CROWDSTRIKE HOLDINGS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q) – marketscreener.com

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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

ended

January 31, 2021

, filed with the

SEC

. 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 is

January 31

, and

our fiscal quarters end on

April 30

,

July 31

,

October 31

, and

January 31

.

Overview

We founded

CrowdStrike

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 provide a leading cloud-delivered solution

for next-generation endpoint and cloud workload protection via a SaaS

subscription-based model that spans multiple security markets, including

corporate workload security, security and vulnerability management, managed

security services, IT operations management, threat intelligence services,

identity protection and log management.

In

March 2020

, the

World 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. Since the pandemic commenced, we have implemented several

measures to help ensure the health and safety of our employees around the globe.

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 ended

April 30, 2020

and all of our investments were classified

as cash and cash equivalents as of

October 31, 2021

. 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 third quarter of fiscal 2022 remained consistently high

and our dollar-based net retention rate was once again above 100 percent as we

continued to expand the number of endpoints and modules within existing

customers.

We have gradually resumed certain pre-pandemic activities, such as employee

travel, working in the office, customer interactions, and 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 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.

On

March 5, 2021

, the Company acquired 100% of the equity interest of

Humio

Limited

(“Humio”), a privately-held company that is 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

$370.3 million

which consisted of

$353.8 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

$3.4 million

and goodwill of

$291.3 million

allocated to the Company’s one reporting unit,

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 professionals

who

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 the

AWS 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 customers

who

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.

——————————————————————————–

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.

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 October 31,

2021 2020

Subscription customers 14,687 8,416

Year-over-year growth 75 % 85 %

We added 1,607 and 4,791 net new subscription customers during the three and

nine months ended

October 31, 2021

, respectively, for a total of 14,687

subscription customers as of

October 31, 2021

, representing 75% growth

year-over-year. We added 1,186 and 2,985 net new subscription customers during

the three and nine months ended

October 31, 2020

, for a total of 8,416

subscription customers as of

October 31, 2020

, representing 85% 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 (dollar in

thousands):

As of October 31,

2021 2020

Annual recurring revenue

$ 1,514,453 $ 907,391

Year-over-year growth 67 % 81 %

ARR grew to

$1.5 billion

as of

October 31, 2021

, of which

$170.0 million

and

$464.4 million

was net new ARR added for the three and nine months ended

October 31, 2021

, respectively. ARR grew to

$907.4 million

as of

October 31,

2020

, of

——————————————————————————–

which

$116.8 million

and

$306.9 million

was net new ARR added for three and nine

months ended

October 31, 2020

, respectively.

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.

Since

January 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. Fixed fee

contracts account for an immaterial portion of our revenue.

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.

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.

Interest Expense: Interest Expense consists primarily of interest expense from

amortization of debt issuance costs, contractual interest expense for our Senior

Notes issued in

January 2021

, and amortization of debt issuance costs 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, Net. Other income, net, consists primarily of income earned on our

cash and cash equivalents, 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 in

the 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 our

U.S.

federal and

state and

UK

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 of

Falcon Fund’s

non-controlling interest

share of mark-to-market gains and interest income from our strategic

investments.

Results of Operations

The following tables set forth our condensed consolidated statements of

operations for each period presented (dollar in thousands, except percentages):

Three Months Ended October 31, Change Change Nine Months Ended October 31, Change Change

2021 2020 $ % 2021 2020 $ %

Revenue

Subscription

$ 357,030 $ 213,530 $ 143,500

67 %

$ 954,094 $ 560,008 $ 394,086

70 %

Professional services 23,021 18,930 4,091 22 % 66,490 49,501 16,989 34 %

Total revenue 380,051 232,460 147,591 63 % 1,020,584 609,509 411,075 67 %

Cost of revenue

Subscription (1) (2) 85,464 49,583 35,881 72 % 226,360 130,864 95,496 73 %

Professional services (1) 16,200 11,944 4,256 36 % 44,241 31,949 12,292 38 %

Total cost of revenue 101,664 61,527 40,137 65 % 270,601 162,813 107,788 66 %

Gross profit 278,387 170,933 107,454 63 % 749,983 446,696 303,287 68 %

Operating expenses

Sales and marketing (1) (2) 164,960 105,602 59,358 56 % 453,952 288,867 165,085 57 %

Research and development (1) (2) 97,630 57,539 40,091 70 % 266,265 148,600 117,665 79 %

General and administrative (1)

(2) (3) (4) 56,061 31,951 24,110 75 % 148,780 85,955 62,825 73 %

Total operating expenses 318,651 195,092 123,559 63 % 868,997 523,422 345,575 66 %

Loss from operations (40,264) (24,159) (16,105) 67 % (119,014) (76,726) (42,288) 55 %

Interest expense (5) (6,403) (193) (6,210) 3,218 % (18,929) (510) (18,419) 3,612 %

Other income, net (6) 690 272 418 154 % 6,077 5,537 540 10 %

Loss before provision for income

taxes (45,977) (24,080) (21,897) 91 % (131,866) (71,699) (60,167) 84 %

Provision for income taxes(7) 4,473 451 4,022 892 % 58,773 1,928 56,845 2,948 %

Net loss (50,450) (24,531) (25,919) 106 % (190,639) (73,627) (117,012) 159 %

Net income attributable to

noncontrolling interest 5 – 5 100 % 2,183 – 2,183 100 %

Net loss attributable to

CrowdStrike

$ (50,455) $ (24,531) $ (25,924)

106 %

$ (192,822) $ (73,627) $ (119,195)

162 %

___________________________________________

——————————————————————————–

(1)Includes stock-based compensation expense as follows (in thousands):

