SEC Filing | CrowdStrike Holdings, Inc.

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crwd-20210731

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, 2021


☐			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)

___________________________________________________________________________________________________

Delaware

45-3788918

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

150 Mathilda Place, Suite 300, Sunnyvale, California 94086

(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
Class A common stock, par value $0.0005 per share	CRWD	The 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 Filer	☑	Accelerated 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 25, 2021, the number of shares of the registrant’s Class A common stock outstanding was 205,834,483, and the number of shares of the registrant’s Class B common stock outstanding was 22,358,088.

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CROWDSTRIKE HOLDINGS, INC.

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		Page No.
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of July 31, 2021 and January 31, 2021	6
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended July 31, 2021 and July 31, 2020	7
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended July 31, 2021 and July 31, 2020	8
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended July 31, 2021 and July 31, 2020	9
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2021 and July 31, 2020	11
	Notes to Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	51
Item 4.	Controls and Procedures	52

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	53
Item 2.	Unregistered Shares of Equity Securities and Use of Proceeds	83
Item 3.	Defaults Upon Senior Securities	83
Item 4.	Mine Safety Disclosures	83
Item 5.	Other Information	83
Item 6.	Exhibits	85
	Signatures	86

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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.

•Our limited operating history makes it difficult to evaluate our current business and future prospects, and may increase the risk of your investment.

•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 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.

•Our business is focused on cloud-based data analytics, and cybersecurity, privacy, and other regulations may affect how we collect and process certain types of data.

•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

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negatively affect our ability to maintain the performance and reliability of our Falcon platform, which could cause our business to suffer.

•If we do not effectively expand and train our direct sales force, we may be unable to add new customers or increase sales to our existing customers, and our business will be adversely affected.

•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.

•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 business, financial condition, and results of operations.

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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,
	2021		2021
Assets
Current assets:
Cash and cash equivalents	$	1,787,051	$	1,918,608

Accounts receivable, net of allowance for credit losses of $1.4 million and $1.2 million as of July 31, 2021 and January 31, 2021, respectively	266,540		239,199
Deferred contract acquisition costs, current	95,470		80,850
Prepaid expenses and other current assets	102,964		53,617
Total current assets	2,252,025		2,292,274
Strategic investments	14,165		2,500
Property and equipment, net	215,832		167,014
Operating lease right-of-use assets	34,854		36,484
Deferred contract acquisition costs, noncurrent	140,443		117,906
Goodwill	374,310		83,566
Intangible assets, net	85,580		15,677
Other long-term assets	18,836		17,112
Total assets	$	3,136,045	$	2,732,533
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	19,642		12,065
Accrued expenses	70,162		51,117
Accrued payroll and benefits	95,462		71,907
Operating lease liabilities, current	9,374		8,977
Deferred revenue	882,969		701,988
Other current liabilities	59,219		17,499
Total current liabilities	1,136,828		863,553
Long-term debt	738,772		738,029
Deferred revenue, noncurrent	281,388		209,907
Operating lease liabilities, noncurrent	29,378		31,986
Other liabilities, noncurrent	38,278		17,184
Total liabilities	2,224,644		1,860,659
Commitments and contingencies (Note 10)
Stockholders’ Equity
Preferred stock, $0.0005 par value; 100,000 shares authorized as of July 31, 2021 and January 31, 2021; no shares issued and outstanding as of July 31, 2021 and January 31, 2021	—		—
Class A common stock, $0.0005 par value; 2,000,000 shares authorized as of July 31, 2021 and January 31, 2021; 205,736 shares and 195,039 shares issued and outstanding as of July 31, 2021 and January 31, 2021, respectively; Class B common stock, $0.0005 par value; 300,000 shares authorized as of July 31, 2021 and January 31, 2021; 22,416 shares and 28,685 shares issued and outstanding as of July 31, 2021 and January 31, 2021, respectively.	114		112
Additional paid-in capital	1,775,087		1,598,259
Accumulated deficit	(872,483)		(730,116)
Accumulated other comprehensive income	1,550		2,319
Total CrowdStrike Holdings, Inc. stockholders’ equity	904,268		870,574
Non-controlling interest	7,133		1,300
Total stockholders’ equity	911,401		871,874
Total liabilities and stockholders’ equity	$	3,136,045	$	2,732,533

