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, 2023
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
___________________________________________________________________________________________________
(Exact Name of Registrant as Specified in Its Charter)
___________________________________________________________________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||||||||||||||||||||
(Address of principal executive offices)
__________________________________________________________________________________________________
Registrant’s telephone number, including area code: (888 ) 512-8906
___________________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
| (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.
| ☑ | Accelerated Filer | ☐ | |||||||||
| Non-accelerated Filer | ☐ | 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 15, 2023, the number of shares of the registrant’s Class A common stock outstanding was 226,056,362 , and the number of shares of the registrant’s Class B common stock outstanding was 12,731,839 .
CROWDSTRIKE HOLDINGS, INC.
TABLE OF CONTENTS
| Page No. | ||||||||
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 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;
•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;
•the impact of the COVID-19 pandemic on our operations, financial results, and liquidity and capital resources, including on customers, sales, expenses, and employees;
•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;
•macroeconomic factors, including inflation and 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.
3
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 materialize, 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 while we have achieved profitability in quarterly periods, we may not be able to achieve or sustain profitability in the future.
•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.
•Our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense,
•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.
4
•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.
5
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, | ||||||||||
| 2023 | 2023 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Short-term investments | |||||||||||
Accounts receivable, net of allowance for credit losses of $ | |||||||||||
| Deferred contract acquisition costs, current | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Strategic investments | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Deferred contract acquisition costs, noncurrent | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Accrued payroll and benefits | |||||||||||
| Operating lease liabilities, current | |||||||||||
| Deferred revenue | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred revenue, noncurrent | |||||||||||
| Operating lease liabilities, noncurrent | |||||||||||
| Other liabilities, noncurrent | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 8) | |||||||||||
| Stockholders’ Equity | |||||||||||
Preferred stock, $ | |||||||||||
Class A common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive income (loss) | ( | ||||||||||
| Total CrowdStrike Holdings, Inc. stockholders’ equity | |||||||||||
| Non-controlling interest | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
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, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Subscription | $ | $ | $ | $ | |||||||||||||||||||
| Professional services | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription | |||||||||||||||||||||||
| Professional services | |||||||||||||||||||||||
| Total cost of revenue | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Loss from operations | ( | ( | ( | ( | |||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Other income (expense) | ( | ( | |||||||||||||||||||||
| Income (loss) before provision for income taxes | ( | ( | |||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income (loss) | ( | ( | |||||||||||||||||||||
| Net income attributable to non-controlling interest | |||||||||||||||||||||||
| Net income (loss) attributable to CrowdStrike | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Net income (loss) per share attributable to CrowdStrike common stockholders: | |||||||||||||||||||||||
| Basic | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Diluted | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Weighted-average shares used in computing net income (loss) per share attributable to CrowdStrike common stockholders: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
CrowdStrike Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
| Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | |||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Less: Comprehensive income attributable to non-controlling interest | |||||||||||||||||||||||
| Total comprehensive income (loss) attributable to CrowdStrike | $ | $ | ( | $ | $ | ( | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
CrowdStrike Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
Three Months Ended July 31, 2023 and 2022
(in thousands)
(unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Non-controlling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balances at April 30, 2023 | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of options | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under RSU and PSU release | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for founders holdbacks related to acquisitions | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock to board of directors | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Capitalized stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Non-controlling interest | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balances at July 31, 2023 | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Non-controlling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balances at April 30, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of options | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under RSU and PSU release | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Vesting of early exercised options | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for founders holdbacks related to acquisitions | — | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Capitalized stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||
| Non-controlling interest | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||
| Balances at July 31, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
CrowdStrike Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
Six Months Ended July 31, 2023 and 2022
(in thousands)
(unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (loss) | Non-controlling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balances at January 31, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of options | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under RSU and PSU release | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for founders holdbacks related to acquisitions | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for board of directors | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Capitalized stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Non-controlling interest | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balances at July 31, 2023 | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Non-controlling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balances at January 31, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of options | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under RSU and PSU release | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Vesting of early exercised options | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for founders holdbacks related to acquisitions | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Capitalized stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||
| Non-controlling interest | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||
| Balances at July 31, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
CrowdStrike Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Six Months Ended July 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating activities | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of intangible assets | |||||||||||
| Amortization of deferred contract acquisition costs | |||||||||||
| Non-cash operating lease cost | |||||||||||
| Stock-based compensation expense | |||||||||||
| Deferred income taxes | ( | ||||||||||
| Non-cash interest expense | |||||||||||
| Change in fair value of strategic investments | ( | ||||||||||
| Changes in operating assets and liabilities, net of impact of acquisitions | |||||||||||
| Accounts receivable, net | ( | ||||||||||
| Deferred contract acquisition costs | ( | ( | |||||||||
| Prepaid expenses and other assets | ( | ( | |||||||||
| Accounts payable | ( | ||||||||||
| Accrued expenses and other liabilities | |||||||||||
| Accrued payroll and benefits | ( | ||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Deferred revenue | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Investing activities | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Capitalized internal-use software and website development costs | ( | ( | |||||||||
| Purchases of strategic investments | ( | ( | |||||||||
| Purchases of intangible assets | ( | ( | |||||||||
| Proceeds from maturities and sales of short-term investments | |||||||||||
| Purchases of deferred compensation investments | ( | ||||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| Financing activities | |||||||||||
| Proceeds from issuance of common stock upon exercise of stock options | |||||||||||
| Proceeds from issuance of common stock under the employee stock purchase plan | |||||||||||
| Capital contributions from non-controlling interest holders | |||||||||||
| Net cash provided by financing activities | |||||||||||
| Effect of foreign exchange rates on cash, cash equivalents and restricted cash | ( | ||||||||||
| Net increase in cash, cash equivalents and restricted cash | |||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
| Cash, cash equivalents and restricted cash at the end of period: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in prepaid expenses and other assets | |||||||||||
| Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows | $ | $ | |||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Interest paid | $ | $ | |||||||||
| Income taxes paid, net of refunds received | |||||||||||
| Supplemental disclosure of non-cash investing and financing activities: | |||||||||||
| Net increase (decrease) in property and equipment included in accounts payable and accrued expenses | ( | ||||||||||
| Vesting of early exercised stock options | |||||||||||
| Operating lease liabilities arising from obtaining operating right of-use assets | |||||||||||
| Purchases of intangible assets included in accrued expenses and other liabilities | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
11
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 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, 2023, 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. The results of operations for the three and six months ended July 31, 2023 are not necessarily indicative of the results to be expected for the year ending January 31, 2024 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, 2023, filed with the SEC on March 9, 2023.
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 differences 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, and the fair value of assets acquired and liabilities assumed in 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.
There were no channel partners or direct customers who represented 10% or more of the Company’s accounts receivable as of July 31, 2023 or January 31, 2023.
There were no channel partners or direct customers who represented 10% or more of the Company’s total revenue for each of the three and six months ended July 31, 2023 or 2022.
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, 2023. 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, 2023.
Recently Adopted Accounting Pronouncements
In October 2021, the FASB issued 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 adopted this guidance on February 1, 2023, which did not have a material effect on its condensed consolidated financial statements.
2. Investments and Fair Value Measurements
The Company follows ASC 820, Fair Value Measurements, with respect to cash equivalents and deferred compensation investments 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 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 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
Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
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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, 2023 | January 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||||||||||
Assets(1) | |||||||||||||||||||||||||||||||||||||||||||||||
Cash equivalents (2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| U.S. Treasury securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Other assets | |||||||||||||||||||||||||||||||||||||||||||||||
| Deferred compensation investments | |||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
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(1) $250.0 million of time deposits, which are included in short-term investments, are excluded since they are carried at cost and approximate fair value as of January 31, 2023.
(2)Cash equivalents exclude $1.6 billion of time deposits, which are carried at cost and approximate fair value as of January 31, 2023.
There were no transfers between the levels of the fair value hierarchy during the periods presented.
The following summarizes the changes in the net carrying value of strategic investments, which are Level 3, within the fair value hierarchy for the three and six months ended July 31, 2023 and July 31, 2022 (in thousands):
| Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Carrying amount, beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Adjustments related to non-marketable securities: | |||||||||||||||||||||||
| Purchases | |||||||||||||||||||||||
| Unrealized net gains due to changes in fair value | |||||||||||||||||||||||
| Carrying amount, end of period | $ | $ | |||||||||||||||||||||
Cumulative unrealized gains and losses for equity securities held as of July 31, 2023 are $9.6 million and $2.9 million, respectively.
