Some notes on earnings numbers and the earnings call.
On 3/9/22 at Q4 earnings they told us they would make $485.4M max rev, guiding to grow 8% QoQ and 54% YoY. They delivered Q1 $487.7M, a beat of 4.8%, growing 13.2% QoQ and 61% YoY. They added $56.7M over the last Q.
This was their typical beat over the last quarters.
We are now at TTM revenue of $1636M, 13% more than last Q, and 64% YoY.
Their Subscription Revenue was 94% of total revenue, same sustaining margin over the last few quarters.
Adjusted Gross Profit on Subscription Revenue was 79%, same sustaining over the last few Qs
ARR this Q came in lighter than last Q growth, in light of similar last Year Q1, They brought in $190.5M ARR, 32% YoY but 12% less than last Q of $217M.
Total ARR is now at $1922M, growing 11% over previous quarter, and 61% YoY.
RPO at $2420M, 7% QoQ growth, and 64% YoY.
Customers: Total 17945, they added 1620, 10% more than last quarter, and 57% YoY.
They disclosed that 71% of customers now use 4 or more modules, and they retired this metric. Instead they added a new metric, customers using 7 or more modules.
They told us they would make up-to $66.4M in Adjusted Operating Income, they delivered $83M, 3% more than last Q, with 15.3% adjusted operating margin. That’s 25% beat over expectation. (note to self: look at SBC for that bump, actually examine Stock Based Compensation from Q to Q and other companies.)
Cash From Operations was $215M, 35% more than last Q, at 37% margin (% of total rev), Free Cash Flow $157.5M, 35% more than last Q, at 44% margin (total % of rev)
Overall the numbers were great, I am happy holding 12% portfolio allocation. Why? They told us they would make up-to $516.8M revenue next Q, guiding for 6% growth next Q, with 53% YoY. With their usual beat of about 4 to 5% (guess) they may deliver optimistically $542M for 11% QoQ growth, and 69% YoY and I think that’s quite healthy, next Q growth will test my thesis; if I should continue holding this business.
They also told us that for the Full Year 2023 they would make $2205M, they raised their guidance of from last Q (was $2163.2M) by 2%. Given they will raise guidance by 2% every Q we could arrive at Q4 for about $2323M which would give us Full Year 2023 60% growth. That’s my thesis for the FY23, we’ll see how wrong I was.
As a disclosure, my investing style is based on the method of 3 things mainly.
So far I have not been too wrong on holding this business since January of 2020. I may have been stupid NOT to sell when valuations went way way up in the fall of 2021, but I didn’t know, I was blind, so were you, probably.
When reading Prepared Remarks I am looking for ‘confidence’ from the management about what happened in last Q and what’s to come next Q (and possibly the Full Year), here are some examples of strong statements that support my investing thesis:
Late in Q4, we significantly expanded our trial program, increasing the number of modules available for trial to 12, up from just four modules in the prior quarter. The expanded trial program provides an even larger foundation to drive velocity through our e-commerce engine and makes it even easier for companies to trial and purchase more modules on the Falcon platform, and we are very pleased with the record performance in q1
Identity protection is another emerging area where we are seeing growing success in the market with the number of customers subscribing to these modules growing more than 30% quarter over quarter
(example of customer win) This global business process service provider based in Europe was struggling with their Microsoft deployment as complexity and misconfiguration pitfalls were hampering their efforts to protect their heterogeneous environment. After months of continuous issues, they fell victim to a breach and turned to CrowdStrike for incident response and endpoint recovery services. During the remediation process, this customer was able to experience firsthand the value of trusted expertise and the ease and speed of deploying Falcon across their environment. This led them to adopt Falcon Complete, which was fully up and running only 24 hours after the expanded engagement was completed
Q1 net new ARR performance was ahead of our expectations and follows our unprecedented Q4 highlighting our continued strong momentum in the marked
We continue to see strong growth in the U.S. at 57%, and international revenue growth accelerated to 71% year over year
last year, we delivered an exceptional Q1 with significantly muted Q4 to Q1 net new ARR seasonality when normalizing for the two accounts that contributed approximately eight figures each to our unprecedented Q4 results. As a result, looking to Q2, we expect to see seasonality off of Q1 to be similar to last fiscal year
second quarter is generally our lowest cash flow generation quarter of the year
Prepared Remarks from George Kurtz and Burt Podbere were satisfying, I can hear some light Q2 numbers in ARR and cash flow. I am ok with that.
Questions and Answers Section:
We’ve had 13 analysts on the call. I heard several ‘congrats’ and ‘great results’ from then when asking questions, but also some ‘worrying’ questions about Macro slowdowns.
Question: on Humio and alternatives to SIEM?
When we talk to customers, particularly legacy SIEM customers, there’s absolutely an appetite to explore something that’s different, modern, more scalable, and more cost effective. And again, we’ve been big fans of Humio.
And when you think about Humio, you also have to think about Falcon XDR, right, in terms of its ability to ultimately subsume SIEM
Question: … rank order your top three modules that you think will drive or have the most impact on your growth in this fiscal year?
