Strictly Business: CrowdStrike Earnings Recap

Thoughts on CRWD's recent report.

CRWD – CrowdStrike gonna CrowdStrike. I anticipated ~$537.5M in Q2 revenue with a ~$575M Q3 guide. We got $535.2M (+58.5% YoY) and $575.9M. So, a slight revenue shortfall offset by a slightly higher than expected guide. Close enough.

As for other expectations:

• A bump of at least a percent or two to FY23’s current 52% growth guide. The FY23 raise to $2.23B in revenue would mean 53.8% growth. Check.

• Net new Annual Recurring Revenue (ARR) approaching $200M+. $218M and a nice surprise.

• Remaining Performance Obligation ideally returning to 10%+ sequential growth. This came up short at 6.4% QoQ. The CFO addressed this by stating management views net new ARR as a better metric, but I still would have liked a tick better.

• Net new customers staying above 1,600. This number has been relatively flat the last few quarters, so a decline would be worth noting. We got a record 1,741. I’m super happy with that figure.

• The usual upward drift in the percentage of customers using 5+, 6+, and 7+ modules. The number of 5+ customers stayed flat at 59%, but 6+ and 7+ ticked up a point each to 36% and 20%, respectively. It’s encouraging to see customers keep adding modules in a tougher environment.

• Another quarter of strongly positive cash flows despite the usual seasonal decline. Unless I’m missing something, I don’t see why operating and free cash flow shouldn’t both top $100M again. At $210M in operating and $136 free cash, zero issue here.

• Q2 operating and net margins pushing 15%+. 16.3% ($87M) and 16.1% ($86M) with record raw dollar amounts for both. Gotta like that.

• Positive comments on FedRAMP approvals and potential government business. CEO George Kurtz addressed this in the prepared remarks. It’s long, but the whole quote is worth a read: “We are also seeing increased strength in the public sector, which, in Q2, was driven by record performance and wins within the U.S. federal and international government agencies. To date, 20 of the 37 new states that are CrowdStrike customers as well as the District of Columbia have standardized on Falcon. One noteworthy development in Q2 was with the state of New York, which is exclusively using Falcon EDR for the newly established joint security operations center. As part of the shared services initiative, New York's cities and counties in the program will be protected by Falcon. The [indiscernible] program is designed to house cybersecurity assets for multiple levels of government under one roof to protect against attacks across New York's interconnected network and IT services. We believe this is a model program that other states will look to emulate as their communities grapple with the heightened threat environment and cybersecurity skills gap.”

• Continued comments CRWD plans to keep using its cash flow to invest aggressively while other firms “are forced to reduce their spending and hiring plans.” This is indeed the case. In fact, the firm added a record number of net new hires for the second consecutive quarter. The CFO says CRWD still sees itself in the early innings and plans to invest accordingly.

In addition to the above performance, CRWD posted record total customers, a record pipeline, and its highest net retention rate since 3Q21 (which was 128%). More importantly, both Kurtz and the CFO stated they were not seeing any significant macro effects on the current business. I’m a bit surprised the stock stayed flat after-hours given all the positives, but I see nothing implying CrowdStrike doesn’t deserve at least as much conviction as it had coming into this report. Overall I’d call it another business-as-usual quarter.

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As usual, thanks for reading.