REPORT OF THE AUDIT COMMITTEE
The Audit Committee is responsible for assisting our board of directors in fulfilling its oversight responsibilities regarding the Company’s financial accounting and reporting processes, system of internal control, audit process, and process for monitoring compliance with laws and regulations.
Management of the Company has the primary responsibility for preparing the Company’s consolidated financial statements, as well as establishing and maintaining the integrity of the Company’s financial reporting process, accounting principles and internal controls. PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm, is responsible for performing an audit of the Company’s consolidated financial statements and internal control over financial reporting and expressing an opinion as to the conformity of such financial statements with U.S. generally accepted accounting principles and the effectiveness of the Company’s internal control over financial reporting.
In this context, the Audit Committee reviewed and discussed the audited financial statements of the Company as of and for the year ended April 30, 2022 with the Company’s management and PricewaterhouseCoopers LLP. The Audit Committee also discussed with PricewaterhouseCoopers LLP critical audit matters included in the firm’s audit opinion and discussed the firm’s opinion regarding the Company’s internal control over financial reporting. In addition, the Audit Committee discussed with PricewaterhouseCoopers LLP the overall scope, plans, and estimated costs of PricewaterhouseCoopers LLP’s audits. To ensure independence, the Audit Committee met separately with PricewaterhouseCoopers LLP and members of the Company’s management. These reviews included discussion with the independent registered public accounting firm of matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the SEC. In addition, the Audit Committee received the written disclosures and the letter from the independent registered public accounting firm required by the PCAOB requiring independent registered public accounting firms to annually disclose in writing all relationships that, in their professional opinion may reasonably be thought to bear on independence, to confirm their perceived independence and to engage in a discussion of independence, and it has discussed with PricewaterhouseCoopers LLP its independence from the Company. The Audit Committee also met with PricewaterhouseCoopers LLP periodically to discuss the results of their examinations, the overall quality of the Company’s financial reporting, and their reviews of the Company’s quarterly financial statements.
Based on the reviews and discussions described above, the Audit Committee recommended to the board of directors the inclusion of the audited financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2022 for filing with the SEC.
Respectfully submitted by the members of the Audit Committee:
Jonathan Chadwick (Chair)
Shelley Leibowitz
Chetan Puttagunta
This report of the Audit Committee is required by the SEC and, in accordance with the SEC’s rules, will not be deemed to be part of or incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act or under the Exchange Act, except to the extent that we specifically incorporate this information by reference, and will not otherwise be deemed “soliciting material” or “filed” under either the Securities Act or the Exchange Act.
GRANT OF FULL DISCHARGE TO EXECUTIVE DIRECTOR—VOTING PROPOSAL NO. 5
At the Annual Meeting, our shareholders will be asked to grant a discharge to the executive directors of the Company who were in office during fiscal year 2022 from their liability with respect to the performance of their duties as executive directors of the Company during fiscal year 2022. The scope of the discharge extends to the facts that are apparent from the Dutch Statutory Annual Accounts and facts that are otherwise known to the general meeting of shareholders.
Required Vote
The approval to grant the discharge to the executive directors of the Company requires an affirmative vote of a simple majority of votes cast in the Annual Meeting where at least one-third of the issued and outstanding shares are represented.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE GRANTING OF FULL DISCHARGE FROM LIABILITY TO THE EXECUTIVE DIRECTORS.
GRANT OF FULL DISCHARGE TO NON-EXECUTIVE DIRECTORS—VOTING
PROPOSAL NO. 6
At the Annual Meeting, our shareholders will be asked to grant a discharge to the non-executive directors of the Company who were in office during fiscal year 2022 from their liability with respect to the performance of their duties as non-executive directors of the Company during fiscal year 2022. The scope of the discharge extends to the facts that are apparent from the Dutch Statutory Annual Accounts and facts that are otherwise known to the general meeting of shareholders.
Required Vote
The approval to grant the discharge to the non-executive directors of the Company requires an affirmative vote of a simple majority of votes cast in the Annual Meeting where at least one-third of the issued and outstanding shares are represented.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE GRANTING OF FULL DISCHARGE FROM LIABILITY TO THE NON-EXECUTIVE DIRECTORS.
AUTHORIZATION OF THE BOARD OF DIRECTORS TO REPURCHASE SHARES IN THE CAPITAL OF THE COMPANY—VOTING PROPOSAL NO. 7
At the Annual Meeting, our shareholders will be asked to authorize the board of directors to, on the Company’s behalf, repurchase the Company’s ordinary shares up to a maximum of 10% of the issued share capital at the date of acquisition on a stock exchange or otherwise, at a price per share between (i) an amount equal to the nominal value of the ordinary shares and (ii) an amount equal to 110% of the market price of an ordinary share on such stock exchange, the market price being the average of the highest price on each of the five days of trading prior to the day of the acquisition, for a period of 18 months. This authorization, if given, will supersede and replace the board of directors’ existing repurchase authorization granted by shareholders on October 1, 2021.
Pursuant to Dutch law and our articles of association, our board of directors requires, subject to certain exemptions, an authorization by our shareholders to be able to repurchase shares in the Company's capital. The purpose of this proposal to renew the board’s existing authority is to give the board flexibility in repurchasing ordinary shares for, among other considerations, the return of capital to the Company’s shareholders and/or, to the extent such authorization is required, to fulfill the Company’s obligations under its 2012 Plan. This authority to repurchase shares is similar to that generally afforded under applicable state laws to many public companies domiciled in the U.S. and in accordance with market practice for Dutch listed companies.
Required Vote
The resolution to authorize the board of directors to repurchase shares in the capital of the Company requires an affirmative vote of a simple majority of votes cast in the Annual Meeting where at least one-third of the issued and outstanding shares are represented.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE AUTHORIZATION OF THE BOARD OF DIRECTORS TO REPURCHASE SHARES IN THE CAPITAL OF THE COMPANY.
APPROVAL OF THE ELASTIC N.V. 2022 EMPLOYEE STOCK PURCHASE PLAN—VOTING PROPOSAL NO. 8
Introduction
On August 16, 2022 on the recommendation of the Compensation Committee, the board of directors unanimously adopted the Elastic N.V. 2022 Employee Stock Purchase Plan (the “ESPP”), subject to the approval of the shareholders of the Company. The ESPP is a broad-based plan that provides an opportunity for eligible employees of the Company and its designated subsidiaries and affiliates to purchase ordinary shares of the Company (referred to herein as “shares”) through periodic payroll deductions at a discount from the then-current market price. The ESPP does not provide for discretionary grants. If approved by the Company’s shareholders, a total of 6,000,000 shares will be made available for purchase under the ESPP.
Shareholder Approval Requirement
The approval of the ESPP requires an affirmative vote of a simple majority of votes cast in the Annual Meeting where at least one-third of the issued and outstanding shares are represented. Shareholders are requested in this proposal to approve the ESPP in substantially the form attached hereto as Appendix A. If shareholders do not approve this proposal, then the ESPP will not become effective.
Purpose of the Request for Approval
Approval of the ESPP by the shareholders will enable the Company to offer a current market-competitive, broad-based stock purchase plan to employees of the Company and its subsidiaries and affiliates on a global basis. The board of directors believes that the ESPP is in the best interest of the Company because it will help us to attract, retain, motivate and reward eligible employees and promote employee share ownership, which aligns employees’ interests with those of the Company. The board of directors believes that the ESPP is essential to the Company’s ability to attract, retain and motivate highly qualified employees in the current competitive labor markets in which we operate.
Key Features of the ESPP
The principal features of the ESPP are summarized below, but the summary is qualified in its entirety by reference to the full text of the ESPP. A copy of the ESPP is attached to this Proxy Statement as Appendix A, and is incorporated herein by reference. For purposes of this proposal, “Committee” means the Compensation Committee of our board of directors, and “Administrator” means the Committee or, subject to applicable law, a subcommittee of the Committee or one or more of the Company’s officers or management team appointed by the board of directors or Committee to administer the day-to-day operations of the ESPP.
Purpose of the ESPP
The purpose of the ESPP is to provide an opportunity for eligible employees of the Company and any subsidiary or affiliate of the Company that has been designated by the Administrator (each, a “Designated Company”) to purchase shares of the Company at a discount through voluntary contributions from such employees’ eligible pay, thereby attracting, retaining and rewarding such persons and strengthening the mutuality of interest between such employees and the Company’s shareholders.
The rights granted under the ESPP are intended to be treated as either (i) purchase rights granted under an “employee stock purchase plan,” as that term is defined in Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”) (i.e., rights granted under a “Section 423 Offering”), or (ii) purchase rights granted under an employee stock purchase plan that is not subject to the requirements of Section 423 of the Code (i.e., rights granted under a “Non-423 Offering”). The Administrator has discretion to grant purchase rights under either a Section 423 Offering or a Non-423 Offering.
Shares Subject to Plan and Adjustments upon Changes in Capitalization
A total of 6,000,000 of the Company’s shares will be initially authorized and reserved for issuance under the ESPP. Such shares may be authorized but unissued shares or reacquired shares. Shares withheld to satisfy tax withholding obligations arising under the ESPP will not reduce the number of shares available for purchase under the ESPP.
In the event of any change affecting the number, class, value, or terms of the shares of the Company, resulting from a recapitalization, stock split, reverse stock split, stock dividend, spinoff, split up, combination, reclassification or exchange of shares, merger, consolidation, rights offering, separation, reorganization or liquidation or any other change in the corporate structure or shares, including any extraordinary dividend or extraordinary distribution (but excluding any regular cash dividend), then the Committee, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the ESPP, will, in such manner as it may deem equitable, adjust the number and class of shares that may be delivered under the ESPP (including numerical limits), the purchase price per share and the number of shares covered by each purchase right under the ESPP that has not yet been exercised.
Administration
The ESPP will be administered by the Committee and any authority or responsibility that may be exercised by the Committee may alternatively be exercised by the board of directors. The Committee may delegate its authority to a subcommittee, one or more of the other parties comprising the Administrator or other persons or groups of persons, including to assist with the day-to-day administration of the ESPP. The Administrator will have, among other authority, the authority to interpret, reconcile any inconsistency in, correct any default in and apply the terms of the ESPP, to determine eligibility and adjudicate disputed claims under the ESPP, to determine the terms and conditions of purchase rights under the ESPP, to establish, amend, suspend or waive such rules and regulations and appoint such agents as it deems appropriate for the proper administration of the ESPP, to amend an outstanding right to purchase shares, and to make any other determination and take any other action desirable for the administration of the ESPP. For purchase rights granted under a Section 423 Offering, the Administrator is authorized to adopt such rules and regulations for administering the ESPP as it may deem necessary to comply with the requirements of Section 423 of the Code.
Non-U.S. Sub-Plans
The Administrator will also have the authority to adopt such sub-plans as are necessary or appropriate to permit the participation in the ESPP by employees who are foreign nationals or employed outside of the U.S. Such sub-plans may vary from the terms of the ESPP, other than with respect to the number of shares reserved for issuance under the ESPP, to accommodate the requirements of local laws, customs and procedures for non-U.S. jurisdictions. For this purpose, the Administrator is authorized to adopt sub-plans for non-U.S. jurisdictions that vary from the terms of the ESPP regarding, without limitation, eligibility to participate, the definition of eligible pay, the dates and duration of offering periods or other periods during which participants may make contributions towards the purchase of shares, the method of determining the purchase price and the discount at which shares may be purchased, any minimum or maximum amount of contributions a participant may make in an offering period or other specified period under the applicable sub-plan, the handling of payroll deductions and the methods for making contributions by means other than payroll deductions, the treatment of purchase rights upon a corporate transaction (as defined in the ESPP) or a change in capitalization of the Company, the establishment of bank accounts, building society accounts or trust accounts to hold contributions, the payment of interest, conversion of local currency, obligations to pay payroll tax, determination of beneficiary designation requirements, withholding procedures, handling of share issuances and withdrawal from the ESPP.
Eligibility
Generally, any individual in an employee-employer relationship with the Company or a Designated Company is eligible to participate in the ESPP and may participate by completing the online enrollment process or other procedures specified by the Administrator. For purposes of a Non-423 Offering and subject to the Administrator’s sole discretion, individuals who are employed or engaged by a third party agency but provide services to the Company or a Designated Company at the direction of the Company or a Designated Company may be eligible to participate in the ESPP by completing the online enrollment process or other procedures specified by the Administrator. As of July 31, 2022, approximately 2,834 employees, including three executive officers, were eligible to participate in the ESPP.
However, the Administrator, in its discretion, may determine on a uniform basis for an offering that employees will not be eligible to participate if they: (i) have not completed at least two years of service since their last hire date (or such lesser period of time determined by the Administrator), (ii) customarily work not more than 20 hours per week (or such lesser period of time determined by the Administrator), (iii) customarily work not more than five months per calendar year (or such lesser period of time determined by the Administrator), (iv) are highly compensated employees within the meaning of Section 414(q) of the Code, or (v) are highly compensated
employees within the meaning of Section 414(q) of the Code with compensation above a certain level or who are officers subject to the disclosure requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended.
No employee is eligible for the grant of any purchase rights under the ESPP if, immediately after such grant, the employee would own shares possessing 5% or more of the total combined voting power or value of all classes of shares of the Company or of any subsidiary or parent of the Company (including any shares which such employee may purchase under all outstanding purchase rights), nor will any employee be granted purchase rights to buy more than $25,000 worth of shares (determined based on the fair market value of the shares on the date the purchase rights are granted) under the ESPP in any calendar year such purchase rights are outstanding.
Eligible employees who are citizens or residents of a jurisdiction outside the U.S. may be excluded from participation in the ESPP if their participation is prohibited under local laws or if complying with local laws would cause the ESPP or a Section 423 Offering to violate Section 423 of the Code. In the case of a Non-423 Offering, eligible employees may be excluded from participation in the ESPP or an offering if the Administrator has determined that participation of such eligible employees is not advisable or practicable for any reason.
Offering Periods
The ESPP will be implemented by consecutive or overlapping offering periods, as specified by the Administrator, with a new offering period commencing on the first trading day of the relevant offering period and terminating on the last trading day of the relevant offering period. The Administrator will specify prior to the scheduled beginning of the applicable offering period (which may not have a duration exceeding 27 months): (i) the length of the offering period, (ii) the number of purchase periods that will be contained in an offering period, (iii) the length of each purchase period, and (iv) the dates on which an offering period and purchase period will commence and conclude.
The Administrator has the authority to establish the terms that will apply to the offering periods in accordance with the provisions described in the paragraph above without shareholder approval. Additionally, to the extent that the Administrator establishes an offering period with multiple purchase periods or overlapping offering periods, the Administrator will have discretion to structure an offering period so that if the fair market value of a share on the first trading day of the offering period in which a participant is currently enrolled is higher than the fair market value of a share on the first trading day of any subsequent offering period, the Company will automatically enroll the participant in the subsequent offering period and will terminate their participation in the original offering period.
Payroll Deductions
Except as otherwise provided by the Administrator, up to a maximum of 15% of a participant’s “eligible pay” (as defined in the ESPP) may be contributed by payroll deductions or other payments that the Administrator may permit a participant to make toward the purchase of shares during each purchase period. Once an eligible employee elects to participate in an offering period, then the participant will automatically participate in subsequent offering periods at the same contribution rate as was in effect in the prior offering period unless the participant elects to increase or decrease the contribution rate with respect to a subsequent offering period or withdraw, or is deemed to withdraw, from this Plan. A participant who is automatically enrolled in a subsequent offering period is not required to file any additional documentation in order to continue participation; provided, however, that participation in the subsequent offering period will be governed by the terms and conditions of the ESPP in effect at the beginning of such offering period, subject to the participant’s right to withdraw from the ESPP. A participant may elect to increase or decrease the rate of such contributions during any subsequent enrollment period, and any such new rate of contribution will become effective on the first day of the first purchase period following the completion of such form. Unless otherwise determined by the Administrator, during an offering period, a participant may decrease their rate of contributions applicable to such offering period once. A participant may also reduce the rate of their contributions to zero percent (0%) at any time during the offering period, provided that any such reduction will result in the automatic withdrawal of the participant from the ESPP, and the participant will not be eligible to participate in the ESPP again until the next enrollment period. Once an offering period has commenced, a participant may not increase their rate of contributions applicable to such offering period.
Purchase Price
Unless otherwise determined by the Administrator prior to the commencement of an offering period and subject to adjustment in the event of certain changes in our capitalization, the purchase price per share at which shares are sold in an offering period under the ESPP will not be less than 85% of the lesser of (i) the fair market
value of the shares on the first trading day of the offering period, or (ii) the fair market value of the shares on the purchase date (i.e., the last trading day of the purchase period). The Administrator has authority to establish a different purchase price for any Section 423 Offering or Non-423 Offering, provided that the purchase price applicable to a Section 423 Offering complies with the provisions of Section 423 of the Code. As of August 12, 2022, the closing price of a share of the Company on the New York Stock Exchange was $83.78.
Purchase of Shares
Each purchase right will be automatically exercised on the applicable purchase date, and shares will be purchased on behalf of each participant by applying the participant’s contributions for the applicable purchase period to the purchase of shares at the purchase price in effect for that purchase date.
The maximum number of shares purchasable per participant during any single offering period may not exceed the limit imposed by the Administrator, subject to adjustments in the event of certain changes in our capitalization.
Any amount remaining in a participant’s account that was not applied to the purchase of shares because it was insufficient to purchase a whole share will be carried forward for the purchase of shares during the following offering period. However, any amounts not applied to the purchase of shares during an offering period for any reason other than as described above will not be carried forward to any subsequent offering periods, and will instead by refunded, without interest, as soon as practicable after the purchase date, except as otherwise determined by the Administrator or required by applicable law.
Transferability
Purchase rights granted under the ESPP are not transferable by a participant other than by will or by the laws of descent and distribution, and are exercisable during the participant’s lifetime only by the participant.
Withdrawals
A participant may withdraw from an offering period and receive a refund of contributions by submitting a notice of withdrawal, which must be received no later than the last day of the month immediately preceding the month of the purchase date or by such other deadline as may be prescribed by the Administrator. Upon receipt of such notice, deductions of contributions on behalf of the participant will be discontinued commencing with the payroll period immediately following the effective date of the notice of withdrawal, and such participant will not be eligible to participate in the ESPP until the next enrollment period. Amounts credited to the account of any participant who withdraws from an offering period, according to the procedures set forth in the ESPP, within the time period prescribed by the Administrator will be refunded as soon as practicable, without interest, except as otherwise determined by the Administrator or required by applicable law.
Termination of Employment; Leave of Absence
If a participant ceases to be an eligible employee prior to a purchase date, contributions for the participant will be discontinued and any amounts credited to the participant’s account will be refunded as soon as practicable, without interest, except as otherwise provided by the Administrator or required by applicable law.
Subject to the discretion of the Administrator, if a participant is granted a paid leave of absence, the participant’s payroll deductions will continue and amounts credited to the participant’s account may be used to purchase shares as provided under the ESPP. If a participant is granted an unpaid leave of absence, the participant’s payroll deductions will be discontinued and no other contributions will be permitted (unless otherwise determined by the Administrator on a uniform and nondiscriminatory basis for Section 423 Offerings or required by applicable law), but any amounts credited to the participant’s account may be used to purchase shares on the next applicable purchase date. Where the period of leave exceeds three months and the participant’s right to reemployment is not guaranteed by statute or by contract, for purposes of the Section 423 Offerings, the employment relationship will generally be deemed to have terminated three months and one day following the commencement of such leave, or such other period specified in Treas. Reg. § 1.421-1(h)(2) or any successor thereto.
Unless otherwise determined by the Administrator or required by applicable law, a participant whose employment transfers or whose employment terminates with an immediate rehire (with no break in service) by or between the Company and a Designated Company will not be treated as having terminated employment for purposes of participating in the ESPP or an offering. However, if a participant transfers from a Section 423 Offering to a
Non-423 Offering, the exercise of the participant’s purchase right will be qualified under the Section 423 Offering only to the extent that such exercise complies with Section 423 of the Code. If a Participant transfers from a Non-423 Offering to a Section 423 Offering, the exercise of the Participant’s purchase right will remain non-qualified under the Non-423 Offering. The Administrator may establish additional or different rules to govern transfers of employment for purposes of participation in the ESPP or an offering, consistent with the applicable requirements of Section 423 of the Code.
Corporate Transaction
In the event of a “Corporate Transaction” (as defined in the ESPP), each outstanding purchase right will be equitably adjusted and assumed or an equivalent purchase right substituted by the successor company or a parent or subsidiary of such successor corporation. In the event that the successor corporation refuses to assume or substitute the purchase right or is not a publicly traded corporation, the offering period then in progress will be shortened by setting a new purchase date before the date of the proposed Corporate Transaction, as of which date the offering period will end.
Term of the ESPP; Amendment and Termination of Plan
The ESPP will become effective upon its approval by the holders of shares in the capital of the Company and will continue in effect until its expiration on the tenth anniversary thereof, unless terminated earlier by the board of directors, as described below. Any offering periods that are outstanding as of the expiration of the ESPP will continue in effect in accordance with their terms through the final purchase period in the outstanding offering period.
The board of directors or the Committee may amend the ESPP at any time, provided that if approval of holders of shares in the capital of the Company is required under applicable law, then no such amendment will be effective unless approved by the holders of shares in the capital of the Company within such time period as may be required. The board of directors may suspend the ESPP or discontinue the ESPP at any time, including shortening an offering period in connection with a spin-off or similar corporate event. Upon termination of the ESPP, all contributions will cease, all amounts credited to a participant’s account will be equitably applied to the purchase of whole shares then available for sale, and any remaining amounts will be promptly refunded, without interest (unless required by applicable law), to the participants.