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3. Balance Sheet Components
Property and Equipment, Net
| July 31, 2023 | January 31, 2023 | ||||||||||
| Data center and other computer equipment | $ | $ | |||||||||
| Capitalized internal-use software and website development costs | |||||||||||
| Leasehold improvements | |||||||||||
| Purchased software | |||||||||||
| Furniture and equipment | |||||||||||
| Construction in progress | |||||||||||
| Less: Accumulated depreciation and amortization | ( | ( | |||||||||
| Property and equipment, net | $ | $ | |||||||||
Construction in progress primarily 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 $185.7 million as of July 31, 2023.
Depreciation and amortization expense of property and equipment was $29.8 million and $17.8 million during the three months ended July 31, 2023 and July 31, 2022, respectively, and $56.2 million and $34.1 million during the six months ended July 31, 2023 and July 31, 2022, respectively.
There was no 23.6 million and $13.5 million in internal-use software and website development costs during the three months ended July 31, 2023 and July 31, 2022, respectively, and $40.2 million and $21.6 million during the six months ended July 31, 2023 and July 31, 2022, respectively. Amortization expense associated with internal-use software and website development costs totaled $8.4 million and $4.9 million during the three months ended July 31, 2023 and July 31, 2022, respectively, and $15.9 million and $9.2 million during the six months ended July 31, 2023 and July 31, 2022, respectively. The net book value of capitalized internal-use software and website development costs was $90.8 million and $66.3 million as of July 31, 2023 and January 31, 2023, respectively.
Intangible Assets, Net
Total intangible assets, net consisted of the following (dollars in thousands):
| July 31, 2023 | Weighted-Average Remaining Useful Life | ||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Amount | |||||||||||||||||||||
| (in months) | |||||||||||||||||||||||
| Developed technology | $ | $ | $ | ||||||||||||||||||||
| Customer relationships | |||||||||||||||||||||||
| Other acquired intangible assets | |||||||||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||||||||
| January 31, 2023 | Weighted-Average Remaining Useful Life | ||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Amount | |||||||||||||||||||||
| (in months) | |||||||||||||||||||||||
| Developed technology | $ | $ | $ | ||||||||||||||||||||
| Customer relationships | |||||||||||||||||||||||
| Other acquired intangible assets | |||||||||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||||||||
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Amortization expense of intangible assets was $4.1 8.3 million and $8.2 million during the six months ended July 31, 2023 and July 31, 2022, respectively.
| Total | |||||
| Fiscal 2024 (remaining six months) | $ | ||||
| Fiscal 2025 | |||||
| Fiscal 2026 | |||||
| Fiscal 2027 | |||||
| Fiscal 2028 | |||||
| Thereafter | |||||
| Total amortization expense | $ | ||||
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
| Amounts | |||||
| Goodwill as of January 31, 2023 | $ | ||||
| Foreign currency translation | |||||
| Goodwill as of July 31, 2023 | $ | ||||
Accrued Expenses
Accrued expenses consisted of the following (in thousands):
| July 31, 2023 | January 31, 2023 | ||||||||||
| Web hosting services | $ | $ | |||||||||
| Accrued professional services | |||||||||||
| Accrued marketing | |||||||||||
| Other accrued expenses | |||||||||||
| Accrued interest expense | |||||||||||
| Accrued partner commissions | |||||||||||
| Accrued purchases of property and equipment | |||||||||||
| Accrued expenses | $ | $ | |||||||||
Accrued Payroll and Benefits
| July 31, 2023 | January 31, 2023 | ||||||||||
| Accrued commissions | $ | $ | |||||||||
| Accrued payroll and related expenses | |||||||||||
| Accrued bonuses | |||||||||||
| Employee Stock Purchase Plan | |||||||||||
| Accrued payroll and benefits | $ | $ | |||||||||
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4. Debt
Secured Revolving Credit Facility
In April 2019, the Company entered into a Credit Agreement with Silicon Valley Bank and other lenders, to provide a revolving line of credit of up to $150.0 million, including a letter of credit sub-facility in the aggregate amount of $10.0 million, and a swingline sub-facility in the aggregate amount of $10.0 million.
