EX-99.1 2 crwd-20201202xex991.htm EX-99.1 Document


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CrowdStrike Reports Fiscal Third Quarter 2021 Financial Results
Achieved $907 million in ARR and net new ARR of $117 million
Added 1,186 net new subscription customers
Continued strong module adoption as customers with four or more modules increased to 61%, five or more modules increased to 44% and six or more modules increased to 22%

SUNNYVALE, Calif., December 2, 2020 -- CrowdStrike Holdings, Inc., (Nasdaq: CRWD), a leader in cloud-delivered endpoint and cloud workload protection, today announced financial results for the third quarter of its fiscal 2021, ended October 31, 2020.

“CrowdStrike delivered a record third quarter with results exceeding our expectations across the board. Broad-based demand and strength in multiple areas of the business fueled our rapid 87% year-over-year subscription revenue growth, record net new ARR of $117 million and record 1,186 net new subscription customers. CrowdStrike’s robust growth at scale underscores our growing leadership in the Security Cloud category and the immense value we deliver to customers seeking to transform, consolidate and fortify their security posture,” said George Kurtz, CrowdStrike’s co-founder and chief executive officer.

“Our industry-leading cloud-native platform powered by Threat Graph enables us to rapidly bring new modules to market and drive customer adoption. With our expanding portfolio of capabilities, which includes three recently announced new modules and the addition of leading Zero Trust capabilities through our acquisition of Preempt Security, we believe we are well-positioned to continue our momentum and extend our Security Cloud leadership," concluded Kurtz.

Commenting on the company's financial results, Burt Podbere, CrowdStrike’s chief financial officer, added, “We continued to drive operating leverage and record unit economics. As a result of our strong execution in the quarter, we reduced GAAP operating loss year-over-year, achieved non-GAAP operating profitability for the third consecutive quarter and generated positive operating and free cash flow for the fifth consecutive quarter.”

Third Quarter Fiscal 2021 Financial Highlights

Revenue: Total revenue was $232.5 million, an 86% increase, compared to $125.1 million in the third quarter of fiscal 2020. Subscription revenue was $213.5 million, an 87% increase, compared to $114.2 million in the third quarter of fiscal 2020.

Annual Recurring Revenue (ARR) increased 81% year-over-year and grew to $907.4 million as of October 31, 2020, of which $116.8 million was net new ARR added in the quarter, including $6.8 million from the acquisition of Preempt Security.

Subscription Gross Margin: GAAP subscription gross margin was 77%, compared to 74% in the third quarter of fiscal 2020. Non-GAAP subscription gross margin was 78%, compared to 76% in the third quarter of fiscal 2020.

Income/Loss from Operations: GAAP loss from operations was $24.2 million, compared to $38.5 million in the third quarter of fiscal 2020. Non-GAAP income from operations was $18.9 million, compared to a loss of $16.5 million in the third quarter of fiscal 2020.

Net Income/Loss: GAAP net loss was $24.5 million, compared to $35.5 million in the third quarter of fiscal 2020. GAAP net loss per share, basic and diluted, was $0.11, compared to $0.17 in the third quarter of fiscal 2020. Non-GAAP net income was $18.6 million, compared to a loss of $13.4 million in the third quarter of fiscal 2020. Non-GAAP net income per share, diluted, was $0.08, compared to a loss of $0.07 in the third quarter of fiscal 2020.

Cash Flow: Net cash generated from operations was $88.5 million, compared to $38.6 million in the third quarter of fiscal 2020. Free cash flow was $76.1 million, compared to $7.0 million in the third quarter of fiscal 2020.

Cash and Cash Equivalents was $1,060 million as of October 31, 2020.










Recent Highlights

Added 1,186 net new subscription customers in the quarter, including 64 from the acquisition of Preempt Security, for a total of 8,416 subscription customers as of October 31, 2020, representing 85% growth year-over-year.

CrowdStrike’s subscription customers that have adopted four or more modules, five or more modules and six or more modules increased to 61%, 44%, and 22%, respectively, as of October 31, 2020.

Acquired Preempt Security, a leading provider of Zero Trust and conditional access technology for real-time access control and threat prevention.

Announced multiple new modules and capabilities, including Falcon Horizon, Falcon Forensics, Falcon X Recon, and Falcon Zero Trust Assessment (ZTA).

Announced an alliance with EY to transform cyber risk management capabilities. The new alliance will help enterprises identify, prevent and respond to cyber threats.

Joined the ServiceNow® Service Graph Connector Program. The new integration provides users the ability to integrate device data from the CrowdStrike Falcon® platform into their incident response process and improve both the security and IT operations outcomes.

