Hello, and welcome to CrowdStrike's Fiscal Third Quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, we will conduct a question-and-answer session. Please be advised that today's conference call is being recorded. I would now like to hand the call over to Maria Riley, Vice President of Investor Relations. Maria, please go ahead.

Good afternoon, and thank you for your participation today. With me on the call are George Kurtz, Chief Executive Officer and 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 2025 and any assumptions for the 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 affect 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 our third quarter FY '25 earnings call. I'd like to start today's comments by sharing three key themes that excite me about this quarter and our bright future. First, trust. The trust that customers, partners and the market have in CrowdStrike. We grew ending ARR more than 27% year-over-year and maintained stable gross retention rates. Second, widespread platform adoption. Our Falcon Flex subscription model is supercharging Falcon platform adoption. With CrowdStrike, cybersecurity consolidation is rapid and ROI is measurable. Falcon Flex is increasing both our share of wallet and enterprise real-estate, furthering CrowdStrike as cybersecurity' AI-native platform of record. And third, trailblazing innovation from cloud to device, data to GenAI, application to identity and compliance to resilience. Our innovation disrupts legacy markets and creates new categories. CrowdStrike is leading the future of AI-powered cybersecurity. The themes of trust, platform adoption and innovation guide CrowdStrike's customer obsession and continued strong execution. Following the summer's incident, as a company, we were tested, we responded with speed, care and resolve, and we focused on becoming even better, continuing to deliver industry-leading cyber protection on the Falcon platform's proven, resilient and scaled AI-native architecture. I'm encouraged by CrowdStrike's Q3 results, our first full quarter post-incident. First, ending ARR surpassed $4 billion, making CrowdStrike the fastest pure-play cybersecurity software company to achieve this reported milestone, tracking to our $10 billion ARR vision. Second, Q3 revenue surpassed $1 billion. Subscription revenue grew 31% year-over-year, and total revenue surpassed $1 billion for the first time in company history. Third, free cash flow of $231 million or 23% of revenue, achieving a Rule of 51 on a free cash flow basis. Fourth, we closed more than 150 Falcon Flex transactions, with these customers representing more than $600 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. We delivered third quarter results above our stated expectations across all guided metrics. Our third quarter results reflect our focused execution and relentless customer-first mindset, which drove a strong finish and quarter-over-quarter increase in pipeline despite continued headwinds and a pause in pipeline generation at the start of the quarter following July 19. In Q3, ending ARR surpassed the $4 billion milestone, growing 27% year-over-year to reach $4.02 billion, of which $153 million was net new added in the quarter. As expected, the July 19th incident resulted in near-term headwinds to net new ARR, as we experienced extended sales cycles with both existing and prospective customers and one-time incentives offered through our customer commitment packages, which resulted in increased contraction and muted upsell rates. Sales cycles increased by approximately 15% year-over-year within enterprise accounts. As of last Friday, we closed more than half of the push deals that had remained open at the time of our Q2 call. While we normally recognize ARR contraction in the quarter a transaction is subject to renew, in Q3 FY 2025, we excluded approximately $26 million from ARR after a distributor in the federal space provided notice of its intention to exercise transferability rights with respect to a transaction and we concluded that the transaction would not recur. In compliance with US GAAP revenue recognition rules, this transaction remains in revenue. In total, our Q3 dollar-based gross retention rate of over 97% held resilient with less than 0.5 percentage point decrease from Q2 strong performance. And given the July 19th incident, we are also pleased with our Q3 dollar-based net retention rate of 115% as customers embraced our customer…

Thank you. [Operator Instructions] Our first question comes from Saket Kalia. Please unmute your line and ask your question.

Hello, Saket, are you there? Operator, is he there? If not, please go to the next question.

Yes.

Okay, great.

Not a problem. We will move forward with the next question.

No, wait. He is there.

Hey guys, can you hear me?

Yeah. Hi, Saket.

Apologies.

There we go. There we go. Sorry about that. Absolutely. So, George, maybe for you, lots of helpful detail. I wanted to start sort out, just zooming out a little bit. You spend a lot of time with customers. I guess the question is, what are they telling you about some of the puts and takes to security spending next year? I mean, you've got plenty of tailwinds like lower interest rates and potentially a better macro, but also different policies out of the federal government. So, how do you think about those factors as you maybe gauge the health of security spending next year?