U.S. Federal Income Tax Information
The following summary briefly describes the general U.S. federal income tax consequences of purchase rights under the ESPP for participants who are tax resident in the U.S., current as of July 31, 2022, but is not a detailed or complete description of all U.S. federal tax laws or regulations that may apply, and does not address any local, state or other country laws. Therefore, no one should rely on this summary for individual tax compliance, planning or decisions. Participants in the ESPP should consult their own professional tax advisors regarding the taxation of purchase rights under the ESPP. The discussion below concerning tax deductions that may become available to the Company under U.S. federal tax law is not intended to imply that the Company will necessarily obtain a tax benefit or asset from those deductions. Taxation of equity-based payments in countries other than the U.S. does not generally correspond to U.S. federal tax laws, and is not covered by the summary below.
U.S. Federal Income Tax Information for Section 423 Offerings
Rights to purchase shares granted under a Section 423 Offering are intended to qualify for favorable federal income tax treatment available to purchase rights granted under an employee stock purchase plan that qualifies under the provisions of Section 423(b) of the Code. Under these provisions, no income will be taxable to a participant until the shares purchased under the ESPP are sold or otherwise disposed of. If the shares are disposed of within two years from the purchase right grant date (i.e., the beginning of the offering period) or within one year from the purchase date of the shares, a transaction referred to as a “disqualifying disposition,” the participant will realize ordinary income in the year of such disposition equal to the difference between the fair market value of the shares on the purchase date and the purchase price. The amount of such ordinary income will be added to the participant’s basis in the shares, and any additional gain or resulting loss recognized on the disposition of the shares after such basis adjustment will be a capital gain or loss. A capital gain or loss will be long-term if the participant holds the shares for more than one year after the purchase date.
If the shares purchased under the ESPP are sold (or otherwise disposed of) more than two years after the purchase right grant date and more than one year after the shares are transferred to the participant, then the lesser of (i) the excess of the sale price of the shares at the time of disposition over the purchase price, and (ii) the excess of the fair market value of the shares as of the purchase right grant date over the purchase price (determined as of the first day of the offering period) will be treated as ordinary income. If the sale price is less than the purchase price, no ordinary income will be reported. The amount of any such ordinary income will be added to the participant’s basis in the shares, and any additional gain or resulting loss recognized on the disposition of the shares after such basis adjustment will be long-term capital gain or loss.
The Company (or applicable Designated Company) generally will be entitled to a deduction in the year of a disqualifying disposition equal to the amount of ordinary income realized by the participant as a result of such disposition, subject to any applicable limitations under the Code. In other cases, no deduction is allowed.
U.S. Federal Income Tax Information for Non-423 Offerings
If the purchase right is granted under a Non-423 Offering, then the amount equal to the difference between the fair market value of the shares on the purchase date and the purchase price will be treated as ordinary income at the time of such purchase. In such instances, the amount of such ordinary income will be added to the participant’s basis in the shares, and any additional gain or resulting loss recognized on the disposition of the shares after such basis adjustment will be a capital gain or loss. A capital gain or loss will be long-term if the participant holds the shares for more than one year after the purchase date.
The Company (or applicable Designated Company) generally will be entitled to a deduction in the year of purchase equal to the amount of ordinary income recognized by the participant as a result of such disposition, subject to any applicable limitations under the Code. For U.S. participants, FICA/FUTA taxes will generally be due in relation to ordinary income earned as a result of participation in a Non-423 Offering.
New Plan Benefits
The benefits to be received pursuant to the ESPP by the Company’s officers and employees are not currently determinable as they will depend on the purchase price of our shares in offering periods after the implementation of the ESPP, the market value of our shares on various future dates, the amount of contributions that eligible officers and employees elect to make under the ESPP and similar factors. As of the date of this Proxy Statement, no officer or employee has been granted any purchase rights under the proposed ESPP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE ELASTIC N.V. 2022 EMPLOYEE STOCK PURCHASE PLAN.
NON-BINDING ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS—VOTING PROPOSAL NO. 9
At the Annual Meeting, our shareholders will be asked to approve, on a non-binding and advisory basis, the compensation of our Named Executive Officers. You are encouraged to review the section titled “Executive Compensation” and, in particular, the section titled “Executive Compensation—Compensation Discussion and Analysis” in this proxy statement, which provides a comprehensive review of our executive compensation program and its elements, objectives and rationale.
The vote on this resolution is not intended to address any specific element of compensation, rather the vote relates to the compensation of our Named Executive Officers in its totality, as described in this proxy statement in accordance with the compensation disclosure rules of the SEC.
In accordance with Section 14A of the Exchange Act rules, our shareholders are asked to approve the following non-binding resolution:
“RESOLVED, that the Company’s shareholders hereby approve, on a non-binding advisory basis, the compensation of the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2022 annual meeting of shareholders, pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the compensation tables and the accompanying narrative.”
As this is an advisory vote, you are not voting to approve or disapprove of the board of directors’ recommendation. Nevertheless, our board of directors appreciates your input as it considers the compensation of our Named Executive Officers, and our board of directors and the Compensation Committee will take into account the outcome of the advisory vote when considering future executive compensation decisions. The next advisory shareholder vote on the compensation of our named executive officers will occur at our 2023 annual general meeting of shareholders.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE NON-BINDING RESOLUTION ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.
EXECUTIVE OFFICERS
The following table provides information regarding our current executive officers as of July 31, 2022. Executive officers are elected by our board of directors to hold office until their successors are elected and qualified. There are no family relationships among any of our directors or executive officers.
| | | | | | | | | | | | | | |
| Name | | Age | | Position(s) |
| Ashutosh Kulkarni | | 47 | | Executive Director and CEO |
| Janesh Moorjani | | 49 | | CFO and COO |
| Shay Banon | | 44 | | Executive Director and CTO |
| Carolyn Herzog | | 55 | | Chief Legal Officer (“CLO”) |
For a brief biography of Messrs. Kulkarni and Banon, please see “Board of Directors and Corporate Governance—Nominees for Director.”
Janesh Moorjani has served as our COO since May 2022 and our CFO since August 2017. Prior to joining us, he served as Executive Vice President and CFO of Infoblox Inc., an IT automation and security company, from January 2016 until August 2017, prior to which he held various senior leadership, finance and sales positions at VMware, Cisco Systems, PTC and Goldman Sachs. Mr. Moorjani holds a Bachelor of Commerce degree from the University of Mumbai and an M.B.A. from the Wharton School of the University of Pennsylvania.
Carolyn Herzog has served as our CLO since May 2022. Prior to joining us, she served as Executive Vice President and General Counsel of Arm, Ltd., a semiconductor and software design company, from January 2017 to February 2022. From December 2000 to January 2017 Ms. Herzog was with Symantec, a cybersecurity software and services company, in various roles, most recently as Chief Compliance Officer and Deputy General Counsel. Ms. Herzog holds a B.A. in French language and literature and music from Washington University and a J.D. from the University of Wisconsin-Madison.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Introduction
This Compensation Discussion and Analysis provides information regarding the fiscal year 2022 compensation program for each individual who served as our principal executive officer at any time during the last completed fiscal year, our principal financial officer, and the two individuals for whom disclosure would have been required but for the fact that these individuals were not serving as executive officers of the Company at the end of the last completed fiscal year (our “Named Executive Officers”). For fiscal year 2022, our Named Executive Officers were:
•Ashutosh Kulkarni, our current CEO and former Chief Product Officer (“CPO”);
•Shay Banon, our current CTO and former Chairman of the board of directors and former CEO;
•Janesh Moorjani, our CFO and COO;
•Paul Appleby, our former President, Worldwide Field Operations; and
•W.H. Baird Garrett, our former Senior Vice President and General Counsel.
This Compensation Discussion and Analysis describes the material elements of our executive compensation program during fiscal year 2022. It also provides an overview of our executive compensation philosophy, including our principal compensation policies and practices. Finally, it analyzes how and why the Compensation Committee arrived at the specific compensation decisions for our Named Executive Officers, or in the case of our executive directors, the CEO and CTO, how and why the non-executive directors arrived at the specific compensation decisions in fiscal year 2022 and discusses the key factors that the Compensation Committee considered in determining their compensation or, with regard to the compensation of our executive directors, making recommendations to our board of directors.
Fiscal Year 2022 Executive Officer Resignations, Transitions and Appointments
On October 18, 2021, Mr. Garrett provided notice of his intent to resign, effective as of December 10, 2021, from his position as our Senior Vice President and General Counsel and terminated his employment in order to pursue other career opportunities. Mr. Garrett had been with Elastic since 2015. Following the end of our fiscal year 2022 to which this Compensation Discussion and Analysis pertains, the board of directors appointed Carolyn Herzog as Chief Legal Officer of the Company effective as of May 2, 2022.
In January 2022, Mr. Banon transitioned from the role of Chairman of the board of directors and CEO to the role of CTO, Mr. Puttagunta, Lead Independent Director, was appointed Chairman of the board of directors, and Mr. Kulkarni transitioned from the role of CPO to acting CEO. Mr. Kulkarni was also appointed to the board of directors by shareholders at an extraordinary general shareholder meeting on March 9, 2022 (the “March 2022 EGM”), and this appointment confirmed his position as CEO.
On January 12, 2022, Mr. Appleby stepped down from his position as our President, Worldwide Field Operations, while continuing his employment with us through June 9, 2022.
For details on the changes to the compensation arrangements of Messrs. Kulkarni and Appleby resulting from these transitions, appointments and resignations, please see “Executive Summary – Executive Compensation Highlights” below. We entered into an amended and restated employment agreement with Mr. Banon, but we did not make any changes to Mr. Banon’s compensation arrangement in connection with his transition from his position as our Chairman of the board of directors and CEO to our CTO. We did not enter into a separation agreement or provide any severance payments or benefits to Mr. Garrett in connection with his resignation as our Senior Vice President and General Counsel.
Executive Summary
Elastic is a data analytics company built on the power of search. Our platform, which is available as both a hosted, managed service across public clouds as well as self-managed software, allows our customers to almost instantly find insights from large amounts of data and take action. We offer three search-powered solutions – Enterprise Search, Observability, and Security – that are built into the platform. We help organizations, their employees, and their customers find what they need faster, while keeping mission-critical applications running smoothly, and protecting against cyber threats.
Our platform is built on the Elastic Stack, a powerful set of software products that ingest data from any source, in any format, and perform search, analysis, and visualization of that data. At the core of the Elastic Stack is Elasticsearch - a highly scalable document store and search engine, and the only data store for all of our solutions and use cases. Another key component of the Elastic Stack is Kibana, which delivers a single user interface across all of our solutions, with powerful drag-and-drop visual analytics, and centralized management of the platform. Our business model is based primarily on a combination of a paid Elastic-managed hosted service offering and paid and free proprietary self-managed software. Our paid offerings for our platform are sold via subscription through resource-based pricing, and all customers and users have access to all solutions.
Fiscal Year 2022 Financial Highlights
Fiscal year 2022 was a strong year for us marked by significant growth in our business. Our fiscal year 2022 financial highlights included the following:
•Total revenue was $862.4 million, an increase of 42% year-over-year.
•Elastic Cloud revenue was $298.6 million, an increase of 80% year-over-year.
•GAAP operating loss was $173.7 million, while GAAP operating margin was -20%.
•Non-GAAP operating profit was $0.9 million, while non-GAAP operating margin was 0%.
•GAAP net loss per share was $2.20, while non-GAAP net loss per share was $0.33.
•Operating cash flow was $5.7 million with adjusted free cash flow of $10.7 million.
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide investors with certain non-GAAP financial measures, including non-GAAP operating loss, free cash flow, and free cash flow margin. For additional information and a full reconciliation for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP, please see Appendix B.
Fiscal Year 2022 Executive Compensation Highlights
Consistent with our compensation objectives and following a review of data summarizing the competitive market environment and the other factors described below, the Compensation Committee (and, in the case of our executive directors, the non-executive directors serving on our board of directors upon the recommendation of the Compensation Committee) took the following key actions with respect to the compensation of our Named Executive Officers for and during fiscal year 2022:
•Compensation Arrangements with Mr. Kulkarni in Connection with his Transition to CEO – In connection with his appointment as our CEO, entered into an amended employment offer letter dated January 12, 2022 (the “Kulkarni Employment Letter”) with Mr. Kulkarni. Pursuant to the Kulkarni Employment Letter, our new compensation arrangements with Mr. Kulkarni were as follows:
◦a base salary increase for Mr. Kulkarni of 20% setting his annual base salary at $600,000;
◦a target annual cash incentive award opportunity for fiscal year 2022 equal to the sum of (i) 60% of Mr. Kulkarni’s annual base salary for the period beginning on the commencement of fiscal year 2022 and ending on January 10, 2022, and (ii) 100% of his annual base salary for
the period between January 11, 2022 and the end of fiscal year 2022, subject to the terms and conditions of the Company’s Executive Incentive Compensation Plan (the “Bonus Plan”); and
◦in order to align the value of Mr. Kulkarni’s unvested equity with that of similarly situated CEOs at the companies in our compensation peer group, promotion equity awards in the form of an option to purchase ordinary shares with an award value of $8.0 million and a restricted stock unit (“RSU”) award that may be settled for ordinary shares with an award value of $4.0 million, which were granted in March 2022. Each of Mr. Kulkarni’s promotion equity awards vest over a four-year period as described in “Long-Term Incentive Compensation – Promotion Equity Awards.”
In establishing Mr. Kulkarni’s new compensation arrangement, we took into consideration the requisite experience and skills that a qualified candidate would need to lead a growing business in a dynamic and ever-changing environment, the competitive market for similar positions at other comparable companies based on a review of compensation survey data, balancing both competitive and internal equity considerations, as well as the other factors described in “Compensation-Setting Process – Setting Target Total Direct Compensation” below.
•Base Salaries – As part of the annual review of our executive compensation program, approved a base salary increase for Mr. Banon1, our then-CEO, of 25.0% effective November 2021 setting his annual base salary at $500,000,2 and approved a base salary increase for Mr. Moorjani, our CFO and COO, of 37.0% in November 2021 setting his annual base salary at $500,000. These salary increases were approved to be more competitive with the base salaries of similarly-situated executive officers at companies of comparable size and stage of maturity, as well as the base salaries of our other executive officers, and to compensate Messrs. Banon and Moorjani for not having received market-based adjustments in prior years. Our other Named Executive Officers did not receive an annual base salary increase during fiscal year 2022.
•Annual Cash Incentive (Bonus) Plan – Approved annual cash incentive awards under our Bonus Plan to Messrs. Kulkarni, Moorjani, Banon and Appleby in the amount of $376,635, $251,252, $248,728, and $307,281, respectively. As discussed in greater detail below, Mr. Garrett was not eligible to receive an annual cash incentive award under our Bonus Plan, which is consistent with our historical compensation practices. See “Compensation Elements – Annual Cash Incentives” below for a summary of the terms of our Bonus Plan.
1 Mr. Banon’s compensation was reviewed and increased effective November 1, 2021 as part of the Board’s annual review of his executive compensation package as our then-current CEO. This was before Mr. Banon provided notice of his intent to transition from his position as Chairman of the Board and CEO to the role of CTO in January 2022. Mr. Banon’s compensation package was left unchanged following his transition because the Compensation Committee determined that Mr. Banon’s compensation was fair considering that (i) hiring a new executive in the role of CTO would require a comparable level of compensation based on a general analysis of the compensation levels of senior technical officers in the Company’s peer group, and (ii) maintaining Mr. Banon’s compensation package was internally consistent.
2 All cash compensation paid to Mr. Banon was denominated in New Israel Shekels (“ILS”). For purposes of this Compensation Discussion and Analysis, all compensation paid in ILS to Mr. Banon has been converted into USD at an exchange rate of 0.2991 USD for each 1.00 ILS, which was the exchange rate in effect on April 30, 2022 (our fiscal year end).
•Long-Term Incentive Compensation
◦Granted long-term incentive compensation in the form of options to purchase ordinary shares to Messrs. Banon, Moorjani, Kulkarni and Appleby with aggregate award values3 of $4.0 million, $4.5 million, $2.0 million, and $2.5 million, respectively, and RSU awards that may be settled for ordinary shares to Messrs. Banon, Moorjani, Kulkarni and Appleby with aggregate award values of $4.0 million, $4.5 million, $4.0 million and $2.5 million, respectively. These awards consist of annual awards approved as part of the annual review of our executive compensation program in December 2021, and with respect to Messrs. Kulkarni and Moorjani, this also included supplemental awards intended to incentivize key employees.
•Compensation Arrangements with Mr. Appleby in Connection with his Separation– In connection with stepping down as our President, Worldwide Field Operations, we entered into a separation and transition agreement letter dated as of January 12, 2022 (the “Appleby Separation Letter”) with Mr. Appleby under substantially the same terms of Mr. Appleby’s severance agreement that is part of his employment agreement from August 2020. Pursuant to the Appleby Separation Letter, if Mr. Appleby remained employed with us through June 9, 2022, his scheduled separation date, or was terminated without “Cause” (as defined in the Appleby Separation Letter) prior to June 9, 2022, and Mr. Appleby executed a supplemental separation agreement that became effective and irrevocable within 60 days of his separation date, Mr. Appleby would be eligible to receive the following:
◦a lump sum payment equal to $250,000, less applicable withholdings, which is equal to 6 months of Mr. Appleby’s annual base salary;
◦a lump sum payment equal to $150,000, less applicable withholdings, which is equal to 50% of Mr. Appleby’s annual target bonus amount under our Bonus Plan for fiscal year 2022; and
◦if Mr. Appleby timely elects continued group health plan continuation coverage under COBRA, we will pay the full amount of Mr. Appleby’s premiums on his behalf for continued coverage under our group health plans, including coverage for Mr. Appleby’s eligible dependents, for 12 months from the date Mr. Appleby or his dependents suffer a loss of health coverage under our group health plan or until such earlier date on which he becomes eligible for health coverage from another employer.
Other than being permitted to continue vesting with respect to Mr. Appleby’s outstanding and unvested equity awards through the period he remained employed with us through his scheduled separation date, June 9, 2022, Mr. Appleby did not receive any accelerated or additional vesting with respect to his outstanding and unvested equity awards. Mr. Appleby’s remaining outstanding and unvested equity awards were forfeited as of his actual separation date on June 9, 2022.
Relationship Between Pay and Performance
We strive to design our executive compensation program to balance the goals of attracting, motivating, rewarding and retaining our Named Executive Officers with the goal of promoting the interests of our stakeholders, such as our users, customers, employees, creditors, shareholders and other stakeholders. To ensure this balance and to motivate and reward individual initiative and effort, we seek to ensure that our program is designed so that a meaningful portion of our Named Executive Officers’ annual target total direct compensation is both “at-risk” and variable in nature. While we do not determine either “variable” or “fixed” pay for each Named Executive Officer
3 For purposes of this Compensation Discussion and Analysis, “award value” generally means an economic target value, as distinct from the grant date fair value under Financial Accounting Standard Board’s Accounting Standards Codification Topic 718. The actual number of our ordinary shares subject to an equity award was determined by dividing the applicable award value by one of the following per share values, as applicable: (i) with respect to RSU awards granted to our Named Executive Officers, the value per share was equal to the trading average of our ordinary shares for the 15 trading days immediately prior to the applicable grant date, and (ii) with respect to stock options granted to our Named Executive Officers, the value per share was calculated in accordance with the Black-Scholes option valuation methodology, which calculation assumed that the value of one of our ordinary shares was equal to the trading average of our ordinary shares for the 15 trading days immediately prior to the applicable grant date.
with reference to a specific percentage of target total direct compensation, consistent with our “pay-for-performance” philosophy, generally, we seek to emphasize variable pay over fixed pay.
Generally, this philosophy is reflected in the target total direct compensation opportunities of our Named Executive Officers. In fiscal year 2022, the majority of the target total direct compensation granted to Mr. Banon and Mr. Kulkarni in the position of CEO consisted of variable pay in the form of a target annual cash incentive award and long-term incentive compensation in the form of options to purchase ordinary shares and RSU awards that may be settled for ordinary shares. As granted by the non-executive directors on our board of directors, fixed pay, primarily consisting of base salary, made up only 5.2% of Mr. Banon’s target total direct compensation and 2.8% of Mr. Kulkarni’s target total direct compensation, while variable pay, consisting of target annual cash incentive awards and long-term incentive compensation in the form of equity awards, made up 94.8% of Mr. Banon’s target total direct compensation and 97.2% of Mr. Kulkarni’s target total direct compensation.
In the case of Messrs. Moorjani and Appleby, their target total direct compensation packages were similar to that of Messrs. Banon and Kulkarni, consisting of “at risk” variable pay in the form of a target annual cash incentive award and long-term incentive compensation in the form of both options to purchase ordinary shares and RSU awards that may be settled for ordinary shares. Variable pay made up 95.5% and 91.4% of the target total direct compensation of Messrs. Moorjani and Appleby, respectively, on an annualized basis.
Generally, Mr. Garrett’s target total direct compensation package was considered to be largely comprised of “at risk” variable pay even though he did not participate in our Bonus Plan, because even without a target annual cash incentive award, Mr. Garrett’s equity award generally made up the vast majority of his target total direct compensation for fiscal year 2022. However, because Mr. Garrett resigned prior to when the annual equity awards were granted to our executive officers, he received no annual equity award in fiscal 2022 and his total direct compensation for fiscal year 2022 was entirely fixed pay in the form of base salary.
As we continue to mature as a public company, we believe that the compensation elements provided to all of our Named Executive Officers will continue to emphasize “at risk” and variable pay that should enable us to provide a balanced set of incentives for our Named Executive Officers to meet our business objectives and drive long-term growth.