Expanded support for Amazon Web Services with integrations for the compute services and cloud services categories, enhancing development, security and operations (DevSecOps) to enable faster and more secure innovation that is easier to deploy.

Financial Outlook

CrowdStrike is providing the following guidance for the fourth quarter of fiscal 2021 (ending January 31, 2021) and increasing its guidance for fiscal year 2021 (ending January 31, 2021):

Q4 FY21
Guidance
Full Year FY21
Guidance
Total revenue$245.5 - $250.5 million$855.0 - $860.0 million
Non-GAAP income from operations$18.5 - $22.1 million$46.4 - $50.0 million
Non-GAAP net income$17.7 - $21.3 million$48.8 - $52.4 million
Non-GAAP net income per share, diluted$0.08 - $0.09$0.21 - $0.22
Weighted average shares used in computing Non-GAAP net income per share attributable to common stockholders, diluted236 million233 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, amortization expense of acquired intangible assets, and acquisition-related expenses. 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 2021 and outlook for its fiscal fourth quarter and year 2021 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:
December 2, 2020
Time:2:00 p.m. Pacific time / 5:00 p.m. Eastern time
Dial-in number:
409-937-8967, conference ID: 1157826
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 fiscal year 2021. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: the impact of the COVID-19 pandemic on our and our customers’ business; our limited operating history; our ability to successfully integrate acquisitions; 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; our ability to collaborate and integrate our products with offerings from other parties to deliver benefits to customers; 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, including those related to COVID-19.

Additional risks and uncertainties that could affect our financial results are included in the filings we make with the Securities and Exchange Commission (“SEC”) from time to time, particularly under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, including our most recently filed Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q and subsequent filings.
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 and cloud workload 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.
Copyright © 2020 CrowdStrike, Inc. All rights reserved. CrowdStrike® and CrowdStrike Falcon® are the registered trademarks of CrowdStrike, Inc. CrowdStrike owns other trademarks and service marks, and may use the brands of third parties to identify their products and services.





Investor Relations Contact
CrowdStrike Holdings, Inc.
Maria Riley, Senior Director of Investor Relations
investors@crowdstrike.com
669-721-0742
Press Contact
CrowdStrike Holdings, Inc.
Ilina Cashiola, Senior Director of Public Relations
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,
 2020201920202019
Revenue
Subscription$213,530 $114,221 $560,008 $297,787 
Professional services18,930 10,898 49,501 31,517 
Total revenue232,460 125,119 609,509 329,304 
Cost of revenue
Subscription (1)(2)
49,583 29,221 130,864 77,858 
Professional services (1)
11,944 8,134 31,949 20,353 
Total cost of revenue61,527 37,355 162,813 98,211 
Gross profit170,933 87,764 446,696 231,093 
Operating expenses
Sales and marketing (1)(2)
105,602 68,675 288,867 190,792 
Research and development (1)(2)
57,539 35,992 148,600 91,497 
General and administrative (1)(3)
31,951 21,615 85,955 63,737 
Total operating expenses195,092 126,282 523,422 346,026 
Loss from operations(24,159)(38,518)(76,726)(114,933)
Interest expense(193)(132)(510)(297)
Other income, net272 3,579 5,537 3,523 
Loss before provision for income taxes(24,080)(35,071)(71,699)(111,707)
Provision for income taxes(451)(434)(1,928)(1,664)
Net loss$(24,531)$(35,505)$(73,627)$(113,371)
Net loss per share attributable to Class A and Class B common stockholders, basic and diluted$(0.11)$(0.17)$(0.34)$(0.89)
Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted219,401 204,096 216,432 128,009 
_____________________________
(1)Includes stock-based compensation expense as follows:
 Three Months Ended October 31,Nine Months Ended October 31,
 2020201920202019
 (in thousands)(in thousands)
Subscription cost of revenue$3,226 $1,666 $7,856 $3,164 
Professional services cost of revenue1,551 784 3,947 1,531 
Sales and marketing12,811 7,355 35,101 15,511 
Research and development11,771 4,696 25,700 10,353 
General and administrative11,251 7,465 29,357 25,018 
Total stock-based compensation expense$40,610 $21,966 $101,961 $55,577 

(2)Includes amortization of acquired intangible assets as follows:
Three Months Ended October 31,Nine Months Ended October 31,
2020201920202019
(in thousands)(in thousands)
Subscription cost of revenue$272 $61 $397 $262 
Sales and marketing91 30 153 92 
Research and development10 29 31 
Total amortization of purchased intangibles$372 $101 $579 $385 