On January 4, 2021, the Company amended and restated its existing credit agreement (the “A&R Credit Agreement” and the facility thereunder the “Revolving Facility”) among CrowdStrike, Inc., as borrower, CrowdStrike Holdings, Inc., as guarantor, and Silicon Valley Bank and the other lenders party thereto, providing the Company with a revolving line of credit of up to $750.0 million, including a letter of credit sub-facility in the aggregate amount of $100.0 million, and a swingline sub-facility in the aggregate amount of $50.0 million. The Company also has the option to request an incremental facility of up to an additional $250.0 million from one or more of the lenders under the A&R Credit Agreement. The A&R Credit Agreement is guaranteed by all of the Company’s material domestic subsidiaries. The A&R Credit Agreement extended the maturity date of April 19, 2022 to January 2, 2026.
On January 6, 2022, the Company modified the A&R Credit Agreement (the “Amended A&R Credit Agreement”) among CrowdStrike, Inc., as borrower, CrowdStrike Holdings, Inc., as guarantor, and Silicon Valley Bank and the other lenders party thereto. There were no changes to the borrowing amounts or maturity date. Under the Amended A&R Credit Agreement, revolving loans are Alternate Base Rate (“ABR”) Loans. Outstanding ABR Loans incur interest at the highest of (a) the Prime Rate, as published by the Wall Street Journal, (b) the federal funds rate in effect on such day plus 0.50 %, and (c) the Term Secured Overnight Finance Rate (the “Term SOFR”) for a one-month tenor in effect on such day plus 1.00 %, in each case plus a margin between (0.25 )% and 0.25 %, depending on the senior secured leverage ratio. The Company will be charged a commitment fee of 0.15 % to 0.25 % per year for committed but unused amounts, depending on the senior secured leverage ratio. The financial covenants require the Company to maintain a minimum consolidated interest coverage ratio of 3.00 :1.00, and a maximum total leverage ratio of 5.50 :1.00 stepping down to 3.50 :1.00 over time. The Company was in compliance with all of its financial covenants as of July 31, 2023.
The Amended A&R Credit Agreement is secured by substantially all of the Company’s current and future consolidated assets, property and rights, including, but not limited to, intellectual property, cash, goods, equipment, contractual rights, financial assets, and intangible assets of the Company and certain of its subsidiaries. The Amended A&R Credit Agreement contains customary covenants limiting the Company’s ability and the ability of its subsidiaries to, among other things, dispose of assets, undergo a change in control, merge or consolidate, make acquisitions, incur debt, incur liens, pay dividends, repurchase stock, and make investments, in each case subject to certain exceptions.
Senior Notes
On January 20, 2021, the Company issued $750.0 million in aggregate principal amount of 3.00 % Senior Notes maturing in February 2029. The Senior Notes are guaranteed by the Company’s subsidiary, CrowdStrike, Inc. and will be guaranteed by each of the Company’s existing and future domestic subsidiaries that becomes a borrower or guarantor under the A&R Credit Agreement. The Senior Notes were issued at par and bear interest at a rate of 3.00 % per annum. Interest payments are payable semiannually on February 15 and August 15 of each year, commencing on August 15, 2021. The Company may voluntarily redeem the Senior Notes, in whole or in part, 1) at any time prior to February 15, 2024 at (a) 100.00 % of their principal amount, plus a “make whole” premium or (b) with the net cash proceeds received from an equity offering at a redemption price equal to 103.00 % of the principal amount, provided the aggregate principal amount of all such redemptions does not exceed 40 % of the original aggregate principal amount of the Senior Notes; 2) at any time on or after February 15, 2024 at a prepayment price equal to 101.50 % of the principal amount; 3) at any time on or after February 15, 2025 at a prepayment price equal to 100.75 % of the principal amount; and 4) at any time on or after February 15, 2026 at a prepayment price equal to 100.00 % of the principal amount; in each case, plus accrued and unpaid interest, if any, to but excluding, the date of redemption.
