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, 2021
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, 2020 (the last business day of the registrant’s second fiscal quarter), was approximately $6.8 billion.
The number of registrant’s ordinary shares outstanding as of June 21, 2021 was 91,502,880.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement relating to the registrant’s 2021 annual general meeting of shareholders (the “2021 Proxy Statement”) are incorporated by reference into
Part III of this Annual Report on Form 10-K where indicated. The 2021 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, 2021.
Table of Contents
Page
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
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
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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 Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements 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,”, “might,” “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:
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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;
the impact of the 2019 coronavirus disease (“COVID-19”) on our business, operations, hiring and financial results, and on the businesses of our customers
and partners, including their spending priorities, the effect of governmental lockdowns, restrictions, preventative measures and new regulations;
the impact of changes to our licensing of our products, specifically Elasticsearch and Kibana;
our assessments of the strength of our solutions and products;
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 subsidiary (“Endgame”);
the potential impact on our operating margin from the acquisition of Endgame;
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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;
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, including the positioning of our solutions and products, 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;
our ability to onboard, provide training to and integrate new employees;
the effect of the loss of key personnel;
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 ongoing 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 ongoing 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.
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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 free and paid 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, 2021, we had over 15,000 customers compared to over 11,300 customers
and over 8,100 customers as of April 30, 2020 and April 30, 2019, respectively. Our revenue was $608.5 million in the year ended April 30, 2021, $427.6 million
in the year ended April 30, 2020, and $271.7 million in the year ended April 30, 2019, representing year-over-year growth of 42% and 57% for the years ended
April 30, 2021 and 2020, respectively. Subscriptions accounted for 93%, 92% and 91% of our total revenue in the years ended
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April 30, 2021, 2020 and 2019, respectively. Revenue from outside the United States accounted for 45%, 43% and 43% of our total revenue in the years ended
April 30, 2021, 2020 and 2019, respectively.
In the years ended April 30, 2021, 2020 and 2019, we incurred net losses of $129.4 million, $167.2 million and $102.3 million, respectively. For the year
ended April 30, 2021, our cash provided by operating activities was $22.5 million, and for the years ended April 30, 2020 and 2019, our cash used in operating
activities was $30.6 million and $23.9 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, in any format, and perform search, analysis, and
visualization, usually in milliseconds. The Elastic Stack can be used by developers to power a variety of use cases. We also offer software solutions built in 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 primarily composed of the following products:
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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.
The Elastic Stack also supports data ingest with a number of supporting products:
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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.
Elastic Agent. Elastic Agent, currently in beta, is a single, unified way to add monitoring for logs, metrics, and other types of data to each host.
Elastic Agent includes integrated host protection and central management.
Some features of the Elastic Stack are free and open, available 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 through machine learning, facilitating compliance with data security and privacy
regulations, supporting search across low cost cold and frozen data tiers, and allowing real-time notifications and alerts. The source code of both 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 common use cases. Like the
Elastic Stack, our solutions comprise a combination of free and open features, and paid proprietary features. Our solutions include:
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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.
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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
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operations, shareable analytics, incident management, and investigations; and Endpoint Security, for prevention, detection and response in a single,
stack-integrated agent.
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.
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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 and Elastic Cloud on Kubernetes, paid proprietary products, 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 and Site 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 free and paid 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 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 free and open 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. Also, many of our free features have been historically distributed under a proprietary
license. In February 2021, with the release of version 7.11 of the Elastic Stack, we changed the source code of Elasticsearch and Kibana that had previously been
licensed under an open source license to be licensed under a proprietary license. 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.
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The strengths of our products include the following:
Strengths of Our Products
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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.
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 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
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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 ElasticON, 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.
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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 continue to invest resources in increasing the adoption of Elastic
Cloud.
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 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, 2021, we had
over 15,000 customers. No customer represented more than 10% of our total revenue in the year ended April 30, 2021.
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 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.
We intend to continue to invest in our research and development capabilities to extend our products. Research and development expense totaled
$199.2 million and $165.4 million, in the years ended April 30, 2021 and 2020, 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 in relation to 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.
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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
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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, including direct purchase from us and through their respective marketplaces. We also partner with other cloud providers to
provide our free and paid proprietary features to users on their cloud platforms. In addition, we make our Elasticsearch Service available on Amazon
Web Services (“AWS”), for direct purchase or through the AWS marketplace. 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 users 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 users 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, 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 Technology
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.
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:
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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.
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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:
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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.
• 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.
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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, Elastic Agent, 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. Elastic Agent, currently in beta, is a single, unified way to add monitoring for logs, metrics, and other types of data to each host, and also
includes integrated host protection. Key features of Beats and Elastic Agent include the following:
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Data shippers. 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. Elastic Agent introduces a new single agent architecture across hosts that simplifies management and deployment.
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.
• Host protection. Specifically with Elastic Agent, we extend protection to hosts in addition to data transfer. Elastic Agent stops malware and
ransomware and enables environment-wide visibility and advanced threat detection.
Logstash enables centralized collection and extract, transformation, and load capabilities. Key features of Logstash include the following:
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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.
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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.
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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.
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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.
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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.
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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, Elastic Cloud Enterprise, and Elastic Cloud on Kubernetes
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 and Elastic Cloud on Kubernetes.
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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 and Site Search Service and are offered by us on certain large cloud
providers.
Elastic Cloud Enterprise and Elastic Cloud on Kubernetes. 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
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clusters. It also helps our customers improve their hardware utilization and operational efficiency by allowing them to leverage shared hardware
resources to manage multiple clusters, while still maintaining a strong level of isolation between those clusters. More recently, we also launched
Elastic Cloud on Kubernetes, extending our cloud orchestration capabilities to Kubernetes environments via the official Elasticsearch operator for
Kubernetes.
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—including both free and paid capabilities—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:
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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 Azure Sentinel (offered by Microsoft) and
endpoint security vendors such as CrowdStrike, Carbon Black (acquired by VMware), McAfee and Symantec (acquired by Broadcom).
Certain cloud hosting providers and managed service providers, including Amazon Web Services, that offer products based on older Elastic Stack
releases. 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:
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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;
• mindshare with developers and IT executives;
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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, 2021, we had 24 issued patents in the United States with expirations ranging from 2031 to 2039, 57 pending U.S. patent applications,
and 17 pending non-U.S. patent filings. The pending patent applications, if issued, would expire between 2032 and 2041. In addition, as of April 30, 2021, we had
38 registered trademarks in the United States, 2 pending trademark applications in the United States, as well as 326 registered trademarks in various non-U.S.
jurisdictions and no 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.
Our employees (whom we call “Elasticians”) and our culture are vital to Elastic’s long-term success. Our human capital management efforts are focused
on:
Human Capital Management
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Attracting, engaging and retaining talent
• Maintaining our strong company culture
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Enhancing our diversity, equity and inclusion (“DEI”)
Continuing strong employee engagement
Facilitating continuous employee learning and development
Offering effective total rewards, including employee well-being
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Our management regularly updates our board of directors and its committees on human capital trends and employee-focused activities and initiatives.
As of April 30, 2021, we had a total of 2,179 employees in over 35 countries globally, including 946 employees located outside of the United States. In
addition, approximately 30% of our workforce encompasses women and non-binary employees. None of our employees are 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.
Our Culture
We describe our culture by the Elastic “source code,” the things that make Elastic, Elastic. Our source code guides our culture, business, product
development, people practices and brand. The guiding ideas are:
• 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.
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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.
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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.
Elastic was born a distributed company and continues to be distributed by design. We have designed our processes, systems, and teams so that employees
can generally perform their jobs without needing to be physically present in the same room or even in the same time zone. Just as distributed systems are more
resilient, we believe that being distributed helps build a strong company that can scale and adapt as new challenges arise. Having a distributed workforce gives us a
global candidate pool, which gives us the opportunity to cast a wider recruiting net, a critical aspect of helping open our pipelines to a broader set of diverse talent.
Diversity, Equity and Inclusion
Our focus on DEI is critical to how we develop, strengthen and sustain a sense of belonging and inclusion among all Elasticians.
Balanced Teams. We strive to be an employer of choice for a diverse and inclusive workforce through our talent brand, talent attraction, development, and
retention efforts. Our recruiting approach is underpinned by the desire to create balanced teams at Elastic, which includes considering broad aspects of diversity
from race and gender mix as well as diversity of thought, experience and tenure when recruiting new team members. In fiscal year 2021, the created-by-women-
for-women workplace review site, Fairygodboss, recognized Elastic as number one in the Best Technology Company for Women category, and as one of the best
workplaces for women in two additional categories: Best Company for Women, and Best Company Where CEOs Support Gender Diversity.
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Elastician Resource Groups. We strive to embed DEI deep within our culture through various initiatives, projects and programs, the centerpiece of which
is the Elastician Resource Groups (“ERGs”), which are organizationally sponsored, self-organized, Elastician-run groups. Aligned to specific shared identities,
interests, affinity or allyship, such as Latinx, parent(s), disability or accessibility, Black, LGBTQ+ and others, each group identifies goals and objectives with
executive sponsorship to ensure that they provide tangible benefits and result in all Elasticians feeling a sense of belonging.
Code of Conduct. All of our employees must adhere to a Code of Business Conduct and Ethics (the “Code of Conduct”) that sets standards for appropriate
behavior and are required to complete annual training on the Code of Conduct and training to help prevent, identify and report any type of discrimination and
harassment.
Employee Engagement
We are committed to ensuring that Elasticians have a voice in how we can collectively make Elastic a better place to work.
New Employee Onboarding. Our new employee onboarding experience is centered around attending “X-School”, our extensive new-hire orientation
program, which enables new Elasticians to meet and collaborate with other new Elasticians from around the globe and to learn about our products and solutions.
Engagement Surveys. We maintain a regular pulse on how our employees are feeling through two primary feedback mechanisms – an annual employee
engagement survey and a mid-year pulse survey check-in. The results of these surveys are reviewed at the company, functional, team and manager level, with
action plans put in place annually. Elasticians were highly engaged in providing feedback in fiscal year 2021, with very high participation rates for the mid-year
and annual surveys as well as high engagement scores across a spectrum of questions.
Learning and Development
Our Learning & Organizational Development team’s mission to enable Elasticians to pursue their purpose, in work and life, makes for a better Elastic. To
that end, we have a variety of ways in which we support the continuous learning and development of all Elasticians, including access to on-demand video based
learning.
We also conduct specific programs to develop managers and leaders at Elastic, including our flagship Leadership Performance Program, an externally-
led program focused on high-performing leaders who have the potential to have a significant strategic impact on the achievement of our long-term objectives.
Total Rewards
Compensation, Benefits and Well-being. We provide market competitive compensation which typically includes cash compensation as well as equity
awards. Reflecting our interest in the whole person, we provide programs designed to enable Elasticians to meet their well-being goals, from starting a family to
being at their physical and emotional best. These programs include market competitive medical and dental programs, in addition to focus on mental health and
holistic well-being. We provide market competitive paid time off (“PTO”) programs, including offering 16 weeks of paid leave to all new parents. In addition, we
also provide retirement and income protection plans, which include a 401k plan with a dollar-for-dollar match by Elastic up to 6% of eligible earnings up to a plan-
limit maximum for U.S.-based Elasticians as well as similar competitive plans outside of the United States.
Fair Pay. We have fair and consistent compensation practices through our use of local third-party market data specific to each country, where available,
so that we understand local compensation and cost of labor levels. We retain external experts to review our compensation outcomes on an ongoing basis to ensure
they are bias-free and fairly reward employee performance and contributions. We take great pride in our focus on fair pay and the positive results we’ve
established. Our external review continues to validate that we have gender-based pay parity between male and female Elasticians globally.
Community Involvement. Through Elastic Cares, employees can support the charitable organizations that matter the most to them on a local and global
level. Elastic Cares is a program consisting of donation matching, our nonprofit organization program which provides our technology for free to certain nonprofit
organizations, and our volunteer time off (“VTO”) initiative. Employees are encouraged to volunteer for these organizations throughout the year using our VTO
program which provides our employees with 40 hours of volunteer time each year.
COVID-19 Response
During the COVID-19 pandemic, our primary focus was and continues to be on the safety and well-being of our employees and their families. In the
fourth quarter of fiscal 2020, we closed our offices globally and required our employees to
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work remotely. Additionally, due to concerns over risks related to travel and large gatherings, we have replaced our in-person events, including our internal global
all-hands, annual flagship conference and other in-person marketing events, with web-based virtual events. Given the significant personal and professional impact
of the COVID-19 pandemic, we provided reimbursements for home office equipment and established specific learning opportunities for our employees that
allowed teams to better connect to each other, including fun activities to help teams bond. To allow employees to deal with and alleviate the physical, mental, and
emotional effects of the pandemic on themselves and loved ones, we offered two weeks of COVID leave and implemented company-wide days off called “Shut it
Down Days” twice per month.
Our worldwide business activities are subject to various laws, rules, and regulations of the United States as well as of foreign governments. Compliance
with these laws, rules, and regulations has not had, and is not expected to have, a material effect upon our capital expenditures, results of operations, or competitive
position. Nevertheless, compliance with existing or future governmental regulations, including, but not limited to, those pertaining to global trade, business
acquisitions, consumer and data protection, and taxes, could have a material impact on our business. Refer to Item 1A, “Risk Factors—Risks Related to Regulatory
Matters” of this Annual Report on Form 10-K” for a discussion of these potential impacts.
Government Regulations
Corporate Information
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 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 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, industry 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
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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 the COVID-19
pandemic 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 continuously changing and additional impacts may arise that we are not aware of currently.
Summary of Risk Factors
The following is a summary of the key risks and uncertainties associated with our business, industry and ownership of our ordinary shares. The below
summary does not contain all of the information that may be important to you, and you should read this summary together with the more detailed description of
each risk factor contained in the subheadings below.
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If we do not appropriately manage future growth or are unable to improve our systems and processes, our business and results of operations will be
adversely affected.
• We have a history of losses and may not be able to achieve profitability on a consistent basis or at all or positive cash flows on a consistent basis.
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Our future growth, business and results of operations will be harmed if we are not able to keep pace with technological and competitive developments,
increase sales of our subscriptions to new and existing customers, renew existing customers’ subscriptions, increase adoption of our SaaS offerings,
respond effectively to evolving markets or offer high quality support services.
The ongoing COVID-19 pandemic could harm our business and results of operations.
Our operating results may fluctuate from quarter to quarter.
Our decision to no longer offer Elasticsearch and Kibana under an open source license may harm the adoption of Elasticsearch and Kibana.
• We could be negatively impacted if the Elastic License or the Server Side Public License under which some of our software is licensed are not
enforceable.
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Because of the permissive rights accorded to third parties under our open source and source available licenses, there are limited technological barriers to
entry into the markets in which we compete.
• We may not be able to effectively develop and expand our sales and marketing capabilities.
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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.
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.
Incorrect implementation or use of our software could negatively affect our business, operations, financial results, and growth prospects.
Third parties may offer inadequate or defective implementations of software that we have previously made available under an open source license and our
reputation could be harmed.
Breaches of security measures or unauthorized access to private or proprietary data may result in our software being perceived as not secure, customers
reducing or stopping usage of our products, and we may incur significant liabilities.
Interruptions or performance problems, and our reliance on technologies from third parties may adversely affect our business operations and financial
results.
If our channel partners fail to perform or we are unable to maintain successful relationships with them or our other partners, our ability to market, sell and
distribute our solution will be more limited, and our results of operations could be harmed.
Failure to protect our proprietary technology and intellectual property rights could substantially harm our business and results of operations.
• We could incur substantial costs as a result of any claim of infringement, misappropriation or violation of another party’s intellectual property rights,
including as a result of the indemnity provisions in various agreements.
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Our use of third-party open source software within our products could negatively affect our ability to sell our products and subject us to possible
litigation.
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One of our marketing strategies is to offer some of our product features for free and to provide free trials to some of our paid features, and we may not be
able to realize the benefits of this strategy.
Our international business exposes us to several risks, and if we are not successful in sustaining and expanding our international business, we may incur
additional losses and our revenue growth could be harmed.
A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.
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 and compliance with anti-bribery, anti-corruption, and anti-money laundering laws.
The market price for our ordinary shares has been and is likely to continue to be volatile.
The concentration of our share ownership with insiders will likely limit your ability to influence corporate matters.
Dutch law and our articles of association include certain anti-takeover provisions.
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.
Claims of U.S. civil liabilities may not be enforceable against us.
• We may fail to maintain an effective system of disclosure controls and internal control over financial reporting.
Risks Related to our Business and Industry
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 15,000 as of April 30, 2021. Further, our
employee headcount is growing as we modify our pace of hiring in light of our growth plans. 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 may not be able to hire, train and retain enough qualified employees, and we
may not be able to hire and train new employees fast enough, to maintain our growth plans. 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 on a consistent basis or at all, and may not be able to achieve positive cash flows on a
consistent basis. As a result, 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 $129.4 million, $167.2 million and, $102.3 million in the years
ended April 30, 2021, 2020 and 2019, respectively. As a result, we had an accumulated deficit of $613.3 million as of April 30, 2021. 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
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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.
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 or grow our business could prevent us from achieving profitability at all or on a consistent basis, which would
cause our business, financial condition, and results of operations to suffer. Additionally, although we generated positive cash flow in fiscal 2021, any failure to
grow our business could prevent us from achieving positive cash flow 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:
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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;
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adoption of products by many types of users and decision makers (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 (owned by Oracle) and Autonomy (owned 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 Azure Sentinel (by Microsoft) and endpoint security
vendors such as CrowdStrike, Carbon Black (owned by VMware), McAfee and Symantec (owned by Broadcom).
Certain cloud hosting providers and managed service providers, including Amazon Web Services, that offer products based on older Elastic Stack
releases. 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.
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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, execute more successfully on their go-to-market strategy and have greater access to more markets and decision makers,
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 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 October 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 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 evolving and our products are relatively
new in these markets. Accordingly, it is difficult to predict continued 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 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.
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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, negatively impacting worldwide economic
activity. 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 continued spread of the COVID-19 pandemic and the resurgence of infection rates in certain regions has caused us to continue 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 continue to impact our business will depend on future developments, which continue to be 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, future spikes of COVID-19 infections resulting in additional preventative measures to contain or mitigate the spread of the virus, the effectiveness,
distribution and acceptance of COVID-19 vaccines, including the vaccines’ efficacy against emerging COVID-19 variants, and how quickly and to what extent
normal economic 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 remains
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, any of which could harm our business. Additionally, as we begin to re-open certain of our offices where
local authorities have indicated it is safe to do so, our efforts to re-open them safely may not be successful, could expose our personnel to health risks and could
involve additional costs that may adversely affect our business.