Three Months Ended October 31, Nine Months Ended October 31,

2021 2020 2021 2020

Subscription cost of revenue

$ 5,969 $ 3,226 $ 15,548 $ 7,856

Professional services cost of revenue 2,546 1,551 6,963 3,947

Sales and marketing 25,499 12,811 68,178 35,101

Research and development 27,333 11,771 70,942 25,700

General and administrative 25,319 11,251 55,684 29,357

Total stock-based compensation expense $ 86,666 $ 40,610

$ 217,315 $ 101,961

(2)Includes amortization of acquired intangible assets, including purchased

patents, as follows (in thousands):

Three Months Ended October 31, Nine Months Ended October 31,

2021 2020 2021 2020

Subscription cost of revenue

$ 2,784 $ 272 $ 7,550 $ 397

Sales and marketing 540 91 1,509 153

Research and development – 9 – 29

General and administrative 13 – 13 –

Total amortization of acquired intangibles $ 3,337 $ 372

$ 9,072 $ 579

(3)Includes acquisition-related expenses as follows (in thousands):

Three Months Ended October 31, Nine Months Ended October 31,

2021 2020 2021 2020

General and administrative $ 971 $

2,119 $ 5,912 $ 2,119

Total acquisition-related expenses

$ 971 $

2,119 $ 5,912 $ 2,119

(4)Includes legal reserve and settlement charges as follows (in thousands):


Three Months Ended October 31, Nine Months Ended October 31,

2021 2020 2021 2020

General and administrative $ – $ –

$ 2,500

$ –

Total legal reserve and settlement charges $ – $

$ 2,500 $ –

(5)Includes amortization of debt issuance costs and discount as follows (in

thousands):


Three Months Ended October 31, Nine Months Ended October 31,

2021 2020 2021 2020

Interest expense

$ 546

$ –

$ 1,639

$ –

Total amortization of debt issuance costs

and discount

$ 546

$ –

$ 1,639 $ –


(6)Includes gains and other income from strategic investments as follows (in

thousands):

Three Months Ended October 31, Nine Months Ended October 31,

2021 2020 2021 2020

Other income, net $ 10 $ –

$ 4,366

$ –

Total gains and other income from

strategic investments $ 10 $ –

$ 4,366

$ –

——————————————————————————–

(7)Includes tax costs for intellectual property integration relating to the

Humio acquisition as follows (in thousands):

Three Months Ended October 31, Nine Months Ended October 31,

2021 2020 2021 2020

Provision for income taxes $ – $ –

$ 48,824

$ –

Total provision for income taxes $ – $ –

$ 48,824 $ –


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 October 31, Nine Months Ended October 31,

2021 2020 2021 2020

% %

Revenue

Subscription 94 % 92 % 93 % 92 %

Professional services 6 % 8 % 7 % 8 %

Total revenue 100 % 100 % 100 % 100 %

Cost of revenue

Subscription 22 % 21 % 22 % 21 %

Professional services 4 % 5 % 4 % 5 %

Total cost of revenue 27 % 26 % 27 % 27 %

Gross profit 73 % 74 % 73 % 73 %

Operating expenses

Sales and marketing 43 % 45 % 44 % 47 %

Research and development 26 % 25 % 26 % 24 %

General and administrative 15 % 14 % 15 % 14 %

Total operating expenses 84 % 84 % 85 % 86 %

Loss from operations (11) % (10) % (12) % (13) %

Interest expense (2) % – % (2) % – %

Other income, net – % – % 1 % 1 %

Loss before provision for income taxes (12) % (10) % (13) % (12) %

Provision for income taxes 1 % – % 6 % – %

Net loss (13) % (11) % (19) % (12) %

Net income attributable to noncontrolling

interest – % N/A – % N/A

Net loss attributable to CrowdStrike (13) % (11) % (19) % (12) %

Comparison of the Three Months Ended

October 31, 2021

and 2020

Revenue

The following shows total revenue from subscriptions and professional services

for the three months ended

October 31, 2021

as compared to the three months

ended

October 31, 2020

(in thousands, except percentages):

Three Months Ended October 31, Change Change

2021 2020 $ %

Subscription

$ 357,030 $ 213,530 $ 143,500

67 %

Professional services 23,021 18,930 4,091 22 %

Total revenue

$ 380,051 $ 232,460 $ 147,591

63 %

——————————————————————————–


Total revenue increased by

$147.6 million

, or 63%, for the three months ended

October 31, 2021

, compared to the three months ended

October 31, 2020

.

Subscription revenue accounted for 94% of our total revenue for the three months

ended

October 31, 2021

, and 92% of our total revenue for the three months ended

October 31, 2020

. Professional services revenue accounted for 6% of our total

revenue for the three months ended

October 31, 2021

, and 8% of our total revenue

for the three months ended

October 31, 2020

.

Subscription revenue increased by

$143.5 million

, or 67%, for the three months

ended

October 31, 2021

, compared to the three months ended

October 31, 2020

.

This increase was primarily attributable to the addition of new subscription

customers, as we increased our customer base by 75% from 8,416 subscription

customers as of

October 31, 2020

to 14,687 subscription customers as of

October 31, 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%, 42%, and 24% of total subscription revenue for the three months ended

October 31, 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 32%, 37%, and 31% of total subscription revenue for the

three months ended

October 31, 2020

, respectively.

Professional services revenue increased by

$4.1 million

, or 22%, for the

three months ended

October 31, 2021

, compared to the three months ended

October 31, 2020

, which was primarily attributable to an increase in the number

of professional service hours performed and increase in services offerings that

are not based on billable hours.

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

October 31, 2021

as compared to the

three months ended

October 31, 2020

(in thousands, except percentages):

Three Months Ended October 31, Change Change

2021 2020 $ %

Subscription $ 85,464

$ 49,583 $ 35,881

72 %

Professional services 16,200 11,944 4,256 36 %

Total cost of revenue $ 101,664

$ 61,527 $ 40,137

65 %

Total cost of revenue increased by

$40.1 million

, or 65%, for the three months

ended

October 31, 2021

, compared to the three months ended

October 31, 2020

.

