filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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