CrowdStrike Holdings, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties, including those described under the heading “Special Note Regarding Forward-Looking Statements.” You should review the disclosure under Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our fiscal years ended January 31, 2021, January 31, 2020, and January 31, 2019, are referred to herein as fiscal 2021, fiscal 2020, and fiscal 2019, respectively. Overview We founded CrowdStrike in 2011 to reinvent security for the cloud era. When we started the company, cyberattackers had a decided, asymmetric advantage over existing security products. We turned the tables on the adversaries by taking a fundamentally new approach that leverages the network effects of crowdsourced data applied to modern technologies such as AI, cloud computing, and graph databases. Realizing that the nature of cybersecurity problems had changed but the solutions had not, we built our CrowdStrike Falcon platform to detect threats and stop breaches. We believe we are defining a new category called the Security Cloud, with the power to transform the security industry much the same way the cloud has transformed the customer relationship management, human resources, and service management industries. With our Falcon platform, we created the first multi-tenant, cloud native, intelligent security solution capable of protecting workloads across on-premise, virtualized, and cloud-based environments running on a variety of endpoints such as desktops, laptops, servers, virtual machines, cloud workloads, cloud containers, mobile, and IoT devices. Our Falcon platform is composed of two tightly integrated proprietary technologies: our easily deployed intelligent lightweight agent and our cloud-based, dynamic graph database called Threat Graph. Our solution benefits from crowdsourcing and economies of scale, which we believe enables our AI algorithms to be uniquely effective. We call this cloud-scale AI. Our single lightweight agent is installed on each endpoint or the cloud workload host and provides local detection and prevention capabilities while also intelligently collecting and streaming high fidelity data to our platform for real-time decision-making. Our Threat Graph processes, correlates, and analyzes this data in the cloud using a combination of AI and behavioral pattern-matching techniques. By analyzing and correlating information across our massive, crowdsourced dataset, we are able to deploy our AI algorithms at cloud-scale and build a more intelligent, effective solution to detect threats and stop breaches that on-premise or single instance cloud products cannot match. Today, we offer 19 cloud modules via a SaaS subscription-based model that spans multiple large markets, including corporate workload security, security and vulnerability management, managed security services, IT operations management, threat intelligence services, identity protection and log management. On June 14, 2019 we closed our initial public offering, or IPO, in which we issued and sold 20,700,000 shares of Class A common stock. The price per share to the public was $34.00. We received aggregate proceeds of $665.1 million from the IPO, net of underwriters’ discounts and commissions and before deducting estimated offering costs of $5.9 million. Upon the closing of the IPO, all shares of our outstanding preferred stock automatically converted into 131,267,586 shares of Class B common stock. In connection with our IPO, all shares of our common stock outstanding prior to our IPO were automatically converted into shares of Class B common stock. In March 2020, the World Health Organization declared the COVID-19 outbreak to be a pandemic. Since then, the COVID-19 pandemic has rapidly spread across the globe and has already resulted in significant volatility, uncertainty, and economic disruption. Thus far, the impact of the pandemic has been modest with some customers, particularly in heavily impacted industries, requesting special billing or payment terms. Our gross retention rate for the fourth quarter of fiscal 2021 remained consistently high and our dollar-based net retention rate once again exceeded 120 percent as we continued to expand module adoption within new and existing customers. In March 2020, we implemented several measures to help protect the health and safety of our employees around the globe including restricting all travel and transitioning 100% of our workforce to be remote. In addition, in response to the uncertain macroeconomic environment, we converted all of our marketable securities to cash and cash equivalents, and as of January 31, 2021, all of our investments were classified as cash. 57 Table of Contents We continue to conduct business as usual with modifications to employee travel, employee work locations, customer interactions, and cancellation of certain marketing events, among other things. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers, and stockholders. The extent to which the COVID-19 pandemic may impact our longer-term operational and financial performance remains uncertain. Furthermore, due to our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods, if at all. The extent of the impact of the COVID-19 pandemic will depend on several factors, including the pace of reopening the economy around the world; the possible resurgence in the spread of the virus; the development cycle of therapeutics and vaccines; the impact on our customers and our sales cycles; the impact on our customer, employee, and industry events; and the effect on our vendors. Please see Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K for a further description of the material risks we currently face, including risks related to the COVID-19 pandemic. In March 2020, we launched two initiatives to help our customers quickly onboard new remote workers without sacrificing protection or having to worry about a procurement cycle. This included a surge relief plan that allows our customers to surge the number of endpoints for a limited time. Additionally, we launched a Falcon Prevent for Home Use program that allows our customers’ company administrators to install Falcon Prevent on their employees’ home systems. We believe both of these initiatives have been well received by our customers. On September 30, 2020, we acquired Preempt Security, a privately-held Delaware corporation that developed real-time access control and threat prevention technology (the “Acquisition”). The total consideration transferred was $91.2 million which consisted of $87.4 million in cash and $3.8 million representing the fair value of replacement equity awards attributable to pre-acquisition service. The purchase price was allocated, on a preliminary basis, to identified intangible assets, which include developed technology, customer relationships and trade names, of $16.4 million, net tangible assets acquired of $(0.5) million and goodwill of $75.3 million, representing the excess of the purchase price over the fair value of net tangible and intangible assets acquired. With this acquisition, we plan to offer customers enhanced Zero Trust security capabilities and strengthen our Falcon platform with conditional access technology. The addition of Preempt Security’s technology to the Falcon platform will help customers achieve end-to-end visibility and enforcement on identity data. On January 4, 2021, we amended and restated our 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 us 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. We also have 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 our material domestic subsidiaries. The maturity date under the A&R Credit Agreement is January 2, 2026. On January 20, 2021, we issued and sold $750.0 million aggregate principal amount of 3.000% Senior Notes due 2029 (the “Senior Notes”). The Senior Notes are guaranteed by one of our subsidiaries, CrowdStrike, Inc., as of the closing date, and thereafter will be guaranteed by any of our domestic subsidiaries that become borrowers or guarantors under our senior secured revolving credit facility. The Senior Notes and the guarantee are general unsecured senior obligations and rank equal in right of payment to all of our existing and future senior indebtedness. Interest will be payable semi-annually at a rate of 3.000% per year. The Senior Notes will mature on February 15, 2029. We may redeem the Senior Notes prior to maturity under certain circumstances. The net proceeds from the debt offering were $739.6 million after deducting the underwriting commissions of $9.4 million and $1.0 million of issuance costs, which were paid as of January 31, 2021. Our Go-To-Market Strategy We sell subscriptions to our Falcon platform and cloud modules to organizations across multiple industries. We primarily sell subscriptions to our Falcon platform and cloud modules through our direct sales team that leverages our network of channel partners. Our direct sales team is comprised of field sales and inside sales professionals who are segmented by a customer’s number of endpoints. 58 Table of Contents We have a low friction land-and-expand sales strategy. When customers deploy our Falcon platform, they can start with any number of cloud modules and we can activate additional cloud modules in real time on the same agent already deployed on the endpoint. This architecture has also allowed us to begin to offer a free trial of our Falcon Prevent module directly from our website or the AWS Marketplace, and we plan to extend this capability to additional modules in the future. Once customers experience the benefits of our Falcon platform, they often expand their adoption over time by adding more endpoints or purchasing additional modules. We also use our sales team to identify current customers who may be interested in free trials of additional cloud modules, which serves as a powerful driver of our land-and-expand model. By segmenting our sales teams, we can deploy a low-touch sales model that efficiently identifies prospective customers. We began as a solution for large enterprises, but the flexibility and scalability of our Falcon platform has enabled us to seamlessly offer our solution to customers of any size—from those with hundreds of thousands of endpoints to as few as three. We have expanded our sales focus to include any organization without the need to modify our Falcon platform for small and medium sized businesses. A substantial majority of our customers purchase subscriptions with a term of one year. Our subscriptions are generally priced on a per-endpoint and per-module basis. We recognize revenue from our subscriptions ratably over the term of the subscription. We also generate revenue from our incident response and proactive professional services, which are generally priced on a time and materials basis. We view our professional services business primarily as an opportunity to cross-sell subscriptions to our Falcon platform and cloud modules. Certain Factors Affecting Our Performance Adoption of Our Solutions. We believe our future success depends in large part on the growth in the market for cloud-based SaaS-delivered endpoint security solutions. Many organizations have not yet abandoned the on-premise legacy products in which they have invested substantial personnel and financial resources to design and maintain. As a result, it is difficult to predict customer adoption rates and demand for our cloud-based solutions. New Customer Acquisition. Our future growth depends in large part on our ability to acquire new customers. If our efforts to attract new customers are not successful, our revenue and rate of revenue growth may decline. We believe that our go-to-market strategy and the flexibility and scalability of our Falcon platform allow us to rapidly expand our customer base. Our incident response and proactive services also help drive new customer acquisitions, as many of these professional services customers subsequently purchase subscriptions to our Falcon platform. Many organizations have not yet adopted cloud-based security solutions, and since our Falcon platform has offerings for organizations of all sizes, worldwide, and across industries, we believe this presents a significant opportunity for growth. Maintain Customer Retention and Increase Sales. Our ability to increase revenue depends in large part on our ability to retain our existing customers and increase the ARR of their subscriptions. We focus on increasing sales to our existing customers by expanding their deployments to more endpoints and selling additional cloud modules for increased functionality. In February 2017, we transitioned our platform from a single offering into highly-integrated offerings of multiple SKU cloud modules. We initially launched this strategy with our IT hygiene, next-generation antivirus, EDR, managed threat hunting, and intelligence modules. We currently have 19 cloud modules that span multiple large markets. Invest in Growth. We believe that our market opportunity is large and requires us to continue to invest significantly in sales and marketing efforts to further grow our customer base, both domestically and internationally. Our open cloud architecture and single data model have allowed us to rapidly build and deploy new cloud modules, and we expect to continue investing in those efforts to further enhance our technology platform and product functionality. In addition to our ongoing investment in research and development, we may also pursue acquisitions of businesses, technologies, and assets that complement and expand the functionality of our Falcon platform, add to our technology or security expertise, or bolster our leadership position by gaining access to new customers or markets. Furthermore, we expect our general and administrative expenses to increase in dollar amount for the foreseeable future given the additional expenses for accounting, compliance, and investor relations as we grow as a public company. 