CRWD
$49.41
Crowdstrike Holdings
$2.11
4.46%
Earnings Details
3rd Quarter October 2019
Thursday, December 05, 2019 4:05:00 PM
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Summary

Crowdstrike Holdings Beats

Crowdstrike Holdings (CRWD) reported a 3rd Quarter October 2019 loss of $0.09 per share on revenue of $125.1 million. The consensus estimate was a loss of $0.11 per share on revenue of $118.4 million. The Earnings Whisper number was for a loss of $0.12 per share.

The company said it expects a fourth quarter non-GAAP loss of $0.09 to $0.08 per share on revenue of $135.9 million to $138.6 million. The current consensus estimate is a loss of $0.19 per share on revenue of $126.7 million for the quarter ending January 31, 2020.

Results
Reported Earnings
($0.09)
Earnings Whisper
($0.12)
Consensus Estimate
($0.11)
Reported Revenue
$125.1 Mil
Revenue Estimate
$118.4 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

CrowdStrike Reports Record Fiscal Third Quarter 2020 Financial Results

Surpasses $500 million in ARR and achieves positive cash flow from operations and free cash flow
Increases full year revenue outlook

  • Subscription revenue grew 98% year-over-year to $114.2 million
  • ARR grew 97% year-over-year to $501.7 million
  • Record net new ARR of $77.9 million, increased 32% quarter-over-quarter
  • Subscription customers increased 112% year-over-year to reach 4,561 customers
  • Generated $38.6 million in cash from operations and $7.0 million in free cash flow

SUNNYVALE, Calif., Dec. 05, 2019 (GLOBE NEWSWIRE) -- CrowdStrike Holdings, Inc., (Nasdaq: CRWD), a leader in cloud-delivered endpoint protection, today announced financial results for the third quarter of its fiscal 2020, ended October 31, 2019.

“Third quarter results well exceeded our expectations and CrowdStrike delivered the best quarter yet in company history with strength in multiple areas of the business including 98% subscription revenue growth and record net new ARR. We achieved two significant milestones as ARR grew 97% year-over-year to exceed half a billion dollars and we generated positive cash flow in the quarter,” said George Kurtz, CrowdStrike’s co-founder and chief executive officer.

“Strong demand among organizations across diverse sizes and industries and our frictionless go-to-market engine drove our rapid growth at scale, which we believe continues to demonstrate our growing leadership in the Security Cloud category and ongoing growth potential,” concluded Kurtz.

Burt Podbere, CrowdStrike’s chief financial officer, said, “Robust growth along with our relentless focus on execution and strong unit economics drove improved operating leverage, positive cash flow from operations and positive free cash flow. Given our strong performance and growing momentum in the market, we are raising our guidance for fiscal year 2020. Looking forward into fiscal year 2021 ending January 31, 2021, we expect to be free cash flow positive for the year and achieve non-GAAP operating income breakeven in the fourth quarter of fiscal year 2021, while at the same time continuing to aggressively invest in our market opportunity.”

Third Quarter Fiscal 2020 Financial Highlights

  • Revenue: Total revenue was $125.1 million, an 88% increase, compared to $66.4 million in the third quarter of fiscal 2019. Subscription revenue was $114.2 million, a 98% increase, compared to $57.7 million in the third quarter of fiscal 2019. 
     
  • Annual Recurring Revenue (ARR) increased 97% year-over-year and grew to $501.7 million as of October 31, 2019, of which $77.9 million was net new ARR added in the quarter.
     
  • Subscription Gross Margin: GAAP subscription gross margin was 74%, compared to 70% in the third quarter of fiscal 2019. Non-GAAP subscription gross margin was 76%, compared to 71% in the third quarter of fiscal 2019.
     
  • Loss from Operations: GAAP loss from operations was $38.5 million, compared to $42.1 million in the third quarter of fiscal 2019. Non-GAAP loss from operations was $16.5 million, compared to $28.6 million in the third quarter of fiscal 2019.
     
  • Net Loss: GAAP net loss was $35.5 million, compared to $42.3 million in the third quarter of fiscal 2019. GAAP net loss per share was $0.17, compared to $0.93 in the third quarter of fiscal 2019. Non-GAAP net loss was $13.4 million, compared to $28.8 million in the third quarter of fiscal 2019. Non-GAAP net loss per share was $0.07, compared to $0.64 in the third quarter of fiscal 2019.
     