Subscription cost of revenue increased by

$35.9 million

, or 72%, for the

three months ended

October 31, 2021

, compared to the three months ended

October 31, 2020

. The increase in subscription cost of revenue was primarily due

to an increase in cloud hosting and related services cost of

$16.4 million

driven by increased customer activity, an increase in employee-related expenses

of

$9.2 million

driven by a 50% increase in average headcount, an increase in

stock-based compensation expense of

$2.7 million

, an increase in amortization of

intangible assets of

$2.5 million

, an increase in depreciation of data center

equipment of

$1.8 million

, an increase in allocated overhead costs of

$1.3

million

, and an increase in depreciation of internal use software of

$1.3

million

.

Professional services cost of revenue increased by

$4.3 million

, or 36%, for the

three months ended

October 31, 2021

, compared to the three months ended

October 31, 2020

. The increase in professional services cost of revenue was

primarily due to an increase in employee-related expenses of

$2.4 million

driven

by an increase in average headcount of 41% and an increase in stock-based

compensation expense of

$1.0 million

.

The following shows gross profit and gross margin for subscriptions and

professional services for the three months ended

October 31, 2021

as compared to

the three months ended

October 31, 2020

(in thousands, except percentages):

Three Months Ended October 31, Change Change

2021 2020 $ %

Subscription gross profit

$ 271,566 $ 163,947 $ 107,619

66 %

Professional services gross profit 6,821 6,986 (165) (2) %

Total gross profit

$ 278,387 $ 170,933 $ 107,454

63 %

——————————————————————————–

Three Months Ended October 31, Change

2021 2020 %

Subscription gross margin 76 % 77 % (1) %

Professional services gross margin 30 % 37 % (7) %

Total gross margin 73 % 74 % (1) %

Subscription gross margin slightly decreased for the three months ended

October 31, 2021

, compared to the three months ended

October 31, 2020

. The

decrease in subscription gross margin was primarily due to higher intangibles

amortization resulting from acquisitions, higher stock-based compensation

expense, and higher cloud services costs per sensor, partially offset by

continued expansion of module adoption during the three months ended

October 31,

2021

, compared to the three months ended

October 31, 2020

. As of

October 31,

2021

, 68% of our customer base had adopted four or more modules, 55% of our

customer base had adopted five or more modules, and 32% of our customer base had

adopted six or more modules. As of

October 31, 2020

, 61% of our customer base

had adopted four or more modules, 44% of our customer base had adopted five or

more modules, and 22% of our customer base had adopted six or more modules.

Professional services gross margin decreased by 7% for the three months ended

October 31, 2021

, compared to the three months ended

October 31, 2020

. The

decrease in professional services gross margin was primarily due to decrease in

utilization, higher employee-related expenses and higher stock-based

compensation during the three months ended

October 31, 2021

compared to the

three months ended

October 31, 2020

, partially offset by growth in new services

offerings that are not based on billable hours.

Operating Expenses

Sales and Marketing

The following shows sales and marketing expenses for the three months ended

October 31, 2021

as compared to the three months ended

October 31, 2020

(in

thousands, except percentage):

Three Months Ended October 31, Change Change

2021 2020 $ %

Sales and marketing expenses

$ 164,960 $ 105,602 $ 59,358

56 %

Sales and marketing expenses increased by

$59.4 million

, or 56%, for the

three months ended

October 31, 2021

, compared to the three months ended

October 31, 2020

. The increase in sales and marketing expenses was primarily due

to an increase in employee-related expenses of

$26.6 million

driven by an

increase in sales and marketing average headcount of 36%, an increase in

stock-based compensation of

$12.7 million

, an increase in marketing programs of

$12.6 million

, an increase in allocated overhead costs of

$2.4 million

, and an

increase in employee health insurance costs of

$0.6 million

.

Research and Development

The following shows research and development expenses for the three months ended

October 31, 2021

as compared to the three months ended

October 31, 2020

(in

thousands, except percentage):

Three Months Ended October 31, Change Change

2021 2020 $ %

Research and development expenses $ 97,630 $ 57,539


$ 40,091

70 %

Research and development expenses increased by

$40.1 million

, or 70%, for the

three months ended

October 31, 2021

, compared to the three months ended

October 31, 2020

. This increase was primarily due to an increase in

employee-related expenses of

$21.1 million

driven by an increase in research and

development average headcount of 60%, an increase in stock-based compensation of

$15.6 million

, an increase in allocated overhead costs of

$2.6 million

, and an

increase in cloud hosting and related costs of

$1.1 million

, partially offset by

an increase of

$3.1 million

in software capitalization.

——————————————————————————–

General and Administrative

The following shows general and administrative expenses for the three months

ended

October 31, 2021

as compared to the three months ended

October 31, 2020

(in thousands, except percentage):

Three Months Ended October 31, Change Change

2021 2020 $ %

General and administrative expenses $ 56,061 $ 31,951


$ 24,110

75 %

General and administrative expenses increased by

$24.1 million

, or 75%, for the

three months ended

October 31, 2021

, compared to the three months ended

October 31, 2020

. The increase in general and administrative expenses was

primarily due to an increase in stock-based compensation expense of

$14.1

million

, an increase in employee-related expenses of

$4.7 million

driven by an

increase in general and administrative average headcount of 44%, an increase in

legal expense of

$1.0 million

, an increase in allocated overhead costs of

$0.7

million

, an increase in term-based software licenses of

$0.6 million

, and an

increase in tax and licenses of

$0.5 million

.

