Q3 2020 Earnings Call
Fiscal third quarter 2020 results conference call at this time, all participants I know listen only mode. After the speaker presentation, there will be a question and answer session.
Good question during the session you wanted to press Star one on your telephone please be advised that today's conference is being recorded.
You acquire any further assistance. Please press star Zero I would now like to hand the conference your speaker today Maria Riley. Please go ahead.
Good afternoon, and thank you for your participation today with me on the call or George Kurtz, President Chief Executive Officer, and co founder of crowd strike and Bert pod Bear Chief Financial Officer.
Before we get started I would like to know that certain statements made during this conference call that are not historical facts, including those regarding our future plans objectives and expected performance are forward looking statements within the meaning of the private Securities Litigation Reform Act at 1995.
These forward looking statements represent our outlook only as of the data this call.
While we believe any forward looking statements. We have made are reasonable actual results could differ materially because such statements are based on our current expectations and are subject to risks and uncertainties.
We do not undertake and expressly disclaims any obligation to update or alter or 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 Companys financial results is included in filings, we make with the I see see from time to time, including the section entitled Risk factors in the most recent companies quarterly report on Form 10-Q previously filed with SEC.
Also unless otherwise stated excluding revenue all financial measures discussed on this call will be non-GAAP .
Discussion of why we use non-GAAP financial measures and a reconciliation schedule showing GAAP versus non-GAAP results. It's currently available in our press release, which may be found on our Investor Relations website, I, our Dutch cow strike dot com or on our form 8-K filed with the FCC today.
Now I will turn the call over to George to begin Becky Maria and thank you all for joining us today.
Across the board, we delivered an exceptional third quarter with record results well exceeding our expectations.
Year over year, we increased the number of net new subscription customers by 112% and achieved 97% air our growth, 98% subscription revenue growth in 88% total revenue growth, which was above the high end of our guidance.
I would also like to highlight two significant milestones we achieved in the quarter first AOR or grew to over half a billion dollars and second we generated positive free cash flow in the quarter and added to our cash balance in our view. These strong results in our continued rapid growth at scale, which is significantly outpaced.
Others in the industry demonstrate or increasing leadership in the security cloud category and our strong foundation to drive future growth.
Or accelerating momentum in the market is the culmination of years of thought for innovation.
Yes, and execution and as a credit to the hard work of all our employees I'd like to thank every member of the crowd strike team for their unwavering dedication to stopping breaches and serving our 4561 customers.
In Q3, we once again so on acceleration in customer growth with the addition of a record 772 net new subscription customers versus 730 last quarter.
This is our seventh consecutive quarter that we added a record number of net new customers.
We also set a record for net new air or 77.9 million, representing 32% growth quarter over quarter. This was driven by strong sales with both enterprise and SMB customers.
The reason why our solution is winning with customers across diverse industries geographies and size is simple.
Our proven efficacy and stopping breaches or cloud native platform with a lightweight single agent that is easy to use and rapidly deployed scale.
And we enable customers to consolidate agents an increase endpoint performance.
All of which helps our customers realize immediate time to value.
It is also important to remember that our solution unlocks the power of Crowdsourced data and get smarter the more data it consumes.
Our proprietary threat graph is the brain of our system and is capable of dynamically scaling to meet demand every week and processes correlates in analyzes over 2.5 trillion events across our global customer base in real time, each new customer in endpoint or workload, joining our crowd source network.
Increases our data Lake effectiveness intelligence in long term competitive advantage.
I'd like to take a moment to highlight a few recent customer wins that showcase the power of the Falcon platform. The first customer win is a competitive displacement of both nexgen and legacy products and a fortune 100 insurance company that highlights the superior performance of our solution.
After a year trying to deploy a cheaper and less effective next gen vendor. This company security team could not get it to scale beyond 60% of their environment.
Additionally, when the attempted to deploy the other vendors agent in the server environment. It was incompatible with their critical business applications and performance was negatively impacted.
Their security team was understandably frustrated, prompting them to engage with crouched Reich. They evaluated the Falcon platform alongside another vendors legacy security technology built into the operating system.
Even though this competitor had a strong prior relationship with the customer their product was found to be too complex and incompatible across the customers heterogeneous environments.
During rigorous testing by the security team an application owners Crown strike demonstrated superior ease of deployment application compatibility.
Long endpoint performance and of course high efficacy and stopping breaches. We've won the business and this customer is adopting seven cloud modules across the Falcon platform, including our next Gen. Avi DDR device control I T hygiene vulnerability management threat, Intel and our threat Hunter.
The module Overwatch.
Oh strike is helping protect this customer from breaches, while significantly streamlining their security stuck with our single agent architecture.
The next customer when I will share with you today is where the fortune 100 retailer, where we are displacing legacy and nextgen vendors, whether a single agent Falcon platform.
This new crowd strike customer was initially looking to replace one of their nexgen EDI, our vendors with a solution that would provide prevention capabilities, along with a better user experience and greater visibility for the internal teams.
Strikes tight technical integrations with Splunk and close relationships with their field sales team helped position us as a leading contender to meet this customer strategic priorities.
