Q1 2021 Crowdstrike Holdings Inc Earnings Call
Gentlemen, thank you for Sunday night, and welcome to the cloud strife fiscal third quarter 2021 results conference call.
At this time all participants on this and only.
After the speakers presentation, there will be a question and answer session to participate and a portion of the cool you want me to press Star one on your telephone please be advised such todays conference is being recorded.
If you requiring hardware system, that's starting to nice my pleasure to turn the call Tomorrow, right Goldstrike Investor Relations.
Good afternoon and.
Thank you for your participation today.
With me on the call our George current President and Chief Executive Officer, and cofounder of Couch right Amber pod their chief financial Officer.
Before we get started I would like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans objectives and expected performance, including our outlook for the second quarter and just couple of years 2021 are forward looking statements within the meaning of the private so.
Securities Litigation Reform Act of 1995.
These forward looking statements represent our outlook only has a data this call.
We believe any forward looking statements. We have made are reasonable actual results could differ materially because these statements are based on current expectations and are subject to risks and uncertainties.
We do not undertaken expressly disclaims 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 Companys financial results is included in filings can you make with the FCC from time to time, including a section titled risk factors and the companies.
Quarterly and annual reports that we filed with the FCC.
Additionally, unless otherwise stated excluding revenue all financial measures discussed on this call will be non gap.
A discussion of why we use non-GAAP financial measures and a reconciliation schedule showing GAAP versus non-GAAP results.
Currently available in our press release, which may be found on Investor Relations website at IR Dot, how chegg dot com or on our form 8-K filed with S.P.C. today.
Finally, please note that in light of these unprecedented times as a result, if the could 19 pandemic management will provide additional information into our first quarter results and guidance assumptions would do not intend to provide this additional information on an ongoing basis.
Now I will turn the call over to George to begin.
Thank you Maria and thank you all for joining US today, we're once again hosting this call remotely and asked for your patience in event, we experienced any technical difficulties.
Let me begin by saying, we hope you and your families are healthy we extend our deepest starts to everyone affected by the cobot 19 outbreak.
I will start by summarizing three key points first approach right delivered another exceptional quarter with results well exceeding our expectations across the board, including generating non-GAAP operating income for the first time.
Our strong performance demonstrates our ability to execute at peak levels ever checked our customers even in light of a global crisis.
Second we believe work from home and digital transformation are sustainable trends for our business.
It is mission critical to protect workloads irrespective of where they're located on or off the corporate network.
We believe these trends have helped increase our leadership in the security cloud category that we pioneered.
And third we continue to win new logos as companies are rapidly pivoting away from on premise legacy technologies and moving to cloud native architectures that provide prevention visibility and control on a single platform.
Additionally, the competitive environment has evolved our favor as market share of the incumbents continues to erode.
Now, let's discuss our results and get into these topics in more detail.
With strength in multiple areas of the business, we added $86 million in net new air or in the first quarter, which was ahead of our expectations and year over year, we increased the number of net new subscription customers by 105% achieving 89% subscription revenue growth.
In 85% total revenue growth.
We started and finished the quarter with strong momentum, even though many of the shelter in place orders in the U.S., where knackered midway through our quarter.
Overall, we saw good deal flow among both large and SMB customers that span multiple industries as the secular tailwinds fueling our growth remained very strong.
We continue to win business with large enterprises and close the vast majority of this quarter seven figure deals in the second half of the quarter. After the shelter in place orders weren't effect, which is consistent with prior quarters.
We also saw strong contributions across our key geographies, which included achieving our second largest quarter in EMEA.
Additionally, our gross retention rate remained consistently high and our dollar base net retention rate once again exceeded 120%.
We also continued to expand module adoption within new and existing customers.
This quarter the percentage of all subscription customers with four or more modules increased to 55% and those that adopted five or more cloud modules grew to more than 35% of our customer base.
We are partnering with our customers as they navigate a heightened threat environment and uncertain economic realities in the first quarter. This included extending special terms to a few customers and impacted industries.
Another way, we are helping customers is with the two initiatives, we launched to help our customers quickly onboard new remote workers without sacrificing protection, we're having to worry about a procurement cycle as we discussed in March.
