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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________________________________________________________________________
FORM 10-Q
___________________________________________________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-38933
___________________________________________________________________________________________________
CROWDSTRIKE HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
___________________________________________________________________________________________________
Delaware45-3788918
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
206 E. 9th Street, Suite 1400, Austin, Texas 78701
(Address of principal executive offices)
__________________________________________________________________________________________________
Registrant’s telephone number, including area code: (888512-8906
___________________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s)Name of each exchange on which registered
Class A common stock, par value $0.0005 per shareCRWDThe Nasdaq Stock Market LLC
(Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    ☑  No   
Indicate by check mark whether the registrant has submitted electronically every interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes        No    
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-accelerated Filer
Smaller reporting company
(Do not check if a smaller reporting company)Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes       No    
As of August 19, 2022, the number of shares of the registrant’s Class A common stock outstanding was 214,833,517, and the number of shares of the registrant’s Class B common stock outstanding was 18,546,987.



Table of Contents
CROWDSTRIKE HOLDINGS, INC.
TABLE OF CONTENTS
Page No.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.
These forward-looking statements include, but are not limited to, statements concerning the following:
our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses (including changes in sales and marketing, research and development, and general and administrative expenses), and our ability to achieve, and maintain, future profitability;
the impact of the COVID-19 pandemic on our operations, financial results, and liquidity and capital resources, including on customers, sales, expenses, and employees;
market acceptance of our cloud platform;
the effects of increased competition in our markets and our ability to compete effectively;
our ability to maintain the security and availability of our cloud platform;
our ability to maintain and expand our customer base, including by attracting new customers;
our ability to develop new solutions, or enhancements to our existing solutions, and bring them to market in a timely manner;
anticipated trends, growth rates and challenges in our business and in the markets in which we operate;
our business plan and our ability to effectively manage our growth and associated investments;
beliefs and objectives for future operations;
our relationships with third parties, including channel partners and technology alliance partners;
our ability to maintain, protect and enhance our intellectual property rights;
our ability to successfully defend litigation brought against us;
our ability to successfully expand in our existing markets and into new markets;
sufficiency of cash and cash equivalents to meet cash needs for at least the next 12 months;
our ability to expand internationally;
our ability to comply with laws and regulations that currently apply or become applicable to our business both in the United States and internationally;
our ability to develop, maintain, and improve our internal control over financial reporting;
instability in the global credit and financial markets;
our ability to successfully close and integrate acquisitions to contribute to our growth objectives; and
the attraction and retention of qualified employees and key personnel.
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These statements are based on our current plans, estimates and projections in light of information currently available to us. These forward-looking statements may be affected by risks, uncertainties and other factors discussed elsewhere in this Quarterly Report on Form 10-Q, including under “Risk Factors.” Furthermore, new risks and uncertainties emerge from time to time, and it is impossible for us to predict all risks and uncertainties or how they may affect us. If any of these risks or uncertainties occurs, our business, revenue and financial results could be harmed, and the trading price of our Class A common stock could decline. Forward-looking statements made in this Quarterly Report on Form 10-Q speak only as of the date on which such statements are made, and we undertake no obligation to update them in light of new information or future events, except as required by law.
We intend to announce material information to the public through the CrowdStrike Investor Relations website ir.crowdstrike.com, SEC filings, press releases, public conference calls, and public webcasts. We use these channels, as well as social media and our blog, to communicate with our investors, customers, and the public about our company, our offerings, and other issues. It is possible that the information we post on social media and our blog could be deemed to be material information. As such, we encourage investors, the media, and others to follow the channels listed above, including the social media channels listed on our investor relations website, and to review the information disclosed through such channels. Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website.
Summary of Risk Factors
Our business is subject to numerous risks and uncertainties, any one of which could materially adversely affect our business, results of operations, financial condition and growth prospects. Below is a summary of some of these risks. This summary is not complete, and should be read together with the entire section titled “Risk Factors” in this Quarterly Report on Form 10-Q, as well as the other information in this Quarterly Report on Form 10-Q and the other filings that we make with the SEC.
We have experienced rapid growth in recent periods, and if we do not manage our future growth, our business and results of operations will be adversely affected.
We have a history of losses and may not be able to achieve or sustain profitability in the future.
The COVID-19 pandemic could adversely affect global economic conditions and our business, operating results and future revenue.
If organizations do not adopt cloud-based SaaS-delivered endpoint security solutions, our ability to grow our business and results of operations may be adversely affected.