This customer now subscribes to three Falcon cloud modules, that's been an endpoint security and I T operations and in turn is removing multiple vendors and agents from their environment.
The next when I will share with you today highlights how companies can derive high business value in ROI by consolidating agents with the Falcon platform.
After two large enterprise companies merge their security teams were faced with a patchwork of security tools that were ineffective and could not scale to meet their needs. These tools included for legacy Avi providers. One next gen SDR and one peer to peer query based technology that were partially deployed across dozens of business unit.
Additionally, the organization was overwhelmed with so many false positives that the estimated 30 employees would be needed to treat your words and manage these disparate tools.
This organization decided to evaluate crashed shrink because of our strong reputation in the marketplace our ability to address a broad range of security challenges through a single agent in a modular platform. During the sales process. This customer deployed Falcon on over 15000 endpoints over a weekend.
Where it had taken one of the incumbent vendors one year to reach a similar level.
After seeing how quick and easy it was the point scale the Falcon platform across environment. They increased the scope of the deployment to include servers significantly increasing the overall deployment to well over 100000 endpoints and workloads.
So at this new Crouse right customer estimated that by replacing the software hardware and labor costs associated with these other vendors they will attain a compelling ROI in less than eight months.
And lastly, I would like to share a new customer wins demonstrate so incident response engagements from our services team can quickly lead to large multiyear falcon platform subscription engagements.
After being hit with the ransomware attack earlier this year a company based in Europe , who was not a cross right customer engage the crowds rig services team.
We were able to remediate the incident and rapidly restore normal operations, eliminating the need for this customer to pay a steep ransom to the hackers.
Through this brief but urgent engagement crowd shrink build trust with the customer through our expertise professionalism and technology efficacy.
Recognizing that they had limited internal security resources. This customer became interested in our Falcon complete subscription module, which is our full turnkey solution that combines endpoint security with remediation and response capabilities.
Even though our solution was priced at a premium to the competition. This customer selected Falcon complete based on total value provided completeness of our solution and the deep trust built within our services team.
Seven figure a our Falcon complete deal was more than 13 times larger than our initial services engagement and close within three weeks after the crowds rig services team completed the project.
From the many conversations we've had with customers the message that resonates loud and clear is that well see iows ansys. Those are looking for strategic partner to help them bridged the skills gap and simplify their operations.
We're also looking for ways to leverage enhanced automation in their security operations increased efficacy and free up resources.
Organizations are increasingly turning to the Falcon platform to protect an array of endpoints in workloads stopped breaches and restore endpoint performance to measure the success of our platform strategy. We look at the percentage of all subscription customers that have adopted multiple modules. Our platform strategy is clearly gaining momentum with customers and that.
Third quarter, the percentage of customers that have adopted four or more cloud modules increase beyond the 50% we reported last quarter. Additionally, I'm pleased to report that customers with five or more cloud modules increased to 30%.
As customers adopt more modules that span a wide array of workloads, we believe it strengthens our customer relationship and increases our strategic value with the customer.
The power of Crouse rigs Falcon platform also continues to garner strong industry recognition.
In the Gartner customer choice peer review that was released last week Crouse shrink received the highest rating all vendors based on customer satisfaction for the second year in a row, what the rating a 4.9 out of five.
This builds on the recognition we receive from gardener in Q3, which includes being position as a leader in Gartners magic quadrant for endpoint protection platform.
And receiving the highest score for lean forward organizations and Gartner second critical capabilities for endpoint protection platforms report.
Additionally, Forrester research named crowd strike as a leader in endpoint security and the Forrester wave Q3 2019 report.
Crown strike received the highest ranking of all vendors in the strategy category and achieved the highest score possible within 17 of the criteria.
Lastly, as he labs named Crafts break the best New endpoint solution and its annual report we believe the industry strong recognition of craft strike validates that our single agent architecture proprietary threat graph database and cloud modules represent the gold standard and securing the growing workloads of today.
The future.
We remain intensely focused on the success of our customers last month at our annual Cyber Security Conference Falcon, We announced a new firewall management module that will deliver simple centralized those firewall management help customers transition away from legacy endpoint suites. The crown strikes next generation platform. We expect this may.
Roger to be generally available early next calendar year at which time. The Falcon platform will have 11 cloud modules that span endpoint security security operations and threat intelligence.
We also introduced Falcon for Amazon Web services, which will be available in the Ws marketplace. This month customers will be able to easily purchase and deploy the solution with integrated metered billing to optimize their security spend for elastic workloads and increasing number of enterprise customers are migrating to the cloud and modernize.
Using or applications. However, security teams responsible for protecting cloud workloads have had difficulty in providing security in an effective and cost efficient manner that is as dynamic in flexible as a ws itself.
So strict falcon for ADW West fulfills all of these demands with integrated metered billing, we will allow customers to quickly and easily scale their consumption as their business needs change pays you go or metered billing is an important option for customers running applications with extreme fluctuations in usage such as payroll batch processing.
And data analytic workloads.
