Elastic N.V. — Form 10-Q summary
Reporting period: Fiscal first quarter ended July 31, 2021; comparisons are with the three months ended July 31, 2020. Amounts below are in U.S. dollars.
Business context
Elastic sells subscriptions for its Elastic Stack and Enterprise Search, Observability and Security solutions, offered in self-managed and hosted deployments. It reported over 16,000 subscription customers, up from over 12,100 a year earlier. Elastic Cloud represented 32% of revenue, versus 25%.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Revenue | $193.1 million | $128.9 million | +50% |
| Subscription revenue | $177.2 million | $121.3 million | +46% |
| Professional services revenue | $15.9 million | $7.5 million | +111% |
| Gross profit / margin | $143.4 million / 74% | $94.0 million / 73% | Margin +1 percentage point |
| Operating loss | $(31.0) million | $(29.5) million | Loss widened |
| Net loss | $(34.5) million | $(19.0) million | Loss widened |
| Operating cash flow | $14.1 million | $22.0 million | Down $7.9 million |
Subscription gross margin was 79%, up from 78%; professional services margin improved to 24% from negative 14%. Operating expenses rose 41% to $174.5 million, led by sales and marketing (+57%) and research and development (+30%). Stock-based compensation was $30.2 million, compared with $18.6 million.
At July 31, cash and cash equivalents were $991.3 million, restricted cash was $2.3 million, and working capital was $745.3 million. The company reported $575.0 million principal amount of 4.125% senior notes due July 2029, with a net carrying value of $565.8 million. Cash increased substantially during the quarter mainly because of the notes issuance; financing cash flow was $578.8 million. Investing cash outflow was $1.6 million. Accumulated deficit was $647.8 million.
Changes and notable items
- Revenue growth was attributed primarily to new business and expansion of existing customer subscriptions; customer count increased year over year.
- Subscription costs increased 43%, including $7.6 million more in cloud hosting costs. Management expects Elastic Cloud to grow as a share of revenue and cautions that this mix could pressure gross margin over time.
- Other income swung from $10.9 million in the prior-year quarter to $0.8 million of net expense, mainly because foreign-currency gains were lower and interest expense increased following the notes issuance.
- After quarter-end, Elastic agreed to acquire build.security for $45 million and Cmd for $85 million, in each case using cash and assumed stock options.
- Remaining performance obligations were $776.0 million; approximately 86% was expected to be recognized as revenue within 24 months.
Outlook, commentary and risks
No numerical revenue or earnings guidance is provided in the supplied filing text. Management said it intends to increase the pace of business investment through the remainder of fiscal 2022 and expects operating losses and potentially negative annual operating cash flow to continue as it invests in growth. It believed available cash was sufficient for at least the next 12 months.
Management described COVID-19-related uncertainty, including delayed purchasing decisions, longer sales cycles, delayed services implementation and renewal headwinds, while noting that digital transformation trends supported demand. The filing also highlights risks from competition and the Elasticsearch/Kibana licensing change, cloud hosting costs, customer retention and expansion, cybersecurity and service performance, foreign exchange, and the company’s debt and continuing losses. Management reported no known legal matter reasonably likely to cause a material loss and stated disclosure controls were effective as of July 31, 2021.
Important facts for investors to verify
- Whether subscription growth, customer expansion and the reported net expansion rate—slightly below 130%—are sustained.
- How Elastic Cloud growth and hosting costs affect gross margin and cash generation.
- Whether the company can manage rising operating expenses and stock-based compensation while reducing losses.
- Debt service capacity and the effect of the 2029 notes’ covenants and change-of-control provisions.
- Progress, consideration and integration costs for the announced build.security and Cmd acquisitions.
- Whether COVID-19, licensing changes, competition, foreign-exchange exposure or security incidents materially affect demand or results.