If we are unable to successfully enhance our existing products and services and introduce new products and services in response to rapid technological changes and market developments as well as evolving security threats, our competitive position and prospects will be harmed.
If we are unable to attract new customers, our future results of operations could be harmed.
If our customers do not renew their subscriptions for our products and add additional cloud modules to their subscriptions, our future results of operations could be harmed.
We face intense competition and could lose market share to our competitors, which could adversely affect our business, financial condition, and results of operations.
If our solutions fail or are perceived to fail to detect or prevent incidents or have or are perceived to have defects, errors, or vulnerabilities, our brand and reputation would be harmed, which would adversely affect our business and results of operations.
As a cybersecurity provider, we have been, and expect to continue to be, a target of cyberattacks. If our internal networks, systems, or data are or are perceived to have been breached, our reputation may be damaged and our financial results may be negatively affected.
We rely on third-party data centers, such as Amazon Web Services, and our own colocation data centers, to host and operate our Falcon platform, and any disruption of or interference with our use of these facilities may negatively affect our ability to maintain the performance and reliability of our Falcon platform, which could cause our business to suffer.
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We rely on our key technical, sales and management personnel to grow our business, and the loss of one or more key employees could harm our business.
If we are unable to attract and retain qualified personnel, our business could be harmed.
Our results of operations may fluctuate significantly, which could make our future results difficult to predict and could cause our results of operations to fall below expectations.
Claims by others that we infringe their proprietary technology or other intellectual property rights could result in significant costs and substantially harm our business, financial condition, results of operations, and prospects.
If we are not able to comply with applicable data protection, security, privacy, and other government- and industry-specific laws, regulations, standards or requirements, our business, results of operations, and financial condition could be harmed.
Future acquisitions, strategic investments, partnerships, or alliances could be difficult to identify and integrate, divert the attention of key management personnel, disrupt our business, dilute stockholder value and adversely affect our results of operations and financial condition.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CrowdStrike Holdings, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
July 31,January 31,
20222022
Assets
Current assets:
Cash and cash equivalents$2,318,858 $1,996,633 
Accounts receivable, net of allowance for credit losses of $1.8 million and $1.6 million as of July 31, 2022 and January 31, 2022, respectively
418,799 368,145 
Deferred contract acquisition costs, current148,125 126,822 
Prepaid expenses and other current assets90,198 79,352 
Total current assets2,975,980 2,570,952 
Strategic investments35,585 23,632 
Property and equipment, net383,012 260,577 
Operating lease right-of-use assets28,463 31,735 
Deferred contract acquisition costs, noncurrent202,441 192,358 
Goodwill416,066 416,445 
Intangible assets, net89,840 97,336 
Other long-term assets22,849 25,346 
Total assets$4,154,236 $3,618,381 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$53,817 $47,634 
Accrued expenses101,181 83,382 
Accrued payroll and benefits102,687 104,563 
Operating lease liabilities, current10,316 9,820 
Deferred revenue1,363,558 1,136,502 
Other current liabilities17,691 24,929 
Total current liabilities1,649,250 1,406,830 
Long-term debt 740,261 739,517 
Deferred revenue, noncurrent480,594 392,819 
Operating lease liabilities, noncurrent21,340 25,379 
Other liabilities, noncurrent19,444 16,193 
Total liabilities2,910,889 2,580,738 
Commitments and contingencies (Note 8)
Stockholders’ Equity
Preferred stock, $0.0005 par value; 100,000 shares authorized as of July 31, 2022 and January 31, 2022; no shares issued and outstanding as of July 31, 2022 and January 31, 2022.
  
Class A common stock, $0.0005 par value; 2,000,000 shares authorized as of July 31, 2022 and January 31, 2022; 214,821 shares and 209,996 shares issued and outstanding as of July 31, 2022 and January 31, 2022, respectively; Class B common stock, $0.0005 par value; 300,000 shares authorized as of July 31, 2022 and January 31, 2022; 18,547 shares and 20,710 shares issued and outstanding as of July 31, 2022 and January 31, 2022, respectively.
