ELASTIC N.V. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled "Selected Consolidated Financial Data" and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. As discussed in the section titled "Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such difference include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" included elsewhere in this Annual Report on Form 10-K. Our fiscal year end isApril 30 . Overview Elastic is a search company. We deliver technology that enables users to search through massive amounts of structured and unstructured data for a wide range of consumer and enterprise applications. Our primary offering is the Elastic Stack, a powerful set of software products that ingest and store data from any source, and in any format, and perform search, analysis, and visualization in milliseconds or less. The Elastic Stack is designed for direct use by developers to power a variety of use cases. We also offer three software solutions - Enterprise Search, Observability, and Security - built on the Elastic Stack. Our solutions are designed to be deployed everywhere: in public or private clouds, in hybrid environments, or in traditional on-premises environments. Our products are used by individual developers and organizations of all sizes across a wide range of industries.Elasticsearch is the heart of the Elastic Stack. It is a distributed, real-time search and analytics engine and datastore for exploring all types of data including textual, numerical, geospatial, structured, and unstructured. The first public release ofElasticsearch was in 2010 by our co-founder Shay Banon as an open source project. The Company was formed in 2012. Since then, we have added new products, released new features, acquired companies, and created new solutions to expand the functionality of our products. Our business model is based on a combination of open source and proprietary software. We market and distribute the Elastic Stack and our solutions using a free and open distribution strategy. Developers are able to download our software directly from our website. Some features of our software can be downloaded and used free of charge. Others are only available through paid subscriptions, which include access to specific proprietary features and also include support. These paid features can be unlocked without the need to re-deploy the software. There is no free subscription tier in our cloud offerings, where all subscriptions are paid. We believe that our distribution strategy drives a number of benefits for our users, our customers, and our company. It facilitates rapid and efficient developer adoption, particularly by empowering individual developers to download and use our software without payment, registration, or the friction of a formal sales interaction. It fosters a vibrant developer community around our products and solutions, which drives adoption of our products and increased interaction among users. Further, this approach enables community review of our code and products, which allows us to improve the reliability and security of our software. We generate revenue primarily from sales of subscriptions for our software. We offer various paid subscription tiers that provide different levels of access to proprietary features and support. We do not sell support separately. Our subscription agreements for self-managed deployments typically have terms of one to three years and we usually bill for them annually in advance. Elastic Cloud customers may purchase subscriptions either on a month-to-month basis or on a committed contract of at least one year in duration. Subscriptions accounted for 92%, 91% and 93% of total revenue in the years endedApril 30, 2020 , 2019 and 2018, respectively. We also generate revenue from consulting and training services. We had over 11,300 customers, over 8,100 customers and over 5,000 customers as ofApril 30, 2020 , 2019, and 2018, respectively. We define a customer as an entity that generated revenue in the quarter ending on the measurement date from an annual or month-to-month subscription. All affiliated entities are typically counted as a single customer. The annual contract value ("ACV") of a customer's commitments is calculated based on the terms of that customer's subscriptions, and represents the total committed annual subscription amount as of the measurement date. Month-to-month subscriptions are not included in the calculation of ACV. The number of customerswho represented greater than$100,000 in ACV was over 610, over 440, and over 275 as ofApril 30, 2020 , 2019 and 2018, respectively. We engage in various sales and marketing efforts to extend our free and open distribution model. We employ multi-touch marketing campaigns to nurture our users and customers and keep them engaged after they download our software. Additionally, we maintain direct sales efforts focused on users and customerswho have adopted our software, as well as departmental decision-makers and senior executiveswho have broad purchasing power in their organizations. Our sales teams are primarily segmented by geographies and secondarily by the employee count of our customers. They focus on both initial conversion of users into customers and additional sales to existing customers. In addition to our direct sales efforts, we also maintain partnerships to further extend our reach and awareness of our products around the world. 46 -------------------------------------------------------------------------------- We continue to make substantial investments in developing the Elastic Stack and our solutions and expanding our global sales and marketing footprint. With a distributed team spanning over 35 countries, we are able to recruit, hire, and retain high-quality, experienced technical and sales personnel and operate at a rapid pace to drive product releases, fix bugs, and create and market new products. We had 1,936 employees as ofApril 30, 2020 . OnOctober 8, 2019 , the Company acquired all outstanding shares of Endgame, a security company offering endpoint protection technology, for a total acquisition price of$234.0 million . Elastic paid the purchase price through (i) the issuance of 2,218,694 ordinary shares in respect of Endgame's outstanding capital stock, warrants, convertible notes, and certain retention awards, (ii) the cash repayment of Endgame's outstanding indebtedness of$20.4 million , (iii) the assumption of Endgame's outstanding options, (iv) a$0.4 million cash deposit to an expense fund for the fees and expenses of the representative and agent of Endgame securityholders, (v) the cash payment of Endgame's transaction expenses of$5.9 million , and (vi) the cash payment of withholding taxes related to acquisition expense settled in shares of$2.8 million . Approximately 11% of the ordinary shares issued, or 235,031 shares, are being held in an indemnity escrow fund for 18 months after the acquisition close date. Refer to Note 5, Acquisitions in the notes to consolidated financial statements for further discussion of the acquisition. We have experienced significant growth, with revenue increasing to$427.6 million in the year endedApril 30, 2020 from$271.7 million in the year endedApril 30, 2019 and$159.9 million in the year endedApril 30, 2018 , representing year-over-year growth of 57% for the year endedApril 30, 2020 and 70% for the year endedApril 30, 2019 . In the year endedApril 30, 2020 , revenue from outsidethe United States accounted for 43% 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 represented more than 10% of our revenue in the years endedApril 30, 2020 , 2019 or 2018. We have not been profitable to date. In the years endedApril 30, 2020 , 2019 and 2018, we incurred net losses of$167.2 million ,$102.3 million and$52.7 million , respectively, and our net cash used in operating activities was$30.6 million ,$23.9 million and$20.8 million , respectively. We have experienced losses in each year since our incorporation and as ofApril 30, 2020 , had an accumulated deficit of$484.3 million . 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. COVID-19 InMarch 2020 , theWorld Health Organization declared COVID-19 a pandemic. The full extent of the 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, impact on our customers and our sales cycles, impact on our customer, employee or industry events, and effect on our vendors, all of which are uncertain and cannot be predicted. Due to our subscription-based business model, the effect of COVID-19 may not be fully reflected in our results of operations until future periods, if at all. In the near to intermediate term, we may experience an increase in delayed purchasing decisions from prospective customers and longer sales cycles, which we have experienced, which in turn, could result in delays in deals closing, creating near-term headwinds for calculated billings, as well as potential future impacts on revenue growth and other key metrics. Key Factors Affecting Our Performance We believe that the growth and future success of our business depends on many factors, including those described below. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations. Growing the Elastic community. Our strategy consists of providing a combination of open source, free proprietary and paid proprietary software 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 theU.S. and internationally. Our results of operations may fluctuate as we make these investments. Developing new features to expand the use cases to which the Elastic Stack can be applied. The Elastic Stack is applied to various use cases both directly by developers and through the solutions we offer. Our revenue is derived primarily from subscriptions of Enterprise Search, Observability and Security built on the Elastic Stack. We believe that releasing additional features of the Elastic Stack and additional features for our solutions on top of the Elastic Stack drives usage of our products and ultimately drives our growth. To that end, we plan to continue to invest in building new features and solutions that expand the capabilities of our solutions and the Elastic Stack and make it easier to apply to additional use cases. These investments may adversely affect our operating results prior to generating benefits, to the extent that they ultimately generate benefits at all. 47 -------------------------------------------------------------------------------- Growing our customer base by converting users of our software to paid subscribers. Our financial performance depends on growing our paid customer base by converting free users of our software into paid subscribers. Our distribution model has resulted in rapid adoption by developers around the world. We have invested, and expect to continue to invest, heavily in sales and marketing efforts to convert additional free users to paid subscribers. Our investment in sales and marketing is significant given our large and diverse user base. The investments are likely to occur in advance of the anticipated benefits resulting from such investments, such that they may adversely affect our operating results in the near term. Expanding within our current customer base. Our future growth and profitability depend on our ability to drive additional sales to existing customers. Customers often expand the use of our software within their organizations by increasing the number of developers using our products, increasing the utilization of our products for a particular use case, and expanding use of our products to additional use cases. We focus some of our direct sales efforts on encouraging these types of expansion within our customer base. An indication of how our customer relationships have expanded over time is through our Net Expansion Rate, which is based upon trends in the ACV of customers that have entered into annual subscription agreements. To calculate an expansion rate as of the end of a given month, we start with the ACV from all such customers as of twelve months prior to that month end, or Prior Period Value. We then calculate the ACV from these same customers as of the given month end, or Current Period Value, which includes any growth in the value of their subscriptions and is net of contraction or attrition over the prior twelve months. We then divide the Current Period Value by the Prior Period Value to arrive at an expansion rate. The Net Expansion Rate at the end of any period is the weighted average of the expansion rates as of the end of each of the trailing twelve months. We believe that our Net Expansion Rate provides useful information about the evolution of our business' existing customers. The Net Expansion Rate includes the dollar-weighted value of our subscriptions that expand, renew, contract, or attrit. 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%. Customerswho 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 continued to be over 130% for each quarter during fiscal 2020. As large organizations expand their use of the Elastic Stack across multiple use cases, projects, divisions and users, they often begin to require centralized provisioning, management and monitoring across multiple deployments. To satisfy these requirements, we offer the Elastic Enterprise subscription. We will continue to focus some of our direct sales efforts on driving adoption of our paid offerings. Increasing adoption of Elastic Cloud. Elastic Cloud, our family of SaaS products that includes Elasticsearch Service, Site Search Service, and App Search Service, is an important growth opportunity for our business. Organizations are increasingly looking for SaaS deployment alternatives with reduced administrative burdens. In some cases, open source users that have been self-managing deployments of the Elastic Stack subsequently become paying subscribers of Elastic Cloud. In the years endedApril 30, 2020 , 2019 and 2018, Elastic Cloud contributed 22%, 17% and 16% of our total revenue, respectively. We believe that offering a SaaS deployment alternative is important for achieving our long-term growth potential, and we expect Elastic Cloud's contribution to our subscription revenue to increase over time. However, an increase in the relative contribution of Elastic Cloud to our business could adversely impact our gross margin as a result of the associated hosting and managing costs. Non-GAAP Financial Measures In addition to our results determined in accordance withU.S. GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance withU.S. GAAP. In particular, free cash flow is not a substitute for cash used in operating activities. Additionally, the utility of free cash flow as a measure of our financial performance and liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance withU.S. GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business. 48 -------------------------------------------------------------------------------- We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, operating results or future outlook. Non-GAAP Gross Profit and Non-GAAP Gross Margin We define non-GAAP gross profit and non-GAAP gross margin as GAAP gross profit and GAAP gross margin, respectively, excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, and amortization of acquired intangible assets. We believe non-GAAP gross profit and non-GAAP gross margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations, as these metrics generally eliminate the effects of certain variables from period to period for reasons unrelated to overall operating performance. Year Ended April 30, 2020 2019 2018 (in thousands) Gross profit$ 304,930 $ 193,643 $ 119,195 Stock-based compensation expense 7,127 4,591 1,028 Employer payroll taxes on employee stock transactions 527 38 - Amortization of acquired intangibles 6,768 2,808 1,908 Non-GAAP gross profit$ 319,352 $ 201,080 $ 122,131 Gross margin 71 % 71 % 75 % Non-GAAP gross margin (non-GAAP gross profit as a percentage of revenue) 75 % 74 % 76 % Non-GAAP Operating Loss and Non-GAAP Operating Margin We define non-GAAP operating loss and non-GAAP operating margin as GAAP operating loss and GAAP operating margin, respectively, excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, amortization of acquired intangible assets, and acquisition-related expenses. We believe non-GAAP operating loss and non-GAAP operating margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations, as these metrics generally eliminate the effects of certain variables from period to period for reasons unrelated to overall operating performance. Year Ended April 30, 2020 2019 2018 (in thousands) Operating loss$ (171,105) $ (101,356) $ (47,994) Stock-based compensation expense 60,007 39,942 12,742 Employer payroll taxes on employee stock transactions 7,493 1,814 - Amortization of acquired intangibles 10,068 2,956 2,027 Acquisition-related expenses 17,974 948 1,263 Non-GAAP loss from operations$ (75,563) $ (55,696) $ (31,962) Operating margin (40) % (37) % (30) %
Non-GAAP operating margin (non-GAAP loss from operations as a percentage of revenue)
(18) % (21) % (20) %
Free Cash Flow and Free Cash Flow Margin
Free cash flow is a non-GAAP financial measure that we define as net cash (used
in) provided by operating activities less purchases of property and equipment.
Free cash flow margin is calculated as free cash flow divided by total revenue.
We believe that free cash flow and free cash flow margin are useful indicators
of liquidity that provide information to management and investors about the
amount of cash generated from our core operations that, after the purchases of
property and equipment, can be used for strategic initiatives, including
investing in our business and selectively pursuing acquisitions and strategic
investments. We further believe that historical and future trends in free cash
flow and free cash flow margin, even if negative, provide useful information
about the amount of cash generated (or consumed) by our operating activities
that is available (or not available) to be used for strategic initiatives. For
example, if free cash flow is negative, we may need to access cash reserves or
other sources of capital to invest in strategic initiatives. One limitation of
free cash flow and free cash flow margin is that
49
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they do not reflect our future contractual commitments. Additionally, free cash
flow does not represent the total increase or decrease in our cash balance for a
given period.
The following table presents our cash flows for the periods presented and a
reconciliation of free cash flow and free cash flow margin to net cash used in
operating activities, the most directly comparable financial measure calculated
in accordance with GAAP:
Year Ended April 30,
2020 2019 2018
(in thousands)
Net cash used in operating activities $ (30,564) $ (23,937) $ (20,819)
Less: Purchases of property and equipment (5,063) (3,447) (2,968)
Free cash flow $ (35,627) $ (27,384) $ (23,787)
Net cash (used in) provided by investing activities $ (29,187) $ (8,283) $ 8,330
Net cash provided by financing activities $ 58,539
(7) % (9) % (13) %
Less: Purchases of property and equipment (as a
percentage of total revenue) (1) % (1) % (2) %
Free cash flow margin (8) % (10) % (15) %
Calculated Billings
We define calculated billings as total revenue plus the increase in total
deferred revenue as presented on or derived from our consolidated statements of
cash flows less the (increase) decrease in total unbilled accounts receivable in
a given period. Calculated billings exclude the effects of deferred revenue and
unbilled accounts receivable acquired through acquisitions. We typically invoice
our customers annually in advance, and to a lesser extent multi-year in advance,
quarterly in advance, monthly in advance, monthly in arrears or upon delivery.
Our management uses calculated billings to understand and evaluate our near-term
cash flows and operating results. The following table presents our calculated
billings for the periods presented and a reconciliation of calculated billings
to total revenue, the most directly comparable financial measure calculated in
accordance with GAAP:
Year Ended April 30,
2020 2019 2018
(in thousands)
Total revenue $ 427,620 $ 271,653 $ 159,935
Add: Increase in total deferred revenue 85,670 71,876 45,814
Less: Increase in unbilled accounts receivable (592) (571) (25)
Calculated billings $ 512,698 $ 342,958 $ 205,724
Components of Results of Operations
Revenue
Subscription. Our revenue is primarily generated through the sale of
subscriptions to software, which is either self-managed by the user or hosted
and managed by us in the cloud. Subscriptions provide access to 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 while revenue from subscriptions
that require access to the cloud or that are hosted and managed by us in the
cloud is recognized ratably over the subscription term or on a usage basis; both
are presented within Subscription - self-managed and SaaS in our consolidated
statements of operations.
Professional services. Professional services comprises consulting services as
well as public and private training. Consulting services are generally
time-based arrangements. Revenue for professional services is recognized as
these services are performed.
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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. 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.
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. We expect our gross margin to fluctuate over
time depending on the factors described above. We expect our revenue from
Elastic Cloud to increase as a percentage of total revenue, which we expect will
adversely impact our gross margin as a result of the associated hosting and
managing costs.
Operating Expenses
Research and development. Research and development expense primarily consists of
personnel costs and allocated overhead costs for employees and contractors. We
expect our research and development expense to increase in absolute dollars for
the foreseeable future as we continue to develop new technology and invest
further in our existing products.
Sales and marketing. Sales and marketing expense primarily consists of personnel
costs, commissions, allocated overhead costs and costs related to marketing
programs and user events. Marketing programs consist of advertising, events,
brand-building and customer acquisition and retention activities. We expect our
sales and marketing expense to increase in absolute dollars as we expand our
salesforce and increase our investments in marketing resources. We capitalize
sales commissions and associated payroll taxes paid to internal sales personnel
that are related to the acquisition of customer contracts. Sales commissions
costs are amortized over the expected benefit period.
General and administrative. General and administrative expense primarily
consists of personnel costs for our management, finance, legal, human resources,
and other administrative employees. Our general and administrative expense also
includes professional fees, accounting fees, audit fees, tax services and legal
fees, as well as insurance, allocated overhead costs, and other corporate
expenses. We expect our general and administrative expense to increase in
absolute dollars as we increase the size of our general and administrative
functions to support the growth of our business. We also anticipate that we will
continue to incur additional costs for employees and third-party consulting
services related to operating as a public company.
Other Income (Expense), Net
Other income (expense), net primarily consists of gains and losses from
transactions denominated in a currency other than the functional currency and
interest income (expense).
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, non-deductible
stock-based compensation and changes in our valuation allowance.
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 Company has
elected to omit a discussion and analysis of the financial condition and results
of operations of certain items from fiscal year ended April 30, 2018 and year to
year comparison between fiscal year ended April 30, 2019 and April 30, 2018 .
Such discussion and analysis can be found in "Management's Discussion and
Analysis of Financial Condition
51
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and Results of Operations" in the Company's Annual Report on Form 10-K for the
fiscal year ended April 30, 2019 , filed with the SEC on June 28, 2019 and is
incorporated by reference herein. The period to period comparison of results is
not necessarily indicative of results for future periods.
Year Ended April 30,
2020 2019 2018
(in thousands)
Revenue
License - self-managed $ 53,536 $ 39,474 $ 25,759
Subscription - self-managed and SaaS 338,634 208,780 123,623
Total subscription revenue 392,170 248,254 149,382
Professional services 35,450 23,399 10,553
Total revenue 427,620 271,653 159,935
Cost of revenue (1)(2)(3)
Cost of license - self-managed 948 387 387
Cost of subscription - self-managed and SaaS 84,819 53,560 27,920
Total cost of revenue - subscription 85,767 53,947 28,307 Cost of professional services 36,923 24,063 12,433 Total cost of revenue 122,690 78,010 40,740 Gross profit 304,930 193,643 119,195 Operating expenses (1)(2)(3)(4) Research and development 165,370 101,167 55,641 Sales and marketing 219,040 147,296 82,606 General and administrative 91,625 46,536 28,942 Total operating expenses 476,035 294,999 167,189 Operating loss (1)(2)(3)(4) (171,105) (101,356) (47,994) Other income (expense), net 1,963 3,441 (1,357) Loss before income taxes (169,142) (97,915) (49,351) Provision for (benefit from) income taxes (1,968) 4,388 3,376 Net loss$ (167,174) $ (102,303) $ (52,727)
(1) Includes stock-based compensation expense as follows:
Year Ended April 30,
2020 2019 2018
(in thousands)
Cost of Revenue
Cost of subscription - self managed and SaaS $ 4,147 $ 3,383 $ 699
Cost of professional services 2,980 1,208 329
Research and development 23,621 16,100 5,045
Sales and marketing 19,334 11,996 3,560
General and administrative 9,925 7,255 3,109
Total stock-based compensation expense
52
--------------------------------------------------------------------------------(2) Includes employer payroll taxes on employee stock transactions as follows (information for fiscal year 2018 is not meaningful):
Year Ended April 30,
2020 2019 2018
(in thousands)
Cost of Revenue
Cost of subscription - self managed and SaaS $ 349 $ 28 $ -
Cost of professional services 178 10 -
Research and development 2,179 939 -
Sales and marketing 3,237 747 -
General and administrative 1,550 90 -
Total employer payroll tax on stock transactions
$ -
(3) Includes amortization of acquired intangibles as follows:
Year Ended April 30,
2020 2019 2018
(in thousands)
Cost of Revenue
Cost of license - self-managed $ 948 $ 387 $ 387
Cost of subscription - self-managed and SaaS 5,820 2,421 1,521
Sales and marketing 3,300 148
119
Total amortization of acquired intangibles
(4) Includes acquisition-related expenses as follows:
Year Ended April 30,
2020 2019 2018
(in thousands)
Research and development $ 34 $ 689 $ 655
Sales and marketing 522 - -
General and administrative 17,418 259 608
Total acquisition-related expenses
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--------------------------------------------------------------------------------The following table sets forth selected consolidated statements of operations data for each of the periods indicated as a percentage of total revenue:
Year Ended April 30,
2020 2019 2018
Revenue
License - self-managed 13 % 14 % 16 %
Subscription - self-managed and SaaS 79 % 77 % 77 %
Total subscription revenue 92 % 91 % 93 %
Professional services 8 % 9 % 7 %
Total revenue 100 % 100 % 100 %
Cost of revenue
Cost of license - self-managed 0 % 0 % 0 %
Cost of subscription - self-managed and SaaS 20 % 20 % 17 %
Total cost of revenue - subscription 20 % 20 % 17 %
Cost of professional services 9 % 9 % 8 %
Total cost of revenue 29 % 29 % 25 %
Gross profit 71 % 71 % 75 %
Operating expenses
Research and development 39 % 37 % 35 %
Sales and marketing 51 % 54 % 52 %
General and administrative 21 % 17 % 18 %
Total operating expenses 111 % 108 % 105 %
Operating loss (40) % (37) % (30) %
Other income (expense), net 0 % 1 % (1) %
Loss before income taxes (40) % (36) % (31) %
Provision for (benefit from) income taxes (1) % 2 % 2 %
Net loss (39) % (38) % (33) %
Comparison of Fiscal Years Ended April 30, 2020 and 2019
Revenue
Year Ended April 30, Change
2020 2019 $ %
(in thousands)
Revenue
License - self-managed $ 53,536 $ 39,474 $ 14,062 36 %
Subscription - self-managed and SaaS 338,634 208,780 129,854 62 %
Total subscription revenue 392,170 248,254 143,916 58 %
Professional services 35,450 23,399 12,051 52 %
Total revenue $ 427,620 $ 271,653 $ 155,967 57 %
Total revenue increased by $156.0 million , or 57%, in the year ended April 30,
2020 compared to the prior year.
