10-QPeriod: Q3 FY2021

CrowdStrike Holdings, Inc. Quarterly Report for Q3 Ended Oct 31, 2020

Filed December 3, 2020For Securities:CRWD

Summary

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.

Financial Highlights

50 data points
Beta

Revenue

$232.46M

73.5% Gross Margin

Net Income

-$24.53M

-10.6% Net Margin

EPS (Diluted)

$-0.03

Total Assets

$1.75B

Cash & Equivalents

$1.06B

Free Cash Flow

$78.59M

Financial Statements
Beta
Revenue$232.46M
Cost of Revenue$61.53M
Gross Profit$170.93M
R&D Expenses$57.54M
Operating Expenses$195.09M
Operating Income-$24.16M
Interest Expense$193K
Net Income-$24.53M
EPS (Basic)$-0.03
EPS (Diluted)$-0.03
Shares Outstanding (Basic)877.60M
Shares Outstanding (Diluted)877.60M

Key Highlights

  • 1CrowdStrike 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.
  • 2The 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.
  • 3Significant 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.
  • 4Future acquisitions, like the recent Preempt Security acquisition, pose risks including integration challenges, potential dilution to existing stockholders, and the possibility of inheriting unforeseen liabilities.
  • 5CrowdStrike 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.
  • 6The company faces potential liabilities related to uncollected sales and use taxes in various jurisdictions where it operates.
  • 7Management'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.

Frequently Asked Questions

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.

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.

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.

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.