CRWD Quarter 3, 2022 (Q321)
I realize CRWD’s fiscal year is +1, but for continuity in how I track things I keep everything on current year, so any reference to CRWDs earnings will be -1 on the year.
Conference Call Highlights
we are seeing an inflection in new products with growing demand for our identity protection and zero trust, Humio and cloud security modules
We continue to expand our lead over legacy and next-gen vendors because of our scalability, efficacy, and differentiated offerings
Net new ARR growth accelerating and ending ARR growing 67% to surpass the $1.5 billion milestone
Gained over 1,600 net new subscription customers for the second consecutive quarter.
record bottom-line results and free cash flow, reaching a new high watermark of $124 million
We also gained significant momentum and delivered a record quarter in the public sector, including wins with educational institutions, states, and local governments, and the U.S. federal government.
Large win with CISA. *There were several sentences highlighting from a high-level different wins.
Gave a brief statement to the recognition given by analysts such as IDC, EMA, and SE labs which named CRWD as the best endpoint detection and response product for a second year in a row.
Our module adoption rates demonstrate the flywheel effect of our platform in motion with subscription customers that have adopted four or more modules, five or more modules, and six or more modules increasing to 68%, 55%, and 32%, respectively, in the third quarter.
25% of the servers they protect are in the public cloud.
Extended Falcon Horizon to support Google Cloud environments now supporting the three largest clouds…We also
expanded our relationship with Google by joining their Work Safer program…We also deepened our partnership with AWS with new features that work hand in hand with services from AWS to further protect customers from growing ransomwarethreats and increasingly complex cyberattack
The third quarter was a breakout quarter for our MSSP ecosystem with our MSSP business growing more than 30% quarter over quarter and triple digits year over year.
we generated more net new ARR from our zero trust modules than in the history of Preempt before the acquisition
We also launched the CrowdXDR Alliance, which is a groundbreaking partnership with industry leaders including Google Cloud, Okta, ServiceNow, Zscaler, Proofpoint, and Mimecast, among others.
[referring to Humio] In less than six weeks since our launch, we have already reached 100% of our six-month customer registration goal
We see a long runway ahead in displacing legacy and next-gen point product vendors.
Demand in the quarter was broad-based and well balanced, fueled by strength in multiple areas of the business
We once again ended the quarter with our strongest pipeline to date, which we believe indicates a strong foundation for future growth.
Net new ARR grew 55% on an organic basis and 46% on a reported basis
contraction and churn decreased on both a dollar basis and percent of ARR
MY Summary
There is A LOT to digest in the earnings call. CRWD continues to be an absolute horse when it comes to the execution of business. I have no doubts that they have a long time of growing at high (not hyper) rates.
When I listen to conference calls and later read the transcript, I try to not only listen to not just what is being said but also how it is being said. For example, when Kurtz stated, “gained over 1,600 net new subscription customers for the second consecutive quarter” I found that to be somewhat interesting. Here’s why, in the previous quarter he gave a specific number of 1660, and now he’s giving an approximation. To me it was a way to detract from the fact that the total customer add was less than the previous quarter, but also could be indicative that they consider 1600 to be the goal. Purely speculation on my part, but I’m curious how this will be represented next quarter.
I personally did not really care for the direct comparisons that were made and the bragging over taking customers from competitors, I just felt it to be a little tacky. The performance of the business against the competitors should speak loud enough without the need to call it out directly.
Before the earnings I made a post stating that I felt I needed to beat by 6%, it was a high expectation, and I realized that. I was solely looking at whether CRWD was going to reverse the slowdown in growth or not.
The analogy I am going to use is when a car ACCELERATES from 0 to 60mph there is a rate of change that is occurring which allows it to reach 60mph, say it overshot and when to 70mph. It had to decelerate to get back to 60. Once it gets there the acceleration has ended, whether positive or negative acceleration was the end result. To be a bit reductive the car accelerated until it didn’t.
CRWD accelerated to a point that acceleration was no longer feasible (large numbers and all), and now it is decelerating towards its steady state growth. I am not going to hazard a guess as to where CRWD to achieve its 60mph, but I believe as it gets closer, we will see the tapering of the deceleration. Thus, I view CRWD to be a safe place to keep money in, but not the best for growth.
