Thank you for standing by, and welcome to CrowdStrike Holdings Third Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to VP of Investor Relations, Maria Riley. Please go ahead.

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, growth including projections, and expected performance, including our outlook for the fourth quarter and fiscal year 2024, and any assumptions for fiscal periods beyond that 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 make 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 protect the company's financial results is included in the filings we make with the SEC from time to time, including the section titled Risk Factors in the company's quarterly and annual reports. Additionally, unless otherwise stated, excluding revenue, all financial measures disclosed 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 earnings 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. With that, I will now turn the call over to George.

Thank you, Maria, and thank you all for joining us today. I would like to begin my remarks today by expressing gratitude to our customers, who proudly trust CrowdStrike as their cyber security platform consolidator for the AI era; gratitude to our partners who win with CrowdStrike, taking our joint customers on Falcon Platform transformation journeys from device to cloud, to identity, to data and beyond; and to our team for their passion and dedication to our mission, stopping breaches, finding adversaries, and delivering the very best cyber security outcomes. Moving onto Q3. Despite a challenging macro environment and geopolitical tension, I am extremely proud of the resilience of our business and that we delivered a record Q3. CrowdStrike surpassed the $3 billion ARR milestone with an ending ARR of $3.15 billion, growing 35% year-over-year. CrowdStrike is the fastest and only pure-play cyber security software vendor in history to achieve this milestone. In Q3, we delivered double-digit net new ARR acceleration at scale, powered by customer demand for the depth and breadth of CrowdStrike's AI native XDR platform, terrific execution exemplified by rising win rate against our competitors, and acceleration in our cloud security and identity businesses, as well as a record quarter in our LogScale Next-gen SIEM business. Our standout top-line performance came in tandem with P&L discipline as our profitability soared to record heights. Q3 was indeed a quarter of records. Let me share several of our financial highlights. Record net new ARR of $223 million, representing a 13% year-over-year growth from acceleration in new and expansion business; record non-GAAP subscription gross margin; record GAAP and non-GAAP operating profitability; record free cash flow of $239 million, representing 30% free cash flow margin and achieving free cash flow Rule of 66, up from 63 last quarter. Burt will share…

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. Additionally, the results we are reporting today include the acquisition of Bionic, which closed during the quarter and was de minimis to revenue and ARR. Outstanding execution from the CrowdStrike team resulted in a record third quarter, despite a continued challenging macro environment. Financial highlights in the quarter included: an acceleration in net new ARR growth, driving ending ARR well above the $3 billion milestone; 96% year-over-year growth in operating income and record operating margin; record net income, which more than doubled year-over-year; record GAAP profitability for the third consecutive quarter; and record free cash flow. In the third quarter, we achieved record net new ARR of $223.1 million, with year-over-year growth accelerating to 13%. Demand in the quarter was broad-based, as we expanded our leadership across the market from large enterprises to small businesses. New customer acquisition, strong expansion business within existing customers and a record quarter with the U.S. federal government contributed to the acceleration in net new ARR growth and ending ARR reached $3.15 billion, up 35% year-over-year. We continue to be very pleased with our platform strategy as subscription customers with five or more, six or more and seven or more modules now represent 63%, 42% and 26% of subscription customers, respectively. Our gross retention rate remained high and our dollar-based net retention rate was slightly below our benchmark in Q3, as the mix of net new ARR from new customers has remained above our expectations and we continue to land bigger deals. Moving to the P&L. Total revenue grew 35% over Q3 of last year to reach $786.0 million. Subscription revenue grew 34% over Q3 of last year to reach…

Thank you. [Operator Instructions] Our first question comes from the line of Saket Kalia of Barclays.

Okay, great. Hey, guys, thanks for taking my question here, and great to see the net new ARR return to growth in the quarter. George, maybe for you, a lot of great stuff in your prepared remarks to run through, but maybe I'll just stick to one question here. You've talked about how the legacy SIEM market is starting to feel kind of like the legacy AV market did. And of course, we've recently seen some M&A in that market. It's probably too early, but maybe the question is, what are prospective SIEM customers saying to you about LogScale and their willingness to explore other solutions besides their traditional SIEM? Does that make sense?