(3)Includes acquisition-related expenses as follows:
Three Months Ended October 31,Nine Months Ended October 31,
2020201920202019
(in thousands)(in thousands)
General and administrative$2,119 $— $2,119 $— 
Total acquisition-related expenses$2,119 $— $2,119 $— 




CROWDSTRIKE HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)

October 31,January 31, 
20202020
Assets
Current assets:
Cash and cash equivalents$1,059,926 $264,798 
Marketable securities— 647,266 
Accounts receivable, net172,775 164,987 
Deferred contract acquisition costs, current62,422 42,971 
Prepaid expenses and other current assets45,673 51,614 
Total current assets1,340,796 1,171,636 
Strategic investments2,500 1,000 
Property and equipment, net162,371 136,078 
Operating lease right-of-use assets38,376 — 
Deferred contract acquisition costs, noncurrent91,585 71,235 
Goodwill83,132 7,722 
Intangible assets, net16,356 527 
Other assets14,393 16,708 
Total assets$1,749,509 $1,404,906 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$7,494 $1,345 
Accrued expenses39,975 30,355 
Accrued payroll and benefits56,468 36,810 
Operating lease liabilities, current8,646 — 
Deferred revenue579,671 412,985 
Other current liabilities9,785 11,601 
Total current liabilities702,039 493,096 
Deferred revenue, noncurrent183,003 158,183 
Operating lease liabilities, noncurrent34,006 — 
Other liabilities, noncurrent15,676 11,020 
Total liabilities934,724 662,299 
Commitments and contingencies 
Stockholders’ Equity
Common stock, Class A and Class B111 106 
Additional paid-in capital1,523,873 1,378,479 
Accumulated deficit(711,114)(637,487)
Accumulated other comprehensive income 615 1,009 
Total CrowdStrike Holdings, Inc. stockholders’ equity813,485 742,107 
Non-controlling interest1,300 500 
Total stockholders’ equity 814,785 742,607 
Total liabilities and stockholders’ equity $1,749,509 $1,404,906 





CROWDSTRIKE HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)


Nine Months Ended October 31,
20202019
Operating activities
Net loss$(73,627)$(113,371)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization27,728 16,023 
Amortization of intangible assets579 385 
Amortization of deferred contract acquisition costs44,940 24,125 
Non-cash operating lease cost7,666 — 
Change in fair value of redeemable convertible preferred stock warrant liability— 6,022 
Provision for bad debts(448)413 
Stock-based compensation expense101,961 55,577 
Gain on sale of debt securities, net(1,347)— 
Accretion (amortization) of marketable securities purchased at a discount578 (1,313)
Non-cash interest expense506 293 
Changes in operating assets and liabilities
Accounts receivable(6,155)(53,631)
Deferred contract acquisition costs(84,741)(55,238)
Prepaid expenses and other assets1,487 (19,883)
Accounts payable6,556 (3,773)
Accrued expenses and other current liabilities1,643 3,405 
Accrued payroll and benefits18,712 17,621 
Operating lease liabilities(1,434)— 
Deferred revenue189,582 157,239 
Other liabilities7,917 (58)
Net cash provided by operating activities242,103 33,836 
Investing activities
Purchases of property and equipment(40,245)(66,848)
Capitalized internal-use software(6,345)(5,208)
Business acquisition, net of cash acquired(85,469)— 
Purchase of strategic investments(1,500)— 
Purchases of marketable securities(84,904)(187,697)
Proceeds from sales of marketable securities639,586 4,473 
Maturities of marketable securities91,605 197,764 
Net cash provided by (used in) investing activities512,728 (57,516)
Financing activities
Proceeds from the issuance of common stock upon initial public offering, net of underwriting discounts— 665,092 
Payments of deferred offering costs— (5,872)
Proceeds from issuance of common stock upon exercise of stock options21,522 9,350 
Proceeds from the issuance of common stock upon exercise of early exercisable stock options— 10,264 
Proceeds from issuance of common stock under the employee stock purchase plan 17,284 — 
Capital contributions from non-controlling interest holders800 — 
Net cash provided by financing activities39,606 678,834 
Effect of foreign exchange rates on cash and cash equivalents691 43 
Net increase in cash and cash equivalents795,128 655,197 
Cash and cash equivalents, beginning of period264,798 88,408 
Cash and cash equivalents, end of period$1,059,926 $743,605 