  • Cash Flow: Net cash generated from operations was $38.6 million, compared to a use of $3.6 million in the third quarter of fiscal 2019. Free cash flow was $7.0 million, compared to negative $13.1 million in the third quarter of fiscal 2019.
     
  • Cash, cash equivalents and marketable securities increased to $833.7 million as of October 31, 2019.

Recent Highlights

  • Added a record 772 net new subscription customers in the quarter for a total of 4,561 subscription customers as of October 31, 2019, representing 112% growth year-over-year.
     
  • CrowdStrike’s subscription customers that have adopted four or more cloud modules increased to over 50% and those with five or more cloud modules increased to 30% as of October 31, 2019.
     
  • Expanded cloud-native Falcon Platform with the announcement of a new Firewall Management module that delivers simple, centralized host firewall management to help customers transition from legacy endpoint suites to CrowdStrike’s next-generation solution.
     
  • Introduced Falcon for Amazon Web Services to simplify cloud workload protection and provide enhanced visibility. Falcon for AWS will be available in AWS Marketplace, allowing customers to easily purchase and deploy the solution with integrated metered billing.
     
  • Partnered with Wipro, a leading global information technology consulting and business process services company, to bring the CrowdStrike Falcon platform for comprehensive, real-time endpoint protection to Wipro’s global customers.
     
  • Announced seven new third-party applications for the CrowdStrike Store that will extend the power of the CrowdStrike Falcon platform, addressing additional use cases to strengthen the security posture of customers.
     
  • Industry Recognition: Received highest score for “Lean Forward” Organizations (Type A Use Cases) in Gartner’s Second Critical Capabilities for Endpoint Protection Platforms Report. Named by Forrester Research, Inc. as a Leader in Endpoint Security in The Forrester Wave: Endpoint Security Suites (ESS), Q3 2019 report. Named Best New Endpoint Solution by SE Labs in annual report.

Financial Outlook

CrowdStrike is providing the following guidance for the fourth quarter of fiscal 2020 (ending January 31, 2020) and is raising its guidance for fiscal year 2020 (ending January 31, 2020):

   
 Q4 FY20
Guidance
Full Year FY20
Guidance
 

Total revenue
 

$135.9$38.6 million
 

$465.2$468.0 million
   
Non-GAAP loss from operations$(21.6)$(19.7) million$(80.5)$(78.6) million
   
Non-GAAP net loss$(19.1)$(17.2) million$(77.7)$(75.8) million
   
Non-GAAP net loss per share, basic and diluted$(0.09)$(0.08)$(0.53)$(0.52)
   
Weighted average shares used in computing Non-GAAP net loss per share attributable to common stockholders, basic and diluted205.2 million146.7 million
   

These statements are forward-looking and actual results may differ materially as a result of many factors. Refer to the Forward-Looking Statements safe harbor below for information on the factors that could cause our actual results to differ materially from these forward-looking statements.

Guidance for non-GAAP financial measures excludes stock-based compensation expense and amortization expense of acquired intangible assets. We have not provided the most directly comparable GAAP measures because certain items are out of our control or cannot be reasonably predicted. Accordingly, a reconciliation for non-GAAP loss from operations, non-GAAP net loss, and non-GAAP net loss per share is not available without unreasonable effort.

Conference Call Information

CrowdStrike will host a conference call for analysts and investors to discuss its earnings results for the third quarter of fiscal 2020 and outlook for its fiscal fourth quarter and year 2020 today at 2:00 p.m. Pacific time (5:00 p.m. Eastern time). A recorded webcast of the event will also be available for one year on the CrowdStrike Investor Relations website ir.crowdstrike.com.

  
Date: Thursday, December 5, 2019
Time: 2:00 p.m. Pacific time / 5:00 p.m. Eastern time
Dial-in number: 800-525-5356 or 409-937-8967, conference ID: 1548478 
Webcast: ir.crowdstrike.com
  

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding our future financial and operating performance, including our financial outlook for the fiscal fourth quarter and year 2020. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: our limited operating history; our ability to identify and effectively implement the necessary changes to address execution challenges; risks associated with managing our rapid growth; our limited experience with new product and subscription and support introductions and the risks associated with new products and subscription and support offerings, including the risk of defects, errors, or vulnerabilities; our ability to attract new and retain existing customers; the failure to timely develop and achieve market acceptance of new products and subscriptions as well as existing products and subscriptions and support; rapidly evolving technological developments in the market for security products and subscription and support offerings; length of sales cycles; and general market, political, economic, and business conditions.

