(Bloomberg) -- Last fall, George Kurtz, the chief executive officer of CrowdStrike Holdings, Inc., gave investors a quarterly financial update that sent shares soaring. Among the details Kurtz highlighted was a major deal to sell cybersecurity tools for use by the US government.“Identity threat protection wins in the quarter included an eight-figure total deal value win in the federal government,” Kurtz said on the earnings call after markets closed on Nov. 28, 2023.Kurtz was referring to a $32 million order from Carahsoft Technology Corp., which serves as a middleman between technology companies and government agencies, that arrived on the last day of CrowdStrike’s fiscal third quarter. It was for identity threat protection software intended for the US Internal Revenue Service, according to documents from both companies.
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But the IRS never bought the software, according to records reviewed by Bloomberg News and people with knowledge of the situation.
Still, Carahsoft has been making on-time payments on the $32 million to CrowdStrike, according to the cybersecurity firm. When asked for comment by Bloomberg News, both companies explained that they had a “non-cancellable order” between them. They declined to say why that deal was struck without a purchase in place from the IRS.
Some legal and accounting experts, who reviewed the arrangement at Bloomberg’s request, said it raises red flags that merit scrutiny from regulators. The deal also raised concerns within CrowdStrike — according to people familiar with the matter and the company itself – and many specifics of the transaction remain unclear.
Depending on how CrowdStrike accounted for the deal in financial statements — the company didn’t explain those details — it was big enough that it could have made the difference between the company beating or missing Wall Street projections for the period. The day after CrowdStrike reported results for the record quarter, its shares rose 10%.
Jeremy Fielding, a spokesperson representing CrowdStrike, dismissed employees’ concerns as baseless and the order’s timing as insignificant. The Austin, Texas-based cybersecurity firm closes deals “throughout the quarter, starting the first day and often through the last day," he said.
"The Carahsoft deal went through a separate and extensive review," he said, adding that it "was given a clean bill of health." Fielding characterized the experts’ comments as “inaccurately speculating about a transaction that CrowdStrike confirmed fully met” an accounting standard on revenue from contracts. CrowdStrike “closed and recognized” the deal once Carahsoft placed the order, and its booking of the revenue is consistent with standard accounting principles, according to Thomas Clare and Elizabeth Locke, lawyers representing the cybersecurity company.