116 115 
Additional paid-in capital2,276,704 1,991,807 
Accumulated deficit(1,045,726)(964,918)
Accumulated other comprehensive loss(5,675)(1,240)
Total CrowdStrike Holdings, Inc. stockholders’ equity 1,225,419 1,025,764 
Non-controlling interest17,928 11,879 
Total stockholders’ equity 1,243,347 1,037,643 
Total liabilities and stockholders’ equity $4,154,236 $3,618,381 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CrowdStrike Holdings, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended July 31,Six Months Ended July 31,
2022202120222021
Revenue
Subscription$506,199 $315,836 $966,021 $597,064 
Professional services28,954 21,854 56,966 43,469 
Total revenue535,153 337,690 1,022,987 640,533 
Cost of revenue
Subscription120,087 75,993 228,029 140,896 
Professional services20,480 14,439 39,370 28,041 
Total cost of revenue140,567 90,432 267,399 168,937 
Gross profit394,586 247,258 755,588 471,596 
Operating expenses
Sales and marketing224,766 153,861 418,298 288,992 
Research and development137,864 90,455 261,263 168,635 
General and administrative80,263 50,345 148,217 92,719 
Total operating expenses442,893 294,661 827,778 550,346 
Loss from operations(48,307)(47,403)(72,190)(78,750)
Interest expense(6,335)(6,296)(12,633)(12,526)
Other income, net11,107 619 14,319 5,387 
Loss before provision for income taxes(43,535)(53,080)(70,504)(85,889)
Provision for income taxes4,778 4,238 8,218 54,300 
Net loss(48,313)(57,318)(78,722)(140,189)
Net income attributable to non-controlling interest972  2,086 2,178 
Net loss attributable to CrowdStrike $(49,285)$(57,318)$(80,808)$(142,367)
Net loss per share attributable to CrowdStrike common stockholders, basic and diluted$(0.21)$(0.25)$(0.35)$(0.63)
Weighted-average shares used in computing net loss per share attributable to CrowdStrike common stockholders, basic and diluted232,554 226,362 231,850 225,276 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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CrowdStrike Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
Three Months Ended July 31,Six Months Ended July 31,
2022202120222021
Net loss $(48,313)$(57,318)$(78,722)$(140,189)
Other comprehensive loss:
Foreign currency translation adjustments(1,487)(567)(4,435)(769)
Other comprehensive loss(1,487)(567)(4,435)(769)
Less: Comprehensive income attributable to non-controlling interest972  2,086 2,178 
Total comprehensive loss attributable to CrowdStrike$(50,772)$(57,885)$(85,243)$(143,136)
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CrowdStrike Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
Three Months Ended July 31, 2022 and 2021
(in thousands)
(unaudited)


Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive LossNon-controlling InterestTotal Stockholders’ Equity
SharesAmount
Balances at April 30, 2022232,018 $116 $2,103,054 $(996,441)$(4,188)$14,456 $1,116,997 
Issuance of common stock upon exercise of options226 — 1,814 — — — 1,814 
Issuance of common stock under RSU and PSU release852 — — — — — — 
Issuance of common stock under employee stock purchase plan263 — 34,445 — — — 34,445 
Vesting of early exercised options— — 735 — — — 735 
Issuance of common stock for founders holdbacks related to acquisitions9 — 1,422 — — — 1,422 
Stock-based compensation expense— — 129,783 — — — 129,783 
Capitalized stock-based compensation— — 5,451 — — — 5,451 
Net income (loss)— — — (49,285)— 972 (48,313)
Non-controlling interest— — — — — 2,500 2,500 
Other comprehensive loss— — — — (1,487)— (1,487)
Balances at July 31, 2022233,368 $116 $2,276,704 $(1,045,726)$(5,675)$17,928 $1,243,347 
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive IncomeNon-controlling InterestTotal Stockholders’ Equity
SharesAmount
Balances at April 30, 2021225,743 $113 $1,662,199 $(815,165)$2,117 $4,133 $853,397 
Issuance of common stock upon exercise of options992 1 6,461 — — — 6,462 
Issuance of common stock under RSU release728 — — — — — — 
Issuance of common stock under employee stock purchase plan689 — 27,452 — — — 27,452 
Vesting of early exercised options— — 797 — — — 797 
Stock-based compensation expense— — 75,364 — — — 75,364 
Capitalized stock-based compensation— — 2,814 — — — 2,814 
Net loss— — — (57,318)— — (57,318)
Non-controlling interest— — — — — 3,000 3,000 
Other comprehensive loss— — — — (567)— (567)
Balances at July 31, 2021228,152 $114 $1,775,087 $(872,483)$1,550 $7,133 $911,401 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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CrowdStrike Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
Six Months Ended July 31, 2022 and 2021
(in thousands)
(unaudited)


Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive LossNon-controlling InterestTotal Stockholders’ Equity
SharesAmount
Balances at January 31, 2022230,706 $115 $1,991,807 $(964,918)$(1,240)$11,879 $1,037,643 
Issuance of common stock upon exercise of options633 1 4,918 — — — 4,919 
Issuance of common stock under RSU and PSU release1,738 — — — — — — 
Issuance of common stock under employee stock purchase plan263 — 34,445 — — — 34,445 
Vesting of early exercised options— — 1,470 — — — 1,470 
Issuance of common stock for founders holdbacks related to acquisitions28 — 5,126 — — — 5,126 
Stock-based compensation expense— — 230,559 — — — 230,559 
