CrowdStrike Holdings, Inc. — Q3 FY2024 Form 10-Q
Reporting period: Three and nine months ended October 31, 2023; comparisons are with the corresponding 2022 periods. CrowdStrike provides cloud-delivered cybersecurity subscriptions and professional services through its Falcon platform.
Financial performance
| Metric | Three months | Nine months |
|---|---|---|
| Revenue | $786.0 million, up 35% year over year | $2.210 billion, up 38% |
| Subscription revenue | $733.5 million, up 34% | $2.075 billion, up 37% |
| Professional services revenue | $52.6 million, up 57% | $135.6 million, up 50% |
| Gross profit / gross margin | $591.0 million / 75%, versus 73% | $1.663 billion / 75%, versus 73% |
| Operating income (loss) | $3.2 million, versus a $56.4 million loss | $(31.7) million, versus a $128.6 million loss |
| Net income (loss) attributable to CrowdStrike | $26.7 million, versus a $55.0 million loss | $35.6 million, versus a $135.8 million loss |
| Diluted earnings (loss) per share | $0.11, versus $(0.24) | $0.15, versus $(0.58) |
| Cash from operating activities | Not presented separately for the quarter | $819.2 million, versus $667.7 million |
| Cash used in investing activities | Not presented separately for the quarter | $361.0 million, versus $237.5 million |
Quarterly operating expenses were $587.8 million, up 23%; they nearly equaled gross profit. Nine-month operating expenses rose 30% to $1.695 billion. Stock-based compensation was $159.6 million for the quarter and $455.2 million for the nine months, a substantial non-cash expense. Operating cash flow also benefited from $185.7 million of deferred-revenue growth and included $206.7 million of increased deferred contract acquisition costs.
Liquidity, debt and operating indicators
- At October 31, cash and cash equivalents were $2.969 billion, short-term investments $197.5 million, and current assets $4.079 billion. Current liabilities were $2.350 billion, including $1.943 billion of current deferred revenue.
- Long-term debt was $742.1 million on the balance sheet; the 3.00% Senior Notes have $750 million principal and mature in February 2029. No borrowings were outstanding under the $750 million revolving facility, which matures in January 2026. The company reported compliance with debt covenants.
- Management said available cash, investments, operating cash flow and revolver capacity should cover anticipated working-capital and capital-expenditure needs for at least 12 months.
- Annual recurring revenue was $3.153 billion at October 31, up 35% year over year, versus 54% growth a year earlier. Net new ARR was $223.1 million for the quarter and $593.5 million year to date. Dollar-based net retention was described as slightly below the company’s benchmark; no exact rate is provided in the filing text.
- Remaining performance obligations were $3.7 billion; the company expected to recognize approximately 64% over the next 12 months and 35% in months 13–36. Deferred revenue totaled $2.543 billion. Backlog was approximately $1.2 billion.
Material changes and management commentary
- Revenue growth was driven by new customers and additional sensors and modules sold to existing customers. Subscription gross margin improved to 78% from 75%, attributed primarily to cloud-hosting efficiency; professional-services margin rose to 33% from 28%, attributed to utilization.
- Interest income increased to $40.1 million for the quarter and $107.2 million for the nine months, reflecting higher market rates and cash and investment balances. This supported reported net income while nine-month operating results remained a loss.
- The company acquired Bionic for $238.7 million net cash consideration plus $0.7 million of acquisition-related equity consideration. Preliminary purchase accounting included $207.2 million of goodwill; the acquisition did not materially affect reported results.
- Management expects gross profit to grow and gross margin to increase modestly over the long term. It expects operating expenses to rise in dollars as it invests in sales, marketing, research and development, while certain expenses may decline as a percentage of revenue over time. The filing provides no numerical earnings or revenue guidance.
- In November 2023, after quarter-end, CrowdStrike and Webroot agreed to settle and dismiss their patent claims; the settlement amount was described as not material. Management reported no pending or threatened legal proceeding expected to have a material financial-statement effect.
Risks and contingencies
Key disclosed risks include cybersecurity incidents affecting CrowdStrike, customers or third-party providers; service outages and dependence on AWS and data-center infrastructure; intense competition and pricing pressure; customer spending, renewal and expansion trends; rapid hiring and growth; evolving privacy, security and AI regulation; litigation and intellectual-property claims; and macroeconomic and geopolitical uncertainty. The company has a $600 million minimum AWS cloud-services commitment through September 2026, of which $498.2 million had been used by October 31. Purchase commitments totaled $361.6 million in the commitments schedule; the AWS commitment is excluded from that table. The company maintains a full valuation allowance on U.S. federal and state and certain foreign deferred tax assets; reversal in certain jurisdictions was described as reasonably possible in the foreseeable future.
Most important facts for investors to verify
- Whether ARR growth and customer expansion remain resilient given slower year-over-year ARR growth and retention slightly below the company’s benchmark.
- How much of reported operating cash flow reflects sustainable operating performance versus deferred-revenue timing and non-cash stock compensation.
- Whether operating profitability improves as revenue scales, considering rising operating expenses and substantial stock-based compensation.
- The final purchase accounting and integration results for Bionic, including the significant goodwill recorded.
- Exposure to cloud-infrastructure commitments, cybersecurity or service disruptions, legal claims, and changes in tax valuation allowances.