59 Table of Contents Key Metrics We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions. Subscription Customers We define a subscription customer as a separate legal entity that has entered into a distinct subscription agreement for access to Falcon platform for which the term has not ended or with which we are negotiating a renewal contract. We do not consider our channel partners as customers, and we treat managed service security providers, who may purchase our products on behalf of multiple companies, as a single customer. While initially we focused our sales and marketing efforts on large enterprises, in recent years we have also increased our sales and marketing to small and medium sized businesses. The following table sets forth the number of our subscription customers as of the dates presented: As of January 31, 2021 2020 2019 Subscription customers 9,896 5,431 2,516 Year-over-year growth 82 % 116 % 103 % We added 4,465 net new subscription customers during fiscal 2021, including 64 from the acquisition of Preempt Security, for a total of 9,896 subscription customers as of January 31, 2021, representing 82% growth year-over-year. Annual Recurring Revenue ( “ ARR ” ) ARR is calculated as the annualized value of our customer subscription contracts as of the measurement date, assuming any contract that expires during the next 12 months is renewed on its existing terms. To the extent that we are negotiating a renewal with a customer after the expiration of the subscription, we continue to include that revenue in ARR if we are actively in discussion with such an organization for a new subscription or renewal, or until such organization notifies us that it is not renewing its subscription. The following table sets forth our ARR as of the dates presented: As of January 31, 2021 2020 2019 (dollars in thousands) Annual recurring revenue $ 1,050,051 $ 600,456 $ 312,656 Year-over-year growth 75 % 92 % 121 % ARR increased 75% year-over-year and grew to $1.1 billion as of January 31, 2021, of which $449.6 million was net new ARR added during fiscal 2021, including $6.8 million from the acquisition of Preempt Security. Dollar-Based Net Retention Rate Our dollar-based net retention rate compares our ARR from a set of subscription customers against the same metric for those subscription customers from the prior year. Our dollar-based net retention rate reflects customer renewals, expansion, contraction, and churn, and excludes revenue from our incident response and proactive services. We calculate our dollar-based net retention rate as of period end by starting with the ARR from all subscription customers as of 12 months prior to such period end, or Prior Period ARR. We then calculate the ARR from these same subscription customers as of the current period end, or Current Period ARR. Current Period ARR includes any expansion and is net of contraction or churn over the trailing 12 months but excludes revenue from new subscription customers in the current period. We then divide the Current Period ARR by the Prior Period ARR to arrive at our dollar-based net retention rate. 60 Table of Contents Since January 2016, our dollar-based net retention rate has consistently exceeded 100% which is primarily attributable to an expansion of endpoints within, and cross-selling additional cloud modules to, our existing subscription customers. Our dollar-based net retention rate can fluctuate from period to period due to large customer contracts in a given period, which may reduce our dollar-based net retention rate in subsequent periods if the customer makes a larger upfront purchase and does not continue to increase purchases. As of January 31, 2021 2020 2019 Dollar-based net retention rate 125 % 124 % 147 % Our dollar-based net retention rate has varied from quarter to quarter due to a number of factors and we expect that trend to continue. In addition, we have seen strong success with our strategy to land bigger deals with more modules, and we are also seeing an acceleration in our acquisition of new customers. While we view these two trends as positive developments, they have a natural trade off on our ability to expand business with existing customers in the near term. Components of Our Results of Operations Revenue Subscription Revenue. Subscription revenue primarily consists of subscription fees for our Falcon platform and additional cloud modules that are supported by our cloud-based platform. Subscription revenue is driven primarily by the number of subscription customers, the number of endpoints per customer, and the number of cloud modules included in the subscription. We recognize subscription revenue ratably over the term of the agreement, which is generally one to three years. Because the majority of our subscription customers are billed upfront, we have recorded significant deferred revenue. Consequently, a substantial portion of the revenue that we report in each period is attributable to the recognition of deferred revenue relating to subscriptions that we entered into during previous periods. The majority of our customers are invoiced annually in advance or multi-year in advance. Professional Services Revenue. Professional services revenue includes incident response and proactive services, forensic and malware analysis, and attribution analysis. Professional services are generally sold separately from subscriptions to our Falcon platform, although customers frequently enter into a separate arrangement to purchase subscriptions to our Falcon platform at the conclusion of a professional services arrangement. Professional services are available through hourly rate and fixed fee contracts, one-time and ongoing engagements, and retainer-based agreements. For time and materials and retainer-based arrangements, revenue is recognized as services are performed. For fixed fee contracts, we recognize revenue by applying the proportional performance method. Cost of Revenue Subscription Cost of Revenue. Subscription cost of revenue consists primarily of costs related to hosting our cloud-based Falcon platform in data centers, amortization of our capitalized internal-use software, employee-related costs such as salaries and bonuses, stock-based compensation expense, benefits costs associated with our operations and support personnel, software license fees, property and equipment depreciation, amortization of acquired intangibles, and an allocated portion of facilities and administrative costs. As new customers subscribe to our platform and existing subscription customers increase the number of endpoints on our Falcon platform, our cost of revenue will increase due to greater cloud hosting costs related to powering new cloud modules and the incremental costs for storing additional data collected for such cloud modules and employee-related costs. We intend to continue to invest additional resources in our cloud platform and our customer support organizations as we grow our business. The level and timing of investment in these areas could affect our cost of revenue in the future. Professional Services Cost of Revenue. Professional services cost of revenue consists primarily of employee-related costs, such as salaries and bonuses, stock-based compensation expense, technology, property and equipment depreciation, and an allocated portion of facilities and administrative costs. 61 Table of Contents Gross Profit and Gross Margin Gross profit and gross margin have been and will continue to be affected by various factors, including the timing of our acquisition of new subscription customers, renewals from existing subscription customers, sales of additional modules to existing subscription customers, the data center and bandwidth costs associated with operating our cloud platform, the extent to which we expand our customer support and cloud operations organizations, and the extent to which we can increase the efficiency of our technology, infrastructure, and data centers through technological improvements. We expect our gross profit to increase in dollar amount and our gross margin to increase modestly over the long term, although our gross margin could fluctuate from period to period depending on the interplay of these factors. Demand for our incident response services is driven by the number of breaches experienced by non-customers. Also, we view our professional services solutions in the context of our larger business and as a significant lead generator for new subscriptions. Because of these factors, our services revenue and gross margin may fluctuate over time. Operating Expenses Our operating expenses consist of sales and marketing, research and development and general administrative expenses. For each of these categories of expense, employee-related expenses are the most significant component, which include salaries, employee bonuses, sales commissions, and employer payroll tax. Operating expenses also include an allocated portion of overhead costs for facilities and IT. Sales and Marketing. Sales and marketing expenses primarily consist of employee-related expenses such as salaries, commissions, and bonuses. Sales and marketing expenses also include stock-based compensation; expenses related to our Fal.Con customer conference and other marketing events; an allocated portion of facilities and administrative expenses; amortization of acquired intangibles, and cloud hosting and related services costs related to proof of value efforts. We capitalize and amortize sales commissions and any other incremental payments made upon the initial acquisition of a subscription or upsells to existing customers to sales and marketing expense over the estimated customer life, and amortize any such expenses paid for the renewal of a subscription to sales and marketing expense over the term of the renewal. We expect sales and marketing expenses to increase in dollar amount as we continue to make significant investments in our sales and marketing organization to drive additional revenue, further penetrate the market, and expand our global customer base. However, we anticipate sales and marketing expenses to decrease as a percentage of our total revenue over time, although our sales and marketing expenses may fluctuate as a percentage of our total revenue from period-to-period depending on the timing of these expenses. Research and Development. Research and development expenses primarily consist of employee-related expenses such as salaries and bonuses; stock-based compensation, consulting expenses related to the design; development, testing, and enhancements of our subscription services; and an allocated portion of facilities and administrative expenses. Our cloud platform is software-driven, and our research and development teams employ software engineers in the design, and the related development, testing, certification, and support of these solutions. We expect research and development expenses to increase in dollar amount as we continue to increase investments in our technology architecture and software platform. However, we anticipate research and development expenses to decrease as a percentage of our total revenue over time, although our research and development expenses may fluctuate as a percentage of our total revenue from period-to-period depending on the timing of these expenses. General and Administrative. General and administrative expenses consist of employee-related expenses such as salaries and bonuses; stock-based compensation; and related expenses for our executive, finance, human resources, and legal organizations. In addition, general and administrative expenses include outside legal, accounting, and other professional fees; and an allocated portion of facilities and administrative expenses. As a public company, we expect general and administrative expenses to increase in dollar amount over time. However, we anticipate general and administrative expenses to decrease as a percentage of our total revenue over time although our general and administrative expenses may fluctuate as a percentage of our total revenue from period-to-period depending on the timing of these expenses. 