Executive Compensation Policies and Practices
We endeavor to maintain sound governance standards consistent with our executive compensation policies and practices. The Compensation Committee reviews our executive compensation program on an annual basis to ensure consistency with our short-term and long-term goals given the dynamic nature of our business and the market in which we compete for executive talent. The following summarizes our executive compensation-related policies and practices that were in effect during fiscal year 2022:
What We Do:
•Maintain Independent Compensation Committee. The Compensation Committee is composed solely of independent directors who determine our compensation policies and practices (or, with regard to our executive directors, recommend compensation policies and practices to our board of directors, who determine such policies and practices for our executive directors) and who have established effective means for communicating with our shareholders regarding their executive compensation views and concerns, as described in this proxy statement.
•Periodic Executive Compensation Review. The Compensation Committee reviews and approves our compensation strategy periodically (or, with regard to the compensation strategy for our executive directors, reviews and recommends to our board of directors to approve such strategy), including a review of our compensation peer group used for comparative purposes.
•Maintain Independent Compensation Advisor. The Compensation Committee has engaged its own compensation consultant to assist with the annual executive compensation review. This consultant performed only compensation-related services for us in fiscal year 2022.
•Compensation At-Risk. Our executive compensation program is designed so that in setting or recommending our Named Executive Officers’ compensation in a given year, the Compensation
Committee considers whether a sufficient portion of their compensation is “at risk” based on corporate performance to align the interests of our Named Executive Officers and shareholders.
•Multi-Year Vesting Requirements. The annual equity awards granted to our Named Executive Officers vest over multi-year periods, consistent with current market practice and our retention objectives.
•“Double-Trigger” Change-in-Control Arrangements. Under our severance arrangements with our Named Executive Officers, all change-in-control payments and benefits are based on a “double-trigger” arrangement (that is, they require both a change-in-control of the Company plus a qualifying termination of employment before payments and benefits are paid).
•Health or Welfare Benefits. Our Named Executive Officers participate in broad-based Company-sponsored health and welfare benefit programs on the same basis as our other employees in the country of their employment.
•Succession Planning. Our board of directors and the Nominating and Corporate Governance Committee review the risks associated with our executive officer positions to ensure adequate succession plans are in place.
What We Don’t Do:
•No Executive Retirement Plans. We do not currently offer, nor do we have plans to offer, defined benefit pension plans or any non-qualified deferred compensation plans or arrangements to our Named Executive Officers other than the plans and arrangements that are available to all employees in the jurisdiction where the Named Executive Officer is located. Our Named Executive Officers in the United States are eligible to participate in our Section 401(k) plan on the same basis as our other employees in the United States, and our Named Executive Officer in Israel is covered by a Section 14 Arrangement under Israel Severance Pay Law, as are all other employees in Israel.
•Limited Perquisites. We provide minimal perquisites and other personal benefits to our Named Executive Officers.
•No Tax Payments on Perquisites. We do not provide any tax reimbursement payments (including “gross-ups”) on any perquisites or other personal benefits, other than on standard relocation benefits.
•No “Golden Parachute” Tax Payments on Change-in-Control Arrangements. We do not provide any excise tax reimbursement payments (including “gross-ups”) on payments or benefits contingent upon a change in control of the Company that our Named Executive Officers might owe as a result of the application of Sections 280G or 4999 of the Internal Revenue Code (the “Code”).
•No Hedging or Pledging of our Securities. We prohibit our employees, including our officers, and the members of our board of directors from engaging in hedging transactions or pledging our securities as collateral for a loan or holding our securities in a margin account.
Shareholder Advisory Vote on Named Executive Officer Compensation
At the 2021 Annual Meeting, our advisory vote on the compensation of our Named Executive Officers (the “Say-on-Pay” vote) received 84.7% support from our shareholders. The board of directors and the Compensation Committee believe the 2021 Say-on-Pay vote result indicates support for the design of our current compensation program and our overall compensation philosophy and decisions for fiscal year 2022. Accordingly, the Compensation Committee did not make any material changes to the underlying structure of our executive compensation program. The Compensation Committee regularly reviews and adjusts our executive compensation program to ensure it remains competitive and aligned with our shareholders’ interests.
We value our shareholders’ opinions and feedback and are committed to maintaining an active dialogue to understand the priorities and concerns of our shareholders. We believe that ongoing engagement builds mutual trust and alignment with our shareholders and is essential to our long-term success.
At our 2020 annual general meeting of shareholders, our shareholders indicated their approval of the recommendation that we solicit a Say-on-Pay vote on an annual basis. In accordance with that preference, our board
of directors has determined that the Company will conduct a Say-on-Pay vote every year until the next shareholder advisory vote on the frequency of Say-on-Pay votes (the “Say-When-on-Pay” vote). The next required Say-When-on-Pay vote will take place no later than at the Company’s 2026 annual general meeting of shareholders.
At the Annual Meeting to which this proxy statement relates, we will continue to hold an annual Say-on-Pay vote. Our board of directors and the Compensation Committee will consider the outcome of the 2022 Say-on-Pay vote, as well as feedback received throughout the year, when making compensation decisions for our Named Executive Officers in the future.
Executive Compensation Philosophy and Objectives
Our executive compensation program is guided by our overarching philosophy of paying for demonstrable performance. We strive to provide an executive compensation program that is competitive, rewards achievement of our business objectives and aligns our Named Executive Officers’ interests with those of our shareholders. Consistent with this philosophy, we have designed our executive compensation program to achieve the following primary objectives:
•provide market competitive compensation and benefit levels that will attract, motivate, reward and retain a highly talented team of executives within the context of responsible cost management;
•establish a direct link between our financial and operational results and strategic objectives and the compensation of our executives;
•align the interests and objectives of our executives with those of our shareholders by linking their long-term incentive compensation opportunities to shareholder value creation and their cash incentives to our annual performance; and
•offer total compensation opportunities to our executives that, while competitive, are internally consistent and fair.
We structure the annual compensation of our Named Executive Officers using base salary and long-term incentive compensation in the form of equity awards. In addition, for fiscal year 2022, each of our Named Executive Officers (other than Mr. Garrett) were eligible to earn annual cash incentive awards. The design of our executive compensation program is influenced by a variety of factors, with the primary goals being to align the interests of our Named Executive Officers and shareholders and to link pay with performance.
We have not adopted policies or employed guidelines for allocating compensation between current and long-term compensation, between cash and non-cash compensation or among different forms of non-cash compensation. As described below, the Compensation Committee considers a variety of factors in determining the appropriate yearly mix among such compensatory elements, including our compensation philosophy and the value of unvested equity awards granted previously.
Compensation-Setting Process
Role of the Compensation Committee
The Compensation Committee discharges many of the responsibilities of our board of directors relating to the compensation of our Named Executive Officers, and periodically reviews and makes recommendations to our board of directors regarding their compensation, subject to the terms of our Remuneration Policy (as required by Dutch corporate law). Notwithstanding the responsibility of our board of directors, the Compensation Committee has the overall responsibility for overseeing our compensation and benefits policies generally, and overseeing and evaluating the compensation plans, policies and practices applicable to our Named Executive Officers. Our board of directors has delegated express authority to the Compensation Committee to serve as the administrator of the 2012 Plan.
The Compensation Committee has authority to make decisions regarding the compensation of our Named Executive Officers (other than our executive directors) and makes recommendations to our board of directors regarding the compensation of our executive directors. The non-executive directors on our board of directors make all final decisions regarding the compensation of our executive directors with due observance to the Remuneration Policy adopted by our general meeting of shareholders in 2018.
In carrying out its responsibilities, the Compensation Committee evaluates our compensation policies and practices with a focus on the degree to which these policies and practices reflect our executive compensation philosophy, develops strategies and makes decisions that it believes further our philosophy or align with developments in best compensation practices, and reviews the performance of our Named Executive Officers when making decisions and recommendations with respect to their compensation.
The Compensation Committee’s authority, duties and responsibilities are further described in its charter, which is reviewed annually and revised and updated as warranted. The charter is available in the “Investor Relations” section of our website, which is located at ir.elastic.co by clicking on “Corporate Governance” under “Governance.”
The Compensation Committee retains a compensation consultant to provide support in its review and assessment of our executive compensation program; however, the Compensation Committee exercises its own judgment in making its decisions and recommendations with respect to the compensation of our Named Executive Officers.
Setting Target Total Direct Compensation
Each year, the Compensation Committee conducts an annual review of the compensation arrangements of our Named Executive Officers, typically during the first quarter of the fiscal year. As part of this review, the Compensation Committee evaluates the base salary levels and long-term incentive compensation of our Named Executive Officers, as well as the annual cash incentive awards for our Named Executive Officers who are eligible to receive such awards, and all related performance criteria.
The Compensation Committee does not establish a specific target for formulating the target total direct compensation of our Named Executive Officers. In making decisions and recommendations about the compensation of our Named Executive Officers, the members of the Compensation Committee are initially presented with a competitive market analysis prepared by its compensation consultant based on data gathered from the companies in our compensation peer group and considerations from broader executive compensation trends for its review and consideration. Drawing on this data, the members of the Compensation Committee then apply their professional experience to consider the following factors as applicable:
•our executive compensation program objectives;
•our performance against the financial, operational and strategic objectives established by the Compensation Committee and our board of directors;
•each individual Named Executive Officer’s knowledge, skills, experience, qualifications and tenure relative to other similarly-situated executives at the companies in our compensation peer group and/or selected broad-based compensation surveys;
•the scope of each Named Executive Officer’s role and responsibilities compared to other similarly situated executives at the companies in our compensation peer group and/or selected broad-based compensation surveys;
•the prior performance of each individual Named Executive Officer, based on a subjective assessment of their contributions to our overall performance, ability to lead their business unit or function and work as part of a team;
•the potential of each individual Named Executive Officer to contribute to our long-term financial, operational and strategic objectives;
•our executive directors’ compensation relative to that of our other Named Executive Officers, and compensation parity among our Named Executive Officers;
•the compensation practices of our compensation peer group and broader executive compensation trends and the positioning of each Named Executive Officer’s compensation in a ranking of executive officer compensation levels based on an analysis of competitive market data; and
•the recommendations of our CEO with respect to the compensation of our Named Executive Officers (except with respect to compensation of our executive directors).
These factors provide the framework for compensation decision-making regarding the compensation opportunity for each Named Executive Officer. No single factor is determinative in setting compensation levels, nor is the impact of any individual factor on the determination of pay levels quantifiable.
The Compensation Committee does not weigh these factors in any predetermined manner, nor does it apply any formulas in developing its compensation decisions and recommendations. The members of the Compensation Committee consider this information in view of their individual experience, knowledge of the Company, knowledge of the competitive market, knowledge of each Named Executive Officer and business judgment in making their decisions and recommendations.
The Compensation Committee does not engage in formal benchmarking against other companies’ compensation programs or practices to establish our compensation levels or make specific compensation decisions and recommendations with respect to our Named Executive Officers. Instead, in making its determinations and recommendations, the Compensation Committee reviews information summarizing the compensation paid at a representative group of peer companies, to the extent that the executive positions at these companies are considered comparable to our positions and informative of the competitive environment, as well as from more broad-based compensation surveys to gain a general understanding of market compensation levels.
Role of Management
In discharging its responsibilities, the Compensation Committee works with members of our management, including our CEO. Our management assists the Compensation Committee by providing information on corporate and individual performance and management’s perspective on compensation matters. Our management also provides certain compensation data about our executive officers to Compensia, the Compensation Committee’s compensation consultant, which presents such information to the Compensation Committee as part of its review and analysis of our executive compensation program. The Compensation Committee solicits and reviews our CEO’s proposals with respect to program structures, as well as his recommendations for adjustments to annual cash compensation, long-term incentive compensation and other compensation-related matters for our Named Executive Officers (except with respect to compensation of our executive directors) based on his evaluation of their performance for the prior year.
The Compensation Committee reviews and discusses such proposals and recommendations with our CEO and considers them as one factor in determining and approving the compensation of our Named Executive Officers. Our CEO also attends meetings of our board of directors and the Compensation Committee at which executive compensation matters are addressed, except with respect to discussions involving compensation of our executive directors.
Role of the Compensation Consultant
The Compensation Committee has the sole authority to retain an external compensation consultant to assist it by providing information, analysis and other advice relating to our executive compensation program and the decisions resulting from its annual executive compensation review, including the authority to approve the consultant’s reasonable fees and other retention terms. The compensation consultant reports directly to the Compensation Committee and its chair, and serves at the discretion of the Compensation Committee, which reviews the engagement annually.
In fiscal year 2022, the Compensation Committee engaged Compensia to serve as its compensation consultant to advise on executive compensation matters, including competitive market pay practices for our Named Executive Officers, and with the data analysis and selection of the compensation peer group.
During fiscal year 2022, Compensia attended meetings of the Compensation Committee as requested and provided various services including the following:
•the review, analysis and updating of our compensation peer group;
•an assessment and review of executive officer and director stock ownership guidelines and peer company practices and considerations of implementing such guidelines;
•a review and analysis of our non-executive director compensation program and methodology, including an assessment against competitive market data based on the companies in our compensation peer group;
•review of the Compensation Discussion and Analysis for our definitive proxy statement for our 2021 Annual Meeting;
•the review and analysis of the base salary levels, target annual cash incentive awards and long-term incentive compensation of our Named Executive Officers and other senior leadership team members against competitive market data based on the companies in our compensation peer group and/or selected broad-based compensation surveys;
•the review and analysis of compensation for Mr. Kulkarni, our current CEO;
•the review and analysis of our 2021 Say-on-Pay vote results;
•the review and assessment on market practice for executive bonus plan design terms and practices;
•the review and analysis of compensation for the Chief Sales Officer position; and
•support on other ad hoc matters throughout the year.
The terms of Compensia’s engagement includes reporting directly to the Compensation Committee chair. Compensia also coordinated with our management for data collection and job matching for our executive officers. In fiscal year 2022, Compensia provided only compensation-related services for us.
The Compensation Committee has evaluated its relationship with Compensia to ensure that it believes that such firm is independent from management. This review process included a review of the services that such compensation consultant provided, the quality of those services and the fees associated with the services provided during fiscal year 2022. Based on this review, as well as consideration of the factors affecting independence set forth in Exchange Act Rule 10C-1(b)(4), Section 303A.05(c)(iv) of the rules of the NYSE relating to the independence of the Compensation Committee’s compensation advisors and such other factors as were deemed relevant under the circumstances, the Compensation Committee has determined that no conflict of interest was raised as a result of the work performed by Compensia.
Competitive Positioning
The Compensation Committee believes that peer group comparisons are useful guides to measure the competitiveness of our executive compensation program and related policies and practices. For purposes of assessing our executive compensation against the competitive market, the Compensation Committee reviews and considers the compensation levels and practices of a select group of peer companies. This compensation peer group consists of technology companies that are similar to us in terms of revenue, market capitalization and industry focus. The competitive data drawn from this compensation peer group is one of several factors that the Compensation Committee considers in making its decisions and recommendations with respect to the compensation of our Named Executive Officers.
The compensation peer group for fiscal year 2022, which was developed in May 2021 with the assistance of Compensia to analyze the compensation of our Named Executive Officers, was composed of publicly-traded technology companies against which we compete for executive talent. In identifying and selecting the companies for the compensation peer group, Compensia considered the following primary criteria:
•publicly-traded companies in the software and internet services sectors identified on a national basis, with a focus on California-based companies;
•similar revenues – within a range of ~0.5x to ~2.0x our trailing four fiscal quarters’ revenue; and
•similar market capitalization – within a range of ~0.33x to ~3.0x our then-market capitalization.
After consultation with Compensia, the Compensation Committee approved the following compensation peer group for use when making its fiscal year 2022 executive compensation decisions:
| | | | | | | | |
| Alarm.com Holdings | Five9 | Smartsheet |
| Alteryx | HubSpot | Tenable Holdings |
| Anaplan | MongoDB | The Trade Desk |
| Avalara | New Relic | Zendesk |
| Cloudera | Okta | Zscaler |
| Cloudflare | Paylocity Holding | |
| Coupa Software | SailPoint Technologies | |
The Compensation Committee used data gathered by Compensia from the public filings of the companies in our compensation peer group, as well as data from a custom data cut of the peer companies (other than Zscaler) drawn from the Radford Global Technology Survey database that are similar to us in revenue, market capitalization and industry for purposes of providing additional perspective in the case of executive positions where the compensation peer group offered a limited number of relevant data points. This data permitted us to evaluate the competitive market when determining the total direct compensation packages for our Named Executive Officers, including base salary, target annual cash incentive awards and long-term incentive compensation.
The Compensation Committee reviews our compensation peer group at least annually and makes adjustments to its composition if warranted, taking into account changes in both our business and the businesses of the companies in the peer group.
Compensation Elements
Our executive compensation program consists principally of base salary and long-term incentive compensation in the form of equity awards. In addition, for fiscal year 2022, Messrs. Kulkarni, Banon, Moorjani and Appleby were also eligible to receive annual cash incentive awards.
Base Salary
Base salary represents the fixed portion of the compensation of our Named Executive Officers and is an important element of compensation intended to attract and retain highly talented individuals. Generally, we use base salary to provide each Named Executive Officer with a specified level of cash compensation during the year with the expectation that they will perform their responsibilities to the best of their ability and in our best interests.
Generally, we establish the initial base salaries of our Named Executive Officers through arm’s-length negotiation at the time we hire the individual, taking into account their position, qualifications, and experience, the market compensation for such role, and the base salaries of our other executive officers. Thereafter, the Compensation Committee reviews the base salaries of our Named Executive Officers each year as part of its annual review of our executive compensation program, with input from our CEO (except with respect to the base salary of executive directors), and makes adjustments (other than with respect to our executive directors) that it determines are reasonable and necessary to reflect the scope of a Named Executive Officer’s performance, individual contributions and responsibilities, position in the case of a promotion and market conditions. With respect to our executive directors, the non-executive directors serving on our board of directors determine any base salary adjustments upon the recommendation of the Compensation Committee.
In November 2021, the Compensation Committee reviewed the base salaries of our Named Executive Officers employed by the Company at such time. The Compensation Committee recommended to our board of directors that the base salary of Mr. Banon, our then-CEO, be increased, and approved an increase in the base salary of Mr. Moorjani, in each instance, to be more competitive with the base salaries of similarly-situated executive officers at companies of comparable size and stage of maturity, as well as the base salaries of our other executive officers, and to compensate Messrs. Banon and Moorjani for not having received market-based adjustments in prior years. The Compensation Committee also determined not to increase the base salaries of the other Named Executive Officers employed by the Company at such time. In making this recommendation and these decisions, the Compensation Committee took into consideration a competitive market analysis prepared by Compensia, the recommendations of our then-CEO (except with respect to his own base salary) and the current retention risks and challenges facing us,
as well as the other factors described in “Compensation-Setting Process – Setting Target Total Direct Compensation” above. Subsequently, in December 2021, the non-executive directors serving on our board of directors increased the base salary of Mr. Banon, effective as of November 1, 2021, upon the recommendation of the Compensation Committee.
The base salaries of our Named Executive Officers as determined in November 2021 for fiscal year 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| Named Executive Officer | | Fiscal Year 2021 Base Salary | | Fiscal Year 2022 Base Salary (1) | | Percentage Change |
| Shay Banon | | $400,000 | | $500,000 | | 25.0% |
| Ashutosh Kulkarni | | $500,000 | | $500,000 | | —% |
| Janesh Moorjani | | $365,000 | | $500,000 | | 37.0% |
| Paul Appleby | | $500,000 | | $500,000 | | —% |
| W.H. Baird Garrett | | $400,000 | | $400,000 | | —% |
(1)The revised base salary for Mr. Banon was effective November 1, 2021.
In connection with his appointment as our acting CEO, the non-executive directors serving on our board of directors, upon the recommendation from the Compensation Committee, increased the annual base salary of Mr. Kulkarni from $500,000 to $600,000, effective January 11, 2022.
The base salaries paid to our Named Executive Officers during fiscal year 2022 are set forth in “Executive Compensation Tables—Fiscal 2022 Summary Compensation Table” below.
Annual Cash Incentives
Our board of directors has adopted, and our general meeting of shareholders has approved, the Bonus Plan. The Bonus Plan is administered by the Compensation Committee. The Bonus Plan enables the Compensation Committee to provide cash incentive awards to selected employees, including our Named Executive Officers (other than our executive directors), based upon our actual achievement as measured against performance metrics established by the Compensation Committee. In the case of our executive directors, the performance metrics for their cash incentive awards and the actual payment of the awards are established by the non-executive directors serving on our board of directors, upon the recommendation from the Compensation Committee. The Compensation Committee believes that the financial performance measures used in the Bonus Plan contribute to driving the creation of long-term stakeholder value, including shareholder value, and play an important role in influencing the performance of our Named Executive Officers who participate in the plan, who are most directly responsible for our overall success.
Under the Bonus Plan, each fiscal year (generally during the first fiscal quarter) the Compensation Committee approves the terms and conditions that will serve as the basis for determining the eligibility for, and amount of, cash incentive awards to be paid under the Bonus Plan. Typically, performance under the Bonus Plan is measured semi-annually as of October 31st and April 30th of each fiscal year. After the end of each six-month period, the Compensation Committee reviews our actual achievement against the target levels for the corporate performance measures established for that period and determines the cash incentive awards, if any, to be paid under the plan. Awards are paid out following the approval by the Compensation Committee and, in the case of our executive directors, the approval by the non-executive directors serving on our board of directors.
The Compensation Committee may, in its sole discretion and at any time, increase, reduce or eliminate a participant’s actual award. In the case of our executive directors the non-executive directors serving on our board of directors determine whether an executive director’s actual award is increased, reduced or eliminated, taking into consideration the recommendation of the Compensation Committee. The actual award may be below, at or above a participant’s target annual cash incentive award, as determined at the Compensation Committee’s discretion or, in the case of our executive directors, as recommended by the Compensation Committee to our board of directors for their discretionary action. The Compensation Committee may determine the amount of any change (or recommendation for any change in the case of our executive directors) on the basis of such factors as it deems relevant, and it is not required to establish any allocation or weighting with respect to the factors it considers. In fiscal year 2022, neither the Compensation Committee nor, in the case of our executive directors, the non-executive
directors serving on our board of directors, exercised their discretion with respect to any of the actual cash incentive award payments made under the Bonus Plan.