At fell Con, we also announced seven new applications and use cases coming to the ground shrink store. The cross rack store is a unified security cloud ecosystem of trusted third party applications. These new apps will allow our customers to leverage their existing investments in crowd strike to address a range of security use cases, including.
Application weightlifting patch management and vulnerability risk prioritization.
While still early we are receiving strong interest from partners. They want to develop apps on our platform and we see significant longer term opportunities with new applications by using our platform as a service our store partners can save on R&D time and investment of the same time dramatically expanding their go to market reach.
We also continue to expand our ecosystem of partners and customer touch points, We recently announced a new international go to market partnership with we drove a leading information technology consulting and business process services company with thousands of customers globally.
We pro is utilizing the Krasik Falcon platform to build out their new next Gen service offerings that will leverage our proprietary threat graph data and focused on specific use cases, such as detecting malicious insider behavior. We expected. This partnership will expand our go to market reach globally.
As we continue to evaluate the competitive landscape. We recognize that this is a unique time in the industry.
The seismic shift to cloud native technologies, and cloud workloads, including containers has created an environment with massive greenfield opportunities. Additionally, the market has seen a rapid increase in consolidation among competitors, which has created uncertainty within their customer base.
We believe these dynamics have contributed to an expansion in our pipeline and any acceleration in our overall customer adoption, which is driving our strong results and increased outlook.
It is our view that the ultimate winter in endpoint or workload protection will be the company with a platform that leverages cloud native technologies and delivers the most value to customers be its platform and rich partner ecosystem.
We also believe that a tightly aligned go to market engine built to foster frictionless adoption across companies of all sizes is equally important.
These are all attributes inherent in Crouch rigs cloud native platform and sales motion.
Well our competitors are distracted by retooling their on premise offerings trying to integrate acquired technologies rationalizing their workforce or simply learning the industry. We are intensely focused on protecting customers.
We believe we have the first mover advantage in a high performing an enduring business model with a frictionless go to market strategy and multiple engines for growth.
We believe we are in a strong position to drive future success with customers delivered continued rapid growth at scale with best in class unit economics and continue to expand our lead over the competition.
With that I'll turn the call over to Bert.
Thank you George and good afternoon, everyone.
As a quick reminder, unless otherwise noted all numbers, except revenue mentioned during my remarks today our non-GAAP .
As George discussed we delivered another outstanding quarter across the board and achieved important milestones of air our surpassed $500 million and we generated positive free cash flow.
We saw strength in multiple areas of the business, including record net new air or record net new customers and continued strong subscription gross margin.
In the third quarter, we delivered 97% air our growth year over year to reach $501.7 billion.
We once again saw an acceleration in net new air are in the quarter.
We added $77.9 million in new air or setting a new record for the third consecutive quarter.
The growth in air our was driven by another strong quarter for new logo acquisition with both enterprise and SMB customers combined with expansion business and low contraction in churn within our existing customer base.
Additionally, our dollar based net retention rate, which speaks to the efficacy of our solution in our successful land and expand sales model once again exceeded our 120% benchmark.
Total revenue grew 88% over Q3 of last year to reach a $125.1 billion.
Subscription revenue grew 98% over Q3 of last year to reach a $114.2 million.
In terms of geographic breakdown approximately 74% of third quarter revenue was derived from customers in the U.S. and 26% was from international Mark.
Our rapidly growing international business highlights the global nature of the security industry, the massive market opportunity in front of us and our continued success penetrating these mark.
Moving to our operating results.
As we've discussed previously we are focused on building a long term business with sustainable growth and compelling margins in Q3, we continue to recognize operating leverage in our SaaS model and the benefits of scale, even as we increased investments in our global reach and cloud platform.
Third quarter, non-GAAP gross margin improved to 72% from 67% a year ago.
non-GAAP subscription gross margin increased to 76% of 520 basis point increase from Q3 of last year.
This improvement is primarily attributable to two key drivers datacenter optimization and the continued uptake of multiple cloud modules by our customer base.
Total non-GAAP operating expenses in the third quarter were $106.7 million or 85% of revenue versus $73.1 million last year were 110% of revenue.
Scaling our business efficiently as a top priority, which is why we focus on our unit economics, including Magic number.
Q3, we ended with a magic number of 1.1, which we consider to be very strong and represents an improvement in our sales and marketing efficiency.
Key factors driving our unit economics include our strong gross and net retention rates and our highly efficient low friction sales and marketing programs that continue to drive subscription revenue growth.
We reported the non-GAAP operating loss of $16.5 million.
As a result of our rapid topline growth expanding gross margin profile and continued disciplined approach to investing in our business, we drove strong operating leverage in the quarter.
Our non-GAAP operating margin improved 30 percentage points year over year.
Three represents our fourth consecutive quarter of improving non-GAAP operating loss on both dollar and margin fees.
We have a proven history of disciplined investing and remain committed to maintaining a thoughtful balance between generating topline growth on achieving operating leverage.
Looking forward into fiscal year 2021, ending January 30, Onest 2021, we expect to be free cash flow positive for the year and achieved non-GAAP operating income breakeven in the fourth quarter of fiscal year 2021, while at the same time continuing to aggressively invest in our market opportunity.
non-GAAP net loss in Q3 was $13.4 million or seven cents per share, which compares to a non-GAAP net loss of $28.8 million or 64 cents per share in Q3 of last year.
