UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-38675

 

Elastic N.V.

 

The Netherlands

Not Applicable

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

800 West El Camino Real, Suite 350

Mountain View, California 94040

(Address of principal executive offices)

(650) 458-2620

(Registrant’s telephone number, including area code)

 

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

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

Emerging growth 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

As of November 30, 2018, the registrant had 70,973,965 ordinary shares, €0.01 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

 

Note Regarding Forward-Looking Statements

3

 

PART I.

FINANCIAL INFORMATION

4

 

 

 

Item 1.

Financial Statements (Unaudited)

4

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Operations

5

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

6

 

Condensed Consolidated Statement of Convertible Redeemable Preference Shares and Shareholders’ Equity (Deficit)

7

 

Condensed Consolidated Statements of Cash Flows

8

 

Notes to Unaudited Condensed Consolidated Financial Statements (Unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

Item 4.

Controls and Procedures

39

 

 

 

PART II.

OTHER INFORMATION

41

 

 

 

Item 1.

Legal Proceedings

41

Item 1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

66

Item 3.

Defaults Upon Senior Securities

66

Item 4.

Mine Safety Disclosures

66

Item 5.

Other Information

66

Item 6.

Exhibits

66

Signatures

68

 

2


 

NOTE REG ARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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,” “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 Quarterly Report on Form 10-Q include, but are not limited to, statements about:

 

 

 

 

 

our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses (including changes in sales and marketing, research and development and general and administrative expenses), and our ability to achieve, and maintain, future profitability;

  

 

market acceptance of our products;

  

 

the effects of increased competition in our markets and our ability to compete effectively;

  

 

our ability to maintain the security and availability of our software;

  

 

our ability to maintain and expand our customer base, including by attracting new customers;

  

 

our ability to maintain or increase our Net Expansion Rate;

  

 

our ability to develop new offerings, or enhancements to our existing offerings, and bring them to market in a timely manner;

  

 

anticipated trends, growth rates and challenges in our business and in the markets in which we operate;

  

 

our business model and our ability to effectively manage our growth and associated investments;

  

 

beliefs and objectives for future operations, including regarding our estimated total addressable market;

  

 

our relationships with third parties, including partners;

  

 

our ability to maintain, protect and enhance our intellectual property rights;

  

 

our ability to successfully defend litigation brought against us;

  

 

our ability to successfully 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;

  

 

the attraction and retention of qualified employees and key personnel;

  

 

our use of the net proceeds from the initial public offering; and

  

 

the future trading prices of our ordinary shares.

 

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 Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q 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.

3


 

PART I—FINANCI AL INFORMATION

ITEM 1. FIN ANCIAL STATEMENTS

Elastic N.V.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(Unaudited)

 

 

 

October 31, 2018

 

 

April 30, 2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

318,564

 

 

$

50,941

 

Restricted cash

 

 

2,283

 

 

 

668

 

Accounts receivable, net of allowance for doubtful accounts of $1,604

   and $776 as of October 31, 2018 and April 30, 2018, respectively

 

 

54,512

 

 

 

53,233

 

Deferred contract acquisition costs

 

 

15,721

 

 

 

12,125

 

Prepaid expenses and other current assets

 

 

18,524

 

 

 

15,261

 

Total current assets

 

 

409,604

 

 

 

132,228

 

Property and equipment, net

 

 

4,104

 

 

 

4,536

 

Goodwill

 

 

19,964

 

 

 

19,182

 

Intangible assets, net

 

 

8,176

 

 

 

8,297

 

Deferred contract acquisition costs, non-current

 

 

7,147

 

 

 

5,954

 

Deferred offering costs

 

 

-

 

 

 

242

 

Deferred tax assets

 

 

3,036

 

 

 

3,946

 

Other assets

 

 

7,500

 

 

 

8,628

 

Total assets

 

$

459,531

 

 

$

183,013

 

Liabilities, Redeemable Convertible Preferred Shares and Shareholders’

   (Deficit) Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,827

 

 

$

2,176

 

Accrued expenses and other liabilities

 

 

16,866

 

 

 

11,816

 

Accrued compensation and benefits

 

 

16,458

 

 

 

15,191

 

Deferred revenue

 

 

116,255

 

 

 

95,929

 

Total current liabilities

 

 

159,406

 

 

 

125,112

 

Deferred revenue, non-current

 

 

11,024

 

 

 

6,632

 

Other liabilities, non-current

 

 

5,215

 

 

 

3,877

 

Total liabilities

 

 