Additional risks and uncertainties that could affect our financial results are included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth from time to time in our filings and reports with the Securities and Exchange Commission (“SEC”), including our prospectus filed with the SEC pursuant to Rule 424(b), dated June 11, 2019, and in our Quarterly Report on Form 10-Q for the quarter ended October 31, 2019, that will be filed with the SEC following this earnings release.

You should not rely on these forward-looking statements, as actual outcomes and results may differ materially from those contemplated by these forward-looking statements as a result of such risks and uncertainties. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we do not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

Use of Non-GAAP Financial Information

We believe that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to our financial condition and results of operations. For further information regarding these non-GAAP measures, including the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, please refer to the financial tables below, as well as the “Explanation of Non-GAAP Financial Measures" section of this press release.

Channels for Disclosure of Information

We intend to announce material information to the public through the CrowdStrike Investor Relations website ir.crowdstrike.com, SEC filings, press releases, public conference calls, and public webcasts. We use these channels, as well as social media and our blog, to communicate with our investors, customers, and the public about our company, our offerings, and other issues. It is possible that the information we post on social media and our blog could be deemed to be material information. As such, we encourage investors, the media, and others to follow the channels listed above, including the social media channels listed on our investor relations website, and to review the information disclosed through such channels. Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website.

About CrowdStrike Holdings

CrowdStrike® provides cloud-delivered endpoint protection. Leveraging artificial intelligence (AI), the CrowdStrike Falcon platform protects customers against cyberattacks on endpoints on or off the network by offering visibility and protection across the enterprise.

2019 CrowdStrike, Inc. All rights reserved. CrowdStrike® and CrowdStrike Falcon are among the trademarks of CrowdStrike, Inc.

Investor Relations Contact
CrowdStrike Holdings, Inc.
Maria Riley
investors@crowdstrike.com  
669-721-0742

Press Contact
CrowdStrike Holdings, Inc.
Ilina Cashiola
ilina.cashiola@crowdstrike.com
202-340-0517

 
CROWDSTRIKE HOLDINGS, INC.
        
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
        
 Three Months Ended October 31, Nine Months Ended October 31,
  2019   2018   2019   2018 
Revenue       
  Subscription$114,221  $57,651  $297,787  $146,570 
  Professional services 10,898   8,728   31,517   22,799 
  Total revenue 125,119   66,379   329,304   169,369 
        
Cost of revenue       
  Subscription (1) 29,221   17,302   77,858   47,077 
  Professional services (1) 8,134   4,972   20,353   13,166 
  Total cost of revenue 37,355   22,274   98,211   60,243 
        
Gross profit 87,764   44,105   231,093   109,126 
        
Operating expenses       
  Sales and marketing (1) 68,675   46,614   190,792   123,344 
  Research and development (1) 35,992   25,968   91,497   62,546 
  General and administrative (1) 21,615   13,614   63,737   28,868 
  Total operating expenses 126,282   86,196   346,026   214,758 
        
Loss from operations (38,518)  (42,091)  (114,933)  (105,632)
  Interest expense (132)  -   (297)  (428)
  Other income (expense), net 3,579   303   3,523   (1,739)
        
Loss before provision for income taxes (35,071)  (41,788)  (111,707)  (107,799)
        
Provision for income taxes (434)  (535)  (1,664)  (1,018)
        
Net loss$(35,505) $(42,323) $(113,371) $(108,817)
        
Net loss per share attributable to Class A and Class B common stockholders, basic and diluted$(0.17) $(0.93) $(0.89) $(2.45)
        
Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted 204,096   45,287   128,009   44,344 
        
        
(1) Includes stock-based compensation expense as follows:       
        
 Three Months Ended October 31, Nine Months Ended October 31,
  2019   2018   2019   2018 
 (in thousands) (in thousands)
Subscription cost of revenue$1,666  $382  $3,164  $533 
Professional services cost of revenue 784   53   1,531   156 
Sales and marketing 7,355   2,137   15,511   3,941 
Research and development 4,696   6,245   10,353   7,232 
General and administrative 7,465   4,643   25,018   5,541 
  Total stock-based compensation expense$21,966  $13,460  $55,577  $17,403 
        

 

CROWDSTRIKE HOLDINGS, INC.
    
