UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________________________________________________________________________________________________________________________
FORM 10-K
____________________________________________________________________________________________________________________________________________________________________________________________
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 001-38675
_____________________________________________________________________________________________________________________________________________________________________________________________
Elastic N.V.
(Exact name of registrant as specified in its Charter)
____________________________________________________________________________________________________________________________________________________________________________________________
The Netherlands
(State or other jurisdiction of
incorporation or organization)
Not Applicable
(I.R.S. Employer
Identification No.)
800 West El Camino Real, Suite 350
Mountain View, California 94040
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (650) 458-2620
____________________________________________________________________________________________________________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)
Ordinary shares, Par Value €0.01 Per Share
Trading Symbol(s)
ESTC
(Name of each exchange on which registered)
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☒
☐
☐
Accelerated filer
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the ordinary shares held by non-affiliates of the registrant, based on the closing price of the shares of ordinary shares on the New York Stock Exchange on
October 31, 2019 (the last business day of the registrant’s second fiscal quarter), was approximately $3.9 billion.
The number of registrant’s ordinary shares outstanding as of June 22, 2020 was 85,282,748.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement relating to the registrant’s 2020 annual general meeting of shareholders (the “2020 Proxy Statement”) are incorporated by reference into
Part III of this Annual Report on Form 10-K where indicated. The 2020 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the
registrant’s fiscal year ended April 30, 2020.
Table of Contents
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Item 16
Form 10-K Summary
i
Page
3
15
41
41
41
41
42
43
46
68
69
108
108
109
110
110
110
110
110
111
113
Unless the context otherwise indicates, references in this report to the terms “Elastic”, “the Company,” “we,” “our” and “us” refer to Elastic N.V. and its
subsidiaries. All information presented herein is based on our fiscal calendar. Unless otherwise stated, references to particular years, quarters, months or periods
refer to the Company’s fiscal years ended April 30 and the associated quarters, months and periods of those fiscal years.
General
The Elastic design logo, “Elastic” and our other registered or common law trademarks, service marks or trade names appearing in this Annual Report on
Form 10-K are the property of Elastic N.V. and its subsidiaries. Other trademarks and trade names referred to in this Annual Report on Form 10-K are the property
of their respective owners. Solely for convenience, trademarks and trade names referred to in this Annual Report on Form 10-K may appear without the ® or ™
symbols.
Trademarks
Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995,
which involve substantial risk and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In
some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,”
“intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms
or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Annual Report on Form 10-K include, but
are not limited to, statements about:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the impact of the 2019 novel coronavirus disease ("COVID-19") on our business, operations, hiring and financial results, and on the businesses of our
customers and partners, including the effect of governmental lockdowns, restrictions and new regulations;
our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses
(which include changes in sales and marketing, research and development and general and administrative expenses), and our ability to achieve and
maintain future profitability;
our ability to continue to deliver and improve our offerings and successfully develop new offerings, including security-related product offerings and SaaS
offerings;
customer acceptance and purchase of our existing offerings and new offerings, including the expansion and adoption of our SaaS offerings;
our service performance and security, including the resources and costs required to prevent, detect and remediate potential security breaches, including by
bad actors;
our ability to maintain and expand our user and customer base;
the market for our products continuing to develop;
competition from other products and companies with more resources, recognition and presence in our industry;
the impact of foreign currency exchange rate and interest rate fluctuations on our results;
the pace of change and innovation in the markets in which we participate and the competitive nature of those markets;
our business strategy and our plan to build our business;
our ability to effectively manage our growth, including any changes to our pace of hiring;
our international expansion strategy;
our operating results and cash flows;
our strategy of acquiring complementary businesses and our ability to successfully integrate acquired businesses and technologies, including the
successful integration of Endgame, Inc. and its subsidiaries (“Endgame”);
the potential impact on our operating margin from the acquisition of Endgame;
the impact of acquisitions on our future product offerings;
our beliefs and objectives for future operations;
our relationships with and reliance on third parties, including partners;
1
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to protect our intellectual property rights;
our ability to develop our brands;
the impact of expensing stock options and other equity awards;
the sufficiency of our capital resources;
our ability to successfully defend litigation brought against us;
our ability to successfully execute our go-to-market strategy and expand in our existing markets and into new markets;
sufficiency of cash to meet cash needs for at least the next 12 months;
our ability to comply with laws and regulations that currently apply or become applicable to our business both in the United States and internationally;
our ability to attract and retain qualified employees and key personnel;
the effect of the loss of key personnel, including Aaron Katz, who has transitioned from the position of Chief Revenue Officer and is expected to serve in
an advisory role until August 2020, and our ability to attract a qualified replacement in light of the current unstable economic conditions caused by the
COVID-19 pandemic;
our expectations about the impact of natural disasters and public health epidemics and pandemics, on our business, results of operations and financial
condition;
expectations about seasonality;
the future trading prices of our ordinary shares;
and general market, political, economic and business conditions (including developments and volatility arising from the COVID-19 pandemic).
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon
information available to us as of the date of this Annual Report on Form 10-K, and while we believe such information forms a reasonable basis for such statements,
such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of,
all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this
Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business,
financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties,
and other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and
rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could
have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. Any additional or unforeseen effect from the COVID-19
pandemic may exacerbate these risks. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved
or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which such statements are made. We
undertake no obligation to update any forward-looking statements after the date of this Annual Report on Form 10-K or to conform such statements to actual
results or revised expectations, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking
statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any
future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
2
Item 1. Business.
Elastic is a search company.
PART I
Search is foundational to a wide variety of experiences. Elastic makes the power of search—the ability to instantly find relevant information and insights
from large amounts of data—available for a diverse set of applications and solutions, including Enterprise Search, Observability, and Security.
Elastic powers the search behind a ride sharing app to help locate nearby riders and drivers. Elastic powers the search for finding the right products to add
to your cart for an ecommerce application. Elastic powers the search for a digital creative software company, enabling users to search across millions of digital
assets to find the right photo, font, or color palette to complete a creative project. Elastic powers the logging of billions of events per day to track and manage
website performance issues and network outages of a telecommunications company with nationwide networks of mobile subscribers. Elastic powers the processing
of terabytes of daily data in real time to monitor the usage of thousands of servers for a financial services company across their entire IT environments. Elastic
powers a university’s cybersecurity operations to protect thousands of devices and critical data. All of this is search.
Why we search remains constant: we’re looking for insight, information, and answers. But how and what we search changes over time, from the Dewey
Decimal System for libraries to Google for the World Wide Web to conversations with virtual assistants for everyday inquiries. Today, what we search has grown
to include a rapidly increasing amount of structured and unstructured data from a multitude of sources such as databases, websites, applications, and mobile and
connected devices. While search experiences often begin with search boxes, they are not confined to them. Dragging your finger across a map on a smartphone
screen is search. Zooming into a specific time frame in a histogram is search. Mining log files for errors is search. Forecasting storage capacity two weeks into the
future is search. Using natural language processing to analyze user sentiment is search.
Elastic 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. We have also built software solutions on the Elastic Stack that address a wide variety of use cases: Elastic Enterprise Search for workplace search, app
search and site search, Elastic Observability for logging, metrics and application performance management ("APM"), and Elastic Security for security information
and event management ("SIEM") and endpoint security.
The Elastic Stack and our solutions are designed to run in public or private clouds, in hybrid environments, or in traditional on-premises environments. As
the technology landscape shifts, our products grow and adapt. In that sense, we believe that our company is truly elastic.
Our origins are rooted in open source, which facilitates rapid adoption of our software and enables efficient distribution of our technology. Developers
can either download or deploy our software directly in the cloud as a managed offering on our website, for use in development and production environments. Our
offerings include both free and paid products and solutions.
Our business model is based on a combination of open source and proprietary software. For self-managed users who download our products, we make
some of the proprietary features of our software available for free. Other proprietary features are only available through paid subscriptions, which also include
access to support on all free and paid features. We also provide our software as a service ("SaaS"). There is no free subscription tier in our SaaS offerings. Unlike
some open source companies, we do not build a separate enterprise version of an original open source project. Instead, we develop and test one robust codebase,
over which we maintain control. We believe that maintaining full control over the source code enables us to develop better products for our users and customers.
Our sales and marketing efforts start with developers and other users who have already adopted our software and then evolve to departmental decision-makers and
senior executives who have broad purchasing power in their organizations. All of these actions help us build a powerful commercial business model.
Our customers often significantly expand their usage of our products over time. Expansion includes increasing the number of developers using our
products, increasing the utilization of our products for a particular use case, and applying our products to new use cases. We focus some of our direct sales efforts
on encouraging these types of expansion within our customer base.
Our business has experienced rapid growth around the world. As of April 30, 2020, we had over 11,300 customers compared to over 8,100 customers and
over 5,000 customers as of April 30, 2019 and 2018, respectively. Our revenue was $427.6 million in the year ended April 30, 2020 (“fiscal 2020”), $271.7 million
in the year ended April 30, 2019 (“fiscal 2019”), and $159.9 million in the year ended April 30, 2018 (“fiscal 2018”), representing year-over-year growth of 57%
and 70% for the years ended April 30, 2020 and 2019, respectively. Subscriptions accounted for 92%, 91% and 93% of our total
3
revenue in the years ended April 30, 2020, 2019 and 2018, respectively. Revenue from outside the United States accounted for 43%, 43% and 39% of our total
revenue in the years ended April 30, 2020, 2019 and 2018, respectively.
In the years ended April 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 expect we will continue to incur net losses for the
foreseeable future.
We founded Elastic to bring the power of search to a broad range of business and consumer use cases. Our products enable our users and customers to
instantly find relevant information and insights in large amounts of data.
We offer 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 software
solutions built on the Elastic Stack that address a wide variety of use cases. The Elastic Stack and our solutions are designed to run in public or private clouds, in
hybrid environments, or in traditional on-premises environments.
Our Products
The Elastic Stack
The Elastic Stack is composed of four primary products:
•
Elasticsearch. Elasticsearch is the heart of the Elastic Stack. It is a distributed, real-time search and analytics engine and datastore for all types of
data, including textual, numerical, geospatial, structured, and unstructured.
• Kibana. Kibana is the user interface for the Elastic Stack. It is the visualization layer for data stored in Elasticsearch. It is also the management and
configuration interface for all parts of the Elastic Stack.
•
•
Logstash. Logstash is the dynamic data processing pipeline for ingesting data into Elasticsearch or other storage systems from a multitude of sources
simultaneously.
Beats. Beats is the family of lightweight, single-purpose data shippers for sending data from edge machines to Elasticsearch or Logstash.
Some features of the Elastic Stack are open source, while others are proprietary. Some proprietary features are licensed to users at no cost, while others
require paid subscriptions. Paid proprietary features enable capabilities such as automating anomaly detection on time series data at scale, facilitating compliance
with data security and privacy regulations, and allowing real-time notifications and alerts. The source code of all free and paid features in the Elastic Stack is
visible to the public in the form of “open code.”
Our Solutions
We have built a number of solutions on top of the Elastic Stack to make it easier for organizations to use our software for certain common use cases. Like
the Elastic Stack, our solutions comprise a combination of open source features, free proprietary features, and paid proprietary features. The solutions we offer
include:
•
Enterprise Search. Our Enterprise Search solution provides powerful search for documents and results living in websites, applications and
workplaces. Enterprise Search includes: Workplace Search, a unified search platform for the workplace that seamlessly connects to the most widely
used enterprise systems and tools; App Search, a flexible, API-driven tool for building search experiences to support websites and portals, e-
commerce, mobile app search, and customer support; and Site Search, an easy way to bring powerful search to any website.
• Observability. Our Observability solution enables unified analysis across the IT ecosystem of applications, networks, and infrastructure.
Observability includes: Logs, to search and analyze petabytes of structured and unstructured logs; Metrics, to search and analyze numeric and time
series data; APM, to deliver insight into application performance and health metrics and provide developers with confidence in their code; and
Uptime, to easily track and monitor the availability of hosts, websites, services and applications.
•
Security. Our Security solution provides unified protection to prevent, detect, and respond to threats. Security includes: SIEM, with integrations to
network, host, user, and cloud data sources, as well as workflow and operations, shareable analytics, incident management, and investigations; and
Endpoint Security, for prevention, detection and response in a single, stack-integrated agent.
4
Our Deployment Options
The Elastic Stack and our solutions generally can be deployed in public or private clouds, in hybrid environments, or in traditional on-premises
environments, to satisfy various user and customer needs.
•
•
Self-Managed. Today, most users manage their own deployments of the Elastic Stack and our solutions. To help with more complex deployment
scenarios, we offer Elastic Cloud Enterprise (ECE), a paid proprietary product, to deliver centralized provisioning, management, and monitoring
across multiple deployments.
SaaS. Many customers are becoming increasingly interested in SaaS deployment alternatives that reduce the burden of administration. For these
customers we have developed a family of SaaS products called Elastic Cloud, which includes Elasticsearch Service, Site Search Service and App
Search Service. We host and manage our Elastic Cloud products on infrastructure from multiple public cloud providers.
Our Business Model
Our business model refers to how we make our software available, including our free and open distribution and go-to-market strategy, and how we charge
our customers. We believe our business model creates significant value for our users, our customers, and our company.
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 and other users are able to download our software directly from our website. Some features of our software
can be used free of charge. Others are only available through paid subscriptions, which include access to proprietary features and support. These paid features can
be unlocked with a simple license update, without the need to re-deploy the software. We also provide our software as a service, as part of Elastic Cloud. There is
no free subscription tier in our Elastic Cloud offerings. The rate at which our customers purchase additional subscriptions and expand the value of existing
subscriptions depends on a number of factors, including customers’ level of satisfaction with our products, the nature and size of the deployments, the desire to
address additional use cases, and the perceived need for additional proprietary features. The source code of all Elastic Stack features, whether they are open source
or proprietary, is visible to the public in the form of “open code.”
Our distribution model facilitates rapid and efficient adoption, particularly by empowering individual developers and other users to download and use our
software without payment, registration, or the friction of a formal sales interaction. It also 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 believe that the number of times our products have been downloaded and the
size of our developer community are indicative of the benefits of our open source strategy and the growth in adoption of our products. However, we generally do
not have visibility into, and cannot accurately determine how often, our downloaded products are being actively used.
We have designed our strategy to avoid some of the risks associated with an open source model. One such risk relates to control over the direction and
roadmap of our products. We maintain full control over the source code of our products and solutions. While community members may suggest changes to our
products, only Elastic employees are able to commit changes to the codebase. Further, unlike some open source companies, we do not build a separate enterprise
edition of an original open source project. Instead, we develop, maintain, and test a single robust codebase that is shared by our entire developer community.
Some open source companies sell only support for software that they make available at no cost. We believe this can create misaligned incentives in that
the support vendor benefits from low software quality. Accordingly, we focus on designing high-quality software products that include proprietary features and are
easy to use and reliable. We include support only as part of our subscriptions.
We believe in building products that provide value and appeal to the people who use them, including developers, architects, DevOps personnel, IT
professionals, and security analysts. At the same time, a software company should be able to engage and build relationships with departmental or organizational
leaders who make large technology purchasing decisions. At Elastic, we do both.
The strengths of our products include the following:
Strengths of Our Products
•
Speed. The Elastic Stack can find matches for search criteria in milliseconds within even the largest structured and unstructured datasets. Its schema-
less structure and inverted indices enable real-time search of high volumes of structured, unstructured, and time series data.
5
•
•
•
•
•
Scale. The Elastic Stack is a distributed system and can scale massively. It has the ability to subdivide search indices into multiple pieces called
shards, which enables data volume to be scaled horizontally and operations to be distributed across hundreds of systems or more. A developer
running hundreds of nodes has the same user experience as a developer running a single node on a laptop.
Relevance. Elasticsearch uses multiple analytical techniques to determine the similarity between stored data and queries, generating highly relevant
results reflecting a deep understanding of text and context. Its sophisticated yet developer-friendly query language permits advanced search and
analytics. Additionally, the speed of the Elastic Stack permits query iteration, further enhancing the relevance of search results.
Ease of Use. The Elastic Stack is engineered to take a user from data to dashboard or inquiry to insight in minutes. It offers an easy getting started
experience, featuring streamlined download and deployment, sensible defaults, a simple and intuitive query language that just works, and no need to
define a schema up front. Administrative tasks such as securing the Elastic Stack are intuitive and integrated into the user experience, as are
investigative tasks such as data visualization.
Flexibility. The Elastic Stack is able to ingest, filter, store, search, and analyze data in any form, whether structured or unstructured. These
capabilities enable the Elastic Stack to generate insights from a wide variety of data sources for a range of use cases. The flexibility of the Elastic
Stack also enables users to begin using our products along with their existing systems, which lowers barriers to adoption.
Extensibility. Developers can use the Elastic Stack as a foundation for addressing a wide variety of use cases. Our open source approach to building
the Elastic Stack empowers developers to innovate and utilize it to fit their specific needs. Additionally, our developer community actively engages
with us to improve and expand the Elastic Stack.
We intend to pursue the following growth strategies:
Our Growth Strategies
•
•
•
•
•
•
Increase product adoption by improving ease of use and growing our user community. With our engineering efforts focused on the user
experience, we will continue to develop software that makes our products easier to use and adopt for both developers and non-developers. We will
continue to engage with developers globally through a wide range of touch points such as community meetups, global community groups,
hackathons, our global events, which we call Elastic{ON}, and engagement on our website, user forums, and code repositories, to grow our user
community.
Expand our customer base by acquiring new customers. Through our distribution model, self-managed users can easily download our software
directly from our website and access many features free of charge, which facilitates rapid adoption. Through Elastic Cloud, our SaaS offering, we
provide the fastest and easiest way to get started with a free trial. However, there is no free subscription tier in Elastic Cloud. Our sales and marketing
team conducts campaigns to drive further awareness and adoption within the user community. As a result, many of our sales prospects are already
familiar with our technology prior to entering into a commercial relationship with us. Additionally, we leverage our network of partners to drive
awareness and expand our sales and marketing reach to target new customers. We will continue to engage our community and our partners to drive
awareness and to invest in our sales and marketing team to grow our customer base.
Expand within our existing customer base through new use cases and larger deployments. We often enter an organization through a single
developer or a small team for an initial project or use case with an objective to quickly solve a technical challenge or business problem. Because of
the rapid success with our products, knowledge of Elastic often spreads within an organization to new teams of developers, architects, IT operations
personnel, security personnel, and senior executives. We will continue to invest in helping users and customers be successful with our products, and
we view initial success with our products as a path to drive expansion to new use cases and projects and larger deployments within organizations.
Extend our product leadership through continued investment in our technology. We will continue to invest in our self-managed and SaaS
products to extend into new use cases, industries, geographies, and customers.
Increase usage of Elastic Cloud. We believe that providing our SaaS products represents a significant growth opportunity. We plan to expand
Elastic Cloud geographically and through more public cloud providers. We plan to offer more of our solution features as part of Elastic Cloud over
time.
Expand our strategic and regional partnerships. Our partners assist us in driving awareness of Elastic and our products, building new solutions on
top of the Elastic Stack to solve customer pain points, and extending our
6
reach in geographic areas and verticals where we do not have a formal sales presence. We have a diverse range of partners and we will continue to
pursue partnerships to further the development of the Elastic Stack and our customer reach.
•
Selectively pursue acquisitions and strategic investments. We have selectively pursued acquisitions and strategic investments in businesses and
technologies in order to drive product and market expansion. Since inception, we have acquired technology underlying our security offerings
(formerly Endgame), Site Search and App Search offerings (formerly Swiftype), our APM offering (formerly Opbeat), our machine learning feature
(formerly Prelert), our Beats product (formerly Packetbeat), our Elastic Cloud SaaS offering (formerly Found) and our Kibana and Logstash products
through strategic transactions. We intend to continue to pursue acquisitions and strategic investments selectively.
Organizations of all sizes, across many industries, both private and public, purchase our products for a variety of use cases. As of April 30, 2020, we had
over 11,300 customers. No customer represented more than 10% of our revenue in the year ended April 30, 2020.
Customers
Engineering
Our engineering organization focuses on enhancing existing products and developing new products, both open source and proprietary, that are easy to use
and can be run in any environment including in public or private clouds, in hybrid environments, or in traditional on-premises environments. With a distributed
engineering team spanning over 30 countries, we are able to recruit, hire, and retain high-quality, experienced developers, tech leads, and product managers, and
operate at a rapid pace to drive product releases, fix bugs, and create new product offerings.
Our software development process is based on iterative releases across the Elastic Stack, our solutions, and the Elastic Cloud. We are organized in small
functional teams with a high degree of autonomy and accountability. Our distributed and highly modular team structure and well-defined software development
processes also allow us to successfully incorporate technologies that we have acquired.
As of April 30, 2020, we had 635 employees in our research and development organization, comprising 33% of our total headcount. We intend to
continue to invest in our research and development capabilities to extend our products. Research and development expense totaled $165.4 million and $101.2
million, in the years ended April 30, 2020 and 2019, respectively. We plan to continue to devote significant resources to research and development.
Sales and Marketing
We make it easy for individual developers to begin using our products in order to drive viral adoption. Users can download our software directly from our
website without any sales interaction, and immediately begin using the full set of free and paid features. Access to our paid features is available for an initial trial
period for both self-managed and SaaS subscriptions.
As a result of our free and open strategy, our sales prospects are often already using our technology. Our sales and marketing efforts extend our free and
open strategy in two key ways. First, we conduct low-touch marketing campaigns to keep users and customers engaged after they download our software. This
includes providing high-quality content, documentation, webinars, videos, and blogs through our website. Second, we conduct high-touch virtual and field
campaigns with qualified prospects and customers who have typically already deployed our software to drive further awareness, adoption, and expansion of our
products and solutions.
Our sales teams are segmented primarily by geography and secondarily by employee count of our prospects and customers. We rely on inside sales
development representatives to qualify leads based on their likelihood to make a purchase. We pursue sales opportunities primarily through a direct sales motion,
in some cases assisted by partners. Our relationships within customer organizations often extend beyond the initial users of the technology and include technology
and business decision-makers at various levels. We also engage with our customers on an ongoing basis through a customer success team, to ensure customer
satisfaction and expand their usage of our technology.
As of April 30, 2020, we had 708 employees in our sales and marketing organization, including sales development, field sales, sales engineering, business
development, customer success, and marketing personnel.
7
We maintain partner relationships that help us market and deliver our products to our customers and complement our community. Our partner
relationships include the following:
Partners
•
•
•
•
Cloud providers. We work with many of the major cloud providers to increase awareness of our products and make it easy to access our software.
We partner with Google and Microsoft to offer our Elasticsearch Service (part of Elastic Cloud) on Google Cloud Platform (“GCP”), and Microsoft
Azure, respectively. We partner with Alibaba to provide the Alibaba Cloud Elasticsearch Service in China and the rest of the world. We also have a
relationship with IBM to offer Elastic Stack deployment templates on its cloud. Through these partnerships, customers of these companies may
access Elastic’s support engineers and may use our free and paid proprietary features. In addition, we make our Elasticsearch Service available on
Amazon Web Services (“AWS”), for direct purchase via our website. Elastic’s Elasticsearch Service is a different offering than Amazon
Elasticsearch Service. We do not partner with Amazon, provide support for Amazon Elasticsearch Service, or provide Amazon or customers of
Amazon Elasticsearch Service with access to any of our free or paid proprietary features.
Systems integrators, channel partners, and referral partners. We have a global network of systems integrators, channel partners, and referral
partner relationships that help deliver our products to various business and government customers around the world.
OEM and MSP partners. Our original equipment manufacturing ("OEM"), and managed service provider ("MSP"), partners embed an Elastic
subscription into the products or services they offer to their own customers. OEM or MSP partners are able to include Elastic’s paid and unpaid
proprietary features in their product, receive ongoing support from Elastic for product development, and receive support for end customer issues
related to Elastic.
Technology partners. Our technology partners collaborate with Elastic to create a standardized solution for end users that includes technology from
both Elastic and the partner. For example, we work with Micro Focus to integrate our products with their ArcSight product. Technology partners
represent a deeper collaboration than community contributions and are distinct from distribution-oriented relationships like OEMs and MSP partners.
We offer consulting and training as part of our offerings. To assist customers in accelerating their success with our software, our consulting team consists
of engineers and architects who bring hands-on experience and deep technical knowledge to a project. Our training offerings enable our users to gain the necessary
skills to develop, deploy, and manage our software.
Professional Services
Customer Support
We endeavor to make it easy for developers to download, install, deploy and use the Elastic Stack and our solutions. To this end, our user community
functions as a source of support and enables developers to engage in self-help and collaboration.
However, in many situations, such as those involving complex enterprise IT environments, large deployments and novel use cases, our users require our
support. Accordingly, we include support as part of the subscriptions we sell for our products. Our global support organization consists of highly technical support
engineers who provide support experiences including troubleshooting, technical audits, cluster tuning, and upgrade assistance. Our support team is distributed
across over 20 countries and provides coverage 24 hours per day, all 365 days per year, across multiple languages.
We believe that software companies should not have incentives to build low quality software. In that connection, we do not sell support separately from
our software subscriptions.
Our products consist of the Elastic Stack, our solutions and software that supports our various deployment alternatives. Because our solutions are built on
the Elastic Stack, innovations and new capabilities built into the Elastic Stack may benefit many of our solutions. Our customers can customize and extend our
solutions to fit their needs by leveraging the power of the Elastic Stack and our developer capabilities.
Our Technology
8
Technology Features of the Elastic Stack
Elasticsearch is the heart of the Elastic Stack, where users store, search, and analyze data. Key features of Elasticsearch include the following:
•
•
•
Store any type of data. Elasticsearch combines powerful parts of traditional search engines, such as an inverted index to power fast full text search
and a column store for analytics, with native support for a wide range of data types, including text, dates, numbers, geospatial data, date/numeric
ranges, and IP addresses. With sensible defaults, and no upfront schema definition necessary, Elasticsearch makes it easy to start simple and fine-tune
as datasets grow.
Powerful query languages. The Elasticsearch query domain specific language is a flexible, expressive search language that exposes a rich set of
query capabilities across any kind of data. From simple Boolean operators to custom relevance functions, users can articulate exactly what they are
looking for and bring their own definition of relevance. The query language also includes a composable aggregation framework that enables users to
summarize, slice, and analyze structured or semi-structured datasets across multiple dimensions. Examples of these capabilities include tracking the
top ten users by spend, looking at data week over week, analyzing data across geographies, and drilling down into details with specific filters all with
a single search.
Developer friendliness. Elasticsearch has consistent, well-documented APIs that work the same way on one node during initial development as on a
hundred nodes in production. Elasticsearch also ships with a number of language clients that provide a natural way to integrate with a variety of
popular programming frameworks, reducing the learning curve, and leading to a shorter time to realizing value.
• High speed. Everything stored in Elasticsearch is indexed by default, such that users do not need to decide in advance what queries they will want to
run. Our architecture optimizes throughput, time-to-data availability and query latency. Elasticsearch can easily index millions of events per second,
and newly added data can be available for search nearly instantly.
• High scale and availability. Elasticsearch is designed to scale horizontally and be resilient to node or hardware failures. As nodes join a cluster, data
is automatically re-balanced and queries and indexing are spread across the new nodes seamlessly. This makes it easy to add hardware to increase
indexing throughput or improve query throughput. Elasticsearch also detects node failures and hardware or network issues and automatically protects
user data by ejecting the failing or inaccessible nodes and creating new replicas of the data.
• Machine learning and alerting. Machine learning capabilities such as anomaly detection, forecasting, and categorization are tightly integrated with
the Elastic Stack to automatically model the behavior of data, such as trends and periodicity, in real time in order to identify issues faster, streamline
root cause analysis, and reduce false positives. Without these capabilities, it can be very difficult to identify issues such as infrastructure problems or
intruders in real time across complex, high-volume, fast-moving datasets.
•
Security. Security features give administrators the rights to grant specific levels of access to their various types of users, such as IT, operations, and
application teams. Elasticsearch serves as the central authentication hub for the entire Elastic Stack. Security features include encrypted
communications and encryption-at-rest; role-based access control; single sign-on and authentication; field-level, attribute-level, and document-level
security; and audit logging.
Kibana is the user interface for the Elastic Stack. It allows users to manage the Elastic Stack and visualize data. Additionally, the interfaces for many of
our solutions are built into Kibana. Key features of Kibana include the following:
•
•
Explore and visualize data stored in Elasticsearch. Kibana provides interactive data views, visualizations, and dashboards powered by structured
filtering and unstructured search to enable users to get to answers more quickly. A variety of data visualization types, such as simple line and bar
charts, purpose-built geospatial and time series visualizations, tree diagrams, network diagrams, heatmaps, scatter plots, and histograms, support
diverse user needs.
Incorporate advanced analytics and machine learning from Elasticsearch. Kibana’s query, filtering, and data summarization capabilities reflect
Elasticsearch’s powerful query domain specific language and aggregation framework while making it interactive.
• Manage the Elastic Stack. Kibana presents a broad user interface showing the health of Elastic Stack components and provides cluster alerts to
notify administrators of problems. Its central management user interfaces (UIs) make it easier to operate the Elastic Stack at scale.
9
• Home for Solutions. Kibana is where our users and customers access the user interfaces for our Observability and Security solutions. Kibana
provides core services, like security, alerting, and data visualization components. This makes it easy for users to discover all of the capabilities our
solutions provide, and enables solution users to benefit from the core capabilities of the Kibana.
•
Application framework. Kibana is designed to be extensible. Users interested in a highly specialized visualization type not distributed with Kibana
by default can customize experiences through a Kibana plugin and make the plugin available to the community. Dozens of Kibana plugins have been
shared by the community via Elastic documentation and code sharing platforms such as GitHub.
Beats and Logstash are data ingestion tools that enable users to collect and enrich any kind of data from any source for storage in Elasticsearch. Beats and
Logstash have an extensible modular architecture. Beats are lightweight agents purpose-built for collecting data on devices, servers, and inside containers. Key
features of Beats include the following:
•
•
Agents. Beats are lightweight agents built for the purposes of efficient data collection at the edge for specific types of data, such as Filebeat for the
collection of logging data, Metricbeat for the collection of system or service metric data, Auditbeat for the collection of security data, Packetbeat for
the collection of network data, and Heartbeat for the collection of availability data. Dozens of community Beats enable the collection of data from
specialized sources.
Extensibility and community Beats. The Beats platform enables rapid creation of custom Beats that can be run on a variety of edge technologies for
data collection. Over 90 Beats have been shared by the community via Elastic documentation and many more are available through code sharing
platforms such as GitHub.
Logstash enables centralized collection and extract, transformation, and load capabilities. Key features of Logstash include the following:
•
•
•
Data transformation engine. Logstash is a centralized data transformation engine that can receive and pull data from multiple sources, transform
and filter that data, and send it to multiple outputs. Logstash has a powerful and flexible configuration language that allows users to create data
stream acquisition and transformation logic without having to write code. This greatly extends and accelerates the ability to create data management
pipelines to a wide variety of organizations and individuals.
Plugins. Logstash collects data from a variety of sources, such as network devices, queues, endpoints, and public cloud services. Logstash enriches
the data via lookups against local data sources, such as a geolocation database, and remote data sources, such as relational databases. Logstash can
output events to Elasticsearch or downstream queues and other datastores. We develop and support more than 80 plugins for many common
integrations.
Logstash extensibility and community plugins. A vibrant community of users extends our reach through hundreds of community Logstash plugins
that enable integration with a wide variety of data sources across many use cases.
Technology Features of Our Solutions
Our solutions are designed to minimize time-to-value and deployment costs of using the Elastic Stack for common use cases. The functionality of our
solutions often includes specialized data collection, through standardized APIs or custom agents, and custom user interfaces for specific data analytics,
visualizations, workflows, and actions. Most of our solutions can be self-managed or accessed through Elastic Cloud.
Enterprise Search gives users the tools to bring search experiences to customers, partners and teams quickly and scale them seamlessly.
• Workplace Search. Workplace Search brings modern search to collaborative decisions and experiences. It seamlessly connects to some of the
world’s most widely adopted productivity tools, customer relationship management platforms, cloud storage platforms, collaboration tools, operation
management platforms, and content management systems. Custom sources provide an elegant set of APIs that lets customers and users ingest any
type of content from even more sources while preserving access control information.
•
App Search. App Search simplifies the process of building excellent customer-facing search experiences. App Search also provides much of the
shared, foundational technology that gives the products in Enterprise Search power within an intuitive user experience. App Search brings the
focused power of Elasticsearch to a refined set of APIs and intuitive dashboards, allowing users to leverage scalability, tunable relevance controls,
thorough documentation, well-maintained clients, and robust analytics to build a leading search experience with ease.
10
•
Site Search. Site Search provides the tools users need to build powerful website search easily. The maintenance-free crawler keeps content current,
while intuitive customization features and robust analytics provide full control over search relevance. All these capabilities are backed at scale by
Elasticsearch.
Observability combines analysis across the IT ecosystem of IT applications, networks, and infrastructure to deliver actionable insights into performance,
availability, usability, adoption, and anomalous behavior.
•
Logs. Logs indexes, searches, and analyzes structured and unstructured logs at large scale to monitor the health and performance of an organization’s
services, infrastructure, and applications. Users can analyze and visualize information extracted from logs to understand system behavior and trends
to optimize performance and preemptively address potential issues. By querying logs in ad hoc ways, users can triage, troubleshoot, and resolve
performance issues.
• Metrics. Metrics ingests, searches, visualizes, and analyzes numeric and time series data from IT systems, including applications, datastores, hosts,
containers, cloud infrastructure, and more. Users can review performance and utilization trends to optimize and plan for future needs. Metrics helps
users deliver on infrastructure service level objectives ("SLOs"), and resolve downtime or performance issues by understanding how the state of
individual components fits into the bigger picture.
•
•
APM. APM delivers insight into application performance at the code level. Developers can instrument apps and see the lifecycle of a transaction
across services from front end to back end. This can give developers confidence in the code they ship, and can give operational teams visibility into
code-level errors and performance bottlenecks to accelerate root cause analysis and resolution during an investigation.
Uptime. Customers and users leverage Uptime to track and monitor the availability of the hosts, websites, services, and application endpoints that
support business operations. Through proactive monitoring, customers can detect troublesome components before they are reported by end users.
Security delivers unified protection to prevent, detect, and respond to a variety of threats across the IT ecosystem.
•
•
SIEM. Elastic SIEM automates threat detection and remediation, reducing mean time to detect ("MTTD") and mean time to respond ("MTTR").
With prebuilt Beats integrations, SIEM can ingest data from cloud, network, endpoints, applications, and other systems. With Elastic Common
Schema ("ECS"), users can centrally analyze information like logs, flows, and contextual data from disparate data sources. SIEM provides an
interactive workspace for security teams to detect and respond to threats. Teams can triage events and perform investigations, gathering evidence on
an interactive timeline. SIEM also streamlines opening and updating cases, forwarding potential incidents to security operations workflows and IT
ticketing systems.
Endpoint Security. Endpoint Security combines prevention, detection, and response into a single, autonomous agent that can even run in isolated
environments. It is designed for ease of use and for speed, and can help stop threats in early stages of an attack. Endpoint Security includes protection
against ransomware, malware, phishing, exploits, fileless attacks, and more. When deployed together, SIEM and Endpoint Security provide a strong
security posture with broad visibility on potential threats.
Elastic Cloud and Elastic Cloud Enterprise
The Elastic Stack and our solutions can be deployed in public or private clouds, in hybrid environments, or in traditional on-premises environments. We
divide our deployment models into two categories: self-managed, which refers to users deploying the Elastic Stack and solutions on infrastructure they manage
themselves (such as their own data center or private or public cloud environments), and Elastic Cloud, which refers to our SaaS products that we host and manage.
To help self-managed users with more complex deployment scenarios, we offer Elastic Cloud Enterprise.
•
•
Elastic Cloud. Elastic Cloud is our growing family of SaaS products and technologies that make it easy to deploy, operate, and scale Elastic products
and solutions in the cloud. Elastic Cloud products include Elasticsearch Service, Site Search Service, and App Search Service, and are offered by us
on certain large cloud providers.
Elastic Cloud Enterprise. As part of building our Elastic Cloud offering, we built a comprehensive orchestration and administration infrastructure
tool to easily provision, monitor, manage, secure, upgrade and backup the thousands of clusters that comprise our Elastic Cloud products. We then
packaged this infrastructure into a downloadable and easily installable proprietary product called Elastic Cloud Enterprise, which makes this tool
available to customers to use with their own self-managed deployments. Elastic Cloud Enterprise enables our customers to provision, monitor,
manage, secure, upgrade and backup any number of clusters. It also helps our customers improve their hardware utilization and operational efficiency
by allowing them to leverage shared
11
hardware resources to manage multiple clusters, while still maintaining a strong level of isolation between those clusters.
We define our culture by our “source code,” which expresses our core corporate values.
Our Source Code
• Home, Dinner. There is no such thing as work-life balance. We are successful if we find balance in life. Elastic empowers its employees with the
flexibility to do so. Be home for dinner, go for a run midday, care for a sick child, or visit a parent. Finding balance means being more innovative and
efficient at work. Which makes for a better Elastic.
•
•
•
•
•
Space, Time. It’s easy to get stuck in a day-to-day work pattern. Allowing for the space and time to dream requires conscious effort. Embracing a
high failure rate does, too. Fulfillment comes from doing the obvious and dreaming up the un-obvious. Both are foundations of Elastic.
IT, Depends. It’s pretty complicated to make some things simple, and even more complicated to make other things possible. We embrace and value
the knowledge required to do both. When a question is asked, buckle up. Sh*t is about to get real. Your journey will likely start with “it depends.”
Progress, SIMPLE Perfection. Perfection is not a destination. Color inside the lines or color outside the lines. Just pick a color. It’s as simple as
2048. An Elastic that moves is an Elastic that survives, thrives, and stands the test of time.
01.02, /FORMAT. Our products are distributed by design, our company is distributed by intention. With many languages, perspectives, and cultures,
it’s easy to lose something in translation. Over email and chat, doubly so. Until we get a perpetual empathy machine, don’t assume malice. A
distributed Elastic makes for a diverse Elastic, which makes for a better Elastic.
As YOU, Are. We all come in different shapes with different interests and skills. We all have an accent. Celebrate it. Just come as you are. No need
to invest neurons trying to fit an arbitrary mold. We’d rather you put them to work shaping Elastic.
• HUMBLE, Ambitious. Ambition drives us to challenge ourselves and the people around us to do better. It is not an excuse to be an *sshole. Be
humble. Be ambitious. At Elastic, we are both.
•
Speed, SCALE, Relevance. Elastic is a search company. We focus on value to users by producing fast results that operate at scale and are relevant.
This is our DNA. We believe search is an experience. It is what defines us, binds us, and makes us unique.
The Elastic Stack is powerful because it is distributed, gaining speed and stability from each additional node. Our company emulates the strengths of the
distributed systems we build.
Our Distributed Culture
•
•
•
•
Distributed systems, distributed teams. Elastic was born a distributed company, with founders in Israel, Germany, and the Netherlands, and early
employees from the United Kingdom, France, Spain, the Czech Republic, and the United States. From our experience in open source projects, we
know that great code and amazing ideas can come from anyone, anywhere.
Strength in diversity. Being a distributed company is about harnessing the inherent strengths of diversity. Different people approach problems
differently. We need that. When a consensus is reached between a wide variety of minds, the result is a solution that should stand the test of time.
Supporting resiliency. Distributed systems are only powerful if they’re resilient. The same is true for our company. We are constantly improving the
Elastic Stack to handle the challenges of distribution just as we are constantly improving how we support our employees no matter where they are.
Organizational resiliency also requires recognizing that it’s not tools that make distribution work, it’s the people. Successful collaboration takes more
than video calls and shared calendars. It takes a warm welcoming to let new hires know all cultures are accepted. It means always assuming the best
intention of our peers.
Building camaraderie. We hire intentionally. We hire thoughtfully. Smart. Curious. Nice. Respectful. These are qualities we look for in every
Elastician. Our goal isn’t to build a company of people that simply work well together; our goal is to build a company that creates well together,
imagines well together, laughs well together,
12
dances well together. We want to build a culture of camaraderie so that no matter where someone’s located, they always feel connected.
•
Distributed us? Distributed you? Distributed we! Elastic the company is just one piece of the Elastic community. Direct contact between our
internal team and Elastic users is fundamental to our success. It’s this culture of communication that enables us to maintain our commitment to open
source. Distributed isn’t always easy, and it isn’t for everyone, but we believe it’s the foundation of our success.
Community
Our team extends beyond our employee base. It includes all the users who download our software. Our users interact with us on our website forums and
on Twitter, GitHub, Stack Overflow, Quora, Facebook, Weibo, WeChat, and more.
In order to build products that best meet our users’ needs, we focus on, and invest in, building a strong community. Each download of the Elastic Stack is
a new opportunity to educate our next contributor, hear about a new use case, explore the need for a new feature, or meet a future member of the team. Community
is core to our identity, binding our products closely together with our users. Community gives us an ability to get their candid feedback, creating a direct line of
communication between our users and the builders of our products across all of our features—open source, free proprietary, and paid proprietary—enabling us to
make our products simpler and better.
The Elastic community has a Code of Conduct. It covers the behaviors of the Elastic community in any forum, mailing list, wiki, website, code repository,
IRC channel, private correspondence, or public meeting. It is designed to ensure that the Elastic community is a space where members and users can freely and
openly communicate, collaborate, and contribute both ideas and code. It also covers our community ground rules: be considerate, be patient, be respectful, be nice,
communicate effectively, and ask for help when unsure.
Competition
Our market is highly competitive, rapidly evolving, fragmented, and subject to changing technology, shifting customer needs, and frequent introductions
of new offerings. Our principal competitors include:
•
•
•
•
For Enterprise Search (app search, site search, and workplace search): incumbent offerings such as Solr (open source offering), Lucidworks Fusion,
search tools including Google Custom Search Engine (an advertisement-based site search tool with limited user controls), and workplace search tools
including Coveo, Endeca (acquired by Oracle) and Autonomy (acquired by HP and now offered by Micro Focus).
For Observability (logging, metrics, APM, and uptime monitoring): software vendors with specific observability solutions to analyze logging data,
metrics, APM data, or infrastructure uptime, such as Splunk, New Relic, Dynatrace, AppDynamics (owned by Cisco Systems) and Datadog.
For Security (SIEM and endpoint security): security analytics solutions vendors such as Splunk and ArcSight SIEM (offered by Micro Focus) and
endpoint security vendors such as CrowdStrike, Carbon Black (acquired by VMware), McAfee and Symantec (acquired by Broadcom).
Certain cloud hosting providers, including Amazon Web Services, that offer SaaS products based on Elastic’s open source components. These
offerings are not supported by Elastic and come without any of Elastic’s proprietary features, whether free or paid.
The principal competitive factors for companies in our industry are:
•
•
•
•
•
•
•
•
product capabilities, including speed, scale, and relevance, with which to power search experiences;
an extensible product “stack” that enables developers to build a wide variety of solutions;
powerful and flexible technology that can manage a broad variety and large volume of data;
ease of deployment and ease of use;
ability to address a variety of evolving customer needs and use cases;
strength of sales and marketing efforts;
flexible deployment model across public or private clouds, hybrid environments, or traditional on-premises environments;
productized solutions engineered to be rapidly adopted to address specific applications;
13
• mindshare with developers and IT executives;
•
•
•
•
•
•
adoption of products by many types of users (developers, architects, DevOps personnel, IT professionals, security analysts, and departmental and
organizational leaders);
enterprise-grade technology that is secure and reliable;
size of customer base and level of user adoption;
quality of training, consulting, and customer support;
brand awareness and reputation; and
low total cost of ownership.
We believe that we compare favorably on the basis of the factors listed above. However, many of our competitors have substantially greater financial,
technical and other resources, greater brand recognition, larger sales forces and marketing budgets, broader distribution networks and presence, more established
relationships with current or potential customers and partners, more diverse product and services offerings and larger and more mature intellectual property
portfolios. They may be able to leverage these resources to gain business in a manner that discourages customers from purchasing our offerings. Furthermore, we
expect that our industry will continue to attract new companies, including smaller emerging companies, which could introduce new offerings. We may also expand
into new markets and encounter additional competitors in such markets. While our products and solutions have various competitors across different use cases, such
as app search, site search, workplace search, logging, metrics, APM, business analytics and security analytics, we believe that few competitors currently have the
capabilities to address our entire range of use cases. We believe our industry requires constant change and innovation, and we plan to continue to evolve search as a
foundational technology to solve the problems of today and new emerging problems in the future.
Intellectual Property
We rely on a combination of patents, patent applications, registered and unregistered trademarks, copyrights, trade secrets, license agreements,
confidentiality procedures, non-disclosure agreements with third parties, and other contractual measures to safeguard our core technology and other intellectual
property assets. In addition, we maintain a policy requiring our employees, contractors, and consultants to enter into disclosure and invention assignment
agreements. As of April 30, 2020, we had 15 issued patents in the United States with expirations ranging from 2031 to 2037, 48 pending U.S. patent applications,
and 12 pending non-U.S. patent filings. The pending patent applications, if issued, would expire between 2032 and 2039. In addition, as of April 30, 2020, we had
33 registered trademarks in the United States, 8 pending trademark applications in the United States, as well as 306 registered trademarks in various non-U.S.
jurisdictions and 9 pending trademark applications in various non-U.S. jurisdictions.
The laws, procedures and restrictions on which we rely may provide only limited protection, and any of our intellectual property rights may be
challenged, invalidated, circumvented, infringed or misappropriated. In addition, the laws of certain countries do not protect proprietary rights to the same extent as
the laws of the United States or other jurisdictions, and we therefore may be unable to protect our proprietary technology in certain jurisdictions. For additional
information, see the section titled “Risk Factors—Risks Related to the Business.”
In addition, our technology incorporates software components licensed to the general public under open source software licenses such as the Apache
Software License Version 2.0. We obtain many components from software developed and released by contributors to independent open source components of our
technology. Open source licenses grant licensees broad permissions to use, copy, modify and redistribute our platform. As a result, open source development and
licensing practices can limit the value of our software copyright assets.
As of April 30, 2020, we had 1,936 employees in over 35 countries. None of our employees is represented by a labor union. In certain countries in which
we operate, such as France and Spain, we are subject to, and comply with, local labor law requirements which may automatically make our employees subject to
industry-wide collective bargaining agreements. We have not experienced any work stoppages.
Employees
We were incorporated in the Netherlands as a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) on February
9, 2012 as Searchworkings Global B.V. On June 19, 2012, we changed our name to
Corporate Information
14
Elasticsearch global B.V., on December 11, 2013, we changed our name to Elasticsearch Global B.V., and on May 29, 2018, we changed our name to Elastic B.V.
Immediately prior to the completion of our initial public offering (“IPO”) on October 10, 2018, we converted into a public company with limited liability
(naamloze vennootschap) under Dutch law and changed our name to Elastic N.V. Our principal executive offices are located at 800 West El Camino Real, Suite
350, Mountain View, California 94040, and our telephone number is (650) 458-2620. We are registered with the trade register of the Dutch Chamber of Commerce
under number 54655870. Our registered office is at Keizersgracht 281, 1016 ED Amsterdam, the Netherlands.
Our ordinary shares are listed on the New York Stock Exchange (“NYSE”) under the symbol “ESTC”.
Our website address is www.elastic.co. Information contained on, or that can be accessed through, our website does not constitute part of this Annual
Report on Form 10-K and inclusions of our website address in this Annual Report on Form 10-K are inactive textual references only.