Capitalized stock-based compensation— — 8,379 — — — 8,379 
Net income (loss)— — — (80,808)— 2,086 (78,722)
Non-controlling interest— — — — — 3,963 3,963 
Other comprehensive loss— — — — (4,435)— (4,435)
Balances at July 31, 2022233,368 $116 $2,276,704 $(1,045,726)$(5,675)$17,928 $1,243,347 
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive Income Non-controlling InterestTotal Stockholders’ Equity
SharesAmount
Balances at January 31, 2021223,724 $112 $1,598,259 $(730,116)$2,319 $1,300 $871,874 
Issuance of common stock upon exercise of options1,761 2 10,214 — — — 10,216 
Issuance of common stock under RSU release1,921 — — — — — — 
Issuance of common stock under employee stock purchase plan689 — 27,452 — — — 27,452 
Issuance of common stock related to early exercised options57 — — — — — — 
Vesting of early exercised options— — 1,594 — — — 1,594 
Stock-based compensation expense— — 129,010 — — — 129,010 
Capitalized stock-based compensation— — 4,547 — — — 4,547 
Fair value of replacement equity awards attributable to pre-acquisition service— — 4,011 — — — 4,011 
Net loss— — — (142,367)— 2,178 (140,189)
Non-controlling interest— — — — — 3,655 3,655 
Other comprehensive loss— — — — (769)— (769)
Balances at July 31, 2021228,152 $114 $1,775,087 $(872,483)$1,550 $7,133 $911,401 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CrowdStrike Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended July 31,
20222021
Operating activities
Net loss $(78,722)$(140,189)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization34,146 24,969 
Amortization of intangible assets8,192 5,735 
Amortization of deferred contract acquisition costs77,554 50,419 
Non-cash operating lease cost4,524 4,469 
Stock-based compensation expense234,044 130,649 
Deferred income taxes1,604 (967)
Non-cash interest expense1,366 1,199 
Change in fair value of strategic investments(4,128)(4,356)
Changes in operating assets and liabilities, net of impact of acquisitions
Accounts receivable, net(50,728)(23,903)
Deferred contract acquisition costs(108,940)(87,576)
Prepaid expenses and other assets(10,938)(46,687)
Accounts payable794 5,383 
Accrued expenses and other liabilities5,723 67,290 
Accrued payroll and benefits245 22,853 
Operating lease liabilities(4,704)(5,022)
Deferred revenue314,831 251,742 
Net cash provided by operating activities424,863 256,008 
Investing activities
Purchases of property and equipment(118,339)(55,793)
Capitalized internal-use software and website development costs(13,235)(9,273)
Purchase of strategic investments(7,825)(7,309)
Business acquisitions, net of cash acquired (353,746)
Purchase of intangible assets(700) 
Net cash used in investing activities(140,099)(426,121)
Financing activities
Payment of debt issuance costs related to revolving line of credit (219)
Payment of debt issuance costs related to Senior Notes (1,581)
Proceeds from issuance of common stock upon exercise of stock options4,919 9,492 
Proceeds from issuance of common stock under the employee stock purchase plan 34,445 27,452 
Capital contributions from non-controlling interest holders3,963 3,655 
Net cash provided by financing activities43,327 38,799 
Effect of foreign exchange rates on cash, cash equivalents and restricted cash(4,330)(243)
Net increase (decrease) in cash, cash equivalents and restricted cash323,761 (131,557)
Cash, cash equivalents and restricted cash at beginning of period1,996,633 1,918,608 
Cash, cash equivalents and restricted cash at end of period$2,320,394 $1,787,051 
Cash, cash equivalents and restricted cash at the end of period:
Cash and cash equivalents$2,318,858 $1,787,051 
Restricted cash included in prepaid expenses and other assets1,536  
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows$2,320,394 $1,787,051 
Supplemental disclosure of cash flow information:
Interest paid$11,289 $78 
Income taxes paid, net of refunds received4,967 2,337 
Supplemental disclosure of non-cash investing and financing activities:
Net increase in property and equipment included in accounts payable and accrued expenses18,810 4,480 
Vesting of early exercised stock options1,470 1,594 
Equity consideration for acquisitions 4,011 
Operating lease liabilities arising from obtaining operating right of-use assets 2,130 3,121 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CrowdStrike Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Description of Business and Significant Accounting Policies
Business
CrowdStrike Holdings, Inc. (the “Company”) was formed on November 7, 2011. The Company is a global cybersecurity leader that provides cloud-delivered protection of endpoints, cloud workloads, identity, and data via a software as a service (“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. The Company’s principal executive offices are in Austin, Texas. The Company conducts its business in the United States, as well as locations internationally, including in Australia, Germany, India, Israel, Romania, and the United Kingdom.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the balance sheet as of January 31, 2022, and related disclosures, have been derived from the audited consolidated financial statements at that date but do not include all of the information required by U.S. GAAP for complete consolidated financial statements. These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all normal recurring adjustments that are necessary for the fair statement of the Company’s condensed consolidated financial information. Certain prior year amounts in the condensed consolidated statements of cash flows were reclassified to conform to the current period presentation. These reclassifications had no effect on net cash provided by (used in) operating, investing, and financing activities and cash and cash equivalent amounts. The results of operations for the three and six months ended July 31, 2022 are not necessarily indicative of the results to be expected for the year ending January 31, 2023 or for any other interim period or for any other future year.