62 Table of Contents Interest Expense: Interest Expense consists primarily of interest expense on our secured revolving credit facility, interest expense from amortization of debt issuance costs, and contractual interest expense for our Senior Notes issued in January 2021. We expect interest expense to be higher in fiscal 2022 as a result of the issuance of our Senior Notes. Other Income (Expense), Net. Other income (expense), net, consists primarily of income earned on our cash equivalents and marketable securities; expense related to the fair value of warrants for our redeemable convertible preferred stock and foreign currency transaction gains and losses. Provision for Income Taxes. Provision for income taxes consists of federal and state income taxes in the United States and income taxes and withholding taxes related to customer payments in certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our U.S. federal and state and UK deferred tax assets that we have determined are not realizable on a more likely than not basis. Results of Operations The following tables set forth our consolidated statements of operations in dollar amounts and as a percentage of total revenue for each period presented: Year Ended January 31, 2021 2020 2019 ( in thousands) Revenue Subscription $ 804,670 $ 436,323 $ 219,401 Professional services 69,768 45,090 30,423 Total revenue 874,438 481,413 249,824 Cost of revenue Subscription (1)(2) 185,212 112,474 69,208 Professional services (1) 44,333 29,153 18,030 Total cost of revenue 229,545 141,627 87,238 Gross profit 644,893 339,786 162,586 Operating expenses Sales and marketing (1)(2) 401,316 266,595 172,682 Research and development (1)(2) 214,670 130,188 84,551 General and administrative (1)(3) 121,436 89,068 42,217 Total operating expenses 737,422 485,851 299,450 Loss from operations (92,529) (146,065) (136,864) Interest expense (4) (1,559) (442) (428) Other income (expense), net 6,219 6,725 (1,418) Loss before provision for income taxes (87,869) (139,782) (138,710) Provision for income taxes 4,760 1,997 1,367 Net loss $ (92,629) $ (141,779) $ (140,077) ______________________________ (1) Includes stock-based compensation expense as follows: Year Ended January 31, 2021 2020 2019 (in thousands) Subscription cost of revenue $ 11,705 $ 5,226 $ 689 Professional services cost of revenue 6,005 2,486 205 Sales and marketing 50,557 23,919 5,175 Research and development 40,274 15,403 7,815 General and administrative 41,134 32,906 6,621 Total stock-based compensation expense $ 149,675 $ 79,940 $ 20,505 63 Table of Contents (2) Includes amortization of acquired intangible assets as follows: Year Ended January 31, 2021 2020 2019 (in thousands) Subscription cost of revenue $ 1,057 $ 323 $ 327 Sales and marketing 362 123 143 Research and development 29 41 113 Total amortization of purchased intangibles $ 1,448 $ 487 $ 583 (3) Includes acquisition-related expenses as follows: Year Ended January, 31 2021 2020 2019 (in thousands) General and administrative $ 3,758 $ — $ — Total acquisition-related expenses $ 3,758 $ — $ — (4) Includes amortization of debt issuance costs and discount as follows: Year Ended January, 31 2021 2020 2019 (in thousands) Interest expense $ 347 $ — $ — Total amortization of debt issuance costs and discount $ 347 $ — $ — The following table presents the components of our consolidated statements of operations as a percentage of total revenue for the periods presented: Year Ended January 31, 2021 2020 2019 % % % Revenue Subscription 92 % 91 % 88 % Professional services 8 % 9 % 12 % Total revenue 100 % 100 % 100 % Cost of revenue Subscription 21 % 23 % 28 % Professional services 5 % 6 % 7 % Total cost of revenue 26 % 29 % 35 % Gross profit 74 % 71 % 65 % Operating expenses Sales and marketing 46 % 55 % 69 % Research and development 25 % 27 % 34 % General and administrative 14 % 19 % 17 % Total operating expenses 84 % 101 % 120 % Loss from operations (11) % (30) % (55) % Interest expense — % — % — % Other income (expense), net 1 % 1 % (1) % Loss before provision for income taxes (10) % (29) % (56) % Provision for income taxes 1 % — % 1 % Net loss (11) % (29) % (56) % 64 Table of Contents Comparison of Fiscal 2021 and Fiscal 2020 Revenue The following shows total revenue from subscriptions and professional services for fiscal 2021, as compared to fiscal 2020: Year Ended January 31, Change 2021 2020 $ % (dollars in thousands) Subscription $ 804,670 $ 436,323 $ 368,347 84 % Professional services 69,768 45,090 24,678 55 % Total revenue $ 874,438 $ 481,413 $ 393,025 82 % Total revenue increased by $393.0 million, or 82%, in fiscal 2021, compared to fiscal 2020. Subscription revenue accounted for 92% of our total revenue in fiscal 2021, and 91% in fiscal 2020. Professional services revenue accounted for 8% of our total revenue in fiscal 2021 and 9% in fiscal 2020. Subscription revenue increased by $368.3 million, or 84%, in fiscal 2021, compared to fiscal 2020. This increase was primarily attributable to the addition of new subscription customers, as we increased our customer base by 82%, fro m 5,431 subscription customers in fiscal 2020 to 9,896 subscription customers in fiscal 2021. S ubscription revenue from new customers, subscription revenue from the renewal of existing customers, and subscription revenue from the sale of additional endpoints and additional modules to existing customers accounted for 33% , 36%, and 31% of total subscription revenue in fiscal 2021, respectively. Subscription revenue from new customers, subscription revenue from the renewal of existing customers, and subscription revenue from the sale of additional endpoints and additional modules to existing customers accounted for 40%, 33%, and 27% of total subscription revenue in fiscal 2020, respectively. Professional services revenue increased by $24.7 million, or 55%, in fiscal 2021 , compared to fiscal 2020, and was primarily attributable to an increase in the number of professional service hours performed. The following shows cost of revenue related to subscriptions and professional services for fiscal 2021, as compared to fiscal 2020: Year Ended January 31, Change 2021 2020 $ % (dollars in thousands) Subscription $ 185,212 $ 112,474 $ 72,738 65 % Professional services 44,333 29,153 15,180 52 % Total cost of revenue $ 229,545 $ 141,627 $ 87,918 62 % Total cost of revenue increased by $87.9 million, or 62%, in fiscal 2021 , compared to fiscal 2020. Subscription cost of revenue increased by $72.7 million, or 65%, in fiscal 2021 , compared to fiscal 2020. The increase in subscription cost of revenue was primarily due to an increase in employee-related expenses of $27.6 million driven by a 74% increase in average headcount, an increase in cloud hosting and related services of $23.3 million driven by increased customer activity, an increase in depreciation of data center equipment of $7.8 million, an increase in stock-based compensation expense of $6.5 million, an increase in allocated overhead costs of $4.1 million, an increase in the amortization of internal use software of $1.6 million, and an increase in employee health insurance expense of $1.4 million, partially offset by a $1.2 million decrease in travel related costs due to the fact that, as a result of the COVID-19 pandemic, a majority of our workforce was working remotely and incurred limited travel costs during fiscal 2021. Professional services cost of revenue increased by $15.2 million, or 52%, in fiscal 2021 , compared to fiscal 2020. The increase in professional services cost of revenue was primarily due to an increase in employee-related expenses of $11.4 million driven by an increase in average headcount of 47% and an increase in stock-based compensation expense of $3.5 million, partially offset by a $1.1 million decrease in travel related costs due to the fact that, as a result of the COVID-19 pandemic, a majority of our workforce was working remotely and incurred limited travel costs during fiscal 2021. 65 Table of Contents The following shows gross profit and gross margin for subscriptions and professional services for fiscal 2021, as compared to fiscal 2020. Year Ended January 31, Change 2021 2020 $ % (dollars in thousands) Subscription gross profit $ 619,458 $ 323,849 $ 295,609 91 % Professional services gross profit 25,435 15,937 9,498 60 % Total gross profit $ 644,893 $ 339,786 $ 305,107 90 % Year Ended January 31, Change 2021 2020 Subscription gross margin 77 % 74 % 3 % Professional services gross margin 36 % 35 % 2 % Total gross margin 74 % 71 % 3 % Subscription gross margin increased by 3%, in fiscal 2021 , compared to fiscal 2020. This increase was a result of continuing to shift more of our operations from third-party cloud service providers to colocation data centers, renegotiating the terms of a third-party cloud service provider contract, and continued optimization of our software development and our cloud database systems, which has resulted in reduced data center usage. This increase in gross margin was also due to the continued expansion of module adoption by our customer base. As of January 31, 2021, 63% of our customer base had adopted four or more modules and 47% of our customer base had adopted five or more modules. As of January 31, 2020, 54% of our customer base had adopted four or more modules and 33% of our customer base had adopted five or more modules. Our “collect once, reuse many” data strategy means that after the first module is paid for and covers the cost of data storage and most computational costs, each additional subscription module carries a higher margin. We expect gross margin to fluctuate quarter to quarter given the timing of turning on new cloud data centers in new geographies to accommodate increased activity and demand. Professional services gross margin increased by 2% in fiscal 2021, compared to fiscal 2020 . The increase in professional services gross margin was due to an increase in utilization during fiscal 2021 compared to fiscal 2020 Operating Expenses Sales and Marketing The following shows sales and marketing expenses for fiscal 2021, as compared to fiscal 2020: Year Ended January 31, Change 2021 2020 $ % (dollars in thousands) Sales and marketing expenses $ 401,316 $ 266,595 $ 134,721 51 % Sales and marketing expenses increased by $134.7 million, or 51%, in fiscal 2021 , compared to fiscal 2020. The increase in sales and marketing expenses was primarily due to an increase in employee-related expenses of $82.5 million driven by an increase in sales and marketing average headcount of 40%, an increase in stock-based compensation of $26.6 million, an increase in marketing programs of $21.5 million, an increase in allocated overhead costs of $5.5 million, an increase in employee health insurance expense of $2.0 million, an increase in company events expenses of $1.3 million, and an increase in contract labor costs of $1.1 million, partially offset by a $11.7 million decrease in travel-related costs due to the fact that, as a result of the COVID-19 pandemic, a majority of our workforce was working remotely and incurred limited travel costs during fiscal 2021 . 66 Table of Contents Research and Development The following shows research and development expenses for fiscal 2021, as compared to fiscal 2020: Year Ended January 31, Change 2021 2020 $ % (dollars in thousands) Research and development expenses $ 214,670 $ 130,188 $ 84,482 65 % Research and development expenses increased by $84.5 million, or 65% in fiscal 2021 , compared to fiscal 2020. This increase was primarily due to an increase in employee-related expenses of $46.7 million driven by an increase in research and development average headcount of 59%, an increase in stock-based compensation of $24.9 million, an increase in cloud hosting and related costs of $7.3 million, an increase in allocated overhead costs of $5.2 million, an increase in depreciation of data center equipment of $3.6 million, and an increase in employee health insurance expense of $1.6 million, partially offset by a $3.1 million decrease in travel-related costs due to the fact that, as a result of the COVID-19 pandemic, a majority of our workforce was working remotely and incurred limited travel costs during fiscal 2021, and a decrease in expenses related to company events of $1.9 million. General and Administrative The following shows general and administrative expenses for fiscal 2021, as compared to fiscal 2020: Year Ended January 31, Change 2021 2020 $ % (dollars in thousands) General and administrative expenses $ 121,436 $ 89,068 $ 32,368 36 % General and administrative expenses increased by $32.4 million, or 36%, in fiscal 2021 , compared to fiscal 2020. The increase in general and administrative expenses was primarily due an increase in employee-related expenses of $12.9 million driven by an increase in general and administrative average headcount of 51%, an increase in stock-based compensation expense of $8.2 million, an increase in consulting expense of $3.9 million primarily due to acquisition related expense and debt issuance costs, an increase in corporate insurance expense of $2.5 million due to an increase in directors and officers insurance as a result of being a public company, an increase in overhead costs of $2.0 million, an increase in accounting expenses of $1.5 million, an increase in business taxes and license fees of $1.4 million, and an increase in legal expenses of $1.3 million, partially offset by a decrease in expenses related to company events of $1.1 million and a decrease of $1.1 million in travel-related costs due to the fact that, as a result of the COVID-19 pandemic, a majority of our workforce was working remotely and incurred limited travel costs during fiscal 2021. Interest Expense and Other Income, Net The following shows interest and other expense, net, for fiscal 2021, as compared to fiscal 2020: Year Ended January 31, Change 2021 2020 $ % (dollars in thousands) Interest expense $ (1,559) $ (442) $ (1,117) 253 % Other income, net $ 6,219 $ 6,725 $ (506) (8) % Interest Expense consists primarily of interest expense from the amortization of debt issuance costs and contractual interest expense for our Senior Notes issued in January 2021. 