175,645

 

 

 

135,621

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Redeemable convertible preference shares, par value €0.001 per share;

   No shares authorized, issued, or outstanding as of October 31, 2018;

   29,026,193 shares authorized; 28,939,466 shares issued and

   outstanding as of April 30, 2018

 

 

-

 

 

 

200,921

 

Shareholders’ (deficit) equity:

 

 

 

 

 

 

 

 

Convertible preference shares, €0.01 par value; 165,000,000 shares authorized, 0

   shares issued and outstanding as of October 31, 2018; 0 shares authorized, issued

   and outstanding as of April 30, 2018

 

 

-

 

 

 

-

 

Ordinary shares, par value €0.01 per share: 165,000,000 shares authorized;

   70,948,987 shares issued and outstanding as of October 31, 2018

 

 

722

 

 

 

-

 

Ordinary shares, par value of €0.001 per share; 72,000,000 shares authorized;

    0 and 33,232,955 shares issued and outstanding as of October 31, 2018

    and April 30, 2018, respectively

 

 

-

 

 

 

33

 

Treasury stock; 35,937 shares (repurchased at an average price of $10.30

   per share)

 

 

(369

)

 

 

(369

)

Additional paid-in capital

 

 

546,219

 

 

 

62,542

 

Accumulated other comprehensive loss

 

 

(1,795

)

 

 

(961

)

Accumulated deficit

 

 

(260,891

)

 

 

(214,774

)

Total shareholders’ (deficit) equity

 

 

283,886

 

 

 

(153,529

)

Total liabilities, redeemable convertible preference shares and shareholders’

   (deficit) equity

 

$

459,531

 

 

$

183,013

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


 

Elastic N .V.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data) (unaudited)

 

 

 

Three Months Ended October 31,

 

 

Six Months Ended October 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License - self-managed

 

$

10,204

 

 

$

6,456

 

 

$

17,444

 

 

$

11,105

 

Subscription - self-managed and SaaS

 

 

48,232

 

 

 

28,326

 

 

 

92,601

 

 

 

53,068

 

Total subscription revenue

 

 

58,436

 

 

 

34,782

 

 

 

110,045

 

 

 

64,173

 

Professional services

 

 

5,139

 

 

 

2,256

 

 

 

10,174

 

 

 

4,509

 

Total revenue

 

 

63,575

 

 

 

37,038

 

 

 

120,219

 

 

 

68,682

 

Cost of revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of license - self-managed

 

 

97

 

 

 

97

 

 

 

194

 

 

 

194

 

Cost of subscription - self-managed and SaaS

 

 

12,870

 

 

 

6,254

 

 

 

23,071

 

 

 

11,236

 

Total cost of revenue - subscription

 

 

12,967

 

 

 

6,351

 

 

 

23,265

 

 

 

11,430

 

Cost of professional services

 

 

5,620

 

 

 

2,609

 

 

 

10,879

 

 

 

4,944

 

Total cost of revenue

 

 

18,587

 

 

 

8,960

 

 

 

34,144

 

 

 

16,374

 

Gross profit

 

 

44,988

 

 

 

28,078

 

 

 

86,075

 

 

 

52,308

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

25,332

 

 

 

12,182

 

 

 

44,313

 

 

 

23,006

 

Sales and marketing

 

 

34,634

 

 

 

16,905

 

 

 

65,056

 

 

 

33,952

 

General and administrative

 

 

12,092

 

 

 

6,117

 

 

 

22,191

 

 

 

11,650

 

Total operating expenses

 

 

72,058

 

 

 

35,204

 

 

 

131,560

 

 

 

68,608

 

Operating loss

 

 

(27,070

)

 

 

(7,126

)

 

 

(45,485

)

 

 

(16,300

)

Other income (expense), net

 

 

264

 

 

 

86

 

 

 

860

 

 

 

(638

)

Loss before income taxes

 

 

(26,806

)

 

 

(7,040

)

 

 

(44,625

)

 

 

(16,938

)

Provision for income taxes

 

 

733

 

 

 

987

 

 

 

1,492

 

 

 

1,056

 

Net loss

 

$

(27,539

)

 

$

(8,027

)

 

$

(46,117

)

 

$

(17,994

)

Net loss per share attributable to ordinary shareholders, basic

   and diluted

 

$

(0.63

)

 

$

(0.25

)

 

$

(1.20

)

 

$

(0.57

)

Weighted-average shares used to compute net loss per share

   attributable to ordinary shareholders, basic and diluted

 

 