This included a surge relief plan that allows our customers to search the number of endpoints for a limited time.
Additionally, we launched a falcon prevent for home use program that allows company administrators to install falcon prevent on their employees home systems.
These free of charge offerings have been well received with over 250 customers taking advantage of these work from home and search programs, which have led to significant new opportunities for crouse shrink.
Also discussed in March we implemented several measures early on to help ensure the health and safety of our employees around the globe.
This included restricting all travel and transitioning 100% of our workforce to be remote.
As we expected this transition was seamless given that approximately 70% of our team is normally remote.
We remain on track with their hiring plans in fact, we had a record number of accepted offers in a surge in new applications.
Customer engagement has remained high and Mike Carpenter craft strikes president of global sales in field operations and I kicked off our 105 100 international virtual customer toward.
The team's efforts are paying off as we saw strong increase in new business meetings in the quarter compared to Q1 of last year and we ended the quarter it with a record pipeline.
Overall, I could not be more please and inspired by the superior execution and dedication to our customers by every crowd Stryker.
Now more than ever it is important that we step up fight to good fight with our customers and stay ahead of the adversaries.
The Cobot 19 pandemic has created a breeding ground for cyber crime.
The past couple of months have represented one of the most active threaten environments, we have ever seen.
The threat environment is even more heightened for health care in frontline organizations as they can 10 with increased remote workers limited staff and increased patient care needs.
We enable our customers to stay ahead of these threats whether they are at home in the office we're in the cloud.
I would like to take a moment to share a few quotes from customers on the front line that showcases how crouse Reich is helping them navigate their new normal.
The system of a leading National Health Institute wrote.
Quote words cannot express how grateful I am and we have crowd strike Falcon deployed to our systems and that Falcon Overwatch has our back.
As we faced unprecedented attacks one thing remains consistent we're able to defend our public health mission because of Crouch strike and quote.
And this is so have a nonprofit health care system operating in six states said fault.
Big thinks the crowd strike in the Overwatch team for having our backs during this latest activity.
Please pass along the kind words of our CEO and CFO to your folks as well as my appreciation for helping us avert cyber incident during a hugely trying time for our health care system.
Input.
Cyber security is mission critical and even in this challenging macroeconomic backdrop customers have continued to prioritize cyber security investments.
This includes those customers in industries, most impacted by shelter in place orders such as airline and hospitality.
In addition to effective and superior cyber security CIO is insist shows are looking for a strategic partner to help them easily accommodate remote workforce simplify their operations bridge the skills gap and reduce cost.
To emphasize this point I will share a quote from a global 2000 customer in a highly impacted sector.
Quote our adversaries will be more motivated than ever to harm us now when they think we may not be paying attention, we simply cannot afford to have an intrusion and crowd strike is the most effective most capable technology any of us have ever used to receive is the linchpin of our security program and quote.
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Additionally, I teach security teams are looking for ways to easily and remotely solved new problems inherent in work from home and hybrid models.
The security challenges associated with the remote or hybrid workforce, our best solved by a cloud native platform that aggregates and analyze this data into cloud.
Operates at web scale.
Leverages network effects to produce superior outcomes, and importantly is easy to deploy and simple to manage on a fully remote basis.
This describes the security cloud a new category that we have pioneered.
Because of Falcon platform is cloud native in our lightweight agent does not require a reboot customers can easily and remotely deploy manage and protect their workloads at scale irrespective of where their employees are located.
The real time response capabilities in the Falcon discover for I.T. operations module enable customers to remotely run a wide variety of commands on any endpoint or workload, which is now more important than ever we're seeing demand for Falcon discover for my teams that are turning to crowd strike to remotely solve challenges.
Such as configuration management emergency patching and password reset.
At the end of Q1, 45% of our customers have adopted Falcon discover for I.T. operations.
Additionally, Falcon for mobile has seen strength as major school districts look to secure mobile devices for remote education.
The crowd shrink Falcon platform uniquely provides integrated and simplified protection across both enterprise and personally owned endpoint devices without having to rely on third party elements.
How quickly onboard newly remote employees some companies have split up new corporate work spaces in the public cloud, creating new cloud workloads over the past year, a crowd shrink has seen an increase in the volume of transactions through HW S, which includes customer securing their cloud workloads as well as endpoint.
It's that reside on the customers corporate network.
We saw a 75% increase in ending a are from business transacted via the eight ws partnership compared to the prior quarter Q4.
More broadly on the partner front, we have continued to see significant demand.
Partners across the globe are increasingly turning to crowd strike as their partner of choice as semantic abandons large segments of the market and customers desperately need to protect the remote workforce.
This is contributing to the strength of our pipeline with excepted deal registrations for partners, increasing over 200% in Q1 compared with the same quarter last year.
Perhaps breaks mission platform and brand or clearly resonating with customers and partners as we continue to see a very favorable competitive landscape as we discussed last quarter.
Let me share a couple of customer examples that demonstrate how the power of the Falcon platform translated into strategic customer wins and provided immediate value.
The first customer win is with a leading European logistics company that was looking to mature their security program beyond signature based avi and to consolidate tools across their subsidiaries.
Craft strike was able to provide both leading prevention capabilities in a simpler solution with a single agent.
One option. This organization considered wants to build out their own security operations center, but they quickly realize that by purchasing Falcon complete our fully managed and highly automated endpoint offering the time to value was just seven days as opposed to a minimum of six to 12 months door.
In the sales process, we prevented a ransomware incident on machines, where we were installed and help them remediate the incident across the organization machines, where we had not yet been deployed.
This new Crouse right customer also took advantage of our cobot 19 relief first licensing program.
As they needed to purchase and provision additional laptops to enable remote working.
This further validated the company's decision to purchase seven modules that included security I T operations and threat hunting modules in a large air our deal for our inside sales team.
The next story demonstrates how crowd strike helped a major food conglomerate standardize on the Falcon platform replace for other vendors and significantly streamline their operations.
The company has dozens of subsidiaries that we're using different tools and they were looking to consolidate streamline and improve their security posture.
Perhaps rig stood out against an entrenched incumbents by demonstrating the Falcon platforms ease of use increased level of protection and low impact to system performance with a large initial purchase this customer adopted Falcon prevent for next Gen Avi.
And insight for visibility and Falcon discover for IP operations and is actively moving towards expanding into additional modules across I T operations use cases.
Other notable deals this quarter included a land with one of the largest semiconductor chip manufacturers and an expansion with a major U.S. airline.
These are just a few of our 6261 subscription customers as of the ended the quarter that have selected crowd strike to help them stopped breaches and simplify their security and I'd operation stack with a single lightweight agent in our AI power threat graph.
We believe we are positioned to emerge as the structural winner and fundamental endpoint platform in the future.
Was 11 modules and 11 App store partners, perhaps right offers unparalleled opportunities for customers to consolidate agents and reduce cost.
Proud strike routinely helps customers save money with some customers, citing a three X return on their crops like investment in as little as three months. We believe this is a compelling value proposition in any economic environment.
In conclusion, we believed that the rapid move to remote or hybrid workforce is contributing to the already strong secular trend among companies to transition to cloud platforms.
Cyber security is a basic need for organizations and from our vantage point investments by customers have remains strong. However, we also fully recognize that we are in an uncertain macro economic backdrop.
It is our view that in times like this the best companies continue to innovate focus on customer success and emerge even stronger.
We believe crowd strike is positioned to thrive as we continue to focus on driving positive outcomes for our customers.
Execute on our growth plan and 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.
We delivered another outstanding quarter with strength in multiple areas of the business.
In the first quarter, we delivered 88% air our growth year over year to reach $686.1 billion.
We added $85.7 million in net new air or representing 65% year over year growth, which was well above our expectations.
The growth in air or was broad based and driven by another strong quarter four new logo additions and expansion business, coupled with low contraction, ensuring consistent with prior quarters.
Moving to the PML total revenue grew 85% over Q1 of last year to reach $178.1 million.
Subscription revenue grew 89% over Q1 of last year to reach a $162.2 million.
Instructional services revenue grew to a record 15.9 million as the vast majority of these services, including incident response can easily be delivered remotely.
This is important as companies with legacy technologies will continue to experience breaches and we have the ability to quickly and remotely investigate and remediate the breach and this often leads to new subscription business.
We've been able to derive an average of about $3.73 of subscription air or for every $1 spent on an initial incident response were proactive service engagement as of January 31st 2020.
In terms of geographic breakdown approximately 73% of first quarter revenue was derived from customers in the U.S.
14% from Europe, Middle East and African markets, 8% from Asia Pacific and 5% from other markets.
We remain focused on building a long term business with sustainable growth and compelling margins.
In Q1, we recognized significant operating leverage in our SaaS model and the benefits of scale, even as we increase investments and our global reach and cloud platform.
First quarter non-GAAP gross margin improved to 75% from 70% a year ago.
Our non-GAAP subscription gross margin increased to 78% compared with 73% in Q1 of last year and 77% last quarter.
We're very pleased with our record subscription gross margin performance this quarter, but as a reminder, we expect gross margin to fluctuate quarter to quarter, given the ramping of new data centers.
Total non-GAAP operating expenses in the first quarter were $133.0 million or 75% of revenue versus $89.2 million last year were 93% of revenue.
We continued investing aggressively in our business during the quarter, including shifting sales and marketing spend from in person activities to digital.
With a couple of our significant events, such as sales kickoff and RSC occurring in the month of February before the travel restrictions were implemented.
We saw modest 1.5 million dollar decrease in travel and related expenses in comparison to the prior quarter Q4.
In the second quarter, we expect to realize over $5 million and savings as a result of travel restrictions.
Scaling our business efficiently remains a top priority, which is why we focus on our unit economics, including Magic number.
In Q1, we ended with a magic number of 1.2, which we consider to be very strong.
I'm also pleased to highlight that we reported non-GAAP operating income in Q1 for the first time in company history.
Non-GAAP operating income was $1.2 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 over 23 percentage points year over year.
Q1 represents our sixth consecutive quarter of improving non-GAAP operating performance on both a dollar at a margin basis.
Non-GAAP net income in Q1 was $4.5 million or two cents on a diluted per share basis.
Given we reported non-GAAP income in the quarter the weighted average common shares used to calculate first quarter non-GAAP EPS was on a diluted basis and totaled 229.8 million shares.
Turning now to the balance sheet.
Cash and cash equivalents increased to over $1 billion <unk>.
Our execution this quarter and record prior quarter sales performance led to strong cash flow.
Cash flow from operations was approximately positive $99 million and free cash flow was positive $87 million, reflecting improved operating leverage growth in deferred revenue and strong collections.
I'd like to note that average weighted contract lengths remained consistent within the range of the past four quarters.
From the results we are presenting today you can see that we have strong balance sheet highly resilient SaaS model and proven history of disciplined investing with a thoughtful bounced between generating topline growth and achieving operating leverage.
We intend to continue to higher aggressively and position the company to emerge from this unprecedented error, even stronger and to create even more distance between crowd strike and the competition.
Moving to our guidance for the second quarter, we expect total revenue to be in the range of $185.8 million to $190.3 million, reflecting a year over year growth rate of 72% to 76% with subscription revenue being the dominant driver of growth.
We expect non-GAAP loss from operations to be in the range of $3.1 million to breakeven and non-GAAP net loss to be in the range of $3.8 million to $700000.
Utilizing weighted average shares used in computing non-GAAP net loss per share basic and diluted up 260 million, we expect non-GAAP net loss per share basic and diluted in the range of two cents to breakeven so.
For modeling purposes. Please note that if we reported positive net income in Q2, we expect our share count to be 232 million fully diluted shares versus 216 million basic shares if we reported net loss.
Moving to our guidance for fiscal year 2021.
We continue to remain optimistic about the demand for our offerings and the powerful secular trends fueling our growth.
Given the growth drivers of our business as well as our strong first quarter performance and momentum into the second quarter, we are raising our guidance for the fiscal year 2021.
At the same time, we're maintaining our pragmatic outlook regarding the uncertain global macro economic backdrop and have once again factor that into our fiscal year guidance.
Well, we do not normally discuss the assumptions, we make in preparing our guidance and do not intend to do so in the future.
We would like to provide you with some transparency into the adjustments we have made to our guidance methodology to de risk our guidance for the year.
First while we did not specifically guide to ending air our we have how did the Q1 ending air our overperformance to where they are our expectation for the full year.
However, given the and seasonal strength of Q1 and uncertain economic environment, we're modifying our prior expectation that Q1 would be the low point for net new air or for the year.
Second while we have not seen a significant increase in contraction in churn as a result of the covert 19 outbreak.
Given the macro economic environment, we have prudently increased our assume contraction in churn for the year.
We currently intend to continue to higher aggressively and in some key areas such as R&D, we have increased our hiring plan for the year.
This along with the expectation that select essential travel will be allowed in the third quarter, we expect to see a step up in operating expenses in Q3 from Q2.
We continue to expect to be non-GAAP operating income breakeven in the fourth quarter.
In Q1, we converted our marketable securities to cash and as such do not expect to report material interest income for the remainder of the year.
And lastly for cash flow given the timing of expenses and seasonality of new hires we expect to see slightly negative operating and free cash flow in the second quarter.
And we are maintaining our guidance to be operating cash and free cash flow positive for the full year.
For the full fiscal year 2021.
We currently expect total revenue to be in the range of $761.2 million to $772.6 million, reflecting a growth rate of 58% to 60% over the 2020 fiscal year.
Non-GAAP loss from operations is expected to be between 19.2, an $11.1 million.
We expect fiscal 2021, non-GAAP net loss to be between 18.1 $9.9 million.
Utilizing weighted average shares used in computing non-GAAP net loss per share basic and diluted of 220 million. We expect non-GAAP net loss per share to be in the range of eight to five cents.
George and I will now take your questions.
Thank you, ladies and gentlemen, easy I look question at this time, we need to press star one on your telephone keypad.
To withdraw your question just found on high school.
My first question on Sterling Auty with JP Morgan. Please go ahead.
Yeah. Thanks, Hi, guys sounds like everybody is healthy which is fantastic maybe just to start off when we look at the network security space I think your expectations that after this initial surge for remote access capacity that they're going to see kind of demand paid off when you think.
Well end point in its totality are you expecting something different or more durable in the demand.
Hey, Sterling. This is George so thanks for the question and we're all say so thank you.
Yeah, I think what we've seen here obviously, there's a the work from home and I think ultimately of course into the work from anywhere and there'll be a hybrid model of people going back to work, but I think we all know that we're not going to continue in the same way that we had pre cobot, so and we see that as a long term opportunity and really I think if you take work from home and you and you.
Encapsulated in capitalize it it's it's really part of digital transformation.
And you know what we've seen a directly just over the last couple of months, it's just digital transformation being accelerated which means more people working outside of their corporate environment. It also means more cloud workloads right and this digital transformation, which encompasses work from home is really a longer term a trend that we're seeing effect on our 100.
100, I was speaking with the CIO and they said you know tell me a little bit about your digital transformation program any said, while we had a two year roadmap and in one day at the end of March we executed on that you know that just gives you an idea of how fast things have been accelerated so we see that has a long term secular trend and a tailwind.
Yeah.
We're able to benefit from.
Fantastic and then maybe just on the follow up on the go to market strategy you talked about the partnership with AAMC made from a high level is your expectation that you want to go deeper and bigger with the existing partners versus going broader in bringing a lot more partners.
I think that's always been our view is to have it is to have bigger deeper partners, where we can spend more time and invest.
You know more dollars an effort as well as the partner and we think that is a much better program and having you know many partners that you know aren't aren't necessarily moving the needle for us so.
Yeah, a big part of it as deal registrations are up big part of it is you know people wanting to move off incumbents and you know for us we'd rather double down on the big partners and ADW US has been really a fantastic partner for US I mean, you can see the results and a they really remove a lot of the friction in the sales process. So we're excited about that.
And if we look forward to continuing out in the future.
Makes sense. Thank you.
Thank you know our next question is transacted calia with Barclays capital.
Okay, Great Hey, Thanks, guys for taking my questions here.
Maybe maybe first for you George can you just talk a little bit about Falcon for containers and ADW as to sort of on that last point you don't realizing that it's still early here I think you said in the prepared comments that air are there was up about 75% over last quarter can you talk a little bit how would you.
Our customers are saying about this tool and who you're displacing in that sort of environment if anyone.
Sure Great to connect second I'll start with the latter part there's not a lot to displace out there because it's really a greenfield opportunity when we think about container protection and the beauty of our model is always been the simplicity. So the same lightweight agent can be used to protect many containers and there's a big difference between what we.
We do and what others do where they have to run inside of every container we can actually run outside the container at the operating system level and get visibility into every container and what's the benefit of that the benefit is it does not getting away of the development cycle developers and IP teams don't want and Dev ops. They don't want any friction in the model and we have a model that.
Introduces like zero friction. So it's been very well received in addition to that we've added a ton of capabilities into that offering.
Including all kinds of additional prevention capabilities as well as understanding the container configurations, and helping manage the containers the security those containers and multi cloud as well as on premise.
Very easily so it's been very well received than even as an extension to what we've done in containers, particularly in the cloud area. We've added a much broader discovery capabilities. As you know the I.T. teams are always struggling to figure out where the shadow ideas, we can help in those areas as well.
Got it that makes sense Bert maybe for you for my follow up thanks for the historical data on the net revenue retention and the in the slide deck. I think you said crowd strike remained above.
120%.
Sort of sort of goal on net revenue retention I guess the question is at what point do you foresee clearly some of the bigger lands that you're getting here with customers opting for four to five modules to tip, perhaps start impacting that metric and clearly that's a good problem to have a bigger lands, but curious if that's something to consider for that metric.
As the platform approach sort of continues to resonate.
Thanks and.
Thanks for the question so.
You as you know we don't manage the net retention number we still think but 120% as a good benchmark in a normalized environment.
Right. It did remain over 120% for this quarter I'm going as you know a dollar base net retention can fluctuate quarter to quarter and it isn't noisy metric just because it goes down as not necessarily it's bad thing and vice versa. So we did see a trend.
Through Q4, where we were seeing a larger wins and that weve, certainly impacting our or dollar based on retention rates and that was fine.
And we think that going forward, we'll likely see some some more a larger lands given the fact that more and more customers or a buying four or five or margins I.
Having said all that you know as you think about SaaS companies in the traditional as an expense over time.
Both the expand my take over at some point and as clearly as we bring more and more value to our customers in terms of more modules, we can possibly see an object.
My final comment on that is today, we're still going after both we're still going after the largely lands and we're still going after the expansion opportunities and we're paying or salesforce, the same whether or not they bring in us a new new logo or the lands or you don't expect.
Very helpful. Thanks, guys.
Thank you.
Thank you. Our next question is Sungard College pod with T cell.
Well its and thank you good afternoon to congrats to both the on the on the strong results, Georgia I want to ask if you were seeing a shift in appetite for non traditional use cases in the current environment I think the market while understands that we've seen a shift here in EDI aren't and JV, but are you find yourself being deployed and other areas, perhaps at a at a more aggressive rate.
These days given I think it's happening out there.
Hey, guys. Thank you for the question absolutely I think this quarter was really a tipping point into use cases outside of just security and we've been building our discover module for seven several years and a big part of that is focused on T. ops and security a invite yet I should say hygiene as well.
Well, what we think about asset discovery and configuration.
You know we talked about.
Emergency patches and configuration management and password reset. So this functionality drives a lot of automation into the IP stack and just given covidien. The remote work environment. We had so many customers that were struggling and really in a panic mode trying to figure out how are they going to understand a these systems how are they going to touch these systems remain.
Only when they're sitting behind everyone's local firewall in cable modem.
And they actually turn to the security team because they had solve that problem and they they basically it was sort of and eye opening you know experience for the I.T. folks in terms of our capabilities and what we can do so I see it really as a tipping point and we think about our capabilities. It goes well beyond just security and I think this.
Particular environment with remote work from home is the perfect use case for how we can drive automation and save a lot of money for the I.T. teams.
That's a that's super helpful. In the bird maybe one for you.
Congrats again on the on the gross margin here.
Given your commentary around the rollout of new Datacenters, what's the right way to think about both the lower end upper threshold. Your gross margin over the next few quarters with the goal here to be no probably conservative.
Yes, so peaker, great question, and one near and Dear to my heart. So gross margin expansion has been [laughter] gross margin expansion has been.
Focus of mine and my colleagues in the Devops Center and to date we've had.
Great success, and being able to expand our margins through obviously, you know new new modules coming to bear you modules me more more gross margin for us.
As well as opportunities within the data centers in terms of efficiency.
But as we think about the future we see opportunities to even.
To increase even more our gross margins with respect to lowering our long term costs with respect to datacenters moving them to lower cost environments, you know, but in the initial stages. If it takes more to it goes to get those up and running and so on a quarter to quarter basis, it might fluctuate, but not material. We're already still you know smack Dab in.
The middle of our long term or long term range and we anticipate to stay there. So the movements will be small in the next few quarters.
That's a that's super helpful. Thank you.
You're welcome.
Thank you know our next question comes from Brad Zelnick with credit Suisse.
Excellent. Thank you so much for taking the question good and congrats on all the great momentum and everything you're doing to keep the world Safe guys. My question follows up on I think what Sterling ask just trying to understand how much of the growth is coming from new endpoints clearly you had.
A lot of laptops being sold as everyone was working from home over these last few months and if maybe if you were to look at the mix.
Drivers, you know endpoint unit growth versus module adoption or or maybe dollars per endpoint said differently. How should we think about that mix in Q1 versus what you would typically see.
Hi, Brad Thanks for the question I'll take the first part and then I'll turn turn it over the Bert but you know for just step back a little bit and this is one of the areas that I you know I'm always focused on its when we talk about endpoint.
It's certainly that's our market, we get lumped into but I think it's a bit limiting you know I think about endpoint as a as a PC in a server and really what we're focused on his workload protection right, which is all the cloud environments. All the container as a femoral workloads I O T mobile devices, it's a much broader opportunity for us. So when you think about what happened with Covance sure you could.
I have new laptops come online and you're gonna have.
You know people working from home that that isn't going to change necessarily in those aren't going to go away. In fact, they talk to a CIO just a couple of weeks ago and they told me whenever they refresh the computers, they're only going to buy laptops as an example, right and going to go through a quicker refresh cycle because of that and most people think that yeah I. Most people work on laptops a lot of it.
Folks I know, but you know people on the office, the turn of computer on and off and that's it so they need to account for though so that's that's one piece of it but I think the broader element is really the digital transformation, which is how many of these workloads are going to the cloud and obviously you know the computers, they're buying are not going away, but at the end of the day, it's really.
About the digital transformation and having a cloud architecture, which we seem to accelerate people moving away from legacy technologies because of this new environment and I think thats more of the the longer term piece of it is it's not just the work from home or work from anywhere. It's it's how people are transforming that environment as well as their their moved to the cloud.
But maybe you have comments on on the other piece.
Hey, Brad Yeah, Great question. So the other thing that goes along with that transformation at same time from the long term perspective is also you know the increase margins right. So as you have more modules. It gives the opportunity and sales teams to introduce new things to customers and be able to increase their overall footprint with us from security perspective.
So just like given that we know that that's part of the one of the growth drivers that we're looking at looking into the future. It's obviously accelerated by what George was talking about digital transformation, but the opportunity as well in front of us in terms of all the different types of workloads that customers are looking to have protection on whether its work from home type of units were whether it's you know in EMEA in the network or in the cloud.
All of them are accelerating for us and we think that.
That's a huge opportunity for the growth that you will see in the future.
Thanks, Brad maybe if I could just follow up with one you know is as I think many have been concerned rightfully about customers desire to preserve capital.