The annual operating plan for fiscal year 2022 was based on demanding but realistically achievable business goals in order to drive strong growth. The Compensation Committee approved corporate performance metrics or, in the case of Mr. Banon, our then-CEO, recommended such action to our board of directors, commensurate with the operating plan target levels because it wanted to incentivize these Named Executive Officers to achieve our performance objectives under the Company’s Bonus Plan for fiscal year 2022 (the “Fiscal Year 2022 Bonus Plan”). The Fiscal Year 2022 Bonus Plan was funded based on our actual results for the first and second halves of the fiscal year as evaluated against these performance metrics.
Pursuant to the Kulkarni Employment Letter, in connection with the promotion of Mr. Kulkarni to CEO in January 2022 and the Compensation Committee’s desire to incentivize Mr. Kulkarni, who, as a result of his role within the Company, was also best positioned to drive corporate performance to meet or exceed our principal business objectives as set forth in our fiscal year 2022 annual operating plan, the Compensation Committee recommended, and the non-executive directors serving on our board of directors approved, in January 2022, a target annual cash incentive award opportunity for Mr. Kulkarni for fiscal year 2022 equal to the sum of (i) 60% of Mr. Kulkarni’s annual base salary for the period beginning on the commencement of fiscal year 2022 and ending on January 10, 2022, and (ii) 100% of his annual base salary for the period between January 11, 2022 and the end of fiscal year 2022. The prorated 100% target for Mr. Kulkarni was determined upon evaluating the target bonuses for CEOs in the Company’s peer group.
Target Annual Cash Incentive Award Opportunities
For purposes of the Fiscal Year 2022 Bonus Plan, target annual cash incentive awards were to be based upon a specific percentage of each eligible Named Executive Officer’s annual base salary. In May 2021, as part of its annual review of our executive compensation program, the Compensation Committee reviewed the target annual cash incentive award opportunities of Messrs. Banon, Kulkarni, Moorjani and Appleby. The Compensation Committee recommended to our board of directors that the target percentage of base salary for the annual cash incentive award opportunity of Mr. Banon remain at the level set for the second half of fiscal year 2022. In addition, the Compensation Committee determined to leave the target percentage of base salary for the annual cash incentive award opportunity of Messrs. Kulkarni, Moorjani and Appleby at their fiscal year 2021 levels. In making the recommendation to our board of directors for Mr. Banon’s target annual cash incentive award opportunity and the decisions for the target annual cash incentive award opportunities of the other eligible Named Executive Officers, the Compensation Committee took into consideration a competitive market analysis prepared by Compensia, the recommendations of Mr. Banon (except with respect to his own target annual cash incentive opportunity) and the current retention risks and challenges facing us, as well as the other factors described in “Compensation-Setting Process – Setting Target Total Direct Compensation” above. The target annual cash incentive opportunity of Mr. Banon was approved by the non-executive directors serving on our board of directors in June 2021.
Corporate Performance Metrics
In May 2021, the Compensation Committee approved (or in the case of Mr. Banon, our then-CEO, recommended to the non-executive directors serving on our board of directors) the financial performance metrics for fiscal year 2022 in connection with the Fiscal Year 2022 Bonus Plan to provide incentives for Messrs. Banon, Kulkarni, Moorjani and Appleby, the Named Executive Officers best positioned at that time to drive corporate performance to meet or exceed our principal business objectives as set forth in our fiscal year 2022 annual operating plan. In June 2021, the non-executive directors serving on our board of directors approved the financial performance metrics for Mr. Banon for fiscal year 2022, upon the recommendation of the Compensation Committee.
The Compensation Committee selected the following two performance metrics for the Fiscal Year 2022 Bonus Plan: calculated billings and non-GAAP operating margin percentage. The Compensation Committee believed these performance metrics were appropriate because, in its view, they continued to be the best indicators of our successful execution of our annual operating plan. In addition, they provided a strong emphasis on growth and managing profitability, which the Compensation Committee believed would most directly influence the creation of sustainable long-term shareholder value. Four-fifths of the target annual cash incentive award payout under the Fiscal Year 2022 Bonus Plan was based on the attainment of calculated billings goals, while one-fifth was based on the attainment of non-GAAP operating margin percentage goals.
For purposes of the Fiscal Year 2022 Bonus Plan:
▪“calculated billings” meant 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; and
▪“non-GAAP operating margin percentage” meant GAAP operating margin excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, amortization of acquired intangible assets and acquisition-related expenses.
In May 2021, the Compensation Committee established threshold, target and maximum achievement levels for each of these performance metrics for the first half of fiscal year 2022 (May 1, 2021 through October 31, 2021). Subsequently, in November 2021, the Compensation Committee established threshold, target and maximum achievement levels for each of these performance metrics for the second half of fiscal year 2022 (November 1, 2021 through April 30, 2022). In establishing these performance levels in May and November, the Compensation Committee set them at an amount that it believed was necessary to provide a target total cash compensation opportunity that was both competitive in the market and that would motivate the eligible Named Executive Officers to achieve an aggressive level of growth and profitability.
Following the Compensation Committee’s decisions in May 2021 and November 2021, the bonus targets and thresholds for Mr. Banon, our then-CEO, for the first half of fiscal year 2022 and the bonus targets and thresholds for the second half of fiscal year 2022 were approved by the non-executive directors serving on our board of directors in December 2021 (in each case upon the recommendation of the Compensation Committee).
To the extent that performance for either metric was below the threshold performance level, there would be no payout with respect to that metric. In addition, the potential payment for any metric was capped at the maximum performance level. Achievement levels and payout percentages for performance between the threshold and maximum performance levels were set forth in tables approved by the Compensation Committee.
For both performance metrics, for achievement between threshold and target, and between target and maximum, the payout was to be determined on a linear interpolation basis.
The performance levels for the two performance measures for the first half of fiscal year 2022 were established as follows:
| | | | | | | | | | | | | | |
| Calculated Billings |
| Attainment vs. Plan | | Amount | | Payout Percentage |
| Below Threshold (<80%) | | <$325 million | | 0% |
| Threshold (80%) | | $325 million | | 50% |
| Target (100%) | | $407 million | | 100% |
| Maximum (>120%) | | >$488 million | | 150% |
| | | | | | | | |
| Non-GAAP Operating Margin Percentage |
| Non-GAAP Operating Margin Percentage | | Payout Percentage |
| Below Threshold (<-8.7%) | | 0% |
| Threshold (-8.7%) | | 50% |
| Target (-3.7%) | | 100% |
| Maximum (>1.3%) | | 150% |
The performance levels for the two performance measures for the second half of fiscal year 2022 were established as follows:
| | | | | | | | | | | | | | |
| Calculated Billings |
| Attainment vs. Plan | | Amount | | Payout Percentage |
| Below Threshold (<80%) | | <$460 million | | 0% |
| Threshold (80%) | | $460 million | | 50% |
| Target (100%) | | $575 million | | 100% |
| Maximum (>120%) | | >$690 million | | 150% |
| | | | | | | | |
| Non-GAAP Operating Margin Percentage |
| Non-GAAP Operating Margin Percentage | | Payout Percentage |
| Below Threshold (<-6.5%) | | 0% |
| Threshold (-6.5%) | | 50% |
| Target (-1.5%) | | 100% |
| Maximum (>3.5%) | | 150% |
Annual Cash Incentive Payouts
For the six-month period ended October 31, 2021, we achieved calculated billings of $396.2 million, which was 97.4% of the calculated billings target. Our non-GAAP operating margin percentage was 2.0% , which exceeded the maximum level of 1.3%. Consequently, based on their weighting, the achievement of the performance metrics for the first half of fiscal year 2022 generated a combined payout percentage of 104.9% of the target annual cash incentive award opportunity for that six-month period, determined as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| First Half of Fiscal Year 2022 (May 1, 2021 – October 31, 2021) |
| Performance Measure | | Weighting | | Target Performance | | Actual Achievement | | Achievement Percentage | | Payout Percentage | | Weighted Payout Percentage |
| Calculated Billings | | 80% | | $406.7 million | | $396.2 million | | 97.4% | | 93.6% | | 74.9% |
| Non-GAAP Operating Margin Percentage | | 20% | | -3.7% | | 2.0% | | N/A | | 150.0% | | 30.0% |
| Total Payout Percentage | | | | | | | | | | | | 104.9% |
For the six-month period ended April 30, 2022, we achieved calculated billings of 550.4 million, which was 95.7% of the calculated billings target. Our non-GAAP operating margin percentage was -1.6%, which was one-tenth percentage point below the target level of -1.5%. Consequently, based on their weighting, the achievement of the performance metrics for the second half of fiscal year 2022 generated a combined payout percentage of 91.0% of the target annual cash incentive award opportunity for that six-month period, determined as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Second Half of Fiscal Year 2022 (November 1, 2021 – April 30, 2022) |
| Performance Measure | | Weighting | | Target Performance | | Actual Achievement | | Achievement Percentage | | Payout Percentage | | Weighted Payout Percentage |
| Calculated Billings | | 80% | | $575 million | | $550.4 million | | 95.7% | | 89.2% | | 71.4% |
| Non-GAAP Operating Margin Percentage | | 20% | | -1.5% | | -1.6% | | N/A | | 98.2% | | 19.6% |
| Total Payout Percentage | | | | | | | | | | | | 91.0% |
Based on these determinations, (i) with respect to the first half of fiscal year 2022, the Compensation Committee recommended to our board of directors that Mr. Banon should receive and determined that Messrs. Kulkarni, Moorjani and Appleby should receive, and (ii) with respect to the second half of fiscal year 2022, the Compensation Committee recommended to our board of directors that Messrs. Banon and Kulkarni should receive
and determined that Messrs. Moorjani and Appleby should receive, the following annual cash incentive award payouts under the Fiscal Year 2022 Bonus Plan:
| | | | | | | | | | | | | | | | | | | | |
| Named Executive Officer | | Annual Cash Incentive for First Half of Fiscal Year 2022 ($) | | Annual Cash Incentive for Second Half of Fiscal Year 2022 ($) | | Total Annual Cash Incentive Award for Fiscal Year 2022 ($) |
| Ashutosh Kulkarni | | 157,281 | | | 219,354 | | | 376,635 | |
| Janesh Moorjani | | 114,815 | | | 136,437 | | | 251,252 | |
| Shay Banon | | 121,360 | | | 127,368 | | | 248,728 | |
| Paul Appleby | | 157,281 | | | 150,000 | | | 307,281 | |
In the case of Mr. Banon, our former CEO, the non-executive directors serving on our board of directors determined the annual cash incentive award payout for the first half of fiscal year 2022 in December 2021 and determined the annual cash incentive award payout for the second half of fiscal year 2022 in June 2022. In the case of Mr. Kulkarni, our current CEO, the non-executive directors serving on our board of directors determined the annual cash incentive award payout for the second half of fiscal year 2022 in June 2022. The annual cash incentive award payouts for Messrs. Banon, Kulkarni, Moorjani and Appleby for the first half of the fiscal year were paid in the third fiscal quarter of fiscal year 2022 and the annual cash incentive award payouts for Messrs. Banon, Kulkarni Moorjani and Appleby for the second half of the fiscal year were paid in the first fiscal quarter of fiscal year 2023.
The annual cash incentive awards paid to our Named Executive Officers for fiscal year 2022 are set forth in “Executive Compensation Tables—Fiscal 2022 Summary Compensation Table” below.
Fiscal Year 2023 Corporate Performance Metrics
In May 2022, the Compensation Committee approved new corporate performance metrics consisting of total revenue and revenue from Elastic Cloud to replace the calculated billings performance metric. These two new performance metrics, in addition to non-GAAP operating margin, will be the performance metrics applicable for fiscal year 2023.
Long-Term Incentive Compensation
We view long-term incentive compensation in the form of equity awards as a critical element of our executive compensation program. We use equity awards to incentivize and reward our Named Executive Officers for long-term corporate performance based on the value of our ordinary shares and, thereby, to align their interests with the interests of our stakeholders. The realized value of these equity awards bears a direct relationship to our stock price, and, therefore, these awards are an incentive for our Named Executive Officers to create value for our shareholders. Equity awards also help us retain our Named Executive Officers in a highly competitive market and as such contribute to the long-term value creation for all our stakeholders.
Currently, we use options to purchase ordinary shares and RSU awards with time-based vesting requirements that may be settled for ordinary shares to motivate, reward and retain our Named Executive Officers for long-term increases in the value of our ordinary shares. The Compensation Committee believes that because stock options provide for an economic benefit only in the event that our stock price increases over the exercise price of the option, these awards effectively align the interests of our Named Executive Officers with the interests of our stakeholders and provide our Named Executive Officers with a significant incentive to manage our business from the perspective of a person with an equity stake in the business. In addition, because RSU awards have value to the recipient even in the absence of stock price appreciation, the Compensation Committee believes that we are able to incentivize and retain our Named Executive Officers using fewer ordinary shares than would be necessary if we used stock options exclusively to provide an equity stake in the Company. Since the value of RSU awards increases or decreases with any increase or decrease in the value of the underlying ordinary shares, RSU awards also provide incentives to our Named Executive Officers that are aligned with the interests of our stakeholders.
To date, the Compensation Committee has not applied a rigid formula in determining the size of the equity awards to be granted to our Named Executive Officers as part of our annual focal review of equity awards. Instead, in making these decisions and, in the case of our executive directors, its recommendation to our board of directors, the Compensation Committee has exercised its judgment as to the amount of the awards after considering the
unvested equity holdings of each Named Executive Officer, the ability of these unvested holdings to satisfy our retention objectives, and Compensia’s recommendations based on a review of compensation practices from our peers. In addition, in granting equity awards to all of our employees, including our Named Executive Officers, the Compensation Committee considers the proportion of our total ordinary shares outstanding used for annual employee long-term incentive compensation awards (our “burn rate”) in relation to the annual burn rate ranges of the companies in our compensation peer group and other recently-public technology companies with which the members of the Compensation Committee are familiar, the potential economic and voting power dilution to our shareholders in relation to the median practice of the companies in our compensation peer group and other recently-public technology companies and the other factors described in “Compensation-Setting Process—Setting Target Total Direct Compensation” above.
Annual Equity Awards
In November 2021, as part of its annual review of our executive compensation program, and after taking into consideration a competitive market analysis prepared by Compensia and the recommendations of Mr. Banon, our then-CEO (except with respect to his own equity award), as well as the factors described in the preceding paragraph, the Compensation Committee determined that annual equity awards should be granted to Messrs. Kulkarni, Moorjani and Appleby in the form of options to purchase ordinary shares and RSU awards with time-based vesting requirements that may be settled for ordinary shares. Further, the Compensation Committee determined that the dollar value of the stock options should comprise 50% of each Named Executive Officer’s fiscal year 2022 annual equity award, and the dollar value of the RSU awards should comprise the remaining 50% of the award. Accordingly, Messrs. Kulkarni and Moorjani received an annual option to purchase ordinary shares with an award value of $2.0 million and an annual RSU award with time-based vesting requirements that may be settled for ordinary shares with an award value of $2.0 million, while Mr. Appleby received an annual option to purchase ordinary shares with an award value of $2.5 million and an annual RSU award with time-based vesting requirements that may be settled for ordinary shares with an award value of $2.5 million. Mr. Garrett informed us of his intention to resign prior to the Compensation Committee’s approval of long term incentive compensation for fiscal year 2022, and accordingly did not receive new equity awards.
In the case of Mr. Banon, our then-CEO, after taking into consideration a competitive market analysis prepared by Compensia and the factors described above, the Compensation Committee recommended to our board of directors that Mr. Banon be granted an equity award for fiscal year 2022 in the form of an option to purchase ordinary shares with an award value of $4.0 million and an RSU award with time-based vesting requirements that may be settled for ordinary shares with an award value of $4.0 million. This fiscal year 2022 annual equity award for Mr. Banon was approved by the non-executive directors serving on our board of directors in December 2021.
The annual options generally vest over four years in equal monthly installments, while the annual RSU awards generally vest over four years in equal quarterly installments, subject to continued service to us through the applicable vesting date. For more details regarding our annual equity awards, please see the section below titled “Executive Compensation Tables—Fiscal 2022 Outstanding Equity Awards as of Fiscal Year End”.
Supplemental Equity Awards
In March 2022, in order to retain key employees, and after taking into consideration a competitive market analysis prepared by Compensia and the recommendations of Mr. Kulkarni, our CEO (except with respect to his own equity award), the Compensation Committee determined that supplemental equity awards should be granted to Mr. Moorjani in the form of an option to purchase ordinary shares and an RSU award with time-based vesting requirements that may be settled for ordinary shares. Further, the Compensation Committee determined that the dollar value of the stock option should comprise 50% of Mr. Moorjani’s supplemental equity award, and the dollar value of the RSU award should comprise the remaining 50% of the award. Accordingly, Mr. Moorjani received a supplemental option to purchase ordinary shares with an award value of $2.5 million and a supplemental RSU award with time-based vesting requirements that may be settled for ordinary shares with an award value of $2.5 million.
In the case of Mr. Kulkarni, our then-CEO, after taking into consideration a competitive market analysis prepared by Compensia, the Compensation Committee recommended to our board of directors that Mr. Kulkarni be granted a supplemental equity award for fiscal year 2022 in the form of a supplemental RSU award with time-based vesting requirements that may be settled for ordinary shares with an award value of $2.0 million. This supplemental RSU award for Mr. Kulkarni was approved by the non-executive directors serving on our board of directors in March 2022.
The supplemental option generally vests over two years in equal monthly installments, while the supplemental RSU awards generally vest over two years in equal quarterly installments, subject to continued service to us through the applicable vesting date. For more details regarding our supplemental equity awards, please see the section below titled “Executive Compensation Tables—Fiscal 2022 Outstanding Equity Awards as of Fiscal Year End”.
Promotion Equity Awards for Mr. Kulkarni
In connection with the promotion of Mr. Kulkarni to CEO, which was approved by our shareholders at the March 2022 EGM, in March 2022 the Compensation Committee recommended, and the non-executive members serving on our board of directors approved, an equity award for Mr. Kulkarni, consistent with the terms of the Kulkarni Employment Letter, in the form of an option to purchase ordinary shares with an award value of $8.0 million (which was granted on March 8, 2022) and an RSU award with time-based vesting requirements that may be settled for ordinary shares with an award value of $4.0 million (which was granted on March 8, 2022). In approving these promotion equity awards, the Compensation Committee took into consideration a competitive market analysis prepared by Compensia, a review of recent equity awards granted to new CEOs at technology companies in the broader market, the annual equity award granted to Mr. Kulkarni in December 2021, as well as the importance of Mr. Kulkarni’s new role and responsibilities with the Company and the other factors described in “Compensation-Setting Process—Setting Target Total Direct Compensation” above.
The promotion option generally vests over four years in equal monthly installments, while the promotion RSU award generally vests over four years in equal quarterly installments, subject to continued service to us through the applicable vesting date. For more details regarding our promotion equity awards, please see the section below titled “Executive Compensation Tables—Fiscal 2022 Outstanding Equity Awards as of Fiscal Year End”.
The aggregate equity awards granted to our Named Executive Officers for fiscal year 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Named Executive Officer | | Stock Options (aggregate # of shares) | | Stock Options (aggregate award value) | | RSU Awards (aggregate # of shares) | | RSU Awards (aggregate award value) | | Aggregate Equity Awards (award value) |
| Ashutosh Kulkarni | | 212,865 | (1) | $10.0 million | | 84,719 | (2) | $8.0 million | | $18.0 million |
| Janesh Moorjani | | 86,653 | (3) | $4.5 million | | 43,042 | (4) | $4.5 million | | $9.0 million |
| Shay Banon | | 52,359 | (5) | $4.0 million | | 26,548 | (6) | $4.0 million | | $8.0 million |
| Paul Appleby | | 32,724 | (7) | $2.5 million | | 16,592 | (8) | $2.5 million | | $5.0 million |
| W.H. Baird Garrett | | — | | — | | — | | — | | — |
(1)Consists of (i) an annual option to purchase 26,179 ordinary shares with an award value of $2.0 million, and (ii) a promotion option to purchase 186,686 ordinary shares with an award value of $8.0 million.
(2)Consists of (i) an annual RSU award covering 13,724 ordinary shares with an award value of $2.0 million, (ii) a supplemental RSU award covering 23,815 ordinary shares with an award value of $2.0 million, and (iii) a promotion RSU award covering 47,630 shares with an award value of $4.0 million.
(3)Consists of (i) an annual option to purchase 26,179 ordinary shares with an award value of $2.0 million, and (ii) a supplemental option to purchase 60,474 ordinary shares with an award value of $2.5 million.
(4)Consists of (i) an annual RSU award covering 13,274 ordinary shares with an award value of $2.0 million, and (ii) a supplemental RSU award covering 29,768 ordinary shares with an award value of $2.5 million.
(5)Consists of an annual option to purchase 52,359 ordinary shares with an award value of $4.0 million.
(6)Consists of an annual RSU award covering 26,548 ordinary shares with an award value of $4.0 million.
(7)Consists of an annual option to purchase 32,724 ordinary shares with an award value of $2.5 million.
(8)Consists of an annual RSU award covering 16,592 ordinary shares with an award value of $2.5 million.