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
    
 October 31, January 31,
  2019   2019 
Assets   
Current assets:   
  Cash and cash equivalents$743,605  $88,408 
  Marketable securities 90,083   103,247 
  Accounts receivable, net 145,694   92,476 
  Deferred contract acquisition costs, current 35,924   28,847 
  Prepaid expenses and other current assets 37,914   18,410 
  Total current assets 1,053,220   331,388 
Property and equipment, net 129,504   73,735 
Deferred contract acquisition costs, noncurrent 58,260   9,918 
Goodwill 7,794   7,947 
Intangible assets, net 637   1,048 
Other assets 6,639   9,183 
  Total assets$1,256,054  $433,219 
Liabilities, Redeemable Convertible Preferred Stock, and Stockholders’ Equity (Deficit)   
Current liabilities:   
  Accounts payable$5,244  $6,855 
  Accrued expenses 29,460   32,541 
  Accrued payroll and benefits 36,905   19,284 
  Deferred revenue 335,801   218,700 
  Other current liabilities 8,194   4,040 
  Total current liabilities 415,604   281,420 
Deferred revenue, noncurrent 111,838   71,367 
Other liabilities, noncurrent 11,570   10,313 
  Total liabilities 539,012   363,100 
Commitments and contingencies    
Redeemable Convertible Preferred Stock   
  Redeemable convertible preferred stock -   557,912 
Stockholders’ Equity (Deficit)   
  Preferred stock -   - 
  Common stock -   24 
  Common stock, Class A and Class B 103   - 
  Additional paid-in capital 1,326,116   31,211 
  Accumulated deficit (609,079)  (519,126)
  Accumulated other comprehensive income (loss) (98)  98 
  Total stockholders’ equity (deficit) 717,042   (487,793)
Total liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit)$1,256,054  $433,219 
    

 

CROWDSTRIKE HOLDINGS, INC.
    
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
    
 Nine Months Ended October 31,
  2019   2018 
Operating activities   
Net loss$(113,371) $(108,817)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:   
  Depreciation and amortization 16,023   10,199 
  Loss on disposal of fixed assets -   223 
  Amortization of intangible assets 385   435 
  Amortization of deferred contract acquisition costs 24,125   19,312 
  Change in fair value of redeemable convertible preferred stock warrant liability 6,022   2,935 
  Allowance for doubtful accounts 413   485 
  Stock-based compensation expense 55,577   17,403 
  Accretion of marketable securities purchased at a discount (1,313)  (625)
  Non-cash interest expense 293   187 
  Changes in operating assets and liabilities:   
  Accounts receivable (53,631)  (17,936)
  Deferred contract acquisition costs (55,238)  (27,531)
  Prepaid expenses and other assets (19,883)  (2,307)
  Accounts payable (3,773)  (6,280)
  Accrued expenses and other current liabilities 3,405   (2,331)
  Accrued payroll and benefits 17,621   3,498 
  Deferred revenue 157,239   72,219 
  Other liabilities, noncurrent (58)  155 
  Net cash provided by (used in) operating activities 33,836   (38,776)
Investing activities   
Purchases of property and equipment (66,848)  (21,664)
Capitalized internal-use software (5,208)  (5,042)
Purchases of marketable securities (187,697)  (135,253)
Proceeds from sales of marketable securities 4,473   - 
Maturities of marketable securities 197,764   30,600 
  Net cash used in investing activities (57,516)  (131,359)
Financing activities   
Proceeds from the issuance of common stock upon initial public offering, net of underwriting discounts 665,092   - 
Proceeds from the issuance of redeemable convertible preferred stock, net of issuance costs -   206,896 
Repayment of loan payable -   (6,158)
Proceeds from revolving line of credit -   10,000 
Repayment of revolving line of credit -   (20,000)
Repayment of notes receivable from related parties -   198 
Payments of contingent consideration -   (184)
Payments of indemnity holdback -   (500)
Repurchase of stock options -   (2,330)
Payments of deferred offering costs (5,872)  - 
Proceeds from issuance of common stock upon exercise of stock options 9,350   2,792 
Proceeds from the issuance of common stock upon exercise of early exercisable stock options 10,264   - 
  Net cash provided by financing activities 678,834   190,714 
    
Effect of foreign exchange rates on cash and cash equivalents 43   (296)
    
  Net increase in cash and cash equivalents 655,197   20,283 
    
Cash and cash equivalents, beginning of period 88,408   63,179 
Cash and cash equivalents, end of period$743,605  $83,462 
    

 

CROWDSTRIKE HOLDINGS, INC.
        