We announce material information to the public about us, our products and services and other matters through a variety of means, including filings with
the U.S. Securities and Exchange Commission (“SEC”), press releases, public conference calls, our website (www.elastic.co), the investor relations section of our
website (https://ir.elastic.co), our blog (www.elastic.co/blog), and/or social media, including our Twitter account (https://twitter.com/elastic), Facebook page
(www.facebook.com/elastic.co), and/or LinkedIn account (www.linkedin.com/company/elastic-co), in order to achieve broad, non-exclusionary distribution of
information to the public. We encourage investors and others to review the information it makes public in these locations, as such information could be deemed to
be material information. Please note that this list may be updated from time to time.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections
13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are filed with the SEC. We are subject to the informational requirements
of the Exchange Act and file or furnish reports, proxy statements and other information with the SEC. Such reports and other information filed by us with the SEC
are available free of charge on our website at www.elastic.co/ir when such reports are available on the SEC’s website. The SEC maintains an internet site that
contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.
Available Information
Item 1A. Risk Factors.
Risk Factors
A description of the risks and uncertainties associated with our business and ownership of our ordinary shares is set forth below. You should carefully
consider the following risks, together with all of the other information in this Annual Report on Form 10-K, including our consolidated financial statements and
the related notes thereto, before making a decision to invest in our ordinary shares. The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. If any of
the following risks occur, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the price of
our ordinary shares could decline, and you could lose part or all of your investment. In addition, the impact of COVID-19 and any worsening of the economic
environment may exacerbate the risks described below, any of which could have a material impact on us. This situation is changing rapidly and additional impacts
may arise that we are not aware of currently.
Risks Related to the Business
The ongoing COVID-19 pandemic could harm our business and results of operations.
The ongoing COVID-19 pandemic and efforts to control its spread have significantly curtailed the movement of people, goods and services worldwide,
including in most or all of the regions in which we sell our products and services and conduct our business operations. We have taken precautionary measures
intended to help minimize the risk of the virus to our employees, our customers, and the communities in which we operate. The spread of the COVID-19 pandemic
has caused us to modify our business practices (including suspending employee travel, adapting employee work locations, and holding events and trainings
virtually), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers,
and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government
authorities. The full extent to which COVID-19 and our precautionary measures may impact our business will depend on future developments, which are highly
uncertain and cannot be predicted at this time, including but not limited to, the duration and geographic spread of the pandemic, its severity, the actions to contain
the virus or treat its impact, and how quickly and to what extent normal economic
15
and operating conditions can resume. It has been and, until the COVID-19 pandemic is contained and global economic activity stabilizes, will continue to be more
difficult for us to forecast our operating results. The magnitude and duration of the disruption and resulting decline in business activity is uncertain and could
negatively impact our sales and marketing efforts, our ability to enter into customer contracts in a timely manner, our international expansion efforts, our ability to
deliver professional services, our ability to recruit employees across the organization which, in turn, could have longer term effects on our sales pipeline, or create
operational or other challenges as we adjust to a fully-remote workforce, any of which could harm our business. In addition, the COVID-19 pandemic has
disrupted, and may continue to disrupt, the operations of our customers, channel partners and government entities for an indefinite period of time, including as a
result of travel restrictions and/or business shutdowns, all of which could negatively impact our business and results of operations, including cash flows. Even after
the COVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of its global economic impact,
including any recession, economic downturn, or increased unemployment that has occurred or may occur in the future. There may be increased scrutiny of business
(including technology) spending by our customers and prospective customers, particularly in industries most impacted by the COVID-19 pandemic, longer sales
cycles, as well as reduced demand for our solutions, customers failing to pay us under the terms of our agreements, increased cyber threats, lower renewal rates by
our customers and increased competition, all of which could result in a material adverse impact on our business operations and financial condition.
While we have developed and continue to develop plans intended to help mitigate the negative impact of the pandemic on our business, these efforts may
not be effective and a protracted economic downturn may limit the effectiveness of our mitigation efforts.
Our business and operations have experienced rapid growth, and if we do not appropriately manage future growth, if any, or are unable to improve our
systems and processes, our business, financial condition, results of operations, and prospects will be adversely affected.
We have experienced rapid growth and increased demand for our offerings. Our employee headcount and number of customers have increased
significantly. For example, our total number of customers has grown from over 2,800 as of April 30, 2017 to over 11,300 as of April 30, 2020. As a result of the
COVID-19 pandemic, the number of customers may fluctuate. Further, in light of the ongoing uncertainty related to the COVID-19 pandemic, we have taken steps
to moderate the pace of hiring. The growth and expansion of our business and offerings places a continuous and significant strain on our management, operational,
and financial resources. In addition, as customers adopt our technology for an increasing number of use cases, we have had to support more complex commercial
relationships. We must continue to improve and expand our information technology and financial infrastructure, our operating and administrative systems, our
relationships with various partners and other third parties, and our ability to manage headcount and processes in an efficient manner to manage our growth to date
and any future growth effectively.
We may not be able to sustain the diversity and pace of improvements to our offerings successfully or implement systems, processes, and controls in an
efficient or timely manner or in a manner that does not negatively affect our results of operations. Our failure to improve our systems, processes, and controls, or
their failure to operate in the intended manner, may result in our inability to manage the growth of our business and to forecast our revenue, expenses, and earnings
accurately, or to prevent losses.
As we expand our business and operate as a public company, we may find it difficult to maintain our corporate culture while managing our employee
growth. Any failure to manage our anticipated growth and related organizational changes in a manner that preserves our culture could negatively impact future
growth and achievement of our business objectives. Additionally, our productivity and the quality of our offerings may be adversely affected if we do not integrate
and train our new employees quickly and effectively. Failure to manage any future growth effectively could result in increased costs, negatively affect our
customers’ satisfaction with our offerings, and harm our results of operations.
We have a history of losses and may not be able to achieve profitability or positive cash flows on a consistent basis or at all. If we cannot achieve profitability
or positive cash flows, our business, financial condition, and results of operations may suffer.
We have incurred losses in all years since our incorporation. We incurred a net loss of $167.2 million, $102.3 million and $52.7 million in the years ended
April 30, 2020, 2019 and 2018, respectively. As a result, we had an accumulated deficit of $484.3 million as of April 30, 2020. We anticipate that our operating
expenses will increase substantially in the foreseeable future as we continue to enhance our offerings, broaden our customer base and pursue larger transactions,
expand our sales and marketing activities, expand our operations, hire additional employees, and continue to develop our technology. These efforts may prove
more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently, or at all, to offset these higher expenses. We have,
however, experienced in the quarter ended April 30, 2020 and may continue to experience net decreases in certain operating expenses as a result of the COVID-19
pandemic due to a decrease in travel and
16
related expenses. Revenue growth may slow or revenue may decline for a number of possible reasons, including slowing demand for our offerings, increasing
competition, or economic downturns, including as a result of the COVID-19 pandemic. You should not consider our revenue growth in recent periods as indicative
of our future performance. Any failure to increase our revenue as we grow our business could prevent us from achieving profitability or positive cash flow at all or
on a consistent basis, which would cause our business, financial condition, and results of operations to suffer.
We may not be able to compete successfully against current and future competitors.
The market for our products is highly competitive, quickly evolving, and subject to rapid changes in technology. We believe that our ability to compete
depends upon many factors both within and beyond our control, including the following:
•
•
•
•
•
•
•
•
product capabilities, including speed, scale, and relevance, with which to power search experiences;
an extensible product “stack” that enables developers to build a wide variety of solutions;
powerful and flexible technology that can manage a broad variety and large volume of data;
ease of deployment and ease of use;
ability to address a variety of evolving customer needs and use cases;
strength and execution of sales and marketing strategies;
flexible deployment model across public or private clouds, hybrid environments, or traditional on-premises environments;
productized solutions engineered to be rapidly adopted to address specific applications;
• mindshare with developers and IT executives;
•
•
•
•
•
•
adoption of products by many types of users (developers, architects, DevOps personnel, IT professionals, security analysts, and departmental and
organizational leaders);
enterprise-grade technology that is secure and reliable;
size of customer base and level of user adoption;
quality of training, consulting, and customer support;
brand awareness and reputation; and
low total cost of ownership.
We face competition from both established and emerging competitors. Our current primary competitors generally fall into the following categories:
For Enterprise Search (app search, site search, and workplace search): incumbent offerings such as Solr (open source offering), Lucidworks Fusion,
search tools including Google Custom Search Engine (an advertisement-based site search tool with limited user controls), and workplace search tools including
Coveo, Endeca (acquired by Oracle) and Autonomy (acquired by HP and now offered by Micro Focus).
For Observability (logging, metrics, APM, and uptime monitoring): software vendors with specific observability solutions to analyze logging data,
metrics, APM data, or infrastructure uptime, such as Splunk, New Relic, Dynatrace, AppDynamics (owned by Cisco Systems) and Datadog.
For Security (SIEM and endpoint security): security analytics solutions vendors such as Splunk and ArcSight SIEM (offered by Micro Focus) and
endpoint security vendors such as CrowdStrike, Carbon Black (acquired by VMware), McAfee and Symantec (acquired by Broadcom).
Certain cloud hosting providers, including Amazon Web Services, that offer SaaS products based on Elastic’s open source components. These offerings
are not supported by Elastic and come without any of Elastic’s proprietary features, whether free or paid.
Some of our current and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources,
stronger brand recognition, broader global distribution and presence, more established relationships with current or potential customers and partners, and larger
customer bases than we do. These factors may allow our competitors to respond more quickly than we can to new or emerging technologies and changes in
customer preferences. These competitors may engage in more extensive research and development efforts, undertake more far-reaching and successful sales and
marketing campaigns, have more experienced sales professionals, and adopt more aggressive pricing policies which may allow them to build larger customer bases
than we have. New start-up companies that innovate and large competitors that
17
are making significant investments in research and development may develop similar offerings that compete with our offerings or that achieve greater market
acceptance than our offerings. This could attract customers away from our offerings and reduce our market share. If we are unable to anticipate or react to these
competitive challenges, our competitive position would weaken, which would adversely affect our business and results of operations.
Our limited operating history makes it difficult to evaluate our current business and prospects and may increase the risks associated with your investment.
We were founded in 2012. Our limited operating history makes it difficult to evaluate our current business and our future prospects, including our ability
to plan for and model future growth. We have encountered and will continue to encounter risks and difficulties frequently experienced by rapidly growing
companies in constantly evolving industries, including the risks described in this Annual Report on Form 10-K. If we do not address these risks successfully, our
business and results of operations will be adversely affected, and the market price of our ordinary shares could decline.
Further, we have limited historical financial data and we operate in a rapidly evolving market. As such, any predictions about our future revenue and
expenses may not be as accurate as they would be if we had a longer operating history or operated in a more predictable market.
If we are not able to keep pace with technological and competitive developments, our business will be harmed.
The market for search technologies, including enterprise search, observability and security, is subject to rapid technological change, evolving industry
standards, and changing regulations, as well as changing customer needs, requirements and preferences. Our success depends upon our ability to enhance existing
products, expand the use cases of our products, anticipate and respond to changing customer needs, requirements and preferences, and develop and introduce in a
timely manner new offerings that keep pace with technological and competitive developments. We have in the past experienced delays in releasing new products,
deployment options and product enhancements and may experience similar delays in the future. As a result, in the past, some of our customers deferred purchasing
our products until the next upgrade was released. Future delays or problems in the installation or implementation of our new releases may cause customers to forgo
purchases of our products and purchase those of our competitors instead.
Additionally, the success of new product introductions depends on a number of factors including, but not limited to, timely and successful product
development, market acceptance, our ability to manage the risks associated with new product releases, the availability of software components for new products,
the effective management of development and other spending in connection with anticipated demand for new products, the availability of newly developed
products, and the risk that new products may have bugs, errors, or other defects or deficiencies in the early stages of introduction. We have in the past experienced
bugs, errors, or other defects or deficiencies in new products and product updates and may have similar experiences in the future. Furthermore, our ability to
increase the usage of our products depends, in part, on the development of new use cases for our products, which is typically driven by our developer community
and may be outside of our control. We also have invested, and may continue to invest, in the acquisition of complementary businesses, technologies, services,
products and other assets that expand the products that we can offer our customers, such as our acquisition of Endgame in 2019. We may make these investments
without being certain that they will result in products or enhancements that will be accepted by existing or prospective customers. Additionally, even if we are able
to develop new products and product enhancements, we cannot ensure that they will achieve market acceptance. If we are unable to successfully enhance our
existing products to meet evolving customer requirements, increase adoption and usage of our products, develop new products, or if our efforts to increase the
usage of our products are more expensive than we expect, then our business, results of operations and financial condition would be adversely affected.
The markets for some of our products are new, unproven and evolving, and our future success depends on the growth and expansion of these markets and our
ability to adapt and respond effectively to evolving markets.
The markets for certain of our products, such as our Enterprise Search, Observability and Security solutions, are relatively new, rapidly evolving or
unproven. Accordingly, it is difficult to predict customer adoption and renewals for these products, customers’ demand for these products, the size, growth rate,
expansion, and longevity of these markets, the entry of competitive products, or the success of existing competitive products. Our ability to penetrate these new and
evolving markets depends on a number of factors, including the cost, performance, and perceived value associated with our products. If these markets do not
continue to grow as expected, or if we are unable to anticipate or react to changes in these markets, our competitive position would weaken, which would adversely
affect our business and results of operations.
18
Our operating results are likely to fluctuate from quarter to quarter, which could adversely affect the trading price of our ordinary shares.
Our results of operations, including our revenue, cost of revenue, gross margin, operating expenses, cash flow and deferred revenue, have fluctuated from
quarter-to-quarter in the past and may continue to vary significantly in the future so that period-to-period comparisons of our results of operations may not be
meaningful. Accordingly, our financial results in any one quarter should not be relied upon as indicative of future performance. Our quarterly financial results may
fluctuate as a result of a variety of factors, many of which are outside of our control, may be difficult to predict, and may or may not fully reflect the underlying
performance of our business. Factors that may cause fluctuations in our quarterly financial results include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to attract new and retain existing customers;
the loss of existing customers;
customer renewal rates;
our ability to successfully expand our business in the U.S. and internationally;
our ability to foster an ecosystem of developers and users to expand the use cases of our products;
our ability to gain new partners and retain existing partners;
fluctuations in the growth rate of the overall market that our products address;
fluctuations in the mix of our revenue, which may impact our gross margins and operating income;
the amount and timing of operating expenses related to the maintenance and expansion of our business and operations, including investments in sales
and marketing, research and development and general and administrative resources;
network outages or performance degradation of Elastic Cloud;
actual or perceived breaches of, or failures relating to, privacy, data protection or information security;
additions or departures of key personnel;
the impact of catastrophic events, man-made problems such as terrorism, natural disasters and public health epidemics and pandemics;
general economic, industry and market conditions;
increases or decreases in the number of elements of our subscriptions or pricing changes upon any renewals of customer agreements;
changes in our pricing policies or those of our competitors;
the budgeting cycles and purchasing practices of customers;
decisions by potential customers to purchase alternative solutions;
decisions by potential customers to develop in-house solutions as alternatives to our products;
insolvency or credit difficulties confronting our customers, which could adversely affect their ability to purchase or pay for our offerings;
our ability to collect timely on invoices or receivables;
delays in our ability to fulfill our customers’ orders;
the cost and potential outcomes of future litigation or other disputes;
future accounting pronouncements or changes in our accounting policies;
our overall effective tax rate, including impacts caused by any reorganization in our corporate tax structure and any new legislation or regulatory
developments;
fluctuations in stock-based compensation expense;
fluctuations in foreign currency exchange rates;
the timing and success of new offerings introduced by us or our competitors or any other change in the competitive dynamics of our industry,
including consolidation among competitors, customers or partners;
19
•
•
the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of
goodwill from acquired companies; and
other risk factors described in this Annual Report on Form 10-K.
The impact of one or more of the foregoing or other factors may cause our operating results to vary significantly. For example, the full impact of the
COVID-19 pandemic is unknown and continues to evolve rapidly, and could result in material adverse changes in our results of operations for an unknown period
of time as the virus and its related political, social and economic impacts spread. Such fluctuations could cause us to fail to meet the expectations of investors or
securities analysts, which could cause the trading price of our ordinary shares to fall substantially, and we could face costly lawsuits, including securities class
action suits.
If we are unable to increase sales of our subscriptions to new customers, sell additional subscriptions to our existing customers, or expand the value of our
existing customers’ subscriptions, our future revenue and results of operations will be harmed.
We offer certain features of our products as open source software with no payment required, and also offer some of our proprietary features with no
payment required. Customers purchase subscriptions in order to gain access to additional functionality and support. Our future success depends on our ability to
sell our subscriptions to new customers, including to large enterprises, and to expand the deployment of our offerings with existing customers by selling paid
subscriptions to our existing users and expanding the value and number of existing customers’ subscriptions. Our ability to sell new subscriptions depends on a
number of factors, including the prices of our offerings, the prices of products offered by our competitors, and the budgets of our customers. We also face difficulty
in displacing the products of incumbent competitors. In addition, a significant aspect of our sales and marketing focus is to expand deployments within existing
customers. The rate at which our customers purchase additional subscriptions and expand the value of existing subscriptions depends on a number of factors,
including customers’ level of satisfaction with our offerings, the nature and size of the deployments, the desire to address additional use cases, and the perceived
need for additional features, as well as general economic conditions. We rely in large part on our customers to identify new use cases for our products in order to
expand such deployments and grow our business. If our customers do not recognize the potential of our offerings, our business would be materially and adversely
affected. If our efforts to sell subscriptions to new customers and to expand deployments at existing customers are not successful, our total revenue and revenue
growth rate may decline and our business will suffer.
If our existing customers do not renew their subscriptions, it could have an adverse effect on our business and results of operations.
We expect to derive a significant portion of our revenue from renewals of existing subscriptions. Our customers have no contractual obligation to renew
their subscriptions after the completion of their subscription term. Our subscriptions for self-managed deployments typically range from one to three years, while
many of our Elastic Cloud customers purchase subscriptions either on a month-to-month basis or on a committed contract of at least one year in duration.
Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their satisfaction with our products and our customer
support, our products’ ability to integrate with new and changing technologies, the frequency and severity of product outages, our product uptime or latency, and
the pricing of our, or competing, products. If our customers renew their subscriptions, they may renew for shorter subscription terms or on other terms that are less
economically beneficial to us. We may not accurately predict future renewal trends. If our customers do not renew their subscriptions, or renew on less favorable
terms, our revenue may grow more slowly than expected or decline and our Net Expansion Rate may decline.
Because of the rights accorded to third parties under open source software licenses, there are limited technological barriers to entry into the markets in which
we compete and it may be relatively easy for competitors, some of whom may have greater resources than we have, to enter our markets and compete with us.
Anyone may obtain access to the source code for our open source features and then redistribute it (either in a modified or unmodified form) and use it to
compete in our markets. Additionally, we make the source code of our proprietary features for the Elastic Stack publicly available, which may enable others to
compete more effectively. Such competition can develop without the degree of overhead and lead time required by traditional proprietary software companies, due
to the permissions allowed under open source licensing. It is possible for competitors to develop their own software, including software based on our products,
potentially reducing the demand for our products and putting pricing pressure on our subscriptions. For example, Amazon offers some of our open source features
as part of its Amazon Web Services offering. As such, Amazon competes with us for potential customers, and while Amazon cannot provide our proprietary
software, Amazon’s offerings may reduce the demand for our offerings and the pricing of Amazon’s offerings may limit our ability to adjust the price of our
products. We cannot guarantee that we will be able to compete successfully against current and future competitors or that competitive
20
pressure or the availability of new open source software will not result in price reductions, reduced operating margins and loss of market share, any one of which
could harm our business, financial condition, results of operations and cash flows.
If we do not effectively develop and expand our sales and marketing capabilities, including expanding and training our sales force, we may be unable to add
new customers, increase sales to existing customers or expand the value of our existing customers’ subscriptions and our business will be adversely affected.
We dedicate significant resources to sales and marketing initiatives, which require us to invest significant financial and other resources, including in
markets in which we have limited or no experience. Our business and results of operations will be harmed if our sales and marketing efforts do not generate
significant revenue increases or increases that are smaller than anticipated.
We may not achieve revenue growth from expanding our sales force if we are unable to hire, train, and retain talented and effective sales personnel. We
depend on our sales force to obtain new customers and to drive additional sales to existing customers. We believe that there is significant competition for sales
personnel, including sales representatives, sales managers, and sales engineers, with the requisite skills and technical knowledge. Our ability to achieve significant
revenue growth will depend, in large part, on our success in recruiting, training and retaining sufficient sales personnel to support our growth, and as we introduce
new products, solutions and marketing strategies, we may need to re-train existing sales personnel. New hires require significant training and may take significant
time before they achieve full productivity. Our recent hires and planned hires may not become productive as quickly as we expect, and we may be unable to hire or
retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. In addition, particularly as we continue to grow
rapidly, a large percentage of our sales force will have relatively little experience working with us, our subscriptions, and our business model. If our new and
existing sales personnel are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs are not effective,
our growth and results of operations could be negatively impacted. Moreover, Endgame’s former sales force is small and the rest of our sales force has no
experience selling Endgame’s endpoint security products. If we are unable to hire and train sufficient numbers of effective sales personnel, our sales personnel do
not reach significant levels of productivity in a timely manner, or our sales personnel are not successful in obtaining new customers or increasing sales to our
existing customer base, our business will be harmed.
Our ability to increase sales of our offerings is highly dependent on the quality of our customer support, and our failure to offer high quality support would
have an adverse effect on our business, reputation and results of operations.
After our products are deployed within our customers’ IT environments, our customers depend on our technical support services to resolve issues relating
to our products. If we do not succeed in helping our customers quickly resolve post-deployment issues or provide effective ongoing support and education on our
products, our ability to sell additional subscriptions to existing customers or expand the value of existing customers’ subscriptions would be adversely affected and
our reputation with potential customers could be damaged. Many larger enterprise and government entity customers have more complex IT environments and
require higher levels of support than smaller customers. If we fail to meet the requirements of these enterprise customers, it may be more difficult to grow sales
with them.
Additionally, it can take several months to recruit, hire, and train qualified technical support employees. We may not be able to hire such resources fast
enough to keep up with demand, particularly if the sales of our offerings exceed our internal forecasts. Further, due to the ongoing uncertainty related to the
COVID-19 pandemic, we have taken steps to moderate the pace of hiring, and there may also be delays in hiring, onboarding and training new employees. To the
extent that we are unsuccessful in hiring, training, and retaining adequate support resources, our ability to provide adequate and timely support to our customers,
and our customers’ satisfaction with our offerings, will be adversely affected. Our failure to provide and maintain, or a market perception that we do not provide or
maintain, high-quality support services would have an adverse effect on our business, financial condition, and results of operations.
We rely significantly on revenue from subscriptions and, because we recognize a significant portion of the revenue from subscriptions over the term of the
relevant subscription period, downturns or upturns in sales are not immediately reflected in full in our results of operations.
Subscription revenue accounts for the substantial majority of our revenue, comprising 92%, 91% and 93% of total revenue in the years ended April 30,
2020, 2019 and 2018, respectively. We recognize a significant portion of our subscription revenue monthly over the term of the relevant time period. As a result,
much of the subscription revenue we report each fiscal quarter is the recognition of deferred revenue from subscription contracts entered into during previous fiscal
quarters. Consequently, a decline in new or renewed subscriptions in any one fiscal quarter will not be fully or immediately reflected in revenue in that fiscal
quarter and will negatively affect our revenue in future fiscal quarters. Accordingly, the effect of significant downturns in new or renewed sales of our
subscriptions is not reflected in full in our results of operations until future periods.
21
A real or perceived defect, security vulnerability, error, or performance failure in our software could cause us to lose revenue, damage our reputation, and
expose us to liability.
Our products are inherently complex and, despite extensive testing and quality control, have in the past and may in the future contain defects or errors,
especially when first introduced, or otherwise not perform as contemplated. These defects, security vulnerabilities, errors or performance failures could cause
damage to our reputation, loss of customers or revenue, product returns, order cancellations, service terminations, or lack of market acceptance of our software. As
the use of our products, including products that were recently acquired or developed, expands to more sensitive, secure, or mission critical uses by our customers,
we may be subject to increased scrutiny, potential reputational risk, or potential liability should our software fail to perform as contemplated in such deployments.
We have in the past and may in the future need to issue corrective releases of our software to fix these defects, errors or performance failures, which could require
us to allocate significant research and development and customer support resources to address these problems.
Any limitation of liability provisions that may be contained in our customer and partner agreements may not be effective as a result of existing or future
applicable law or unfavorable judicial decisions. The sale and support of our products entail the risk of liability claims, which could be substantial in light of the
use of our products in enterprise-wide environments. In addition, our insurance against this liability may not be adequate to cover a potential claim.
Incorrect implementation or use of, or our customers’ failure to update, our software could result in customer dissatisfaction and negatively affect our
business, operations, financial results, and growth prospects.
Our products are often operated in large scale, complex IT environments. Our customers and some partners require training and experience in the proper
use of and the benefits that can be derived from our products to maximize their potential. If our products are not implemented, configured, updated or used
correctly or as intended, or in a timely manner, inadequate performance, errors, loss of data, corruptions and/or security vulnerabilities may result. For example,
there have been and may in the future continue to be, reports of our customers not properly securing implementations of our products, which can result in
unprotected data. Because our customers rely on our software to manage a wide range of operations, the incorrect implementation, use of, or our customers’ failure
to update, our software or our failure to train customers on how to use our software productively may result in customer dissatisfaction, negative publicity and may
adversely affect our reputation and brand. Failure by us to effectively provide training and implementation services to our customers could result in lost
opportunities for follow-on sales to these customers and decrease subscriptions by new customers, and adversely affect our business and growth prospects.
If third parties offer inadequate or defective implementations of our open source software, our reputation could be harmed.
Certain cloud hosting providers, including Amazon Web Services, provide SaaS offerings based on open source components of the Elastic Stack, using
the names of those open source components in marketing such offerings. These offerings are not supported by us and come without any of our proprietary features.
We do not control how these third parties may use or offer our open source technology. These third parties could inadequately or incorrectly implement our open
source technology, or fail to update such technology in light of changing technological or security requirements, which could result in real or perceived defects,
security vulnerabilities, errors, or performance failures with respect to their open source offerings. Users, customers, and potential customers could confuse these
third party products with our own products, and attribute such defects, security vulnerabilities, errors, or performance failures to our products. Any damage to our
reputation and brand from defective implementations of our open source software could result in lost sales and lack of market acceptance of our products and could
adversely affect our business and growth prospects.
We rely on traditional web search engines to direct traffic to our website. If our website fails to rank prominently in unpaid search results, traffic to our website
could decline and our business would be adversely affected.
Our success depends in part on our ability to attract users through unpaid Internet search results on traditional web search engines, such as Google. The
number of users we attract to our website from search engines is due in large part to how and where our website ranks in unpaid search results. These rankings can
be affected by a number of factors, many of which are not in our direct control, and they may change frequently. For example, a search engine may change its
ranking algorithms, methodologies or design layouts. As a result, links to our website may not be prominent enough to drive traffic to our website, and we may not
know how or otherwise be in a position to influence the results. Any reduction in the number of users directed to our website could reduce our revenue or require
us to increase our customer acquisition expenditures.
22
If our security measures are breached or unauthorized access to private or proprietary data is otherwise obtained, our software may be perceived as not being
secure, customers may reduce the use of or stop using our products, and we may incur significant liabilities.
Any security breach, including those resulting from a cybersecurity attack, phishing attack, or any unauthorized access, unauthorized usage, virus or
similar breach or disruption could result in the loss of confidential information, damage to our reputation, litigation, regulatory investigations or other liabilities.
These attacks may come from individual hackers, criminal groups, and state-sponsored organizations. As a provider of security solutions, we may be specifically
targeted by bad actors for attacks intended to circumvent our security capabilities as an entry point into customers’ endpoints, networks, or systems. If our security
measures are breached as a result of third-party action, employee error, defect or bug in our products, malfeasance or otherwise and, as a result, someone obtains
unauthorized access to our confidential information or personal information or the confidential information or personal information of our customers, our
reputation may be damaged, our business may suffer and we could incur significant liability. Even the perception of inadequate security may damage our
reputation and negatively impact our ability to win new customers and retain existing customers. Further, we could be required to expend significant capital and
other resources to address any data security incident or breach.
In addition, many of our customers may use our software for processing their sensitive and proprietary information, including business strategies,
financial and operational data, personal or identifying information and other related data. As a result, unauthorized access or use of this data could result in the loss,
compromise, corruption or destruction of our customers’ sensitive and proprietary information and lead to litigation, regulatory investigations and claims,
indemnity obligations, and other liabilities. It could also hinder our ability to obtain and maintain information security certifications that support customers’
adoption of our products and our retention of those customers. We have implemented administrative, technical and physical measures designed to protect the
integrity of customer information and prevent data loss, misappropriation and other security breaches and incidents and may incur significant costs in connection
with the implementation of additional preventative measures in the future.
We engage third-party vendors and service providers to store and otherwise process some of our and our customers’ data, including sensitive and personal
information. Our vendors and service providers may also be the targets of cyberattacks, malicious software, phishing schemes, and fraud. Our ability to monitor
our vendors and service providers’ data security is limited, and, in any event, third parties may be able to circumvent those security measures, resulting in the
unauthorized access to, misuse, disclosure, loss or destruction of our and our customers’ data, including sensitive and personal information.
Techniques used to sabotage or obtain unauthorized access to systems or networks are constantly evolving and, in some instances, are not identified until
launched against a target. We and our service providers may be unable to anticipate these techniques, react in a timely manner, or implement adequate preventative
measures.
Further, we cannot assure that any limitations of liability provisions in our customer and user agreements, contracts with third-party vendors and service
providers or other contracts would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim
relating to a security breach or other security-related matter. We also cannot be sure that our existing insurance coverage will continue to be available on acceptable
terms or will be available in sufficient amounts to cover claims related to a security incident or breach, or that the insurer will not deny coverage as to any future
claim. The successful assertion of claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including
premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial
condition, operating results, and reputation.
Interruptions or performance problems associated with our technology and infrastructure, and our reliance on technologies from third parties, may adversely
affect our business operations and financial results.
We rely on third-party cloud platforms to host our cloud offerings. If we experience an interruption in service for any reason, our cloud offerings would
similarly be interrupted. An interruption in our services to our customers could cause our customers’ internal and consumer-facing applications to not function
properly, which could have a material adverse effect on our business, results of operations, customer relationships and reputation.
In addition, our website and internal technology infrastructure may experience performance issues due to a variety of factors, including infrastructure
changes, human or software errors, website or third-party hosting disruptions, capacity constraints, technical failures, natural disasters or fraud or security attacks.
Our use and distribution of open source software may increase this risk. If our website is unavailable or our users are unable to download our products or order
subscriptions or services within a reasonable amount of time or at all, our business could be harmed. We expect to continue to make significant investments to
maintain and improve website performance and to enable rapid releases of new features and applications for our products. To the extent that we do not effectively
upgrade our systems as needed and continually develop our technology to accommodate actual and anticipated changes in technology, our business and results of
operations may be harmed.
23
We rely on third-party service providers for many aspects of our business, and any failure to maintain these relationships could harm our business.
Our success depends upon our relationships with third-party service providers, including providers of cloud hosting infrastructure, customer relationship
management systems, financial reporting systems, human resource management systems, credit card processing platforms, marketing automation systems, and
payroll processing systems, among others. If any of these third parties experience difficulty meeting our requirements or standards, become unavailable due to
extended outages or interruptions, temporarily or permanently cease operations, face financial distress or other business disruptions, increase their fees, if our
relationships with any of these providers deteriorate, or if any of the agreements we have entered into with such third parties are terminated or not renewed without
adequate transition arrangements, we could suffer increased costs and delays in our ability to provide customers with our products and services, our ability to
manage our finances could be interrupted, receipt of payments from customers may be delayed, our processes for managing sales of our offerings could be
impaired, our ability to generate and manage sales leads could be weakened, or our business operations could be disrupted. Any of such disruptions may adversely
impact our business and our financial condition, results of operations or cash flows could be adversely affected until we replace such providers or develop
replacement technology or operations. In addition, if we are unsuccessful in identifying high-quality service providers, negotiating cost-effective relationships with
them or effectively managing these relationships, it could adversely affect our business and financial results.
The length of our sales cycle can be unpredictable, particularly with respect to sales through our channel partners or sales to large customers, and our sales
efforts may require considerable time and expense.
Our results of operations may fluctuate, in part, because of the length and variability of the sales cycle of our subscriptions and the difficulty in making
short-term adjustments to our operating expenses. Our results of operations depend in part on sales to new customers, including large customers, and increasing
sales to existing customers. The length of our sales cycle, from initial contact with our sales team to contractually committing to our subscriptions can vary
substantially from customer to customer based on deal complexity as well as whether a sale is made directly by us or through a channel partner. Our sales cycle can
extend to more than a year for some customers, and the length of sales cycles may be further impacted due to the COVID-19 pandemic. We generally expect that
some customers will scrutinize their spending more carefully given a challenging economic environment, and this might cause sales cycles to become longer. As
we target more of our sales efforts at larger enterprise customers, we may face greater costs, longer sales cycles, greater competition and less predictability in
completing some of our sales. A customer’s decision to use our solutions may be an enterprise-wide decision, which may require greater levels of education
regarding the use cases of our products or prolonged negotiations. In addition, larger customers may demand more configuration, integration services and features.
It is difficult to predict exactly when, or even if, we will make a sale to a potential customer or if we can increase sales to our existing customers. As a result, large
individual sales have, in some cases, occurred in quarters subsequent to those we anticipated, or have not occurred at all. The loss or delay of one or more large
transactions in a quarter could affect our cash flows and results of operations for that quarter and for future quarters. Because a substantial proportion of our
expenses are relatively fixed in the short term, our cash flows and results of operations will suffer if revenue falls below our expectations in a particular quarter,
which could cause the price of our ordinary shares to decline.
We depend on our executive officers and other key employees, and the loss of one or more of these employees or an inability to attract and retain highly skilled
employees could harm our business.
Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. The loss of the services of any of our key
personnel, the inability to attract or retain qualified personnel, or delays in hiring required personnel, particularly in engineering and sales, may seriously harm our
business, financial condition, and results of operations. Further, our ability to attract additional qualified personnel may be impacted by the economic uncertainty
and insecurity caused by the COVID-19 pandemic. The loss of services of any of our key personnel also increases our dependency on other key personnel who
remain with us. Although we have entered into employment offer letters with our key personnel, their employment is for no specific duration and constitutes at-will
employment. We are also substantially dependent on the continued service of our existing engineering personnel because of the complexity of our products.
Our future performance also depends on the continued services and continuing contributions of our senior management, particularly our Chief Executive
Officer and Chairman, Shay Banon, to execute on our business plan and to identify and pursue new opportunities and product innovations. We do not maintain key
person life insurance policies on any of our employees. The loss of services of senior management could significantly delay or prevent the achievement of our
development and strategic objectives, which could adversely affect our business, financial condition, and results of operations. For example, we announced the
transition of Aaron Katz from Chief Revenue Officer to an advisory role in which he is expected to serve through August 1, 2020. We have commenced a search
for his replacement, but this search may be prolonged, and we may not be able to attract a qualified replacement timely or at all, particularly as potential candidates
may be wary to transition during the unstable economic conditions caused by the COVID-19 pandemic. If we are unable to mitigate these or
24
other similar risks as we experience management turnover, our business, results of operation and financial condition may be adversely affected.
Additionally, the industry in which we operate is generally characterized by significant competition for skilled personnel as well as high employee
attrition. We may not be successful in attracting, integrating, or retaining qualified personnel to fulfill our current or future needs. We may need to invest
significant amounts of cash and equity to attract and retain new employees, and we may never realize returns on these investments. Also, to the extent we hire
personnel from competitors, we may be subject to allegations that they have been improperly solicited, that they have divulged proprietary or other confidential
information, or that their former employers own their inventions or other work product.
If we are not able to maintain and enhance our brand, especially among developers, our business and operating results may be adversely affected.
We believe that developing and maintaining widespread awareness of our brand, especially with developers, is critical to achieving widespread
acceptance of our software and attracting new users and customers. Brand promotion activities may not generate user or customer awareness or increase revenue,
and even if they do, any increase in revenue may not offset the expenses we incur in building our brand. For instance, our continued focus and investment in
Elastic{ON} and similar investments in our brand, user engagement, and customer engagement may not generate a sufficient financial return. If we fail to
successfully promote and maintain our brand, we may fail to attract or retain users and customers necessary to realize a sufficient return on our brand-building
efforts, or to achieve the widespread brand awareness that is critical for broad customer adoption of our products.
Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and
entrepreneurial spirit we have worked to foster, which could harm our business.
We believe that our culture has been and will continue to be a key contributor to our success. We expect to continue to hire as we expand. If we do not
continue to maintain our corporate culture as we grow, we may be unable to foster the innovation, creativity, and entrepreneurial spirit we believe we need to
support our growth. Moreover, many of our existing employees may be able to receive significant proceeds from sales of our ordinary shares in the public markets,
which could lead to employee attrition and disparities of wealth among our employees that adversely affects relations among employees and our culture in general.
Additional headcount growth may result in a change to our corporate culture, which could harm our business.
We rely on channel partners to execute a portion of our sales; if our channel partners fail to perform or we are unable to maintain successful relationships
with our channel partners, our ability to market, sell and distribute our solution will be more limited, and our results of operations could be harmed.
A portion of our revenue is generated by sales through our channel partners, especially to U.S. federal government customers and in certain international
markets, and these sales may grow and represent a larger portion of our revenues in the future. We provide certain of our channel partners with specific training
and programs to assist them in selling our offerings, but there can be no assurance that these steps will be effective. In addition, our channel partners may be
unsuccessful in marketing and selling our offerings. If we are unable to develop and maintain effective sales incentive programs for our channel partners, we may
not be able to incentivize these partners to sell our offerings to customers.
Some of these partners may also market, sell, and support offerings that compete with ours, may devote more resources to the marketing, sales, and
support of such competitive offerings, may have incentives to promote our competitors’ offerings to the detriment of our own or may cease selling our offerings
altogether. Our agreements with our channel partners typically have a duration of one to three years, and generally may be terminated for any reason by either party
with advance notice prior to each renewal date. We cannot assure you that we will retain these channel partners or that we will be able to secure additional or
replacement channel partners. The loss of one or more of our significant channel partners or a decline in the number or size of orders from any of them could harm
our results of operations. In addition, many of our new channel partners require extensive training and may take several months or more to achieve productivity.
Our channel partner sales structure could subject us to lawsuits, potential liability, and reputational harm if, for example, any of our channel partners misrepresents
the functionality of our offerings to customers or violates laws or our or their corporate policies. If our channel partners are unsuccessful in fulfilling the orders for
our offerings, or if we are unable to enter into arrangements with and retain high quality channel partners, our ability to sell our offerings and results of operations
could be harmed.
If we are unable to maintain successful relationships with our partners, our business operations, financial results and growth prospects could be adversely
affected.
We maintain partnership relationships with a variety of partners, including cloud providers, systems integrators, channel partners, referral partners, OEM
and MSP partners, and technology partners, to jointly deliver offerings to our end customers and complement our broad community of users. In particular, we work
with systems integrators and referral partners to market and sell our subscriptions.
25
Our agreements with our partners are generally non-exclusive, meaning our partners may offer customers the offerings of several different companies,
including offerings that compete with ours, or may themselves be or become competitors. If our partners do not effectively market and sell our offerings, choose to
use greater efforts to market and sell their own offerings or those of our competitors, fail to meet the needs of our customers, or fail to deliver professional services
to our customers particularly in light of the effects of the COVID-19 pandemic, our ability to grow our business and sell our offerings may be harmed. Our partners
may cease marketing our offerings with limited or no notice and with little or no penalty. The loss of a substantial number of our partners, our possible inability to
replace them, or the failure to recruit additional partners could harm our results of operations.
Our ability to achieve revenue growth in the future will depend in part on our success in maintaining successful relationships with our partners and in
helping our partners enhance their ability to market and sell our subscriptions. If we are unable to maintain our relationships with these partners, our business,
results of operations, financial condition or cash flows could be harmed.
The sales prices of our offerings may decrease, which may reduce our gross profits and adversely affect our financial results.
The sales prices for our offerings may decline or we may introduce new pricing models for a variety of reasons, including competitive pricing pressures,
discounts, in anticipation of or in conjunction with the introduction of new offerings, or promotional programs. For example, during the year ended April 30, 2019,
we reduced prices for some of our Elastic Cloud offerings in conjunction with launching new offerings. Competition continues to increase in the market segments
in which we participate, and we expect competition to further increase in the future, thereby leading to increased pricing pressures. Larger competitors with more
diverse offerings may reduce the price of offerings that compete with ours or may bundle them with other offerings. Additionally, currency fluctuations in certain
countries and regions may negatively impact actual prices that customers and channel partners are willing to pay in those countries and regions. Any decrease in
the sales prices for our offerings, without a corresponding decrease in costs or increase in volume, would adversely impact our gross profit. Gross profit could also
be adversely impacted by a shift in the mix of our subscriptions from self-managed to our cloud offering, which has a lower gross margin, as well as any increase
in our mix of professional services relative to subscriptions. We cannot assure you that we will be able to maintain our prices and gross profits at levels that will
allow us to achieve and maintain profitability.
We expect our revenue mix to vary over time, which could harm our gross margin and operating results.
We expect our revenue mix to vary over time due to a number of factors, including the mix of our subscriptions for self-managed and our cloud offerings
and our professional services revenue. Due to the differing revenue recognition policies applicable to our subscriptions and professional services, shifts in our
business mix from quarter to quarter could produce substantial variation in revenue recognized. Further, our gross margins and operating results could be harmed
by changes in revenue mix and costs, together with numerous other factors, including entry into new markets or growth in lower margin markets; entry into
markets with different pricing and cost structures; pricing discounts; and increased price competition. Any one of these factors or the cumulative effects of certain
of these factors may result in significant fluctuations in our gross margin and operating results. This variability and unpredictability could result in our failure to
meet internal expectations or those of securities analysts or investors for a particular period. If we fail to meet or exceed such expectations for these or any other
reasons, the market price of our ordinary shares could decline.
Our ability to grow our business will depend, in part, on the expansion and adoption of our SaaS Offerings.
We believe our future success will depend, in part, on the growth in the adoption of Elastic Cloud, our family of SaaS products. We have and will
continue to incur substantial costs to develop, sell and support our Elastic Cloud offerings. We believe that we must offer a family of SaaS products to address the
market segment that prefers a cloud-based solution to a self-managed solution and that there will be increasing demand for cloud-based offerings of our products.
In the years ended April 30, 2020, 2019 and 2018, Elastic Cloud contributed 22%, 17% and 16% of our total revenue, respectively. However, as the use of cloud-
based computing solutions is rapidly evolving, it is difficult to predict the potential growth, if any, of general market adoption, customer adoption and retention
rates of our cloud-based offerings. There could be decreased demand for our cloud-based offerings due to reasons within or outside of our control, including,
among other things, lack of customer acceptance, technological challenges with bringing cloud offerings to market and maintaining those offerings, security or
privacy concerns, our inability to properly manage and support our cloud-based offerings, competing technologies and products, weakening economic conditions,
and decreases in corporate spending. For example, Amazon Web Services provides SaaS offerings based on open source components of the Elastic Stack. As such,
Amazon competes with us for potential customers, and while Amazon cannot provide our proprietary software, Amazon's offerings may reduce the demand for our
offerings and the pricing of Amazon's offerings may limit our ability to adjust the price of our products. If we are not able to develop, market or deliver cloud-
based offerings that satisfy customer requirements technically or commercially, or if our investments in cloud-based offerings do not yield the expected return, or if
we are unable to decrease the cost of providing our cloud-based offerings, our
26
business, competitive position, financial condition and results of operations may be harmed. You should consider our business and prospects in light of the risks
and difficulties we encounter in this new and evolving market.
Failure to protect our proprietary technology and intellectual property rights could substantially harm our business and results of operations.
Our success depends to a significant degree on our ability to protect our proprietary technology, methodologies, know-how and brand. We rely on a
combination of trademarks, copyrights, patents, contractual restrictions, and other intellectual property laws and confidentiality procedures to establish and protect
our proprietary rights. However, the steps we take to protect our intellectual property rights may be inadequate. We will not be able to protect our intellectual
property rights if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property rights. The source code of the proprietary
features for the Elastic Stack is publicly available, which may enable others to replicate our proprietary technology and compete more effectively. If we fail to
protect our intellectual property rights adequately, our competitors may gain access to our proprietary technology and our business may be harmed. In addition,
defending our intellectual property rights might entail significant expense. Any patents, trademarks, or other intellectual property rights that we have or may obtain
may be challenged by others or invalidated through administrative process or litigation. As of April 30, 2020, we had 15 issued U.S. patents, 48 pending U.S.
patent applications, and 12 pending non-U.S. filings, including 4 patent cooperation treaty patent applications. There can be no assurance that our patent
applications will result in issued patents. Even if we continue to seek patent protection in the future, we may be unable to obtain further patent protection for our
technology. In addition, any patents issued in the future may not provide us with competitive advantages, or may be successfully challenged by third parties.
Furthermore, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. Despite our precautions, it
may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create offerings that compete with ours.
Effective patent, trademark, copyright, and trade secret protection may not be available to us in every country in which our products are available. We may be
unable to prevent third parties from acquiring domain names or trademarks that are similar to, infringe upon, or diminish the value of our trademarks and other
proprietary rights. The laws of some countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for
enforcement of intellectual property rights may be inadequate. As we expand our international activities, our exposure to unauthorized copying and use of our
products and proprietary information will likely increase. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or
misappropriating our intellectual property.
We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with
other parties. No assurance can be given that these agreements will be effective in controlling access to and distribution of our proprietary information. Further,
these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products.
In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect our intellectual property
rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. For example, on September 4, 2019, we
filed suit against floragunn GmbH in the United States District Court for the Northern District of California for copyright infringement and contributory copyright
infringement, and on September 27, 2019, we filed a suit against Amazon.com, Inc. in the United States District Court for the Northern District of California for
trademark infringement and false advertising. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and
distracting to management, and could result in the impairment or loss of portions of our intellectual property. Further, our efforts to enforce our intellectual
property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability
to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and
resources, could delay further sales or the implementation of our products, impair the functionality of our products, delay introductions of new products, result in
our substituting inferior or more costly technologies into our products, or injure our reputation.
We could incur substantial costs as a result of any claim of infringement, misappropriation or violation of another party’s intellectual property rights.
In recent years, there has been significant litigation involving patents and other intellectual property rights in the software industry. Companies providing
software are increasingly bringing and becoming subject to suits alleging infringement, misappropriation or violation of proprietary rights, particularly patent
rights, and to the extent we gain greater market visibility, we face a higher risk of being the subject of intellectual property infringement, misappropriation or
violation claims. We do not currently have a large patent portfolio, which could prevent us from deterring patent infringement claims through our own patent
portfolio, and our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. The risk of patent
litigation has been amplified by the increase in the number of a type of patent holder, which we refer to as a non-practicing entity, whose sole or principal business
is to assert such claims and against whom our own intellectual property portfolio may provide little deterrent value. We could incur substantial costs in prosecuting
or
27
defending any intellectual property litigation. If we sue to enforce our rights or are sued by a third party that claims that our products infringe, misappropriate or
violate their rights, the litigation could be expensive and could divert our management resources.
Any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to do one
or more of the following:
•
cease selling or using products that incorporate the intellectual property rights that we allegedly infringe, misappropriate or violate;
• make substantial payments for legal fees, settlement payments or other costs or damages;
•
•
obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology; or
redesign the allegedly infringing products to avoid infringement, misappropriation or violation, which could be costly, time-consuming or impossible.
If we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement,
misappropriation or violation claims against us or any obligation to indemnify our customers for such claims, such payments or actions could harm our business.
Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, misappropriation, violation and
other losses.
Our agreements with customers and other third parties may include indemnification provisions under which we agree to indemnify them for losses
suffered or incurred as a result of claims of intellectual property infringement, misappropriation or violation, damages caused by us to property or persons, or other
liabilities relating to or arising from our software, services or other contractual obligations. Large indemnity payments could harm our business, results of
operations and financial condition. Although we normally contractually limit our liability with respect to such indemnity obligations, we may still incur substantial
liability related to them. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other
existing customers and new customers and harm our business and results of operations.