Total subscription revenue increased $143.9 million , or 58%, in the year ended
April 30, 2020 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 11,300 customers in the year ended April 30, 2020 compared to over 8,100
customers in the prior year.
Professional services revenue increased by $12.1 million , or 52%, in the year
ended April 30, 2020 compared to the prior year. The increase in professional
services revenue was attributable to increased adoption of our professional
services offerings.
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--------------------------------------------------------------------------------Cost of Revenue and Gross Margin
Year Ended April 30, Change
2020 2019 $ %
(in thousands)
Cost of revenue
Cost of license - self-managed $ 948 $ 387 $ 561 145 %
Cost of subscription - self-managed and SaaS 84,819 53,560 31,259 58 %
Total cost of revenue - subscription 85,767 53,947 31,820 59 %
Cost of professional services 36,923 24,063 12,860 53 %
Total cost of revenue $ 122,690 $ 78,010 $ 44,680 57 %
Gross profit $ 304,930 $ 193,643 $ 111,287 57 %
Gross margin:
License - self-managed 98 % 99 %
Subscriptions - self-managed and SaaS 75 % 74 %
Total subscription margin 78 % 78 %
Professional services (4) % (3) %
Total gross margin 71 % 71 %
Total cost of subscription revenue increased by $31.8 million , or 59%, in the
year ended April 30, 2020 compared to the prior year. This increase was
primarily due to an increase of $20.6 million in cloud infrastructure costs and
an increase of $5.2 million in personnel and related charges from growth in
headcount in our support organization. In addition, amortization of acquired
intangible assets increased $3.3 million . The increase in personnel and related
costs includes an increase of $3.8 million in salaries and related taxes and an
increase of $0.8 million in stock-based compensation expense. Total subscription
margin remained flat at 78% in the year ended April 30, 2020 compared to the
prior year.
Cost of professional services revenue increased by $12.9 million , or 53%, in the
year ended April 30, 2020 compared to the prior year. This increase was
primarily due to an increase of $12.1 million in personnel and related costs and
increases of $0.7 million in software and equipment expense and rent of $0.7
million driven by an increase in headcount in our consulting and training
organizations. These increases were partially offset by a decrease of $1.7
million in subcontractor costs. The increase in personnel and related costs
includes an increase of $8.3 million in salaries and related taxes and an
increase of $1.8 million in stock-based compensation expense.
Gross margin for professional services revenue was (4)% in the year ended April
30, 2020 compared to (3)% for the prior year. Historically, our professional
services offerings have primarily consisted of training, however, we have
recently experienced increased demand for consulting services. In the year ended
April 30, 2020 , we have invested in headcount for our professional services
organization that we believe will be needed as we continue to grow. Our gross
margin for professional services may fluctuate or decline in the near-term as we
seek to expand our professional services business.
Operating Expenses
Research and development
Year Ended April 30, Change
2020 2019 $ %
(in thousands)
Research and development $ 165,370 $ 101,167 $ 64,203 63 %
Research and development expense increased by $64.2 million , or 63%, in the year
ended April 30, 2020 compared to the prior year as we continued to invest in the
development of new and existing offerings. Personnel and related costs increased
by $51.3 million and software and equipment expense increased by $3.4 million ,
primarily as a result of growth in headcount. In addition, cloud infrastructure
costs related to our research and development activities increased $3.4 million .
The increase in personnel and related costs includes an increase of $38.2
million in salaries and related taxes and an increase of $7.5 million in
stock-based compensation expense.
55
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Sales and marketing
Year Ended April 30, Change
2020 2019 $ %
(in thousands)
Sales and marketing $ 219,040 $ 147,296 $ 71,744 49 %
Sales and marketing expense increased by $71.7 million , or 49%, in the year
ended April 30, 2020 compared to the prior year. This increase was primarily due
to an increase of $55.1 million in personnel and related costs and an increase
of $3.0 million in software and equipment expense, as we continue to increase
our sales and marketing headcount. In addition, marketing expenses increased
$5.2 million as we increased the reach of our global marketing campaigns and
amortization of acquired intangible assets increased by $3.2 million . The
increase in personnel and related costs includes an increase of $33.9 million in
salaries and related taxes, an increase of $6.4 million in commissions expense
related to the amortization of contract acquisition costs and an increase of
$7.3 million in stock-based compensation expense.
General and administrative
Year Ended April 30, Change
2020 2019 $ %
(in thousands)
General and administrative $ 91,625 $ 46,536 $ 45,089 97 %
General and administrative expense increased by $45.1 million , or 97%, in the
year ended April 30, 2020 compared to the prior year. As a result of our
continued investment in headcount, personnel and related costs increased by
$37.3 million . Legal and professional advisory expenses increased by $8.1
million due primarily to expenses incurred in connection with the acquisition of
Endgame and international expansion. The increase in personnel and related costs
includes an increase of $17.6 million in salaries and related taxes, an increase
in acquisition-related compensation of $12.5 million and an increase of $2.7
million in stock-based compensation expense.
Other Income (Expense), Net
Year Ended April 30, Change
2020 2019 $ %
(in thousands)
Other income (expense), net $ 1,963 $ 3,441 $ (1,478) (43) %
Other income was $2.0 million for the year ended April 30, 2020 compared to $3.4
million in the prior year. This decrease was primarily due to a higher negative
impact of foreign currency fluctuations of $2.0 million and a decrease of $0.5
million in other income which were partially offset by an increase of $0.9
million in interest income.
Provision for (Benefit from) Income Taxes
Year Ended April 30, Change
2020 2019 $ %
(in thousands)
Provision for (benefit from) income taxes
The benefit from income taxes was$2.0 million compared to a provision for$4.4 million in the prior year. The additional tax benefit is primarily due to the increase in the pretax loss, benefit from net operating loss carryback due to the Coronavirus Aid, Relief, and Economic Security Act, tax benefit for stock-based compensation which were partially offset by a valuation allowance for deferred tax assets inthe United States ,the Netherlands , and theUnited Kingdom . Our effective tax rate was 1.2% and (4.5)% of our net loss before taxes for the year endedApril 30, 2020 and 2019, respectively. Quarterly Results of Operations The following tables set forth our unaudited quarterly consolidated statements of operations data for each of the quarters indicated, as well as the percentage that each line item represents of our total revenue for each quarter presented. The information for each quarter has been prepared on a basis consistent with our audited consolidated financial statements included in this Annual Report on Form 10-K, and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are necessary for a fair statement of the financial information contained in those financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following quarterly financial data should be read in conjunction with our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 56 --------------------------------------------------------------------------------
Three Months Ended
April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019 April 30, 2019 January 31, 2018 October 31, 2018 July 31, 2018
Revenue
License - self-managed $ 16,862 $
14,495
89,703 79,407 72,483 60,999 55,180 48,232 44,369
Total subscription revenue 113,903 104,198 91,679 82,390 73,623 64,586 58,436 51,609 Professional services 9,720 8,983 9,427 7,320 6,976 6,249 5,139 5,035 Total revenue 123,623 113,181 101,106 89,710 80,599 70,835 63,575 56,644 Cost of revenue (1)(2)(3) Cost of license - self- managed 346 347 158 97 97 96 97 97 Cost of subscription - self- managed and SaaS 23,987 23,196 19,741 17,895 16,548 13,941 12,870
10,201
Total cost of revenue - subscription 24,333 23,543 19,899 17,992 16,645 14,037 12,967
10,298
Cost of professional services 9,940 9,862 8,862 8,259 6,797 6,387 5,620 5,259 Total cost of revenue 34,273 33,405 28,761 26,251 23,442 20,424 18,587 15,557 Gross profit 89,350 79,776 72,345 63,459 57,157 50,411 44,988 41,087 Operating expenses (1)(2)(3)(4) Research and development 45,591 46,119 38,478 35,182 31,004 25,850 25,332 18,981 Sales and marketing 58,180 54,829 54,020 52,011 45,044 37,196 34,634 30,422 General and administrative 20,153 21,096 31,808 18,568 13,194 11,151 12,092
10,099
Total operating expenses 123,924 122,044 124,306 105,761 89,242 74,197 72,058
59,502
Operating loss (1)(2)(3)(4) (34,574) (42,268) (51,961) (42,302) (32,085) (23,786) (27,070)
(18,415)
Other income (expense), net 687 (1,339) 1,684 931 704 1,877 264
596
Loss before income taxes (33,887) (43,607) (50,277) (41,371) (31,381) (21,909) (26,806)
(17,819)
Provision for (benefit from) income taxes (2,736) 674 (304) 398 3,454 (558) 733 759 Net loss$ (31,151) $ (44,281) $ (49,973) $ (41,769) $ (34,835) $ (21,351) $ (27,539) $ (18,578) Net loss per share attributable to ordinary shareholders, basic and diluted$ (0.38) $ (0.55) $ (0.64)$ (0.56) $ (0.48) $ (0.30) $ (0.63)$ (0.56) Weighted-average shares used to compute net loss per share attributable to ordinary shareholders, basic and diluted 82,123,381 80,737,237 77,772,406 74,643,782 72,307,990 70,725,336 43,978,770 32,978,163
(1) Includes stock-based compensation expense as follows:
Three Months Ended
January 31, October 31, January
31,
April 30, 2020 2020 2019 July 31, 2019 April 30, 2019 2018 2018 July 31, 2018
Cost of Revenue
Cost of subscription -
self managed and SaaS $ 1,278 $ 1,008 $ 946 $ 915 $ 1,195 $ 1,095 $ 680 $ 413
Cost of professional
services 902 879 638 561 440 364 227 177
Research and development 6,534 6,256 5,870 4,961 4,714 4,604 4,685 2,097
Sales and marketing 5,828 4,540 4,658 4,308 3,911 3,471 2,762 1,852
General and administrative 2,690 2,905 2,304 2,026 1,667 1,577 2,885 1,126
Total stock-based
compensation expense $ 17,232 $ 15,588 $ 14,416 $ 12,771 $ 11,927 $ 11,111 $ 11,239 $ 5,665
57-------------------------------------------------------------------------------- (2) Includes employer payroll taxes on employee stock transactions as follows (information for periods prior to three months endedApril 30, 2019 is not meaningful): Three Months Ended April 30, January 31, October 31, 2020 2020 2019 July 31, 2019 April 30, 2019 January 31, 2018 October 31, 2018 July 31, 2018 Cost of Revenue Cost of subscription - self managed and SaaS$ 28 $ 21 $ 166 $ 134 $ 28 $ - $ - $ - Cost of professional services 42 16 86 34 10 - - - Research and development 293 238 888 760 939 - - - Sales and marketing 421 335 1,887 594 747 - - - General and administrative 61 129 753 607 90 - - - Total stock-based compensation expense$ 845 $ 739 $ 3,780 $ 2,129 $ 1,814 $ - $ - $ -
(3) Includes amortization of acquired intangibles as follows:
Three Months Ended
January 31, October 31, April 30, January 31, October 31,
April 30, 2020 2020 2019 July 31, 2019 2019 2018 2018 July 31, 2018
Cost of Revenue
Cost of license - self
managed $ 346 $ 347 $ 158 $ 97 $ 97 $ 96 $ 97 $ 97
Cost of subscription -
self managed and SaaS 1,763 2,660 861 536 570 638 637 576
Sales and marketing 1,441 1,451 379 29 33 38 40 37
Total amortization of
acquired intangibles $ 3,550 $ 4,458 $ 1,398 $ 662 $ 700 $ 772 $ 774 $ 710 (4) Includes acquisition-related expenses as follows:
Three Months Ended
April 30, January 31, October 31, April 30, January 31, October 31,
2020 2020 2019 July 31, 2019 2019 2018 2018 July 31, 2018Research and development $ - $ - $ - $ 34$ 168 $ 173 $ 174 $ 174 Sales and marketing 14 395 113 - - - - - General and administrative 198 933 13,849 2,438 - - 53 206 Total acquisition-related expenses$ 212 $ 1,328 $ 13,962 $ 2,472 $ 168 $ 173 $ 227 $ 380 58
--------------------------------------------------------------------------------
The following table sets forth selected consolidated statements of operations data for each of the periods indicated as a percentage of total revenue:
Three Months Ended
April 30, January 31, October 31, July 31, April 30, January 31, October 31, July 31,
2020 2020 2019 2019 2019 2018 2018 2018
Revenue
License - self-managed 14 % 13 % 12 % 11 % 15 % 13 % 16 % 13 %
Subscription -
self-managed and SaaS 78 % 79 % 79 % 81 % 76 % 78 % 76 % 78 %
Total subscription revenue 92 % 92 % 91 % 92 % 91 % 91 % 92 % 91 %
Professional services 8 % 8 % 9 % 8 % 9 % 9 % 8 % 9 %
Total revenue 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
Cost of revenue (1)(2)(3)
Cost of license -
self-managed 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 %
Cost of subscription -
self- managed and SaaS 20 % 21 % 20 % 20 % 21 % 20 % 20 % 18 %
Total cost of revenue -
subscription 20 % 21 % 20 % 20 % 21 % 20 % 20 % 18 %
Cost of professional
services 8 % 9 % 8 % 9 % 8 % 9 % 9 % 9 %
Total cost of revenue 28 % 30 % 28 % 29 % 29 % 29 % 29 % 27 %
Gross profit 72 % 70 % 72 % 71 % 71 % 71 % 71 % 73 %
Operating expenses
(1)(2)(3)(4)
Research and development 37 % 41 % 38 % 39 % 39 % 36 % 40 % 34 %
Sales and marketing 47 % 48 % 53 % 58 % 56 % 52 % 54 % 54 %
General and administrative 16 % 18 % 31 % 21 % 16 % 16 % 19 % 18 %
Total operating expenses 100 % 107 % 122 % 118 % 111 % 104 % 113 % 106 %
Operating loss
(1)(2)(3)(4) (28) % (37) % (50) % (47) % (40) % (33) % (42) % (33) %
Other income (expense),
net 1 % (2) % 0 % 1 % 1 % 2 % 0 % 1 %
Loss before income taxes (27) % (39) % (50) % (46) % (39) % (31) % (42) % (32) %
Provision for (benefit
from) income taxes (2) % 0 % (1) % 1 % 4 % (1) % 1 % 1 %
Net loss (25) % (39) % (49) % (47) % (43) % (30) % (43) % (33) %
(1) Includes stock-based compensation expense as follows:
Three Months Ended
April 30, January 31, October 31, July 31, April 30, January 31, October 31, July 31,
2020 2020 2019 2019 2019 2018 2018 2018
Cost of Revenue
Cost of subscription -
self managed and SaaS 1 % 1 % 1 % 1 % 1 % 2 % 1 % 1 %
Cost of professional
services 1 % 1 % 0 % 1 % 1 % 0 % 0 % 0 %
Research and development 5 % 5 % 6 % 6 % 6 % 7 % 8 % 4 %
Sales and marketing 5 % 4 % 5 % 5 % 5 % 5 % 4 % 3 %
General and administrative 2 % 3 % 2 % 2 % 2 % 2 % 5 % 2 %
Total stock-based
compensation expense 14 % 14 % 14 % 15 % 15 % 16 % 18 % 10 %
59--------------------------------------------------------------------------------
(2) Includes employer payroll taxes on employee stock transactions as follows
(information for periods prior to three months ended
Three Months Ended
April 30, January 31, October 31, July 31, April 30, January 31, October 31, July 31,
2020 2020 2019 2019 2019 2018 2018 2018
Cost of Revenue
Cost of subscription -
self managed and SaaS 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 %
Cost of professional
services 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 %
Research and development 0 % 0 % 1 % 1 % 1 % 0 % 0 % 0 %
Sales and marketing 1 % 1 % 2 % 1 % 1 % 0 % 0 % 0 %
General and administrative 0 % 0 % 1 % 1 % 0 % 0 % 0 % 0 %
Total stock-based
compensation expense 1 % 1 % 4 % 3 % 2 % 0 % 0 % 0 %
(3) Includes amortization of acquired intangibles as follows:
Three Months Ended
April 30, January 31, October 31, July 31, April 30, January 31, October 31, July 31,
2020 2020 2019 2019 2019 2018 2018 2018
Cost of Revenue
Cost of license - self-
managed 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 %
Cost of subscription -
self- managed and SaaS 2 % 3 % 1 % 1 % 1 % 1 % 1 % 1 %
Sales and marketing 1 % 1 % 0 % 0 % 0 % 0 % 0 % 0 %
Total amortization of
acquired intangibles 3 % 4 % 1 % 1 % 1 % 1 % 1 % 1 %
(4) Includes acquisition-related expenses as follows:
Three Months Ended
April 30, January 31, October 31, July 31, April 30, January 31, October 31, July 31,
2020 2020 2019 2019 2019 2018 2018 2018
Research and development 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 %
Sales and marketing 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 %
General and administrative 0 % 1 % 14 % 3 % 0 % 0 % 0 % 1 %
Total acquisition-related expenses 0 % 1 % 14 % 3 % 0 % 0 % 0 % 1 %
Quarterly Trends in Revenue and Expense
Our quarterly total subscription revenue increased sequentially in each of the
periods presented due to the expansion of our existing customer subscription
footprint and an increase in the number of new customers. Historically, we have
experienced quarterly fluctuations and seasonality based on the timing of
entering into new agreements with customers, the timing of renewals, and the mix
between annual and monthly contracts entered in each reporting period. Revenue
trends are impacted by seasonality in our sales cycle which generally reflects a
trend to greater revenue in our second and fourth quarters and lower revenue in
our first and third quarters, though we believe this trend has been somewhat
masked by our overall revenue growth. Because we generally invoice annually in
advance for subscription agreements at least one year in duration, but we
recognize the majority of the revenue ratably over the term of those agreements,
a substantial portion of the revenue that we report in each period is
attributable to the recognition of deferred revenue relating to subscriptions
invoiced during previous periods. Consequently, increases or decreases in
subscriptions in any one period typically will not be fully reflected in our
revenue for that period and will positively or negatively affect our revenue in
future periods. Accordingly, the effect of downturns in sales and market
acceptance of our products may not be fully reflected in our results of
operations until future periods. We may also experience greater variability and
reduced comparability of our quarterly revenue and results with respect to
timing and size of our monthly SaaS subscription contracts, particularly for
smaller customers. The increase in professional services revenue was a result of
an increase in standalone consulting and training services due to increased
adoption of our offerings.
Our cost of revenue increased sequentially in each of the quarters presented,
primarily driven by expanded adoption of Elastic Cloud by existing and new
customers, which resulted in increased hosting costs, as well as growth in
personnel costs as we grew our support and professional services teams.
