CrowdStrike Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended October 31, 2022; comparisons are with the corresponding 2021 periods unless noted. Amounts are in U.S. dollars.
Business context and key metrics
CrowdStrike sells subscriptions to its cloud-delivered Falcon cybersecurity platform and related professional services. Subscription revenue is recognized over contract terms, while customer billings are often made in advance.
- Subscription customers reached 21,146, up 44% year over year; the company added 1,460 net customers in the quarter.
- Annual recurring revenue (ARR) was $2.338 billion, up 54%; net new ARR was $198.1 million for the quarter.
- Dollar-based net retention was above 120%. Channel partners generated 84% of quarterly revenue.
Financial performance
| Metric | Q3 FY2023 | Q3 FY2022 | Change |
|---|---|---|---|
| Revenue | $580.9 million | $380.1 million | +53% |
| Subscription revenue | $547.4 million | $357.0 million | +53% |
| Gross profit / margin | $422.7 million / 73% | $278.4 million / 73% | +52% profit |
| Operating loss | $56.4 million | $40.3 million | Loss increased |
| Net loss attributable to CrowdStrike | $55.0 million | $50.5 million | Loss increased |
| Diluted loss per share | $0.24 | $0.22 | Loss per share increased |
For the first nine months, revenue rose 57% to $1.604 billion and gross profit rose 57% to $1.178 billion; gross margin remained 73%. Operating loss was $128.6 million versus $119.0 million, while net loss attributable to CrowdStrike improved to $135.8 million from $192.8 million. The prior-year nine-month tax provision was substantially higher, primarily due to an intercompany intellectual-property sale.
Operating expenses grew 50% in the quarter to $479.1 million, including sales and marketing of $239.7 million, research and development of $155.3 million, and general and administrative expense of $84.1 million. Quarterly stock-based compensation was $140.1 million, versus $86.7 million a year earlier; nine-month expense was $374.2 million, versus $217.3 million.
Cash flow, liquidity and debt
- Cash and cash equivalents were $2.467 billion at October 31, 2022, compared with $1.997 billion at January 31, 2022. Current assets were $3.204 billion and current liabilities were $1.817 billion.
- Nine-month operating cash flow was $667.7 million, up from $415.1 million. The company attributed cash generation in part to a $486.2 million increase in deferred revenue and substantial noncash stock compensation.
- Nine-month investing cash outflow was $237.5 million, including $179.6 million for property and equipment. Financing cash inflow was $48.3 million.
- Deferred revenue was $2.016 billion at October 31, including $1.483 billion current. Remaining performance obligations were $2.8 billion; approximately 64% was expected to be recognized in the following 12 months.
- Long-term debt carrying value was $740.6 million. The company had $750 million principal amount of 3.00% Senior Notes due 2029 and no borrowings under its $750 million revolving facility. It reported compliance with debt covenants.
Outlook, commentary and risks
The filing provides no specific quarterly or annual revenue or earnings guidance. Management said existing cash, operating cash flows, and available revolving credit were expected to cover anticipated working capital and capital expenditures for at least 12 months. It expects operating losses to continue for the foreseeable future as it invests in sales and marketing and research and development, and expects gross margin to increase modestly over the long term.
Management cited growth investment and expansion of the customer base as key priorities. It also noted higher cloud-hosting costs, increased hiring, and significant infrastructure investment; $215.1 million of data-center equipment was not yet placed in service. CrowdStrike committed to at least $600 million of AWS services through September 2026, of which $223.6 million had been used by October 31, 2022.
Key risks include slower customer spending or longer sales cycles amid macroeconomic uncertainty, competition, customer renewals and expansion, cyberattacks or service disruptions, reliance on AWS and other infrastructure providers, and foreign-exchange exposure. A Webroot/Open Text patent lawsuit remained pending; the company said it could not predict the outcome or estimate a loss range. Tax expense includes effects from intercompany intellectual-property transactions, and unrecognized tax benefits were $37.3 million.
Important facts for investors to verify
- Whether ARR growth, customer additions, and retention remain strong, particularly as customer budgets and sales cycles respond to economic conditions.
- Whether cloud-hosting and data-center costs moderate and gross margins hold as the platform scales.
- How much reported operating cash flow reflects recurring operations versus advance customer billings and noncash stock-based compensation.
- Future capital spending and progress against the AWS minimum commitment, as well as the status of data-center equipment not yet in service.
- Developments in the Webroot litigation, tax exposures, and the company’s ability to sustain liquidity while continuing to report operating losses.