Crowdstrike FY23 Q2 Results

Investment Analysis Clubs Saul’s Investing Discussions
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Earnings Release:-
https://seekingalpha.com/pr/18921727-crowdstrike-reports-sec…

Highlights:-

Q2 Non-GAAP EPS of $0.36 beats by $0.09.

Revenue of $535.1M (+58.5% Y/Y) beats by $18.66M.

Subscription revenue was $506.2 million, a 60% increase, compared to $315.8 million in the second quarter of fiscal 2022.

Ending ARR grows 59% year-over-year to reach $2.14 billion

Achieves record net new ARR of $218 million with accelerating year-over-year growth

Adds record 1,741 net new subscription customers

Overall - a slight drop in YoY revenue growth rate but very decent ARR and customer adds which had been a potential cautionary measure. Cash flow was amazing and although GM stayed the same Non GAAP net inc was up significantly from $25.9m to $85.9m!

Ant

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Crowdstrike seems to have updated its investor presentation with some of the data in case you want to see it in chart format. It’s more of a general investor file rather than earnings call presentation but it does have some of the latest numbers in there.

https://ir.crowdstrike.com/static-files/547e5c92-3594-4eef-9…

It does look as though new ARR, customer adds, cash generation and net inc were the stand outs.

They beat on top and bottom line and also raised above guidance and consensus.

I’m sure there will be the usual gripe about SBC which did go up enormously from $76m to $132m or 55c per share!

Initial street reaction was a 2% rise but but that’s down now.

Ant

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There was a lot to like about Crowdstrike Q2 Earnings. What I was looking for was some confirmation in the numbers for the promise I see in Crowdstrike getting into the Federal space. It’s early still; but, I agree with Muji when he wrote that due to the tendency for Government agency’s to demonstrate inertia the winners over the next couple years will be determined in the next few quarters.

One are I was focused on was Net new ARR.

Net new ARR: came in light last Q. They brought in $190.5M ARR, 32% YoY but 12% less than last Q of $217M. This Quarter shows marked improvement.

        2Q23.     1Q23    4Q22    3Q22    2Q22    1Q22
TTM     218.1.    190.5    217     170    150     144
QoQ      14.4%.   -12%     28%     13%     4%      1%
YoY      45%.      32%      52%     46%    44%     68%

I’m not saying the added net new ARR was or wasn’t from federal spend. What do you think about this?

I do know, Net New ARR being is what Crowdstrike Management is saying is the best measure of their company performance, so this makes me a much happier shareholder.

Maintaining 11% of portfolio in Crowdstrike

Best,

Jason

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Hi Jason - yeh I agree that was the critical measure for them to turn around.

They did guide that this quarter would see substantial improvement which is why they got away with the last earnings report without getting slaughtered.

So in essence they delivered on it. Clearly last quarter was the exception rather than the rule but it is still on a general decline but then all its metrics are as Crowdstrike grows at scale.

I also scanned for FedRamp indicators but didn’t see anything in the report. I’m sure it will get covered in the call so let’s hope for more visibility of progress there.

Ant

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My initial thoughts here are that this was a lackluster quarter relative to how CRWD typically performs. They are victims of their own success.

Revenue growth QoQ came in at 10%, which is the lowest it’s ever been. Keep in mind that objectively 10% revenue growth QoQ is still quite good! Although their revenue beats keep getting smaller - this quarter it was 3.8%, the smallest it’s ever been. I see this as a natural progression of the law of large numbers. Nothing overly concerning.

I’ve noticed and written before about how Crowdstrike has the most linear revenue deceleration I’ve ever seen. You can see that avg QoQ growth was 17% in 2019, 15% in 2020, 13% in 2021, and now it’s at 11% in 2022. (of course we only have two data points for 2022)

The guide for next quarter was pretty average, coming in at 7.6%, and they bumped their full year guide to 54% annual growth, up from 52% last quarter.

Secondary metrics were mixed - free cash flows didn’t fall as much as they did last year from Q1 to Q2 on a QoQ basis, and RPO growth was weak.

