CROWDSTRIKE HOLDINGS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year endedJanuary 31, 2021 , filed with theSEC . Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties as described under the heading Special Note Regarding Forward-Looking Statements following the Table of Contents of this Quarterly Report on Form 10-Q. You should review the disclosure under Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our fiscal year end isJanuary 31 , and our fiscal quarters end onApril 30 ,July 31 ,October 31 , andJanuary 31 . Overview We foundedCrowdStrike in 2011 to reinvent security for the cloud era. When we started the company, cyberattackers had a decided, asymmetric advantage over existing security products. We turned the tables on the adversaries by taking a fundamentally new approach that leverages the network effects of crowdsourced data applied to modern technologies such as AI, cloud computing, and graph databases. Realizing that the nature of cybersecurity problems had changed but the solutions had not, we built our CrowdStrike Falcon platform to detect threats and stop breaches. We believe we are defining a new category called the Security Cloud, with the power to transform the security industry much the same way the cloud has transformed the customer relationship management, human resources, and service management industries. With our Falcon platform, we created the first multi-tenant, cloud native, intelligent security solution capable of protecting workloads across on-premise, virtualized, and cloud-based environments running on a variety of endpoints such as desktops, laptops, servers, virtual machines, cloud workloads, cloud containers, mobile, and IoT devices. Our Falcon platform is composed of two tightly integrated proprietary technologies: our easily deployed intelligent lightweight agent and our cloud-based, dynamic graph database called Threat Graph. Our solution benefits from crowdsourcing and economies of scale, which we believe enables our AI algorithms to be uniquely effective. We call this cloud-scale AI. Our single lightweight agent is installed on each endpoint or the cloud workload host and provides local detection and prevention capabilities while also intelligently collecting and streaming high fidelity data to our platform for real-time decision-making. Our Threat Graph processes, correlates, and analyzes this data in the cloud using a combination of AI and behavioral pattern-matching techniques. By analyzing and correlating information across our massive, crowdsourced dataset, we are able to deploy our AI algorithms at cloud-scale and build a more intelligent, effective solution to detect threats and stop breaches that on-premise or single instance cloud products cannot match. Today, we offer 19 cloud modules via a SaaS subscription-based model that spans multiple large markets, including corporate workload security, security and vulnerability management, managed security services, IT operations management, threat intelligence services, identity protection and log management. InMarch 2020 , theWorld Health Organization declared the COVID-19 outbreak to be a pandemic. Since then, the COVID-19 pandemic has rapidly spread across the globe and has already resulted in significant volatility, uncertainty, and economic disruption. InMarch 2020 , we implemented several measures to help ensure the health and safety of our employees around the globe including restricting all travel and transitioning 100% of our workforce to be remote. In addition, in response to the uncertain macroeconomic environment, we converted all of our marketable securities to cash and cash equivalents during the three months endedApril 30, 2020 , and as ofApril 30, 2021 , all of our investments were classified as cash and cash equivalents. Thus far, the impact of the pandemic has been modest with respect to some customers, particularly in heavily impacted industries, requesting special billing or payment terms. Our gross retention rate for the first quarter of fiscal 2022 remained consistently high and our dollar-based net retention rate once again exceeded 120 percent as we continued to expand module adoption within new and existing customers. We continue to conduct business as usual with modifications to employee travel, employee work locations, customer interactions, and cancellation of certain marketing events, among other things. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers, and stockholders. The extent to which the COVID-19 pandemic may impact our longer-term operational and financial performance remains uncertain. Furthermore, due to our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our results of -------------------------------------------------------------------------------- Table of C ontents operations until future periods, if at all. The extent of the impact of the COVID-19 pandemic will depend on several factors, including the pace of reopening the economy around the world; the possible resurgence in the spread of the virus; the development cycle of therapeutics and vaccines; the impact on our customers and our sales cycles; the impact on our customer, employee, and industry events; and the effect on our vendors. Please see Part II, Item IA, "Risk Factors" in this Quarterly Report on Form 10-Q for a further description of the material risks we currently face, including risks related to the COVID-19 pandemic. OnMarch 5, 2021 , the Company acquired 100% of the equity interest ofHumio Limited ("Humio"), a private company limited by shares incorporated and registered inEngland andWales and a leading provider of high-performance cloud log management and observability technology. The acquisition has been accounted for as a business combination. The total consideration transferred was$369.9 million which consisted of$353.4 million in cash, net of$12.5 million cash acquired, and$4.0 million representing the fair value of replacement equity awards attributable to pre-acquisition service. The purchase price was allocated, on a preliminary basis, to identified intangible assets, which include developed technology, customer relationships and trade names, of$75.6 million , net tangible assets acquired of$3.1 million and goodwill of$291.2 million allocated to the Company's one reporting segment, representing the excess of the purchase price over the fair value of net tangible and intangible assets acquired. The goodwill was primarily attributable to the assembled workforce of Humio, planned growth in new markets and synergies expected to be achieved from the integration of Humio.Goodwill is not deductible for income tax purposes. Our Go-To-Market Strategy We sell subscriptions to our Falcon platform and cloud modules to organizations across multiple industries. We primarily sell subscriptions to our Falcon platform and cloud modules through our direct sales team that leverages our network of channel partners. Our direct sales team is comprised of field sales and inside sales professionalswho are segmented by a customer's number of endpoints. We have a low friction land-and-expand sales strategy. When customers deploy our Falcon platform, they can start with any number of cloud modules and we can activate additional cloud modules in real time on the same agent already deployed on the endpoint. This architecture has also allowed us to begin to offer a free trial of our Falcon Prevent module directly from our website or theAWS Marketplace , and we plan to extend this capability to additional modules in the future. Once customers experience the benefits of our Falcon platform, they often expand their adoption over time by adding more endpoints or purchasing additional modules. We also use our sales team to identify current customerswho may be interested in free trials of additional cloud modules, which serves as a powerful driver of our land-and-expand