CrowdStrike Holdings, Inc. — Q3 FY2022 Form 10-Q
Reporting period: Quarter and nine months ended October 31, 2021; comparisons are to the corresponding 2020 periods. Amounts are in U.S. dollars. CrowdStrike provides cloud-delivered cybersecurity subscriptions and professional services.
Key financial results
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Total revenue | $380.1 million | $232.5 million | $1,020.6 million | $609.5 million |
| Subscription revenue | $357.0 million | $213.5 million | $954.1 million | $560.0 million |
| Gross profit | $278.4 million | $170.9 million | $750.0 million | $446.7 million |
| Gross margin | 73% | 74% | 73% | 73% |
| Operating loss | $40.3 million | $24.2 million | $119.0 million | $76.7 million |
| Net loss attributable to CrowdStrike | $50.5 million | $24.5 million | $192.8 million | $73.6 million |
| Diluted net loss per share | $0.22 | $0.11 | $0.85 | $0.34 |
Revenue grew 63% in the quarter and 67% for the nine-month period year over year. Subscription revenue represented 94% of quarterly revenue and 93% of nine-month revenue. Quarterly operating expenses rose 63% to $318.7 million, including sales and marketing of $165.0 million, R&D of $97.6 million, and G&A of $56.1 million. GAAP operating margin was negative 11% for the quarter and negative 12% for the nine months; net margin was negative 13% and negative 19%, respectively.
Stock-based compensation was $86.7 million in the quarter and $217.3 million for the nine months, versus $40.6 million and $102.0 million in the comparable periods. Management also reported non-GAAP operating income of $50.7 million for the quarter and $115.8 million for the nine months; these measures exclude specified items and are not GAAP results.
Cash flow, liquidity, and debt
- Cash and cash equivalents were $1.908 billion at October 31, 2021, compared with $1.919 billion at January 31, 2021. Current assets were $2.360 billion and current liabilities were $1.242 billion.
- For the first nine months, operating cash flow was $415.1 million, compared with $242.1 million a year earlier. Capital expenditure on property and equipment was $85.4 million and capitalized software spending was $15.2 million. Company-defined free cash flow was $314.4 million, versus $195.5 million.
- Cash used in investing was $470.9 million, principally reflecting the $353.7 million net cash cost of the Humio acquisition and $85.4 million of property and equipment purchases. Cash provided by financing was $46.4 million. Cash declined by $11.1 million over the nine months.
- Long-term debt carrying value was $739.1 million; the company had issued $750 million of 3.00% Senior Notes due 2029. No borrowings were outstanding under the $750 million revolving facility, which matures in 2026. The company reported compliance with applicable debt covenants.
- Deferred revenue was $1.288 billion, including $974.6 million current. Remaining performance obligations were $1.9 billion; management expected to recognize 71% within 12 months and 28% in months 13–36.
Material changes and business indicators
- Subscription customers increased 75% year over year to 14,687. ARR rose 67% to $1.514 billion; net new ARR was $170.0 million in the quarter and $464.4 million for the nine months. Management said dollar-based net retention remained above 100%, without providing a specific rate in the supplied filing text.
- Subscription gross margin declined one percentage point to 76% in both the quarter and nine-month comparison. Management cited acquired-intangible amortization, stock compensation, and cloud costs; nine-month improvement from infrastructure and software efficiencies partly offset these pressures. Professional-services margin fell to 30% in the quarter and 33% for nine months.
- Humio was acquired in March 2021 for total consideration of $370.3 million, including $353.8 million cash net of acquired cash. The preliminary allocation included $291.3 million of goodwill. Goodwill and intangible assets increased materially versus January 31, 2021.
- The company’s $48.8 million nine-month tax expense related to the intercompany transfer of Humio intellectual property generated taxable income in a foreign jurisdiction, despite no consolidated book gain. Total nine-month income tax expense was $58.8 million.
Outlook, risks, and unusual items
- Management expected cash on hand to cover working capital and capital expenditure needs for at least 12 months, while anticipating continued operating losses as it invests in sales and marketing and R&D. It expects gross profit to grow and gross margin to increase modestly over the long term; no numerical financial guidance is included in the supplied filing text.
- Management described customer retention as high and reported continued customer expansion through endpoint deployments and additional modules. COVID-19’s effects had been modest to date, but longer-term impacts remained uncertain. The filing notes seasonality, with net new ARR generally expected to be stronger in the second half, particularly Q4.
- A new AWS pricing addendum requires a minimum $600 million of cloud services through September 2026; $587.7 million remained committed at October 31 and was excluded from the contractual-obligations table. The company said it expects to meet the commitment. This is a material future spending obligation alongside other purchase commitments.
- FICO’s challenge to CrowdStrike’s Falcon trademark registrations remained in discovery, with trial periods scheduled to begin in December 2021. The company said loss was reasonably possible but it could not estimate the likelihood or any loss range; no liability was recorded.
- After quarter-end, CrowdStrike completed its acquisition of Secure Circle on November 29, 2021 for approximately $60.8 million in cash, subject to customary adjustments. Initial purchase accounting was incomplete. On November 29, Michael Carpenter moved to Senior Advisor, Sales, and Jim Seidel was promoted to Chief Sales Officer.
- Other significant risks include intense competition, cybersecurity or service disruptions, reliance on AWS and colocation facilities, customer renewal and expansion trends, rapid growth and hiring demands, privacy and regulatory compliance, acquisition integration, foreign exchange exposure, and continuing losses. Management reported disclosure controls were effective as of October 31, 2021.
Investor verification priorities
- Track revenue growth and ARR alongside renewal, dollar-based net retention, customer additions, and module adoption; ARR is a company-defined metric.
- Assess whether rising operating costs and substantial stock-based compensation can be absorbed while improving GAAP operating profitability and margins.
- Review operating cash generation against capital spending, acquisition spending, and the AWS minimum commitment through 2026.
- Confirm the cash-tax and effective-tax implications of the Humio intellectual-property transfer and any expected tax-authority resolutions.
- Monitor the FICO trademark proceeding, Secure Circle integration and purchase accounting, and the company’s ability to meet cloud-service and debt obligations.