CrowdStrike Holdings, Inc. — Q1 FY2024 Form 10-Q
Reporting period: Three months ended April 30, 2023; comparative period is the three months ended April 30, 2022. The company provides cloud-delivered cybersecurity subscriptions and professional services. Amounts below are U.S. dollars.
Financial performance and position
| Metric | Q1 FY2024 | Prior-year quarter | Change |
|---|---|---|---|
| Total revenue | $692.6 million | $487.8 million | +42% |
| Subscription revenue | $651.2 million | $459.8 million | +42% |
| Professional services revenue | $41.4 million | $28.0 million | +48% |
| Gross profit / gross margin | $523.4 million / 76% | $361.0 million / 74% | Margin +2 percentage points |
| Operating expenses | $542.8 million | $384.9 million | +41% |
| Operating loss | $(19.5) million | $(23.9) million | Loss narrowed |
| Net income (loss) attributable to CrowdStrike | $0.5 million | $(31.5) million | Improved by $32.0 million |
| Operating cash flow | $300.9 million | $215.0 million | +40% |
- Net income was supported by $30.5 million of interest income, compared with $1.5 million a year earlier; the company still reported an operating loss. Diluted EPS was reported as $0.00, rounded to cents.
- Stock-based compensation expense was $130.9 million, up from $102.5 million.
- At April 30, cash and cash equivalents were $2.830 billion and short-term investments were $100.0 million. Current assets were $3.709 billion and current liabilities were $2.080 billion.
- Long-term debt carrying value was $741.4 million; the company had $750.0 million principal amount of 3.00% Senior Notes due February 2029. No borrowings were outstanding under the $750.0 million revolving facility, which matures in January 2026. The company reported compliance with debt covenants.
- Deferred revenue totaled $2.404 billion, including $1.788 billion current. Remaining performance obligations were $3.3 billion; approximately 64% was expected to be recognized within 12 months.
- Investing cash flow was positive $66.0 million, primarily because of $150.0 million in investment-sale proceeds. Purchases of property and equipment were $62.3 million and capitalized internal-use software costs were $10.9 million.
Material changes and business metrics
- Subscription growth was attributed to new customers and additional endpoints and modules sold to existing customers. Professional services growth reflected more service hours performed.
- Annual recurring revenue was $2.734 billion at quarter-end, up 42% year over year; net new ARR for the quarter was $174.2 million, versus $190.5 million in the prior-year quarter.
- Dollar-based net retention exceeded 120%. Management said larger initial deals and faster new-customer acquisition are positive trends but can temper near-term expansion from existing customers.
- Subscription gross margin improved to 78% from 77%, with management citing cloud-hosting efficiency. Professional services gross margin rose to 34% from 33%, reflecting utilization and lower subcontractor costs.
- Sales and marketing and research and development expenses each rose 45%; general and administrative expenses rose 22%. Higher headcount, employee costs, marketing, and stock compensation were cited as drivers.
Outlook, risks, and unusual items
- No specific numerical revenue or earnings guidance is provided in the filing. Management expects to continue investing in sales and marketing and research and development, and anticipates operating losses for the foreseeable future. It expects gross profit to grow and gross margin to increase modestly over the long term, while noting margins may fluctuate.
- Management stated that cash, investments, operating cash flows, and available revolving credit are expected to meet anticipated working-capital and capital-expenditure needs for at least 12 months. This is a forward-looking statement, not a guarantee.
- Management identified macroeconomic uncertainty, customer spending and sales-cycle variability, competition, customer retention and expansion, cybersecurity threats, platform availability, reliance on third-party data centers including AWS, hiring and growth execution, and data privacy and regulatory compliance as key risks.
- The company had a $600 million minimum AWS cloud-services commitment through September 2026 and had used $366.9 million by April 30, 2023. It also disclosed $276.8 million of purchase commitments with expected payment dates beyond one year, including data-center capacity commitments.
- Webroot and Open Text litigation alleges infringement of patents by certain company products. CrowdStrike has asserted counterclaims. The company said it could not predict the outcome or reasonably estimate a loss range.
- The effective tax rate was 89.8%, primarily reflecting foreign earnings and withholding taxes, while U.S. deferred tax assets remain subject to a full valuation allowance. Gross unrecognized tax benefits were $40.6 million.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It also disclosed that Silicon Valley Bank was a lender under its credit agreement and said its cash-management strategy diversifies deposits across institutions.
Important facts for investors to verify
- Whether ARR growth, net new ARR, and retention trends continue, particularly given lower net new ARR than the prior-year quarter and the reported macroeconomic and sales-cycle risks.
- How much of reported net income and operating cash flow reflects recurring operating performance versus interest income, stock-based compensation, deferred revenue, and working-capital movements.
- The pace of operating-expense growth, stock-based compensation, and progress toward sustained operating profitability.
- Cash and investment balances, capital expenditure needs, debt and covenant compliance, and the company’s ability to meet AWS and other purchase commitments.
- Developments in the Webroot litigation and any material changes to tax exposures or other contingencies.