The accompanying interim unaudited condensed consolidated financial statements and related financial information should be read in conjunction with Item 8, “Financial Statements and Supplementary Data” included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022, filed with the SEC on March 16, 2022.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the Company’s condensed consolidated financial statements and accompanying notes. These estimates are based on information available as of the date of the condensed consolidated financial statements. On a regular basis, management evaluates these estimates and assumptions. Actual results may differ from these estimates and such difference could be material to the Company’s condensed consolidated financial statements.
Estimates and assumptions used by management include, but are 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, measurement and disclosure of contingent liabilities, income taxes, stock-based compensation, the fair value of assets acquired and liabilities assumed for business combinations.
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Concentration of Credit Risk and Geographic Information
The Company generates revenue from the sale of subscriptions to access its cloud platform and professional services. The Company’s sales team, along with its channel partner network of system integrators and value-added resellers (collectively, “channel partners”), sells the Company’s services worldwide to organizations of all sizes.
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, accounts receivable, and strategic investments. The Company’s cash is placed with high-credit-quality financial institutions and issuers, and at times exceed federally insured limits. The Company limits its concentration of risk in cash equivalents by diversifying its investments among a variety of financial institutions. The Company has not experienced any credit loss relating to its cash equivalents and strategic investments. The Company performs periodic credit evaluations of its customers and generally does not require collateral.
Channel partners or direct customers who represented 10% or more of the Company’s accounts receivable were as follows:
July 31, 2022January 31, 2022
Channel partner A10 %9 %
Customer A %10 %
There were no direct customers or channel partners who represented 10% or more of the Company’s total revenue during the three and six months ended July 31, 2022 and July 31, 2021.
Significant Accounting Policies
The Company’s significant accounting policies are described in the Company’s Annual Report on Form 10-K for the year ended January 31, 2022. There have been no significant changes to these policies that have had a material impact on the Company’s condensed consolidated financial statements and related notes for the three and six months ended July 31, 2022.
Recently Issued Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if it had originated the contracts. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.
2. Investments and Fair Value Measurements
The Company follows ASC 820, Fair Value Measurements, with respect to cash equivalents that are measured at fair value on a recurring basis. Under the standard, fair value is defined as the exit price, or the amount that would be received to sell an asset or a liability in an orderly transaction between market participants as of the measurement date. The standard also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances.
The hierarchy is broken down into three levels as follows:
Level 1    Assets and liabilities whose values are based on unadjusted quoted market prices for identical assets and liabilities in active markets
Level 2    Assets and liabilities whose values are based on quoted prices in markets that are not active or inputs that are observable for substantially the full term of the asset or liability
Level 3    Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement
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Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The Company’s fair value hierarchy for its financial assets and liabilities that are measured at fair value on a recurring basis are as follows (in thousands):
July 31, 2022January 31, 2022
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets
Cash equivalents (1)
Money market funds$84,979 $ $ $84,979 $300,027 $ $ $300,027 
Total assets$84,979 $ $ $84,979 $300,027 $ $ $300,027 
__________________________________
(1)Included in “Cash and cash equivalents” on the condensed consolidated balance sheets.
