Elastic N.V. — Form 10-Q Summary
Reporting period: Three months ended July 31, 2020, Elastic’s fiscal first quarter of fiscal 2021. Comparative period is the three months ended July 31, 2019. Unaudited results; amounts below are in U.S. dollars.
Business context and key metrics
Elastic sells subscriptions to the Elastic Stack and its Enterprise Search, Observability and Security offerings, for self-managed and cloud deployments; it also provides professional services. Subscription revenue represented 94% of quarterly revenue. The company reported more than 12,100 customers, up from more than 8,800 a year earlier, and a Net Expansion Rate above 130%.
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Revenue | $128.9 million | $89.7 million | +44% |
| Subscription revenue | $121.3 million | $82.4 million | +47% |
| Professional services revenue | $7.5 million | $7.3 million | +3% |
| Gross profit / margin | $94.0 million / 73% | $63.5 million / 71% | Margin +2 percentage points |
| Operating loss / margin | $29.5 million / (23%) | $42.3 million / (47%) | Loss narrowed |
| Net loss | $19.0 million | $41.8 million | Loss narrowed |
| Operating cash flow | $22.0 million | $(1.7) million | Improved |
| Free cash flow | $21.6 million | $(3.3) million | Improved |
Cloud (Elastic Cloud) generated $32.6 million, or 25% of revenue, versus 20% a year earlier. Remaining performance obligations were $576.4 million; the company expected to recognize approximately 84% over the following 24 months.
Financial position and period-over-period changes
At July 31, 2020, cash and cash equivalents were $350.4 million, restricted cash was $2.3 million, and working capital was $180.5 million. Total liabilities were $389.0 million, including $277.5 million of deferred revenue and $34.2 million of operating lease liabilities. The filing reports no material debt balance. Accumulated deficit was $502.9 million.
Revenue growth was primarily attributed to new customers and expansion of existing subscriptions. Gross margin improved to 73% from 71%; subscription margin remained 78%. The company remained loss-making, though operating and net losses narrowed. Operating expenses rose 17% overall, including a 30% increase in research and development, while sales and marketing rose 8%.
Operating cash flow improved to $22.0 million, helped by a $45.2 million reduction in accounts receivable and non-cash adjustments; deferred contract acquisition costs increased $16.5 million. Financing cash flow was $29.3 million, mainly from employee stock-option exercises. Cash, cash equivalents and restricted cash increased $53.3 million during the quarter.
Outlook, commentary and risks
The filing provides no specific numerical revenue or earnings guidance in the supplied text. Management said it temporarily moderated the pace of business investment in response to COVID-19 but intended to increase investment over the remainder of fiscal 2021. It believed existing cash and cash equivalents would fund operating and capital needs for at least 12 months, while noting this assessment depends on uncertain assumptions. Management expected operating losses and annual negative operating cash flows to continue for the foreseeable future.
- COVID-19: Management cited delayed purchasing decisions, longer sales cycles, delayed professional-services projects, reduced subscription renewals and headwinds to calculated billings and Net Expansion Rate. Virtual events and lower travel costs partly offset these pressures; the overall impact remained uncertain.
- Unusual item: Other income included a $10.1 million unrealized foreign-currency gain, contributing to the narrower net loss. Foreign exchange movements can materially affect reported results.
- Margins and investment: Cloud growth can pressure gross margin because of hosting and management costs. Professional services had a negative 14% gross margin, with delayed projects cited as one factor. Management expected continued investment in product development and sales capacity.
- Acquisition: Endgame, acquired in October 2019, had immaterial results in the quarter. Acquired intangible amortization was $3.6 million; goodwill was $198.4 million at quarter-end, with no impairment reported.
- Other risks and contingencies: The filing highlights competition, customer retention and expansion, cybersecurity and product performance, privacy regulation, and foreign-currency exposure. Management reported no known legal matter reasonably likely to cause a material loss and no material changes to contractual commitments outside the ordinary course.
Important facts for investors to verify
- Whether subscription growth, customer expansion and renewal trends remain strong despite the COVID-19-related sales-cycle and renewal risks.
- How much of the reported loss improvement reflects sustainable operating progress versus the $10.1 million foreign-currency gain.
- Whether cash generation persists, given the benefit from accounts-receivable collections and the continued increase in deferred contract acquisition costs.
- How continued SaaS growth, hosting costs and professional-services economics affect gross margins.
- Whether management’s stated 12-month liquidity outlook and planned increase in investment remain appropriate as conditions evolve.