Interest Expense and Other Income, Net

The following shows Interest expense and Other income, net, for the three months

ended

October 31, 2021

as compared to the three months ended

October 31, 2020

(in thousands, except percentages):

Three Months Ended October 31, Change Change

2021 2020 $ %

Interest expense $ (6,403)

$ (193) $ (6,210)

3,218 %

Other income, net $ 690

$ 272 $ 418

154 %

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

October 31, 2021

compared to the three months ended

October 31, 2020

, was primarily due an

increase in interest income.

Provision for Income Taxes

The following shows the provision for income taxes for the three months ended

October 31, 2021

as compared to the three months ended

October 31, 2020

(in

thousands, except percentage):

Three Months Ended October 31, Change Change

2021 2020 $ %

Provision for income taxes

$ 4,473 $ 451 $ 4,022

892 %

The increase in provision for income taxes of

$4.0 million

during the three

months ended

October 31, 2021

compared to the three months ended

October 31,

2020

was primarily driven by pre-tax foreign earnings and withholding taxes

related to customer payments in certain foreign jurisdictions in which we

conduct business.

Comparison of the Nine Months Ended

October 31, 2021

and 2020

Revenue

The following shows total revenue from subscriptions and professional services

for the nine months ended

October 31, 2021

as compared to the nine months ended

October 31, 2020

(in thousands, except percentages):

Nine Months Ended October 31, Change Change

2021 2020 $ %

Subscription $ 954,094

$ 560,008 $ 394,086

70 %

Professional services 66,490 49,501 16,989 34 %

Total revenue

$ 1,020,584 $ 609,509 $ 411,075

67 %

——————————————————————————–


Total revenue increased by

$411.1 million

, or 67%, for the nine months ended

October 31, 2021

, compared to the nine months ended

October 31, 2020

.

Subscription revenue accounted for 93% of our total revenue for the nine months

ended

October 31, 2021

, and 92% of our total revenue for the nine months ended

October 31, 2020

. Professional services revenue accounted for 7% of our total

revenue for the nine months ended

October 31, 2021

, and 8% of our total revenue

for the nine months ended

October 31, 2020

.

Subscription revenue increased by

$394.1 million

, or 70%, for the nine months

ended

October 31, 2021

, compared to the nine months ended

October 31, 2020

. This

increase was primarily attributable to the addition of new subscription

customers, as we increased our customer base by 75% from 8,416 subscription

customers as of

October 31, 2020

to 14,687 subscription customers as of

October 31, 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 35%, 41%, and 24% of total subscription revenue for the nine months ended

October 31, 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

nine months ended

October 31, 2020

, respectively.

Professional services revenue increased by

$17.0 million

, or 34%, for the

nine months ended

October 31, 2021

, compared to the nine months ended

October 31, 2020

, which was primarily attributable to an increase in the number

of professional service hours performed and increase in services offerings that

are not based on billable hours.

Cost of Revenue, Gross Profit, and Gross Margin

The following shows cost of revenue related to subscriptions and professional

services for the nine months ended

October 31, 2021

as compared to the

nine months ended

October 31, 2020

(in thousands, except percentages):

Nine Months Ended October 31, Change Change

2021 2020 $ %

Subscription

$ 226,360 $ 130,864 $ 95,496

73 %

Professional services 44,241 31,949 12,292 38 %

Total cost of revenue

$ 270,601 $ 162,813 $ 107,788

66 %

Total cost of revenue increased by

$107.8 million

, or 66%, for the nine months

ended

October 31, 2021

, compared to the nine months ended

October 31, 2020

.

Subscription cost of revenue increased by

$95.5 million

, or 73%, for the

nine months ended

October 31, 2021

, compared to the nine months ended

October 31, 2020

. The increase in subscription cost of revenue was primarily due

to an increase in cloud hosting and related services of

$38.0 million

driven by

increased customer activity, an increase in employee-related expenses of

$28.4

million

driven by a 54% increase in average headcount, an increase in

stock-based compensation expense of

$7.7 million

, an increase in amortization of

intangible assets of

$7.2 million

, an increase in depreciation of data center

equipment of

$5.7 million

, an increase in allocated overhead costs of

$3.5

million

, an increase in depreciation of internal use software of

$2.7 million

,

and an increase in employee health insurance costs of

$1.4 million

.

Professional services cost of revenue increased by

$12.3 million

, or 38%, for

the nine months ended

October 31, 2021

, compared to the nine months ended

October 31, 2020

. The increase in professional services cost of revenue was

primarily due to an increase in employee-related expenses of

$7.4 million

driven

by an increase in average headcount of 45%, an increase in stock-based

compensation expense of

$3.0 million

, an increase in employee health insurance

costs of

$0.5 million

, and an increase in allocated overhead costs of

$0.5

million

.

The following shows gross profit and gross margin for subscriptions and

professional services for the nine months ended

October 31, 2021

as compared to

the nine months ended

October 31, 2020

(in thousands, except percentages):

Nine Months Ended October 31, Change Change

2021 2020 $ %

Subscription gross profit

$ 727,734 $ 429,144 $ 298,590

70 %

Professional services gross profit 22,249 17,552 4,697 27 %

Total gross profit

$ 749,983 $ 446,696 $ 303,287

68 %

——————————————————————————–

Nine Months Ended October 31, Change

2021 2020 %

Subscription gross margin 76 % 77 % (1) %

Professional services gross margin 33 % 35 % (2) %

Total gross margin 73 % 73 % – %

Subscription gross margin decreased slightly for the nine months ended

October 31, 2021

, compared to the nine months ended

October 31, 2020

. The

decrease in subscription gross margin was primarily due to higher intangibles

amortization resulting from acquisitions and higher stock-based compensation

expense during the nine months ended

October 31, 2021

, compared to the nine

months ended

October 31, 2020

. This was partially offset by the continued shift

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.

Professional services gross margin decreased slightly for the nine months ended

October 31, 2021

, compared to the nine months ended

October 31, 2020

. The

decrease in professional services gross margin was primarily due to decrease in

utilization, higher employee-related expenses and higher stock-based

compensation during the nine months ended

October 31, 2021

, compared to the nine

months ended

October 31, 2020

, partially offset by growth in new services

offerings that are not based on billable hours.