Health, Welfare and Retirement Benefits
Our Named Executive Officers are eligible to participate in the same employee benefit plans, and on the same terms and conditions, as all other full-time, salaried employees in the jurisdiction where the Named Executive Officer is located. These benefits include medical, dental, and vision insurance, business travel insurance, an
employee assistance program, health and dependent care flexible spending accounts, basic life insurance, accidental death and dismemberment insurance, short-term and long-term disability insurance and commuter benefits.
We maintain a Section 401(k) plan for our employees, including our Named Executive Officers. The Section 401(k) plan is intended to qualify under Section 401(k) of the Code, so that contributions to the plan by employees or by us, and the investment earnings thereon, are not taxable to the employees until withdrawn, and so that contributions made by us, if any, will be deductible by us when made. Employees may elect to reduce their current compensation by up to the statutorily prescribed annual limits and to have the amount of such reduction contributed to their accounts under the Section 401(k) plan. The Section 401(k) plan permits us to make contributions up to the limits allowed by law on behalf of all eligible employees. Typically, we make matching contributions to the plan up to 6% of a participating employee’s eligible compensation, to a maximum match of $18,300 for calendar year 2022, $17,400 for calendar year 2021, and $17,100 for calendar year 2020. All participating employees’ interests in our matching contributions, if any, vest immediately at the time of contribution. The Section 401(k) plan also contains a Roth component.
We also maintain defined-contribution plans for employees in certain other countries.
We do not offer any retirement benefits to our executive officer located in Israel, except to the extent certain social benefits are required pursuant to Israeli labor laws or are common practice in Israel, and such social benefits are applicable to all Israeli employees. Specifically, based on Israeli labor laws, an Israeli employee is entitled to severance pay upon termination of employment for any reason, including retirement, equal to the most recent monthly salary of such employee multiplied by the number of years of employment of such employee. We make a payment of 8.333% of each employee’s monthly base salary to an insurance or pension fund to pay for this future liability payable to our employees upon termination of their employment. In addition, we make a payment of up to 7.5% of each employee’s monthly base salary to another insurance or pension fund, and this accrued amount may be withdrawn by the employee only upon retirement (to the extent either the statutory severance or retirement amounts become payable to Mr. Banon, they will offset amounts otherwise payable to Mr. Banon under his employment agreement, as noted below). We generally provide all of our Israeli employees with a fixed travel allowance for commuting costs, except that we provide Mr. Banon with reimbursements for such costs, up to a maximum amount of ILS 550 per month. Also, as is customary in Israel applicable to all Israeli employees, we provide our Israeli employees with a certain amount of monthly contributions (7.5% of their base salary) to a savings fund designed for employee’s study and training purposes. The amounts of the above referenced benefits contributed by us to Mr. Banon in fiscal year 2022 are specified in the Fiscal 2022 Summary Compensation Table of this proxy statement.
We design our employee benefits programs to be affordable and competitive in relation to the market as well as compliant with applicable laws and practices. We adjust our employee benefits programs as needed based upon regular monitoring of applicable laws and practices and the competitive market.
Perquisites and Other Personal Benefits
Currently, we do not view perquisites or other personal benefits as a significant component of our executive compensation program. Accordingly, we do not provide significant perquisites or other personal benefits to our Named Executive Officers except as generally made available to our employees or in situations where we believe it is appropriate to assist an individual in the performance of their duties, to make them more efficient and effective, and for recruitment and retention purposes. During fiscal year 2022, none of our Named Executive Officers received perquisites or other personal benefits that were, in the aggregate, $10,000 or more for each individual.
In the future, we may provide perquisites or other personal benefits in limited circumstances, such as those described in the preceding paragraph. All future practices with respect to perquisites or other personal benefits will be approved and subject to periodic review by the Compensation Committee. In the case of our executive directors, the non-executive directors serving on our board of directors will approve all perquisites or other personal benefits and subject them to periodic review upon the recommendation of the Compensation Committee.
Employment Arrangements
We have entered into a written employment agreement with Mr. Banon, which was amended and restated on January 11, 2022 to reflect his transition from the role of our CEO to our CTO (the “Banon Employment Agreement”), and the Kulkarni Employment Letter with Mr. Kulkarni, which was amended on January 12, 2022, to reflect his transition from the role of our CPO to our CEO. We have entered into employment letters with each of Messrs. Moorjani, Appleby and Garrett, as well as a separation letter with Mr. Appleby. The arrangements with
Messrs. Banon and Kulkarni, our former and current CEO, respectively, including the Banon Employment Agreement and the Kulkarni Employment Letter, were approved by the non-executive directors serving on our board of directors upon recommendation of the Compensation Committee. The arrangements with each of our other Named Executive Officers, including the Appleby Separation Letter, have been approved by the Compensation Committee. We believe that these arrangements were necessary to secure the service of these individuals in a highly competitive job market.
Each of our written employment agreements and employment letters does not have a specific term, provides for “at will” employment (meaning that either we or the Named Executive Officer may terminate the employment relationship at any time without cause) and generally set forth the Named Executive Officer’s initial base salary, target annual cash incentive opportunity, if applicable, and eligibility to participate in our standard employee benefit plans and programs.
The Banon Employment Agreement also provides that he may be eligible to receive certain severance payments and benefits in connection with certain terminations of employment with the Company, including a termination of employment in connection with a change in control of the Company, provided that such severance payments and benefits will be reduced by any statutory severance benefits required to be provided to Mr. Banon under applicable law. The amount and type of the severance payments and benefits provided under the Banon Employment Agreement, as well as the terms and conditions under which such severance payments and benefits may be provided, are identical in all material respects to the provisions regarding severance payments and benefits provided for in our change in control and severance agreements, as described under “Post-Employment Compensation” below.
For detailed descriptions of the employment arrangements with our Named Executive Officers, see “Executive Compensation Tables—Potential Payments upon Termination or Change in Control” below.
Post-Employment Compensation
In addition to the severance provisions contained in the Banon Employment Agreement, we have entered into change in control and severance agreements with Messrs. Kulkarni and Moorjani (collectively, the severance provisions in the Banon Employment Agreement and the change in control and severance agreements are referred to as the “Severance Arrangements”). We had also entered into change in control and severance agreements with Messrs. Appleby and Garrett, but these change in control and severance agreements were terminated in connection with the separation and resignation of Mr. Appleby and Mr. Garrett, respectively. The Severance Arrangements provide for certain protections in the event of specified involuntary terminations of employment, including an involuntary termination of employment in connection with a change in control of the Company, in exchange for executing a separation agreement and release of claims in our favor that becomes effective and irrevocable and resigning from all positions the Named Executive Officer may hold as an officer or director.
The Severance Arrangements provide reasonable compensation in the form of severance pay and certain limited benefits to a Named Executive Officer if they leave our employ under certain circumstances to facilitate their transition to new employment. Further, in some instances we seek to mitigate any potential employer liability and avoid future disputes or litigation by requiring a departing Named Executive Officer to sign a separation agreement and release of claims in a form and with terms acceptable to us providing for a general release of all claims as a condition to receiving post-employment compensation payments or benefits. We also believe that the Severance Arrangements help maintain our Named Executive Officers’ continued focus and dedication to their assigned duties to maximize stakeholder value if there is a potential transaction that could involve a change in control of the Company.
Under the Severance Arrangements, all payments and benefits in the event of a change in control of the Company are payable only if there is a connected involuntary loss of employment by a Named Executive Officer (a so-called “double-trigger” arrangement). In the case of the acceleration of vesting of outstanding equity awards, we use this double-trigger arrangement to protect against the loss of retention value following a change in control of the Company and to avoid windfalls, both of which could occur if vesting of either equity or cash-based awards accelerated automatically as a result of the transaction.
In the event of a change in control of the Company, to the extent that any of the amounts provided for under the Severance Arrangements would constitute a “parachute payment” within the meaning of Section 280G of the Code and could be subject to the related excise tax under Section 4999 of the Code, a Named Executive Officer will receive such payment as would entitle them to receive the greatest after-tax benefit, even if it means that we pay the
Named Executive Officer a lower aggregate payment so as to minimize or eliminate the potential excise tax imposed by Section 4999 of the Code.
We do not provide any tax reimbursement payments (or “gross-ups”) on excise taxes relating to a change in control of the Company and have no such obligations in place with respect to any of our executive officers, including our Named Executive Officers.
In addition, the Appleby Separation Letter provides that Mr. Appleby was entitled to receive certain separation benefits upon his qualifying termination on or prior to June 9, 2022, as described above under “Executive Summary – Executive Compensation Highlights – Compensation Arrangements with Mr. Appleby”. The separation benefits provided for in the Appleby Separation Letter are approximately equal in value to the benefits Mr. Appleby would have received under the change in control and severance agreement in effect prior to Mr. Appleby’s separation if Mr. Appleby experienced a qualifying termination under such change in control and severance agreement not in connection with a change in control of the Company.
We believe that having in place reasonable and competitive post-employment compensation arrangements, including in the event of a change in control of the Company, are essential to attracting and retaining highly qualified executive officers. The Compensation Committee does not consider the specific amounts payable under the post-employment compensation arrangements when determining the annual compensation for our Named Executive Officers. We do believe, however, that these arrangements are necessary to offer compensation packages that are competitive.
For detailed descriptions of the post-employment compensation arrangements with our Named Executive Officers, as well as an estimate of the potential payments and benefits payable under these arrangements, see “Executive Compensation Tables—Potential Payments upon Termination or Change in Control” below.
Other Compensation Policies
Equity Award Grant Policy
Our equity award grant policy governs our grant of equity awards under our 2012 Plan and such other equity compensation plans as we may adopt from time to time. Pursuant to our equity award grant policy, duly authorized equity awards are granted to employees on predetermined grant dates in a manner that is consistent with the terms set forth in the policy. Consistent with our policy:
•We do not grant long-term incentive awards in anticipation of the release of material non-public information and have never had a practice of doing so.
•We have never timed and do not plan to time the release of material non-public information for the purpose of affecting the value of executive compensation.
Compensation Recovery (“Clawback”) Policy
Pursuant to Dutch corporate law, our Remuneration Policy provides that the short-term and long-term variable remuneration of the executive and non-executive directors of the Company, whether payable in cash or equity, may be adjusted or partly or fully clawed back to the extent it was paid on the basis of incorrect information (i) underlying the targets to be achieved or (ii) regarding the circumstances on which the variable remuneration was made conditional.
As a public company, if we are required to restate our financial results due to our material noncompliance with any financial reporting requirements under the federal securities laws as a result of misconduct, the Chief Executive Officer and Chief Financial Officer may be legally required to reimburse Elastic for any bonus or other incentive-based or equity-based compensation they receive in accordance with the provisions of section 304 of the Sarbanes-Oxley Act of 2002. Additionally, we intend to implement a Dodd-Frank Wall Street Reform and Consumer Protection Act-compliant clawback policy once the requirements of such policy are finalized by the SEC.
Prohibition on Hedging and Pledging of Securities
Under our Insider Trading Policy, our employees, including officers, and the members of our board of directors are prohibited from engaging in transactions in publicly-traded options, such as puts and calls, and other
derivative securities with respect to our securities (other than share options, share appreciation rights and other securities issued pursuant to Company benefit plans or other compensatory arrangements with the Company), and debt securities (such as debentures, bonds and notes). This includes any hedging or similar transaction designed to decrease the risks associated with holding our securities. In addition, our employees, including officers, and the members of our board of directors may not engage in short sales (that is, the sale of a security that must be borrowed to make delivery) or “sell short against the box” (that is, a sale with a delayed delivery) involving our securities.
Also, under our Insider Trading Policy, our employees, including officers, and the members of our board of directors may not pledge our securities as collateral for a loan or hold our securities in a margin account.
Tax and Accounting Considerations
The Compensation Committee takes the applicable tax and accounting requirements into consideration in designing and overseeing our executive compensation program.
Deductibility of Executive Compensation
Section 162(m) of the Code generally limits the amount we may deduct from our federal income taxes for compensation paid to our CEO and certain other current and former executive officers that are “covered employees” within the meaning of Section 162(m) to $1 million per individual per year, subject to certain exceptions. The regulations promulgated under Section 162(m) contain a transition rule that applies to companies that become subject to Section 162(m) by reason of becoming publicly held. Pursuant to this rule, certain compensation granted during a transition period (and, with respect to RSU awards, that are paid out before the end of the transition period) currently is not counted toward the deduction limitations of Section 162(m) if the compensation is paid under a compensation arrangement that was in existence before the effective date of the initial public offering and certain other requirements are met. We currently expect our transition period to expire at our annual general meeting of shareholders to be held in 2022, although it could expire earlier in certain circumstances.
Although the Compensation Committee may consider the tax implications as one factor in making compensation decisions for our covered employees, the Compensation Committee also considers other factors in making such decisions, including ensuring that our executive compensation program supports our business strategy. Consequently, the Compensation Committee retains the discretion and flexibility to compensate our Named Executive Officers in a manner consistent with the objectives of our executive compensation program and the best interests of the Company and our shareholders, which may include providing for compensation that is not deductible by the Company due to the deduction limit of Section 162(m). While the transition relief for newly-public companies may help to minimize the effect of the Section 162(m) deduction limit under Section 162(m) in the short-term, we expect that, going forward, some portion of our Named Executive Officers’ compensation will not be fully deductible by the Company for federal income tax purposes.
Accounting for Stock-Based Compensation
The Compensation Committee takes accounting considerations into account in designing compensation plans and arrangements for our executive officers and other employees. Chief among these is Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic 718”), the standard which governs the accounting treatment of certain stock-based compensation. Among other things, ASC Topic 718 requires us to record a compensation expense in our income statement for all equity awards granted to our executive officers and other employees. This compensation expense is based on the grant date “fair value” of the equity award and, in most cases, will be recognized ratably over the award’s requisite service period (which, generally, will correspond to the award’s vesting schedule). This compensation expense is also reported in the compensation tables below, even though recipients may never realize any value from their equity awards.
Executive Compensation Tables
Fiscal 2022 Summary Compensation Table
The following table provides information concerning compensation awarded to, earned by or paid to each of our Named Executive Officers for all services rendered in all capacities during the last three fiscal years during which such individuals were Named Executive Officers. The amounts reported reflect rounding, which may result in slight variations between amounts shown in the Total column and the sum of its components as reflected in the table.
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| Name and Principal Position | | Fiscal
Year | | Salary
($) | | Bonus
($) | | Stock Awards
($)(1) | | Option
Awards
($)(1) | | Non-Equity Incentive Plan Compensation
($)(2) | | All Other
Compensation
($) | | Total
($) |
| Ashutosh Kulkarni | | 2022 | | 530,834 | | — | | 7,122,290 | | 9,838,736 | | 376,635 | | 19,575 | (3) | 17,888,070 |
| Chief Executive Officer | | 2021 | | 164,773 | | 200,000 | | 6,495,748 | | 3,416,442 | | 125,191 | | 3,750 | (3) | 10,405,903 |
| Janesh Moorjani | | 2022 | | 432,500 | | — | | 3,961,090 | | 4,359,393 | | 251,252 | | 20,100 | (3) | 9,024,335 |
| Chief Financial Officer and Chief Operating Officer | | 2021 | | 365,000 | | — | | 1,837,750 | | 2,090,179 | | 275,825 | | 17,100 | (3) | 4,585,853 |
| | 2020 | | 365,000 | | — | | 863,304 | | 2,669,951 | | 191,636 | | 16,298 | (3) | 4,106,189 |
| Shay Banon | | 2022 | | 426,286 | (4) | — | | 3,406,374 | | 3,724,552 | | 248,728 | (4) | 77,971 | (4)(5) | 7,883,912 |
| Chief Technology Officer | | 2021 | | 387,720 | (6) | — | | 4,594,666 | | 5,225,530 | | 291,827 | (6) | 65,864 | (6)(7) | 10,565,607 |
| | 2020 | | 375,000 | | — | | — | | 4,872,356 | (8) | 196,886 | | — | | 5,444,242 |
| Paul Appleby | | 2022 | | 500,000 | | — | | 2,128,920 | | 2,327,818 | | 307,281 | | 17,400 | (3) | 5,281,419 |
| Former President, Worldwide Field Operations | | 2021 | | 344,697 | | 200,000 | | 6,137,767 | | 2,262,072 | | 259,058 | | 10,888 | (3) | 9,214,482 |
| W.H. Baird Garrett | | 2022 | | 303,147 | | — | | — | | — | | — | | — | | 303,147 |
| Former Senior Vice President and General Counsel | | 2021 | | 400,000 | | — | | 918,875 | | 1,045,089 | | — | | — | | 2,363,964 |
| 2020 | | 400,000 | | — | | — | | — | | — | | — | | 400,000 |
(1)The amounts shown represent the grant date fair value of RSU awards and options, as applicable, to settle or purchase ordinary shares granted to the Named Executive Officers for financial reporting purposes pursuant to ASC Topic 718. Such amounts do not represent the amounts paid to or realized by the Named Executive Officers. See Note 11, “Equity Incentive Plans” of the Notes to our consolidated financial statements in the Company’s Annual Report on Form 10-K for fiscal year 2022 regarding assumptions underlying valuation of equity awards.
(2)Except as otherwise indicated, the amounts reported represent the amounts earned based upon achievement of certain performance goals under our Bonus Plan. The terms of the Bonus Plan are summarized under “Compensation Discussion and Analysis—Compensation Elements—Annual Cash Incentives.”
(3)The amount disclosed represents Elastic’s contributions made under our Section 401(k) plan.
(4)Amounts have been reported on an as-converted basis from ILS to U.S. dollars (“USD”) based on a spot currency exchange rate of 1 ILS=USD$0.2991 as of our fiscal year end, April 30, 2022.
(5)The listed amount is the sum of the following amounts: (i) contributions by Elastic of $35,510 in ILS to a severance fund under a Section 14 Arrangement pursuant to Israeli Severance Pay Law, (ii) contributions by Elastic of $27,973 in ILS to a pension and manager’s insurance fund pursuant to Israeli labor laws, and (iii) contributions by Elastic of $14,488 in ILS to an education savings fund.
(6)A portion of each listed amount was paid in ILS in connection with Mr. Banon’s transfer of employment to Israel in March 2021 and has been reported on an as-converted basis from ILS to U.S. dollars (“USD”) based on a spot currency exchange rate of 1 ILS=USD$0.3081 as of our fiscal year end, April 30, 2021. With respect to Salary, $50,220 was paid in ILS. With respect to Non-Equity Incentive Plan Compensation, $149,285 was paid in ILS. With respect to All Other Compensation, $8,174 was paid in ILS (see also footnote (7) below).
(7)The listed amount is the sum of the following amounts: (i) Cash payout of $57,690 in USD to Mr. Banon for earned and unused paid time off in accordance with applicable laws upon his relocation from the United States to Israel, (ii) contributions by Elastic of $4,184 in ILS to a severance fund under a Section 14 Arrangement pursuant to Israeli Severance Pay Law, (iii) contributions by Elastic of $3,264 in ILS to a pension and manager’s insurance fund pursuant to Israeli labor laws, and (iv) contributions by Elastic of $726 in ILS to an education savings fund.
(8)Mr. Banon declined to accept this option award in order to provide the Company with greater flexibility for additional grants to our other employees as awards for exceptional performance and future leadership. Accordingly, this option award was cancelled in August 2019.
Fiscal 2022 Grants of Plan-Based Awards
The following table provides information concerning each grant of an award made during fiscal year 2022 for each of our Named Executive Officers under any plan, other than Mr. Garrett who did not receive any awards in fiscal year 2022. See “Compensation Discussion and Analysis—Compensation Elements—Long-Term Incentive Compensation.” This information supplements the information about these awards set forth in the Fiscal 2022 Summary Compensation Table above.
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| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Estimated possible payouts under non-equity incentive plan awards(1) | | All Other Stock Awards: Number of Shares of Stock or Units
(#)(2) | | All Other Option Awards: Number of Securities Underlying Options
(#)(2) | | Exercise or Base Price of Option Awards
($)(3) | | Grant Date Fair Value of Stock Awards
($)(4) |
| Name | | Approval Date | | Grant Date | | Award Type | | Threshold
($) | | Target
($) | | Maximum
($) | |
| Ashutosh Kulkarni | | | | | | Annual Cash | | 195,205 | | 390,411 | | 585,616 | | | | | | | | |
| 11/29/2021 | | 12/8/2021 | | RSUs | | | | | | | | 13,274 | | | | | | 1,703,187 |
| 3/7/2022 | | 3/8/2022 | | RSUs | | | | | | | | 71,445 | | | | | | 5,419,103 |
| 11/29/2021 | | 12/8/2021 | | Options | | | | | | | | | | 26,179 | | 128.31 | | 1,862,241 |
| 3/7/2022 | | 3/8/2022 | | Options | | | | | | | | | | 186,686 | | 75.85 | | 7,976,495 |
| Janesh Moorjani | | | | | | Annual Cash | | 129,750 | | 259,500 | | 389,250 | | | | | | | | |
| 11/29/2021 | | 12/8/2021 | | RSUs | | | | | | | | 13,274 | | | | | | 1,703,187 |
| 3/7/2022 | | 3/8/2022 | | RSUs | | | | | | | | 29,768 | | | | | | 2,257,903 |
| 11/29/2021 | | 12/8/2021 | | Options | | | | | | | | | | 26,179 | | 128.31 | | 1,862,241 |
| 3/7/2022 | | 3/8/2022 | | Options | | | | | | | | | | 60,474 | | 75.85 | | 2,497,153 |
| Shay Banon | | | | | | Annual Cash | | 127,886 | | 255,772 | | 383,657 | | | | | | | | |
| 11/29/2021 | | 12/8/2021 | | RSUs | | | | | | | | 26,548 | | | | | | 3,406,374 |
| 11/29/2021 | | 12/8/2021 | | Options | | | | | | | | | | 52,359 | | 128.31 | | 3,724,552 |
| Paul Appleby | | | | | | Annual Cash | | 150,000 | | 300,000 | | 450,000 | | | | | | | | |
| 11/29/2021 | | 12/8/2021 | | RSUs | | | | | | | | 16,592 | | | | | | 2,128,920 |
| 11/29/2021 | | 12/8/2021 | | Options | | | | | | | | | | 32,724 | | 128.31 | | 2,327,818 |
| W.H. Baird Garrett (5) | | | | | | | | | | | | | | | | | | | | |
(1)Reflects threshold, target and maximum potential payments for awards under the Fiscal Year 2022 Bonus Plan described in the section above entitled “Compensation Discussion and Analysis—Compensation Elements—Annual Cash Incentives.” Under these awards, the Named Executive Officers (other than Mr. Garrett) were eligible to receive a cash payout subject to the achievement of pre-established corporate performance metrics.