The weighted average common shares used to calculate third quarter EPS was 204.1 million shares in Q3 fiscal 2020, and 45.3 million shares in the Q3 fiscal 2019 period.
Turning now to the balance sheet cash cash equivalents and marketable securities increased to $833.7 billion.
Cash flow from operations was positive $38.6 million and free cash flow was positive $7.0 million.
Moving to our guidance for the fourth quarter and full year fiscal 2020.
For Q4.
Total revenue is expected to be in the range of $135.9 million to $138.6 million, reflecting a year over year growth rate of 69% to 72%, we subscription revenue being the dominant driver of growth.
We expect non-GAAP loss from operations to be in the range of $21.6 million to $19.7 million and non-GAAP net loss to be in the range of $19.1 million to $17.2 million.
Utilizing weighted average shares used in computing non-GAAP net loss per share basic and diluted of 205.2 million, we expect non-GAAP net loss per share basic and diluted in the range of 98 cents.
We are raising our outlook for the full fiscal year 2020.
We currently expect total revenue to be in the range of $465.2 million to $468.0 million, reflecting a growth rate of 86% to 87% over the 2019 fiscal year.
non-GAAP loss from operations is expected to be between 80.5 and $78.6 million and non-GAAP net loss is expected to be between 77.7 and $75.8 million.
Utilizing weighted average shares used in computing non-GAAP net loss per share basic and diluted of 146.7 million. We expect non-GAAP net loss per share to be in the range of 53 to 52 cents.
We are pleased with the strong results. We are reporting today and believe we have the capacity in resources to continue driving the business forward over the long term.
George and I will now take your questions.
Thank you.
Under to ask a question you only at the press Star one on your telephone.
To address your question pressed upon key please standby we've compiled the candy roster.
Our first question comes from Sterling Auty with JP Morgan Your line is now open.
Hi, guys. This is Matt on for Sterling. Thanks for taking my question.
Just wanted to get a sense of where you guys are seeing in terms of initial deals.
Adoption of multiple modules I know you guys talked about the.
You know the percentage of customers using for more five or more but just set that initial stage. What have you guys been seeing in terms of multiple modules.
Hey, Matt Thanks, or thanks for your question.
So with respect to modules and the number of modules that we provide we believe our adoption rates for this quarter or milestones.
We thought it would be informative to discuss on this call will periodically share adoption milestones as they come in.
Okay.
It can vary quarter to quarter as we bring out more and more modules clearly there's more opportunity for customers to come in and purchase more modules upfront and that's kind of thinking that we have and thats what were seeing it.
Great and then just a quick follow up in terms of the newer modules are there any specific ones that you guys are seeing.
Increased adoption thanks.
You're welcome.
So when we think about new modules and new modules adoption on any given quarter. It could very clearly we've got discover which is our IP hygiene module. We've got device control. We've got Falcon next and of course, we have vulnerability management and again on any given on any given quarter any one of those could be the fourth module or beyond.
Great. Thanks, guys.
Thank you and next question comes from second Calia with Barclays Capital. Your line is now open.
Hey, guys. Thanks for taking my questions here.
Maybe maybe first for you George.
You know a lot of talked about the competitive displacements in the quarter I thought there was really helpful. Commentary can you just go wonderful deeper about the profile of those competitive displacements, meaning of the deals you're winning.
The sources of that market share changing at all compared to what you may be so last year for example.
Well as we as we mentioned in the call earlier parts of the call. Obviously, we've had some great displacements and we continue to be very aggressive.
In large and small markets from our standpoint, obviously, the competitive environment has changed dramatically and we've seen an acceleration in our pipeline given some of the acquisitions that have taken place and just the sheer uncertainty of these other companies that have been acquired.
Our level of R&D investment their level of sales coverage et cetera. So what we've seen so far is that.
Customers, who maybe we're ready for a renewal of their existing incumbent provider next year are coming to us even earlier now to get into the testing cycle and talk about the various modules and capabilities. We have to solve some of the problem. So thats what weve seen is drilling acceleration the pipeline and just general dissatisfaction with.
Some of the acquisition.
Thomas They had in the acquisitions that have taken place.
Got it it makes a lot of sense.
Bert maybe for my follow up for you.
Really nice customer addition, number in the quarter and clearly most of the businesses is enterprise, but you've been building a mid markets inside sales team for some time and I think there was just talk about balanced additions just across across kind of customer size can you just maybe touch on how that midmarket sales.
It is going and at this point what is if you want to disclose what is the mix of a ARR when thinking about enterprise versus mid market sloughs slashed SMB if you will.
Hey, Thanks for the question second so we have certainly seems strong acceleration in new customer adds in the SMB space.
Which is clearly aligned with our growth strategy that we outlined during the IPO.
The great news about us is or because of our cloud based model, we are able to address both enterprise and SMB verticals in a very efficient manner.
The SMB space, obviously, there's a massive number of customers deals are smaller, but we discount less.