Sure. Thanks, Saket. I think if you're and everyone probably is following some of the news, you see the security environment is only getting worse. E-crime groups have been prolific, and we continue to see ransomware and extortion where -- be very, very successful for big dollars. So, from a security environment perspective, customers want the best products, they want the best platform, they want something that's going to stop the breach and be most effective, that hasn't changed. Two, they want to consolidate. This hasn't changed, either. This complexity normally breeds inconsistencies and seems in protection gaps within multiple technologies. So, a broad platform approach is something that aids in stopping the breach, and they want to drive down their overall operational cost, and that hasn't changed And I don't think that is going to change based upon my interactions with companies in the coming year. So, we'll see how it all unfolds, but we're certainly encouraged by the forward-looking environment based upon just what we see and companies, whether it's the threat environment or regulatory pressures, they're going to have to spend money on the best technologies, and we're certainly going to be there to be able to capitalize on it.

Very helpful. Thanks, guys.

Our next question comes from Hamza Fodderwala with Morgan Stanley. Please unmute your line and ask your question.

Great. Can you hear me?

Yes.

All right. Great. Good evening. Thank you so much for taking my question. Burt, maybe for you just to comment on the ARR or net new ARR seasonality that you spoke about for Q4. If I look at the last few years, last Q4, we had a pretty strong budget flush, pretty strong Q4 overall. The year before that, I think it was a bit more muted. When you speak on Q4 net new ARR seasonality this year, is that assuming that budget flush that we saw a year ago or something similar to what we saw maybe two years ago? Thank you.

Hi, Hamza, thanks for your question. So, when we think about Q4, I talked about some of the things that impact us, and certainly one of them is the limited visibility that we have. It's just too early to tell. We have a lot of things that are going to be in play for Q4, the continued CCP packages that we have. And with that, it just limits our visibility in terms of how we think about Q4. Generally, it is, of course, our biggest quarter, and we have the most that's subject to renew, but we still need to sell through it.

Our next question comes from Brian Essex with JPMorgan. Please unmute your line and ask your question.

Hi, good afternoon, and thank you for taking the question. George, great to see the durability of the growth retention rates, particularly in light of the event of July 19th. Is there anything that you can call out in terms of trends that you're seeing as you're speaking with customers, both on the churn side, like, what tend to be some of the themes of customers that are churning off, and then, also on the better adoption side, what are some of the more durable factors that are leading to better adoption rates on the platform? Thank you.

Well, thank you, and good question. As you probably know, I spend a lot of my time with the larger customers and really haven't had a lot of conversations around churn. And the conversations that I have had have been recognition that we do have the best technology in the market and a recognition of how we handled the July 19th outage. And I think that's an area where we churn the prices into a customer trust-building opportunity. And of course, we're trying to make it right for customers. So from my perspective, I certainly haven't seen a lot in the larger to midsized deals. In fact, our corporate business, as I called out, had the best quarter ever. So, from a churn perspective, you could see some churn in the very small MSP space. It's an area where it really doesn't matter the vendor. It's easy to kind of move in and out, but I'm encouraged by the conversation that I'm having with our largest customers and a reflection on the fact that they realize that we have the best tech in the industry and the ability to stop breaches and drive down the overall operational costs from a platform perspective. Next?

Our next question comes from Patrick Colville with Scotiabank. Please unmute your line and ask your question.

Hey, team. Thank you so much for taking my question. I guess I want to ask George. I mean, 2024 was the year of copilots, including Charlotte AI. In your prepared remarks, George, you talked about Detection Triage. I guess the topic du jour amongst the investment community is agentic AI. You didn't mention that in your prepared remarks. So, I guess how is CrowdStrike thinking about internal usage of agentic AI or possibly the ability for agentic AI to help CrowdStrike's customers? Thank you.

Thanks, Patrick. And I covered that a bit in the prepared remarks in the fact that Charlotte AI was built to be something more than a copilot. We probably built it before we even had a term, which is now fashionable, agentic AI. And the whole idea with Charlotte AI was not only to take the collective wisdom of CrowdStrike over the last decade, all of our threat indicators, all of the sort of workflows that we've created around triaging events and answer those questions, but go beyond that to actually do work on behalf of a customer. So, today, and it's the way we built it, it actually will do work on behalf of customers. And that's the entire piece of SOC transformation. And just to give you an example, we talked about alert triage and some of those things in the prepared remarks, but we had a customer that would take four days to create what's called a sitrep, a situational report, and manually they would create these reports. And now, it takes them one hour. So, that's the level of efficiency that we're seeing with Charlotte. And you couldn't do that if it was just a chatbot. It's the agentic nature of Charlotte AI, and that's what we're delivering to customers. Internally, we're certainly leveraging a lot of what our great partners put together, whether that's Salesforce or ServiceNow or what have you. There's many technologies that we leverage, including many of the GenAI technologies, to help us create greater efficiencies.

Our next question comes from Tal Liani with Bank of America. Please unmute your line and ask your question.