In addition, the COVID-19 pandemic has disrupted, and may continue to disrupt, the operations of our customers, vendors, 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. Further, the impact of the COVID-19 pandemic has varied significantly across different industries with
certain industries experiencing increased demand for their products and services as the needs of the economy shift, while others have struggled to maintain demand
for their products and services consistent with historical levels. Because we have a limited history in understanding these impacts, our ability to adapt our sales and
marketing initiatives to such changes may be uncertain and our ability to forecast rates of customer retention and expansion may be negatively impacted.
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 has been 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. For instance, our Net Expansion Rate declined to below 130% at the end of fiscal 2021 as a result of the COVID-19 pandemic, which caused customers
to expand their spending with us at a slower rate than before the COVID-19 pandemic.
While we have developed and continue to develop plans intended to help mitigate the negative impacts 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 operating results are likely to fluctuate from quarter to quarter, and our financial results in any one quarter should not be relied upon as indicative of
future performance.
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:
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our ability to attract new and retain existing customers;
the loss of existing customers;
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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 political, economic, industry and market conditions, including developments resulting from the change of administration in the United States;
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;
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, which could have an adverse effect on our business.
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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 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 existing 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. If our existing
customers do not purchase additional subscriptions or expand the value of their subscriptions, our Net Expansion Rate may decline. 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 existing customers do not renew their subscriptions, or renew on less
favorable terms, our revenue may grow more slowly than expected or decline.
Our decision to no longer offer Elasticsearch and Kibana under an open source license may harm the adoption of Elasticsearch and Kibana.
In February 2021, with the release of version 7.11 of the Elastic Stack, we changed the source code of Elasticsearch and Kibana that had historically been
licensed under Apache 2.0, to be dual licensed under the Elastic License 2.0 (“ELv2”) and the Server Side Public License Version 1.0 (“SSPL”), at the user’s
election. Neither the Elastic License nor the SSPL has been approved by the Open Source Initiative or is included in the Free Software Foundation’s list of free
software licenses. Further, neither has been interpreted by any court. While the vast majority of downloads of Elasticsearch and Kibana from mid-2018 through
early 2021 were licensed under the Elastic License, the removal of the Apache 2.0 alternative could negatively impact certain developers for whom the availability
of an open source license was important. In addition, some developers and the companies for whom they work may be hesitant to download or upgrade to new
versions of Elasticsearch or Kibana under the Elastic License or SSPL because of uncertainty around how these licenses may be interpreted and enforced. Other
developers, including competitors of Elastic such as Amazon, have announced that they have “forked” Elasticsearch and Kibana. In doing so, they will develop a
new product based on the software, which they claim will continue to be licensed under Apache 2.0. The combination of uncertainty around our dual license model
and the potential competition from the forked versions of our software may negatively impact adoption of Elasticsearch and Kibana, which in turn could lead to
reduced brand and product awareness, ultimately leading to a decline in paying customers, which could harm our ability to grow our business or achieve
profitability.
We could be negatively impacted if the Elastic License or SSPL under which some of our software is licensed are not enforceable.
We make the source code of our products available under Apache 2.0, the Elastic License, or dual licensed under the Elastic License and SSPL,
depending on the product and version. Apache 2.0 is a permissive open source license that allows licensees to freely copy, modify and distribute Apache 2.0-
licensed software provided that they meet certain conditions. The Elastic License is our proprietary source available license. The Elastic License permits licensees
to use, copy, modify and
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distribute the licensed software provided that they do not offer access to the software as a cloud service, interfere with the license key or remove proprietary
notices. SSPL is a source available license that is based on the GNU Affero General Public License (“AGPL”) open source license and permits licensees to copy,
modify and distribute SSPL-licensed software, but expressly requires licensees that offer the SSPL-licensed software as a third-party service to open source all of
the software that they use to offer such service. We rely upon the enforceability of the restrictions set forth in the Elastic License and SSPL to protect our
proprietary interests. It is possible that a court could hold that the Elastic License or SSPL are unenforceable. If a court held that the Elastic License or SSPL or
certain aspects of these licenses are unenforceable, others may be able to use our software to compete with us in the marketplace in a manner not subject to the
restrictions set forth in the Elastic License or SSPL.
Because of the permissive rights accorded to third parties under our open source and source available 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 source code for the features of our software that we have licensed under open source or source available licenses.
Depending on the product and version of the Elastic software, this source code is either available under Apache 2.0, SSPL, or the Elastic License. Each of these
licenses allow anyone, subject to compliance with the conditions of the applicable license, to redistribute our software in modified or unmodified form and use it to
compete in our markets. Such competition can develop without the degree of overhead and lead time required by traditional proprietary software companies, due to
the rights granted to licensees of open source and source available software. 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 the
features that we had previously made available under an open source license 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 pressure or the availability of new 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.
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, 2021, 2020 and 2019, Elastic Cloud contributed 27%, 22% and 17% 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 offers SaaS products based on older Elastic Stack releases. 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 business, competitive position, financial condition and results of operations may be harmed.
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,
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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 we are unable to hire and train sufficient numbers of effective sales
personnel, our new and existing sales personnel are unable to achieve desired productivity levels in a reasonable period of time, our sales personnel are not
successful in obtaining new customers or increasing sales to our existing customer base, or our sales and marketing programs are not effective, our growth and
results of operations could be negatively impacted and 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. Due to the ongoing uncertainty related to the COVID-19
pandemic, there may also be more competition for qualified employees and 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 93%, 92% and 91% of total revenue in the years ended April 30,
2021, 2020 and 2019, 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.
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
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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 software that we have previously made available under an open source license, our reputation
could be harmed.
Certain cloud hosting providers and managed service providers, including Amazon Web Services, offer SaaS products based on older Elastic Stack
releases, using the names of our products 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 offerings. Users, customers, and potential customers could confuse these third-party
products with our 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.
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,
malware, ransomware or similar breach or disruption to our networks and systems, or those of third parties upon which we rely, 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. Cyber threats are constantly evolving and becoming increasingly sophisticated and complex, increasing the
difficulty of detecting and successfully defending against them. 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.
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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. There have been and may continue to be significant supply chain cyber attacks generally, and our third-party vendors and service providers may be
targeted or impacted by such attacks. We cannot guarantee that our or our third-party vendors and service providers’ systems and networks have not been breached
or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of
third parties that support us and our services. Our ability to monitor our third-party 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. Security risks are also heightened during the ongoing COVID-19 pandemic as more individuals are working remotely and utilizing home networks for
transmitting information, and reported ransomware incidents with significant operational impacts also appear to be escalating in frequency and degree. In addition,
laws, regulations, government guidance, and industry standards and practices in the United States and elsewhere are rapidly evolving to combat these threats. We
may face increased compliance burdens regarding such requirements with regulators and customers regarding our products and services and also incur additional
costs for oversight and monitoring of our own supply chain. We and our customers may also experience increased costs associated with security measures and
increased risk of suffering cyberattacks, including ransomware. Should we or the third-party vendors upon which we rely experience such attacks, including from
ransomware, our operations may also be hindered or interrupted, with foreseeable secondary contractual, regulatory, financial, and reputational harms that may
arise from such an incident.
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 of third-party 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.
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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 liabilities, penalties, fines, 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. Some customers have been
scrutinizing their spending more carefully given a challenging economic environment associated with the pandemic, and we generally expect this to continue. This
might cause sales cycles to become longer or become more unpredictable. 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 senior management 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. Any search for senior management
in the future or any search to replace the loss of any senior management may be prolonged, and we may not be able to attract a qualified candidate or replacement,
as applicable, in a timely manner or at all, particularly as potential candidates may be wary to transition during the unstable economic conditions caused by the
COVID-19 pandemic. Furthermore, the COVID-19 pandemic could make it more difficult to onboard, provide training to and integrate any senior
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management or key employees, which could adversely affect their productivity and our business. If we are unable to mitigate these or 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 ability to expand our customer base will be impaired and 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. We also believe that the importance of brand recognition will increase as competition in our
market increases. Successfully maintaining and enhancing our brand will depend largely on the effectiveness of our marketing efforts, our ability to maintain our
customers’ trust, our ability to continue to develop new functionality and use cases, and our ability to successfully differentiate our products and platform
capability from competitive products. 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 ElasticON and similar
investments in our brand, user engagement, and customer engagement may not generate the desired customer awareness or 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, which would adversely affect our business and
results of operations.
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, particularly in light of the effects of the COVID-19 pandemic. 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 may not be able to retain these channel partners or 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.
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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 deliver offerings to our end customers and complement our broad community of users. In particular, we partner with
various cloud providers to jointly market, sell and deliver our Elastic Cloud offerings, and in some instances this also involves technical integration with such cloud
providers.
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. Competition continues to increase in the market
segments in which we operate, 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, for which we incur hosting costs, as well as
any increase in our mix of professional services relative to subscriptions. We may not 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, and we expect that revenue from Elastic Cloud will continue to become a larger
part of our revenue mix. 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.
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
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may be challenged by others or invalidated through administrative process or litigation. As of April 30, 2021, we had 24 issued U.S. patents, 57 pending U.S.
patent applications, and 17 pending non-U.S. filings. 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 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:
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cease selling or using products that incorporate the intellectual property rights that we allegedly infringe, misappropriate or violate;
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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.
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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 third-party open source software within our products could negatively affect our ability to sell our products and subject us to possible litigation.
Our technologies incorporate open source software from other developers, and we expect to continue to incorporate such 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 that we
have not incorporated third-party 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 some of our product features for free and to provide free trials of some of our paid features, and we may not be able
to realize the benefits of this strategy.
We are dependent upon lead generation strategies, including offering free use of some of our product features and free trials of some of our paid features.
These strategies may not be successful in continuing to generate sufficient sales opportunities necessary to increase our revenue. Many users never convert from
the free use model or from 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.
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 have devoted 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 we continue to integrate Endgame
into our business strategy include those related to the costs
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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.
Our international operations and expansion expose us to several risks.
As of April 30, 2021, 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, 2021, we had employees located in over 35 countries. Our current international operations
involve and future initiatives may involve a variety of risks, including:
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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 or instability related to the effect of the United Kingdom's withdrawal from the European Union (Brexit),
including the effects of the Trade and Cooperation Agreement between the European Union, the European Atomic Energy Community and the United
Kingdom signed in December 2020, on the economies of, and the relationships between, the United Kingdom, European Union, United States and other
countries;
the evolving relations between the United States and China;
changes in relations between the Netherlands and the United States;
risks resulting from changes in currency exchange rates and inflation;
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;
risks relating to our third-party vendors and service providers’ storage and processing of some of our and our customers’ data, including any supply chain
cyber attacks;
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.
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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 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.
If we need to raise additional capital or generate the significant capital necessary to expand our operations and invest in new offerings, it could reduce our
ability to compete and could harm our business.
We may need to raise additional funds in the future, 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:
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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.
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 sector, U.S. state government sector, or government sectors
of countries other than the United States until we have attained the revised certification. For example, we hold a U.S. Federal Risk and Authorization Management
Program Authority to Operate at a moderate impact level; however, such authority is costly to maintain and if we were to lose our certification in the future, it
would restrict our ability to sell to government customers. On May 12, 2021, the Biden Administration issued an Executive Order that will ultimately result in
additional security requirements for government agencies and their contractors, for example, multifactor authentication, encryption for data at rest and in transit,
and broad log creation, preservation, and production requirements. Furthermore, the Executive Order accelerates agency planning and implementation
requirements for “zero trust architecture” and will establish a standards-development effort for a software bill of materials. This may increase compliance costs
directly for government contracts and indirectly to the extent such requirements require changes or new efforts at an enterprise level. If we are unable to timely
meet such requirements, our ability to compete for and maintain federal government contracts may be diminished, which could adversely affect our business,
results of operations and financial condition.
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 government agencies, including classified contracts, are subject to
complex 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 government agencies in the future. Additionally, we rely on certain partners to provide technical support
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services to certain of our government entity customers to resolve any issues relating to our products. 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. In addition, multi-year contracts with government entities are usually
conditioned on annual fiscal funding actions that the relevant legislative or other decision-making body must take in order to fund each year of a contract. Such
legislative or decision-making bodies may elect not to fund each year of a contract. 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. For example, recently, in the United States, the Biden administration has proposed a number of changes, including an
increase to the U.S. corporate income tax rate from 21% to 28%. In addition, other countries, as well as organizations such as the Organization for Economic
Cooperation and Development, have recently proposed or recommended changes to existing tax laws or have enacted new laws that could impact our tax
obligations in countries where we do business or cause us to change the way we operate our business. Any new legislation or interpretations of existing legislation
could result in increased taxation of our international earnings.
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. Tax authorities examine and may
audit our income tax returns and other non-income tax returns, such as payroll, sales, value-added, net worth or franchise, property, goods and services, and excise
taxes, in both the United States and foreign jurisdictions. 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, 2021 and 2020, we had net operating loss carryforwards in various jurisdictions of $2.2 billion and $1.3 billion, 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
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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.
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, particularly against the Euro. In part as a result of the COVID-19 pandemic, foreign
currency exchange rates have been and could continue to be subject to increased volatility. 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 strength of
the U.S. dollar increases, 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.
Risks Related to Regulatory Matters
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 recently
enacted California Consumer Privacy Act (the “CCPA”) provides new data privacy rights for California residents. The enforcement of the CCPA by the California
Attorney General commenced July 1, 2020. We cannot fully predict the impact of the CCPA on our business or operations, but we may be required to modify our
data processing practices and policies and to incur substantial costs and expenses in connection with our compliance or the compliance of our customers or
vendors. The CCPA also provides for civil penalties and a private right of action for violations, which may increase our compliance costs and potential liability.
Additionally, a new privacy law, the California Privacy Rights Act (“CPRA”), was approved by California voters in the November 3, 2020 election. The CPRA
creates obligations relating to consumer data beginning on January 1, 2022, with implementing regulations expected on or before July 1, 2022, and enforcement
beginning July 1, 2023. We will continue to monitor developments related to the CPRA and anticipate additional costs and expenses associated with CPRA
compliance. Other U.S. states also are considering omnibus privacy legislation and industry organizations 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
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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 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. The GDPR imposes significant obligations and risk upon our business and
provides for substantial 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. Further, the United Kingdom has implemented legislation that
substantially implements the GDPR in the United Kingdom, which legislation provides for penalties for violations of up to the greater of 17.5 million British
pounds or four percent of the group’s annual global turnover. Following the exit of the United Kingdom from the European Union however, aspects of U.K. data
protection law and the relationship of the United Kingdom and the European Union in the medium to longer term remain unclear, including with respect to how
data transfers to and from the United Kingdom will be regulated.
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. 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 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 (the “SCCs”). 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 EEA 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.
The regulatory environment applicable to handling of EEA residents' personal data, and our actions taken in response, may cause us to assume additional
liabilities or incur additional costs. In the Schrems II decision issued by the Court of Justice of the European Union (“CJEU”) on July 16, 2020, the CJEU, among
other things, imposed additional obligations on companies when relying on the SCCs. We and our customers may face EEA regulators applying different standards
to certain data transfers or requiring additional steps in connection with data transfers, and may be required to engage in new contract negotiations with third
parties that aid in processing data on our behalf. We may be unsuccessful in maintaining legitimate means for our transfer and receipt of personal data from the
EEA, and may 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 sentiment in the EEA regarding international data transfers and 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 steps with respect to data handling
and data transfers, including means to provide for local data processing, which may involve substantial expense and may require us 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 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. These and the other risks described
above could result in harm to our business, operating results and financial condition. 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
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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 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 and services, in some cases, are 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 software and services to certain countries and end-users for certain 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 in many cases prohibit the export of software and services 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 information available on the users of these offerings is, in some cases, limited. 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.
In addition, various countries regulate the export and import of certain encryption software and technology, including through import permit and license
requirements, and have enacted laws that could limit our ability to distribute our products and services 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 and services 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 and services to certain countries, governments or persons altogether. The following developments could result
in decreased use of our products and services by, or in our decreased ability to export or sell our products to, existing or potential end-customers with international
operations: 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. Any decreased use of our products or services or limitation on our ability to export to or sell our products or services in international markets could
adversely affect our business, financial condition and operating results.
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
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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.
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 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:
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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 gain or 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;
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.
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We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which would cause our stock
price to decline.
We have provided and may continue to provide guidance and other expectations in our quarterly and annual earnings conference calls, quarterly and
annual earnings releases, or otherwise, regarding our future performance. Guidance, as well as other expectations, are forward-looking and represent our
management’s estimates as of the date of release and are based upon a number of assumptions and estimates that, while presented with numerical specificity, are
inherently subject to significant business, economic and competitive uncertainties and contingencies on our business, many of which are beyond our control and
are based upon specific assumptions with respect to future business decisions, some of which will change. One of those key assumptions relates to the impact of
the ongoing COVID-19 pandemic and the associated economic uncertainty on our business, which is inherently difficult to predict. Furthermore, analysts and
investors may develop and publish their own projections of our business, which may form a consensus about our future performance. Our actual business results
may vary significantly from such guidance or other expectations or that consensus due to a number of factors, many of which are outside of our control, including
due to the global economic uncertainty and financial market conditions caused by the ongoing COVID-19 pandemic, and which could adversely affect our business
and future operating results. There are no comparable recent events that provide insights as to the probable effect of the ongoing COVID-19 pandemic, and, as a
result, the ultimate impact of the COVID-19 outbreak is highly uncertain and subject to change. Furthermore, if we make downward revisions of our previously
announced guidance or other expectations, if we withdraw our previously announced guidance or other expectations, or if our publicly announced guidance or
other expectations of future operating results fail to meet expectations of securities analysts, investors or other interested parties, the price of our ordinary shares
would decline. In light of the foregoing, investors are urged not to rely upon our guidance or other expectations in making an investment decision regarding our
ordinary shares.
Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this “Risk Factors”
section in this report could result in the actual operating results being different from our guidance or other expectations, and the differences may be adverse and
material.
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 20.7% of our ordinary shares outstanding as of April 30, 2021. 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 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.
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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 18,138,691 ordinary shares, based on shares outstanding as of April 30, 2021, 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 filed registration statements on Form S-8 under the Securities Act registering 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:
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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.
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
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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.
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, two
members 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 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. persons who hold 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 (“the PFIC asset test”). 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. person (as defined in Section 7701(a)(30) of the Internal Revenue Code of 1986, as
amended) holds our ordinary shares, such U.S. person may be subject to adverse tax consequences. Each U.S. person who holds our ordinary shares is strongly
urged to consult his, her or its tax advisor regarding the application of these rules and the availability of any potential elections.
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If a U.S. person is treated as owning at least 10% of our ordinary shares, such U.S. person may be subject to adverse U.S. federal income tax consequences.
If a U.S. person is treated as owning (directly, indirectly, or constructively) at least 10% of the total combined voting power of our shares, or of the total
value of our shares, such shareholder 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 legislation commonly referred to as the Tax Cuts and Jobs Act of 2017, 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 we or 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
shareholder who is a United States shareholder to significant monetary penalties and may prevent from starting the statute of limitations with respect to such
shareholder’s U.S. federal income tax return for the year for which reporting was due. A U.S. person 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, and dividends distributed on our
ordinary shares to certain related parties in low-tax jurisdictions might in the future become subject to an additional Dutch withholding tax.