So for us as we think about both markets.
We're equally as efficient and going after both of them and we're investing in both.
Because we're in Greenfield in both.
Any particular quarter could could vary in terms of which has a bigger acceleration. We're not so right now we're really really happy with the acceleration in both of those markets.
Got it very helpful I'll get back in queue. Thanks, guys.
Thank you. Our next question comes from Alex Henderson with Needham. Your line is now open.
Great. Thank you very much.
First I just wanted to clarify you guys are based in California, not Ukraine right.
That would be correct Sunnyvale, California.
So.
First question I really wanted to ask it here with some.
Obviously had outstanding execution across the board for your products taking off.
Can you talk a little bit about the degree that you're able to staff up to sustain.
These exceptional growth rates and obviously theres scalability in your model that is different than the typical model.
I think it'd be helpful. It go through.
Just how much capacity you need to add order too.
To deliver an increment of growth.
Well, great question, and I'll start out with saying just phenomenal execution by the entire team.
Obviously, despite a lot of noise in the environment. So we're really excited about that and I think thats a testament to the team we have enough. The model that we don't both on the financial side as well as on the operating side in terms of technology.
We've been very aggressively hiring sales personnel all around the world.
As per talked a little bit earlier, our inside sales team is a robust piece of our frictionless go to market model with our with our Enap trials in our trial to pay so.
We really look closely at the unit economics, and again, we're hiring of propylene those areas, but I can tell you, we're adding lots of people and we've created really a formulaic way to add folks get them up to speed onboard and get them productive very quickly and that's that's one of the hardest things and the tech technology World to do so we feel really good about that and I think it really is a testing.
To the people in the model that we've built in and we've been able to grow this quickly and maintain this level of execution for any debt.
Thanks, Thanks, George just the one point I'll add is falling when we go through our capacity planning we work very closely finance were very closely with sales.
Do.
Plan, we go through it and Thats George said, we look at the unit economics behind it and so we make sure as a company we can absorb the amount of folks that can come in and make sure. We're from a territory standpoint, we've allocated the resource as appropriate.
Second question, if I could the issue.
Of carbon black being acquired by VM, where as I understand it.
The vast majority of any relationship that you had with either secure works or with Dell was related to.
Upside to the model as opposed to any meaningful contribution currently.
Obviously, there's two sides to this coin one disruption to carbon black and the other the loss of the opportunity to sell into the Dell channel. How does that how do you think those way out over time and are we talking about a slice of bread or.
More than a slice of bread here.
So the scaling of the importance of that channel versus your strategy.
Hey, its first thanks for the question from a bell standpoint.
Diminimus in terms of our business today, approximately 1% of our revenue. So it's not been an impactful piece of the business and when we think about.
How I, we're we're building the model Thats, how we modeled without even to begin with.
And George I'll also I'll also say, we do have strong relationship still what secure works and.
Obviously, we feel that and customers I would say feel the same way, they're looking for really best of breed in this area. So.
That that channel is obviously still wide open to us and.
So far it's going to get relationship.
Thank you very much.
Thank you next question comes from Chris I believe at Nomura Instinet. Your line is now open.
Hi, guys.
Thanks for taking the question.
One thing that we continued here.
From customers and potential customers.
That proud strike still seems to be the only vendor offering.
Firmware detection.
Are you guys seen anything out there from.
Even close from other vendors, providing similar service and maybe touch on the importance of that and why others have yet to add such offerings.
Yes, so I think from a firmware perspective, and that's just one of many features that we have that others still and I think thats really reflective of the deep technical capabilities, we have to be able to figure this stuff out and make it work even below the operating system number one, but when we look at supply chain attacks, which I think as many have seen that.
That is an increasingly important element.
In preventing these breaches and it becomes even more important.
In the government space. So again, one great feature we have.
Thanks to the cross Rikers able to put that together, but.
From a threat perspective, obviously is becoming more and more important for larger organizations to protect their their supply chains.
Great and then just one other quick one night update on mobile and how that's progressing.
Yes sure. This is George it's still early days, we've got a lot of interest we continue to add new capabilities to to that we've seen I think some.
Some nice wins in that area, but it's still early days and as with many of the modules when we come to market, we get something we understand how it works we collect data.
We began to add detection and we begin to add prevention and that's just been our model from the beginning and we're going to continue along that path. So very encouraging at this point.
Great. Thanks, great job guys.
Thank you next question comes from Gur Talpaz with Stifel. Your line is now open.
Okay, great. Thanks for taking my questions. The first off congrats on the results two questions one for one for each of you jogging Bert.
George you talked about the forthcoming launch of postpaid firewall management and sort of beyond wanted gave the initial interest for the module I also want to better understand what you're seeing in terms of customers wanting to move past endpoint augmentation to one that ultimately allow them to standardize on crowd strike as as the sole provider of endpoint security.
Sure. Thanks.
Good question, what are the things that we found in talking with customers and again the module and the roadmap a lot of is driven from customer demand is that they were looking for an easier way to manage their firewalls and.
