S.

state deferred tax assets.

Future releases of the remaining valuation allowance, if any, would result in the recognition of certain deferred tax assets which may include a material income tax benefit for the period in which such release is recorded.

See Note 13, “Income Taxes” 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.

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