Hello, thank you. So, Burt, I know you're cautious, but your net new ARR was not bad at $150 million, given that we had $250 million before the outage. Some people expected even to be negative. And I hear you now on 4Q cautious again. And the question is, what are the -- how are the factors changing in 4Q? Meaning, you said that you have a big renewal quarter. Outside of the renewal -- or can you speak about, for example, what was your experience with renewals this past quarter? I would have thought that 4Q would be better than 3Q, just because we don't have an outage in the middle. So, it eliminates these 10 days or 14 days that people were kind of unclear about what's happening. So, I want to understand how 4Q changes and why wouldn't 4Q be actually better than 3Q? Thanks.

Thanks, Tal. So, although true that we are a little further from the sun, we're still fighting through the incident, but I'll give you some additional color in terms of the things that I went through when I thought about Q4. And I talked a little bit about limited visibility with Hamza. So, one is, when we think about what happened shortly after the incident, the delay of the vast majority of our outbound pipeline-generating activities, for the first few weeks following the incident, that certainly has an impact for Q4. So, that's one. I think we're still going to see extended sales cycles for both new and existing customers. I think customers have additional scrutiny, additional layers of approvals, all that sort of thing. And I think we're going to continue to deploy customer commitment packages. This is going to result in muted upsell rates and potentially higher than typical levels of contraction. You factor all those things together, I still want to be mindful of those things taking place and the activities that the sales team has to do to sell through all that. Well, I'll add a couple of other things. So, while in Q3, customers strongly embraced the additional modules and Flex options associated with the CCPs, rather than additional time, it is still too early to determine if that trend will remain the same for Q4. I want to give caution in terms of what customers are going to choose with respect to CCP. We don't know yet. We had one quarter. And so, that really impacts our ability to really understand what's going to happen in the dynamics in Q4. And then finally, I do want to talk about the fact that we are maintaining our estimated impact of approximately $30 million to both net new ARR and subscription revenue in Q4 from our customer commitment packages. And remember, the two of those, you have to decouple both of them. And we talked about that last quarter, and we talked about it in our Fal.Con 2024 investor presentation, and it has the details on that dynamic.

Our next question comes from Joel Fishbein with Truist. Please unmute your line and ask your question.

Thanks for taking the question. I guess, so, one for Burt. Burt on the Falcon Flex, obviously, it sounded like it was ahead of your guys' expectations in terms of adoption. The one thing that I didn't get, which I would love from you, is the average deal term or duration of those deals. That'd be really helpful. Really appreciate it.

Hey, Joel. Thanks for the question. We didn't give a specific number, but we did see deals being slightly longer. And so that excited us for sure.

Our next question comes from Gabriela Borges with Goldman Sachs. Please unmute your line and ask your question.

Hi, good afternoon. Thanks for taking the question. Burt, I wanted to connect the dots here on what you're saying about Falcon Flex and the potential for reacceleration next year. Is there anything you're seeing in the Falcon Flex cohorts post-July 19th versus those before July 19th in terms of average ARR increases, average deal sizes, et cetera, that would lead you to think that the conversion rates or the upsell rates on today's Falcon Flex deals could look different a year from now versus the baseline that you already have?

Hi, Gabriela. So, I talked a little bit about the fact that we've seen deals being slightly larger, which is great. Still too early to tell what's going to happen as these renewals come due. But certainly it goes back to how we already thought about this and how we talked about it last quarter with respect to seeding the future and having the ability to do upsells on the renewal and getting customers to enjoy us more and wanting to use more. We had over 150 Falcon Flex deals, and that's a great number. And then, I think that we had accounts -- at the end of the day, the accounts that have adopted the Falcon Flex model now represent more than $1.3 billion of total deal value. And in there with an average Falcon Flex subscription being multiples larger than our typical contract value. So, those are important takeaways. Flex customers on average have adopted more than nine modules. So, if you factor all those things together, we get encouraged again by reacceleration in the back half of next year.

Our next question comes from Matt Hedberg with RBC. Please unmute your line and ask your question.

Thanks, guys. Can you hear me, okay?

Yeah.

Okay, great. George, a question for you. You talked about Next-Gen SIEM in the prepared remarks. It's really good to hear the growth that you're seeing there. I guess I'm wondering what are you seeing really from a competitive perspective. I think we all are thinking that there's a good opportunity there, but just wondering about that. And then, what are pushing some customers to change, I guess, is ultimately the question.

