01—Abstract
Summary
Summary of the 10-Q filed December 3, 2020. Cited figures are marked; the original filing is the authoritative source.
CrowdStrike Holdings, Inc.'s 10-Q filing for the period ending October 30, 2020, primarily focuses on forward-looking risk factors and corporate governance.
As an "emerging growth company" until January 31, 2021, CrowdStrike has utilized certain exemptions from regulatory requirements, which may impact comparability with other companies. The company emphasizes potential dilution from future stock issuances and outlines various provisions in its charter documents and bylaws designed to deter hostile takeovers and influence control, including a dual-class stock structure and a classified board. Significant risks highlighted relate to the challenges of being a new public company, including the strain on resources for compliance with Sarbanes-Oxley Act requirements, potential weaknesses in internal controls, and the diversion of management attention.
The company also notes the risks associated with future acquisitions, such as integration challenges, potential dilution, and unforeseen liabilities. Furthermore, CrowdStrike addresses the potential limitations on its ability to utilize net operating loss carryforwards and tax attributes due to ownership changes, as well as potential liabilities related to sales and use taxes in various jurisdictions. The impact of evolving accounting standards and the inherent uncertainties in management's estimates and judgments, especially in the context of the COVID-19 pandemic, are also underscored.
02—Key points
Key Highlights
- CrowdStrike is operating as an "emerging growth company" until January 31, 2021, availing itself of certain regulatory exemptions that may affect comparability with other public companies.
- The company's charter documents and bylaws contain provisions, such as a dual-class stock structure and a classified board, designed to prevent hostile takeovers and maintain control, which could limit stockholder influence.
- Significant resources and management attention are being dedicated to complying with new public company regulations, including Sarbanes-Oxley Act requirements for internal controls, with the independent auditor's attestation due by January 31, 2021.
- Future acquisitions, like the recent Preempt Security acquisition, pose risks including integration challenges, potential dilution to existing stockholders, and the possibility of inheriting unforeseen liabilities.
- CrowdStrike has substantial net operating loss (NOL) carryforwards and tax credits, but their future utilization may be limited by ownership changes under Sections 382 and 383 of the Internal Revenue Code, potentially increasing future tax liabilities.
- The company faces potential liabilities related to uncollected sales and use taxes in various jurisdictions where it operates.
- Management's estimates and judgments, particularly those related to accounting policies and the impact of COVID-19, carry increased variability and could adversely affect financial results if actual outcomes differ.
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q3 FY2021, CrowdStrike Holdings, Inc. lost $0.11.
- Revenue$232.5M100.0%
- Cost of revenue−$61.5M26.5%
- Gross profit$170.9M73.5%
- Operating costs−$195.1M83.9%
- Operating income−$24.2M10.4%
- Interest, other & tax−$372,0000.2%
- Net income−$24.5M10.6%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2021filed December 3, 2020Financial Statements
Q3 FY2021 against Q3 FY2020
| Line item | Q3 FY2021Q3 FY2020 | Change |
|---|---|---|
| Revenue | $232.46M$125.12M | +85.8% |
| Cost of Revenue | $61.53M$37.35M | +64.7% |
| Gross Profit | $170.93M$87.76M | +94.8% |
| R&D Expenses | $57.54M$35.99M | +59.9% |
| Operating Expenses | $195.09M$126.28M | +54.5% |
| Operating Income | -$24.16M-$38.52M | +37.3% |
| Interest Expense | $193K$132K | +46.2% |
| Net Income | -$24.53M-$35.51M | +30.9% |
| EPS (Basic) | $-0.03$-0.04 | +35.3% |
| EPS (Diluted) | $-0.03— | — |
| Shares Outstanding (Basic) | 877.60M816.38M | +7.5% |
| Shares Outstanding (Diluted) | 877.60M— | — |
05—Questions
Frequently Asked Questions
What is CrowdStrike's status as an 'emerging growth company' and what are the implications for investors?
As an 'emerging growth company' until January 31, 2021, CrowdStrike can take advantage of exemptions from certain reporting and corporate governance requirements applicable to larger public companies. This may include reduced disclosure obligations and delayed compliance with auditor attestation requirements for internal controls. While this can reduce compliance costs, it may make its financial reporting less comparable to companies that are not emerging growth companies and could potentially make its stock seem less attractive to some investors.
How do CrowdStrike's corporate governance provisions affect stockholder rights?
CrowdStrike has implemented several corporate governance provisions, including a dual-class stock structure (giving Class B holders significant influence) and a classified board of directors with staggered terms. These provisions, along with others like limitations on stockholder action by written consent and exclusive forum provisions for legal disputes, are designed to prevent hostile takeovers and maintain control. While providing stability, these measures may limit the ability of common stockholders to influence corporate decisions, elect directors, or pursue certain legal actions against the company or its management.
What are the main risks associated with CrowdStrike's public company status and compliance efforts?
Becoming a public company subjects CrowdStrike to increased regulatory scrutiny and compliance burdens, including the Sarbanes-Oxley Act. The company highlights the strain on its resources, potential diversion of management attention, and the risk of weaknesses in internal controls over financial reporting. Failure to maintain effective controls could lead to inaccurate financial statements, affect investor confidence, and negatively impact its stock price. The company is particularly focused on developing these controls, with its independent auditor's attestation of internal control effectiveness required by January 31, 2021.
What are the potential impacts of future acquisitions on CrowdStrike and its stockholders?
CrowdStrike's strategy includes future acquisitions, such as the recent acquisition of Preempt Security. These acquisitions carry inherent risks. They can divert management's attention, disrupt operations, and require significant resources for integration. Critically, acquisitions can lead to dilution of stockholder value if financed by issuing new equity, and there's a risk of acquiring unforeseen liabilities or encountering integration failures that could negatively impact financial results and the company's competitive position.
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