Non-GAAP Financial Measures with Reconciliation to GAAP
(in thousands, except percentages)
(unaudited)
        
 Three Months Ended October 31, Nine Months Ended October 31,
  2019   2018   2019   2018 
        
GAAP subscription revenue$114,221  $57,651  $297,787  $146,570 
        
GAAP subscription gross profit$85,000  $40,349  $219,929  $99,493 
Add: Stock-based compensation expense 1,666   382   3,164   533 
Add: Amortization of acquired intangible assets 61   20   262   222 
Non-GAAP subscription gross profit$86,727  $40,751  $223,355  $100,248 
        
GAAP subscription gross margin 74%  70%  74%  68%
        
Non-GAAP subscription gross margin 76%  71%  75%  68%
        
        
 Three Months Ended October 31, Nine Months Ended October 31,
  2019   2018   2019   2018 
        
GAAP total revenue$125,119  $66,379  $329,304  $169,369 
        
GAAP loss from operations$(38,518) $(42,091) $(114,933) $(105,632)
Add: Stock-based compensation expense 21,966   13,460   55,577   17,403 
Add: Amortization of acquired intangible assets 101   62   385   435 
Non-GAAP loss from operations$(16,451) $(28,569) $(58,971) $(87,794)
        
GAAP operating margin (31)%  (63)%  (35)%  (62)%
        
Non-GAAP operating margin (13)%  (43)%  (18)%  (52)%
        
        
 Three Months Ended October 31, Nine Months Ended October 31,
  2019   2018   2019   2018 
        
GAAP net loss$(35,505) $(42,323) $(113,371) $(108,817)
Add: Stock-based compensation expense 21,966   13,460   55,577   17,403 
Add: Amortization of acquired intangible assets 101   62   385   435 
Less: Gain on settlement of lawsuit -   -   (1,250)  - 
Non-GAAP net loss$(13,438) $(28,801) $(58,659) $(90,979)
        
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 204,096   45,287   128,009   44,344 
        
GAAP net loss per share attributable to common stockholders, basic and diluted$(0.17) $(0.93) $(0.89) $(2.45)
        
Non-GAAP net loss per share attributable to common stockholders, basic and diluted$(0.07) $(0.64) $(0.46) $(2.05)
        
        
 Three Months Ended October 31, Nine Months Ended October 31,
  2019   2018   2019   2018 
        
GAAP total revenue$125,119  $66,379  $329,304  $169,369 
        
GAAP net cash provided by (used in) operating activities 38,635   (3,639)  33,836   (38,776)
Less: Purchases of property and equipment (29,689)  (7,596)  (66,848)  (21,664)
Less: Capitalized internal-use software (1,898)  (1,841)  (5,208)  (5,042)
Free cash flow$7,048  $(13,076) $(38,220) $(65,482)
        
GAAP net cash used in investing activities$(27,262) $(36,486) $(57,516) $(131,359)
GAAP net cash provided by (used in) financing activities$(968) $8,094  $678,834  $190,714 
        
GAAP net cash used in operating activities as a percentage of revenue 31%  (5)%  10%  (23)%
Less: Purchases of property and equipment as a percentage of revenue (24)%  (11)%  (20)%  (13)%
Less: Capitalized internal-use software as a percentage of revenue (2)%  (3)%  (2)%  (3)%
Free cash flow margin 6%  (20)%  (12)%  (39)%

 

CROWDSTRIKE HOLDINGS, INC.
        
Statements of Operations: GAAP to Non-GAAP Reconciliation
(in thousands)
(unaudited)
        
 Three Months Ended October 31, Nine Months Ended October 31,
  2019   2018   2019   2018 
        
GAAP cost of revenue$37,355  $22,274  $98,211  $60,243 
Less:       
Stock based compensation expense 2,450   435   4,695   689 
Amortization of acquired intangible assets 61   20   262   222 
Non-GAAP cost of revenue$34,844  $21,819  $93,254  $59,332 
        
        
GAAP subscription gross profit$85,000  $40,349  $219,929  $99,493 
Add:       
Stock based compensation expense 1,666   382   3,164   533 
Amortization of acquired intangible assets 61   20   262   222 
Non-GAAP subscription gross profit$86,727  $40,751  $223,355  $100,248 
        