(2)All RSU awards and stock options were granted pursuant to the 2012 Plan.
(3)The exercise price of the stock options is equal to the closing market price of our ordinary shares on the date of grant.
(4)The amounts shown represent the grant date fair value of the RSU awards and options to purchase shares of ordinary shares granted to the Named Executive Officers for financial reporting purposes pursuant to ASC Topic 718. Such amounts do not represent the amounts paid to or realized by the Named Executive Officers. See Note 11, “Equity Incentive Plans” of the Notes to our consolidated financial statements in the Company’s Annual Report on Form 10-K for fiscal year 2022 regarding assumptions underlying valuation of equity awards.
(5)Mr. Garrett announced his intention to resign prior to when annual equity awards were granted to our Named Executive Officers for the fiscal year 2022. Accordingly, Mr. Garrett received no equity awards in fiscal year 2022.
Fiscal 2022 Outstanding Equity Awards as of Fiscal Year End
The following table sets forth information regarding outstanding equity awards held by our Named Executive Officers as of April 30, 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Option Awards | | Stock Awards |
| Name | | Grant Date | | Number of Securities Underlying Unexercised Options
(#) Exercisable | | Number of Securities Underlying Unexercised Options
(#) Unexercisable | | Option Exercise Price
($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | | | | |
| Ashutosh Kulkarni | | 3/8/2022 | (2) | 11,667 | | | 175,019 | | | 75.85 | | | 03/07/2032 | | | | | | | | |
| | 12/8/2021 | (3) | 2,181 | | | 23,998 | | | 128.31 | | | 12/07/2031 | | | | | | | | |
| | 3/8/2021 | (4) | 1,776 | | | 4,786 | | | 111.20 | | | 03/07/2031 | | | | | | | | |
| | 2/9/2021 | (5) | 9,816 | | | 21,599 | | | 166.43 | | | 02/08/2031 | | | | | | | | |
| | 3/8/2022 | (6) | | | | | | | | | 71,445 | | | 5,439,822 | | | | |
| | 12/8/2021 | (7) | | | | | | | | | 12,445 | | | 947,562 | | | | |
| | 3/8/2021 | (8) | | | | | | | | | 43,812 | | | 3,335,846 | | | | |
| Janesh Moorjani | | 3/8/2022 | (9) | 2,519 | | | 57,955 | | | 75.85 | | | 03/07/2032 | | | | | | | | |
| | 12/8/2021 | (3) | 2,181 | | | 23,998 | | | 128.31 | | | 12/07/2031 | | | | | | | | |
| | 12/8/2020 | (10) | 8,322 | | | 16,646 | | | 145.83 | | | 12/07/2030 | | | | | | | | |
| | 6/8/2019 | (11) | 4,773 | | | 52,512 | | | 81.39 | | | 06/07/2029 | | | | | | | | |
| | 4/2/2018 | (12) | 9,016 | | | 18,750 | | | 13.07 | | | 04/01/2028 | | | | | | | | |
| | 9/7/2017 | (13) | 58,931 | | | — | | | 10.15 | | | 09/06/2027 | | | | | | | | |
| | 3/8/2022 | (14) | | | | | | | | | 29,768 | | 2,266,536 | | | | |
| | 12/8/2021 | (7) | | | | | | | | | 12,445 | | 947,562 | | | | |
| | 12/8/2020 | (15) | | | | | | | | | 9,452 | | 719,675 | | | | |
| | 6/8/2019 | (16) | | | | | | | | | 10,607 | | 807,617 | | | | |
| Shay Banon | | 12/8/2021 | (3) | 4,363 | | | 47,996 | | | 128.31 | | | 12/07/2031 | | | | | | | | |
| | 12/8/2020 | (10) | 20,807 | | | 41,614 | | | 145.83 | | | 12/07/2030 | | | | | | | | |
| | 4/2/2018 | (17) | 108,334 | | | — | | | 13.07 | | | 04/02/2028 | | | | | | | | |
| | 9/7/2017 | (18) | 18,007 | | | — | | | 10.15 | | | 09/06/2027 | | | | | | | | |
| | 12/8/2021 | (7) | | | | | | | | | 24,889 | | 1,895,048 | | | | |
| | 12/8/2020 | (15) | | | | | | | | | 23,631 | | 1,799,264 | | | | |
| Paul Appleby | | 12/8/2021 | (3) | 2,727 | | | 29,997 | | | 128.31 | | | 12/07/2031 | | | | | | | | |
| | 9/8/2020 | (19) | 15,884 | | | 24,245 | | | 99.78 | | | 09/07/2030 | | | | | | | | |
| | 12/8/2021 | (7) | | | | | | | | | 15,555 | | 1,184,358 | | | | |
| | 9/8/2020 | (20) | | | | | | | | | 38,446 | | 2,927,278 | | | | |
| W.H. Baird Garrett (21) | | | | | | | | | | | | | | | | | | |
(1)The market value of unvested RSUs is calculated by multiplying the number of unvested RSUs held by the applicable named executive officer by the closing market price of our ordinary shares on April 30, 2022, which was $76.14.
(2)The ordinary shares subject to the option vest in 48 equal monthly installments beginning on February 11, 2022, subject to continued service to us through the applicable vesting date.
(3)The ordinary shares subject to the option vest in 48 equal monthly installments beginning on January 8, 2022, subject to continued service to us through the applicable vesting date.
(4)One-fourth of the ordinary shares subject to the option vest on March 8, 2022, and 1/48th of the ordinary shares subject to the option vest monthly thereafter, subject to continued service to us through the applicable vesting date.
(5)One-fourth of the ordinary shares subject to the option vest on January 4, 2022, and 1/48th of the ordinary shares subject to the option vest monthly thereafter, subject to continued service to us through the applicable vesting date.
(6)The ordinary shares subject to the award of RSUs vest as follows: (i) 47,630 ordinary shares subject to the award of RSUs vest in sixteen equal quarterly installments beginning on June 8, 2022 and (ii) 23,815 ordinary shares subject to the award of RSUs vest in eight equal quarterly installments beginning on June 8, 2022, in each case subject to continued service to us through the applicable vesting date.
(7)The ordinary shares subject to the award of RSUs vest in sixteen quarterly installments beginning on March 8, 2022, subject to continued service to us through the applicable vesting date.
(8)One-fourth of the ordinary shares subject to the award of RSUs vest on March 8, 2021, and one-eighth of the ordinary shares subject to the award vest in six equal semiannual installments thereafter, subject to continued service to us through the applicable vesting date.
(9)The ordinary shares subject to the option vest in 24 equal monthly installments beginning on April 8, 2022, subject to continued service to us through the applicable vesting date.
(10)The ordinary shares subject to the option vest in 48 equal monthly installments beginning on January 8, 2021, subject to continued service to us through the applicable vesting date.
(11)The ordinary shares subject to the option vest in 48 equal monthly installments beginning on January 8, 2022, subject to continued service to us through the applicable vesting date.
(12)The ordinary shares subject to the option vest in 48 equal monthly installments beginning on November 1, 2019, subject to continued service to us through the applicable vesting date.
(13)The option was subject to an early option exercise provision and was immediately exercisable. One-fourth of the ordinary shares subject to the option vested on August 28, 2018, and 1/48th of the ordinary shares subject to the option vested monthly thereafter. The option became fully vested on August 28, 2021.
(14)The ordinary shares subject to the award of RSUs vest in eight equal quarterly installments beginning on June 8, 2022, in each case subject to continued service to us through the applicable vesting date.
(15)The ordinary shares subject to the award of RSUs vest in eight equal semiannual installments beginning on June 8, 2021, subject to continued service to us through the applicable vesting date.
(16)The ordinary shares subject to the award of RSUs vest in eight equal semiannual installments beginning on June 8, 2022, subject to continued service to us through the applicable vesting date.
(17)The ordinary shares subject to the option vest in 48 equal monthly installments beginning on May 2, 2018, subject to continued service to us through the applicable vesting date. The option became fully vested on April 2, 2022.
(18)The ordinary shares subject to the option vested in 48 equal monthly installments beginning on May 1, 2017, subject to continued service to us through the applicable vesting date. The option became fully vested on April 1, 2021.
(19)One-fourth of the ordinary shares subject to the option vest on September 8, 2021, and 1/48th of the ordinary shares subject to the option vest monthly thereafter, subject to continued service to us through the applicable vesting date.
(20)One-fourth of the ordinary shares subject to the award of RSUs vest on September 8, 2021, and one-eighth of the ordinary shares subject to the award vest in six equal semiannual installments thereafter, subject to continued service to us through the applicable vesting date.
(21)Mr. Garrett did not hold any outstanding equity awards as of April 30, 2022.
Fiscal 2022 Stock Option Exercises and Stock Vested Table
The following table presents, for each of our Named Executive Officers, the number of ordinary shares acquired and the related value realized upon the exercise of stock options and the vesting of RSUs during fiscal year 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
| Name | | Number of Shares Acquired on Exercise
(#) | | Value Realized on Exercise
($)(1) | | Number of Shares Acquired on Vesting
(#) | | Value Realized on Vesting
($)(2) |
| Ashutosh Kulkarni | | 0 | | 0 | | 15,432 | | 1,170,517 |
| Janesh Moorjani | | 18,217 | | 2,090,176 | | 3,979 | | 475,734 |
| Shay Banon | | 0 | | 0 | | 9,535 | | 1,158,103 |
| Paul Appleby | | 0 | | 0 | | 24,104 | | 3,158,485 |
| W.H. Baird Garrett | | 102,859 | | 9,409,603 | | 1,575 | | 206,425 |
(1)The value realized on exercise is calculated as the difference between the market value of our ordinary shares underlying the options on the date of exercise and the applicable exercise price of those options.
(2)The value realized upon vesting is calculated by multiplying the number of ordinary shares released upon vesting of the RSUs by the market value of such ordinary shares on the vesting date.
Named Executive Officer Employment Letters
Shay Banon
We have entered into an employment agreement with Shay Banon, our CTO. Pursuant to Mr. Banon’s employment agreement, Mr. Banon will continue to serve as our at-will employee and as an executive director, with such membership on our board of directors subject to our articles of association, Board Rules, and any required shareholder approvals.
Mr. Banon’s employment agreement provides that his salary will be subject to review and may be increased (but not decreased) based upon the Company’s normal performance review practices, eligibility to receive an annual
performance bonus, and eligibility to participate in employee benefit plans maintained from time to time for senior executives based in the United States.
Pursuant to the employment agreement of Mr. Banon, Mr. Banon may be eligible to receive certain severance payments and benefits. The amount and type of the severance payments and benefits provided under Mr. Banon’s employment agreement, as well as the terms and conditions under which such severance payments and benefits may be provided, are identical in all material respects to the provisions regarding severance payments and benefits provided for in our change in control severance agreements, as described below under the heading “Executive Officer Change in Control and Severance Agreements.” Mr. Banon is also eligible to receive any statutory severance benefits required to be provided by applicable law, and the severance payments and benefits provided in his employment agreement will be offset by the amount of any such statutory severance benefits.
Employment Letters with Messrs. Kulkarni and Moorjani
We have entered into an employment letter with each of Ashutosh Kulkarni and Janesh Moorjani. The employment letters do not have a specific term and provide that employment is “at-will.” Each of those employment letters provides for annual base salary and the opportunity to earn annual bonus incentive compensation. In accordance with the employment letters, the Company may modify salaries and/or incentive compensation opportunities from time to time as it deems necessary.
Executive Officer Change in Control and Severance Agreements
We have entered into change in control and severance agreements with each of Ashutosh Kulkarni and Janesh Moorjani. Additionally, as noted above, we have entered into an employment agreement with Mr. Banon that contains severance provisions that are identical in all material respects to those contained in the change in control and severance agreements (provided that the severance payments and benefits Mr. Banon receives under his employment agreement will be offset by any statutory severance benefits required to be provided to Mr. Banon under applicable law). Pursuant to each executive’s severance agreement, if we terminate the employment of the executive other than for “cause” (excluding by reason of the executive’s death or disability) or the executive resigns for “good reason” (as such terms are defined in the executive’s severance agreement), and, within 60 days following the executive’s termination, the executive executes a separation agreement and release of claims in our favor that becomes effective and irrevocable and resigns from all positions the executive may hold as an officer or director, the executive is entitled to receive (i) a lump sum payment equal to 6 months of the executive’s annual base salary, (ii) a lump sum payment equal to 50% of the executive’s annual target performance bonus as in effect for the fiscal year in which the termination occurs, and (iii) we will pay the premiums for coverage under “COBRA” for the executive and the executive’s dependents, if any, for up to 12 months following the executive’s termination of employment.
Pursuant to each executive’s severance agreement, if, within the 3 month period prior to or the 12 month period following a “change in control” (as defined in the executive’s severance agreement), the employment of the executive is terminated under the circumstances described in the above paragraph and, within 60 days following his termination, the executive executes a separation agreement and release of claims in our favor that becomes effective and irrevocable and resigns from all positions he may hold as an officer or director, the executive is entitled to receive (i) a lump sum payment equal to 12 months of the executive’s annual base salary, (ii) a lump sum payment equal to 100% of the executive’s annual target performance bonus as in effect for the fiscal year in which the termination occurs, (iii) we will pay the premiums for coverage under COBRA for the executive and the executive’s dependents, if any, for up to 12 months following the executive’s termination of employment, and (iv) vesting acceleration of 100% of any outstanding equity awards held by the executive on the date of the executive’s termination (in the case of an equity award with performance-based vesting, unless otherwise specified in the applicable equity award agreement governing such award, all performance goals and other vesting criteria will be deemed achieved at the greater of actual performance measured as of the date of termination or 100% of target levels).
In the event any payment to an executive pursuant to the applicable severance agreement or otherwise would be subject to the excise tax imposed by Section 4999 of the Code (as a result of a payment being classified as a parachute payment under Section 280G of the Code), the executive will receive such payment as would entitle the executive to receive the greatest after-tax benefit, even if it means that we pay the executive a lower aggregate payment so as to minimize or eliminate the potential excise tax imposed by Section 4999 of the Code.
Separation and Transition Agreement with Paul Appleby
We entered into the Appleby Separation Letter with Mr. Appleby on January 12, 2022. Under the Appleby Separation Letter, if Mr. Appleby remained employed with us through June 9, 2022, his scheduled separation date, or was terminated without “Cause” (as defined in the Appleby Separation Letter) prior to June 9, 2022, and Mr. Appleby executed a supplemental separation agreement that became effective and irrevocable within 60 days of his separation date, Mr. Appleby would be eligible to receive the following:
•a lump sum payment equal to $250,000, less applicable withholdings, which is equal to 6 months of Mr. Appleby’s annual base salary;
•a lump sum payment equal to $150,000, less applicable withholdings, which is equal to 50% of Mr. Appleby’s annual target bonus amount under our Bonus Plan for fiscal year 2022; and
•if Mr. Appleby timely elects continued group health plan continuation coverage under COBRA, we will pay the full amount of Mr. Appleby’s premiums on his behalf for continued coverage under our group health plans, including coverage for Mr. Appleby’s eligible dependents, for 12 months from the date Mr. Appleby or his dependents suffer a loss of health coverage under our group health plan or until such earlier date on which he becomes eligible for health coverage from another employer.
The separation benefits provided for in the Appleby Separation Letter are approximately equal in value to the benefits Mr. Appleby would have received under his change in control and severance agreement with the Company in effect prior to Mr. Appleby’s separation on January 12, 2022 if Mr. Appleby experienced a qualifying termination under such change in control and severance agreement not in connection with a change in control of the Company.
Other than being permitted to continue vesting with respect to Mr. Appleby’s outstanding and unvested equity awards through the period he remained employed with us through his scheduled separation date, June 9, 2022, Mr. Appleby did not receive any accelerated or additional vesting with respect to his outstanding and unvested equity awards. Mr. Appleby’s remaining outstanding and unvested equity awards were forfeited as of his actual separation date on June 9, 2022.
Potential Payments Upon Termination or Change in Control
The table below provides information with respect to potential payments and benefits to which our Named Executive Officers would be entitled under the arrangements set forth in, with respect to Messrs. Kulkarni and Moorjani, their change in control and severance agreements, with respect to Mr. Appleby, the Appleby Separation Agreement and, with respect to Mr. Banon, his employment agreement, assuming their employment was terminated as of April 30, 2022, including in connection with a change in control as of April 30, 2022. The amounts reported reflect rounding, which may result in slight variations between amounts shown in the Total column and the sum of its components as reflected in the table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Termination Reason | | Base Salary
($) | | Bonus
($) | | Accelerated Vesting of Equity Awards
($)(1) | | Continuation of Insurance Coverage
($)(2) | | Total
($) |
| Ashutosh Kulkarni | | Termination Without Cause or Resignation for Good Reason in Connection with a Change in Control | | 600,000 | | 600,000 | | 9,773,986 | | 21,302 | | 10,995,288 |
| | Termination Without Cause or Resignation for Good Reason | | 300,000 | | 300,000 | | — | | 21,302 | | 621,302 |
| Janesh Moorjani | | Termination Without Cause or Resignation for Good Reason in Connection with a Change in Control | | 500,000 | | 300,000 | | 5,940,760 | | 17,333 | | 6,758,093 |
| | Termination Without Cause or Resignation for Good Reason | | 250,000 | | 150,000 | | — | | 17,333 | | 417,333 |
| Shay Banon | | Termination Without Cause or Resignation for Good Reason in Connection with a Change in Control | | 466,764 | | 280,058 | | 3,694,313 | | 5,795 | | 4,446,930 |
| | Termination Without Cause or Resignation for Good Reason | | 233,382 | | 140,029 | | — | | 5,795 | | 379,206 |
| Paul Appleby | | Termination Without Cause or Resignation for Good Reason in Connection with a Change in Control | | 250,000 | | 150,000 | | — | | 21,302 | | 421,302 |
| | Termination Without Cause or Resignation for Good Reason | | 250,000 | | 150,000 | | — | | 21,302 | | 421,302 |
| W.H. Baird Garrett (3) | | Termination Without Cause or Resignation for Good Reason in Connection with a Change in Control | | — | | — | | — | | — | | — |
| | Termination Without Cause or Resignation for Good Reason | | — | | — | | — | | — | | — |
(1)The value of accelerated vesting of unvested RSUs is based upon the closing market price of our ordinary shares on April 30, 2022 of $76.14, multiplied by the number of unvested RSUs. The value of accelerated vesting of unvested stock options is based on the difference between the closing market price of our ordinary shares on April 30, 2022 of $76.14, and the exercise price per option multiplied by the number of unvested options.
(2)This is based on the payment of monthly COBRA premiums as of April 30, 2022 for a 12-month period.
(3)Mr. Garrett terminated employment on December 10, 2021. Mr. Garrett did not receive any severance benefits in connection with his termination of employment.
Limitation on Liability and Indemnification Matters
Our articles of association provide that we will indemnify our current and former directors against:
(i)the reasonable costs of conducting a defense against claims resulting from an act or omission in performing their duties or in performing other duties we have asked them to fulfil;
(ii)any compensation or financial penalties they owe as a result of an act or omission as referred to under (i) above;
(iii)any amounts they owe under settlements they have reasonably entered into in connection with an act or omission as referred to under (i) above;
(iv)the reasonable costs of other proceedings in which they are involved as a current or former director, except for proceedings in which they are primarily asserting their own claims; and
(v)tax damage due to reimbursements in accordance with the above, to the extent this relates to the indemnified person’s current or former position with us and/or a group company and in each case to the extent permitted by applicable law.
No indemnification shall be given to an indemnified person insofar as:
(i)it has been established in a final and non-appealable decision of the competent court or, in the event of arbitration, of an arbitrator, that the act or omission of the indemnified person can be described as deliberate (opzettelijk), willfully reckless (bewust roekeloos) or seriously culpable. In that case, the
indemnified person must immediately repay the sums reimbursed by the Company, unless Dutch law provides otherwise or this would, in the given circumstances, be unacceptable according to standards of reasonableness and fairness; or
(ii)the costs or the capital losses of the indemnified person are covered by an insurance policy and the insurer has paid out these costs or capital losses; or
(iii)the indemnified person failed to notify the Company as soon as possible of the costs or the capital losses or of the circumstances that could lead to the costs or capital losses.
Our articles of association will not eliminate a director’s duty of care, and in appropriate circumstances, equitable remedies, such as injunctive or other forms of non-monetary relief, will remain available under Dutch law. This provision also will not affect a director’s responsibilities under any other laws, such as the federal securities laws or other state or federal laws.