model. By segmenting our sales teams, we can deploy a low-touch sales model that efficiently identifies prospective customers. We began as a solution for large enterprises, but the flexibility and scalability of our Falcon platform has enabled us to seamlessly offer our solution to customers of any size-from those with hundreds of thousands of endpoints to as few as three. We have expanded our sales focus to include any organization without the need to modify our Falcon platform for small and medium sized businesses. A substantial majority of our customers purchase subscriptions with a term of one year. Our subscriptions are generally priced on a per-endpoint and per-module basis. We recognize revenue from our subscriptions ratably over the term of the subscription. We also generate revenue from our incident response and proactive professional services, which are generally priced on a time and materials basis. We view our professional services business primarily as an opportunity to cross-sell subscriptions to our Falcon platform and cloud modules. Certain Factors Affecting Our Performance Adoption of Our Solutions. We believe our future success depends in large part on the growth in the market for cloud-based SaaS-delivered endpoint security solutions. Many organizations have not yet abandoned the on-premise legacy products in which they have invested substantial personnel and financial resources to design and maintain. As a result, it is difficult to predict customer adoption rates and demand for our cloud-based solutions. New Customer Acquisition. Our future growth depends in large part on our ability to acquire new customers. If our efforts to attract new customers are not successful, our revenue and rate of revenue growth may decline. We believe that our go-to-market strategy and the flexibility and scalability of our Falcon platform allow us to rapidly expand our customer base. Our incident response and proactive services also help drive new customer acquisitions, as many of these professional services customers subsequently purchase subscriptions to our Falcon platform. Many organizations have not yet adopted cloud-based security solutions, and since our Falcon platform has offerings for organizations of all sizes, worldwide, and across industries, we believe this presents a significant opportunity for growth. -------------------------------------------------------------------------------- Table of C ontents Maintain Customer Retention and Increase Sales. Our ability to increase revenue depends in large part on our ability to retain our existing customers and increase the ARR of their subscriptions. We focus on increasing sales to our existing customers by expanding their deployments to more endpoints and selling additional cloud modules for increased functionality. Over time we have transitioned our platform from a single offering into highly-integrated offerings of multiple SKU cloud modules. We initially launched this strategy with our IT hygiene, next-generation antivirus, EDR, managed threat hunting, and intelligence modules. We currently have 19 cloud modules that span multiple large markets. Invest in Growth. We believe that our market opportunity is large and requires us to continue to invest significantly in sales and marketing efforts to further grow our customer base, both domestically and internationally. Our open cloud architecture and single data model have allowed us to rapidly build and deploy new cloud modules, and we expect to continue investing in those efforts to further enhance our technology platform and product functionality. In addition to our ongoing investment in research and development, we may also pursue acquisitions of businesses, technologies, and assets that complement and expand the functionality of our Falcon platform, add to our technology or security expertise, or bolster our leadership position by gaining access to new customers or markets. Furthermore, we expect our general and administrative expenses to increase in dollar amount for the foreseeable future given the additional expenses for accounting, compliance, and investor relations as we grow as a public company. Key Metrics We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions. Subscription Customers We define a subscription customer as a separate legal entity that has entered into a distinct subscription agreement for access to Falcon platform for which the term has not ended or with which we are negotiating a renewal contract. We do not consider our channel partners as customers, and we treat managed service security providers,who may purchase our products on behalf of multiple companies, as a single customer. While initially we focused our sales and marketing efforts on large enterprises, in recent years we have also increased our sales and marketing to small and medium sized businesses. The following table sets forth the number of our subscription customers as of the dates presented: As of April 30, 2021 2020 Subscription customers 11,420 6,261 Year-over-year growth 82 % 105 % We added 1,524 net new subscription customers in the three months endedApril 30, 2021 , including 119 from the acquisition of Humio, for a total of 11,420 subscription customers as ofApril 30, 2021 , representing 82% growth year-over-year. Annual Recurring Revenue ("ARR")ARR is calculated as the annualized value of our customer subscription contracts as of the measurement date, assuming any contract that expires during the next 12 months is renewed on its existing terms. To the extent that we are negotiating a renewal with a customer after the expiration of the subscription, we continue to include that revenue in ARR if we are actively in discussion with such an organization for a new subscription or renewal, or until such organization notifies us that it is not renewing its subscription. The following table sets forth our ARR as of the dates presented: As of April 30, 2021 2020 (dollars in thousands) Annual recurring revenue$ 1,193,889 $ 686,125 Year-over-year growth 74 % 88 % ARR grew to$1.2 billion as ofApril 30, 2021 , of which$143.8 million was net new ARR added in the three months endedApril 30, 2021 , including$3.6 million from the acquisition of Humio. -------------------------------------------------------------------------------- Table of C ontents Dollar-Based Net Retention Rate Our dollar-based net retention rate compares our ARR from a set of subscription customers against the same metric for those subscription customers from the prior year. Our dollar-based net retention rate reflects customer renewals, expansion, contraction, and churn, and excludes revenue from our incident response and proactive services. We calculate our dollar-based net retention rate as of period end by starting with the ARR from all subscription customers as of 12 months prior to such period end, or Prior Period ARR. We then calculate the ARR from these same subscription customers as of the current period end, or Current Period ARR. Current Period ARR includes any expansion and is net of contraction or churn over the trailing 12 months but excludes revenue from new subscription customers in the current period. We then divide the Current Period ARR by the Prior Period ARR to arrive at our dollar-based net retention rate. SinceJanuary 2016 , our dollar-based net retention rate has consistently exceeded 100% which is primarily attributable to an expansion of endpoints within, and cross-selling additional cloud modules to, our existing subscription customers. Our dollar-based net retention rate can fluctuate from period to period due to large customer contracts in a given period, which may reduce our dollar-based net retention rate in subsequent periods if the customer makes a larger upfront purchase and does not continue to increase purchases. Our dollar-based net retention rate has varied from quarter to quarter due to a number of factors and we expect that trend to continue. In addition, we have seen strong success with our strategy to land bigger deals with more modules, and we are also seeing an acceleration in our acquisition of new customers. While we view these two trends as positive developments, they have a natural trade off on our ability to expand business with existing customers in the near term. Components of Our Results of Operations