        
GAAP professional services gross profit$2,764  $3,756  $11,164  $9,633 
Add:       
Stock based compensation expense 784   53   1,531   156 
Non-GAAP professional services gross profit$3,548  $3,809  $12,695  $9,789 
        
        
GAAP Sales and marketing operating expenses$68,675  $46,614  $190,792  $123,344 
Less:       
Stock based compensation expense 7,355   2,137   15,511   3,941 
Amortization of acquired intangible assets 30   32   92   111 
Non-GAAP sales and marketing operating expenses$61,290  $44,445  $175,189  $119,292 
        
        
GAAP research and development operating expenses$35,992  $25,968  $91,497  $62,546 
Less:       
Stock based compensation expense 4,696   6,245   10,353   7,232 
Amortization of acquired intangible assets 10   10   31   102 
Non-GAAP research and development operating expenses$31,286  $19,713  $81,113  $55,212 
        
        
GAAP general and administrative operating expenses$21,615  $13,614  $63,737  $28,868 
Less:       
Stock based compensation expense 7,465   4,643   25,018   5,541 
Non-GAAP general and administrative operating expenses$14,150  $8,971  $38,719  $23,327 
        
        
GAAP loss from operations$(38,518) $(42,091) $(114,933) $(105,632)
Add:       
Stock based compensation expense 21,966   13,460   55,577   17,403 
Amortization of acquired intangible assets 101   62   385   435 
Non-GAAP loss from operations$(16,451) $(28,569) $(58,971) $(87,794)
        
        
GAAP net loss$(35,505) $(42,323) $(113,371) $(108,817)
Add:       
Stock based compensation expense 21,966   13,460   55,577   17,403 
Amortization of acquired intangible assets 101   62   385   435 
Less:       
Gain on settlement of lawsuit -   -   (1,250)  - 
Non-GAAP net loss$(13,438) $(28,801) $(58,659) $(90,979)
        

Explanation of Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. generally accepted accounting principles (“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 information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. 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.

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. In addition, the utility of free cash flow as a measure of our financial performance and liquidity is limited as it does not represent the total increase or decrease in our cash balance for a given period.

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.

Non-GAAP Loss from Operations

We define non-GAAP loss from operations as GAAP loss from operations excluding stock-based compensation expense, amortization of acquired intangible assets, and acquisition-related expenses. We believe non-GAAP loss from operations provides our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations, as this metric generally eliminates the effects of certain variables unrelated to our overall operating performance.

Non-GAAP Net Loss per Share Attributable to Common Stockholders, Basic and Diluted

We define non-GAAP net loss per share attributable to common stockholders, as non-GAAP net loss divided by the weighted-average shares outstanding, which includes the dilutive effect of potentially diluted common stock equivalents outstanding during the period. We may periodically incur charges or receive payments in connection with litigation settlements. We exclude these charges and payments received from non-GAAP net loss when associated with a significant settlement because we do not believe they are reflective of ongoing business and operating results.

Free Cash Flow

Free cash flow is a non-GAAP financial measure that we define as net cash used in operating activities less purchases of property and equipment, capitalized internal-use software, acquisition of intangible assets, and cash used for business combinations. We monitor free cash flow as one measure of our overall business performance, which enables us to analyze our future performance without the effects of non-cash items and allow us to better understand the cash needs of our business. While we believe that free cash flow is useful in evaluating our business, free cash flow is a non-GAAP financial measure that has limitations as an analytical tool, and free cash flow should not be considered as an alternative to, or substitute for, net cash used in operating activities in accordance with GAAP. The utility of free cash flow as a measure of our liquidity is further limited as it does not represent the total increase or decrease in our cash balance for any given period. In addition, other companies, including companies in our industry, may calculate free cash flow differently or not at all, which reduces the usefulness of free cash flow as a tool for comparison.

Explanation of Operational Measures

Annual Recurring Revenue

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.

Magic Number

Magic Number is calculated by performing the following calculation for the most recent four quarters and taking the average: annualizing the difference between a quarter’s Subscription Revenue and the prior quarter’s Subscription Revenue, and then dividing the resulting number by the previous quarter’s Non-GAAP Sales & Marketing Expense. Magic Number = Average of previous four quarters: ((Quarter Subscription Revenue – Prior Quarter Subscription Revenue) x 4) / Prior Quarter Non-GAAP Sales & Marketing Expense.

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Source: CrowdStrike, Inc.