ESTC share counts

Investment Analysis Clubs Saul’s Investing Discussions
1

This information can be found in the amended S-1 that was issued prior to the IPO which was in October 2018.


Shares outstanding prior to IPO: 62,492,729	
IPO shares:                       7,000,000
**TOTAL:                           69,492,729**

HOWEVER:

The number of ordinary shares that will be outstanding after this offering is based on 62,492,729 ordinary shares outstanding as of July 31, 2018, and excludes:

*23,785,510 ordinary shares issuable upon the exercise of options to purchase ordinary shares under our 2012 Plan that were outstanding as of July 31, 2018, with a weighted-average exercise price of $9.48 per share;

*2,075,800 ordinary shares issuable upon the exercise of options to purchase ordinary shares under our 2012 Plan that were granted after July 31, 2018, with a weighted-average exercise price of $23.90 per share, and 155,750 ordinary shares issuable upon the exercise of options to purchase ordinary shares under our 2012 Plan that we expect to grant on the date of this prospectus with an exercise price equal to the initial public offering price;

*244,498 ordinary shares issuable upon satisfaction of a performance-based vesting condition pursuant to restricted stock awards outstanding as of July 31, 2018; and

*10,334,079 ordinary shares available for future issuance under our 2012 Plan, which number will be reduced as a result of the grant of 155,750 options to purchase ordinary shares on the date of this prospectus.

The above information can be found on page 61 of the amended S-1. That’s a lot of shares and the diluted total shares as of the 1/31/2019 Q3 close is shown as 70.725M. There’s a whole of of shares in addition to the ~71M that can flood the market. Specifically, there were close to 24M stock options exercisable as of 7/31/2018 (see table on page F-38 of the amended S-1). Considering that these shares are not counted as part of the 71M shares, we could be seeing the following:

  1. dilution of around 33% in addition to what’s been reported as the outstanding shares
  2. pressure on the share price as the lock up expires

I compared the number of options outstanding for ESTC to those of MDB. ESTC had a bunch more options shares granted (as a percentage) then MDB. I haven’t compared ESTC to any other recently IPOed companies so I’m not sure what par for the course is.

Here’s a link to the S-1A:
https://www.sec.gov/Archives/edgar/data/1707753/000119312518…

Chris

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2

Thanks Chris,

So the 36.44M shares will be released on April 3rd?

Eddie

3

Be careful - management guidance for weighted shares outstanding at the end of next Q and next year is much more in line with normal dilution to 71M shares.

It seems to me that they have large options hangover but if they are employee options maturing over a period of few years and company has plans to reduce dilution by buying back, the impact may not be as large as it looks here.

4

Hi Chris,

IMHO, a hundred million-plus shares (once fully diluted) for a newly public company (in today’s market) doesn’t seem overly excessive. The options pool seems excessive to me, but fully diluted the company is smaller than Twillio & Square and close in size to Zscalar, Okta, The Trade Desk and DocuSign… That’s assuming that all of Elastic’s options are exercised; by the way, I’m sure that each of those companies have a lot of outstanding options.

Regarding the double lockup expiration window, I’m going to make some guesses on how shares work in a newly public company… Someone please correct me if I’m wrong.

I’m pretty sure that once Elastic became public that all “regular employees” were able to buy/sell stock and exercise/sell their options without limitations. The lockup restrictions are normally just placed on “insiders”… Of course, the insiders of a company tend to be the ones with the largest quantity of shares; including the company’s executive team, board members, financial staff and all 10% owners.

Today I took a look at all of the currently available form 4’s filed on the Edgar database and found that only a handful of insiders have sold shares and in the case of the executives they exercised an equal number of options.
See: https://www.sec.gov/cgi-bin/browse-edgar?CIK=estc&owner=…

For eample:
Keven Kluge - SVP Engineering sold approximately 15% of his shares but he exercised an equal amount of options
Aaron Katz - Chief Revenue Officer sold approximately 6% of his shares but exercised an equal amount of options

Several of the 10% holders (including some of the directors) sold larger amounts of their shares as expected because they are institutional investors who helped fund the company. As far as I can tell, some their sales were in excess of 18% of their holding (see above link). I would expect more sales leading into the end of this month and after the next earnings report. The institutions (that helped fund the company) are currently rather large shareholders and will probably exit their positions a gracefully as possible. They may have an effect on the share price but they are very savvy investors and will try to get as much as possible from their sales with as little an impact as possible.

Looking at the current insider sales I would guess that the next lockup expiration will be more of a non event for insiders and regular employees because all already have an ability to sell shares and even the ones with restrictions are currently selling less than they have a right to.

Take care,

VR_Robear
Who notes that exercising employee options for a newly public company can be both exciting and scary as employees learn about both the alternative minimum tax and short term gains taxes.

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