CrowdStrike Beats Expectations But Lowers Outlook After July Outage Disruptions
CrowdStrike (NASDAQ: CRWD) announced its fiscal second-quarter results for 2025 on Wednesday, marking the first earnings report since a software glitch on July 19 caused widespread disruptions. While the company exceeded revenue expectations for the quarter, it revised its full-year guidance downward, reflecting the ongoing impact of the incident.
For the quarter ending July 31, 2024, CrowdStrike reported revenue of $963.9 million, a 32% increase year-over-year from $731.6 million in the same quarter last year, and beating analyst expectations of $959 million.
The revenue growth was driven primarily by subscription services, which accounted for $918.3 million, up 33% from $690.0 million in Q2 FY2024. Professional services contributed $45.6 million, reflecting a 9.5% increase from the prior year’s $41.7 million.
The company maintained a solid gross margin of 75% on a GAAP basis and 78% on a non-GAAP basis, consistent with the previous year.
Operating expenses rose across the board, reflecting both the company’s growth and the costs associated with addressing the outage. Sales and marketing expenses increased to $355.5 million, up from $282.9 million a year ago, as CrowdStrike continued to invest in expanding its market presence. Research and development (R&D) expenses grew to $250.9 million from $179.4 million, underscoring the company’s commitment to innovation. General and administrative (G&A) expenses also saw a rise, totaling $106.4 million compared to $101.8 million in the prior year.
The company’s net income for the quarter rose sharply to $47 million, or $0.19 per share, up from $8.5 million, or $0.03 per share, a year earlier. On a non-GAAP basis, which excludes items like stock-based compensation and costs related to the July outage, adjusted net income came in at $260.8 million, or $1.04 per diluted share, compared to $180 million, or $0.74 per share, a year earlier. This reflects a significant 41% year-over-year increase in earnings per share.
Annual Recurring Revenue (ARR), a critical metric for subscription-based businesses like CrowdStrike, also grew by 32% year-over-year, reaching $3.86 billion. This growth included $218 million in net new ARR, outperforming the expected $195.5 million. This growth in ARR is particularly notable given the operational disruptions caused by the July 19 incident.
CrowdStrike also reported strong free cash flow of $272.2 million, up from $188.7 million in the same quarter of the previous year. The free cash flow margin improved to 28%, compared to 26% a year earlier, reflecting the company’s ability to convert revenue into cash efficiently.
As of July 31, 2024, CrowdStrike’s balance sheet remained strong with $4.04 billion in cash and cash equivalents, up from $3.38 billion at the end of January 2024. The company’s total liabilities were relatively stable at $4.31 billion, with long-term debt remaining largely unchanged at $743.2 million.
Despite these strong figures, the company’s stock experienced volatility in after-hours trading, initially rising by 1% before slipping by 4%, reflecting investor concerns over the lowered full-year guidance.
The earnings report comes in the shadow of a significant setback for CrowdStrike. On July 19, a faulty content configuration update for its Falcon sensor, distributed to Windows-operated systems, led to a global IT outage. This error caused millions of computers to crash, disrupting critical services across various sectors, including airlines, package delivery companies, and healthcare providers. The fallout was severe enough to prompt lawsuits from both investors and customers, with Delta Air Lines reporting losses of $380 million in revenue and $170 million in costs directly linked to the incident.
CrowdStrike’s CEO George Kurtz addressed the situation directly, stating, “Working with customers to recover from the July 19 incident, we emerge as an even more resilient and even more customer-obsessed CrowdStrike, continuing to aggressively invest in innovation.”
In the wake of the outage, CrowdStrike revised its revenue forecast for the fiscal year ending January 31, 2025, to a range of $3.89 billion to $3.90 billion, down from a previous forecast of $3.97 billion to $4.00 billion. This adjustment also includes a projected $30 million per quarter reduction in subscription revenue for the remainder of the fiscal year, attributed to incentives offered to customers affected by the outage. Professional services revenue is expected to take a similar hit, with an estimated impact in the high-single-digit millions for the second half of the fiscal year.
The company’s updated guidance also reflects anticipated challenges in negotiating contract renewals, as customers are likely to seek discounts or other concessions due to the disruptions caused by the outage. This customer retention challenge is expected to affect ARR growth and overall financial performance through 2025 and potentially beyond.
Information for this briefing was found via Yahoo Finance, CNBC, Investors Business Daily, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