Revenue
Subscription Revenue. Subscription revenue primarily consists of subscription fees for our Falcon platform and additional cloud modules that are supported by our cloud-based platform. Subscription revenue is driven primarily by the number of subscription customers, the number of endpoints per customer, and the number of cloud modules included in the subscription. We recognize subscription revenue ratably over the term of the agreement, which is generally one to three years. Because the majority of our subscription customers are billed upfront, we have recorded significant deferred revenue. Consequently, a substantial portion of the revenue that we report in each period is attributable to the recognition of deferred revenue relating to subscriptions that we entered into during previous periods. The majority of our customers are invoiced annually in advance or multi-year in advance. Professional Services Revenue. Professional services revenue includes incident response and proactive services, forensic and malware analysis, and attribution analysis. Professional services are generally sold separately from subscriptions to our Falcon platform, although customers frequently enter into a separate arrangement to purchase subscriptions to our Falcon platform at the conclusion of a professional services arrangement. Professional services are available through hourly rate and fixed fee contracts, one-time and ongoing engagements, and retainer-based agreements. For time and materials and retainer-based arrangements, revenue is recognized as services are performed. For fixed fee contracts, we recognize revenue by applying the proportional performance method. Cost of Revenue Subscription Cost of Revenue. Subscription cost of revenue consists primarily of costs related to hosting our cloud-based Falcon platform in data centers, amortization of our capitalized internal-use software, employee-related costs such as salaries and bonuses, stock-based compensation expense, benefits costs associated with our operations and support personnel, software license fees, property and equipment depreciation, amortization of acquired intangibles, and an allocated portion of facilities and administrative costs. As new customers subscribe to our platform and existing subscription customers increase the number of endpoints on our Falcon platform, our cost of revenue will increase due to greater cloud hosting costs related to powering new cloud modules and the incremental costs for storing additional data collected for such cloud modules and employee-related costs. We intend to continue to invest additional resources in our cloud platform and our customer support organizations as we grow our business. The level and timing of investment in these areas could affect our cost of revenue in the future. -------------------------------------------------------------------------------- Table of C ontents Professional Services Cost of Revenue. Professional services cost of revenue consists primarily of employee-related costs, such as salaries and bonuses, stock-based compensation expense, technology, property and equipment depreciation, and an allocated portion of facilities and administrative costs. Gross Profit and Gross Margin Gross profit and gross margin have been and will continue to be affected by various factors, including the timing of our acquisition of new subscription customers, renewals from existing subscription customers, sales of additional modules to existing subscription customers, the data center and bandwidth costs associated with operating our cloud platform, the extent to which we expand our customer support and cloud operations organizations, and the extent to which we can increase the efficiency of our technology, infrastructure, and data centers through technological improvements. We expect our gross profit to increase in dollar amount and our gross margin to increase modestly over the long term, although our gross margin could fluctuate from period to period depending on the interplay of these factors. Demand for our incident response services is driven by the number of breaches experienced by non-customers. Also, we view our professional services solutions in the context of our larger business and as a significant lead generator for new subscriptions. Because of these factors, our services revenue and gross margin may fluctuate over time. Operating Expenses Our operating expenses consist of sales and marketing, research and development and general administrative expenses. For each of these categories of expense, employee-related expenses are the most significant component, which include salaries, employee bonuses, sales commissions, and employer payroll tax. Operating expenses also include an allocated portion of overhead costs for facilities and IT. Sales and Marketing. Sales and marketing expenses primarily consist of employee-related expenses such as salaries, commissions, and bonuses. Sales and marketing expenses also include stock-based compensation; expenses related to our Fal.Con customer conference and other marketing events; an allocated portion of facilities and administrative expenses; amortization of acquired intangibles, and cloud hosting and related services costs related to proof of value efforts. We capitalize and amortize sales commissions and any other incremental payments made upon the initial acquisition of a subscription or upsells to existing customers to sales and marketing expense over the estimated customer life, and amortize any such expenses paid for the renewal of a subscription to sales and marketing expense over the term of the renewal. We expect sales and marketing expenses to increase in dollar amount as we continue to make significant investments in our sales and marketing organization to drive additional revenue, further penetrate the market, and expand our global customer base. However, we anticipate sales and marketing expenses to decrease as a percentage of our total revenue over time, although our sales and marketing expenses may fluctuate as a percentage of our total revenue from period-to-period depending on the timing of these expenses. Research and Development. Research and development expenses primarily consist of employee-related expenses such as salaries and bonuses; stock-based compensation, consulting expenses related to the design; development, testing, and enhancements of our subscription services; and an allocated portion of facilities and administrative expenses. Our cloud platform is software-driven, and our research and development teams employ software engineers in the design, and the related development, testing, certification, and support of these solutions. We expect research and development expenses to increase in dollar amount as we continue to increase investments in our technology architecture and software platform. However, we anticipate research and development expenses to decrease as a percentage of our total revenue over time, although our research and development expenses may fluctuate as a percentage of our total revenue from period-to-period depending on the timing of these expenses. General and Administrative. General and administrative expenses consist of employee-related expenses such as salaries and bonuses; stock-based compensation; and related expenses for our executive, finance, human resources, and legal organizations. In addition, general