That is one of the last kind of vestiges of legacy suites that are out there in terms of helping customers manage as firewall. So we looked at that as a way to again continue the acceleration in fully replacing legacy vendors. Obviously, we're already doing that in many areas, particularly around the anti malware component DDR.
That was another module that was kind of hanging out there so.
We continue to push down that path fantastic feedback from customers.
A lot of comments that was sort of the last thing holding them to at least a small part of their sweet even if they were still using us on the anti malware piece and.
Again really encouraging for us and excited to have that come out early next year.
That's helpful. And then boat for you when you think about the forthcoming margin improvement and targeting margin positive in Q4 of next year. How important is the frictionless sales motion and getting then maybe give us. Some colors are on on conversion of the tried before you buy customer than what you sort of thinking about when you move into next year.
Yes, thanks, Kurt So few things in there so.
One when when we put the when we put together.
The outlook for next year on the operating margin, we think about the continued momentum we've seen in the business as we enter Q4, we've got the biggest pipeline that we've ever seen giving us the confidence indicate.
The positive free cash flow and non-GAAP operating income a breakeven in Q4 of next year and when you think about where the frictionless system I think Georges talked about it many times, but the tech is as important as the go to market and where his focus and we invest them equally both of those aspects of the business to be able to ensure that we are able to.
Continue with the frictionless motion, whether it's been that trials or whether it's.
Pay both have been.
Accelerating inner business, we don't we don't necessarily give out.
Managers on the uptake, but boat, but but both have been driving up into the right.
That's great. Thanks, guys.
Thank you. Our next question comes from Gregg Moskowitz with Mizuho. Your line is now open.
Okay. Thank you very much hit congratulations as well on a really strong quarter. So George threat graph now capturing two and half drilling at events per week I can only assume that this was significantly outdated number but I think the last update from a few months ago, but over one trillion. So can you give a sense of how fast is distributed database is growing and.
More importantly.
You touched on that earlier, but I'm wondering if you can elaborate on how sizable other competitive advantage that brings the crowd track both today as well as over the long term.
Absolutely. So yes, I think some of those earlier numbers were just.
Again earlier in the year. So we continue to grow the data that we collect we continue to grow our customer base and again, we view that as a real strategic weapons to have a bespoke graph data technologies that we felt that has a time element to that Tim coral element to it.
We think is very unique in the industry and has really been one of the drivers that continue to help us identify these very advanced breaches and stop them in real time.
It's also use again for our machine learning so from our perspective, we'll continue to grow that and really what that becomes.
Is a data moat more data can seem to smarter gets and becomes harder and harder for competitors too.
Capture that level data and keep up with it so.
It is certainly crown jewel of our technology stack.
Okay, perfect and then for Bert there are a lot of questions that we get around the pricing environment at the endpoint level.
Have you seen any changes at all in discounting rates over the past few months or so.
Thanks, Greg So let me start with the fact that we continue to see good pricing dynamics in the market combined that with our disciplined discounting.
We're very comfortable with where we are in terms of going to market.
We have seen.
Others.
Out there that try to compete with us and we continuously weigh in on value.
Terrific. Thank you.
Thank you next question comes from X stuff I go with JMP Securities. Your line is now open.
Yes, thanks for taking the question.
First off.
Bird could you talk a little bit about.
What is enabling you to pull up.
Your timing around free cash flow generation.
It was.
Notable improvement I think over expectations.
Sure Eric Thanks for the question again, a lot of it has to come with the continued momentum we've seen out of Q3 across the board strong execution, we've seen the strongest pipe we've ever seen in company history.
We've seen operating leverage across the board specifically in the essence them and the unit economics, we've just seen.
And in an incredible amount of opportunity with respect to topline gross margin and of course Opex all those things combined have enabled us to.
Outline what we think is going to happen next year.
Did you maintain a consistent opex outlook to what you had previously been looking for in terms of dollars.
Yes, and we continue to invest aggressively and we havent changed for that at all.
Okay Secondly.
In light of Symantec's acquisition I'm I'm just curious.
Have you seen much in terms of.
Resumes or opportunities to hire more aggressively out of that that.
Population and how long do you think that.
It's going to be a benefit from from the acquisition of Symantec.
Well I mean in general we seen resumes from many of the acquisition. So I'll start they're not just specific to symantec.
Number two is obviously there is.
Massive installed base that's out there.
And I think if it continues and accelerates the trend of customers looking for better outcomes looking to stop reaches looking to move to the cloud.
And it's a great customer base for us to take advantage of so we're excited about the opportunity we've been doing at four.
Sometime now and I think it just accelerates the move there.
In two areas one is.
The customers uncertainty and concern for the R&D investment number one and number two account coverage is going to be really limited and the enterprise customers that we're dealing with are looking for not only great technology, but also after sales service support.
And a partner to help them prevent breaches.
Very good congratulations on a great quarter. Thanks.
Thank you.
To ask a question you want me to press Star one on your telephone.
Our next question comes from Matt head back with RBC capital markets. Your line is now open.
Yes. Thanks, This is Matt Swanson on for Matt.