There were no transfers between the levels of the fair value hierarchy during the periods presented.
The following summarizes the net carrying value of the strategic investments, which are Level 3 within the fair value hierarchy (in thousands):
July 31, 2022January 31, 2022
Total initial cost$26,634 $18,809 
Unrealized gains due to changes in fair value8,951 4,823 
Carrying value$35,585 $23,632 
3. Balance Sheet Components
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
July 31, 2022January 31, 2022
Data center and other computer equipment$231,789 $198,297 
Capitalized internal-use software and website development costs86,640 70,476 
Leasehold improvements21,834 22,029 
Purchased software5,842 5,232 
Furniture and equipment7,151 7,291 
Construction in process203,718 99,030 
556,974 402,355 
Less: Accumulated depreciation and amortization(173,962)(141,778)
Property and equipment, net$383,012 $260,577 
Construction in process mainly includes data center equipment purchased that has not yet been placed in service. Data center equipment that was purchased but not yet been placed into service was $183.8 million as of July 31, 2022.
Depreciation and amortization expense of property and equipment was $17.8 million and $12.7 million during the three months ended July 31, 2022 and July 31, 2021, respectively, and $34.1 million and $24.7 million during the six months ended July 31, 2022 and July 31, 2021, respectively.
There was no impairment of property and equipment during the three and six months ended July 31, 2022 and July 31, 2021. The Company capitalized $13.5 million and $7.6 million in internal-use software and website development costs during the three months ended July 31, 2022 and July 31, 2021, respectively, and $21.6 million and $13.8 million during the six months ended July 31, 2022 and July 31, 2021, respectively. Amortization expense associated with internal-use software and website development costs totaled $4.9 million and $2.8 million during the three months ended July 31, 2022 and July 31, 2021,
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respectively, and $9.2 million and $5.3 million during the six months ended July 31, 2022 and July 31, 2021, respectively. The net book value of capitalized internal-use software and website development costs was $51.0 million and $38.6 million as of July 31, 2022 and January 31, 2022, respectively.
Intangible Assets, Net
Total intangible assets, net consisted of the following (dollars in thousands):
July 31, 2022Weighted-Average
Remaining 
Useful
Life
Gross Carrying AmountAccumulated AmortizationNet Amount
(in months)
Developed technology$97,605 $18,773 $78,832 74
Customer relationships11,994 2,878 9,116 67
Other acquired intangible assets3,087 1,195 1,892 150
Total$112,686 $22,846 $89,840 
January 31, 2022Weighted-Average
Remaining 
Useful
Life
Gross Carrying AmountAccumulated AmortizationNet Amount
(in months)
Developed technology$97,668 $12,000 $85,668 79
Customer relationships12,045 1,973 10,072 72
Other acquired intangible assets2,397 801 1,596 89
Total$112,110 $14,774 $97,336 
Amortization expense of intangible assets was $4.1 million and $3.3 million during the three months ended July 31, 2022 and July 31, 2021, respectively, and $8.2 million and $5.7 million during the six months ended July 31, 2022 and July 31, 2021, respectively.
The estimated aggregate future amortization expense of intangible assets as of July 31, 2022 is as follows (in thousands):
Total
Fiscal 2023 (remaining six months) $8,150 
Fiscal 202415,631 
Fiscal 202515,547 
Fiscal 202614,460 
Fiscal 202712,267 
Thereafter23,785 
Total amortization expense$89,840 
The developed technology, customer relationships, and other acquired intangible assets are amortized over their estimated useful lives, generally on a straight-line basis for periods ranging from 2 to 20 years.
Goodwill
The changes in goodwill during the six months ended July 31, 2022 consisted of the following (in thousands):
Amounts
Goodwill as of January 31, 2022$416,445 
Goodwill adjustment for the SecureCircle acquisition81 
Foreign currency translation(460)
Goodwill as of July 31, 2022$416,066 
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Accrued Expenses
Accrued expenses consisted of the following (in thousands):
July 31, 2022January 31, 2022
Web hosting services$24,799 $23,711 
Accrued purchases of property and equipment24,145 10,878 
Other accrued expenses17,043 21,154