Our use of open source software could negatively affect our ability to sell our products and subject us to possible litigation.
Our technologies incorporate open source software, and we expect to continue to incorporate open source software in our products in the future. Few of
the licenses applicable to open source software have been interpreted by courts, and there is a risk that these licenses could be construed in a manner that could
impose unanticipated conditions or restrictions on our ability to commercialize our products. Moreover, we cannot assure you that we have not incorporated
additional open source software in our software in a manner that is inconsistent with the terms of the applicable license or our current policies and procedures. If
we fail to comply with these licenses, we may be subject to certain requirements, including requirements that we offer our solutions that incorporate the open
source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source
software and that we license such modifications or derivative works under the terms of applicable open source licenses. If an author or other third party that
distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur
significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our products that contained the
open source software and required to comply with onerous conditions or restrictions on these products, which could disrupt the distribution and sale of these
products. In addition, there have been claims challenging the ownership rights in open source software against companies that incorporate open source software
into their products, and the licensors of such open source software provide no warranties or indemnities with respect to such claims. In any of these events, we and
our customers could be required to seek licenses from third parties in order to continue offering our products, and to re-engineer our products or discontinue the
sale of our products in the event re-engineering cannot be accomplished on a timely basis. We and our customers may also be subject to suits by parties claiming
infringement, misappropriation or violation due to the reliance by our solutions on certain open source software, and such litigation could be costly for us to defend
or subject us to an injunction. Some open source projects have known vulnerabilities and architectural instabilities and as provided on an “as-is” basis which, if not
properly addressed, could negatively affect the performance of our product. Any of the foregoing could require us to devote additional research and development
resources to re-engineer our solutions, could result in customer dissatisfaction, and may adversely affect our business, results of operations and financial condition.
One of our marketing strategies is to offer open source and free trials of our products, and we may not be able to realize the benefits of this strategy.
28
We are dependent upon lead generation strategies, including offering open source and free trials of our products, to generate sales opportunities. These
strategies may not be successful in continuing to generate sufficient sales opportunities necessary to increase our revenue. Many users never convert from the open
source or free trials to the paid versions of our products. To the extent that users do not become, or we are unable to successfully attract, paying customers, we will
not realize the intended benefits of these marketing strategies and our ability to grow our revenue will be adversely affected.
Our software development and licensing model could be negatively impacted if the Apache License, Version 2.0 is not enforceable.
Important components of our software have been provided under the Apache License 2.0. This license states that any work of authorship licensed under it,
and any derivative work thereof, may be reproduced and distributed provided that certain conditions are met. It is possible that a court would hold this license to be
unenforceable or that someone could assert a claim for proprietary rights in a program developed and distributed under it. Any ruling by a court that this license is
not enforceable, or that open source components of our products may not be reproduced or distributed, may negatively impact our distribution or development of
all or a portion of our products.
In connection with the operation of our business, we may collect, store, transfer and otherwise process certain personal data. As a result, our business is
subject to a variety of government and industry regulations, as well as other obligations, related to privacy, data protection and information security.
Privacy, data protection and information security have become significant issues in various jurisdictions where we offer our products. The regulatory
frameworks for these issues worldwide are rapidly evolving and are likely to remain uncertain for the foreseeable future. Federal, state, or non-U.S. government
bodies or agencies have in the past adopted, and may in the future adopt, new laws and regulations or may make amendments to existing laws and regulations
affecting data protection, data privacy and/or information security and/or regulating the use of the Internet as a commercial medium. For example, the California
Consumer Privacy Act (the “CCPA”), which provides new data privacy rights for California residents, took effect on January 1, 2020. The CCPA provides for civil
penalties and a private right of action for violations, which may increase our compliance costs and potential liability. Other U.S. states also are considering
omnibus privacy legislation. Industry organizations also regularly adopt and advocate for new standards in these areas. Many obligations under the CCPA and
these other laws and legislative proposals remain uncertain, and we cannot fully predict their impact on our business. If we fail to comply with any of these laws or
standards, we may be subject to investigations, enforcement actions, civil litigation, fines and other penalties, all of which may generate negative publicity and
have a negative impact on our business.
Additionally, in the United States, we may be subject to investigation and/or enforcement actions brought by federal agencies and state attorneys general
and consumer protection agencies. We publicly post statements and other documentation regarding our practices concerning the processing, use and disclosure of
personally identifiable information. Although we endeavor to comply with our published statements and documentation, we may at times fail to do so or be alleged
to have failed to do so. The publication of our privacy statement and other documentation that provide promises and assurances about privacy and security can
subject us to potential state and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices.
Internationally, most jurisdictions in which we operate have established their own privacy, data protection and information security legal frameworks with
which we or our customers must comply. Within the European Union, the European General Data Protection Regulation (“GDPR”), became fully effective on May
25, 2018, and applies to the processing (which includes the collection and use) of personal data. As compared to the previously effective data protection law in the
European Union, the GDPR imposes additional obligations and risk upon our business and increases substantially the penalties to which we could be subject in the
event of any non-compliance. Administrative fines under the GDPR can amount up to 20 million Euros or four percent of the group’s annual global turnover,
whichever is higher.
We have incurred substantial expense in complying with new data protection legal frameworks and we may be required to make additional, significant
changes in our business operations, all of which may adversely affect our revenue and our business overall. Additionally, because these new regimes lack a
substantial enforcement history, we are unable to predict how emerging standards may be applied to us. Despite our efforts to attempt to comply with new data
protection obligations, a regulator may determine that we have not done so and subject us to fines and public censure, which could harm our company.
Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide
adequate protection to such personal data, including the United States. We have undertaken certain efforts to conform transfers of personal data from the European
Economic Area, (“EEA”), to the United States and other jurisdictions based on our understanding of current regulatory obligations and the guidance of data
protection authorities, including standard contractual clauses approved by the European Commission. Despite this, we may be unsuccessful in maintaining
conforming means of transferring such data from the EEA, in particular as a result of continued legal and legislative activity within the European Economic Area
that has challenged or called into question existing means of data transfers to countries that have not been found to provide adequate protection for personal data.
29
Some countries also are considering or have passed legislation requiring local storage and processing of data, or similar requirements, which could
increase the cost and complexity of delivering our services. We may also experience hesitancy, reluctance, or refusal by European or multi-national customers to
continue to use our products due to the potential risk exposure to such customers as a result of shifting business sentiment in the EEA regarding international data
transfers and the data protection obligations imposed on them. We may find it necessary to establish systems to maintain personal data originating from the EEA in
the EEA, or may need to take other, additional steps to provide for local data processing, which may involve substantial expense and may cause us to need to divert
resources from other aspects of our business, all of which may adversely affect our business. We and our customers may face a risk of enforcement actions taken
by European data protection authorities until the time, if any, that personal data transfers to us and by us from the EEA are legitimized under European law.
In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that may legally or
contractually apply to us. One example of such a self-regulatory standard is the Payment Card Industry Data Security Standard (“PCI DSS”), which relates to the
processing of payment card information. In the event we or our payment processors fail to comply with the PCI DSS, fines and other penalties could result, and we
may suffer reputational harm and damage to our business. Further, our customers increasingly expect us to comply with more stringent privacy, data protection and
information security requirements than those imposed by laws, regulations or self-regulatory requirements, and we may be obligated contractually to comply with
additional or different standards relating to our handling or protection of data on or by our offerings. Any failure to meet our customers’ requirements may
adversely affect our revenues and prospects for growth.
We also expect that there will continue to be changes in interpretations of existing laws and regulations, or new proposed laws, regulations, and other
obligations concerning privacy, data protection and information security, which could impair our or our customers’ ability to collect, use or disclose information
relating to consumers, which could decrease demand for our offerings, increase our costs and impair our ability to maintain and grow our customer base and
increase our revenue. Because the interpretation and application of many laws and regulations relating to privacy, data protection and information security, along
with industry standards, are uncertain, it is possible that these laws and regulations may be interpreted and applied in manners that are, or are alleged to be,
inconsistent with our data management practices or the features of our products, and we could face fines, lawsuits, regulatory investigations and other claims and
penalties, and we could be required to fundamentally change our products or our business practices, any of which could have an adverse effect on our business.
Any inability to adequately address privacy, data protection and information security concerns, even if unfounded, or any actual or perceived failure to comply
with applicable privacy, data protection or information security laws, regulations and other obligations, could result in additional cost and liability to us, damage
our reputation, inhibit sales and adversely affect our business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations and
policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our products. Privacy, data
protection and information security concerns, whether valid or not valid, may inhibit market adoption of our products, particularly in certain industries and
countries outside of the United States. If we are not able to adjust to changing laws, regulations and standards related to the Internet, our business may be harmed.
We may acquire other businesses which could require significant management attention, disrupt our business, dilute shareholder value. We may be unable to
integrate acquired businesses and technologies, and acquisitions could adversely affect our results of operations.
As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies. We have in the past
acquired, and expect in the future to acquire, businesses that we believe will complement or augment our existing business, such as our acquisition of Endgame in
October 2019. The identification of suitable acquisition candidates is difficult, and we may not be able to complete such acquisitions on favorable terms, if at all. If
we do complete future acquisitions, we may not ultimately strengthen our competitive position or achieve our goals and business strategy, we may be subject to
claims or liabilities assumed from an acquired company, product, or technology, and any acquisitions we complete could be viewed negatively by our customers,
investors, and securities analysts. In addition, if we are unsuccessful at integrating Endgame or future acquisitions, or the technologies associated with such
acquisitions, into our company, the revenue and results of operations of the combined company could be adversely affected. Any integration process may require
significant time and resources, which may disrupt our ongoing business and divert management’s attention, and we may not be able to manage the integration
process successfully. We may not successfully evaluate or utilize acquired technology or personnel, realize anticipated synergies from acquisitions, or accurately
forecast the financial impact of an acquisition transaction and integration of such acquisition, including accounting charges. We may have to pay cash, incur debt,
or issue equity or equity-linked securities to pay for any future acquisitions, each of which could adversely affect our financial condition or the market price of our
ordinary shares. The sale of equity or issuance of equity-linked debt to finance any future acquisitions could result in dilution to our shareholders. The incurrence
of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our
operations. Additionally, we may acquire development stage companies that are not yet profitable, and that require continued investment, which could adversely
30
affect our results of operations and liquidity. The occurrence of any of these risks could harm our business, results of operations, and financial condition.
With the acquisition of Endgame, we face risks related to the integration of combined businesses, our cash resources and financial results, undisclosed
liabilities, and employee and customer retention.
Since the closing of the acquisition of Endgame in October 2019, we are devoting significant management attention and resources to integrating the
business practices and operations of the former Endgame business with our business. Potential difficulties we may encounter as part of the integration process
include those related to the costs of integration and compliance, diversion of management’s attention, our ability to create and enforce uniform standards,
procedures, policies and information systems, potential unknown liabilities, and unforeseen increased expenses or delays.
Our due diligence review in connection with the acquisition may not have discovered undisclosed liabilities of Endgame. If there are undisclosed liabilities,
Elastic as a successor owner may be responsible for such undisclosed liabilities. Such undisclosed liabilities could have an adverse effect on the business and
results of operations and may adversely affect the value of our ordinary shares.
The acquisition may also result in significant charges or other liabilities that could adversely affect our results of operations, such as cash expenses and
non-cash accounting charges incurred in connection with the acquisition and/or integration of the combined businesses and operations.
Unfavorable or uncertain conditions in our industry or the global economy or reductions in information technology spending could limit our ability to grow
our business and negatively affect our results of operations.
Our results of operations may vary based on the impact of changes in our industry or the global economy on us or our customers. Current or future
economic uncertainties or downturns could adversely affect our business and results of operations. Negative conditions in the general economy both in the United
States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, international trade
relations, political turmoil, natural catastrophes, warfare, infectious diseases and terrorist attacks on the United States, Europe, the Asia Pacific region or elsewhere,
could cause a decrease in business investments by our customers and potential customers, including spending on information technology, and negatively affect the
growth of our business. For example, the COVID-19 pandemic may curtail business spending by our customers, result in business disruptions for us and/or our
customers, restrict travel to customer sites or result in a quarantine of affected populations impacting our employees, partners and customers. Additionally,
mitigation and containment measures adopted by government authorities to contain the spread of COVID-19 in the U.S. and abroad may significantly impact
business continuity for our partners and our customers, reduce our customers’ business operations, delay their engagement with us (including due to travel
restrictions and restrictions on in-person meetings) and could thereby adversely affect our business and financial results. To the extent our offerings are perceived
by customers and potential customers as discretionary, our revenue may be disproportionately affected by delays or reductions in general information technology
spending. Also, customers may choose to develop in-house software as an alternative to using our products. Moreover, competitors may respond to market
conditions by lowering prices. We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any
particular industry. If the economic conditions of the general economy or markets in which we operate do not improve, or worsen from present levels, our business,
results of operations and financial condition could be adversely affected.
We are subject to governmental export and import controls and economic sanctions programs that could impair our ability to compete in international markets
or subject us to liability if we violate these controls.
Our software is subject to U.S. export control laws and regulations including the Export Administration Regulations (“EAR”), and trade and economic
sanctions maintained by the Office of Foreign Assets Control (“OFAC”). As such, an export license may be required to export or reexport our products to certain
countries, end-users and end-uses. If we were to fail to comply with such U.S. export controls laws and regulations, U.S. economic sanctions, or other similar laws,
we could be subject to both civil and criminal penalties, including substantial fines, possible incarceration for employees and managers for willful violations, and
the possible loss of our export or import privileges. Obtaining the necessary export license for a particular sale or offering may not be possible and may be time-
consuming and may result in the delay or loss of sales opportunities. Furthermore, U.S. export control laws and economic sanctions prohibit the export of products
to certain U.S. embargoed or sanctioned countries, governments and persons, as well as for prohibited end-uses. Monitoring and ensuring compliance with these
complex U.S. export control laws is particularly challenging because our offerings are widely distributed throughout the world and are available for download
without registration. In addition, because we incorporate encryption functionality into our products, we are also subject to certain provisions of these laws that
apply to encryption items. Even though we take precautions to ensure that we and our partners comply with all relevant export control laws and regulations, any
failure by us or our partners to comply with such laws and regulations could have negative consequences for us, including reputational harm, government
investigations and penalties.
31
In addition, various countries regulate the import of certain encryption technology, including through import permit and license requirements, and have
enacted laws that could limit our ability to distribute our products or could limit our end-customers’ ability to implement our products in those countries. Changes
in our products or changes in export and import regulations in such countries may create delays in the introduction of our products into international markets,
prevent our end-customers with international operations from deploying our products globally or, in some cases, prevent or delay the export or import of our
products to certain countries, governments or persons altogether. Any change in export or import laws or regulations, economic sanctions or related legislation,
shift in the enforcement or scope of existing export, import or sanctions laws or regulations, or change in the countries, governments, persons, or technologies
targeted by such export, import or sanctions laws or regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our
products to, existing or potential end-customers with international operations. Any decreased use of our products or limitation on our ability to export to or sell our
products in international markets could adversely affect our business, financial condition and operating results.
Our international operations and expansion expose us to several risks.
As of April 30, 2020, we had customers located in over 100 countries, and our strategy is to continue to expand internationally. In addition, as a result of
our strategy of leveraging a distributed workforce, as of April 30, 2020, we had employees located in over 35 countries. Our current international operations
involve and future initiatives will involve a variety of risks, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions;
different labor regulations, especially in the European Union, where labor laws are generally more advantageous to employees as compared to the
United States, including deemed hourly wage and overtime regulations in these locations;
exposure to many stringent, particularly in the European Union, and potentially inconsistent laws and regulations relating to privacy, data protection
and information security;
changes in a specific country’s or region’s political or economic conditions;
political, economic and trade uncertainties related to the effect of the United Kingdom's withdrawal from the European Union (Brexit) on the
economies of United Kingdom, European Union, United States and other countries;
risks resulting from changes in currency exchange rates;
the impact of public health epidemics or pandemics on our employees, partners and customers;
challenges inherent to efficiently managing an increased number of employees over large geographic distances, including the need to implement
appropriate systems, policies, benefits and compliance programs;
risks relating to the implementation of trade and economic sanctions, including restrictions promulgated by the OFAC, and other similar trade
protection regulations and measures in the United States or in other jurisdictions;
reduced ability to timely collect amounts owed to us by our customers in countries where our recourse may be more limited;
limitations on our ability to reinvest earnings from operations derived from one country to fund the capital needs of our operations in other countries;
limited or unfavorable intellectual property protection; and
exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended
(“FCPA”), and similar applicable laws and regulations in other jurisdictions.
If we are unable to address these difficulties and challenges or other problems encountered in connection with our international operations and expansion,
we might incur unanticipated liabilities or we might otherwise suffer harm to our business generally.
If we are not successful in sustaining and expanding our international business, we may incur additional losses and our revenue growth could be harmed.
Our future results depend, in part, on our ability to sustain and expand our penetration of the international markets in which we currently operate and to
expand into additional international markets. We depend on direct sales and our channel partner relationships to sell our offerings in international markets. Our
ability to expand internationally will depend upon our
32
ability to deliver functionality and foreign language translations that reflect the needs of the international clients that we target. Our ability to expand
internationally involves various risks, including the need to invest significant resources in such expansion, and the possibility that returns on such investments will
not be achieved in the near future or at all in these less familiar competitive environments. We may also choose to conduct our international business through other
partnerships. If we are unable to identify partners or negotiate favorable terms, our international growth may be limited. In addition, we have incurred and may
continue to incur significant expenses in advance of generating material revenue as we attempt to establish our presence in particular international markets.
Our failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new offerings could reduce our
ability to compete and could harm our business.
We expect that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next twelve months. After that,
we may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all. If we raise additional
equity financing, our shareholders may experience significant dilution of their ownership interests and the per share value of our ordinary shares could decline.
Furthermore, if we engage in debt financing, the holders of debt would have priority over the holders of our ordinary shares, and we may be required to accept
terms that restrict our ability to incur additional indebtedness. We may also be required to take other actions that would otherwise be in the interests of the debt
holders and force us to maintain specified liquidity or other ratios, any of which could harm our business, results of operations, and financial condition. If we need
additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:
•
•
•
•
•
•
develop or enhance our products;
continue to expand our sales and marketing and research and development organizations;
acquire complementary technologies, products or businesses;
expand operations in the United States or internationally;
hire, train, and retain employees; or
respond to competitive pressures or unanticipated working capital requirements.
Our failure to have sufficient capital to do any of these things could harm our business, financial condition, and results of operations.
Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws could subject us to penalties and other adverse consequences.
We are subject to the FCPA, the U.K. Bribery Act and other anti-corruption, anti-bribery and anti-money laundering laws in various jurisdictions both
domestic and abroad. We leverage channel partners to sell our offerings abroad and use other third parties, including recruiting firms, professional employer
organizations, legal, accounting and other professional advisors, and local vendors to meet our needs associated with doing business abroad. We and these third
parties may have direct or indirect interactions with officials and employees of government agencies, or state-owned or affiliated entities, and we may be held
liable for the corrupt or other illegal activities of our channel partners and third-party representatives, as well as our employees, representatives, contractors,
partners, and agents, even if we do not explicitly authorize such activities. While we have policies and procedures to address compliance with such laws, we cannot
assure you that the channel partners, third-party representatives, our employees, contractors or agents will not take actions in violation of our policies and
applicable law, for which we may be ultimately held responsible. Any violation of the FCPA, U.K. Bribery Act or other applicable anti-bribery, anti-corruption
laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal
or civil sanctions, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, business, operating
results and prospects.
A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.
Sales to government entities are subject to a number of risks. Selling to government entities can be highly competitive, expensive, and time-consuming,
often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. Government certification requirements for
products like ours may change, thereby restricting our ability to sell into the U.S. federal government, U.S. state government, or non-U.S. government sectors until
we have attained the revised certification. Government demand and payment for our offerings may be affected by public sector budgetary cycles and funding
authorizations, with funding reductions or delays adversely affecting public sector demand for our offerings. Sales to U.S. federal government agencies, including
classified contracts, are subject to complex federal regulations. Failure to comply with such regulations could result in contract terminations or other adverse
consequences, including but not limited to adversely affecting our eligibility to sell to U.S. federal government agencies in the future. Additionally, we rely on
certain partners to provide technical support services to certain of our government entity customers to resolve any issues relating to our products.
33
If our partners do not effectively assist our government entity customers in deploying our products, succeed in helping our government entity customers quickly
resolve post-deployment issues, or provide effective ongoing support, our ability to sell additional offerings to new and existing government entity customers
would be adversely affected and our reputation could be damaged.
Government entities may have statutory, contractual, or other legal rights to terminate contracts with us or our channel partners for convenience or due to
a default, and any such termination may adversely affect our future results of operations. Governments routinely investigate and audit government contractors’
administrative processes, and any unfavorable audit could result in the government refusing to continue buying our subscriptions, a reduction of revenue, or fines
or civil or criminal liability if the audit uncovers improper or illegal activities, which could adversely affect our results of operations in a material way.
Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could expose us to greater
than anticipated tax liabilities.
Our income tax obligations are based in part on our corporate structure and intercompany arrangements, including the manner in which we develop,
value, and use our intellectual property and the valuations of our intercompany transactions. The tax laws applicable to our business, including the laws of the
Netherlands, the United States and other jurisdictions, are subject to change and interpretation, and certain jurisdictions may aggressively interpret their laws in an
effort to raise additional tax revenue. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed
technology or intercompany arrangements, which could increase our worldwide effective tax rate and harm our financial position and results of operations. It is
possible that tax authorities may disagree with certain positions we have taken, and any adverse outcome of such a review or audit could have a negative effect on
our financial position and results of operations. Further, the determination of our worldwide provision for income taxes and other tax liabilities requires significant
judgment by management, and there are transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the
ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially affect our financial results in the period or
periods for which such determination is made.
Our corporate structure and intercompany arrangements are subject to the tax laws of various jurisdictions, and we could be obligated to pay additional taxes,
which would harm our results of operations.
Based on our current corporate structure, we may be subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the
application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax
principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents. In addition, the authorities in the jurisdictions
in which we operate could review our tax returns or require us to file tax returns in jurisdictions in which we are not currently filing, and could impose additional
tax, interest and penalties. These authorities could also claim that various withholding requirements apply to us or our subsidiaries, assert that benefits of tax
treaties are not available to us or our subsidiaries, or challenge our methodologies for valuing developed technology or intercompany arrangements, including our
transfer pricing. The relevant taxing authorities may determine that the manner in which we operate our business does not achieve the intended tax consequences.
If such a disagreement was to occur, and our position was not sustained, we could be required to pay additional taxes, and interest and penalties. Any increase in
the amount of taxes we pay or that are imposed on us could increase our worldwide effective tax rate and harm our business and results of operations.
Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.
As of April 30, 2020 and 2019, we had net operating loss carryforwards in various jurisdictions of $1.3 billion and $485.7 million, respectively, which
may be utilized against future income taxes. Limitations imposed by the applicable jurisdictions on our ability to utilize net operating loss carryforwards could
cause income taxes to be paid earlier than would be paid if such limitations were not in effect and could cause such net operating loss carryforwards to expire
unused, in each case reducing or eliminating the benefit of such net operating loss carryforwards. Furthermore, we may not be able to generate sufficient taxable
income to utilize our net operating loss carryforwards before they expire. If any of these events occur, we may not derive some or all of the expected benefits from
our net operating loss carryforwards.
Catastrophic events, or man-made problems such as terrorism, may disrupt our business.
A significant natural disaster, such as an earthquake, fire, flood, or significant power outage could have an adverse impact on our business, results of
operations, and financial condition. We have a number of our employees and executive officers located in the San Francisco Bay Area, a region known for seismic
activity. In the event our or our partners' abilities are hindered by any of the events discussed above, sales could be delayed, resulting in missed financial targets for
a particular quarter. In addition, acts of terrorism, other geo-political unrest or health issues, such as an outbreak of pandemic or epidemic diseases, such as the
COVID-19 pandemic, or fear of such events, could cause disruptions in our business or the business of our partners, customers or the economy as a whole. Any
disruption in the business of our partners or customers that affects sales in
34
a given fiscal quarter could have a significant adverse impact on our quarterly results for that and future quarters. For example, the full extent to which the COVID-
19 pandemic impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be
predicted. In addition, the COVID-19 pandemic has adversely affected the economies of many countries, resulting in economic downturns that could affect
demand for our products and likely impact our operating results. All of the aforementioned risks may be further increased if our disaster recovery plans prove to be
inadequate. See the risk factor entitled “The ongoing COVID-19 pandemic could harm our business and results of operations.”
We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.
A portion of our subscriptions are generated and operating expenses are incurred outside the United States and denominated in foreign currencies and are
subject to fluctuations due to changes in foreign currency exchange rates. The strengthening of the U.S. dollar increases the real cost of our offerings to our
customers outside of the United States, leading to delays in the purchase of our offerings and the lengthening of our sales cycle. If the U.S. dollar continues to
strengthen, this could adversely affect our financial condition and results of operations. In addition, increased international sales in the future, including through
our channel partners, may result in greater foreign currency denominated sales, increasing our foreign currency risk. Moreover, operating expenses incurred outside
the United States and denominated in foreign currencies are increasing and are subject to fluctuations due to changes in foreign currency exchange rates. If we are
not able to successfully hedge against the risks associated with currency fluctuations, our financial condition and results of operations could be adversely affected.
To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter
into hedging transactions in the future, the availability and effectiveness of these hedging transactions may be limited and we may not be able to successfully hedge
our exposure, which could adversely affect our financial condition and results of operations.
Seasonality may cause fluctuations in our sales and results of operations.
Historically, we have experienced quarterly fluctuations and seasonality based on the timing of entering into agreements with new and existing customers
and the mix between annual and monthly contracts entered in each reporting period. Trends in our business, financial condition, results of operations and cash
flows are impacted by seasonality in our sales cycle which generally reflects a trend to greater sales in our second and fourth quarters and lower sales in our first
and third quarters, though we believe this trend has been somewhat masked by our overall growth. We expect that this seasonality will continue to affect our results
of operations in the future, and might become more pronounced as we continue to target larger enterprise customers.
If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of
operations could fall below expectations of securities analysts and investors, resulting in a decline in the trading price of our ordinary shares.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that
we believe to be reasonable under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
included elsewhere in this Annual Report on Form 10-K, the results of which form the basis for making judgments about the carrying values of assets, liabilities,
equity, revenue, and expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if our assumptions change or if
actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below our publicly announced guidance or the
expectations of securities analysts and investors, resulting in a decline in the market price of our ordinary shares. Significant assumptions and estimates used in
preparing our consolidated financial statements include those related to revenue recognition, measurement of stock-based compensation expense, accounting of
intangible assets, goodwill impairment test, and accounting for income taxes including deferred tax assets and liabilities.
Risks Related to Ownership of our Ordinary Shares
The market price for our ordinary shares has been and is likely to continue to be volatile or may decline regardless of our operating performance.
The stock markets, and securities of technology companies in particular, have experienced extreme price and volume fluctuations that have affected and
continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner
unrelated or disproportionate to the operating performance of those companies. The economic impact and uncertainty of the ongoing COVID-19 pandemic have
exacerbated this volatility in both the overall stock markets and the market price of our ordinary shares. In the past, shareholders have
35
instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to
substantial costs, divert resources and the attention of management from our business and adversely affect our business. The market price of our ordinary shares
may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
actual or anticipated changes or fluctuations in our operating results;
the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
announcements by us or our competitors of new offerings or new or terminated significant contracts, commercial relationships or capital
commitments;
industry or financial analyst or investor reaction to our press releases, other public announcements, and filings with the SEC;
rumors and market speculation involving us or other companies in our industry;
a loss of investor confidence in the market for technology stocks or the stock market in general;
future sales or expected future sales of our ordinary shares;
investor perceptions of us, the benefits of our offerings and the industries in which we operate;
price and volume fluctuations in the overall stock market from time to time;
changes in operating performance and/or stock market valuations of other technology companies generally, or those in our industry in particular;
failure of industry or financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company, or our
failure to meet these estimates or the expectations of investors;
actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;
litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;
developments or disputes concerning our intellectual property rights or our solutions, or third-party proprietary rights;
announced or completed acquisitions of businesses or technologies by us or our competitors, including our acquisition of Endgame;
breaches of, or failures relating to, privacy, data protection or information security;
new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
any major changes in our management or our board of directors, particularly with respect to Mr. Banon;
general economic conditions and slow or negative growth of our markets, including as a result of the COVID-19 pandemic; and
other events or factors, including those resulting from war, incidents of terrorism or responses to these events.
The concentration of our share ownership with insiders will likely limit your ability to influence corporate matters, including the ability to influence the
outcome of director elections and other matters requiring shareholder approval.
Our executive officers and directors together beneficially owned 28% of our ordinary shares outstanding as of April 30, 2020. As a result, these
shareholders, acting together, will have significant influence over matters that require approval by our shareholders, including matters such as adoption of the
financial statements, declarations of dividends, the appointment and dismissal of directors, capital increases, amendment to our articles of association and approval
of significant corporate transactions. Corporate action might be taken even if other shareholders oppose them. This concentration of ownership might also have the
effect of delaying or preventing a change of control of us that other shareholders may view as beneficial.
The issuance of additional shares in connection with financings, acquisitions, investments, our share incentive plans or otherwise will dilute all other
shareholders.
Our articles of association authorize us to issue up to 165 million ordinary shares and up to 165 million preference shares with such rights and preferences
as included in our articles of association. On September 28, 2018, our extraordinary general meeting of shareholders (the “2018 Extraordinary Meeting”)
empowered our board of directors to issue ordinary shares
36
and preference shares up to our authorized share capital for a period of five years from October 10, 2018. Subject to compliance with applicable rules and
regulations, we may issue ordinary shares or securities convertible into ordinary shares from time to time in connection with a financing, acquisition, investment,
our share incentive plans or otherwise. Any such issuance could result in substantial dilution to our existing shareholders unless pre-emptive rights exist and cause
the market price of our ordinary shares to decline.
Certain holders of our ordinary shares may not be able to exercise pre-emptive rights and as a result may experience substantial dilution upon future issuances
of ordinary shares.
Holders of our ordinary shares in principle have a pro rata pre-emptive right with respect to any issue of ordinary shares or the granting of rights to
subscribe for ordinary shares, unless Dutch law or our articles of association state otherwise or unless explicitly provided otherwise in a resolution by our general
meeting of shareholders (the “General Meeting”), or—if authorized by the annual General Meeting or an extraordinary General Meeting—by a resolution of our
board of directors. Our 2018 Extraordinary Meeting has empowered our board of directors, to limit or exclude pre-emptive rights on ordinary shares for a period of
five years from October 10, 2018, which could cause existing shareholders to experience substantial dilution of their interest in us.
Pre-emptive rights do not exist with respect to the issue of preference shares and holders of preference shares, if any, have no pre-emptive right to acquire
newly issued ordinary shares. Also, pre-emptive rights do not exist with respect to the issue of shares or grant of rights to subscribe for shares to employees of the
company or contributions in kind.
Sales of substantial amounts of our ordinary shares in the public markets, or the perception that they might occur, could reduce the price that our ordinary
shares might otherwise attain.
Sales of a substantial number of shares of our ordinary shares in the public market, particularly sales by our directors, executive officers and significant
shareholders, or the perception that these sales could occur, could adversely affect the market price of our ordinary shares and may make it more difficult for you to
sell your ordinary shares at a time and price that you deem appropriate.
In addition, holders of an aggregate of 20,263,691 ordinary shares, based on shares outstanding as of April 30, 2020, are entitled to rights with respect to
registration of these shares under the Securities Act pursuant to our amended and restated investors’ rights agreement, dated July 19, 2016. If these holders of our
ordinary shares, by exercising their registration rights, sell a large number of shares, they could adversely affect the market price for our ordinary shares. We have
also registered the offer and sale of all ordinary shares that we may issue under our equity compensation plan, which may in turn be sold and may adversely affect
the market price for our ordinary shares.
Certain anti-takeover provisions in our articles of association and under Dutch law may prevent or could make an acquisition of our company more difficult,
limit attempts by our shareholders to replace or remove members of our board of directors and may adversely affect the market price of our ordinary shares.
Our articles of association contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficult
for shareholders to appoint directors that are not nominated by the current members of our board of directors or take other corporate actions, including effecting
changes in our management. These provisions include:
•
•
•
•
•
the staggered three-year terms of the members of our board of directors, as a result of which only approximately one-third of the members of our board of
directors may be subject to election in any one year;
a provision that the members of our board of directors may only be removed by a General Meeting by a two-thirds majority of votes cast representing at
least 50% of our issued share capital if such removal is not proposed by our board of directors;
a provision that the members of our board of directors may only be appointed upon binding nomination of the board of directors, which can only be
overruled with a two-thirds majority of votes cast representing at least 50% of our issued share capital;
the inclusion of a class of preference shares in our authorized share capital that may be issued by our board of directors, in such a manner as to dilute the
interest of shareholders, including any potential acquirer or activist shareholder, in order to delay or discourage any potential unsolicited offer or
shareholder activism;
requirements that certain matters, including an amendment of our articles of association, may only be brought to our shareholders for a vote upon a
proposal by our board of directors; and
• minimum shareholding thresholds, based on nominal value, for shareholders to call General Meetings of our Shareholders or to add items to the agenda
for those meetings.
37
We are subject to the Dutch Corporate Governance Code but do not comply with all the suggested governance provisions of the Dutch Corporate Governance
Code. This may affect your rights as a shareholder.
As a Dutch company, we are subject to the Dutch Corporate Governance Code (“DCGC”). The DCGC contains both principles and suggested governance
provisions for management boards, supervisory boards, shareholders and general meetings, financial reporting, auditors, disclosure, compliance and enforcement
standards. The DCGC is based on a “comply or explain” principle. Accordingly, public companies are required to disclose in their annual reports, filed in the
Netherlands, whether they comply with the suggested governance provisions of the DCGC. If they do not comply with those provisions (e.g., because of a
conflicting requirement), the company is required to give the reasons for such noncompliance. The DCGC applies to all Dutch companies listed on a government-
recognized stock exchange, whether in the Netherlands or elsewhere, including the NYSE. The principles and suggested governance provisions apply to our board
of directors (in relation to role and composition, conflicts of interest and independency requirements, board committees and remuneration), shareholders and the
General Meeting (for example, regarding anti-takeover protection and our obligations to provide information to our shareholders) and financial reporting (such as
external auditor and internal audit requirements). We comply with all applicable provisions of the DCGC except where such provisions conflict with U.S.
exchange listing requirements or with market practices in the United States or the Netherlands. This may affect your rights as a shareholder, and you may not have
the same level of protection as a shareholder in a Dutch company that fully complies with the suggested governance provisions of the DCGC.
We do not intend to pay dividends in the foreseeable future. As a result, your ability to achieve a return on your investment will depend on appreciation in the
price of our ordinary shares.
We have never declared or paid any cash dividends on our shares. We currently intend to retain all available funds and any future earnings for use in the
operation of our business and do not anticipate paying any dividends on our ordinary shares in the foreseeable future. Were this position to change, payment of
future dividends may be made only if our equity exceeds the amount of the paid-in and called-up part of the issued share capital, increased by the reserves required
to be maintained by Dutch law or by our articles of association. Accordingly, investors must rely on sales of their ordinary shares after price appreciation, which
may never occur, as the only way to realize any future gains on their investments.
If industry or financial analysts do not publish research or reports about our business, or if they issue inaccurate or unfavorable research regarding our
ordinary shares, our share price and trading volume could decline.
The trading market for our ordinary shares is influenced by the research and reports that industry or financial analysts publish about us or our business.
We do not control these analysts, or the content and opinions included in their reports. If any of the analysts who cover us issues an inaccurate or unfavorable
opinion regarding our company, our stock price would likely decline. In addition, the stock prices of many companies in the technology industry have declined
significantly after those companies have failed to meet, or significantly exceed, the financial guidance publicly announced by the companies or the expectations of
analysts or public investors. If our financial results fail to meet, or significantly exceed, our announced guidance or the expectations of analysts or public investors,
our stock price may decline. Further, analysts could downgrade our ordinary shares or publish unfavorable research about us. If one or more of the analysts who
cover our company ceases to cover us, or fails to publish reports on us regularly, our visibility in the financial markets could decrease, which in turn could cause
our stock price or trading volume to decline.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified
board members.
As a public company, we are subject to the reporting and corporate governance requirements of the Exchange Act, the listing requirements of the NYSE
and other applicable securities rules and regulations, including the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Compliance with these rules and regulations has increased, and we expect will continue increasing our legal and financial compliance costs, make some activities
more difficult, time-consuming or costly and increase demand on our systems and resources, particularly as we are no longer an “emerging growth company” as
defined in the Jumpstart Our Business Act of 2012 ("JOBS Act").
Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and results of operations,
and the Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to
improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight
is required. As a result, management’s attention may be diverted from other business concerns, which could harm our business, financial condition, results of
operations and prospects. Although we have already hired additional personnel to help comply with these requirements, we may need to further expand our legal
and finance departments in the future or hire outside consultants, which will increase our costs and expenses.
38
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public
companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to
varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is
provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing
revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may
result in increased general and administrative expense and a diversion of management’s time and attention from revenue-generating activities to compliance
activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory
authorities may initiate legal proceedings against us and our business and prospects may be harmed. As a result of disclosure of information in the filings required
of a public company and in this Annual Report on Form 10-K, our business and financial condition will become more visible, which may result in threatened or
actual litigation, including by competitors and other third parties. If such claims are successful, our business, financial condition, results of operations and
prospects could be materially harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources
necessary to resolve them, could divert the resources of our management and materially harm our business, financial condition, results of operations and prospects.
If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, we may be unable to accurately report our
financial results or prevent fraud, and investor confidence and the market price of our ordinary shares may, therefore, be adversely affected.
As a public company in the United States, we are subject to the Sarbanes-Oxley Act, which requires, among other things, that we maintain effective
disclosure controls and procedures and internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and
procedures and internal control over financial reporting, we have expended and anticipate that we will continue to expend, significant resources, including
accounting-related costs and significant management oversight. For example, since our IPO, we have hired additional accounting and financial staff with
appropriate public company experience and technical accounting knowledge to assist in our compliance efforts. In addition, effective April 30, 2020, we are no
longer an “emerging growth company,” as defined in the JOBS Act, and therefore we are required to comply with the auditor attestation requirements of Section
404 of the Sarbanes-Oxley Act. We have incurred and expect to continue to incur significant expenses and devote substantial management effort toward
compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. To assist us in complying with these requirements we may need to
hire more employees in the future, or engage outside consultants, which will increase our operating expenses.
Despite significant investment, our current controls and any new controls that we develop may become inadequate because of changes in conditions in our
business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to implement or
maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet
our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal
control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting
firm attestation reports regarding the effectiveness of our internal control over financial reporting that are required to be included in our periodic reports that we file
with the SEC.
Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported
financial and other information, subject us to sanctions or investigations by the NYSE, the SEC or other regulatory authorities, and would likely cause the trading
price of our ordinary shares to decline.
Claims of U.S. civil liabilities may not be enforceable against us.
We are incorporated under the laws of the Netherlands and substantial portions of our assets are located outside of the United States. In addition, one
member of our board of directors and certain experts named herein reside outside the United States. As a result, it may be difficult for investors to effect service of
process within the United States upon us or such other persons residing outside the United States, or to enforce outside the United States judgments obtained
against such persons in U.S. courts in any action, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. In addition, it
may be difficult for investors to enforce, in original actions brought in courts in jurisdictions located outside the United States, rights predicated upon the U.S.
federal securities laws.
There is no treaty between the United States and the Netherlands for the mutual recognition and enforcement of judgments (other than arbitration awards)
in civil and commercial matters. Therefore, a final judgment rendered by any federal or state court in the United States based on civil liability, whether or not
predicated solely upon the U.S. federal securities laws, would not be enforceable in the Netherlands unless the underlying claim is re-litigated before a Dutch court
of competent jurisdiction. In such proceedings, however, a Dutch court may be expected to recognize the binding effect of a judgment of a federal or state court in
the United States without re-examination of the substantive matters adjudicated thereby, if (i) the
39
jurisdiction of the U.S. federal or state court has been based on internationally accepted principles of private international law, (ii) that judgment resulted from
legal proceedings compatible with Dutch notions of due process, (iii) that judgment does not contravene public policy of the Netherlands and (iv) that judgment is
not incompatible with (x) an earlier judgment of a Dutch court between the same parties, or (y) an earlier judgment of a foreign court between the same parties in a
dispute regarding the same subject and based on the same cause, if that earlier foreign judgment is recognizable in the Netherlands.
Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce against us or members of our board of directors, officers or
certain experts named herein who are residents of the Netherlands or countries other than the United States any judgments obtained in U.S. courts in civil and
commercial matters, including judgments under the U.S. federal securities laws.
In addition, there can be no assurance that a Dutch court would impose civil liability on us, the members of our board of directors, our officers or certain
experts named herein in an original action predicated solely upon the U.S. federal securities laws brought in a court of competent jurisdiction in the Netherlands
against us or such members, officers or experts, respectively.
U.S. holders of our ordinary shares may suffer adverse tax consequences if we are characterized as a passive foreign investment company.
A non-U.S. corporation will generally be considered a passive foreign investment company (“PFIC”), for U.S. federal income tax purposes, in any taxable
year if either (1) at least 75% of its gross income for such year is passive income or (2) at least 50% of the value of its assets (based on an average of the quarterly
values of the assets during such year) is attributable to assets that produce or are held for the production of passive income. For purposes of the PFIC asset test, the
value of our assets will generally be determined by reference to our market capitalization. Based on our past and current projections of our income and assets, we
do not expect to be a PFIC for the current taxable year or for the foreseeable future. Nevertheless, a separate factual determination as to whether we are or have
become a PFIC must be made each year (after the close of such year). Since our projections may differ from our actual business results and our market
capitalization and value of our assets may fluctuate, we cannot assure you that we will not be or become a PFIC in the current taxable year or any future taxable
year. If we are a PFIC for any taxable year during which a U.S. holder (as defined in “Material U.S. Federal Income Tax Considerations”) holds our ordinary
shares, the U.S. holder may be subject to adverse tax consequences. Each U.S. holder is strongly urged to consult its tax advisor regarding the application of these
rules and the availability of any potential elections.
If a U.S. holder is treated as owning at least 10% of our ordinary shares, such holder may be subject to adverse U.S. federal income tax consequences.
If a U.S. holder is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our ordinary shares, such holder
may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group (if any). Under changes implemented by the Tax
Cuts and Jobs Act, because our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as controlled foreign
corporations (regardless of whether we are treated as a controlled foreign corporation). A United States shareholder of a controlled foreign corporation may be
required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments
in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a United States shareholder with respect
to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States
shareholder that is a U.S. corporation. We cannot provide any assurances that we will assist investors in determining whether any of our non-U.S. subsidiaries is
treated as a controlled foreign corporation or whether any investor is treated as a United States shareholder with respect to any such controlled foreign corporation
or furnish to any investor who may be a United States shareholder information that may be necessary to comply with the aforementioned reporting and tax paying
obligations. Failure to comply with these reporting obligations may subject a U.S. holder who is a United States shareholder to significant monetary penalties and
may prevent from starting the statute of limitations with respect to such holder’s U.S. federal income tax return for the year for which reporting was due. A U.S.
holder should consult its advisors regarding the potential application of these rules to an investment in our ordinary shares.
We may not be able to make distributions or repurchase shares without subjecting our shareholders to Dutch withholding tax.
Dutch dividend withholding tax may be levied on dividends and similar distributions made by us to our shareholders at the statutory rate of 15%. If
dividend distributions are structured as a repayment of capital or a repurchase of shares, Dutch withholding tax may still be due at 15%. Such repayment of capital
or repurchase of shares will be exempt from dividend withholding tax only in limited circumstances.
40
Item 1B. Unresolved Staff Comments.
None
Item 2. Properties.
As a distributed company, we employ a distributed workforce with offices and employee hubs around the world. The largest of these hubs is located in
Mountain View, California, where we lease approximately 40,000 square feet.
All offices are leased and we do not own any real property. We intend to procure additional space in the future as we continue to add employees and
expand geographically. We believe that our current facilities are adequate to meet our current needs and that, as we grow, suitable additional space will be
available to either expand existing hubs or open new hubs in new locations.
Item 3. Legal Proceedings.
The information called for by this Item is incorporated herein by reference to Item 8. "Financial Statements and Supplementary Data," Note 7,
"Commitments and Contingencies" included elsewhere in this Annual Report on Form 10-K.
From time to time, we may be subject to legal proceedings and claims that arise in the ordinary course of business, including patent, commercial, product
liability, employment, class action, whistleblower and other litigation and claims, as well as governmental and other regulatory investigations and proceedings. In
addition, third parties may from time to time assert claims against us in the form of letters and other communications. We are not currently a party to any legal
proceedings that, if determined adversely to us, would, in our opinion, have a material adverse effect on our business, results of operations, financial condition or
cash flows. Future litigation may be necessary to defend ourselves, our partners and our customers by determining the scope, enforceability and validity of third-
party proprietary rights, or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the
outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 4. Mine Safety Disclosures.
Not applicable.
41
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information for Ordinary Shares
Our ordinary shares began trading on the NYSE under the symbol “ESTC” on October 5, 2018. Prior to that date, there was no public trading market for
PART II
our ordinary shares.
Holders of Record
As of June 22, 2020 there were 107 shareholders of record of our ordinary shares. Because many of our ordinary shares are held by brokers and other
institutions on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders.
Dividend Policy
We have never declared or paid any dividends on our ordinary shares, and we do not anticipate declaring or paying dividends in the foreseeable future.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
Stock Performance Graph
This performance graph shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act or incorporated by reference into any
of our filings under the Securities Act.
The graph below compares the cumulative total shareholder return on our ordinary shares with the cumulative total return on the S&P 500 Index and the
S&P 500 Information Technology Index. The graph assumes $100 was invested at the market close on October 5, 2018, which was our initial trading day, in our
ordinary shares. Data for the S&P 500 Index and the S&P 500 Information Technology Index assume reinvestment of dividends. Our offering price of our ordinary
shares in our IPO, which had a closing stock price of $70.00 on October 5, 2018, was $36.00 per share.
42
The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our ordinary
shares.
This performance graph shall not be deemed "soliciting material" or to be "filed" with the SEC for purposes of Section 18 of the Exchange Act, or otherwise
subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into ant filing of Elastic N.V. under the Securities Act or the
Exchange Act.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 6. Selected Financial Data.
The following selected consolidated financial data should be read in conjunction with Part II, Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated financial statements and related notes included in Part II, Item 8, Financial Statements, of this Annual
Report on Form 10-K. The selected consolidated statements of operations data presented below for the years ended April 30, 2020, 2019 and 2018 and the
consolidated balance sheet data as of April 30, 2020 and 2019 are derived from our audited consolidated financial statements that are included elsewhere in this
Annual Report on Form 10-K. The consolidated balance sheet data as of April 30, 2018 is derived from our audited consolidated financial statements not included
in this Annual Report on Form 10-K. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and
the related notes, and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in Annual Report on Form 10-K.
Our historical results are not necessarily indicative of our future results.