Our total gross margin has remained relatively flat. We expect our revenue from
Elastic Cloud to continue to increase as a percentage of total revenue, which
may adversely impact our gross margin as a result of the associated hosting
costs.
60
--------------------------------------------------------------------------------
Our operating expenses generally increased sequentially over the periods
presented as we grew the associated headcount and other costs. General and
administrative costs increased in the second quarter of the year ended April 30,
2020 due primarily to the costs associated with closing the Endgame acquisition.
We are subject to income taxes in the Netherlands , the United States , and
numerous other jurisdictions. Our tax expense fluctuates between quarters
primarily as a result of seasonally higher earnings in the second and fourth
quarters and due to the impact of tax rates in foreign jurisdictions, and the
relative amounts of income we earn in those jurisdictions.
Liquidity and Capital Resources
As of April 30, 2020 , we had cash and cash equivalents and restricted cash of
$297.1 million and $2.3 million , respectively, and working capital of $158.8
million . Our restricted cash constitutes cash deposits with financial
institutions in support of letters of credit in favor of landlords for
non-cancelable lease agreements.
We have generated significant operating losses from our operations as reflected
in our accumulated deficit of $484.3 million as of April 30, 2020 . We have
historically incurred, and expect to continue to incur, operating losses and
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. 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. Our actual results could vary as
a result of, and our future capital requirements, both near-term and long-term,
will depend on, many factors, including our growth rate, the timing and extent
of spending to support our research and development efforts, the expansion of
sales and marketing activities, the timing of new introductions of solutions or
features, and the continuing market acceptance of our solutions and services. We
may in the future enter into arrangements to acquire or invest in complementary
businesses, services and technologies, including intellectual property rights.
We have based this estimate on assumptions that may prove to be wrong, and we
could use our available capital resources sooner than we currently expect. We
may be required to seek additional equity or debt financing. In 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. If we are unable to raise
additional capital when desired, or if we cannot expand our operations or
otherwise capitalize on our business opportunities because we lack sufficient
capital, our business, operating results and financial condition would be
adversely affected.
The following table summarizes our cash flows for the periods presented:
Year Ended April 30,
2020 2019 2018
(in thousands)
Net cash used in operating activities $ (30,564) $ (23,937) $ (20,819)
Net cash provided by (used in) investing activities $ (29,187) $ (8,283) $ 8,330
Net cash provided by financing activities $ 58,539 Net Cash Used in Operating Activities Net cash used in operating activities during the year endedApril 30, 2020 was$30.6 million , which resulted from a net loss of$167.2 million adjusted for non-cash charges of$117.0 million and net cash inflow of$19.6 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of$60.0 million for stock-based compensation expense,$28.3 million for amortization of deferred contract acquisition costs,$12.9 million of depreciation and intangible asset amortization expense,$8.8 million of non-cash acquisition expense,$7.4 million in non-cash operating lease costs and$1.1 million of other non-cash transactions which were partially offset by a$1.5 million increase in deferred income taxes. The net cash inflow from changes in operating assets and liabilities was the result of a$85.7 million increase in deferred revenue due to higher billings and a net increase of$30.9 million in accounts payable, accrued expenses and accrued compensation and benefits due to growth in our business and higher headcount, and a decrease of$2.7 million in prepaid and other assets. These inflows were partially offset by a$46.8 million increase in accounts receivable due to higher billings and timing of collections from our customers, an increase in deferred contract acquisition costs of$46.2 million as our sales commissions increased due to the addition of new customers and expansion of our existing customer subscriptions and a$6.7 million increase in operating lease liabilities relating to the adoption of the new lease accounting standard. 61 -------------------------------------------------------------------------------- Net cash used in operating activities during the year endedApril 30, 2019 was$23.9 million , which resulted from a net loss of$102.3 million adjusted for non-cash charges of$70.7 million and net cash inflow of$7.7 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of$39.9 million for stock-based compensation expense,$21.4 million for amortization of deferred contract acquisition costs,$5.7 million of depreciation and intangible asset amortization expense and a$3.6 million decrease in deferred income taxes. The net cash inflow from changes in operating assets and liabilities was the result of a$71.9 million increase in deferred revenue due to higher billings and a net increase of$16.9 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 in deferred contract acquisition costs of$30.0 million as our sales commissions increased due to the addition of new customers and expansion of our existing customer subscriptions, a$29.8 million increase in accounts receivable due to higher billings and timing of collections from our customers and a$21.3 million increase in prepaid expenses and other assets primarily related to an increase in prepaid hosting costs and prepaid software subscription costs driven by the growth in our business. Net cash used in operating activities during the year endedApril 30, 2018 was$20.8 million , which resulted from a net loss of$52.7 million adjusted for non-cash charges of$30.2 million and net cash inflow of$1.7 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of$12.7 million for stock-based compensation expense,$12.7 million for amortization of deferred contract acquisition costs,$5.1 million of depreciation and intangible asset amortization expense which were partially offset by a$0.3 million increase in deferred income taxes. The net cash inflow from changes in operating assets and liabilities was the result of a$45.8 million increase in deferred revenue due to higher billings and a net increase of$13.4 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 a$21.6 million increase in accounts receivable due to higher billings and timing of collections from our customers, an increase in deferred contract acquisition costs of$20.5 million as our sales commissions increased due to the addition of new customers and expansion of our existing customer subscriptions, and a$15.4 million increase in prepaid expenses and other assets primarily related to an increase in prepaid hosting costs and prepaid software subscription costs driven by the growth in our business.Net Cash (Used in) Provided by Investing Activities Net cash used in investing activities of$29.2 million during the year endedApril 30, 2020 was primarily due to$24.4 million cash used for the acquisition of Endgame and$5.1 million of capital expenditures during the period. Net cash used in investing activities of$8.3 million during the year endedApril 30, 2019 was due to cash used for capital expenditures of$3.4 million , other investing activities of$2.9 million and business acquisitions, net of cash acquired, of$2.0 million . Net cash provided by investing activities of$8.3 million during the year endedApril 30, 2018 was due to the maturity of short-term investments of$15.0 million , which was partially offset by cash used for business acquisitions, net of cash acquired, of$3.7 million and capital expenditures of$3.0 million . Net Cash Provided by Financing Activities Net cash provided by financing activities of$58.5 million during the year endedApril 30, 2020 was due to$61.5 million proceeds from option exercises during the period, which was partially offset by payment of withholding taxes of$2.8 million for an acquisition-related expense that was settled in ordinary shares of the Company. Net cash provided by financing activities of$281.8 million during the year endedApril 30, 2019 was due to net proceeds to us of$269.5 million , after deducting underwriting discounts and commissions of$20.3 million as a result of our IPO and$18.6 million in proceeds from the exercise of stock options. These were partially offset by$5.7 million of payment of offering costs, a repurchase of unvested early exercised options and$0.6 million of other financing payments. Net cash provided by financing activities of$3.4 million during the year endedApril 30, 2018 was due to$3.8 million of proceeds from the exercise of stock options, which was partially offset by$0.4 million of other financing payments. 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. 62 --------------------------------------------------------------------------------
Contractual Obligations and Commitments
Our principal commitments consist of obligations under operating leases for
office space and purchase obligations. The following table summarizes our
contractual obligations as of
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
(in thousands)
Purchase obligations(1)
$ 28,333 $ - Operating lease commitments(2) 40,594 8,636 16,187 12,968 2,803 Total$ 174,496 $ 42,039 $ 88,353 $ 41,301 $ 2,803 (1)Consists of our purchase obligations under non-cancellable agreements for cloud hosting commitments with various vendors. The table above reflects these commitments on an annualized basis, however, the timing for payments may vary depending on services used. Furthermore, actual payments under these capacity commitments may be higher than the total minimum depending on services used. (2)Consists of future non-cancelable minimum rental payments under operating leases for our offices, excluding rent payments from our sub-tenants and variable operating expenses. Non-cancelable rent payments from our sub-tenants as ofApril 30, 2020 are expected to be an aggregate of$1.5 million over the next five years. In addition to the contractual obligations set forth above, as ofApril 30, 2020 , 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 2023. The table above does not reflect obligations pursuant to cash-settled restricted stock units issued to certain employees. Refer to Note 11 Equity Incentive Plans to our consolidated financial statements elsewhere in this Annual Report on Form 10-K. The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above. Purchase orders issued in the ordinary course of business are not included in the table above, as our purchase orders represent authorizations to purchase rather than binding agreements. Critical Accounting Policies We prepare our financial statements in conformity with generally accepted accounting principles inthe United States ("GAAP"). The preparation of financial statements in accordance with GAAP requires certain estimates, assumptions and judgments to be made that may affect our consolidated financial statements. Accounting policies that have a significant impact on our results are described in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The accounting policies discussed in this section are those that we consider to be the most critical. We consider an accounting policy to be critical if the policy is subject to a material level of judgment and if changes in those judgments are reasonably likely to materially impact our results. Revenue Recognition We generate our revenue primarily from the sale of self-managed subscriptions (which include licenses for proprietary features, support, and maintenance) and SaaS subscriptions. We also generate revenue from professional services, which consist of consulting and training. Under ASC Topic 606, Revenue from Contracts with Customers, we recognize revenue when our customer obtains control of promised products or services in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. Our contracts include varying terms and conditions, and identifying and evaluating the impact of these terms and conditions on revenue recognition requires significant judgment. In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our agreements, we perform the following steps: (i) identification of the contract with a customer; We contract with customers through order forms, which in some cases are governed by master sales agreements. We determine that we have a contract with a customer when the order form has been approved, each party's rights regarding the products or services to be transferred can be identified, the payment terms for the services can be identified, we have determined the customer has the ability and intent to pay, and the contract has commercial substance. We apply judgment in determining the customer's ability and intent to pay, which is based on a variety of factors, including the customer's historical 63 -------------------------------------------------------------------------------- payment experience or, in the case of a new customer, credit, reputation, and financial or other information pertaining to the customer. At contract inception we evaluate whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation. We have concluded that our contracts with customers do not contain warranties that give rise to a separate performance obligation. (ii) determination of whether the promised goods or services are performance obligations; Performance obligations promised in a contract are identified based on the products and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the products or services either on their own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the products and services is separately identifiable from other promises in the contract. Our self-managed subscriptions include both an obligation to provide access to proprietary features in our software, as well as an obligation to provide support (on both open source and proprietary features) and maintenance. Our SaaS products provide access to hosted software as well as support, which we consider to be a single performance obligation. Services-related performance obligations relate to the provision of consulting and training services. These services are distinct from subscriptions and do not result in significant customization of the software. (iii) measurement of the transaction price; We measure the transaction price with reference to the standalone selling price ("SSP"), of the various performance obligations inherent within a contract. The SSP is determined based on the prices at which we separately sell these products assuming the majority of these fall within a pricing range. In instances where SSP is not directly observable, such as when we do not sell the software license separately, we derive the SSP using information that may include market conditions and other observable inputs which can require significant judgment. There is typically more than one SSP for individual products and services due to the stratification of those products and services by quantity, term of the subscription, sales channel and other circumstances. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of our contracts contain a significant financing component. (iv) allocation of the transaction price to the performance obligations; and If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. For contracts that contain multiple performance obligations, we allocate the transaction price to each performance obligation based on a relative SSP. If one of the performance obligations is outside of the SSP range, we allocate SSP considering the midpoint of the range. We also consider if there are any additional material rights inherent in a contract, and if so, we allocate a portion of the transaction price to such rights based on SSP. (v) recognition of revenue when we satisfy each performance obligation. Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised product or service to the customer. Our self-managed subscriptions include both upfront revenue recognition when the license is delivered, as well as revenue recognized ratably over the contract period for support and maintenance based on the stand-ready nature of these subscription elements. Revenue from our SaaS products is recognized ratably over the contract period when we satisfy the performance obligation. Professional services comprise consulting services as well as public and private training. Consulting services are generally time-based arrangements. Revenue from professional services is recognized as these services are performed. We generate sales directly through our sales team and through our channel partners. Sales to channel partners are made at a discount and revenues are recorded at this discounted price once all the revenue recognition criteria above are met. To the extent that we offer rebates, incentives, or joint marketing funds to such channel partners, recorded revenues are reduced by this amount. Channel partners generally receive an order from an end-customer prior to placing an order with us. Payment from channel partners is not contingent on the partner's collection from end-customers. Contract Balances The timing of revenue recognition may differ from the timing of invoicing to customers. For annual contracts, we typically invoice customers at the time of entering into the contract. For multi-year agreements, we generally invoice customers on an annual basis prior to each anniversary of the contract start date. We record unbilled accounts receivable related to revenue 64 -------------------------------------------------------------------------------- recognized in excess of amounts invoiced as we have an unconditional right to invoice and receive payment in the future related to those fulfilled obligations. Contract liabilities consist of deferred revenue which is recognized over the contractual period. Deferred Contract Acquisition Costs Deferred contract acquisition costs represent costs that are incremental to the acquisition of customer contracts, which consist mainly of sales commissions and associated payroll taxes. We determine whether costs should be deferred based on sales compensation plans, if the commissions are in fact incremental and would not have occurred absent the customer contract. EffectiveMay 1, 2019 , we updated our sales commissions plan by incorporating different commission rates for contracts with new customers and incremental sales to existing customers, and for subsequent subscription renewals. Subsequent to this change, sales commissions for renewal of a subscription contract are not considered commensurate with the commissions paid for contracts with new customers and incremental sales to existing customers given the substantive difference in commission rates in proportion to their respective contract values. EffectiveMay 1, 2019 , commissions paid for contracts with new customers and incremental sales to existing customers are amortized over an estimated period of benefit of five years while commissions paid for renewal contracts are amortized based on the pattern of the associated revenue recognition over the related contractual renewal period for the pool of renewal contracts. 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. We did not recognize any impairment of deferred contract acquisition costs during the years endedApril 30, 2020 , 2019 and 2018. Stock-Based Compensation Expense Compensation expense related to stock-based awards granted to employees is calculated based on the fair value of such awards on the date of grant. We determine the grant date fair value of the awards using the Black-Scholes option-pricing model. The related stock-based compensation expense is recognized on a straight-line basis over the period in which an employee is required to provide service in exchange for the stock-based award, which is generally four years. Our use of the Black-Scholes option pricing model requires the input of highly subjective assumptions, including the fair value of the underlying ordinary shares, the expected term of the option, the expected volatility of the price of our ordinary shares, risk-free interest rates and the expected dividend yield of our ordinary shares. The assumptions used to determine the fair value of the awards represent management's best estimates. These estimates involve inherent uncertainties and the application of management's judgment. These assumptions and estimates are as follows: •Fair value of ordinary shares. See "Ordinary Share Valuations" below. •Expected term. The expected term represents the period that our stock-based awards are expected to be outstanding. The expected term assumptions were determined based on the vesting terms, exercise terms and contractual lives of the options. For option grants that are considered "plain vanilla," the expected term was estimated using the simplified method. The simplified method calculates the expected term as the midpoint between the vesting date and the contractual expiration date of the award. •Expected volatility. Since we have a limited trading history of our ordinary shares, the expected volatility is derived from the average historical stock volatilities of several unrelated public companies within our industry that we consider to be comparable to its own business over a period equivalent to the option's expected term. •Risk-free interest rate. We base the risk-free interest rate used in the Black-Scholes option pricing model on the implied yield available onU.S. Treasury zero-coupon issues with a remaining term equivalent to that of the options for each expected term. •Dividend yield. The expected dividend assumption is based on our current expectations about our anticipated dividend policy. As we have no history of paying any dividends, we used an expected dividend yield of zero. 65 -------------------------------------------------------------------------------- The following table summarizes the assumptions used in the Black-Scholes option pricing model to determine the fair value of our stock options granted and assumed: Year Ended April 30, 2020 2019 2018 Expected term (in years) 2.00 - 7.27 6.02 - 6.08 6.02 - 6.08 Expected stock price volatility 54.8% 40.5% - 46.7% 40.7% - 44.1% Risk-free interest rate 1.4% - 2.0% 2.4% - 3.1% 1.8% - 2.6% Dividend yield 0% 0% 0% We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our ordinary shares, we may refine our estimation process, which could materially impact our future stock-based compensation expense. Prior to our IPO, we also assessed the need to record stock-based compensation expense when certain of our affiliated shareholders purchased shares from our employees and founders in excess of fair value of such shares. We recognized any such excess value as stock-based compensation expense in our consolidated statements of operations. Ordinary Share Valuations For valuations after the completion of the IPO, our compensation committee determines the fair value of the ordinary shares underlying equity awards based on the closing price of our ordinary shares as reported on the date of the grant. Our ordinary shares are publicly traded and are therefore subject to potentially significant fluctuations in the market price. Increases and decreases in the market price of our ordinary shares will also increase and decrease the fair value of our stock-based awards granted in future periods. Prior to the completion of our IPO, the fair value of the ordinary shares underlying our equity awards was determined by our board of directors, after considering contemporaneous third-party valuations and input from management. The valuations of our ordinary shares were determined in accordance with the guidelines outlined in theAmerican Institute of Certified Public Accountants Practice Aid , Valuation of Privately-Held-Company Equity Securities Issued as Compensation. In the absence of a public trading market, our board of directors, with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of our ordinary shares as of the date of each option grant, including the following factors: •contemporaneous valuations performed at periodic intervals by unrelated third-party valuation firms; •the prices, rights, preferences and privileges of our redeemable convertible preference shares relative to those of our ordinary shares; •the lack of marketability of our ordinary shares; •our actual and expected operating and financial performance; •current business conditions and projections; •our hiring of key personnel and the experience of our management; •our history and the timing of the introduction of new products; •our stage of development; •the likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our business given prevailing market conditions; •the illiquidity of stock-based awards involving securities in a private company; •the market performance of comparable publicly traded companies; •secondary stock transactions, including a secondary stock purchase transaction that included certain of our employees, founders and certain of our affiliated shareholders; and •U.S. and global capital markets conditions. In valuing our ordinary shares, the fair value of our business, or enterprise value, was determined using both the income approach and market approach. The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using a discount rate based on the capital rates of return for venture-backed early stage companies and is adjusted to reflect the risks inherent in our cash flows. 66 -------------------------------------------------------------------------------- The market approach estimates value based on a comparison of the company to comparable public companies in a similar line of business. From the comparable companies, a representative market value multiple is determined and then applied to the company's financial results to estimate the value of the subject company. The resulting equity value was then allocated to each class of stock using an option pricing methodology and Probability Weighted Expected Return Method or PWERM. The option pricing method is based on a binomial lattice model, which allows for the identification for a range of possible future outcomes, each with an associated probability. The option pricing method is appropriate to use when the range of possible future outcomes is difficult to predict and thus creates highly speculative forecasts. PWERM involves a forward-looking analysis of the possible future outcomes of the enterprise. This method is particularly useful when discrete future outcomes can be predicted at a relatively high confidence level with a probability distribution. Discrete future outcomes considered under the PWERM include an IPO, as well as non-IPO market based outcomes. Determining the fair value of the enterprise using the PWERM requires us to develop assumptions and estimates for both the probability of an IPO liquidity event and stay private outcomes, as well as the values we expect those outcomes could yield. We apply significant judgment in developing these assumptions and estimates, primarily based upon the enterprise value we determined using the income approach and market approach, our knowledge of the business and our reasonable expectations of discrete outcomes occurring. After the equity value is determined and allocated to the various classes of shares, a discount for lack of marketability, or DLOM, is applied to arrive at the fair value of ordinary shares. A DLOM is applied based on the theory that as an owner of a private company stock, the stockholder has limited opportunities to sell this stock and any such sale would involve significant transaction costs, thereby reducing overall fair market value. Our assessments of the fair value of ordinary shares for grant dates between the dates of the valuations were based in part on the current available financial and operational information and the ordinary share value provided in the most recent valuation as compared to the timing of each grant. For financial reporting purposes, we considered the amount of time between the valuation date and the grant date to determine whether to use the latest ordinary share valuation. This determination included an evaluation of whether the subsequent valuation indicated that any significant change in valuation had occurred between the previous valuation and the grant date. Acquisitions,Goodwill and Intangible Assets We allocate the fair value of purchase consideration in a business combination to tangible assets, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is allocated to goodwill. The allocation of the purchase consideration requires management to make significant estimates and assumptions, especially with respect to intangible assets. These estimates can include, but are not limited to, future expected cash flows from acquired customers and acquired technology from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable, and, as a result, actual results may differ from estimates. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. We assess goodwill for impairment at least annually, in the fourth quarter, and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. For the purposes of impairment testing, we have determined that we have one reporting unit. Our test of goodwill impairment starts with a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. If qualitative factors indicate that the fair value of the reporting unit is more likely than not less than its carrying amount, then a quantitative goodwill impairment test is performed. For the quantitative analysis, we compare the fair value of our reporting unit to its carrying value. If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. However, if the fair value of the reporting unit is less than book value, then under the second step the carrying amount of the goodwill is compared to its implied fair value. Acquired intangible assets are amortized over their estimated useful lives. We evaluate the recoverability of our intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the intangible assets are expected to generate. If such review indicates that the carrying amount of our intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. Income Taxes We are subject to income taxes inthe Netherlands and numerous other jurisdictions including federal, state, and local jurisdictions inthe United States and all other tax jurisdictions or countries in which we conduct business. Earnings from our non-Dutch activities are subject to local country income tax. 67 -------------------------------------------------------------------------------- We follow the asset and liability method of accounting for income taxes. This method requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. We assess whether it is more likely than not that some portion or all of the deferred tax assets will be realized. We record a valuation allowance to our deferred tax assets to the extent we believe they are not more likely than not to be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. We recognize the tax benefit from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that is more likely than not of being realized upon ultimate settlement. We adjust reserves for our uncertain tax positions due to changing facts and circumstances. We recognize interest and penalties due to taxing authorities as a component of provision for income taxes. We make estimates and judgments about our future taxable income based on assumptions that are consistent with our plans and estimates. Should the actual amounts differ from estimates, the amount of valuation allowance could be materially impacted. Any adjustment to the deferred tax asset valuation allowance would be recorded in the consolidated statement of operations for the periods in which the adjustment is determined to be required. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We have operations both withinthe United States and internationally, and we are exposed to market risk in the ordinary course of our business. Interest Rate Risk We had cash, cash equivalents, and restricted cash of$299.4 million as ofApril 30, 2020 . Our cash, cash equivalents, and restricted cash are held in cash deposits and money market funds. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs and the fiduciary control of cash and investments. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these instruments, we do not believe that an immediate 10% increase or decrease in interest rates would have a material effect on the fair market value of our investment portfolio. Declines in interest rates, however, would reduce our future interest income. Foreign Currency Risk Our revenue and expenses are primarily denominated inU.S. dollars. For the year endedApril 30, 2020 , we recorded a loss of$2.2 million on foreign exchange transactions. To date, we have not had a formal hedging program with respect to foreign currency, but we may do so in the future if our exposure to foreign currency should become more significant. For business conducted outside ofthe United States , we may have both revenue and costs incurred in the local currency of the subsidiary, creating a partial natural hedge. Changes to exchange rates therefore have not had a significant impact on the business to date; however, we will continue to reassess our foreign exchange exposure as we continue to grow our business globally. We do not believe that an immediate 10% increase or decrease in the relative value of theU.S. dollar to other currencies would have a material effect on operating results. As ofApril 30, 2020 , our cash, cash equivalents, and restricted cash were primarily denominated inU.S. dollars, Euros, and Great British Pounds. A 10% increase or decrease in current exchange rates would not materially affect our cash, cash equivalents, and restricted cash balances. Inflation Risk We do not believe that inflation has had a material effect on our business, financial condition or results of operations. 68 -------------------------------------------------------------------------------- Item 8. Financial Statements and Supplementary Data. The supplementary financial information required by this Item 8, is included in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, under the caption "Quarterly Results of Operations Data," which is incorporated herein by reference.