Operating Expenses

Sales and Marketing

The following shows sales and marketing expenses for the nine months ended

October 31, 2021

as compared to the nine months ended

October 31, 2020

(in

thousands, except percentage):

Nine Months Ended October 31, Change Change

2021 2020 $ %

Sales and marketing expenses

$ 453,952 $ 288,867 $ 165,085

57 %

Sales and marketing expenses increased by

$165.1 million

, or 57%, for the

nine months ended

October 31, 2021

, compared to the nine months ended

October 31, 2020

. The increase in sales and marketing expenses was primarily due

to an increase in employee-related expenses of

$82.7 million

driven by an

increase in sales and marketing average headcount of 34%, an increase in

stock-based compensation of

$33.1 million

, an increase in marketing programs of

$32.6 million

, an increase in allocated overhead costs of

$5.6 million

and an

increase in employee health insurance costs of

$2.7 million

, partially offset by

a decrease in company events expenses of

$3.0 million

.

Research and Development

The following shows research and development expenses for the nine months ended

October 31, 2021

as compared to the nine months ended

October 31, 2020

(in

thousands, except percentage):

Nine Months Ended October 31, Change Change

2021 2020 $ %

Research and development expenses $ 266,265 $ 148,600 $ 117,665


79 %

Research and development expenses increased by

$117.7 million

, or 79%, for the

nine months ended

October 31, 2021

, compared to the nine months ended

October 31, 2020

. This increase was primarily due to an increase in

employee-related expenses of

$61.3 million

driven by an increase in research and

development average headcount of 59%, an increase in stock-based compensation of

$45.2 million

, an increase in allocated overhead costs of

$6.7 million

, an

increase in cloud hosting and related costs of

$3.8 million

, an increase in

employee health insurance of

$2.1 million

, and an increase in software licenses

of

$1.8 million

, partially offset by an increase in software capitalization of

$7.9 million

.

——————————————————————————–

General and Administrative

The following shows general and administrative expenses for the nine months

ended

October 31, 2021

as compared to the nine months ended

October 31, 2020

(in

thousands, except percentage):

Nine Months Ended October 31, Change Change

2021 2020 $ %

General and administrative expenses $ 148,780 $ 85,955


$ 62,825

73 %

General and administrative expenses increased by

$62.8 million

, or 73%, for the

nine months ended

October 31, 2021

, compared to the nine months ended

October 31, 2020

. The increase in general and administrative expenses was

primarily due to an increase in stock-based compensation expense of

$26.3

million

, an increase in employee-related expenses of

$14.2 million

driven by an

increase in general and administrative average headcount of 39%, an increase in

consulting expense of

$7.9 million

primarily due to acquisition related

expenses, an increase in legal expense of

$2.5 million

, an increase in software

licenses of

$1.8 million

, an increase in allocated overhead costs of

$1.6

million

, and an increase in tax and license of

$1.3 million

.

Interest Expense and Other Income, Net

The following shows Interest expense and Other income, net, for the nine months

ended

October 31, 2021

as compared to the nine months ended

October 31, 2020

(in

thousands, except percentages):

Nine Months Ended October 31, Change Change

2021 2020 $ %

Interest expense $ (18,929)

$ (510) $ (18,419)

3,612 %

Other income, net $ 6,077

$ 5,537 $ 540

10 %

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 nine months ended

October 31, 2021

compared to the nine months ended

October 31, 2020

, was primarily due to the

fair value adjustments for our strategic investments, partially offset by a

decrease in interest income, no realized gains from investment in fiscal year

2022 and fluctuations in foreign currency transaction gains and losses.

Provision for Income Taxes

The following shows the provision for income taxes for the nine months ended

October 31, 2021

as compared to the nine months ended

October 31, 2020

(in

thousands, except percentage):

Nine Months Ended October 31, Change Change

2021 2020 $ %

Provision for income taxes $ 58,773

$ 1,928 $ 56,845

2,948 %

The increase in the provision for income taxes of

$56.8 million

during the nine

months ended

October 31, 2021

compared to the nine months ended

October 31, 2020

was primarily driven by

$48.8 million

from the intercompany sale of intellectual

property from Humio and increase in pre-tax foreign earnings.

——————————————————————————–

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.

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

(dollar in thousands, except percentages):

Three Months Ended October 31, Nine Months Ended October 31,

2021 2020 2021 2020

GAAP subscription revenue

$ 357,030 $ 213,530 $ 954,094 $ 560,008

GAAP subscription gross profit

$ 271,566 $ 163,947 $ 727,734 $ 429,144

Add: Stock-based compensation expense 5,969 3,226 15,548 7,856

Add: Amortization of acquired intangible

assets 2,784 272 7,550 397

Non-GAAP subscription gross profit

$ 280,319 $ 167,445 $ 750,832 $ 437,397

GAAP subscription gross margin 76 % 77 % 76 % 77 %

Non-GAAP subscription gross margin 79 % 78 % 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,

acquisition-related expenses, and legal reserve and settlement charges or

benefits. 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 (dollar in thousands,

except percentages):

Three Months Ended October 31, Nine Months Ended October 31,

2021 2020 2021 2020

GAAP total revenue

$ 380,051 $ 232,460 $ 1,020,584 $ 609,509

GAAP loss from operations

$ (40,264)

$

(24,159) $ (119,014) $ (76,726)

Add: Stock-based compensation expense


86,666 40,610 217,315 101,961

Add: Amortization of acquired intangible

assets 3,337 372 9,072 579

Add: Acquisition-related expenses 971 2,119 5,912 2,119

Add: Legal reserve and settlement charges – – 2,500 –

Non-GAAP income from operations

$ 50,710 $ 18,942 $ 115,785 $ 27,933

GAAP operating margin (11) % (10) % (12) % (13) %

Non-GAAP operating margin 13 % 8 % 11 % 5 %

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 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 operating activities (dollar in thousands,

except percentages):