43
Consolidated Statements of Operations:
Revenue
License - self-managed
Subscription - self-managed and SaaS
Total subscription revenue
Professional services
Total revenue
Cost of revenue (1)(2)(3)
Cost of license - self-managed
Cost of subscription - self-managed and SaaS
Total cost of revenue - subscription
Cost of professional services
Total cost of revenue
Gross profit
Operating expenses (1)(2)(3)(4)
Research and development
Sales and marketing
General and administrative
Total operating expenses
Operating loss (1)(2)(3)(4)
Other income (expense), net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss
Net loss per share attributable to ordinary shareholders, basic and diluted
Weighted-average shares used to compute net loss per share attributable to ordinary shareholders, basic
and diluted
(1) Includes stock-based compensation expense as follows:
2020
Year Ended April 30,
2019
(in thousands)
2018
$
53,536 $
39,474 $
338,634
392,170
35,450
427,620
948
84,819
85,767
36,923
122,690
304,930
165,370
219,040
91,625
476,035
208,780
248,254
23,399
271,653
387
53,560
53,947
24,063
78,010
101,167
147,296
46,536
294,999
193,643
119,195
25,759
123,623
149,382
10,553
159,935
387
27,920
28,307
12,433
40,740
55,641
82,606
28,942
167,189
(47,994)
(1,357)
(49,351)
3,376
(171,105)
(101,356)
1,963
(169,142)
(1,968)
3,441
(97,915)
4,388
$
$
(167,174) $
(102,303) $
(52,727)
(2.12) $
(1.86) $
(1.65)
78,799,732
54,893,365
32,033,792
Year Ended April 30,
2020
2019
2018
(in thousands)
Cost of Revenue
Cost of subscription - self managed and SaaS
$
4,147 $
3,383 $
Cost of professional services
Research and development
Sales and marketing
General and administrative
2,980
23,621
19,334
9,925
1,208
16,100
11,996
7,255
699
329
5,045
3,560
3,109
Total stock-based compensation expense
$
60,007 $
39,942 $
12,742
44
(2) Includes employer payroll taxes on employee stock transactions as follows (information for fiscal year 2018 is not meaningful):
Cost of Revenue
Cost of subscription - self managed and SaaS
Cost of professional services
Research and development
Sales and marketing
General and administrative
Total stock-based compensation expense
(3) Includes amortization of acquired intangibles as follows:
Cost of Revenue
Cost of license - self-managed
Cost of subscription - self-managed and SaaS
Sales and marketing
Total amortization of acquired intangibles
(4) Includes acquisition-related expenses as follows:
Research and development
Sales and marketing
General and administrative
Total acquisition-related expenses
Consolidated Balance Sheet Data:
Cash and cash equivalents
Working capital
Total assets
Deferred revenue, current and non-current
Redeemable convertible preference shares
Accumulated deficit
Total shareholders' equity (deficit)
Year Ended April 30,
2020
2019
2018
(in thousands)
349 $
28 $
178
2,179
3,237
1,550
10
939
747
90
7,493 $
1,814 $
—
—
—
—
—
—
Year Ended April 30,
2020
2019
2018
(in thousands)
948 $
387 $
5,820
3,300
2,421
148
10,068 $
2,956 $
387
1,521
119
2,027
Year Ended April 30,
2020
2019
2018
(in thousands)
34 $
689 $
522
17,418
—
259
655
—
608
17,974 $
948 $
1,263
2020
As of April 30,
2019
(in thousands)
297,081 $
298,000 $
158,815 $
226,061 $
803,911 $
485,738 $
259,702 $
170,666 $
— $
— $
(484,251) $
(317,077) $
413,647 $
263,012 $
2018
50,941
7,116
183,013
102,561
200,921
(214,774)
(153,529)
$
$
$
$
$
$
$
$
$
$
$
$
$
45
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with 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 is April 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 of Elasticsearch was in 2010 by our co-founder Shay Banon as an
open source project. The Company was formed in 2012. Since then, we have added new products, released new features, acquired companies, and created new
solutions to expand the functionality of our products.
Our business model is based on a combination of 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 ended April 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 of April 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 customers who represented greater than $100,000 in ACV was over 610, over 440, and over 275 as of April 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 customers
who have adopted our software, as well as departmental decision-makers and senior executives who have broad purchasing power in their organizations. Our sales
teams are primarily segmented by geographies and secondarily by the employee count of our customers. 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 of April 30, 2020.
On October 8, 2019, the Company acquired all outstanding shares of Endgame, a security company offering endpoint protection technology, for a total
acquisition price of $234.0 million. Elastic paid the purchase price through (i) the issuance of 2,218,694 ordinary shares in respect of Endgame’s outstanding
capital stock, warrants, convertible notes, and certain retention awards, (ii) the cash repayment of Endgame’s outstanding indebtedness of $20.4 million, (iii) the
assumption of Endgame’s outstanding 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 ended April 30, 2020 from $271.7 million in the year
ended April 30, 2019 and $159.9 million in the year ended April 30, 2018, representing year-over-year growth of 57% for the year ended April 30, 2020 and 70%
for the year ended April 30, 2019. In the year ended April 30, 2020, revenue from outside the 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 ended April 30, 2020, 2019 or 2018. We have not been profitable to date. In the years ended April 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 of April 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
In March 2020, the World 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 the U.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%. Customers who reduced their annual subscription dollar value (contraction) or did not renew their annual subscription (attrition) would adversely affect the
Net Expansion Rate. Our Net Expansion Rate 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 ended April 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 with U.S. GAAP, we believe the following non-GAAP measures are useful in evaluating our operating
performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We
believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past
financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool
and should not be considered in isolation or as a substitute for financial information presented in accordance with U.S. 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 with U.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.
Gross profit
Stock-based compensation expense
Employer payroll taxes on employee stock transactions
Amortization of acquired intangibles
Non-GAAP gross profit
Gross margin
Non-GAAP gross margin (non-GAAP gross profit as a percentage of revenue)
Non-GAAP Operating Loss and Non-GAAP Operating Margin
Year Ended April 30,
2020
2019
2018
304,930
$
(in thousands)
193,643
$
119,195
7,127
527
6,768
4,591
38
2,808
1,028
—
1,908
319,352
$
201,080
$
122,131
$
$
71 %
75 %
71 %
74 %
75 %
76 %
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.
Operating loss
Stock-based compensation expense
Employer payroll taxes on employee stock transactions
Amortization of acquired intangibles
Acquisition-related expenses
Non-GAAP loss from operations
Operating margin
Non-GAAP operating margin (non-GAAP loss from operations as a percentage of revenue)
Free Cash Flow and Free Cash Flow Margin
Year Ended April 30,
2020
2019
2018
$
(171,105)
$
(in thousands)
(101,356)
$
60,007
7,493
10,068
17,974
39,942
1,814
2,956
948
(47,994)
12,742
—
2,027
1,263
$
(75,563)
$
(55,696)
$
(31,962)
(40)%
(18)%
(37)%
(21)%
(30)%
(20)%
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
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:
Net cash used in operating activities
Less: Purchases of property and equipment
Free cash flow
Net cash (used in) provided by investing activities
Net cash provided by financing activities
Net cash used in operating activities (as a percentage of total revenue)
Less: Purchases of property and equipment (as a percentage of total revenue)
Free cash flow margin
Calculated Billings
Year Ended April 30,
2020
2019
2018
$
$
$
$
(30,564)
$
(in thousands)
(23,937)
$
(5,063)
(3,447)
(35,627)
$
(27,384)
$
(29,187)
$
(8,283)
$
58,539
$
281,788
$
(7)%
(1)%
(8)%
(9)%
(1)%
(10)%
(20,819)
(2,968)
(23,787)
8,330
3,427
(13)%
(2)%
(15)%
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:
Total revenue
Add: Increase in total deferred revenue
Less: Increase in unbilled accounts receivable
Calculated billings
Components of Results of Operations
Revenue
2020
Year Ended April 30,
2019
(in thousands)
2018
$
$
427,620 $
271,653 $
85,670
(592)
71,876
(571)
159,935
45,814
(25)
512,698 $
342,958 $
205,724
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.
50
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
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.
2020
Year Ended April 30,
2019
(in thousands)
2018
Revenue
License - self-managed
Subscription - self-managed and SaaS
Total subscription revenue
Professional services
Total revenue
Cost of revenue (1)(2)(3)
Cost of license - self-managed
Cost of subscription - self-managed and SaaS
Total cost of revenue - subscription
Cost of professional services
Total cost of revenue
Gross profit
Operating expenses (1)(2)(3)(4)
Research and development
Sales and marketing
General and administrative
Total operating expenses
Operating loss (1)(2)(3)(4)
Other income (expense), net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss
(1) Includes stock-based compensation expense as follows:
25,759
123,623
149,382
10,553
159,935
387
27,920
28,307
12,433
40,740
55,641
82,606
28,942
167,189
(47,994)
(1,357)
(49,351)
3,376
$
53,536 $
39,474 $
338,634
392,170
35,450
427,620
948
84,819
85,767
36,923
122,690
304,930
165,370
219,040
91,625
476,035
208,780
248,254
23,399
271,653
387
53,560
53,947
24,063
78,010
101,167
147,296
46,536
294,999
193,643
119,195
(171,105)
(101,356)
1,963
(169,142)
(1,968)
3,441
(97,915)
4,388
$
(167,174) $
(102,303) $
(52,727)
Year Ended April 30,
2020
2019
2018
(in thousands)
Cost of Revenue
Cost of subscription - self managed and SaaS
$
4,147 $
3,383 $
Cost of professional services
Research and development
Sales and marketing
General and administrative
2,980
23,621
19,334
9,925
1,208
16,100
11,996
7,255
699
329
5,045
3,560
3,109
Total stock-based compensation expense
$
60,007 $
39,942 $
12,742
52
(2) Includes employer payroll taxes on employee stock transactions as follows (information for fiscal year 2018 is not meaningful):
Cost of Revenue
Cost of subscription - self managed and SaaS
Cost of professional services
Research and development
Sales and marketing
General and administrative
Total employer payroll tax on stock transactions
(3) Includes amortization of acquired intangibles as follows:
Cost of Revenue
Cost of license - self-managed
Cost of subscription - self-managed and SaaS
Sales and marketing
Total amortization of acquired intangibles
(4) Includes acquisition-related expenses as follows:
Research and development
Sales and marketing
General and administrative
Total acquisition-related expenses
Year Ended April 30,
2020
2019
2018
(in thousands)
349 $
28 $
178
2,179
3,237
1,550
10
939
747
90
7,493 $
1,814 $
—
—
—
—
—
—
Year Ended April 30,
2020
2019
2018
(in thousands)
948 $
387 $
5,820
3,300
2,421
148
10,068 $
2,956 $
387
1,521
119
2,027
Year Ended April 30,
2020
2019
2018
(in thousands)
34 $
689 $
522
17,418
—
259
655
—
608
17,974 $
948 $
1,263
$
$
$
$
$
$
53
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
Subscription - self-managed and SaaS
Total subscription revenue
Professional services
Total revenue
Cost of revenue
Cost of license - self-managed
Cost of subscription - self-managed and SaaS
Total cost of revenue - subscription
Cost of professional services
Total cost of revenue
Gross profit
Operating expenses
Research and development
Sales and marketing
General and administrative
Total operating expenses
Operating loss
Other income (expense), net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss
13 %
79 %
92 %
8 %
100 %
0 %
20 %
20 %
9 %
29 %
71 %
39 %
51 %
21 %
111 %
(40)%
0 %
(40)%
(1)%
(39)%
14 %
77 %
91 %
9 %
100 %
0 %
20 %
20 %
9 %
29 %
71 %
37 %
54 %
17 %
108 %
(37)%
1 %
(36)%
2 %
(38)%
Comparison of Fiscal Years Ended April 30, 2020 and 2019
Revenue
Revenue
License - self-managed
Subscription - self-managed and SaaS
Total subscription revenue
Professional services
Total revenue
Year Ended April 30,
Change
2020
2019
$
%
(in thousands)
$
$
53,536 $
39,474 $
338,634
392,170
35,450
208,780
248,254
23,399
14,062
129,854
143,916
12,051
427,620 $
271,653 $
155,967
16 %
77 %
93 %
7 %
100 %
0 %
17 %
17 %
8 %
25 %
75 %
35 %
52 %
18 %
105 %
(30)%
(1)%
(31)%
2 %
(33)%
36 %
62 %
58 %
52 %
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.
54
Cost of Revenue and Gross Margin
Cost of revenue
Cost of license - self-managed
Cost of subscription - self-managed and SaaS
Total cost of revenue - subscription
Cost of professional services
Total cost of revenue
Gross profit
Gross margin:
License - self-managed
Subscriptions - self-managed and SaaS
Total subscription margin
Professional services
Total gross margin
Year Ended April 30,
Change
2020
2019
$
%
(in thousands)
$
$
$
948
$
387
$
84,819
85,767
36,923
53,560
53,947
24,063
122,690
$
78,010
$
561
31,259
31,820
12,860
44,680
304,930
$
193,643
$
111,287
145 %
58 %
59 %
53 %
57 %
57 %
98 %
75 %
78 %
(4)%
71 %
99 %
74 %
78 %
(3)%
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
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.
Year Ended April 30,
Change
2020
2019
$
%
(in thousands)
55
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
$
(1,968) $
4,388 $
(6,356)
(145)%
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 in the United States, the Netherlands, and the United Kingdom. Our
effective tax rate was 1.2% and (4.5)% of our net loss before taxes for the year ended April 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
Revenue
License - self-managed
Subscription - self-managed and SaaS
Total subscription revenue
Professional services
Total revenue
Cost of revenue (1)(2)(3)
Cost of license - self- managed
Cost of subscription - self- managed and
SaaS
Total cost of revenue - subscription
Cost of professional services
Total cost of revenue
Gross profit
Operating expenses (1)(2)(3)(4)
Research and development
Sales and marketing
General and administrative
Total operating expenses
Operating loss (1)(2)(3)(4)
Other income (expense), net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss
Net loss per share attributable to ordinary
shareholders, basic and diluted
Weighted-average shares used to compute net
loss per share attributable to ordinary
shareholders, basic and diluted
$
$
April 30, 2020
January 31, 2020 October 31, 2019
July 31, 2019
April 30, 2019
January 31, 2018 October 31, 2018
July 31, 2018
Three Months Ended
$
16,862 $
97,041
14,495 $
89,703
12,272 $
79,407
113,903
9,720
123,623
104,198
8,983
113,181
91,679
9,427
101,106
9,907 $
72,483
82,390
7,320
89,710
12,624 $
60,999
9,406 $
55,180
10,204 $
48,232
73,623
6,976
80,599
64,586
6,249
70,835
58,436
5,139
63,575
7,240
44,369
51,609
5,035
56,644
346
347
158
97
97
96
97
97
23,987
24,333
9,940
34,273
89,350
45,591
58,180
20,153
123,924
(34,574)
687
(33,887)
(2,736)
23,196
23,543
9,862
33,405
79,776
46,119
54,829
21,096
122,044
(42,268)
(1,339)
(43,607)
674
19,741
19,899
8,862
28,761
72,345
38,478
54,020
31,808
124,306
(51,961)
1,684
(50,277)
(304)
17,895
17,992
8,259
26,251
63,459
35,182
52,011
18,568
105,761
(42,302)
931
(41,371)
398
16,548
16,645
6,797
23,442
57,157
31,004
45,044
13,194
89,242
(32,085)
704
(31,381)
3,454
13,941
14,037
6,387
20,424
50,411
25,850
37,196
11,151
74,197
(23,786)
1,877
(21,909)
(558)
12,870
12,967
5,620
18,587
44,988
25,332
34,634
12,092
72,058
(27,070)
264
(26,806)
733
10,201
10,298
5,259
15,557
41,087
18,981
30,422
10,099
59,502
(18,415)
596
(17,819)
759
(31,151) $
(44,281) $
(49,973) $
(41,769) $
(34,835) $
(21,351) $
(27,539) $
(18,578)
(0.38) $
(0.55) $
(0.64) $
(0.56) $
(0.48) $
(0.30) $
(0.63) $
(0.56)
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:
April 30, 2020
January 31,
2020
October 31,
2019
July 31, 2019
April 30, 2019
January 31,
2018
October 31,
2018
July 31, 2018
Three Months Ended
Cost of Revenue
Cost of subscription - self managed
and SaaS
$
Cost of professional services
Research and development
Sales and marketing
General and administrative
Total stock-based compensation
expense
1,278 $
902
6,534
5,828
2,690
1,008 $
879
6,256
4,540
2,905
946 $
638
5,870
4,658
2,304
915 $
561
4,961
4,308
2,026
1,195 $
440
4,714
3,911
1,667
1,095 $
364
4,604
3,471
1,577
680 $
227
4,685
2,762
2,885
413
177
2,097
1,852
1,126
$
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 ended April 30, 2019 is not
meaningful):
April 30, 2020
January 31,
2020
October 31,
2019
July 31, 2019
April 30, 2019
January 31,
2018
October 31,
2018
July 31, 2018
Three Months Ended
Cost of Revenue
Cost of subscription - self managed and
SaaS
$
Cost of professional services
Research and development
Sales and marketing
General and administrative
Total stock-based compensation
expense
28 $
42
293
421
61
21 $
16
238
335
129
166 $
86
888
1,887
753
134 $
34
760
594
607
28 $
10
939
747
90
— $
—
—
—
—
— $
—
—
—
—
$
845 $
739 $
3,780 $
2,129 $
1,814 $
— $
— $
—
—
—
—
—
—
(3) Includes amortization of acquired intangibles as follows:
April 30, 2020
January 31,
2020
October 31,
2019
July 31, 2019
April 30, 2019
January 31,
2018
October 31,
2018
July 31, 2018
Three Months Ended
Cost of Revenue
Cost of license - self managed
Cost of subscription - self managed
and SaaS
Sales and marketing
Total amortization of acquired
intangibles
$
346 $
347 $
158 $
97 $
97 $
96 $
97 $
97
1,763
1,441
2,660
1,451
861
379
536
29
570
33
638
38
637
40
$
3,550 $
4,458 $
1,398 $
662 $
700 $
772 $
774 $
576
37
710
(4) Includes acquisition-related expenses as follows:
April 30, 2020
January 31,
2020
October 31, 2019
July 31, 2019
April 30, 2019
January 31,
2018
October 31,
2018
July 31, 2018
Three Months Ended
Research and development
Sales and marketing
General and administrative
Total acquisition-related expenses
$
$
— $
14
198
212 $
— $
395
933
— $
113
13,849
34 $
—
2,438
1,328 $
13,962 $
2,472 $
168 $
—
—
168 $
173 $
—
—
173 $
174 $
—
53
227 $
174
—
206
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:
April 30, 2020
January 31, 2020 October 31, 2019
July 31, 2019
April 30, 2019
January 31, 2018
October 31, 2018
July 31, 2018
Three Months Ended
Revenue
License - self-managed
Subscription - self-managed and SaaS
Total subscription revenue
Professional services
Total revenue
Cost of revenue (1)(2)(3)
Cost of license - self-managed
Cost of subscription - self- managed and
SaaS
Total cost of revenue - subscription
Cost of professional services
Total cost of revenue
Gross profit
Operating expenses (1)(2)(3)(4)
Research and development
Sales and marketing
General and administrative
Total operating expenses
Operating loss (1)(2)(3)(4)
Other income (expense), net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss
14 %
78 %
92 %
8 %
100 %
0 %
20 %
20 %
8 %
28 %
72 %
37 %
47 %
16 %
100 %
(28) %
1 %
(27) %
(2) %
(25) %
13 %
79 %
92 %
8 %
100 %
0 %
21 %
21 %
9 %
30 %
70 %
41 %
48 %
18 %
107 %
(37) %
(2) %
(39) %
0 %
(39) %
12 %
79 %
91 %
9 %
100 %
0 %
20 %
20 %
8 %
28 %
72 %
38 %
53 %
31 %
122 %
(50) %
0 %
(50) %
(1) %
(49) %
11 %
81 %
92 %
8 %
100 %
0 %
20 %
20 %
9 %
29 %
71 %
39 %
58 %
21 %
118 %
(47) %
1 %
(46) %
1 %
(47) %
15 %
76 %
91 %
9 %
100 %
0 %
21 %
21 %
8 %
29 %
71 %
39 %
56 %
16 %
111 %
(40) %
1 %
(39) %
4 %
(43) %
13 %
78 %
91 %
9 %
100 %
0 %
20 %
20 %
9 %
29 %
71 %
36 %
52 %
16 %
104 %
(33) %
2 %
(31) %
(1) %
(30) %
16 %
76 %
92 %
8 %
100 %
0 %
20 %
20 %
9 %
29 %
71 %
40 %
54 %
19 %
113 %
(42) %
0 %
(42) %
1 %
(43) %
13 %
78 %
91 %
9 %
100 %
0 %
18 %
18 %
9 %
27 %
73 %
34 %
54 %
18 %
106 %
(33) %
1 %
(32) %
1 %
(33) %
(1) Includes stock-based compensation expense as follows:
April 30, 2020
January 31, 2020 October 31, 2019
July 31, 2019
April 30, 2019
January 31, 2018 October 31, 2018
July 31, 2018
Three Months Ended
Cost of Revenue
Cost of subscription - self managed
and SaaS
Cost of professional services
Research and development
Sales and marketing
General and administrative
Total stock-based compensation
expense
1 %
1 %
5 %
5 %
2 %
1 %
1 %
5 %
4 %
3 %
1 %
0 %
6 %
5 %
2 %
1 %
1 %
6 %
5 %
2 %
1 %
1 %
6 %
5 %
2 %
2 %
0 %
7 %
5 %
2 %
1 %
0 %
8 %
4 %
5 %
1 %
0 %
4 %
3 %
2 %
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 April 30, 2019 is not
meaningful):
April 30, 2020
January 31, 2020
October 31, 2019
July 31, 2019
April 30, 2019
January 31, 2018
October 31, 2018
July 31, 2018
Three Months Ended
Cost of Revenue
Cost of subscription - self managed
and SaaS
Cost of professional services
Research and development
Sales and marketing
General and administrative
Total stock-based compensation
expense
0 %
0 %
0 %
1 %
0 %
1 %
0 %
0 %
0 %
1 %
0 %
1 %
0 %
0 %
1 %
2 %
1 %
4 %
0 %
0 %
1 %
1 %
1 %
3 %
0 %
0 %
1 %
1 %
0 %
2 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
(3) Includes amortization of acquired intangibles as follows:
April 30, 2020
January 31, 2020 October 31, 2019
July 31, 2019
April 30, 2019
January 31, 2018
October 31, 2018
July 31, 2018
Three Months Ended
Cost of Revenue
Cost of license - self- managed
Cost of subscription - self- managed
and SaaS
Sales and marketing
Total amortization of acquired
intangibles
0 %
2 %
1 %
3 %
0 %
3 %
1 %
4 %
0 %
1 %
0 %
1 %
0 %
1 %
0 %
1 %
0 %
1 %
0 %
1 %
0 %
1 %
0 %
1 %
0 %
1 %
0 %
1 %
0 %
1 %
0 %
1 %
(4) Includes acquisition-related expenses as follows:
April 30, 2020
January 31, 2020 October 31, 2019
July 31, 2019
April 30, 2019
January 31, 2018
October 31, 2018
July 31, 2018
Research and development
Sales and marketing
General and administrative
Total acquisition-related expenses
0 %
0 %
0 %
0 %
0 %
0 %
1 %
1 %
0 %
0 %
14 %
14 %
0 %
0 %
3 %
3 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
0 %
1 %
1 %
Three Months Ended
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:
2020
Year Ended April 30,
2019
(in thousands)
2018
Net cash used in operating activities
Net cash provided by (used in) investing activities
Net cash provided by financing activities
Net Cash Used in Operating Activities
$
$
$
(30,564) $
(29,187) $
(23,937) $
(20,819)
(8,283) $
58,539 $
281,788 $
8,330
3,427
Net cash used in operating activities during the year ended April 30, 2020 was $30.6 million, which resulted from a net loss of $167.2 million adjusted for
non-cash charges of $117.0 million and net cash inflow of $19.6 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of
$60.0 million for stock-based compensation expense, $28.3 million for amortization of deferred contract acquisition costs, $12.9 million of depreciation and
intangible asset amortization expense, $8.8 million of non-cash acquisition expense, $7.4 million in non-cash operating lease costs and $1.1 million of other non-
cash transactions which were partially offset by a $1.5 million increase in deferred income taxes. The net cash inflow from changes in operating assets and
liabilities was the result of a $85.7 million increase in deferred revenue due to higher billings and a net increase of $30.9 million in accounts payable, accrued
expenses and accrued compensation and benefits due to growth in our business and higher headcount, and a decrease of $2.7 million in prepaid and other assets.
These inflows were partially offset by a $46.8 million increase in accounts receivable due to higher billings and timing of collections from our customers, an
increase in deferred contract acquisition costs of $46.2 million as our sales commissions increased due to the addition of new customers and expansion of our
existing customer subscriptions and a $6.7 million 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 ended April 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 ended April 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 ended April 30, 2020 was primarily due to $24.4 million cash used for the
acquisition of Endgame and $5.1 million of capital expenditures during the period.
Net cash used in investing activities of $8.3 million during the year ended April 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 ended April 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 ended April 30, 2020 was due to $61.5 million proceeds from option exercises
during the period, which was partially offset by payment of withholding taxes of $2.8 million for an acquisition-related expense that was settled in ordinary shares
of the Company.
Net cash provided by financing activities of $281.8 million during the year ended April 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 ended April 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 April 30, 2020:
Total
Less than
1 year
1-3 years
(in thousands)
3-5 years
More than
5 years
$
$
133,902 $
33,403 $
72,166 $
28,333 $
40,594
8,636
16,187
12,968
174,496 $
42,039 $
88,353 $
41,301 $
—
2,803
2,803
Purchase obligations(1)
Operating lease commitments(2)
Total
(1)
(2)
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.
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 of April 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 of April 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.
We prepare our financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”). The preparation of
financial statements in accordance with GAAP requires certain estimates, assumptions and judgments to be made that may affect our consolidated financial
statements. Accounting policies that have a significant impact on our results are described in Note 2 to our consolidated financial statements included elsewhere in
this Annual Report on Form 10-K. The accounting policies discussed in this section are those that we consider to be the most critical. We consider an accounting
policy to be critical if the policy is subject to a material level of judgment and if changes in those judgments are reasonably likely to materially impact our results.
Critical Accounting Policies
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.
Effective May 1, 2019, we updated our sales commissions plan by incorporating different commission rates for contracts with new customers and
incremental sales to existing customers, and for subsequent subscription renewals. Subsequent to this change, sales commissions for renewal of a subscription
contract are not considered commensurate with the commissions paid for contracts with new customers and incremental sales to existing customers given the
substantive difference in commission rates in proportion to their respective contract values. Effective May 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 ended April 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 on U.S.
Treasury zero-coupon issues with a remaining term equivalent to that of the options for each expected term.
Dividend yield. The expected dividend assumption is based on our current expectations about our anticipated dividend policy. As we have no history
of paying any dividends, we used an expected dividend yield of zero.
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:
Expected term (in years)
Expected stock price volatility
Risk-free interest rate
Dividend yield
2020
2.00 - 7.27
54.8%
1.4% - 2.0%
0%
Year Ended April 30,
2019
6.02 - 6.08
40.5% - 46.7%
2.4% - 3.1%
0%
2018
6.02 - 6.08
40.7% - 44.1%
1.8% - 2.6%
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 the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as
Compensation. In the absence of a public trading market, our board of directors, with input from management, exercised significant judgment and considered
numerous objective and subjective factors to determine the fair value of our ordinary shares as of the date of each option grant, including the following factors:
•
•
•
•
•
•
•
•
•
•
•
•
•
contemporaneous valuations performed at periodic intervals by unrelated third-party valuation firms;
the prices, rights, preferences and privileges of our redeemable convertible preference shares relative to those of our ordinary shares;
the lack of marketability of our ordinary shares;
our actual and expected operating and financial performance;
current business conditions and projections;
our hiring of key personnel and the experience of our management;
our history and the timing of the introduction of new products;
our stage of development;
the likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our business given prevailing market
conditions;
the illiquidity of stock-based awards involving securities in a private company;
the market performance of comparable publicly traded companies;
secondary stock transactions, including a secondary stock purchase transaction that included certain of our employees, founders and certain of our
affiliated shareholders; and
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 in the Netherlands and numerous other jurisdictions including federal, state, and local jurisdictions in the United States
and all other tax jurisdictions or countries in which we conduct business. Earnings from our non-Dutch activities are subject to local country income tax.
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 within the 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 of April 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 in U.S. dollars. For the year ended April 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 of the 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 the U.S. dollar to other currencies would have a material effect on operating results.
As of April 30, 2020, our cash, cash equivalents, and restricted cash were primarily denominated in U.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
Financial Statements:
Consolidated Balance Sheets as of April 30, 2020 and 2019
Consolidated Statements of Operations for the years ended April 30, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Loss for the years ended April 30, 2020, 2019 and 2018
Consolidated Statements of Redeemable Convertible Preference Shares and Shareholders’ Equity (Deficit) for the years ended April 30, 2020,
2019 and 2018
Consolidated Statements of Cash Flows for the years ended April 30, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
69
70
73
74
75
76
77
78
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Elastic N.V.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Elastic N.V. and its subsidiaries (the “Company”) as of April 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 ended April 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 of April 30, 2020, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway 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 of April 30,
2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2020 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of April 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 May 1, 2019.
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 the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities 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 ended April 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 Endgame, Inc. - Valuation of Developed Technology Intangible Asset
As described in Note 5 to the consolidated financial statements, on October 8, 2019, the Company completed the acquisition of Endgame, 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 of Endgame, 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/ PricewaterhouseCoopers LLP
San Jose, California
June 26, 2020
We have served as the Company’s auditor since 2018.
72
Elastic N.V.
Consolidated Balance Sheets
(in thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable, net of allowance for doubtful accounts of $1,247 and $1,411 as of April 30, 2020 and April 30, 2019,
respectively
Deferred contract acquisition costs
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Goodwill
Operating lease right-of-use assets
Intangible assets, net
Deferred contract acquisition costs, non-current
Deferred tax assets
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses and other liabilities
Accrued compensation and benefits
Operating lease liabilities
Deferred revenue
Total current liabilities
Deferred revenue, non-current
Operating lease liabilities, non-current
Other liabilities, non-current
Total liabilities
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 April 30,
2020 and 73,675,083 shares issued and outstanding as of April 30, 2019
Treasury stock, 35,937 shares (repurchased at an average price of $10.30 per share)
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
As of April 30,
2020
2019
$
297,081 $
298,000
2,308
2,280
128,690
19,537
32,623
480,239
7,760
197,877
32,783
50,455
24,012
3,164
7,621
$
$
803,911 $
11,485 $
22,210
48,409
7,639
231,681
321,424
28,021
27,827
12,992
390,264
—
856
(369)
898,788
(1,377)
(484,251)
413,647
81,274
17,215
30,872
429,641
5,448
19,846
—
6,723
8,935
1,748
13,397
485,738
4,450
18,740
22,147
—
158,243
203,580
12,423
—
6,723
222,726
—
754
(369)
581,135
(1,431)
(317,077)
263,012
The accompanying notes are an integral part of these consolidated financial statements.
$
803,911 $
485,738
73
Elastic N.V.
Consolidated Statements of Operations
(in thousands, except share and per share data)
Year Ended April 30,
2020
2019
2018
$
53,536 $
39,474 $
Revenue
License - self-managed
Subscription - self-managed and SaaS
Total subscription revenue
Professional services
Total revenue
Cost of revenue
Cost of license - self-managed
Cost of subscription - self-managed and SaaS
Total cost of revenue - subscription
Cost of professional services
Total cost of revenue
Gross profit
Operating expenses
Research and development
Sales and marketing
General and administrative
Total operating expenses
Operating loss
Other income (expense), net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss
Net loss per share attributable to ordinary shareholders, basic and diluted
Weighted-average shares used to compute net loss per share attributable to ordinary shareholders, basic
and diluted
338,634
392,170
35,450
427,620
948
84,819
85,767
36,923
122,690
304,930
165,370
219,040
91,625
476,035
208,780
248,254
23,399
271,653
387
53,560
53,947
24,063
78,010
101,167
147,296
46,536
294,999
193,643
119,195
25,759
123,623
149,382
10,553
159,935
387
27,920
28,307
12,433
40,740
55,641
82,606
28,942
167,189
(47,994)
(1,357)
(49,351)
3,376
(171,105)
(101,356)
1,963
(169,142)
(1,968)
3,441
(97,915)
4,388
$
$
(167,174) $
(102,303) $
(52,727)
(2.12) $
(1.86) $
(1.65)
78,799,732
54,893,365
32,033,792
The accompanying notes are an integral part of these consolidated financial statements.
74
Elastic N.V.
Consolidated Statements of Comprehensive Loss
(in thousands)
Net loss
Other comprehensive loss:
Foreign currency translation adjustments
Other comprehensive income (loss)
Total comprehensive loss
Year Ended April 30,
2020
(167,174)
$
2019
$(102,303) $
2018
(52,727)
54
54
(470)
(470)
931
931
$
(167,120) $
(102,773) $
(51,796)
The accompanying notes are an integral part of these consolidated financial statements.
75
Elastic N.V.
Consolidated Statements of Redeemable Convertible Preference Shares
and Shareholders’ Equity (Deficit)
(in thousands, except share data)
Balances as of April 30, 2017
28,939,466
$ 200,921
31,130,047
$
31
$
(25) $ 35,395
$
(1,892) $ (162,047) $
(128,538)
Redeemable Convertible
Preference Shares
Ordinary Shares
Shares
Amount
Shares
Amount
Treasury
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders'
Equity (Deficit)
Issuance of ordinary shares upon exercise of stock options
Issuance of ordinary shares related to early exercised stock options
Repurchase of ordinary shares
Vesting of early exercised stock options
Ordinary shares issued in connection with the acquisition of Prelert
Ordinary shares issued in connection with the acquisition of Opbeat
Ordinary shares issued in connection with the acquisition of Swiftype
Stock-based compensation
Net loss
Foreign currency translation
Balances as of April 30, 2018
Change in par value upon conversion from B.V. to N.V.
Conversion of redeemable convertible preference shares to ordinary shares upon initial
public offering
Issuance of ordinary shares upon initial public offering, net of underwriting discounts
and issuance costs
Issuance of ordinary shares upon exercise of stock options
Issuance of ordinary shares upon subscription of restricted stock awards
Vesting of early exercised stock options
Vesting of ordinary shares subject to repurchase
Repurchase of early exercised stock options
Ordinary shares issued in connection with the acquisition of Lambda Lab
Stock-based compensation
Net loss
Foreign currency translation
Balances as of April 30, 2019
Issuance of ordinary shares upon exercise of stock options
Issuance of ordinary shares upon release of restricted stock units
Ordinary shares issued in connection with the acquisition of Endgame
Ordinary shares issued in connection with the acquisition of Endgame held in escrow
Assumption of stock option plan as consideration for acquisition of Endgame
Repurchase of unvested RSAs
Vesting of ordinary shares subject to repurchase
Stock-based compensation
Net loss
Foreign currency translation
Balances as of April 30, 2020
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
668,518
148,630
(33,937)
—
98,425
488,998
732,274
—
—
—
28,939,466
200,921
33,232,955
—
—
—
(28,939,466)
(200,921)
28,939,466
1
—
—
—
—
—
1
—
—
—
33
303
289
93
33
3
—
—
—
—
—
—
—
—
—
(344)
—
—
—
—
—
—
2,336
—
—
109
—
4,018
8,391
12,293
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,337
—
(344)
109
—
4,018
8,392
12,293
(52,727)
(52,727)
931
—
931
(369)
62,542
(961)
(214,774)
(153,529)
—
—
—
—
—
—
—
—
—
—
—
—
(303)
200,632
263,749
18,519
(3)
1,019
449
—
—
34,531
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
200,921
263,842
18,552
—
1,019
449
—
—
34,531
(102,303)
(102,303)
(470)
—
(470)
8,050,000
3,117,320
244,498
—
—
(43,630)
134,474
—
—
—
73,675,083
754
(369)
581,135
(1,431)
(317,077)
6,815,098
152,688
1,983,663
235,031
—
(4,585)
—
—
—
—
77
2
21
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
61,386
—
167,316
19,824
9,309
—
2,730
57,088
—
—
—
—
—
—
—
—
—
—
—
54
—
—
—
—
—
—
—
—
263,012
61,463
2
167,337
19,826
9,309
—
2,730
57,088
(167,174)
(167,174)
—
54
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.
76
Elastic N.V.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization
Amortization of deferred contract acquisition costs
Non-cash operating lease cost
Stock-based compensation expense
Non-cash acquisition expense settled with shares
Deferred income taxes
Other
Changes in operating assets and liabilities, net of impact of business acquisitions:
Accounts receivable, net
Deferred contract acquisition costs
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued expenses and other liabilities
Accrued compensation and benefits
Operating lease liabilities
Deferred revenue
Net cash used in operating activities
Cash flows from investing activities
Purchases of property and equipment
Maturities of short-term investments
Business acquisitions, net of cash acquired
Other
Net cash provided by (used in) investing activities
Cash flows from financing activities
Net proceeds from issuance of ordinary shares in initial public offering
Proceeds from issuance of ordinary shares upon exercise of stock options
Proceeds from the issuance of ordinary shares related to early exercise of stock options
Repurchase of ordinary shares
Repurchase of early exercised options
Repayment of notes payable
Payment of deferred offering costs
Payment of withholding taxes related to acquisition expense settled in shares
Net cash provided by financing activities
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash, beginning of period
Cash, cash equivalents, and restricted cash, end of period
Supplemental disclosures of cash flow information
Cash paid for income taxes
Cash paid for operating lease liabilities
Cash paid for interest
Supplemental disclosures of non-cash investing and financing information
Purchases of property and equipment included in accounts payable
Operating lease right-of-use assets for new lease obligations
Vesting of early exercised stock options
Vesting of shares subject to repurchase
Issuance of ordinary shares for business acquisition
Assumption of stock option plan as consideration for business combination
Deferred offering costs accrued, unpaid
Year Ended April 30,
2020
2019
2018
$
(167,174) $
(102,303) $
(52,727)
12,859
28,314
7,422
60,007
8,834
(1,539)
1,123
(46,753)
(46,217)
(2,950)
5,603
5,968
5,220
19,710
(6,661)
85,670
(30,564)
(5,063)
—
(24,373)
249
(29,187)
—
61,463
—
—
—
(90)
—
(2,834)
58,539
321
(891)
5,695
21,374
—
39,942
—
3,621
69
(29,804)
(30,006)
(18,049)
(3,292)
2,226
10,872
3,842
—
71,876
(23,937)
(3,447)
—
(1,986)
(2,850)
(8,283)
269,514
18,552
—
—
(500)
(106)
(5,672)
—
281,788
(897)
248,671
$
$
$
$
$
$
$
$
$
$
$
300,280
299,389 $
51,609
300,280 $
3,497 $
7,371 $
2 $
101 $
12,332 $
— $
2,730 $
178,329 $
9,309 $
— $
3,067 $
— $
9 $
157 $
— $
1,019 $
449 $
— $
— $
— $
5,066
12,731
—
12,742
—
(323)
1
(21,606)
(20,497)
(6,920)
(8,502)
(23)
5,380
8,045
—
45,814
(20,819)
(2,968)
15,000
(3,702)
—
8,330
—
2,337
1,566
(344)
—
(132)
—
—
3,427
781
(8,281)
59,890
51,609
3,189
—
14
6
—
109
—
12,410
—
242
The accompanying notes are an integral part of these consolidated financial statements.
77
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
78
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):
Cash and cash equivalents
Restricted cash
Cash, cash equivalents and restricted cash
Short-Term Investments
As of April 30,
2020
297,081 $
2,308
2019
298,000
2,280
299,389 $
300,280
$
$
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
79
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.
80
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):
Beginning balance
Bad debt expense
Accounts written off
Ending balance
Year ended April 30,
2020
2019
2018
$
$
1,411 $
776 $
193
(357)
1,105
(470)
1,247 $
1,411 $
357
1,265
(846)
776
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 of April 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
ended April 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 ended April 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.
Developed technology
Customer relationships
Trade names
Impairment of Long-Lived Assets
Useful life
(in years)
4-5
4
4
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
ended April 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 in October 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 ended April 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. Effective May 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 ended April 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"), on October 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 of October
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 Shareholders
The 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 in October 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 of April 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 in the Netherlands and numerous foreign jurisdictions. These foreign jurisdictions may have different statutory
rates than the 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 the Endgame, 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 of April 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: In February 2016, the Financial 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 effective May 1, 2019 using the additional transition method described in ASU No. 2018-11,
Leases – Targeted Improvements, which was issued in July 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 on May 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 of May 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: In February 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 the U.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 the U.S. federal corporate income tax rate in the Tax Cuts and
Jobs Act is recognized. The Company adopted this guidance on May 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: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, and has since issued various amendments including ASU No. 2018-19, ASU No. 2019-04, 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 ending April 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: In January 2017, the FASB issued ASU No. 2017-04, Intangibles— Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill 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 ending April 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: In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies, removes and adds
certain disclosure requirements on fair value measurements based on the FASB
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 ending April 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: In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for
capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred
to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a
hosting arrangement that is a service contract is not affected by the amendments in this ASU. The new guidance becomes effective for the Company for the fiscal
year ending April 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: In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,
eliminating certain exceptions to the general principles in ASC 740 related to intra-period tax allocation, deferred tax liability and general methodology for
calculating income taxes. Additionally, the ASU makes other changes for matters such as franchise taxes that are partially based on income, transactions with a
government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax
laws in interim periods. The new guidance becomes effective for the Company for the fiscal year ending April 30, 2022. Early adoption is permitted. The Company
does not expect the adoption of the new accounting standard to have a material impact on its consolidated financial statements.
3. Revenue and Performance Obligations
Disaggregation of Revenue
The following table presents revenue by category (in thousands):
2020
% of
Total
Revenue
Amount
Year Ended April 30,
2019
Amount
% of
Total
Revenue
2018
% of
Total
Revenue
Amount
Self-managed subscription
$
299,880
70 % $
202,419
74 % $
123,898
53,536
246,344
92,290
392,170
35,450
12 %
58 %
22 %
92 %
8 %
39,474
162,945
45,835
248,254
23,399
14 %
60 %
17 %
91 %
9 %
25,759
98,139
25,484
149,382
10,553
77 %
16 %
61 %
16 %
93 %
7 %
$
427,620
100 % $
271,653
100 % $
159,935
100 %
License
Subscription
SaaS
Total subscription revenue
Professional services
Total revenue
Remaining Performance Obligations
As of April 30, 2020, the Company had $535.6 million of remaining performance obligations, which is comprised of product and services revenue not yet
delivered. As of April 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 April 30, 2020 (in thousands):
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 April 30, 2019 (in thousands):
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 Acquisition
Endgame, Inc.
On October 8, 2019, the Company acquired all outstanding shares of Endgame, a security company offering endpoint protection technology, for a total
acquisition price of $234.0 million. Elastic paid the purchase price through (i) the issuance of 2,218,694 ordinary shares in respect of Endgame’s outstanding
capital stock, warrants, convertible notes, and certain retention awards, (ii) the cash repayment of Endgame’s outstanding indebtedness of $20.4 million, (iii) the
assumption of Endgame’s outstanding stock options, (iv) a $0.4 million cash deposit to an expense fund for the fees and expenses of the representative and agent of
Endgame securityholders, (v) the cash payment of Endgame’s transaction expenses of $5.9 million, and (vi) the cash payment of withholding taxes related to
acquisition expense settled in shares of $2.8 million. Approximately 11% of the ordinary shares issued, or 235,031 shares, is being held in an indemnity escrow
fund for 18 months after the acquisition close date. For purposes of determining the total acquisition price of $234.0 million, the Company used the ordinary share
price of $89.3836 which was determined on the basis of the volume weighted average price per share rounded to four decimal places for the twenty (20)
consecutive trading days ending with the complete trading day ending five (5) trading days prior to the date upon which the acquisition was consummated.
The fair value of the shares transferred as consideration was $84.12 per share and was determined on the basis of the closing stock price of the Company’s
ordinary shares on the date of acquisition. The fair value of the assumed stock options was determined by using a Black-Scholes option pricing model with the
applicable assumptions as of the acquisition date.
The stock options assumed on the acquisition date will continue to vest as the Endgame employees provide services in the post-acquisition period. The
fair value of these awards will be recorded as share-based compensation expense over the respective vesting period of each stock option.
The acquisition was accounted for as a business combination and the total purchase price was allocated to the net tangible and intangible assets and
liabilities based on their respective fair values on the acquisition date and the excess was recorded as goodwill. The 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 the U.S. GAAP purchase price and the preliminary allocation of the purchase price at fair value (in
thousands):
Cash paid
Ordinary shares
Assumption of stock option plan
Total consideration
$
$
26,633
178,331
9,309
214,273
The above U.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
Restricted cash
Accounts receivable
Prepaid and other current assets
Operating lease right-of-use assets
Property and equipment
Intangible assets
Other assets
Goodwill
Accounts payable
Accrued expenses and other current liabilities
Accrued compensation and benefits
Operating lease liabilities, current
Deferred revenue, current
Deferred revenue, non-current
Operating lease liabilities, non-current
Other liabilities, non-current
Total purchase consideration
Identifiable intangible assets include (in thousands):
Developed technology
Customer relationships
Trade name
Intangible assets
$
2,220
40
2,661
549
4,363
503
53,800
58
178,764
(1,112)
(3,035)
(5,042)
(981)
(3,532)
(2,661)
(3,551)
(8,771)
$
214,273
Useful life (in
years)
5
4
4
Total
32,700
19,200
1,900
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
90
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).
Pro forma revenue (1)
Pro forma net loss (1)
(1) As if the acquisition of Endgame was consummated on May 1, 2018
Year Ended April 30,
2020
2019
$
$
435,234
(176,019)
$
$
285,917
(152,280)
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
Developed technology
Trade name
Goodwill
Net liabilities acquired
Total purchase consideration
$
$
$
1,997
1,339
15
1,038
(395)
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
91
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
Ordinary shares
Total consideration
Developed technology
Trade name
Customer relationships
Goodwill
Net assets acquired
Total purchase consideration
$
$
$
1,724
8,392
10,116
5,392
97
158
1,885
2,584
$
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):
Developed technology
Customer relationships
Trade name
Total identifiable intangible assets
Fair Value
Useful life
(in years)
$
$
5,392
158
97
5,647
4
4
4
92
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
Ordinary shares
Total consideration
Developed technology
Goodwill
Net assets acquired
Total purchase consideration
$
$
$
$
3,123
4,019
7,142
1,846
4,925
371
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):
Developed technology
Fair Value
Useful life
(in years)
$
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.
93
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):
Prepaid hosting costs
Deposits
Prepaid software subscription costs
Deferred stock-based compensation expense
Prepaid taxes
Prepaid value added taxes
Other
As of April 30,
2020
2019
$
12,228 $
12,006
1,857
3,104
—
3,612
5,167
6,655
1,268
4,326
784
4,239
8,249
Total prepaid expenses and other current assets
$
32,623 $
30,872
Property and Equipment, Net
The cost and accumulated depreciation of property and equipment were as follows (in thousands):
Leasehold improvements
Computer hardware and software
Furniture and fixtures
Assets under construction
Total property and equipment
Less: accumulated depreciation
Property and equipment, net
Useful Life (in years)
As of April 30,
2020
2019
Lesser of estimated useful
life or remaining lease term
$
8,405 $
3
3-5
5,687
5,072
1,661
20,825
(13,065)
6,176
5,393
3,094
1,243
15,906
(10,458)
$
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):
Developed technology
Customer relationships
Trade names
Total
Gross Fair Value
Accumulated
Amortization
Net Book Value
$
$
44,830 $
12,412 $
19,598
2,872
3,210
1,223
67,300 $
16,845 $
32,418
16,388
1,649
50,455
Weighted Average
Remaining
Useful Life
(in years)
4.1
3.4
3.4
3.9
94
Intangible assets consisted of the following as of April 30, 2019 (in thousands):
Developed technology
Customer relationships
Trade names
Total
Accumulated
Amortization
Net Book Value
Weighted Average
Remaining
Useful Life
(in years)
Gross Fair Value
$
12,130 $
398
972
5,646 $
268
863
$
13,500 $
6,777 $
6,484
130
109
6,723
2.5
2.2
2.2
2.5
Amortization expense for the intangible assets for the years ended April 30, 2020, 2019 and 2018 was as follows (in thousands):
Year Ended April 30,
2020
2019
2018
Cost of revenue—cost of license—self-managed
Cost of revenue—cost of subscription—self-managed and SaaS
Sales and marketing
Total amortization of acquired intangible assets
$
$
948 $
387 $
5,820
3,300
2,421
148
10,068 $
2,956 $
The expected future amortization expense related to the intangible assets as of April 30, 2020 was as follows (in thousands, by fiscal year):
2021
2022
2023
2024
2025
Thereafter
Total
Goodwill
The following table represents the changes to goodwill (in thousands):
Balance as of April 30, 2018
Addition from acquisition
Foreign currency translation adjustment
Balance as of April 30, 2019
Addition from acquisition
Foreign currency translation adjustment
Balance as of April 30, 2020
There was no impairment of goodwill during the years ended April 30, 2020, 2019 and 2018.