and administrative expenses include outside legal, accounting, and other professional fees; and an allocated portion of facilities and administrative expenses. As a public company, we expect general and administrative expenses to increase in dollar amount over time. However, we anticipate general and administrative expenses to decrease as a percentage of our total revenue over time although our general and administrative expenses may fluctuate as a percentage of our total revenue from period-to-period depending on the timing of these expenses. -------------------------------------------------------------------------------- Table of C ontents Interest Expense: Interest Expense consists primarily of interest expense from amortization of debt issuance costs, contractual interest expense for our Senior Notes issued inJanuary 2021 , and interest expense on our secured revolving credit facility. We expect interest expense to increase in fiscal 2022 as a result of the issuance of our Senior Notes. Other Income (Expense), Net. Other income (expense), net, consists primarily of income earned on our cash equivalents and marketable securities, if any; gain (loss) on strategic investments and foreign currency transaction gains and losses. Provision for Income Taxes. Provision for income taxes consists of state income taxes inthe United States , foreign income taxes including taxes related to the intercompany sale of intellectual property from Humio and withholding taxes related to customer payments in certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on ourU.S. federal and state andUK deferred tax assets that we have determined are not realizable on a more likely than not basis. Net Income Attributable to Non-controlling Interest. Net income attributable to non-controlling interest consists ofFalcon Fund's non-controlling interest share of mark-to-market gains from our strategic investments. Results of Operations
The following tables set forth our condensed consolidated statements of operations for each period presented:
Three Months Ended April 30, Change Change
2021 2020 $ %
(in thousands)
Revenue
Subscription $ 281,228 $ 162,222 $ 119,006 73 %
Professional services 21,615 15,856 5,759 36 %
Total revenue 302,843 178,078 124,765 70 %
Cost of revenue
Subscription (1) (2) 64,903 37,244 27,659 74 %
Professional services (1) 13,602 9,651 3,951 41 %
Total cost of revenue 78,505 46,895 31,610 67 %
Gross profit 224,338 131,183 93,155 71 %
Operating expenses
Sales and marketing (1) (2) 135,131 88,138 46,993 53 %
Research and development (1) (2) 78,180 40,578 37,602 93 %
General and administrative (1) (3) 42,374 25,043 17,331 69 %
Total operating expenses 255,685 153,759 101,926 66 %
Loss from operations (31,347) (22,576) (8,771) 39 %
Interest expense (4) (6,230) (143) (6,087) 4,257 %
Other income, net(5) 4,768 4,533 235 5 %
Loss before provision for income taxes (32,809) (18,186) (14,623) 80 %
Provision for income taxes 50,062 1,036 49,026 4,732 %
Net loss (82,871) (19,222) (63,649) 331 %
Net income attributable to noncontrolling interest 2,178 - 2,178 100%
Net loss attributable to CrowdStrike $ (85,049) $ (19,222) $ (65,827) 342 %
___________________________________________
--------------------------------------------------------------------------------
Table of C ontents
(1)Includes stock-based compensation expense as follows:
Three Months Ended April 30,
2021 2020
(in thousands)
Subscription cost of revenue $ 4,285 $ 1,995
Professional services cost of revenue 2,028 971
Sales and marketing 17,414 8,687
Research and development 17,801 4,900
General and administrative 12,834 7,085
Total stock-based compensation expense $ 54,362 (2)Includes amortization of acquired intangible assets as follows:
Three Months Ended April 30,
2021 2020
(in thousands)
Subscription cost of revenue $ 1,995 $ 62
Sales and marketing 422 31
Research and development - 10
Total amortization of purchased intangibles $
2,417
(3)Includes acquisition-related expenses as follows:
Three Months Ended April 30,
2021 2020
(in thousands)
General and administrative $ 4,345 $ -
Total acquisition-related expenses $ 4,345 $ -
(4)Includes amortization of debt issuance costs and discount as follows:
Three Months Ended
2021 2020
(in thousands)
Interest expense $ 547 $ -
Total amortization of debt issuance costs and discount $ 547 $ -
(5)Includes gains from strategic investments as follows:
Three Months Ended April 30,
2021 2020
(in thousands)
Other income, net $ 4,356 $ -
Total gains from strategic investments $ 4,356 $ -
--------------------------------------------------------------------------------
Table of C ontents The following table presents the components of our condensed consolidated statements of operations as a percentage of total revenue for the periods presented:
Three Months Ended
2021 2020
%
Revenue
Subscription 93 % 91 %
Professional services 7 % 9 %
Total revenue 100 % 100 %
Cost of revenue
Subscription 21 % 21 %
Professional services 4 % 5 %
Total cost of revenue 26 % 26 %
Gross profit 74 % 74 %
Operating expenses
Sales and marketing 45 % 49 %
Research and development 26 % 23 %
General and administrative 14 % 14 %
Total operating expenses 84 % 86 %
Loss from operations (10) % (13) %
Interest expense (2) % - %
Other income, net 2 % 3 %
Loss before provision for income taxes (11) % (10) %
Provision for income taxes 17 % 1 %
Net loss (27) % (11) %
Net income attributable to noncontrolling interest 1 % N/A
Net loss attributable to CrowdStrike (28) % (11) %
Comparison of the Three Months Ended April 30, 2021 and 2020
Revenue
The following shows total revenue from subscriptions and professional services
for the three months ended April 30, 2021 as compared to the three months ended
April 30, 2020 :
Three Months Ended April 30, Change Change
2021 2020 $ %
(in thousands)
Subscription $ 281,228 $ 162,222 $ 119,006 73 %
Professional services 21,615 15,856 5,759 36 %
Total revenue $ 302,843 $ 178,078 $ 124,765 70 %
Total revenue increased by $124.8 million , or 70%, for the three months ended
April 30, 2021 , compared to the three months ended April 30, 2020 . Subscription
revenue accounted for 93% of our total revenue for the three months ended
April 30, 2021 , and 91% of our total revenue for the three months ended
April 30, 2020 . Professional services revenue accounted for 7% of our total
revenue for the three months ended April 30, 2021 , and 9% of our total revenue
for the three months ended April 30, 2020 .
--------------------------------------------------------------------------------
Table of C ontents
Subscription revenue increased by $119.0 million , or 73%, for the three months
ended April 30, 2021 , compared to the three months ended April 30, 2020 . This
increase was primarily attributable to the addition of new subscription
customers, as we increased our customer base by 82% from 6,261 subscription
customers as of April 30, 2020 to 11,420 subscription customers as of April 30,
2021 . Subscription revenue from new customers, subscription revenue from the
renewal of existing customers, and subscription revenue from the sale of
additional endpoints and additional modules to existing customers accounted for
34%, 40%, and 25% of total subscription revenue for the three months ended
April 30, 2021 , respectively. Subscription revenue from new customers,
subscription revenue from the renewal of existing customers, and subscription
revenue from the sale of additional endpoints and additional modules to existing
customers accounted for 33%, 35%, and 32% of total subscription revenue for the
three months ended April 30, 2020 , respectively.
Professional services revenue increased by $5.8 million , or 36%, for the
three months ended April 30, 2021 , compared to the three months ended April 30,
2020 , which was primarily attributable to an increase in the number of
professional service hours performed.