Three Months Ended October 31, Nine Months Ended October 31,

2021 2020 2021 2020

GAAP total revenue

$ 380,051 $ 232,460 $ 1,020,584 $ 609,509

GAAP net cash provided by operating

activities 159,058 88,501 415,066 242,103

Less: Purchases of property and equipment (29,627) (9,911) (85,420) (40,245)

Less: Capitalized internal-use software

and website development (5,928) (2,495) (15,201) (6,345)

Free cash flow

$ 123,503 $ 76,095 $ 314,445 $ 195,513

GAAP net cash (used in) provided by

investing activities

$ (44,735)

$

(98,375) $ (470,856) $ 512,728

GAAP net cash provided by financing

activities


$ 7,554 $ 5,171

$ 46,353

$ 39,606

GAAP net cash provided by operating

activities as a percentage of revenue 42 % 38 % 41 % 40 %

Less: Purchases of property and equipment

as a percentage of revenue (8) % (4) % (8) % (7) %

Less: Capitalized internal-use software

and website development as a percentage

of revenue (2) % (1) % (1) % (1) %

Free cash flow margin 32 % 33 % 31 % 32 %

——————————————————————————–

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.

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

October 31, 2021

.

See Note 5, “Debt”, in our Notes to Condensed Consolidated Financial Statements

in Part I, Item 1 of this Quarterly Report on Form 10-Q, for a brief description

of our senior notes and our revolving credit facility.

As of

October 31, 2021

, we had cash and cash equivalents, consisting of highly

liquid money market funds, of

$1.9 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 nine months ended

October 31, 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

$922.9 million

as of

October 31, 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.

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

October 31, 2021

, we

had deferred revenue of

$1.3 billion

, of which

$974.6 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 (in

thousands):

Nine Months Ended October 31,

2021 2020

Net cash provided by operating activities

$ 415,066 $ 242,103

Net cash (used in) provided by investing activities (470,856) 512,728

Net cash provided by financing activities 46,353 39,606

Operating Activities

Net cash provided by operating activities during the nine months ended

October 31, 2021

was

$415.1 million

, which resulted from a net loss of

$190.6

million

, adjusted for non-cash charges of

$349.8 million

and net cash inflow of

$255.9 million

from changes in operating assets and liabilities. Non-cash

charges primarily consisted of

$217.3 million

in stock-based compensation

expense,

$79.7 million

of amortization of deferred contract acquisition costs,

$39.2 million

of depreciation and amortization,

$9.1 million

of amortization for

intangibles assets and

$6.7 million

of non-cash operating lease costs, offset by

a

$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

$375.6 million

increase in deferred revenue, a

$81.8 million

increase in accrued

expenses and other current liabilities, a

$22.3 million

increase in accrued

payroll and benefits, partially offset by

$151.9 million

increase in deferred

contract acquisition costs, a

$41.1 million

increase in accounts receivable, a

$9.8 million

increase in prepaid expenses and other assets, a

$7.4 million

decrease in operating lease liabilities, a

$7.0 million

decrease in accounts

payable and a

$7.0 million

decrease in other liabilities, noncurrent.

——————————————————————————–

Net cash provided by operating activities during the nine months ended

October 31, 2020

was

$242.1 million

, which resulted from a net loss of

$73.6

million

, adjusted for non-cash charges of

$182.1 million

and net cash inflow of

$133.6 million

from changes in operating assets and liabilities. Non-cash

charges primarily consisted of

$102.0 million

in stock-based compensation

expense,

$44.9 million

of amortization of deferred contract acquisition costs,

$27.7 million

of depreciation and amortization, and

$7.7 million

of non-cash

operating lease costs. The net cash inflow from changes in operating assets and

liabilities was primarily due to a

$189.6 million

increase in deferred revenue,

a

$18.7 million

increase in accrued payroll and benefits, a

$7.9 million

increase in other liabilities and a

$6.6 million

increase in accounts payable,

partially offset by

$84.7 million

increase in deferred contract acquisition

costs and a

$6.2 million

increase in accounts receivable.

Investing Activities

Net cash used in investing activities during the nine months ended

October 31,

2021

of

$470.9 million

was primarily due to the acquisition of Humio, net of

cash acquired, of

$353.7 million

, purchases of property and equipment of

$85.4

million

, capitalized internal-use software and website development of

$15.2

million

, and purchase of strategic investments of

$15.8 million

.

Net cash provided by investing activities during the nine months ended

October 31, 2020

of

$512.7 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 a business acquisition, net of cash acquired,

of

$85.5 million

, purchases of marketable securities of

$84.9 million

, purchases

of property and equipment of

$40.2 million

, and capitalized internal-use

software of

$6.3 million

.

Financing Activities

Net cash provided by financing activities of

$46.4 million

during the nine

months ended

October 31, 2021

was primarily due to proceeds from employee stock

purchase plan of

$27.5 million

and the proceeds from the exercise of stock

options of

$12.8 million

and

$7.9 million

capital contributions from

non-controlling interest.

Net cash provided by financing activities of

$39.6 million

during the nine

months ended

October 31, 2020

was primarily due to proceeds from the exercise of

stock options of

$21.5 million

and proceeds from employee stock purchase plan of

$17.3 million

.

Supplemental Guarantor Financial Information

Our Senior Notes are guaranteed on a senior, unsecured basis by

CrowdStrike,

Inc.

, a wholly owned subsidiary of

CrowdStrike Holdings, Inc.

(the “subsidiary

guarantor,” and together with

CrowdStrike Holdings, Inc.

, the “

Obligor Group

“).

