The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes included elsewhere in this Quarterly
Report on Form 10-Q and with our Management's Discussion and Analysis of
Financial Condition and Results of Operations and audited consolidated financial
statements included in our Annual Report on Form 10-K for the year ended
April 30, 2021. As discussed in the section titled "Note Regarding
Forward-Looking Statements," the following discussion and analysis contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those discussed below. Factors that could
cause or contribute to such difference include, but are not limited to, those
identified below and those discussed in the section titled "Risk Factors" under
Part II, Item 1A in this Quarterly Report on Form 10-Q. Our fiscal year end is
April 30, and our fiscal quarters end on July 31, October 31, January 31, and
April 30. Our fiscal year ended April 30, 2021 is referred to as fiscal 2021 and
our fiscal year ending April 30, 2022 is referred to as fiscal 2022.
                                    Overview
Elastic is a search company. We deliver technology that enables users to search
through massive amounts of structured and unstructured data for a wide range of
use cases. Our primary offering is the Elastic Stack, a powerful set of software
products that ingest and store data from any source, and in any format, and
perform search, analysis, and visualization in milliseconds or less. The Elastic
Stack is designed for direct use by developers to power a variety of use cases.
We also offer three software solutions - Enterprise Search, Observability, and
Security - built on the Elastic Stack. Our solutions are designed to be deployed
everywhere: in public or private clouds, in hybrid environments, or in
traditional on-premises environments. Our products are used by individual
developers and organizations of all sizes across a wide range of industries.
Elasticsearch is the heart of the Elastic Stack. It is a distributed, real-time
search and analytics engine and datastore for exploring all types of data
including textual, numerical, geospatial, structured, and unstructured. The
first public release of Elasticsearch was in 2010 by our co-founder Shay Banon
as an open source project. The Company was formed in 2012. Since then, we have
added new products, released new features, acquired companies, and created new
solutions to expand the functionality of our products.
Our business model is based on a combination of free and paid proprietary
software. We market and distribute the Elastic Stack and our solutions using a
free and open distribution strategy. Developers are able to download our
software directly from our website. Some features of our software can be
downloaded and used free of charge. Others are only available through paid
subscriptions, which include access to specific proprietary features and also
include support. These paid features can be unlocked without the need to
re-deploy the software. There is no free subscription tier in our cloud
offerings, where all subscriptions are paid.
We believe that our free and open distribution strategy drives a number of
benefits for our users, our customers, and our company. It facilitates rapid and
efficient developer adoption, particularly by empowering individual developers
to download and use our software without payment, registration, or the friction
of a formal sales interaction. It fosters a vibrant developer community around
our products and solutions, which drives adoption of our products and increased
interaction among users. Further, this approach enables community review of our
code and products, which allows us to improve the reliability and security of
our software.
During the three months ended October 31, 2021, the Company acquired 100% of the
share capital of Cmd and build.security for a total consideration of
$77.8 million and $39.3 million, respectively. With these acquisitions, we will
be able to extend cloud security protections for our customers from endpoint to
cloud workload and provide our customers with cloud security protections from
build-time, to deployment-time, to runtime.
We generate revenue primarily from sales of subscriptions for our software. We
offer various paid subscription tiers that provide different levels of rights to
use proprietary features and access to support. We do not sell support
separately. Our subscription agreements for self-managed and Elastic Cloud
deployments typically have terms of one to three years and we usually bill for
them annually in advance. Elastic Cloud customers may also purchase
subscriptions on a month-to-month basis without a commitment, with usage billed
at the end of each month. Subscriptions accounted for 92% and 93% of total
revenue in the six months ended October 31, 2021 and 2020, respectively. We also
generate revenue from consulting and training services.
We had over 17,000 customers as of October 31, 2021 compared to over 12,900 as
of October 31, 2020. We define a customer as an entity that generated revenue in
the quarter ending on the measurement date from an annual or month-to-month
subscription. Affiliated entities are typically counted as a single customer.
The annual contract value ("ACV") of a customer's commitments is calculated
based on the terms of that customer's subscriptions, and represents the total
committed annual subscription amount as of the measurement date. Month-to-month
subscriptions are not included in the calculation of ACV. The
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number of customers who represented greater than $100,000 in ACV was over 830 as
of October 31, 2021 compared to over 650 as of October 31, 2020.
We engage in various sales and marketing efforts to extend our free and open
distribution model. We employ multi-touch marketing campaigns to nurture our
users and customers and keep them engaged after they download our software.
Additionally, we maintain direct sales efforts focused on users and customers
who have adopted our software, as well as departmental decision-makers and
senior executives who have broad purchasing power in their organizations. Our
sales teams are primarily segmented by geographies and secondarily by the
employee count of our customers. They focus on both initial conversion of users
into customers and additional sales to existing customers. In addition to our
direct sales efforts, we also maintain partnerships to further extend our reach
and awareness of our products around the world.
We continue to make substantial investments in developing the Elastic Stack and
our solutions and expanding our global sales and marketing footprint. With a
distributed team spanning over 35 countries, we are able to recruit, hire, and
retain high-quality, experienced technical and sales personnel and operate at a
rapid pace to drive product releases, fix bugs, and create and market new
products. We had 2,626 employees as of October 31, 2021.
In July 2021, we issued $575.0 million aggregate principal amount of 4.125%
Senior Notes due July 15, 2029 (the "Senior Notes") in a private placement. We
intend to use the net proceeds from the offering of the Senior Notes for general
corporate purposes, which may include capital expenditures, investments and
working capital. In addition, in the past we have considered, and may continue
to consider, acquisitions and strategic transactions, and we may use the net
proceeds of this offering for such purposes.
COVID-19
In March 2020, the World Health Organization declared COVID-19 a pandemic.
Efforts to control its spread have significantly curtailed the movement of
people, goods and services worldwide, including in most or all of the regions in
which we sell our products and services and conduct our business operations,
negatively impacting worldwide economic activity. The ongoing impact of the
COVID-19 pandemic on our operational and financial performance will depend on
certain developments, including the duration and spread of the virus, success of
preventative measures to contain or mitigate the spread of the virus and
emerging variants, effectiveness, distribution and acceptance of COVID-19
vaccines, impact on our customers and our sales cycles, impact on our customer,
employee or industry events, effect on our vendors, and the uneven impact of the
COVID-19 pandemic on certain industries, all of which continue to remain
uncertain and cannot be predicted.
The continuing COVID-19 pandemic has resulted in a global slowdown of economic
activity and its impact has varied significantly across different industries
with certain industries experiencing increased demand for their products and
services, while others have struggled to maintain demand for their products and
services consistent with historical levels. There have been delays in purchasing
decisions from existing and prospective customers, longer sales cycles, delayed