The net proceeds from the debt offering were $738.0 million after deducting the underwriting commissions of $9.4 million and $2.6 million of issuance costs. The debt issuance costs are being amortized to interest expense using the effective interest method over the term of the Senior Notes. Interest expense related to contractual interest expense, amortization of debt issuance costs, and accretion of debt discount was $6.0 12.0
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In certain circumstances involving a change of control event, the Company will be required to make an offer to repurchase all or, at the holder’s option, any part, of each holder’s notes of that series at 101 % of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.
The indenture governing the Senior Notes (the “Indenture”) contains covenants limiting the Company’s ability and the ability of its subsidiaries to create liens on certain assets to secure debt; grant a subsidiary guarantee of certain debt without also providing a guarantee of the Senior Notes; declare dividends; and consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of its assets to, another person. These covenants are subject to a number of limitations and exceptions. Certain of these covenants will not apply during any period in which the notes are rated investment grade by Fitch Ratings, Inc. (“Fitch”), Moody’s Investors Service, Inc. (“Moody’s”), and Standard & Poor’s Ratings Services (“S&P”).
As of July 31, 2023, the Company was in compliance with all of its financial covenants under the Indenture associated with the Senior Notes.
Based on the trading prices of the Senior Notes, the fair value of the Senior Notes was approximately $646.1 million and $645.4 million as of July 31, 2023 and January 31, 2023, respectively. While the Senior Notes are recorded at cost, the fair value of the Senior Notes was determined based on quoted prices in markets that are not active; accordingly, the Senior Notes are categorized as Level 2 for purposes of the fair value measurement hierarchy.
5. Income Taxes
The Company recognized income tax expense of $4.6 million and $4.8 million for the three months ended July 31, 2023 and July 31, 2022, respectively, and $9.0 million and $8.2 million for the six months ended July 31, 2023 and July 31, 2022, respectively. The tax expense for the three and six months ended July 31, 2023 and July 31, 2022 was primarily attributable to pre-tax foreign earnings and withholding taxes related to customer payments in certain foreign jurisdictions in which the Company conducts business. The Company’s effective tax rates of 35.2 % and (11.0 )% for the three months ended July 31, 2023 and July 31, 2022, respectively, and 50.1 % and (11.7 )% for the six months ended July 31, 2023 and July 31, 2022, respectively, differ from the U.S. statutory tax rate primarily due to taxes in foreign jurisdictions, and the full valuation allowance in the U.S. Consistent with the prior year, the Company maintains a full valuation allowance on its U.S. federal and state and its U.K. deferred tax assets.
Total gross unrecognized tax benefits were $45.7 million and $36.9 million as of July 31, 2023 and January 31, 2023, respectively. As of July 31, 2023 and January 31, 2023, approximately $4.8 million and $4.2 million, respectively of unrecognized tax benefits, which, if recognized, would affect the Company’s effective tax rate due to the full valuation allowance. The Company’s policy is to classify interest and penalties related to unrecognized tax benefits as part of the income tax provision in the condensed consolidated statements of operations. The Company had incurred an insignificant amount of interest and penalties related to unrecognized tax benefits as of July 31, 2023 and January 31, 2023. During the three and six months ended July 31, 2023, the net increase in uncertain tax benefits was a result of research and development credits. The potential change in unrecognized tax benefits during the next 12 months is not expected to be material.
In accordance with the guidance on the accounting for uncertainty in income taxes, for all U.S. and other tax jurisdictions, the Company recognizes potential liabilities for anticipated tax audit issues based on the Company’s estimate of whether, and the extent to which, additional taxes and interest will be due. If the Company’s estimate of income tax liabilities proves to be less than the ultimate assessment, a further charge to expense would be required. If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary. The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes in the condensed consolidated statements of operations. Accrued interest and penalties are included within other liabilities, noncurrent on the condensed consolidated balance sheets.
6. Stock-Based Compensation
Stock Incentive Plan
In May 2019, the Company’s board of directors adopted, and the stockholders approved the CrowdStrike Holdings, Inc. 2019 Equity Incentive Plan (the “2019 Plan”) with the purpose of granting stock-based awards to employees, directors, officers, and consultants, including stock options, restricted stock awards, restricted stock units (“RSUs”), and performance-based restricted stock units (“PSUs”). A total of 8,750,000 shares of Class A common stock were initially available for issuance under the 2019 Plan. The Company’s compensation committee administers the 2019 Plan. The number of shares of the Company’s
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common stock available for issuance under the 2019 Plan is subject to an annual increase on the first day of each fiscal year beginning on February 1, 2020, equal to the lesser of: (i) two percent (2 %) of outstanding shares of the Company’s capital stock as of the last day of the immediately preceding fiscal year or (ii) such other amount as the Company’s board of directors may determine.