The guarantee is full and unconditional, and is subject to certain conditions

for release. See Note 5, “Debt”, in our Notes to Condensed Consolidated

Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q,

for a brief description of the Senior Notes.

We conduct our operations almost entirely through our subsidiaries. Accordingly,

the

Obligor Group’s

cash flow and ability to service the notes will depend on

the earnings of our subsidiaries and the distribution of those earnings to the

Obligor Group

, whether by dividends, loans or otherwise. Holders of the

guaranteed registered debt securities will have a direct claim only against the

Obligor Group

.

Summarized financial information is presented below for the

Obligor Group

on a

combined basis after elimination of intercompany transactions and balances

within the

Obligor Group

and equity in the earnings from and investments in any

non-guarantor subsidiary. The summarized financial information of the

Obligor

Group

also includes the amounts of

CrowdStrike Services, Inc.

which was a

separate wholly owned subsidiary of ours that was merged into

CrowdStrike, Inc.

on

December 31, 2020

, therefore becoming part of the

Obligor Group

prior to the

issuance of the Senior Notes. The revenue amounts presented in the summarized

financial information include substantially all of our 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

of

Guaranteed Securities

” and is not intended to present the financial position

or results of operations of the

Obligor Group

in accordance with

U.S.

GAAP.

——————————————————————————–

Statement of Operations Nine Months Ended October 31, 2021

(in thousands)

Revenue $ 1,019,935

Cost of revenue 280,544

Operating expenses 876,825

Loss from operations (137,434)

Net loss (162,627)

Net loss attributable to CrowdStrike (162,627)

Balance Sheets October 31, 2021 January 31, 2021

(in thousands)

Current assets (excluding intercompany receivables from

non-Guarantors)

$ 2,245,328 $ 2,249,834

Intercompany receivables from non-Guarantors 7,290 8,822

Noncurrent assets 973,605 398,656

Current liabilities 1,138,581 834,462

Noncurrent liabilities (excluding intercompany payable to

non-Guarantors)


1,089,455 988,391

Intercompany payable to non-Guarantors 149,670 –

Strategic Investments

In

July 2019

, we agreed to commit up to

$10.0 million

to a newly formed entity,

CrowdStrike Falcon Fund LLC

(“

Falcon Fund

“), in exchange for 50% of the sharing

percentage of any distribution by

Falcon Fund

. Additionally, entities associated

with Accel, a holder of more than 5% of our capital stock, also agreed to commit

up to

$10.0 million

to

Falcon Fund

and collectively own the remaining 50% of the

sharing percentage of

Falcon Fund

.

Falcon Fund

is in the business of purchasing,

selling, investing and trading in minority equity and convertible debt

securities of privately-held companies that develop applications that have

potential for substantial contribution to

CrowdStrike

and its platform.

Falcon

Fund

has a duration of ten years which may be extended for three additional

years. At dissolution,

Falcon Fund

will be liquidated and the remaining assets

will be distributed to the investors based on their sharing percentage. We have

made contributions totaling

$9.2 million

to

Falcon Fund

as of

October 31, 2021

.

Off-Balance Sheet Arrangements

Through

October 31, 2021

, we did not have any relationships with unconsolidated

organizations or financial partnerships, such as structured finance or special

purpose entities, that would have been established for the purpose of

facilitating off-balance sheet arrangements or other contractually narrow or

limited purposes.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of

October 31,

2021

and the fiscal years in which these obligations are due (in thousands):

Total 2022(6) 2023 2024 2025 2026 Thereafter

Real estate

arrangements (1)

$ 41,428 $ 1,489 $ 11,895 $ 11,861 $ 10,764 $ 4,811 $ 608

Data center commitments

(2) 56,425 7,031 15,893 15,143 9,180 6,980 2,198

Other purchase

obligations (3) 107,954 22,288 44,783 39,349 867 319 348

Debt obligations (4) 750,000 – – – – – 750,000

Interest payments

associated with all

debt obligations (5) 168,750 10,312 22,500 22,500 22,500 22,500 68,438

Total

$ 1,124,557 $ 41,120 $ 95,071 $ 88,853 $ 43,311 $ 34,610 $ 821,592

___________________________________________


(1)Relates to non-cancellable real estate arrangements where the amounts are

reflected on an undiscounted basis. For additional information refer to Note 7,

“Leases”, in our Notes to Condensed Consolidated Financial Statements in Part I,

Item 1 of this Quarterly Report on Form 10-Q.

——————————————————————————–

(2)Relates to non-cancelable commitments to data center vendors.

(3)Relates to non-cancelable purchase commitments with various parties to

purchase products and services entered into in the normal course of business.

(4)Relates to

$750.0 million

aggregate principal amount of Senior Notes due in

fiscal 2030.

(5)Relates to the interest payments associated with the Senior Notes based on

the principal amount multiplied by the applicable interest rate. For additional

information refer to Note 5, “Debt”, in our Notes to Condensed Consolidated

Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

(6)For the remaining three months of fiscal year 2022.

In

October 2021

, we entered into a new private pricing addendum with

Amazon Web

Services

(“AWS”), which provides us with cloud computing infrastructure. Under

the new pricing addendum, we committed to purchase a minimum of

$600.0 million

of cloud services from AWS through

September 2026

. As of

October 31, 2021

, our

remaining contractual commitment is

$587.7 million

, which is excluded from the

table above. We expect to meet our remaining commitment with AWS.

As of

October 31, 2021

, our unrecognized tax benefits included

$1.3 million

which were classified as long-term liabilities. Due to the inherent uncertainty

with respect to the timing of future cash outflows associated with our

unrecognized tax benefits, the liabilities have been excluded from the

contractual obligation table above.

The contractual commitment amounts in the table above are associated with

agreements that are enforceable and legally binding. Obligations under

contracts, including purchase orders, that we can cancel without a significant

penalty are not included in the table above. Purchase orders issued in the

ordinary course of business are not included in the table above, as such

purchase orders represent authorizations to purchase rather than binding

agreements.

