July 11, 2018
Shay Banon
Chief Executive Officer
Elastic N.V.
800 West El Camino Real, Suite 350
Mountain View, CA 94040
Re: Elastic N.V.
Draft Registration Statement on Form S-1
Submitted June 14, 2018
CIK: 0001707753
Dear Mr. Banon:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information and
either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Draft Registration Statement on Form S-1
Prospectus Summary
Overview, page 1
1. Please clarify how you define a Meetup member for purposes of your
statement that your
community includes 100,000 Meetup members.
2. We note your statement that your products have been downloaded over 250
million times.
Please clarify here and elsewhere as appropriate, including Management's
Discussion and
Analysis of Financial Condition and Results of Operations, the time
period to which this
measure relates and that this cumulative total includes your free and
paid products. Also,
Shay Banon
FirstName LastNameShay Banon
Elastic N.V.
Comapany NameElastic N.V.
July 11, 2018
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separately disclose the total number of downloads for your paid
products.
Risks Associated With Our Business and Investments in Our Ordinary Shares, page
7
3. Disclose in the summary that your directors, executive officers and
principal stockholders
will continue to have a substantial control over the company after the
offering and
disclose the percentage of your voting power to be held by affiliates
following the
offering.
Risk Factors
Risks Related to the Business
We rely on channel partners to execute a portion of our sales..., page 27
4. Please disclose the typical term of your agreements with your channel
partners.
A portion of our revenue is generated by sales to government entities..., page
37
5. Please disclose the percentage of your revenue that is generated by
sales to government
entities.
We apply the Dutch Corporate Governance Code..., page 44
6. Please clarify how you do not comply with the best practice provisions
of the DCGC.
Use of Proceeds, page 53
7. You disclose that the net proceeds from the offering will be used for
"general corporate
purposes, including working capital, research and development, sales
and marketing
activities, general and administrative matters and capital
expenditures." Please consider
disclosing the amount of proceeds that you plan to use to grow your
business as outlined
on pages 98 and 99, for example. Refer to Item 504 of Regulation S-K
and Instruction 7
to Item 504.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview, page 64
8. Please disclose the percentage of the Fortune 500 and Forbes Global
2000 that represent
greater than $100,000 annual contract value ("ACV").
9. Your business model encourages developers to download your software
free of charge and
utilize free proprietary features. Parts of this business model appear
to rely on developers
who have downloaded your software for free to then purchase paid
subscriptions. Based
on this description of your business model, please tell us whether key
metrics for
management include the utilization rate for the free downloads and/or
the conversion rate
of those free users into paid users. Indicate whether you know how
much of the
downloaded software is being actively used.
Shay Banon
FirstName LastNameShay Banon
Elastic N.V.
Comapany NameElastic N.V.
July 11, 2018
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10. We note that 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. Please tell us and
clarify in your disclosures whether or not you include month-to-month
subscriptions in
your calculation of ACV or customers. Additionally, to the extent that
month-to-month
subscriptions are material, disclose the proportion of subscriptions
which are on a month-
to-month basis.
Key Factors Affecting Our Performance, page 66
11. We note that achieving a high renewal rate for your subscriptions will
be critical to your
business. Based on your discussion of the net expansion rate, it is
unclear what
percentage of your existing customers renew their subscriptions. Tell
us your
consideration of providing historical renewal rates. Refer to Section
III.B of SEC Release
33-8350.
12. You disclose that your ACV prior period value "effectively represents
recurring dollars
that [you] expect in the subsequent 12-month period from that group of
customers."
Please tell us if prior period ACV includes contracts with remaining
subscription terms of
less than 12 months as of the prior period measurement date and revise
your disclosure
accordingly.
13. We note your disclosure that your net expansion rate calculation
includes any growth in
the value of subscriptions and is net of contraction or attrition over
the prior twelve
months. Tell us in more detail how you calculate net expansion rate.
In particular, tell us
if customers who reduce their annual subscription dollar value or do
not renew their
annual subscription are included or excluded from your calculation of
the net expansion
rate. If your net expansion rate only includes customers who have
increased or
maintained the value of their subscriptions, please revise your
disclosure to clarify this.
Non-GAAP Financial Measures, page 75
14. Please include substantive statements disclosing the reasons why
management believes
the presentation of each non-GAAP measure provides useful information
to investors.
Those disclosures should be specific and substantive to each measure.
Refer to Item
10(e)(1)(i)(C) of Regulation S-K.
