CrowdStrike Holdings, Inc. — Q2 FY2024 Form 10-Q
Reporting period: Quarter and six months ended July 31, 2023. Comparisons are with the corresponding prior-year periods unless noted. Amounts are in U.S. dollars.
Business context
CrowdStrike sells cloud-delivered cybersecurity subscriptions through its Falcon platform, with professional services as a smaller business. Subscription revenue is recognized over contract terms; customer billings are generally made in advance, contributing to deferred revenue.
Key financial metrics
| Metric | Three months ended July 31, 2023 | Prior year | Six months ended July 31, 2023 | Prior year |
|---|---|---|---|---|
| Total revenue | $731.6 million; +37% | $535.2 million | $1.424 billion; +39% | $1.023 billion |
| Subscription revenue | $690.0 million; +36% | $506.2 million | $1.341 billion; +39% | $966.0 million |
| Gross profit / margin | $548.7 million / 75% | $394.6 million / 74% | $1.072 billion / 75% | $755.6 million / 74% |
| Operating income (loss) | $(15.4) million | $(48.3) million | $(34.8) million | $(72.2) million |
| Net income (loss) attributable to CrowdStrike | $8.5 million | $(49.3) million | $9.0 million | $(80.8) million |
| Operating cash flow | Not separately presented | Not separately presented | $545.7 million | $424.9 million |
Quarterly diluted earnings per share were $0.03, versus a loss of $0.21 per share. Six-month diluted earnings per share were $0.04, versus a loss of $0.35.
- Cash and cash equivalents were $3.167 billion at July 31, up from $2.455 billion at January 31, 2023. The six-month cash-flow statement reports $712.2 million net increase in cash, cash equivalents and restricted cash.
- Long-term debt was $741.8 million on the balance sheet; the company reported $750 million principal outstanding under its 3.00% Senior Notes, due 2029. No borrowings were outstanding under its $750 million revolving facility; financial covenants were met.
- Current assets were $4.050 billion and current liabilities $2.229 billion. Deferred revenue totaled $2.508 billion, including $1.894 billion current.
- Stock-based compensation was $164.8 million for the quarter and $295.6 million for the six months, compared with $131.6 million and $234.0 million, respectively, in the prior-year periods.
Material changes and operating indicators
- Revenue growth remained strong, driven by new customers and additional sensors and modules sold to existing customers. Professional services revenue rose 44% in the quarter, primarily from more service hours.
- Operating losses narrowed, but operating expenses increased 27% in the quarter to $564.1 million. Sales and marketing, research and development, and general and administrative expenses all rose, reflecting headcount, compensation, marketing, infrastructure, and legal costs.
- Interest income rose to $36.6 million for the quarter from $7.7 million, reflecting higher rates and a larger cash balance; this helped support the shift to GAAP net income despite an operating loss.
- Annual recurring revenue was $2.930 billion as of July 31, up 37% year over year, versus 59% growth a year earlier. Net new ARR was $196.2 million for the quarter, compared with $218.1 million; first-half net new ARR was $370.4 million, compared with $408.6 million.
- Remaining performance obligations were $3.6 billion; the company expected to recognize approximately 64% within the following 12 months. Backlog was approximately $1.0 billion.
- Dollar-based net retention was described as effectively at the company’s benchmark, but the filing does not provide a clear numeric rate.
Outlook, risks and unusual items
- No specific numerical revenue or earnings guidance is provided in this filing. Management expects gross margin to increase modestly over the long term and expects continued investment in sales and marketing, research and development, and the platform.
- Management said existing cash, operating cash flows, and revolving-facility availability should cover anticipated working capital and capital expenditure needs for at least 12 months. The company also noted its history of annual losses and accumulated deficit of $1.1 billion.
- Management described seasonality: net new ARR is typically stronger in the second half, especially the fourth quarter, while operating margin is typically lower in the first half.
- The company committed to a minimum $600 million of AWS cloud services through September 2026 and had used $434.9 million by July 31, 2023. It also disclosed $351.5 million of purchase commitments in the financial-statement note, and separately discussed data-center and other non-cancelable commitments in MD&A.
- Webroot and Open Text litigation alleges infringement of patents; CrowdStrike has asserted counterclaims. The company said it could not predict the outcome or reasonably estimate a loss range.
- Key risks include intense competition, customer adoption and renewal, long sales cycles and macroeconomic uncertainty, cybersecurity incidents or service disruption, reliance on AWS and data-center capacity, privacy and regulatory compliance, and its ability to sustain profitability. Management reported disclosure controls were effective as of July 31, 2023.
Important facts for investors to verify
- Whether ARR growth and net new ARR trends stabilize or continue to slow, and how customer retention and expansion evolve.
- How much GAAP profitability depends on interest income, and whether operating losses narrow as investment and stock-based compensation continue.
- Cash generation after capital spending and capitalized software costs, alongside deferred-revenue growth and customer payment behavior.
- The scope and economics of AWS and other purchase commitments, and the timing of required infrastructure spending.
- Developments in the Webroot/Open Text case and any other litigation, cybersecurity, service-availability, or regulatory matters.