We have not paid a dividend on our ordinary shares in the past and we do not intend to pay any dividends to holders of our ordinary shares in the
foreseeable future. See “Risk Factors—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.” However, if we ever do pay dividends or repurchase shares, then under current Dutch tax law, the
dividend paid or repurchase price paid may be subject to Dutch dividend withholding tax at a rate of 15% under the Dutch Dividend Withholding Tax Act (Wet op
de dividendbelasting 1965, “Regular Dividend Withholding Tax”), unless a domestic or treaty exemption applies.
On March 25, 2021, the Dutch State Secretary of Finance submitted a proposal of law to the Dutch parliament pursuant to which an alternative
withholding tax (“Alternative Withholding Tax”) will be imposed on dividends paid to related entities in designated low-tax jurisdictions, effective 1 January 2024.
An entity is considered related if (i) it has a “Qualifying Interest” in our company, (ii) our company has a “Qualifying Interest” in the entity holding the ordinary
shares, or (iii) a third party has a "Qualifying Interest" in both our company and the entity holding the ordinary shares. The term “Qualifying Interest” means a
direct or indirectly held interest either by an entity individually or jointly if an entity is part of a collaborating group (samenwerkende groep) that enables such
entity or such collaborating group to exercise a definite influence over another entities' decisions, such as our company or an entity holding ordinary shares as the
case may be, and allows it to determine the other entities' activities. The Alternative Withholding Tax will be imposed at the highest Dutch corporate income tax
rate in effect at the time of the distribution (currently 25%). The Alternative Withholding Tax will be reduced, but not below zero, with any Regular Dividend
Withholding Tax imposed on distributions. As such, based on currently applicable rates, the overall effective rate of withholding of Regular Dividend Withholding
Tax and Alternative Withholding Tax will not exceed the highest corporate income tax rate in effect at the time of the distribution (currently 25%). The proposal of
law is subject to amendment during the course of the legislative process and it needs to be approved by both chambers of the Dutch parliament before it can enter
into force.
If we cease to be a Dutch tax resident for the purposes of a tax treaty concluded by the Netherlands and in certain other events, we could potentially be subject
to a proposed Dutch dividend withholding tax in respect of a deemed distribution of our entire market value less paid-up capital.
Under a proposal of law currently pending before the Dutch parliament, the Emergency act conditional dividend exit tax (Spoedwet conditionele
eindafrekening dividendbelasting “Dividend Exit Tax”), we will be deemed to have distributed an amount equal to our entire market capitalization less recognized
paid-up capital immediately before the occurrence of certain events, including if we cease to be a Dutch tax resident for purposes of a tax treaty concluded by the
Netherlands and become, for purposes of such tax treaty, a tax resident of a non-qualifying jurisdiction. This deemed distribution will be subject to a 15% tax. An
automatic interest free unconditional indefinite extension for the full amount of the tax will be granted. However, the extension will expire, inter alia, if and to the
extent we make distributions after the taxable event for the purposes of the Dividend Exit Tax (in respect of which the extension is granted). In that event, the
Dividend Exit Tax rules prescribe that we
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will have a right to recover the tax from our shareholders through set-off against their dividend receivable. If we do not recover this amount from our shareholders,
we will have to pay such part of the deferred tax ourselves. It is not certain whether the Dividend Exit Tax will be enacted and if so, in what form. If enacted in its
present form before the Dutch parliament the Dividend Exit Tax will have retroactive effect from September 18, 2020.
General Risk Factors
Unfavorable or uncertain conditions in our industry or the global economy or reductions in information technology spending, including as a result of the
COVID-19 pandemic, 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 instability or unrest and new developments resulting from recent elections and changes of administration, 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 has curtailed business spending by our customers, resulted in business disruptions for us and/or our customers, restricted travel to customer sites and
resulted 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. Further, these measures by government authorities may continue to remain in place for a significant
period of time or, even if lifted, could be reinstated at any time, and additional and/or extended measures could significantly impact the ability of our employees
and customers and vendors to work productively.
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 may acquire other businesses which could require significant management attention, disrupt our business, or 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
affect our results of operations and liquidity. The occurrence of any of these risks could harm our business, results of operations, and financial condition.
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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. The impact of climate change may increase these risks due to changes in weather patterns, such as increases in storm intensity,
sea-level rise, melting of permafrost and temperature extremes in areas where we or our suppliers and customers conduct business. We have a number of our
employees and executive officers located in the San Francisco Bay Area, a region known for seismic activity and wildfires. 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, acts of war, 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 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.”
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.
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, which could adversely affect our business.
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 and could adversely affect our business.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain senior
management and 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.
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
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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.
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.
These factors could also make it more difficult for us to attract and retain qualified senior management or members of our board of directors, particularly to serve
on our audit and compensation committees.
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 decline, which could adversely affect our business.
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. 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 could also 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, which could adversely affect our business.
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.
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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.
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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 21, 2021 there were 95 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.
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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 any 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.
Part II, Item 6 is no longer required as the Company has elected to early adopt the changes to Item 301 of Regulation S-K contained in SEC Release No.
33-10890.
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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 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.
This section of our Annual Report on Form 10-K discusses our financial condition and results of operations for the years ended April 30, 2021 and 2020
and year-to-year comparisons between the years ended April 30, 2021 and 2020. A discussion of our financial condition and results of operations for the year
ended April 30, 2019 and year-to-year comparisons between years ended April 30, 2020 and 2019 that is not included in this Annual Report on Form 10-K can be
found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the
year ended April 30, 2020, filed with the SEC on June 26, 2020, and is incorporated by reference herein.
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 use cases. Our primary offering is the Elastic Stack, a powerful set of software products that ingest and store data from any source, and in any format, and
perform search, analysis, and visualization in milliseconds or less. The Elastic Stack is designed for direct use by developers to power a variety of use cases. We
also offer three software solutions – Enterprise Search, Observability, and Security – built on the Elastic Stack. Our solutions are designed to be deployed
everywhere: in public or private clouds, in hybrid environments, or in traditional on-premises environments. Our products are used by individual developers and
organizations of all sizes across a wide range of industries.
Elasticsearch is the heart of the Elastic Stack. It is a distributed, real-time search and analytics engine and datastore for exploring all types of data
including textual, numerical, geospatial, structured, and unstructured. The first public release of Elasticsearch was in 2010 by our co-founder Shay Banon as an
open source project. The Company was formed in 2012. Since then, we have added new products, released new features, acquired companies, and created new
solutions to expand the functionality of our products.
Our business model is based on a combination of free and paid proprietary software. We market and distribute the Elastic Stack and our solutions using a
free and open distribution strategy. Developers are able to download our software directly from our website. Some features of our software can be downloaded and
used free of charge. Others are only available through paid subscriptions, which include access to specific proprietary features and also include support. These paid
features can be unlocked without the need to re-deploy the software. There is no free subscription tier in our cloud offerings, where all subscriptions are paid.
In February 2021, with the release of version 7.11 of the Elastic Stack, we changed the way we license Elasticsearch and Kibana, the visualization layer
for data stored in Elasticsearch. We moved the source code that had historically been licensed under the Apache License, Version 2.0 open source license (“Apache
2.0”), to be dual licensed under ELv2, our proprietary source available license, and SSPL, at the user’s election. ELv2 is a permissive source available license,
allowing free use, modification, creation of derivative works, and redistribution, while providing protection from cloud service providers who offer these products
as a service without collaborating with us. SSPL is a source available license that provides many of the freedoms of an open source license, but with certain
restrictions. This source code license change had no effect on our customers or the vast majority of our users.
We believe that our free and open distribution strategy drives a number of benefits for our users, our customers, and our company. It facilitates rapid and
efficient developer adoption, particularly by empowering individual developers to download and use our software without payment, registration, or the friction of a
formal sales interaction. It fosters a vibrant developer community around our products and solutions, which drives adoption of our products and increased
interaction among users. Further, this approach enables community review of our code and products, which allows us to improve the reliability and security of our
software.
We generate revenue primarily from sales of subscriptions for our software. We offer various paid subscription tiers that provide different levels of rights
to use proprietary features and access to support. We do not sell support separately. Our subscription agreements for self-managed and Elastic Cloud deployments
typically have terms of one to three years and we usually bill for them annually in advance. Elastic Cloud customers may also purchase subscriptions on a month-
to-month basis without a commitment, with usage billed at the end of each month. Subscriptions accounted for 93%, 92% and 91% of total
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revenue in the years ended April 30, 2021, 2020, and 2019, respectively. We also generate revenue from consulting and training services.
We had over 15,000 customers, over 11,300 customers and over 8,100 customers as of April 30, 2021, 2020, and 2019, respectively. We define a
customer as an entity that generated revenue in the quarter ending on the measurement date from an annual or month-to-month subscription. Affiliated entities are
typically counted as a single customer. The annual contract value (“ACV”) of a customer’s commitments is calculated based on the terms of that customer’s
subscriptions, and represents the total committed annual subscription amount as of the measurement date. Month-to-month subscriptions are not included in the
calculation of ACV. The number of customers who represented greater than $100,000 in ACV was over 730, over 610, and over 440 as of April 30, 2021, 2020
and 2019, respectively.
We engage in various sales and marketing efforts to extend our free and open distribution model. We employ multi-touch marketing campaigns to nurture
our users and customers and keep them engaged after they download our software. Additionally, we maintain direct sales efforts focused on users and customers
who have adopted our software, as well as departmental decision-makers and senior executives who have broad purchasing power in their organizations. Our sales
teams are primarily segmented by geographies and secondarily by the employee count of our customers. They focus on both initial conversion of users into
customers and additional sales to existing customers. In addition to our direct sales efforts, we also maintain partnerships to further extend our reach and awareness
of our products around the world.
We continue to make substantial investments in developing the Elastic Stack and our solutions and expanding our global sales and marketing footprint.
With a distributed team spanning over 35 countries, we are able to recruit, hire, and retain high-quality, experienced technical and sales personnel and operate at a
rapid pace to drive product releases, fix bugs, and create and market new products. We had 2,179 employees as of April 30, 2021.
We have experienced significant growth, with revenue increasing to $608.5 million in the year ended April 30, 2021 from $427.6 million in the year
ended April 30, 2020 and $271.7 million in the year ended April 30, 2019, representing year-over-year growth of 42% for the year ended April 30, 2021 and 57%
for the year ended April 30, 2020. In the year ended April 30, 2021, revenue from outside the United States accounted for 45% of our total revenue. For our non-
U.S. operations, the majority of our revenue and expenses are denominated in currencies such as the Euro and British pound. No customer represented more than
10% of our total revenue in the years ended April 30, 2021, 2020, and 2019. We have not been profitable to date. In the years ended April 30, 2021, 2020 and
2019, we incurred net losses of $129.4 million, $167.2 million and $102.3 million, respectively. Our net cash provided by operating activities was $22.5 million in
the year ended April 30, 2021 and cash used in operating activities in the years ended April 30, 2020 and 2019 was $30.6 million and $23.9 million, respectively.
We have experienced losses in each year since our incorporation and as of April 30, 2021, had an accumulated deficit of $613.3 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. Efforts to control its spread have significantly curtailed the movement of
people, goods and services worldwide, including in most or all of the regions in which we sell our products and services and conduct our business operations,
negatively impacting worldwide economic activity. The ongoing impact of the COVID-19 pandemic on our operational and financial performance will depend on
certain developments, including the duration and spread of the virus, success of preventative measures to contain or mitigate the spread of the virus and emerging
variants, effectiveness, distribution and acceptance of COVID-19 vaccines, impact on our customers and our sales cycles, impact on our customer, employee or
industry events, effect on our vendors, and the uneven impact of the COVID-19 pandemic to certain industries, all of which continue to remain uncertain and
cannot be predicted.
The continuing COVID-19 pandemic has resulted in a global slowdown of economic activity and its impact has varied significantly across different
industries with certain industries experiencing increased demand for their products and services, while others have struggled to maintain demand for their products
and services consistent with historical levels. There have been delays in purchasing decisions from existing and prospective customers, longer sales cycles, delayed
implementation of professional services, reduced renewals of subscriptions by existing customers, and changes in approaches to creating sales pipeline in the
absence of in-person marketing events, resulting in headwinds for calculated billings and our Net Expansion Rate.
Notwithstanding the potential and actual adverse impacts described above, as the pandemic has caused more of our customers to shift to a virtual
workforce or accelerate their digital transformation efforts, we believe the value of our solutions is becoming even more evident. In addition, we have benefited
from lower spending on travel due to COVID-19 travel restrictions and from holding events virtually, and we expect lower travel costs to continue in the near-
term.
In response to the COVID-19 pandemic and in an effort to focus on maintaining business continuity and preparing for the future and long-term success of
our business, we have taken precautionary measures intended to help minimize the risk of
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the virus to our employees, our customers, and the communities in which we operate, including modifying our business practices, such as suspending employee
travel, adapting employee work locations, and holding events and trainings virtually. Further, we also temporarily reduced the pace of our investments in our
business in response to the COVID-19 pandemic in the first quarter of fiscal 2021, but began to gradually increase our investments in our business since then. We
intend to continue to increase the pace of our investments in the business in fiscal 2022. We continue to monitor the major impacts of the COVID-19 pandemic and
make changes in our business as appropriate, in response to such impacts. See “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K for a
discussion of additional risks.
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 access to source available software, on both a free and paid basis, and fostering a
community of users and developers. Our strategy is designed to pursue what we believe to be significant untapped potential for the use of our technology. After
developers begin to use our software and start to participate in our developer community, they become more likely to apply our technology to additional use cases
and evangelize our technology within their organizations. This reduces the time required for our sales force to educate potential leads on our solutions. In order to
capitalize on our opportunity, we intend to make further investments to keep the Elastic Stack accessible and well known to software developers around the world.
We intend to continue to invest in our products and support and engage our user base and developer community through content, events, and conferences in the
U.S. and internationally. Our results of operations may fluctuate as we make these investments.
Developing new features for the Elastic Stack. The Elastic Stack is applied to various use cases by customers, including through the solutions we offer.
Our revenue is derived primarily from subscriptions of Enterprise Search, Observability and Security built into the Elastic Stack. We believe that releasing
additional features of the Elastic Stack, including our solutions, 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 the Elastic Stack. These investments may adversely affect our operating results prior to
generating benefits, to the extent that they ultimately generate benefits at all.
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 was slightly below 130% at the end of fiscal 2021.
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.
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Increasing adoption of Elastic Cloud. Elastic Cloud, our family of SaaS products that includes Elasticsearch Service and Site Search Service, is an
important growth opportunity for our business. Organizations are increasingly looking for SaaS deployment alternatives with reduced administrative burdens. In
some cases, users of our source available software that have been self-managing deployments of the Elastic Stack subsequently become paying subscribers of
Elastic Cloud. In the years ended April 30, 2021, 2020 and 2019, Elastic Cloud contributed 27%, 22% and 17% of our total revenue, respectively. We believe that
offering a SaaS deployment alternative is important for achieving our long-term growth potential, and we expect Elastic Cloud’s contribution to our subscription
revenue to increase over time. However, an increase in the relative contribution of Elastic Cloud to our business could adversely impact our gross margin as a
result of the associated hosting costs.
Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. GAAP, we believe the following non-GAAP measures are useful in evaluating our operating
performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We
believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past
financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool
and should not be considered in isolation or as a substitute for financial information presented in accordance with U.S. 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.
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
$
$
2021
Year Ended April 30,
2020
(in thousands)
447,435
11,929
1,335
8,437
469,136
$
$
74 %
77 %
304,930
7,127
527
6,768
319,352
$
$
71 %
75 %
2019
193,643
4,591
38
2,808
201,080
71 %
74 %
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.
53
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
$
$
2021
(129,478)
93,680
14,376
14,167
—
(7,255)
(21)%
(1)%
Year Ended April 30,
2020
(in thousands)
$
$
(171,105)
60,007
7,493
10,068
17,974
(75,563)
$
$
(40)%
(18)%
2019
(101,356)
39,942
1,814
2,956
948
(55,696)
(37)%
(21)%
Free cash flow is a non-GAAP financial measure that we define as net cash provided by (used in) operating activities less purchases of property and
equipment and capitalized internal-use software costs. Free cash flow margin is calculated as free cash flow divided by total revenue. We believe that free cash
flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from
our core operations that, after the purchases of property and equipment, can be used for strategic initiatives, including investing in our business and selectively
pursuing acquisitions and strategic investments. We further believe that historical and future trends in free cash flow and free cash flow margin, even if negative,
provide useful information about the amount of net cash provided by (used in) operating activities that is available (or not available) to be used for strategic
initiatives. For example, if free cash flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. One
limitation of free cash flow and free cash flow margin is that they do not reflect our future contractual commitments. Additionally, free cash flow does not
represent the total increase or decrease in our cash balance for a given period.
The following table presents our cash flows for the periods presented and a reconciliation of free cash flow and free cash flow margin to net cash provided
by (used in) operating activities, the most directly comparable financial measure calculated in accordance with GAAP:
Net cash provided by (used in) operating activities
Less: Purchases of property and equipment
Less: Capitalization of internal-use software
Free cash flow
Net cash used in 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)
Less: Capitalization of internal-use software (as a percentage of total revenue)
Free cash flow margin
Calculated Billings
$
$
$
$
2021
22,545
(3,912)
(317)
18,316
(1,518)
77,258
4 %
(1)%
— %
3 %
$
Year Ended April 30,
2020
(in thousands)
(30,564)
(5,063)
—
(35,627)
$
$
$
(29,187)
58,539
(7)%
(1)%
— %
(8)%
$
$
$
$
2019
(23,937)
(3,447)
—
(27,384)
(8,283)
281,788
(9)%
(1)%
— %
(10)%
We define calculated billings as total revenue plus the increase in total deferred revenue as presented on or derived from our consolidated statements of
cash flows less the (increase) decrease in total unbilled accounts receivable in a given period. Calculated billings exclude deferred revenue and unbilled accounts
receivable acquired through acquisitions in the period of the acquisition. We typically invoice our customers annually in advance, and to a lesser extent multi-year
in advance, quarterly in advance, monthly in advance, monthly in arrears or upon delivery. Our management uses calculated billings to understand and evaluate our
near-term cash flows and operating results. The following table presents our calculated billings for the periods presented and a reconciliation of calculated billings
to total revenue, the most directly comparable financial measure calculated in accordance with GAAP:
54
Total revenue
Add: Increase in total deferred revenue
Less: Increase in unbilled accounts receivable
Calculated billings
2021
Year Ended April 30,
2020
(in thousands)
608,489 $
115,937
(2,582)
721,844 $
427,620 $
85,670
(592)
512,698 $
$
$
2019
271,653
71,876
(571)
342,958
Components of Results of Operations
Revenue
Subscription. Our revenue is primarily generated through the sale of subscriptions to software, which is either self-managed by the user or hosted and
managed by us in the cloud. Subscriptions provide the right to use paid proprietary software features and access to support for our paid and unpaid software.