So we've talked about some of the aggressive hiring and you also touched on ramping sales reps could you maybe talk a little bit about where you feel overall salesforce productivity is right now it feels just like you'd have a reasonable amount of capacity from those existing investments still just trying to kind of going to gauge on that.
Yeah, Matt So one of the things we look at as Magic number we like where we are with respect to our magic number.
And every time, we put together the capacity plans I mentioned, we dovetail and look into where we are with the magic number on the forecast and so long as we're comfortable with what we see we feel very comfortable in terms of our capacity to be able to get our hit our targets.
Hi.
Second maybe little more abstract question when we're talking about some of the competitive environment question for the legacy appears do you start to feel like maybe you're playing a little bit of a different game that endpoint peers, given the breadth of your platform and the solutions you're trying to sell into when you go into some of these sales.
Well I think so I mean again I would look at bellwethers like Salesforce worked and service now right. These are these are cloud leaders and we view ourselves as a cloud leader as well not just an endpoint.
Security provider in because we've been pulled in other areas like hygiene and we were solving many different use cases.
We're operating at the CIO level being very strategic many of our opportunities.
Our big part of the overall board strategy to reduce risks. So when we come into an organization. We spent a lot of time on selling value and I think you've heard that in the earlier comments and I went through in terms of taking multiple products and basically harmonizing those agents.
Restoring performance endpoints.
Reducing head count, it's just a great story and the beauty is we're actually delivering on it as opposed to many of our competitors. So I do think it's a bit of a different game and I would.
Again kind of go back to the Salesforce evil analogy I think thats where were at.
Versus some of the other competitors that you've seen and some of them that obviously youve already gotten acquired.
Thanks, Congratulations on the results.
Thank you.
Our next question comes from Brent deal with Jefferies. Your line is now open.
Thank you George you had fed ramp certification over a year ago I'm. Just curious you give us an update on the fed government and it for Bert.
Just in the sales cycles are you seeing given all the commentary it sounds like that the sales cycles picking up speed than maybe the initial deal size is picking up speed. If you could just give us a.
Flavor of what you're seeing there. Thanks.
Sure. So we've seen tremendous growth obviously, we've got our fed ramp certification.
This year it really for the first time, because we missed it last last buying season. So we've seen triple digit growth in that area. Some fantastic traction in the civilian agencies and I think overall, when we think about state local and fed that has just been an amazing bright spot for us we have a great team there and we've got some massive wins we were.
On our 100 by 100.
In a number weeks back and visiting customers and visited.
You know states and governments counties that were not customers.
Got hit by Ransomware, and it was really impactful and other parts of the government that were protected by crowd strike.
There appears were home what their their family on the weekends. So everybody was wondering what happened over there and we've seen an acceleration in that business across state fed and local government.
Yeah with respect to initial deals with their customers. So I think that when you look at the milestones that we put forward in terms of the number of our customers that have.
For more modules and also the number of our son for customers that have fiber momar modules. The uptick in both of those things can give you an indication.
Of where we're trending with respect to the initial purposes. So we're happy with from what we're seeing thing.
Thanks.
Thank you. Our next question comes from Heather Bellini with Goldman Sachs. Your line is now open.
Hi, This is Dan church on credit blending thanks for taking my question.
Yes.
Regards to the traction you're seeing in SMB I'd, just any color you could provide in terms of how those customers look compared to enterprise customers in terms of module attach rates and then you mentioned a little bit earlier about more disciplined discounting and success in low friction.
Go to market channels, so any commentary on how those unit economics look relative to two large enterprise.
Yes. This is George I'll start with just the modules I think from Cameron SMB as well as mid market.
Smaller to the larger meds, what we've seen is that they're extremely interested in our complete offering again thats end to end kind of turnkey.
Technology, It really focused on again, helping organizations deal with some of the channels they haven't hiring.
Great people across the board and as you know, it's very expensive to do that and it's hard to provide what I would call sort of government grade or financial services level protection, we can do that with our complete offering we back it was $1 million breach warranty and for companies that just want to problem. The go away and have the outcome they're looking for.
It's a great opportunity so we see them adopting all those modules.
Associated with complete and our turnkey.
Service to help them.
Yes, I'll I'll I'll add and with respect to the unit economics on the SMB space.
Clearly when we think about discounting we reach we were able to benefit from the fact that we're able to.
Do less discounting with the smaller SMB space, obviously, there have a bigger customer you get on something on as a volume discount.
And so we're really pleased with where were we were trending with respect to the SMB space.
Clearly, we will achieve a little healthier margins.
And the velocity so both of those things out up to the strong unit economics.
Helpful. Thanks, and then.
Just following up on the same line of questioning in terms of gross margin you mentioned.
The expansion year over year continues to be very impressive. So just any commentary on how much more room. There is on the data center optimization front.
And versus continued uptake of modules and high Incrementals there.
Yes, so you've touched on a topic near and Dear to my heart I really feel that the company has executed extremely well we're already in the long term model, where we projected we were going to be with respect to.
The non-GAAP non-GAAP .
Gross margins.
With respect to where we're going to where we're going to go from here, we still have I quite a few initiatives in place to be able to think about continued enhanced margin, but that's going to take place over time.
