Elastic N.V. — Form 10-Q Summary
Reporting period: Fiscal 2022 third quarter, three months ended January 31, 2022, with nine-month year-to-date comparisons. This is not calendar 2021 Q3. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context
Elastic sells subscriptions for its Elastic Stack and Enterprise Search, Observability, and Security offerings, deployed as self-managed software or through Elastic Cloud. Subscriptions made up 94% of quarterly revenue and 93% of nine-month revenue. The company reported more than 17,900 customers, versus more than 13,800 a year earlier, and more than 890 customers with over $100,000 in annual contract value, versus more than 670.
Key financial metrics
| Metric | Quarter ended Jan. 31, 2022 | Quarter ended Jan. 31, 2021 | Nine months ended Jan. 31, 2022 | Nine months ended Jan. 31, 2021 |
|---|---|---|---|---|
| Revenue | $223.9 | $157.1 | $623.0 | $430.9 |
| Gross profit / margin | $162.7 / 73% | $115.1 / 73% | $458.2 / 74% | $315.6 / 73% |
| Operating loss | ($45.8) | ($34.5) | ($114.1) | ($92.4) |
| Net loss | ($56.7) | ($38.0) | ($138.2) | ($86.1) |
| Net loss per share, diluted | ($0.61) | ($0.43) | ($1.50) | ($1.00) |
| Cash from operating activities | Not presented for quarter | $8.7 | $24.1 |
- Quarterly revenue increased 43%; subscription revenue increased 42%. Nine-month revenue increased 45%, led by subscription growth of 43%.
- Elastic Cloud contributed 36% of quarterly revenue and 34% of nine-month revenue, compared with 29% and 27%, respectively, in the prior-year periods.
- Nine-month operating expenses rose to $572.2 million from $408.0 million, with sales and marketing up 50% and research and development up 36%. Stock-based compensation expense was $97.7 million for the nine months, versus $65.3 million.
- At January 31, cash and cash equivalents were $864.4 million, restricted cash was $3.9 million, and working capital was $601.5 million. Accumulated deficit was $751.6 million.
- Operating cash flow fell to $8.7 million from $24.1 million for the nine-month comparison. Investing cash outflow was $125.1 million, including $119.9 million for acquisitions; financing cash inflow was $593.3 million, primarily from debt issuance.
- The company issued $575 million of 4.125% senior notes due July 2029. Net carrying value was $566.3 million; quarterly interest expense was $6.2 million and nine-month interest expense was $14.3 million. The company reported compliance with indenture covenants.
- Remaining performance obligations were $860.6 million; management expected approximately 86% to be recognized as revenue over the following 24 months.
Material changes and management commentary
- Revenue growth reflected new business, expansion of existing customers, and a larger customer base. Quarterly subscription gross margin eased to 77% from 78%; nine-month subscription margin was unchanged at 78%. Management noted cloud hosting costs as a principal contributor to higher subscription costs.
- Operating losses widened as the company invested in product development and sales and marketing. Management expects operating losses to continue and may generate negative annual operating cash flows for the foreseeable future.
- Elastic acquired Cmd, build.security, and Optimyze for combined consideration of approximately $134.9 million during the nine months. Acquired goodwill increased by $105.9 million; purchase price allocations remained preliminary.
- Management said existing cash and cash equivalents should fund operating and capital needs for at least the next 12 months. It planned to maintain a similar pace of business investment through the remainder of fiscal 2022. The filing text provides no numerical revenue or earnings guidance.
- Net Expansion Rate was slightly below 130% for the quarter. The company changed its calculation to include actual spending patterns and month-to-month customers; management said the effect on previously reported periods was immaterial.
- Management cited COVID-19-related sales delays, longer sales cycles, delayed services, and pressure on billings and expansion, while noting that digital transformation may support demand. Travel and live-event costs were expected to rise as restrictions abated.
- Elastic identified Russia’s invasion of Ukraine and related economic and cybersecurity risks, foreign-exchange exposure, competition, data-security and privacy regulation, and its licensing changes as potential risks. It also warned that increasing Elastic Cloud mix could modestly pressure gross margin.
- No material litigation or claims with a reasonable possibility of material loss were identified. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
- In January 2022, Shay Banon transitioned from CEO and Board Chair to CTO, and Ashutosh Kulkarni became CEO; shareholders appointed Mr. Kulkarni to the Board on March 9, 2022.
Important facts for investors to verify
- Whether Elastic Cloud growth can be sustained while controlling hosting costs and protecting subscription margins.
- How much reported growth translates into durable customer expansion, renewals, billings, and cash generation; review the $860.6 million remaining performance obligations and the company’s Net Expansion Rate definition.
- The scale and trend of stock-based compensation, unrecognized equity awards, and resulting shareholder dilution.
- Debt-service capacity and the effect of $575 million of notes alongside ongoing losses and modest nine-month operating cash flow.
- Integration and final purchase-price accounting for the acquisitions, including goodwill and acquired-intangible valuation.
- Potential operating and financial effects of COVID-19, geopolitical developments, cybersecurity threats, privacy requirements, and the Elasticsearch/Kibana licensing model.