95
387
1,521
119
2,027
14,167
12,948
11,890
8,716
2,734
—
$
$
50,455
Carrying Amount
19,182
$
1,038
(374)
19,846
178,764
(733)
197,877
$
$
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
Accrued expenses
Income taxes payable
Value added taxes payable
Share repurchase liability
Other
As of April 30,
2020
2019
$
10,864 $
—
7,230
—
4,116
8,124
149
4,236
1,612
4,619
Total accrued expenses and other liabilities
$
22,210 $
18,740
Accrued Compensation and Benefits
Accrued compensation and benefits consisted of the following (in thousands):
Accrued vacation
Accrued commissions
Accrued payroll and withholding taxes
Post-combination compensation liability
Other
Total accrued compensation and benefits
Contract Balances
As of April 30,
2020
2019
$
17,971 $
16,259
7,588
—
6,591
9,655
6,510
1,868
655
3,459
$
48,409 $
22,147
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):
Unbilled accounts receivable, included in accounts receivable, net
Deferred contract acquisition costs
Deferred revenue
As of April 30,
2020
2019
$
$
$
2,622 $
43,549 $
1,710
26,150
259,702 $
170,666
Significant changes in the unbilled accounts receivable and the deferred revenue balances were as follows (in thousands):
Beginning balance
Amounts transferred to accounts receivable from unbilled accounts receivable presented at the
beginning of the period
Revenue recognized during the period in excess of invoices issued
Ending balance
96
Unbilled Accounts Receivable
Year Ended April 30,
2020
2019
2018
1,710 $
1,139 $
1,114
(1,710)
2,622
(1,139)
1,710
2,622 $
1,710 $
(1,114)
1,139
1,139
$
$
Beginning balance
Additions through acquisition
Increases due to invoices issued, excluding amounts recognized as revenue during the period
Revenue recognized that was included in deferred revenue balance at beginning of period
Ending balance
Deferred Contract Acquisition Costs
Deferred Revenue
Year Ended April 30,
2020
170,666 $
2019
102,561 $
6,192
242,136
(159,292)
—
163,963
(95,858)
259,702 $
170,666 $
$
$
2018
54,152
859
96,944
(49,394)
102,561
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):
Beginning balance
Capitalization of contract acquisition costs
Amortization of deferred contract acquisition costs
Ending balance
Deferred contract acquisition costs, current
Deferred contract acquisition costs, non- current
Total deferred contract acquisition costs
7. Commitments and Contingencies
Cloud Hosting Commitments
Year Ended April 30,
2020
2019
2018
26,150 $
18,079 $
45,713
(28,314)
29,445
(21,374)
43,549 $
26,150 $
19,537
24,012
17,215
8,935
43,549 $
26,150 $
10,135
20,675
(12,731)
18,079
12,125
5,954
18,079
$
$
$
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
97
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,
2021
2022
2023
2024
Total
Letters of Credit
Cloud Hosting
Commitments
33,403
37,583
34,583
28,333
133,902
$
$
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.
98
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
Short-term lease cost
Variable lease cost
Total lease cost
Lease term and discount rate information as of April 30, 2020 are summarized as follows:
Weighted average remaining lease term (years)
Weighted average discount rate
$
$
8,435
3,111
1,883
13,429
4.83
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
2022
2023
2024
2025
Thereafter
Total minimum lease payments
Less imputed interest
Present value of future minimum lease payments
Less current lease liabilities
Operating lease liabilities, non-current
$
$
$
$
$
$
8,636
8,138
8,049
7,112
5,857
2,803
40,595
(5,129)
35,466
(7,639)
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
2021
2022
2023
2024
Thereafter
Total
10. Ordinary Shares
$
6,455
5,494
5,106
5,217
4,602
7,020
$
33,894
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).
99
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:
Stock options issued and outstanding
RSUs issued and outstanding
Remaining shares available for future issuance under the 2012 Plan
Total ordinary shares reserved
Early Exercised Options
As of April 30,
2020
15,260,506
2,472,092
12,461,850
30,194,448
2019
22,866,438
740,467
9,649,123
33,256,028
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.
100
The equity awards available for grant for the periods presented were as follows:
Available at beginning of fiscal year
Awards authorized
Options granted
Options cancelled
Options repurchased
RSUs granted
RSUs cancelled
RSAs repurchased
Available at end of period
Year Ended April 30,
2020
9,649,123
3,683,754
(172,031)
1,181,482
—
(2,101,271)
216,208
4,585
2019
2,061,282
12,000,000
(4,722,404)
976,130
43,630
(732,701)
23,186
—
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):
Balance as of April 30, 2018
Stock options granted
Stock options exercised
Stock options cancelled
Balance as of April 30, 2019
Stock options granted
Stock options assumed in acquisition
Stock options exercised
Stock options cancelled
Stock options assumed in acquisition cancelled
Balance as of April 30, 2020
Exercisable as of April 30, 2020
Number of
Stock Options
Outstanding
Stock Options Outstanding
Weighted-
Average
Exercise
Price
Remaining
Contractual
Term
(in years)
22,237,484 $
4,722,404 $
(3,117,320) $
(976,130) $
22,866,438 $
172,031 $
245,390 $
(6,815,098) $
(1,181,482) $
(26,773) $
15,260,506 $
8,007,248 $
8.65
23.27
5.95
11.78
11.90
81.39
48.99
9.01
15.81
71.35
14.17
11.29
Aggregate
Intrinsic
Value
8.31 $
98,365
7.98 $
1,684,106
7.27 $
6.80 $
767,795
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 of Swiftype, a privately-held company headquartered in the 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 the Swiftype 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 the Swiftype 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:
Outstanding at April 30, 2018
RSAs subscribed
Outstanding at April 30, 2019
Outstanding at April 30, 2020
RSUs
Number of Awards
Weighted-
Average
Grant Date
Fair Value
244,498 $
(244,498) $
11.46
11.46
—
—
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:
Outstanding and unvested at April 30, 2018
RSUs granted
RSUs released
RSUs cancelled
Outstanding and unvested at April 30, 2019
RSUs granted
RSUs released
RSUs cancelled
Outstanding and unvested at April 30, 2020
102
Number of Awards
Weighted-Average
Grant Date
Fair Value
57,000 $
732,701 $
(26,048) $
(23,186) $
740,467 $
2,101,271 $
(153,438) $
(216,208) $
2,472,092 $
13.07
64.55
14.84
59.93
62.48
68.25
72.55
62.25
66.78
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:
Expected term (in years)
Expected stock price volatility
Risk-free interest rate
Dividend yield
Stock-Based Compensation Expense
2020
2.00 - 7.27
54.8%
1.4% - 2.0%
0%
Year Ended April 30,
2019
6.02 - 6.08
2018
6.02 - 6.08
40.5% - 46.7%
40.7% - 44.1%
2.4% - 3.1%
1.8% - 2.6%
0%
0%
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 $
Cost of revenue—professional services
Research and development
Sales and marketing
General and administrative
Total stock-based compensation expense
2,980
23,621
19,334
9,925
1,208
16,100
11,996
7,255
699
329
5,045
3,560
3,109
$
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.
103
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):
Numerator:
Net loss
Denominator:
Year Ended April 30,
2020
2019
2018
$
(167,174) $
(102,303) $
(52,727)
Weighted-average shares used in computing net loss per share attributable to ordinary shareholders,
basic and diluted
Net loss per share attributable to ordinary shareholders, basic and diluted
78,799,732
54,893,365
32,033,792
$
(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:
Redeemable convertible preference shares
Stock options
RSUs
Contingently issuable shares
Shares subject to repurchase
Early exercised stock options
Total
13. Income Taxes
Year Ended April 30,
2020
2019
—
—
15,260,506
22,866,438
2,368,740
235,031
—
—
595,503
—
254,350
—
2018
28,939,466
22,237,484
—
—
276,243
148,630
17,864,277
23,716,291
51,601,823
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):
Dutch
Foreign
Loss before income taxes
The components of the provision for income taxes were as follows (in thousands):
Current:
Dutch
Foreign
Total current tax expense
Deferred:
Dutch
Foreign
Total deferred tax expense
Total provision for income taxes
Year Ended April 30,
2020
(173,338) $
2019
(121,803) $
4,196
23,888
2018
(58,810)
9,459
(169,142) $
(97,915) $
(49,351)
Year Ended April 30,
2020
2019
2018
518 $
(560)
(42) $
— $
912
912 $
— $
(233) $
(1,926)
(1,926)
3,709
3,476
(1,968) $
4,388 $
—
3,731
3,731
—
(355)
(355)
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 and United Kingdom deferred tax assets in addition to a deferred tax asset revaluation as a result of enacted tax legislation in the 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):
2020
Year Ended April 30,
2019
2018
Tax
Rate
Tax
Rate
Tax
Rate
Dutch statutory income tax
$
(42,286)
25.0 % $
(24,479)
25.0 % $
(12,338)
Foreign income taxed at different rates
Stock-based compensation
Research and development credits
Change in valuation allowance
Deferred tax asset revaluation
Other
313
(53,050)
(7,771)
97,734
1,991
1,101
(0.2)%
31.4 %
4.6 %
(57.8)%
(1.2)%
(0.6)%
Provision for income taxes
$
(1,968)
1.2 % $
(310)
(24,848)
(2,161)
43,071
11,883
1,232
4,388
0.3 %
25.3 %
2.2 %
(44.0)%
(12.1)%
(1.2)%
(4.5)% $
(670)
4,669
(697)
11,495
1,081
(164)
3,376
25.0 %
1.4 %
(9.4)%
1.4 %
(23.3)%
(2.2)%
0.3 %
(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
Net operating loss carryforward
Deferred revenue
Intangibles/assets
Stock-based compensation
Research and development credits
Other
Gross deferred tax assets
Less valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Deferred contract acquisition costs
Intangible assets
Deferred revenue
Other
Gross deferred tax liabilities
Net deferred tax assets (liabilities)
$
3,267 $
208,629
3,876
—
7,203
15,333
3,882
242,190
(225,197)
16,993 $
1,685
84,194
—
2,321
4,089
3,584
1,875
97,748
(92,309)
5,439
(8,423) $
(5,878)
(8,841)
—
(218)
(17,482)
(489) $
—
(858)
(674)
(7,410)
(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 in the Netherlands and California (United States) jurisdictions, management maintains a full valuation allowance against the net
deferred tax assets in these jurisdictions. In addition, the United States and the United 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 in the Netherlands, the United States and the
United 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 for the 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 the United 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) and United 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, with United Kingdom losses being carried forward indefinitely. The Company also has research and development
tax credit carryforwards for United States (Federal and State) and Canada, 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 in the Netherlands, the United States, and the United 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 into United 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 amending United 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):
Balance as of beginning of year
Increase related to tax positions taken in prior periods
Increase related to tax positions taken in the current period
Balance as of end of year
2020
As of April 30,
2019
2018
$
$
3,870 $
2,019 $
2,283
3,553
240
1,611
9,706 $
3,870 $
1,196
6
817
2,019
Approximately $2.3 million of the increase in fiscal 2020 for tax positions taken in prior periods is due to the amended U.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 of
Endgame 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, including the Netherlands and United 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 the U.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’s U.S. subsidiaries are being treated as being currently repatriated back to the Netherlands though no Dutch income taxes nor U.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 between the Netherlands and the 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 in the Netherlands and the amount of dividend withholding taxes from such foreign
jurisdictions would be $0.8 million, due to the various income tax treaties between the 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, a U.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 the U.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 employees who 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):
United States
Rest of world
Total revenue
Year Ended April 30,
2020
241,648 $
2019
155,935 $
185,972
115,718
2018
97,006
62,929
427,620 $
271,653 $
159,935
$
$
Other than the United States, no other individual country exceeded 10% or more of total revenue during the periods presented.
107
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):
United States
The Netherlands
United Kingdom
Rest of world
Total long-lived assets
As of April 30,
2020
2019
$
$
30,373 $
3,529
5,854
787
40,543 $
3,219
1,769
251
209
5,448
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act, that are designed to provide
reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form
10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of April 30, 2020, our disclosure controls and
procedures were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange
Act (a) is recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms and (b) is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as defined in Rule 13a-15(f) and
Rule 15d-15(f) under the Exchange Act. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of April
30, 2020 based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
Based on the results of its evaluation, management concluded that our internal control over financial reporting was effective as of April 30, 2020. The
effectiveness of our internal control over financial reporting as of April 30, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in its report which is included in Item 8 of this Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-
15(d) of the Exchange Act that occurred during the quarter ended April 30, 2020 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal
control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level.
However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all
fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
108
the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that
breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two
or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls
may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Item 9B. Other Information.
None.
109
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item (other than the information set forth in the next paragraph) will be included in our definitive proxy statement for our
2020 annual general meeting of shareholders (the "2020 Proxy Statement"), which will be filed with the SEC within 120 days after the end of our year ended April
30, 2020, and is incorporated herein by reference.
We have adopted a Code of Business Conduct and Ethics (the “Code of Conduct”), applicable to all of our employees, officers and directors, including
our chief executive officer, chief financial officer and other executive and senior financial officers. The full text of the Code of Conduct is available on our website
at elastic.co. The audit committee of our board of directors is responsible for overseeing the Code of Conduct. The board of directors, or its designated committee,
must approve any waivers of the Code of Conduct for members of the board of directors or executive officers, and the General Counsel, or, if the General Counsel
is not available, the Chief Financial Officer must approve any waiver of the Code of Conduct for employees, agents or contractors. We expect that any
amendments to the Code of Conduct, or any waivers of its requirements, will be disclosed on our website, as required by applicable law or the listing standards of
The NYSE. The inclusion of our website address in this Form 10-K does not include or incorporate by reference into this Form 10-K the information on or
accessible through our website.
Item 11. Executive Compensation
The information required by this item will be set forth in the 2020 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be set forth in the 2020 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be set forth in the 2020 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item will be set forth in the 2020 Proxy Statement and is incorporated herein by reference.
110
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) Financial Statements
See Index to Financial Statements in Item 8 of this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedule
All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable or because the
information required is already included in the financial statements or the notes to those financial statements.
(a)(3) Exhibits
We have filed or incorporated by reference the exhibits listed on the accompanying Exhibit Index.
Exhibit Index
Incorporated by Reference
Exhibit No.
Description of Exhibit
2.1
Agreement and Plan of Reorganization, dated as of June 5, 2019,
8-K
by and among Elastic N.V, Avengers Acquisition Corp.,
Endgame, Inc. and Shareholder Representative Services LLC,
solely in its capacity as the representative of the securityholders of
Endgame.
Form
File No.
001-38675
Exhibit
Filing Date
Filed Herewith
2.1
6/5/2019
3.1
3.2
Articles of Association of Elastic N.V. (English translation).
10-Q
001-38675
3.1
12/12/2018
Deed of Amendment of the Articles of Association of Elastic N.V.
10-Q
001-38675
3.2
12/12/2018
(English translation).
3.3
Deed of Conversion and Amendment of the Articles of
10-Q
001-38675
3.3
12/12/2018
Association of Elastic N.V. Articles of Association (English
translation).
4.1
Amended and Restated Investors’ Rights Agreement among the
Company and certain holders of its ordinary shares, dated as of
July 19, 2016.
S-1
333-227191
4.1
9/5/2018
4.2
Description of share capital.
10-K
001-38675
4.2
6/28/2019
10.1+
10.2+
10.3+
10.4+
10.5+
10.6+
10.7+
10.8+
Form of Indemnification Agreement between the Registrant and
each of its directors and executive officers.
S-1/A
333-227191
10.1
9/24/2018
2012 Stock Option Plan and related form agreements.
X
Form of Change in Control and Severance Agreement.
Change in Control and Severance Agreement between the
Company and Janesh Moorjani, dated as of August 1, 2018.
S-1
S-1
333-227191
10.3
9/5/2018
333-227191
10.4
9/5/2018
Employment Agreement between the Company and Shay Banon,
dated as of September 4, 2018.
S-1
333-227191
10.5
9/5/2018
Employment Letter between the Company and Janesh Moorjani,
dated as of August 1, 2018.
S-1
333-227191
10.6
9/5/2018
Employment Letter between the Company and Kevin Kluge,
dated as of August 1, 2018.
S-1
333-227191
10.8
9/5/2018
Employment Letter between the Company and W.H. Baird
Garrett, dated as of July 31, 2018.
S-1
333-227191
10.9
9/5/2018
111
10.9+
Offer Letter between the Company and Jonathan Chadwick, dated as
of July 27, 2018.
S-1
333-227191
10.10
9/5/2018
10.10+
Office Lease Agreement, by and between the Company and Asset
S-1
333-227191
10.11
9/5/2018
Growth Partners, L.P., dated as of July 9, 2014.
10.11
First Amendment to Office Lease Agreement, by and between the
Registrant and Asset Growth Partners, L.P., dated as of March 30,
2015.
S-1
333-227191
10.12
9/5/2018
10.12
Second Amendment to Office Lease Agreement, by and between the
S-1
333-227191
10.13
9/5/2018
Registrant and Asset Growth Partners, L.P., dated as of September 16,
2015.
10.13
Third Amendment to Office Lease Agreement, by and between the
Registrant and Asset Growth Partners, L.P., dated as of April 18,
2018.
S-1
333-227191
10.14
9/5/2018
10.14+
Separation and Transition Agreement between the Company and
8-K
001-38675
10.1
2/26/2020
Aaron Katz, dated February 26, 2020.
10.15+
Endgame, Inc. Amended and Restated 2010 Stock Incentive Plan, as
S-8
333-234152
4.2
10/10/2019
21.1
23.1
24.1
31.1
31.2
32.1*
32.2*
101
amended, and related form agreements.
List of subsidiaries of the Registrant.
Consent of PricewaterhouseCoopers LLP, Independent Registered
Public Accounting Firm.
Power of Attorney (contained in the signature page of this report).
Certification of Principal Executive Officer pursuant to Rules 13a-
14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer pursuant to Rules 13a-
14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
The following financial information from Elastic N.V.’s Annual
Report on Form 10-K for the fiscal year ended April 30, 2020
formatted in Inline XBRL (eXtensible Business Reporting Language):
(i) Consolidated Balance Sheets as of April 30, 2020 and April 30,
2019; (ii) Consolidated Statements of Operations for the fiscal years
ended April 30, 2020, April 30, 2019, and April 30, 2018; (iii)
Consolidated Statements of Comprehensive Loss for the fiscal years
ended April 30, 2020, April 30, 2019, and April 30, 2018; (iv)
Consolidated Statements of Redeemable Convertible Preference
Shares and Shareholders’ Equity (Deficit) for the fiscal years ended
April 30, 2020, April 30, 2019, and April 30, 2018; (v) Consolidated
Statements of Cash Flows for the fiscal years ended April 30, 2020,
April 30, 2019, and April 30, 2018; and (vi) Notes to the Consolidated
Financial Statements
112
X
X
X
X
X
X
X
X
104
The cover page from Elastic N.V.’s Annual Report on Form 10-K for
the fiscal year ended April 30, 2020 formatted in Inline XBRL
(included as Exhibit 101).
+ Indicates a management contract or compensatory plan or arrangement.
X
* The certifications attached as Exhibits 32.1 and 32.2 hereto accompany this Annual Report on Form 10-K pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, and are not to be incorporated by reference into any of the Registrant’s filings under the
Securities Act, irrespective of any general incorporation language contained in any such filing.
Item 16. Form 10-K Summary
None.
113
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: June 26, 2020
Elastic N.V.
By:
/s/ Shay Banon
Shay Banon
Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Janesh Moorjani and Shay
Banon, and each of them, as his or her true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such individual in any and
all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or the individual’s substitute, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf
of the registrant in the capacities and on the dates indicated.
Name
Title
Date
/s/ Shay Banon
Shay Banon
/s/ Janesh Moorjani
Janesh Moorjani
Chief Executive Officer and Chairman (Principal Executive
Officer)
Chief Financial Officer (Principal Accounting and Financial
Officer)
/s/ Jonathan Chadwick
Director
Jonathan Chadwick
/s/ Peter Fenton
Director
Peter Fenton
/s/ Alison Gleeson
Alison Gleeson
Director
/s/ Caryn Marooney
Director
Caryn Marooney
/s/ Chetan Puttagunta
Director
Chetan Puttagunta
/s/ Steven Schuurman
Director
Steven Schuurman
June 26, 2020
June 26, 2020
June 26, 2020
June 26, 2020
June 26, 2020
June 26, 2020
June 26, 2020
June 26, 2020
/s/ Michelangelo Volpi
Director
Michelangelo Volpi
June 26, 2020
114
Exhibit 10.2
ELASTIC N.V.
Amended and Restated 2012 Stock Option Plan
1. Purposes of the Plan. The purposes of this Amended and Restated 2012 Stock Option Plan are to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to Employees and Consultants, and to promote the success of the Company’s
business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the
time of grant of an Option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated thereunder. Stock
Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units and Performance Shares may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) “Administrator” means the Board or any of its Committees if authorized to administer the Plan, in accordance with Section 4 of the Plan.
(b) “Affiliate” means (i) an entity other than a Subsidiary which, together with the Company, is under common control of a third person or
entity and (ii) an entity other than a Subsidiary in which the Company and /or one or more Subsidiaries own a controlling interest.
(c) “Applicable Laws” means all applicable laws, rules, regulations and requirements, including, but not limited to, all applicable U.S. federal
and state corporate laws, U.S. federal and state securities laws, the Code, any Stock Exchange rules or regulations, and the applicable laws,
rules or regulations of any other country or jurisdiction where Awards are granted under the Plan or Participants reside or provide services, as
such laws, rules, and regulations shall be in effect from time to time.
(d) “Award” means any award of an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Units, Performance Units and
Performance Shares under the Plan.
(e) “Award Agreement” means an Option Agreement, Stock Appreciation Right Agreement, Restricted Stock Purchase Agreement, Restricted
Stock Unit Agreement, Performance Share Agreement, or Performance Unit Agreement.
(f) “Board” means the Board of Directors of the Company.
(g) “Board Rules” means the regulations adopted by the Board governing its internal organization, the manner in which decisions are taken, the
composition, the duties and organization of committees and any other matters concerning the Board.
(h) “Cashless Exercise” means a program approved by the Administrator in which payment of the Option exercise price or tax withholding
obligations or other required deductions may be satisfied, in whole or in part, with Shares subject to the Option, including by delivery of an
irrevocable direction to a securities broker (on a form prescribed by the Company) to sell Shares and to deliver all or part of the sale proceeds
to the Company in payment of such amount, provided that, unless specifically permitted by the Company, any such Cashless Exercise must
be an approved broker-assisted Cashless Exercise or the Shares withheld in the Cashless Exercise must be limited to avoid financial
accounting charges under applicable accounting guidance and any such surrendered Shares must have been previously held for any
minimum duration required to avoid financial accounting charges under applicable accounting guidance.
(i) “Cause” for termination of a Participant’s Continuous Service Status will exist (unless another definition is provided in an applicable Award
Agreement, employment agreement or other applicable written agreement) if the Participant’s Continuous Service Status is terminated for
any of the following reasons: (i) any material breach by Participant of any material written agreement between Participant and the Company
and Participant’s failure to cure such breach within 30 days after receiving written notice thereof; (ii) any failure by Participant to comply
with the Company’s material written policies or rules as they may be in effect from time to time; (iii) neglect or persistent unsatisfactory
performance of Participant’s duties and Participant’s failure to cure such condition within 30 days after receiving written notice thereof; (iv)
Participant’s repeated failure to follow reasonable and lawful instructions from the Board or Chief Executive Officer and Participant’s failure
to cure such condition within 30 days after receiving written notice thereof; (v) Participant’s conviction of, or plea of guilty or nolo contendre
to, any felony or crime that results in, or is reasonably expected to result in, a material adverse effect on the business or reputation of the
Company; (vi) Participant’s commission of or participation in an act of fraud against the Company; (vii) Participant’s intentional material
damage to the Company’s business, property or reputation; or (viii) Participant’s unauthorized use or disclosure of any proprietary
information or trade secrets of the Company or any other party to whom the Participant owes an obligation of nondisclosure as a result of his
or her relationship with the Company. For purposes of clarity, a termination without “Cause” does not include any termination that occurs as
a result of Participant’s death or Disability. The determination as to whether a Participant’s Continuous Service Status has been terminated
for Cause shall be made in good faith by the Company and shall be final and binding on the Participant. The foregoing definition does not in
any way limit the Company’s ability to terminate a Participant’s employment or consulting relationship at any time, and the term “Company”
will be interpreted to include any Subsidiary, Parent, Affiliate, or any successor thereto, if appropriate.
(j) “Change of Control” means:
i. A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group
(“Person”), acquires ownership of the Shares in the capital of the Company of the Company that, together with the Shares in the
capital of the Company held by such Person, constitutes more than 50% of the total voting power of the Shares in the capital of the
Company; provided, however, that for purposes of this subsection, (A) the acquisition of additional Shares in the capital of the
Company by any one Person, who is considered to own more than 50% of the total voting power of the Shares in the capital of the
Company will not be considered a Change in Control, and (B) if the holders of Shares in the capital of the Company immediately
before such change in ownership continue to retain immediately after the change in ownership, in substantially the same proportions
as their ownership of Shares in the capital of the Company immediately prior to the change in ownership, the direct or indirect
beneficial ownership of 50% or more of the total voting power of the Shares in the capital of the Company or the total voting power
of shares in the capital of the ultimate Parent of the Company, such event will not be considered a Change in Control under this
subsection (i). For this purpose, indirect beneficial ownership will include, without limitation, an interest resulting from ownership of
the voting securities of one or more corporations or other business entities which own the Company, as the case may be, either
directly or through one or more subsidiary corporations or other business entities; or
2
ii. A change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced
during any 12-month period by members of the Board whose appointment or election is not endorsed by a majority of the members
of the Board prior to the date of the appointment or election. For purposes of this subsection (ii), if any Person is considered to be in
effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a
Change in Control; or
iii. A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or
has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the
Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of
the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection (iii), the
following will not constitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity
that is controlled by the holders of the shares in the capital of the Company immediately after the transfer, or (B) a transfer of assets
by the Company to: (1) a holder of shares in the capital of the Company (immediately before the asset transfer) in exchange for or
with respect to the Company’s shares in the capital, (2) an entity, 50% or more of the total value or voting power of which is owned,
directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, 50% or more of the total value or voting power
of all the outstanding shares in the capital of the Company, or (4) an entity, at least 50% of the total value or voting power of which is
owned, directly or indirectly, by a Person described in this subsection (iii)(B)(3). For purposes of this subsection (iii), gross fair
market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to
any liabilities associated with such assets.
For purposes of this definition, persons will be considered to be acting as a group if they are owners of a corporation that enters into a
merger, consolidation, purchase or acquisition of shares in the capital of the Company, or similar capital reorganization or business
combination transaction with the Company.
Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in
control event within the meaning of Section 409A of the Code.
Further and for the avoidance of doubt, a transaction will not constitute a Change in Control if: (x) its sole purpose is to change the state of
the Company’s incorporation, (y) its sole purpose is to create a holding company that will be owned in substantially the same proportions by
the persons who held the Company’s securities immediately before such transaction, or (z) its sole purpose is to effect a private financing of
the Company through a change in the ownership of the shares in the capital of the Company that is approved by the Board.
(k) “Code” means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or regulation thereunder will
include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future
legislation or regulation amending, supplementing or superseding such section or regulation.
3
(l) “Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board, or a duly
authorized committee of the Board, in accordance with Section 4 below.
(m) “Company” means Elastic N.V., a Dutch public limited company (naamloze vennootschap).
(n) “Consultant” means any natural person, including an advisor or Director, engaged by the Company or a Parent, Affiliate, or Subsidiary to
render bona fide services to such entity, provided the services (i) are not in connection with the offer or sale of securities in a capital raising
transaction, and (ii) do not directly promote or maintain a market for the Company’s securities, in each case, within the meaning of Form S-8
promulgated under the Securities Act, and provided, further, that a Consultant will include only those persons to whom the issuance of Shares
may be registered under Form S-8 promulgated under the Securities Act.
(o) “Continuous Service Status” means the absence of any interruption or termination of service as an Employee or Consultant. Continuous
Service Status as an Employee or Consultant shall not be considered interrupted or terminated in the case of: (i) Company approved sick
leave; (ii) military leave; (iii) any other bona fide leave of absence approved by the Company, provided that, if an Employee is holding an
Incentive Stock Option and such leave exceeds 3 months, such Employee’s service as an Employee shall be deemed terminated on the 1st
day following such 3-month period and the Incentive Stock Option shall thereafter automatically become a Nonstatutory Stock Option in
accordance with Applicable Laws, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to a written Company policy. Also, Continuous Service Status as an Employee or Consultant shall not be
considered interrupted or terminated in the case of a transfer between locations of the Company or between the Company, its Parents,
Subsidiaries or Affiliates, or their respective successors, or a change in status from an Employee to a Consultant or from a Consultant to an
Employee.
(p) “Director” means a member of the Board.
(q) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than
Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with
uniform and non-discriminatory standards adopted by the Administrator from time to time.
(r) “Employee” means any person employed by the Company, or any Parent, Subsidiary or Affiliate, with the status of employment determined
pursuant to such factors as are deemed appropriate by the Company in its sole discretion, subject to any requirements of Applicable Laws,
including the Code. Neither service as a Director or the payment by the Company of a Director’s fee shall be sufficient to constitute
“employment” of such Director by the Company or any Parent, Subsidiary or Affiliate.
(s) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(t) “Exchange Program” means a program under which (i) outstanding Awards are surrendered or reacquired in exchange for awards of the
same type (which may have higher or lower exercise prices and different terms), awards of a different type, and/or cash, (ii) Participants
would have the opportunity to transfer any outstanding Awards to a financial institution or other person or entity selected by the
Administrator, and/or (iii) the exercise price
4
of an outstanding Award is increased or reduced. The Administrator will determine the terms and conditions of any Exchange Program in its
sole discretion.
(u) “Fair Market Value” means, as of any date, the value of Ordinary Shares determined as follows:
i. For purposes of any Awards granted on the Registration Date, the Fair Market Value will be the initial price to the public as set forth
in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for
the initial public offering of the Company’s Ordinary Shares.
ii. For purposes of any Awards granted on any other date, the Fair Market Value will be the closing sales price for Ordinary Shares as
quoted on any established Stock Exchange or national market system (including without limitation the New York Stock Exchange,
NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market of The NASDAQ Stock Market) on
which the Ordinary Shares are listed on the date of determination (or the closing bid, if no sales were reported), as reported in The
Wall Street Journal or such other source as the Administrator deems reliable. If the determination date for the Fair Market Value
occurs on a non-trading day (i.e., a weekend or holiday), the Fair Market Value will be such price on the immediately preceding
trading day, unless otherwise determined by the Administrator. In the absence of an established market for the Ordinary Shares, the
Fair Market Value thereof will be determined in good faith by the Administrator.
The determination of Fair Market Value for purposes of tax withholding may be made in the Administrator’s discretion subject to Applicable
Laws and is not required to be consistent with the determination of Fair Market Value for other purposes.
(v) “Family Members” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (including adoptive relationships) of the
Participant, any person sharing the Participant’s household (other than a tenant or employee), a trust in which these persons (or the
Participant) have more than 50% of the beneficial interest, a foundation in which these persons (or the Participant) control the management of
assets, and any other entity in which these persons (or the Participant) own more than 50% of the voting interests.
(w) “Fiscal Year” means the fiscal year of the Company, as included in the articles of association of the Company.
(x) “Incentive Stock Option” means an Option intended to, and which does, in fact, qualify as an incentive stock option within the meaning of
Section 422 of the Code.
(y) “Involuntary Termination” means (unless another definition is provided in the applicable Award Agreement, employment agreement or
other applicable written agreement) the termination of a Participant’s Continuous Service Status other than for (i) death, (ii) Disability or (iii)
for Cause by the Company or a Parent, Subsidiary, Affiliate or successor thereto, as appropriate.
(z) “Listed Security” means any security of the Company that is listed or approved for listing on a national securities exchange or designated or
approved for designation as a national
5
market system security on an interdealer quotation system by the Financial Industry Regulatory Authority (or any successor thereto).
(aa) “Non-Executive Director” means a Director appointed as non-executive director who is not an Employee.
(bb) “Nonstatutory Stock Option” means an Option that is not intended to, or does not, in fact, qualify as an Incentive Stock Option.
(cc) “Option” means an option to acquire Shares granted pursuant to the Plan.
(dd) “Option Agreement” means a written document, the form(s) of which shall be approved from time to time by the Administrator, reflecting
the terms of an Option granted under the Plan and includes any documents attached to or incorporated into such Option Agreement,
including, but not limited to, a notice of stock option grant and a form of exercise notice.
(ee) “Ordinary Shares” means the Company’s ordinary shares, par value €0.01 per share, as adjusted in accordance with Section 15 below.
(ff) “Parent” means any corporation (other than the Company), whether now or hereafter existing, in an unbroken chain of corporations ending
with the Company if, at the time of grant of the Award, each of the corporations other than the Company owns shares in the capital of the
Company possessing 50% or more of the total combined voting power of all classes of shares in the capital of the Company in one of the
other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a
Parent commencing as of such date.
(gg) “Participant” means any holder of one or more Awards or Shares issued pursuant to an Award.
(hh) “Performance Share” means an Award denominated in Shares which may be earned in whole or in part upon attainment of performance
goals or other vesting criteria as the Administrator may determine pursuant to Section 11.
(ii) “Performance Share Agreement” means a written document, the form(s) of which shall be approved from time to time by the
Administrator, reflecting the terms of Performance Shares granted under the Plan and includes any documents attached to such agreement.
(jj) “Performance Unit” means an Award which may be earned in whole or in part upon attainment of performance goals or other vesting
criteria as the Administrator may determine and which may be settled for cash, Shares or other securities or a combination of the foregoing
pursuant to Section 11.
(kk) “Performance Unit Agreement” means a written document, the form(s) of which shall be approved from time to time by the
Administrator, reflecting the terms of Performance Units granted under the Plan and includes any documents attached to such agreement.
(ll) “Plan” means this Amended and Restated 2012 Stock Option Plan.
6
(mm) “Registration Date” means the effective date of the first registration statement that is filed by the Company and declared effective
pursuant to Section 12(b) of the Exchange Act, with respect to any class of the Company’s securities.
(nn) “Remuneration Policy” means the Remuneration Policy for Directors approved by the general meeting of the Company on September 28,
2018.
(oo) “Restricted Stock” means Shares acquired pursuant to a right to purchase or receive Ordinary Shares granted pursuant to Section 9 below.
(pp) “Restricted Stock Purchase Agreement” means a written document, the form(s) of which shall be approved from time to time by the
Administrator, reflecting the terms of Restricted Stock granted under the Plan and includes any documents attached to such agreement.
(qq) “Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted
pursuant to Section 10. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.
(rr) “Restricted Stock Unit Agreement” means a written document, the form(s) of which shall be approved from time to time by the
Administrator, reflecting the terms of Restricted Stock Units granted under the Plan and includes any documents attached to such agreement.
(ss) “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act, as amended from time to time, or any successor provision.
(tt) “Section 16(b)” means Section 16(b) of the Exchange Act.
(uu) “Section 409A” means Code Section 409A, as it has been and may be amended from time to time, and any proposed or final Treasury
Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time.
(vv) “Securities Act” means the Securities Act of 1933, as amended.
(ww) “Share” means a share of the Ordinary Shares, as adjusted in accordance with Section 15 below.
(xx) “Stock Appreciation Right” means an Award, granted alone or in connection with an Option, that pursuant to Section 8 is designated as a
Stock Appreciation Right.
(yy) “Stock Appreciation Right Agreement” means a written document, the form(s) of which shall be approved from time to time by the
Administrator, reflecting the terms of Stock Appreciation Rights granted under the Plan and includes any documents attached to such
agreement.
(zz) “Stock Exchange” means any stock exchange or consolidated stock price reporting system on which prices for the Ordinary Shares are
quoted at any given time.
(aaa) “Subsidiary” means any corporation (other than the Company), whether now or hereafter existing, in an unbroken chain of corporations
beginning with the Company if, at the time of grant of the Award, each of the corporations other than the last corporation in the
7
unbroken chain owns shares in the capital of the Company possessing 50% or more of the total combined voting power of all classes of
shares in the capital of the Company in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a
date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.
(bbb) “Ten Percent Holder” means a person who owns shares in the capital of the Company representing more than 10% of the voting power
of Shares in the capital of the Company or of all classes of shares in the capital of any Parent or Subsidiary measured as of an Award’s date
of grant.
3. Ordinary Shares Subject to the Plan.
(a) Ordinary Shares Subject to the Plan. Subject to the provisions of Section 15 below, the maximum aggregate number of Shares that may be
issued under the Plan is 39,685,602 Shares, all of which Shares may be issued under the Plan pursuant to Incentive Stock Options and under
the condition that the Company's authorized capital provides for such issue of Shares. The Shares issued under the Plan may be authorized,
but unissued, or reacquired Shares.
(b) Automatic Share Reserve Increase. Subject to the provisions of Section 15 of the Plan, the number of Shares available for issuance under
the Plan will be increased on the first day of each Fiscal Year beginning with the 2020 Fiscal Year, in an amount equal to the lesser of (i) 9
million Shares, (ii) 5% of the outstanding Shares on the last day of the immediately preceding Fiscal Year or (iii) such number of Shares
determined by the Board.
(c) Lapsed Awards. If an Award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an
Exchange Program, or, with respect to Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares, is reacquired or
repurchased by the Company due to failure to vest, the unpurchased Shares (or for Awards other than Options or Stock Appreciation Rights
the reacquired or repurchased Shares), which were subject thereto will become available for future grant or sale under the Plan (unless the
Plan has terminated). With respect to Stock Appreciation Rights, only Shares actually issued (i.e., the net Shares issued) pursuant to a Stock
Appreciation Right will cease to be available under the Plan; all remaining Shares under Stock Appreciation Rights will remain available for
future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan under any Award
will not be returned to the Plan and will not become available for future distribution under the Plan; provided, however, that if Shares issued
pursuant to Awards of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units are repurchased by the Company
or are forfeited to or canceled by the Company, such Shares will become available for future grant under the Plan. Shares used to pay the
exercise price of an Award or to satisfy the tax withholding obligations related to an Award will become available for future grant or sale
under the Plan. To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the
number of Shares available for issuance under the Plan. Notwithstanding the foregoing and, subject to adjustment as provided in Section 15,
the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will equal the aggregate Share number
stated in Section 3(a), plus, to the extent allowable under Section 422 of the Code and the Treasury Regulations promulgated thereunder, any
Shares that become available for issuance under the Plan pursuant to Sections 3(b) and 3(c).
(d) Share Reserve. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as will be
sufficient to satisfy the requirements of the Plan.
8
4. Administration of the Plan.
(a) Procedure.
i. General. The Plan shall be administered by the Board. The Plan may be administered by different Committees with respect to
different classes of Participants, and, if permitted by Applicable Laws, the Board may authorize a Committee comprised of one or
more officers of the Company to make Awards under the Plan to Employees and Consultants (who are not subject to Section 16 of
the Exchange Act) within parameters specified by the Board.
ii. Committee Composition. If a Committee has been appointed pursuant to this Section 4, such Committee shall continue to serve in
its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of any Committee
and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor,
fill vacancies (however caused) and dissolve a Committee and thereafter directly administer the Plan, all to the extent permitted by
Applicable Laws and, in the case of a Committee administering the Plan in accordance with the requirements of Rule 16b3 of the
Code, to the extent permitted or required by such provisions.
iii. Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3.
(b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in its sole discretion:
i. to determine the Fair Market Value in accordance with Section 2(u) above, provided that such determination shall be applied
consistently with respect to Participants under the Plan;
ii. to select the Employees and Consultants to whom Awards may from time to time be granted, in the case of granting Awards to
Directors with due observance of the Board Rules and Applicable Laws on conflict of interest and the Remuneration Policy;
iii. to determine the number of Shares to be covered by each Award;
iv. to approve the form(s) of agreement(s) and other related documents used under the Plan;
v. to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder, which terms and
conditions include but are not limited to the exercise or purchase price, the time or times when Awards may vest and/or be exercised
(which may be based on performance criteria), the circumstances (if any) when vesting will be accelerated or cancellation restrictions
will be waived, and any restriction or limitation regarding any Award or Shares that are covered by an Award;
9
vi. to amend any outstanding Award or agreement related to any Shares covered by an Award, including any amendment adjusting
vesting (e.g., in connection with a change in the terms or conditions under which such person is providing services to the Company),
provided that no amendment shall be made that would materially and adversely affect the rights of any Participant without his or her
consent;
vii. to determine whether and under what circumstances an Award may be settled in cash instead of Ordinary Shares, subject to
Applicable Laws;
viii. subject to Applicable Laws, to implement an Exchange Program and establish the terms and conditions of such Exchange Program
without consent of the holders of shares in the capital of the Company, provided that no amendment or adjustment to an Option that
would materially and adversely affect the rights of any Participant shall be made without his or her consent;
ix. to approve addenda pursuant to Section 21 below or to grant Awards to, or to modify the terms of, any outstanding Award
Agreement or any agreement related to any Shares covered by an Award held by Participants who are foreign nationals or employed
outside of the United States with such terms and conditions as the Administrator deems necessary or appropriate to accommodate
differences in local law, tax policy or custom which deviate from the terms and conditions set forth in this Plan to the extent
necessary or appropriate to accommodate such differences;
x. to construe and interpret the terms of the Plan, any Award Agreement and any agreement related to any Shares covered by an Award,
which constructions, interpretations and decisions shall be final and binding on all Participants;
xi. to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously
granted by the Administrator;
xii. to allow Participants to satisfy tax withholding obligations in such manner as prescribed in Section 13; and
xiii. to make all other determinations deemed necessary or advisable for administering the Plan.
(c) Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations will be final and binding on all
Participants and any other holders.
(d) Indemnification. To the maximum extent permitted by Applicable Laws, each member of the Board, as applicable, shall be indemnified and
held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by
him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she
may be involved by reason of any action taken or failure to act under the Plan or pursuant to the terms and conditions of any Award except
for actions taken in bad faith or failures to act in bad faith, and (ii) any and all amounts paid by him or her in settlement thereof, with the
Company’s approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit, or proceeding against him or her,
provided that such member shall give the Company an opportunity, at its own expense, to handle and defend any such claim, action, suit or
proceeding before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such
10
persons may be entitled under the Company’s Articles of Association, Board Rules, by contract, as a matter of law, or otherwise, or under
any other power that the Company may have to indemnify or hold harmless each such person.
5. Eligibility.
(a) Recipients of Grants. Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance
Shares and Performance Units may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees,
provided that Employees of Affiliates shall not be eligible to receive Incentive Stock Options.
(b) No Employment Rights. Neither the Plan nor any Award shall confer upon any Employee or Consultant any right with respect to
continuation of an employment or consulting relationship with the Company (any Parent, Subsidiary or Affiliate), nor shall it interfere in any
way with such Employee’s or Consultant’s right or the Company’s (Parent’s, Subsidiary’s or Affiliate’s) right to terminate his or her
employment or consulting relationship at any time, with or without cause.
6. Term of Plan. Subject to Section 23 of the Plan, the Plan will become effective upon the later to occur of (i) its adoption by the Board or (ii) the
business day immediately prior to the Registration Date. It will continue in effect for a term of ten (10) years from the date it becomes effective, unless
terminated earlier under Section 17 of the Plan.
7. Options.
(a) Term of Option. The term of each Option shall be the term stated in the Option Agreement; provided that the term shall be no more than 10
years from the date of grant thereof or such shorter term as may be provided in the Option Agreement and provided further that, in the case of
an Incentive Stock Option granted to a person who at the time of such grant is a Ten Percent Holder, the term of the Option shall be 5 years
from the date of grant thereof or such shorter term as may be provided in the Option Agreement.
(b) Type of Option.
i. Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
ii. Notwithstanding any designation under Section 7(b)(i) above, to the extent that the aggregate Fair Market Value of Shares with
respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Participant during any
calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 7(b), Incentive Stock Options shall be taken into account in the order in
which they were granted, and the Fair Market Value of the Shares subject to an Incentive Stock Option shall be determined as of the
date of the grant of such Option.
(c) Option Exercise Price and Consideration.
i. Exercise Price. The per Share exercise price for the Shares to be issued pursuant to the exercise of an Option shall be such price as is
determined by the
11
Administrator and set forth in the Option Agreement, but shall be subject to the following:
(1) In the case of an Incentive Stock Option
a. granted to an Employee who at the time of grant is a Ten Percent Holder, the per Share exercise price shall be no
less than 110% of the Fair Market Value on the date of grant;
b. granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value
on the date of grant;
(2) Except as provided in subsection (3) below, in the case of a Nonstatutory Stock Option the per Share exercise price shall
be such price as is determined by the Administrator, provided that, if the per Share exercise price is less than 100% of the
Fair Market Value on the date of grant, it shall otherwise comply with all Applicable Laws, including Section 409A; and
(3) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above
pursuant to a merger or other corporate transaction.
ii. Permissible Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option and to the extent
required by Applicable Laws, shall be determined at the time of grant) and may consist entirely of (1) cash; (2) check; (3) to the
extent permitted under, and in accordance with, Applicable Laws, delivery of a promissory note with such recourse, interest, security
and redemption provisions as the Administrator determines to be appropriate (subject to the provisions of Section 152 of the General
Corporation Law); (4) cancellation of indebtedness; (5) other previously owned Shares that have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which the Option is exercised; (6) a Cashless Exercise; (7) such
other consideration and method of payment permitted under Applicable Laws; or (8) any combination of the foregoing methods of
payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company and the Administrator may, in its sole discretion, refuse to accept
a particular form of consideration at the time of any Option exercise.
(d) Exercise of Option.
i. General.
(1) Exercisability. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined
by the Administrator, consistent with the terms of the Plan and reflected in the Option Agreement, including vesting
requirements and/or performance criteria with respect to the Company, and Parent, Subsidiary or Affiliate, and/or the
Participant.
12
(2) Leave of Absence. The Administrator shall have the discretion to determine whether and to what extent the vesting of
Options shall be tolled during any leave of absence; provided, however, that in the absence of such determination, vesting
of Options shall be tolled during any leave (unless otherwise required by Applicable Laws). Notwithstanding the
foregoing, in the event of military leave, vesting shall toll during any unpaid portion of such leave, provided that, upon a
Participant’s returning from military leave (under conditions that would entitle him or her to protection upon such return
under the Uniform Services Employment and Reemployment Rights Act), he or she shall be given vesting credit with
respect to Options to the same extent as would have applied had the Participant continued to provide services to the
Company (or any Parent, Subsidiary or Affiliate, if applicable) throughout the leave on the same terms as he or she was
providing services immediately prior to such leave.
