Elastic N.V. — Form 10-Q Summary
Reporting period: Fiscal second quarter ended October 31, 2020, and six months ended October 31, 2020; comparisons are with the corresponding 2019 periods. Amounts are in U.S. dollars. The interim financial statements are unaudited.
Business context
Elastic sells subscriptions for its Elastic Stack and Enterprise Search, Observability, and Security solutions, for self-managed and cloud deployments. Subscriptions generated 93% of revenue in the first half of fiscal 2021. The company reported more than 12,900 subscription customers at October 31, 2020, versus more than 9,700 a year earlier.
Key financial metrics
| Metric | Three months ended Oct. 31, 2020 | Six months ended Oct. 31, 2020 |
|---|---|---|
| Revenue | $144.9 million; up 43% | $273.8 million; up 43% |
| Subscription revenue | $134.2 million; up 46% | $255.6 million; up 47% |
| Gross profit / margin | $106.4 million / 73% (72% prior year) | $200.5 million / 73% (71% prior year) |
| Operating loss | $28.4 million (prior-year loss: $52.0 million) | $57.9 million (prior-year loss: $94.3 million) |
| Net loss | $29.2 million; $0.34 per share | $48.2 million; $0.56 per share |
| Operating cash flow | $(17.3) million | $4.7 million |
| Free cash flow, non-GAAP | $(18.6) million | $3.1 million |
At October 31, 2020, cash and cash equivalents were $349.0 million, restricted cash was $2.3 million, and working capital was $196.0 million. Total liabilities were $424.9 million, including $309.2 million of deferred revenue and $32.9 million of operating lease liabilities. The balance sheet presents no borrowings or debt balance. Accumulated deficit was $532.0 million.
Changes and operating trends
- Revenue growth was driven mainly by new customers and increased subscriptions from existing customers. SaaS revenue was 26% of total revenue in the quarter, versus 20% a year earlier; it was also 26% for the six-month period, versus 20%.
- Subscription gross margin held at 78% in both comparable six-month periods. Total gross margin improved by two percentage points to 73%.
- GAAP operating losses narrowed, partly reflecting lower prior-year Endgame acquisition-related expenses: none were recorded in the current six-month period, compared with $16.4 million a year earlier. Stock-based compensation was $40.1 million for the six months, up from $27.2 million.
- Calculated billings, a company-defined non-GAAP measure, rose 42% to $177.7 million for the quarter and 43% to $307.8 million for the six months. Remaining performance obligations were $643.5 million; the company expected to recognize about 85% over the next 24 months.
- Operating cash flow was positive for the six months but negative in the second quarter. The six-month result reflected deferred-revenue growth, offset in part by higher deferred contract acquisition costs.
Outlook, commentary, and risks
- Management said it temporarily moderated investment pace during COVID-19 but intended to increase business investment over the remainder of fiscal 2021. It expected operating losses and annual negative operating cash flows to continue for the foreseeable future, while stating existing cash and cash equivalents should fund operations for at least 12 months.
- The filing provides no clear numerical revenue or earnings guidance. Management expects Elastic Cloud to grow as a share of revenue, while warning that cloud hosting costs may pressure gross margin.
- COVID-19 caused delayed purchasing decisions, longer sales cycles, delayed professional-services work, and pressure on renewals and calculated billings and net expansion. Virtual events and reduced travel lowered some costs. The company’s net expansion rate remained above 130% for the quarter.
- Six-month other income included a $10.6 million foreign-currency transaction gain, a material contributor to the year-over-year improvement in other income. Management noted that currency movements can affect net loss and that a 10% exchange-rate change could materially affect it.
- Principal disclosed risks include continued COVID-19 uncertainty, persistent losses, competition and open-source exposure, customer renewals and SaaS adoption, cybersecurity and service reliability, hiring and growth management, privacy and regulatory compliance, and foreign-exchange volatility. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the period.
- The company reported no legal matter that it believed had a reasonable possibility of causing a material loss as of October 31, 2020. It had $2.1 million of landlord letters of credit outstanding.
Investor verification points
- Check whether subscription and customer growth, net expansion above 130%, and calculated billings growth persist; billings are non-GAAP and can fluctuate with contract timing and mix.
- Track cash conversion, especially quarterly operating cash flow and free cash flow, and the increase in deferred contract acquisition costs.
- Assess whether rising SaaS mix and cloud hosting costs affect subscription and overall gross margins.
- Separate recurring operating performance from the foreign-currency gain and the prior-year Endgame acquisition-related expense comparison.
- Review COVID-19 effects on sales cycles, renewals, services delivery, and planned investment, alongside the company’s cash runway and continuing losses.