The 2011 Plan was terminated on June 10, 2019, which was the business day prior to the effectiveness of the Company’s registration statement on Form S-1 used in connection with the Company’s IPO, and stock-based awards are no longer granted under the 2011 Plan. Any shares underlying stock options that expire, terminate, or are forfeited or repurchased under the 2011 Plan will be automatically transferred to the 2019 Plan.
Stock Options
The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model with the assumptions included in the table below. The expected term represents the period that the Company’s share-based awards are expected to be outstanding. The expected term assumptions were determined based on the vesting terms, exercise terms, and contractual lives of the options. The expected stock price volatility is based upon comparable public company data. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated option life.
There were no stock options granted during the three and six months ended July 31, 2023 or July 31, 2022.
| Number of Shares | Weighted-Average Exercise Price Per Share | ||||||||||
| (in thousands) | |||||||||||
| Options outstanding at January 31, 2023 | $ | ||||||||||
| Exercised | ( | $ | |||||||||
| Canceled | ( | $ | |||||||||
| Options outstanding at July 31, 2023 | $ | ||||||||||
| Options vested and expected to vest at July 31, 2023 | $ | ||||||||||
| Options exercisable at July 31, 2023 | $ | ||||||||||
Options outstanding include 219,994 options that were unvested and exercisable as of July 31, 2023.
The aggregate intrinsic value of options vested and exercisable was $314.5 million and $247.2 million as of July 31, 2023 and January 31, 2023, respectively. The weighted-average remaining contractual term of options vested and exercisable was 4.4 years and 4.8 years as of July 31, 2023 and January 31, 2023, respectively.
The total intrinsic value of all options exercised was $29.4 million and $36.4 million during the three months ended July 31, 2023 and July 31, 2022, respectively, and $74.5 million and $117.7 million during the six months ended July 31, 2023 and July 31, 2022, respectively.
The aggregate intrinsic value of stock options outstanding as of July 31, 2023 and January 31, 2023 was $348.5 million and $279.4 million, respectively, which represents the excess of the fair value of the Company’s common stock over the exercise price of the options multiplied by the number of options outstanding. The weighted-average remaining contractual term of stock options outstanding was 4.5 years and 5.0 years as of July 31, 2023 and January 31, 2023, respectively.
Total unrecognized stock-based compensation expense related to unvested options was $1.2 million as of July 31, 2023. This expense is expected to be amortized over a weighted-average vesting period of 1.2 years.
Early Exercise of Employee Options
The 2011 Stock Plan allows for the early exercise of stock options for certain individuals as determined by the board of directors. The consideration received for an early exercise of an option is a deposit of the exercise price and the related dollar amount is recorded as a liability for early exercise of unvested stock options in the condensed consolidated balance sheets. This liability is reclassified to Additional paid-in capital as the awards vest. If a stock option is early exercised, the unvested shares
may be repurchased by the Company in case of employment termination or for any reason, including death and disability, at the price paid by the purchaser for such shares. There were no no
Restricted Stock Units
RSUs granted under the 2019 Plan are generally subject to only a service-based vesting condition. The service-based vesting condition is generally satisfied based on one of four vesting schedules: (i) vesting of one-fourth of the RSUs on the first “Company vest date” (defined as March 20, June 20, September 20, or December 20) on or following the one-year anniversary of the vesting commencement date with the remainder of the RSUs vesting in twelve equal quarterly installments thereafter, subject to continued service, (ii) vesting in sixteen equal quarterly installments, subject to continued service, (iii) vesting in eight equal quarterly installments, subject to continued service, or (iv) vesting in sixteen quarterly installments with 10 % in the first year, 15 % in the second year, 25 % in the third year and 50 % in the fourth year, subject to continued service. The valuation of these RSUs is based solely on the fair value of the Company’s stock on the date of grant.