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,
	2021		2020		2021		2020
Revenue
Subscription	$	315,836	$	184,256	$	597,064	$	346,478
Professional services	21,854		14,715		43,469		30,571
Total revenue	337,690		198,971		640,533		377,049

Cost of revenue
Subscription	75,993		44,037		140,896		81,281
Professional services	14,439		10,354		28,041		20,005
Total cost of revenue	90,432		54,391		168,937		101,286

Gross profit	247,258		144,580		471,596		275,763

Operating expenses
Sales and marketing	153,861		95,127		288,992		183,265
Research and development	90,455		50,483		168,635		91,061
General and administrative	50,345		28,961		92,719		54,004
Total operating expenses	294,661		174,571		550,346		328,330

Loss from operations	(47,403)		(29,991)		(78,750)		(52,567)
Interest expense	(6,296)		(174)		(12,526)		(317)
Other income, net	619		732		5,387		5,265

Loss before provision for income taxes	(53,080)		(29,433)		(85,889)		(47,619)

Provision for income taxes	4,238		441		54,300		1,477

Net loss	(57,318)		(29,874)		(140,189)		(49,096)
Net income attributable to noncontrolling interest	—		—		2,178		—
Net loss attributable to CrowdStrike	$	(57,318)	$	(29,874)	$	(142,367)	$	(49,096)

Net loss per share attributable to CrowdStrike common stockholders, basic and diluted	$	(0.25)	$	(0.14)	$	(0.63)	$	(0.23)

Weighted-average shares used in computing net loss per share attributable to CrowdStrike common stockholders, basic and diluted	226,362		216,695		225,276		214,932

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,
	2021		2020		2021		2020
Net loss	$	(57,318)	$	(29,874)	$	(140,189)	$	(49,096)
Other comprehensive income (loss):
Foreign currency translation adjustments	(567)		2,119		(769)		1,426
Reversal of unrealized gain upon sale of debt securities, net of tax	—		—		—		(1,320)

Other comprehensive income (loss)	(567)		2,119		(769)		106
Less: Comprehensive income attributable to noncontrolling interest	—		—		2,178		—
Total comprehensive loss attributable to CrowdStrike	$	(57,885)	$	(27,755)	$	(143,136)	$	(48,990)

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, 2021 and 2020

(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, 2021	225,743	$	113	$	1,662,199	$	(815,165)	$	2,117	$	4,133	$	853,397
Issuance of common stock upon exercise of options	992	1		6,461		—		—		—		6,462
Issuance of common stock under RSU release	728	—		—		—		—		—		—
Issuance of common stock under employee stock purchase plan	689	—		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, 2021	228,152	$	114	$	1,775,087	$	(872,483)	$	1,550	$	7,133	$	911,401


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Non-controlling Interest		Total Stockholders’ Equity
	Shares	Amount
Balances at April 30, 2020	215,505	$	108	$	1,409,758	$	(656,709)	$	(1,004)	$	1,000	$	753,153
Issuance of common stock upon exercise of options	2,633	2		10,206		—		—		—		10,208
Issuance of common stock under RSU release	491	—		—		—		—		—		—
Issuance of common stock under employee stock purchase plan	565	—		17,284		—		—		—		17,284
Vesting of early exercised options	—	—		849		—		—		—		849
Stock-based compensation expense	—	—		37,713		—		—		—		37,713
Capitalized stock-based compensation	—	—		513		—		—		—		513
Net loss	—	—		—		(29,874)		—		—		(29,874)
Non-controlling interest	—	—		—		—		—		50		50
Other comprehensive income	—	—		—		—		2,119		—		2,119
Balances at July 31, 2020	219,194	$	110	$	1,476,323	$	(686,583)	$	1,115	$	1,050	$	792,015

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, 2021 and 2020

(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 January 31, 2021	223,724	$	112	$	1,598,259	$	(730,116)	$	2,319	$	1,300	$	871,874
Issuance of common stock upon exercise of options	1,761	2		10,214		—		—		—		10,216
Issuance of common stock under RSU release	1,921	—		—		—		—		—		—
Issuance of common stock under employee stock purchase plan	689	—		27,452		—		—		—		27,452
Issuance of common stock related to early exercised options	57	—		—		—		—		—		—
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, 2021	228,152	$	114	$	1,775,087	$	(872,483)	$	1,550	$	7,133	$	911,401