It does, yeah. It's a great question. So, when I look at the market today and I compare that to when I started CrowdStrike in 2011 and really talking to customers in 2012 and 2013 about replacing their legacy AV, it feels like it's the same conversation, just with a different context of replacing their legacy SIEM. What I found, and I tend to like businesses and markets where this is in play, is where the incumbents are entrenched, but have a high degree of dissatisfaction, where the technology is legacy and where the complexity is just high of patching all this stuff together. And in talking to customers, they want better, faster, cheaper, and they want something that works at cloud scale. If you look at what we've done with LogScale, it's a much more modern version of a SIEM, a next-gen SIEM. We got ahead of the curve a couple of years ago when we bought Humio, which is now LogScale, we've now integrated into our platform, and it's extended out our XDR technology and it allows us to do log and SIEM in the same platform. So, from our perspective, the feedback that we've gotten not only from customers but partners like EY, who are building practices around this, this is a massive opportunity for CrowdStrike, and now is the right time for us, given the level of dissatisfaction M&A in the environment and the customer's willingness to look for a much better solution, which also gives us data gravity in the platform.

Makes a lot of sense. Thanks, guys.

Thank you. Our next question, please standby, comes from the line of Joel Fishbein of Truist.

Thanks for taking my question, and a good quarter on the net new ARR side. George, another question along Saket's lines, but around the comments you made with regard to data protection. The same could be said about the legacy DLP market. And as you know, I would say that's even longer in the tooth than some of the SIEM market players out there. Love to hear how you are -- you didn't talk about it like you did cloud security, identity protection, LogScale, et cetera. How far are we in that displacement market? And how big do you think they are? And what's the competitive dynamics there would be really helpful. Thank you.

Sure. Well, we actually showed our data protection technology at Fal.Con a couple of months ago. We're actively working with some of the largest enterprises in the world to make sure that we account for all their requirements and their ability to actually move off their legacy DLP product. There's not one customer that I've talked to that says they like their DLP product, period. And in today's environment, with data in motion, particularly through cloud services, the ability to actually be able to track from endpoint through cloud where data moves, what type of data is out there, leveraging our AI to understand, is it something that should be moving in certain places is going to be incredibly important. And the way we look at it is the same way we looked at legacy AV. There's a better way to reimagine DLP into Falcon Data Protection, and we're very, very close to being able to release that as we continue to put the fine touches on what customers are looking for and what they're willing to write a check for. So stay tuned, but another massive market opportunity for us.

Thank you. Our next question comes from the line of Rob Owens of Piper Sandler.

Great. Good afternoon. George, I guess staying on theme here with these extensible adjacencies, maybe you can touch on Falcon for IT. What early response has been since, I guess, showing it at your recent user conference and where you see the opportunity on that front?

Well, coming out of Falcon, I would say that was the number one requested feedback item across all the great announcements that we had. I think it's so overdue in the technology space to be able to unify IT and security. Sometimes the technology isn't the harder part, it's the org structure. So, having a single agent that both security and IT can use, a home for IT, I think is very important. We're actually working with large customers right now, gathering their feedback, and then we'll look to have a product out probably in Q1. But so far the feedback has been amazing in terms of what we've already delivered, and now we're capturing additional capabilities for our first release. So, I think that one has a lot of legs to it, and certainly opens up a massive TAM opportunity for us in IT, well beyond anything in security, given the agent cloud architecture that we built. We've got the real estate and we plan to monetize it.

Thank you. Our next question comes from the line of Matthew Hedberg of RBC.

Great, thanks for taking my question. Burt, I've got one for you. Obviously, you didn't comment on fiscal '25. I believe at this point last year, you did give a couple of breadcrumbs on how to think about ARR. I'm curious as we as we sort of sharpen our pencils on '25, are there any guidepost or things that we should think about whether its growth or profitability?

Hey, Matt. Great question. So for us, we are always looking to maximize our growth while at the same time paying attention to the bottom-line. So that's never changed. We are absolutely going to continue to invest in innovation. We got -- we announced so much at our last Fal.Con. We've got a lot of momentum. We're going to continue to invest to continue that momentum. But also at the same time, we recognize that we want to make sure that we're a very well-run company and people are seeing the output of that certainly on this quarter and we don't plan on changing that at all for next year.

Thank you. Our next question comes from the line of John DiFucci of Guggenheim.

Thank you. George, it's impressive to really see the consistency of your team at scale here. But I'm just curious, how did traction continue into the end of the October quarter and then again into -- we're almost through November, relative to the October period. And the reason I'm asking this is that, we've generally heard of a fade in business activity through October across the industry, not necessarily with you, I mean, actually we didn't hear with you, but across most others. And it's actually sort of shown up in results of some of your security peers. So, I'm just wondering, maybe -- what are you seeing. What did you see into the end of the quarter? And what are you seeing at the beginning of the January period?

