Business context and reporting period
CrowdStrike Holdings, Inc. provides cloud-delivered cybersecurity through its Falcon platform, offered as SaaS subscriptions and professional services. This unaudited Form 10-Q covers the second quarter and first six months of fiscal 2022, ended July 31, 2021; comparisons are with the periods ended July 31, 2020. The company reported 19 cloud modules and a primarily channel-partner-led sales model.
Financial performance and liquidity
Amounts below are in millions of U.S. dollars, except per-share data. Percentages are as reported or rounded.
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Revenue | $337.7 | $199.0 | $640.5 | $377.0 |
| Gross profit / margin | $247.3 / 73% | $144.6 / 73% | $471.6 / 74% | $275.8 / 73% |
| Operating loss | $(47.4) | $(30.0) | $(78.8) | $(52.6) |
| Net loss | $(57.3) | $(29.9) | $(140.2) | $(49.1) |
| Net loss per share, diluted | $(0.25) | $(0.14) | $(0.63) | $(0.23) |
| Operating cash flow | $108.5 | $55.0 | $256.0 | $153.6 |
| Free cash flow (non-GAAP) | $73.6 | $32.4 | $190.9 | $119.4 |
Q2 subscription revenue was $315.8 million, up 71%; professional services revenue was $21.9 million, up 49%. Q2 subscription gross margin was 76% and professional services gross margin was 34%. For the six-month period, subscription gross margin was 76% and professional services gross margin was 35%. Non-GAAP operating income was $35.3 million for Q2 and $65.1 million for the six months; corresponding non-GAAP operating margins were 10%.
At July 31, cash and cash equivalents were $1.787 billion, current assets $2.252 billion, and current liabilities $1.137 billion. Deferred revenue totaled $1.164 billion, including $883.0 million current. The company had $750 million principal amount of 3.00% Senior Notes due 2029, carried at $738.8 million on the balance sheet, and no borrowings under its $750 million revolving facility. Management said cash was expected to cover anticipated working-capital and capital-expenditure needs for at least 12 months. Six-month investing cash outflow was $426.1 million, mainly reflecting the Humio acquisition.
Material changes versus the prior comparable period
- Revenue increased 70% in both Q2 and the first half. Subscription customers grew 81% year over year to 13,080; ARR rose 70% to $1.344 billion. Management reported dollar-based net retention above 120%, without giving an exact rate.
- Operating expenses rose 69% in Q2 and 68% for the six months, led by hiring, stock-based compensation, research and development, and sales and marketing investment. Stock-based compensation was $76.3 million in Q2 and $130.6 million for the six months.
- GAAP operating losses widened in dollars, although operating loss as a share of revenue improved to 14% in Q2 from 15% and to 12% for the six months from 14%.
- Six-month net loss increased substantially, including a $48.8 million tax expense related to the intercompany transfer of Humio intellectual property, in addition to higher foreign earnings. The six-month tax provision was $54.3 million.
- Humio was acquired in March for $370.3 million total consideration, including $353.8 million cash net of cash acquired. The preliminary purchase allocation included $291.3 million goodwill and $75.6 million acquired intangibles.
- Deferred revenue grew from $911.9 million at January 31 to $1.164 billion at July 31. Remaining performance obligations were $1.7 billion; the company expected to recognize 71% within 12 months.
Outlook, risks, contingencies and unusual items
The filing provides no specific quarterly or full-year revenue or earnings guidance. Management expects to continue investing in sales and marketing, research and development, and infrastructure, and expects operating losses for the foreseeable future. It expects gross margin to increase modestly over the long term, while acknowledging period-to-period variability. Management also described seasonality, with net new ARR generally higher in the second half, particularly the fourth quarter, and operating margins lower in the first half.
Management said COVID-19 had so far had a modest impact, including some customer requests for special billing or payment terms, but its longer-term effects remained uncertain. Key risks include intense competition, customer adoption and renewal trends, cybersecurity incidents or platform outages, reliance on third-party and colocation data centers, rapid growth and hiring needs, international operations, privacy and regulatory requirements, and the company’s history of losses. Foreign exchange exposure was disclosed; a hypothetical 10% weakening of the U.S. dollar against other currencies would have increased six-month operating loss by approximately $13.7 million.
Unusual items include the Humio-related tax charge and $2.5 million of Q2 legal reserve and settlement charges. A trademark dispute with Fair Isaac Corporation remained in discovery, with trial periods scheduled to begin in December 2021; the company said a loss was reasonably possible but it could not estimate a loss range, and no liability was recorded. Purchase commitments totaled $145.7 million. Subsequent to quarter-end, the board approved a 540,000-unit performance stock award for CEO George Kurtz, with stock-price hurdles from $320 to $490 and a performance period ending January 31, 2027; a new CEO severance agreement was also disclosed. COO Colin Black was expected to transition to a part-time role effective October 1, 2021.
Most important facts for investors to verify
- Whether ARR growth, customer additions, and retention above 120% continue, and how much growth comes from new customers versus renewals and expansion.
- Whether rising operating costs and substantial stock-based compensation can be managed while sustaining growth and improving GAAP profitability.
- The cash-flow contribution from advance customer billings and the timing of deferred revenue conversion, alongside ongoing capital spending and acquisition activity.
- The ongoing tax and cash consequences of the Humio intellectual-property transfer, uncertain tax positions, and the company’s ability to use tax attributes.
- Integration progress for Humio, exposure to the FICO trademark proceedings, and the operational, security, data-center, and regulatory risks described in the filing.