Ladies and gentlemen, thank you for standing by and welcome to the CrowdStrike Fiscal Third Quarter 2021 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference to your speaker today, Maria Riley. Please go ahead ma’am.

Good afternoon and thank you for your participation today. With me on the call are George Kurtz, President and Chief Executive Officer and Co-Founder of CrowdStrike; and Burt Podbere, Chief Financial Officer. Before we get started, I would like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives, and expected performance, including our outlook for the fourth quarter and fiscal year 2021 are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this call. While we believe any forward-looking statements we have made are reasonable, actual results could differ materially because the statements are based on current expectations and are subject to risks and uncertainties. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements whether as a result of new information, future events or otherwise. Further information on these and other factors that could affect the company’s financial results is included in filings we make with the SEC from time to time, including the section titled Risk Factors in the company’s quarterly and annual reports that we file with the SEC. Additionally, unless otherwise stated, excluding revenue, all financial measures discussed on this call will be non-GAAP. A discussion of why we use non-GAAP financial measures and a reconciliation schedule showing GAAP versus non-GAAP results is currently available in our press release, which may be found on our Investor Relations website at ir.crowdstrike.com or on our Form 8-K filed with the SEC today. Please also note that in light of our recent acquisition of Preempt Security, management will provide additional information into our third quarter results and guidance assumptions. We do not intend to provide this additional information on an ongoing basis. Now, I will turn the call over to George to begin.

Thank you, Maria and thank you all for joining us today. CrowdStrike delivered a record third quarter with results exceeding our expectations across the board. Our robust growth at scale underscores our growing leadership in the Security Cloud category and the immense value we deliver to customers seeking to transform, consolidate, and fortify their security posture. A few of our accomplishments in the third quarter include setting a new record for net new ARR generated and ending the quarter with over 900 million in ARR; delivering strong 87% subscription revenue growth and setting a new record for professional services revenue; adding a record 1,186 net new subscription customers; generating non-GAAP operating income for the third consecutive quarter and positive operating and free cash flow for the fifth consecutive quarter; introducing three new modules and driving strong module adoption among customers; acquiring Preempt Security which expands CrowdStrike’s Zero Trust capabilities and incorporates critical identity behavior data and analysis to help customers fortify their defenses and prevent identity based attacks and insider threats; joining forces with EY to help strengthen their client cyber security posture by using the Falcon platform. Our alliance with EY has already influenced multiple deals; and lastly, hosting a highly successful virtual user conference with 6x the customers and prospects attending compared with our in-person event last year. It was an exceptional and active quarter. I can’t emphasize enough that these results represent the phenomenal execution of our team and I’m very proud of what we’ve achieved. Now let’s discuss our results and the trends we are seeing in the market in more detail. Broad based demand and strength in multiple areas of the business fueled our growth. We added $117 million in net new ARR in the third quarter to end the quarter with $907 million in…

Thank you, George and good afternoon everyone. As a quick reminder, unless otherwise noted, all numbers except revenue mentioned during my remarks today are non-GAAP. Before we get started, I will note that the results we are reporting today include the acquisition of Preempt Security. To assist with your models, we will share select details regarding Preempt’s impact on Q3. However, we do not intend to disclose these details on an ongoing basis. The acquisition of Preempt contributed approximately $6.8 million to ending and net new ARR and resulted in the addition of 64 net new customers in the quarter. Given the acquisition closed on September 30, 2020, which was two months into the quarter and the impact of fair value purchase accounting adjustments related to deferred revenue, the GAAP revenue recognized from Preempt was de minimis to our results. The acquisition also added approximately $1 million to operating expenses in the quarter, which again represents about one month of quarterly expenses. Moving to our results, we delivered another outstanding quarter. Our record performance highlights our continued exceptional execution and ability to rapidly scale our business while at the same time maintaining best-in-class operations. During the quarter, we saw broad-based strength in multiple areas of the business with multiple large deals, none being outsized. Demand for our solutions in Q3 was well balanced between new customers and expansion business and between large enterprises and mid-market and commercial accounts. We once again ended the quarter with a record pipeline, which we believe indicates a strong foundation for future growth. In the third quarter, we delivered 81% ARR growth year-over-year to reach $907.4 million. Rapid new customer acquisition, as well as expansion business within existing customers drove substantial growth in the quarter once again resulting in record net new ARR of $116.8…

Thank you. [Operator Instructions] Our first question comes from Sterling Auty with J.P. Morgan. Your line is now open.