(3) Minimum Exercise Requirements. An Option may not be exercised for a fraction of a Share. The Administrator may
require that an Option be exercised as to a minimum number of Shares, provided that such requirement shall not prevent a
Participant from exercising the full number of Shares as to which the Option is then exercisable.
(4) Procedures for and Results of Exercise. An Option shall be deemed exercised when written notice of such exercise has
been received by the Company in accordance with the terms of the Option Agreement by the person entitled to exercise the
Option and the Company has received full payment for the Shares with respect to which the Option is exercised and has
paid, or made arrangements to satisfy, any applicable taxes, withholding, required deductions or other required payments
in accordance with Section 13 below. The exercise of an Option shall result in a decrease in the number of Shares that
thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to
which the Option is exercised.
(5) Rights as Holder of Shares in the Capital of the Company. Until the effective issuance of the Shares (including by way
of a transfer of treasury shares), no right to vote or receive dividends or any other rights as a holder of shares in the capital
of the Company shall exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date is prior to the date ownership is recorded in
the Company’s shareholder register, except as provided in Section 15 below.
ii. Termination of Continuous Service Status. The Administrator shall establish and set forth in the applicable Option Agreement the
terms and conditions upon which an Option shall remain exercisable, if at all, following termination of a Participant’s Continuous
Service Status, which provisions may be waived or modified by the Administrator at any time. To the extent that an Option
Agreement does not specify the terms and conditions upon which an Option shall terminate upon termination of a Participant’s
Continuous Service Status, the following provisions shall apply:
(1) General Provisions. If the Participant (or other person entitled to exercise the Option) does not exercise the Option to the
extent so entitled within the time specified below, the Option shall terminate and the Shares
13
subject to the Option underlying the unexercised portion of the Option shall revert to the Plan. In no event may any Option
be exercised after the expiration of the Option term as set forth in the Option Agreement (and subject to this Section 7).
(2) Termination other than Upon Disability or Death or for Cause. In the event of termination of a Participant’s
Continuous Service Status other than under the circumstances set forth in the subsections (3) through (5) below, such
Participant may exercise any outstanding Option at any time within 3 month(s) following such termination to the extent the
Participant is vested in the Shares subject to the Option.
(3) Disability of Participant. In the event of termination of a Participant’s Continuous Service Status as a result of his or her
Disability, such Participant may exercise any outstanding Option at any time within 12 month(s) following such
termination to the extent the Participant is vested in the Shares subject to the Option.
(4) Death of Participant. In the event of the death of a Participant during the period of Continuous Service Status since the
date of grant of any outstanding Option, or within 3 month(s) following termination of the Participant’s Continuous
Service Status, the Option may be exercised by any beneficiaries designated in accordance with Section 19 below, or if
there are no such beneficiaries, by the Participant’s estate, or by a person who acquired the right to exercise the Option by
bequest or inheritance, at any time within 12 month(s) following the date the Participant’s Continuous Service Status
terminated, but only to the extent the Participant is vested in the Shares subject to the Option.
(5) Termination for Cause. In the event of termination of a Participant’s Continuous Service Status for Cause, any
outstanding Option (including any vested portion thereof) held by such Participant shall immediately terminate in its
entirety upon first notification to the Participant of termination of the Participant’s Continuous Service Status for Cause. If
a Participant’s Continuous Service Status is suspended pending an investigation of whether the Participant’s Continuous
Service Status will be terminated for Cause, all the Participant’s rights under any Option, including the right to exercise the
Option, shall be suspended during the investigation period. Nothing in this Section 7(d)(ii)(5) shall in any way limit the
Company’s right to purchase unvested Shares issued upon exercise of an Option as set forth in the applicable Option
Agreement.
(6) Tolling Expiration. A Participant’s Option Agreement may also provide that:
a. if the exercise of the Option following the termination of Participant’s Continuous Service Status (other than upon
the Participant’s death or Disability) would result in liability under Section 16(b), then the Option will terminate on
the earlier of (A) the expiration of the term of the Option set forth in the Option Agreement, or (B) the tenth (10th)
day after the last date on which such exercise would result in liability under Section 16(b); or
14
b. if the exercise of the Option following the termination of the Participant’s Continuous Service Status (other than
upon the Participant’s death or Disability) would be prohibited at any time solely because the issuance of Shares
would violate the registration requirements under the Securities Act, then the Option will terminate on the earlier
of (A) the expiration of the term of the Option or (B) the expiration of a period of thirty (30)-day period after the
termination of the Participant’s Continuous Service Status during which the exercise of the Option would not be in
violation of such registration requirements.
8. Stock Appreciation Rights
(a) Grant of Stock Appreciation Rights. Subject to the terms and conditions of the Plan, a Stock Appreciation Right may be granted at any
time and from time to time as will be determined by the Administrator, in its sole discretion.
(b) Number of Shares. The Administrator will have complete discretion to determine the number of Shares subject to any Stock Appreciation
Right.
(c) Exercise Price and Other Terms. The per Share exercise price for the Shares that will determine the amount of the payment to be received
upon exercise of a Stock Appreciation Right as set forth in Section 8(f) will be determined by the Administrator and will be no less than
100% of the Fair Market Value per Share on the date of grant. Otherwise, the Administrator, subject to the provisions of the Plan, will have
complete discretion to determine the terms and conditions of Stock Appreciation Rights granted under the Plan.
(d) Stock Appreciation Right Agreement. Each Stock Appreciation Right will be evidenced by a Stock Appreciation Right Agreement that
will specify the exercise price, the term of the Stock Appreciation Right, the conditions of exercise, and such other terms and conditions as
the Administrator, in its sole discretion, will determine.
(e) Expiration of Stock Appreciation Rights. A Stock Appreciation Right granted under the Plan will expire upon the date determined by the
Administrator, in its sole discretion, and set forth in the Stock Appreciation Right Agreement. Notwithstanding the foregoing, the rules of
Section 7(a) relating to the maximum term and Section 7(d) relating to exercise also will apply to Stock Appreciation Rights.
(f) Payment of Stock Appreciation Right Amount. Upon exercise of a Stock Appreciation Right, a Participant will be entitled to receive
payment from the Company in an amount determined by multiplying:
i. The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times
ii. The number of Shares with respect to which the Stock Appreciation Right is exercised.
At the discretion of the Administrator, the payment upon Stock Appreciation Right exercise may be in cash, in Shares of equivalent
value, or in some combination thereof.
15
9. Restricted Stock.
(a) Rights to Purchase. When a right to purchase or receive Restricted Stock is granted under the Plan, the Company shall advise the recipient
in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, if any (which shall be as determined by the Administrator, subject to Applicable Laws, including any
applicable securities laws), and the time within which such person must accept such offer. The permissible consideration for Restricted Stock
shall be determined by the Administrator and shall be the same as is set forth in Section 7(c)(ii) above with respect to exercise of Options.
The offer to purchase Shares shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the
Administrator.
(b) Repurchase Option.
i. General. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of the Participant’s Continuous Service Status for any
reason (including death or Disability) at a purchase price for Shares equal to the original purchase price paid by the purchaser to the
Company for such Shares and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at such rate or pursuant to such vesting criteria as the Administrator may determine.
ii. Leave of Absence. The Administrator shall have the discretion to determine whether and to what extent the lapsing of Company
repurchase rights shall be tolled during any leave of absence; provided, however, that in the absence of such determination, such
lapsing shall be tolled during any leave (unless otherwise required by Applicable Laws). Notwithstanding the foregoing, in the event
of military leave, the lapsing of Company repurchase rights shall toll during any unpaid portion of such leave, provided that, upon a
Participant’s returning from military leave (under conditions that would entitle him or her to protection upon such return under the
Uniform Services Employment and Reemployment Rights Act), he or she shall be given vesting credit with respect to Shares
purchased pursuant to the Restricted Stock Purchase Agreement to the same extent as would have applied had the Participant
continued to provide services to the Company (or any Parent, Subsidiary or Affiliate, if applicable) throughout the leave on the same
terms as he or she was providing services immediately prior to such leave.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock Purchase
Agreements need not be the same with respect to each Participant.
(d) Rights as a Holder of Shares in the Capital of the Company. Once the Restricted Stock is purchased, the Participant shall have the rights
equivalent to those of a holder of shares in the capital of the Company, and shall be a record holder when his or her purchase and the issuance
of the Shares is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the Restricted Stock is purchased, except as provided in Section 15 below.
10. Restricted Stock Units
16
(a) Grant. Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator. After the Administrator
determines that it will grant Restricted Stock Units, it will advise the Participant in a Restricted Stock Unit Agreement of the terms,
conditions, and restrictions related to the grant, including the number of Restricted Stock Units.
(b) Vesting Criteria and Other Terms. The Administrator will set vesting criteria in its discretion, which, depending on the extent to which the
criteria are met, will determine the number of Restricted Stock Units that will be paid out to the Participant. The Administrator may set
vesting criteria based upon the achievement of Company-wide, business unit, or individual goals (including, but not limited to, continued
employment or service), or any other basis determined by the Administrator in its discretion.
(c) Earning Restricted Stock Units. Upon meeting the applicable vesting criteria, the Participant will be entitled to receive a payout as
determined by the Administrator. Notwithstanding the foregoing, at any time after the grant of Restricted Stock Units, the Administrator, in
its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout.
(d) Form and Timing of Payment. Payment of earned Restricted Stock Units will be made as soon as practicable after the date(s) determined
by the Administrator and set forth in the Restricted Stock Unit Agreement. The Administrator, in its sole discretion, may settle earned
Restricted Stock Units in cash, Shares, or a combination of both.
(e) Cancellation. On the date set forth in the Restricted Stock Unit Agreement, all unearned Restricted Stock Units will be reacquired by the
Company.
(f) Leave of Absence. The Administrator shall have the discretion to determine whether and to what extent the vesting of Restricted Stock Units
shall be tolled during any leave of absence; provided, however, that in the absence of such determination, such vesting shall be tolled during
any leave (unless otherwise required by Applicable Laws). Notwithstanding the foregoing, in the event of military leave, the vesting of
Restricted Stock Units shall toll during any unpaid portion of such leave, provided that, upon a Participant’s returning from military leave
(under conditions that would entitle him or her to protection upon such return under the Uniform Services Employment and Reemployment
Rights Act), he or she shall be given vesting credit with respect to Restricted Stock Units to the same extent as would have applied had the
Participant continued to provide services to the Company (or any Parent, Subsidiary or Affiliate, if applicable) throughout the leave on the
same terms as he or she was providing services immediately prior to such leave.
11. Performance Units and Performance Shares.
(a) Grant of Performance Units/Shares. Performance Units and Performance Shares may be granted to Employees or Consultants at any time
and from time to time, as will be determined by the Administrator, in its sole discretion. The Administrator will have complete discretion in
determining the number of Performance Units and Performance Shares granted to each Participant.
(b) Value of Performance Units/Shares. Each Performance Unit will have an initial value that is established by the Administrator on or before
the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.
17
(c) Performance Objectives and Other Terms. The Administrator will set performance objectives or other vesting provisions (including,
without limitation, Continuing Service Status) in its discretion which, depending on the extent to which they are met, will determine the
number or value of Performance Units/Shares that will be paid out to the Participant. The time period during which the performance
objectives or other vesting provisions must be met will be called the “Performance Period.” Each Award of Performance Units/Shares will be
evidenced by a Performance Unit Agreement or Performance Share Agreement, as applicable, that will specify the Performance Period, and
such other terms and conditions as the Administrator, in its sole discretion, will determine. The Administrator may set performance
objectives based upon the achievement of Company-wide, divisional, business unit or individual goals (including, but not limited to,
continued employment or service), applicable federal or state securities laws, or any other basis determined by the Administrator in its
discretion.
(d) Earning of Performance Units/Shares. After the applicable Performance Period has ended, the holder of Performance Units/Shares will be
entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to be
determined as a function of the extent to which the corresponding performance objectives or other vesting provisions have been achieved.
After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectives or
other vesting provisions for such Performance Unit/Share.
(e) Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units/Shares will be made as soon as
practicable after the expiration of the applicable Performance Period. The Administrator, in its sole discretion, may pay earned Performance
Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance
Units/Shares at the close of the applicable Performance Period) or in a combination thereof.
(f) Cancellation of Performance Units/Shares. On the date set forth in the Performance Unit Agreement or Performance Share Agreement, all
unearned or unvested Performance Units/Shares will be reacquired by the Company, and again will be available for grant under the Plan.
12. Non-Executive Director Limitations. All Awards under the Plan granted to Non-Executive Directors will be subject to the limitations of the
Remuneration Policy.
13. Taxes.
(a) As a condition of the grant, vesting and exercise of an Award, and prior to the delivery of Shares or cash pursuant to an Award, the Company
will have the power and right to deduct or withhold, or require Participant (or in the case of the Participant’s death or a permitted transferee,
the person holding or exercising the Award) to remit to the Company, an amount sufficient to satisfy U.S. federal, state or local taxes, non-
U.S. taxes, or other taxes (including social security contributions and social security premiums and Participant’s FICA obligation) required to
be withheld with respect to such Award (or exercise thereof). The Company shall not be required to issue any Shares or other consideration
under the Plan until such obligations are satisfied.
(b) The Administrator may, to the extent permitted under Applicable Laws, permit a Participant (or in the case of the Participant’s death or a
permitted transferee, the person
18
holding or exercising the Award) to satisfy all or part of his or her tax and social security contributions and social security premiums,,
withholding, or any other required deductions or payments by (i) paying cash, (ii) electing to have the Company withhold otherwise
deliverable cash or Shares having a fair market value not in excess of the maximum statutory amount required to be withheld (including
through a Cashless Exercise), or (iii) delivering to the Company already-owned Shares having a Fair Market Value not in excess of the
maximum statutory amount required to be withheld. Any payment of taxes, social security contributions and social security premiums by
surrendering Shares to the Company may be subject to restrictions, including, but not limited to, any restrictions required by rules of the
Securities and Exchange Commission.
(c) Awards will be designed and operated in such a manner that they are either exempt from the application of, or comply with, the requirements
of Section 409A such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under
Section 409A, except as otherwise determined in the sole discretion of the Administrator. The Plan and each Award Agreement under the
Plan is intended to meet the requirements of Section 409A and will be construed and interpreted in accordance with such intent, except as
otherwise determined in the sole discretion of the Administrator. To the extent that an Award or payment, or the settlement or deferral
thereof, is subject to Section 409A the Award will be granted, paid, settled or deferred in a manner that will meet the requirements of Section
409A, such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Section 409A.
In no event will the Company (or any Parent, Subsidiary, or Affiliate of the Company, as applicable) reimburse a Participant for any taxes
imposed or other costs incurred as a result of Section 409A.
14. Non-Transferability of Awards.
(a) General. Unless determined otherwise by the Administrator, Awards may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent or distribution. The designation of a beneficiary by a Participant will
not constitute a transfer. An Option may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator
makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate.
15. Adjustments Upon Changes in Capitalization, Merger or Certain Other Transactions.
(a) Changes in Capitalization. Subject to any action required under Applicable Laws by the holders of shares in the capital of the Company, (i)
the numbers and class of Shares or other shares in the capital of the Company or securities: (x) available for future Awards under Section 3
above and (y) covered by each outstanding Award, (ii) the exercise price per Share of each such outstanding Option or Stock Appreciation
Right, and (iii) any repurchase price per Share applicable to Shares issued pursuant to any Award, shall, in order to prevent diminution or
enlargement of the benefits or potential benefits intended to be made available under the Plan, be adjusted by the Administrator in the event
of a stock split, reverse stock split, dividend or other distribution (whether in the form of cash, Shares, securities, or other property),
recapitalization, reorganization, merger, split-up, spin-off, combination, consolidation, reclassification of the Shares or subdivision of the
Shares or other securities of the Company, repurchase or exchange of Shares or other securities of the Company, or other change in the
corporate structure of the Company affecting the Shares. Any such adjustment by the Administrator shall be made in the Administrator’s sole
and absolute discretion and shall be final, binding on the shares of capital of the Company of any class, or securities convertible into shares of
in the capital of the Company of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or
price of Shares subject to an
19
Award. If, by reason of a transaction described in this Section 15(a) or an adjustment pursuant to this Section 15(a), a Participant’s Award
Agreement or agreement related to any Shares covered by an Award covers additional or different shares in the capital of the Company or
securities, then such additional or different shares, and the Award Agreement or agreement related to the Shares covered by an Award in
respect thereof, shall be subject to all of the terms, conditions and restrictions which were applicable to the Award or Shares covered by the
Award prior to such adjustment.
(b) Dissolution or Liquidation. In the event of the dissolution or liquidation of the Company, each Award, to the extent it has not been
previously exercised, will terminate immediately prior to the consummation of such action, unless otherwise determined by the
Administrator. The Administrator will notify each Participant as soon as practicable prior to the effective date of such proposed transaction.
(c) Corporate Transactions. In the event of a merger of the Company with or into another corporation or other entity or a Change in Control,
each outstanding Award (vested or unvested) will be treated as the Administrator determines (subject to the restriction in the following
paragraph), which determination may be made without the consent of any Participant and need not treat all outstanding Awards (or portion
thereof) in an identical manner, including, without limitation, that each Award be assumed or an equivalent option or right substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation.
If any Award, or any agreement applicable to any Award, provides for accelerated vesting in connection with any termination of Continuous
Service Status that occurs on or after a Change in Control, and the successor does not agree to assume the Award, or to substitute an
equivalent award or right for the Award, then any acceleration of vesting that would otherwise occur upon such termination of Continuous
Service Status shall occur immediately prior to, and contingent upon, the consummation of such Change in Control.
In the event that the successor corporation does not assume or substitute for the Award (or portion thereof), the Participant will fully vest in
and have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights, including Shares as to which such Awards
would not otherwise be vested or exercisable, all restrictions on Restricted Stock, Restricted Stock Units, Performance Units and
Performance Shares will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria
will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met, in all cases, unless
specifically provided otherwise under the applicable Award Agreement or other written agreement between the Participant and the Company
or any of its Subsidiaries or Parents, as applicable. In addition, if an Option or Stock Appreciation Right is not assumed or substituted in the
event of a merger or Change in Control, the Administrator will notify the Participant in writing or electronically that the Option or Stock
Appreciation Right will be exercisable for a period of time determined by the Administrator in its sole discretion, and the Option or Stock
Appreciation Right will terminate upon the expiration of such period.
For the purposes of this subsection (c), an Award will be considered assumed if, following the Change in Control, the Award confers the
right to purchase or receive, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether
shares in the capital of the Company, cash, or other securities or property) received in the Change in Control by holders of Ordinary Shares
for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change in
Control is not solely ordinary shares of the successor
20
corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received
upon the exercise of an Option or Stock Appreciation Right or upon the payout of a Restricted Stock Unit, Performance Unit or Performance
Share, for each Share subject to such Award, to be solely ordinary shares of the successor corporation or its Parent equal in fair market value
to the per share consideration received by holders of Ordinary Shares in the Change in Control.
Notwithstanding anything in this Section 15(c) to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more
performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the
Participant’s consent; provided, however, a modification to such performance goals only to reflect the successor corporation’s post-Change
in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.
(d) Non-Executive Director Awards. With respect to Awards granted to an Non-Executive Director, in the event of a Change in Control, then
the Participant will fully vest in and have the right to exercise Options and/or Stock Appreciation Rights as to all of the Shares underlying
such Award, including those Shares which would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted
Stock Units will lapse, and, with respect to Awards with performance-based vesting, unless specifically provided otherwise under the
applicable Award Agreement, a Company policy applicable to the Participant, or other written agreement between the Participant and the
Company, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all
other terms and conditions met.
16. Time of Granting Awards. The date of grant of an Award shall, for all purposes, be the date on which the Board makes the determination granting
such Award, or such other date as is determined by the Administrator.
17. Amendment and Termination of the Plan. The Board may at any time amend or terminate the Plan, but no amendment or termination shall be
made that would materially and adversely affect the rights of any Participant under any outstanding Award, without his or her consent. In addition, to
the extent necessary and desirable to comply with Applicable Laws, the Company shall obtain the approval of holders of shares in the capital of the
Company with respect to any Plan amendment in such a manner and to such a degree as required.
18. Conditions Upon Issuance of Shares. Notwithstanding any other provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with Applicable Laws, with such compliance determined by the Company in consultation with its legal counsel. As a condition
to the exercise of any Option or Stock Appreciation Right or purchase or receipt of any Restricted Stock or Restricted Stock Units, the Company may
require the person exercising, purchasing or receiving the applicable Award to represent and warrant at the time of any such exercise, purchase or
receipt that the Shares subject to the Award are being exercised, purchased or received only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a representation is advisable or required by Applicable Laws. Shares issued
in connection with an Award prior to the date, if ever, on which the Ordinary Shares becomes a Listed Security shall be subject to a right of first refusal
in favor of the Company pursuant to which the Participant will be required to offer Shares to the Company before selling or transferring them to any
third party on such terms and subject to such conditions as is reflected in the applicable Award Agreement.
21
19. Beneficiaries. Participant may designate one or more beneficiaries with respect to an Award by timely filing the prescribed form with the Company.
A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Participant’s death. Except as
otherwise provided in an Award Agreement, if no beneficiary was designated or if no designated beneficiary survives the Participant, then after a
Participant’s death any vested Award(s) shall be transferred or distributed to the Participant’s estate or to any person who has the right to acquire the
Award by bequest or inheritance.
20. Approval of Holders of Shares in the Capital of the Company. If required by Applicable Laws, continuance of the Plan shall be subject to
approval by the holders of shares in the capital of the Company at the general meeting of the Company within 12 months before or after the date the
Plan is adopted or, to the extent required by Applicable Laws, any date the Plan is amended. Such approval shall be obtained in the manner and to the
degree required under Applicable Laws.
21. Addenda. The Administrator may approve such addenda to the Plan as it may consider necessary or appropriate for the purpose of granting Awards
to Employees or Consultants, which Awards may contain such terms and conditions as the Administrator deems necessary or appropriate to
accommodate differences in local law, tax policy or custom, which may deviate from the terms and conditions set forth in this Plan. The terms of any
such addenda shall supersede the terms of the Plan to the extent necessary to accommodate such differences but shall not otherwise affect the terms of
the Plan as in effect for any other purpose.
22. Approval of the Holders of Shares in the Capital of the Company. The Plan will be subject to approval by the holders of the shares in the capital
of the Company at the general meeting of the Company within twelve (12) months after the date the Plan is adopted by the Board. Such approval of the
holders of shares in the capital of the Company will be obtained in the manner and to the degree required under Applicable Laws.
23. Clawback. The Administrator may specify in an Award Agreement that the Participant’s rights, payments, and/or benefits with respect to an Award
will be subject to reduction, cancellation, reacquisition, and/or recoupment upon the occurrence of certain specified events, in addition to any applicable
vesting, performance or other conditions and restrictions of an Award. Notwithstanding any provisions to the contrary under this Plan, an Award
granted under the Plan shall be subject to the Company’s clawback policy (if any) as may be established and/or amended from time to time. The Board
may require a Participant to cancel or return to and/or reimburse the Company all or a portion of the Award and/or Shares issued under the Award, any
amounts paid under the Award, and any payments or proceeds paid or provided upon disposition of the Shares issued under the Award, pursuant to the
terms of such Company policy or as necessary or appropriate to comply with Applicable Laws.
22
ADDENDUM A
AMENDED AND RESTATED 2012 STOCK OPTION PLAN
UK COMPANY SHARE OPTION PLAN (THE “PLAN”)
ADOPTED BY THE BOARD OF ELASTIC N.V ON SEPTEMBER 18, 2018
(A) This Plan forms part of the Elastic N.V. Amended and Restated 2012 Stock Option Plan including, without limitation Section 3 (Stock Subject to the Plan).
(B) The purpose of this scheme is to provide benefits to employees and directors in the form of share options, in accordance with Schedule 4 of the Income Tax
(Earnings and Pensions) Act 2003.
(C) In this Plan the words and expressions defined herein shall have the same meaning when used in the Plan and the provisions of the Elastic N.V. Amended and
Restated 2012 Stock Option Plan shall apply to the provisions of the Plan except where expressly varied herein.
(D) Notwithstanding anything in the Plan or any Option Agreement, no variation may be made to the terms of an outstanding Option other than as follows:
(i) any variation to the Exercise Price must be carried out in accordance with paragraph 22 of Schedule 4;
(ii) any variation to the number or description of shares subject to the Option must be carried out in accordance with paragraph 22 of Schedule 4 or with
the prior written consent of the relevant UK Participant;
(iii) any variation to the restrictions applicable to shares subject to Option must be carried out in accordance with paragraph 22 of Schedule 4 or as a result
of amendments to such restrictions generally approved by the Company’s shareholders;
(iv) any variation to the times at which the Option may be exercised, in whole or in part, must be carried out in accordance with paragraph 22 of Schedule
4 or with the prior written consent of the relevant UK Participant;
(v) any variation to the circumstances under which the Option will lapse must be carried out in accordance with paragraph 22 of Schedule 4 or with the
prior written consent of the relevant UK Participant;
(E) The mechanisms described in paragraph (D) above in connection with certain changes to the terms of outstanding Options must be applied in a way that is fair
and reasonable.
(F) Notwithstanding anything in the Plan or any Option Agreement, no variations whatsoever may be made to any outstanding Options where this would result in
the requirements of the paragraphs of Schedule 4 to the Act no longer being met.
(G) Restricted Stock may not be provided under the Plan. All provisions relating to Restricted Stock in the Elastic N.V. Amended and Restated 2012 Stock Option
Plan shall not apply to the Plan.
(H) For the purposes of the Plan, the following terms shall have the following meanings:
"Act"
the Income Tax (Earnings and Pensions) Act 2003;
"Appropriate Period"
the relevant period as specified in paragraph 26(3) of Schedule 4;
"Associated Company"
an associated company of the Company within the meaning that expression bears in paragraph 35 of
Schedule 4;
“Control”
the meaning given by section 719 of the Act;
“Date of Grant”
the date on which an Option is, was or is to be granted under the Plan;
“Eligible Employee”
"Exercise Price"
any individual who at the Date of Grant is a director (who is required to work at least 25 hours a week
exclusive of meal breaks) or an employee of a Participating Company;
the price per Share, as determined by the Administrator, at which an Eligible Employee may acquire Shares
upon the exercise of an Option being not less than the Market Value of a Share:
(1) subject to (2) below, on the day the Date of Grant; or
(2) if the Administrator so determines, at such earlier time or times as the Administrator may determine
(with previous agreement in writing of HMRC);
but subject to any adjustment pursuant to Section 12(a) as applied in this Plan;
“HMRC”
HM Revenue & Customs;
"Individual Approved Limit”
the limit specified from time to time in paragraph 6 of Schedule 4;
"London Stock Exchange”
the London Stock Exchange plc or any successor company or body carrying on the business of the London
Stock Exchange plc;
"Market Value"
in relation to a Share on any day:
(1) if so long as the Shares are traded on NASDAQ, its last reported sale price and agreed for the purposes of
this Plan with the Shares & Assets Valuation of HMRC on or before that day; or
(2) if and so long as the Shares are listed on the London Stock Exchange or the New York Stock Exchange,
its middle market quotation; or
(3) subject to (1) and (2) above, its market value, determined in accordance with Part 8 of the Taxation and
Chargeable Gains Act 1992 and agreed for the purposes of this Plan with the Shares & Assets
Valuation of HMRC on or before that day;
"Option"
the right to acquire Shares granted in accordance with and subject to the rules of the Plan;
2
"Ordinary Share Capital"
the meaning given in section 989 Income Tax Act 2007;
"Original Market Value"
in relation to any Share to be taken into account for the purposes of the limit in Section 4(c)(iii) as applied
in this Plan, its Market Value as determined for the purposes of the relevant grant of options;
"Participating Company"
(1) the Company; and
(2) any other company which is under the Control of the Company or is a Subsidiary of the Company;
“Plan”
this UK Company Share Option Plan;
“Schedule 4”
Schedule 4 to the Act;
"Share"
a share of the Company's Ordinary Share Capital which complies with the conditions set forth in Part 4 of
Schedule 4;
"Subsidiary"
the meaning given by Section 1159 of the Companies Act 2006;
“UK Participant”
a director or employee, or former director or employee, to whom an Option under this Plan has been
granted or (where the context so admits or requires) the personal representatives of any such person.
(I) Options under this Plan may only be granted to Eligible Employees.
(J) For the purposes of this Plan the following Sections of the Plan shall be amended, modified or deleted as follows:
1. Section 4(b)(i) shall not apply to this Plan.
2. Section 4(b)(iii) shall not apply to this Plan and shall be replaced by the following:
“to determine the number of Shares to be covered by each Option provided that any Option granted to an Eligible Employee shall be
limited to take effect so that immediately following such grant the aggregate Original Market Value of all Shares over which he or she
has been granted option rights under the Plan or any other share option plan approved under Schedule 4 adopted by the Company or an
Associated Company, shall not exceed or further exceed the Individual Approved Option Limit;”
3. Section 4(b)(v)shall not apply to this Plan and shall be replaced by the following:
“to determine the terms and conditions, not inconsistent with the terms of the Plan, if any Option granted hereunder, which terms and
conditions include but are not limited to the time or times when Options vest and/or be exercised (which may be based on performance
criteria) provided any such terms and conditions are objective and are stated in writing at the Date of Grant.”
4. Section 4(b)(vii) shall not apply to this Plan.
3
5. Section 4(b)(viii) shall not apply to this Plan.
6. Section 4(b)(ix) shall not apply to this Plan.
7. Section 5(a) shall not apply to this Plan and shall be replaced by the following:
“Options may only be granted to Eligible Employees.”
8. Section 5(b) shall not apply to this Plan.
9. Section 7(b) shall not apply to this Plan.
10. Section 7(c)(i) shall not apply to this Plan and shall be replaced by the following:
“The per Share exercise price for the Shares to be issued pursuant to the exercise of an Option shall be determined by the Administrator
and set forth in the Option Agreement, but shall not be less than the Market Value of a Share on the Date of Grant or, if the
Administrator so determines, at such earlier time or times as the Administrator may determine (with the prior agreement in writing of
HMRC).”
11. Section 7(c)(ii) shall not apply to this Plan and shall be replaced by the following:
“The consideration to be paid for the Shares to be issued upon the exercise of an Option, including the method of payment, shall be
determined by the Administrator and may consist entirely of (1) cash; (2) check or (3) such other consideration and method of payment
that does not affect the approved status under Schedule 4 of the Option.”
12. Section 7(d)(i)(2) shall not apply to this Plan.
13. Section 7(d)(i)(3) shall not apply to this Plan and shall be replaced by the following:
“Minimum Exercise Requirements. An Option may not be exercised for a fraction of a Share. The Administrator may require that an
Option be exercised as to a minimum number of Shares, provided that such requirement is set forth in the applicable Option Agreement
and does not prevent a UK Participant from exercising the full number of Shares as to which the Option is exercisable from time to
time”.
14. Section 7(d)(i)(4) shall apply to this Plan but with the addition of the following:
“Shares delivered to a UK Participant pursuant to the Plan will rank pari passu in all respects with Shares then in issue.”
15. Section 7(d)(ii) shall apply to this Plan but shall not enable the Administrator to waive or modify provisions regarding termination of Continuous
Service Status in relation to an Option which has been granted.
16. Section 7(d)(ii)(3) shall apply to this Plan but modified such that the reference to “12 month(s)” shall be replaced with “6 months”.
17. Section 7(d)(ii)(4) shall apply to this Plan but modified such that Options may only be exercised by the UK Participant’s personal representatives.
18. Section 7(d)(iii)(6) shall not apply to this Plan.
4
19. Section 8 to 11 shall not apply to this Plan.
20. Section 14(a) shall not apply to this Plan and shall be replaced by the following:
“General. Options may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner. This Section shall not
prevent the personal representatives of a deceased UK Participant from exercising the Option in accordance with the Plan and
applicable Option Agreement(s)”.
21. Section 15(a) shall apply to this Plan provided that any variation or variations made in accordance with that Section must secure:
(A) that the total market value of the Shares which may be acquired by the exercise of an Option is immediately after the variation or variations
substantially the same as what it was immediately before the variation or variations; and
(B) that the total price at which Shares may be acquired on the Exercise of an Option is immediately after the variation or variations substantially
the same as what it was immediately before the variation or variations.
22. Section 15(b) shall apply to this Plan but with the words “unless otherwise determined by the Administrator” replaced with the following:
“unless otherwise determined by the Administrator acting fairly and reasonably”.
23. Section 15(c) shall not apply to this Plan and shall be replaced by the following:
“Certain Corporate Transactions.
(i) If as a result of a Corporate Transaction that falls with paragraph 25A of Schedule 4 and the Option is exercisable, then it may, if the
Administrator so determines, be exercisable by virtue of this provision during such period as the Administrator may determine
provided such period does not exceed any of the periods (as relevant) permitted under paragraph 25A of Schedule 4. In
exercising its discretion, the Administrator shall act fairly and reasonably.
“Approved rollover of Options.
(ii) If as a result of a Corporation Transaction that falls within paragraph 26(2) of Schedule 4, a company (the “Acquiring Company”)
obtains Control of the Company any UK Participant may at any time within the Appropriate Period, by agreement with the
Acquiring Company, release any Option which has not lapsed (the “Old Option”) in consideration for the grant to him of an
option (the “New Option”) which (for the purposes of paragraph 27 of Schedule 4) is equivalent to the Old Option but relates to
Shares in a different company (whether the Acquiring Company itself or some other company falling within paragraph 16(b) or
16(c) of Schedule 4).
(iii) The New Option shall not be regarded for the purposes of Section 13(d)(i) (as applied to this Plan) unless the conditions set out in
paragraph 27(4) of Schedule 4 are satisfied, but so that the provisions of the Plan shall for this purpose be construed as if (A)
the New Option were an Option granted under the Plan at the same time as the Old Option; and (B) except for the definitions of
“Participating Company” and “Subsidiary”, the reference to “Elastic N.V.” in the definition of
5
the Company in Section 2 of the Plan were a reference to the different company mentioned in Section 13(d)(i) of the Plan (as
applied to this Plan).”
24. Section 15(d) shall not apply to this Plan.
24. Section 19 shall not apply to this Plan.
6
Israeli Addendum
Adopted by the Compensation Committee of the Board of Directors of Elastic N.V. on April 28, 2020
to
ADDENDUM B
ELASTIC N.V.
Amended and Restated 2012 Stock Option Plan
This Israeli Addendum (the “Addendum”) to the Amended and Restated 2012 Stock Option Plan (as amended from time to time, the “Plan”) of Elastic N.V. (the
“Company”) shall apply only to persons who are, or are deemed to be, residents of the State of Israel for Israeli tax purposes (“Israeli Tax Residents”).
1. GENERAL
1.1. Unless otherwise defined in this Addendum, capitalized terms contained herein shall have the same meanings given to them in the Plan.
1.2. The Administrator in its discretion, may grant Awards to eligible Participants and shall determine whether Awards granted under the Plan to Israeli Tax
Residents are intended to be 102 Awards or 3(i) Awards. Each Award granted to an Israeli Tax Resident shall be evidenced by an Award Agreement, which shall
expressly identify the Award type, and be in such form and contain such provisions, as the Administrator shall from time to time deem appropriate.
1.3. The Plan shall apply to any Awards granted pursuant to this Addendum, provided, that the provisions of this Addendum shall supersede and govern in the
case of any inconsistency or conflict, either explicit or implied, arising between the provisions of this Addendum and the Plan.
2. DEFINITIONS.
2.1. “3(i) Award” means any Award granted to any Participant who is not an Employee pursuant to Section 3(i) of the Ordinance.
2.2. “102 Award” means any Award intended to qualify (as set forth in the applicable Award Agreement) and which qualifies under Section 102, provided it
is settled only in Shares.
2.3. “102 Capital Gain Track Award” means any 102 Award granted to an Employee pursuant to Section 102(b)(2) or (3) (as applicable) of the Ordinance
under the capital gain track.
2.4. “102 Non-Trustee Award” means any Award granted to an Employee pursuant to Section 102(c) of the Ordinance without a Trustee.
2.5. “102 Ordinary Income Track Award” means any 102 Award granted to an Employee pursuant to Section 102(b)(1) of the Ordinance under the ordinary
income track.
2.6. “102 Trustee Awards” means, collectively, 102 Capital Gain Track Awards and 102 Ordinary Income Track Awards.
2.7. “Award” means any award of an Option or Restricted Stock Units under the Plan.
2.8. “Controlling Shareholder” has the meaning set forth in Section 32(9) of the Ordinance.
2.9. “Election” has the meaning set forth in Section 3.2 of this Addendum.
2.10. “Employee” means an “employee” within the meaning of Section 102(a) of the Ordinance (which as of the date of the adoption of this Addendum
means (i) an individual employed by an Employer, and (ii) an individual who is serving and is engaged personally (and not through an entity) as an “office holder”
by an Employer, excluding any Controlling Shareholder), provided such Employee also satisfies the eligibility requirements under the Plan.
2.11. “Employer” means, for purpose of a 102 Trustee Award, an Affiliate, Subsidiary or Parent which is an “employing company” within the meaning and
subject to the conditions of Section 102(a) of the Ordinance.
2.12. “ITA” means the Israel Tax Authority.
2.13. “Ordinance” means the Israeli Income Tax Ordinance (New Version), 1961, including the Rules and any other regulations, rules, orders or procedures
promulgated thereunder, as may be amended or replaced from time to time.
2.14. “Required Holding Period” has the meaning set forth in Section 3.5.1 of this Addendum.
2.15. “Rules” means the Income Tax Rules (Tax Benefits in Stock Issuance to Employees) 5763-2003.
2.16. “Section 102” means Section 102 of the Ordinance.
2.17. “Trust Agreement” means the agreement to be signed between the Company, an Employer and the Trustee for the purposes of Section 102.
2.18. “Trustee” means the trustee appointed by the Administrator and approved by the ITA to hold certain Awards granted to Israeli Tax Residents and the
Shares issued pursuant to such Awards.
2.19. “Withholding Obligations” as defined in Section 5.5 below.
3. 102 AWARDS
3.1. Tracks. Awards granted pursuant to this Section 3 are intended to be granted as either 102 Capital Gain Track Awards or 102 Ordinary Income Track
Awards. 102 Trustee Awards shall be granted subject to the special terms and conditions contained in this Section 3 and the general terms and conditions of the
Plan and applicable Award Agreement, except to the extent such provisions of the Plan and applicable Award Agreement conflict with the tax laws or regulations
applicable to the Israeli Tax Residents.
3.2. Election of Track. Subject to Applicable Laws, the Company may grant only one type of 102 Trustee Award at any given time to all Employees who are
to be granted 102 Trustee Awards pursuant to this Addendum, and shall file an election with the ITA regarding the type of 102 Trustee Award it elects to grant
before the date of grant of any 102 Trustee Award (the “Election”). Such Election shall also apply to any other securities received by any Employee as a result of
holding the 102 Trustee Awards. The Company may change the type of 102 Trustee Award that it elects to grant only after the expiration of at least 12 months
from the end of the year in which the first grant was made in accordance with the Election that was in effect at the time of such grant, or as otherwise provided by
Applicable Laws. The Election shall not prevent the Company from granting 102 Non-Trustee Awards.
3.3. Eligibility for Awards. Subject to Applicable Laws, 102 Awards may be granted only to Employees. 102 Awards may be granted either with a Trustee or
without a Trustee.
3.4. 102 Award Grant Date.
2
3.4.1. Each 102 Award will be deemed granted on the date determined by the Administrator, subject to the provisions of the Plan, provided that (i) the
Employee signs all documents required by the Company or pursuant to Applicable Laws, and (ii) with respect to any 102 Trustee Award, the Company provides all
applicable documents to the Trustee in accordance with the guidelines published by the ITA.
3.4.2. Unless otherwise permitted by the Ordinance, any grants of 102 Trustee Awards that are made on or after the date of the adoption of the Plan
and this Addendum or an amendment to the Plan or this Addendum, as the case may be, that may become effective only at the expiration of thirty (30) days after
the filing of the Plan and this Addendum or any amendment thereof (as the case may be) with the ITA in accordance with the Ordinance shall be conditional upon
the expiration of such 30-day period, and such condition shall be read and is incorporated by reference into any corporate resolutions approving such grants and
into any Award Agreement evidencing such grants (whether or not explicitly referring to such condition), and the date of grant shall be at the expiration of such 30-
day period, whether or not the date of grant indicated therein corresponds with this Section. In the case of any contradiction, this provision and the date of grant
determined pursuant hereto shall supersede and be deemed to amend any date of grant indicated in any corporate resolution or Award Agreement.
3.5. 102 Trustee Awards.
3.5.1. Each 102 Trustee Award, each Ordinary Share issued pursuant to any 102 Trustee Award and any rights granted thereunder, shall be allocated
or issued to and registered in the name of the Trustee and shall be held in trust or controlled by the Trustee for the benefit of the Participant for the requisite period
prescribed by the Ordinance (the “Required Holding Period”). In the event that the requirements under Section 102 to qualify an Award as a 102 Trustee Award
are not met, then the Award may be treated as a 102 Non-Trustee Award or 3(i) Award (as determined by the Company in its discretion), all in accordance with the
provisions of the Ordinance. After the expiration of the Required Holding Period, the Trustee may release such 102 Trustee Awards and any Shares issued pursuant
to such 102 Trustee Awards, provided that (i) the Trustee has received an acknowledgment from the ITA that the Participant has paid any applicable taxes due
pursuant to the Ordinance, or (ii) the Trustee and/or the Company and/or the Employer withhold(s) all applicable taxes and compulsory payments due pursuant to
the Ordinance arising from the 102 Trustee Awards and/or any Shares issued upon exercise or (if applicable) vesting of such 102 Trustee Awards. The Trustee
shall not release any 102 Trustee Awards or Shares issued upon exercise or (if applicable) vesting thereof prior to the payment in full of the Participant’s tax and
compulsory payments arising from such 102 Trustee Awards and/or Shares or the withholding referred to in (ii) above.
3.5.2. Each 102 Trustee Award shall be subject to the relevant terms of the Ordinance, the Rules and any determinations, rulings or approvals issued
by the ITA, which shall be deemed an integral part of the 102 Trustee Awards and shall prevail over any term contained in the Plan, this Addendum or the
applicable Award Agreement that is not consistent therewith. Any provision of the Ordinance, the Rules and any determinations, rulings or approvals by the ITA
not expressly specified in the Plan, this Addendum or the applicable Award Agreement that are necessary to receive or maintain any tax benefit pursuant to Section
102 shall be binding on the Participant. Any Participant granted a 102 Trustee Award shall comply with the Ordinance and the terms and conditions of the Trust
Agreement entered into between the Company and the Trustee. The Participant shall execute any and all documents that the Company, the Employer and/or the
Trustee determine from time to time to be necessary in order to comply with the Ordinance and the Rules.
3.5.3. During the Required Holding Period, the Participant shall not release from trust or sell, assign, transfer or give as collateral, the Shares issuable
upon the exercise or (if applicable) vesting of a 102 Trustee Award and/or any securities issued or distributed with respect thereto, until the expiration of the
Required Holding Period. Notwithstanding the above, if any such sale, release or other action occurs during the Required Holding Period it may result in adverse
tax consequences to the Participant under Section 102 and the Rules, which shall apply to and shall be borne solely by such Participant. Subject to the foregoing,
the Trustee may, pursuant to a written request from the Participant, but subject to the terms of the Plan and this Addendum, release and transfer such Shares to a
designated third party, provided that both of the following conditions have been fulfilled prior to such release or transfer: (i) payment has been made to the ITA of
all taxes and compulsory payments required to be paid upon the release and transfer of the Shares, and confirmation of such payment has been received by the
Trustee and the
3
Company, and (ii) the Trustee has received written confirmation from the Company that all requirements for such release and transfer have been fulfilled according
to the terms of the Company’s corporate documents, any agreement governing the Shares, the Plan, this Addendum, the applicable Award Agreement and any
Applicable Laws.
3.5.4. If a 102 Trustee Award is exercised or (if applicable) vests, the Shares issued upon such exercise or (if applicable) vesting shall be issued in the
name of the Trustee for the benefit of the Participant.
3.5.5. Upon or after receipt of a 102 Trustee Award, if required, the Participant may be required to sign an undertaking to release the Trustee from any
liability with respect to any action or decision duly taken and executed in good faith by the Trustee in relation to the Plan, this Addendum, or any 102 Trustee
Awards granted to such Participant hereunder.
3.6. 102 Non-Trustee Awards. The foregoing provisions of this Section 3 relating to 102 Trustee Awards shall not apply with respect to 102 Non-Trustee
Awards, which shall, however, be subject to the relevant provisions of Section 102 and the applicable Rules. The Administrator may determine, at its discretion,
that 102 Non-Trustee Awards, the Shares issuable upon the exercise or (if applicable) vesting of a 102 Non-Trustee Award and/or any securities issued or
distributed with respect thereto, shall be allocated or issued to the Trustee, who shall hold such 102 Non-Trustee Award and all accrued rights thereon (if any) in
trust for the benefit of the Participant and/or the Company, as the case may be, until the full payment of tax arising from the 102 Non-Trustee Awards, the Shares
issuable upon the exercise or (if applicable) vesting of a 102 Non-Trustee Award and/or any securities issued or distributed with respect thereto. The Company,
without limitation, may require the Participant to provide the Company with a guarantee or other security, to the satisfaction of each of the Trustee and the
Company, with respect to the Participant’s tax obligations.
3.7. Written Participant Undertaking. With respect to any 102 Trustee Award, as required by Section 102 and the Rules, by virtue of the receipt of such
Award, the Participant is deemed to have provided, undertaken and confirmed the following written undertaking (and such undertaking is deemed incorporated into
any documents signed by the Participant in connection with the grant of such 102 Trustee Award), and which undertaking shall be deemed to apply and relate to all
102 Trustee Awards granted to the Participant, whether under the Plan and this Addendum or other plans maintained by the Company, and whether prior to or after
the date hereof:
3.7.1. The Participant shall comply with all terms and conditions set forth in Section 102 with regard to the “Capital Gain Track” or the “Ordinary
Income Track”, as applicable, and the applicable rules and regulations promulgated thereunder, as amended from time to time;
3.7.2. The Participant is familiar with, and understands the provisions of, Section 102 in general, and the tax arrangement under the “Capital Gain
Track” or the “Ordinary Income Track” in particular, and its tax consequences; the Participant agrees that the 102 Trustee Awards and Shares that may be issued
upon exercise or (if applicable) vesting of the 102 Trustee Awards (or otherwise in relation to the Awards), will be held by a Trustee appointed pursuant to Section
102 for at least the duration of the "Holding Period" (as such term is defined in Section 102) under the "Capital Gain Track" or the “Ordinary Income Track”, as
applicable. The Participant understands that any release of such 102 Trustee Awards or Shares from trust, or any sale of the Shares prior to the termination of the
Holding Period, as defined above, will result in taxation at the marginal tax rate, in addition to deductions of appropriate social security, health tax contributions or
other compulsory payments; and
3.7.3. The Participant agrees to the Trust Agreement signed between the Company, the Employer and the Trustee appointed pursuant to Section 102.
4. 3(i) AWARDS
4.1. Awards granted pursuant to this Section 4 are intended to constitute 3(i) Awards and shall be granted subject to the general terms and conditions of the
Plan, and applicable Award Agreement, except to the extent such provisions of the Plan and applicable Award Agreement conflict with the tax laws or regulations
4
applicable to Israeli Tax Residents. In the event of any inconsistency or contradictions between the provisions of this Section 4 and the other terms of the Plan, this
Section 4 shall prevail.