Yeah, we certainly had a strong October. I think, as I said in my prepared remarks, the macro environment is still challenging. I mean, make no mistake about that. Deals take longer, a lot more scrutiny, a lot of sign offs, and there's a lot more work that goes into these larger enterprise deals. Getting deals done even like Falcon Flex, which are more enterprise-like in their nature, takes time. So, we had a great October, but in general, buyers are still cautious. And I think the fact that we're able to provide a real platform play that allows them to consolidate in other technologies and ultimately save money accrues values to us, but it certainly takes a lot of time and effort to get the deal over the goal line. But the team did a great job and October was strong for us.

Thank you. Our next question comes from the line of Tal Liani of Bank of America.

Hi, guys. The first question is Bionic contribution, you said was de minimis. Can you define what de minimis for net new -- the contribution to net new ARR? And then, quarter was phenomenal, but I do see some weakness across the board of cyber companies with billings. In your case, it was down about 2%. I also see some weakness in deferred revenues. How do I reconcile what I see with billings, with deferred, with the underlying drivers that are very strong and your strong execution? Why is -- why are we seeing weakness not just with you, maybe with the entire space, but why are we seeing weakness with billings across the board? Thanks.

Thanks, Tal. Good question. I'm going to start with billings. Yeah, you're correct. For us specifically, we don't manage the business to billings and we feel that ARR gives you the absolute best proxy to revenue and we felt that that's the right metric, as you know, since we went public, to give you more transparency into the health of our business. And that's the metric that really guides you on health. With respect to billings ourselves, I mean, we think about billings similar to probably most of you out there, is that billings, typically for hardware companies, use that when they don't disclose any sort of bookings metric, and that's not us, right. We think that billings has certain things that just are not as relevant as a metric like ARR. You're comparing a balance sheet item to a P&L item. For us, the P&L is going to dictate the health of the business. So for us, you know, billings obviously is going to be impacted by duration and there are many things that go into that. And remember also that when you think about on a year-on-year basis, we're still up on billings. And I think that's the one thing that you want to take away. For us, when we think about how we want to continue to be transparent, ARR really gives you that notion of where we're going and how we're doing. And I think that that's the focus. And it has been, by the way, since we went public, even as a private company, that's the one that we manage the business to, that's how we look at how to give out quotas to our reps, et cetera, et cetera. So for us, that's not going to change. And I hope that answers that question.

Thank you. Our next question comes from the line of Adam Borg of Stifel.

Awesome. Thanks so much for taking the question. Maybe just for George on CNAPP, it's obviously great to hear the traction. As we look ahead, should we still view this more of an upsell opportunity to existing customers or what needs to happen for this to be more of a tip of spear to drive net new logos? Thanks so much.

I'm sorry, would you mind repeating your question?

Great, can you hear me okay now?

Yeah, I can -- we can hear you now.

Great. Sorry about that. Maybe just on CNAPP, it's great to see the continued traction there. And as the market matures, should we view this as more of an upsell opportunity or what needs to happen for this to be more of a tip of spear to drive net new logos?

Yeah, it's really a bright star for us when you look at our CNAPP capabilities of cloud workload protection, CSPM, CIEM, ASPM now with Bionic. We really have, I think one of the most complete cloud security offerings in the industry, and we're winning deals with it. We're leading, in many cases, particularly forward-leaning cloud companies that we're selling to. If you look at the latest threat environment and what's happening and how identities are being abused and two-factor authentication systems being bypassed, those sort of things, it's important to have a full suite of cloud protection. And I think this is sort of the awakening time for that industry and that companies can't just say, hey, we've got something from a cloud provider or we're going to go at it alone. I remember many, many, many years ago, companies didn't run antivirus, right? And you would say that's silly. Today, everybody runs an antivirus-type technology. It wasn't so silly 30, 35-plus years ago. And I think this is kind of the inflection point in the cloud world, where you're going to have multiple levels of protection, both agent and agentless. And the fact that we've been able to harmonize those two together and deliver a very robust agentless technology combined with the best cloud workload protection in the industry gives us a real advantage.

Thank you. Our next question comes from the line of Mike Walkley of Canaccord Genuity.

Great. Thanks. George, you touched on the new release of Falcon Go to better target SMB customers with more concise packaging. Can you just give us some color on how this segment of your business is trending, as some of your competitors have called out soft SMB spending due to the macro? And also, just how is this new release helping address pain points for these smaller customers? It seems like you're starting to accelerate win rates in this segment.