Yeah, thanks. Hi guys. So George with the traction and the talk about protecting cloud workloads, can you give us a sense, what part of the business at this point is protecting these cloud workloads containers, etcetera? And what do you think that will look like in terms as a percentage of the mix maybe a year or two years down the road?

Yeah, hey, Sterling. Well, we talked about 20% of our customers and workloads in terms of being in the cloud and from our perspective; we believe that’s going to continue to grow. When we think about digital transformation and it’s, you know, 20% of the servers in the cloud. When we think about digital transformation, it’s one of those areas that continues to accelerate. We’ve seen a massive movement to cloud servers, we’ve seen people skinning down some of their on-prem, but explosion in the cloud itself. So, it’s still early days obviously in the cloud journey for many companies, but we see it as a long-term sustainable trend.

Great and then one quick follow-up, Preempt, I’m curious now that it’s under your umbrella for a little while, what’s been the customer reaction and early conversations around the technology?

Well, it’s been a fantastic reception from our customers. This is something that they’ve been looking for, for some time. They see this as a very unique property that we’ve acquired and integrated into our solution. They don’t see others being able to do that and combined with our platform single agent architecture, it’s been a home run. So, we’re in the process now of field enablement and getting all the sales teams up and running, but early wins with Preempt and we’re really excited about the integration that’s forthcoming.

Great, thank you.

Thank you. Our next question comes from Saket Kalia with Barclays. Your line is now open.

Okay, great. Hey guys, thanks for taking my questions here. Maybe first for you George, we’ve seen Broadcom announce some end of support for some legacy Symantec Endpoint Protection agents. I guess the question is, what are you hearing from customers on that move and to what extent do you think that encourages customers to maybe explore other options?

Thanks, Saket. Well, whenever you have an agent that’s being removed or deprecating, traditionally, there is a lift and shift where you have install another agent and require all kinds of reboots. I think as we’ve articulated in some of our success stories, our ability to install and get up and running is unparalleled in the industry. So, it’s a forced function for companies as they think about what they need to do and I think that’s just another accelerator to why people are coming to CrowdStrike. Their unhappiness with some of their support. They’re looking for a more modern architecture and a solution that has multiple legs to it, not just anti-malware is why they’re coming in, I think this is just an accelerant in terms of why they would talk to CrowdStrike and choose CrowdStrike.

Got it. Makes sense. Maybe for my follow-up for you, Burt, you touched on this a little bit in the prepared remarks, services obviously isn’t a huge part of the business, but the gross margins there have actually been better than expected. The question, Burt, maybe is how sustainable do you think that is and anything that you would call out on what drove the services strength in the quarter?

Hey, Saket. Thanks for your question and you’re right, services is a smaller piece of our business, but we are seeing strong momentum for our services business. As our brand continues to build, we’re getting more momentum, more inbound calls and so that’s a really good thing for us because as we talked about or as I talked about earlier, it results in platform deals and as I mentioned in the prepared remarks, we had a record number of seven-figure subscription ARR deals resulting from our service engagement. In terms of gross margins, yeah, we were very pleased with our gross margins that we achieved in Q3. In terms of outlook, we don’t really explicitly to gross margin – we don’t guide specifically to gross margin, but you can make inferences based on the guidance we did provide and generally speaking, you can see some seasonality in our services business, if there is a quarter with a lot of holidays, obviously, both revenue and gross margin dollars would go down. So that’s how we think about services in general.

Very helpful. Thanks guys.

Thank you. Our next question comes from Tal Liani with Bank of America. Your line is now open.

Hi guys. I want to ask about the bigger picture because I’m trying to see how will next year look like. Your growth this year, if I look at the last four quarters, it’s very stable at 85%, 89% extremely high, we did not even expect it to be that strong going into the year. As you look into next year, the question I have is, what do you think is – how will the year look like when you start comparing it to the COVID quarters, meaning 2Q, 3Q, was COVID such a big factor that we need to be careful with year-over-year comps? And then another question, which is the same, but differently, when you look at the various components of your solutions, what are the things that you think will naturally slow down and things that will kick in to give you this great guidance – giving you the basis for your great guidance for next year? Thanks.