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,
2020201920202019
GAAP subscription revenue$213,530 $114,221 $560,008 $297,787 
GAAP subscription gross profit$163,947 $85,000 $429,144 $219,929 
Add: Stock-based compensation expense3,226 1,666 7,856 3,164 
Add: Amortization of acquired intangible assets272 61 397 262 
Non-GAAP subscription gross profit$167,445 $86,727 $437,397 $223,355 
GAAP subscription gross margin77 %74 %77 %74 %
Non-GAAP subscription gross margin78 %76 %78 %75 %

Three Months Ended October 31,Nine Months Ended October 31,
2020201920202019
GAAP total revenue$232,460 $125,119 $609,509 $329,304 
GAAP loss from operations$(24,159)$(38,518)$(76,726)$(114,933)
Add: Stock-based compensation expense40,610 21,966 101,961 55,577 
Add: Amortization of acquired intangible assets372 101 579 385 
Add: Acquisition-related expenses2,119 — 2,119 — 
Non-GAAP income (loss) from operations$18,942 $(16,451)$27,933 $(58,971)
GAAP operating margin(10)%(31)%(13)%(35)%
Non-GAAP operating margin%(13)%%(18)%





















CROWDSTRIKE HOLDINGS, INC.
Non-GAAP Financial Measures with Reconciliation to GAAP (Continued)
(in thousands, except percentages and per share amounts)
(unaudited)

Three Months Ended October 31,Nine Months Ended October 31,
2020201920202019
GAAP net loss$(24,531)$(35,505)$(73,627)$(113,371)
Add: Stock-based compensation expense$40,610 $21,966 $101,961 $55,577 
Add: Amortization of acquired intangible assets372 101 579 385 
Add: Acquisition-related expenses2,119 — 2,119 — 
Less: Gain on settlement of lawsuit— — — (1,250)
Non-GAAP net income (loss)$18,570 $(13,438)$31,032 $(58,659)
Weighted-average shares used in computing GAAP net loss per share attributable to Class A and Class B common stockholders, basic and diluted219,401 204,096 216,432 128,009 
Weighted-average shares used in computing Non-GAAP net income (loss) per share attributable to Class A and Class B common stockholders, basic 219,401 204,096 216,432 128,009 
Weighted-average shares used in computing Non-GAAP net income (loss) per share attributable to Class A and Class B common stockholders, diluted234,626 204,096 232,969 128,009 
GAAP net loss per share attributable to common stockholders, basic and diluted$(0.11)$(0.17)$(0.34)$(0.89)
Non-GAAP net income (loss) per share attributable to common stockholders, basic $0.08 $(0.07)$0.14 $(0.46)
Non-GAAP net income (loss) per share attributable to common stockholders, diluted$0.08 $(0.07)$0.13 $(0.46)

Three Months Ended October 31,Nine Months Ended October 31,
2020201920202019
GAAP total revenue$232,460 $125,119 $609,509 $329,304 
GAAP net cash provided by operating activities88,501 38,635 242,103 33,836 
Less: Purchases of property and equipment(9,911)(29,689)(40,245)(66,848)
Less: Capitalized internal-use software(2,495)(1,898)(6,345)(5,208)
Free cash flow$76,095 $7,048 $195,513 $(38,220)
GAAP net cash provided by (used in) investing activities$(98,375)$(27,262)$512,728 $(57,516)
GAAP net cash provided by (used in) financing activities$5,171 $(968)$39,606 $678,834 
GAAP net cash used in operating activities as a percentage of revenue38 %31 %40 %10 %
Less: Purchases of property and equipment as a percentage of revenue(4)%(24)%(7)%(20)%
Less: Capitalized internal-use software as a percentage of revenue(1)%(2)%(1)%(2)%
Free cash flow margin33 %%32 %(12)%




CROWDSTRIKE HOLDINGS, INC.
Statements of Operations: GAAP to Non-GAAP Reconciliations
(in thousands)
(unaudited)