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Non-controlling Interest		Total Stockholders’ Equity
	Shares	Amount
Balances at January 31, 2020	212,948	$	106	$	1,378,479	$	(637,487)	$	1,009	$	500	$	742,607
Issuance of common stock upon exercise of options	4,689	4		16,597		—		—		—		16,601
Issuance of common stock under RSU release	992	—		—		—		—		—		—
Issuance of common stock under employee stock purchase plan	565	—		17,284		—		—		—		17,284
Vesting of early exercised options	—	—		1,722		—		—		—		1,722
Stock-based compensation expense	—	—		61,351		—		—		—		61,351
Capitalized stock-based compensation	—	—		890		—		—		—		890
Net loss	—	—		—		(49,096)		—		—		(49,096)
Non-controlling interest	—	—		—		—		—		550		550
Other comprehensive loss	—	—		—		—		106		—		106
Balances at July 31, 2020	219,194	$	110	$	1,476,323	$	(686,583)	$	1,115	$	1,050	$	792,015

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,
	2021		2020
Operating activities
Net loss	$	(140,189)	$	(49,096)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	24,725		17,621

Loss on disposal of property and equipment	244		—
Amortization of intangible assets	5,735		207
Amortization of deferred contract acquisition costs	50,419		28,171
Non-cash operating lease cost	4,469		4,939
Provision for credit losses	354		(269)
Stock-based compensation expense	130,649		61,351
Gain on sale of debt securities, net	—		(1,347)
Accretion of marketable securities purchased at a premium	—		578
Non-cash interest expense	1,199		320
Change in fair value of strategic investments	(4,356)		—
Changes in operating assets and liabilities, net of impact of acquisition
Accounts receivable	(24,257)		16,020
Deferred contract acquisition costs	(87,576)		(48,988)
Prepaid expenses and other assets	(47,883)		(1,953)

Accounts payable	5,383		9,634
Accrued expenses and other current liabilities	55,242		(8,112)
Accrued payroll and benefits	22,853		(711)
Operating lease liabilities	(5,022)		1,315
Deferred revenue	251,742		118,672
Other liabilities	12,277		5,250
Net cash provided by operating activities	256,008		153,602
Investing activities
Purchases of property and equipment	(55,793)		(30,334)
Capitalized internal-use software and website development	(9,273)		(3,850)
Purchase of strategic investments	(7,309)		(1,000)
Business acquisition, net of cash acquired	(353,746)		—

Purchases of marketable securities	—		(84,904)
Proceeds from sales of marketable securities	—		639,586
Maturities of marketable securities	—		91,605
Net cash (used in) provided by investing activities	(426,121)		611,103
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 options	9,492		16,601
Proceeds from issuance of common stock under the employee stock purchase plan	27,452		17,284
Capital contributions from non-controlling interest holders	3,655		550
Net cash provided by financing activities	38,799		34,435

Effect of foreign exchange rates on cash and cash equivalents	(243)		796
Net (decrease) increase in cash and cash equivalents	(131,557)		799,936
Cash and cash equivalents, beginning of period	1,918,608		264,798
Cash and cash equivalents, end of period	$	1,787,051	$	1,064,734
Supplemental disclosure of cash flow information:
Interest paid	$	78	$	—
Income taxes paid, net of refunds received	2,337		663
Supplemental disclosure of non-cash investing and financing activities:
Net increase (decrease) in property and equipment included in accounts payable and accrued expenses	4,480		(1,020)
Vesting of early exercised stock options	1,594		1,722
Equity consideration for acquisitions	4,011		—

Operating lease liabilities arising from obtaining operating right of-use assets	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 Basis of Presentation

Business

CrowdStrike Holdings, Inc. (the “Company”) was formed on November 7, 2011. The Company provides a leading cloud-delivered solution for next-generation endpoint and cloud workload protection that offers 19 cloud modules and its Falcon platform 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 is headquartered in Sunnyvale, California. 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, 2021, 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, 2021 are not necessarily indicative of the results to be expected for the year ending January 31, 2022 or for any other interim period or for any other future year.

2. Summary of Significant Accounting Policies

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.

Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable required disclosures and regulations of the SEC. Therefore, 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, 2021, filed with the SEC on March 18, 2021.

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 and disclosure of contingent liabilities, income taxes, stock-based compensation, the fair value of assets acquired and liabilities assumed for business combinations, and the fair value and effective interest rate for the Senior Notes.

