CrowdStrike Holdings, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended January 31, 2020, filed March 23, 2020. The filing also reports fourth-quarter results for the three months ended January 31, 2020; this is not a calendar-year 2019 report.
Business context
CrowdStrike sells cloud-based cybersecurity subscriptions through its Falcon platform, which had 11 modules. Revenue is primarily subscription-based and recognized over contract terms. The company completed its IPO in June 2019, receiving approximately $659 million in net proceeds after underwriting discounts and offering expenses. At January 31, 2020, it had 5,431 subscription customers, up 116%, and a 124% dollar-based net retention rate.
Financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $481.4 million | $249.8 million |
| Subscription revenue | $436.3 million | $219.4 million |
| Professional services revenue | $45.1 million | $30.4 million |
| Gross profit / gross margin | $339.8 million / 71% | $162.6 million / 65% |
| Operating loss | $146.1 million | $136.9 million |
| Net loss | $141.8 million | $140.1 million |
| Operating cash flow | $99.9 million provided | $23.0 million used |
| Free cash flow (non-GAAP) | $12.5 million | $65.6 million used |
| Cash, cash equivalents and marketable securities | $912.1 million | $191.7 million |
FY2020 subscription revenue grew 99%; total revenue grew 93%. Subscription gross margin rose to 74% from 68%, while professional-services gross margin fell to 35% from 41%, which management attributed to lower utilization. Operating expenses increased 62% to $485.9 million, including $79.9 million of stock-based compensation, up from $20.5 million. The company continued to report substantial GAAP losses.
Fourth quarter: Revenue was $152.1 million, versus $80.5 million in the year-earlier quarter; gross margin was 71%, versus 66%; net loss was $28.4 million, versus $31.3 million.
Liquidity, debt and obligations
Cash and cash equivalents were $264.8 million and marketable securities were $647.3 million at year-end. Working capital was $678.5 million. Deferred revenue totaled $571.2 million, including $413.0 million current. Remaining performance obligations were $764.0 million; the company expected to recognize 69% within the following 12 months.
No borrowings were outstanding under the $150 million revolving credit facility at January 31, 2020, and the company reported compliance with its covenants. The facility is secured by substantially all company and subsidiary assets and includes recurring-revenue growth and minimum-liquidity covenants. Contractual obligations included $166.0 million of data-center commitments and $50.7 million of operating lease payments.
Material changes, outlook and risks
- Operating cash flow turned positive, from a $23.0 million use to $99.9 million provided, primarily with a $280.8 million increase in deferred revenue. Free cash flow also turned positive after capital expenditures and capitalized software costs.
- The company adopted ASC 606 using the modified retrospective method. The adoption increased opening accumulated equity by $23.4 million. FY2020 sales-commission expense was $21.7 million lower than it would have been under the prior standard; without adoption, reported net loss would have been approximately $163.7 million. Prior-year results were not restated, limiting direct comparability.
- Management expected continued operating losses while investing in sales and marketing, research and development, and public-company infrastructure. It expected gross margin to increase modestly over the long term, but provided no specific revenue or earnings guidance in this filing.
- Management said the impact of COVID-19 was uncertain as of the filing date; it cited potential effects on customers, sales cycles, events and vendors. Subscription accounting could delay the effect on reported revenue.
- Key business risks include intense competition, customer adoption and renewal, service availability and security incidents, reliance on third-party infrastructure including AWS, data privacy and regulatory compliance, and the challenge of managing rapid growth. Channel partners generated 69% of FY2020 revenue; one channel partner individually accounted for 10%.
- Material disclosed matters include an ongoing trademark dispute with Fair Isaac Corporation over Falcon marks, for which the company could not estimate a loss and recorded no liability, and a civil investigation concerning cybersecurity testing standard-setting. The company also received $1.3 million in legal-settlement income and $2.3 million from a stockholder short-swing-profit settlement during FY2020.
Important facts for investors to verify
- Whether customer growth, renewals and expansion can sustain subscription growth and the 124% retention rate.
- Whether improving margins and positive free cash flow continue as cloud infrastructure, staffing and sales investments grow.
- The effect of ASC 606 and substantial stock-based compensation when assessing underlying operating costs and year-over-year comparability.
- Liquidity and covenant headroom under the secured credit facility, alongside the company’s data-center and lease commitments.
- COVID-19 effects, channel-partner dependence, customer and receivable concentration, and the outcome or financial impact of disclosed legal matters.