Great. Thank you.
Thank you.
Next question comes from Sarah him the end Clay. Your line is now open.
Okay, great. Thank you so much for offsetting the and I appreciate and congrats on the quarter.
Yes.
To me like using the Falcon platform and service would be a really really compelling value proposition for clients.
Really interesting to hear where you're seeing.
Or what kind of module building, you're seeing or early client interest on that front.
Well, we've got customers that use the technology and ways. He had even plan the ability to add actually gather data at scale, whether its security relevant data or ITC asset data.
Many of their systems are sort of out of date, just understanding what assets are out there. So we sing customers leverage our eyes in our infrastructure to collect data at scale and where they put into assume or their own data lake and enriched with other information that's out there.
You know it's kind of.
This guy is a limit but overall.
What we've been able to build.
And even with our real time response cpis to take actions on the endpoint as tremendously.
Reduce the.
The overall time to value for customers and the flexibility is there to kind of do what they want which again as part of the power of the platform we built.
Alright terrific in just a quick follow up for you as well so it's really interested to hear the progress you're making with multiply cloud adoption that not just for plus the five watts well.
And.
I'm just curious in particular about the security vulnerability management space and.
Your name is coming up more and more intense in that in that arena.
Are you starting to see.
Oh displacement that some of the core competitors today and how we've got tracking.
Yes, great. So what we've seen in terms of multi cloud.
We've been protecting cloud workloads for some time, obviously you saw we came out with some enhancements metered billing.
Et cetera for four AAMC has been a great fantastic partner for us tremendous momentum with them, but in terms of work, our technology and and cloud workloads. It doesn't really matter where the cloud is.
We can protect any of those workloads.
You know again, whether it's on Prem are off Prem hybrid cloud.
Just deployed and work and I think thats been one of the.
Core factor for our success it just easy and it works.
When we think about the Vmworld, we just came out im really excited with the new update to our VM spotlight module, which adds application vulnerabilities and the customers. It really excited about that.
Taking a crawl walk run as we normally do gotten customer feedback and what we hear as they are not looking for necessarily another agent if they can leverage our agent for the M.
Type technologies combined with something that we release called crowd score, which helps them think about the overall threat environment risk and prioritize it that's a winning combination so that is probably our most trial.
Module that we have out there and we've gotten some I would say pretty big wins out of it and we continue to make progress and and add capabilities in that area.
Great that was very helpful. Thank you so much.
Thank you. Our next question comes from movie with Oppenheimer. Your line is now open.
Thank you for taking my question Jets, Congrats on a clear that this is actually in push outs.
Just the first question Jewish quickly on the international expansion, we saw that deal with Whipple partnership this quarter, we expected to see more deals coming out that region in the APEC Asia region.
Well the APAC Asia region is first of all as a fantastic team that that we have worked with many of those people from for many many years.
Was recently out in Australia, Singapore, and the level of customer interest that we have is really off the charts and we've gotten some really big wins in those areas that we've been able to leverage surname is out there. We've got a great team and now we're continuing to build the partnership relationships. So we're excited about that we pro opportunity.
We see the got math massive scale and reach in that area, even beyond so early days, but excited about that partnership and overall excited about our.
PJ business.
That's great and just quickly on the.
Gross margin improvements, we saw a 400 basis point I'll performance this year compared to.
Same quarter last period.
Can you give us a little color on.
As you Bill out Doug cloud module.
I'll now levels should get.
Yes.
As compared to how many margins you fill out versus how many basis points with gross margin improved issue is there like a correlation that we should expect to see between the two.
Yeah. Thanks for the question so here's the great news about our platform. So once you buy that first module. It absorbs the Cogs every module after that is virtually all gross margin. So every module re on top and every module that a customer would buy on top of the first one we're going to fee full incremental.
Margin enhancement now each module that we can come out with could be a different price. So it would barry on on a module.
And just to follow onto that Thats really the power of the architecture, we built with a thread graph, we collect once and reuse. Many so once that date is in the threat graph.
Analyze user AI and then obviously it powers all the other modules. So once weve already collected as Brad said, it's virtually to your margin after the fact.
Thank you for taking my question and against congrats on the show execution.
Thank you.
Next question comes from Andrew Nowinski with Davidson. Your line is now open.
Hi, This is hand on for Andy after posting strong customer growth factors do you see accelerating growth moving forward as the year over year comparisons get tougher to get your metrics you hinted that group should continue thank you.
So thanks for the question. So again I think we don't really comment on.
Our.
In terms of guidance or anything like that but again. It goes back to you know we continue to see this great momentum in the business.
And as we entered Q4 I mean, the pipe has been more substantial than anything else, we've seen before and so that gives us the competence to be able to talk about some of things we've talked about in next year.
Thank you. This concludes today's question and answer session I would now like to turn the call back over to George cuts for closing remarks.
Sure. Thank you I want to thank all of you for your time today, we really appreciate your interest and look forward to speaking with you next quarter have great holiday. Thanks.
Ladies and gentlemen, this concludes today's conference call. Thank you participating you may now disconnect.