With a 13.3% operating margin and 32% FCF margin it’s hard to not like the balance sheet, and with the expansion of big names and new customers in the call, it’s easy to see a trajectory of high growth.
Regarding Q4 scenarios outlined below.
To Maintain Status Quo As I state below, I don’t think the guide is terrible, and probably is becoming more accurate as the business matures. I am predominantly looking the sequential growth percentage, and the implications on the TTM. I believe 3% keeps the story intact for both of those.
To Beat Using Past Beat expectations it comes in only 1% more than what I believe to maintain the status Quo. This is part of the reason why I think CRWD is a safe investment. I give this a very high likelihood of achievement.
To Stop deceleration would require one of the best quarters on record for CRWD. While I believe the deceleration will slow down from current rates, I do not believe or expect it to be sudden, if it did it would be quite a surprise, and a great one at that. However, I do not see CRWD posting a sequential add that would be ~20% of the total revenue growth. Q4 of 2019, they posted 21.6%. For the past seven quarters they have not posted within 3.4% of that.
Revenue
$380.05M off a guide of $363.3 for a beat of 4.0% - Resulting in 63.5% Y/Y growth. That is $42.36 sequentially for an increase of 12.5% on the quarter.
TTM revenue was $1,285.47 – Resulting in 68.8% Y/Y. That is $147.6 sequential for an increase of 13% on the quarters TTM.
Sales (TTM) TTM% Seq Seq %
Q121 999.2 77% 124.7 14%
Q221 1137.9 74% 138.7 14%
Q321 1285.5 69% 147.6 13%
Q421 1441.1 65% 155.6 12% *Guided value
Sequential revenue add in 2021, for the first three quarters has been 14.3%, 11.5%, 12.5%. This compounds to 65.5% compared to 2020 52.8%. I would attribute 2020 to being held down in the covid quarter.
At the guide CRWD would have 78.4% compared to 74.1% in 2020. [as a side note: seeing this go up while revenue y/y percent goes down is what I could consider normal for a company who is growing strong off a strong base].
Rev Rev % Beat Seq % seq
Q121 302.80 70.0% 4% 37.9 14.3%
Q221 337.69 69.7% 4% 34.9 11.5%
Q321 380.05 63.5% 4% 42.4 12.5%
Q421 412.30 55.6% 0% 32.2 8.5% *Guided value
Regarding ARR
Burt Podbere, CFO - stated “we continue to expect seasonality in net new ARR to be less pronounced relative to prior years as we move from Q3 into Q4.” I interpreted that to mean I should temper my ARR expectations in Q4. Meaning ARR Growth is probably shifting towards stronger organic, rather than having net new adds pulling it up. Using proportionality, it would come in at an add $206 for $1,716 total. I will personally be looking for ARR of around $1700. Mainly because the sequential ARR add has remained relatively stable over the last 3 quarters, and I do not see a reason for that story to change.
ARR ARR Seq ARR % Seq %
Q121 1190.0 140 73% 13.3%
Q221 1340.6 150.6 70% 12.7%
Q321 1510.0 169.4 66% 12.6%
Q421 1700.0 190 62% 12.6%
Acceleration
Ended Q221 with an overall TTM accelerations of -2.99%. This decreased to -3.25% in Q321. Individual Quarter rates are as follows:
Q121 -4.30%
Q221 -3.43%
Q321 -5.13%
Q421 -4.92% *guided number
Customer Data
Net customer adds came in 53 less than Q221. I am not sounding the alarm on this, but it will be one of the metrics that I look closer at in subsequent quarter numbers. I think the perfect storm that would hurt CRWDs overall performance would be a rapid decline in customer adds combined with weak organic ARR growth. I do not suspect this will happen given everything that was discussed regarding customer information in the conference call.
Q421 Thoughts
At the guide CRWD is looking at quarterly revenue Y/Y growth to be ~8% to 55.6%, sequential growth to be at 8.5%. TTM to be at 63.9% with TTM sequential at 11.5%.
This guide by itself is not bad, and what is good about it is that a low beat keeps the overall metrics stable in Q4. The beat also shows TTM will decelerate less in Q4 (-4.9%) than it did in Q3 (-5.1%), which is also positive. I do not remember who said it, but I agree with whoever posted that CRWD is a prime candidate for the potential of an earnings surprise.