4.2. To the extent required by the Ordinance or the ITA or otherwise deemed by the Administrator to be advisable, the 3(i) Awards and/or any shares or other
securities issued or distributed with respect thereto granted pursuant to this Plan shall be issued to a Trustee nominated by the Administrator in accordance with the
provisions of the Ordinance or the terms of a trustee agreement, as applicable. In such event, the Trustee shall hold such Awards and/or other securities issued or
distributed with respect thereto in trust, until exercised or (if applicable) vested by the Participant and the full payment of tax arising therefrom, pursuant to the
Company’s instructions from time to time as set forth in a trust agreement, which will have been entered into between the Company and the Trustee. If determined
by the Administrator in its discretion, and subject to such trustee agreement, the Trustee will also hold the shares issuable upon exercise or (if applicable) vesting
of the 3(i) Awards, as long as they are held by the Participant. If determined by the Board or the Committee, and subject to such trust agreement, the Trustee shall
be responsible for withholding any taxes to which a Participant may become liable upon issuance of Shares, whether due to the exercise or (if applicable) vesting
of Awards.
5. AGREEMENT REGARDING TAXES; DISCLAIMER
5.1. If the Company shall so require, as a condition of exercise or (if applicable) vesting of an Award or the release of Shares by the Trustee, a Participant shall
agree that, no later than the date of such occurrence, the Participant will pay to the Company (or the Trustee, as applicable) or make arrangements satisfactory to
the Company and the Trustee (if applicable) regarding payment of any applicable taxes and compulsory payments of any kind required by Applicable Laws to be
withheld or paid.
5.2. TAX LIABILITY. ALL TAX CONSEQUENCES UNDER ANY APPLICABLE LAW WHICH MAY ARISE FROM THE GRANT OF ANY AWARDS
OR THE EXERCISE OR (IF APPLICABLE) VESTING THEREOF, THE SALE OR DISPOSITION OF ANY SHARES GRANTED HEREUNDER OR ISSUED
UPON EXERCISE OR (IF APPLICABLE) VESTING OF ANY AWARD, THE ASSUMPTION, SUBSTITUTION, CANCELLATION OR PAYMENT IN LIEU
OF AWARDS OR FROM ANY OTHER ACTION IN CONNECTION WITH THE FOREGOING (INCLUDING WITHOUT LIMITATION ANY TAXES AND
COMPULSORY PAYMENTS, SUCH AS SOCIAL SECURITY OR HEALTH TAX PAYABLE BY THE PARTICIPANT OR THE COMPANY IN
CONNECTION THEREWITH) SHALL BE BORNE AND PAID SOLELY BY THE PARTICIPANT, AND THE PARTICIPANT SHALL INDEMNIFY THE
COMPANY, ITS PARENT, SUBSIDIARIES AND AFFILIATES (INCLUDING THE EMPLOYER) AND THE TRUSTEE, AND SHALL HOLD THEM
HARMLESS AGAINST AND FROM ANY LIABILITY FOR ANY SUCH TAX OR PAYMENT OR ANY PENALTY, INTEREST OR INDEXATION
THEREON. EACH PARTICIPANT AGREES TO, AND UNDERTAKES TO COMPLY WITH, ANY RULING, SETTLEMENT, CLOSING AGREEMENT OR
OTHER SIMILAR AGREEMENT OR ARRANGEMENT WITH ANY TAX AUTHORITY IN CONNECTION WITH THE FOREGOING WHICH IS
APPROVED BY THE COMPANY.
5.3. NO TAX ADVICE. THE PARTICIPANT IS ADVISED TO CONSULT WITH A TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES
OF RECEIVING, EXERCISING, VESTING OR DISPOSING OF AWARDS HEREUNDER. THE COMPANY DOES NOT ASSUME ANY RESPONSIBILITY
TO ADVISE THE PARTICIPANT ON SUCH MATTERS, WHICH SHALL REMAIN SOLELY THE RESPONSIBILITY OF THE PARTICIPANT.
5.4. TAX TREATMENT. THE COMPANY AND ITS PARENT, SUBSIDIARIES AND AFFILIATES (INCLUDING THE EMPLOYER) DOES NOT
UNDERTAKE OR ASSUME ANY LIABILITY OR RESPONSIBILITY TO THE EFFECT THAT ANY AWARD SHALL QUALIFY WITH ANY
PARTICULAR TAX REGIME OR RULES APPLYING TO PARTICULAR TAX TREATMENT, OR BENEFIT FROM ANY PARTICULAR TAX
TREATMENT OR TAX ADVANTAGE OF ANY TYPE AND THE COMPANY AND ITS PARENT, SUBSIDIARIES AND AFFILIATES (INCLUDING THE
EMPLOYER) SHALL BEAR NO LIABILITY IN CONNECTION WITH THE MANNER IN WHICH ANY AWARD IS EVENTUALLY TREATED FOR TAX
PURPOSES, REGARDLESS OF WHETHER THE AWARD WAS GRANTED OR WAS INTENDED
5
TO QUALIFY UNDER ANY PARTICULAR TAX REGIME OR TREATMENT. THIS PROVISION SHALL SUPERSEDE ANY DESIGNATION OF
AWARDS OR TAX QUALIFICATION INDICATED IN ANY CORPORATE RESOLUTION OR AWARD AGREEMENT, WHICH SHALL AT ALL TIMES
BE SUBJECT TO THE REQUIREMENTS OF APPLICABLE LAWS. THE COMPANY AND ITS PARENT, SUBSIDIARIES AND AFFILIATES
(INCLUDING THE EMPLOYER) DO NOT UNDERTAKE AND SHALL NOT BE REQUIRED TO TAKE ANY ACTION IN ORDER TO QUALIFY ANY
AWARD WITH THE REQUIREMENTS OF ANY PARTICULAR TAX TREATMENT AND NO INDICATION IN ANY DOCUMENT TO THE EFFECT
THAT ANY AWARD IS INTENDED TO QUALIFY FOR ANY TAX TREATMENT SHALL IMPLY SUCH AN UNDERTAKING. NO ASSURANCE IS
MADE BY THE COMPANY, ANY OF ITS PARENT, SUBSIDIARIES OR AFFILIATES (INCLUDING THE EMPLOYER) THAT ANY PARTICULAR TAX
TREATMENT ON THE DATE OF GRANT WILL CONTINUE TO EXIST OR THAT THE AWARD WILL QUALIFY AT THE TIME OF VESTING,
EXERCISE OR DISPOSITION THEREOF WITH ANY PARTICULAR TAX TREATMENT. THE COMPANY AND ITS PARENT, SUBSIDIARIES AND
AFFILIATES (INCLUDING THE EMPLOYER) SHALL NOT HAVE ANY LIABILITY OR OBLIGATION OF ANY NATURE IN THE EVENT THAT AN
AWARD DOES NOT QUALIFY FOR ANY PARTICULAR TAX TREATMENT, REGARDLESS WHETHER THE COMPANY OR ITS PARENT,
SUBSIDIARIES OR AFFILIATES (INCLUDING THE EMPLOYER) COULD HAVE TAKEN ANY ACTION TO CAUSE SUCH QUALIFICATION TO BE
MET AND SUCH QUALIFICATION REMAINS AT ALL TIMES AND UNDER ALL CIRCUMSTANCES AT THE RISK OF THE PARTICIPANT. THE
COMPANY AND ITS PARENT, SUBSIDIARIES AND AFFILIATES (INCLUDING THE EMPLOYER) DO NOT UNDERTAKE OR ASSUME ANY
LIABILITY TO CONTEST A DETERMINATION OR INTERPRETATION (WHETHER WRITTEN OR UNWRITTEN) OF ANY TAX AUTHORITY,
INCLUDING IN RESPECT OF THE QUALIFICATION UNDER ANY PARTICULAR TAX REGIME OR RULES APPLYING TO PARTICULAR TAX
TREATMENT. IF THE AWARDS DO NOT QUALIFY UNDER ANY PARTICULAR TAX TREATMENT IT COULD RESULT IN ADVERSE TAX
CONSEQUENCES TO THE PARTICIPANT.
5.5. The Company or its Parents, Subsidiaries and Affiliates (including the Employer) may take such action as they may deem necessary or appropriate, in
their discretion, for the purpose of or in connection with withholding of any taxes and compulsory payments which the Trustee, the Company or any Parent,
Subsidiary or Affiliate (including the Employer) is required by any Applicable Laws to withhold in connection with any Awards, including, without limitations,
any income tax, social benefits, social insurance, health tax, pension, payroll tax, fringe benefits, excise tax, payment on account or other tax-related items related
to the Participant’s participation in the Plan and applicable by law to the Participant (collectively, “Withholding Obligations”). Such actions may include, without
limitation, (i) requiring Participants to remit to the Company or the Employer in cash an amount sufficient to satisfy such Withholding Obligations and any other
taxes and compulsory payments, payable by the Company or the Employer in connection with the Award or the exercise or (if applicable) vesting thereof; (ii)
subject to Applicable Laws, allowing the Participants to surrender Shares, in an amount that at such time, reflects a value that the Administrator determines to be
sufficient to satisfy such Withholding Obligations; (iii) withholding Shares otherwise issuable upon the exercise of an Award at a value which is determined by the
Company to be sufficient to satisfy such Withholding Obligations; or (iv) any combination of the foregoing. The Company shall not be obligated to allow the
exercise or vesting of any Award by or on behalf of a Participant until all tax consequences arising therefrom are resolved in a manner acceptable to the Company.
5.6. Each Participant shall notify the Company in writing promptly and in any event within ten (10) days after the date on which such Participant first obtains
knowledge of any tax bureau inquiry, audit, assertion, determination, investigation, or question relating in any manner to the Awards granted or received hereunder
or Shares issued thereunder and shall continuously inform the Company of any developments, proceedings, discussions and negotiations relating to such matter,
and shall allow the Company and its representatives to participate in any proceedings and discussions concerning such matters. Upon request, a Participant shall
provide to the Company any information or document relating to any matter described in the preceding sentence, which the Company, in its discretion, requires.
5.7. With respect to 102 Non-Trustee Awards, if the Participant ceases to be employed by the Company or any Parent, Subsidiary or Affiliate (including the
Employer), the Participant shall extend to the
6
Company and/or the Employer a security or guarantee for the payment of taxes due at the time of sale of Shares, all in accordance with the provisions of Section
102 and the Rules.
6. RIGHTS AND OBLIGATIONS AS A SHAREHOLDER
6.1. In the case of 102 Awards or 3(i) Awards (if such Awards are being held by a Trustee), the Trustee shall have no rights as a shareholder of the Company
with respect to the Shares covered by such Award until the Trustee becomes the record holder for such Shares for the Participant’s benefit, and the Participant shall
not be deemed to be a shareholder and shall have no rights as a shareholder of the Company with respect to the Shares covered by the Award until the date of the
release of such Shares from the Trustee to the Participant and the transfer of record ownership of such Shares to the Participant (provided however that the
Participant shall be entitled to receive from the Trustee any cash dividend or distribution made on account of the Shares held by the Trustee for such Participant’s
benefit, subject to any tax withholding and compulsory payment). No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities
or other property) or distribution of other rights for which the record date is prior to the date on which the Participant or Trustee (as applicable) becomes the record
holder of the Shares covered by an Award, except as provided in the Plan.
7. GOVERNING LAW
7.1. This Addendum shall be governed by the internal substantive laws, but not the choice of law rules, of Delaware; provided, however, that the corporate law
aspects of issuance shall be governed by the laws of the Netherlands, and that any mandatory tax matters arising hereunder shall be governed by
applicable Israeli laws, rules and regulations (as amended).
****
7
ADDENDUM C
FRENCH ADDENDUM
ADOPTED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF ELASTIC N.V. ON JUNE 1, 2020
to the
ELASTIC N.V.
Amended and Restated 2012 Stock Option Plan
1. Introduction
Elastic N.V. (the “Company”) has established the Amended and Restated 2012 Stock Option Plan (the “Plan”), as approved by shareholders of the Company on
September 28, 2018 and as may be subsequently amended from time to time, for the benefit of certain employees and other service providers of the Company or a
Parent, Subsidiary or Affiliate, including employees of a Subsidiary or Affiliate of which the Company holds directly or indirectly at least 10% of the share capital
(a “French Entity”).
The Plan authorizes the Administrator to grant Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units and Performance
Shares. Sections 4(b)(ix) (“Powers of the Administrator”) and 21(“Addenda”) of the Plan authorize the Administrator to approve addenda or to grant Awards to, or
to modify the terms of, any outstanding Award Agreement or any agreement related to any Shares covered by an Award held by Participants who are foreign
nationals or employed outside of the United States with such terms and conditions as the Administrator deems necessary or appropriate to accommodate
differences in local law, tax policy or custom which deviate from the terms and conditions set forth in the Plan to the extent necessary or appropriate to
accommodate such differences. Pursuant to the foregoing authority, the Administrator, therefore, intends to establish an addendum to the Plan for the purpose of
granting Options that qualify for the specific tax and social security treatment under Sections L. 225-177 to L. 225-186-1 of the French Commercial Code, as
amended (“French-qualified Options”), and Restricted Stock Units (including Performance Units) that qualify for the specific tax and social security treatment
under Sections L. 225-197-1 to L. 225-197-6 of the French Commercial Code, as amended (“French-qualified RSUs”), to qualifying Participants who are resident
in France for French tax purposes and/or subject to the French social security regime (“French Participants”).
The terms of the Plan (to which this addendum is attached) shall, subject to the limitations set forth herein, constitute the rules of the Plan for French Participants
(the “French Addendum”). Options and Restricted Stock Units granted to French Participants pursuant to the French Addendum shall be French-qualified Options
and French-qualified RSUs. However, Options and Restricted Stock Units may be granted to French Participants under the Plan and not under the French
Addendum, at the Administrator’s discretion.
2. Definitions
Capitalized terms not otherwise defined herein shall have the same meanings as set forth in the Plan. The terms set forth below shall have the following meanings:
(a) The term “Closed Period” means:
(i) For French-qualified Options, “Closed Periods” shall mean the specific periods set forth in Section L. 225-177 of the French Commercial
Code, as amended, during which French-qualified Options cannot be granted, as described in Section 9(a) below, including: (A) the ten (10)
quotation day period preceding the date on which the annual and interim consolidated financial statements or the annual and half-yearly accounts
of the Company are made public, and the day of publication; and (B) any period during which the corporate management of the Company
possesses confidential information within the meaning of Article 7 of the Regulation (EU) No 596/2014 of the European Parliament and of the
Council of 16 April 2014 on market abuse (Market Abuse Regulation) and cancelling the Directive 2003/6/UE and Directives 2003/124/CE
Parliament and 2004/72/CE of the Commission, until the date on which this information is disclosed to the public, and (C) the twenty (20)
quotation day period following a distribution of a dividend (i.e., the ex-dividend date) that offers the right to a dividend or capital increase.
(ii) For French-qualified RSUs, “Closed Periods” shall mean the specific periods set forth by Section L. 225-197-1 of the French Commercial
Code as amended from time to time, during which the sale or transfer of Shares acquired at vesting of French-qualified RSUs cannot be sold or
transferred, as described in Section 10(c) below, including: (A) the thirty (30) calendar day period before the announcement of an interim
financial report or end-of-year report that the Company is required to make public; and (B) with respect to such persons, any period during
which the chief executive officer (directeur général), any deputy chief executive officer (directeur général délégué), or any member of the board
of directors (conseil d’administration), the supervisory board (conseil de surveillance) or the executive board (directoire) of the Company, or
any Employee possesses knowledge of inside information (within the meaning of Article 7 of the Regulation (EU) No 596/2014 of the European
Parliament and of the Council of April 16, 2014 on market abuse (Market Abuse Regulation) and cancelling the Directive 2003/6/UE and
Directives 2003/124/CE Parliament and 2004/72/CE of the Commission) which has not been disclosed to the public.
If, after adoption of the French Addendum, French law or regulations are amended to modify the definition and/or applicability of Closed Periods to
French-qualified Options and/or French-qualified RSUs, such amendments shall apply to any French-qualified Options and French-qualified RSUs
granted under this French Addendum, to the extent permitted or required under French law.
(b) The term “Exercise Price” shall be the per Share price to purchase Shares pursuant to the exercise of an Option.
(c) The term “Qualified Disability” shall mean a Disability that meets the requirements of categories 2 and 3 under Section L. 341-4 of the French Social
Security Code, as amended, subject to the fulfillment of related conditions.
(d) The term “Grant Date” shall mean the date on which the Administrator both (i) designates the French Participants, and (ii) specifies the terms and
conditions of the French-qualified Options or French-qualified RSUs being granted, such as the number of Shares subject to each Award of French-
qualified Options or French-qualified RSUs, the vesting conditions of the French-qualified Options or French-qualified RSUs, the conditions for
exercising the French-qualified Options and any restrictions on the sale of Shares subject to the French-qualified Options or French-qualified RSUs.
(e) The term “Vesting Date” shall mean the relevant date on which French-qualified RSUs have met all vesting conditions specified by the Administrator
and the French Participant holding such French-qualified RSUs becomes entitled to receive the Shares underlying such French-qualified RSUs for no cash
consideration.
3. Eligibility
Notwithstanding any other term of this French Addendum, French-qualified Options and French-Qualified RSUs may be granted only to employees or corporate
directors of the French Entities who hold less than ten percent (10%)
2
of the outstanding Shares of the Company and who otherwise satisfy the eligibility conditions of Section 5(a) (“Recipients of Grants”) of the Plan.
Subject to the paragraph below, any French Participant who, on the Grant Date of an Option and/or Restricted Stock Units, and to the extent required under French
law, is employed under the terms and conditions of an employment contract (“contrat de travail”) by a French Entity or who is a corporate officer of a French
Entity shall be eligible to receive, at the discretion of the Administrator, French-qualified Options and/or French-qualified RSUs under this French Addendum,
provided he or she also satisfies the eligibility conditions of Section 5(a) (“Recipients of Grants”) of the Plan.
French-qualified Options and French-qualified RSUs may not be issued to corporate officers of French Entities, other than the managing directors (Président du
Conseil d’Administration, Directeur Général, Directeur Général Délégué, Membre du Directoire, Gérant de Sociétés par actions) unless the corporate officer is an
employee of a French Entity, as defined by French law.
Notwithstanding the foregoing, to the extent permissible under French tax and social security laws, including guidelines and specific tax or social security rulings
issued by French tax and social security authorities, any individual who is employed by the Company or a French Entity or another Subsidiary or Affiliate of the
Company shall be eligible to receive French-qualified Options and/or French-qualified RSUs under the French Addendum (provided that he or she also satisfies the
eligibility conditions of Section 5(a) (“Recipients of Grants”) of the Plan) even if the individual is not a French tax resident and/or subject to the French social
contribution regime at the Grant Date and such an individual shall be considered, to the extent applicable (as determined by the Administrator in its sole
discretion), as a French Participant for purposes of this French Addendum.
4. Employment Rights
The adoption of this French Addendum shall not confer upon the French Participant, or any employees of a French Entity, any employment rights and shall not be
construed as a part of any employment contracts that a French Entity has with its employees.
5. Delivery of Shares Only
Only Shares and not cash payments may be delivered to any French Participant in settlement of French-qualified Options and French-qualified RSUs granted under
this French Addendum.
6. Non-Transferability
Notwithstanding any provision in the Plan to the contrary and except in the case of death, French-qualified Options and French-qualified RSUs cannot be
transferred to any third party. In addition, during the lifetime of the French Participant, the French-qualified Options are exercisable only by the French Participant,
subject to Sections 9(c)(iii) and 9(d) below; and Shares underlying French-qualified RSUs may be issued by the Company only to the French Participant, subject to
Sections 10(b) and 10(g) below.
7. Disqualification of French-qualified Options and French-qualified RSUs
In the event changes are made to the terms and conditions of the French-qualified Options and/or French-qualified RSUs due to any requirements under applicable
laws, or by decision of the Company’s shareholders or the Administrator, the Options and/or Restricted Stock Units granted under this French Addendum may no
longer qualify as French-qualified Options and French-qualified RSUs.
If the Options and/or Restricted Stock Units granted under this French Addendum no longer qualify as French-qualified Options and/or French-qualified RSUs, the
Administrator may, in its sole discretion, determine to lift, shorten or terminate certain restrictions applicable to the vesting or exercisability of such Options, the
vesting of such Restricted Stock Units or the sale of the Shares underlying such Options and/or Restricted Stock Units, which
3
have been imposed under this French Addendum or in the applicable Award Agreement for the purpose of obtaining the specific tax and social security treatment
applicable to French-qualified Options and/or French-qualified RSUs. Should the awards no longer be qualified, the French Participant shall be responsible for
paying any applicable French tax and social security contributions, to the extent permissible under French law.
8. Amendments
Subject to the terms of the Plan, the Administrator reserves the right to amend or terminate the French Addendum at any time.
9. French-Qualified Options
(a) Closed Periods for French-qualified Options
French-qualified Options may not be granted during a Closed Period to the extent such Closed Periods are applicable to French-qualified Options granted
by the Company. If the Company grants Options on a date during an applicable Closed Period, the Grant Date for French Participants shall be the first
date following the expiration of the Closed Period, provided the grant of Options on such date is not prohibited under the Plan.
(b) Terms and Conditions of French Qualified Options
(i) Options may be “purchase stock options,” which are rights to acquire Shares repurchased by the Company prior to the date on which the
Options become exercisable or “subscription stock options,” which are rights to subscribe for newly-issued Shares.
(ii) The Exercise Price of and number of Shares underlying the Options shall not be modified after the Grant Date, except as provided in Section
9(e) of this French Addendum, or as otherwise authorized by French law. Any other modification permitted under the Plan may result in the
Options no longer qualifying as French-qualified Options.
(iii) The French-qualified Options will vest and become exercisable pursuant to the terms and conditions set forth in the Plan, this French
Addendum, and the applicable Award Agreement.
(iv) The Exercise Price per Share payable pursuant to French-qualified Options granted under this French Addendum shall be fixed by the
Administrator on the Grant Date. In no event shall the Exercise Price be less than the greatest of:
(A) with respect to purchase stock options: the higher of either 80% of the average of the closing price of the Shares during the 20
quotation day period immediately preceding the Grant Date or 80% of the average of the purchase price paid for such Shares by the
Company;
(B) with respect to subscription stock options: 80% of the average of the closing price of such Shares during the 20 quotation day
period immediately preceding the Grant Date; and
(C) the minimum Exercise Price permitted under the Plan.
(c) Exercise of French-qualified Options
(i) At the time French-qualified Options are effectively granted, the Administrator shall fix the period, if any, within which the French-qualified
Options vest and may be exercised and shall determine any conditions that must be satisfied before the French-qualified Options may be
4
exercised. Such restriction period for the vesting or the exercise of French-qualified Options shall be set forth in the applicable Award
Agreement.
(ii) Upon exercise of French-qualified Options, the full Exercise Price shall be paid by the French Participant as set forth in the applicable Award
Agreement.
(iii) In the event of the death of a French Participant, his or her French-qualified Options shall thereafter be immediately vested and exercisable
in full under the conditions set forth in Section 9(d) of this French Addendum.
(iv) If a French Participant’s employment is terminated or the French Participant otherwise ceases to provide services to the Company or a
French Entity, his or her French-qualified Options will be exercisable according to the provisions of the Award Agreement.
(v) The Shares acquired upon exercise of French-qualified Options shall be fully owned by the French Participant and recorded in an account in
his or her name and must be held with the Company or a broker or in such manner as the Company may otherwise determine to ensure
compliance with French laws.
(vi) To the extent and as long as applicable to French-qualified Options granted by the Company, a restriction on exercise of the Options shall be
imposed in the Award Agreement for any French Participant who qualifies as a managing director of the Company.
(d) Death
In the event of the death of a French Participant while he or she is actively employed by the Company or a French Entity, all French-qualified Options
held by such Participant shall become immediately vested and exercisable and may be exercised in full by the French Participant’s heirs or the legal
representative of his or her estate for the six (6) month period following the date of the French Participant’s death or such other period as may be required
to comply with French law. In the event of the death of a French Participant after termination of active employment with the Company or a French Entity,
the French-qualified Options will be treated as set forth in the applicable Award Agreement. Any French-qualified Options that remain unexercised shall
expire six (6) months following the date of the French Participant’s death or after expiration of such other period as may be required to comply with
French law. The six (6) month exercise period (or such other period as may be required to comply with French law) will apply without regard to the term
of the French-qualified Options as described in Section 9(f) of this French Addendum.
(e) Adjustments – Change in Control
Adjustments to French-qualified Options granted under this French Addendum to preclude the dilution or enlargement of benefits under the French-
qualified Options shall be made only in respect of transactions listed under Section L. 225-181 of the French Commercial Code, as amended, and in case
of a repurchase of Shares by the Company at a price that is higher than the stock quotation price in the open market, and according to the provisions of
Section L. 228-99 of the French Commercial Code, as amended, as well as according to specific decrees. Adjustment to French-qualified Options granted
pursuant to this French Addendum other than as described above may cause such Options to no longer qualify for specific tax and social security
treatment under French law.
Nevertheless, the Administrator, at its discretion, may decide to make adjustments to French-qualified Options granted pursuant to this French Addendum
in the case of a transaction or event, as described in Section 15 (“Adjustments Upon Changes in Capitalization, Merger or Certain Other Transactions”) of
the Plan, for which adjustments may not be authorized under French law, in which case, such Options may no longer qualify as French-qualified Options
and the specific tax and social security treatment may be lost.
5
(f) Term of French-Qualified Option
French-qualified Options granted pursuant to this French Addendum will expire no later than nine and a half (9.5) years from the Grant Date, unless
otherwise specified in the applicable Award Agreement. The French-qualified Option term will be extended only in the event of the death of a French
Participant, but in no event will any French-qualified Option be exercisable beyond six (6) months following the date of the French Participant’s death or
such other period as may be required to comply with French law.
10. French-qualified RSUs
(a) Nature of French-qualified RSUs
Each French-qualified RSU represents the right to receive one Share (or, in the case of French-qualified RSUs that are Performance Units under the Plan,
a specified number or percentage of Shares subject to the Award), subject to meeting all applicable vesting criteria established by the Administrator and
all other applicable terms and conditions under the Plan and applicable Award Agreement. Until the effective issuance of the Shares, no right to vote or
receive dividends or any other rights as a holder of shares in the capital of the Company shall exist with respect to the Shares subject to Restricted Stock
Units, notwithstanding vesting of the Restricted Stock Units.
(b) Vesting of French-Qualified RSUs
Notwithstanding any other provision of the Plan, French-qualified RSUs shall not vest and the Shares underlying French-qualified RSUs shall not be
delivered to French Participants prior to the expiration of a minimum one-year period calculated from the Grant Date, or such other period as required to
comply with the minimum mandatory vesting period applicable to French-qualified RSUs under Section L. 225-197-1 of the French Commercial Code, as
amended, or the relevant sections of the French Tax Code or the French Social Security Code, as amended, to benefit from the specific tax and social
security regime for French-qualified restricted stock units. However, notwithstanding the vesting requirements described above, in the event of the death
of a French Participant, all of his or her outstanding French-qualified RSUs shall become vested under the conditions set forth in Section 10(g) of this
French Addendum.
(c) Holding Period for Shares
The sale or transfer of Shares issued pursuant to French-qualified RSUs may not occur prior to the relevant anniversary of the Grant Date specified by the
Administrator and in no case prior to the expiration of a minimum two-year period calculated from the Grant Date (or, if later, the date on which the
Shares underlying the French-qualified RSUs are issued to the French Participant), or such other period as required to comply with the minimum
mandatory holding period applicable to French-qualified RSUs under Section L. 225-197-1 of the French Commercial Code, as amended, or the relevant
sections of the French Tax Code or the French Social Security Code, as amended, to benefit from the specific tax and social security regime for French-
qualified restricted stock units, even if the French Participant is no longer an employee or corporate officer of the Company or a French Entity.
In addition, the Shares issued pursuant to the French-qualified RSUs may not be sold or transferred during a Closed Period, so long as those Closed
Periods are applicable to Shares underlying French-qualified RSUs.
(d) Managing Director Restriction
To the extent and as long as applicable to French-qualified RSUs granted by the Company, a specific holding period for the sale or transfer of Shares shall
be imposed in the applicable Award Agreement for any French Participant who qualifies as a managing director of the Company.
6
(e) French Participant’s Account
The Shares issued pursuant to the French-qualified RSUs shall be fully owned by the French Participant and recorded and held in an account in his or her
name with the Company or a broker selected by the Company, or in such other manner as the Company may determine, in order to ensure compliance
with French laws, including any required holding periods.
(f) Adjustments – Change in Control
In the event of an adjustment due to a corporate transaction or event as set forth in Section 15 (“Adjustments Upon Changes in Capitalization, Merger or
Certain Other Transactions”) of the Plan, the adjustment to the terms and conditions of the French-qualified RSUs or underlying Shares shall be made in
accordance with the Plan and pursuant to applicable French legal and tax rules. Nevertheless, the Administrator, at its discretion, may decide to make
adjustments to French-qualified RSUs granted or Shares received pursuant to this French Addendum in the case of a transaction or event for which
adjustments may not be authorized under French law, in which case, such Restricted Stock Units may no longer qualify as French-qualified RSUs and the
specific tax and social security treatment may be lost.
(g) Death and Disability
In the event of the death of a French Participant, the French-qualified RSUs held by the French Participant at the time of death shall become immediately
transferable to the French Participant’s heirs and (i) any time- or service-based vesting conditions will be considered to have been met as of the date of the
French Participant’s death, and (ii) the attainment of any performance-based vesting conditions will be determined as set out in the applicable Award
Agreement and in accordance with applicable French legal and tax rules. The Company shall issue the underlying Shares to the French Participant’s heirs,
at their request, provided the heirs contact the Company within six (6) months following the death of the French Participant or such other period as may
be required to comply with French law and subject to part (ii) of the preceding sentence. If the French Participant’s heirs do not request the issuance of the
Shares underlying the French-qualified RSUs within six (6) months following the French Participant’s death (or such other period as may be required to
comply with French law), the French-qualified RSUs will be forfeited.
In the event a French Participant terminates employment by reason of his or her Qualified Disability, the Administrator, at its discretion, may determine
the treatment of any French-qualified RSUs then outstanding but not vested, including that such French-qualified RSUs may be forfeited, may continue to
vest on the existing schedule or may vest on an accelerated basis and be settled in Shares as promptly as practicable after vesting, provided that the French
Participant provides sufficient evidence of his or her Qualified Disability.
If a French Participant dies or ceases to be employed by the Company or a French Entity by reason of his or her Qualified Disability, the French
Participant’s heirs or the French Participant, as applicable, shall not be subject to the restrictions on the sale or transfer of Shares set forth in Section 10(c)
above.
11. Interpretation
It is intended that Options and Restricted Stock Units granted under this French Addendum shall qualify for the specific tax and social security treatment applicable
to stock options granted under Sections L. 225-177 to L. 225-186-1 and to restricted stock units granted under Sections L. 225-197-1 to L. 225-197-6, respectively,
of the French Commercial Code, as amended, and in accordance with the relevant provisions set forth by French tax law and the French tax administration, but no
undertaking is made by the Company to maintain such status.
The terms of the French Addendum shall be interpreted accordingly and in accordance with the relevant provisions set forth by French tax and social security laws,
as well as the French tax and social security administrations and the
7
relevant guidelines released by the French tax and social security authorities and subject to the fulfillment of legal, tax and reporting obligations.
In the event of any conflict between the provisions of the French Addendum and the Plan, the provisions of this French Addendum shall control for any grants of
French-qualified Options or French-qualified RSUs made thereunder to French Participants.
12. Adoption
This French Addendum was adopted by the Administrator on June 1, 2020, and became effective as of the same date.
8
ELASTIC N.V.
AMENDED AND RESTATED 2012 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Elastic N.V. Amended and Restated 2012 Stock Option Plan (the “Plan”) will have the same
defined meanings in this Stock Option Agreement, which includes the Notice of Stock Option Grant (the “Notice of Grant”), the Terms and Conditions of Stock
Option Grant, including any special terms and conditions for Participant’s country set forth in the country addendum thereto (the “Country Addendum”), attached
hereto as Exhibit A, the Exercise Notice attached hereto as Exhibit B, and all other exhibits and appendices attached hereto (all together, the “Option Agreement”).
NOTICE OF STOCK OPTION GRANT
Participant:
Address:
The undersigned Participant has been granted an Option to purchase Ordinary Shares of Elastic N.V. (the “Company”), subject to the terms and
conditions of the Plan and this Option Agreement, as follows:
Grant Number:
Date of Grant:
Vesting Commencement Date:
Number of Shares for which the Option is
granted:
Exercise Price per Share (in U.S. Dollars):
Total Exercise Price(in U.S. Dollars):
$
$
Type of Option:
___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date:
Vesting Schedule:
Subject to accelerated vesting as set forth below or in the Plan, this Option will be exercisable, in whole or in part, in accordance with the following
schedule:
[Insert vesting schedule.]
Termination Period:
This Option will be exercisable for three (3) months after Participant’s Continuous Service Status terminates, unless such termination is due to
Participant’s death or Disability, in which case this Option will be exercisable for twelve (12) months after Participant’s Continuous Service Status terminates.
Notwithstanding the foregoing sentence, in
no event may this Option be exercised after the Term/Expiration Date as provided above and this Option may be subject to earlier termination as provided in
Section 14 of the Plan.
For purposes of the Option, Participant’s Continuous Service Status will be considered terminated as of the date Participant is no longer actively
providing services to the Company or any Affiliate, Parent or Subsidiary (regardless of the reason for such termination and whether or not later found to be invalid
or in breach of employment laws in the jurisdiction where Participant is employed or providing services or the terms of Participant’s employment or service
agreement, if any), and unless otherwise expressly provided in this Option Agreement (including by reference in the Notice of Grant to other arrangements or
contracts) or determined by the Administrator, (i) Participant’s right to vest in the Option under the Plan, if any, will terminate as of such date and will not be
extended by any notice period (e.g., Participant’s period of service would not include any contractual notice period or any period of “garden leave” or similar
period mandated under employment laws in the jurisdiction where Participant is employed or providing services or the terms of Participant’s employment or
service agreement, if any, unless Participant is providing bona fide services during such time); and (ii) the period (if any) during which Participant may exercise the
Option after such termination of Participant’s Continuous Service Status will commence on the date Participant ceases to actively provide services and will not be
extended by any notice period mandated under employment laws in the jurisdiction where Participant is employed or the terms of Participant’s employment or
service agreement, if any; the Administrator shall have the exclusive discretion to determine when Participant is no longer actively providing services for purposes
of his or her Option grant (including whether Participant may still be considered to be providing services while on a leave of absence).
By Participant’s signature and the signature of the representative of the Company below, Participant and the Company agree that this Option is granted
under and governed by the terms and conditions of the Plan and this Option Agreement, including the Terms and Conditions of Stock Option Grant and the
Country Addendum, attached hereto as Exhibit A, all of which are made a part of this document. Participant acknowledges receipt of a copy of the Plan. Participant
has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement,
and fully understands all provisions of the Plan and this Option Agreement. Participant hereby agrees to accept as binding, conclusive, and final all decisions or
interpretations of the Administrator upon any questions relating to the Plan and the Option Agreement. Participant further agrees to notify the Company upon any
change in the residence address indicated below.
PARTICIPANT
ELASTIC N.V.
Signature
Print Name
Address:
Signature
Print Name
Title
- 2 -
TERMS AND CONDITIONS OF STOCK OPTION GRANT
1. Grant of Option.
EXHIBIT A
(a) The Company hereby grants to the individual (“Participant”) named in the Notice of Stock Option Grant of this Option Agreement (the
“Notice of Grant”) an option (the “Option”) to purchase the number of Shares set forth in the Notice of Grant, at the exercise price per Share set forth in the Notice
of Grant (the “Exercise Price”), subject to all of the terms and conditions in this Option Agreement and the Plan, which is incorporated herein by this reference.
Subject to Section 19(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan will prevail.
(b) For U.S. taxpayers, the Option will be designated as either an Incentive Stock Option (“ISO”) or a Nonstatutory Stock Option (“NSO”). If
designated in the Notice of Grant as an ISO, this Option is intended to qualify as an ISO under Section 422 of the Internal Revenue Code of 1986, as amended (the
“Code”). However, if this Option is intended to be an ISO, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it will be treated as an NSO.
Further, if for any reason this Option (or portion thereof) will not qualify as an ISO, then, to the extent of such nonqualification, such Option (or portion thereof)
shall be regarded as a NSO granted under the Plan. In no event will the Administrator, the Company or any Affiliate, Parent or Subsidiary or any of their respective
employees or directors have any liability to Participant (or any other person) due to the failure of the Option to qualify for any reason as an ISO.
(c) For non-U.S. taxpayers, the Option will be designated as an NSO.
2. Vesting Schedule. Except as provided in Section 3, the Option awarded by this Option Agreement will vest in accordance with the vesting provisions
set forth in the Notice of Grant. Shares subject to this Option that are scheduled to vest on a certain date or upon the occurrence of a certain condition will not vest
in accordance with any of the provisions of this Option Agreement, unless Participant will have remained in Continuous Service Status from the Date of Grant until
the date such vesting occurs, with Continuous Service Status determined as described in the Termination Period section of the Notice of Grant.
3. Administrator Discretion. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the
unvested Option at any time, subject to the terms of the Plan. If so accelerated, such Option will be considered as having vested as of the date specified by the
Administrator.
4. Exercise of Option.
only in accordance with the Plan and the terms of this Option Agreement.
(a) Right to Exercise. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term
(b) Method of Exercise. This Option is exercisable by delivery of an exercise notice (the “Exercise Notice”) in the form attached as Exhibit B to
the Notice of Grant or in a manner and pursuant to such procedures as the Administrator may determine, which will state the election to exercise the Option, the
number of Shares in respect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice will be completed by Participant and delivered to the Company. The Exercise Notice will
be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares and of any Tax Obligations (as defined in Section 6(a)). This Option will be
deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price.
5. Method of Payment. Payment of the aggregate Exercise Price will be by any of the following, or a combination thereof, at the election of Participant:
(a) cash in U.S. dollars;
(b) check designated in U.S. dollars;
(c) consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(d) if Participant is a U.S. Employee, surrender of other Shares which have a Fair Market Value on the date of surrender equal to the aggregate
Exercise Price of the Exercised Shares and that are owned free and clear of any liens, claims, encumbrances, or security interests, provided that accepting such
Shares, in the sole discretion of the Administrator, will not result in any adverse accounting consequences to the Company.
6. Tax Obligations.
(a) Responsibility for Taxes. Participant acknowledges that, regardless of any action taken by the Company or, if different, the Affiliate, Parent
or Subsidiary to which Participant is providing services (the “Service Recipient”), the ultimate liability for any tax and/or social insurance liability obligations and
requirements in connection with the Option, including, without limitation, (i) all U.S. and non-U.S. federal, state, and local taxes (including Participant’s U.S.
Federal Insurance Contributions Act (FICA) obligation) that are required to be withheld by the Company or the Service Recipient or other payment of tax-related
items related to Participant’s participation in the Plan and legally applicable to Participant, (ii) Participant’s and, to the extent required by the Company (or Service
Recipient), the Company’s (or Service Recipient’s) fringe benefit tax liability, if any, associated with the grant, vesting, or exercise of the Option or sale of Shares,
and (iii) any other Company (or Service Recipient) taxes the responsibility for which Participant has, or has agreed to bear, with respect to the Option (or exercise
thereof or issuance of Shares thereunder) (collectively, the “Tax Obligations”), is and remains Participant’s responsibility and may exceed the amount, if any,
actually withheld by the Company or the Service Recipient. Participant further acknowledges that the Company and/or the Service Recipient (A) make no
representations or undertakings regarding the treatment of any Tax Obligations in connection with any aspect of the Option, including, but not limited to, the grant,
vesting or exercise of the Option, the subsequent sale of Shares acquired pursuant to such exercise and the receipt of any dividends or other distributions, and (B)
do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Option to reduce or eliminate Participant’s liability for Tax
Obligations or achieve any particular tax result. Further, if Participant is subject to Tax Obligations in more than one jurisdiction, Participant acknowledges that the
Company and/or the Service Recipient (or former Service Recipient, as applicable) may be required to withhold or account for Tax Obligations in more than one
jurisdiction. If Participant fails to make satisfactory arrangements for the payment of any required Tax Obligations hereunder at the time of the applicable taxable
event, Participant acknowledges and agrees that the Company may refuse to issue or deliver the Shares.
(b) Tax Withholding. When the Option is exercised, Participant generally will recognize immediate U.S. taxable income if Participant is subject
to taxation in the U.S. If Participant is subject to taxation in any other jurisdiction, Participant will be subject to applicable taxes, if any, in such jurisdiction at the
time of the taxable event, as determined under local law. Pursuant to such procedures as the Administrator may specify from time to time, the Company and/or
Service Recipient shall withhold the amount required to be withheld for the payment of Tax Obligations. The Administrator, in its sole discretion and pursuant to
such procedures as it may specify from time to time, may permit Participant to satisfy such Tax Obligations, in whole or in part (without limitation), if permissible
by applicable local law, by (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable Shares having a fair market value equal to the amount
necessary to meet the withholding requirement for such Tax Obligations (or such other amount as the Administrator may determine, if such amount would not
result in adverse financial accounting consequences), (iii) withholding the amount of such Tax Obligations from Participant’s wages or other cash compensation
paid to Participant by the Company and/or the Service Recipient, (iv) if Participant is a U.S. Employee, delivering to the Company already vested and owned
Shares having a fair market value equal to such Tax Obligations, or
- 2 -
(v) selling a sufficient number of such Shares otherwise deliverable to Participant through such means as the Company may determine in its sole discretion
(whether through a broker or otherwise) equal to the amount necessary to meet the withholding requirement for such Tax Obligations (or such other amount as
Administrator may determine, if such amount would not result in adverse financial accounting consequences). To the extent determined appropriate by the
Company in its discretion, it will have the right (but not the obligation) to satisfy any Tax Obligations by reducing the number of Shares otherwise deliverable to
Participant.
(c) Notice of Disqualifying Disposition of ISO Shares. If the Option granted to Participant herein is an ISO, and if Participant sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after the Date of Grant, or (ii) the date one (1) year
after the date of exercise, Participant will immediately notify the Company in writing of such disposition. Participant agrees that Participant may be subject to
income tax withholding by the Company on the compensation income recognized by Participant.
(d) Code Section 409A. Under Code Section 409A, a stock right (such as the Option) that vests after December 31, 2004 (or that vested on or
prior to such date but which was materially modified after October 3, 2004) that was granted with a per share exercise price that is determined by the Internal
Revenue Service (the “IRS”) to be less than the fair market value of an underlying share on the date of grant (a “discount option”) may be considered “deferred
compensation.” A stock right that is a “discount option” may result in (i) income recognition by the recipient of the stock right prior to the exercise of the stock
right, (ii) an additional twenty percent (20%) federal income tax, and (iii) potential penalty and interest charges. The “discount option” may also result in additional
state income, penalty and interest tax to the recipient of the stock right. Participant acknowledges that the Company cannot and has not guaranteed that the IRS will
agree that the per Share exercise price of this Option equals or exceeds the fair market value of a Share on the date of grant in a later examination. Participant
agrees that if the IRS determines that the Option was granted with a per Share exercise price that was less than the fair market value of a Share on the date of grant,
Participant shall be solely responsible for Participant’s costs related to such a determination.
7. Rights as Shareholder. Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a
shareholder of the Company in respect of any Shares deliverable hereunder unless and until such Shares (which are in book entry form) will have been issued and
delivered to Participant (including through electronic delivery to a brokerage account). Such issuance will occur by the execution of a deed of issuance to which the
Company and Participant are each party, unless the Shares will be delivered into a brokerage account in the name of Participant, in which case the issuance will
take place by a deed of issuance with due observance of the relevant requirements that may apply from time to time. After such issuance and delivery, Participant
will have all the rights of a shareholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.
8. No Guarantee of Continued Service. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY REMAINING IN CONTINUING SERVICE STATUS, WHICH UNLESS PROVIDED
OTHERWISE UNDER APPLICABLE LAW IS AT THE WILL OF THE COMPANY (OR THE SERVICE RECIPIENT) AND NOT THROUGH THE ACT OF
BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND
AGREES THAT THIS OPTION AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH
HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE OR CONSULTANT FOR
THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND WILL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT
OF THE COMPANY (OR THE SERVICE RECIPIENT) TO TERMINATE PARTICIPANT’S CONTINUOUS SERVICE STATUS, SUBJECT TO
APPLICABLE LAW, WHICH TERMINATION, UNLESS PROVIDED OTHERWISE UNDER APPLICABLE LAW, MAY BE AT ANY TIME, WITH OR
WITHOUT CAUSE.
9. Nature of Grant. In accepting the Option, Participant acknowledges, understands and agrees that:
the Company at any time, to the extent permitted by the Plan;
(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by
- 3 -
options, or benefits in lieu of options, even if options have been granted in the past;
(b) the grant of the Option is exceptional, voluntary and occasional and does not create any contractual or other right to receive future grants of
(c) all decisions with respect to future option or other grants, if any, will be at the sole discretion of the Company;
(d) the grant of the Option and Participant’s participation in the Plan shall not create a right to employment or be interpreted as forming or
amending an employment or service contract with the Company;
(e) Participant is voluntarily participating in the Plan;
compensation;
(f) the Option and any Shares acquired under the Plan, and the income from and value of same, are not intended to replace any pension rights or
(g) the Option and Shares acquired under the Plan, and the income from and value of same, are not part of normal or expected compensation for
purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, holiday pay,
holiday top-up, pension or retirement or welfare benefits or similar mandatory payments;
of same, are not granted as consideration for, or in connection with, the service Participant may provide as a director of an Affiliate, Parent or Subsidiary;
(h) unless otherwise agreed with the Company or an Affiliate, the Option and the Shares underlying the Option, and the income from and value
(i) the future value of the Shares underlying the Option is unknown, indeterminable, and cannot be predicted with certainty;
(j) if the underlying Shares do not increase in value, the Option will have no value;
(k) if Participant exercises the Option and acquires Shares, the value of such Shares may increase or decrease, even below the Exercise Price;
(l) no claim or entitlement to compensation or damages shall arise from forfeiture of the Option or any underlying Shares resulting from (i) the
application of any compensation recovery or clawback policy adopted by the Company or required by law, or (ii) the termination of Participant’s Continuous
Service Status (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is
employed or providing services or the terms of Participant’s employment or service agreement, if any);
(m) unless otherwise provided in the Plan or by the Company in its discretion, the Option and the benefits evidenced by this Option Agreement
do not create any entitlement to have the Option or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or
substituted for, in connection with any corporate transaction affecting the Shares; and
(n) neither the Company nor any Service Recipient shall be liable for any foreign exchange rate fluctuation between Participant’s local currency
and the United States Dollar that may affect the value of the Option or of any amounts due to Participant pursuant to the exercise of the Option or the subsequent
sale of any Shares acquired upon exercise.
10. No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations
regarding Participant’s participation in the Plan, or Participant’s acquisition or sale of the underlying Shares. Participant is hereby advised to consult with his or her
own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
- 4 -
11. Data Privacy. Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of
Participant’s personal data as described in this Option Agreement and any other Option grant materials by and among, as applicable, the Service Recipient,
the Company and any other Affiliate, Parent or Subsidiary for the exclusive purpose of implementing, administering and managing Participant’s participation
in the Plan.
Participant understands that the Company and the Service Recipient may hold certain personal information about Participant, including, but not
limited to, Participant’s name, home address and telephone number, email address, date of birth, social insurance number (to the extent permitted under
Applicable Laws), passport or other identification number (e.g., resident registration number), salary, nationality, job title, any Shares or directorships held in
the Company, details of all Options or any other entitlement to Shares or equivalent benefits awarded, canceled, purchased, exercised, vested, unvested or
outstanding in Participant’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.
