Elastic N.V. Form 10-Q Summary
Business context and period. Elastic sells subscriptions for its Elastic Stack and related search, observability, and security products, with both self-managed and SaaS deployments, plus professional services. This unaudited filing covers the fiscal third quarter and nine months ended January 31, 2019; comparisons are with the corresponding 2018 periods. Amounts are in U.S. dollars.
Financial performance and liquidity
| Metric | Three months ended Jan. 31, 2019 | Nine months ended Jan. 31, 2019 |
|---|---|---|
| Revenue | $70.8 million; up 70% | $191.1 million; up 73% |
| Subscription revenue | $64.6 million; up 65% | $174.6 million; up 69% |
| Professional services revenue | $6.2 million; up 136% | $16.4 million; up 129% |
| Gross profit and margin | $50.4 million; 71% (74% prior year) | $136.5 million; 71% (75% prior year) |
| Operating loss | $23.8 million; 34% of revenue | $69.3 million; 36% of revenue |
| Net loss | $21.4 million; diluted loss per share $0.30 | $67.5 million; diluted loss per share $1.37 |
| Operating cash flow | $(8.7) million | $(4.1) million, versus $3.1 million provided |
| Free cash flow | $(9.9) million | $(6.5) million, versus $1.2 million provided |
At January 31, 2019, cash and cash equivalents were $305.8 million and restricted cash was $2.7 million; working capital was $240.0 million. Current assets were $401.7 million and current liabilities $161.7 million. Deferred revenue totaled $137.8 million. The filing reports no significant borrowing; a tenant-improvement loan balance of approximately $0.1 million remained outstanding.
Material changes and notable items
- Revenue growth came from both new and existing customers. Management attributed over 55% of quarterly subscription growth and over 40% of nine-month subscription growth to new customers.
- Operating expenses rose substantially: quarterly research and development increased 71%, sales and marketing 79%, and general and administrative 48%. Management cited hiring and investment in product development, sales, marketing, and public-company operations.
- Subscription gross margin fell to 78% for the quarter from 81%, and to 79% for nine months from 82%, largely because of cloud infrastructure and support costs. SaaS represented 17% of revenue in both nine-month periods.
- The October 2018 IPO raised $263.8 million net of underwriting discounts and offering costs. Redeemable preference shares converted into ordinary shares at the IPO; cash and equity increased materially as a result.
- Stock-based compensation was $11.1 million for the quarter and $28.0 million for nine months, compared with $3.6 million and $8.6 million, respectively, in the prior-year periods.
- Remaining performance obligations were $304.2 million; the company expected to recognize approximately 86% over the next 24 months.
Outlook, risks, and contingencies
Elastic provided no specific numerical revenue or earnings guidance in the supplied filing text. Management expects operating losses and negative operating cash flow on an annual basis for the foreseeable future as it invests in growth, and stated that existing cash should fund operations and capital needs for at least 12 months. Management also expects Elastic Cloud to grow as a share of revenue, while noting that its hosting costs may pressure gross margin. The filing cautions that results may fluctuate and that interim results are not necessarily indicative of full-year results.
Contractual commitments included $57.1 million of hosting infrastructure commitments and $35.5 million of minimum lease payments as of January 31, 2019, totaling $92.8 million with other commitments. Hosting minimums were amended to $17 million for calendar 2019, $20 million for 2020, and $23 million for 2021; actual usage payments may be higher. The company also had $2.3 million of landlord letters of credit.
Key disclosed risks include sustained losses, competition (including cloud providers offering services based on open-source components), execution of rapid growth and hiring, SaaS-related margin pressure, product reliability and security, privacy and data-protection compliance including GDPR, international operations and currency exposure, and the ability to convert open-source users into and retain paid subscribers. Elastic reported no known legal matter expected to have a material adverse effect and no accrual for legal contingencies. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether revenue, customer expansion, renewals, and deferred revenue continue to grow, and how calculated billings—which increased 68% quarterly and 72% year to date—track recognized revenue.
- Whether SaaS and support-cost growth stabilizes subscription gross margins, and whether professional services can improve from negative gross margins.
- How operating expenses and stock-based compensation evolve relative to revenue growth, and whether losses and cash consumption narrow.
- Whether available cash remains sufficient given operating cash use, the $92.8 million of listed commitments, and potentially higher hosting usage costs.
- Whether the company’s open-source strategy, product security, privacy compliance, and competitive position support continued paid-subscription growth.