Cost of Revenue, Gross Profit, and Gross Margin
The following shows cost of revenue related to subscriptions and professional
services for the three months ended April 30, 2021 as compared to the
three months ended April 30, 2020 :
Three Months Ended April 30, Change Change
2021 2020 $ %
(in thousands)
Subscription $ 64,903 $ 37,244 $ 27,659 74 %
Professional services 13,602 9,651 3,951 41 %
Total cost of revenue $ 78,505 $ 46,895 $ 31,610 67 %
Total cost of revenue increased by $31.6 million , or 67%, for the three months
ended April 30, 2021 , compared to the three months ended April 30, 2020 .
Subscription cost of revenue increased by $27.7 million , or 74%, for the
three months ended April 30, 2021 , compared to the three months ended April 30,
2020 . The increase in subscription cost of revenue was primarily due to an
increase in cloud hosting and related services of $9.6 million driven by
increased customer activity, an increase in employee-related expenses of $9.5
million driven by a 64% increase in average headcount, an increase in
stock-based compensation expense of $2.3 million , an increase in depreciation of
data center equipment of $2.1 million , an increase in amortization of intangible
assets of $1.9 million , and an increase in allocated overhead costs of $1.1
million .
Professional services cost of revenue increased by $4.0 million , or 41%, for the
three months ended April 30, 2021 , compared to the three months ended April 30,
2020 . The increase in professional services cost of revenue was primarily due to
an increase in employee-related expenses of $2.5 million driven by an increase
in average headcount of 44% and an increase in stock-based compensation expense
of $1.1 million .
The following shows gross profit and gross margin for subscriptions and
professional services for the three months ended April 30, 2021 as compared to
the three months ended April 30, 2020 :
Three Months Ended April 30, Change Change
2021 2020 $ %
(in thousands)
Subscription gross profit $ 216,325 $ 124,978 $ 91,347 73 %
Professional services gross profit 8,013 6,205 1,808 29 %
Total gross profit $ 224,338 $ 131,183 $ 93,155 71 %
Three Months Ended April 30, Change
2021 2020 %
Subscription gross margin 77 % 77 % 0 %
Professional services gross margin 37 % 39 % (2) %
Total gross margin 74 % 74 % 0 %
--------------------------------------------------------------------------------
Table of C ontents Subscription gross margin was relatively flat for the three months endedApril 30, 2021 , compared to the three months endedApril 30, 2020 . This was a result of continuing to shift more of our operations from third-party cloud service providers to colocation data centers, continued optimization of our software development and our cloud database systems and continued expansion of module adoption by our customer base. The above were offset by higher intangibles amortization resulted from acquisitions and higher stock-based compensation expense. As ofApril 30, 2021 , 64% of our customer base had adopted four or more modules, 50% of our customer base had adopted five or more modules and 27% of our customer base had adopted six or more modules. As ofApril 30, 2020 , 55% of our customer base had adopted four or more modules, 36% of our customer base had adopted five or more modules and 16% of our customer base had adopted six or more modules. Professional services gross margin decreased by 2% for the three months endedApril 30, 2021 , compared to the three months endedApril 30, 2020 . The decrease in professional services gross margin resulted from a decrease in utilization due to ramp up time required for additional headcount added during the three months endedApril 30, 2021 compared to the three months endedApril 30, 2020 . Operating Expenses Sales and Marketing The following shows sales and marketing expenses for the three months endedApril 30, 2021 as compared to the three months endedApril 30, 2020 : Three Months Ended April 30, Change Change 2021 2020 $ % (in thousands) Sales and marketing expenses$ 135,131 $ 88,138
Sales and marketing expenses increased by$47.0 million , or 53%, for the three months endedApril 30, 2021 , compared to the three months endedApril 30, 2020 . The increase in sales and marketing expenses was primarily due to an increase in employee-related expenses of$28.0 million driven by an increase in sales and marketing average headcount of 35%, an increase in stock-based compensation of$8.7 million , an increase in marketing programs of$8.1 million , an increase in allocated overhead costs of$1.5 million , partially offset by a decrease in company events expenses of$2.8 million , and a decrease in travel-related costs of$1.3 million due to the fact that, as a result of the COVID-19 pandemic, a majority of our workforce was working remotely and incurred limited travel costs since fiscal 2021. Research and Development The following shows research and development expenses for the three months endedApril 30, 2021 as compared to the three months endedApril 30, 2020 : Three Months Ended April 30, Change Change 2021 2020 $ % (in thousands)
Research and development expenses
93 %
Research and development expenses increased by $37.6 million , or 93%, for the
three months ended April 30, 2021 , compared to the three months ended April 30,
2020 . This increase was primarily due to an increase in employee-related
expenses of $20.7 million driven by an increase in research and development
average headcount of 66%, an increase in stock-based compensation of $12.9
million , an increase in allocated overhead costs of $1.9 million , and an
increase in cloud hosting and related costs of $1.6 million .
General and Administrative
The following shows general and administrative expenses for the three months
ended April 30, 2021 as compared to the three months ended April 30, 2020 :
Three Months Ended April 30, Change Change
2021 2020 $ %
(in thousands)
General and administrative expenses
69 %
--------------------------------------------------------------------------------
Table of C ontents
General and administrative expenses increased by $17.3 million , or 69%, for the
three months ended April 30, 2021 , compared to the three months ended April 30,
2020 . The increase in general and administrative expenses was primarily due to
an increase in stock-based compensation expense of $5.7 million , an increase in
consulting expense of $5.0 million primarily due to acquisition related
expenses, an increase in employee-related expenses of $4.6 million driven by an
increase in general and administrative average headcount of 42%, and an increase
in allocated overhead costs of $0.5 million .
Interest Expense and Other Income, Net
The following shows Interest expense and Other income, net, for the three months
ended April 30, 2021 as compared to the three months ended April 30, 2020 :
Three Months Ended April 30, Change Change
2021 2020 $ %
(in thousands)
Interest expense $ (6,230) $ (143) $ (6,087) 4,257 %
Other income, net $ 4,768 $ 4,533 $ 235 5 %
Interest expense consists primarily of interest expense from the amortization of
debt issuance costs, contractual interest expense and accretion of debt discount
for our Senior Notes issued in January 2021 .