In addition to the indemnification included in our articles of association, we have entered into and expect to continue to enter into agreements to indemnify each of our current directors, officers and some employees. With specified exceptions, these agreements provide indemnification for certain expenses and liabilities incurred in connection with any action, suit, proceeding or alternative dispute resolution mechanism, or hearing, inquiry or investigation that may lead to the foregoing, to which they are a party, or are threatened to be made a party, by reason of the fact that they are or were a director, officer, employee, agent or fiduciary of our Company, or any of our subsidiaries, by reason of any action or inaction by them while serving as an officer, director, agent, or fiduciary, or by reason of the fact that they were serving at our request as a director, officer, employee, agent or fiduciary of another entity. In the case of an action or proceeding by, or in the right of, our Company or any of our subsidiaries, no indemnification will be provided for any claim where a court determines that the indemnified party is prohibited from receiving indemnification. Our directors who are affiliated with venture capital funds also have certain rights of indemnification provided by their venture capital funds and the affiliates of those funds (which we refer to as the fund indemnitors). We believe that these provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors’ and officers’ liability insurance.
A shareholder’s investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions in our articles of association. Insofar as we may provide indemnification for liabilities arising under the Securities Act to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. There is no pending litigation or proceeding naming any of our directors or officers as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer.
OTHER MATTERS
Elastic knows of no other matters to be submitted at the Annual Meeting. If any other matters properly come before the Annual Meeting, it is the intention of the persons named in the proxy card to vote the shares they represent as the board of directors may recommend. Discretionary authority with respect to such other matters is granted by the execution of the proxy, whether through telephonic or Internet voting or, alternatively, by using a paper copy of the proxy card that has been requested.
It is important that your shares be represented at the Annual Meeting, regardless of the number of shares that you hold. You are, therefore, urged to vote by telephone or by using the Internet as instructed on the proxy card or, if so requested, by executing and returning, at your earliest convenience, the requested proxy card in the envelope that will have been provided.
THE BOARD OF DIRECTORS OF ELASTIC N.V.
Mountain View, California
, 2022
APPENDIX A
ELASTIC N.V.
2022 EMPLOYEE STOCK PURCHASE PLAN
1.Purpose of the Plan. The purpose of this 2022 Employee Stock Purchase Plan is to provide an opportunity for Eligible Employees of the Company and its Designated Companies to purchase Shares at a discount through voluntary Contributions, thereby attracting, retaining and rewarding such persons and strengthening the mutuality of interest between such persons and the Company’s shareholders. The Company intends for offerings under the Plan to qualify as an “employee stock purchase plan” under Section 423 of the Code (each, a “Section 423 Offering”); provided, however, that the Administrator may also authorize the grant of rights under offerings of the Plan that are not intended to comply with the requirements of Section 423 of the Code, pursuant to any rules, procedures, agreements, appendices, or sub-plans adopted by the Administrator for such purpose (each, a “Non-423 Offering”).
2.Definitions.
(a)“Administrator” means the Board or any of its Committees or, subject to Applicable Law, a subcommittee of the Committee or one or more of the Company’s officers or management team appointed by the Board or Committee to administer the day-to-day operations of the Plan.
(b)“Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 promulgated under the Exchange Act. The Board shall have the authority to determine the time or times at which “Affiliate” status is determined within the foregoing definition.
(c)“Applicable Law” means all applicable laws, rules, regulations and requirements, including but not limited to, the corporate laws of the Netherlands, U.S. federal and state securities laws, the Code, the rules of any stock exchange or quotation system on which the Shares are listed or quoted and the applicable laws of any country or jurisdiction where rights are, or will be, granted under the Plan or where Participants reside or provide services.
(d)“Board” means the board of directors of the Company.
(e)“Code” means the U.S. Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or U.S. Treasury Regulation thereunder shall include such section or regulation, any regulation or other official applicable guidance promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(f)“Committee” means the Compensation Committee of the Board or any other properly delegated committee of the Board or subcommittee of any committee of the Board. If no Compensation Committee or subcommittee thereof exists, the term “Committee” shall be deemed to refer to the Board for all purposes under the Plan.
(g)“Company” means Elastic N.V., a Dutch public limited company (naamloze vennootschap), or any successor to all or substantially all of the Company’s business that adopts the Plan.
(h)“Contributions” means the amount of Eligible Pay contributed by a Participant through payroll deductions or other payments that the Administrator may permit a Participant to make to fund the exercise of rights to purchase Shares granted pursuant to the Plan.
(i)“Corporate Transaction” means the disposition of all or substantially all of the assets or outstanding capital stock of the Company by means of a sale, merger, or reorganization in which the Company will not be the surviving corporation (other than a reorganization effected primarily to change the State in which the Company is incorporated, a merger or consolidation with a wholly-owned Subsidiary, or any other transaction in which there is no
substantial change in the shareholders of the Company or their relative stock holdings, regardless of whether the Company is the surviving corporation).
(j)“Designated Company” means any Parent, Subsidiary or Affiliate, whether now existing or existing in the future, that has been designated by the Administrator from time to time in its sole discretion as eligible to participate in the Plan. The Administrator may designate any Parent, Subsidiary or Affiliate as a Designated Company in a Non-423 Offering. For purposes of a Section 423 Offering, only the Company and any Parent or Subsidiary may be Designated Companies; provided, however, that at any given time, a Parent or Subsidiary that is a Designated Company under a Section 423 Offering shall not be a Designated Company under a Non-423 Offering.
(k)“Eligible Employee” means any person providing services to the Company or a Designated Company in an employee-employer relationship who meets such other initial service requirement specified by the Administrator pursuant to Section 5(c)(A). For purposes of a Non-423 Offering and subject to the Administrator's sole discretion, this may include individuals who are employed or engaged by a third party agency but provide services to the Company or a Subsidiary or Affiliate, at the direction of the Company or a Subsidiary or Affiliate. For purposes of clarity, the term “Eligible Employee” shall not include the following, regardless of any subsequent reclassification as an employee by the Company or a Designated Company, any governmental agency, or any court: (i) any independent contractor; (ii) any consultant; (iii) any individual performing services for the Company or a Designated Company who has entered into an independent contractor or consultant agreement with the Company or a Designated Company; (iv) any individual performing services for the Company or a Designated Company under a purchase order, a supplier agreement or any other agreement that the Company or a Designated Company enters into for services; (v) any individual classified by the Company or a Designated Company as contract labor (such as contractors, contract employees, job shoppers), regardless of length of service; (vi) any individual whose base wage or salary is not processed for payment by the payroll department(s) or payroll provider(s) of the Company or a Designated Company; and (vii) any leased employee within the meaning of Code Section 414(n), including such persons leased from a professional employer organization, except to the extent permitted by the Administrator under a Non-423 Offering. The Administrator shall have exclusive discretion to determine whether an individual is an Eligible Employee for purposes of the Plan.
(l)“Eligible Pay” means the following amounts paid by the Company or any Parent, Subsidiary or Affiliate to the Eligible Employee (other than amounts paid after termination of employment date, even if such amounts are paid for pre-termination date services), including (i) base salary or wages (including 13th/14th month payments or similar concepts under local law, whether such payments are characterized as base salary, bonus or otherwise under local law), and (ii) any portion of such amounts voluntarily deferred or reduced by the Eligible Employee (A) under any employee benefit plan of the Company or a Parent, Subsidiary or Affiliate available to all levels of employees on a non-discriminatory basis upon satisfaction of eligibility requirements, and (B) under any deferral plan of the Company (provided such amounts would not otherwise have been excluded had they not been deferred); but excluding (iii) relocation pay, severance payments, cash allowances for a stated purpose (such as a medical or car allowance), income derived from stock options, stock appreciation rights, restricted stock units or other equity-based awards, the cost of employee benefits paid for by the Company, imputed income arising under any Company group insurance or benefit program, contributions made by the Company under any employee benefit plan, and similar items of compensation. For Eligible Employees in the U.S., Eligible Pay shall include elective amounts that are not includible in gross income of the Eligible Employee by reason of Sections 125, 132(f)(4), 402(e)(3), 402(h) or 403(b) of the Code. The Administrator shall have discretion to determine the application of this definition to Eligible Employees outside the U.S.
(m)“Enrollment Period” means the period during which an Eligible Employee may elect to participate in the Plan, with such period occurring before the first day of each Offering Period, as prescribed by the Administrator.
(n)“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, or any successor law thereto, and the regulations promulgated thereunder.
(o)“Fair Market Value” means, as of any given date, (i) the closing sales price for the Shares on the Trading Day immediately prior to the applicable date as quoted on the New York Stock Exchange or, if no sale occurred on such date, the closing price reported for the first Trading Day immediately prior to such date during which a sale occurred; or (ii) if the Shares are not traded on an exchange but are regularly quoted on a national market or other quotation system, the closing sales price on the Trading Day immediately prior to such date as quoted on such market or system, or if no sales occurred on such date, then on the Trading Day immediately prior to such date on which sales prices are reported; or (iii) in the absence of an established market for the Shares of the type described in (i) or (ii) of this Section 1(o), the fair market value established by the Administrator acting in good faith. Notwithstanding the foregoing, for income, employment or other related tax reporting purposes under U.S. federal, state, local or non-U.S. law and for such other purposes as the Company deems appropriate, the Fair Market Value shall be determined by the Company in accordance with Applicable Laws and uniform and nondiscriminatory standards adopted by it from time to time.
(p)“Non-423 Offering” has the meaning ascribed to it in Section 1.
(q)“Offering” means a Section 423 Offering or a Non-423 Offering of a right to purchase Shares under the Plan during an Offering Period as further described in Section 6. Unless otherwise determined by the Administrator, each Offering under the Plan in which Eligible Employees of one or more Designated Companies may participate shall be deemed a separate offering for purposes of Section 423 of the Code, even if the dates of the applicable Offering Periods of each such Offering are identical, and the provisions of the Plan shall separately apply to each Offering. With respect to Section 423 Offerings, the terms of separate Offerings need not be identical provided that all Eligible Employees granted purchase rights in a particular Offering shall have the same rights and privileges, except as otherwise may be permitted by Code Section 423; a Non-423 Offering need not satisfy such requirements. The terms and conditions of an Offering will generally be set forth in an “Offering Document” approved by the Administrator for that Offering.
(r)“Offering Period” means the periods established in accordance with Section 6 during which rights to purchase Shares may be granted pursuant to the Plan and Shares may be purchased on one or more Purchase Dates. The duration and timing of Offering Periods may be changed pursuant to Sections 6 and 17.
(s)“Parent” means a parent corporation of the Company, whether now or hereafter existing, as “parent corporation” is defined in Section 424(e) of the Code.
(t)“Participant” means an Eligible Employee who elects to participate in the Plan.
(u)“Plan” means this Elastic N.V. 2022 Employee Stock Purchase Plan, as may be amended from time to time.
(v)“Purchase Date” means the last Trading Day of each Purchase Period (or such other Trading Day as the Administrator may determine).
(w)“Purchase Period” means a period of time within an Offering Period, as may be specified by the Administrator in accordance with Section 6, generally beginning on the first Trading Day of each Offering Period and ending on a Purchase Date. An Offering Period may consist of one or more Purchase Periods.
(x)“Purchase Price” means the purchase price at which Shares may be acquired on a Purchase Date and which shall be set by the Administrator; provided, however, that the Purchase Price for a Section 423 Offering shall not be less than eighty-five percent (85%) of the lesser of (i) the Fair Market Value of the Shares on the first Trading Day of the Offering Period or (ii) the Fair Market Value of the Shares on the Purchase Date. Unless otherwise determined by the Administrator prior to the commencement of an Offering Period, the Purchase Price shall be eighty-five percent (85%) of the lesser of (A) the Fair Market Value of the Shares on the first Trading Day of the Offering Period or (B) the Fair Market Value of the Shares on the Purchase Date.
(y)“Section 423 Offering” has the meaning ascribed to it in Section 1.
(z)“Shares” means the ordinary shares, par value €0.01 per share, of the Company, as adjusted in accordance with Section 16.
(aa)“Subsidiary” means a subsidiary corporation of the Company, whether now or hereafter existing, as “subsidiary corporation” is defined in Section 424(f) of the Code.
(ab)“Tax-Related Items” means any U.S. federal, state, and/or local taxes and/or any non-U.S. taxes (including, without limitation, income tax, social insurance contributions (or similar contributions)), payroll tax, fringe benefits tax, payment on account, employment tax, stamp tax and any other tax or tax-related item arising in relation to the Participant’s participation in the Plan and legally applicable to a Participant, including any employer liability for which the Participant is liable pursuant to Applicable Laws or an agreement entered into under the Plan.
(ac)“Trading Day” means a day on which the principal exchange that Shares are listed on is open for trading.
(ad)“U.S.” means the United States of America.
3.Number of Reserved Shares. Subject to adjustment pursuant to Section 16 hereof, six million (6,000,000) Shares may be sold pursuant to the Plan. Such Shares may be authorized but unissued Shares or reacquired Shares. For avoidance of doubt, up to the maximum number of Shares reserved under this Section 3 may be used to satisfy purchases of Shares under Section 423 Offerings and any remaining portion of such maximum number of Shares may be used to satisfy purchases of Shares under Non-423 Offerings. For the avoidance of doubt, Shares withheld to satisfy Tax-Related Items shall not reduce the number of Shares available for sale pursuant to the Plan and shall again be made available for sale pursuant to the Plan.
4.Administration of the Plan.
(a)Committee as Administrator. The Plan shall be administered by the Committee. Notwithstanding anything in the Plan to the contrary, subject to Applicable Law, any authority or responsibility that, under the terms of the Plan, may be exercised by the Committee may alternatively be exercised by the Board. Subject to Applicable Law, no member of the Board or Committee (or its delegates) shall be liable for any good faith action or determination made in connection with the operation, administration or interpretation of the Plan. In the performance of its responsibilities with respect to the Plan, the Committee shall be entitled to rely upon, and no member of the Committee shall be liable for any action taken or not taken in reliance upon, information and/or advice furnished by the Company’s officers or employees, the Company’s accountants, the Company’s counsel and any other party that the Committee deems necessary.
(b)Powers of the Administrator. The Administrator shall have full power and authority to administer the Plan, including, without limitation, the authority to (i) construe, interpret, reconcile any inconsistency in, correct any default in and supply any omission in, and apply the terms of the Plan and any enrollment form or other instrument or agreement relating to the Plan, (ii) determine eligibility and adjudicate all disputed claims filed under the Plan, including whether Eligible Employees will participate in a Section 423 Offering or a Non-423 Offering and which Subsidiaries and Affiliates of the Company (or Parent, if applicable) will be Designated Companies participating in either a Section 423 Offering or a Non-423 Offering (within the limits of the Plan), (iii) determine the terms and conditions of any right to purchase Shares under the Plan, (iv) establish, amend, suspend or waive such rules and regulations and appoint such agents as it deems appropriate for the proper administration of the Plan, (v) amend an outstanding right to purchase Shares, including any amendments to a right that may be necessary for purposes of effecting a transaction contemplated under Section 16 hereof (including, but not limited to, an amendment to the class or type of stock that may be issued pursuant to the exercise of a right or the Purchase Price applicable to a right), provided that the amended right otherwise conforms to the terms of the Plan, and (vi) make any other determination and take any other action that the Administrator deems necessary or desirable for the administration of the Plan, including, without limitation, the adoption of any such rules, procedures, agreements, appendices, or sub-plans (collectively, “Sub-Plans”) as are necessary or appropriate to permit the participation in the Plan by employees who are citizens or residents in jurisdictions other than the U.S. or employed outside the U.S., as further set forth in Section 4(c) below.
(c)Non-U.S. Sub-Plans. Notwithstanding any provision to the contrary in this Plan, the Administrator may adopt such Sub-Plans relating to the operation and administration of the Plan to accommodate local laws, customs and procedures for jurisdictions outside of the U.S., the terms of which Sub-Plans may take precedence over other provisions of this Plan, with the exception of Section 3 hereof, but unless otherwise superseded by the terms of such Sub-Plan, the provisions of this Plan shall govern the operation of such Sub-Plan. To the extent inconsistent with the requirements of Section 423, any such Sub-Plan shall be considered part of a Non-423 Offering, and purchase rights granted thereunder shall not be required by the terms of the Plan to comply with Section 423 of the Code. Without limiting the generality of the foregoing, the Administrator is authorized to adopt Sub-Plans for particular non-U.S. jurisdictions that modify the terms of the Plan to meet applicable local requirements, customs or procedures regarding, without limitation, (i) eligibility to participate, (ii) the definition of Eligible Pay, (iii) the dates and duration of Offering Periods or other periods during which Participants may make Contributions towards the purchase of Shares, (iv) the method of determining the Purchase Price and the discount from Fair Market Value at which Shares may be purchased, (v) any minimum or maximum amount of Contributions a Participant may make in an Offering Period or other specified period under the applicable Sub-Plan, (vi) the treatment of purchase rights upon a Corporate Transaction or a change in capitalization of the Company, (vii) the handling of payroll deductions and the methods for making Contributions by means other than payroll deductions, (viii) establishment of bank, building society or trust accounts to hold Contributions, (ix) payment of interest, (x) conversion of local currency, (xi) obligations to pay payroll tax, (xii) determination of beneficiary designation requirements, (xiii) withholding procedures, (xiv) handling of Share issuances and (xv) withdrawal from the Plan.
(d)Binding Authority. All determinations by the Administrator in carrying out and administering the Plan and in construing and interpreting the Plan and any enrollment form or other instrument or agreement relating to the Plan shall be made in the Administrator’s sole discretion and shall be final, binding and conclusive for all purposes and upon all interested persons.
(e)Delegation of Authority. To the extent not prohibited by Applicable Law, the Committee may, from time to time, delegate some or all of its authority under the Plan to a subcommittee or subcommittees of the Committee, to one or more of the other parties comprising the “Administrator” hereunder, or to other persons or groups of persons as it deems necessary, appropriate or advisable under conditions or limitations that it may set at or after the time of the delegation. For purposes of the Plan, reference to the Administrator shall be deemed to include any subcommittee, subcommittees, or other persons or groups of persons to whom the Committee delegates authority pursuant to this Section 4(e).
5.Eligible Employees.
(a)General. Any individual who is an Eligible Employee as of the commencement of an Offering Period shall be eligible to participate in the Plan, subject to the requirements of Section 7 and the limitations set forth in this Section 5.
(b)Non-U.S. Employees. An Eligible Employee who works for a Designated Company and is a citizen or resident of a jurisdiction other than the U.S. (without regard to whether such individual also is a citizen or resident of the U.S. or is a resident alien (within the meaning of Section 7701(b)(1)(A) of the Code)) may be excluded from participation in the Plan or an Offering if the participation of such Eligible Employee is prohibited under the laws of the applicable jurisdiction or if complying with the laws of the applicable jurisdiction would cause the Plan or a Section 423 Offering to violate Section 423 of the Code. In the case of a Non-423 Offering, an Eligible Employee (or group of Eligible Employees) may be excluded from participation in the Plan or an Offering if the Administrator has determined, in its sole discretion, that participation of such Eligible Employee(s) is not advisable or practicable for any reason.
(c)Limitations. Notwithstanding any provisions of the Plan to the contrary, no Eligible Employee shall be granted a right to purchase Shares under a Section 423 Offering (i) to the extent that, immediately after the grant, such Eligible Employee (or any other person whose stock would be attributed to such Eligible Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding rights to purchase capital stock possessing five percent (5%) or more of the combined voting power or value
of all classes of the capital stock of the Company or of any Parent or Subsidiary of the Company, or (ii) to the extent that his or her rights to purchase capital stock under all employee stock purchase plans of the Company and any Parent and Subsidiaries accrues at a rate that exceeds Twenty-Five Thousand Dollars (US$25,000) worth of such stock (determined at the fair market value of the shares of such stock at the time such right is granted) for each calendar year in which such purchase right is outstanding. The Administrator, in its discretion, from time to time may, prior to an Enrollment Period for all purchase rights to be granted in an Offering, determine (on a uniform and nondiscriminatory basis for Section 423 Offerings) that the definition of Eligible Employee will or will not include an individual if he or she: (A) has not completed at least two (2) years of service since his or her last hire date (or such lesser period of time as may be determined by the Administrator in its discretion), (B) customarily works not more than twenty (20) hours per week (or such lesser period of time as may be determined by the Administrator in its discretion), (C) customarily works not more than five (5) months per calendar year (or such lesser period of time as may be determined by the Administrator in its discretion), (D) is a highly compensated employee within the meaning of Section 414(q) of the Code, or (E) is a highly compensated employee within the meaning of Section 414(q) of the Code with compensation above a certain level or who is an officer or subject to the disclosure requirements of Section 16(a) of the Exchange Act, provided the exclusion is applied with respect to each Section 423 Offering in an identical manner to all highly compensated individuals of the Designated Company whose employees are participating in that Offering.
6.Offering Periods. The Plan shall be implemented by consecutive or overlapping Offering Periods, as specified by the Administrator, with a new Offering Period commencing on the first Trading Day of the relevant Offering Period and terminating on the last Trading Day of the relevant Offering Period. The Offering Periods shall (a) consist of one or more Purchase Periods of a duration specified by the Administrator, and (b) be of a duration, and commence on the dates, specified by the Administrator prior to the scheduled beginning of the applicable Offering Period, provided that each Offering Period may not have a duration exceeding twenty-seven (27) months. For the avoidance of any doubt, the Administrator has authority to establish the terms that shall apply to the Offering Periods in accordance with the provisions contemplated in this Section 6 without shareholder approval. To the extent that the Administrator establishes Offering Periods with multiple Purchase Periods or overlapping Offering Periods, in each case, with a Purchase Price based (in part) on the Fair Market Value of a Share on the first Trading Day of an Offering Period, the Administrator shall have discretion to structure an Offering Period so that if the Fair Market Value of a Share on the first Trading Day of the Offering Period in which a Participant is currently enrolled is higher than the Fair Market Value of a Share on the first Trading Day of any subsequent Offering Period, the Company shall automatically enroll such Participant in the subsequent Offering Period and shall terminate his or her participation in such original Offering Period.