Well, we saw a very strong SMB segment. We've done a lot of work, A, starting with our partners like Pax8 and others, Dell, in that market. So meeting the customers, where they like to buy is really, really important. And then, coming up with a very innovative and easy-to-use technology designed for the SMB, our latest release of Falcon Go is literally one-click install. And the feedback that we've gotten from customers are like, "Wow, this is the easiest thing I've seen. It just works." And I think you're going to see even more broad adoption because we've made it so easy to install. You don't have to be an IT professional. And then, we've got our partner network that are building services around it. So they're able to generate dollars. We're able to sell our product through their channels where they meet the customers. And I think we've taken a very innovative and effective approach in our partnering strategy. This is something that we've really worked on over the last year, 18 months, and we're bearing the fruit of it right now.

Thank you. Our next question comes from the line of Gray Powell of BTIG.

Okay, great. Thank you for taking the question. Yeah, I was just wondering if you could repeat the commentary on the potential for a year-end budget flush. I think you said that it was not going to be a typical year. And if I remember correctly, last year, the commentary is more like there's going to be little or no budget flush. So, I guess my question is like how does this year look in comparison? Is it better, same, worse? Just sort of what's your confidence level on trends?

I think we're looking at it saying, it may not happen, right. So, we're not necessarily counting on that. And if it does happen, fantastic. And you have to again keep in mind that our fiscal year end is the beginning of a new budget cycle as well. So, we have year-end budget if it comes in December and then new budgets in January. But we -- the macro environment, I would say has remained steady. As I said earlier, it's still challenging and we'll see if a budget flush comes, but that's not something that we're counting on.

Thank you. Our next question comes from the line of Jonathan Ho of William Blair.

Hi. Congratulations on the strong quarter. I just wanted to get a little bit more color around the Charlotte AI revenue potential and maybe what customer use cases are seeing the most interest so far? Thank you.

Well, we announced our pricing at Fal.Con. That was actually well received with customers. And in terms of the overall used cases, as I've talked about in the past, really it's helping a Tier 1 SOC analyst up level themselves to be a Tier 3, right? It's really driving SOC automation, which is a big focus for us with things like Charlotte and things like Falcon Foundry, how do you drive automation into organizations to give them better outcomes. At the end of the day, they would be willing to pay for something if it's going to save them time or money or make their job easier. And what we've seen in the customers who are using Charlotte right now in its preview mode is, they're able to do things way faster than they ever could and they're able to explore and ask questions that they haven't been able to do in the past, right? It just makes it so easy to have Charlotte gather up all the information and then take an action on their behalf. So, A, the pricing has resonated well with customers. We'll see how it shakes out as we get into full swing of things. But overall, what we've put together and the fact that it isn't an independent chatbot, it's really a foundational platform service that's wired into everything that we do and allows automation through all the modules, I think is a home run for us.

Thank you. Our next question comes from the line of Gregg Moskowitz of Mizuho.

Okay, thank you for taking the question. George, in your prepared remarks, you expressed a lot of excitement for Falcon for IT. But in addition to better security, better unification with IT, it also strikes me as having the potential to be a real ROI-driven sale for many customers. Do you agree with that? And if so, is that going to be an angle that you really go after from a go-to-market standpoint?

Well, it's exactly what we're hearing from customers. I was with a customer last night and they were saying, we're so excited for Falcon for IT, because we've got to work. We find the problems, we document them, and then we've got to work with the IT teams to get them fixed, and a lot of times their tooling is well behind what we can do with Falcon, and they sort of end up fixing it themselves with IT because we just have the capabilities to do that. So, to be able to carve out a home for IT and seamlessly help them understand their exposures on their assets that matter and then drive the automation to actually remediate those is incredible. And it goes beyond just kind of simple remediation. If you think about all the internal use cases in HR, an employee might have an issue, they might have to investigate it, they might have to do forensics on systems. Systems are remote all over the world. We've got many, many airlines that use our technology. They don't want to send out an IT person to go fix a kiosk that has a Microsoft blue screen. So what can they do? They can use Falcon for IT to bring it back to health. Tremendous savings in terms of cost and travel and complexity. So this one, I'm really, really excited about. And again, we're working to get all the components of what customers need, at least for this first release. And then, I think sort of the sky is the limit of what we can build out there.

Thank you. Our next question comes from the line of Gabriela Borges of Goldman Sachs.

Good evening. Thank you. George and Burt, I have a question for you. As you think about your fiscal year '25 planning assumptions. You mentioned a couple of times that the macro environment is very consistent. Clearly, the execution on growth and profitability is very consistent. I'd love your observations on what's incrementally changing. Meaning, as you think about your priorities into next year, what's new versus this time last year? Thank you.