A portion of the revenue from self-managed subscriptions is generally recognized up front at the point in time when the license is delivered. This revenue
is presented as License – self-managed in our consolidated statements of operations. The remainder of revenue from self-managed subscriptions is recognized
ratably over the subscription term while revenue from subscriptions that require access to the cloud or that are hosted and managed by us or by a partner on our
behalf in the cloud is recognized ratably over the subscription term or on a usage basis; both are presented within Subscription – self-managed and SaaS in our
consolidated statements of operations.
Professional services. Professional services is composed of consulting services as well as public and private training. Consulting services are generally
time-based arrangements. Revenue for professional services is recognized as these services are performed.
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 continue to increase as a percentage of total revenue, which we expect will adversely impact our gross margin as a result of the associated hosting costs.
Operating Expenses
Research and development. Research and development expense mainly 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 mainly 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
55
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 mainly 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, Net
Other income, net primarily consists of gains and losses from transactions denominated in a currency other than the functional currency, interest income
and interest expense.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes consists primarily of income taxes related to the Netherlands, U.S. federal, state and foreign jurisdictions in
which we conduct business. Our effective tax rate is affected by recurring items, such as tax rates in jurisdictions outside the Netherlands and the relative amounts
of income we earn in those jurisdictions, and non-deductible stock-based compensation.
The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our total revenue. The period to period
comparison of results is not necessarily indicative of results for future periods.
Results 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
(1)(2)(3)(4)
Operating loss
Other income (expense), net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss
2021
Year Ended April 30,
2020
(in thousands)
2019
$
$
67,994 $
499,345
567,339
41,150
608,489
1,386
121,127
122,513
38,541
161,054
447,435
199,203
273,877
103,833
576,913
(129,478)
7,764
(121,714)
7,720
(129,434) $
53,536 $
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
(171,105)
1,963
(169,142)
(1,968)
(167,174) $
39,474
208,780
248,254
23,399
271,653
387
53,560
53,947
24,063
78,010
193,643
101,167
147,296
46,536
294,999
(101,356)
3,441
(97,915)
4,388
(102,303)
56
(1)
Includes stock-based compensation expense as follows:
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
(2)
Includes employer payroll taxes on employee stock transactions as follows:
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
57
2021
Year Ended April 30,
2020
(in thousands)
2019
7,105 $
4,824
35,267
31,581
14,903
93,680 $
4,147 $
2,980
23,621
19,334
9,925
60,007 $
3,383
1,208
16,100
11,996
7,255
39,942
2021
Year Ended April 30,
2020
(in thousands)
2019
674 $
661
3,670
5,399
3,972
14,376 $
349 $
178
2,179
3,237
1,550
7,493 $
28
10
939
747
90
1,814
2021
Year Ended April 30,
2020
(in thousands)
2019
1,386 $
7,051
5,730
14,167 $
948 $
5,820
3,300
10,068 $
387
2,421
148
2,956
2021
Year Ended April 30,
2020
(in thousands)
2019
— $
—
—
— $
34 $
522
17,418
17,974 $
689
—
259
948
$
$
$
$
$
$
$
$
The following table sets forth selected consolidated statements of operations data for each of the periods indicated as a percentage of total revenue:
2021
Year Ended April 30,
2020
2019
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
Comparison of Fiscal Years Ended April 30, 2021 and 2020
Revenue
Revenue
License - self-managed
Subscription - self-managed and SaaS
Total subscription revenue
Professional services
Total revenue
11 %
82 %
93 %
7 %
100 %
0 %
20 %
20 %
6 %
26 %
74 %
33 %
45 %
17 %
95 %
(21)%
1 %
(20)%
1 %
(21)%
13 %
79 %
92 %
8 %
100 %
0 %
20 %
20 %
9 %
29 %
71 %
39 %
51 %
21 %
111 %
(40)%
0 %
(40)%
(1)%
(39)%
Year Ended April 30,
2021
2020
Change
$
%
(in thousands)
$
$
67,994 $
499,345
567,339
41,150
608,489 $
53,536 $
338,634
392,170
35,450
427,620 $
14,458
160,711
175,169
5,700
180,869
14 %
77 %
91 %
9 %
100 %
0 %
20 %
20 %
9 %
29 %
71 %
37 %
54 %
17 %
108 %
(37)%
1 %
(36)%
2 %
(38)%
27 %
47 %
45 %
16 %
42 %
Total subscription revenue increased $175.2 million, or 45%, in the year ended April 30, 2021 compared to the prior year. The increase in revenue was
primarily caused by volume-driven increases from new business, as existing customers purchased additional subscriptions, and we grew our subscription customer
base to over 15,000 customers in the year ended April 30, 2021 compared to over 11,300 customers in the prior year.
Professional services revenue increased by $5.7 million, or 16%, in the year ended April 30, 2021 compared to the prior year. The increase in professional
services revenue was attributable to increased adoption of our professional services consulting offerings.
58
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
2021
2020
$
%
$
$
$
1,386
121,127
122,513
38,541
161,054
447,435
$
$
$
(in thousands)
948
84,819
85,767
36,923
122,690
304,930
$
$
$
438
36,308
36,746
1,618
38,364
142,505
46 %
43 %
43 %
4 %
31 %
47 %
98 %
76 %
78 %
6 %
74 %
98 %
75 %
78 %
(4)%
71 %
Total cost of subscription revenue increased by $36.7 million, or 43%, in the year ended April 30, 2021 compared to the prior year. This increase was
primarily due to an increase of $26.2 million in cloud infrastructure costs and an increase of $8.1 million in personnel and related charges from growth in
headcount in our support organization. In addition, amortization of acquired intangible assets increased $1.2 million. These increases were partially offset by a
decrease of $1.7 million in travel expenses due to COVID-19 related travel restrictions. The increase in personnel and related costs includes an increase of
$4.3 million in salaries and related taxes and an increase of $3.0 million in stock-based compensation expense. Total subscription margin remained flat at 78% in
the year ended April 30, 2021 compared to the prior year.
Cost of professional services revenue increased by $1.6 million, or 4%, in the year ended April 30, 2021 compared to the prior year. This increase was
primarily due to an increase of $5.9 million in personnel and related costs, including increases of $3.8 million in salaries and related taxes and $1.8 million in
stock-based compensation driven by an increase in headcount in our consulting and training organizations. In addition, subcontractor costs increased $0.5 million.
These increases were partially offset by a decrease of $3.4 million in travel expenses and a decrease of $1.3 million in training facility costs due to COVID-19
related restrictions.
Gross margin for professional services revenue was 6% in the year ended April 30, 2021 compared to (4)% for the prior year. The increase in margin is
primarily due to the increase in revenue, and a lower than proportionate increase in cost of professional services. The cost of professional services remained
relatively flat due to a decrease in travel related costs as we shifted to virtual delivery of professional services in light of travel restrictions due to COVID-19. In
recent periods, we have invested in headcount for our professional services organization that we believe will be needed as we continue to grow and expect travel
related costs will increase in the future once travel restrictions lift. Our gross margin for professional services may fluctuate, decline or be negative in the near-term
as we seek to expand our professional services business.
Operating Expenses
Research and development
Year Ended April 30,
2021
2020
Change
$
%
(in thousands)
Research and development
$
199,203 $
165,370 $
33,833
20 %
Research and development expense increased by $33.8 million, or 20%, in the year ended April 30, 2021 compared to the prior year as we continued to
invest in the development of new and existing offerings. Personnel and related costs increased by $35.0 million, and software and equipment expense increased by
$2.9 million, primarily as a result of growth in headcount. In addition, cloud infrastructure costs related to our research and development activities increased
$1.8 million. These increases were partially offset by a decrease in travel expenses of $7.6 million due to COVID-19 travel restrictions and holding events
virtually. The increase in personnel and related costs includes an increase of $21.1 million in salaries and related taxes, an increase of $11.6 million in stock-based
compensation expense and an increase of $2.4 million in employee benefits expense.
59
Sales and marketing
Year Ended April 30,
2021
2020
(in thousands)
Change
$
%
Sales and marketing
$
273,877 $
219,040 $
54,837
25 %
Sales and marketing expense increased by $54.8 million, or 25%, in the year ended April 30, 2021 compared to the prior year. This increase was primarily
due to an increase of $53.8 million in personnel related costs and a $1.1 million increase in software and equipment charges as we continued to increase our sales
and marketing headcount. In addition, marketing expenses increased by $7.6 million and amortization of intangible assets increased by $2.4 million. These
increases were partially offset by a decrease of $13.3 million in travel expenses due to COVID-19 travel restrictions and holding events virtually. The increase in
personnel and related costs includes an increase of $26.3 million in salaries and related taxes, an increase of $12.2 million in stock-based compensation expense, an
increase of $11.6 million in commissions expense related to the amortization of contract acquisition costs and an increase of $3.3 million in employee benefits
expense.
General and administrative
Year Ended April 30,
2021
2020
(in thousands)
Change
$
%
General and administrative
$
103,833 $
91,625 $
12,208
13 %
General and administrative expense increased by $12.2 million, or 13%, in the year ended April 30, 2021 compared to the prior year. This increase was
primarily due to an increase of $3.3 million in personnel related costs and a $0.6 million increase in software and equipment charges as we continued to increase
our general and administrative headcount. In addition, bad debt expense related to expected credit losses on accounts receivable and write-off of uncollectible
balances increased by $4.2 million, consulting expense increased by $1.8 million and insurance, business taxes, and charitable donations increased by $2.6 million.
These increases were largely offset by a decrease of $1.6 million in travel expenses due to COVID-19 travel restrictions. The increase in personnel and related
costs includes an increase of $9.5 million in salaries and related taxes, an increase of $5.0 million in stock-based compensation expense, an increase of $0.7 million
in employee benefits expense and an increase of $0.5 million in recruiting costs, which were partially offset by a decrease in acquisition related compensation of
$12.5 million.
Other Income, Net
Other income, net
Year Ended April 30,
2021
2020
Change
$
%
$
(in thousands)
7,764 $
1,963 $
5,801
296 %
Other income, net increased by $5.8 million, or 296%, in the year ended April 30, 2021 compared to the prior year. This increase was due to a net
increase in foreign currency gains of $9.9 million related primarily to remeasurement of certain asset and liability balances that are denominated in currencies other
than the functional currency of the entities in which they are recorded. The foreign currency gains were partially offset by a decrease of $4.0 million in interest
income due to lower interest rates.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes
Year Ended April 30,
2021
2020
Change
$
%
$
(in thousands)
7,720 $
(1,968) $
9,688
(492)%
The provision for income taxes was $7.7 million in the year ended April 30, 2021 compared to a benefit from income taxes of $2.0 million in the prior
year. The additional tax expense is primarily due to an increase of $4.6 million in income taxes from foreign subsidiaries. A tax benefit associated with stock-based
compensation of $100.0 million was offset by the provision of a valuation allowance of $100.0 million for deferred tax assets in the United States, the Netherlands,
and the United Kingdom. Our effective tax rate was (6.3)% and 1.2% of our net loss before taxes for the years ended April 30, 2021 and 2020, respectively.
60
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.
April 30, 2021
January 31, 2021 October 31, 2020
July 31, 2020
April 30, 2020
January 31, 2020 October 31, 2019
July 31, 2019
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
(1)(2)(3)(4)
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
$
22,321 $
142,218
164,539
13,071
177,610
347
34,663
35,010
10,797
45,807
131,803
55,437
82,165
31,278
168,880
(37,077)
(660)
(37,737)
5,564
(43,301)
(0.48)
$
$
$
$
15,280
131,969
147,249
9,866
157,115
346
31,426
31,772
10,196
41,968
115,147
51,400
71,087
27,121
149,608
(34,461)
(2,377)
(36,838)
1,136
(37,974)
(0.43)
$
$
$
15,514
118,695
134,209
10,685
144,894
347
29,148
29,495
8,953
38,448
106,446
46,688
64,474
23,705
134,867
(28,421)
(84)
(28,505)
653
(29,158)
(0.34)
$
$
$
$
14,879
106,463
121,342
7,528
128,870
$
16,862
97,041
113,903
9,720
123,623
$
14,495
89,703
104,198
8,983
113,181
$
12,272
79,407
91,679
9,427
101,106
346
25,890
26,236
8,595
34,831
94,039
45,678
56,151
21,729
123,558
(29,519)
10,885
(18,634)
367
(19,001)
(0.23)
$
$
346
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)
(31,151)
(0.38)
$
$
347
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
(44,281)
(0.55)
$
$
158
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)
(49,973)
(0.64)
$
$
9,907
72,483
82,390
7,320
89,710
97
17,895
17,992
8,259
26,251
63,459
35,182
52,011
18,568
105,761
(42,302)
931
(41,371)
398
(41,769)
(0.56)
Weighted-average shares used to compute net loss
per share attributable to ordinary shareholders,
basic and diluted
90,028,822
88,341,038
86,373,166
84,175,287
82,123,381
80,737,237
77,772,406
74,643,782
(1)
Includes stock-based compensation expense as follows:
April 30, 2021
January 31,
2021
October 31,
2020
July 31, 2020
April 30, 2020
January 31,
2020
October 31,
2019
July 31, 2019
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
$
2,040
1,537
10,958
9,062
4,778
$
1,839
1,359
9,516
8,372
4,141
$
1,860
976
7,663
7,955
3,033
$
1,366
952
7,130
6,192
2,951
$
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
$
28,375
$
25,227
$
21,487
$
18,591
$
17,232
$
15,588
$
14,416
$
12,771
61
(2)
Includes employer payroll taxes on employee stock transactions as follows:
April 30, 2021
January 31,
2021
October 31,
2020
July 31, 2020
April 30, 2020
January 31,
2020
October 31,
2019
July 31, 2019
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
$
187
237
968
1,905
643
$
267
322
1,243
1,723
2,130
$
77
25
465
614
462
$
143
77
994
1,157
737
$
28
42
293
421
61
$
21
16
238
335
129
$
166
86
888
1,887
753
134
34
760
594
607
$
3,940 $
5,685
$
1,643
$
3,108
$
845
$
739
$
3,780
$
2,129
(3)
Includes amortization of acquired intangibles as follows:
April 30, 2021
January 31,
2021
October 31,
2020
July 31, 2020
April 30, 2020
January 31,
2020
October 31,
2019
July 31, 2019
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
$
$
347
$
346
$
347
$
346
$
346
$
347
$
158
$
1,762
1,428
1,764
1,428
1,762
1,433
1,763
1,441
1,763
1,441
2,660
1,451
861
379
3,537
$
3,538
$
3,542
$
3,550
$
3,550
$
4,458
$
1,398
$
97
536
29
662
(4)
Includes acquisition-related expenses as follows:
Research and development
Sales and marketing
General and administrative
Total acquisition-related expenses
April 30, 2021
—
$
—
—
—
$
$
January 31, 2021 October 31, 2020
—
$
—
—
—
—
—
—
—
$
$
Three Months Ended
July 31, 2020
—
—
—
—
$
$
April 30, 2020
—
$
14
198
212
$
$
$
January 31,
2020
October 31,
2019
July 31, 2019
—
395
933
1,328
$
$
—
113
13,849
13,962
$
$
34
—
2,438
2,472
62
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, 2021
January 31, 2021
October 31, 2020
July 31, 2020
April 30, 2020
January 31, 2020
October 31, 2019
July 31, 2019
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
(1)(2)(3)(4)
Operating loss
Other income (expense), net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss
13 %
80 %
93 %
7 %
100 %
0 %
20 %
20 %
6 %
26 %
74 %
31 %
46 %
18 %
95 %
(21)%
— %
(21)%
3 %
(24)%
10 %
84 %
94 %
6 %
100 %
0 %
20 %
20 %
7 %
27 %
73 %
33 %
45 %
17 %
95 %
(22) %
(1) %
(23) %
1 %
(24) %
11 %
82 %
93 %
7 %
100 %
0 %
20 %
20 %
7 %
27 %
73 %
32 %
45 %
16 %
93 %
(20) %
0 %
(20) %
0 %
(20) %
11 %
83 %
94 %
6 %
100 %
0 %
20 %
20 %
7 %
27 %
73 %
35 %
44 %
17 %
96 %
(23)%
9 %
(14)%
1 %
(15)%
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)%
(1)
Includes stock-based compensation expense as follows:
April 30, 2021
January 31, 2021 October 31, 2020
July 31, 2020
April 30, 2020
January 31, 2020 October 31, 2019
July 31, 2019
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 %
6 %
5 %
3 %
1 %
1 %
6 %
5 %
3 %
1 %
1 %
5 %
6 %
2 %
1 %
1 %
5 %
5 %
2 %
1 %
1 %
5 %
5 %
2 %
1 %
1 %
5 %
4 %
3 %
1 %
0 %
6 %
5 %
2 %
1 %
1 %
6 %
5 %
2 %
16 %
16 %
15 %
14 %
14 %
14 %
14 %
15 %
63
(2)
Includes employer payroll taxes on employee stock transactions as follows:
April 30, 2021
January 31, 2021
October 31, 2020
July 31, 2020
April 30, 2020
January 31, 2020
October 31, 2019
July 31, 2019
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 %
1 %
1 %
0 %
2 %
0 %
0 %
1 %
1 %
2 %
4 %
0 %
0 %
0 %
1 %
0 %
1 %
0 %
0 %
1 %
1 %
0 %
2 %
0 %
0 %
0 %
1 %
0 %
1 %
0 %
0 %
0 %
1 %
0 %
1 %
0 %
0 %
1 %
2 %
1 %
4 %
0 %
0 %
1 %
1 %
1 %
3 %
(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
April 30, 2021
January 31, 2021
October 31, 2020
July 31, 2020
April 30, 2020
January 31, 2020
October 31, 2019
July 31, 2019
Three Months Ended
0 %
1 %
1 %
2 %
0 %
1 %
1 %
2 %
0 %
1 %
1 %
2 %
0 %
2 %
1 %
3 %
0 %
2 %
1 %
3 %
0 %
3 %
1 %
4 %
0 %
1 %
0 %
1 %
0 %
1 %
0 %
1 %
(4)
Includes acquisition-related expenses as follows:
Research and development
Sales and marketing
General and administrative
Total acquisition-related
expenses
April 30, 2021
0 %
0 %
0 %
January 31, 2021
0 %
0 %
0 %
October 31, 2020
0 %
0 %
0 %
0 %
0 %
0 %
July 31, 2020
0 %
0 %
0 %
0 %
April 30, 2020
0 %
0 %
0 %
January 31, 2020
0 %
0 %
1 %
October 31, 2019
0 %
0 %
14 %
0 %
1 %
14 %
July 31, 2019
0 %
0 %
3 %
3 %
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 increased in the year ended April 30, 2021 due to an increase in our professional services margin, which may fluctuate, decline or
be negative in the near-term as we seek to expand our professional services business.