43,978,770

 

 

 

31,684,020

 

 

 

38,471,641

 

 

 

31,561,588

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

5


 

Elastic N .V.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands) (unaudited)

 

 

 

Three Months Ended October 31,

 

 

Six Months Ended October 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net loss

 

$

(27,539

)

 

$

(8,027

)

 

$

(46,117

)

 

$

(17,994

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(96

)

 

 

(1,535

)

 

 

(834

)

 

 

(475

)

Other comprehensive loss

 

 

(96

)

 

 

(1,535

)

 

 

(834

)

 

 

(475

)

Total comprehensive loss

 

$

(27,635

)

 

$

(9,562

)

 

$

(46,951

)

 

$

(18,469

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6


 

Elastic N .V.

Condensed Consolidated Statements of Redeemable Convertible Preference Shares

and Shareholders’ (Deficit) Equity

(in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Redeemable Convertible

 

 

 

 

 

 

 

 

 

 

 

Treasury

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

Preference Shares

 

 

 

Ordinary Shares

 

 

Shares

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

(Deficit) Equity

 

Balances at April 30, 2018

 

28,939,466

 

 

$

200,921

 

 

 

 

33,232,955

 

 

$

33

 

 

$

(369

)

 

$

62,542

 

 

$

(961

)

 

$

(214,774

)

 

$

(153,529

)

Change in par value upon conversion from

    B.V. to N.V.

 

-

 

 

 

-

 

 

 

 

-

 

 

 

303

 

 

 

-

 

 

 

(303

)

 

 

-

 

 

 

-

 

 

 

-

 

Conversion of redeemable convertible

   preference shares to ordinary shares upon

   initial public offering

 

(28,939,466

)

 

 

(200,921

)

 

 

 

28,939,466

 

 

 

289

 

 

 

-

 

 

 

200,632

 

 

 

-

 

 

 

-

 

 

 

200,921

 

Issuance of ordinary shares upon initial

   public offering, net of underwriting

   discounts and issuance costs

 

-

 

 

 

-

 

 

 

 

8,050,000

 

 

 

93

 

 

 

-

 

 

 

263,749

 

 

 

-

 

 

 

-

 

 

 

263,842

 

Issuance of ordinary shares upon exercise of

   stock options

 

-

 

 

 

-

 

 

 

 

635,722

 

 

 

4

 

 

 

-

 

 

 

2,779

 

 

 

-

 

 

 

-

 

 

 

2,783

 

Vesting of early exercised stock options

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,019

 

 

 

-

 

 

 

-

 

 

 

1,019

 

Vesting of ordinary shares subject to

   repurchase

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

449

 

 

 

-

 

 

 

-

 

 

 

449

 

Repurchase of early exercised stock options

 

-

 

 

 

-

 

 

 

 

(43,630

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Ordinary shares issued in connection with the

   acquisition of Lambda Lab

 

-

 

 

 

-

 

 

 

 

134,474

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

15,352

 

 

 

-

 

 

 

-

 

 

 

15,352

 

Net loss

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(46,117

)

 

 

(46,117

)

Foreign currency translation

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(834

)

 

 

-

 

 

 

(834

)

Balances at October 31, 2018

 

-

 

 

$

-

 

 

 

 

70,948,987

 

 

$

722

 

 

$

(369

)

 

$

546,219

 

 

$

(1,795

)

 

$

(260,891

)

 

$

283,886

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

7


 

Elastic N .V.

Condensed Consolidated Statements of Cash Flows

(in thousands) (unaudited)

 

 

 

Six Months Ended October 31,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(46,117

)

 

$

(17,994

)

Adjustments to reconcile net loss to cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,008

 

 

 

2,095

 

Amortization of deferred contract acquisition costs

 

 

8,848

 

 

 

5,598

 

Stock-based compensation expense

 

 

16,904

 

 

 

5,024

 

Other

 

 

15

 

 

 

2

 

Changes in operating assets and liabilities, net of impact of business acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(2,624

)

 

 

(2,092

)

Deferred contract acquisition costs

 

 

(14,136

)

 

 

(7,253

)

Prepaid expenses and other current assets

 

 

(4,857

)

 

 

(1,917

)

Other assets

 

 

1,643

 

 

 

(1,827

)

Accounts payable

 

 

4,867

 

 

 

398

 

Accrued expenses and other liabilities

 

 

7,655

 

 

 

4,786

 

Accrued compensation and benefits

 

 

1,666

 

 

 

2,381

 

Deferred revenue

 