Well, I'll start and then I'll let Burt jump in. I think from a priority perspective just on go-to-market and product-related. You talk about the fiscal piece, Burt. But we continue to drive innovation. Our focus has been on innovation, not integration. And I think that's shown in what we've been able to deliver in the market, how fast we've been able to come out with products. Falcon was our richest release of technology. So, we want to continue to be the innovation leader in security, and I think customers will recognize that. From a go-to-market perspective, there's a lot of work that we've done in terms of really, really making sure we've got the right hygiene across the enterprise and making sure that we can compress these, basically, time in sales cycles to get deals done when we need to and vector them in, and then also as we go down market into SMB, creating the right products for that segment and then delivering it through the right channels. So, what we have is working. So, it's going to continue to drive innovation, continue to remove friction in go-to-market motion, and continue operational excellence up and down the sales and the partner organization. Burt?

Thanks, George. So, in terms of how we think about the macro next year, we're not going to predict the change in the macro until we actually see it, right? I think that's going to be the wait-and-see game for most companies and that's certainly the one that we're going to take, but that's how I see it.

Thank you. Our next question comes from the line of Alex Henderson of Needham.

Great. Thank you so much. Thanks for a great print. But I was hoping you could give us some clarity around some of the key metrics that people use to track conditions, closure rates, whether they're stable, improving or eroding cycle time. I know you've said your deal size is up and I think at Fal.Con you talked about a significant increase in pipeline build. I think the comment was made on the stage that your pipeline target that they had tried to build was more than doubled the target. So, I was hoping you could talk about what the pipeline looks like as we go into this quarter and into the new year.

Great. Well, when we look at the current macro environment, it is stable. But as I talked about in the Q&A and in the prepared remarks, it's still a challenging environment, it takes a lot of effort to get deals done. And again, it depends on the segments. Some segments are going to be a little bit longer in the enterprise and SMB a little bit shorter. But that being said, when we look out and we look at things like our pipeline, we have a record pipeline and we have that because I think we've got the best product suite in the industry. We've got customers that are truly understanding the platform capabilities of what we've built. They're coming to us and saying, "Hey, let's sit down and go through your roadmap and our roadmap and let's figure out what we can consolidate." So, they're coming to us with the openness of wanting to buy more and leveraging things like Falcon Flex to be able to have bigger commits at CrowdStrike, which is important. And overall, it's, as I said, still a tough environment. But I think we've got some key metrics like the pipeline that is encouraging to us. And when you look at LogScale and our cloud business and our identity business, I mean, these are absolutely bright stars across the entire platform. And again, keep in mind, we're not selling individual piece parts. People are buying the platform and that's what's driving the growth.

Thank you. Our last question comes from the line of Eric Heath of KeyBanc Capital Markets.

Great. Thanks for fitting me in here. George, I guess I'll come back to the SIEM conversation. So, appreciate the color on the synergies of using LogScale to do the analytics on top of your first-party data that you're already capturing, makes a ton of sense. But I guess, can you flush out a bit more as to why your AI engine and your proprietary endpoint data is a better approach to capture the next-gen SIEM opportunity that many seem to be targeting, including those that claim to have more first-party data sources?

Well, when you look at just kind of the data gravity and what customers care about, from a security perspective, I would say 85% of really the value of the data and the data that's generated comes from the endpoint. That really is the richest source of data because that's where it's generated from. As it goes across the network, it gets down-selected and you lose a lot of the fidelity. So, we already have a lot of that data. So let's start there. Then, when you look at LogScale, LogScale is very robust. It has the capabilities to ingest just about any type of third-party data into the product and very effectively without creating an index, which is its unique capabilities, index-free ingestion, which means you get immediate results. So, from a platform perspective, we sort of have the data gravity already. We've got that 85% of the data. So customers would rather give us 15% that we don't have and leverage LogScale to replace their SIEM. And beyond replacing their SIEM, that's the security use case, we have customers -- many, many customers that use it for all kinds of performance management, logging their infrastructure, logging their Kubernetes clusters. So, when you combine the fact that we're coming out with Falcon for IT, now with LogScale, which can log any data above and beyond security, we think that's a much broader opportunity than just SIEM itself. It opens up the entire data architecture of an organization to CrowdStrike.

Thank you. I would now like to turn the conference back to George Kurtz for closing remarks. Sir?

Well, thank you. And I first want to close by acknowledging the heroic dedication of our team in Israel, who continue to remain focused on CrowdStrike's mission. Our thoughts are with each and every one of you in these trying times of war. Thanks all of you for your time today. We appreciate your interest and look forward to seeing you at our upcoming investor event and happy holidays.

This concludes today's conference call. Thank you for participating. You may now disconnect.