64
We expect our revenue from Elastic Cloud to continue to increase as a percentage of total revenue, which may adversely impact our gross margin as a result of the
associated hosting costs.
Our operating expenses generally increased sequentially over the periods presented as we grew the associated headcount and other costs.
We are subject to income taxes in the Netherlands, the United States, and numerous other jurisdictions. Our tax expense fluctuates between quarters
primarily as a result of seasonally higher earnings in the second and fourth quarters and due to the impact of tax rates in foreign jurisdictions, and the relative
amounts of income we earn in those jurisdictions.
Liquidity and Capital Resources
As of April 30, 2021, we had cash and cash equivalents and restricted cash of $400.8 million and $2.9 million, respectively, and working capital of
$187.2 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 $613.3 million as of April 30, 2021. We
have historically incurred, and expect to continue to incur, operating losses and may generate negative cash flows from operations on an annual basis for the
foreseeable future due to the investments we intend to make as described above, and as a result, we may require additional capital resources to execute on our
strategic initiatives to grow our business.
We believe that our existing cash and cash equivalents will be sufficient to fund our operating and capital needs for at least the next 12 months, despite
the uncertainty in the changing market and economic conditions related to COVID-19. 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:
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net Cash Provided By (Used in) Operating Activities
2021
Year Ended April 30,
2020
(in thousands)
2019
$
$
$
22,545 $
(1,518) $
77,258 $
(30,564) $
(29,187) $
58,539 $
(23,937)
(8,283)
281,788
Net cash provided by operating activities during the year ended April 30, 2021 was $22.5 million, which resulted from a net loss of $129.4 million
adjusted for non-cash charges of $150.2 million and net cash inflow of $1.8 million from changes in operating assets and liabilities. Non-cash charges primarily
consisted of $93.7 million for stock-based compensation expense, $41.0 million for amortization of deferred contract acquisition costs, $17.2 million of
depreciation and intangible asset amortization expense and $7.9 million in non-cash operating lease costs, which were partially offset by net foreign currency
transaction gains of $9.5 million and $0.1 million of other non-cash transactions. The net cash inflow from changes in operating assets and liabilities was the result
of a $115.9 million increase in deferred revenue due to higher billings and a net increase of $7.2 million in accounts payable, accrued expenses and accrued
compensation and benefits due to growth in our business and higher headcount. These inflows were partially offset by an increase of $24.0 million in accounts
receivable due to higher billings and timing of collections from our customers, an increase in deferred contract acquisition costs of $81.1 million as our sales
commissions increased due to the addition of new customers and expansion of our existing customer subscriptions, an increase of $8.3 million in prepaid and other
assets and a decrease of $7.9 million in operating lease liabilities.
65
Net cash used in operating activities during the year ended April 30, 2020 was $30.6 million, which resulted from a net loss of $167.2 million adjusted for
non-cash charges of $117.0 million and net cash inflow of $19.6 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of
$60.0 million for stock-based compensation expense, $28.3 million for amortization of deferred contract acquisition costs, $12.9 million of depreciation and
intangible asset amortization expense, $8.8 million of non-cash acquisition expense, $7.4 million in non-cash operating lease costs and $1.1 million of other non-
cash transactions which were partially offset by a $1.5 million increase in deferred income taxes. The net cash inflow from changes in operating assets and
liabilities was the result of a $85.7 million increase in deferred revenue due to higher billings and a net increase of $30.9 million in accounts payable, accrued
expenses and accrued compensation and benefits due to growth in our business and higher headcount, and a decrease of $2.7 million in prepaid and other assets.
These inflows were partially offset by a $46.8 million increase in accounts receivable due to higher billings and timing of collections from our customers, an
increase in deferred contract acquisition costs of $46.2 million as our sales commissions increased due to the addition of new customers and expansion of our
existing customer subscriptions and a $6.7 million decrease in operating lease liabilities relating to the adoption of the new lease accounting standard.
Net Cash Used in Investing Activities
Net cash used in investing activities of $1.5 million during the year ended April 30, 2021 was primarily due $3.9 million of capital expenditures and
capitalization of $0.3 million in internal-use software costs during the period, partially offset by cash provided by other investing activities of $2.7 million.
Net cash used in investing activities of $29.2 million during the year ended April 30, 2020 was primarily due to $24.4 million cash used for the
acquisition of Endgame and $5.1 million of capital expenditures during the period.
Net Cash Provided by Financing Activities
Net cash provided by financing activities of $77.3 million during the year ended April 30, 2021 was due to proceeds from option exercises during the
period.
Net cash provided by financing activities of $58.5 million during the year ended April 30, 2020 was due to $61.5 million proceeds from option exercises
during the period, which was partially offset by payment of withholding taxes of $2.8 million for an acquisition-related expense that was settled in ordinary shares
of the Company.
Off Balance Sheet Arrangements
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.
Contractual Obligations and Commitments
Our principal commitments consist of obligations under operating leases for office space and purchase obligations. The following table summarizes our
contractual obligations as of April 30, 2021:
Total
Less than
1 year
1-3 years
(in thousands)
3-5 years
More than
5 years
$
$
348,478 $
31,024
379,502 $
56,346 $
8,981
65,327 $
182,132 $
14,148
196,280 $
110,000 $
7,895
117,895 $
—
—
—
Purchase obligations
Operating lease commitments
(1)
(2)
Total
(1)
(2)
Primarily consists of our purchase obligations under non-cancellable agreements for cloud hosting, subscription software, and sales and marketing. Actual
payments under the cloud hosting capacity commitments may be higher than the total minimum depending on services used.
Consists of future non-cancelable minimum rental payments under operating leases for our offices, excluding rent payments from our sub-tenants and
variable operating expenses.
In addition to the contractual obligations set forth above, as of April 30, 2021, we had $2.1 million in letters of credit outstanding in favor of certain
landlords for office space. These letters of credit renew annually and expire on various dates through 2023.
The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under
contracts that we can cancel without a significant penalty are not included in the table above.
66
Purchase orders issued in the ordinary course of business are not included in the table above, as our purchase orders represent authorizations to purchase rather than
binding agreements.
We have also excluded unrecognized tax benefits from the contractual obligations table above. A variety of factors could affect the timing of payments
for the liabilities related to unrecognized tax benefits. Therefore, we cannot reasonably estimate the timing of such payments. We believe that these matters will
likely not be resolved in the next 12 months and accordingly we have classified the estimated liability as non-current in the consolidated balance sheet. For further
information see Note 13 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
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 payment experience or,
in the case of a new customer, credit, reputation, and financial or other information pertaining to the customer. At contract inception we evaluate whether two or
more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance
obligation. We have concluded that our contracts with customers do not contain warranties that give rise to a separate performance obligation.
(ii) identification of the performance obligations in the contract;
Performance obligations promised in a contract are identified based on the products and services that will be transferred to the customer that are both
capable of being distinct, whereby the customer can benefit from the products or services either on their own or together with other resources that are readily
available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the products and services is separately identifiable
from other promises in the contract.
Our self-managed subscriptions include both license providing the right to use proprietary features in our software, as well as an obligation to provide
support (on both open source and proprietary features) and maintenance. Our SaaS products provide access to hosted software as well as support, which we
consider to be a single performance obligation.
Services-related performance obligations relate to the provision of consulting and training services. These services are distinct from subscriptions and do
not result in significant customization of the software.
(iii) determination of the transaction price;
The transaction price is the total amount of consideration we expect to be entitled to in exchange for the subscriptions and services in a contract. Variable
consideration is included in the transaction price if, in our judgment, it is probable that a
67
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 standalone selling price (“SSP”).
The SSP is determined based on the prices at which we separately sell these products assuming the majority of these fall within a pricing range. In instances where
SSP is not directly observable, such as when we do not sell the software license separately, we derive the SSP using information that may include market
conditions and other observable and unobservable inputs which can require significant judgment. 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. If one of the
performance obligations is outside of the SSP range, we allocate the transaction price considering the midpoint of the SSP 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 a relative SSP.
(v) recognition of revenue when we satisfy each performance obligation.
Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised product or service to the customer. Our self-
managed subscriptions include both upfront revenue recognition when the license is delivered, as well as revenue recognized ratably over the contract period for
support and maintenance based on the stand-ready nature of these subscription elements. Revenue from our SaaS products is recognized ratably over the contract
period as we satisfy the performance obligation.
Professional services comprise consulting services as well as public and private training. Consulting services are generally time-based arrangements.
Revenue from professional services is recognized as these services are performed.
We generate sales directly through our sales team and through our channel partners. Sales to channel partners are made at a discount and revenues are
recorded at this discounted price once all the revenue recognition criteria above are met. To the extent that we offer rebates, incentives, or joint marketing funds to
such channel partners, recorded revenues are reduced by this amount. Channel partners generally receive an order from an end-customer prior to placing an order
with us. Payment from channel partners is not contingent on the partner’s collection from end-customers.
Contract Balances
The timing of revenue recognition may differ from the timing of invoicing to customers. For annual contracts, we typically invoice customers at the time
of entering into the contract. For multi-year agreements, we generally invoice customers on an annual basis prior to each anniversary of the contract start date. We
record unbilled accounts receivable related to revenue recognized in excess of amounts invoiced as we have an unconditional right to invoice and receive payment
in the future related to those fulfilled obligations. Contract liabilities consist of deferred revenue which is recognized over the contractual period.
Deferred Contract Acquisition Costs
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. 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.
68
We did not recognize any impairment of deferred contract acquisition costs during the years ended April 30, 2021, 2020 and 2019.
Stock-Based Compensation Expense
Compensation expense related to stock-based awards granted to employees is calculated based on the fair value of such awards on the date of grant. We
determine the grant date fair value of the awards using the Black-Scholes option-pricing model. The related stock-based compensation expense is recognized on a
straight-line basis over the period in which an employee is required to provide service in exchange for the stock-based award, which is generally four years.
Our use of the Black-Scholes option pricing model requires the input of highly subjective assumptions, including the fair value of the underlying ordinary
shares, the expected term of the option, the expected volatility of the price of our ordinary shares, risk-free interest rates and the expected dividend yield of our
ordinary shares. The assumptions used to determine the fair value of the awards represent management’s best estimates. These estimates involve inherent
uncertainties and the application of management’s judgment.
These assumptions and estimates are as follows:
•
•
•
•
•
Fair value of ordinary shares. See “Ordinary Share Valuations” below.
Expected term. The expected term represents the period that our stock-based awards are expected to be outstanding. The expected term assumptions
were determined based on the vesting terms, exercise terms and contractual lives of the options. For option grants that are considered “plain vanilla,”
the expected term was estimated using the simplified method. The simplified method calculates the expected term as the midpoint between the
vesting date and the contractual expiration date of the award.
Expected volatility. Since we have a limited trading history of our ordinary shares, the expected volatility is derived from the average historical stock
volatilities of several unrelated public companies within our industry that we consider to be comparable to its own business over a period equivalent
to the option’s expected term.
Risk-free interest rate. We base the risk-free interest rate used in the Black-Scholes option pricing model on the implied yield available on U.S.
Treasury zero-coupon issues with a remaining term equivalent to that of the options for each expected term.
Dividend yield. The expected dividend assumption is based on our current expectations about our anticipated dividend policy. As we have no history
of paying any dividends, we used an expected dividend yield of zero.
The following table summarizes the assumptions used in the Black-Scholes option pricing model to determine the fair value of our stock options granted
and assumed:
Expected term (in years)
Expected stock price volatility
Risk-free interest rate
Dividend yield
2021
6.02 - 6.08
62.6% - 63.9%
0.4% - 1.1%
0%
Year Ended April 30,
2020
2.00 - 7.27
54.8%
1.4% - 2.0%
0%
2019
6.02 - 6.08
40.5% - 46.7%
2.4% - 3.1%
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
69
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. 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.
70
Acquisitions, Goodwill and Intangible Assets
We allocate the fair value of purchase consideration in a business combination to tangible assets, liabilities assumed and intangible assets acquired based
on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is allocated to
goodwill. The allocation of the purchase consideration requires management to make significant estimates and assumptions, especially with respect to intangible
assets. These estimates can include, but are not limited to, future expected cash flows from acquired customers and acquired technology from a market participant
perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable but which are inherently
uncertain and unpredictable, and, as a result, actual results may differ from estimates. During the measurement period, which is up to one year from the acquisition
date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement
period, any subsequent adjustments are recorded to earnings.
We assess goodwill for impairment at least annually, in the fourth quarter, and whenever events or changes in circumstances indicate that the carrying
value of the asset may not be recoverable. For the purposes of impairment testing, we have determined that we have one reporting unit. Our test of goodwill
impairment starts with a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. If qualitative factors
indicate that the fair value of the reporting unit is more likely than not less than its carrying amount, then a quantitative goodwill impairment test is performed. For
the quantitative analysis, we compare the fair value of our reporting unit to its carrying value and recognize an impairment charge for the amount by which the
carrying amount exceeds the reporting unit’s fair value.
Acquired intangible assets are amortized over their estimated useful lives. We evaluate the recoverability of our intangible assets for possible impairment
whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a
comparison of the carrying amounts to the future undiscounted cash flows the intangible assets are expected to generate. If such review indicates that the carrying
amount of our intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value.
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.
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 $403.7 million as of April 30, 2021. 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
71
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. 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 our operating results to date; however, we will continue to reassess our foreign exchange exposure as we continue to grow our business
globally.
We have experienced and will continue to experience fluctuations in net loss as a result of transaction gains or losses related to remeasurement of certain
asset and liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. An immediate 10%
increase or decrease in the relative value of the U.S. dollar to other currencies could have a material effect on our net loss. As a component of other income, net, we
recognized a foreign currency transaction gain of $7.7 million and a foreign currency transaction loss of $2.2 million in the years ended April 30, 2021 and
April 30, 2020, respectively.
As of April 30, 2021, our cash, cash equivalents, and restricted cash were primarily denominated in U.S. dollars, Euros, and British pounds. A 10%
increase or decrease in current exchange rates would have an impact of approximately $11.0 million on 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.
72
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
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Redeemable Convertible Preference Shares and Shareholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
73
74
76
77
78
79
80
81
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, 2021 and 2020, 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, 2021, 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, 2021, 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,
2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2021 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, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
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 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.
74
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 matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or
required to be communicated to the audit committee and that (i) relates 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 matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
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) identification of the performance obligations in the contract; (iii) determination 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, 2021, the Company’s revenue was $608.5 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 the 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 (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.
/s/ PricewaterhouseCoopers LLP
San Jose, California
June 25, 2021
We have served as the Company’s auditor since 2018.
75
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 credit losses of $2,344 and $1,247 as of April 30, 2021 and April 30, 2020, 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 and 9)
Shareholders’ equity:
Convertible preference shares, €0.01 par value; 165,000,000 shares authorized, 0 shares issued and outstanding as of April 30, 2021
and April 30, 2020
Ordinary shares, par value €0.01 per share: 165,000,000 shares authorized; 90,533,985 shares issued and outstanding as of April 30,
2021 and 82,856,978 shares issued and outstanding as of April 30, 2020
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,
2021
2020
400,814 $
2,894
160,415
36,089
37,002
637,214
8,881
198,851
25,464
36,286
50,263
3,697
12,516
973,172 $
7,248 $
28,909
52,525
8,528
352,805
450,015
44,895
19,649
7,782
522,341
297,081
2,308
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
243,324
333,067
16,378
27,827
12,992
390,264
—
—
948
(369)
1,071,675
(8,105)
(613,318)
450,831
856
(369)
898,788
(1,377)
(484,251)
413,647
$
973,172 $
803,911
The accompanying notes are an integral part of these consolidated financial statements.
76
Elastic N.V.
Consolidated Statements of Operations
(in thousands, except share and per share data)
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, 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
2021
Year Ended April 30,
2020
2019
67,994 $
499,345
567,339
41,150
608,489
1,386
121,127
122,513
38,541
161,054
447,435
199,203
273,877
103,833
576,913
(129,478)
7,764
(121,714)
7,720
(129,434) $
53,536 $
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
(171,105)
1,963
(169,142)
(1,968)
(167,174) $
(1.48) $
(2.12) $
39,474
208,780
248,254
23,399
271,653
387
53,560
53,947
24,063
78,010
193,643
101,167
147,296
46,536
294,999
(101,356)
3,441
(97,915)
4,388
(102,303)
(1.86)
87,207,094
78,799,732
54,893,365
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
77
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
2021
(129,434)
Year Ended April 30,
2020
$(167,174) $
(6,728)
(6,728)
(136,162) $
54
54
(167,120) $
$
$
2019
(102,303)
(470)
(470)
(102,773)
The accompanying notes are an integral part of these consolidated financial statements.
78
Elastic N.V.
Consolidated Statements of Redeemable Convertible Preference Shares
and Shareholders’ Equity (Deficit)
(in thousands, except share data)
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)
28,939,466 $
—
200,921
—
33,232,955
—
$
(28,939,466)
(200,921)
28,939,466
$
$
(369)
—
62,542 $
(303)
$
(961)
—
(214,774)
—
$
(153,529)
—
—
200,921
33
303
289
93
33
3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,050,000
3,117,320
244,498
—
—
(43,630)
134,474
—
—
—
73,675,083
754
(369)
6,815,098
152,688
1,983,663
235,031
—
(4,585)
—
—
—
—
77
2
21
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
82,856,978
856
(369)
—
6,989,222
687,785
—
—
—
—
—
83
9
—
—
—
—
—
—
—
—
—
—
—
200,632
263,749
18,519
(3)
1,019
449
—
—
34,531
—
—
581,135
61,386
—
167,316
19,824
9,309
—
2,730
57,088
—
—
898,788
—
77,175
(9)
93,018
2,703
—
—
—
—
—
—
—
—
—
—
—
—
(470)
(1,431)
—
—
—
—
—
—
—
—
—
54
(1,377)
—
—
—
—
—
—
(6,728)
—
—
—
—
—
—
—
—
(102,303)
—
(317,077)
—
—
—
—
—
—
—
—
(167,174)
—
(484,251)
367
—
—
—
—
(129,434)
—
90,533,985
$
948
$
(369)
$ 1,071,675 $
(8,105)
$
(613,318)
$
263,842
18,552
—
1,019
449
—
—
34,531
(102,303)
(470)
263,012
61,463
2
167,337
19,826
9,309
—
2,730
57,088
(167,174)
54
413,647
367
77,258
—
93,018
2,703
(129,434)
(6,728)
450,831
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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
Cumulative-effect adjustment from adoption of ASU 2016-13
Issuance of ordinary shares upon exercise of stock options
Issuance of ordinary shares upon release of restricted stock units
Stock-based compensation
Reclassification of liability-classified awards
Net loss
Foreign currency translation
Balances as of April 30, 2021
The accompanying notes are an integral part of these consolidated financial statements.