Overall, I conclude that the guide result and a safe expectation are very close, which is why I agree that they are a candidate for a surprise. This is also another reason why I believe CRWD is a safe investment, while not being a prime candidate for upside growth. Just because the data supports a surprise could happen that is hope, and not a strong investment criteria (at least for me).
To maintain status quo I am putting this at needing $424.7 in revenue for a 3% beat.
Rev Rev % Beat Seq % seq
Q121 302.80 70.0% 4% 37.9 14.3%
Q221 337.69 69.7% 4% 34.9 11.5%
Q321 380.05 63.5% 4% 42.4 12.5%
Q421 424.67 60.3% 3% 44.6 11.7%
Sales (TTM) TTM Seq TTM Seq %
Q121 999.2 77.3% 124.7 14.3%
Q221 1137.9 73.9% 138.7 13.9%
Q321 1285.5 68.8% 147.6 13.0%
Q421 1445.2 65.3% 159.7 12.4%
To Beat using past beat expectations would expect $428.8 for a 4% beat.
Rev Rev % Beat Seq % seq
Q121 302.80 70.0% 4% 37.9 14.3%
Q221 337.69 69.7% 4% 34.9 11.5%
Q321 380.05 63.5% 4% 42.4 12.5%
Q421 428.79 61.9% 4% 48.7 12.8%
Sales (TTM) TTM % Seq TTM Seq %
Q121 999.2 77.3% 124.7 14.3%
Q221 1137.9 73.9% 138.7 13.9%
Q321 1285.5 68.8% 147.6 13.0%
Q421 1449.3 65.7% 163.9 12.7%
To Stop deceleration would require revenue to come in at $454.77 for a beat of 10.3%.
Rev Rev % Beat Seq Growth % seq
Q121 302.80 70.0% 3.66% $37.87 14.3%
Q221 337.69 69.7% 4.10% $34.89 11.5%
Q321 380.05 63.5% 4.04% $42.36 12.5%
Q421 454.77 71.7% 10.30% $74.72 19.7%
Sales (TTM) TTM % Seq TTM Seq %
Q121 999.2 77.3% 124.7 14.3%
Q221 1137.9 73.9% 138.7 13.9%
Q321 1285.5 68.8% 147.6 13.0%
Q421 1475.3 68.7% 189.8 14.8%
Post Q321 Headlines
Not all headlines are meaningful
Positive / Negative Talley – 6 Positive / 0 Negative
Last 30 Days 100% Positive: 6 Positive / 0 Negative
1.(+) 12/20/21 CrowdStrike Adds New Strategic Partners To Groundbreaking CrowdXDR Alliance; Terms Not Disclosed
2.()12/20/21 Daiwa Capital initiates coverage – Weighs CRWD as Outperform with a PT of $224
- (+) 12/16/21 CrowdStrike APAC Named Frost & Sullivan Endpoint Security Industry Company of the Year and was also recognized as a Customers’ Choice by Gartner
4.(+) 12/15/21 CrowdStrike Wins Tenth Consecutive AV-Comparatives Award, Highlighting Falcon’s Proven Efficacy and Market-Leading Technology
5.()12/14/21 JP Morgan Upgrades from Neutral to Overweight PT of $255
6.(+) 12/14/21 CrowdStrike Falcon Detects 100% Of Attacks In New SE Labs EDR Test, Winning Highest Rating Of All Vendor
7.(+) 12/7/21 CrowdStrike Receives Global Recognition as a Pre-Eminent Market and Technology Leader in Cybersecurity
8.(+) 12/7/21 CrowdStrike Falcon Wins Best Cloud Security Technology Solution in Annual CRN List
9.() 12/2/21 CrowdStrike Ranked Number One on 2021 Fortune Future 50 List
10.() 12/2/21 Deutsche Bank Maintains Buy on CrowdStrike Holdings, Lowers Price Target to $260(Benzinga) CrowdStrike Holdings Price Target Cut to $330.00/Share From $360.00 by Mizuho(Dow Jones) Mizuho Maintains Buy on CrowdStrike Holdings, Lowers Price Target to $330…