The following financial statements are filed as part of this Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm 70
Financial Statements:
Consolidated Balance Sheets as of April 30, 2020 and 2019 73
Consolidated Statements of Operations for the years ended
2019 and 2018 74
Consolidated Statements of Comprehensive Loss for the years ended April
30, 2020, 2019 and 2018 75
Consolidated Statements of Redeemable Convertible Preference Shares and
Shareholders' Equity (Deficit) for the years ended April 30 , 2020, 2019 and
2018 76
Consolidated Statements of Cash Flows for the years ended
2019 and 2018 77
Notes to Consolidated Financial Statements 78
69
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets ofElastic N.V. and its subsidiaries (the "Company") as ofApril 30, 2020 and 2019, and the related consolidated statements of operations, of comprehensive loss, of redeemable convertible preference shares and shareholders' equity (deficit), and of cash flows for each of the three years in the period endedApril 30, 2020 , including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as ofApril 30, 2020 , based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of theTreadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofApril 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period endedApril 30, 2020 in conformity with accounting principles generally accepted inthe United States of America . Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as ofApril 30, 2020 , based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company
changed the manner in which it accounts for leases as of
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States ) (PCAOB) and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the
70
--------------------------------------------------------------------------------company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition - Identification and Evaluation of Terms and Conditions in Contracts
As described in Note 2 to the consolidated financial statements, management applies the following steps in their determination of revenue to be recognized: (i) identification of the contract with a customer; (ii) determination of whether the promised goods or services are performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when the Company satisfies each performance obligation. The Company's contracts include varying terms and conditions, and identifying and evaluating the impact of these terms and conditions on revenue recognition requires significant judgment. For the fiscal year endedApril 30, 2020 , the Company's revenue was$427.6 million . The principal considerations for our determination that performing procedures relating to revenue recognition, specifically the identification and evaluation of terms and conditions in contracts, is a critical audit matter are there was significant judgment by management in identifying and evaluating terms and conditions in contracts that impact revenue recognition. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating the audit evidence to determine whether terms and conditions in contracts were appropriately identified and evaluated by management. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls related to the identification and evaluation of terms and conditions in contracts that impact revenue recognition. These procedures also included, among others (i) testing the completeness and accuracy of management's identification and evaluation of the specific terms with customers by examining revenue contracts on a sample basis and (ii) assessing the terms and conditions of the contract including their impact on revenue recognition.
Acquisition of
As described in Note 5 to the consolidated financial statements, onOctober 8, 2019 , the Company completed the acquisition ofEndgame, Inc. for a total acquisition price of$234.0 million , of which approximately$32.7 million of developed technology was recorded. As disclosed by management, a multi-period excess earnings model was used to value the developed technology intangible asset. Management applied significant judgment in estimating the fair value of the developed technology intangible asset, which involved the use of significant estimates related to the revenue growth rate assumption for both existing and any future product offerings. The principal considerations for our determination that performing procedures relating to the valuation of the developed technology intangible asset as a result of the acquisition ofEndgame, Inc. is a critical audit matter are there was significant judgment by management in estimating the fair value of the developed technology intangible asset. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating management's fair value measurement of the developed technology intangible asset, including the revenue growth rate assumption for any future product offerings. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing of the effectiveness of controls relating to the acquisition accounting, including controls over management's valuation of the developed technology intangible asset, as well as controls over the development of significant assumptions and validity of the supporting data related to the developed technology intangible asset, including the revenue growth rate for any future product offerings. These procedures also included, among others (i) testing management's process for estimating the fair value of the developed technology intangible asset, (ii) 71 -------------------------------------------------------------------------------- evaluating the appropriateness of the multi-period excess earnings model, (iii) testing the completeness, accuracy, and relevance of underlying data used in the model, and (iv) evaluating the reasonableness of the significant assumptions used by management, including the revenue growth rate for any future product offerings. Evaluating the reasonableness of the assumption related to the revenue growth rate for any future product offerings involved considering (i) the past performance of the acquired business, (ii) the consistency with external market and industry data, and (iii) whether this assumption was consistent with other evidence obtained in other areas of the audit.
/s/
San Jose, California June 26, 2020
We have served as the Company's auditor since 2018.
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Elastic N.V.
Consolidated Balance Sheets
(in thousands, except share and per share data)
As of April 30,
2020 2019
Assets
Current assets:
Cash and cash equivalents $ 297,081 $ 298,000
Restricted cash 2,308 2,280
Accounts receivable, net of allowance for doubtful accounts of
81,274
Deferred contract acquisition costs 19,537 17,215
Prepaid expenses and other current assets 32,623 30,872
Total current assets 480,239 429,641
Property and equipment, net 7,760 5,448
Goodwill 197,877 19,846
Operating lease right-of-use assets 32,783 -
Intangible assets, net 50,455 6,723
Deferred contract acquisition costs, non-current 24,012 8,935
Deferred tax assets 3,164 1,748
Other assets 7,621 13,397
Total assets $ 803,911 $ 485,738
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 11,485 $ 4,450
Accrued expenses and other liabilities 22,210 18,740
Accrued compensation and benefits 48,409 22,147
Operating lease liabilities 7,639 -
Deferred revenue 231,681 158,243
Total current liabilities 321,424 203,580
Deferred revenue, non-current 28,021 12,423
Operating lease liabilities, non-current 27,827 -
Other liabilities, non-current 12,992 6,723
Total liabilities 390,264 222,726
Commitments and contingencies (Note 7)
Shareholders' equity:
Convertible preference shares, €0.01 par value; 165,000,000 shares
authorized, 0 shares issued and outstanding as of April 30, 2020 and
April 30, 2019 - -
Ordinary shares, par value €0.01 per share: 165,000,000 shares
authorized; 82,856,978 shares issued and outstanding as of
856 754
(369) (369)
Additional paid-in capital 898,788 581,135
Accumulated other comprehensive loss (1,377) (1,431)
Accumulated deficit (484,251) (317,077)
Total shareholders' equity 413,647 263,012
Total liabilities and shareholders' equity $
803,911
The accompanying notes are an integral part of these consolidated financial
statements.
73
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Elastic N.V.
Consolidated Statements of Operations
(in thousands, except share and per share data)
Year Ended April 30,
2020 2019 2018
Revenue
License - self-managed $ 53,536 $ 39,474 $ 25,759
Subscription - self-managed and SaaS 338,634 208,780 123,623
Total subscription revenue 392,170 248,254 149,382
Professional services 35,450 23,399 10,553
Total revenue 427,620 271,653 159,935
Cost of revenue
Cost of license - self-managed 948 387 387
Cost of subscription - self-managed and SaaS 84,819 53,560 27,920
Total cost of revenue - subscription 85,767 53,947 28,307
Cost of professional services 36,923 24,063 12,433
Total cost of revenue 122,690 78,010 40,740
Gross profit 304,930 193,643 119,195
Operating expenses
Research and development 165,370 101,167 55,641
Sales and marketing 219,040 147,296 82,606
General and administrative 91,625 46,536 28,942
Total operating expenses 476,035 294,999 167,189
Operating loss (171,105) (101,356) (47,994)
Other income (expense), net 1,963 3,441 (1,357)
Loss before income taxes (169,142) (97,915) (49,351)
Provision for (benefit from) income taxes (1,968) 4,388 3,376
Net loss $ (167,174) $ (2.12)
54,893,365 32,033,792
The accompanying notes are an integral part of these consolidated financial
statements.
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Elastic N.V.
Consolidated Statements of Comprehensive Loss
(in thousands)
Year Ended April 30,
2020 2019 2018
Net loss $ (167,174) $(102,303) $ (52,727)
Other comprehensive loss:
Foreign currency translation adjustments 54 (470) 931
Other comprehensive income (loss) 54 (470) 931 Total comprehensive loss$ (167,120) $ (102,773) $ (51,796)
The accompanying notes are an integral part of these consolidated financial
statements.
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Elastic N.V.
Consolidated Statements of Redeemable Convertible Preference Shares
and Shareholders' Equity (Deficit)
(in thousands, except share data)
Accumulated
Redeemable Convertible Treasury Additional Other Total
Preference Shares Ordinary Shares Shares Paid-in Comprehensive Accumulated Stockholders'
Shares Amount Shares Amount Amount Capital Loss Deficit Equity (Deficit)
Balances as of April 30, 2017 28,939,466 $ 200,921 31,130,047 $ 31 $ (25)
- - 668,518 1 - 2,336 - - 2,337
Issuance of ordinary shares related to early exercised stock options - - 148,630 - - - - - - Repurchase of ordinary shares - - (33,937) - (344) - - - (344) Vesting of early exercised stock options - - - - 109
109
Ordinary shares issued in connection with the acquisition of Prelert - - 98,425 - - - - -
-
Ordinary shares issued in connection with the acquisition of Opbeat - - 488,998 - - 4,018 - -
4,018
Ordinary shares issued in connection with the acquisition ofSwiftype - - 732,274 1 - 8,391 - - 8,392 Stock-based compensation - - - - - 12,293 - - 12,293 Net loss - - - - - - - (52,727) (52,727) Foreign currency translation - - - - - - 931 - 931 Balances as ofApril 30, 2018 28,939,466 200,921 33,232,955 33 (369) 62,542 (961) (214,774) (153,529) Change in par value upon conversion from B.V. to N.V. - - - 303 - (303) - -
-
Conversion of redeemable convertible preference shares to ordinary shares upon initial public offering (28,939,466) (200,921) 28,939,466 289 - 200,632 - -
200,921
Issuance of ordinary shares upon initial public offering, net of underwriting discounts and issuance costs
- - 8,050,000 93 - 263,749 - - 263,842
Issuance of ordinary shares upon exercise of stock options
- - 3,117,320 33 - 18,519 - - 18,552
Issuance of ordinary shares upon subscription of restricted stock awards - - 244,498 3 - (3) - -
-
Vesting of early exercised stock options - - - - - 1,019 - -
1,019
Vesting of ordinary shares subject to repurchase - - - - - 449 - -
449
Repurchase of early exercised stock options - - (43,630) - - - - -
-
Ordinary shares issued in connection with the acquisition ofLambda Lab - - 134,474 - - - - - - Stock-based compensation - - - - - 34,531 - - 34,531 Net loss - - - - - - - (102,303) (102,303) Foreign currency translation - - - - - - (470) - (470) Balances as of April 30, 2019 - - 73,675,083 754 (369)
581,135 (1,431) (317,077) 263,012
Issuance of ordinary shares upon exercise of stock options
- - 6,815,098 77 - 61,386 - - 61,463
Issuance of ordinary shares upon release of restricted stock units - - 152,688 2 - - - -
2
Ordinary shares issued in connection with the acquisition of Endgame - - 1,983,663 21 - 167,316 - -
167,337
Ordinary shares issued in connection with the acquisition of Endgame held in escrow - - 235,031 2 - 19,824 - -
19,826
Assumption of stock option plan as consideration for acquisition of Endgame - - - - - 9,309 - - 9,309 Repurchase of unvested RSAs - - (4,585) - - - - - - Vesting of ordinary shares subject to repurchase - - - - - 2,730 - - 2,730 Stock-based compensation - - - - - 57,088 - - 57,088 Net loss - - - - - - - (167,174) (167,174) Foreign currency translation - - - - - - 54 - 54 Balances as ofApril 30, 2020 - $ - 82,856,978$ 856 $ (369) $ 898,788 $ (1,377) $ (484,251) $ 413,647
The accompanying notes are an integral part of these consolidated financial
statements.
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Elastic N.V.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended April 30,
2020 2019 2018
Cash flows from operating activities
Net loss $ (167,174) $ (102,303) $ (52,727)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 12,859 5,695 5,066
Amortization of deferred contract acquisition costs 28,314 21,374 12,731
Non-cash operating lease cost 7,422 - -
Stock-based compensation expense 60,007 39,942 12,742
Non-cash acquisition expense settled with shares 8,834 - -
Deferred income taxes (1,539) 3,621 (323)
Other 1,123 69 1Changes in operating assets and liabilities, net of impact of business acquisitions: Accounts receivable, net
(46,753) (29,804) (21,606)
Deferred contract acquisition costs (46,217) (30,006) (20,497)
Prepaid expenses and other current assets (2,950) (18,049) (6,920)
Other assets 5,603 (3,292) (8,502)
Accounts payable 5,968 2,226 (23)
Accrued expenses and other liabilities 5,220 10,872 5,380
Accrued compensation and benefits 19,710 3,842 8,045
Operating lease liabilities (6,661) - -
Deferred revenue 85,670 71,876 45,814
Net cash used in operating activities (30,564) (23,937) (20,819)
Cash flows from investing activities
Purchases of property and equipment (5,063) (3,447) (2,968)
Maturities of short-term investments - - 15,000
Business acquisitions, net of cash acquired (24,373) (1,986) (3,702)
Other 249 (2,850) -
Net cash provided by (used in) investing activities (29,187) (8,283) 8,330
Cash flows from financing activities Net proceeds from issuance of ordinary shares in initial public offering
- 269,514 -
Proceeds from issuance of ordinary shares upon exercise of stock options
61,463 18,552 2,337
Proceeds from the issuance of ordinary shares related to early exercise of stock options
- - 1,566
Repurchase of ordinary shares - - (344)
Repurchase of early exercised options - (500) -
Repayment of notes payable (90) (106) (132)
Payment of deferred offering costs - (5,672) -
Payment of withholding taxes related to acquisition expense settled in shares
(2,834) - -
Net cash provided by financing activities 58,539 281,788 3,427
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
321 (897) 781
Net increase (decrease) in cash, cash equivalents, and restricted cash
(891) 248,671 (8,281)
Cash, cash equivalents, and restricted cash, beginning of period
300,280 51,609 59,890
Cash, cash equivalents, and restricted cash, end of period
$ 300,280 $ 51,609 Supplemental disclosures of cash flow information Cash paid for income taxes$ 3,497 $ 3,067 $ 3,189 Cash paid for operating lease liabilities$ 7,371 $ - $ - Cash paid for interest$ 2 $ 9 $ 14 Supplemental disclosures of non-cash investing and financing information Purchases of property and equipment included in accounts payable$ 101 $ 157 $ 6 Operating lease right-of-use assets for new lease obligations$ 12,332 $ - $ - Vesting of early exercised stock options $ -$ 1,019 $ 109 Vesting of shares subject to repurchase$ 2,730 $ 449 $ - Issuance of ordinary shares for business acquisition$ 178,329
$ -
$ 9,309 $ - $ - Deferred offering costs accrued, unpaid $ -
$ -
The accompanying notes are an integral part of these consolidated financial
statements.
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1. Organization and Description of Business
Elastic N.V. ("Elastic" or the "Company") was incorporated under the laws of the
Netherlands in 2012. Elastic is a search company. It created the Elastic Stack,
a powerful set of software products that ingest and store data from any source
and in any format, and perform search, analysis, and visualization in
milliseconds or less. Developers build on top of the Elastic Stack to apply the
power of search to their data and solve business problems. The Company also
offers software solutions built on the Elastic Stack: Enterprise Search,
Observability, and Security. The Elastic Stack and the Company's solutions are
designed to run in public or private clouds, in hybrid environments, or in
traditional on-premises environments.
Initial Public Offering
In October 2018 , the Company completed its initial public offering ("IPO") in
which it issued and sold 8,050,000 ordinary shares at an offering price of
$36.00 per share, including 1,050,000 ordinary shares pursuant to the exercise
in full of the underwriters' option to purchase additional shares. The Company
received net proceeds of $263.8 million , after deducting underwriting discounts
and commissions of $20.3 million and offering expenses of $5.7 million .
Immediately prior to the completion of the IPO, all 28,939,466 shares of the
Company's then-outstanding redeemable convertible preference shares
automatically converted into 28,939,466 ordinary shares at their respective
conversion ratios and the Company reclassified $200.6 million from temporary
equity to additional paid-in capital and $0.3 million to ordinary shares on its
consolidated balance sheet.
The Company's articles of association designated and authorized the Company to
issue 72 million ordinary shares with a par value of €0.001 per share up until
immediately prior to the completion of the IPO at which time the authorized
ordinary shares increased to 165 million. In addition, the par value of ordinary
shares was changed from €0.001 per share to €0.01 per share as required by Dutch
law at the time of the Company's conversion into a Dutch public company with
limited liability (naamloze vennootschap).
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America ("U.S.
GAAP") and include the financial statements of the Company and its wholly owned
subsidiaries. All intercompany transactions and accounts have been eliminated in
consolidation.
Fiscal Year
The Company's fiscal year ends on April 30 . References to fiscal 2020, for
example, refer to the fiscal year ended April 30, 2020 .
Use of Estimates and Judgments
The preparation of the consolidated financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. Such estimates include, but
are not limited to, allocation of revenue between recognized and deferred
amounts, deferred contract acquisition costs, allowance for doubtful accounts,
valuation of stock-based compensation, fair value of ordinary shares in periods
prior to the Company's initial public offering, fair value of acquired
intangible assets and goodwill, useful lives of acquired intangible assets and
property and equipment, whether an arrangement is or contains a lease, the
discount rate used for operating leases and valuation allowance for deferred
income taxes. The Company bases these estimates on historical and anticipated
results, trends and various other assumptions that it believes are reasonable
under the circumstances, including assumptions as to future events.