79
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, net of amounts capitalized
Non-cash acquisition expense settled with shares
Deferred income taxes
Foreign currency transaction gain
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 provided by (used in) operating activities
Cash flows from investing activities
Purchases of property and equipment
Business acquisitions, net of cash acquired
Capitalization of internal-use software
Other
Net cash 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
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 (refunds) for income taxes, net
Cash paid for operating lease liabilities
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
2021
Year Ended April 30,
2020
2019
$
(129,434)
$
(167,174)
$
(102,303)
17,237
40,991
7,927
93,680
—
33
(9,507)
(142)
(24,037)
(81,137)
(4,192)
(4,107)
(4,775)
8,118
3,867
(7,914)
115,937
22,545
(3,912)
—
(317)
2,711
(1,518)
—
77,258
—
—
—
—
77,258
6,034
104,319
299,389
403,708
(423)
8,957
10
1,120
—
—
—
—
$
$
$
$
$
$
$
$
$
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)
300,280
299,389 $
3,497
7,371
$
$
101 $
12,332 $
$
—
$
2,730
178,329 $
$
9,309
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
51,609
300,280
3,067
—
157
—
1,019
449
—
—
$
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
80
Elastic N.V.
Notes to Condensed Consolidated Financial Statements
Note
1.
Organization and Description of Business
2.
3.
4.
5.
6.
7.
8.
9.
Summary of Significant Accounting Policies
Revenue and Performance Obligations
Fair Value Measurements
Acquisitions
Balance Sheet Components
Commitments and Contingencies
Redeemable Convertible Preference Shares
Leases
10. Ordinary Shares
11.
Equity Incentive Plans
12. Net Loss Per Share Attributable to Ordinary Shareholders
13.
Income Taxes
14
Employee Benefit Plans
15.
Segment Information
81
Page
82
82
92
93
93
96
100
100
101
101
102
105
105
109
109
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 2021, for example, refer to the fiscal year ended April 30, 2021.
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 credit losses, 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 of the Company’s assets or liabilities. These estimates may change, as new events occur and additional
information is obtained,
82
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.
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. The Company periodically re-assesses its operations to determine if previous
conclusions are still valid. Changes in functional currencies are applied prospectively if the operations encounter a significant and permanent change.
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, 2021, 2020 and 2019, the Company recognized a re-measurement gain of $7.7 million, and re-measurement loss of $2.2
million and $0.2 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,
2021
2020
$
$
400,814 $
2,894
403,708 $
297,081
2,308
299,389
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. 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. The Company had no short-term investments as of April 30, 2021 and April 30, 2020.
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
83
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.
No customer represented 10% or more of net accounts receivable as of April 30, 2021, and one customer represented 10% of net accounts receivable as of
April 30, 2020. No customer accounted for more than 10% of the Company’s total revenue for the years ended April 30, 2021, 2020 and 2019.
Accounts Receivable, Unbilled Accounts Receivable and Allowance for Credit Losses
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 credit losses. 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 credit losses 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.
84
The Company does not typically offer right of refund in its contracts. The allowance for credit losses reflects the Company’s best estimate of probable
losses inherent in the Company’s receivables portfolio. As of April 30, 2021 and 2020, the allowance for credit losses was $2.3 million and $1.2 million,
respectively. Activity related to the Company’s allowance for credit losses was as follows (in thousands):
Beginning balance
Cumulative-effect adjustment from adoption of ASU 2016-13
Bad debt expense
Accounts written off
Ending balance
2021
Year ended April 30,
2020
2019
$
$
1,247 $
(367)
5,095
(3,631)
2,344 $
1,411 $
—
193
(357)
1,247 $
776
—
1,105
(470)
1,411
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 $5.2 million and $2.6 million as of April 30, 2021 and 2020, respectively.
Capitalized Software Development and Implementation 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 and costs related to the development of web-based product are capitalized during the application development stage. 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. No costs were capitalized during the years ended April 30, 2021 and 2020.
The Company also capitalizes qualifying implementation costs incurred in a hosting arrangement that is a service contract based on the existing guidance
for internally developed software. In accordance with the guidance, (i) capitalized implementation costs are classified in the same balance sheet line item as the
amounts prepaid for the related hosting arrangement; (ii) amortization of capitalized implementation costs are presented in the same income statement line item as
the service fees for the related hosting arrangement; and (iii) cash flows related to capitalized implementation costs are presented within the same category of cash
flow activity as the cash flows for the related hosting arrangement (i.e. operating activity). The Company tests for impairment whenever events or changes in
circumstances occur that could impact the recoverability of these assets.
The Company amortizes capitalized implementation costs over the expected life of the service contract. The Company capitalized $0.3 million in
implementation costs for software hosting arrangements during the fiscal year ended April 30, 2021. No such costs were capitalized during the fiscal year ended
April 30, 2020. No amortization expense related to capitalized implementation costs was recorded during the fiscal years ended April 30, 2021, 2020 and 2019,
respectively as the underlying implementation activities were not complete.
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.
85
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.
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
86
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, 2021, 2020 and 2019.
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 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, 2021, 2020 and 2019.
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 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 from the sale of 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.
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(ii) identification of the performance obligations in the contract;
Performance obligations promised in a contract are identified based on the products and services that will be transferred to the customer that are both
capable of being distinct, whereby the customer can benefit from the products or services either on their own or together with other resources that are readily
available from third parties or from 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 license providing the right to use 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) determination of the transaction price;
The transaction price is the total amount of consideration we expect to be entitled to in exchange for the subscriptions and services in a contract. Variable
consideration is included in the transaction price if, in 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 standalone selling price
(‘SSP”). The SSP is determined based on the prices at which we separately sell these products assuming the majority of these fall within a pricing range. In
instances where SSP is not directly observable, such as when we do not sell the software license separately, we derive the SSP using information that may include
market conditions and other observable and unobservable inputs which can require significant judgment. 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. If one of
the performance obligations is outside of the SSP range, the Company allocates the transaction price considering the midpoint of the SSP 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
a relative 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 as 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.
Contract Balances
The timing of revenue recognition may differ from the timing of invoicing to customers. For annual contracts, the Company typically invoices customers
at the time of entering into the contract. For multi-year agreements, the Company generally invoices customers on an annual basis prior to each anniversary of the
contract start date. The Company records unbilled accounts receivable related to revenue recognized in excess of amounts invoiced as the Company has an
unconditional right to invoice and receive payment in the future related to those fulfilled obligations. Contract liabilities consist of deferred revenue which is
recognized over the contractual period.
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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 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 $16.7 million, $7.7 million and $6.5 million for
the years ended April 30, 2021, 2020 and 2019 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 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
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related to the RSAs was 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 shareholders’ deficit. As of April 30, 2021, the Company did
not have any redeemable convertible preference shares issued and outstanding.
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
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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, 2021, the Company had $3.2 million of customer deposits included in accrued expenses and
other liabilities. 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
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. 2019-4, and ASU No. 2019-5. The standard and related
amendments modify the accounting for credit losses for most financial assets and requires an entity to utilize a new impairment model known as current expected
credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized costs basis of the
financial asset, presents the amount expected to be collected on the financial asset. Additionally, ASU No. 2016-13 amends the current available-for-sale security
impairment model for debt securities held for investment. The new model requires an estimate of expected credit losses when the fair value is below the amortized
cost of the asset. The credit-related impairment (and subsequent recoveries) are recognized as an allowance on the balance sheet with a corresponding adjustment
to the income statement. Non-credit related losses will continue to be recognized through OCI. This guidance also requires new disclosures for financial assets
measured at amortized cost, loans and available-for-sale debt securities. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained
earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company adopted ASU No. 2016-13 on May 1, 2020. The
Company’s adoption of this ASU resulted in a $0.4 million reduction to accumulated deficit.
Goodwill Impairment: In January 2017, the FASB issued ASU No. 2017-4, Intangibles— Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment. The standard will simplify the measurement of goodwill impairment 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 Company adopted ASU No. 2017-4 on May 1, 2020. The
Company's adoption of this ASU did not have a material impact on the Company's 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 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 Company adopted ASU No. 2018-13 on May 1, 2020. The Company's adoption of this ASU did not have a material impact on the
Company's 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
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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 Company adopted ASU No. 2018-15 on May 1, 2020 and applied it prospectively to implementation costs incurred after the date of adoption. The
Company’s adoption of this ASU had no material impact on the Company’s consolidated financial statements.
New Accounting Pronouncements Not Yet Adopted
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.
Equity Awards: In May 2021, the FASB issued ASU No. 2021-4, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic
470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s
Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, which clarifies the accounting for modifications or
exchanges of a freestanding equity-classified written call option that is not within the scope of another Topic. It addresses how an entity should treat, measure the
effect of, and recognize the effect of a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains
equity classified after modification or exchange. The new guidance becomes effective for the Company for the fiscal year ending April 30, 2023. Early adoption is
permitted, including in interim periods. The Company does not expect the adoption of the new accounting standard to have a material impact on its consolidated
financial statements.
Reclassification
In connection with the preparation of the Company’s consolidated financial statements for the year ended April 30, 2021, the Company identified an
immaterial misclassification in the prior year balance sheet, which understated short term deferred revenue and overstated long term deferred revenue by
$11.6 million as of April 30, 2020. The Company has corrected for this immaterial misclassification in the accompanying consolidated balance sheet by revising
the April 30, 2020 deferred revenue balances. This change in classification has no effect on previously reported cash flows in the condensed consolidated statement
of cash flows and has no effect on previously reported consolidated statements of operations for any period.
3. Revenue and Performance Obligations
Disaggregation of Revenue
The following table presents revenue by category (in thousands):
Self-managed subscription
License
Subscription
SaaS
Total subscription revenue
Professional services
Total revenue
Amount
401,020
67,994
333,026
166,319
567,339
41,150
608,489
$
$
Year Ended April 30,
2020
Amount
299,880
53,536
246,344
92,290
392,170
35,450
427,620
% of
Total
Revenue
70 % $
12 %
58 %
22 %
92 %
8 %
100 % $
Amount
202,419
39,474
162,945
45,835
248,254
23,399
271,653
2019
% of
Total
Revenue
74 %
14 %
60 %
17 %
91 %
9 %
100 %
2021
% of
Total
Revenue
66 % $
11 %
55 %
27 %
93 %
7 %
100 % $
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Remaining Performance Obligations
Remaining performance obligations represent the aggregate amount of the transaction price in contracts allocated to performance obligations not
delivered, or partially undelivered, as of the end of the reporting period. Remaining performance obligations include deferred revenue and the unfulfilled portion of
multi-year contracts or other orders not yet invoiced and certain unfulfilled orders against accepted customer contracts at the end of any given period.
As of April 30, 2021, the Company had $796.4 million of remaining performance obligations, which is comprised of product and services revenue not yet
delivered. As of April 30, 2021, the Company expects to recognize approximately 85% 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.
The following table summarizes assets that are measured at fair value on a recurring basis as of April 30, 2021 (in thousands):
Level 1
Level 2
Level 3
Total
Financial Assets:
Cash and cash equivalents:
Money market funds
$
175,007 $
— $
— $
175,007
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
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, were being held in an indemnity escrow
fund for 18 months after the acquisition close date and were released in April 2021. 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.
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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 following table summarizes the components of the U.S. GAAP purchase price and the 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 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
Total
Useful life (in
years)
$
$
32,700
19,200
1,900
53,800
5
4
4
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 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
94
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 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, 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 were 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.
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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 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.
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
Prepaid value added taxes
Prepaid software subscription costs
Deposits
Prepaid taxes
Other
Total prepaid expenses and other current assets
96
As of April 30,
2021
2020
11,122 $
9,408
5,636
2,410
1,694
6,732
37,002 $
12,228
5,167
3,104
1,857
3,612
6,655
32,623
$
$
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)
Lesser of estimated useful
life or remaining lease term
3
3-5
As of April 30,
2021
2020
$
$
10,342 $
2,319
5,971
707
19,339
(10,458)
8,881 $
8,405
5,687
5,072
1,661
20,825
(13,065)
7,760
Depreciation expense related to property and equipment was $3.1 million, $2.8 million and $2.7 million for the years ended April 30, 2021, 2020 and
2019, respectively.
Intangible Assets, Net
Intangible assets consisted of the following as of April 30, 2021 (in thousands):
Developed technology
Customer relationships
Trade names
Total
Foreign currency translation adjustment
Total
Gross Fair Value
$
44,830 $
19,598
2,872
67,300 $
$
Accumulated
Amortization
Net Book Value
20,850 $
8,382
1,780
31,012 $
$
$
23,980
11,216
1,092
36,288
(2)
36,286
Intangible assets consisted of the following as of April 30, 2020 (in thousands):
Developed technology
Customer relationships
Trade names
Total
Gross Fair Value
$
44,830 $
19,598
2,872
$
67,300 $
Accumulated
Amortization
Net Book Value
12,412 $
3,210
1,223
16,845 $
32,418
16,388
1,649
50,455
Weighted Average
Remaining
Useful Life
(in years)
3.3
2.4
2.4
3.0
Weighted Average
Remaining
Useful Life
(in years)
4.1
3.4
3.4
3.9
Amortization expense for the intangible assets for the years ended April 30, 2021, 2020 and 2019 was as follows (in thousands):
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
2021
Year Ended April 30,
2020
2019
$
$
1,386 $
7,051
5,730
14,167 $
948 $
5,820
3,300
10,068 $
387
2,421
148
2,956
97
The expected future amortization expense related to the intangible assets as of April 30, 2021 was as follows (in thousands, by fiscal year):
2022
2023
2024
2025
2026
Thereafter
Total
Goodwill
The following table represents the changes to goodwill (in thousands):
Balance as of April 30, 2019
Addition from acquisition
Foreign currency translation adjustment
Balance as of April 30, 2020
Foreign currency translation adjustment
Balance as of April 30, 2021
There was no impairment of goodwill during the years ended April 30, 2021, 2020 and 2019.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
Accrued expenses
Value added taxes payable
Income taxes payable
Other
Total accrued expenses and other liabilities
Accrued Compensation and Benefits
Accrued compensation and benefits consisted of the following (in thousands):
Accrued vacation
Accrued commissions
Accrued payroll and withholding taxes
Other
Total accrued compensation and benefits
98
$
$
12,947
11,890
8,715
2,734
—
—
36,286
Carrying Amount
19,846
$
178,764
(733)
197,877
974
198,851
$
$
As of April 30,
2021
2020
12,772 $
8,493
1,596
6,048
28,909 $
10,864
7,230
—
4,116
22,210
As of April 30,
2021
2020
24,078 $
17,581
5,522
5,344
52,525 $
17,971
16,259
7,588
6,591
48,409
$
$
$
$
Contract Balances
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,
2021
2020
$
$
$
5,204 $
86,352 $
397,700 $
2,622
43,549
259,702
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
Beginning balance
Increases due to invoices issued, excluding amounts recognized as
revenue during the period
Amounts transferred to deferred revenue from accrued expenses and other
liabilities upon entering into contracts with customers, net of revenue
recognized during the period
Increase from acquisitions, net of revenue recognized
Revenue recognized that was included in deferred revenue balance at
beginning of period
Ending balance
Unbilled Accounts Receivable
2021
Year Ended April 30,
2020
2019
2,622 $
1,710 $
1,139
(2,622)
5,204
5,204 $
(1,710)
2,622
2,622 $
(1,139)
1,710
1,710
$
$
Deferred Revenue
2021
Year Ended April 30,
2020
$
259,702 $
170,666 $
364,093
242,136
2019
102,561
163,963
5,424
—
—
6,192
—
—
(231,519)
397,700 $
(159,292)
259,702 $
$
(95,858)
170,666
Deferred Contract Acquisition Costs
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
2021
Year Ended April 30,
2020
2019
$
$
$
43,549 $
83,794
(40,991)
86,352 $
36,089
50,263
86,352 $
26,150 $
45,713
(28,314)
43,549 $
19,537
24,012
43,549 $
18,079
29,445
(21,374)
26,150
17,215
8,935
26,150
The Company did not recognize any impairment of deferred contract acquisition costs during the years ended April 30, 2021, 2020 and 2019.
99
7. Commitments and Contingencies
The table below reflects the Company’s future minimum purchase obligations relating primarily to non-cancellable agreements for cloud hosting,
subscription software, and sales and marketing as of April 30, 2021 (in thousands):
Years Ending April 30,
2022
2023
2024
2025
2026
Total
Cloud Hosting Commitments
Purchase Obligations
56,346
$
93,705
88,427
55,000
55,000
348,478
$
In April 2021, the Company entered into an amendment to a non-cancellable cloud hosting capacity agreement, effective April 1, 2021, for a total
purchase commitment of $260.0 million payable over the five years following the date of the agreement. In December 2019, the Company entered into an
amendment to a non-cancellable cloud hosting capacity agreement 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. Actual timing may vary depending on services used and total payments under these capacity commitments may
be higher than the total minimum depending on services used.
Letters of Credit
The Company had a total of $2.1 million in letters of credit outstanding in favor of certain landlords for office space as of April 30, 2021.
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, 2021.
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
100
shares on a one-to-one basis and their carrying amount reclassified into shareholders’ equity. As of April 30, 2021, there were no redeemable convertible
preference shares issued and outstanding.
9. Leases
The Company’s leases are composed of corporate office spaces and various equipment under non-cancelable operating lease agreements that expire at
various dates through 2025. As of April 30, 2021, the Company had no finance leases.
Components of lease costs included in the consolidated statement of operations 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, 2021 are summarized as follows:
Weighted average remaining lease term (years)
Weighted average discount rate
Year Ended April 30,
2021
2020
$
$
8,825 $
2,319
527
11,671 $
8,435
3,111
1,883
13,429
3.86
4.86 %
Future minimum lease payments under non-cancelable operating leases on an undiscounted cash flow basis as of April 30, 2021 were as follows (in
thousands):
Years Ending April 30,
2022
2023
2024
2025
2026
Thereafter
Total minimum lease payments
Less imputed interest
Present value of future minimum lease payments
Less current lease liabilities
Operating lease liabilities, non-current
10. Ordinary Shares
$
$
8,981
7,717
6,431
5,092
2,803
—
31,024
(2,847)
28,177
(8,528)
19,649
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).
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, 2021.
101
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,
2021
7,611,016
3,301,283
15,737,819
26,650,118
2019
15,260,506
2,472,092
12,461,850
30,194,448
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, 2021 and 2020, 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.
Convertible Preference Shares
The Company’s board of directors has the authority, for a period of five years from October 10, 2018, without further action by the Company’s
shareholders, to issue up to 165 million shares of undesignated convertible preference shares with rights and preferences, including voting rights, designated from
time to time by the board of directors. As of April 30, 2021, there were no convertible preference shares issued or 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, the compensation committee, as
administrator of the 2012 Plan, and a duly authorized committee 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, compensation committee or a duly authorized 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. 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. 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.