Indemnification

Our subscription agreements contain standard indemnification obligations.

Pursuant to these agreements, we will indemnify, defend, and hold the other

party harmless with respect to a claim, suit, or proceeding brought against the

other party by a third party alleging that our intellectual property infringes

upon the intellectual property of the third party, or results from a breach of

our representations and warranties or covenants, or that results from any acts

of negligence or willful misconduct. The term of these indemnification

agreements is generally perpetual any time after the execution of the agreement.

Typically, these indemnification provisions do not provide for a maximum

potential amount of future payments we could be required to make. However, in

the past we have not been obligated to make significant payments for these

obligations and no liabilities have been recorded for these obligations on our

condensed consolidated balance sheets as of

October 31, 2021

or

January 31,

2021

.

We also agreed to indemnify our directors and certain executive officers for

certain events or occurrences, subject to certain limits, while the officer is

or was serving at our request in such capacity. The maximum amount of potential

future indemnification is unlimited. However, our director and officer insurance

policy limits our exposure and enables us to recover a portion of any future

amounts paid. Historically, we have not been obligated to make any payments for

these obligations and no liabilities have been recorded for these obligations on

our condensed consolidated balance sheets as of

October 31, 2021

or

January 31,

2021

.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of

operations is based upon our financial statements and notes to our financial

statements, which were prepared in accordance with GAAP. The preparation of the

financial statements requires our management to make estimates and assumptions

that affect the amounts reported in the financial statements and accompanying

notes. Our management evaluates our estimates on an ongoing basis including, but

not limited to, revenue recognition, the allowance for credit losses, the useful

lives of long-lived assets, the fair values of strategic investments, the period

of benefit for deferred contract acquisition costs, the discount rate used for

operating leases, the recognition and disclosure of contingent liabilities,

income taxes, stock-based compensation, the fair value of assets acquired and

liabilities assumed for business combinations, and the fair value and effective

interest rate for the Senior Notes. We base our estimates and judgments on our

historical experience, knowledge of factors affecting our business and our

belief as to what could occur in the future considering available information

and assumptions that are believed to be reasonable under the circumstances.

——————————————————————————–

The accounting estimates we use in the preparation of our financial statements

will change as new events occur, more experience is acquired, additional

information is obtained and our operating environment changes. Changes in

estimates are made when circumstances warrant. Such changes in estimates and

refinements in estimation methodologies are reflected in our reported results of

operations and, if material, the effects of changes in estimates are disclosed

in the notes to our financial statements. By their nature, these estimates and

judgments are subject to an inherent degree of uncertainty and actual results

could differ materially from the amounts reported based on these estimates.

Our significant accounting policies are more fully described in Note 2, “Summary

of Significant Accounting Policies”, to our condensed consolidated financial

statements. Our critical accounting policies and our more significant judgments

and estimates used in the preparation of our financial statements are discussed

in “Management’s Discussion and Analysis of Financial Condition and Results of

Operations” in our Annual Report on Form 10-K for the fiscal year ended

January 31, 2021

, filed with the

SEC

on

March 18, 2021

, and there have been no

significant changes to these policies for the nine months ended

October 31,

2021

.

Backlog

We enter into both single and multi-year subscription contracts for our

solutions. We generally invoice the entire amount at contract signing prior to

commencement of subscription period. Until such time as these amounts are

invoiced, they are not recorded in deferred revenue or elsewhere in our

condensed consolidated financial statements, and are considered by us to be

backlog. As of

October 31, 2021

, we had backlog of approximately

$654.7 million

.

Of this amount, approximately

$214.0 million

is not reasonably expected to be

billed in the next twelve months. We expect backlog will change from period to

period for several reasons, including the timing and duration of customer

agreements, varying billing cycles of subscription agreements, and the timing

and duration of customer renewals. Because revenue for any period is a function

of revenue recognized from deferred revenue under contracts in existence at the

beginning of the period, as well as contract renewals and new customer contracts

during the period, backlog at the beginning of any period is not necessarily

indicative of future revenue performance. We do not utilize backlog as a key

management metric internally.

Seasonality

Given the annual budget approval process of many of our customers, we see

seasonal patterns in our business. We expect these seasonal variations to become

more pronounced in future periods, with net new ARR generation being greater in

the second half of the year, particularly in the fourth quarter, as compared to

the first half of the year. In addition, we also experience seasonality in our

operating margin, with a lower margin in the first half of our fiscal year due

to a step up in costs for payroll taxes, new hires, and annual sales and

marketing events. This also impacts the timing of operating cash flow and free

cash flow.

Employees

As of

October 31, 2021

, we had 4,543 full-time employees. We also engage

temporary employees and consultants as needed to support our operations. None of

our employees in

the United States

are represented by a labor union or subject

to a collective bargaining agreement. In certain countries in which we operate,

we are subject to, and comply with, local labor law requirements which may

automatically make our employees subject to industry-wide collective bargaining

agreements. We may be required to comply with the terms of these collective

bargaining agreements. We have not experienced any work stoppages, and we

consider our relations with our employees to be good.

Corporate Information

Our principal executive offices are located at

150 Mathilda Place

, Suite 300,

Sunnyvale, California

94086, and our telephone number is (888) 512-8906. Our

website address is www.crowdstrike.com. Information contained on, or that can be

accessed through, our website does not constitute part of this Quarterly Report

on Form 10-Q.

Recently Issued Accounting Pronouncements

See Note 2, “Summary of Significant Accounting Policies”, of our condensed

consolidated financial statements included elsewhere in this Quarterly Report on

Form 10-Q, for more information about the impact of certain recent accounting

pronouncements on our condensed consolidated financial statements.

——————————————————————————–

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