The change in other income, net, for the three months ended April 30, 2021
compared to the three months ended April 30, 2020 , was primarily due to the fair
value adjustments for our strategic investments, offset by the lower interest
income earned on our cash, cash equivalents and investments.
Provision for Income Taxes
The following shows the provision for income taxes for the three months ended
April 30, 2021 as compared to the three months ended April 30, 2020 :
Three Months Ended April 30, Change Change
2021 2020 $ %
(in thousands)
Provision for income taxes $ 50,062 $ 1,036 $ 49,026 4,732 %
The increase in provision for income taxes of $49.0 million during the three
months ended April 30, 2021 compared to the three months ended April 30, 2020
was primarily driven by $48.8 million from the intercompany sale of intellectual
property from Humio.
Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. generally accepted
accounting principles, or GAAP, we believe the following non-GAAP measures are
useful in evaluating our operating performance. We use the following non-GAAP
financial information to evaluate our ongoing operations and for internal
planning and forecasting purposes. We believe that non-GAAP financial measures,
may be helpful to investors because such measures provide consistency and
comparability with past financial performance and, when taken together with the
corresponding GAAP financial measures, provide meaningful supplemental
information regarding our performance by excluding certain items that may not be
indicative of our business, results of operations, or outlook. 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 GAAP.
In particular, free cash flow is not a substitute for cash used in operating
activities. Additionally, the utility of free cash flow as a measure of our
financial performance and liquidity is further limited as it does not represent
the total increase or decrease in our cash balance for a given period. In
addition, other companies, including companies in our industry, may calculate
similarly-titled non-GAAP measures differently or may use other measures to
evaluate their performance, all of which could reduce the usefulness of our
non-GAAP financial measures as tools for comparison. A reconciliation is
provided below for each non-GAAP financial measure to the most directly
comparable financial measure stated in accordance with GAAP. Investors are
encouraged to review the related GAAP financial measures and the reconciliation
of these non-GAAP financial measures to their most directly comparable GAAP
financial measures and not rely on any single financial measure to evaluate our
business.
--------------------------------------------------------------------------------
Table of C ontents
Non-GAAP Subscription Gross Profit and Non-GAAP Subscription Gross Margin
We define non-GAAP subscription gross profit and non-GAAP subscription gross
margin as GAAP subscription gross profit and GAAP subscription gross margin,
respectively, excluding stock-based compensation expense and amortization of
acquired intangible assets. We believe non-GAAP subscription gross profit and
non-GAAP subscription 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 measures eliminate the
effects of certain variables unrelated to our overall operating performance.
The following table presents a reconciliation of our non-GAAP subscription gross
profit to our GAAP subscription gross profit and of our non-GAAP subscription
gross margin to our GAAP subscription gross margin as of the periods presented:
Three Months Ended April 30,
2021 2020
(dollars in thousands)
GAAP subscription revenue $ 281,228 $ 162,222
GAAP subscription gross profit $ 216,325 $ 124,978
Add: Stock-based compensation expense 4,285 1,995
Add: Amortization of acquired intangible assets 1,995 62
Non-GAAP subscription gross profit $ 222,605 $ 127,035
GAAP subscription gross margin 77 % 77 %
Non-GAAP subscription gross margin 79 % 78 %
Non-GAAP Income from Operations and Non-GAAP Operating Margin
We define non-GAAP income from operations and non-GAAP operating margin as GAAP
loss from operations and GAAP operating margin, respectively, excluding
stock-based compensation expense, amortization of acquired intangible assets,
and acquisition-related expenses. We believe non-GAAP income from operations 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 unrelated to our overall operating performance.
The following table presents a reconciliation of our non-GAAP income from
operations to our GAAP loss from operations and our non-GAAP operating margin to
our GAAP operating margin as of the periods presented:
Three Months Ended
2021 2020
(dollars in thousands)
GAAP total revenue $ 302,843 $ 178,078
GAAP loss from operations $ (31,347) $ (22,576)
Add: Stock-based compensation expense 54,362 23,638
Add: Amortization of acquired intangible assets 2,417 103
Add: Acquisition-related expenses 4,345 -
Non-GAAP income from operations $ 29,777 $ 1,165
GAAP operating margin (10) % (13) %
Non-GAAP operating margin 10 % 1 %
--------------------------------------------------------------------------------
Table of C ontents
Free Cash Flow and Free Cash Flow Margin
Free cash flow is a non-GAAP financial measure that we define as net cash
provided by (used in) operating activities less purchases of property and
equipment and capitalized internal-use software and website development. Free
cash flow margin is calculated as free cash flow divided by total revenue. We
believe that free cash flow and free cash flow margin are useful indicators of
liquidity that provide useful information to management and investors about the
amount of cash consumed by our operating activities that is therefore not
available to be used for other strategic initiatives. One limitation of free
cash flow and free cash flow margin is that they do not reflect our future
contractual commitments. Additionally, free cash flow does not represent the
total increase or decrease in our cash balance for a given period. In addition,
other companies may calculate free cash flow differently or not at all, which
reduces the usefulness of free cash flow as a tool for comparison.
The following table presents a reconciliation of free cash flow and free cash
flow margin to net cash provided by (used in) operating activities:
Three Months Ended April 30,
2021 2020
(dollars in thousands)
GAAP total revenue $ 302,843 $ 178,078
GAAP net cash provided by operating activities 147,533 98,577
Less: Purchases of property and equipment (25,796) (9,694)
Less: Capitalized internal-use software and website development (4,434)
(1,882)
Free cash flow $ 117,303 $ 87,001 GAAP net cash (used in) provided by investing activities
$ 2,609 $ 6,893
GAAP net cash provided by operating activities as a percentage of revenue
49 % 55 %
Less: Purchases of property and equipment as a percentage of revenue
(9) % (5) %
Less: Capitalized internal-use software and website development
as a percentage of revenue (1) % (1) %
Free cash flow margin 39 % 49 %
Liquidity and Capital Resources
In January 2021 , we issued and sold an aggregate principal amount of $750.0
million of 3.000% Senior Notes due 2029. The net proceeds from the debt offering
were $738.0 million after deducting the underwriting commissions of $9.4 million
and $2.6 million of issuance costs, which were paid as of April 30, 2021 .