67 Table of Contents Other income, net, was $6.2 million in fiscal 2021 compared to $6.7 million in fiscal 2020. This decrease of $0.5 million was driven primarily by a decrease in interest income of $6.7 million due to lower prevailing rates in fiscal 2021 compared to fiscal 2020 and a decrease in income from a legal settlement of $1.3 million which occurred during fiscal 2020, partially offset by a decrease in expense related to the fair value of redeemable convertible preferred stock warrants of $6.0 million as the warrants were converted into common stock upon our IPO in June 2019 and an increase in realized gain on marketable securities of $1.3 million due to our having liquidated our portfolio of marketable securities during the first quarter of fiscal 2021 in response to the economic uncertainty surrounding the COVID-19 pandemic. Provision for Income Taxes The following shows the provision for income taxes for fiscal 2021, as compared to fiscal 2020: Year Ended January 31, Change 2021 2020 $ % (dollars in thousands) Provision for income taxes $ 4,760 $ 1,997 $ 2,763 138 % The increase in the provision for income taxes of $2.8 million during fiscal 2021 compared to fiscal 2020 was primarily driven by an increase in international taxes from increased activity in certain foreign jurisdictions, withholding taxes related to customer payments, and U.S. income tax expense related to the realized gain on the sale of marketable securities, partially offset by a $0.9 million tax benefit from the acquisition of Preempt Security. Comparison of Fiscal 2020 and Fiscal 2019 Revenue The following shows total revenue from subscriptions and professional services for fiscal 2020, as compared to fiscal 2019: Year Ended January 31, Change 2020 2019 $ % (dollars in thousands) Subscription $ 436,323 $ 219,401 $ 216,922 99 % Professional services 45,090 30,423 14,667 48 % Total revenue $ 481,413 $ 249,824 $ 231,589 93 % Total revenue increased by $231.6 million, or 93%, in fiscal 2020, compared to fiscal 2019. Subscription revenue accounted for 91% of our total revenue in fiscal 2020 and 88% in fiscal 2019. Professional services revenue accounted for 9% of our total revenue in fiscal 2020 and 12% in fiscal 2019. Subscription revenue increased by $216.9 million, or 99%, in fiscal 2020, compared to fiscal 2019. This increase was primarily attributable to the addition of new subscription customers, as we increased our customer base by 116%, from 2,516 subscription customers in fiscal 2019 to 5,431 subscription customers in fiscal 2020. Subscription revenue from new customers, subscription revenue from the renewal of existing customers, and subscription revenue from the sale of additional endpoints and additional modules to existing customers accounted for 40%, 33%, and 27% of total subscription revenue in fiscal 2020, respectively. Subscription revenue from new customers, subscription revenue from the renewal of existing customers, and subscription revenue from the sale of additional endpoints and additional modules to existing customers accounted for 59%, 23%, and 18% of total subscription revenue in fiscal 2019, respectively. Professional services revenue increased by $14.7 million, or 48%, in fiscal 2020, compared to fiscal 2019, and was primarily attributable to an increase in the number of professional service hours performed. 68 Table of Contents Cost of Revenue, Gross Profit, and Gross Margin The following shows cost of revenue related to subscriptions and professional services for fiscal 2020, as compared to fiscal 2019: Year Ended January 31, Change 2020 2019 $ % (dollars in thousands) Subscription $ 112,474 $ 69,208 $ 43,266 63 % Professional services 29,153 18,030 11,123 62 % Total cost of revenue $ 141,627 $ 87,238 $ 54,389 62 % Total cost of revenue increased by $54.4 million, or 62%, in fiscal 2020, compared to fiscal 2019. Subscription cost of revenue increased by $43.3 million, or 63%, in fiscal 2020, compared to fiscal 2019. The increase in subscription cost of revenue was primarily due to an increase in employee-related payroll expenses of $17.1 million driven by a 114% increase in average headcount which included significant hiring of customer support employees, an increase in cloud hosting and related services of $10.1 million, an increase in stock-based compensation expense of $4.5 million, an increase in depreciation of data center equipment of $3.8 million, an increase in allocated overhead costs of $3.7 million, an increase in employee health insurance expense of $1.1 million, and an increase in the amortization of capitalized internal use software of $1.0 million. Professional services cost of revenue increased by $11.1 million, or 62%, in fiscal 2020, compared to fiscal 2019. The increase in professional services cost of revenue was primarily due to an increase in employee-related payroll expenses of $6.5 million driven by an increase in average headcount of 53%, an increase in stock-based compensation of $2.3 million, an increase in allocated overhead costs of $0.9 million, and an increase in cloud hosting and related services of $0.4 million. The following shows gross profit and gross margin for subscriptions and professional services for fiscal 2020, as compared to fiscal 2019: Year Ended January 31, Change 2020 2019 $ % (dollars in thousands) Subscription gross profit $ 323,849 $ 150,193 $ 173,656 116 % Professional services gross profit 15,937 12,393 3,544 29 % Total gross profit $ 339,786 $ 162,586 $ 177,200 109 % Year Ended January 31, Change 2020 2019 Subscription gross margin 74 % 68 % 6 % Professional services gross margin 35 % 41 % (6) % Total gross margin 71 % 65 % 6 % Subscription gross margin increased by 6%, in fiscal 2020, compared to fiscal 2019. This increase was a result of moving more of our operations to co-location data centers from third-party cloud service providers and renegotiating the terms of a third-party cloud service provider contract. This increase in gross margin was also due to incentivizing our sales team to drive higher margin subscriptions and efforts to optimize our channel partner programs and the uptake of multiple cloud modules by our customer base. Our “collect once, reuse many” data strategy means that after the first module is paid for and covers the cost of data storage and most computational costs, each additional subscription module carries a higher margin. The decrease in professional services gross margin was due to a decrease in utilization in fiscal 2020 compared to fiscal 2019. 69 Table of Contents O perating Expenses Sales and Marketing The following shows sales and marketing expenses for fiscal 2020, as compared to fiscal 2019: Year Ended January 31, Change 2020 2019 $ % (dollars in thousands) Sales and marketing expenses $ 266,595 $ 172,682 $ 93,913 54 % Sales and marketing expenses increased by $93.9 million, or 54%, in fiscal 2020, compared to fiscal 2019. The increase in sales and marketing expenses was primarily due to an increase in employee-related payroll expenses of $36.5 million driven by an increase in average sales and marketing headcount of 54%, an increase in stock-based compensation of $18.7 million, an increase in marketing programs of $17.3 million, an increase in allocated overhead costs of $6.8 million, an increase in travel-related costs of $5.4 million, and an increase in employee health insurance expense of $2.2 million. As a result of adopting ASC 606 effective February 1, 2019, our commissions expense in fiscal 2020 was $21.7 million lower than it would have been under ASC 605. Research and Development The following shows research and development expenses for fiscal 2020, as compared to fiscal 2019: Year Ended January 31, Change 2020 2019 $ % (dollars in thousands) Research and development expenses $ 130,188 $ 84,551 $ 45,637 54 % Research and development expenses increased by $45.6 million, or 54%, in fiscal 2020, compared to fiscal 2019. This increase was primarily due to an increase in employee-related payroll expenses of $24.5 million, driven by an increase in average research and development headcount of 45%. In addition, there was an increase of $7.6 million in stock-based compensation expense, an increase in cloud hosting and related costs of $6.3 million, an increase in allocated overhead costs of $3.7 million, an increase in employee health insurance expense of $1.3 million, and an increase in travel-related costs of $1.0 million General and Administrative The following shows general and administrative expenses for fiscal 2020, as compared to fiscal 2019: Year Ended January 31, Change 2020 2019 $ % (dollars in thousands) General and administrative expenses $ 89,068 $ 42,217 $ 46,851 111 % General and administrative expenses increased by $46.9 million, or 111%, in fiscal 2020, compared to fiscal 2019. The increase in general and administrative expenses was primarily due to an increase in stock-based compensation expense of $26.9 million and an increase in employee-related payroll expenses of $9.9 million, driven by an increase in average general and administrative headcount of 66%. In addition, there was a $3.6 million increase in corporate insurance expense and a $1.6 million increase in allocated overhead costs. 70 Table of Contents Interest Expense and Other Income (Expense), Net The following shows interest and other expense, net, for fiscal 2020, as compared to fiscal 2019: Year Ended January 31, Change 2020 2019 $ % (dollars in thousands) Interest expense $ (442) $ (428) $ (14) 3 % Other income (expense), net $ 6,725 $ (1,418) $ 8,143 (574) % Interest expense was essentially unchanged in fiscal 2020 compared to fiscal 2019 and is primarily due to the amortization of debt issuance costs on our $150.0 million loan facility which has not been drawn down. Other income (expense), net, was an income of $6.7 million in fiscal 2020 compared to an expense of $1.4 million in fiscal 2019. This increase in other income of $8.1 million was driven primarily by an increase in interest income of $9.0 million due to increased cash balances in fiscal 2020 as a result of our IPO and income from a legal settlement of $1.3 million, partially offset by an increase in the fair value of the redeemable convertible preferred stock warrants of $2.4 million. These warrants were converted to warrants to purchase common stock in connection with our IPO. Provision for Income Taxes The following shows provision for income taxes for fiscal 2020, as compared to fiscal 2019: Year Ended January 31, Change 2020 2019 $ % (dollars in thousands) Provision for income taxes $ 1,997 $ 1,367 $ 630 46 % We had a provision for income taxes of $2.0 million in fiscal 2020 and a provision for income taxes of $1.4 million in fiscal 2019 resulting in an increase in income tax expense of $0.6 million. The increase was driven primarily by an increase in our international income tax expense of $1.0 million due to increased activity in several countries during fiscal 2020, partially offset by an income tax benefit of $0.4 million related to the unrealized gain on our available-for-sale securities. We maintain a full valuation allowance against our deferred tax assets for US federal and state and U.K. income tax purposes. 71 Table of Contents Non-GAAP Financial Measures In addition to our results determined in accordance with U.S. generally accepted accounting principles, or GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial measures, may be helpful to investors because such measures provide consistency and comparability with past financial performance and, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations, or outlook. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In particular, free cash flow is not a substitute for cash used in operating activities. Additionally, the utility of free cash flow as a measure of our financial performance and liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and not rely on any single financial measure to evaluate our business. Non-GAAP Subscription Gross Profit and Non-GAAP Subscription Gross Margin We define non-GAAP subscription gross profit and non-GAAP subscription gross margin as GAAP subscription gross profit and GAAP subscription gross margin, respectively, excluding stock-based compensation expense and amortization of acquired intangible assets. We believe non-GAAP subscription gross profit and non-GAAP subscription gross margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations, as these measures eliminate the effects of certain variables unrelated to our overall operating performance. The following table presents a reconciliation of our non-GAAP subscription gross profit to our GAAP subscription gross profit and of our non-GAAP subscription gross margin to our GAAP subscription gross margin as of the periods presented: Year Ended January 31, 2021 2020 2019 (dollars in thousands) GAAP subscription revenue $ 804,670 $ 436,323 $ 219,401 GAAP subscription gross profit $ 619,458 $ 323,849 $ 150,193 Add: Stock-based compensation expense 11,705 5,226 689 Add: Amortization of acquired intangible assets 1,057 323 327 Non-GAAP subscription gross profit $ 632,220 $ 329,398 $ 151,209 GAAP subscription gross margin 77 % 74 % 68 % Non-GAAP subscription gross margin 79 % 75 % 69 % Non-GAAP Income (Loss) from Operations and Non-GAAP Operating Margin We define non-GAAP income (loss) from operations and non-GAAP operating margin as GAAP loss from operations and GAAP operating margin, respectively, excluding stock-based compensation expense, amortization of acquired intangible assets, and acquisition-related expenses. We believe non-GAAP income (loss) from operations and non-GAAP operating margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations, as these metrics generally eliminate the effects of certain variables unrelated to our overall operating performance. 72 Table of Contents The following table presents a reconciliation of our non-GAAP income (loss) from operations to our GAAP loss from operations and our non-GAAP operating margin to our GAAP operating margin as of the periods presented: Year Ended January 31, 2021 2020 2019 (dollars in thousands) GAAP total revenue $ 874,438 $ 481,413 $ 249,824 GAAP loss from operations $ (92,529) $ (146,065) $ (136,864) Add: Stock-based compensation expense 149,675 79,940 20,505 Add: Amortization of acquired intangible assets 1,448 487 583 Add: Acquisition-related expenses 3,758 — — Non-GAAP income (loss) from operations $ 62,352 $ (65,638) $ (115,776) GAAP operating margin (11) % (30) % (55) % Non-GAAP operating margin 7 % (14) % (46) % Free Cash Flow and Free Cash Flow Margin Free cash flow is a non-GAAP financial measure that we define as net cash provided by (used in) operating activities less purchases of property and equipment and capitalized internal-use software. Free cash flow margin is calculated as free cash flow divided by total revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide useful information to management and investors about the amount of cash consumed by our operating activities that is therefore not available to be used for other strategic initiatives. One limitation of free cash flow and free cash flow margin is that they do not reflect our future contractual commitments. Additionally, free cash flow does not represent the total increase or decrease in our cash balance for a given period. In addition, other companies may calculate free cash flow differently or not at all, which reduces the usefulness of free cash flow as a tool for comparison. The following table presents a reconciliation of free cash flow and free cash flow margin to net cash provided by (used in) operating activities: Year Ended January 31, 2021 2020 2019 (dollars in thousands) GAAP total revenue $ 874,438 $ 481,413 $ 249,824 GAAP net cash provided by (used in) operating activities $ 356,566 $ 99,943 $ (22,968) Less: Purchases of property and equipment (52,799) (80,198) (35,851) Less: Capitalized internal-use software (10,864) (7,289) (6,794) Free cash flow $ 292,903 $ 12,456 $ (65,613) GAAP net cash provided by (used in) investing activities $ 495,427 $ (629,631) $ (142,030) GAAP net cash provided by financing activities $ 800,135 $ 706,144 $ 190,389 GAAP net cash provided by operating activities as a percentage of revenue 41 % 21 % (9) % Less: Purchases of property and equipment as a percentage of revenue (6) % (17) % (14) % Less: Capitalized internal-use software as a percentage of revenue (1) % (2) % (3) % Free cash flow margin 33 % 3 % (26) % 73 Table of Contents Quarterly Results of Operations The following table sets forth our unaudited quarterly statements of operations data for each of the quarters indicated. The unaudited quarterly statements of operations data set forth below have been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, that are necessary for the fair statement of such data. Our historical results are not necessarily indicative of the results that may be expected in the future, and the results for any quarter are not necessarily indicative of results to be expected for a full year or any other period. The following quarterly financial data should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Three Months Ended January 31, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019 April 30, 2019 (in thousands) Revenue Subscription $ 244,662 $ 213,530 $ 184,256 $ 162,222 $ 138,537 $ 114,221 $ 97,575 $ 85,990 Professional services 20,267 18,930 14,715 15,856 13,572 10,898 10,533 10,087 Total revenue 264,929 232,460 198,971 178,078 152,109 125,119 108,108 96,077 Cost of revenue Subscription (1)(2) 54,348 49,583 44,037 37,244 34,616 29,221 24,946 23,691 Professional services (1) 12,384 11,944 10,354 9,651 8,801 8,134 6,636 5,582 Total cost of revenue 66,732 61,527 54,391 46,895 43,417 37,355 31,582 29,273 Gross profit 198,197 170,933 144,580 131,183 108,692 87,764 76,526 66,804 Operating expenses Sales and marketing (1)(2) 112,449 105,602 95,127 88,138 75,803 68,675 65,274 56,843 Research and development (1)(2) 66,070 57,539 50,483 40,578 38,691 35,992 31,630 23,875 General and administrative (1)(3) 35,481 31,951 28,961 25,043 25,331 21,615 30,261 11,861 Total operating expenses 214,000 195,092 174,571 153,759 139,825 126,282 127,165 92,579 Loss from operations (15,803) (24,159) (29,991) (22,576) (31,133) (38,518) (50,639) (25,775) Interest expense (4) (1,049) (193) (174) (143) (145) (132) (164) (1) Other income (expense), net 682 272 732 4,533 3,203 3,579 (451) 394 Loss before provision for income taxes (16,170) (24,080) (29,433) (18,186) (28,075) (35,071) (51,254) (25,382) Provision for income taxes 2,832 451 441 1,036 333 434 635 595 Net loss $ (19,002) $ (24,531) $ (29,874) $ (19,222) $ (28,408) $ (35,505) $ (51,889) $ (25,977) Net loss per share attributable to common stockholders, basic and diluted $ (0.09) $ (0.11) $ (0.14) $ (0.09) $ (0.14) $ (0.17) $ (0.40) $ (0.55) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 221,700 219,401 216,695 213,129 207,565 204,096 130,091 47,205 ________ ____________________ (1) Includes stock-based compensation expense as follows: Three Months Ended January 31, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019 April 30, 2019 (in thousands) Subscription cost of revenue $ 3,849 $ 3,226 $ 2,635 $ 1,995 $ 2,062 $ 1,666 $ 1,233 $ 265 Professional services cost of revenue 2,058 1,551 1,425 971 955 784 644 103 Sales and marketing 15,456 12,811 13,603 8,687 8,408 7,355 6,638 1,518 Research and development 14,574 11,771 9,029 4,900 5,050 4,696 4,976 681 General and administrative 11,777 11,251 11,021 7,085 7,888 7,465 16,368 1,185 Total stock-based compensation expense $ 47,714 $ 40,610 $ 37,713 $ 23,638 $ 24,363 $ 21,966 $ 29,859 $ 3,752 74 Table of Contents (2) Includes amortization of acquired intangible assets as follows: Three Months Ended January 31, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019 April 30, 2019 (in thousands) Subscription cost of revenue $ 660 $ 272 $ 63 $ 62 $ 61 $ 61 $ 97 $ 104 Sales and marketing 209 91 31 31 31 30 32 30 Research and development — 9 10 10 10 10 10 11 Total amortization of purchased intangibles $ 869 $ 372 $ 104 $ 103 $ 102 $ 101 $ 139 $ 145 (3) Includes acquisition-related expenses as follows: Three Months Ended January 31, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019 April 30, 2019 (in thousands) General and administrative $ 1,639 $ 2,119 $ — $ — $ — $ — $ — $ — Total acquisition-related expenses $ 1,639 $ 2,119 $ — $ — $ — $ — $ — $ — (4) Includes amortization of debt issuance costs and discount as follows: Three Months Ended January 31, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019 April 30, 2019 (in thousands) Interest expense $ 347 $ — $ — $ — $ — $ — $ — $ — Total amortization of debt issuance costs and discount $ 347 $ — $ — $ — $ — $ — $ — $ — Percentage of Revenue Data The following table presents the components of our statement of operations as a percentage of total revenue for each of the quarters indicated: Three Months Ended January 31, 2021 October 31, 2020 July 31, 2020 April 30, 2020 January 31, 2020 October 31, 2019 July 31, 2019 April 30, 2019 Revenue Subscription 92 % 92 % 93 % 91 % 91 % 91 % 90 % 90 % Professional services 8 % 8 % 7 % 9 % 9 % 9 % 10 % 10 % Total revenue 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Cost of revenue Subscription 21 % 21 % 22 % 21 % 23 % 23 % 23 % 25 % Professional services 5 % 5 % 5 % 5 % 6 % 7 % 6 % 6 % Total cost of revenue 25 % 26 % 27 % 26 % 29 % 30 % 29 % 30 % Gross margin 75 % 74 % 73 % 74 % 71 % 70 % 71 % 70 % Operating expenses Sales and marketing 42 % 45 % 48 % 49 % 50 % 55 % 60 % 59 % Research and development 25 % 25 % 25 % 23 % 25 % 29 % 29 % 25 % General and administrative 13 % 14 % 15 % 14 % 17 % 17 % 28 % 12 % Total operating expenses 81 % 84 % 88 % 86 % 92 % 101 % 118 % 96 % Loss from operations (6) % (10) % (15) % (13) % (20) % (31) % (47) % (27) % Interest expense — % — % — % — % — % — % — % — % Other income (expense), net — % — % — % 3 % 2 % 3 % — % — % Loss before provision for income taxes (6) % (10) % (15) % (10) % (18) % (28) % (47) % (26) % Provision for income taxes 1 % — % — % 1 % — % — % 1 % 1 % Net loss (7) % (11) % (15) % (11) % (19) % (28) % (48) % (27) % 75 Table of Contents Quarterly Revenue Trends Total revenue increased sequentially in each of the quarters presented primarily due to our addition of new customers, as well as sales of additional endpoints and modules to existing customers. We typically receive a higher percentage of our annual orders from new customers, as well as renewal orders from existing customers, in our fourth fiscal quarter as compared to other quarters due to the annual budget approval process of many of our customers. However, because we recognize revenue ratably over the term of our subscription contracts, a substantial portion of the revenue that we report in each period is attributable to orders that we received during previous periods. Consequently, increases or decreases in new sales or renewals in any one period may not be immediately reflected in our revenue for that period and may negatively affect our revenue in future periods. Accordingly, the effect of downturns in sales and market acceptance of our cloud platform, and potential changes in our rate of renewals, may not be fully reflected in our results of operations until future periods. Professional services revenue is dependent upon the number of hours performed in a quarter and can vary from period to period. Quarterly Cost of Revenue Trends Total cost of revenue increased sequentially in each of the quarters presented was primarily driven by an increase in employee-related expenses, cloud hosting and related expenses, depreciation of data center equipment, stock-based compensation expenses and amortization of internal-use software. Quarterly Gross Margin Trends The overall increase in gross margin over the course of the periods presented was primarily due to the continued expansion of module adoption by our customer base, the continuation to shift more of our operations from third-party cloud service providers to colocation data centers, renegotiating the terms of a third-party cloud service provider contract, and continued optimization of our software development and our cloud database systems, which has resulted in reduced data center usage. Quarterly Expense Trends Operating expenses generally have increased sequentially for each of the quarters presented, except for the three months ended