In March 2020 , the World Health Organization declared the 2019 novel Coronavirus
Disease ("COVID-19") a pandemic. The pandemic is expected to result in a global
slowdown of economic activity that is likely to decrease demand for a broad
variety of goods and services, including from the Company's customers, while
also disrupting sales channels and marketing activities for an unknown period of
time. The full extent to which COVID-19 may impact the Company's financial
condition or results of operations is uncertain.
Estimates and assumptions about future events and their effects cannot be
determined with certainty and therefore require the exercise of judgment. As of
the date of issuance of these financial statements, the Company is not aware of
any specific event or circumstance that would require the Company to update its
estimates, judgments or revise the carrying value
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of the Company's assets or liabilities. These estimates may change, as new
events occur and additional information is obtained, and are recognized in the
consolidated financial statements as soon as they become known. Actual results
could differ from those estimates and any such differences may be material to
the Company's financial statements.
JOBS Act Extended Transition Period
As a result of the market value of our common stock held by our non-affiliates
as of October 31, 2019 , the Company ceased to be an "emerging growth company"
("EGC"), as defined in the Jumpstart Our Business Startups Act of 2012, with the
Company's transition to a large accelerated filer status as of April 30, 2020 .
As an EGC, the Company elected not to avail itself of the extended transition
periods available for complying with new or revised accounting pronouncements
applicable to public companies that are not emerging growth companies.
Accordingly, the transition to a large accelerated filer did not have an impact
to the Company's consolidated financial statements.
Foreign Currency
The reporting currency of the Company is the U.S. dollar. The Company determines
the functional currency of each subsidiary in accordance with ASC 830, Foreign
Currency Matters, based on the currency of the primary economic environment in
which each subsidiary operates. Items included in the financial statements of
such subsidiaries are measured using that functional currency.
For the subsidiaries where the U.S. dollar is the functional currency, foreign
currency denominated monetary assets and liabilities are re-measured into U.S.
dollars at current exchange rates and foreign currency denominated nonmonetary
assets and liabilities are re-measured into U.S. dollars at historical exchange
rates. Gains or losses from foreign currency re-measurement and settlements are
included in other income (expense), net in the consolidated statement of
operations. For the years ended April 30, 2020 , 2019 and 2018, the Company
recognized re-measurement loss of $2.2 million , $0.2 million and $1.3 million ,
respectively.
For subsidiaries where the functional currency is other than the U.S. dollar,
the Company uses the period-end exchange rates to translate assets and
liabilities, the average monthly exchange rates to translate revenue and
expenses, and historical exchange rates to translate shareholders' equity
(deficit), into U.S. dollars. The Company records translation gains and losses
in accumulated other comprehensive loss as a component of shareholders' equity
in the consolidated balance sheet.
Comprehensive Loss
The Company's comprehensive loss includes net loss and unrealized gains and
losses on foreign currency translation adjustments.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments, including money market
funds with an original maturity of three months or less at the date of purchase,
to be cash equivalents. The carrying amount of the Company's cash equivalents
approximates fair value, due to the short maturities of these instruments.
Restricted cash represents cash on deposit with financial institutions in
support of letters of credit in favor of certain landlords for non-cancelable
lease agreements.
Cash, cash equivalents, and restricted cash as reported in the Company's
consolidated statements of cash flows includes the aggregate amounts of cash and
cash equivalents and the restricted cash as shown on the consolidated balance
sheet. Cash, cash equivalents, and restricted cash as reported in the Company's
consolidated statements of cash flows consists of the following (in thousands):
As of April 30,
2020 2019
Cash and cash equivalents $ 297,081 $ 298,000
Restricted cash 2,308 2,280
Cash, cash equivalents and restricted cash
Short-Term Investments
Investments with an original maturity of three months or less at the date of
purchase are considered cash equivalents, while all other investments are
classified as short-term or long-term based on the nature of the investments,
their maturities, and their availability for use in current operations. The
Company determines the appropriate classification of its investments at the time
of purchase and reevaluates such designation at each balance sheet date. The
Company's short-term investments consisted
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of bank deposits with original maturities greater than three months but less
than twelve months and are classified as short-term investments within current
assets in the consolidated balance sheet.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash equivalents, accounts
receivable, accounts payable, and accrued liabilities. Cash equivalents are
stated at amortized cost, which approximates fair value at the balance sheet
dates, due to the short period of time to maturity. Accounts receivable,
accounts payable and accrued liabilities are stated at their carrying value,
which approximates fair value due to the short time to the expected receipt or
payment date.
Assets and liabilities recorded at fair value on a recurring basis in the
consolidated balance sheet consisting primarily of cash equivalents are
categorized based upon the level of judgment associated with the inputs used to
measure their fair values. Fair value is defined as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value must maximize the use of
observable inputs and minimize the use of unobservable inputs. The Company
measures its financial assets and liabilities at fair value at each reporting
period using a fair value hierarchy which requires the Company to maximize the
use of observable inputs and minimize the use of unobservable inputs when
measuring fair value:
•Level 1: Observable inputs, such as unadjusted quoted prices in active markets
for identical assets or liabilities at the measurement date.
•Level 2: Observable inputs, other than Level 1 prices, such as quoted prices
in active markets for similar assets and liabilities, quoted prices in markets
that are not active, or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or
liabilities.
•Level 3: Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities.
The carrying values of the Company's financial instruments, including cash and
cash equivalents, accounts receivable, accounts payable and accrued liabilities
approximate their respective fair values due to the short period of time to
maturity, receipt or payment.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk are primarily cash, cash equivalents, restricted cash, short-term
investments, and accounts receivable. The primary focus of the Company's
investment strategy is to preserve capital and meet liquidity requirements. The
Company maintains its cash accounts with financial institutions where, at times,
deposits exceed federal insurance limits. The Company invests its excess cash in
highly-rated money market funds and in short-term investments. The Company
extends credit to customers in the normal course of business. The Company
performs credit analyses and monitors the financial health of its customers to
reduce credit risk. Trade accounts receivable are recorded at the invoiced
amount and do not bear interest. Management performs ongoing credit evaluations
of customers and maintains allowances for potential credit losses on customers'
accounts when deemed necessary.
One customer represented 10% or more of net accounts receivable (11%) as of
April 30, 2020 , and no customer represented more than 10% or more of net
accounts receivable as of April 30, 2019 . No customer accounted for more than
10% of the Company's revenue for the years ended April 30, 2020 , 2019 and 2018,
respectively.
Accounts Receivable, Unbilled Accounts Receivable and Allowance for Doubtful
Accounts
Accounts receivable primarily consists of amounts billed currently due from
customers. The Company's accounts receivable are subject to collection risk.
Gross accounts receivable are reduced for this risk by an allowance for doubtful
accounts. This allowance is for estimated losses resulting from the inability of
the Company's customers to make required payments. The Company determines the
need for an allowance for doubtful accounts based upon various factors,
including past collection experience, credit quality of the customer, age of the
receivable balance, and current economic conditions, as well as specific
circumstances arising with individual customers. Accounts receivables are
written off against the allowance when management determines a balance is
uncollectible and the Company no longer actively pursues collection of the
receivable.
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The Company does not typically offer right of refund in its contracts. The
allowance for doubtful accounts reflects the Company's best estimate of probable
losses inherent in the Company's receivables portfolio. The Company has not
experienced significant credit losses from its accounts receivable. As of
April 30, 2020 and 2019, the allowance for doubtful accounts was $1.2 million
and $1.4 million , respectively. Activity related to the Company's allowance for
doubtful accounts was as follows (in thousands):
Year ended April 30,
2020 2019 2018
Beginning balance
193 1,105 1,265
Accounts written off (357) (470) (846)
Ending balance
Unbilled accounts receivable represents amounts for which the Company has recognized revenue, pursuant to the Company's revenue recognition policy, for fulfilled obligations, but not yet billed. The unbilled accounts receivable balance was$2.6 million and$1.7 million as ofApril 30, 2020 and 2019, respectively. Capitalized Software Costs Software development costs for software to be sold, leased, or otherwise marketed are expensed as incurred until the establishment of technological feasibility, at which time those costs are capitalized until the product is available for general release to customers and amortized over the estimated life of the product. Technological feasibility is established upon the completion of a working prototype that has been certified as having no critical bugs and is a release candidate. To date, costs to develop software that is marketed externally have not been capitalized as the current software development process is essentially completed concurrently with the establishment of technological feasibility. As such, all related software development costs are expensed as incurred and included in research and development expense in the consolidated statement of operations. Costs related to software acquired, developed, or modified solely to meet the Company's internal requirements, with no substantive plans to market such software at the time of development, or costs related to development of web-based products are capitalized. Costs incurred during the preliminary planning and evaluation stage of the project and during the post implementation operational stage are expensed as incurred. Costs incurred during the application development stage of the project are capitalized. The Company did not capitalize any costs related to software developed for internal use or web-based products in the years endedApril 30, 2020 , 2019 and 2018. Property and Equipment Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the financial statements and any resulting gain or loss is reflected within the consolidated statement of operations. There was no material gain or loss incurred as a result of retirement or sale in the periods presented. Repair and maintenance costs are expensed as incurred. Leases Leases arise from contractual obligations that convey the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company determines whether an arrangement is or contains a lease at inception, based on whether there is an identified asset and whether the Company controls the use of the identified asset throughout the period of use. At the lease commencement date, the Company determines the lease classification between finance and operating and recognizes a right-of-use asset and corresponding lease liability for each lease component. A right-of-use asset represents the Company's right to use an underlying asset and a lease liability represents the Company's obligation to make payments during the lease term. The operating lease right-of-use asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company accounts for lease components and non-lease components as a single lease component. The lease liability is initially measured as the present value of the remaining lease payments over the lease term. The discount rate used to determine the present value is the Company's incremental borrowing rate unless the interest rate implicit in the lease is readily determinable. The Company estimates its incremental borrowing rate based on the information available at lease commencement date for borrowings with a similar term. The right-of-use asset is initially measured as the present value of the lease payments, adjusted for initial direct costs, prepaid lease payments to lessors and lease incentives. 81 --------------------------------------------------------------------------------
Acquisitions
The Company has completed a number of acquisitions of other businesses in the past and may acquire additional businesses or technologies in the future. The results of businesses acquired in a business combination are included in the Company's consolidated financial statements from the date of acquisition. The Company allocates the purchase price, which is the sum of the consideration provided and may consist of cash, equity or a combination of the two, in a business combination to the identifiable assets and liabilities of the acquired business at their acquisition date fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies. When the Company issues stock-based or cash awards to an acquired company's shareholders, the Company evaluates whether the awards are consideration or compensation for post-acquisition services. The evaluation includes, among other things, whether the vesting of the awards is contingent on the continued employment of the acquired company's shareholders beyond the acquisition date. If continued employment is required for vesting, the awards are treated as compensation for post- acquisition services and recognized as expense over the requisite service period. To date, the assets acquired and liabilities assumed in the Company's business combinations have primarily consisted of goodwill and finite-lived intangible assets, consisting primarily of developed technologies, in-process research & development, customer relationships and trade names. The estimated fair values and useful lives of identifiable intangible assets are based on many factors, including estimates and assumptions of future operating performance and cash flows of the acquired business, the nature of the business acquired, and the specific characteristics of the identified intangible assets. The estimates and assumptions used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including market conditions, technological developments, economic conditions and competition. In connection with determination of fair values, the Company may engage independent appraisal firms to assist with the valuation of intangible and certain tangible assets acquired and certain assumed obligations. Acquisition-related transaction costs incurred by the Company are not included as a component of consideration transferred, but are accounted for as an operating expense in the period in which the costs are incurred.Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations accounted for using the acquisition method for accounting and is not amortized. The Company tests goodwill for impairment at least annually, in the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that this asset may be impaired. For the purposes of impairment testing, the Company has determined that it has one operating segment and one reporting unit. The Company's test of goodwill impairment starts with a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. If qualitative factors indicate that the fair value of the reporting unit is more likely than not less than its carrying amount, then a quantitative goodwill impairment test is performed. For the quantitative analysis, the Company compares the fair value of its reporting unit to its carrying value. If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. However, if the fair value of the reporting unit is less than book value, then under the second step the carrying amount of the goodwill is compared to its implied fair value. There was no impairment of goodwill recorded for the years endedApril 30, 2020 , 2019 and 2018. Acquired Intangible Assets Acquired amortizable intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets. Useful life (in years) Developed technology 4-5 Customer relationships 4 Trade names 4 Impairment of Long-Lived Assets The Company evaluates the recoverability of long-lived assets, including property and equipment and amortizable acquired intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be fully recoverable. Such events and changes may include: significant changes in performance relative to expected operating results, significant changes in asset use, significant negative industry or economic trends, and changes in the 82 -------------------------------------------------------------------------------- Company's business strategy. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. The Company determined that there were no events or changes in circumstances that indicated that its long-lived assets were impaired during the years endedApril 30, 2020 , 2019 and 2018. In addition to the recoverability assessment, the Company periodically reviews the remaining estimated useful lives of property and equipment and amortizable intangible assets. If the estimated useful life assumption for any asset is changed, the remaining unamortized balance would be depreciated or amortized over the revised estimated useful life, on a prospective basis. Deferred Offering Costs Deferred offering costs were capitalized and consisted of fees and expenses incurred in connection with the sale of the Company's ordinary shares in its IPO, including the legal, accounting, printing and other IPO-related costs. Upon consummation of the IPO inOctober 2018 ,$0.2 million of previously deferred offering costs along with additional offering costs of$5.5 million were reclassified to shareholders' equity (deficit) and recorded against the proceeds from the offering. Revenue Recognition The Company generates revenue primarily from the sale of self-managed subscriptions (which include licenses for proprietary features, support, and maintenance) and SaaS subscriptions. The Company also generates revenue from professional services, which consist of consulting and training. Under ASC Topic 606, Revenue from Contracts with Customers, the Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company's contracts include varying terms and conditions, and identifying and evaluating the impact of these terms and conditions on revenue recognition requires significant judgment. In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identification of the contract with a customer; The Company contracts with its customers through order forms, which in some cases are governed by master sales agreements. The Company determines that it has a contract with a customer when the order form has been approved, each party's rights regarding the products or services to be transferred can be identified, the payment terms for the services can be identified, the Company has determined the customer has the ability and intent to pay and the contract has commercial substance. The Company applies judgment in determining the customer's ability and intent to pay, which is based on a variety of factors, including the customer's historical payment experience or, in the case of a new customer, credit, reputation and financial or other information pertaining to the customer. At contract inception the Company evaluates whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation. The Company has concluded that its contracts with customers do not contain warranties that give rise to a separate performance obligation. (ii) determination of whether the promised goods or services are performance obligations; Performance obligations promised in a contract are identified based on the products and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the products or services either on their own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the products and services is separately identifiable from other promises in the contract. The Company's self-managed subscriptions include both an obligation to provide access to proprietary features in its software, as well as an obligation to provide support (on both open source and proprietary features) and maintenance. The Company's SaaS products provide access to hosted software as well as support, which the Company considers to be a single performance obligation. Services-related performance obligations relate to the provision of consulting and training services. These services are distinct from subscriptions and do not result in significant customization of the software. (iii) measurement of the transaction price; The Company measures the transaction price with reference to the standalone selling price ("SSP") of the various performance obligations inherent within a contract. The SSP is determined based on the prices at which the Company separately sells these products, assuming the majority of these fall within a pricing range. In instances where SSP is not directly observable, such as when the Company does not sell the software license separately, the Company derives the SSP using 83 -------------------------------------------------------------------------------- information that may include market conditions and other observable inputs that can require significant judgment. There is typically more than one SSP for individual products and services due to the stratification of those products and services by quantity, term of the subscription, sales channel and other circumstances. Variable consideration is included in the transaction price if, in the Company's judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company's contracts contain a significant financing component. (iv) allocation of the transaction price to the performance obligations; and If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation based on a relative SSP. If one of the performance obligations is outside of the SSP range, the Company allocates SSP considering the midpoint of the range. The Company also considers if there are any additional material rights inherent in a contract, and if so, the Company allocates a portion of the transaction price to such rights based on SSP. (v) recognition of revenue when the Company satisfies each performance obligation; Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised product or service to the customer. The Company's self-managed subscriptions include both upfront revenue recognition when the license is delivered as well as revenue recognized ratably over the contract period for support and maintenance based on the stand-ready nature of these subscription elements. Revenue on the Company's SaaS products is recognized ratably over the contract period when the Company satisfies the performance obligation. Professional services comprise consulting services as well as public and private training. Consulting services are generally time-based arrangements. Revenue from professional services is recognized as these services are performed. The Company generates sales directly through its sales team and through its channel partners. Sales to channel partners are made at a discount and revenues are recorded at this discounted price once all the revenue recognition criteria above are met. To the extent that the Company offers rebates, incentives or joint marketing funds to such channel partners, recorded revenues are reduced by this amount. Channel partners generally receive an order from an end-customer prior to placing an order with the Company. Payment from channel partners is not contingent on the partner's collection from end-customers. Deferred Contract Acquisition Costs Deferred contract acquisition costs represent costs that are incremental to the acquisition of customer contracts, which consist mainly of sales commissions and associated payroll taxes. The Company determines whether costs should be deferred based on sales compensation plans, if the commissions are in fact incremental and would not have occurred absent the customer contract. During the fiscal year endedApril 30, 2020 , the Company updated its sales commissions plan by incorporating different commission rates for contracts with new customers and incremental sales to existing customers, and subsequent subscription renewals. Subsequent to this change, sales commissions for renewal of a subscription contract are not considered commensurate with the commissions paid for contracts with new customers and incremental sales to existing customers given the substantive difference in commission rates in proportion to their respective contract values. EffectiveMay 1, 2019 , commissions paid for contracts with new customers and incremental sales to existing customers are amortized over an estimated period of benefit of five years while commissions paid for renewal contracts are amortized based on the pattern of the associated revenue recognition over the related contractual renewal period for the pool of renewal contracts. The Company determines 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. The Company periodically reviews the carrying amount of deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred costs. Further disclosures with respect to the Company's deferred contract acquisition costs are also included in Note 6, Balance Sheet Components. Cost of Revenue Cost of revenue consists primarily of costs related to providing subscription and professional services to the Company's customers, including personnel costs (salaries, bonuses and benefits, and stock-based compensation) and related 84 -------------------------------------------------------------------------------- expenses for customer support and services personnel, as well as cloud infrastructure costs, third-party expenses, depreciation of fixed assets, amortization associated with acquired intangible assets, and allocated overhead. Research and Development Research and development costs are expensed as incurred and consist primarily of personnel costs, including salaries, bonuses and benefits, and stock-based compensation. Research and development costs also include depreciation and allocated overhead. Advertising Advertising costs are charged to operations as incurred or the first time the advertising takes place, based on the nature of the advertising, and include direct marketing, events, public relations, sales collateral materials and partner programs. Advertising costs were$7.7 million ,$6.5 million ,$1.7 million for the years endedApril 30, 2020 , 2019 and 2018 respectively. Advertising costs are recorded in sales and marketing expense in the consolidated statement of operations. Stock-Based Compensation Compensation expense related to stock awards issued to employees, including stock options, restricted stock awards ("RSAs"), and restricted stock units ("RSUs") is measured at the fair value on the date of the grant and recognized over the requisite service period. The fair value of stock options is estimated on the date of the grant using the Black-Scholes option-pricing model. The fair value of RSAs and RSUs is estimated on the date of the grant based on the fair value of the Company's underlying ordinary shares. Compensation expense for stock options and RSUs is recognized on a straight-line basis over the requisite service period. Compensation expense for RSAs is amortized on a graded basis over the requisite service period as long as the underlying performance condition is probable to occur. RSAs issued till date included a performance condition in the form of a specified liquidity event. The liquidity event condition was satisfied upon the effectiveness of the Company's registration statement on Form S-1 ("IPO registration statement"), onOctober 4, 2018 . On that date, the Company recorded a cumulative stock-based compensation expense of$1.7 million using the accelerated attribution method for all RSAs, for which the service condition had been fully satisfied as ofOctober 4, 2018 . The remaining unrecognized stock-based compensation expense related to the RSAs will be recorded over their remaining requisite service periods. The Company recognizes forfeitures as they occur. Net Loss per Share Attributable to Ordinary ShareholdersThe Company calculates basic net loss per share by dividing the net loss by the weighted-average number of ordinary shares outstanding during the period, less shares subject to repurchase. Diluted net loss per share is computed by giving effect to all potentially dilutive ordinary share equivalents outstanding for the period, including stock options and restricted stock units. Prior to the completion of the IPO inOctober 2018 , the Company calculated basic and diluted net loss per share attributable to ordinary shareholders in conformity with the two-class method required for companies with participating securities. The Company considered all series of redeemable convertible preference shares and early exercised stock options to be participating securities as the holders were entitled to receive non-cumulative dividends on a pari passu basis in the event that a dividend was paid on ordinary shares. Under the two-class method, the net loss attributable to ordinary shareholders was not allocated to the redeemable convertible preference shares and early exercised stock options as the holders of redeemable convertible preference shares and early exercised stock options did not have a contractual obligation to share in losses. Under the two-class method, basic net loss per share attributable to ordinary shareholders was calculated by dividing the net loss by the weighted-average number of ordinary shares outstanding during the period, less shares subject to repurchase. Diluted net loss per share attributable to ordinary shareholders was computed by giving effect to all potentially dilutive ordinary shares outstanding for the period. For purposes of this calculation, redeemable convertible preference shares, stock options to acquire ordinary shares, contingently issuable shares, and early exercised stock options were considered potentially dilutive ordinary shares, but had been excluded from the calculation of diluted net loss per share attributable to ordinary shareholders as their effect was antidilutive. Upon completion of the IPO, all shares of redeemable convertible preference shares then outstanding were automatically converted into an equivalent number of shares of ordinary shares on a one-to-one basis and their carrying amount reclassified into stockholders' equity (deficit). As ofApril 30, 2020 , the Company did not have any preference shares issued and outstanding. 