 

27,678

 

 

 

15,735

 

Net cash provided by operating activities

 

 

4,550

 

 

 

4,936

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,172

)

 

 

(896

)

Maturities of short-term investments

 

 

-

 

 

 

15,000

 

Business acquisitions, net of cash acquired

 

 

(1,986

)

 

 

(3,702

)

Net cash (used in) provided by investing activities

 

 

(3,158

)

 

 

10,402

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Net proceeds from issuance of ordinary shares in initial public offering

 

 

269,514

 

 

 

-

 

Proceeds from issuance of ordinary shares upon exercise of stock options

 

 

2,782

 

 

 

1,328

 

Repurchase of ordinary shares

 

 

-

 

 

 

(344

)

Repurchase of early exercised options

 

 

(500

)

 

 

-

 

Repayment of notes payable

 

 

(20

)

 

 

(59

)

Payment of deferred offering costs

 

 

(2,302

)

 

 

-

 

Net cash provided by financing activities

 

 

269,474

 

 

 

925

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(1,628

)

 

 

(584

)

Net increase in cash, cash equivalents, and restricted cash

 

 

269,238

 

 

 

15,679

 

Cash, cash equivalents, and restricted cash, beginning of period

 

 

51,609

 

 

 

59,890

 

Cash, cash equivalents, and restricted cash, end of period

 

$

320,847

 

 

$

75,569

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

759

 

 

$

810

 

Cash paid for interest

 

$

2

 

 

$

3

 

Supplemental disclosures of non-cash investing and financing information

 

 

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable

 

$

18

 

 

$

79

 

Vesting of early exercised stock options

 

$

1,019

 

 

$

55

 

Vesting of shares subject to repurchase

 

$

449

 

 

$

-

 

Deferred offering costs accrued

 

$

3,371

 

 

$

-

 

Issuance of ordinary shares for business acquisition

 

$

-

 

 

$

12,410

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

8


 

1. Organization and De scription of Business

Elastic N.V. (formerly Elasticsearch Global B.V. and subsequently Elastic B.V.) (the “Company” was founded in 2012 and has its corporate seat in Amsterdam, the Netherlands. 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 that address a wide variety of use cases including app search, site search, enterprise search, logging, metrics, application performance monitoring (“APM”), business analytics, and security analytics. The Elastic Stack and the Company’s solutions are designed to run on premises, in public or private clouds, or in hybrid 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 closing 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 condensed 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 limited company (naamloze vennootschap).

 

Offering Costs

O ffering costs of $5.7 million, consisting of legal, accounting and other fees and costs related to the IPO, were reclassified to additional paid-in capital as a reduction of the proceeds upon the closing of the IPO in October 2018. During the six months ended October 31, 2018, $2.3 million of the offering costs were paid.

 

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated balance sheet and interim condensed statement of redeemable convertible preference shares and shareholders’ equity (deficit) as of October 31, 2018, the interim condensed consolidated statements of operations and of comprehensive loss for the three and six months ended October 31, 2018 and the interim condensed consolidated statement of cash flows for the six months ended October 31, 2018 and 2017, are unaudited. These interim condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, include all adjustments necessary to fairly state the Company’s financial position as of October 31, 2018 and the results of the Company’s operations for the three and six months ended October 31, 2018 and cash flows for the six months ended October 31, 2018 and 2017. The financial data and other financial information disclosure in the notes to these condensed consolidated financial statements related to the three and six month periods are also unaudited. The results for the three and six months ended October 31, 2018 are not necessarily indicative of the operating results expected for the fiscal year ending April 30, 2019, or any future period.

The condensed 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.

Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company’s final prospectus for its IPO filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (File No. 333-227191) on October 5, 2018.

Fiscal Year

The Company’s fiscal year ends on April 30. References to fiscal 2019, for example, refer to the fiscal year ending April 30, 2019.

9


 

Use of Estimates and Judgments

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Such estimates include, but are not limited to, allocation of revenue between recognized and deferred amounts, deferred contract acquisition costs, allowance for doubtful accounts, valuation of stock-based compensation, fair value of ordinary shares in periods prior to the Company’s IPO, fair value of acquired intangible assets and goodwill, useful lives of acquired intangible assets and property and equipment, 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. Actual results could differ from those estimates.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has irrevocably elected not to avail itself of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Recently Adopted Accounting Pronouncements

Business Combinations :    In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business , which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set of transferred assets and activities is not a business. For public business entities, it is effective for fiscal years beginning after December 15, 2017, and interim periods therein. The adoption during the six months ended October 31, 2018 did not have a material impact on the Company’s consolidated financial statements.