Sure, Tal. Thanks for the question. I’ll take the first part and turn it over to George for the second part. So, of course, we don’t specifically guide until next year. We’re really excited about being able to go a little deeper in terms of what next year looks like next quarter and so for us, we’re extremely pleased with this quarter and we’re extremely pleased with the momentum that we’ve seen going into Q4. We enter Q4 with a record pipeline and I think that for us that’s a good signal in terms of what we’re seeing out there in terms of demand for our products. I’ll turn it over to George with respect to – your second part of your question.

Sure, I think just in general when you look at our cloud offerings and you look at the new modules that we’re delivering at a rapid pace, I think things like forensics certainly Horizon are all winners for us. We continue to expand the capabilities across all the modules we have. We’ll have more modules at some point next year. So, it’s broad-based demand from lots of modules and we continue to see strong demand across the board and we’re excited about that. So thank you.

And are you concerned of COVID uplift to the numbers this year that may create a difficult comp for next year or was not – this was not a big driver?

So, for us, we think about COVID as more of a catalyst to the acceleration to the digital security transformation. I think a lot of folks and a lot of companies have purchased their laptops to work from home in prior quarters and we’re through that and so now we’re seeing this kind of steady state of acceleration continuing into the future with respect to demand for cloud products and digital transformation. That’s how we see it overall as the broad-based strength continues and so that’s how we think about the future.

Got it. Thank you.

Sure.

Thank you. Our next question comes from Brian Essex with Goldman Sachs. Your line is now open.

Hi, good afternoon and thank you for taking the question and congratulations on the quarter, some really great results. I was wondering if I could dig in a little bit to some of the key growth drivers in terms of subscriber count, as well as revenue per subscriber and wanted to ask specifically how things are changing relative to prior periods with regard to initial landed deal size versus selling into or expansion into your install base?

Yeah, hey, Brian, good question. So, big picture, the good news is, we still see a lot of headroom with respect to both new logos and expansion and we’ve been able to see larger deals come in and obviously that is part and parcel with more modules that we have today and the value sell. So, as we continue to value sell, and as we continue to increase our offerings, the deal sizes end up being bigger. The great news is, I think we have tremendous amount of headroom in both going after new logos and we have a tremendous opportunity for expansion opportunities.

Got it. And then if you were to kind of grade the two kind of going into next year, where do you see the greatest opportunity? Do you still have I guess in your view with incremental modules – I mean would you gauge your opportunity in your installed base larger than what you might realize from new customers or what do you think will be incrementally the more impactful for growth or acceleration in growth over the next several quarters?

Hey, Brian, it’s George. I think when you look at our module expansion and you look at our ability to cross-sell with a frictionless process, in-app trials, things of that nature, I think it’s across the board and there isn’t one particular area that just stands out. It’s really broad based strength across all the modules and all the customers and even from the segment perspective, I mean, enterprise all the way down to SMB, we certainly talk a lot about our enterprise deals, but our SMB business has been doing fantastic because of our cloud delivery modules – our cloud delivery I should say, it’s very easy for smaller companies to adopt this in constrained cost times, they’re looking for ways to drive efficiency. So, across the board, I think broad based modules, segments and even geographies.

Got it. That’s helpful. Thank you.

Thank you. Our next question comes from Alex Henderson with Needham. Your line is now open.

Great, thank you very much. I appreciate you telling us that 20% of your workloads are in the cloud. It’s a great data point and we appreciate it, but it’s hard to utilize that particularly given the difference between the amount of revenue you get from on-premise to edge and remote per user type footprint. Can you talk a little bit about how you think about it as a percentage of your business as opposed to just simply percent of workloads because it’s not clear to us that there is a comparability on the revenue per workload in that context or is there? Can you help us understand the mechanics around it a little bit?

Hey, Alex, we don’t specifically disclose that and my comment on that really is, it’s still early days for cloud. I think we have a huge, huge runway ahead of us and we think we’re ahead of the curve and we think we’re ahead of everybody else in what we can offer, but I still think it’s still early days and it’s one of those areas where we just see a tremendous amount of opportunity.