85 -------------------------------------------------------------------------------- Treasury Shares Ordinary shares of the Company that are repurchased are recorded as treasury shares at cost and are included as a component of shareholders' equity. Segments Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker ("CODM"). The Company's Chief Executive Officer is its CODM. The Company's CODM reviews financial information presented on a consolidated basis for the purposes of making operating decisions, allocating resources and evaluating financial performance. As such, the Company has determined that it operates in one operating and one reportable segment. The Company presents financial information about its operating segment and geographical areas in Note 15 to the consolidated financial statements. Income Taxes The Company is subject to income taxes inthe Netherlands and numerous foreign jurisdictions. These foreign jurisdictions may have different statutory rates thanthe Netherlands . The Company records a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, the Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and the tax basis of assets and liabilities, as well as for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. The Company records a valuation allowance to reduce its deferred tax assets to the net amount that it believes is more likely than not to be realized. The calculation of the Company's tax obligations involves dealing with uncertainties in the application of complex tax laws and regulations. ASC 740, Income Taxes, provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. The Company has assessed its income tax positions and recorded tax benefits for all years subject to examination, based upon the Company's evaluation of the facts, circumstances and information available at each period end. For those tax positions where the Company has determined there is a greater than fifty percent likelihood that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit that may potentially be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is determined there is less than fifty percent likelihood that a tax benefit will be sustained, no tax benefit has been recognized. Although the Company believes that it has adequately reserved for its uncertain tax positions, the Company can provide no assurance that the final tax outcome of these matters will not be materially different. As the Company expands internationally, it will face increased complexity, and the Company's unrecognized tax benefits may increase in the future. The Company makes adjustments to its reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. Customer Deposits Certain of the Company's contracts, acquired via theEndgame, Inc. ("Endgame") acquisition, allow for termination at the customer's convenience, or the Company may receive prepayments on master sales agreements. In these cases, the Company does not consider a contract to exist past the term in which enforceable rights and obligations exist. Amounts received related to these agreements are classified outside of deferred revenue in the consolidated balance sheet, and these amounts do not represent contract balances. As ofApril 30, 2020 , the Company had$2.6 million of customer deposits included in accrued expenses and other liabilities, and$8.5 million of non-refundable customer deposits included in other liabilities, non-current on the consolidated balance sheet. Recently Adopted Accounting Pronouncements Leases: InFebruary 2016 , theFinancial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-02, codified as Accounting Standards Codification 842 ("ASC 842"), which requires lessees to record the assets and liabilities arising from all leases, with the exception of short-term leases, on the balance sheet. Under ASC 842, lessees recognize a liability for lease payments and a right-of-use asset. This guidance retains the distinction between finance leases and operating leases and the classification criteria for finance leases remains similar. For finance leases, a lessee recognizes the interest on a lease liability separate from amortization of the right-of-use asset. In addition, repayments of the 86 -------------------------------------------------------------------------------- principal amount are presented within financing activities, and interest payments are presented within operating activities in the consolidated statements of cash flows. For operating leases, a lessee recognizes a single lease cost on a straight-line basis and classifies all cash payments within operating activities in the consolidated statements of cash flows. The Company adopted the new lease accounting standard effectiveMay 1, 2019 using the additional transition method described in ASU No. 2018-11, Leases - Targeted Improvements, which was issued inJuly 2018 . Under the additional transition method, the Company recognized the cumulative effect of initially applying the guidance as an adjustment to the operating lease right-of-use assets and operating lease liabilities on its consolidated balance sheet onMay 1, 2019 without retrospective application to comparative periods. Upon adoption, the Company elected the following: • the package of practical expedients which allows for not reassessing (1) whether existing contracts contain leases, (2) the lease classification for existing leases, and (3) whether existing initial direct costs meet the new definition, • the practical expedient in ASC Subtopic 842-10 to not separate non-lease components from lease components and instead account for each separate lease component and non-lease components associated with that lease component as a single lease component by class of the underlying asset, and • not to recognize right-of-use assets and lease liabilities for short-term leases, which have a lease term of twelve months or less and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. The adoption of ASC 842 resulted in recognition of right-of-use assets of$28.1 million , which included the impact of existing deferred rents of$1.0 million , prepaid rent of$0.2 million and lease liabilities of$28.9 million as ofMay 1, 2019 . See Note 9, Leases, for additional details. The adoption of the new lease accounting standard had no impact on cash provided by or used in operating, investing or financing activities in the Company's consolidated statements of cash flows. The adoption of the new lease accounting standard did not impact the Company's consolidated statements of operations and the Company's Consolidated Statements of Redeemable Convertible Preference Shares and Shareholders' Equity (Deficit) nor previously reported financial results. Comprehensive Income: InFebruary 2018 , the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in theU.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or "TCJA") (or portion thereof) is recorded. The amendments in this ASU can be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in theU.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company adopted this guidance onMay 1, 2019 . No reclassifications out of accumulated other comprehensive loss to net income were recorded in fiscal 2020. New Accounting Pronouncements Not Yet Adopted Credit Losses: InJune 2016 , the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and has since issued various amendments including ASU No. 2018-19, ASU No. 2019-04, and ASU No. 2019-05. The standard and related amendments modify the accounting for credit losses for most financial assets and require the use of an expected loss model, replacing the currently used incurred loss method. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. The new guidance becomes effective for the Company for the fiscal year endingApril 30, 2021 , though early adoption is permitted. The Company does not expect the adoption of the new accounting standard will have a material impact on its consolidated financial statements. Goodwill Impairment: InJanuary 2017 , the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test forGoodwill Impairment. The new standard will simplify the measurement of goodwill by eliminating step two of the two-step impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. The new guidance requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The new guidance becomes effective for the Company for the year endingApril 30, 2021 , though early adoption is permitted. The Company does not expect the adoption of the new accounting standard will have a material impact on its consolidated financial statements. Fair Value Measurements: InAugust 2018 , the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies, removes and adds certain disclosure requirements on fair value measurements based on the FASB 87 -------------------------------------------------------------------------------- Concepts Statement, Conceptual Framework for Financial Reporting-Chapter 8: Notes to Financial Statements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The new guidance becomes effective for the Company for the fiscal year endingApril 30, 2021 . Early adoption is permitted. The Company does not expect the adoption of the new accounting standard to have a material impact on its consolidated financial statements. Intangible Assets: InAugust 2018 , the FASB issued ASU No. 2018-15, Intangibles-Goodwill andOther- Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU. The new guidance becomes effective for the Company for the fiscal year endingApril 30, 2021 , though early adoption is permitted. The Company does not expect the adoption of the new accounting standard will have a material impact on its consolidated financial statements. Income Taxes: InDecember 2019 , the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, eliminating certain exceptions to the general principles in ASC 740 related to intra-period tax allocation, deferred tax liability and general methodology for calculating income taxes. Additionally, the ASU makes other changes for matters such as franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. The new guidance becomes effective for the Company for the fiscal year endingApril 30, 2022 . Early adoption is permitted. The Company does not expect the adoption of the new accounting standard to have a material impact on its consolidated financial statements. 3. Revenue and Performance Obligations Disaggregation of Revenue The following table presents revenue by category (in thousands): Year Ended April 30, 2020 2019 2018 % of % of % of Total Total Total Amount Revenue Amount Revenue Amount Revenue
Self-managed subscription$ 299,880 70 %$ 202,419 74 %$ 123,898 77 % License 53,536 12 % 39,474 14 % 25,759 16 % Subscription 246,344 58 % 162,945 60 % 98,139 61 % SaaS 92,290 22 % 45,835 17 % 25,484 16 % Total subscription revenue 392,170 92 % 248,254 91 % 149,382 93 % Professional services 35,450 8 % 23,399 9 % 10,553 7 % Total revenue$ 427,620 100 %$ 271,653 100 %$ 159,935 100 % Remaining Performance Obligations As ofApril 30, 2020 , the Company had$535.6 million of remaining performance obligations, which is comprised of product and services revenue not yet delivered. As ofApril 30, 2020 , the Company expects to recognize approximately 83% of its remaining performance obligations as revenue over the next 24 months and the remainder thereafter. 4. Fair Value Measurements The Company measures financial assets and liabilities that are measured at fair value on a recurring basis at each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. A financial instrument's classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. 88 --------------------------------------------------------------------------------
The following table summarizes assets that are measured at fair value on a
recurring basis as of
Level 1 Level 2 Level 3 Total
Financial Assets:
Cash and cash equivalents:
Money market funds $ 197,314 $ - $ - $ 197,314 The following table summarizes assets that are measured at fair value on a
recurring basis as of
Level 1 Level 2 Level 3 Total
Financial Assets: Cash and cash equivalents: Money market funds$ 261,864 $ - $ - $
261,864
Money market funds consist of cash equivalents with remaining maturities of three months or less at the date of purchase. The Company uses quoted prices in active markets for identical assets to determine the fair value of its Level 1 investments in money market funds. 5. Acquisitions Fiscal 2020 AcquisitionEndgame, Inc. OnOctober 8, 2019 , the Company acquired all outstanding shares of Endgame, a security company offering endpoint protection technology, for a total acquisition price of$234.0 million . Elastic paid the purchase price through (i) the issuance of 2,218,694 ordinary shares in respect of Endgame's outstanding capital stock, warrants, convertible notes, and certain retention awards, (ii) the cash repayment of Endgame's outstanding indebtedness of$20.4 million , (iii) the assumption of Endgame's outstanding stock options, (iv) a$0.4 million cash deposit to an expense fund for the fees and expenses of the representative and agent of Endgame securityholders, (v) the cash payment of Endgame's transaction expenses of$5.9 million , and (vi) the cash payment of withholding taxes related to acquisition expense settled in shares of$2.8 million . Approximately 11% of the ordinary shares issued, or 235,031 shares, is being held in an indemnity escrow fund for 18 months after the acquisition close date. For purposes of determining the total acquisition price of$234.0 million , the Company used the ordinary share price of$89.3836 which was determined on the basis of the volume weighted average price per share rounded to four decimal places for the twenty (20) consecutive trading days ending with the complete trading day ending five (5) trading days prior to the date upon which the acquisition was consummated. The fair value of the shares transferred as consideration was$84.12 per share and was determined on the basis of the closing stock price of the Company's ordinary shares on the date of acquisition. The fair value of the assumed stock options was determined by using a Black-Scholes option pricing model with the applicable assumptions as of the acquisition date. The stock options assumed on the acquisition date will continue to vest as the Endgame employees provide services in the post-acquisition period. The fair value of these awards will be recorded as share-based compensation expense over the respective vesting period of each stock option. The acquisition was accounted for as a business combination and the total purchase price was allocated to the net tangible and intangible assets and liabilities based on their respective fair values on the acquisition date and the excess was recorded as goodwill. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Annual Report on Form 10-K. The Company continues to collect information with regards to its estimates and assumptions, including potential liabilities, contingencies, and the allocation of the purchase price. The Company will record adjustments to the fair value of the net assets acquired, liabilities assumed and goodwill within the measurement period, if necessary. 89 -------------------------------------------------------------------------------- The following table summarizes the components of theU.S. GAAP purchase price and the preliminary allocation of the purchase price at fair value (in thousands): Cash paid$ 26,633 Ordinary shares 178,331 Assumption of stock option plan 9,309 Total consideration$ 214,273 The aboveU.S. GAAP purchase price consideration does not include ordinary shares of Elastic issued as part of acceleration of equity awards and participation in the retention bonus pool. The following table summarizes the preliminary estimated fair values of assets acquired and liabilities assumed (in thousands): Cash and cash equivalents$ 2,220 Restricted cash 40 Accounts receivable 2,661 Prepaid and other current assets 549 Operating lease right-of-use assets 4,363 Property and equipment 503 Intangible assets 53,800 Other assets 58 Goodwill 178,764 Accounts payable (1,112)
Accrued expenses and other current liabilities (3,035) Accrued compensation and benefits
(5,042)
Operating lease liabilities, current (981)
Deferred revenue, current (3,532)
Deferred revenue, non-current (2,661)
Operating lease liabilities, non-current (3,551)
Other liabilities, non-current (8,771)
Total purchase consideration $ 214,273 Identifiable intangible assets include (in thousands):
Total Useful life (in years)
Developed technology $ 32,700 5
Customer relationships 19,200 4
Trade name 1,900 4
Intangible assets $ 53,800
Developed technology consists of software products and security platform
developed by Endgame. Customer relationships consists of contracts with platform
users that purchase Endgame's products and services that carry distinct value.
Trade names represent the Company's right to the Endgame trade names and
associated design, as it exists as of the acquisition closing date.
The fair value assigned to developed technology was determined primarily using
the multi-period excess earnings model, which estimates the revenue and cash
flows derived from the asset and then deducts portions of the cash flow that can
be attributed to supporting assets otherwise recognized. Management applied
significant judgment in estimating the fair value of the developed technology
intangible asset, which involved the use of significant estimates related to the
revenue growth rate assumption for both existing and any future product
offerings. The fair value of the Company's customer relationships was determined
using the income approach, which discounts expected future cash flows to present
value using estimates and assumptions related to revenue and customer growth
rate as determined by management. The fair value assigned to trade name
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was determined using the relief from royalty method, where the owner of the
asset realizes a benefit from owning the intangible asset rather than paying a
rental or royalty rate for use of the asset. The acquired intangible assets are
being amortized on a straight-line basis over their respective useful lives,
which approximates the pattern in which these assets are utilized.
Recognized goodwill of $178.8 million is not deductible for tax purposes and is
primarily attributed to planned growth in new markets, synergies arising from
the acquisition and the value of the acquired workforce.
Net tangible assets and liabilities assumed were valued at their respective
carrying amounts as of the acquisition date, as the Company believes that these
amounts approximate their current fair values.
Endgame has been included in the Company's consolidated results of operations
since the acquisition date. Endgame's results were immaterial to the Company's
consolidated results for the year ended April 30, 2020 .
The following unaudited pro forma condensed consolidated financial information
gives effect to the acquisition of Endgame as if it were consummated on May 1,
2018 (the beginning of the comparable prior reporting period), including pro
forma adjustments related to the valuation and allocation of the purchase price,
primarily amortization of acquired intangible assets and deferred revenue fair
value adjustments; share-based compensation expense; alignment of accounting
policies; the impact of applying ASC Topic 606, Revenue From Contracts With
Customers, to Endgame's historical financial statements; and direct transaction
costs reflected in the historical financial statements. This data is presented
for informational purposes only and is not intended to represent or be
indicative of the results of operations that would have been reported had the
acquisition occurred on May 1, 2018 . It should not be taken as representative of
future results of operations of the combined company (in thousands).
Year Ended April 30,
2020 2019
Pro forma revenue (1) $ 435,234 $ 285,917
Pro forma net loss (1) $ (176,019) $ (152,280)
(1) As if the acquisition of Endgame was consummated on May 1, 2018
Non-recurring acquisition costs incurred by the Company of $17.5 million ,
including a non-cash expense settled in the Company's ordinary shares for
$8.8 million and a related cash payment of withholding taxes of $2.8 million ,
were charged to general and administrative expenses in the consolidated
statement of operations for the year ended April 30, 2020 , and are reflected in
the pro forma net loss presented above for the year ended April 30, 2019 .
Non-recurring acquisition costs incurred by Endgame of $1.5 million are also
reflected in the pro forma net loss presented above for the year ended April 30,
2019 .
Fiscal 2019 Acquisition
Lambda Lab Corp.
In July 2018 , the Company acquired 100% of the share capital of Lambda Lab Corp.
("Lambda Lab "), a privately held company headquartered in the United States .
Lambda Lab was a code search company whose product was built on top of
Elasticsearch and focused on building semantic understanding of code, exposed
through powerful search features. Purchase consideration for the acquisition was
$2.0 million in cash. Excluded from the purchase consideration were 134,474
ordinary shares of $2.2 million issued to certain employees of Lambda Lab . These
shares were subject to repurchase and were contingent upon these employees'
continued employment with the Company. As of April 30, 2020 , no shares were
subject to repurchase and all stock-based compensation expense had been
recognized. During the years ended April 30, 2020 and 2019, the Company recorded
stock-based compensation expense of $0.9 million and $1.4 million , respectively.
The following table summarizes the components of the Lambda Lab purchase price
and the preliminary allocation of the purchase price at fair value (in
thousands):
Cash paid $ 1,997
Developed technology $ 1,339
Trade name 15
Goodwill 1,038
Net liabilities acquired (395)
Total purchase consideration $ 1,997
The amount allocated to developed technology was $1.3 million . The fair value
assigned to developed technology was determined primarily using the multi-period
excess earnings model, which estimates the revenue and cash flows derived from
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the asset and then deducts portions of the cash flow that can be attributed to
supporting assets otherwise recognized. The acquired developed technology is
being amortized on a straight-line basis over four years, which approximates the
pattern in which these assets are utilized.
Goodwill of $1.0 million , none of which is deductible for tax purposes, was
recorded in connection with the Lambda Lab acquisition, which is primarily
attributed to synergies arising from the acquisition and the value of the
acquired workforce.
Acquisition costs of $0.2 million were charged to general and administrative
expenses in the consolidated statement of operations for the year ended
April 30, 2019 .
Lambda Lab has been included in the Company's consolidated results of operations
since the acquisition date.
Fiscal 2018 Acquisitions
Swiftype, Inc.
In October 2017 , the Company acquired 100% of the share capital of Swiftype,
Inc. ("Swiftype"), a privately held company headquartered in the United
States . Swiftype provided enterprise search and search engine platforms for
organizations, websites and applications. The acquisition has been accounted for
as a business combination and the Company has included the financial results of
Swiftype in the consolidated financial statements from the date of the
acquisition.
The following table summarizes the components of the Swiftype purchase price and
the allocation of the purchase price at fair value (in thousands):
Cash paid $ 1,724
Ordinary shares 8,392
Total consideration $ 10,116
Developed technology $ 5,392
Trade name 97
Customer relationships 158
Goodwill 1,885
Net assets acquired 2,584
Total purchase consideration $ 10,116
Included in net assets acquired was $1.1 million of cash acquired.
Fifteen percent of the equity consideration, or 109,842 ordinary shares issued
to the former shareholders, was subject to repurchase on the fifteen-month
anniversary of the close of the acquisition for any indemnity claims. No
indemnity claims were made by the Company during the indemnification period that
expired in January 2019 .
The amounts allocated to developed technology, customer relationships and trade
name (the acquired intangible assets) total $5.6 million . The fair value
assigned to developed technology was determined using the multi-period excess
earnings model, which estimates the revenue and cash flows derived from the
asset and then deducts portions of the cash flow that can be attributed to
supporting assets otherwise recognized. The fair value of the Company's customer
relationships was determined using the income approach, which discounts expected
future cash flows to present value using estimates and assumptions determined by
management. The fair value assigned to trade name was determined using the
relief from royalty method, where the owner of the asset realizes a benefit from
owning the intangible asset rather than paying a rental or royalty rate for use
of the asset. The acquired identifiable intangible assets are being amortized on
a straight-line basis over four years, which approximates the pattern in which
these assets are utilized.