In January 2021 , we amended and restated our existing senior secured revolving
credit facility and increased the size of the credit facility from $150.0
million to $750.0 million , including a letter of credit sub-facility in the
aggregate amount of $100.0 million , and a swingline sub-facility in the
aggregate amount of $50.0 million . No amounts were outstanding under the credit
facility as of April 30, 2021 .
As of April 30, 2021 , we had cash and cash equivalents, consisting of highly
liquid money market funds, of $1.7 billion . During the first quarter of fiscal
2021, we liquidated our entire portfolio of marketable securities largely in
response to the global economic uncertainty in conjunction with the COVID-19
pandemic. This resulted in the recognition of a realized gain of $1.3 million
during the three months ended April 30, 2020 . We expect that our existing cash
and cash equivalents will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
Since our inception, we have generated operating losses, as reflected in our
accumulated deficit of $815.2 million as of April 30, 2021 . We expect to
continue to incur operating losses for the foreseeable future due to the
investments we intend to continue to make, particularly in sales and marketing
and research and development. As a result, we may require additional capital
resources in the future to execute strategic initiatives to grow our business.
--------------------------------------------------------------------------------
Table of C ontents
We typically invoice our subscription customers annually in advance. Therefore,
a substantial source of our cash is from such prepayments, which are included on
our condensed consolidated balance sheets as deferred revenue. Deferred revenue
primarily consists of billed fees for our subscriptions, prior to satisfying the
criteria for revenue recognition, which are subsequently recognized as revenue
in accordance with our revenue recognition policy. As of April 30, 2021 , we had
deferred revenue of $1.0 billion , of which $786.8 million was recorded as a
current liability and is expected to be recorded as revenue in the next
12 months, provided all other revenue recognition criteria have been met.
Cash Flows
The following table summarizes our cash flows for the periods presented:
Three Months Ended April 30,
2021 2020
(in thousands)
Net cash provided by operating activities $ 147,533 $ 98,577
Net cash (used in) provided by investing activities (384,946) 634,711
Net cash provided by financing activities 2,609 6,893
Operating Activities
Net cash provided by operating activities during the three months ended
April 30, 2021 was $147.5 million , which resulted from a net loss of $82.9
million , adjusted for non-cash charges of $91.8 million and net cash inflow of
$138.6 million from changes in operating assets and liabilities. Non-cash
charges primarily consisted of $54.4 million in stock-based compensation
expense, $24.4 million of amortization of deferred contract acquisition costs,
$12.0 million of depreciation and amortization, $2.4 million of amortization for
intangibles assets and $2.2 million of non-cash operating lease costs, offset by
$4.4 million change in fair value of strategic investments. The net cash inflow
from changes in operating assets and liabilities was primarily due to a $109.4
million increase in deferred revenue, a $31.5 million decrease in accounts
receivable, a $29.2 million increase in accrued expenses and other current
liabilities, a $12.8 million increase in other liabilities, and a $6.0 million
increase in accrued payroll and benefits, partially offset by $36.4 million
increase in deferred contract acquisition costs, a $10.6 million decrease in
accounts payable, a $6.0 million increase in prepaid expenses and other assets
and a $2.6 million decrease from operating lease liabilities.
Net cash provided by operating activities during the three months ended
April 30, 2020 was $98.6 million , which resulted from a net loss of $19.2
million , adjusted for non-cash charges of $47.2 million and net cash inflow of
$70.6 million from changes in operating assets and liabilities. Non-cash charges
primarily consisted of $23.6 million in stock-based compensation expense, $13.5
million of amortization of deferred contract acquisition costs, and $8.2 million
of depreciation and amortization. The net cash inflow from changes in operating
assets and liabilities was primarily due to a $64.8 million increase in deferred
revenue and a $20.7 million decrease in accounts receivable, partially offset by
a $22.6 million increase in deferred contract acquisition costs.
Investing Activities
Net cash used in investing activities during the three months ended April 30,
2021 of $384.9 million was primarily due to the acquisition of Humio, net of
cash acquired, of $353.4 million , purchases of property and equipment of $25.8
million and capitalized internal-use software and website development of $4.4
million .
Net cash used in investing activities during the three months ended April 30,
2020 of $634.7 million was primarily due to the sale of marketable securities of
$639.6 million and the maturities of marketable securities of $91.6 million ,
partially offset by purchases of marketable securities of $84.9 million and
purchases of property and equipment of $9.7 million .
Financing Activities
Net cash provided by financing activities of $2.6 million during the three
months ended April 30, 2021 was primarily due to proceeds from the exercise of
stock options of $3.8 million , offset by $1.6 million of debt issuance costs
paid during the three months ended April 30, 2021 .
--------------------------------------------------------------------------------
Table of C ontents
Net cash provided by financing activities of $6.9 million during the three
months ended April 30, 2020 was primarily due to proceeds from the exercise of
stock options of $6.4 million .
Debt Obligations
Revolving Credit Facility
In April 2019 , we entered into a credit agreement with Silicon Valley Bank and
other lenders, to provide a revolving line of credit of up to $150.0 million ,
including a letter of credit sub-facility in the aggregate amount of $10.0
million , and a swingline sub-facility in the aggregate amount of $10.0 million .