Okay, well, could I try it another way, as we look out over the next three or four years, is it reasonable to think that this could be 20% of revenues. It’s obviously 20% of workloads today, but could it be 20% of revenues in say two or three years?

Two or three years is a long time in this space, Alex. We’ll see, there is a lot of things that can happen between now and then, but on that one, we’ll just wait and see how it turns out.

Okay, all right. Can’t blame [a guy for trying]. Thanks.

Thank you. Our next question comes from Rob Owens with Piper Sandler. Your line is now open.

Great, thanks for taking my questions guys. I guess I want to start with the net customer additions and just the velocity that you’re seeing and I guess it’s – you touched on a little bit earlier, but why here? I mean we probably saw the COVID trader –the play in the March quarter and the June quarter, yet you’re showing even more meaningful acceleration here. Is there some reason you’re hitting an inflection point in your business at this point?

Hey, Rob. Yeah, George here. So, you hit the nail on the head. To be clear, when we think about laptop purchases that’s well behind us, right? We’re talking about real transformation, real adoption of our technology, consolidation of agents, and winning in the market because we’ve got the best technology solving really big problems that are even beyond security and that’s why you’ve seen an acceleration in customer adoption. As I mentioned earlier, it’s across the board, it’s not just enterprise, it’s not just mid-market, it’s not just SMB, it is across all of those particular areas because the technology works and we’re saving companies lots of money and delivering lots of value. So when you think about sort of the COVID piece of it, as I mentioned that’s well behind us and this is a much more sustainable trend that we see for the foreseeable future as people move to the cloud and transform digitally. They have to have their security transformation as part of that.

I appreciate the color on the 20% relative to cloud and cloud servers and if we look at the cloud workloads in totality in terms of bare metal and containers, who are you running up against there from a competitive standpoint and where is the customer in terms of their buying, how much is it an evangelical sale versus it’s being pulled more so. Thanks.

Yeah, so with – maybe you can clarify, Rob with respect to bare metal?

Yeah, when you’re looking at more so the protecting containers and workloads from that perspective because I think you have a more holistic solution. I think there’s definitely a natural transition when we’ve had lift and shift in just cloud servers versus on-prem servers to your technology historically, but I’m looking more kind of that next generation type of application, more cloud native, if you will, George and who you’re running into there and what that sales process looks like?

Well, when we think about containers, whether it’s cloud or on-premise and there’s certainly a lot of companies that have hybrid environments as you know depending on their industry, whether they’re rolling it their own or whether we’re in a infrastructure provider, we have an architecture that can provide security across all of those and again it’s with a single agent, which is again fairly unique I would say to us in the marketplace. People have to have different agents and different architectures. So there isn’t one in particular, there’s a lot of small players that are out there, but I think when you look at what we’ve built and how seamless it is to work on-prem or an hybrid environment, public private cloud it’s the reason why people are choosing us and the fact that we’ve added cloud security posture management to our runtime protection is just another reason to choose CrowdStrike.

All right, thanks.

Thank you. Our next question comes from Fatima Boolani with UBS. Your line is now open.

Good afternoon, gentlemen. Thank you for taking my questions. George, just to start with you, you announced a pretty marquee distribution relationship with EY just a couple of weeks ago around the new product launch. I’m curious if you can talk in broad strokes as to how you expect that relationship to flourish both from a financial standpoint, as well as a go-to-market standpoint? And then I have a follow-up for Burt.

Sure, well, we’re really excited about the EY relationships and we’ve already seeing the fruit of that relationship with some big deals. As you know, they’ve got a tremendous amount of penetration in large enterprises. They’ve got the ear of the Board of Directors and executives and to have CrowdStrike partner with EY to help secure that digital transformation I think is a win for everyone included. The other area too is looking throughout how we go-to-market with them, driving alignment in the comp models between EY and CrowdStrike is important, right? We always want to drive performance in the field and I think we’ve got good set up between the two organizations to make sure that people are really focused on delivering value to customers and creating these larger deals for both EY, as well as CrowdStrike.