April 7 webinar, we went through the module growth dynamics. And we highlighted some of our products like Complete, which has been very, very successful for us. Then we talked about Spotlight, and we talked about Identity Threat Detection, Horizon, Cloud Workload Protection. These are just some of the hyper-growth modules that we highlighted in the webinar. And that really means year-over-year growth rates are significantly higher than the overall customer growth. And so we’re excited about those
Question: … international growth pretty strong in the quarter.
we’ve got a great offering and the strong demand in all geographies.
When we talk about aggressive investing or investing aggressively, we think about not only product lines, but we think about GEOs… ultimately, we’d love to see 50-50 in terms of the split at some point. (USA and rest of world)
Question: on great new subscription customer growth this quarter …
our bigger customers, those over $1 million, as we talked about on the webinar in April… each of those customers has about seven, on average, just over seven modules. In terms of landing new, we talked about in FY '22, it’s 4.7. And that’s up from 4.3 from the year before
Question: it was not necessarily strong US Fed quarter …
Question: On implications of VMWare Carbon Black in light of Broadcom acquisition?
we were happy to see Carbon Black and VMware to be acquired. So we’ve continued to replace Carbon Black over the last few years
On: So with your total free trials increasing at 12 module… ?
customers leveraging our trial, converting them into our e-commerce platform, upselling our modules, even upselling them into Falcon Complete customers, we can take a few thousand dollar deal and turn it into a $50,000 deal, leveraging the full suite of e-commerce technology, as well as our inside sales team. And that has really driven efficiency in our organization
We take credit card sales, it’s very easy to get the product up and running and buy from us. And I think that is a unique differentiation point between us and our competition
I think we spend as much time on go-to-market execution and flighting how that is all going to work just as much as we do on the tech
Question: is the world a little less rosy than it was a quarter ago?
No, we haven’t seen any slowdown in terms of the willingness to buy security. It continues to be the No. 1 risk factor for any board of directors. Again, when you look at some of the e-crime impact and taking out business, it is not a discretionary spend. – in the hierarchy of corporate needs, it’s probably shelter. So we see that continuing. And in fact, when you look at the current environment, we have a customer saying we want to consolidate more. We want to go in with – all in with CrowdStrike. We want to get rid of this extra spend that we have in other areas, too many agents
Question: On what portion of new ARR came from new business, new logos, and what came from the existing base?
If you have advanced endpoint protection using AI, if you add EDR and now you add identity, that’s a winning formula. So we see a great opportunity to continue to sell into the installed base identity, and we talked about 30% quarter-over-quarter increase in identity. And we see a long runway. So when we think about EDR, the next iteration of that will be adding identity to it.
Question: On lingering fear about the business, slowdown in endpoint volumes?
digital transformation is happening, security transformation, moving to cloud, those are all long-term sustainable trends
Question: On possible headcount reduction other companies are having issues with?
We’ve seen a lot of high-multiple companies go through some layoffs and some challenges in trying to conserve cash. I think from an M&A perspective, we are always looking at companies, and we will buy good companies with good people irrespective of the current environment
So we will be opportunistic in both hiring great people, as well as looking at potential M&A opportunities now and in the future
Question: On broader question of the macro environment (womp womp economic slowdown)?
security is not going to go away. The threats are going to continue to get worse, and we’re going to continue to invest.
security right now is, let’s call it, recession-resilient
In 2019, we had a market share of around 6.3% in endpoint. And today, we’re in that 12.6% range from – this is all IDC. We think there’s a real opportunity to increase that. We think by investing in the channel, in people, in go-to-market, we think we have an advantage over everybody else because we’re such a well-run company and we’ve got a lot of opportunity to invest. Our balance sheet and our P&L are allowing us to do that. And we’re going to press that advantage. And we’re going to go after some great people that have been let go by some of our competitors.
Question: On Win rates versus Sentinel One and Microsoft and legacy replacement?
We continue to win at a very high rate. We’ve talked about that in the past. It’s a great competitive environment for us. We continue to convert. We talked about some of the Microsoft wins. Again, what customers are looking for are solutions that solve problems, stopping breaches, deals with some of the headcount problems that they have.They just can’t find enough good people and ultimately saves them a lot of time and money by harmonizing their security stack in one platform, which is CrowdStrike. So it’s still a big market. Burt talked about our market share on the last response. We’re looking to aggressively grow that, and there’s opportunities for others out there. But we believe we have the best technology, the best platform, the best AI. Testing results prove it as well and more importantly, customer success, the testimonials. And the proof is in the financial results. So – and we feel confident going into the future that we’ve got the right platform
So there you have it. Crowdstrike Q1 Earnings kicking off 2023. The main theme I heard was that Security is here to stay, it’s recession-resilient, it’s necessary and Crowdstrike has bright future.
My next move is to compare and constrast this with Sentinel One Earnings, but I like what what I heard that this is a big market and there are opportunity for others as well.
Cheers, good luck to all longs.