Total unrecognized stock-based compensation expense related to unvested RSUs was $1.3 billion as of July 31, 2023. This expense is expected to be amortized over a weighted-average vesting period of 2.8 years.
Performance-based Stock Units
PSUs granted under the 2019 Plan are generally subject to both a service-based vesting condition and a performance-based vesting condition. PSUs will vest upon the achievement of specified performance targets and subject to continued service through the applicable vesting dates. The associated compensation cost is recognized over the requisite service period when it is probable that the performance condition will be satisfied.
Total unrecognized stock-based compensation expense related to unvested PSUs was $110.4 million as of July 31, 2023. This expense is expected to be amortized over a weighted-average vesting period of 1.5 years.
Special PSU Awards
In fiscal 2022 the Company’s board of directors granted 655,000 performance stock units (the “Special PSU Awards”) to certain executives under the 2019 Plan. The Special PSU Awards will vest upon the satisfaction of the Company’s achievement of specified stock price hurdles, which are based on the average of the closing stock price per share of the Company’s Class A common stock during any 45 consecutive trading day period during the applicable performance period, and a service-based vesting condition. The service condition applicable to each tranche of the Special PSU Awards will be satisfied in installments as follows, subject to continued employment with the Company through each applicable vesting date: (i) 50 % of the Special PSU Awards underlying the applicable tranche will service vest on the first anniversary of the vesting commencement date applicable to such tranche of the Special PSU Awards (i.e., February 1, 2022, February 1, 2023, February 1, 2024 and February 1, 2025) and (ii) the remaining PSUs with respect to such tranche will thereafter service vest in four equal quarterly installments of 12.5
The Company measured the fair value of the Special PSU Awards on the grant date using a Monte Carlo simulation valuation model. The risk-free interest rates used were 0.85 % -1.51 %, which were based on the zero-coupon-risk-free interest rate derived from the Treasury Constant Maturities yield curve for the expected term of the award on the grant date. The expected volatility was a blended volatility rate of 54.89 % - 55.36 %, which includes 50 % weight on the Company’s historical volatility calculated from daily stock returns over a 2.21 - 2.58 year look-back from the grant date and 50 % weight based on the Company’s implied volatility as of the grant date.
Total unrecognized stock-based compensation expense related to the unvested portion of the Special PSU Awards was $47.0 million as of July 31, 2023. This expense is expected to be amortized over a weighted-average vesting period of 1.7 years.
The following table is a summary of RSUs, PSUs and the Special PSU Awards activities for the six months ended July 31, 2023:
| Number of Shares | Weighted- Average Grant Date Fair Value Per Share | ||||||||||
| (in thousands) | |||||||||||
| RSUs and PSUs outstanding at January 31, 2023 | $ | ||||||||||
| Granted | $ | ||||||||||
| Released | ( | $ | |||||||||
Performance adjustment (1) | $ | ||||||||||
| Forfeited | ( | $ | |||||||||
| RSUs and PSUs outstanding at July 31, 2023 | $ | ||||||||||
| RSUs and PSUs ending vested and expected to vest at July 31, 2023 | $ | ||||||||||
(1)The performance adjustment represents adjustments in shares outstanding due to the actual achievement of performance-based awards, the achievement of which was based upon pre-defined financial performance targets.
Employee Stock Purchase Plan
In May 2019, the board of directors adopted, and the stockholders approved the CrowdStrike Holdings, Inc. 2019 Employee Stock Purchase Plan (“ESPP”), which became effective on June 10, 2019, which was the business day prior to the effectiveness of the Company’s registration statement on Form S-1 used in connection with the Company’s IPO. A total of 3,500,000 shares of Class A common stock were initially reserved for issuance under the ESPP. The Company’s compensation committee administers the ESPP. The number of shares of common stock available for issuance under the ESPP is subject to an annual increase on the first day of each fiscal year beginning on February 1, 2020, equal to the lesser of: (i) one percent (1 %) of the outstanding shares of the Company’s capital stock as of the last day of the immediately preceding fiscal year or (ii) such other amount as its board of directors may determine. In May 2021, the Company’s compensation committee adopted an amendment and restatement of the ESPP, which was approved by the Company’s stockholders in June 2021. The amended and restated ESPP clarified the original intent that the annual increase will in no event exceed 5,000,000 shares of the Company’s Class A common stock in any year.