That’s very helpful and Burt for you, I think you had cautioned us just around some aberration with respect to ARR and seasonality of ARR as we were moving into the back half of the year. I think you mentioned that contraction and churn in the business was relatively stable. So, I’m curious if you can pinpoint as to what factors specifically provided upside relative to maybe some of your conservatism around ARR — your ARR trajectory into the back half, relative to some of the caution that maybe you were discussing as we were heading into the back half?

Yeah, great question. So first, for Q3 and the overperformance, you got to have the nice backdrop of the heightened threat environment, the strong positive secular tailwinds, and a favorable competitive environment. Those were the things that were in the backdrop and I think the other – I think the biggest reason that we had overperformance in Q3 is that we executed extremely well on the record pipeline going in and so we saw customers continue to look for a security platform solution, which allowed them for easy adoption of modules and it’s clear that security remains mission critical to customers wherever they are regardless of size or the industry. I think what’s changed for us is that we’ve lowered our assumption on churn and contraction looking forward. I think we haven’t seen any movements with respect to that particular piece of the business. It’s been really stable for a really long time and we’re seeing customers adopt more, we’re seeing customers, as mentioned by George on the adoption rates of our customer base, we’re seeing them adopt more, we are seeing them move to the cloud more and they’re looking for value, which is what we’re able to provide. So you combine all those things together and you’ve got a tremendous Q3 overperformance and then you’ve got the lowered assumption of churn and contraction looking forward, those things add up to what you’re seeing today. The good news for us when we think about value selling, when we think about even impacted industries is we’ve got solutions like Falcon Complete, which are good for constrained budgets with limited resources and we come in and we’re able to provide a solution that’s both highly effective and affordable. So that’s how we look at it.

I appreciate that. Thanks for the color.

Sure.

Thank you. Our next question comes from Shaul Eyal with Oppenheimer & Company. Your line is now open.

Thank you so much. Good afternoon, guys, congrats on the results and the guidance. George or Burt, back in the summer you’ve announced your alliance with Okta, Netskope, and Proofpoint. Can you talk to us about initial indication success that you’ve been seeing from it? Is this alliance making life a little easier when we think about it from a potential Office 365 displacement and for disclosure, I brought that same question with Todd and Freddie just minutes ago on their concurrent quarterly conference calls. They were absolutely bullish about it by the way.

Yeah, thanks. Good to hear your voice. It has, you know, when you look at – we’re certainly early days of it, but when you look at what customers are looking for, they are looking for choice and they are looking for best of breed platforms. In the past, we’ve talked about best of breed products. Customers want best of breed platforms and they want to assemble them together. They are tired of building things on their own. They want these platforms to connect and interoperate and they are looking for the best of breed against the Microsoft and this is a great opportunity for us to put the pieces all together to provide an integrated solution that can add tremendous value to any organization and have it all work and we’ve seen CIO after CIO come to us and say, hey, we love this combination, because we want another alternative, we want the best of breed rather than having something that we’re locked into. So, so far so good, but still in the early days.

Got it, got it. And a question for Burt, on professional services dollars converting into new subscription dollars, so you’ll recall two, three years ago, we were talking about every $1 of professional services being converted into $3 in new subscription revenue. That number obviously has accelerated to, if I’m not mistaken $5 in recent quarters, showing the great adoption rates we’ve been seeing. What could that conversion number potentially accelerate within the next couple of years if you know you can brainstorm with us a little bit on that front?

So, great to hear from you and thanks for your comments. I think that it’s – when we think about professional services obviously as I mentioned earlier on the call, it really is strategic for us and it’s strategic in many ways, one of which you just described, the cross-sell. That’s a metric we follow closely. That’s a metric we actually compensate our teams with and that’s a metric we’re going to continue to monitor and try and accelerate and boost. Where it could go? Time will tell, but it’s something we are going to continue to invest in, it’s something we’re going to continue to pay on as that continues to be opportunistic for us.

Understood. Congrats again. Thank you.

Thanks, Shaul.

Thank you. Our next question comes from Andrew Nowinski with D.A. Davidson. Your line is now open.