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Due to the Coronavirus (“COVID-19”) pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require a material update to its estimates or judgments or an adjustment of the carrying value of its assets or liabilities as of July 31, 2021. While there was not a material impact to the Company’s condensed consolidated financial statements as of and for the three and six months ended July 31, 2021, these estimates may change, as new events occur and additional information is obtained, as well as other factors related to COVID-19 that could result in material impacts to the Company’s condensed consolidated financial statements in future reporting periods.

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 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,		January 31,
	2021		2021
Channel partner A(1)	14	%	10	%
Customer A(1)	—	%	17	%

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(1)Channel Partner A and Customer A are controlled by the same company.

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, 2021 and July 31, 2020.

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, 2021. 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, 2021.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The Company adopted this guidance on February 1, 2021, which did not have a material effect on its condensed consolidated financial statements.

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3. Investments and Fair Value Measurements

The Company follows ASC 820, Fair Value Measurements, with respect to marketable securities 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

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, 2021								January 31, 2021
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total


Assets
Cash equivalents (1)
Money market funds	$	396,011	$	—	$	—	$	396,011	$	—	$	—	$	—	$	—
Total assets	$	396,011	$	—	$	—	$	396,011	$	—	$	—	$	—	$	—

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(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 changes in strategic investments (in thousands):


	July 31,		January 31,
	2021		2021


Total initial cost	$	9,809	$	2,500
Unrealized gains due to changes in fair value	4,356		—
Carrying value	$	14,165	$	2,500

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4. Balance Sheet Components

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):


	July 31, 2021		January 31, 2021


Other current assets	$	38,178	$	4,566
Prepaid marketing	23,104		10,852
Prepaid software licenses	17,785		20,596
Prepaid expenses	19,008		12,220
Prepaid hosting services	4,889		5,383
Prepaid expenses and other current assets	$	102,964	$	53,617

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):


	July 31, 2021		January 31, 2021


Data center and other computer equipment	$	175,359	$	146,220
Capitalized internal-use software and website development	54,839		44,358
Leasehold improvements	19,319		19,733
Purchased software	5,219		3,211
Furniture and equipment	6,469		6,498
Construction in process	67,602		35,528
	328,807		255,548
Less: Accumulated depreciation and amortization	(112,975)		(88,534)
Property and equipment, net	$	215,832	$	167,014

Construction in process primarily includes data center equipment purchased that has not yet been placed in service. As of July 31, 2021, $57.4 million of data center equipment was purchased but not yet been placed into service.

Depreciation and amortization expense of property and equipment was $12.7 million and $9.4 million during the three months ended July 31, 2021 and July 31, 2020, respectively, and $24.7 million and $17.6 million during the six months ended July 31, 2021 and July 31, 2020, respectively.

There was no impairment of website and internal-use software during the three and six months ended July 31, 2021 and July 31, 2020. The Company capitalized $7.6 million and $2.4 million in website and internal-use software during the three months ended July 31, 2021 and July 31, 2020, and $13.8 million and $4.7 million during the six months ended July 31, 2021 and July 31, 2020, respectively. Amortization expense associated with website and internal-use software totaled $2.8 million and $1.8 million during the three months ended July 31, 2021 and July 31, 2020, respectively, and $5.3 million and $3.7 million during the six months ended July 31, 2021 and July 31, 2020, respectively. The net book value of capitalized website and internal-use software was $28.8 million and $20.1 million as of July 31, 2021 and January 31, 2021, respectively.

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Intangible Assets, Net

Total intangible assets, net consisted of the following (dollar in thousands):


	July 31, 2021						Weighted-Average Remaining Useful Life
	Gross Carrying Amount		Accumulated Amortization		Net Amount
							(in months)
Developed technology	$	82,416	$	6,062	$	76,354	87
Customer relationships	9,084		1,215		7,869		77
Other acquired intangible assets	1,774		417		1,357		55
Total	$	93,274	$	7,694	$	85,580


	January 31, 2021						Weighted-Average Remaining Useful Life
	Gross Carrying Amount		Accumulated Amortization		Net Amount

							(in months)
Developed technology	$	14,513	$	2,193	$	12,320	56
Customer relationships	3,769		649		3,120		54
Other acquired intangible assets	399		162		237		185
Total	$