102
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
RSUs granted
RSUs cancelled
RSAs repurchased
Available at end of period
Year Ended April 30,
2021
12,461,850
4,142,849
(232,075)
890,561
(1,965,644)
440,278
—
15,737,819
2020
9,649,123
3,683,754
(172,031)
1,181,482
(2,101,271)
216,208
4,585
12,461,850
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, 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
Stock options granted
Stock options exercised
Stock options cancelled
Stock options assumed in acquisition cancelled
Balance as of April 30, 2021
Exercisable as of April 30, 2021
Number of
Stock Options
Outstanding
Stock Options Outstanding
Weighted-
Average
Exercise
Price
Remaining
Contractual
Term
(in years)
22,866,438 $
172,031 $
245,390 $
(6,815,098) $
(1,181,482) $
(26,773) $
15,260,506 $
232,075 $
(6,989,222) $
(890,561) $
(1,782) $
7,611,016 $
4,593,744 $
11.90
81.39
48.99
9.01
15.81
71.35
14.17
139.68
11.08
18.15
72.75
20.34
14.51
Aggregate
Intrinsic
Value
1,684,106
7.98 $
7.27 $
767,795
6.66 $
6.32 $
768,517
487,788
Stock options exercisable include 125,598 stock options that were unvested as of April 30, 2021.
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 $80.01 and $50.92 for the years ended April 30,
2021 and 2020, respectively.
As of April 30, 2021, the Company had unrecognized stock-based compensation expense of $40.0 million related to unvested stock options that the
Company expects to recognize over a weighted-average period of 1.66 years.
RSUs
During the year ended April 30, 2021, the Company granted 1,965,644 RSUs at a weighted-average grant date fair value of $123.48 per unit.
103
During the year ended April 30, 2021, the Company cancelled 80,839 cash settled RSUs and contemporaneously granted 80,839 equity settled RSUs. The
modification of the awards and related change in the classification of awards from liability-classified to equity-classified was accounted for under the provisions of
ASC 718 - Stock Compensation. Prior to the conversion, the Company performed a final measurement of its stock-based compensation liability under the fair
value method, which resulted in a non-cash stock-based compensation expense of $2.5 million. Additionally, upon modification of the awards, the Company
reclassified $2.7 million stock-based compensation liability to additional-paid in capital.
As of April 30, 2021, the Company had unrecognized stock-based compensation expense of $286.8 million related to RSUs that the Company expects to
recognize over a weighted-average period of 3.04 years.
The following table summarizes RSU activity under the 2012 Plan:
Outstanding and unvested at April 30, 2019
RSUs granted
RSUs released
RSUs cancelled
Outstanding and unvested at April 30, 2020
RSUs granted
RSUs released
RSUs cancelled
Outstanding and unvested at April 30, 2021
Determination of Fair Value
Number of Awards
Weighted-Average
Grant Date
Fair Value
740,467 $
2,101,271 $
(153,438) $
(216,208) $
2,472,092 $
1,965,644 $
(696,175) $
(440,278) $
3,301,283 $
62.48
68.25
72.55
62.25
66.78
123.48
71.18
73.31
98.74
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.
104
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
2021
6.02 - 6.08
62.6% - 63.9%
Year Ended April 30,
2020
2.00 - 7.27
54.8%
2019
6.02 - 6.08
40.5% - 46.7%
0.4% - 1.1%
1.4% - 2.0%
2.4% - 3.1%
0%
0%
0%
Total stock-based compensation expense recognized in the Company’s consolidated statements of operations was as follows (in thousands):
Cost of revenue—cost of subscription—self-managed and SaaS
Cost of revenue—professional services
Research and development
Sales and marketing
General and administrative
Stock-based compensation expense, net of amounts capitalized
Capitalized stock-based compensation expense
Total stock-based compensation expense
12. Net Loss Per Share Attributable to Ordinary Shareholders
2021
Year Ended April 30,
2020
2019
7,105 $
4,824
35,267
31,581
14,903
93,680
10
93,690 $
4,147 $
2,980
23,621
19,334
9,925
60,007
—
60,007 $
3,383
1,208
16,100
11,996
7,255
39,942
—
39,942
$
$
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:
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
$
$
2021
Year Ended April 30,
2020
2019
(129,434) $
(167,174) $
(102,303)
87,207,094
78,799,732
(1.48) $
(2.12) $
54,893,365
(1.86)
Since the Company is in a net loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods. 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:
Stock options
RSUs
Contingently issuable shares
Shares subject to repurchase
Total
13. Income Taxes
2021
7,611,016
3,301,283
—
—
10,912,299
Year Ended April 30,
2020
15,260,506
2,368,740
235,031
—
17,864,277
2019
22,866,438
595,503
—
254,350
23,716,291
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):
105
Dutch
Foreign
Loss before income taxes
2021
Year Ended April 30,
2020
$
$
(163,770) $
42,056
(121,714) $
(173,338) $
4,196
(169,142) $
2019
(121,803)
23,888
(97,915)
The components of the provision for (benefit from) income taxes were as follows (in thousands):
Current:
Dutch
Foreign
Total current tax expense (income)
Deferred:
Dutch
Foreign
Total deferred tax expense (income)
Total provision for (benefit from) income taxes
2021
Year Ended April 30,
2020
2019
$
$
$
$
1,125 $
3,896
5,021 $
— $
2,699
2,699
7,720 $
518 $
(560)
(42) $
— $
(1,926)
(1,926)
(1,968) $
—
912
912
(233)
3,709
3,476
4,388
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, partially offset by a tax benefit from stock-based compensation. A reconciliation of 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):
2021
Year Ended April 30,
2020
2019
Tax
Rate
Tax
Rate
Tax
Rate
Dutch statutory income tax
Foreign income taxed at different rates
Stock-based compensation
Research and development credits
Change in valuation allowance
Deferred tax asset revaluation
Other
Provision for (benefit from) income taxes
$
$
(30,428)
(486)
(100,931)
(11,020)
146,571
(256)
4,270
7,720
25.0 % $
0.4 %
82.9 %
9.0 %
(120.4)%
0.2 %
(3.4)%
(6.3)% $
(42,286)
313
(53,050)
(7,771)
97,734
1,991
1,101
(1,968)
25.0 % $
(0.2)%
31.4 %
4.6 %
(57.8)%
(1.2)%
(0.6)%
1.2 % $
(24,479)
(310)
(24,848)
(2,161)
43,071
11,883
1,232
4,388
25.0 %
0.3 %
25.3 %
2.2 %
(44.0)%
(12.1)%
(1.2)%
(4.5)%
Deferred Income Taxes
Deferred tax assets and liabilities 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 a valuation allowance where management has concluded it is more likely than not that the deferred tax assets will not 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.
106
Significant components of the Company’s deferred tax assets and liabilities are summarized as follows (in thousands):
Deferred tax assets:
Accrued compensation
Net operating loss carryforward
Deferred revenue
Stock-based compensation
Research and development credits
Lease liabilities
Other
Gross deferred tax assets
Less valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Accrued compensation
Deferred contract acquisition costs
Intangible assets
Right of use assets
Other
Gross deferred tax liabilities
Net deferred tax liabilities
As of April 30,
2021
2020
$
— $
385,443
4,609
11,614
22,988
4,956
3,156
432,766
(409,756)
23,010 $
(41) $
(13,173)
(8,191)
(4,523)
—
(25,928)
(2,918) $
$
$
$
3,267
208,629
3,876
7,203
15,333
6,616
2,961
247,885
(225,197)
22,688
—
(8,423)
(8,841)
(5,695)
(218)
(23,177)
(489)
The deferred tax assets and liabilities disclosure at April 30, 2020 has been adjusted to reflect the deferred tax right-of-use asset and related deferred lease
liability recognized in accordance with ASC 842.
The valuation allowance for deferred tax assets as of April 30, 2021 and 2020 was $409.8 million and $225.2 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 $61.0 million, $113.1 million and $10.5 million, respectively, during the year ended April 30, 2021 and $35.3 million,
$94.5 million and $3.1 million, respectively, for the year ended April 30, 2020. The valuation allowance for the Dutch deferred tax assets as of April 30, 2021 and
2020 was $149.4 million and $88.4 million, respectively, the valuation allowance for the United States deferred tax assets as of April 30, 2021 and 2020 was
$246.0 million and $132.9 million, respectively, and the valuation allowance for the United Kingdom deferred tax assets as of April 30, 2021 and April 30, 2020
was $14.4 million and $3.9 million, respectively.
As of April 30, 2021, the Company had net operating loss (“NOL”) carryforwards for Dutch, United States (Federal and State) and United Kingdom
income tax purposes of $589.8 million, $936.1 million, $642.0 million and $56.0 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 $15.9 million, $4.3 million and $0.5 million respectively, which
begin to expire April 30, 2030, April 30, 2022, and April 30, 2037, respectively. Research and development tax credit carryforwards related to the UK of
$0.6 million have an indefinite life. 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 has filed amended returns to carry back the NOLs
from the year ended April 30, 2019 back to five previous fiscal
107
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 in the year ended
April 30, 2020.
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 $13.7 million as of April 30, 2021, 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
2021
As of April 30,
2020
2019
$
$
9,706 $
432
3,518
13,656 $
3,870 $
2,283
3,553
9,706 $
2,019
240
1,611
3,870
Approximately $0.4 million of the increase in fiscal 2021 for tax positions taken in prior periods is due to the filing of tax returns during the current fiscal
year. Approximately $3.5 million of the increase in tax positions related to the current period is from the research and development tax credits generated for fiscal
2021.
The Company’s policy is to recognize penalties and interests accrued on any unrecognized tax benefits as a component of income tax expense. During
each of the years ended April 30, 2021, 2020 and 2019 the Company recognized less than $0.1 million of interest and penalties. The amount of accrued interest and
penalties recorded on the consolidated balance sheet as of April 30, 2021 and 2020 was $0.1 million and $0.2 million, respectively.
The Company is subject to periodic examination of income tax returns by various domestic and international tax authorities. During the fiscal year, the
Company closed its income tax and VAT audit with the Dutch tax authority for the tax years ended April 30, 2015 to April 30, 2017 and its income tax and VAT
audit with the German tax authority for the tax years ended April 30, 2016 to April 30, 2018. There were no material adjustments as a result of these audit
settlements. The Company is currently under examination with the Internal Revenue Service for foreign withholding taxes for the calendar year 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,
2016 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, 2021, there were cumulative earnings of $75.1 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 $1.8 million, due to the various income tax treaties between the Netherlands and the respective foreign jurisdictions.
108
The Company is subject to Global Intangible Low Taxed Income (“GILTI”). Due to the Company’s net operating loss, GILTI provision was $1.0
million, zero and $0.5 million and did not have a material impact on the Company’s results for the years ended April 30, 2021, 2020 and 2019, respectively.
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 $11.4 million, $8.3 million and $5.0 million of expense related to
the 401(k) Plan during the years ended April 30, 2021, 2020 and 2019, respectively.
The Company also has defined-contribution plans in certain other countries for which the Company recorded $5.1 million, $3.6 million and $1.9 million
of expense during the years ended April 30, 2021, 2020 and 2019, 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
2021
Year Ended April 30,
2020
$
$
331,769 $
276,720
608,489 $
241,648 $
185,972
427,620 $
2019
155,935
115,718
271,653
Other than the United States, no other individual country exceeded 10% or more of total revenue during the periods presented.
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,
2021
2020
23,443 $
2,975
7,151
776
34,345 $
30,373
3,529
5,854
787
40,543
$
$
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
109
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, 2021 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, 2021. The
effectiveness of our internal control over financial reporting as of April 30, 2021 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 Annual Report on 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 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.
110
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
2021 annual general meeting of shareholders (the “2021 Proxy Statement”), which will be filed with the SEC within 120 days after the end of our year ended
April 30, 2021, 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, including our Chief Executive Officer, Chief
Financial Officer and other executive and senior financial officers, and the General Counsel, or, if the General Counsel is not available, the Chief Financial Officer,
who will consult with the Chief Ethics & Compliance Officer, must approve any waiver of the Code of Conduct for any other person. 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 2021 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 2021 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 2021 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 2021 Proxy Statement and is incorporated herein by reference.
111
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 No.
Description of Exhibit
Exhibit Index
Incorporated by Reference
2.1
3.1
3.2
3.3
4.1
4.2
10.1+
10.2+
10.3+
10.4+
10.5+
10.6+
10.7+
10.8+
Agreement and Plan of Reorganization, dated as of June 5,
2019, 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
8-K
File No.
001-38675
Exhibit
Filing Date
Filed Herewith
2.1
6/5/2019
Articles of Association of Elastic N.V. (English translation).
10-Q
001-38675
Deed of Amendment of the Articles of Association of Elastic
N.V. (English translation).
10-Q
001-38675
Deed of Conversion and Amendment of the Articles of
Association of Elastic N.V. Articles of Association (English
translation).
10-Q
001-38675
3.1
3.2
3.3
12/12/2018
12/12/2018
12/12/2018
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
Description of share capital.
10-K
001-38675
4.2
6/28/2019
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.
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
333-227191
Amended and Restated Employment Agreement between the
Company and Shay Banon, dated as of February 24, 2021
10-Q
001-38675
Employment Letter between the Company and Janesh
Moorjani, dated as of August 1, 2018.
S-1
333-227191
10.3
10.4
10.2
10.6
9/5/2018
9/5/2018
8/3/2021
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
X
112
10.9+
10.10+
10.11+
10.12
10.13
10.14
10.15
10.14
10.16+
10.17+
21.1
23.1
24.1
31.1
31.2
32.1*
32.2*
Offer Letter between the Company and Jonathan Chadwick, dated
as of July 27, 2018.
S-1
333-227191
10.10
9/5/2018
Offer Letter between the Company and Paul Appleby, dated as of
August 10, 2020.
8-K
001-38675
10.1
8/26/2020
Offer Letter between the Company and Ashutosh Kulkarni, dated
November 27, 2020.
10-Q
001-38675
10.1
3/3/2021
Office Lease Agreement, by and between the Company and Asset
Growth Partners, L.P., dated as of July 9, 2014.
S-1
333-227191
10.11
9/5/2018
First Amendment to Office Lease Agreement, by and between the
Company and Asset Growth Partners, L.P., dated as of March 30,
2015.
Second Amendment to Office Lease Agreement, by and between
the Company and Asset Growth Partners, L.P., dated as of
September 16, 2015.
Third Amendment to Office Lease Agreement, by and between the
Company and Asset Growth Partners, L.P., dated as of April 18,
2018.
Fourth Amendment to Office Lease Agreement, by and between the
Company and Asset Growth Partners, L.P., dated as of December
27, 2019.
S-1
333-227191
10.12
9/5/2018
S-1
333-227191
10.13
9/5/2018
S-1
333-227191
10.14
9/5/2018
Separation and Transition Agreement between the Company and
Aaron Katz, dated February 26, 2020.
8-K
001-38675
10.1
2/26/2020
Endgame, Inc. Amended and Restated 2010 Stock Incentive Plan, as
amended, and related form agreements.
S-8
333-234152
4.2
10/10/2019
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.
113
X
X
X
X
X
X
X
X
101
104
The following financial information from Elastic N.V.’s Annual Report
on Form 10-K for the fiscal year ended April 30, 20201formatted in
Inline XBRL (eXtensible Business Reporting Language): (i)
Consolidated Balance Sheets as of April 30, 2021 and April 30, 2020;
(ii) Consolidated Statements of Operations for the fiscal years ended
April 30, 2021, April 30, 2020, and April 30, 2019; (iii) Consolidated
Statements of Comprehensive Loss for the fiscal years ended April 30,
2021, April 30, 2020, and April 30, 2019; (iv) Consolidated Statements
of Redeemable Convertible Preference Shares and Shareholders’ Equity
(Deficit) for the fiscal years ended April 30, 2021, April 30, 2020, and
April 30, 2019; (v) Consolidated Statements of Cash Flows for the fiscal
years ended April 30, 2021, April 30, 2020, and April 30, 2019; and (vi)
Notes to the Consolidated Financial Statements
The cover page from Elastic N.V.’s Annual Report on Form 10-K for
the fiscal year ended April 30, 2021 formatted in Inline XBRL (included
as Exhibit 101).
X
X
+ Indicates a management contract or compensatory plan or arrangement.
* 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.
114
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 25, 2021
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 25, 2021
June 25, 2021
June 25, 2021
June 25, 2021
June 25, 2021
June 25, 2021
June 25, 2021
June 25, 2021
/s/ Michelangelo Volpi
Director
Michelangelo Volpi
June 25, 2021
115
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
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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.
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(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
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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
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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.
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(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
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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
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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
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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.
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(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
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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
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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.
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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
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(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.
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(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.
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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:
Term/Expiration Date:
Vesting Schedule:
$
$
___ Incentive Stock Option
___ Nonstatutory Stock Option
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
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EXHIBIT A
TERMS AND CONDITIONS OF STOCK OPTION GRANT
1. Grant of Option.
(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
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(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:
by 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
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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;
or 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
(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.
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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.
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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
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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
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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.
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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 attached hereto as Exhibit A, including any additional terms and conditions for Participant’s country set forth in the
country addendum thereto (the “Country Addendum”), 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). Actively providing services during only a portion of the vesting
period prior to a vesting date shall not entitle Participant to vest in a pro-rata portion of the unvested Restricted Stock Units that would have vested as of such
vesting date, nor will it entitle Participant to any compensation for the lost vesting. 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.
If this Award Agreement is not executed by Participant prior to the date that any Restricted Stock Units subject to this Award Agreement
become vested, the Company will deem Participant to have accepted all of the terms and conditions of the Plan and this Award Agreement as of such
vesting date.
PARTICIPANT
ELASTIC N.V.
Signature
Print Name
Address:
Signature
Print Name
Title
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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 Restricted Stock Unit Grant
that forms part 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
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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 Obligations (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), and, unless the Administrator provides
otherwise, this will be the default method for satisfying Participant’s Tax Withholding Obligations if Participant has not executed this Award Agreement or
otherwise failed to take actions necessary to facilitate the Sell-to-Cover Method prior to the date that any Restricted Stock Units under this Award Agreement
become vested, 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
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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.