implementation of professional services, reduced renewals of subscriptions by
existing customers, and changes in approaches to creating sales pipeline in the
absence of in-person marketing events, resulting in headwinds for calculated
billings and our Net Expansion Rate.
Notwithstanding the potential and actual adverse impacts described above, as the
pandemic has caused more of our customers to shift to a virtual workforce or
accelerate their digital transformation efforts, we believe the value of our
solutions has become even more evident. In addition, we have benefited from
lower spending on travel by our employees due to COVID-19 travel restrictions
and from holding events virtually, however we expect live events and travel
costs to trend back higher in the near-term.
In response to the COVID-19 pandemic and in an effort to focus on maintaining
business continuity and preparing for the future and long-term success of our
business, we have taken precautionary measures intended to help minimize the
risk of the virus to our employees, customers, and the communities in which we
operate, including modifying our business practices, such as suspending employee
travel, adapting employee work locations, and holding events and trainings
virtually. Further, we also temporarily reduced the pace of investments in our
business in response to the COVID-19 pandemic in the first quarter of fiscal
2021 but began to gradually increase our investments in our business since then.
We intend to continue to maintain a similar pace of investments in the business
throughout the remainder of fiscal 2022. We continue to monitor the major
impacts of the COVID-19 pandemic and make changes in our business as
appropriate, in response to such impacts. See "Risk Factors" included in Part
II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of additional
risks.
                     Key Factors Affecting Our Performance
We believe that the growth and future success of our business depends on many
factors, including those described below. While each of these factors presents
significant opportunities for our business, they also pose important challenges
that we must successfully address in order to sustain our growth and improve our
results of operations.
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Growing the Elastic community. Our strategy consists of providing access to
source available software, on both a free and paid basis, and fostering a
community of users and developers. Our strategy is designed to pursue what we
believe to be significant untapped potential for the use of our technology.
After developers begin to use our software and start to participate in our
developer community, they become more likely to apply our technology to
additional use cases and evangelize our technology within their organizations.
This reduces the time required for our sales force to educate potential leads on
our solutions. In order to capitalize on our opportunity, we intend to make
further investments to keep the Elastic Stack accessible and well known to
software developers around the world. We intend to continue to invest in our
products and support and engage our user base and developer community through
content, events, and conferences in the U.S. and internationally. Our results of
operations may fluctuate as we make these investments.
Developing new features for the Elastic Stack. The Elastic Stack is applied to
various use cases by customers, including through the solutions we offer. Our
revenue is derived primarily from subscriptions of Enterprise Search,
Observability and Security built into the Elastic Stack. We believe that
releasing additional features of the Elastic Stack, including our solutions,
drives usage of our products and ultimately drives our growth. To that end, we
plan to continue to invest in building new features and solutions that expand
the capabilities of the Elastic Stack. These investments may adversely affect
our operating results prior to generating benefits, to the extent that they
ultimately generate benefits at all.
Growing our customer base by converting users of our software to paid
subscribers. Our financial performance depends on growing our paid customer base
by converting free users of our software into paid subscribers. Our distribution
model has resulted in rapid adoption by developers around the world. We have
invested, and expect to continue to invest, heavily in sales and marketing
efforts to convert additional free users to paid subscribers. Our investment in
sales and marketing is significant given our large and diverse user base. The
investments are likely to occur in advance of the anticipated benefits resulting
from such investments, such that they may adversely affect our operating results
in the near term.
Expanding within our current customer base. Our future growth and profitability
depend on our ability to drive additional sales to existing customers. Customers
often expand the use of our software within their organizations by increasing
the number of developers using our products, increasing the utilization of our
products for a particular use case, and expanding use of our products to
additional use cases. We focus some of our direct sales efforts on encouraging
these types of expansion within our customer base.
We believe that a useful indication of how our customer relationships have
expanded over time is through our Net Expansion Rate, which is based upon trends
in the rate at which customers increase their spend with us. To calculate an
expansion rate as of the end of a given month, we start with the annualized
spend from all such customers as of twelve months prior to that month end, or
Prior Period Value. A customer's annualized spend is measured as their ACV, or
in the case of customers charged on usage-based arrangements, by annualizing the
usage for that month. We then calculate the annualized spend from these same
customers as of the given month end, or Current Period Value, which includes any
growth in the value of their subscriptions or usage and is net of contraction or
attrition over the prior twelve months. We then divide the Current Period Value
by the Prior Period Value to arrive at an expansion rate. The Net Expansion Rate
at the end of any period is the weighted average of the expansion rates as of
the end of each of the trailing twelve months. The Net Expansion Rate includes
the dollar-weighted value of our subscriptions or usage that expand, renew,
contract, or attrit. For instance, if each customer had a one-year subscription
and renewed its subscription for the exact same amount, then the Net Expansion
Rate would be 100%. Customers who reduced their annual subscription dollar value
(contraction) or did not renew their annual subscription (attrition) would
adversely affect the Net Expansion Rate. Our Net Expansion Rate was slightly
below 130% for the three months ended October 31, 2021. Until April 30, 2021,
Net Expansion Rate was based on ACV, regardless of customers' actual usage, and
also did not include customers on month-to-month subscriptions. To better
reflect actual customer behavior, we modified our Net Expansion Rate calculation
to incorporate customers' actual spending patterns and include customers on
month-to-month subscriptions. The impact of this change on prior reported
periods is immaterial.
As large organizations expand their use of the Elastic Stack across multiple use
cases, projects, divisions and users, they often begin to require centralized
provisioning, management and monitoring across multiple deployments. To satisfy
these requirements, we offer the Elastic Enterprise subscription. We will
continue to focus some of our direct sales efforts on driving adoption of our
paid offerings.
Increasing adoption of Elastic Cloud. Elastic Cloud, our family of hosted
offerings that includes Elasticsearch Service and Site Search Service, is an
important growth opportunity for our business. Organizations are increasingly
looking for hosted deployment alternatives with reduced administrative burdens.
In some cases, users of our source available software that have been
self-managing deployments of the Elastic Stack subsequently become paying
subscribers of Elastic Cloud. Elastic Cloud contributed 33% and 26% to our total
revenue for the six months ended October 31, 2021 and 2020, respectively. We
believe that offering a hosted deployment alternative is important for achieving
our long-term growth potential, and we expect Elastic Cloud's contribution to
our subscription revenue to increase over time. However, we expect that an
increase in the relative contribution of Elastic Cloud to our business will have
a modest adverse impact on our gross margin as a result of the associated
third-party hosting costs.
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                      Components of Results of Operations

Income

Subscription. Our revenue is primarily generated through the sale of
subscriptions to software, which is either self-managed by the user or hosted
and managed by us in the cloud. Subscriptions provide the right to use paid
proprietary software features and access to support for our paid and unpaid
software.
A portion of the revenue from self-managed subscriptions is generally recognized
up front at the point in time when the license is delivered. This revenue is
presented as License - self-managed in our consolidated statements of
operations. The remainder of revenue from self-managed subscriptions is
recognized ratably over the subscription term while revenue from subscriptions
that require access to the cloud or that are hosted and managed by us or by a
partner on our behalf in the cloud is recognized ratably over the subscription
term or on a usage basis; both are presented within Subscription - self-managed
and SaaS in our consolidated statements of operations.
Professional services. Professional services is composed of consulting services
as well as public and private training. Consulting services are generally
time-based arrangements. Revenue for professional services is recognized as
these services are performed.
Cost of Revenue
Subscription. Cost of license - self-managed consists of amortization of certain
intangible assets. Cost of subscription - self-managed and SaaS consists
primarily of personnel and related costs for employees associated with
supporting our subscription arrangements, certain third-party expenses, and
amortization of certain intangible and other assets. Personnel and related
costs, or personnel costs, comprise cash compensation, benefits and stock-based
compensation to employees, costs of third-party contractors, and allocated
overhead costs. Third-party expenses consist of cloud hosting costs and other
expenses directly associated with our customer support. We expect our cost of
subscription - self-managed and SaaS to increase in absolute dollars as our
subscription revenue increases.
Professional services. Cost of professional services revenue consists primarily
of personnel costs directly associated with delivery of training, implementation
and other professional services, costs of third-party contractors, facility
rental charges and allocated overhead costs. We expect our cost of professional
services revenue to increase in absolute dollars as we invest in our business
and as professional services revenue increases.
Gross profit and gross margin. Gross profit represents revenue less cost of
revenue. Gross margin, or gross profit as a percentage of revenue, has been and
will continue to be affected by a variety of factors, including the timing of
our acquisition of new customers and our renewals with existing customers, the
average sales price of our subscriptions and professional services, the amount
of our revenue represented by hosted services, the mix of subscriptions sold,
the mix of revenue between subscriptions and professional services, the mix of
professional services between consulting and training, transaction volume growth
and support case volume growth. We expect our gross margin to fluctuate over
time depending on the factors described above. We expect our revenue from
Elastic Cloud to continue to increase as a percentage of total revenue, which we
expect will adversely impact our gross margin as a result of the associated
hosting costs.
Operating Expenses
Research and development. Research and development expense mainly consists of
personnel costs and allocated overhead costs for employees and contractors. We
expect our research and development expense to increase in absolute dollars for
the foreseeable future as we continue to develop new technology and invest
further in our existing products.
Sales and marketing. Sales and marketing expense mainly consists of personnel
costs, commissions, allocated overhead costs and costs related to marketing
programs and user events. Marketing programs consist of advertising, events,
brand-building and customer acquisition and retention activities. We expect our
sales and marketing expense to increase in absolute dollars as we expand our
salesforce and increase our investments in marketing resources. We capitalize
sales commissions and associated payroll taxes paid to internal sales personnel
that are related to the acquisition of customer contracts. Sales commissions
costs are amortized over the expected benefit period.
General and administrative. General and administrative expense mainly consists
of personnel costs for our management, finance, legal, human resources, and
other administrative employees. Our general and administrative expense also
includes professional fees, accounting fees, audit fees, tax services and legal
fees, as well as insurance, allocated overhead costs, and other corporate
expenses. We expect our general and administrative expense to increase in
absolute dollars as we
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increase the size of our general and administrative functions to support the
growth of our business. We also anticipate that we will continue to incur
additional costs for employees and third-party consulting services related to
operating as a public company.
Other Income (Expense), Net
Other income, net primarily consists of gains and losses from transactions
denominated in a currency other than the functional currency, interest income
and interest expense.
Provision for Income Taxes
Provision for income taxes consists primarily of income taxes related to the
Netherlands, U.S. federal, state and foreign jurisdictions in which we conduct
business. Our effective tax rate is affected by recurring items, such as tax
rates in jurisdictions outside the Netherlands and the relative amounts of
income we earn in those jurisdictions, and non-deductible stock-based
compensation.
Results of Operations
The period to period comparison of results is not necessarily indicative of
results for future periods. The following tables set forth our results of
operations for the periods presented in dollars:
                                                         Three Months Ended October 31,            Six Months Ended October 31,
                                                            2021                2020                  2021                  2020

                                                                                       (in thousands)

Income

License - self-managed                                  $   18,117          

$ 15,514 $ 34,338 $ 30,393
Subscription – self-managed and SaaS

                       172,140            118,695                  333,104            225,158
Total subscription revenue                                 190,257            134,209                  367,442            255,551
Professional services                                       15,723             10,685                   31,633             18,213
Total revenue                                              205,980            144,894                  399,075            273,764
Cost of revenue (1)(2)(3)
Cost of license - self-managed                                 395                347                      741                693
Cost of subscription - self-managed and SaaS                41,847             29,148                   79,021             55,038
Total cost of revenue - subscription                        42,242             29,495                   79,762             55,731
Cost of professional services                               11,642              8,953                   23,784             17,548
Total cost of revenue                                       53,884             38,448                  103,546             73,279
Gross profit                                               152,096            106,446                  295,529            200,485
Operating expenses(1)(2)(3)(4)
Research and development                                    63,763             46,688                  123,145             92,366
Sales and marketing                                         94,953             64,474                  182,986            120,625
General and administrative                                  30,555             23,705                   57,607             45,434
Total operating expenses                                   189,271            134,867                  363,738            258,425
Operating loss (1)(2)(3)(4)                                (37,175)           (28,421)                 (68,209)           (57,940)
Other income (expense), net
Interest expense                                            (6,332)                (4)                  (8,152)               (13)
Other income (expense), net                                   (666)               (80)                     352             10,814
Loss before income taxes                                   (44,173)           (28,505)                 (76,009)           (47,139)
Provision for income taxes                                   2,850                653                    5,503              1,020
Net loss                                                $  (47,023)         $ (29,158)         $       (81,512)         $ (48,159)


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(1) Includes stock-based compensation expense as follows:
                                                   Three Months Ended October 31,            Six Months Ended October 31,
                                                      2021                2020                  2021                  2020

                                                                                 (in thousands)
Cost of revenue
Cost of subscription - self managed and SaaS      $    2,064          $   1,860          $         4,198          $   3,226
Cost of professional services                          1,292                976                    2,867              1,928
Research and development                              13,658              7,663                   25,755             14,793
Sales and marketing                                    8,403              7,955                   18,253             14,147
General and administrative                             4,565              3,033                    9,087              5,984
Total stock-based compensation expense            $   29,982          $  

21,487 $ 60,160 $ 40,078


(2) Includes employer payroll taxes on employee stock transactions as follows:
                                                      Three Months Ended October 31,               Six Months Ended October 31,
                                                         2021                   2020                 2021                  2020

                                                                                   (in thousands)
Cost of revenue
Cost of subscription - self managed and SaaS      $             65          

$ 77 $ 327 $ 220
Cost of professional services

                                  114                 25                     478                102
Research and development                                       655                465                   2,253              1,459
Sales and marketing                                          1,671                614                   3,362              1,771
General and administrative                                      87                462                     571              1,199
Total employer payroll taxes on employee
stock-based transactions                          $          2,592          

$ 1,643 $ 6,991 $ 4,751

(3) Includes amortization of intangible assets acquired as follows:

                                                    Three Months Ended October 31,               Six Months Ended October 31,
                                                       2021                   2020                 2021                  2020

                                                                                 (in thousands)
Cost of revenue
Cost of license - self-managed                  $            395          $ 

$ 347 741 $ 693
Cost of subscription – self-managed and SaaS

               2,103              1,762                   3,769              3,525
Sales and marketing                                        1,428              1,433                   2,857              2,874

Total amortization of intangible assets acquired $ 3,926

3,542 $ 7,367 $ 7,092

(4) Includes expenditure related to acquisitions as follows:

                                                         Three Months Ended October 31,            Six Months Ended October 31,
                                                            2021                2020                 2021                2020

                                                                                     (in thousands)
Research and development                               $       982          $        -          $       982          $        -
General and administrative                                   1,060                   -                1,286                   -
Total acquisition-related expenses                     $     2,042          

$ – $ 2,268 $ –

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The following table sets forth selected condensed consolidated statements of
operations data for each of the periods indicated as a percentage of total
revenue:
                                                            Three Months Ended October 31,                Six Months Ended October 31,
                                                              2021                  2020                   2021                  2020
Revenue
License - self-managed                                              9  %                 11  %                   9  %                 11  %
Subscription - self-managed and SaaS                               83  %                 82  %                  83  %                 82  %
Total subscription revenue                                         92  %                 93  %                  92  %                 93  %
Professional services                                               8  %                  7  %                   8  %                  7  %
Total revenue                                                     100  %                100  %                 100  %                100  %
Cost of revenue (1)(2)(3)
Cost of license - self-managed                                      0  %                  0  %                   0  %                  0  %
Cost of subscription - self-managed and SaaS                       21  %                 20  %                  20  %                 20  %
Total cost of revenue - subscription                               21  %                 20  %                  20  %                 20  %
Cost of professional services                                       5  %                  7  %                   6  %                  7  %
Total cost of revenue                                              26  %                 27  %                  26  %                 27  %
Gross profit                                                       74  %                 73  %                  74  %                 73  %
Operating expenses(1)(2)(3)(4)
Research and development                                           31  %                 32  %                  31  %                 34  %
Sales and marketing                                                46  %                 45  %                  46  %                 43  %
General and administrative                                         15  %                 16  %                  14  %                 17  %
Total operating expenses                                           92  %                 93  %                  91  %                 94  %
Operating loss (1)(2)(3)(4)                                       (18) %                (20) %                 (17) %                (21) %
Other income (expense), net
Interest expense                                                   (3) %                  0  %                  (2) %                  0  %
Other income (expense), net                                         0  %                  0  %                   0  %                  4  %
Loss before income taxes                                          (21) %                (20) %                 (19) %                (17) %
Provision for income taxes                                          2  %                  0  %                   1  %                  1  %
Net loss                                                          (23) %                (20) %                 (20) %                (18) %

(1) Includes stock-based compensation expense as follows:

                                                    Three Months Ended October 31,               Six Months Ended October 31,
                                                       2021                  2020                  2021                  2020
Cost of revenue
Cost of subscription - self managed and SaaS                 1  %                 1  %                   1  %                 1  %
Cost of professional services                                1  %                 1  %                   1  %                 1  %
Research and development                                     7  %                 5  %                   6  %                 6  %
Sales and marketing                                          4  %                 6  %                   5  %                 5  %
General and administrative                                   2  %                 2  %                   2  %                 2  %
Total stock-based compensation expense                      15  %                15  %                  15  %                15  %


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 (2) Includes employer payroll taxes on employee stock transactions as follows:
                                                     Three Months Ended October 31,               Six Months Ended October 31,
                                                        2021                  2020                  2021                  2020
Cost of revenue
Cost of subscription - self managed and SaaS                  0  %                 0  %                   0  %                 0  %
Cost of professional services                                 0  %                 0  %                   0  %                 0  %
Research and development                                      0  %                 0  %                   1  %                 1  %
Sales and marketing                                           1  %                 1  %                   1  %                 1  %
General and administrative                                    0  %                 0  %                   0  %                 0  %
Total employer payroll taxes on employee
stock-based transactions                                      1  %                 1  %                   2  %                 2  %


(3) Includes amortization of intangible assets acquired as follows:

                                                   Three Months Ended October 31,               Six Months Ended October 31,
                                                      2021                  2020                  2021                  2020
Cost of revenue
Cost of license - self-managed                              0  %                 0  %                   0  %                 0  %
Cost of subscription - self-managed and SaaS                1  %                 1  %                   1  %                 2  %
Sales and marketing                                         1  %                 1  %                   1  %                 1  %
Total amortization of acquired intangibles                  2  %                 2  %                   2  %                 3  %


(4) Includes expenditure related to acquisitions as follows:

                                                          Three Months Ended October 31,               Six Months Ended October 31,
                                                             2021                  2020                  2021                  2020
Research and development                                           0  %                 0  %                   0  %                 0  %
General and administrative                                         1  %                 0  %                   0  %                 0  %
Total acquisition-related expenses                                 1  %                 0  %                   0  %                 0  %


           Comparison of Three Months Ended October 31, 2021 and 2020
Revenue
                                                 Three Months Ended October 31,                     Change
                                                    2021                2020                $                   %

                                                                        (dollars in thousands)
Revenue
License - self-managed                          $   18,117          $  15,514          $   2,603                  17  %
Subscription - self-managed and SaaS               172,140            118,695             53,445                  45  %
Total subscription revenue                         190,257            134,209             56,048                  42  %
Professional services                               15,723             10,685              5,038                  47  %
Total revenue                                   $  205,980          $ 144,894          $  61,086                  42  %


Total revenue increased by $61.1 million, or 42%, in the three months ended
October 31, 2021, compared to the same period of the prior year.
Total subscription revenue increased $56.0 million, or 42%, in the three months
ended October 31, 2021 compared to the same period of the prior year. The
increase in revenue was primarily caused by volume-driven increases from new
business, as existing customers purchased additional subscriptions, and we grew
our subscription customer base to over 17,000 customers compared to over 12,900
customers in the same period of the prior year.
Professional services revenue increased by $5.0 million, or 47%, in the three
months ended October 31, 2021, compared to the same period of the prior year.
The increase in professional services revenue was attributable to increased
adoption of our professional services offerings.
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Cost of Revenue and Gross Margin
                                                    Three Months Ended October 31,                        Change
                                                        2021                  2020                $                   %

                                                                            (dollars in thousands)
Cost of revenue
Cost of license - self-managed                   $          395           $     347          $      48                  14  %
Cost of subscription - self-managed and SaaS             41,847              29,148             12,699                  44  %
Total cost of revenue - subscription                     42,242              29,495             12,747                  43  %
Cost of professional services                            11,642               8,953              2,689                  30  %
Total cost of revenue                            $       53,884           $  38,448          $  15,436                  40  %
Gross profit                                     $      152,096           $ 106,446          $  45,650                  43  %
Gross margin:
License - self-managed                                       98   %              98  %
Subscriptions - self-managed and SaaS                        76   %              75  %
Total subscription margin                                    78   %              78  %
Professional services                                        26   %              16  %
Total gross margin                                           74   %              73  %


Total cost of subscription revenue increased by $12.7 million, or 43%, in the
three months ended October 31, 2021 compared to the same period of the prior
year. This increase was primarily due to an increase of $9.5 million in cloud
hosting costs, an increase of $1.7 million in personnel and related costs, and
an increase of $0.6 million in partner fees. The increase in personnel and
related costs includes an increase of $1.4 million in salaries and related taxes
and $0.2 million in stock-based compensation.
Total subscription margin remained flat at 78% for the three months ended
October 31, 2021 compared to the three months ended October 31, 2020.
Cost of professional services revenue increased by $2.7 million, or 30%, in the
three months ended October 31, 2021 compared to the same period of the prior
year. This increase was primarily due to an increase of $1.3 million in
personnel and related costs, mainly due to growth in headcount, and an increase
in subcontractor costs of $1.1 million.
Gross margin for professional services revenue was 26% in the three months ended
October 31, 2021 compared to 16% for the three months ended October 31, 2020.
The increase in margin is primarily due to the increase in revenue, and a lower
than proportionate increase in cost of professional services revenue. We
continue to invest in headcount for our professional services organization that
we believe will be needed as we continue to grow and expect travel related costs
will increase in the future as COVID-19 risks and travel restrictions abate. Our
gross margin for professional services may fluctuate, decline or be negative in
the near-term as we seek to expand our professional services business.
Operating Expenses
Research and development
                                   Three Months Ended October 31,                   Change
                                         2021                     2020           $            %

                                                   (dollars in thousands)
Research and development   $         63,763                    $ 46,688      $ 17,075        37  %


Research and development expense increased by $17.1 million, or 37%, in the
three months ended October 31, 2021 compared to the same period of the prior
year as we continued to invest in the development of new and existing offerings.
Personnel and related costs increased by $15.4 million primarily as a result of
growth in headcount. Cloud hosting costs increased by $0.9 million and
consulting expense increased by $0.7 million. The increase in personnel and
related costs included an increase of $7.4 million in salaries and related
taxes, an increase of $6.0 million in stock-based compensation expense, an
increase of $1.0 million in acquisition-related compensation and an increase of
$0.6 million in benefits expense.
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Sales and marketing
                              Three Months Ended October 31,                   Change
                                    2021                     2020           $            %

                                              (dollars in thousands)
Sales and marketing   $         94,953                    $ 64,474      $ 30,479        47  %


Sales and marketing expense increased by $30.5 million, or 47%, in the three
months ended October 31, 2021 compared to the same period of the prior year.
This increase was primarily due to an increase of $25.7 million in personnel and
related costs and a $0.9 million increase in software and equipment expense as
we continued to increase our sales and marketing headcount. In addition,
marketing expenses increased by $2.3 million and consulting expenses increased
by $1.1 million. The increase in personnel and related costs included an
increase of $16.4 million in salaries and related taxes, an increase of
$6.0 million commissions expense related to the amortization of contract
acquisition costs, an increase of $1.6 million in benefits expense and
$0.4 million in stock-based compensation expense.
General and administrative
                                     Three Months Ended October 31,                   Change
                                           2021                     2020           $           %

                                                     (dollars in thousands)
General and administrative   $         30,555                    $ 23,705   

$ 6,850 29%


General and administrative expense increased by $6.9 million, or 29%, in the
three months ended October 31, 2021 compared to the same period of the prior
year. This increase was primarily due to an increase of $2.7 million in legal
and professional expenses. Personnel and related costs also increased
$2.5 million due to growth in headcount. Bad debt expense increased $1.0 million
and consulting expense also increased $0.4 million. The increase in personnel
and related costs included increases of $1.5 million in stock-based compensation
and $1.4 million in salaries and related taxes which were partially offset by a
decrease in other miscellaneous employee related expenses of $0.4 million.
Other Expense, Net
                               Three Months Ended October 31,                      Change
                                      2021                       2020          $             %

                                                (dollars in thousands)
Other expense, net   $             (6,998)                      $ (84)     $ (6,914)      8,231  %


Other expense, net was $7.0 million in the three months ended October 31, 2021
compared to $0.1 million in the same period of the prior year. This increase in
other expense, net was primarily due to an increase of $6.4 million in interest
expense due to issuance of long-term debt during the first quarter of the
current fiscal year and an increase of $0.5 million in foreign currency loss
relating to remeasurement of certain asset and liability balances that are
denominated in currencies other than the functional currency of the entities in
which they are recorded.
Provision for Income Taxes
                                      Three Months Ended October 31,                     Change
                                              2021                      2020          $           %

                                                      (dollars in thousands)
Provision for income taxes   $            2,850                        $ 

653 $ 2,197 336%


The provision for income taxes increased by $2.2 million in the three months
ended October 31, 2021 compared to the same period of the prior year. Our
effective tax rate was (6)% and (2)% of our net loss before taxes for the three
months ended October 31, 2021 and 2020, respectively. Our effective tax rate is
affected by recurring items, such as tax rates in jurisdictions outside the
Netherlands and the relative amounts of income we earn in those jurisdictions.
The increase in tax expense is driven primarily by growth in foreign
jurisdictions for which are not subject to valuation allowances or net operating
losses.
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Contents

            Comparison of Six Months Ended October 31, 2021 and 2020
Revenue
                                                    Six Months Ended October 31,                         Change
                                                       2021                  2020                $                   %
                                                                           (dollars in thousands)
Revenue
License - self-managed                          $        34,338          $  30,393          $   3,945                  13  %
Subscription - self-managed and SaaS                    333,104            225,158            107,946                  48  %
Total subscription revenue                              367,442            255,551            111,891                  44  %
Professional services                                    31,633             18,213             13,420                  74  %
Total revenue                                   $       399,075          $ 273,764          $ 125,311                  46  %


Total revenue increased by $125.3 million, or 46%, in the six months ended
October 31, 2021, compared to the same period of the prior year.
Total subscription revenue increased $111.9 million, or 44%, in the six months
ended October 31, 2021 compared to the same period of the prior year. The
increase in revenue was primarily caused by volume-driven increases from new
business, as existing customers purchased additional subscriptions and we grew
our subscription customer base to over 17,000 customers compared to over 12,900
customers in the same period of the prior year.
Professional services revenue increased by $13.4 million, or 74%, in the six
months ended October 31, 2021, compared to the same period of the prior year.
The increase in professional services revenue was attributable to increased
adoption of our professional services offerings.
Cost of Revenue and Gross Margin
                                                     Six Months Ended October 31,                         Change
                                                        2021                  2020                $                   %
                                                                            (dollars in thousands)
Cost of revenue
Cost of license - self-managed                   $          741           $     693          $      48                   7  %
Cost of subscription - self-managed and SaaS             79,021              55,038             23,983                  44  %
Total cost of revenue - subscription                     79,762              55,731             24,031                  43  %
Cost of professional services                            23,784              17,548              6,236                  36  %
Total cost of revenue                            $      103,546           $  73,279          $  30,267                  41  %
Gross profit                                     $      295,529           $ 200,485          $  95,044                  47  %
Gross margin:
License - self-managed                                       98   %              98  %
Subscriptions - self-managed and SaaS                        76   %              76  %
Total subscription margin                                    78   %              78  %
Professional services                                        25   %               4  %
Total gross margin                                           74   %              73  %


Total cost of subscription revenue increased by $24.0 million, or 43%, in the
six months ended October 31, 2021 compared to the same period of the prior year.
This increase was primarily due to an increase of $17.0 million in cloud hosting
costs and an increase of $4.1 million in personnel and related costs due to
growth in headcount in our support organization. In addition, partner fees
expenses increased by $1.2 million and consulting costs increased
$0.5 million. The increase in personnel and related costs includes an increase
of $2.9 million in salaries and related taxes, an increase of $1.0 million in
stock-based compensation expense and a $0.2 million increase in employee
benefits expense.
Total subscription margin was flat at 78% for each of the six months ended
October 31, 2021 compared to the six months ended October 31, 2020.
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Cost of professional services revenue increased by $6.2 million, or 36%, in the
six months ended October 31, 2021 compared to the same period of the prior
year. This increase was primarily due to an increase of $3.5 million in
personnel and related costs, including increases of $2.6 million in salaries and
related taxes and $0.9 million in stock-based compensation. Subcontractor costs
also increased $2.2 million.
Gross margin for professional services revenue was 25% in the six months ended
October 31, 2021 compared to 4% in the six months ended October 31, 2020. The
increase in margin is primarily due to the increase in revenue, and a lower than
proportionate increase in cost of professional services revenue. We continue to
invest in headcount for our professional services organization that we believe
will be needed as we continue to grow and expect travel related costs will
increase in the future as COVID-19 risks and travel restrictions abate. Our
gross margin for professional services may fluctuate, decline or be negative in
the near-term as we seek to expand our professional services business.
Operating Expenses
Research and development
                                  Six Months Ended October 31,                   Change
                                       2021                    2020           $            %
                                                  (dollars in thousands)
Research and development   $        123,145                 $ 92,366      $ 30,779        33  %


Research and development expense increased by $30.8 million, or 33%, in the six
months ended October 31, 2021 compared to the same period of the prior year as
we continued to invest in the development of new and existing offerings.
Personnel and related costs increased $27.6 million and software and equipment
expense increased $0.5 million primarily as a result of growth in
headcount. Cloud hosting costs also increased $1.3 million and consulting
expense increased $1.1 million. The increase in personnel and related costs
includes an increase of $13.9 million in salaries and related taxes, an increase
of $11.0 million in stock-based compensation expense, an increase of
$1.1 million in employee benefits expense and an increase of $1.0 million in
acquisition related compensation.
Sales and marketing
                             Six Months Ended October 31,                  Change
                                 2021                   2020            $            %
                                            (dollars in thousands)
Sales and marketing   $       182,986                $ 120,625      $ 62,361        52  %


Sales and marketing expense increased by $62.4 million, or 52%, in the six
months ended October 31, 2021 compared to the same period of the prior year.
This increase was primarily due to an increase of $49.9 million in personnel
related costs and a $1.6 million increase in software and equipment charges as
we continued to increase our sales and marketing headcount. In addition,
marketing expenses increased $7.8 million, consulting expense increased
$1.7 million and travel expense increased $1.2 million. The increase in
personnel and related costs includes an increase of $29.1 million in salaries
and related taxes, an increase of $12.0 million in commission expense, an
increase of $4.1 million in stock-based compensation expense related to the
amortization of contract acquisition costs and an increase of $2.7 million in
employee benefits expense.
General and administrative
                                    Six Months Ended October 31,                   Change
                                         2021                    2020           $            %
                                                    (dollars in thousands)
General and administrative   $        57,607                  $ 45,434      $ 12,173        27  %


General and administrative expense increased by $12.2 million, or 27%, in the
six months ended October 31, 2021 compared to the same period of the prior year.
This increase was primarily due to an increase of $5.1 million in legal and
professional fees and a $4.2 million increase in personnel related costs. Bad
debt expense also increased $1.1 million related to expected credit losses on
accounts receivable and consulting expense increased $1.1 million. The increase
in personnel and related costs includes an increase of $3.1 million in
stock-based compensation expense and an increase of $1.8 million in salaries and
related taxes which were partially offset by a decrease in other miscellaneous
employee related expenses of $0.7 million.
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Other Income (Expense), Net
                                     Six Months Ended October 31,                     Change
                                          2021                    2020            $             %
                                                      (dollars in thousands)
Other income (expense), net   $        (7,800)                 $ 10,801      $ (18,601)       (172) %


Other expense, net was $7.8 million in the six months ended October 31, 2021
compared to net income of $10.8 million for the same period of the prior year.
This was due to a decrease in foreign currency gain of $10.3 million and an
increase of $8.3 million in interest expense due to issuance of long-term debt
during the first quarter of the current fiscal year.
Provision for Income Taxes
                                    Six Months Ended October 31,                   Change
                                          2021                   2020           $           %
                                                   (dollars in thousands)
Provision for income taxes   $        5,503                    $ 1,020      

$ 4,483 440%


The provision for income taxes increased $4.5 million in the six months ended
October 31, 2021 compared to the same period in the prior year. Our effective
tax rate was (7)% and (2)% of our net loss before taxes for the six months ended
October 31, 2021 and 2020, respectively. Our effective tax rate is affected by
recurring items, such as tax rates in jurisdictions outside the Netherlands and
the relative amounts of income we earn in those jurisdictions. The increase in
tax expense from the prior year is due to increase in income in foreign
jurisdictions and increase in withholding taxes.
                        Liquidity and Capital Resources
As of October 31, 2021, we had cash and cash equivalents and restricted cash of
$876.1 million and $2.9 million, respectively, and working capital of $629.5
million. Our restricted cash consists primarily of cash on deposit with
financial institutions in support of letters of credit in favor of landlords for
non-cancelable lease agreements. We have generated significant operating losses
from our operations as reflected in our accumulated deficit of $694.8 million as
of October 31, 2021. We have historically incurred, and expect to continue to
incur, operating losses and may generate negative cash flows from operations on
an annual basis for the foreseeable future due to the investments we intend to
make as described above, and as a result, we may require additional capital
resources to execute on our strategic initiatives to grow our business.
We believe that our existing cash and cash equivalents will be sufficient to
fund our operating and capital needs for at least the next 12 months, despite
the uncertainty in the changing market and economic conditions related to
COVID-19. Our assessment of the period of time through which our financial
resources will be adequate to support our operations is a forward-looking
statement and involves risks and uncertainties. Our actual results could vary as
a result of, and our future capital requirements, both near-term and long-term,
will depend on, many factors, including our growth rate, the timing and extent
of spending to support our research and development efforts, the expansion of
sales and marketing activities, the timing of new introductions of solutions or
features, and the continuing market acceptance of our solutions and services. We
may in the future enter into arrangements to acquire or invest in complementary
businesses, services and technologies, including intellectual property rights.
We have based this estimate on assumptions that may prove to be wrong, and we
could use our available capital resources sooner than we currently expect. In
July 2021, we issued long term debt of $575.0 million, and we may be required to
seek additional equity or debt financing. In the event that additional financing
is required from outside sources, we may not be able to raise it on terms
acceptable to us or at all. If we are unable to raise additional capital when
desired, or if we cannot expand our operations or otherwise capitalize on our
business opportunities because we lack sufficient capital, our business,
operating results and financial condition would be adversely affected.
The following table summarizes our cash flows for the periods presented:
                                                   Six Months Ended October 31,
                                                        2021                   2020

                                                          (in thousands)
Net cash provided by operating activities   $          3,668                $  4,709
Net cash used in investing activities       $       (111,568)               $   (336)
Net cash provided by financing activities   $        586,597                

$ 45,230

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Net Cash Provided by Operating Activities
Net cash provided by operating activities during the six months ended
October 31, 2021 was $3.7 million, which resulted from a net loss of
$81.5 million and net cash outflow of $16.3 million from changes in operating
assets and liabilities, fully offset by non-cash charges of $101.5 million.
Non-cash charges primarily consisted of $59.6 million for stock-based
compensation expense, $28.6 million for amortization of deferred contract
acquisition costs, $9.3 million of depreciation and intangible asset
amortization expense, $3.8 million in non-cash operating lease costs,
amortization of debt issuance costs of $0.3 million expense and $0.1 million of
other expenses which were partially offset by an increase in deferred income
taxes of $0.2 million. The net cash outflow from changes in operating assets and
liabilities was the result of an increase in deferred contract acquisition costs
of $39.3 million as our sales commissions increased due to increased business
volume, an increase of $1.1 million in prepaid expenses and other assets, a
$4.0 million decrease in operating lease liabilities and a decrease of $3.5
million in deferred revenue. These outflows were partially offset by a net
increase of $31.0 million in accounts payable, accrued expenses, accrued
compensation and benefits and a decrease in accounts receivable of $0.5 million.
Net cash provided by operating activities during the six months ended October
31, 2020 was $4.7 million, which resulted from a net loss of $48.2 million
adjusted for non-cash charges of $59.0 million and net cash outflow of $6.2
million from changes in operating assets and liabilities. Non-cash charges
primarily consisted of $40.1 million for stock-based compensation expense, $18.2
million for amortization of deferred contract acquisition costs, $8.6 million of
depreciation and intangible asset amortization expense and $3.4 million in
non-cash operating lease costs which were partially offset by a foreign currency
transaction gain of $10.9 million and a decrease in deferred income taxes of
$0.3 million. The net cash outflow from changes in operating assets and
liabilities was the result of an increase in deferred contract acquisition costs
of $37.9 million as our sales commissions increased due to increased business
volume, a net decrease of $4.4 million in accounts payable, accrued expenses,
accrued compensation and benefits, and a $3.5 million decrease in operating
lease liabilities. These outflows were partially offset by a $34.4 million
increase in deferred revenue and a decrease of $5.1 million in prepaid expenses
and other assets.
Net Cash Used in Investing Activities
Net cash used in investing activities during the six months ended October 31,
2021 was $111.6 million due to cash used in the acquisitions of $108.1 million,
capitalization of $2.7 million in internal-use software costs and $0.8 million
of capital expenditures.
Net cash used in investing activities during the six months ended October 31,
2020 was $0.3 million due to $1.7 million of capital expenditures which was
partially offset by cash provided by other investing activities of $1.3 million
during the period.
Net Cash Provided by Financing Activities
Net cash provided by financing activities during the six months ended
October 31, 2021 was $586.6 million due to the proceeds of $575.0 million from
debt issuance and $20.8 million of proceeds from option exercises during the
period which were partially offset by $9.2 million payments of debt issuance
costs.
Net cash provided by financing activities during the six months ended October
31, 2020 was $45.2 million due to proceeds from option exercises during the
period.
Off Balance Sheet Arrangements
We did not have during the periods presented and we do not currently have any
off balance sheet financing arrangements or any relationships with any
unconsolidated entities or financial partnerships, including entities referred
to as structured finance or special purpose entities, which were established for
the purpose of facilitating off balance sheet arrangements or other
contractually narrow or limited purposes.
Contractual Obligations and Commitments
Our principal commitments consist of obligations under our operating leases,
which are primarily for office space, and purchase commitments to our cloud
hosting providers. Except for those disclosed in Note 7 "Senior Notes" of our
accompanying Notes to Condensed Consolidated Financial Statements included
elsewhere in this Quarterly Report on Form 10-Q, there have been no material
changes to our contractual obligations and commitments discussed in our Annual
Report on Form 10-K for the year ended April 30, 2021.
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Recently Issued Accounting Pronouncements
Refer to Note 2 of our accompanying Notes to Condensed Consolidated Financial
Statements included elsewhere in this Quarterly Report on Form 10-Q for recently
adopted accounting pronouncements and new accounting pronouncements not yet
adopted as of the date of this report.

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