15. You disclose that you believe free cash flow and free cash flow margin
provides
information about the amount of cash generated from core operations
that can be used for
strategic initiatives, including investing in your business and
selectively pursuing
acquisitions and strategic investments. However, you had negative free
cash flows for the
year ended April 30, 2017 and your disclosure on page 80 states that
you "expect to
continue to incur operating losses and generate negative cash flows
from operations for
the foreseeable future." Please review this apparent inconsistency and
revise
the disclosure as appropriate.
Shay Banon
FirstName LastNameShay Banon
Elastic N.V.
Comapany NameElastic N.V.
July 11, 2018
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Contractual Obligations and Commitments , page 81
16. We note that you have entered into non-cancellable capacity
commitments with a hosting
infrastructure vendor for a total cost of $37.5 million over the
subsequent three years.
Please identify the counterparty and describe the material terms of
this agreement.
Business
Competition, page 106
17. We note your statement that Google Site Search and Google Search
Appliance are no
longer being sold by Google. For context, please also disclose that
Google now offers the
Google Custom Search Engine and Google ElasticSearch or advise.
Consolidated Financial Statements
Consolidated Statement of Operations, page F-4
18. Your subscription revenue line item appears to include both product
(i.e., licenses) and
service arrangements (i.e., support and SaaS subscriptions). Please
tell us what
consideration you gave to separately stating net sales of tangible
products and revenues
from services and the cost of tangible products sold and cost of
services in accordance
with Rule 5-03(b)1 and (b)2 of Regulation S-X.
Notes to Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies, page F-8
Revenue Recognition, page F-14
19. We note that you offer consulting and trainings as part of your
services offerings. Please
tell us over what period of time you typically provide these services
and how you
determined that point in time revenue recognition was appropriate.
Refer to FASB ASC
606-10-25-23 through 25-30.
20. You indicate that the your "solutions are designed to run on premises,
in public or private
clouds, or in hybrid environments." Please tell us if you provide
hybrid solutions to
customers and, if so, explain to us how you recognize revenue for
these types of hybrid
arrangements. Indicate whether these arrangements include multiple
promises and, if so,
how you determined whether these promises are distinct. See FASB ASC
606-10-25-19.
Deferred Contract Acquisition Costs, page F-17
21. We note that you derive a significant portion of your revenue from
renewals of existing
subscriptions, including subscriptions on a month-to-month basis and
committed contracts
of at least one year. Please tell us, and disclose as appropriate, if
additional sales
commissions are paid upon subscription renewal, and, if so, whether
such amounts are
commensurate with the initial commissions. Please also disclose how
commissions paid
for renewals are considered in your period of benefit for the initial
commission. Finally,
Shay Banon
Elastic N.V.
July 11, 2018
Page 5
disclose the period of time over which you amortize commission costs
related to contract
renewals. Refer to FASB ASC 340-40-35-1 and 340-40-50-2.
Note 4 - Business Combinations, page F-23
22. We note that the fair value of the ordinary shares issued as part of
the consideration paid
for your acquisitions was "based on an independent valuation." Please
describe to us the
nature and extent of the valuation expert s involvement and management
s reliance on the
work of the valuation expert. For guidance, please refer to Question
141.02 of our
Securities Act Sections Compliance and Disclosure Interpretations.
General
23. We refer to the Investors' Rights Agreement filed as Exhibit 4.1 to
the registration
statement. Please revise your disclosure in the registration statement
to state, if true, that
the arbitration provisions relate to the claims arising out of the
contractual relationship
created by the Investors' Rights Agreement, rather than claims under
the United States
federal securities laws and do not prevent shareholders of the company
who are parties to
the agreement from pursuing claims under the United States federal
securities laws.
24. Please supplementally provide us with copies of all written
communications, as defined in
Rule 405 under the Securities Act, that you, or anyone authorized to
do so on your behalf,
present to potential investors in reliance on Section 5(d) of the
Securities Act, whether or
not they retain copies of the communications.
25. Please supplementally provide us with copies of any graphical
materials or artwork you
intend to use in your prospectus. Upon review of such materials, we
may have further
comments. For guidance, refer to Question 101.02 of our Securities Act
Forms
Compliance and Disclosure Interpretations.
You may contact Diane Fritz, Staff Accountant, at (202) 551-3331, or
Stephen Krikorian,
Accounting Branch Chief, at (202) 551-3488, if you have questions regarding
comments on the
financial statements and related matters. Please contact Jeff Kauten,
Attorney-Advisor, at (202)
551-3447, or in his absence, Barbara Jacobs, Assistant Director, at (202)
551-3735, with any
other questions.
FirstName LastNameShay Banon
Division of
Corporation Finance
Comapany NameElastic N.V.
Office of
Information Technologies
July 11, 2018 Page 5 and Services
FirstName LastName