CrowdStrike Holdings, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended January 31, 2021. The filing also reports fiscal Q4 results for the three months ended January 31, 2021; this is not a standalone calendar-year 2020 report.
Business context
CrowdStrike sells its Falcon cloud-native cybersecurity platform and 19 modules on a SaaS subscription basis, with professional services including incident response. Growth relies on acquiring customers and expanding deployments through additional endpoints and modules. At year-end, it had 9,896 subscription customers, up 82%; ARR was $1.05 billion, up 75%; and dollar-based net retention was 125%.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $874.4 million | $481.4 million |
| Subscription revenue | $804.7 million | $436.3 million |
| Professional services revenue | $69.8 million | $45.1 million |
| Gross profit / margin | $644.9 million / 74% | $339.8 million / 71% |
| Operating loss / margin | $92.5 million / (11%) | $146.1 million / (30%) |
| Net loss | $92.6 million | $141.8 million |
| Operating cash flow | $356.6 million | $99.9 million |
| Free cash flow (non-GAAP) | $292.9 million | $12.5 million |
Revenue grew 82% year over year. Subscription gross margin rose to 77% from 74%; professional-services gross margin was 36% versus 35%. Cash and cash equivalents were $1.919 billion, with no marketable securities at year-end. Working capital was $1.429 billion. Debt included $750 million principal amount of 3.00% senior notes due 2029 (carrying value $738.0 million); the $750 million revolving facility was undrawn. Deferred revenue was $911.9 million, and remaining performance obligations were $1.4 billion, with 72% expected to be recognized over the following 12 months.
Fiscal Q4 revenue was $264.9 million versus $152.1 million a year earlier; net loss was $19.0 million versus $28.4 million. FY2021 operating cash flow benefited in part from a $338.8 million increase in deferred revenue. Stock-based compensation was $149.7 million for the year. Free cash flow and ARR are company-defined non-GAAP/operating measures, not GAAP results.
Material changes versus the prior year
- Revenue increased by $393.0 million, or 82%; subscription revenue increased 84%, reflecting customer growth, renewals, and expansion within existing accounts.
- Gross margin improved three percentage points, which management attributed to data-center optimization, contract renegotiation, and broader module adoption.
- Operating loss narrowed by $53.5 million, although operating expenses rose 52% to $737.4 million as the company invested in sales, marketing, and R&D.
- Operating cash flow rose to $356.6 million from $99.9 million; free cash flow rose to $292.9 million from $12.5 million.
- The company issued $750 million of senior notes and expanded its revolving facility from $150 million to $750 million. It acquired Preempt Security for $91.2 million in September 2020.
Outlook, commentary, risks, and unusual items
- Management expects operating losses to continue for the foreseeable future while it invests in sales and marketing, R&D, and international growth. It expects gross margin to improve modestly over the long term, but did not provide numerical revenue or earnings guidance in this filing.
- Management said the pandemic’s impact had been modest through FY2021, while noting possible future effects on customer spending, sales cycles, collections, and operations. The company moved its workforce to remote work and liquidated its marketable-securities portfolio during the first quarter.
- Principal risks include intense competition, failure to detect or prevent attacks, cyber incidents affecting CrowdStrike or its customers, dependence on third-party and colocation data centers, privacy and regulatory compliance, and execution of rapid growth and international expansion.
- FICO is challenging the company’s “CrowdStrike Falcon” trademark registrations and opposing “Falcon OverWatch.” A loss was described as reasonably possible, but the company could not estimate a loss or range. A former employee wage-and-hour demand is also disclosed; management said no pending or threatened proceeding was likely to materially affect the financial statements.
- After year-end, CrowdStrike completed its Humio acquisition on March 5, 2021 for approximately $352 million cash, net of cash acquired, plus $40 million in stock and options. Initial purchase accounting was incomplete at filing.
- PwC issued an unqualified opinion on the financial statements and internal controls; management also concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Whether customer growth, 125% net retention, and ARR growth persist; ARR is a company-defined metric.
- How much operating cash flow and free cash flow is supported by advance billings and deferred revenue, and how those measures compare with GAAP losses.
- The effect of substantial stock-based compensation, future hiring, and continued operating losses on profitability and dilution.
- Integration, purchase accounting, and returns from Preempt and the subsequent Humio acquisition, including Humio’s cash cost.
- Debt terms, covenant compliance, interest costs, and the company’s capacity to meet contractual commitments.
- Developments in the FICO trademark proceedings, the wage-and-hour claim, and cybersecurity, privacy, and service-availability risks.