October 31, 2019, primarily due to increases in employee related expenses associated with increases in our headcount to support our growth and stock-based compensation. We intend to continue to make the significant investments to support our sales and marketing related activities to acquire new customers that we believe will position the Company for future growth. We also intend to invest in research and development efforts to add new features to and enhance the functionality of our existing cloud platform, and to ensure the reliability, availability, and scalability of our solutions. Operating expenses, particularly general and administrative expenses, increased significantly during the three months ended July 31, 2019 due to the stock-based compensation of $17.3 million related to the performance-based vesting condition for our outstanding RSUs being met during the quarter. We expect operating expenses to continue to increase for the foreseeable future. The increase in Other income (expense), net during the three months ended October 31, 2019 was primarily driven by interest income of $4.1 million driven by the investment of the proceeds of our initial public offering. The increase in Other income (expense), net during the three months ended April 30, 2020 was due to a realized gain on the sale of marketable securities of $1.3 million, as a result of liquidating our portfolio of marketable securities in response to the economic uncertainty surrounding the COVID-19 pandemic. The decrease in Other income (expense), net during the three months ended July 31, 2020 was primarily due to a decrease in interest income of $2.8 million due to the liquidation of our portfolio of marketable securities in the prior quarter. The increase in Interest Expense during the three months ended January 31, 2021 was primarily driven by interest and amortization of debt issuance costs related to the $750.0 million Senior Notes issued in December 2020. The increase in the provision for income taxes during the three months ended April 30, 2020 was primarily due to income tax expense of $0.4 million related to the realized gain on the sale of marketable securities. The increase in the provision for income taxes during the three months ended January 31, 2021 was primarily due to an increase in withholding tax related to customer payments, foreign taxes in jurisdictions where we operate, and U.S. state taxes. 76 Table of Contents Liquidity and Capital Resources In January 2021, we issued and sold an aggregate principal amount of $750.0 million of 3.000% Senior Notes due 2029. The net proceeds from the debt offering were $739.6 million after deducting the underwriting commissions of $9.4 million and $1.0 million of issuance costs, which were paid as of January 31, 2021. In January 2021, we amended and restated our existing senior secured revolving credit facility and increased the size of the credit facility from $150.0 million to $750.0 million, including a letter of credit sub-facility in the aggregate amount of $100.0 million, and a swingline sub-facility in the aggregate amount of $50.0 million. No amounts were outstanding under the credit facility as of January 31, 2021. In June 2019, upon completion of our IPO, we received net proceeds of $659.2 million, after deducting underwriters’ discounts and commissions and offering expenses of $44.8 million. As of January 31, 2021, we had cash and cash equivalents, consisting of highly liquid bank deposits, of $1.9 billion. During the first quarter of fiscal 2021, we liquidated our entire portfolio of marketable securities largely in response to the global economic uncertainty in conjunction with the COVID-19 pandemic. This resulted in the recognition of a realized gain of $1.3 million. We expect that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. Since our inception, we have generated operating losses, as reflected in our accumulated deficit of $730.1 million as of January 31, 2021. We expect to continue to incur operating losses for the foreseeable future due to the investments we intend to continue to make, particularly in sales and marketing and research and development. As a result, we may require additional capital resources in the future to execute strategic initiatives to grow our business. We typically invoice our subscription customers annually in advance. Therefore, a substantial source of our cash is from such prepayments, which are included on our consolidated balance sheets as deferred revenue. Deferred revenue primarily consists of billed fees for our subscriptions, prior to satisfying the criteria for revenue recognition, which are subsequently recognized as revenue in accordance with our revenue recognition policy. As of January 31, 2021, we had deferred revenue of $911.9 million, of which $702.0 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met. Cash Flows The following table summarizes our cash flows for the periods presented: Year Ended January 31, 2021 2020 2019 (in thousands) Net cash provided by (used in) operating activities $ 356,566 $ 99,943 $ (22,968) Net cash provided by (used in) investing activities $ 495,427 $ (629,631) $ (142,030) Net cash provided by financing activities $ 800,135 $ 706,144 $ 190,389 Operating Activities Net cash provided by operating activities during fiscal 2021 was $356.6 million, which resulted from a net loss of $92.6 million, adjusted for non-cash charges of $263.6 million and net cash inflow of $185.6 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $149.7 million in stock-based compensation expense, $66.4 million of amortization of deferred contract acquisition costs, $38.7 million of depreciation and amortization, and $7.8 million of non-cash operating lease costs. The net cash inflow from changes in operating assets and liabilities was primarily due to a $338.8 million increase in deferred revenue, a $33.2 million increase in accrued payroll and benefits, a $23.8 million increase in accrued expenses and other current liabilities and a $11.3 million increase in accounts payable, partially offset by $151.0 million increase in deferred contract acquisition costs and a $72.5 million increase in accounts receivable. 77 Table of Contents Net cash provided by operating activities during fiscal 2020 was $99.9 million, which resulted from a net loss of $141.8 million, adjusted for non-cash charges of $144.3 million and net cash inflow of $97.5 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $79.9 million in stock-based compensation expense, $35.5 million of amortization of deferred contract acquisition costs, $23.0 million of depreciation and amortization, and $6.0 million due to the change in the fair value of our redeemable convertible preferred stock warrant liability. The net cash inflow from changes in operating assets and liabilities was primarily due to a $280.8 million increase in deferred revenue and $17.5 million increase in accrued payroll and benefits, partially offset by a $86.6 million increase in deferred contract acquisition costs, $73.1 million increase in accounts receivable and a $43.5 million increase in prepaid expenses and other assets. Net cash used in operating activities during fiscal 2019 was $23.0 million, which resulted from a net loss of $140.1 million, adjusted for non-cash charges of $67.8 million and net cash inflow of $49.3 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $28.6 million of amortization of deferred commissions, $20.5 million in stock-based compensation expense, $14.8 million of depreciation and amortization, and $3.6 million due to the change in the fair value of our redeemable convertible preferred stock warrant liability. The net cash inflow from changes in operating assets and liabilities was primarily due to a $131.1 million increase in deferred revenue, partially offset by a $45.1 million increase in deferred contract acquisition costs, and a $33.4 million increase in accounts receivable. Investing Activities Net cash provided by investing activities during fiscal 2021 of $495.4 million was primarily due to the sale of marketable securities of $639.6 million and the maturities of marketable securities of $91.6 million, partially offset by our acquisition of Preempt Security, net of cash acquired, of $85.5 million, purchases of marketable securities of $84.9 million, purchases of property and equipment of $52.8 million, and capitalized internal-use software of $10.9 million. Net cash used in investing activities during fiscal 2020 of $629.6 million was primarily due to purchases of marketable securities of $779.7 million, purchases of property and equipment of $80.2 million, and capitalized internal-use software of $7.3 million, partially offset by maturities of marketable securities of $229.0 million and proceeds from sales of marketable securities of $9.6 million. Net cash used in investing activities during fiscal 2019 of $142.0 million was primarily due to purchases of marketable securities of $199.3 million, purchases of property and equipment of $35.9 million, and capitalized internal-use software of $6.8 million, partially offset by maturities of marketable securities of $100.0 million. Financing Activities Net cash provided by financing activities of $800.1 million during fiscal 2021 was primarily due to $739.6 million related to the issuance of our Senior Notes, after deducting the underwriting commissions and issuance costs paid as of January 31, 2021, proceeds from our employee stock purchase plan of $34.3 million, and proceeds from the exercise of stock options of $28.8 million, partially offset by $3.3 million debt issuance costs related to the revolving credit facility. Net cash provided by financing activities of $706.1 million during fiscal 2020 was primarily due to our IPO. On June 14, 2019, we closed our IPO in which we sold 20,700,000 shares of Class A common stock. The shares were sold at a public offering price of $34.00 per share for net proceeds of $665.1 million, after deducting underwriters’ discounts and commissions. In addition, there were proceeds from the exercise of stock options of $21.5 million, proceeds from issuance of common stock under the employee stock purchase plan of $12.4 million, proceeds from issuance of common stock upon exercise of early exercisable stock options of $10.3 million and $2.3 million in claims settlement under Section 16(b) of the Securities Exchange Act of 1934, partially offset by payments of deferred offering costs in the amount of $5.9 million. In December 2019, a security holder paid us $2.3 million to settle a claim under Section 16(b) of the Securities Exchange Act of 1934. Section 16(b) requires certain persons and entities whose securities trading activities result in “short swing” profits to repay such profits to the issuer of the security. This payment was recorded as an increase to stockholders’ equity and as cash provided by financing activities in our consolidated statement of cash flows for the fiscal year ended January 31, 2020. Net cash provided by financing activities of $190.4 million during fiscal 2019 was primarily due to $206.9 million in net proceeds from the issuance of our Series E redeemable convertible preferred stock, $10.0 million in proceeds from our revolving line of credit, and $3.9 million from the exercise of stock options, partially offset by a repayment on our line of credit 78 Table of Contents of $20.0 million, a repayment on our outstanding bank loan of $6.2 million, the repurchase of stock options of $2.3 million, and payments of indemnity holdback and contingent consideration of $2.1 million. Debt Obligations Revolving Credit Facility In April 2019, we 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, we amended and restated our 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 us 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. We also have 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 our material domestic subsidiaries. The A&R Credit Agreement extended the maturity date of April 19, 2022 to January 2, 2026. Under the A&R Credit Agreement, revolving loans may be either Eurodollar Loans or Alternate Base Rate (“ABR”) Loans. Outstanding Eurodollar Loans incur interest at the Eurodollar Rate, which is defined as LIBOR (or any successor thereto), subject to a 0.00% LIBOR floor, plus a margin between 1.50% and 2.00%, depending on our senior secured leverage ratio. 