Okay. Congrats on another amazing quarter. I’d like to start with a – just a question on the Target deal that you announced. So it’s pretty interesting that they’ve stayed with a legacy provider for so long considering the mega breach they sustained a number of years ago. So, just wondering how long have you been working on the deal and how competitive that was? And then I have a follow-up. Thanks.

Yeah, well, they’ve certainly spent a lot of time and effort moving past that situation they had and we certainly look forward to be part of a broader solution for them going forward, which we are. The deal came together actually very quickly, it was deployed very quickly and there was a lot of dissatisfaction with their current vendor, how they were being treated and again, they were looking for a more contemporary solution. They’ve looked, you know, they were very thorough in who they looked at across the market, they knew that we could deliver and we can deliver immediately with our value. To get an organization like that up and running in such a short period of time is unheard of. So, we’re excited to be partnering with them. They’ve got a fantastic team and we’re looking forward to the future to continue to become a great partner with them going forward.

That’s great, George, thanks. And then a lot of people think the endpoint security market from a competitive standpoint is somewhat of a knife fight with so many vendors, but I would guess the reality is really that it’s not nearly as competitive as people think just because there’s so many legacy vendors selling legacy solutions. So, I’m kind of in that same vein, I’m just wondering, have you seen any sort of change in competitive pressure from McAfee following their IPO? Are they putting any more marketing dollars into the market to try to sustain their share losses or is it the same as Symantec? Thanks.

Well, I think it’s a good question and the reality is it goes across the board for both legacy and next-gen vendors. I’ve never seen a PowerPoint that was actually wrong, but when you put things into practice, things don’t work, right? So slideware I think is a big part of the industry unfortunately and when customers actually go through the testing process and we called out a few of them in this earnings call, the stuff doesn’t work in the lab, it’s hard to get rolled out it, incompatibility issues and you can’t just add marketing dollars to a legacy technology and hope it works, right, which is the reason why we started from scratch, born in the cloud, delivering from the cloud when we built CrowdStrike. So, there’s a lot of noise, but we continue to get through it as you’ve seen from the results today.

Okay, keep up the good work, guys.

Thank you.

Thanks, Andrew.

Thank you. Our last question is from Matt Hedberg with RBC Capital Markets. Your line is now open.

Hey guys, great and congrats again from me. George, I wanted to double-click on the E&Y partnership, but asked it a little bit more broad, I guess I’m curious what percentage of deals today are partner-led and where might that go in the future?

Yeah, the majority of the deals are all partner-led. As a channel first company, just about all the deals go through the channel in some fashion. Some of them are sourced by us, some of them are sourced by the channel and in general, what we’ve seen and we’re really excited about is the fact that we’ve seen more deal registration from our partners, so deals being brought by the channel. Because there is a strong demand for our technology, our partners are winning, they’re making money with CrowdStrike and that will continue to grow, but then you have other areas like the AWS marketplace, right and these kind of unique marketplaces where we continue to see strong demand and success. So when we think about EY, we’re really excited because they’re just so embedded in large enterprises, they are so trusted and to have our technology as part of the solution worldwide is really a great win for us and them and the customer.

That’s great and then maybe on the identity side. Obviously, it was great to hear about Okta both customer and partner and you know we talked about this at your user and your customer event, but maybe just remind us again sort of where your view of the identity services sort of start and end versus what Okta is providing?

Sure, when we started down – it’s a good question, we started down this journey some time ago, but when we think about what we do and the visibility we have, we know the state of that endpoint, right? We know the state of that workload and we know the identity of the users that are involved in it. That is a very unique set of data and we’ve got a tremendous amount of visibility there. So, our role in this is to provide identity information and trust information on what’s happening on that system and score and be able to provide that to an identity broker like Okta or [indiscernible] or others, right? So, they’re brokering the identities, they can provide additional challenges, things of that nature. So it works well together in tandem because we’re providing so much information to make better decisions for both our joint customers.

Got it, thanks. Well done, guys.

Thank you.

Thanks, Matt.

Thank you. I’m not showing any further questions at this time. I would now like to turn the call back over to George Kurtz for closing remarks.

Great. Well, I’d like to thank everyone for attending today. We appreciate everyone’s time. We wish everyone well and stay safe and we look forward to talking with you next quarter. Thank you so much.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.