The following table sets forth the components of identifiable intangible assets
acquired and their estimated useful lives as of the date of acquisition (in
thousands):
Useful life
Fair Value (in years)
Developed technology $ 5,392 4
Customer relationships 158 4
Trade name 97 4
Total identifiable intangible assets
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Goodwill of $1.9 million , none of which is deductible for tax purposes, was
recorded in connection with the Swiftype acquisition, which is primarily
attributed to synergies arising from the acquisition and the value of the
acquired workforce.
Acquisition costs of $0.3 million were charged to general and administrative
expenses in the consolidated statement of operations for the year ended
April 30, 2018 .
Opbeat, Inc.
In May 2017 , the Company acquired 100% of the share capital of Opbeat, Inc.
("Opbeat"), a privately-held company headquartered in the United States . Opbeat
was an APM company that helped developers find and fix issues faster by
monitoring the end-to-end performance impact of changes to the application code.
The following table summarizes the components of the Opbeat purchase price and
the allocation of the purchase price at fair value (in thousands):
Cash paid $ 3,123
Ordinary shares 4,019
Total consideration $ 7,142
Developed technology $ 1,846
Goodwill 4,925
Net assets acquired 371
Total purchase consideration $ 7,142
Included in net assets acquired was $0.1 million of cash acquired.
Fifteen percent of the equity consideration, or 73,349 ordinary shares, was
subject to repurchase on the fifteen-month anniversary of the close of the
acquisition for any indemnity claims. No indemnity claims were made by the
Company during the indemnification period that expired in August 2018 .
The amount allocated to developed technology was $1.8 million . The fair value
assigned to developed technology was determined primarily using the multi-period
excess earnings model, which estimates the revenue and cash flows derived from
the asset and then deducts portions of the cash flow that can be attributed to
supporting assets otherwise recognized. The acquired developed technology is
being amortized on a straight-line basis over four years, which approximates the
pattern in which these assets are utilized.
The following table sets forth the components of the identifiable intangible
asset acquired and its estimated useful life as of the date of acquisition (in
thousands):
Useful life
Fair Value (in years)
Developed technology $ 1,846 4
Goodwill of $4.9 million , none of which is deductible for tax purposes, was
recorded in connection with the Opbeat acquisition, which is primarily
attributed to synergies arising from the acquisition and the value of the
acquired workforce.
Acquisition costs of $0.3 million were charged to general and administrative
expenses in the consolidated statement of operations for the year ended
April 30, 2018 .
Founders consideration holdback
Founders of Opbeat received an aggregate cash payment of $0.7 million at each of
the one and two-year anniversary of the close of the acquisition. These payments
were contingent upon continued employment with the Company and therefore were
excluded from the purchase consideration. Also excluded from the purchase
consideration were 93,052 ordinary shares of $0.9 million issued to the founders
of Opbeat as these were subject to repurchase until the two year anniversary of
the close of the acquisition and are contingent upon these founders' continued
employment with the Company. The repurchase option lapsed as to fifty percent of
the ordinary shares on each anniversary of the close of the acquisition. The
Company recorded stock-based compensation expense of $0.9 million over the
two-year vesting term. For the years ended April 30, 2020 and 2019, the Company
recorded stock-based compensation expense of less than $0.1 million and
$0.5 million , respectively.
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Fair Value of Ordinary Shares Used for Purchase Consideration
The fair value of the ordinary shares issued as part of the consideration paid
for the acquisitions prior to the Company's IPO was determined by the Company's
board of directors based on numerous subjective and objective factors,
including, but not limited to, a contemporaneous valuation performed by an
independent third-party valuation firm. Because the Company was not publicly
traded at the time the acquisitions were completed, the Company's board of
directors considered valuations of comparable companies, sales of redeemable
convertible preference shares, sales of ordinary shares to unrelated third
parties, operating and financial performance, the lack of liquidity of the
Company's ordinary shares, and general and industry-specific economic outlook,
among other factors.
6. Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in
thousands):
As of April 30,
2020 2019
Prepaid hosting costs $ 12,228 $ 12,006
Deposits 1,857 1,268
Prepaid software subscription costs 3,104 4,326
Deferred stock-based compensation expense - 784
Prepaid taxes 3,612
Prepaid value added taxes 5,167 4,239
Other 6,655 8,249
Total prepaid expenses and other current assets
Property and Equipment, Net
The cost and accumulated depreciation of property and equipment were as follows
(in thousands):
As of April 30,
Useful Life (in years) 2020 2019
Leasehold improvements Lesser of estimated useful
life or remaining lease term $ 8,405 $ 6,176
Computer hardware and software 3 5,687 5,393
Furniture and fixtures 3-5 5,072 3,094
Assets under construction 1,661 1,243
Total property and equipment 20,825 15,906
Less: accumulated depreciation (13,065) (10,458)
Property and equipment, net $ 7,760 $ 5,448
Depreciation expense related to property and equipment was $2.8 million , $2.7
million and $3.0 million for the years ended April 30, 2020 , 2019 and 2018,
respectively.
Intangible Assets, Net
Intangible assets consisted of the following as of April 30, 2020 (in
thousands):
Weighted Average
Remaining
Gross Fair Accumulated Useful Life
Value Amortization Net Book Value (in years)
Developed technology $ 44,830 $ 12,412 $ 32,418 4.1
Customer relationships 19,598 3,210 16,388 3.4
Trade names 2,872 1,223 1,649 3.4
Total $ 67,300 $ 16,845 $ 50,455 3.9
94-------------------------------------------------------------------------------- Intangible assets consisted of the following as ofApril 30, 2019 (in thousands): Weighted Average Remaining Gross Fair Accumulated Useful Life Value Amortization Net Book Value (in years) Developed technology$ 12,130 $ 5,646 $ 6,484 2.5 Customer relationships 398 268 130 2.2 Trade names 972 863 109 2.2 Total$ 13,500 $ 6,777 $ 6,723 2.5
Amortization expense for the intangible assets for the years ended
Year Ended
2020 2019 2018
Cost of revenue-cost of license-self-managed $ 948 $ 387 $ 387
Cost of revenue-cost of subscription-self-managed and SaaS 5,820 2,421 1,521
Sales and marketing 3,300 148 119
Total amortization of acquired intangible assets $ 10,068 The expected future amortization expense related to the intangible assets as ofApril 30, 2020 was as follows (in thousands, by fiscal year): 2021$ 14,167 2022 12,948 2023 11,890 2024 8,716 2025 2,734 Thereafter - Total$ 50,455 Goodwill
The following table represents the changes to goodwill (in thousands):
Carrying Amount
Balance as of April 30, 2018 $ 19,182
Addition from acquisition 1,038
Foreign currency translation adjustment (374)
Balance as of April 30, 2019 $ 19,846
Addition from acquisition 178,764
Foreign currency translation adjustment (733)
Balance as of April 30, 2020 $ 197,877 There was no impairment of goodwill during the years ended
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Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in
thousands):
As of April 30,
2020 2019
Accrued expenses $ 10,864 $ 8,124
Income taxes payable - 149
Value added taxes payable 7,230 4,236
Share repurchase liability - 1,612
Other 4,116 4,619
Total accrued expenses and other liabilities
Accrued Compensation and Benefits
Accrued compensation and benefits consisted of the following (in thousands):
As of April 30,
2020 2019
Accrued vacation $ 17,971 $ 9,655
Accrued commissions 16,259 6,510Accrued payroll and withholding taxes 7,588 1,868 Post-combination compensation liability -
655
Other 6,591 3,459
Total accrued compensation and benefits
Contract Balances
The timing of revenue recognition may differ from the timing of invoicing to
customers. For annual contracts, the Company typically invoices customers at the
time of entering into the contract. For multi-year agreements, the Company
generally invoices customers on an annual basis prior to each anniversary of the
contract start date. The Company records unbilled accounts receivable related to
revenue recognized in excess of amounts invoiced as the Company has an
unconditional right to invoice and receive payment in the future related to
those fulfilled obligations. Contract liabilities consist of deferred revenue
which is recognized over the contractual period.
The following table provides information about unbilled accounts receivable,
deferred contract acquisition costs, and deferred revenue from contracts with
customers (in thousands):
As of April 30,
2020 2019
Unbilled accounts receivable, included in accounts receivable, net
$ 43,549 $ 26,150 Deferred revenue$ 259,702 $ 170,666
Significant changes in the unbilled accounts receivable and the deferred revenue balances were as follows (in thousands):
Unbilled Accounts Receivable
Year Ended April 30,
2020 2019 2018
Beginning balance $ 1,710
(1,710) (1,139) (1,114)
Revenue recognized during the period in excess of 2,622 1,710 1,139
invoices issued
Ending balance $ 2,622 $ 1,710 $ 1,139
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Deferred Revenue
Year Ended April 30,
2020 2019 2018
Beginning balance $ 170,666 $ 102,561 $ 54,152
Additions through acquisition 6,192 - 859Increases due to invoices issued, excluding amounts recognized as revenue during the period
242,136 163,963 96,944
Revenue recognized that was included in deferred revenue balance at beginning of period
(159,292) (95,858) (49,394)
Ending balance $ 259,702 $ 170,666 $ 102,561
Deferred Contract Acquisition Costs
Deferred contract acquisition costs represent costs that are incremental to the
acquisition of customer contracts, which consist mainly of sales commissions and
associated payroll taxes. The Company determines whether costs should be
deferred based on sales compensation plans, if the commissions are in fact
incremental and would not have occurred absent the customer contract.
During the fiscal years ended April 30, 2019 and 2018, sales commissions for
renewal of a contract were considered commensurate with the commissions paid for
contracts with new customers and incremental sales to existing customers given
there was no substantive difference in commission rates in proportion to their
respective contract values. Effective May 1, 2019, the Company updated its sales
commissions plan by incorporating different commission rates for contracts with
new customers and incremental sales to existing customers, and for subsequent
subscription renewals. Subsequent to this change, sales commissions for renewal
of a subscription contract are not considered commensurate with the commissions
paid for contracts with new customers and incremental sales to existing
customers given the substantive difference in commission rates in proportion to
their respective contract values. Accordingly, commissions paid for contracts
with new customers and incremental sales to existing customers are now amortized
over an estimated period of benefit of five years while commissions paid related
to renewal contracts are now amortized based on the pattern of the associated
revenue recognition over the related contractual renewal period for the pool of
renewal contracts. The Company determines 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.
The Company periodically reviews the carrying amount of deferred contract
acquisition costs to determine whether events or changes in circumstances have
occurred that could impact the period of benefit of these deferred costs. The
Company did not recognize any impairment of deferred contract acquisition costs
during the years ended April 30, 2020, 2019 and 2018.
The following table summarizes the activity of the deferred contract acquisition
costs (in thousands):
Year Ended April 30,
2020 2019 2018
Beginning balance $ 26,150 $ 18,079 $ 10,135
Capitalization of contract acquisition costs 45,713 29,445 20,675
Amortization of deferred contract acquisition costs (28,314) (21,374) (12,731)
Ending balance $ 43,549 $ 26,150 $ 18,079
Deferred contract acquisition costs, current 19,537 17,215 12,125
Deferred contract acquisition costs, non- current 24,012 8,935 5,954
Total deferred contract acquisition costs $ 43,549 $ 26,150 $ 18,079
7. Commitments and Contingencies
Cloud Hosting Commitments
In December 2018, the Company entered into an amendment to a non-cancellable
cloud hosting capacity agreement, effective January 2019, for a total purchase
commitment of $60.0 million payable over the three years following the date of
the agreement. In December 2019, the Company entered into an amendment to a
non-cancellable cloud hosting capacity agreement
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with a different vendor for a total purchase commitment of $100.0 million
payable over the four years following the effective date of the agreement. In
April 2020, the Company entered into a non-cancellable cloud hosting capacity
agreement with a new vendor, effective April 2020, for a total purchase
commitment of $4.2 million payable over the three years following the date of
the agreement. The table below reflects these commitments on an annualized
basis, however, the timing for payments may vary depending on services used.
Furthermore, actual payments under these capacity commitments may be higher than
the total minimum depending on services used.
Future minimum cloud hosting commitments as of April 30, 2020 were as follows
(in thousands):
Years Ending April 30, Cloud Hosting Commitments
2021 $ 33,403
2022 37,583
2023 34,583
2024 28,333
Total $ 133,902
Letters of Credit
The Company had a total of $2.3 million in letters of credit outstanding in
favor of certain landlords for office space as of April 30, 2020.
Legal Matters
From time to time, the Company has become involved in claims and other legal
matters arising in the ordinary course of business. The Company investigates
these claims as they arise. Although claims are inherently unpredictable, the
Company is currently not aware of any matters that, if determined adversely to
the Company, would individually or taken together have a material adverse effect
on its business, results of operations, financial position or cash flows.
The Company accrues estimates for resolution of legal and other contingencies
when losses are probable and reasonably estimable.
Although the results of litigation and claims are inherently unpredictable, the
Company does not believe that there were any matters under litigation or claims
with a reasonable possibility of the Company incurring a material loss as of
April 30, 2020.
Indemnification
The Company enters into indemnification provisions under its agreements with
other companies in the ordinary course of business, including business partners,
landlords, contractors and parties performing its research and development.
Pursuant to these arrangements, the Company agrees to indemnify, hold harmless,
and reimburse the indemnified party for certain losses suffered or incurred by
the indemnified party as a result of the Company's activities. The maximum
potential amount of future payments the Company could be required to make under
these agreements is not determinable. The Company has never incurred costs to
defend lawsuits or settle claims related to these indemnification agreements. As
a result, the Company believes the fair value of these agreements is not
material. The Company maintains commercial general liability insurance and
product liability insurance to offset certain of the Company's potential
liabilities under these indemnification provisions.
In addition, the Company indemnifies its officers, directors and certain key
employees while they are serving in good faith in their respective capacities.
To date, there have been no claims under any indemnification provisions.
8. Redeemable Convertible Preference Shares
The Company previously issued redeemable convertible preference shares in one or
more series, each with such designations, rights, qualifications, limitations,
and restrictions. Immediately prior to the completion of the IPO, all shares of
redeemable convertible preference shares then outstanding were automatically
converted into an equivalent number of ordinary shares on a one-to-one basis and
their carrying amount reclassified into shareholders' equity. As of April 30,
2020, there were no redeemable convertible preference shares issued and
outstanding.
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9. Leases
The Company's leases are comprised of corporate office spaces and various
equipment under non-cancelable operating lease agreements that expire at various
dates through 2025. As of April 30, 2020, the Company had no finance leases.
Components of lease costs included in the consolidated statement of operations
for the year ended April 30, 2020 were as follows (in thousands):
Operating lease cost $ 8,435
Short-term lease cost 3,111
Variable lease cost 1,883
Total lease cost $ 13,429
Lease term and discount rate information as of April 30, 2020 are summarized as follows:
Weighted average remaining lease term (years) 4.83 Weighted average discount rate
5.08 %
Future minimum lease payments under non-cancelable operating leases on an
undiscounted cash flow basis as of April 30, 2020 were as follows (in
thousands):
Years Ending April 30,
2021 $ 8,636
2022 8,138
2023 8,049
2024 7,112
2025 5,857
Thereafter 2,803
Total minimum lease payments $ 40,595
Less imputed interest $ (5,129)Present value of future minimum lease payments $ 35,466 Less current lease liabilities
$ (7,639)
Operating lease liabilities, non-current $ 27,827
Future minimum lease payments under non-cancelable financing and operating leases, based on the previous lease accounting standard, as of April 30, 2019 were as follows (in thousands):
Years Ending April 30,
2020 $ 6,455
2021 5,494
2022 5,106
2023 5,217
2024 4,602
Thereafter 7,020
Total $ 33,894
10. Ordinary Shares
The Company's articles of association designated and authorized the Company to
issue 72 million ordinary shares with a par value of €0.001 per share up until
immediately prior to the completion of the IPO at which time the authorized
ordinary shares increased to 165 million. In addition, the par value per
ordinary share was changed from €0.001 per share to €0.01 per share as required
by Dutch law at the time of the Company's conversion into a Dutch public company
with limited liability (naamloze vennootschap).
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Each holder of ordinary shares has the right to one vote per ordinary share. The
holders of ordinary shares are also entitled to receive dividends whenever funds
are legally available and when declared by the board of directors, subject to
the prior rights of holders of all classes of shares outstanding having priority
rights to dividends. No dividends have been declared by the Company's board of
directors from inception through the year ended April 30, 2020.
Ordinary Shares Reserved for Issuance
The Company had reserved shares of ordinary shares for issuance as follows:
As of April 30,
2020 2019
Stock options issued and outstanding 15,260,506 22,866,438
RSUs issued and outstanding 2,472,092 740,467
Remaining shares available for future issuance under the 2012 Plan
12,461,850 9,649,123
Total ordinary shares reserved 30,194,448 33,256,028
Early Exercised Options
Certain ordinary share option holders have the right to exercise unvested
options, subject to a repurchase right held by the Company at the original
exercise price, in the event of voluntary or involuntary termination of
employment of the shareholder. As of April 30, 2020 and 2019, there were no
unvested ordinary shares that had been early exercised and were subject to
repurchase. The proceeds related to unvested ordinary shares are recorded as
liabilities until the stock vests, at which point they are transferred to
additional paid-in capital.
Shares issued for the early exercise of options are included in issued and
outstanding shares as they are legally issued and outstanding.
11. Equity Incentive Plans
In September 2012, the Company's board of directors adopted and the Company's
shareholders approved the 2012 Stock Option Plan, which was amended and restated
in September 2018 (as amended and restated, the "2012 Plan"). Under the 2012
Plan, the board of directors and the compensation committee, as administrator of
the 2012 Plan, may grant stock options and other equity-based awards, such as
Restricted Stock Awards ("RSAs") or Restricted Stock Units ("RSUs"), to eligible
employees, directors, and consultants to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to employees, directors and consultants, and to promote the success of
the Company's business. The Company's board of directors or compensation
committee determines the vesting schedule for all equity-based awards. Stock
options granted to new employees under the 2012 Plan generally vest over four
years with 25% of the option shares vesting one year from the vesting
commencement date and then ratably over the following 36 months subject to the
employees continued service to the Company. Refresh grants to existing employees
generally vest monthly over four years subject to the employees continued
service to the Company. Equity settled RSUs granted to new employees generally
vest over a period of four years with 25% vesting on the one-year anniversary of
the vesting start date and the remainder vesting semi-annually over the next
three years, subject to the grantee's continued service to the Company. Equity
settled RSUs granted to existing employees generally vest semi-annually over a
period of four years, subject to the grantee's continued service to the
Company. The Company's compensation committee may explicitly deviate from the
general vesting schedules in its approval of an equity-based award, as it may
deem appropriate. Stock options expire ten years after the date of grant. Stock
options, RSAs and RSUs that are canceled under certain conditions become
available for future grant or sale under the 2012 Plan unless the 2012 Plan is
terminated.
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--------------------------------------------------------------------------------The equity awards available for grant for the periods presented were as follows:
Year Ended April 30,
2020 2019
Available at beginning of fiscal year 9,649,123 2,061,282
Awards authorized 3,683,754 12,000,000
Options granted (172,031) (4,722,404)
Options cancelled 1,181,482 976,130
Options repurchased - 43,630
RSUs granted (2,101,271) (732,701)
RSUs cancelled 216,208 23,186
RSAs repurchased 4,585 -
Available at end of period 12,461,850 9,649,123
Endgame Stock Incentive Plan Assumed in Acquisition
In connection with its acquisition of Endgame, the Company assumed all
in-the-money stock options issued under Endgame's Amended and Restated 2010
Stock Incentive Plan that were outstanding on the date of acquisition. The
assumed stock options will continue to be outstanding and will be governed by
the provisions of their respective plan and are included in the stock option
activity table below.
