Elastic N.V. — FY2019 Form 10-K
Reporting period: Fiscal year ended April 30, 2019. The filing also reports the quarter ended April 30, 2019; it is not a filing for fiscal 2018 Q4.
Business context
Elastic sells subscriptions for its open-source-based Elastic Stack and related search, observability, and security products, alongside consulting and training. Products are deployed self-managed or through Elastic Cloud. Subscription revenue was 91% of FY2019 revenue. The company had more than 8,100 customers; 43% of revenue came from outside the United States.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $271.7 million | $159.9 million |
| Subscription revenue | $248.3 million | $149.4 million |
| Gross profit / gross margin | $193.6 million / 71% | $119.2 million / 75% |
| Operating loss | $(101.4) million | $(48.0) million |
| Net loss | $(102.3) million | $(52.7) million |
| Net cash used in operations | $(23.9) million | $(20.8) million |
| Free cash flow | $(27.4) million | $(23.8) million |
Revenue grew 70% year over year. FY2019 calculated billings were $343.0 million, while deferred revenue was $170.7 million and remaining performance obligations were $352.5 million; the company expects to recognize about 88% of those obligations over the next 24 months. Subscription gross margin declined to 78% from 81%; overall gross margin fell to 71% from 75%.
At year-end, cash and cash equivalents were $298.0 million, restricted cash was $2.3 million, and working capital was $226.1 million. The October 2018 IPO generated $263.8 million in net proceeds. The filing reports no substantial borrowing; a tenant-improvement loan had an outstanding balance of about $0.1 million. Contractual obligations totaled $78.3 million, including $44.3 million of hosting commitments.
For the April 2019 quarter, revenue was $80.6 million and net loss was $34.8 million.
Material changes versus prior year
- Revenue increased $111.7 million, led by subscription revenue growth of 66%; management attributed about 25% of the subscription increase to new customers, with the balance from existing customers.
- Operating expenses rose 76% to $295.0 million, including research and development up 82% and sales and marketing up 78%. Management cited hiring and investment in product development and sales capacity.
- Gross margin declined four percentage points, primarily reflecting greater Elastic Cloud hosting costs and investment in support and professional services. Elastic Cloud represented 17% of revenue, up from 16%.
- Net loss widened, while operating cash use increased modestly. The IPO strengthened liquidity and converted all outstanding preference shares into ordinary shares.
Outlook, commentary, and risks
- No specific revenue or earnings guidance is provided in this filing. Management expects continued net losses and increased operating expenses for the foreseeable future, and states that existing cash should fund anticipated needs for at least 12 months.
- Management expects Elastic Cloud to become a larger share of revenue, while cautioning that hosting and management costs may pressure gross margin. The company also expects continued investment in research and development, sales, and marketing.
- Key risks include intense competition, open-source alternatives and cloud-provider offerings, customer conversion and renewal trends, rapid growth and execution demands, product security or performance failures, privacy and regulatory compliance, foreign exchange exposure, and the possibility that losses persist.
- Subsequent event: on June 5, 2019, Elastic agreed to acquire Endgame for $234 million, subject to customary adjustments. Consideration includes ordinary shares and repayment of Endgame debt expected to be about $14 million; specified termination circumstances could trigger a $3.5 million fee.
Most important facts for investors to verify
- Whether customer expansion, renewals, and subscription billings sustain growth, and how calculated billings and deferred revenue convert into recognized revenue.
- Whether cloud growth, pricing changes, and hosting commitments further reduce gross margins.
- How operating expense growth, stock-based compensation ($39.9 million in FY2019), and cash use affect the path to profitability.
- The final terms, share dilution, integration costs, and expected impact of the Endgame acquisition.
- Whether cash, liquidity, and contractual commitments remain consistent with management’s stated funding horizon.