Stock Compensation:     In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting , which provides clarity in applying the guidance in Topic 718 around modifications of stock-based payment awards. For public business entities, it is effective for fiscal years beginning after December 15, 2017, and interim periods therein. The adoption during the six months ended October 31, 2018 did not have a material impact on the Company’s consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

Leases:     In February 2016, the FASB issued ASU No. 2016-02, Leases ( Topic 842), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Leases (Topic 842), Targeted Improvements, which affect certain aspects of the previously issued guidance. Amendments include an additional transition method that allows entities to apply the new standard on the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings, as well as a new practical expedient for lessors. The new guidance becomes effective for the Company for the fiscal year ending April 30, 2020, though early adoption is permitted. The Company is currently evaluating adoption methods and whether this standard will have a material impact on its consolidated financial statements.

Goodwill Impairment :    In January 2017, the FASB issued ASU No. 2017-04, Intangibles— Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . The new standard will simplify the measurement of goodwill by eliminating step two of the two-step impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The new guidance requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The new guidance becomes effective for the Company for the fiscal year ending April 30, 2021, though early adoption is permitted. The Company does not expect the adoption of the new accounting standard will have a material impact on its consolidated financial statements.

10


 

Comprehensive Income :    In February 2018, the FASB issu ed ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , which provides financial statement preparers with an option to reclassify stranded tax eff ects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. For all entities, it is ef fective for fiscal years beginning after December 15, 2018, and interim periods therein. The new guidance becomes effective for the Company for the fiscal year ending April 30, 2020, though early adoption is permitted. The amendments in this ASU should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company is currently evaluating the pote ntial impact of this ASU on its consolidated financial statements.

Fair Value Measurements:    In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) , which modifies, removes and adds certain disclosure requirements on fair value measurements based on the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements . The ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. 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. Early adoption is permitted. The Company is currently evaluating the potential impact of this ASU on its consolidated financial statements.

Intangible Assets:   In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40) , which align 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 amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact of this ASU on its consolidated financial statements.

3. Revenue and Performance Obligations

The Company adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue From Contracts With Customers (“ASC 606”) on May 1, 2017, using the full retrospective transition method.

Disaggregation of Revenue

The following table presents revenue by category (in thousands):

 

 

 

Three Months Ended October 31,

 

 

Six Months Ended October 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

 

 

 

 

% of

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

Total

 

 

 

 

 

 

Total

 

 

 

 

 

 

Total

 

 

 

Amount

 

 

Revenue

 

 

Amount

 

 

Revenue

 

 

Amount

 

 

Revenue

 

 

Amount

 

 

Revenue

 

Self-managed subscription

 

$

48,406

 

 

 

76

%

 

$

29,169

 

 

 

79

%

 

$

89,718

 

 

 

75

%

 

$

53,831

 

 

 

78

%

License

 

 

10,204

 

 

 

16

%

 

 

6,456

 

 

 

17

%

 

 

17,444

 

 

 

15

%

 

 

11,105

 

 

 

16

%

Subscription

 

 

38,202

 

 

 

60

%

 

 

22,713

 

 

 

62

%

 

 

72,274

 

 

 

60

%

 

 

42,726

 

 

 

62

%

SaaS

 

 

10,030

 

 

 

16

%

 

 

5,613

 

 

 

15

%

 

 

20,327

 

 

 

17

%

 

 

10,342

 

 

 

15

%

Total subscription revenue

 

 

58,436

 

 

 

92

%

 

 

34,782

 

 

 

94

%

 

 

110,045

 

 

 

92

%

 

 

64,173

 

 

 

93

%

Professional services

 

 

5,139

 

 

 

8

%

 

 

2,256

 

 

 

6

%

 

 

10,174

 

 

 

8

%

 

 

4,509

 

 

 

7

%

Total revenue

 

$

63,575

 

 

 

100

%

 

$

37,038

 

 

 

100

%

 

$

120,219

 

 

 

100

%

 

$

68,682

 

 

 

100

%

 

Remaining Performance Obligations

As of October 31, 2018, $268.5 million of remaining performance obligations, which is comprised of product and services revenue not yet delivered. As of October 31, 2018, the Company expects to recognize approximately 86% of its remaining performance obligations as revenue over the next 24 months and the remainder thereafter.

 

11


 

 

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 October 31, 2018 (in thousands):

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets: