ELASTIC N.V. 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 endedApril 30, 2020 . 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 isApril 30 , and our fiscal quarters end onJuly 31 ,October 31 ,January 31 , andApril 30 . Our fiscal year endedApril 30, 2020 is referred to as fiscal 2020 and our fiscal year endingApril 30, 2021 is referred to as fiscal 2021. 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 consumer and enterprise applications. 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 ofElasticsearch 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 open source and 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. InFebruary 2021 , with the release of version 7.11 of the Elastic Stack, we changed the way we licenseElasticsearch and Kibana, the visualization layer for data stored inElasticsearch . We moved the source code that had historically been licensed under the Apache License, Version 2.0 open source license ("Apache 2.0"), to be dual licensed under the Elastic License 2.0 ("ELv2"), our proprietary source available license, and the Server Side Public License Version 1.0 ("SSPL"), at the user's election. ELv2 is a permissive source available license, allowing free use, modification, creation of derivative works, and redistribution, while providing protection from cloud service providers who offer these products as a service without collaborating with us. SSPL is a source available license that provides many of the freedoms of an open source license, but with certain restrictions. This source code license change had no effect on our customers or the vast majority of our users. 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. We generate revenue primarily from sales of subscriptions for our software. We offer various paid subscription tiers that provide different levels of access to proprietary features and support. We do not sell support separately. Our subscription agreements for self-managed deployments typically have terms of one to three years and we usually bill for them annually in advance. Elastic Cloud customers may purchase subscriptions either on a month-to-month basis or on a committed contract of at least one year in duration. Subscriptions accounted for 93% and 92% of total revenue in the nine months endedJanuary 31, 2021 and 2020, respectively. We also generate revenue from consulting and training services. We had over 13,800 customers as ofJanuary 31, 2021 compared to over 10,500 as ofJanuary 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 26 -------------------------------------------------------------------------------- Table of Contents subscription. All 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 number of customers who represented greater than$100,000 in ACV was over 670 as ofJanuary 31, 2021 compared to over 570 as ofJanuary 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 2,084 employees as ofJanuary 31, 2021 . COVID-19 InMarch 2020 , theWorld 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 full extent of the 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, 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 to 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 is becoming even more evident. In addition, we have benefited from lower spending on travel due to COVID-19 travel restrictions and from holding events virtually, and we expect lower travel costs to continue 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, our 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 our 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 increase the pace of our investments in the business in the fourth quarter of fiscal 2021 and in 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. 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 27 -------------------------------------------------------------------------------- Table of Contents 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 theU.S. and internationally. Our results of operations may fluctuate as we make these investments. Developing new features to expand the use cases to which the Elastic Stack can be applied. The Elastic Stack is applied to various use cases both directly by developers and through the solutions we offer. Our revenue is derived primarily from subscriptions of Enterprise Search, Observability and Security built on the Elastic Stack. We believe that releasing additional features of the Elastic Stack and additional features for our solutions on top of the Elastic Stack 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 our solutions and the Elastic Stack and make it easier to apply to additional use cases. 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. An indication of how our customer relationships have expanded over time is through our Net Expansion Rate, which is based upon trends in the ACV of customers that have entered into annual subscription agreements. To calculate an expansion rate as of the end of a given month, we start with the ACV from all such customers as of twelve months prior to that month end, or Prior Period Value. We then calculate the ACV from these same customers as of the given month end, or Current Period Value, which includes any growth in the value of their subscriptions 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. We believe that our Net Expansion Rate provides useful information about the evolution of our business' existing customers. The Net Expansion Rate includes the dollar-weighted value of our subscriptions 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 continued to be over 130% for the three months endedJanuary 31, 2021 . 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 SaaS products that includes Elasticsearch Service, Site Search Service, and App Search Service, is an important growth opportunity for our business. Organizations are increasingly looking for SaaS 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 27% and 21% to our total revenue for the nine months endedJanuary 31, 2021 and 2020, respectively. We believe that offering a SaaS 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, an increase in the relative contribution of Elastic Cloud to our business could adversely impact our gross margin as a result of the associated hosting costs. 28
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Components of Results of OperationsRevenue
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 access to 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 condensed 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 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 condensed
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 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 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.
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Other Income (Expense), Net
Other income, net primarily consists of gains and losses from transactions
denominated in a currency other than the functional currency and interest income
(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 following tables set forth our results of operations for the periods
presented in dollars:
Three Months Ended January 31, Nine Months Ended January 31,
2021 2020 2021 2020
(in thousands)
Revenue
License - self-managed$ 15,280
131,969 89,703 357,127 241,593
Total subscription revenue 147,249 104,198 402,800 278,267
Professional services 9,866 8,983 28,079 25,730
Total revenue 157,115 113,181 430,879 303,997
Cost of revenue (1)(2)(3)
Cost of license - self-managed 346 347 1,039 602
Cost of subscription - self-managed and SaaS 31,426 23,196 86,464 60,832
Total cost of revenue - subscription 31,772 23,543 87,503 61,434
Cost of professional services 10,196 9,862 27,744 26,983
Total cost of revenue 41,968 33,405 115,247 88,417
Gross profit 115,147 79,776 315,632 215,580
Operating expenses(1)(2)(3)(4)
Research and development 51,400 46,119 143,766 119,779
Sales and marketing 71,087 54,829 191,712 160,860
General and administrative 27,121 21,096 72,555 71,472
Total operating expenses 149,608 122,044 408,033 352,111
Operating loss (1)(2)(3)(4) (34,461) (42,268) (92,401) (136,531)
Other income (expense), net (2,377) (1,339) 8,424 1,276
Loss before income taxes (36,838) (43,607) (83,977) (135,255)
Provision for income taxes 1,136 674 2,156 768
Net loss $ (37,974) $ (44,281) $ (86,133) $ (136,023)
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(1) Includes stock-based compensation expense as follows:
Three Months Ended January 31, Nine Months Ended January 31,
2021 2020 2021 2020
(in thousands)
Cost of revenue
Cost of subscription - self managed and SaaS $ 1,839 $ 1,008 $ 5,065 $ 2,869
Cost of professional services 1,359 879 3,287 2,078
Research and development 9,516 6,256 24,309 17,087
Sales and marketing 8,372 4,540 22,519 13,506
General and administrative 4,141 2,905 10,125 7,235
Total stock-based compensation expense $ 25,227 $
15,588
(2) Includes employer payroll taxes on employee stock transactions as follows:
Three Months Ended January 31, Nine Months Ended January 31,
2021 2020 2021 2020
(in thousands)
Cost of revenue
Cost of subscription - self managed and SaaS $ 267 $ 21 $ 487 $ 321
Cost of professional services 322 16 424 136
Research and development 1,243 238 2,702 1,886
Sales and marketing 1,723 335 3,494 2,816
General and administrative 2,130 129 3,329 1,489
Total employer payroll taxes on employee
stock-based transactions $ 5,685 $
739
(3) Includes amortization of acquired intangible assets as follows:
Three Months Ended January 31, Nine Months Ended January 31,
2021 2020 2021 2020
(in thousands)
Cost of revenue
Cost of license - self-managed $ 346 $ 347 $ 1,039 $ 602
Cost of subscription - self-managed and SaaS 1,764 2,660 5,289 4,057
Sales and marketing 1,428 1,451 4,302 1,859
Total amortization of acquired intangibles $ 3,538 $
4,458
(4) Includes acquisition-related expenses as follows:
Three Months Ended January 31, Nine Months Ended January 31,
2021 2020 2021 2020
(in thousands)
Research and development $ - $ - $ - $ 34
Sales and marketing - 395 - 508
General and administrative - 933 - 17,220
Total acquisition-related expenses $ -
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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 January 31, Nine Months Ended January 31,
2021 2020 2021 2020
Revenue
License - self-managed 10 % 13 % 10 % 12 %
Subscription - self-managed and SaaS 84 % 79 % 83 % 80 %
Total subscription revenue 94 % 92 % 93 % 92 %
Professional services 6 % 8 % 7 % 8 %
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 20 % 21 % 20 % 20 %
Total cost of revenue - subscription 20 % 21 % 20 % 20 %
Cost of professional services 7 % 9 % 7 % 9 %
Total cost of revenue 27 % 30 % 27 % 29 %
Gross profit 73 % 70 % 73 % 71 %
Operating expenses(1)(2)(3)(4)
Research and development 33 % 41 % 33 % 39 %
Sales and marketing 45 % 48 % 45 % 53 %
General and administrative 17 % 18 % 17 % 24 %
Total operating expenses 95 % 107 % 95 % 116 %
Operating loss (1)(2)(3)(4) (22) % (37) % (22) % (45) %
Other income (expense), net (1) % (2) % 3 % 0 %
Loss before income taxes (23) % (39) % (19) % (45) %
Provision for income taxes 1 % 0 % 1 % 0 %
Net loss (24) % (39) % (20) % (45) %
(1) Includes stock-based compensation expense as follows:
Three Months Ended January 31, Nine Months Ended January 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 6 % 5 % 6 % 6 %
Sales and marketing 5 % 4 % 5 % 4 %
General and administrative 3 % 3 % 2 % 2 %
Total stock-based compensation expense 16 % 14 % 15 % 14 %
(2) Includes employer payroll taxes on employee stock transactions as follows:
Three Months Ended January 31, Nine Months Ended January 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 1 % 0 % 0 % 1 %
Sales and marketing 1 % 1 % 1 % 1 %
General and administrative 2 % 0 % 1 % 0 %
Total employer payroll taxes on employee
stock-based transactions 4 % 1 % 2 % 2 %
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(3) Includes amortization of acquired intangible assets as follows:
Three Months Ended January 31, Nine Months Ended January 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 % 3 % 1 % 1 %
Sales and marketing 1 % 1 % 1 % 1 %
Total amortization of acquired intangibles 2 % 4 % 2 % 2 %
(4) Includes acquisition-related expenses as follows:
Three Months Ended January 31, Nine Months Ended January 31,
2021 2020 2021 2020
Research and development 0 % 0 % 0 % 0 %
Sales and marketing 0 % 0 % 0 % 0 %
General and administrative 0 % 1 % 0 % 6 %
Total acquisition-related expenses 0 % 1 % 0 % 6 %
Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. GAAP, we believe
the following non-GAAP measures are useful in evaluating our operating
performance. We use the following non-GAAP financial information to evaluate our
ongoing operations and for internal planning and forecasting purposes. We
believe that non-GAAP financial information, when taken collectively, may be
helpful to investors because it provides consistency and comparability with past
financial performance. However, non-GAAP financial information is presented for
supplemental informational purposes only, has limitations as an analytical tool
and should not be considered in isolation or as a substitute for financial
information presented in accordance with U.S. GAAP. In particular, free cash
flow is not a substitute for cash used in operating activities. Additionally,
the utility of free cash flow as a measure of our financial performance and
liquidity is further limited as it does not represent the total increase or
decrease in our cash balance for a given period. In addition, other companies,
including companies in our industry, may calculate similarly-titled non-GAAP
measures differently or may use other measures to evaluate their performance,
all of which could reduce the usefulness of our non-GAAP financial measures as
tools for comparison. A reconciliation is provided below for each non-GAAP
financial measure to the most directly comparable financial measure stated in
accordance with U.S. GAAP. Investors are encouraged to review the related GAAP
financial measures and the reconciliation of these non-GAAP financial measures
to their most directly comparable GAAP financial measures, and not to rely on
any single financial measure to evaluate our business.
We believe that these non-GAAP financial measures, when taken together with the
corresponding GAAP financial measures, provide meaningful supplemental
information regarding our performance by excluding certain items that may not be
indicative of our business, operating results or future outlook.
Non-GAAP Gross Profit and Non-GAAP Gross Margin
We define non-GAAP gross profit and non-GAAP gross margin as GAAP gross profit
and GAAP gross margin, respectively, excluding stock-based compensation expense,
employer payroll taxes on employee stock transactions, and amortization of
acquired intangible assets. We believe non-GAAP gross profit and non-GAAP gross
margin provide our management and investors consistency and comparability with
our past financial performance and facilitate period-to-period comparisons of
operations, as these metrics generally eliminate the effects of certain
variables from period to period for reasons unrelated to overall operating
performance.
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Three Months Ended January 31, Nine Months Ended January 31,
2021 2020 2021 2020
(dollars in thousands)
Gross profit $ 115,147 $ 79,776 $ 315,632 $ 215,580
Stock-based compensation expense 3,198 1,887 8,352 4,947
Employer payroll taxes on employee stock
transactions 589 37 911 457
Amortization of acquired intangibles 2,110 3,007 6,328 4,659
Non-GAAP gross profit $ 121,044 $ 84,707 $ 331,223 $ 225,643
Gross margin 73 % 70 % 73 % 71 %
Non-GAAP gross margin (non-GAAP gross profit as
a percentage of revenue) 77 % 75 % 77 % 74 %
Non-GAAP Operating Loss and Non-GAAP Operating Margin
We define non-GAAP operating loss and non-GAAP operating margin as GAAP
operating loss and GAAP operating margin, respectively, excluding stock-based
compensation expense, employer payroll taxes on employee stock transactions,
amortization of acquired intangible assets, and acquisition-related expenses. We
believe non-GAAP operating loss and non-GAAP operating margin provide our
management and investors consistency and comparability with our past financial
performance and facilitate period-to-period comparisons of operations, as these
metrics generally eliminate the effects of certain variables from period to
period for reasons unrelated to overall operating performance.
Three Months Ended January 31, Nine Months Ended January 31,
2021 2020 2021 2020
(dollars in thousands)
Operating loss $ (34,461)
25,227 15,588 65,305 42,775
Employer payroll taxes on employee stock transactions 5,685 739 10,436 6,648
Amortization of acquired intangibles 3,538 4,458 10,630 6,518
Acquisition-related expenses - 1,328 - 17,762
Non-GAAP operating loss $ (11) $ (20,155) $ (6,030) $ (62,828)
Operating margin (22) % (37) % (21) % (45) %Non-GAAP operating margin (non-GAAP operating loss as a percentage of revenue)
- % (18) % (1) % (21) %
Free Cash Flow and Free Cash Flow Margin
Free cash flow is a non-GAAP financial measure that we define as net cash
provided by (used in) operating activities less purchases of property and
equipment. Free cash flow margin is calculated as free cash flow divided by
total revenue. We believe that free cash flow and free cash flow margin are
useful indicators of liquidity that provide information to management and
investors about the amount of cash generated from our core operations that,
after the purchases of property and equipment, can be used for strategic
initiatives, including investing in our business and selectively pursuing
acquisitions and strategic investments. We further believe that historical and
future trends in free cash flow and free cash flow margin, even if negative,
provide useful information about the amount of net cash provided by (used in)
operating activities that is available (or not available) to be used for
strategic initiatives. For example, if free cash flow is negative, we may need
to access cash reserves or other sources of capital to invest in strategic
initiatives. One limitation of free cash flow and free cash flow margin is that
they do not reflect our future contractual commitments. Additionally, free cash
flow does not represent the total increase or decrease in our cash balance for a
given period.
The following table presents our cash flows for the periods presented and a
reconciliation of free cash flow and free cash flow margin to net cash provided
by (used in) operating activities, the most directly comparable financial
measure calculated in accordance with GAAP:
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Three Months Ended January 31, Nine Months Ended January 31,
2021 2020 2021 2020
(dollars in thousands)
Net cash provided by (used in) operating
activities $ 19,401 $ (23,227) $ 24,110 $ (24,631)
Purchases of property and equipment (1,076) (1,007) (2,732) (4,237)
Free cash flow $ 18,325 $ (24,234) $ 21,378 $ (28,868) Net cash used in investing activities
$ 11,024 $ 67,554 $ 47,698 Net cash provided by (used in) operating activities (as a percentage of total revenue) 13 % (20) % 6 % (8) % Less: Purchases of property and equipment (as a percentage of total revenue) (1) % (1) % (1) % (1) % Free cash flow margin 12 % (21) % 5 % (9) % Calculated Billings We define calculated billings as total revenue plus the increase in total deferred revenue as presented on or derived from our condensed consolidated statements of cash flows less the (increase) decrease in total unbilled accounts receivable in a given period. Calculated billings exclude deferred revenue and unbilled accounts receivable acquired through acquisitions in the period of the acquisition. We typically invoice our customers annually in advance, and to a lesser extent multi-year in advance, quarterly in advance, monthly in advance, monthly in arrears or upon delivery. Our management uses calculated billings to understand and evaluate our near-term cash flows and operating results. The following table presents our calculated billings for the periods presented and a reconciliation of calculated billings to total revenue, the most directly comparable financial measure calculated in accordance with GAAP: Three Months Ended January 31, Nine Months Ended January 31, 2021 2020 2021 2020 (in thousands) Total revenue$ 157,115 $ 113,181 $ 430,879 $ 303,997 Add: Increase in deferred revenue 18,877 9,188 53,309 33,666 Less: Decrease (increase) in unbilled accounts receivable (2,790) 535 (3,214) (64) Calculated billings$ 173,202 $ 122,904 $ 480,974 $ 337,599 Calculated billings increased 41% for the three months endedJanuary 31, 2021 over the three months endedJanuary 31, 2020 and 42% for the nine months endedJanuary 31, 2021 over the nine months endedJanuary 31, 2020 . As calculated billings continue to grow in absolute terms, we expect our calculated billings growth rate to trend down over time. We also expect that calculated billings will be affected by quarterly fluctuations and seasonality based on the timing of entering into new agreements with customers, the timing of renewals, and the mix between annual and monthly contracts entered in each reporting period. Foreign exchange rate movements may also impact calculated billings. 35
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Comparison of Three Months Ended January 31, 2021 and 2020
Revenue
Three Months Ended January 31, Change
2021 2020 $ %
(dollars in thousands)
Revenue
License - self-managed $ 15,280 $ 14,495 $ 785 5 %
Subscription - self-managed and SaaS 131,969 89,703 42,266 47 %
Total subscription revenue 147,249 104,198 43,051 41 %
Professional services 9,866 8,983 883 10 %
Total revenue $ 157,115 $ 113,181 $ 43,934 39 %
Total revenue increased by $43.9 million , or 39%, in the three months ended
January 31, 2021 , compared to the same period of the prior year.
Total subscription revenue increased $43.1 million , or 41%, in the three months
ended January 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 13,800 customers compared to over 10,500
customers in the same period of the prior year.
Professional services revenue increased by $0.9 million , or 10%, in the three
months ended January 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. However, growth slowed in the
three months ended January 31, 2021 as some services projects were delayed
primarily due to the effects of the COVID-19 pandemic.
Cost of Revenue and Gross Margin
Three Months Ended January 31, Change
2021 2020 $ %
(dollars in thousands)
Cost of revenue
Cost of license - self-managed $ 346 $ 347 $ (1) - %
Cost of subscription - self-managed and SaaS 31,426 23,196 8,230 35 %
Total cost of revenue - subscription 31,772 23,543 8,229 35 %
Cost of professional services 10,196 9,862 334 3 %
Total cost of revenue $ 41,968 $ 33,405 $ 8,563 26 %
Gross profit $ 115,147 $ 79,776 $ 35,371 44 %
Gross margin:
License - self-managed 98 % 98 %
Subscriptions - self-managed and SaaS 76 % 74 %
Total subscription margin 78 % 77 %
Professional services (3) % (10) %
Total gross margin 73 % 70 %
Total cost of subscription revenue increased by $8.2 million , or 35%, in the
three months ended January 31, 2021 compared to the same period of the prior
year. This increase was primarily due to an increase of $6.3 million in cloud
hosting costs, an increase of $2.3 million in personnel and related costs, and
an increase of $0.3 million in partner fees. These increases were partially
offset by a decrease of $0.9 million in amortization of acquired intangibles.
The increase in personnel and related costs includes an increase of $1.3 million
in salaries and related taxes and $0.8 million in stock-based compensation.
Total subscription margin increased to 78% for the three months ended
January 31, 2021 from 77% for the three months ended January 31, 2020 .
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Cost of professional services revenue increased by $0.3 million , or 3%, in the
three months ended January 31, 2021 compared to the same period of the prior
year. This increase was due to an increase of $1.5 million in personnel and
related costs, primarily due to growth in headcount, offset by a decrease of
$0.8 million in travel costs due to COVID-19 travel restrictions and a
$0.4 million decrease in facilities costs as we shifted to virtual delivery of
professional services in light of restrictions due to COVID-19.
Gross margin for professional services revenue was (3)% in the three months
ended January 31, 2021 compared to (10)% for the three months ended January 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. The
cost of professional services remained relatively flat due to a decrease in
travel related costs as we shifted to virtual delivery of professional services
in light of travel restrictions due to COVID-19. 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 once travel restrictions lift. 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 January 31, Change
2021 2020 $ %
(dollars in thousands)
Research and development $ 51,400 $ 46,119 $ 5,281 11 %
Research and development expense increased by $5.3 million , or 11%, in the three
months ended January 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 $7.5 million and software and equipment
expense increased $0.9 million primarily as a result of growth in
headcount. These increases were partially offset by a decrease in travel
expenses of $3.1 million due to COVID-19 travel restrictions and holding events
virtually. The increase in personnel and related costs included an increase of
$4.0 million in salaries and related taxes and an increase of $3.3 million in
stock-based compensation expense.
Sales and marketing
Three Months Ended January 31, Change
2021 2020 $ %
(dollars in thousands)
Sales and marketing $ 71,087 $ 54,829 $ 16,258 30 %
Sales and marketing expense increased by $16.3 million , or 30%, in the three
months ended January 31, 2021 compared to the same period of the prior year.
This increase was primarily due to an increase of $16.4 million in personnel and
related costs and a $0.5 million increase in software and equipment expense as
we continued to increase our sales and marketing headcount. In addition,
marketing expenses increased by $1.8 million . These increases were partially
offset by a decrease of $2.8 million in travel expenses due to COVID-19 travel
restrictions and holding events virtually. The increase in personnel and related
costs included an increase of $8.6 million in salaries and related taxes, an
increase of $3.8 million in stock-compensation expense costs and an increase of
$3.4 million in commissions expense related to the amortization of contract
acquisition costs.
General and administrative
Three Months Ended January 31, Change
2021 2020 $ %
(dollars in thousands)
General and administrative $ 27,121 $ 21,096 General and administrative expense increased by$6.0 million , or 29%, in the three months endedJanuary 31, 2021 compared to the same period of the prior year. This increase was primarily due to an increase of$3.6 million in personnel and related costs, including increases of$2.9 million in salaries and related taxes and$1.2 million in stock-based compensation, due to growth in headcount. In addition, bad debt expense increased by$2.0 million due to expected credit losses on accounts receivable as ofJanuary 31, 2021 . 37 --------------------------------------------------------------------------------
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Other Expense, Net
Three Months Ended January 31, Change
2021 2020 $ %
(dollars in thousands)
Other expense, net $ (2,377) $ (1,339) $ (1,038) 78 %
Other expense, net increased $1.0 million in the three months ended January 31,
2021 compared to the same period of the prior year. This net increase in expense
was primarily due to a decrease of $0.9 million in interest income and a
decrease of $0.3 million in other income. These were partially offset by a
decrease in foreign currency loss by $0.1 million 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 January 31, Change
2021 2020 $ %
(dollars in thousands)
Provision for income taxes $ 1,136 $
674
The provision for income taxes was$1.1 million in the three months endedJanuary 31, 2021 compared to$0.7 million for the same period in the prior year. Our effective tax rate was (3)% and (2)% of our net loss before taxes for the three months endedJanuary 31, 2021 and 2020, respectively. Our effective tax rate is affected by recurring items, such as tax rates in jurisdictions outsidethe Netherlands and the relative amounts of income we earn in those jurisdictions. Comparison of Nine Months EndedJanuary 31, 2021 and 2020
Revenue
Nine Months Ended January 31, Change
2021 2020 $ %
(dollars in thousands)
Revenue
License - self-managed $ 45,673 $ 36,674 $ 8,999 25 %
Subscription - self-managed and SaaS 357,127 241,593 115,534 48 %
Total subscription revenue 402,800 278,267 124,533 45 %
Professional services 28,079 25,730 2,349 9 %
Total revenue $ 430,879 $ 303,997 $ 126,882 42 %
Total revenue increased by $126.9 million , or 42%, in the nine months ended
January 31, 2021 , compared to the same period of the prior year.
Total subscription revenue increased $124.5 million , or 45%, in the nine months
ended January 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 13,800 customers compared to over 10,500
customers in the same period of the prior year.
Professional services revenue increased by $2.3 million , or 9%, in the nine
months ended January 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
Nine Months Ended January 31, Change
2021 2020 $ %
(dollars in thousands)
Cost of revenue
Cost of license - self-managed $ 1,039 $ 602 $ 437 73 %
Cost of subscription - self-managed and SaaS 86,464 60,832 25,632 42 %
Total cost of revenue - subscription 87,503 61,434 26,069 42 %
Cost of professional services 27,744 26,983 761 3 %
Total cost of revenue $ 115,247 $ 88,417 $ 26,830 30 %
Gross profit $ 315,632 $ 215,580 $ 100,052 46 %
Gross margin:
License - self-managed 98 % 98 %
Subscriptions - self-managed and SaaS 76 % 75 %
Total subscription margin 78 % 78 %
Professional services 1 % (5) %
Total gross margin 73 % 71 %
Total cost of subscription revenue increased by $26.1 million , or 42%, in the
nine months ended January 31, 2021 compared to the same period of the prior
year. This increase was primarily due to an increase of $18.4 million in cloud
hosting costs and an increase of $6.0 million in personnel and related costs due
to growth in headcount in our support organization. In addition, amortization of
acquired intangible assets increased by $1.2 million . These increases were
partially offset by a decrease of $1.5 million in travel expenses due to
COVID-19 related travel restrictions. The increase in personnel and related
costs includes an increase of $3.0 million in salaries and related taxes, an
increase of $2.2 million in stock-based compensation expense and a $0.5 million
increase in employee benefits expense.
Total subscription margin was flat at 78% for the each of the nine months ended
January 31, 2021 compared to the nine months ended January 31, 2020 .
Cost of professional services revenue increased by $0.8 million , or 3%, in the
nine months ended January 31, 2021 compared to the same period of the prior
year. This increase was primarily due to an increase of $4.7 million in
personnel and related costs, including increases of $3.7 million in salaries and
related taxes and $1.2 million in stock-based compensation. These increases were
partially offset by a decrease of $3.0 million in travel expenses and a decrease
of $1.0 million in training facility costs due to COVID-19 related restrictions.
Gross margin for professional services revenue was 1% in the nine months ended
January 31, 2021 compared to (5)% in the nine months ended January 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. The cost of
professional services remained relatively flat due to a decrease in travel
related costs as we shifted to a virtual delivery of professional services in
light of travel restrictions due to COVID-19. In recent periods, we have
invested 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 once travel restrictions lift. 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
Nine Months Ended January 31, Change
2021 2020 $ %
(dollars in thousands)
Research and development $ 143,766 $ 119,779 $ 23,987 20 %
Research and development expense increased by $24.0 million , or 20%, in the nine
months ended January 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 $26.1 million and software and equipment
expense increased $2.4 million primarily as a result of growth in
headcount. Cloud hosting costs also increased $1.4 million . These increases were
partially offset by a
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decrease in travel expenses of $6.8 million due to COVID-19 travel restrictions
and holding events virtually. The increase in personnel and related costs
includes an increase of $16.5 million in salaries and related taxes, an increase
of $7.2 million in stock-based compensation expense and an increase of
$2.1 million in employee benefits expense.
Sales and marketing
Nine Months Ended January 31, Change
2021 2020 $ %
(dollars in thousands)
Sales and marketing $ 191,712 $ 160,860 $ 30,852 19 %
Sales and marketing expense increased by $30.9 million , or 19%, in the nine
months ended January 31, 2021 compared to the same period of the prior year.
This increase was primarily due to an increase of $33.9 million in personnel
related costs and a $0.6 million increase in software and equipment charges as
we continued to increase our sales and marketing headcount. In addition,
marketing expenses increased $4.9 million , primarily related to our virtual user
conference held during the nine months ended January 31, 2021 , and amortization
of intangible assets increased $2.4 million due to addition of intangible assets
acquired through the Endgame acquisition in the nine months ended January 31,
2020 . These increases were partially offset by a decrease of $11.9 million in
travel expenses due to COVID-19 travel restrictions and holding events
virtually. The increase in personnel and related costs includes an increase of
$14.7 million in salaries and related taxes, an increase of $9.0 million in
stock-based compensation expense, an increase of $6.9 million in commissions
expense related to the amortization of contract acquisition costs and an
increase of $2.3 million in employee benefits expense.
General and administrative
Nine Months Ended January 31, Change
2021 2020 $ %
(dollars in thousands)
General and administrative $ 72,555 $ 71,472 General and administrative expense increased by$1.1 million , or 2%, in the nine months endedJanuary 31, 2021 compared to the same period of the prior year. This increase was primarily due to an increase of$2.3 million in bad debt expense related to expected credit losses on accounts receivable, an increase of$1.1 million in insurance and related taxes, and an increase of$1.0 million in consulting expense. Additionally, software and equipment expense increased by$0.4 million . These increases were largely offset by a decrease in legal and professional fees of$1.8 million due to the acquisition activities in the nine months endedJanuary 31, 2020 , a decrease of$1.5 million in travel expenses due to COVID-19 travel restrictions and a decrease of$1.2 million in personnel related costs. Personnel and related costs include a decrease of$12.3 million due to acquisition related compensation during the nine months endedJanuary 31, 2020 . This decrease was largely offset by an increase of$6.9 million in salaries and related taxes, an increase of$2.9 million in stock-based compensation expense and an increase of$0.5 million in employee benefits expense. Other Income, Net Nine Months Ended January 31, Change 2021 2020 $ % (dollars in thousands) Other income, net $ 8,424$ 1,276 $ 7,148 560 % Other income, net increased$7.1 million , or 560%, in the nine months endedJanuary 31, 2021 compared to the same period of the prior year. This increase was due to a foreign currency gain of$8.3 million in nine months endedJanuary 31, 2021 compared to a foreign currency loss of$2.4 million in the nine months endedJanuary 31, 2020 primarily 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. The foreign currency gains were partially offset by a decrease of$3.5 million in interest income due to lower interest rates. Provision for Income Taxes Nine Months Ended January 31, Change 2021 2020 $ % (dollars in thousands) Provision for income taxes $ 2,156$ 768 $ 1,388 181 % 40
-------------------------------------------------------------------------------- Table of Contents The provision for income taxes increased$1.4 million in the nine months endedJanuary 31, 2021 compared to the same period in the prior year. Our effective tax rate was (3)% and (1)% of our net loss before taxes for the nine months endedJanuary 31, 2021 and 2020, respectively. Our effective tax rate is affected by recurring items, such as tax rates in jurisdictions outsidethe Netherlands and the relative amounts of income we earn in those jurisdictions. The increase in tax provision expense from the prior year is due to increase in income in foreign jurisdictions and increase in withholding taxes. Liquidity and Capital Resources ThroughJanuary 31, 2021 , we have financed our operations principally through sales of our equity securities, as well as payments received from customers. As ofJanuary 31, 2021 , we had cash and cash equivalents and restricted cash of$393.1 million and$2.4 million , respectively, and working capital of$202.6 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$570.0 million as ofJanuary 31, 2021 . We have historically incurred, and expect to continue to incur, operating losses and 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. 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. 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:
Nine Months Ended
2021 2020
(in thousands)
Net cash provided by (used in) operating activities $ 24,110 $ (24,631)
Net cash used in investing activities $ (1,412) $ (28,610)
Net cash provided by financing activities $
67,554
Net Cash Provided by (Used in) Operating Activities Net cash provided by operating activities during the nine months endedJanuary 31, 2021 was$24.1 million , which resulted from a net loss of$86.1 million adjusted for non-cash charges of$102.1 million and net cash inflow of$8.1 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of$65.3 million for stock-based compensation expense,$28.5 million for amortization of deferred contract acquisition costs,$12.9 million of depreciation and intangible asset amortization expense and$5.3 million in non-cash operating lease costs which were partially offset by a foreign currency transaction gain of$9.5 million and an increase in deferred income taxes of$0.3 million . The net cash inflow from changes in operating assets and liabilities was the result of an increase of$53.3 million in deferred revenue, a decrease in accounts receivable of$15.2 million and a decrease of$10.1 million in prepaid expenses and other assets. These inflows were partially offset by an increase in deferred contract acquisition costs of$54.6 million as our sales commissions increased due to the addition of new customers and expansion of our existing customer subscriptions, a net decrease of$10.5 million in accounts payable, accrued expenses, accrued compensation and benefits and a$5.4 million decrease in operating lease liabilities. Net cash used in operating activities during the nine months endedJanuary 31, 2020 was$24.6 million , which resulted from a net loss of$136.0 million adjusted for non-cash charges of$86.4 million and net cash inflow of$24.9 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of$42.8 million for stock-based compensation expense,$20.6 million for amortization of deferred contract acquisition costs,$8.8 million of non-cash acquisition-related 41
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Table of Contents costs,$8.6 million of depreciation and intangible asset amortization expense and$5.2 million in non-cash operating lease costs. The net cash inflow from changes in operating assets and liabilities was the result of an increase of$33.7 million in deferred revenue, a net increase of$12.0 million in accounts payable, accrued expenses, accrued compensation and benefits and a$10.9 million decrease in accounts receivable. These inflows were partially offset by an increase in deferred contract acquisition costs of$26.4 million as our sales commissions increased due to the addition of new customers and expansion of our existing customer subscriptions, a$4.6 million decrease in operating lease liabilities and an increase of$0.6 million in prepaid expenses and other assets.Net Cash Used in Investing Activities Net cash used in investing activities during the nine months endedJanuary 31, 2021 was$1.4 million due to$2.7 million of capital expenditures, offset by cash provided by other investing activities of$1.3 million . Net cash used in investing activities during the nine months endedJanuary 31, 2020 was$28.6 million due to$24.4 million used in the acquisition of Endgame and$4.2 million of capital expenditures during the period. Net Cash Provided by Financing Activities Net cash provided by financing activities during the nine months endedJanuary 31, 2021 was$67.6 million due to proceeds from option exercises during the period. Net cash provided by financing activities of$47.7 million during the nine months endedJanuary 31, 2020 was due to$50.6 million proceeds from option exercises during the period, which was partially offset by payment of withholding taxes of$2.8 million of acquisition expense that was settled in ordinary shares of the Company. 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. There have been no material changes to our contractual obligations and commitments discussed in our Annual Report on Form 10-K for the year endedApril 30, 2020 . 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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