Yeah. I think when you look at the Next-Gen SIEM market and one of the things that we really, again, helped, I would say, create and pioneer, it's greater efficiencies, speed and scalability, which is just not available in legacy products. The fact that we can basically give immediate outcomes because it's all built into our system, right, this is a concept of first-party data, which comes from CrowdStrike and third-party data. Well, we've created an incredible ecosystem and opened up the platform now where these workflows can be done within the Falcon platform and then aided by Charlotte AI. So, customers are putting more and more data into the technologies, and they're seeing the performance and the speed, and maybe even more importantly, the cost differences between some of the legacy providers that are out there. And we go into a POV, and we go through all of the stats, and people scratch their heads sometimes and go, okay, prove it. And then when we get through it, they're like, we've never seen anything this fast or performant or get the outcome that we're looking for. So, we're really excited about it. We keep broadening the ecosystem there. And I think it represents a tremendous opportunity for us in the short, medium, and long term. It's a huge business, Next-Gen SIEM, and we're going to be front and center in it.

Our next call comes from -- our next question comes from Andy Nowinski with Wells Fargo. Please unmute your line and ask your question.

Okay, good evening. Thanks for taking the question. And first off, congrats on getting through what was likely your most challenging quarter you've probably had in company history. So, I wanted to ask you a question again on Falcon Flex. I know you booked $1.3 billion in deals, and you talked about how it's supercharging the adoption of your platform, but if I'm thinking about it correctly, I would think it's also supercharging your customer retention rates because as customers deploy more modules, like you said, it seems like it makes it increasingly difficult to leave the platform. So, I guess first, am I thinking about that correctly in terms of customer retention, and are you factoring in any improvement to ARR due to Falcon Flex going forward?

I'll take the first part and then, Burt, you can feel free to chime in. It absolutely makes the platform stickier. The more modules -- we know this as a fact, the more modules customers use, the stickier the platform becomes. And you're talking nine, 10. We talked about, I think, one of 14. That's incredibly sticky because a lot of processes are built around that. So, from our perspective, it is a great opportunity for customers and for us, makes it stickier, they get a better value. And again, what we're seeing is, in general, we're seeing customers adopt more and faster, right, which if they adopt more and faster, that gives us the opportunity to go back in and top up those Falcon Flex pools. So, we are excited about the licensing mechanism; customers are. We talked about Adaptive Shield. The day we announced that, we were at Fal.Con Europe and customers said, "Okay, if I'm a Falcon Flex customer, can I use it day one when it closes?" And we're like, "Yeah, as soon as we close the deal, and we get it SKU'd up, you'll be able to use it," which again, removes a lot of friction and aids in the adoption. So, anything to add, Burt?

Yeah. I think all the things that George said gives us more confidence in our ability to reaccelerate in the back half of next year.

Our next question comes from Gregg Moskowitz from Mizuho. Please unmute your line and ask your question.

Okay, great. Thank you very much. Your RPO growth accelerated quite strongly this quarter and your RPO bookings growth, which at least by our estimates, is greater than 60%. That appears to be the highest we've seen since fiscal 2022. Now, clearly the customer commitment packages and Flex had a significant impact here. And so, I guess with that in mind, it would just be helpful, Burt, to get your perspective on: A, how the cRPO performance was? And B, how we should generally be thinking about what these strong bookings might mean for revenue recognition and ARR when we look down the road? Thanks.

Thanks, Gregg. So, I think ultimately when we think about RPO and we think about the increase, it does talk to just longer deals, longer duration. I think all the things that we've talked about, whether it's CCP, whether it's CrowdStrike Financial Services, they all add in terms of helping customers do more with us for longer periods of time. And that's reflected in our RPO number.

Our next call comes from John DiFucci with Guggenheim. Please unmute your line and ask your question.

Thanks for taking my question. Burt, listen, you've always been really clear, which is, I think, been great for investors and great for the stock too. And ARR has always -- and revenue have always had a great connection over time. Can you -- and I know there's some small print, but I don't -- can you explain to us what's making this coupling diverge? And I don't know, hopefully it's not a long explanation. It's probably why you haven't said it, but can you do that? Can you give us like, even if it's temporary here? Because I don't want to see -- my model works great for you and you're the first ones to do this. And it's really clear, and you put it right out there for everybody to see. But why is that going to diverge? Why could it diverge in the short term?

So thanks, John. So, number one, for all your comments, appreciate all your comments that you made. So, first, big picture, it's temporary. The divergence is temporary. And I think it just talks to when you have a CCP and out of the gate, there's, for example, extended time that's offered, there's going to be a more immediate hit on ARR than revenue, it's going to lag. And so that's how we think about it. And that's how I've tried to be clear on explaining it. Hopefully that helps, John.

Thank you. This concludes today's question-and-answer session. I would now like to turn the call back over to George Kurtz for closing remarks.

Okay. Thank you, operator. So, thank you all for your time today. We appreciate your continued support and look forward to seeing you at our upcoming investor events.