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 for such day plus 0.50%, and (c) the Eurodollar Rate plus 1.00%, in each case plus a margin between (0.25%) and 0.25%, depending on the senior secured leverage ratio. We 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 us to maintain a minimum consolidated interest coverage ratio of 3.00:1.00, a maximum senior secured leverage ratio of 3.00:1.00 (through January 31, 2023), and a maximum total leverage ratio of 5.50:1.00 stepping down to 3.50:1.00 over time. We were in compliance with the financial covenants as of January 31, 2021. The A&R Credit Agreement is secured by substantially all of our 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 us and certain of our subsidiaries. The A&R Credit Agreement contains customary covenants limiting our ability and the ability of our 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. No amounts were outstanding under the A&R Credit Agreement as of January 31, 2021. Senior Notes On January 20, 2021, we issued $750.0 million aggregate principal amount of 3.00% Senior Notes maturing in February 2029. The Senior Notes are guaranteed by our subsidiary, CrowdStrike, Inc. and will be guaranteed by each of our existing and future domestic subsidiaries that becomes a borrower or guarantor under our 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. We 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 $739.6 million after deducting the underwriting commissions of $9.4 million and $1.0 million of issuance costs, which were paid as of January 31, 2021. An additional $1.6 million of issuance costs are expected to be paid in the first quarter of fiscal 2022. Debt issuance costs of $2.6 million are being amortized to interest 79 Table of Contents expense using the effective interest method over the term of the Senior Notes. Interest expense related to contractual interest expense and amortization of debt issuance costs was $0.7 million and $0.1 million, respectively, during the fiscal year ended January 31, 2021. In certain circumstances involving change of control events, we will be required to make an offer to repurchase all or, at the holder’s option, any part, of each holder’s Senior Notes 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”) contain covenants limiting our ability and the ability of our 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; and consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of our assets to, another person. These covenants are subject to a number of important limitations and exceptions. Certain of these covenants will not apply during any period in which the notes are rated investment grade by two of Fitch Ratings, Inc., Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services. As of January 31, 2021, we were in compliance with all of our financial covenants under the Indenture associated with the Senior Notes. Supplemental Guarantor Financial Information Our Senior Notes are guaranteed on a senior, unsecured basis by CrowdStrike, Inc., a wholly owned subsidiary of CrowdStrike Holdings, Inc. (the “subsidiary guarantor,” and together with CrowdStrike Holdings, Inc., the “Obligor Group”). The guarantee is full and unconditional, and is subject to certain conditions for release. For a brief description of the Senior Notes, see the section of this Annual Report on Form 10-K titled “Liquidity and Capital Resources—Senior Notes.” The Company conducts its operations almost entirely through its subsidiaries. Accordingly, the Obligor Group’s cash flow and ability to service the notes will depend on the earnings of the Company’s subsidiaries and the distribution of those earnings to the Obligor Group, whether by dividends, loans or otherwise. Holders of the guaranteed registered debt securities will have a direct claim only against the Obligor Group. Summarized financial information is presented below for the Obligor Group on a combined basis after elimination of intercompany transactions and balances within the Obligor Group and equity in the earnings from and investments in any non-guarantor subsidiary. The summarized financial information of the Obligor Group also includes the amounts of Crowdstrike Services, Inc. which was a separate wholly owned subsidiary of the Company that was merged into Crowdstrike, Inc. on December 31, 2020, therefore becoming part of the Obligor Group prior to the issuance of the Senior Notes. The revenue amounts presented in the summarized financial information include substantially all of the Company’s consolidated revenues, and there are no intercompany revenues from the non-guarantor subsidiaries. This summarized financial information has been prepared and presented pursuant to Regulation S-X Rule 13-01, “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities” and is not intended to present the financial position or results of operations of the Obligor Group in accordance with U.S. GAAP. Statement of operations Year Ended January 31, 2021 (in thousands) Revenue $ 873,653 Cost of revenue 230,045 Operating expenses 740,501 Loss from operations (96,893) Net loss (91,707) 80 Table of Contents Balance sheets January 31, 2021 (in thousands) Current assets (excluding intercompany receivables from non-Guarantors) $ 2,249,834 Intercompany receivables from non-Guarantors 8,822 Noncurrent assets 398,656 Current liabilities 834,462 Noncurrent liabilities 988,391 Strategic Investments In July 2019, we agreed to commit up to $10.0 million to a newly formed entity, CrowdStrike Falcon Fund LLC (“Falcon Fund”), in exchange for 50% of the sharing percentage of any distribution by Falcon Fund. Additionally, entities associated with Accel, a holder of more than 5% of our capital stock, also agreed to commit up to $10.0 million to Falcon Fund and collectively own the remaining 50% of the sharing percentage of Falcon Fund. Falcon Fund is in the business of purchasing, selling, investing and trading in minority equity and convertible debt securities of privately-held companies that develop applications that have potential for substantial contribution to CrowdStrike and its platform. Falcon Fund has a duration of ten years which may be extended for three additional years. At dissolution, Falcon Fund will be liquidated and the remaining assets will be distributed to the investors based on their sharing percentage. We have made contributions to Falcon Fund totaling $1.3 million as of January 31, 2021. Contractual Obligations and Commitments The following table summarizes our contractual obligations as of January 31, 2021 and the fiscal years in which these obligations are due: Payments Due by Fiscal Year Total 2022 2023 2024 2025 2026 Thereafter (in thousands) Real estate arrangements (1) $ 46,184 $ 10,187 $ 10,879 $ 10,816 $ 9,973 $ 4,050 $ 279 Data center commitments (2) 97,781 66,807 10,395 10,719 5,415 3,012 1,433 Other purchase obligations (3) 77,225 31,251 24,738 21,222 14 — — Debt obligations (4) 750,000 — — — — — 750,000 Interest payments associated with all debt obligations (5) 186,563 22,596 22,875 23,257 23,844 25,553 68,438 Total $ 1,157,753 $ 130,841 $ 68,887 $ 66,014 $ 39,246 $ 32,615 $ 820,150 ______________________________ (1) Relates to non-cancellable real estate arrangements where the amounts are reflected on an undiscounted basis. For additional information refer to Note 9, Leases, of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. (2) Relates to non-cancelable commitments to data center vendors. (3) Relates to non-cancelable purchase commitments with various parties to purchase products and services entered into in the normal course of business. (4) Relates to $750.0 million aggregate principal amount of Senior Notes due in fiscal 2030. (5) Relates to the interest payments associated with the Senior Notes based on the principal amount multiplied by the applicable interest rate. The interest payment under the Revolving Credit Facility for the undrawn balance is payable at 15 bps as a commitment fee based on the daily undrawn balance and we utilized the existing rate for the projected interest payments included in the table above. For additional information refer to Note 5, Debt, of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 81 Table of Contents The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under contracts, including purchase orders, that we can cancel without a significant penalty are not included in the table above. Purchase orders issued in the ordinary course of business are not included in the table above, as such purchase orders represent authorizations to purchase rather than binding agreements. Indemnification Our subscription agreements contain standard indemnification obligations. Pursuant to these agreements, we will indemnify, defend, and hold the other party harmless with respect to a claim, suit, or proceeding brought against the other party by a third party alleging that our intellectual property infringes upon the intellectual property of the third party, or results from a breach of our representations and warranties or covenants, or that results from any acts of negligence or willful misconduct. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. Typically, these indemnification provisions do not provide for a maximum potential amount of future payments we could be required to make. However, in the past we have not been obligated to make significant payments for these obligations and no liabilities have been recorded for these obligations on our consolidated balance sheets as of January 31, 2021 or January 31, 2020. We also agreed to indemnify our directors and certain executive officers for certain events or occurrences, subject to certain limits, while the officer is or was serving at our request in such capacity. The maximum amount of potential future indemnification is unlimited. However, our director and officer insurance policy limits our exposure and enables us to recover a portion of any future amounts paid. Historically, we have not been obligated to make any payments for these obligations and no liabilities have been recorded for these obligations on our consolidated balance sheets as of January 31, 2021 or January 31, 2020. Off-Balance Sheet Arrangements We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities. We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions, or foreign currency forward contracts. Critical Accounting Policies and Estimates Our management’s discussion and analysis of financial condition and results of operations is based upon our financial statements and notes to our financial statements, which were prepared in accordance with GAAP. The preparation of the financial statements requires our management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Our management evaluates our estimates on an ongoing basis, including those related to the allowance for doubtful accounts, the carrying value and useful lives of long-lived assets, the fair value of financial instruments, the recognition and disclosure of contingent liabilities, income taxes, and stock-based compensation. We base our estimates and judgments on our historical experience, knowledge of factors affecting our business and our belief as to what could occur in the future considering available information and assumptions that are believed to be reasonable under the circumstances. The accounting estimates we use in the preparation of our financial statements will change as new events occur, more experience is acquired, additional information is obtained and our operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in our reported results of operations and, if material, the effects of changes in estimates are disclosed in the notes to our financial statements. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these estimates. The critical accounting estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below. 82 Table of Contents Revenue Recognition We adopted ASC 606 on February 1, 2019, using the modified retrospective transition method. Under this method, results for reporting periods beginning on February 1, 2019 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with prior accounting under Topic 605. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for these services. To achieve the core principle of this standard, we apply the following five steps: (1) Identify the contract with a customer We consider the terms and conditions of contracts with customers and our customary business practices in identifying contracts under ASC 606. We determine we have a contract with a customer when the contract is approved, each party’s rights regarding the services to be transferred can be identified, payment terms for the services can be identified, we have determined that the customer has the ability and intent to pay, and the contract has commercial substance. We apply judgment in determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer. (2) Identify the performance obligations in the contract Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from us or from third parties, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. Our performance obligations consist of (i) subscriptions and (ii) professional services. (3) Determine the transaction price The transaction price is determined based on the consideration which we are expected to be entitled to in exchange for transferring services to the customer. Variable consideration is included in the transaction price if it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of our contracts contain a significant financing component. (4) Allocate the transaction price to performance obligations in the contract If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price (“SSP”). (5) Recognize revenue when or as performance obligations are satisfied Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised service to the customer. Revenue is recognized when control of the services is transferred to the customer, in an amount that reflects the consideration expected to be received in exchange for those services. We generate all our revenue from contracts with customers. Subscription Revenue Our Falcon Platform technology solutions are subscription, SaaS offerings designed to continuously monitor, share, and mitigate risks from determined attackers. Customers do not have the right to take possession of the cloud-based software platform. Fees are based on several factors, including the solutions subscribed for by the customer and the number of endpoints purchased by the customer. The subscription fees are typically payable within 30 to 60 days after the execution of the arrangement, and thereafter upon renewal or subsequent installment. We initially record the subscription fees as deferred revenue and recognizes revenue on a straight-line basis over the term of the agreement. 