7.Election to Participate and Payroll Deductions. An Eligible Employee may elect to participate in an Offering under the Plan during any Enrollment Period. Any such election shall be made by completing the online enrollment process through the Company’s designated Plan broker or, to the extent specified by the Administrator, by completing and submitting an enrollment form to the Administrator during such Enrollment Period, authorizing Contributions in whole percentages from one percent (1%) to fifteen percent (15%) of the Eligible Employee’s Eligible Pay for the Purchase Period within the Offering Period to which the deduction applies. A Participant may elect to increase or decrease the rate of such Contributions during any subsequent Enrollment Period by submitting the appropriate form online (or via any method permitted by the Administrator) through the Company’s designated Plan broker or, to the extent specified by the Administrator, to the Administrator, provided that no change in Contributions shall be permitted to the extent that such change would result in total Contributions exceeding fifteen percent (15%) of the Eligible Employee’s Eligible Pay, or such other maximum amount as may be determined by the Administrator with respect to a subsequent Offering Period. During an Offering Period, unless the Administrator determines otherwise, a Participant may decrease his or her rate of Contributions applicable to such Offering Period once by submitting the appropriate form online (or via any method permitted by the Administrator) through the Company’s designated Plan broker or, to the extent specified by the Administrator, to the Administrator, by such deadline that may be established by the Administrator from time to time. A Participant also may reduce the rate of his or her Contributions to zero percent (0%) at any time during the Offering Period, provided that any such reduction shall result in the automatic withdrawal of the Participant from the Plan as provided under Section 14 hereof and the Participant shall not again be eligible to participate in the Plan until the next Enrollment Period. Once an Offering Period has commenced, a Participant may not increase his or her rate of Contributions applicable to such Offering Period. Once an Eligible Employee elects to participate in an Offering Period, then such Participant shall
automatically participate in the Offering Period commencing immediately following the last day of such prior Offering Period at the same rate of Contributions as was in effect in the prior Offering Period unless the Participant elects to increase or decrease the rate of Contributions or withdraws or is deemed to withdraw from this Plan as described above in this Section 7. A Participant who is automatically enrolled in a subsequent Offering Period pursuant to this Section 7 is not required to file any additional documentation in order to continue participation in the Plan; provided, however, that participation in the subsequent Offering Period shall be governed by the terms and conditions of the Plan in effect at the beginning of such Offering Period, subject to the Participant’s right to withdraw from the Plan in accordance with Section 14 below. The Administrator has the authority to change the rules set forth in this Section 7 regarding participation in the Plan.
8.Contributions. The Company shall establish an account in the form of a bookkeeping entry for each Participant for the purpose of tracking Contributions made by each Participant during the Offering Period, and shall credit all Contributions made by each Participant to such account. The Company shall not be obligated to segregate the Contributions from the general funds of the Company or any Designated Company nor shall any interest be paid on such Contributions, unless otherwise determined by the Administrator or required by Applicable Law. All Contributions received by the Company for Shares sold by the Company on any Purchase Date pursuant to this Plan may be used for any corporate purpose.
9.Limitation on Number of Shares That an Employee May Purchase. Subject to the limitations set forth in Section 5(c) and the maximum number of Shares that may be purchased by each Participant during any Offering Period as established by the Administrator (subject to adjustment pursuant to Section 16 hereof), each Participant shall have the right to purchase as many whole Shares as may be purchased with the Contributions credited to his or her account as of the last day of the Offering Period (or such other date as the Administrator may determine) at the Purchase Price applicable to such Offering Period. Any amount remaining in a Participant’s account that was not applied to the purchase of Shares on a Purchase Date because it was not sufficient to purchase a whole Share shall be carried forward for the purchase of Shares on the following Purchase Date. However, any amounts not applied to the purchase of Shares during an Offering Period for any reason other than as described in the foregoing sentence shall not be carried forward to any subsequent Offering Period and shall instead be refunded, without interest, as soon as practicable following the Purchase Date, except as otherwise determined by the Administrator or required by Applicable Law.
10.Taxes. At the time a Participant’s purchase right is exercised, in whole or in part, or at the time a Participant disposes of some or all of the Shares acquired under the Plan, or at the time of any other taxable event, the Participant shall make adequate provision for any Tax-Related Items. In their sole discretion, the Company or the Designated Company that employs or engages the Participant may satisfy any obligation to withhold Tax-Related Items by (a) withholding from the Participant’s wages or other compensation, (b) withholding a number of Shares otherwise issuable in connection with the purchase of Shares under the Plan, (c) withholding from proceeds from the sale of Shares issued upon purchase, either through a voluntary sale or a mandatory sale arranged by the Company, (d) requiring the Participant to make a cash payment (by check or wire transfer) to the Company or another Designated Company equal to the amount of the Tax-Related Items, or (e) any other method determined by the Company that is permissible under Applicable Law. The Company will not be required to issue any Shares under the Plan until such obligations are satisfied.
11.Brokerage Accounts or Plan Share Accounts. By enrolling in the Plan, each Participant shall be deemed to have authorized the establishment of a brokerage account on his or her behalf at a securities brokerage firm selected by the Administrator. Alternatively, the Administrator may provide for Plan share accounts for each Participant to be established by the Company or by an outside entity selected by the Administrator which is not a brokerage firm. Shares purchased by a Participant pursuant to the Plan shall be held in the Participant’s brokerage or Plan share account. The Company may require that Shares be retained in such brokerage or Plan share account for a designated period of time, and/or may establish procedures to permit tracking of dispositions of Shares.
12.Rights as a Shareholder. A Participant shall have no rights as a shareholder with respect to Shares subject to any rights granted under this Plan or any Shares deliverable under this Plan unless and until recorded in the books of the brokerage firm selected by the Administrator or, as applicable, the Company, its transfer agent, stock plan administrator or such other outside entity which is not a brokerage firm.
13.Rights Not Transferable. Rights granted under this Plan are not transferable by a Participant other than by will or the laws of descent and distribution, and are exercisable during a Participant’s lifetime only by the Participant.
14.Withdrawals. A Participant may withdraw from an Offering by submitting the appropriate form online (or via any method permitted by the Administrator) through the Company’s designated Plan broker or, to the extent determined by the Administrator, to the Administrator. A notice of withdrawal must be received no later than the last day of the month immediately preceding the month of the Purchase Date or by such other deadline as may be prescribed by the Administrator. Upon receipt of such notice, automatic deductions of Contributions on behalf of the Participant shall be discontinued commencing with the payroll period immediately following the effective date of the notice of withdrawal, and such Participant shall not be eligible to participate in the Plan until the next Enrollment Period. Any Contributions credited to the account of any Participant who withdraws from an Offering according to the procedures and timing set forth in this Section 14 shall be refunded as soon as practicable without interest, except as otherwise determined by the Administrator or required by Applicable Law.
15.Termination of Employment; Leave of Absence.
(a)General. Upon a Participant ceasing to be an Eligible Employee for any reason prior to a Purchase Date, Contributions for such Participant shall be discontinued and any Contributions then credited to the Participant’s account shall be refunded as soon as practicable, without interest, except as otherwise determined by the Administrator or required by Applicable Law.
(b)Leave of Absence. Subject to the discretion of the Administrator, if a Participant is granted a paid leave of absence, payroll deductions on behalf of the Participant shall continue and any Contributions credited to the Participant’s account may be used to purchase Shares as provided under the Plan. If a Participant is granted an unpaid leave of absence, payroll deductions on behalf of the Participant shall be discontinued and no other Contributions shall be permitted (unless otherwise determined by the Administrator (on a uniform and nondiscriminatory basis for Section 423 Offerings) or required by Applicable Law), but any Contributions then credited to the Participant’s account may be used to purchase Shares on the next applicable Purchase Date. Where the period of leave exceeds three (3) months and the Participant’s right to reemployment is not guaranteed by statute or by contract, for purposes of Section 423 Offerings, the employment relationship shall be deemed to have terminated three (3) months and one (1) day following the commencement of such leave, or such other period specified in Treas. Reg. § 1.421-1(h)(2) or any successor thereto.
(c)Transfer of Employment. Unless otherwise determined by the Administrator or required by Applicable Law, a Participant whose employment transfers or whose employment terminates with an immediate rehire (with no break in service) by or between the Company or a Designated Company shall not be treated as having terminated employment for purposes of participating in the Plan or an Offering; however, if a Participant transfers from a Section 423 Offering to a Non-423 Offering, the exercise of the Participant’s purchase right will be qualified under the Section 423 Offering only to the extent that such exercise complies with Code Section 423. If a Participant transfers from a Non-423 Offering to a Section 423 Offering, the exercise of the Participant’s purchase right will remain non-qualified under the Non-423 Offering. The Administrator may establish additional or different rules to govern transfers of employment for purposes of participation in the Plan or an Offering, consistent with the applicable requirements of Section 423 of the Code.
16.Adjustment Provisions.
(a)Changes in Capitalization. In the event of any change affecting the number, class, value, or terms of the Shares resulting from a recapitalization, stock split, reverse stock split, stock dividend, spinoff, split up, combination, reclassification or exchange of Shares, merger, consolidation, rights offering, separation, reorganization or liquidation or any other change in the corporate structure or Shares, including any extraordinary dividend or extraordinary distribution (but excluding any regular cash dividend), then the Committee, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, shall, in such manner as it may deem equitable, adjust the number and class of Shares that may be delivered under the Plan (including the numerical limits of Sections 3 and 9), the Purchase Price per Share and the number of Shares covered by each
right under the Plan that has not yet been exercised. For the avoidance of doubt, the Committee may not delegate its authority to make adjustments pursuant to this Section 16(a). Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to a purchase right.
(b)Corporate Transaction. In the event of a Corporate Transaction, each outstanding right to purchase Shares shall be equitably adjusted and assumed or an equivalent right to purchase Shares substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event that the successor corporation in a Corporate Transaction refuses to assume or substitute for the purchase right or the successor corporation is not a publicly traded corporation, the Offering Period then in progress shall be shortened by setting a New Purchase Date and shall end on the New Purchase Date. The “New Purchase Date” shall be a Trading Day determined by the Administrator, in its discretion, which occurs before the date of the consummation of the Company’s proposed Corporate Transaction. The Administrator shall notify each Participant in writing, at least ten (10) Trading Days prior to the New Purchase Date (or such other date as may be specified by the Administrator), that the Purchase Date for the Participant’s purchase right has been changed to the New Purchase Date and that Shares shall be purchased automatically for the Participant on the New Purchase Date, unless the Participant has withdrawn from the Offering prior to such date, as provided in Section 14 hereof.
17.Amendments and Termination of the Plan. The Board or the Committee may amend the Plan at any time, provided that if approval of holders of shares in the capital of the Company is required pursuant to Applicable Law, then no such amendment shall be effective unless approved by the holders of shares in the capital of the Company The Board may suspend the Plan or discontinue the Plan at any time, including shortening an Offering Period in connection with a spin-off or other similar corporate event. Upon termination of the Plan, all Contributions shall cease and all Contributions then credited to a Participant’s account shall be equitably applied to the purchase of whole Shares then available for sale, and any remaining amounts shall be promptly refunded, without interest (unless required by Applicable Law), to Participants. For the avoidance of doubt, the Board or Committee, as applicable herein, may not delegate its authority to make amendments to or suspend the operation of the Plan pursuant to this Section 17.
18.Shareholder Approval; Effective Date; Plan Term. The Plan shall be subject to approval by holders of shares in the capital of the Company at the general meeting of the Company within twelve (12) months after the date the Plan is adopted by the Board. Such approval shall be obtained in the manner and to the degree required under Applicable Law. The Plan shall become effective on the date that approval of the Plan, as contemplated in this Section 18, is obtained, and shall continue in effect until it expires on the tenth (10th) anniversary of the effective date of the Plan, unless terminated earlier in accordance with Section 17 hereof. Any Offering Periods that are outstanding upon the expiration of the Plan shall continue in effect in accordance with their terms through the final Purchase Period in the outstanding Offering Period.
19.Conditions Upon Issuance of Shares. Notwithstanding any other provision of the Plan, unless there is an available exemption from any registration, qualification or other legal or regulatory requirement applicable to the Shares, the Company shall not be required to deliver any Shares issuable upon exercise of a right under the Plan prior to (i) the completion of any registration or qualification of the Shares under any local, state, federal or non-U.S. securities or exchange control law or under rulings or regulations of any governmental regulatory body, or (ii) obtaining any approval or other clearance from any local, state, federal or non-U.S. governmental agency, which registration, qualification or approval the Administrator, in its absolute discretion, deems necessary or advisable. The Company is under no obligation to register or qualify the Shares with any state or non-U.S. securities commission or other governmental body, or to seek approval or clearance from any governmental authority for the issuance or sale of the Shares. If, pursuant to this Section 19, the Administrator determines that the Shares will not be issued to any Participant, any Contributions credited to such Participant’s account shall be promptly refunded, without interest (unless required by Applicable Law), to the Participant, without any liability to the Company or any of its Subsidiaries or Affiliates (or any Parent, if applicable).
20.Code Section 409A; Tax Qualification.
(a)Code Section 409A. Rights to purchase Shares granted under a Section 423 Offering are exempt from the application of Section 409A of the Code and rights to purchase Shares granted under a Non-423 Offering are intended to be exempt from Section 409A of the Code pursuant to the “short-term deferral” exemption contained therein. In furtherance of the foregoing and notwithstanding any provision in the Plan to the contrary, if the Administrator determines that a right granted under the Plan may be subject to Section 409A of the Code or that any provision in the Plan would cause a right under the Plan to be subject to Section 409A of the Code, the Administrator may amend the terms of the Plan and/or of an outstanding right granted under the Plan, or take such other action the Administrator determines is necessary or appropriate, in each case, without the Participant’s consent, to exempt any outstanding right or future right that may be granted under the Plan from or to allow any such rights to comply with Section 409A of the Code, but only to the extent any such amendments or action by the Administrator would not violate Section 409A of the Code. Notwithstanding the foregoing, the Company shall have no liability to a Participant or any other party if the right to purchase Shares under the Plan that is intended to be exempt from or compliant with Section 409A of the Code is not so exempt or compliant or for any action taken by the Administrator with respect thereto. The Company makes no representation that the right to purchase Shares under the Plan is compliant with Section 409A of the Code.
(b)Tax Qualification. Although the Company may endeavor to (i) qualify a right to purchase Shares for favorable tax treatment under the laws of the U.S. or jurisdictions outside of the U.S. or (ii) avoid adverse tax treatment (e.g., under Section 409A of the Code), the Company makes no representation to that effect and expressly disavows any covenant to maintain favorable or avoid unfavorable tax treatment, notwithstanding anything to the contrary in this Plan, including Section 20(a) hereof. The Company shall be unconstrained in its corporate activities without regard to the potential negative tax impact on Participants under the Plan.
21.No Employment Rights. Participation in the Plan shall not be construed as giving any Participant the right to be retained as an employee of the Company, a Subsidiary, or one of its Affiliates or Parent, as applicable. Furthermore, if the Company, a Subsidiary, or an Affiliate (or Parent, if applicable) dismisses a Participant from employment, no liability or claim shall arise under the Plan.
22.Governing Law. Except to the extent that provisions of this Plan are governed by applicable provisions of the Code or any other substantive provision of U.S. federal law, this Plan shall be governed by and construed in accordance with the internal laws of the Netherlands without giving effect to the conflict of laws principles thereof.
23.Waiver of Jury Trial. Each Participant waives any right such Participant may have to trial by jury in respect of any litigation based on, arising out of, under or in connection with the Plan.
24.Headings. Headings are given to the sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan.
25.Expenses. Unless otherwise set forth in the Plan or determined by the Administrator, all expenses of administering the Plan, including expenses incurred in connection with the purchase of Shares for sale to Participants, shall be borne by the Company and its Subsidiaries or Affiliates (or any Parent, if applicable).
APPENDIX B
Non-GAAP Financial Measures
Reconciliations of GAAP financial measures to their respective non-GAAP financial measures are included below.
In addition to our results determined in accordance with U.S. GAAP, we believe the non-GAAP measures listed below are useful in evaluating our operating performance. We use these non-GAAP financial measures 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 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. Investors are cautioned that there are a number of limitations associated with the use of non-GAAP financial measures and key metrics as analytical tools. Investors are encouraged to review the differences between GAAP financial measures and the corresponding non-GAAP financial measures, and not to rely on any single financial measure to evaluate our business.
Reconciliation of GAAP to Non-GAAP Data
(amounts in thousands, except percentages)
(Unaudited)
| | | | | | | | | | | | | | |
| | Year Ended April 30, |
| | 2022 | | 2021 |
| Gross Profit Reconciliation: | | | | |
| GAAP gross profit | | $ | 630,180 | | | $ | 447,435 | |
| Stock-based compensation expense | | 14,831 | | | 11,929 | |
| Employer payroll taxes on employee stock transactions | | 1,393 | | | 1,335 | |
| Amortization of acquired intangibles | | 10,503 | | | 8,437 | |
| Non-GAAP gross profit | | $ | 656,907 | | | $ | 469,136 | |
Gross Margin Reconciliation(1): | | | | |
| GAAP gross margin | | 73.1 | % | | 73.5 | % |
| Stock-based compensation expense | | 1.7 | % | | 2.0 | % |
| Employer payroll taxes on employee stock transactions | | 0.2 | % | | 0.2 | % |
| Amortization of acquired intangibles | | 1.2 | % | | 1.4 | % |
| Non-GAAP gross margin | | 76.2 | % | | 77.1 | % |
| Operating Loss Reconciliation: | | | | |
| GAAP operating loss | | $ | (173,680) | | | $ | (129,478) | |
| Stock-based compensation expense | | 141,194 | | | 93,680 | |
| Employer payroll taxes on employee stock transactions | | 9,961 | | | 14,376 | |
| Amortization of acquired intangibles | | 15,783 | | | 14,167 | |
| Acquisition-related expenses | | 7,632 | | | — | |
| Non-GAAP operating income (loss) | | $ | 890 | | | $ | (7,255) | |
Operating Margin Reconciliation(1): | | | | |
| GAAP operating margin | | (20.1) | % | | (21.3) | % |
| Stock-based compensation expense | | 16.4 | % | | 15.4 | % |
| Employer payroll taxes on employee stock transactions | | 1.2 | % | | 2.4 | % |
| Amortization of acquired intangibles | | 1.8 | % | | 2.3 | % |
| Acquisition-related expenses | | 0.9 | % | | 0.0 | % |
| Non-GAAP operating margin | | 0.1 | % | | (1.2) | % |
| Net Loss Reconciliation: | | | | |
| GAAP net loss | | $ | (203,848) | | | $ | (129,434) | |
| Stock-based compensation expense | | 141,194 | | | 93,680 | |
| Employer payroll taxes on employee stock transactions | | 9,961 | | | 14,376 | |
| Amortization of acquired intangibles | | 15,783 | | | 14,167 | |
| Acquisition-related expenses | | 7,632 | | | — | |
Income tax(2) | | (1,496) | | | (777) | |
| Non-GAAP net loss | | $ | (30,774) | | | $ | (7,988) | |
| Non-GAAP net loss per share attributable to ordinary shareholders, basic and diluted | | $ | (0.33) | | | $ | (0.09) | |
| | | | |
| Weighted-average shares used to compute net loss per share attributable to ordinary shareholders, basic and diluted | | 92,547,145 | | | 87,207,094 | |
| | | | |
(1) Totals may not sum, due to rounding. Gross margin, operating margin, and earnings per share are calculated based upon the respective underlying, non-rounded data.
(2) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above as well as significant tax adjustments. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities.
Reconciliation of GAAP to Non-GAAP Data
Adjusted Free Cash Flow
(amounts in thousands, except percentages)
(Unaudited)
| | | | | | | | | | | | | | |
| | Year Ended April 30, |
| | 2022 | | 2021 |
| Net cash provided by operating activities | | $ | 5,672 | | | $ | 22,545 | |
| Less: Purchases of property and equipment | | (2,485) | | | (3,912) | |
| Less: Capitalization of internal-use software | | (4,932) | | | (317) | |
| Add: Interest paid on long-term debt | | 12,452 | | | — | |
| Adjusted free cash flow | | $ | 10,707 | | | $ | 18,316 | |
| Net cash used in investing activities | | $ | (127,271) | | | $ | (1,518) | |
| Net cash provided by financing activities | | $ | 602,127 | | | $ | 77,258 | |
| Net cash provided by operating activities (as a percentage of total revenue) | | 1 | % | | 4 | % |
| Less: Purchases of property and equipment (as a percentage of total revenue) | | — | % | | (1) | % |
| Less: Capitalization of internal-use software (as a percentage of total revenue) | | (1) | % | | — | % |
| Add: Interest paid on long-term debt (as a percentage of total revenue) | | 1 | % | | — | % |
| Adjusted free cash flow margin | | 1 | % | | 3 | % |
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.
Non-GAAP Operating Income (Loss) and Non-GAAP Operating Margin
We define non-GAAP operating income (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 income (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.
Non-GAAP Net Loss Per Share
We define non-GAAP net loss per share as GAAP net loss per share, excluding stock-based compensation expense, employer payroll taxes on employee stock transactions, amortization of acquired intangible assets, acquisition-related expenses and the tax effects related to the foregoing. We believe non-GAAP net loss per share provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this metric generally eliminates the effects of certain variables from period to period for reasons unrelated to overall operating performance.
Adjusted Free Cash Flow and Adjusted Free Cash Flow Margin
Adjusted free cash flow is a non-GAAP financial measure that we define as net cash provided by (used in) operating activities adjusted for cash paid for interest less cash used for investing activities for purchases of property and equipment, and capitalized internal-use software costs.
Adjusted free cash flow margin is calculated as adjusted free cash flow divided by total revenue. Adjusted free cash flow does not represent residual cash flow available for discretionary expenditures since, among other things, we have mandatory debt service requirements.