Participant understands that Data will be transferred to such stock plan service provider(s) as may be selected by the Company (currently E*TRADE
Financial Corporate Services, Inc., the brokerage firm engaged by the Company to hold participants’ Shares and other amounts acquired under the Plan, and
its affiliated companies) to assist with the implementation, administration, and management of the Plan. The recipients of Data may be located in the United
States or elsewhere, and each recipient’s country of operation (e.g., the United States) may have different data privacy laws and protections than Participant’s
country. Participant understands that if he or she resides outside the United States, he or she may request a list with the names and addresses of any potential
recipients of Data by contacting his or her local human resources representative. Participant authorizes the Company, any stock plan service provider selected
by the Company and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing
the Plan to receive, possess, use, retain and transfer Data, in electronic or other form, for the sole purpose of implementing, administering and managing
Participant’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker, escrow agent or other third party with
whom Participant may elect to deposit any Shares received upon exercise of the Option. Participant understands that Data will be held only as long as is
necessary to implement, administer and manage Participant’s participation in the Plan. Participant understands that if he or she resides outside the United
States, he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to
Data or refuse or withdraw the consents herein, in any case without cost, by contacting his or her local human resources representative. Further, Participant
understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke
his or her consent, his or her employment or service with the Service Recipient will not be affected; the only consequence of refusing or withdrawing
Participant’s consent is that the Company would not be able to grant Participant Options or other equity awards or administer or maintain such awards.
Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participant’s ability to participate in the Plan. For more
information on the consequences of Participant’s refusal to consent or withdrawal of consent, Participant may contact his or her local human resources
representative.
Finally, Participant understands that the Company may rely on a different basis for the processing or transfer of Data in the future and/or request
that Participant provide another data privacy consent. If applicable, Participant agrees that upon request of the Company or the Service Recipient, Participant
will provide an executed acknowledgement or data privacy consent form (or any other agreements or consents) that the Company and/or the Service Recipient
may deem necessary to obtain from Participant for the purpose of administering Participant’s participation in the Plan in compliance with the data privacy
laws in Participant’s country, either now or in the future. Participant understands and agrees that he or she will not be able to participate in the Plan if he or
she fails to provide any such consent or agreement requested by the Company and/or the Service Recipient.
12. Address for Notices. Any notice to be given to the Company under the terms of this Option Agreement will be addressed to the Company at Elastic
N.V., 800 West El Camino Real, Suite 350, Mountain View, California 94040, or at such other address as the Company may hereafter designate in writing.
- 5 -
13. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Participant only by Participant.
14. Successors and Assigns. The Company may assign any of its rights under this Option Agreement to single or multiple assignees, and this Option
Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Option Agreement
shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns. The rights and obligations of Participant under this Option
Agreement may only be assigned with the prior written consent of the Company.
15. Additional Conditions to Issuance of Stock. If at any time the Company determines, in its discretion, that the listing, registration, qualification or rule
compliance of the Shares upon any securities exchange or under any U.S. or non-U.S. state, federal or local law, including exchange control, tax or other
Applicable Law or related regulations, or under the rulings or regulations of the United States Securities and Exchange Commission or any other U.S. or non-U.S.
governmental regulatory body, or the clearance, consent or approval of the United States Securities and Exchange Commission or any other U.S. or non-U.S.
governmental regulatory authority, is necessary or desirable as a condition to the purchase by, or issuance of Shares, to Participant (or his or her estate) hereunder,
such purchase or issuance will not occur unless and until such listing, registration, qualification, rule compliance, clearance, consent or approval has been
completed, effected or obtained free of any conditions not acceptable to the Company. Notwithstanding the foregoing, Participant understands that the Company is
under no obligation to register, qualify or otherwise obtain clearance, consent or other approvals from any governmental authority or any stock exchange. Subject
to the terms of the Option Agreement and the Plan, the Company shall not be required to issue any certificate or certificates for Shares hereunder prior to the lapse
of such reasonable period of time following the date of exercise of the Option as the Administrator may establish from time to time for reasons of administrative
convenience.
16. Language. Participant acknowledges and represents that he or she is proficient in the English language or has consulted with an advisor who is
sufficiently proficient in English, as to allow Participant to understand the terms of this Option Agreement and any other documents related to the Plan. If
Participant has received this Option Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the
translated version is different than the English version, the English version will control.
17. Interpretation. The Administrator will have the power to interpret the Plan and this Option Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of
whether or not any Shares subject to the Option have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith
will be final and binding upon Participant, the Company and all other interested persons. Neither the Administrator nor any person acting on behalf of the
Administrator will be personally liable for any action, determination, or interpretation made in good faith with respect to the Plan or this Option Agreement.
18. Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide to deliver any documents related to the Option awarded under
the Plan or future options that may be awarded under the Plan by electronic means or request Participant’s consent to participate in the Plan by electronic means.
Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through any online or electronic system
established and maintained by the Company or a third party designated by the Company.
19. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Option
Agreement.
20. Agreement Severable. In the event that any provision in this Option Agreement will be held invalid or unenforceable, such provision will be severable
from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Option Agreement.
21. Amendment, Suspension or Termination of the Plan. By accepting this Option, Participant expressly warrants that he or she has received an Option
under the Plan, and has received, read, and understood a description of the
- 6 -
Plan. Participant understands that the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time.
22. Governing Law and Venue. This Option Agreement will be governed by the laws of Delaware, without giving effect to the conflict of law principles
thereof; provided, however, that the corporate law aspects of issuance shall be governed by the laws of the Netherlands. For purposes of litigating any dispute that
arises under this Option or this Option Agreement, the parties hereby submit to and consent to the jurisdiction of the State of California, and agree that such
litigation will be conducted in the courts of Santa Clara County, California, or the United States federal courts for the Northern District of California, and no other
courts, where this Option is made and/or to be performed.
23. Country Addendum. Notwithstanding any provisions in this Option Agreement, this Option shall be subject to any special terms and conditions set
forth in an appendix to this Option Agreement for any country whose laws are applicable to Participant and this Option (as determined by the Administrator in its
sole discretion) (the “Country Addendum”). Moreover, if Participant relocates to one of the countries included in the Country Addendum, the special terms and
conditions for such country will apply to Participant, to the extent the Company determines that the application of such terms and conditions is necessary or
advisable for legal or administrative reasons. The Country Addendum constitutes a part of this Option Agreement.
24. Modifications to the Agreement. This Option Agreement constitutes the entire understanding of the parties on the subjects covered. Participant
expressly warrants that he or she is not accepting this Option Agreement in reliance on any promises, representations, or inducements other than those contained
herein. Modifications to this Option Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company.
Notwithstanding anything to the contrary in the Plan or this Option Agreement, the Company reserves the right to revise this Option Agreement as it deems
necessary or advisable, in its sole discretion and without the consent of Participant, to comply with Code Section 409A or to otherwise avoid imposition of any
additional tax or income recognition under Section 409A of the Code in connection with the Option.
25. No Waiver. Either party’s failure to enforce any provision or provisions of this Option Agreement shall not in any way be construed as a waiver of
any such provision or provisions, nor prevent that party from thereafter enforcing each and every other provision of this Option Agreement. The rights granted both
parties herein are cumulative and shall not constitute a waiver of either party’s right to assert all other legal remedies available to it under the circumstances.
26. Tax Consequences. Participant has reviewed with his or her own tax advisors the U.S. and non-U.S. federal, state, and local tax consequences of this
investment and the transactions contemplated by this Option Agreement. With respect to such matters, Participant relies solely on such advisors and not on any
statements or representations of the Company or any of its agents, written or oral. Participant understands that Participant (and not the Company) shall be
responsible for Participant’s own tax liability that may arise as a result of this investment or the transactions contemplated by this Option Agreement.
27. Insider Trading/Market Abuse Laws. Participant may be subject to insider trading restrictions and/or market abuse laws in applicable jurisdictions,
including the United States and, if different, Participant’s country, Participant’s broker’s country and/or the country in which Shares may be listed, if applicable,
which may affect Participant’s ability to accept or otherwise acquire, or sell, attempt to sell or otherwise dispose of, Shares or rights to Shares (e.g., the Option)
under the Plan or rights linked to the value of Shares (e.g., phantom awards, futures) during such times as Participant is considered to have “inside information”
regarding the Company (as defined by the laws or regulations in the applicable jurisdiction) or the trade in Shares or the trade in rights to Shares under the Plan.
Local insider trading laws and regulations may prohibit the cancellation or amendment of orders Participant placed before possessing inside information.
Furthermore, Participant could be prohibited from (1) disclosing the inside information to any third party and (2) “tipping” third parties or otherwise causing them
to buy or sell securities; “third parties” includes fellow employees or service providers. Any restrictions under these laws or regulations are separate from and in
addition to any restrictions that may be imposed under any applicable company insider trading policy. It is Participant’s
- 7 -
responsibility to comply with any applicable restrictions and Participant should speak to a personal advisor on this matter.
28. Foreign Asset/Account Reporting Requirements And Exchange Controls. Certain foreign asset and/or foreign account reporting requirements and
exchange controls may affect Participant’s ability to acquire or hold Shares purchased under the Plan or cash received from participating in the Plan (including
from any dividends paid on or sales proceeds arising from the sale of Shares acquired under the plan) in a brokerage or bank account outside Participant’s country.
Participant may be required to report such accounts, assets or transactions to the tax or other authorities in Participant’s country and/or to repatriate sale proceeds
or other funds received as a result of participation in the Plan to Participant’s country through a designated bank or broker within a certain time after receipt. It is
Participant’s responsibility comply with such regulations, and Participant should consult a personal legal advisor for any details.
- 8 -
Elastic N.V.
AMENDED AND RESTATED 2012 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
COUNTRY ADDENDUM
Capitalized terms used but not otherwise defined herein shall have the meaning given to such terms in the Plan, the Notice of Stock Option Grant or the Terms and
Conditions of Stock Option Grant, as applicable.
Terms and Conditions
This Country Addendum includes additional terms and conditions that govern the Option granted to Participant under the Plan if Participant resides and/or works
in one of the countries listed below. If Participant is a citizen or resident of a jurisdiction (or is considered as such for local law purposes) other than the one in
which he or she is currently residing and/or working or if Participant relocates to another jurisdiction after receiving the Option, the Company will, in its sole
discretion, determine the extent to which the terms and conditions contained herein will be applicable to Participant.
Notifications
This Country Addendum also includes notifications relating to exchange control and certain other issues of which Participant should be aware with respect to his or
her participation in the Plan. The information is based on the exchange control, securities and other laws in effect in the respective countries as of [date]. Such laws
are often complex and change frequently. As a result, the Company strongly recommends that Participant not rely on the notifications in this Country Addendum as
the only source of information relating to the consequences of his or her participation in the Plan because the information may be out of date at the time Participant
exercises the Option or sells Shares acquired under the Plan.
In addition, the notifications herein are general in nature and may not apply to Participant’s particular situation, and the Company is not in a position to assure
Participant of any particular result. Accordingly, Participant is advised to seek appropriate professional advice as to how the relevant laws in Participant’s
jurisdiction may apply to Participant’s situation.
Finally, if Participant is a citizen or resident of a jurisdiction other than the one(s) in which Participant is currently residing and/or working or if Participant moves
to another jurisdiction after the Option is granted, the information contained herein may not be applicable to Participant in the same manner.
EXHIBIT B
ELASTIC N.V.
AMENDED AND RESTATED 2012 STOCK OPTION PLAN
EXERCISE NOTICE
Elastic N.V.
800 West El Camino Real, Suite 350
Mountain View, California 94040
Attention: Stock Administration
Exercise of Option. Effective as of today, ________________, _____, the undersigned (“Subscriber”) hereby elects to purchase ______________ shares
(the “Shares”) of the Ordinary Shares of Elastic N.V. (the “Company”) under and pursuant to the Amended and Restated 2012 Stock Option Plan (the “Plan”) and
the Stock Option Agreement, dated ________ and including the Notice of Grant, the Terms and Conditions of Stock Option Grant, and exhibits attached thereto
(the “Option Agreement”). The purchase price for the Shares will be $_____________, as required by the Option Agreement. It is understood that the issuance of
the Shares requires a resolution of the Company’s general meeting of shareholders. Following such resolution being adopted, the Company shall deliver to
Subscriber the Shares to be subscribed for by Subscriber against payment of the subscription price therefor by Subscriber. The Company shall issue the Shares in
accordance with the Option Agreement.
Delivery of Payment. Subscriber herewith delivers to the Company the full purchase price of the Shares and any Tax Obligations (as defined in Section
6(a) of the Option Agreement) to be paid in connection with the exercise of the Option.
Representations of Subscriber. Subscriber acknowledges that Subscriber has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
Rights as Shareholder. Until the issuance (as evidenced by a notarial deed of issuance executed before a Dutch civil law notary to which deed the
Company and the Subscriber are each a party and, following execution of the notarial deed of issuance, the appropriate entry on the Company’s shareholders
register) of the Shares, no right to vote or receive dividends or any other rights as a shareholder will exist with respect to the Shares subject to the Option,
notwithstanding the exercise of the Option. The Shares so acquired will be issued to Subscriber as soon as practicable after exercise of the Option, subject to the
requirements of Section 1. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in
Section 14 of the Plan.
Tax Consultation. Subscriber understands that Subscriber may suffer adverse tax consequences as a result of Subscriber’s purchase or disposition of the
Shares. Subscriber represents that Subscriber has consulted with any tax consultants Subscriber deems advisable in connection with the purchase or disposition of
the Shares and that Subscriber is not relying on the Company for any tax advice.
Entire Agreement; Governing Law. The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Subscriber with respect to the subject matter hereof, and may not be modified adversely to the Subscriber’s
interest except by means of a writing signed by the Company and Subscriber. This Option Agreement is governed by the internal substantive laws, but not the
choice of law rules, of Delaware; provided that, however, that the corporate law aspects of the issuance shall be governed by the laws of the Netherlands.
Submitted by: Accepted by:
SUBSCRIBER
ELASTIC N.V.
Signature
Print Name
Address:
Signature
Print Name
Title
Date received
ELASTIC N.V.
AMENDED AND RESTATED 2012 STOCK OPTION PLAN
RESTRICTED STOCK UNIT AGREEMENT
NOTICE OF RESTRICTED STOCK UNIT GRANT
Unless otherwise defined herein, the terms defined in the Elastic N.V. Amended and Restated 2012 Stock Option Plan (the “Plan”) will have the same
defined meanings in this Restricted Stock Unit Agreement, which includes the Notice of Restricted Stock Unit Grant (the “Notice of Grant”), the Terms and
Conditions of Restricted Stock Unit Grant, including any special and conditions for Participant’s country set forth in the country addendum thereto (the “Country
Addendum”), attached hereto as Exhibit A, and all other exhibits and appendices attached hereto (all together, the “Award Agreement”).
Participant:
Address: «Address»
The undersigned Participant has been granted the right to receive an Award of Restricted Stock Units, subject to the terms and conditions of the Plan and
this Award Agreement, as follows:
Grant Number:
Date of Grant:
Vesting Commencement Date:
Number of Restricted Stock Units:
Vesting Schedule:
Subject to any acceleration provisions contained in the Plan or set forth below, the Restricted Stock Units will vest in accordance with the following
schedule:
[Insert vesting schedule]
In the event Participant’s Continuous Service Status ceases for any or no reason before Participant vests in the Restricted Stock Units, the Restricted
Stock Units and Participant’s right to acquire any Shares hereunder will immediately terminate.
For purposes of the Restricted Stock Units, Participant’s Continuous Service Status will be considered terminated as of the date Participant is no longer
actively providing services to the Company or any Affiliate, Parent or Subsidiary (regardless of the reason for such termination and whether or not later found to be
invalid or in breach of employment laws in the jurisdiction where Participant is employed or providing services or the terms of Participant’s employment or service
agreement, if any), and unless otherwise expressly provided in this Award Agreement (including by reference in the Notice of Grant to other arrangements or
contracts) or determined by the Administrator, Participant’s right to vest in the Restricted Stock Units under the Plan, if any, will terminate as of such date and will
not be extended by any notice period (e.g., Participant’s period of service would not include any contractual notice period or any period of “garden leave” or
similar period mandated under employment laws in the jurisdiction where Participant is employed or providing services or the terms of Participant’s employment
or service agreement, if any, unless Participant is providing bona fide services during such time); the Administrator shall have the exclusive discretion to determine
when Participant is no longer actively providing services for purposes of the Restricted Stock Units grant (including whether Participant may still be considered to
be providing services while on a leave of absence).
By Participant’s signature and the signature of the representative of Elastic N.V. (the “Company”) below, Participant and the Company agree that this
Award of Restricted Stock Units is granted under and governed by the terms and conditions of the Plan and this Award Agreement, including the Terms and
Conditions of Restricted Stock Unit Grant and the Country Addendum, attached hereto as Exhibit A, all of which are made a part of this document. Participant
acknowledges receipt of a copy of the Plan. Participant has reviewed the Plan and this Award Agreement in their entirety, has had an opportunity to obtain the
advice of counsel prior to executing this Award Agreement, and fully understands all provisions of the Plan and this Award Agreement. Participant hereby agrees
to accept as binding, conclusive, and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and the Award Agreement.
Participant further agrees to notify the Company upon any change in the residence address indicated below.
By accepting this Award Agreement, Participant expressly consents to the sale of Shares to cover the Tax Withholding Obligations (as defined in
the Terms and Conditions of Restricted Stock Unit Grant) arising from the Restricted Stock Units and any associated broker or other fees and agrees and
acknowledges that, subject to Applicable Laws, Participant may not satisfy them by any means other than such sale of Shares, unless required to do so by
the Administrator or pursuant to the Administrator’s express written consent.
PARTICIPANT
ELASTIC N.V.
Signature
Print Name
Address:
Signature
Print Name
Title
- 2 -
EXHIBIT A
TERMS AND CONDITIONS OF RESTRICTED STOCK UNIT GRANT
1. Grant of Restricted Stock Units. The Company hereby grants to the individual (the “Participant”) named in the Notice of Grant of Restricted Stock
Units of this Award Agreement (the “Notice of Grant”) under the Plan an Award of Restricted Stock Units, subject to all of the terms and conditions in this Award
Agreement and the Plan, which is incorporated herein by reference. Subject to Section 17 of the Plan, in the event of a conflict between the terms and conditions of
the Plan and this Award Agreement, the terms and conditions of the Plan shall prevail.
2. Company’s Obligation to Pay. Each Restricted Stock Unit represents the right to receive a Share on the date it vests. Unless and until the Restricted
Stock Units will have vested in the manner set forth in Section 3 or 4, Participant will have no right to payment of any such Restricted Stock Units. Prior to actual
payment of any vested Restricted Stock Units, such Restricted Stock Unit will represent an unsecured obligation of the Company, payable (if at all) only from the
general assets of the Company.
3. Vesting Schedule. Except as provided in Section 4, and subject to Section 5, the Restricted Stock Units awarded by this Award Agreement will vest in
accordance with the vesting schedule set forth in the Notice of Grant, subject to Participant remaining in Continuous Service Status through each applicable vesting
date, with Continuous Service Status determined as described in the Notice of Grant.
4. Payment after Vesting.
(a) General Rule. Subject to Section 8, any Restricted Stock Units that vest will be paid to Participant (or in the event of Participant’s death, to
his or her properly designated beneficiary or estate) in whole Shares. Subject to the provisions of Section 4(b), such vested Restricted Stock Units shall be paid in
whole Shares as soon as practicable after vesting, but in each such case within sixty (60) days following the vesting date. In no event will Participant be permitted,
directly or indirectly, to specify the taxable year of payment of any Restricted Stock Units payable under this Award Agreement.
(b) Acceleration.
(i) Discretionary Acceleration. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of
the balance, of the unvested Restricted Stock Units at any time, subject to the terms of the Plan. If so accelerated, such Restricted Stock Units will be considered as
having vested as of the date specified by the Administrator. If Participant is subject to taxation in the U.S., the payment of Shares vesting pursuant to this
Section 4(b) shall in all cases be paid at a time or in a manner that is exempt from, or complies with, Section 409A. The prior sentence may be superseded in a
future agreement or amendment to this Award Agreement only by direct and specific reference to such sentence.
(ii) Notwithstanding anything in the Plan or this Award Agreement or any other agreement (whether entered into before, on or after the
Date of Grant), if the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units is accelerated in connection with the termination of
Participant’s Continuous Service Status (provided that such termination is a “separation from service” within the meaning of Section 409A, as determined by the
Company), other than due to Participant’s death, and if (x) Participant is subject to taxation in the U.S. and a “specified employee” within the meaning of Section
409A at the time of such termination of Continuous Service Status and (y) the payment of such accelerated Restricted Stock Units will result in the imposition of
additional tax under Section 409A if paid to Participant on or within the six (6) month period following the termination of Participant’s Continuous Service Status,
then the payment of such accelerated Restricted Stock Units will not be made until the date six (6) months and one (1) day following the date of termination of
Participant’s Continuous Service Status, unless Participant dies following the termination of his or her Continuous Service Status, in which case, the Restricted
Stock Units will be paid in Shares to Participant’s estate as soon as practicable following his or her death.
(c) Section 409A. It is the intent of this Award Agreement that it and all payments and benefits to U.S. taxpayers hereunder be exempt from, or
comply with, the requirements of Section 409A so that none of the Restricted Stock Units provided under this Award Agreement or Shares issuable thereunder will
be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to be so exempt or so comply. Each payment payable
under this Award Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2). However, in no event will
the Company reimburse Participant, or be otherwise responsible for, any taxes or costs that may be imposed on Participant as a result of Section 409A. For
purposes of this Award Agreement, “Section 409A” means Section 409A of the Code, and any final Treasury Regulations and Internal Revenue Service guidance
thereunder, as each may be amended from time to time.
5. Forfeiture Upon Termination of Continuous Service Status. Notwithstanding any contrary provision of this Award Agreement, if Participant’s
Continuous Service Status ceases for any or no reason, the then-unvested Restricted Stock Units awarded by this Award Agreement will thereupon be forfeited at
no cost to the Company and Participant will have no further rights thereunder. The date that Continuous Service Status terminates will be determined as described
in the Notice of Grant.
6. Tax Consequences. Participant has reviewed with his or her own tax advisors the U.S. and non-U.S. federal, state, and local tax consequences of this
investment and the transactions contemplated by this Award Agreement. With respect to such matters, Participant relies solely on such advisors and not on any
statements or representations of the Company or any of its agents, written or oral. Participant understands that Participant (and not the Company) shall be
responsible for Participant’s own tax liability that may arise as a result of this investment or the transactions contemplated by this Award Agreement.
7. Death of Participant. Any distribution or delivery to be made to Participant under this Award Agreement will, if Participant is then deceased, be made
to Participant’s designated beneficiary, provided the beneficiary designation is valid under Applicable Laws and permitted by the Company for Participant’s
jurisdiction, or if no beneficiary survives Participant, the administrator or executor of Participant’s estate. Any such transferee must furnish the Company with (a)
written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws
or regulations pertaining to said transfer.
8. Tax Obligations
(a) Responsibility for Taxes. Participant acknowledges that, regardless of any action taken by the Company or, if different, the Affiliate, Parent
or Subsidiary to which Participant is providing services (the “Service Recipient”), the ultimate liability for any tax and/or social insurance liability obligations and
requirements in connection with the Restricted Stock Units, including, without limitation, (i) all U.S. and non-U.S. federal, state, and local taxes (including
Participant’s U.S. Federal Insurance Contributions Act (FICA) obligation) that are required to be withheld by the Company or the Service Recipient or other
payment of tax-related items related to Participant’s participation in the Plan and legally applicable to Participant, (ii) Participant’s and, to the extent required by
the Company (or Service Recipient), the Company’s (or Service Recipient’s) fringe benefit tax liability, if any, associated with the grant, vesting, or settlement of
the Restricted Stock Units or sale of Shares, and (iii) any other Company (or Service Recipient) taxes the responsibility for which Participant has, or has agreed to
bear, with respect to the Restricted Stock Units (or settlement thereof or issuance of Shares thereunder) (collectively, the “Tax Obligations”), is and remains
Participant’s responsibility and may exceed the amount, if any, actually withheld by the Company or the Service Recipient. Participant further acknowledges that
the Company and/or the Service Recipient (A) make no representations or undertakings regarding the treatment of any Tax Obligations in connection with any
aspect of the Restricted Stock Units, including, but not limited to, the grant, vesting or settlement of the Restricted Stock Units, the subsequent sale of Shares
acquired pursuant to such settlement and the receipt of any dividends or other distributions, and (B) do not commit to and are under no obligation to structure the
terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate Participant’s liability for Tax Obligations or achieve any particular tax result.
Further, if Participant is subject to Tax Obligations in more than one jurisdiction, Participant acknowledges that the Company and/or the Service Recipient (or
former Service Recipient, as applicable) may be required to withhold or account for Tax Obligations in more than one jurisdiction. If Participant fails to make
satisfactory arrangements for the payment of any required Tax Obligations hereunder at the time of the
-2-
applicable taxable event, Participant acknowledges and agrees that the Company may refuse to issue or deliver the Shares.
(b) Tax Withholding and Default Sell-to-Cover Method of Tax Withholding. When Shares are issued as payment for vested Restricted Stock
Units, Participant generally will recognize immediate U.S. taxable income if Participant is subject to taxation in the U.S. If Participant is subject to taxation in any
other jurisdiction, Participant will be subject to applicable taxes, if any, in such jurisdiction at the time of the taxable event, as determined under local law. Subject
to Section 8(c) and Applicable Laws, the amount of Tax Obligations which the Company determines must be withheld with respect to this Award (“Tax
Withholding Obligation”) will be satisfied by Shares being sold on Participant’s behalf at the prevailing market price pursuant to such procedures as the
Administrator may specify from time to time, including through a broker-assisted arrangement (it being understood that the Shares to be sold must have vested
pursuant to the terms of this Award Agreement and the Plan) (the “Sell-to-Cover Method”). The proceeds from the Sell-to-Cover Method will be used to satisfy
Participant’s Tax Withholding Obligation arising with respect to this Award. In addition to Shares sold to satisfy the Tax Withholding Obligation, additional
Shares will be sold to satisfy any associated broker or other fees. Only whole Shares will be sold through the Sell-to-Cover Method to satisfy any Tax Withholding
Obligation and any associated broker or other fees. Any proceeds from the sale of Shares in excess of the Tax Withholding Obligation and any associated broker or
other fees generated through the Sell-to-Cover Method will be paid to Participant in accordance with procedures the Company may specify from time to time. By
accepting this Award, Participant expressly consents to the sale of Shares to cover the Tax Withholding Obligation (and any associated broker or other
fees) through the Sell-to-Cover Method and agrees and acknowledges that, subject to Applicable Laws, Participant may not satisfy them by any means
other than such sale of Shares, unless required to do so by the Administrator or pursuant to the Administrator’s express written consent.
(c) Administrator Discretion. Notwithstanding the foregoing Sections 8(a) and 8(b), if the Administrator determines it is in the best interests of
the Company for Participant to satisfy Participant’s Tax Withholding Obligation by a method other than through the default Sell-to-Cover Method described in
Section 8(b), it may permit or require Participant to satisfy Participant’s Tax Withholding Obligation, in whole or in part (without limitation), if permissible by
Applicable Laws, by (i) paying cash, (ii) withholding the amount of such Tax Withholding Obligation from Participant’s wages or other cash compensation paid to
Participant by the Company and/or the Service Recipient, (iii) if Participant is a U.S. employee, delivering to the Company Shares that Participant owns and that
have vested with a fair market value equal to the amount required to be withheld (or such other amount, up to the maximum withholding rate in Participant’s
country, determined by the Administrator and provided such other amount would not result in adverse financial accounting consequences to the Company as
determined by the Administrator), (iv) by having the Company withhold otherwise deliverable Shares having a fair market value equal to the amount required to be
withheld (or such other amount, up to the maximum withholding rate in Participant’s country, determined by the Administrator and provided such other amount
would not result in adverse financial accounting consequences to the Company as determined by the Administrator), or (v) such other means as the Administrator
deems appropriate.
(d) Company’s Obligation to Deliver Shares. For clarification purposes, in no event will the Company issue Participant any Shares unless and
until arrangements satisfactory to the Administrator have been made for the payment of Participant’s Tax Withholding Obligation. If Participant fails to make
satisfactory arrangements for the payment of such Tax Withholding Obligations hereunder at the time any applicable Restricted Stock Units otherwise are
scheduled to vest pursuant to Sections 3 or 4 or Participant’s Tax Withholding Obligations otherwise become due, Participant will permanently forfeit such
Restricted Stock Units to which Participant’s Tax Withholding Obligation relates and any right to receive Shares thereunder and such Restricted Stock Units will
be returned to the Company at no cost to the Company. Participant acknowledges and agrees that the Company may refuse to issue or deliver the Shares if such
Tax Obligations are not delivered at the time they are due.
9. Rights as Shareholder. Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a
shareholder of the Company in respect of any Shares deliverable hereunder unless and until such Shares (which are in book entry form) will have been issued and
delivered to Participant (including through electronic delivery to a brokerage account). Such issuance will occur by the execution of a deed of issuance to which the
Company and Participant are each party, unless the Shares will be delivered into a brokerage account in the name of Participant, in which case the issuance will
take place by a deed of issuance with due observance of the relevant
-3-
requirements that may apply from time to time. After such issuance and delivery, Participant will have all the rights of a shareholder of the Company with respect
to voting such Shares and receipt of dividends and distributions on such Shares.
10. No Guarantee of Continued Service. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF THE RESTRICTED STOCK
UNITS PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY REMAINING IN CONTINUING SERVICE STATUS, WHICH
UNLESS PROVIDED OTHERWISE UNDER APPLICABLE LAW IS AT THE WILL OF THE COMPANY (OR THE SERVICE RECIPIENT) AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS RESTRICTED STOCK UNIT AWARD OR ACQUIRING SHARES HEREUNDER.
PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AWARD AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS AN EMPLOYEE OR CONSULTANT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE
IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE SERVICE RECIPIENT) TO TERMINATE PARTICIPANT’S
CONTINUOUS SERVICE STATUS, SUBJECT TO APPLICABLE LAW, WHICH TERMINATION, UNLESS PROVIDED OTHERWISE UNDER
APPLICABLE LAW, MAY BE AT ANY TIME, WITH OR WITHOUT CAUSE.
11. Grant is Not Transferable. Except to the limited extent provided in Section 7, this grant and the rights and privileges conferred hereby will not be
transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or
similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any
attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.
12. Nature of Grant. In accepting the grant, Participant acknowledges, understands, and agrees that:
the Company at any time, to the extent permitted by the Plan;
(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by
future grants of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been granted in the past;
(b) the grant of the Restricted Stock Units is exceptional, voluntary and occasional and does not create any contractual or other right to receive
(c) all decisions with respect to future Restricted Stock Units or other grants, if any, will be at the sole discretion of the Company;
forming or amending an employment or service contract with the Company;
(d) the grant of the Restricted Stock Units and Participant’s participation in the Plan shall not create a right to employment or be interpreted as
(e) Participant is voluntarily participating in the Plan;
replace any pension rights or compensation;
(f) the Restricted Stock Units and the Shares subject to the Restricted Stock Units, and the income from and value of same, are not intended to
(g) the Restricted Stock Units and the Shares subject to the Restricted Stock Units, and the income from and value of same, are not part of
normal or expected compensation for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses,
long-service awards, holiday pay, holiday top-up, pension or retirement or welfare benefits or similar mandatory payments;
(h) unless otherwise agreed with the Company or an Affiliate, the Restricted Stock Units and the Shares subject to the Restricted Stock Units,
and the income from and value of same, are not granted as consideration for, or in connection with, the service Participant may provide as a director of an Affiliate,
Parent or Subsidiary;
-4-
(i) the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;
(j) no claim or entitlement to compensation or damages shall arise from forfeiture of the Restricted Stock Units or any underlying Shares
resulting from (i) the application of any compensation recovery or clawback policy adopted by the Company or required by law, or (ii) the termination of
Participant’s Continuous Service Status (for any reason whatsoever whether or not later found to be invalid or in breach of employment laws in the jurisdiction
where Participant is employed providing services or the terms of Participant’s employment or service agreement, if any);
(k) unless otherwise provided in the Plan or by the Company in its discretion, the Restricted Stock Units and the benefits evidenced by this
Award Agreement do not create any entitlement to have the Restricted Stock Units or any such benefits transferred to, or assumed by, another company nor be
exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(l) neither the Company nor any Service Recipient or other Affiliate, Parent or Subsidiary shall be liable for any foreign exchange rate
fluctuation between Participant’s local currency and the United States Dollar that may affect the value of the Restricted Stock Units or of any amounts due to
Participant pursuant to the settlement of the Restricted Stock Units or the subsequent sale of any Shares acquired upon settlement.
13. No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations
regarding Participant’s participation in the Plan, or Participant’s acquisition or sale of the underlying Shares. Participant is hereby advised to consult with his or her
own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
14. Data Privacy. Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of
Participant’s personal data as described in this Award Agreement and any other Restricted Stock Unit grant materials by and among, as applicable, the Service
Recipient, the Company and any other Affiliate, Parent or Subsidiary for the exclusive purpose of implementing, administering and managing Participant’s
participation in the Plan.
Participant understands that the Company and the Service Recipient may hold certain personal information about Participant, including, but not
limited to, Participant’s name, home address and telephone number, email address, date of birth, social insurance number (to the extent permitted under
Applicable Laws), passport or other identification number (e.g., resident registration number), salary, nationality, job title, any Shares or directorships held in
the Company, details of all Restricted Stock Units or any other entitlement to Shares or equivalent benefits awarded, canceled, purchased, exercised, vested,
unvested or outstanding in Participant’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.
Participant understands that Data will be transferred to such stock plan service provider(s) as may be selected by the Company (currently E*TRADE
Financial Corporate Services, Inc., the brokerage firm engaged by the Company to hold participants’ Shares and other amounts acquired under the Plan, and
its affiliated companies) to assist with the implementation, administration, and management of the Plan. The recipients of Data may be located in the United
States or elsewhere, and each recipient’s country of operation (e.g., the United States) may have different data privacy laws and protections than Participant’s
country. Participant understands that if he or she resides outside the United States, he or she may request a list with the names and addresses of any potential
recipients of Data by contacting his or her local human resources representative. Participant authorizes the Company, any stock plan service provider selected
by the Company and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing
the Plan to receive, possess, use, retain and transfer Data, in electronic or other form, for the sole purpose of implementing, administering and managing his
or her participation in the Plan, including any requisite transfer of such Data as may be required to a broker, escrow agent or other third party with whom
Participant may elect to deposit any Shares received upon vesting of the Restricted Stock Units. Participant understands that Data will be held only as long as
is necessary to implement, administer and manage Participant’s participation in the Plan. Participant understands that if he or she resides
-5-
outside the United States, he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any
necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting his or her local human resources
representative. Further, Participant understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or
if Participant later seeks to revoke his or her consent, his or her employment or service with the Service Recipient will not be affected; the only consequence of
refusing or withdrawing Participant’s consent is that the Company would not be able to grant Participant Restricted Stock Units or other equity awards or
administer or maintain such awards. Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participant’s ability to
participate in the Plan. For more information on the consequences of Participant’s refusal to consent or withdrawal of consent, Participant may contact his or
her local human resources representative.
Finally, Participant understands that the Company may rely on a different basis for the processing or transfer of Data in the future and/or request
that Participant provide another data privacy consent. If applicable, Participant agrees that upon request of the Company or the Service Recipient, Participant
will provide an executed acknowledgement or data privacy consent form (or any other agreements or consents) that the Company and/or the Service Recipient
may deem necessary to obtain from Participant for the purpose of administering Participant’s participation in the Plan in compliance with the data privacy
laws in Participant’s country, either now or in the future. Participant understands and agrees that he or she will not be able to participate in the Plan if he or
she fails to provide any such consent or agreement requested by the Company and/or the Service Recipient.
15. Address for Notices. Any notice to be given to the Company under the terms of this Award Agreement will be addressed to the Company at Elastic
N.V., 800 West El Camino Real, Suite 350, Mountain View, California 94040 or at such other address as the Company may hereafter designate in writing.
16. Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide to deliver any documents related to the Restricted Stock Units
awarded under the Plan or future Restricted Stock Units that may be awarded under the Plan by electronic means or request Participant’s consent to participate in
the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through any online
or electronic system established and maintained by the Company or a third party designated by the Company.
17. No Waiver. Either party’s failure to enforce any provision or provisions of this Award Agreement shall not in any way be construed as a waiver of any
such provision or provisions, nor prevent that party from thereafter enforcing each and every other provision of this Award Agreement. The rights granted both
parties herein are cumulative and shall not constitute a waiver of either party’s right to assert all other legal remedies available to it under the circumstances.
18. Successors and Assigns. The Company may assign any of its rights under this Award Agreement to single or multiple assignees, and this Award
Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Award Agreement
shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns. The rights and obligations of Participant under this Award
Agreement may only be assigned with the prior written consent of the Company.
19. Additional Conditions to Issuance of Shares. If at any time the Company determines, in its discretion, that the listing, registration, qualification or rule
compliance of the Shares upon any securities exchange or under any U.S. or non-U.S. state, federal or local law, including exchange control, tax or other
Applicable Laws or related regulations, or under the rulings or regulations of the United States Securities and Exchange Commission or any other U.S. or non-U.S.
governmental regulatory body or the clearance, consent or approval of the United States Securities and Exchange Commission or any other U.S. or non-U.S.
governmental regulatory authority is necessary or desirable as a condition to the issuance of Shares to Participant (or his or her estate) hereunder, such issuance
will not occur unless and until such listing, registration, qualification, rule compliance, clearance, consent or approval has been completed, effected or obtained free
of any conditions not acceptable to the Company. Notwithstanding the foregoing, Participant understands that the Company is under no obligation to register,
qualify or otherwise obtain clearance, consent or other approvals from any governmental authority or any stock exchange. Subject to the terms of the Award
Agreement and
-6-
the Plan, the Company shall not be required to issue any certificate or certificates for Shares hereunder prior to the lapse of such reasonable period of time
following the date of vesting of the Restricted Stock Units as the Administrator may establish from time to time for reasons of administrative convenience.
20. Language. Participant acknowledges and represents that he or she is proficient in the English language or has consulted with an advisor who is
sufficiently proficient in English, as to allow Participant to understand the terms of this Award Agreement and any other documents related to the Plan. If
Participant has received this Award Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the
translated version is different than the English version, the English version will control.
21. Interpretation. The Administrator will have the power to interpret the Plan and this Award Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of
whether or not any Restricted Stock Units have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be
final and binding upon Participant, the Company and all other interested persons. Neither the Administrator nor any person acting on behalf of the Administrator
will be personally liable for any action, determination, or interpretation made in good faith with respect to the Plan or this Award Agreement.
22. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Award
Agreement.
23. Amendment, Suspension or Termination of the Plan. By accepting this Award, Participant expressly warrants that he or she has received an Award of
Restricted Stock Units under the Plan, and has received, read, and understood a description of the Plan. Participant understands that the Plan is discretionary in
nature and may be amended, suspended or terminated by the Company at any time.
24. Modifications to the Award Agreement. This Award Agreement constitutes the entire understanding of the parties on the subjects covered. Participant
expressly warrants that he or she is not accepting this Award Agreement in reliance on any promises, representations, or inducements other than those contained
herein. Modifications to this Award Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company.
Notwithstanding anything to the contrary in the Plan or this Award Agreement, the Company reserves the right to revise this Award Agreement as it deems
necessary or advisable, in its sole discretion and without the consent of Participant, to comply with Section 409A or to otherwise avoid imposition of any additional
tax or income recognition under Section 409A in connection with this Award of Restricted Stock Units.
25. Governing Law; Venue; Severability. This Award Agreement and the Restricted Stock Units are governed by the internal substantive laws, but not the
choice of law rules, of Delaware; provided, however, that the corporate law aspects of issuance shall be governed by the laws of the Netherlands. For purposes of
litigating any dispute that arises under these Restricted Stock Units or this Award Agreement, the parties hereby submit to and consent to the jurisdiction of the
State of California, and agree that such litigation will be conducted in the courts of Santa Clara County, California, or the United States federal courts for the
Northern District of California, and no other courts, where this Award Agreement is made and/or to be performed. In the event that any provision hereof becomes
or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Award Agreement shall continue in full force and effect.
26. Entire Agreement. The Plan is incorporated herein by reference. The Plan and this Award Agreement (including the appendices and exhibits
referenced herein) constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to Participant’s interest except by means
of a writing signed by the Company and Participant.
27. Country Addendum. Notwithstanding any provisions in this Award Agreement, the Restricted Stock Unit grant shall be subject to any special terms
and conditions set forth in an appendix to this Award Agreement for any country whose laws are applicable to Participant and this Award of Restricted Stock Units
(as determined by the
-7-
Administrator in its sole discretion) (the “Country Addendum”). Moreover, if Participant relocates to one of the countries included in the Country Addendum, the
special terms and conditions for such country will apply to Participant, to the extent the Company determines that the application of such terms and conditions is
necessary or advisable for legal or administrative reasons. The Country Addendum constitutes part of this Award Agreement.
28. Insider Trading/Market Abuse Laws. Participant may be subject to insider trading restrictions and/or market abuse laws in applicable jurisdictions,
including the United States and, if different, Participant’s country, Participant’s broker’s country and/or the country in which Shares may be listed, if applicable,
which may affect Participant’s ability to accept or otherwise acquire, or sell, attempt to sell or otherwise dispose of, Shares or rights to Shares (e.g., Restricted
Stock Units) under the Plan or rights linked to the value of Shares (e.g., phantom awards, futures) during such times as Participant is considered to have “inside
information” regarding the Company (as defined by the laws or regulations in the applicable jurisdiction) or the trade in Shares or the trade in rights to Shares
under the Plan. Local insider trading laws and regulations may prohibit the cancellation or amendment of orders Participant placed before possessing inside
information. Furthermore, Participant could be prohibited from (1) disclosing the inside information to any third party and (2) “tipping” third parties or otherwise
causing them to buy or sell securities; “third parties” includes fellow employees or service providers. Any restrictions under these laws or regulations are separate
from and in addition to any restrictions that may be imposed under any applicable company insider trading policy. It is Participant’s responsibility to comply with
any applicable restrictions and Participant should speak to a personal advisor on this matter.
29. Foreign Asset/Account Reporting Requirements And Exchange Controls. Certain foreign asset and/or foreign account reporting requirements and
exchange controls may affect Participant’s ability to acquire or hold Shares acquired under the Plan or cash received from participating in the Plan (including from
any dividends paid on or sales proceeds arising from the sale of Shares acquired under the plan) in a brokerage or bank account outside Participant’s country.
Participant may be required to report such accounts, assets or transactions to the tax or other authorities in Participant’s country and/or to repatriate sale proceeds
or other funds received as a result of participation in the Plan to Participant’s country through a designated bank or broker within a certain time after receipt. It is
Participant’s responsibility comply with such regulations, and Participant should consult a personal legal advisor for any details.
-8-
ELASTIC N.V.
AMENDED AND RESTATED 2012 STOCK OPTION PLAN
RESTRICTED STOCK UNIT AGREEMENT
COUNTRY ADDENDUM
Capitalized terms used but not otherwise defined herein shall have the meaning given to such terms in the Plan, the Notice of Restricted Stock Unit Grant or the
Terms and Conditions of Restricted Stuck Unit Grant, as applicable.
Terms and Conditions
This Country Addendum includes additional terms and conditions that govern the Award of Restricted Stock Units granted to Participant under the Plan if
Participant resides and/or works in one of the countries listed below. If Participant is a citizen or resident of a jurisdiction (or is considered as such for local law
purposes) other than the one(s) in which he or she is currently residing and/or working or if Participant relocates to another jurisdiction after receiving the Award
of Restricted Stock Units, the Company will, in its sole discretion, determine the extent to which the terms and conditions contained herein will be applicable to
Participant.
Notifications
This Country Addendum also includes notifications relating to exchange control and certain other issues of which Participant should be aware with respect to his or
her participation in the Plan. The information is based on the exchange control, securities and other laws in effect in the respective countries listed in this Country
Addendum, as of [date]. Such laws are often complex and change frequently. As a result, the Company strongly recommends that Participant not rely on the
notifications in this Country Addendum as the only source of information relating to the consequences of his or her participation in the Plan because the
information may be out of date at the time Participant vests in the Restricted Stock Units and acquires Shares, or when Participant subsequently sell Shares
acquired under the Plan.
In addition, the notifications herein are general in nature and may not apply to Participant’s particular situation, and the Company is not in a position to assure
Participant of any particular result. Accordingly, Participant is advised to seek appropriate professional advice as to how the relevant laws in Participant’s
jurisdiction may apply to Participant’s situation.
Finally, if Participant is a citizen or resident of a jurisdiction other than the one(s) in which Participant is currently residing and/or working or if Participant moves
to another jurisdiction after receiving the Award of Restricted Stock Units, the information contained herein may not be applicable to Participant in the same
manner.
SUBSIDIARIES OF ELASTIC N.V.
Exhibit 21.1
Name of Subsidiary
Elastic Technologies (Israel) Ltd.
Elasticsearch AB
Elasticsearch AS
Elasticsearch B.C. Ltd.
elasticsearch B.V.
Jurisdiction of Incorporation
Israel
Sweden
Norway
Canada
Netherlands
Elasticsearch (Beijing) Information Technology Co., Ltd.
People’s Republic of China
Elasticsearch (CH) AG
Elasticsearch Federal Inc.
Elasticsearch Finance B.V.
Elasticsearch GmbH
Elasticsearch Government, Inc.
Elasticsearch HK Limited
Elasticsearch KK
Elasticsearch, Inc.
Elasticsearch Korea Limited
Elasticsearch Limited
Elasticsearch Pte Ltd.
Elasticsearch Pty Ltd
Elasticsearch SARL
Elasticsearch, S.L.U.
Endgame, Inc.
Endgame Systems, LLC
Opbeat ApS
Opbeat, LLC
Prelert Inc.
Swiftype, Inc.
Switzerland
Delaware
Netherlands
Germany
Delaware
Hong Kong
Japan
Delaware
Korea
United Kingdom
Singapore
Australia
France
Spain
Delaware
Delaware
Denmark
Delaware
Delaware
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-227782, No. 333-233467 and No. 333-234152) of
Elastic N.V. of our report dated June 26, 2020 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears
in this Form 10-K.
Exhibit 23.1
/s/ PricewaterhouseCoopers LLP
San Jose, California
June 26, 2020
Certification by the Principal Executive Officer pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a)
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
I, Shay Banon, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Elastic N.V. (the “registrant”) for the fiscal year ended April 30, 2020;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: June 26, 2020
By:
/s/ Shay Banon
Name:
Title:
Shay Banon
Chief Executive Officer and Chairman
(Principal Executive Officer)
Certification by the Principal Financial Officer pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a)
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2
I, Janesh Moorjani, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Elastic N.V. (the “registrant”) for the fiscal year ended April 30, 2020;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: June 26, 2020
By:
/s/ Janesh Moorjani
Name:
Title:
Janesh Moorjani
Chief Financial Officer
(Principal Accounting and Financial Officer)
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, Shay Banon, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form
10-K of Elastic N.V. for the fiscal year ended April 30, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results
of operations of Elastic N.V.
Date: June 26, 2020
By:
/s/ Shay Banon
Name:
Title:
Shay Banon
Chief Executive Officer and Chairman
(Principal Executive Officer)
This certification accompanies the Annual Report, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference
into any filing of Elastic N.V. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the
date of the Annual Report on Form 10-K), irrespective of any general incorporation language contained in such filing.
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
I, Janesh Moorjani, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on
Form 10-K of Elastic N.V. for the fiscal year ended April 30, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended, and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and
results of operations of Elastic N.V.
Date: June 26, 2020
By:
/s/ Janesh Moorjani
Name:
Title:
Janesh Moorjani
Chief Financial Officer
(Principal Accounting and Financial Officer)
This certification accompanies the Annual Report, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference
into any filing of Elastic N.V. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the
date of the Annual Report on Form 10-K), irrespective of any general incorporation language contained in such filing.