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 CONTINUOUS 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:
by 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
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;
(d) the grant of the Restricted Stock Units and Participant’s participation in the Plan shall not create a right to employment other service
relationship, or be interpreted as forming or amending an employment or service contract with the Company, the Service Recipient or any other Affiliate, Parent or
Subsidiary, and shall not interfere with the ability of the Company, the Service Recipient or any other Affiliate, Parent or Subsidiary, as applicable, to terminate
Participant's employment or other service relationship, if any;
(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
normal or expected compensation for any purpose, including without
(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
-4-
limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, leave-related
payments, holiday pay, holiday top-up, pension or retirement or welfare benefits or similar mandatory payments;
(h) unless otherwise agreed in writing with the Company, 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;
(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 or 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 the Service Recipient or any 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 (collectively, "the Designated Broker")) 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
-5-
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 outside the United States, he or she may, at any time, view Data, request 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 Participation. 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
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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 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 impose other requirements on
Participant’s participation in the Plan, on the Restricted Stock Units and on any Shares acquired under the Plan, to the extent the Company determines it is
necessary or advisable for legal or administrative reasons, and to require Participant to sign any additional agreements or undertakings that may be necessary to
accomplish the foregoing. Further,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 exclusive
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
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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, subject to Section 24 hereof, 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 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 Company 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 of
residence. 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 to be aware of and comply with such regulations, and Participant should consult a personal legal advisor for any details.
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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 Stock 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, Participant should 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.
Exhibit 10.14
FOURTH AMENDMENT DATED DECEMBER 27, 2019 TO
THE LEASE DATED JULY 9, 2014 THE “ORIGINAL LEASE”
THE FIRST AMENDMENT DATED MARCH 30, 2015 (THE “FIRST AMENDMENT”),
THE SECOND AMENDMENT DATED SEPTEMBER 16, 2015 (THE “SECOND AMENDMENT”),
THE THIRD AMENDMENT DATED APRIL 18, 2018 (THE “THIRD AMENDMENT”)
BY AND BETWEEN
ASSET GROWTH PARTNERS, L.P. as “LESSOR” and ELASTICSEARCH, INC., as
“LESSEE” AND THE RIGHT OF FIRST REFUSAL LETTER DATED JANUARY 24, 2019 (COLLECTIVELY,
THE “LEASE”)
This Fourth Amendment dated December 27, 2019 shall serve to amend the terms of the Lease as follows:
I.
Lessor and Lessee agree to terminate that certain portion of Lessee’s Premises per the Third Amendment dated April 18, 2018, located on the 3
floor, consisting of 7,625 square feet, commonly known as suite 320 (“Suite 320”), as depicted on the attached Exhibit A3, upon the following
terms and conditions:
rd
A. The lease of Suite 320 by Lessee shall terminate as of December 31, 2019 (“Termination Date”) and Lessor shall be entitled to start marketing
this space as of the execution of this Amendment. Notwithstanding anything herein to the contrary, on the Termination Date, Lessee shall
surrender possession of Suite 320 to Lessor, and Lessor hereby agrees to accept Suite 320, in vacant broom clean condition, and otherwise in its
condition as of the date hereof as full satisfaction of Lessee’s surrender obligations under the Lease with respect to Suite 320.
B. Lessee shall pay rent for said premises through December 31, 2019. Should Lessee fail to remove all debris by the Termination Date, rent shall
continue until the premises have been delivered to Lessor in a broom clean condition.
C. Lessor shall take Suite 320 back clean of all debris in its “as-is” condition.
D. Lessee shall pay to Lessor a Termination Fee of Four Hundred Thousand Dollars ($400,000,00) on the Termination Date.
E. As of January 1, 2020, Lessee shall be relieved of all remaining liability and/or obligations in connection with Suite 320, including, but not
limited to, future leasing commissions and restoration costs for Suite 320.
F. Lessor shall have no further obligation to contribute any dollar amount towards Tenant Improvements for any and all of Lessee’s remaining
Premises.
G. Lessee hereby retracts all previous letters from Lessee’s Counsel regarding the Office Building Project and Lessee’s Premises, dated July 2,
2019 and August 27, 2019. The payment of $400,000 referenced above is an express conditions of this Amendment and if not properly
performed will make this Amendment null and void.
H. Lessee shall provide Lessor with all existing plans it has for Suite 320 at no cost to Lessor.
I.
Lessee’s notice date for early termination of the Remaining Premises (as defined below) shall become exercisable on or after January 1, 2023,
per paragraph II.J below “Right to Terminate”.
J. Lessor shall be responsible for all ADA compliance and building code issues in and around the Office Building Project.
II.
The Lease shall be amended by the following paragraphs of this Amendment as follows:
A. Paragraph 1.2 Premises: As of January 1, 2020, the Premises shall consist of 17,767 rentable square feet, commonly known as suite 350 (“Suite
350”), 10,500 rentable square feet, commonly known as suite 300 (“Suite 300”), both on the 3 floor, and rentable 11,686 square feet,
commonly known as suite 170 (“Suite 170”) located on the 1 floor, as shown on Exhibit A1 and Exhibit A2, for a combined Premises of 39,953
square feet (“Remaining Premises”). Following the Termination Date, all references to the Premises in the Lease shall refer to the Remaining
Premises.
st
rd
B. Paragraph 1.5 Term: The Term of the Lease shall expire on November 30, 2025. Lessor has delivered the Remaining Premises and Lessee has
already taken possession, per the attached Exhibit A1 and Exhibit A2 and Lessee accepts the Remaining Premises and the entire Building Project
located at 800 W. El Camino Real, Mountain View, CA, in their existing “as-is” condition, subject to Lessor’s express obligations under the
Lease, including Section I(J) herein.
C. Paragraph 1.6 Base Rent: Base Rent with respect to Suite 350, consisting of approximately 17,767 rentable square feet, as of January 1, 2020
shall be $8.75 per square foot per month or One Hundred Fifty-Five Thousand Four Hundred Sixty-One Dollars ($155,461.00) and Base Rent
with respect to Suite 170, consisting of approximately 11,686 rentable square feet, as of January 1, 2020 shall be $8.75 per square foot per month
or One Hundred Two Thousand Two Hundred Fifty-Three Dollars ($102,253.00), provided that the foregoing amounts shall increase by 3% on
January 1, 2021 and annually thereafter. Base Rent with respect to Suite 300, consisting of approximately 10,500 rentable square feet shall be
$8.25 per square foot per month or Eighty-Six Thousand Six Hundred Twenty-Five Dollars, ($86,625.00), provided that such amounts shall
increase by 3% on September 1, 2020 and annually thereafter. Monthly rent increases shall be rounded to the nearest dollar.
D. Paragraph 1.6a: Lessee shall be solely responsible for any and all Tenant Improvements it may desire to construct, for the Remaining Premises,
including but not limited to architectural expenses, Permit fees, construction costs, etc. Lessor shall have no obligation to pay for any portion of
Lessee’s Tenant Improvement Work.
E. Paragraph 1.8 Security Deposit: Lessor is currently holding a security deposit of One Million Three Hundred Eighty-Five Thousand Eight
Hundred Four Dollars and 00 cents, ($1,385,804.00) from Lessee. Rent payment for the months of January 2020, January 2021 and January 2022
shall be deducted from the security deposit so long as is not in default of its obligations beyond applicable notice and cure periods.
F. Paragraph 1.9 Lessee’s Share of Operating Expense Increase: Effective as of January 1, 2020 Lessee’s Share of Operating Expense Increase shall
be 33.9%. Lessee’s base year shall be 2018.
G. Paragraph 34 Signs: Lessee shall have the right, with Lessors approval, to have building signage either on the building and/or on the
monument. Lessor will work with Lessee and the city to determine the size and location of such signage. All signage shall be completed at
Lessee’s sole cost and expense.
H. Paragraph 48 Tenant Improvements: Lessee, at Lessee’s sole cost, may construct improvements approved by Lessor. If Lessee constructs any
Tenant Improvements, such Tenant Improvements must be constructed in accordance with the attached Exhibit B “Work Letter”
I.
Paragraph 49 Option to Renew: Lessee’s existing Option to Renew shall apply to this Amendment as to all of the Premises retained by Lessee as
part of this Amendment at the end of the Term; provided however, Lessee may have the option to extend for a period from 3 to 5 years, as
designated by Lessee.
J. Right to Terminate: Lessee shall have the right to terminate this lease if Lessee needs additional square footage that the Lessor chooses not to or
is unable to accommodate on fair market terms. Lessee may give Lessor 6 months written notice, such notice shall not be given prior to January
1, 2023, that Lessee requires additional square footage. Lessor shall inform Lessee within 90 days of receiving said notice as to whether they can
accommodate the request. If Lessor does not have or chooses not to provide further expansion space for Lessee on fair market terms, Lessee may
terminate the Lease and shall pay a termination fee equal to 8 months of the current rent and operating costs. If Lessee would like to sublease the
space, Lessor will cooperate fully in finding an acceptable replacement tenant. If the parties do not agree on whether the additional space is
being offered on fair market terms, such terms shall be determined in accordance with Paragraph 49 of the Original Lease.
K. Letter of Credit: Notwithstanding anything in the Lease or this Amendment to the contrary, Lessor shall only draw upon the Letter of Credit
following an event of default and only to the extent required to cure the event of default. In the event that Lessor draws upon the Letter of Credit
solely due to Lessee’s failure to renew the Letter of Credit at least thirty (30) days before its expiration (i) such failure to renew shall not
constitute a default hereunder and (ii) Lessee shall at any time thereafter be entitled to provide Lessor with a replacement Letter of Credit that
satisfies the requirements hereunder, at which time Lessor shall return the cash proceeds of the original Letter of Credit drawn by
Lessor. In the event Lessor improperly draws upon the Letter of Credit or misapplies the Letter of Credit proceeds, Lessee shall have the right to
offset such amounts against rent.
L. Disability Accessibility Disclosure. For purposes of Section 1938 of the California Civil Code, as of the date of this Amendment, Lessor hereby
discloses to Lessee, and Lessee hereby acknowledges, that, Lessor’s has not had Lessee’s Premises inspected by a Certified Access Specialist
("CASp"). Accordingly, "a CASp can inspect the Premises and determine whether the Premises complies with all of the applicable construction
related accessibility standards under state law. Although state law does not require a CASp inspection of the Premises, Lessor may not prohibit
Lessee from obtaining a CASp inspection of the Premises for the occupancy or potential occupancy of Lessee, if requested by Lessee, however,
Lessee shall be solely responsible for all costs involved in the inspection and any repairs required in Lessee’s premises.
M. Mutual Release of Claims. In consideration for the release and distribution of the interpled sums as above-referenced, and in consideration of the
further promises set forth in this Agreement, each party to this Agreement shall, and hereby does, release and forever discharge the every other
party to this Agreement, and each of their predecessors, successors, assigns, agents, employees, representatives, attorneys, affiliates, subsidiaries,
as well as any and all persons acting, or allegedly acting, by, under, through, or in concert with each party, against any and all claims, damages,
actions, causes of action, liability, judgments, liens (including, but not limited to attorneys' fees), damages and charges of whatsoever nature,
whether known or unknown, suspected or unsuspected, foreseen or unforeseen, fixed or contingent, or ever filed or prosecuted, which arises
from or relates to the lease of Suite 320 and any claims that either party should reasonably know regarding the Lease and any amendments
(excluding this Amendment) thereto as of the execution of this Amendment.
Waiver of Unknown Claims: The Parties agree that this Agreement is intended to be a full and final compromise, release, and
settlement of all disputes of any existing claims against one another with respect to Suite 320. The Parties acknowledge that different or
additional facts may be discovered in addition to those that the Parties now know or believe to be true with respect to the matters herein released,
and the Parties agree that this Agreement shall be and remain in effect in all respects as a complete and final release, notwithstanding any
different or additional facts. The Parties are aware of and acknowledge California Civil Code section 1542, which reads:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR OR RELEASING PARTY DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, AND THAT IF KNOWN BY
HIM OR HER WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.
The Parties fully understand the statutory language of California Civil Code section 1542 and, as a further consideration and
inducement for this Agreement and to the extent not otherwise provided herein, expressly waive any rights they may have under California Civil
Code section 1542, as well as under any statutes or common law principles to similar effect.
N.
Intentionally Deleted.
O. Entire Agreement. The terms of this Amendment together with the Lease shall constitute the entire agreement and understanding of the parties
hereto with respect to the matters covered herein, and all prior negotiations, agreements and understanding relating to such matters are deemed
merged herein.
P. Counterparts. This Agreement may be signed in counterparts all of which, when assembled, shall constitute one original document.
Q. Capitalized Terms. Capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Lease.
R. Lender Approval. Lessor represents and warrants that it will use best effort to obtain the consent to this Amendment from any Lender with a
Lien on the Building.
[Signatures on Following Page]
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement.
AGREED:
LESSOR:
LESSEE:
ASSET GROWTH PARTNERS L.P.
ELASTICSEARCH, INC.
By:/s/ Thomas J. Sees
Thomas J. Rees
President of General Partner
Date: 1/1/2020
By:/s/ David Mitchell
David Mitchell
Attorney
Date: 12/30/2019
TJR Initial DM Initial
Exhibit A1
Suites 300 and 350
Exhibit A2
Suite 120
I.
TENANT IMPROVEMENTS
Exhibit B
WORK LETTER
The tenant improvement work shall consist of any work required to complete certain improvements to the Premises pursuant to approved ''Working
Drawings and Specifications” Tenant shall employ a licensed architect (the "Architect") for preparation of "Preliminary Plans" and "Working
Drawings and Specifications". Any Tenant Improvement Work shall be undertaken and performed in accordance with the following requirements:
A. Tenant shall submit to Landlord a ("Preliminary Plan"), Within 5 business days following its submission to Landlord, Landlord, shall approve or
disapprove the Working Drawings and Specifications, and in either case, Landlord’s approval shall not be unreasonably withheld. If Landlord
disapproves the Preliminary Plan, Landlord shall specify in detail the reasons for disapproval and Tenant shall cause the Architect to modify the
Preliminary Plan, Working Drawings and Specifications or Change to incorporate Landlord’s suggested revisions in a mutually satisfactory manner.
B. Tenant shall enter into a construction contract (the "Tl Contract") with a licensed general contractor reasonably approved by Landlord (the "Tl
Contractor") for construction of the Tenant Improvements. All work that would be disruptive to existing Tenants in the building must be done
before 8:30 a.m. or after 5:00 p.m. Monday through Friday or on weekends. Such work shall include, but is not limited to the following:
1. Demolition
2. Core drilling
3. Framing
4. Any work that requires drilling or hammering into the floor or ceiling
5. Floor preparation
6. Ceiling insulation
C. Materials must be delivered to the premises before 8:30 a.m. or after 6:00 p.m.
D. Prior to the commencement of the Tenant Improvement Work, TI Contractor shall deliver to Landlord a copy of the final application for permit and
issued permit for the work.
E. The Tl Contractor shall comply with Landlord's reasonable requirements as generally imposed on third party contractors, including without
limitation all insurance coverage requirements and the obligation to furnish appropriate certificates of insurance to Landlord, prior to
commencement of construction or the Tenant Improvement Work.
F. A construction schedule shall be provided to Landlord prior to commencement of the construction of the Tenant Improvement Work, and weekly
updates shall be supplied during the progress of the work.
G. The Tenant Improvement Work shall be subject to inspection at all times by Landlord and its construction manager, and Landlord and/or its
construction manager shall be permitted to attend weekly job meetings with the Tl Contractor.
H. Upon completion of the Tenant Improvement Work, the TI Contractor shall cause to be provided to Landlord a close-out package which shall
include: (i) as-built drawings of the Tenant Improvements work signed by the Architect, (ii) PDF files of the improved space (iii) a final punch list
signed by Tenant, (iv) final and unconditional lien waivers from the Tl Contractor and all subcontractors, and (v) a certificate of occupancy for the
Premises (collectively, the "Close-Out Package").
I.
Tl Contractor and its. subcontractors shall be permitted to enter the Premises so long as they are in compliance with all requirements imposed by
Landlord on third party contractors, including without limitation the maintenance of workers' compensation and public liability and property
damage insurance by the Tl Contractor in amounts and with companies and on forms satisfactory to Landlord, with certificates of such insurance
being furnished to Landlord prior to proceeding with any such entry. Tenant shall apply and pay for all utility services required for the Tenant
Improvements. Landlord shall not be liable in any way for any injury, loss or damage which may occur to any such work being performed by the TI
Contractor, the same being solely at contractor’s risk. Tenant further agrees that the Commencement Date of the Lease is not conditioned upon, nor
shall such Date be extended by, the completion of the foregoing Tenant Improvements.
II. COST OF THE TENANT IMPROVEMENTS WORK
"Completion Cost" of the Tenant Improvements (as hereinafter defined), to be borne solely by Tenant.
A. The "Completion Cost" shall mean the costs of completing the Tenant Improvements in accordance with the approved Working Drawings and
Specifications, including but not limited to the following: (i) payments made to the Tl Contractor, engineers, subcontractors and other third party
consultants in the performance of the work, (ii) permit fees and other sums paid to governmental agencies, and (iii) costs of all materials
incorporated into the work or used in connection with the work. The Completion Cost shall also include an administrative/overhead fee to be paid to
Landlord or to Landlord's management agent in the amount of 4% of the Completion Cost.
B. The Tenants cost to Landlord shall be paid to Landlord within 30 days following substantial completion of the Tenant Improvements in accordance
with this Work Letter.
SUBSIDIARIES OF ELASTIC N.V.
Exhibit 21.1
Name of Subsidiary
Elastic International B.V.
Elastic Technologies (India) Private Limited
Elastic Technologies (Israel) Ltd.
Elasticsearch AB
Elasticsearch AS
Elasticsearch B.C. Ltd.
elasticsearch B.V.
Elasticsearch (Beijing) Information Technology Co., Ltd.
Elasticsearch (CH) AG
Elasticsearch Federal Inc.
Elasticsearch Finance B.V.
Elasticsearch GmbH
Elasticsearch Government, Inc. (in liquidation)
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
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Opbeat, LLC
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Swiftype, Inc.
Jurisdiction of Incorporation
Netherlands
India
Israel
Sweden
Norway
Canada
Netherlands
People’s Republic of China
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, No. 333-234152, and No.
333-239492) of Elastic N.V. of our report dated June 25, 2021 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 25, 2021
Exhibit 31.1
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
I, Shay Banon, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Elastic N.V. (the “registrant”) for the fiscal year ended April 30, 2021;
2. 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;
3. 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;
4. 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. 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;
b. 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;
c. 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
d. 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. 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
b. 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 25, 2021
By:
Name:
Title:
/s/ Shay Banon
Shay Banon
Chief Executive Officer and Chairman
(Principal Executive Officer)
Exhibit 31.2
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
I, Janesh Moorjani, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Elastic N.V. (the “registrant”) for the fiscal year ended April 30, 2021;
2. 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;
3. 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;
4. 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. 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;
b. 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;
c. 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
d. 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. 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
b. 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 25, 2021
By:
Name:
Title:
/s/ Janesh Moorjani
Janesh Moorjani
Chief Financial Officer
(Principal Financial and Accounting Officer)
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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, 2021 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 25, 2021
By:
Name:
Title:
/s/ Shay Banon
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.
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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, 2021 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 25, 2021
By:
Name:
Title:
/s/ Janesh Moorjani
Janesh Moorjani
Chief Financial Officer
(Principal Financial and Accounting 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.