Three Months Ended October 31,Nine Months Ended October 31,
2020201920202019
GAAP cost of revenue$61,527 $37,355 $162,813 $98,211 
Less:
Stock based compensation expense4,777 2,450 11,803 4,695 
Amortization of acquired intangible assets272 61 397 262 
Non-GAAP cost of revenue$56,478 $34,844 $150,613 $93,254 
GAAP subscription gross profit$163,947 $85,000 $429,144 $219,929 
Add:
Stock based compensation expense3,226 1,666 7,856 3,164 
Amortization of acquired intangible assets272 61 397 262 
Non-GAAP subscription gross profit$167,445 $86,727 $437,397 $223,355 
GAAP professional services gross profit$6,986 $2,764 $17,552 $11,164 
Add:
Stock based compensation expense1,551 784 3,947 1,531 
Non-GAAP professional services gross profit$8,537 $3,548 $21,499 $12,695 
GAAP sales and marketing operating expenses$105,602 $68,675 $288,867 $190,792 
Less:
Stock based compensation expense12,811 7,355 35,101 15,511 
Amortization of acquired intangible assets91 30 153 92 
Non-GAAP sales and marketing operating expenses$92,700 $61,290 $253,613 $175,189 
GAAP research and development operating expenses$57,539 $35,992 $148,600 $91,497 
Less:
Stock based compensation expense11,771 4,696 25,700 10,353 
Amortization of acquired intangible assets10 29 31 
Non-GAAP research and development operating expenses$45,759 $31,286 $122,871 $81,113 
GAAP general and administrative operating expenses$31,951 $21,615 $85,955 $63,737 
Less:
Stock based compensation expense11,251 7,465 29,357 25,018 
Acquisition-related expenses2,119 — 2,119 — 
Non-GAAP general and administrative operating expenses$18,581 $14,150 $54,479 $38,719 
GAAP loss from operations$(24,159)$(38,518)$(76,726)$(114,933)
Add:
Stock based compensation expense40,610 21,966 101,961 55,577 
Amortization of acquired intangible assets372 101 579 385 
Acquisition-related expenses2,119 — 2,119 — 
Non-GAAP income (loss) from operations$18,942 $(16,451)$27,933 $(58,971)



CROWDSTRIKE HOLDINGS, INC.
Statements of Operations: GAAP to Non-GAAP Reconciliations (continued)
(in thousands, except per share amounts)
(unaudited)

Three Months Ended October 31,Nine Months Ended October 31,
2020201920202019
GAAP net loss$(24,531)$(35,505)$(73,627)$(113,371)
Add:
Stock based compensation expense40,610 21,966 101,961 55,577 
Amortization of acquired intangible assets372 101 579 385 
Acquisition-related expenses2,119 — 2,119 — 
Less:
Gain on settlement of lawsuit— — — (1,250)
Non-GAAP net income (loss)$18,570 $(13,438)$31,032 $(58,659)
Weighted-average shares used in computing basic net income (loss) per share (GAAP and Non-GAAP)219,401204,096216,432128,009
GAAP basic net loss per share$(0.11)$(0.17)$(0.34)$(0.89)
Non-GAAP basic net income (loss) per share $0.08 $(0.07)$0.14 $(0.46)
GAAP diluted loss per common share$(0.11)$(0.17)$(0.34)$(0.89)
Stock-based compensation0.17 0.11 0.44 0.43 
Amortization of acquired intangible assets— — — — 
Acquisition-related expenses0.01 — 0.01 — 
Gain on settlement of lawsuit— — — 0.01 
Provision for income taxes (1)
— — — — 
Adjustment to fully diluted earnings per share (2)
0.01 (0.01)0.02 (0.01)
Non-GAAP diluted income (loss) per common share$0.08 $(0.07)$0.13 $(0.46)
Weighted-average shares used in diluted net income (loss) per share calculation:
GAAP219,401 204,096 216,432 128,009 
Non-GAAP234,626 204,096 232,969 128,009 
_____________________________
(1)We use our GAAP provision for income taxes for the purpose of determining our non-GAAP income tax expense. The difference between our GAAP and non-GAAP income tax expense represents the excess tax deduction of stock-based compensation expense recognized in foreign jurisdictions. The income tax benefit related to stock-based compensation expense included in the GAAP provision for income taxes was not material for all periods presented.
(2)For periods in which we had diluted non-GAAP net income per share, the sum of the impact of individual reconciling items may not total to diluted Non-GAAP net income per share because the basic share counts used to calculate GAAP net loss per share differ from the diluted share counts used to calculate non-GAAP net income per share and because of rounding differences. The GAAP net loss per share calculation uses a lower share count as it excludes dilutive shares which are included in calculating the non-GAAP net income per share.
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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 Income (Loss) from Operations
We define non-GAAP income (loss) from operations as GAAP income (loss) from operations excluding stock-based compensation expense, amortization of acquired intangible assets, and acquisition-related expenses. We believe non-GAAP income (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 Income (Loss) per Share Attributable to Common Stockholders, Basic and Diluted

We define non-GAAP net income (loss) per share attributable to common stockholders, as non-GAAP net income (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 income (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 provided by operating activities less purchases of property and equipment and capitalized internal-use software. 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 provided by 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.