Stock Options
The following table summarizes stock option activity (in thousands, except share
and per share data):
Stock Options Outstanding
Weighted- Remaining
Number of Average Contractual Aggregate
Stock Options Exercise Term Intrinsic
Outstanding Price (in years) ValueBalance as of April 30, 2018 22,237,484 $ 8.65 8.31 $ 98,365 Stock options granted 4,722,404 $ 23.27 Stock options exercised (3,117,320) $ 5.95 Stock options cancelled (976,130) $ 11.78 Balance as of April 30, 2019 22,866,438 $ 11.90 7.98 $ 1,684,106 Stock options granted 172,031 $ 81.39 Stock options assumed in acquisition 245,390 $ 48.99 Stock options exercised (6,815,098) $ 9.01 Stock options cancelled (1,181,482) $ 15.81 Stock options assumed in acquisition cancelled (26,773) $ 71.35 Balance as of April 30, 2020 15,260,506 $ 14.17 7.27 $ 767,795 Exercisable as of April 30, 2020 8,007,248 $ 11.29 6.80 $ 424,133 Stock options exercisable include 352,391 stock options that were unvested as of April 30, 2020. Aggregate intrinsic value represents the difference between the exercise price of the stock options to purchase ordinary shares and the fair value of the Company's ordinary shares. The weighted-average grant-date fair value per share of stock options granted was $50.92 and $10.22 for the years ended April 30, 2020 and 2019, respectively. As of April 30, 2020, the Company had unrecognized stock-based compensation expense of $53.8 million related to unvested stock options that the Company expects to recognize over a weighted-average period of 2.14 years. RSAs In October 2017, the Company acquired 100% of the share capital ofSwiftype , a privately-held company headquartered inthe United States . As part of the transaction, the Company granted RSAs to certain employees with both service-based and performance-based vesting conditions. The performance-based vesting condition was to be satisfied on the earlier of: (1) a change of control transaction or (2) the expiration of the lock-up period after the effective date of the IPO, 101 -------------------------------------------------------------------------------- subject to continued service through the end of the lock-up period. The service-based vesting condition was to be satisfied based on one of two vesting schedules: (i) vesting of 50% of the shares upon the closing of theSwiftype acquisition, 25% of the shares on the one-year anniversary of the closing, and 25% of the shares on the two-year anniversary of the closing, or (ii) vesting of 50% of the shares on the one-year anniversary of the closing of theSwiftype acquisition and 50% of the shares on the two-year anniversary of the closing. The performance-based vesting condition related to these awards was deemed probable upon the effectiveness of the Company's IPO on October 4, 2018. On that date, the Company recorded a cumulative catch-up stock-based compensation expense using the accelerated attribution method for the RSAs that had satisfied the applicable service-based vesting condition on that date with the remaining expense to be recognized over the remaining requisite service period. As of April 30, 2020, the underlying performance-based and service-based vesting conditions were fully satisfied and none of the ordinary shares issued were subject to repurchase by the Company. Stock-based compensation expense related to the RSAs was $0.2 million for the year ended April 30, 2020. The following table summarizes RSA activity for the 2012 Plan: Weighted- Average Grant Date Number of Awards Fair Value Outstanding at April 30, 2018 244,498 $ 11.46 RSAs subscribed (244,498) $ 11.46 Outstanding at April 30, 2019 - Outstanding at April 30, 2020 -
RSUs
During the year ended April 30, 2020, the Company granted 2,101,271 RSUs at a
weighted average grant date fair value of $68.25 per unit, including 1,388 RSUs
that are cash settled. Cash settled RSUs will be paid as a cash bonus based on
the applicable vesting and payment terms. The cash settled RSUs vest upon the
satisfaction of both service-based and performance-based vesting conditions. The
service-based vesting condition is generally over four years with 25% vesting on
the one-year anniversary of the award and the remainder vesting quarterly over
the next 36 months, subject to the grantee's continued service to the Company.
The performance-based vesting condition is defined as (i) a change in control
where the consideration paid to the Company's equity security holders is cash,
publicly traded stock, or a combination of both, or (ii) the expiration of any
lock-up period of the IPO, subject in each instance to the grantee's continued
service through such date. As a result of the Company's IPO, the
performance-based vesting condition was deemed probable and the Company recorded
cumulative stock-based compensation expense of $0.8 million related to the cash
settled RSUs in October 2018. As of April 30, 2020, the Company had a liability
of $3.5 million related to the cash settled RSUs recorded in accrued
compensation and benefits on the consolidated balance sheet.
Stock-based compensation expense related to RSUs for the year ended April 30,
2020 was $28.1 million. As of April 30, 2020, the Company had unrecognized
stock-based compensation expense of $144.3 million related to equity settled
RSUs that the Company expects to recognize over a weighted-average period of
3.42 years.
The following table summarizes RSU activity for the 2012 Plan:
Weighted-Average
Number of Awards Grant Date Fair Value
Outstanding and unvested at April 30, 2018 57,000 $ 13.07
RSUs granted 732,701 $ 64.55
RSUs released (26,048) $ 14.84
RSUs cancelled (23,186) $ 59.93
Outstanding and unvested at April 30, 2019 740,467 $ 62.48
RSUs granted 2,101,271 $ 68.25
RSUs released (153,438) $ 72.55
RSUs cancelled (216,208) $ 62.25
Outstanding and unvested at April 30, 2020 2,472,092 $ 66.78
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Determination of Fair Value
The determination of the fair value of stock-based options on the date of grant
using an option pricing model is affected by the fair value of the Company's
ordinary shares, as well as assumptions regarding a number of complex and
subjective variables. The Company uses the Black-Scholes option pricing model to
calculate the fair value of stock options, which requires the use of assumptions
including actual and projected employee stock option exercise behaviors,
expected price volatility of the Company's ordinary shares, the risk-free
interest rate and expected dividends. Each of these inputs is subjective and
generally requires significant judgment to determine.
Fair Value of Ordinary Shares: Prior to the IPO, the fair value of ordinary
shares underlying the stock awards had historically been determined by the board
of directors, with input from the Company's management. The board of directors
previously determined the fair value of the ordinary shares at the time of grant
of the awards by considering a number of objective and subjective factors,
including valuations of comparable companies, sales of redeemable convertible
preference shares, sales of ordinary shares to unrelated third parties,
operating and financial performance, the lack of liquidity of the Company's
ordinary shares, and general and industry-specific economic outlook. Subsequent
to the IPO, the fair value of the underlying ordinary shares is determined by
the closing price, on the date of the grant, of the Company's ordinary shares,
which are traded publicly on the New York Stock Exchange.
Expected Term: The expected term represents the period that options are
expected to be outstanding. For option grants that are considered to be "plain
vanilla," the Company determines the expected term using the simplified method.
The simplified method deems the term to be the average of the time-to-vesting
and the contractual life of the options.
Expected Volatility: Since the Company has limited trading history of its
ordinary shares, the expected volatility is derived from the average historical
stock volatilities of several unrelated public companies within the Company's
industry that the Company considers to be comparable to its own business over a
period equivalent to the option's expected term.
Risk-Free Interest Rate: The risk-free interest rate is based on the U.S.
Treasury yield curve in effect at the time of grant for zero-coupon U.S.
Treasury notes with maturities approximately equal to the option's expected
term.
Dividend Rate: The expected dividend is assumed to be zero as the Company has
never paid dividends and has no current plans to do so.
The Company's expected volatility and expected term involve management's best
estimates, both of which impact the fair value of the option calculated under
the Black-Scholes option pricing model and, ultimately, the expense that will be
recognized over the life of the option.
The fair value of stock options granted and assumed was estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions:
Year Ended April 30,
2020 2019 2018
Expected term (in years) 2.00 - 7.27 6.02 - 6.08 6.02 - 6.08
Expected stock price volatility 54.8% 40.5% - 46.7% 40.7% - 44.1%
Risk-free interest rate 1.4% - 2.0% 2.4% - 3.1% 1.8% - 2.6%
Dividend yield 0% 0% 0%
Stock-Based Compensation Expense
Total stock-based compensation expense recognized in the Company's consolidated
statements of operations was as follows (in thousands):
Year Ended April 30,
2020 2019 2018
Cost of revenue-cost of subscription-self-managed and SaaS $ 4,147 $ 3,383 $ 699 Cost of revenue-professional services
2,980 1,208 329 Research and development 23,621 16,100 5,045 Sales and marketing 19,334 11,996 3,560 General and administrative 9,925 7,255 3,109 Total stock-based compensation expense $
60,007 $ 39,942 $ 12,742
Total stock-based compensation expense for the years ended April 30, 2020, 2019 and 2018 includes a charge of $3.3 million, $4.4 million, and $0.4 million, respectively, related to an expense arising from business combinations.
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12. Net Loss Per Share Attributable to Ordinary Shareholders
The following table sets forth the computation of basic and diluted net loss per
share attributable to ordinary shareholders (in thousands, except share and per
share data):
Year Ended April 30,
2020 2019 2018
Numerator:
Net loss $ (167,174) $ (102,303) $ (52,727)
Denominator:
Weighted-average shares used in computing net loss per
share attributable to ordinary shareholders, basic and
diluted 78,799,732 54,893,365 32,033,792
Net loss per share attributable to ordinary shareholders, basic and diluted
$ (2.12) $ (1.86) $ (1.65)
The following outstanding potentially dilutive ordinary shares were excluded from the computation of diluted net loss per share attributable to ordinary shareholders for the periods presented because the impact of including them would have been antidilutive:
Year Ended April 30,
2020 2019 2018
Redeemable convertible preference shares - - 28,939,466
Stock options 15,260,506 22,866,438 22,237,484
RSUs 2,368,740 595,503 -
Contingently issuable shares 235,031 - -
Shares subject to repurchase - 254,350 276,243
Early exercised stock options - - 148,630
Total 17,864,277 23,716,291 51,601,823
13. Income Taxes
The Company is incorporated in the Netherlands but operates in various countries
with differing tax laws and rates. The geographical breakdown of income (loss)
before provision for income taxes is summarized as follows (in thousands):
Year Ended April 30,
2020 2019 2018
Dutch $ (173,338) $ (121,803) $ (58,810)
Foreign 4,196 23,888 9,459
Loss before income taxes $ (169,142) $ (97,915) $ (49,351)
The components of the provision for income taxes were as follows (in thousands):
Year Ended April 30,
2020 2019 2018
Current:
Dutch $ 518 $ - $ -
Foreign (560) 912 3,731
Total current tax expense $ (42) $ 912 $ 3,731
Deferred:
Dutch $ - $ (233) $ -
Foreign (1,926) 3,709 (355)
Total deferred tax expense (1,926) 3,476 (355)Total provision for income taxes $ (1,968) $ 4,388 $ 3,376
The Company's effective tax rate substantially differed from the Dutch statutory tax rate of 25% primarily due to the valuation allowance on the Dutch,United States andUnited Kingdom deferred tax assets in addition to a deferred tax asset revaluation as a result of enacted tax legislation inthe Netherlands , offset by stock based compensation. A reconciliation of 104 --------------------------------------------------------------------------------
income taxes at the statutory income tax rate to the provision for income taxes included in the consolidated statement of operations is as follows (in thousands, except for rates):
Year Ended April 30,
2020 2019 2018
Tax Rate Tax Rate Tax Rate
Dutch statutory income tax $ (42,286) 25.0 % $ (24,479) 25.0 % $ (12,338) 25.0 %
Foreign income taxed at 313 (0.2) % (310) 0.3 % (670) 1.4 %
different rates
Stock-based compensation (53,050) 31.4 % (24,848) 25.3 % 4,669 (9.4) %
Research and development (7,771) 4.6 % (2,161) 2.2 % (697) 1.4 %
credits
Change in valuation allowance 97,734 (57.8) % 43,071 (44.0) % 11,495 (23.3) %
Deferred tax asset revaluation 1,991 (1.2) % 11,883 (12.1) % 1,081 (2.2) %
Other 1,101 (0.6) % 1,232 (1.2) % (164) 0.3 %
Provision for income taxes $ (1,968) 1.2 % $ 4,388 (4.5) % $ 3,376 (6.8) %
Deferred Income Taxes
Deferred tax assets are recognized for the expected future tax consequences of
temporary differences between the carrying amounts and the tax basis of assets
and liabilities. Management assesses whether it is more likely than not that
some portion or all of the deferred tax assets will be realized. Deferred tax
assets are reduced by valuation allowance to the extent management believes it
is not more likely than not to be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income. Management
makes estimates and judgments about future taxable income based on assumptions
that are consistent with the Company's plans and estimates.
Significant components of the Company's deferred tax assets are summarized as
follows (in thousands):
As of April 30,
2020 2019
Deferred tax assets:
Accrued compensation $ 3,267 $ 1,685
Net operating loss carryforward 208,629 84,194
Deferred revenue 3,876 -
Intangibles/assets - 2,321
Stock-based compensation 7,203 4,089
Research and development credits 15,333 3,584
Other 3,882 1,875
Gross deferred tax assets 242,190 97,748
Less valuation allowance (225,197) (92,309)
Total deferred tax assets $ 16,993 $ 5,439Deferred tax liabilities: Deferred contract acquisition costs $ (8,423) $ (5,878) Intangible assets
(8,841) -
Deferred revenue - (858)
Other (218) (674)
Gross deferred tax liabilities (17,482) (7,410)
Net deferred tax assets (liabilities) $ (489) $ (1,971)
The valuation allowance for deferred tax assets as of April 30, 2020 and 2019 was $225.2 million and $92.3 million, respectively. As the Company has generated losses since inception inthe Netherlands andCalifornia (United States ) jurisdictions, management maintains a full valuation allowance against the net deferred tax assets in these jurisdictions. In addition,the United States and theUnited Kingdom jurisdictions are anticipated to have cumulative losses for the foreseeable future, and as such a valuation allowance has been established for these regions. The valuation allowance inthe Netherlands ,the United States and theUnited Kingdom jurisdictions increased by $35.3 million, $94.5 million and $3.1 million, 105 -------------------------------------------------------------------------------- respectively, during the year ended April 30, 2020 and $10.6 million, $35.0 million and $0.8 million valuation allowance, respectively, for the year ended April 30, 2019. The valuation allowance for Dutch deferred tax assets as of April 30, 2020 and 2019 was $88.4 million and $53.1 million, respectively, the valuation allowance forthe United States deferred tax assets as of April 30, 2020 and 2019 was $132.9 million and $38.4 million, respectively, and the valuation allowance for theUnited Kingdom deferred tax assets as of April 30, 2020 was $3.9 million and there was $0.8 million valuation allowance as of April 30, 2019. As of April 30, 2020, the Company had net operating loss ("NOL") carryforwards for Dutch,United States (Federal and State) andUnited Kingdom income tax purposes of $396.2 million, $490.2 million, $416.8 million and $18.6 million, respectively, which begin to expire in the year ending April 30, 2022, April 30, 2031 and April 30, 2024, respectively, withUnited Kingdom losses being carried forward indefinitely. The Company also has research and development tax credit carryforwards forUnited States (Federal and State) andCanada , income tax purposes of $11.3 million , $1.3 million and $0.6 million respectively, which begin to expire April 30, 2030, April 30, 2022 and April 30, 2037, respectively. The deferred tax assets associated with the NOL carryforwards and other tax attributes inthe Netherlands ,the United States , and theUnited Kingdom are subject to a full valuation allowance. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (the "CARES Act") Act was signed intoUnited States law. The Act provides emergency assistance, opportunities for additional liquidity and other government programs to support individuals, families and businesses affected by the 2020 coronavirus pandemic, in part through amendingUnited States tax law. Previously limited to 80% of taxable income by the TCJA, section 172(a), the CARES Act removes the limitation and grants taxpayers a five-year carryback period for NOLs arising in tax years beginning after December 31, 2017 and before January 1, 2021. Due to significant losses in the year ended April 30, 2019, and as a result of the CARES Act, the Company is planning to carry back the NOLs from the year ended April 30, 2019 back to five previous fiscal years (April 30, 2014 - April 30, 2018) to fully offset the taxable income in those tax years with an estimated income tax benefit of $3.3 million. Uncertain Tax Positions The calculation of the Company's tax obligations involves dealing with uncertainties in the application of complex tax laws and regulations. ASC 740, Income Taxes, provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. The Company has assessed its income tax positions and recorded tax benefits for all years subject to examination, based upon the Company's evaluation of the facts, circumstances and information available at each period end. Although the Company believes that it has adequately reserved for its uncertain tax positions, the Company can provide no assurance that the final tax outcome of these matters will not be materially different. As the Company expands, it will face increased complexity, and the Company's unrecognized tax benefits may increase in the future. The Company makes adjustments to its reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. The Company had unrecognized tax benefits of $9.7 million as of April 30, 2020, of which none would impact the effective tax rate before consideration of any valuation allowance. The activity within the Company's unrecognized gross tax benefits is summarized as follows (in thousands): As
of April 30,
2020 2019 2018
Balance as of beginning of year $ 3,870 $ 2,019 $ 1,196
Increase related to tax positions taken in prior 2,283 240 6
periods
Increase related to tax positions taken in the current 3,553 1,611 817 period Balance as of end of year $ 9,706 $ 3,870 $ 2,019 Approximately $2.3 million of the increase in fiscal 2020 for tax positions taken in prior periods is due to the amendedU.S. Federal income tax return the Company is planning to file as part of the enacted CARES Act, which will generate additional research and development tax credit carryforward from prior years. Approximately $3.6 million of the increase in tax positions related to the current period is from the research and development tax credits from the acquisition ofEndgame Inc. The Company's policy is to recognize penalties and interests accrued on any unrecognized tax benefits as a component of income tax expense. During the year ended April 30, 2020, 2019 and 2018 the Company recognized less than $0.1 million, $0.1 million and $0.2 million, respectively, of interest and penalties. The amount of accrued interest and penalties recorded on the consolidated balance sheet as of April 30, 2020 and 2019 was $0.2 million and $0.3 million, respectively. 106 -------------------------------------------------------------------------------- The Company is subject to periodic examination of income tax returns by various domestic and international tax authorities. The Company is currently under audit with the Dutch tax authority for the tax years ended April 30, 2015 to April 30, 2017 and the German tax authority for the tax years ended April 30, 2016 to April 30, 2018 The Company does not anticipate any significant increases or decreases in its uncertain tax positions within the next twelve months. The Company files tax returns in multiple jurisdictions, includingthe Netherlands andUnited States . The Company's tax filings for fiscal years starting with the year ended April 30, 2014 remain open in various tax jurisdictions. If the examinations are resolved unfavorably, there is a possibility they may have a material negative impact on its results of operations. Dutch income taxes and non-Dutch withholding taxes associated with the repatriation of earnings or for temporary differences related to investments in non-Dutch subsidiaries, excluding theU.S subsidiaries, have not been provided for, as the Company intends to reinvest the earnings of such subsidiaries indefinitely or the Company has concluded that an immaterial additional tax liability would arise on the distribution of such earnings. Earnings from the Company'sU.S. subsidiaries are being treated as being currently repatriated back tothe Netherlands though no Dutch income taxes norU.S. withholding taxes in regard to such repatriations are being recorded due to the Dutch participation exemption provisions and exemption from withholding taxes under the income tax treaty betweenthe Netherlands andthe United States . At April 30, 2020, there were cumulative earnings of $48.9 million, from the non-U.S. subsidiaries. If such earnings were to be repatriated they would be exempt from taxation inthe Netherlands and the amount of dividend withholding taxes from such foreign jurisdictions would be $0.8 million, due to the various income tax treaties betweenthe Netherlands and the respective foreign jurisdictions. On December 22, 2017, the TCJA was signed into law making significant changes to the United States Internal Revenue code. Changes include, but are not limited to, aU.S. corporate income tax rate ("U.S. federal tax rate") decrease to from 35% to 21% effective January 1, 2018. The TCJA contains several new tax provisions that became effective on January 1, 2018, such as the introduction of Global Intangible Low Taxed Income ("GILTI"). Due to the Company's net operating loss, GILTI provision was $0.5 million and did not have a material impact on the Company's results for the year ended April 30, 2020. 14. Employee Benefit Plans The Company has a defined-contribution plan in theU.S. intended to qualify under Section 401 of the Internal Revenue Code (the "401(k) Plan"). The Company has contracted with a third-party provider to act as a custodian and trustee, and to process and maintain the records of participant data. Substantially all the expenses incurred for administering the 401(k) Plan are paid by the Company. This 401(k) Plan covers substantially all employeeswho meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis The Company makes contributions to the 401(k) Plan up to 6% of the participating employee's W-2 earnings and wages. The Company recorded $8.3 million, $5.0 million and $2.8 million of expense related to the 401(k) Plan during the years ended April 30, 2020, 2019 and 2018, respectively. The Company also has defined-contribution plans in certain other countries for which the Company recorded $3.6 million, $1.9 million and $1.4 million of expense during the years ended April 30, 2020, 2019 and 2018, respectively. 15. Segment Information The following table summarizes the Company's total revenue by geographic area based on the billing address of the customers (in thousands): Year Ended April 30, 2020 2019 2018 United States $ 241,648 $ 155,935 $ 97,006 Rest of world 185,972 115,718 62,929 Total revenue $ 427,620 $ 271,653 $ 159,935
Other than
107
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The following table presents the Company's long-lived assets, including property
and equipment, net, and operating lease right-of-use assets, by geographic
region (in thousands):
As of April 30,
2020 2019
United States $ 30,373 $ 3,219
The Netherlands 3,529 1,769
United Kingdom 5,854 251
Rest of world 787 209
Total long-lived assets $ 40,543 $ 5,448© Edgar Online, source
