CrowdStrike Holdings, Inc. — Form 10-Q Summary
Business context and reporting period. CrowdStrike provides cloud-delivered cybersecurity subscriptions through its Falcon platform, alongside professional services. This report covers the three months ended April 30, 2020 (fiscal 2021 first quarter); comparisons are with the three months ended April 30, 2019. Amounts below are in U.S. dollars.
Key financial results
| Metric | Quarter ended April 30, 2020 | Prior-year quarter | Change / context |
|---|---|---|---|
| Total revenue | $178.1 million | $96.1 million | Up 85% |
| Subscription revenue | $162.2 million | $86.0 million | Up 89%; 91% of revenue |
| Professional services revenue | $15.9 million | $10.1 million | Up 57% |
| Gross profit / margin | $131.2 million / 74% | $66.8 million / 70% | Margin improved 4 percentage points |
| Operating loss / margin | $22.6 million / (13%) | $25.8 million / (27%) | Loss narrowed; non-GAAP operating income was $1.2 million versus a $21.9 million loss |
| Net loss | $19.2 million | $26.0 million | Loss narrowed; diluted and basic loss per share was $0.09 versus $0.55 |
| Cash from operating activities | $98.6 million | $1.4 million | Higher mainly from deferred revenue growth and collections |
| Free cash flow (non-GAAP) | $87.0 million | $(16.1) million | Margin of 49%, versus (17%) |
Financial position and operating indicators
- At April 30, 2020, cash and cash equivalents were $1.005 billion, with no marketable securities remaining; the company had liquidated its securities portfolio during the quarter. Cash was $264.8 million at January 31, 2020.
- Total deferred revenue was $636.0 million, including $465.6 million current. Remaining performance obligations were $817.5 million, of which 70% was expected to be recognized in the following 12 months.
- No borrowings were outstanding under the $150 million revolving credit facility, and the company reported compliance with its financial covenants. The facility is secured by substantially all company assets and includes liquidity and recurring-revenue covenants.
- Subscription customers increased 105% year over year to 6,261; annual recurring revenue (ARR) was $686.1 million, up 88%. Dollar-based net retention again exceeded 120%.
- Channel partners generated 73% of revenue. The largest channel partner contributed 9% of quarterly revenue; no direct customer contributed 10% or more.
Material changes and notable items
- Subscription gross margin rose to 77% from 72%, which management attributed to infrastructure shifts and renegotiated cloud-provider terms, lower travel costs, and increased use of additional modules. Professional services gross margin fell to 39% from 45%, primarily because of lower utilization.
- Operating expenses increased 66% to $153.8 million, including sales and marketing up 55%, research and development up 70%, and general and administrative up 111%. Stock-based compensation rose to $23.6 million from $3.8 million.
- Other income, net, increased to $4.5 million. It included a $1.3 million realized gain on security sales; management also cited higher interest income and lower warrant-related expense.
- Cash increased substantially in part because $639.6 million of marketable securities were sold and $91.6 million matured. Operating cash flow also benefited from a $64.8 million increase in deferred revenue. These movements should not be read as recurring operating earnings.
- The company adopted the operating lease accounting standard on February 1, 2020, recognizing approximately $37.4 million of lease-related assets and liabilities at adoption. April 30 operating lease liabilities were $39.6 million.
Outlook, management commentary, and risks
- The filing provides no specific quantitative revenue or earnings guidance. Management expects continued investment in sales and marketing, research and development, and public-company costs, and anticipates operating losses for the foreseeable future. It expects gross margin to increase modestly over the long term, with quarter-to-quarter fluctuations.
- Management said the pandemic’s impact had been modest through the quarter: the company continued to win enterprise business, closed most seven-figure deals in the quarter’s second half, and maintained high gross retention. It shifted its workforce to remote work and introduced programs to help customers protect remote workers.
- Management cautioned that COVID-19’s longer-term effects remain uncertain and may emerge later because subscription revenue is recognized over contract terms. Risks include customer payment-term requests, slower collections, lengthened sales cycles, reduced spending, and higher churn in a prolonged downturn. The company said existing cash was expected to cover anticipated needs for at least 12 months.
- Management expects seasonal patterns, including stronger net-new ARR in the second half of the fiscal year, particularly the fourth quarter, and typically lower operating margins in the first half.
- Material exposures include intense competition, reliance on channel partners and third-party/colocation data centers, cybersecurity and service-availability risks, privacy and regulatory compliance, and execution risks from rapid growth. Contractual obligations totaled $229.7 million, including approximately $150.0 million of data-center commitments.
- The company is involved in trademark proceedings with Fair Isaac Corporation concerning “CrowdStrike Falcon” and “Falcon OverWatch.” It said a loss was reasonably possible but could not estimate the likelihood or a loss range; no liability was recorded. The filing also describes a civil investigation concerning cybersecurity testing standard-setting; outcomes are uncertain.
Important facts for investors to verify
- Whether customer additions, ARR growth, and retention remain strong, and whether subscription expansion offsets slower new sales or churn.
- How much reported operating cash flow and free cash flow depends on advance billings and deferred revenue, and whether cash generation persists as growth and collections change.
- The effect of substantial stock-based compensation and equity awards on dilution and per-share results.
- Any later-period effects of COVID-19 on customer payment behavior, renewals, sales cycles, and demand.
- Developments in the FICO trademark proceedings and the cybersecurity testing investigation, including any financial or operational consequences.
- Whether the company continues to meet credit-facility covenants while funding its data-center, lease, and other contractual commitments.