83 Table of Contents The typical subscription term is one to three years. Most of our contracts are non-cancelable over the contractual term. Customers typically have the right to terminate their contracts for cause if we fail to perform in accordance with the contractual terms. Some customers have the option to purchase additional subscription at a stated price. These options generally do not provide a material right as they are priced at our SSP. Professional Services Revenue We offer several types of professional services including incident response and forensic services, surge forensic and malware analysis, and attribution analysis, which are focused on responding to imminent and direct threats, assessing vulnerabilities, and recommending solutions. These services are distinct from subscription services. Professional services do not result in significant customization of the subscription service. The professional services are available through hourly rate and fixed fee contracts, one-time and ongoing engagements, and retainer-based agreements. Revenue for time and materials arrangements is recognized as services are performed and revenue for fixed fees is recognized on a proportional performance basis as the services are performed. Contracts with Multiple Performance Obligations Some contracts with customers contain multiple promised services consisting of subscription and professional services that are distinct and accounted for separately. The transaction price is allocated to the separate performance obligations on a relative SSP basis. The SSP is the price at which we would sell promised subscription or professional services separately to a customer. Judgment is required to determine the SSP for each distinct performance obligation. We determine SSP based on our overall pricing objectives, taking into consideration the type of subscription or professional service and the number of endpoints. Variable Consideration Revenue from sales is recorded at the net sales price, which is the transaction price, and includes estimates of variable consideration. The amount of variable consideration that is included in the transaction price is constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue will not occur when the uncertainty is resolved. If subscriptions do not meet certain service level commitments, our customers are entitled to receive service credits, and in certain cases, refunds, each representing a form of variable consideration. We have historically not experienced any significant incidents affecting the defined levels of reliability and performance as required by our subscription contracts. Accordingly, any estimated refunds related to these agreements in the consolidated financial statements is not material during the periods presented. We provide rebates and other credits within our contracts with certain resellers, which are estimated based on the most likely amounts expected to be earned or claimed on the related sales transaction. Overall, the transaction price is reduced to reflect our estimate of the amount of consideration to which we are entitled based on the terms of the contract. Estimated rebates and other credits were not material during the periods presented. Stock-Based Compensation We account accounts for stock-based awards granted to employees and directors based on the awards’ estimated grant date fair value. We estimate the fair value of our stock options using the Black-Scholes option-pricing model. The resulting fair value is recognized on a straight-line basis over the period during which the employee or director is required to provide service in exchange for the award, usually the vesting period, which is generally four years. We account for forfeitures as they occur. Restricted stock units (“RSUs”) granted under the 2011 Plan are subject to a service-based vesting condition and a performance-based vesting condition. The service-based vesting condition is generally satisfied based on one of three 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 beginning on December 20, 2018, subject to continued service, or (iii) vesting in eight equal quarterly installments beginning on December 20, 2022, subject to continued service. The performance-based vesting condition is satisfied on the 84 Table of Contents earlier of (i) a change in control, in which the consideration paid to holders of shares is either cash, publicly traded securities, or a combination thereof, or (ii) the first Company vest date to occur following the expiration of the lock-up period upon an IPO, subject to continued service through such change in control or lock-up expiration, as applicable. None of the RSUs vest unless the performance-based vesting condition is satisfied. Upon the completion of the IPO, the performance-based vesting condition was met and we recognized $17.3 million of deferred expense related to RSUs as of that date in its consolidated statement of operations. Upon our IPO, we began issuing RSUs to our employees and these RSUs generally have only a service condition. The service-based vesting condition is generally with a vesting term of four years. The valuation of such RSUs is based solely on the fair value of our stock price on the date of grant. Expense for RSUs that have a service-based condition only are being amortized on a straight-line basis. Performance-based stock units (“PSUs”) granted under the 2019 Plan are subject to a performance-based vesting condition. With regard to the performance conditions, the fair value of new or modified awards is equal to the grant date fair market value of our common stock. PSUs generally vest over a four-year period based on the achievement of specified performance targets and subject to continued service through the applicable vesting dates. The compensation cost is recognized over the requisite service period when it is probable that the performance condition will be satisfied. Business Combinations We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded in the consolidated statement of operations. Strategic Investments In July 2019, we agreed to commit up to $10.0 million to a newly formed entity, CrowdStrike Falcon Fund LLC (“Falcon Fund”) in exchange for 50% of the sharing percentage of any distribution by Falcon Fund. Entities associated with Accel, a holder of more than 5% of the our capital stock, also agreed to commit up to $10.0 million to Falcon Fund, and collectively own the remaining 50% of the sharing percentage of Falcon Fund. Falcon Fund is in the business of purchasing, selling, investing and trading in minority equity and convertible debt securities of privately-held companies that develop applications that have potential for substantial contribution to CrowdStrike and its platform. We are the manager of the Falcon Fund and control the investment decisions and day-to-day operations and accordingly consolidate the Falcon Fund. Falcon Fund has a duration of ten years and may be extended for three additional years. At dissolution, Falcon Fund will be liquidated and the remaining assets will be distributed to the investors based on their respective sharing percentage. We have made contributions to Falcon Fund totaling $1.3 million as of January 31, 2021. We have elected the measurement alternative for the non-marketable equity investments of the Falcon Fund where eligible. Under the measurement alternative, the equity investments are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The non-marketable equity investments of the Falcon Fund are valued using significant unobservable inputs or data in inactive markets which requires judgment due to the absence of market prices and inherent lack of liquidity. As a result, there could be volatility in our consolidated statements of operations in future periods due to the valuation and timing of identical or similar investments of the same issuer. Income Taxes We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement and tax basis of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. 85 Table of Contents We account for unrecognized tax benefits using a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. We establish a liability for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. We record an income tax liability, if any, for the difference between the benefit recognized and measured and the tax position taken or expected to be taken on our tax returns. To the extent that the assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. The liability is adjusted considering changing facts and circumstances, such as the outcome of a tax audit. The provision for income taxes includes the impact of liability provisions and changes to the liability that are considered appropriate. We maintain a full valuation allowance against our deferred tax assets in the United States and the U.K., the changes resulted in no material tax expense during the year ended January 31, 2021. We do not expect that changes in the liability for unrecognized tax benefits for the next twelve months will have a material impact on our consolidated financial statements. Operating Leases We enter into operating lease arrangements for real estate assets related to office space. We determine if an arrangement is or contains a lease at inception by evaluating various factors, including whether a vendor’s right to substitute an identified asset is substantive. Lease classification is determined at the lease commencement date, which is the date the leased assets are made available for use. Operating leases are included in “Operating lease right-of-use assets”, “Operating lease liabilities, current”, and “Operating lease liabilities, noncurrent” in the consolidated balance sheets. We did not have any financing leases in any of the periods presented. Operating lease right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease payments consist of the fixed payments under the arrangement, less any lease incentives, such as tenant improvement allowances. Variable costs, such as maintenance and utilities based on actual usage, are not included in the measurement of right-to-use assets and lease liabilities but are expensed when the event determining the amount of variable consideration to be paid occurs. As the implicit rate of the leases is not determinable, we use an incremental borrowing rate (“IBR”) based on the information available at the lease commencement date in determining the present value of lease payments. Lease expenses are recognized on a straight-line basis over the lease term. We use the non-cancelable lease term when recognizing the right-of-use (“ROU”) assets and lease liabilities, unless it is reasonably certain that a renewal or termination option will be exercised. We account for lease components and non-lease components as a single lease component. Leases with a term of twelve months or less are not recognized on the consolidated balance sheets but are recognized as expense on a straight-line basis over the term of the lease. JOBS Act Accounting Election On the last business day of our second quarter in fiscal 2021, the aggregate market value of our shares held by non-affiliate stockholders exceeded $700 million. As a result, as of January 31, 2021, we are considered a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and we ceased to be an emerging growth company as defined in the JOBS Act. Recently Issued Accounting Pronouncements See Note 2, “Summary of Significant Accounting Policies”, of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information about the impact of certain recent accounting pronouncements on our consolidated financial statements. 86 Table of Contents