CrowdStrike Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter ended July 31, 2022; year-to-date figures cover the six months ended July 31, 2022. Fiscal year ends January 31. Unless noted otherwise, amounts are U.S. dollars.
Business context and reporting period
CrowdStrike provides cloud-delivered cybersecurity subscriptions and professional services through its Falcon platform. Subscription revenue is recognized over contract terms, while many customers are billed in advance. The unaudited interim statements are prepared under U.S. GAAP; management cautions that interim results are not necessarily indicative of full-year results.
Key financial metrics
| Metric | Q2 FY2023 | Q2 FY2022 | Six months FY2023 | Six months FY2022 |
|---|---|---|---|---|
| Revenue | $535.2 million | $337.7 million | $1,023.0 million | $640.5 million |
| Gross profit / margin | $394.6 million / 74% | $247.3 million / 73% | $755.6 million / 74% | $471.6 million / 74% |
| Operating loss | $48.3 million | $47.4 million | $72.2 million | $78.8 million |
| Net loss attributable to CrowdStrike | $49.3 million | $57.3 million | $80.8 million | $142.4 million |
| Diluted loss per share | $0.21 | $0.25 | $0.35 | $0.63 |
| Cash from operating activities | Not separately reported in the provided filing text | Not separately reported in the provided filing text | $424.9 million | $256.0 million |
Q2 subscription revenue was $506.2 million, up 60%; professional services revenue was $29.0 million, up 32%. For the first six months, subscription revenue rose 62% and professional services revenue rose 31%. Subscription gross margin was 76% in both comparable periods; professional services gross margin declined to 29% from 34% in Q2 and to 31% from 35% year to date.
At July 31, 2022, cash and cash equivalents were $2.319 billion. Total current liabilities were $1.649 billion, including $1.364 billion of current deferred revenue. Long-term debt carrying value was $740.3 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. Deferred revenue totaled $1.844 billion, and remaining performance obligations were $2.5 billion.
Material changes versus the prior comparable period
- Q2 revenue increased 58%, while operating expenses increased 50% to $442.9 million. The operating loss was slightly larger in dollars, although it narrowed as a share of revenue.
- Q2 net loss attributable to CrowdStrike narrowed to $49.3 million from $57.3 million. Other income increased to $11.1 million, principally reflecting higher interest income and gains on strategic investments.
- Six-month net loss attributable to CrowdStrike narrowed to $80.8 million from $142.4 million. The prior-year period included a substantially higher tax provision, primarily related to an intercompany sale of Humio intellectual property.
- Six-month operating cash flow increased to $424.9 million from $256.0 million. Growth in deferred revenue contributed $314.8 million; stock-based compensation was $234.0 million, a significant non-cash adjustment.
- Investing cash outflow was $140.1 million versus $426.1 million, with the prior-year period including $353.7 million of net acquisition spending. Current-period property and equipment purchases were $118.3 million.
- Subscription customers grew 51% year over year to 19,686; ARR reached $2.140 billion, up 59%. Dollar-based net retention was above 120%.
Outlook, commentary, risks and unusual items
- No numerical financial guidance is provided in the filing. Management expects gross profit to grow and gross margin to increase modestly over the long term, while continuing to invest in sales and marketing, research and development, and infrastructure. It expects net new ARR generation to be greater in the second half of the fiscal year, particularly the fourth quarter, reflecting customer budget seasonality.
- Management expects existing cash, operating cash flows and revolving-credit availability to cover anticipated working capital and capital expenditure needs for at least 12 months. It also states that operating losses are expected to continue for the foreseeable future as the company invests in growth.
- Stock-based compensation expense was $131.6 million in Q2 and $234.0 million for the six-month period, versus $76.3 million and $130.6 million, respectively, a material expense and potential dilution consideration.
- The company committed to purchase at least $600 million of AWS cloud services through September 2026; $158.4 million had been used by July 31, 2022. It also disclosed non-cancelable purchase commitments and data-center obligations.
- Webroot and Open Text sued over alleged infringement of six patents and sought unspecified damages and injunctive relief; CrowdStrike asserted patent counterclaims. The company said it could not predict the outcome or estimate a loss range. A separate FICO trademark dispute was resolved in July 2022.
- Principal disclosed risks include intense competition, customer adoption and renewal, cybersecurity incidents or service interruptions, reliance on AWS and other infrastructure, privacy and regulatory requirements, economic uncertainty, foreign-currency exposure, and the ability to manage rapid growth. A hypothetical 10% adverse currency move was estimated to increase six-month operating loss by approximately $24.7 million.
Important facts for investors to verify
- Whether ARR growth, net retention and remaining performance obligations translate into recognized revenue and sustainable cash generation.
- How operating expenses and substantial stock-based compensation affect progress toward profitability and per-share results.
- The durability of operating cash flow, given the contribution from advance customer billings and deferred revenue.
- The scale and economics of AWS and other infrastructure commitments, including future cloud-hosting costs.
- Developments in the Webroot litigation, tax exposures and other contingencies, and any effects on results or cash flows.
- Customer and channel-partner concentration: channel partners accounted for 82% of Q2 revenue; one channel partner represented 10% of accounts receivable at quarter-end.