The ESPP provides for consecutive offering periods that will typically have a duration of approximately 24 months in length and are comprised of four purchase periods of approximately six months in length. The offering periods are scheduled to start on the first trading day on or after June 11 and December 11 of each year. The first offering period commenced on June 11, 2019 and ended on June 10, 2021.
The ESPP provides eligible employees with an opportunity to purchase shares of the Company’s Class A common stock through payroll deductions of up to 15 % of their eligible compensation. A participant may purchase a maximum of 2,500 shares of common stock during a purchase period. Amounts deducted and accumulated by the participant are used to purchase shares of common stock at the end of each six-month purchase period. The purchase price of the shares is 85 % of the lower of the fair market value of the Class A common stock on (i) the first trading day of the applicable offering period and (ii) the last trading day of each purchase period in the related offering period. Participants may end their participation at any time during an offering period and will be paid their accrued contributions that have not yet been used to purchase shares of common stock. Participation ends automatically upon termination of employment. The ESPP allows for up to one increase in contribution during each purchase period. If an employee elects to increase his or her contribution, the Company treats this as an accounting modification. The ESPP also offers a two-year look-back feature, as well as a rollover feature that provides for an offering period to be rolled over to a new lower-priced offering if the offering price of the new offering period is less than that of the current offering period. During the fiscal year ended January 31, 2023, there were ESPP rollovers because the Company’s closing stock price on the purchase date was lower than the Company’s closing stock price on the first day of the offering periods. As a result, these offering dates were rolled over to a new 24-month offering period through December 12, 2024. These rollovers were accounted for as a modification to the original offerings. The total incremental expense as a result of the rollover and contribution modifications was $58.6 million, which will be recognized over the new or remaining offering periods. Contribution modifications during the three and six months ended July 31, 2023 were $1.8
Employee payroll contributions ultimately used to purchase shares are reclassified to Stockholders’ equity on the purchase date. ESPP employee payroll contributions accrued as of July 31, 2023 and January 31, 2023 totaled $12.6 million and $17.5 million, respectively, and are included within Accrued payroll and benefits in the condensed consolidated balance sheets.
The following table summarizes the assumptions used in the Black-Scholes option-pricing model to determine the fair value of the Company’s common shares to be issued under the ESPP for the offering periods beginning in June 2020:
| Six Months Ended July 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Expected term (in years) | |||||||||||
| Risk-free interest rate | |||||||||||
| Expected stock price volatility | |||||||||||
| Dividend yield | % | % | |||||||||
Stock-Based Compensation Expense
| Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Subscription cost of revenue | $ | $ | $ | $ | |||||||||||||||||||
| Professional services cost of revenue | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | |||||||||||||||||||
7. Revenue, Deferred Revenue and Remaining Performance Obligations
The following table summarizes revenue by region based on the shipping address of customers who have contracted to use the Company’s platform or service (in thousands, except percentages):
| Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Amount | % Revenue | Amount | % Revenue | Amount | % Revenue | Amount | % Revenue | ||||||||||||||||||||||||||||||||||||||||
| United States | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||
| Europe, Middle East, and Africa | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Asia Pacific | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Other | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||
No single country other than the United States represented 10% or more of the Company’s total revenue during the three and six months ended July 31, 2023 or July 31, 2022.
Contract Balances
Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract. Such amounts are recognized as revenue over the contractual period. The Company recognized revenue of $642.3 million and $454.1 million for the three months ended July 31, 2023 and July 31, 2022, respectively, and $1,089.9 million and $728.9 million for the six months ended July 31, 2023 and July 31, 2022, respectively, which was included in the corresponding contract liability balance at the beginning of the period.
The Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Payment terms on invoiced amounts are typically 30 - 60 days. Contract assets include amounts related to the contractual right to consideration for both completed and partially completed performance obligations that may not have been invoiced.
Changes in deferred revenue were as follows (in thousands):
| Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Carrying Amount | Carrying Amount | ||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | |||||||||||||||||||
| Additions to deferred revenue | |||||||||||||||||||||||
| Recognition of deferred revenue | ( | ( | ( | ( | |||||||||||||||||||
| Ending balance | $ | $ | $ | $ | |||||||||||||||||||