On January 4, 2021 , we amended and restated our existing credit agreement (the
"A&R Credit Agreement" and the facility thereunder the "Revolving Facility")
among CrowdStrike, Inc. , as borrower, CrowdStrike Holdings, Inc. , as guarantor,
and Silicon Valley Bank and the other lenders party thereto, providing us with a
revolving line of credit of up to $750.0 million , including a letter of credit
sub-facility in the aggregate amount of $100.0 million , and a swingline
sub-facility in the aggregate amount of $50.0 million . We also have the option
to request an incremental facility of up to an additional $250.0 million from
one or more of the lenders under the A&R Credit Agreement. The A&R Credit
Agreement is guaranteed by all of our material domestic subsidiaries. The A&R
Credit Agreement extended the maturity date of April 19, 2022 to January 2,
2026 . Under the A&R Credit Agreement, revolving loans may be either Eurodollar
Loans or Alternate Base Rate ("ABR") Loans. Outstanding Eurodollar Loans incur
interest at the Eurodollar Rate, which is defined as LIBOR (or any successor
thereto), subject to a 0.00% LIBOR floor, plus a margin between 1.50% and 2.00%,
depending on our senior secured leverage ratio. Outstanding ABR Loans incur
interest at the highest of (a) the Prime Rate, as published by the Wall Street
Journal , (b) the federal funds rate in effect for such day plus 0.50%, and (c)
the Eurodollar Rate plus 1.00%, in each case plus a margin between (0.25%) and
0.25%, depending on the senior secured leverage ratio. We will be charged a
commitment fee of 0.15% to 0.25% per year for committed but unused amounts,
depending on the senior secured leverage ratio. The financial covenants require
us to maintain a minimum consolidated interest coverage ratio of 3.00:1.00, a
maximum senior secured leverage ratio of 3.00:1.00 (through January 31, 2023 ),
and a maximum total leverage ratio of 5.50:1.00 stepping down to 3.50:1.00 over
time. We were in compliance with the financial covenants as of April 30, 2021 .
The A&R Credit Agreement is secured by substantially all of our current and
future consolidated assets, property and rights, including, but not limited to,
intellectual property, cash, goods, equipment, contractual rights, financial
assets, and intangible assets of us and certain of our subsidiaries. The A&R
Credit Agreement contains customary covenants limiting our ability and the
ability of our subsidiaries to, among other things, dispose of assets, undergo a
change in control, merge or consolidate, make acquisitions, incur debt, incur
liens, pay dividends, repurchase stock, and make investments, in each case
subject to certain exceptions.
No amounts were outstanding under the Credit Agreement as of April 30, 2021 .
Senior Notes
On January 20, 2021 , we issued $750.0 million aggregate principal amount of
3.00% Senior Notes maturing in February 2029 . The Senior Notes are guaranteed by
our subsidiary, CrowdStrike, Inc. and will be guaranteed by each of our existing
and future domestic subsidiaries that becomes a borrower or guarantor under our
A&R Credit Agreement. The Senior Notes were issued at par and bear interest at a
rate of 3.00% per annum. Interest payments are payable semiannually on February
15 and August 15 of each year, commencing on August 15, 2021 . We may voluntarily
redeem the Senior Notes, in whole or in part, 1) at any time prior to February
15, 2024 at (a) 100.00% of their principal amount, plus a "make whole" premium
or (b) with the net cash proceeds received from an equity offering at a
redemption price equal to 103.00% of the principal amount, provided the
aggregate principal amount of all such redemptions does not exceed 40% of the
original aggregate principal amount of the Senior Notes; 2) at any time on or
after February 15, 2024 at a prepayment price equal to 101.50% of the principal
amount; 3) at any time on or after February 15, 2025 at a prepayment price equal
to 100.75% of the principal amount; and 4) at any time on or after February 15,
2026 at a prepayment price equal to 100.00% of the principal amount; in each
case, plus accrued and unpaid interest, if any, to but excluding, the date of
redemption.
The net proceeds from the debt offering were $738.0 million after deducting the
underwriting commissions of $9.4 million and $2.6 million of issuance costs,
which were paid as of April 30, 2021 . Debt issuance costs of $2.6 million are
being amortized to interest expense using the effective interest method over the
term of the Senior Notes. Interest expense related to contractual interest
expense, amortization of debt issuance costs and accretion of debt discount was
$6.0 million during the three months ended April 30, 2021 .
--------------------------------------------------------------------------------
Table of C ontents
In certain circumstances involving change of control events, we will be required to make an offer to repurchase all or, at the holder's option, any part, of each holder's Senior Notes at 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date. The indenture governing the Senior Notes (the "Indenture") contain covenants limiting our ability and the ability of our subsidiaries to create liens on certain assets to secure debt; grant a subsidiary guarantee of certain debt without also providing a guarantee of the Senior Notes; and consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of our assets to, another person. These covenants are subject to a number of important limitations and exceptions. Certain of these covenants will not apply during any period in which the notes are rated investment grade by two ofFitch Ratings, Inc. ,Moody's Investors Service, Inc. andStandard & Poor's Ratings Services . As ofApril 30, 2021 , we were in compliance with all of our financial covenants under the Indenture associated with the Senior Notes. Supplemental Guarantor Financial Information Our Senior Notes are guaranteed on a senior, unsecured basis byCrowdStrike, Inc. , a wholly owned subsidiary ofCrowdStrike Holdings, Inc. (the "subsidiary guarantor," and together withCrowdStrike Holdings, Inc. , the "Obligor Group "). The guarantee is full and unconditional, and is subject to certain conditions for release. For a brief description of the Senior Notes, see the section of this Quarterly Report on Form 10-Q titled "Liquidity and Capital Resources-Senior Notes." The Company conducts its operations almost entirely through its subsidiaries. Accordingly, theObligor Group's cash flow and ability to service the notes will depend on the earnings of the Company's subsidiaries and the distribution of those earnings to theObligor Group , whether by dividends, loans or otherwise. Holders of the guaranteed registered debt securities will have a direct claim only against theObligor Group . Summarized financial information is presented below for theObligor Group on a combined basis after elimination of intercompany transactions and balances within theObligor Group and equity in the earnings from and investments in any non-guarantor subsidiary. The summarized financial information of theObligor Group also includes the amounts ofCrowdStrike Services, Inc. which was a separate wholly owned subsidiary of the Company that was merged intoCrowdStrike, Inc. onDecember 31, 2020 , therefore becoming part of theObligor Group prior to the issuance of the Senior Notes. The revenue amounts presented in the summarized financial information include substantially all of the Company's consolidated revenues, and there are no intercompany revenues from the non-guarantor subsidiaries. This summarized financial information has been prepared and presented pursuant to Regulation S-X Rule 13-01, "Financial Disclosures about Guarantors and Issuers ofGuaranteed Securities " and is not intended to present the financial position or results of operations of theObligor Group in accordance withU.S. GAAP.
© Edgar Online, source