Customer growth was 10% QoQ - this is tied for the worst they’ve done on that metric. Similar to revenue growth, customer growth has veryyyy linearly decelerated over the years. Crowdstrike, in their conference calls, has at times mentioned they are moving down market (as in they started with the big fish and aim for progressively smaller customers). In contrast, SentinelOne has talked about how they started with smaller customers and are moving up market to bigger customers.

On the whole, I think their performance was acceptable but not up to their usual standards.

But of course, come to your own conclusions and feel free to refute anything you disagree with.

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Dave, at least for today, it looks like the market may read the numbers similarly to you. While I won’t necessarily refute what you wrote, I do think some of the numbers you highlight can be contextualized differently.

Revenue growth qoq came in at 10%, which is the lowest it’s ever been.

That’s true, but, for some reason Q2 has always been CRWD’s weakest, usually with quite a steep drop-off from Q1.

Here are the qoq numbers form the last 3 years.

Fiscal 21’

Q1 17% QoQ
Q2 11.7
Q3 16.8
Q4 13.9

Fiscal 22’

Q1 14.3%
Q2 11.5
Q3 12.5
Q4 13.4

Fiscal 23’

Q1 13.1%
Q2 9.7
Q3 TBD - guidance is a rather tepid 7.5% qoq, but, that’s certainly a beat waiting to happen. By how much is the question. Obviously worth watching.

Customer growth was 10% QoQ - this is tied for the worst they’ve done on that metric.

Prior to this quarters 1741 customer adds (a record) they’d been hovering in the 1600’s in customer adds for 4 consecutive quarters. I just don’t see how this record number of new customers should be framed as a negative “worst” metric.

Q2 23’ 1741

Q1 23’ 1620
Q4 22’ 1638
Q3 22’ 1607
Q2 22’ 1660

Crowdstrike, in their conference calls, has at times mentioned they are moving down market (as in they started with the big fish and aim for progressively smaller customers).

I don’’t look at Crowd signing on SMB’s through a negative lens. I see a company that’s intent moving the revenue needle with small, medium, and large customers. Should they turn away SMB’s? They haven’t stopped landing large businesses either. They just signed on 4 more of the Fortune 100 and are continuing to add to Fed/Public sector. I don’t imagine all of NY’s Cities and Counties being Falcon embedded would be considered a small or medium sized client.

George Kurtz CC: We are also seeing increased strength in the public sector, which, in Q2, was driven by record sled performance and wins within the U.S. federal and international government agencies… 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.

While Crowd will be continually adding to their 19,686 current customers, they importantly are expanding with that very large customer base with new module adoptions along the way.

I want to emphasize that I appreciate your glass half empty assessment, if I may call it that. It helps keep me and probably others on our toes. Truth is, I’m still trying to figure out how I see the glass. You’ve certainly got me thinking about it.

Best,

Brian

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Crowdstrike, in their conference calls, has at times mentioned they are moving down market (as in they started with the big fish and aim for progressively smaller customers).

One thing to note, is they have been quite consistent with the amount of revenue each customer generates over the years. So while they may be moving down market, they are able to bring in about the same level of revenue per customer thanks to the way they land and expand with their platform. This is also evidenced by this quarters highest DBNRR since 128% was posted seven quarters ago. Here is their revenue per customer in the second quarter over the last four years:

Q2 2020 - $28,532

Q2 2021 - $27,520

Q2 2022 - $25,817

Q2 2023 - $27,184

Ideally, it would be best to see this number increase like it has for Datadog or Cloudflare but given Crowdstrike’s go-to-market strategy, I am please to see this remain consistent as they move to smaller customers.

As for the 10% QoQ customer growth, I would agree this is predominately a result of the law of large numbers. It is unrealistic to expect them to continue to add customers at a 15-20% rate each quarter. I was actually quite pleased with this number as they added ~100+ more customers this quarter than they had in the previous four. So long as this trend continues, I will be happy.

Rex

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