And perhaps shrinking duration and extending payment terms you guys had a blockbuster cash flow quarter, I think your best ever 87 million and free cash, but at the same time Capex was a lot lower at least in what the street was modeling can you walk us through how you're able to deliver such a strong cash flow result, despite.
Being flexible with some customers and and also one capex come down a bit was it intentional or or maybe something supply chain.
Thank you.
[noise] Oh. Good question. So you know obviously, we're very focused on cash for us.
Turning off such a strong Q4 and even Q1.
You know that will see propelled you know the the opportunity to collect so strong collections was the result of you know the strong performing so that's that's part of it.
You know Capex you parse part two of your question.
Capex, we're trying to be managed throughout.
The year, if you look at our Capex overall, you're going to you're going to find that we're going to spend roughly around 8% of capex as a percentage of revenue with the with the majority coming in the Bakken and that's just a you know that's just a.
Function of how we see the capacity in our data centers and how much more we need to add and built into them to be able to keep up with our gross that's that's out there.
Thanks, very much and congrats again guys.
Thank you thank you Brad.
Thank you our next question, Alex Henderson with Needham.
Thank you very much.
To ask if you've got to call from Cleveland.
So you're going to go into the rock star all the theme with these Kevin numbers.
But I thought instead.
Something much more mundane along the lines of.
The free Onboarding and.
And the.
Talk <unk> home products.
Can you talk a little bit about the magnitude of that opportunity down the line when those people.
Run off the or.
The timeline.
For the free subscriptions, and then end up being a sign on is that a meaningful opportunity to up sell them to to the platform.
Well I think a general we think work from home and work from anywhere is a meaningful opportunity. Obviously, we were flexible with our licensing which we thought was the right thing to do from our customers and that's still running out we've had a lot of customers take advantage of that and so a lot of over deployment, which helped them and ultimately our goal is to be able to go back and.
Within often and move them into a pain program. So you know we continue to evaluate that opportunity I think it's one opportunity that we half and continues.
You know to move forward and you know the feedback that we've gotten so far has been fantastic. In fact, we have customers asking for a permanent work from home program for it for their home users and if you think about in today's environment, you know lots of people use their own computer at home they try to connected with the VPN customer <unk> customers need to be a little bit of.
So depending on their industry so having.
The home users protected which are often exposed to something that they could bring into the corporate network, which again is disappearing is important for many of these large institution. So I do think there's some good opportunities going forward.
As we look to to close out those programs.
If I could shifting gears slightly.
You guys have spent a lot of time and energy on.
Dealing with the kubernetes environments.
Yes, clearly got very differentiated product.
That goes into the run time side of a coupon Eddie's.
Can you talk about a your ability to feed that back into the C. I see the pipeline process back into the pre deployment side and to what extent you could think you can move into the.
Full process flow there.
Well, yeah. That's a that's certainly a in ongoing journey for us and I think we've made substantial progress and you know all the all the above obviously were very strong and runtime security and we have customers using the visibility element of what we're doing to really help them understand what should be deployed what is deployed what should be approved.
If it's deployed.
You know is it vulnerable things of that nature. So I do think there's a lot of future opportunities to continue to streamline in that pipeline and it's kind of it gets back to what I said earlier in the call. It's so easy to deploy it so easy to use it doesn't that a lot of friction. So now it's about adding more value back into the.
Developer pipeline as well as being able to solve some of the security use cases and the outcomes at the security teams are looking for so you know we continue to focus on we had a huge release just a couple of weeks ago. We have one of the most mature Linux versions with coverage for many different operating systems and.
That's been a differentiator for us, particularly in a winning cloud workloads protection business.
Super Thank you very much a great job guys. Thank you.
HM Carol.
Next question.
Tal Liani with bank of America.
Hi, guys.
I want to ask you about a competitive displacement and I wanted to just to discuss two things number. One is what was the experienced this quarter with displacing semantic specifically and second we also see that are displacing next gen.
Players and the question is why.
What are the deficiencies in their products or what kind of added value do you provide that allows you to display so selection players.
Sure well we started the first one we continue to displace semantic customers.
Again for for a lot of the reasons that we've talked about in the past people are looking for platforms and you're looking for technologies that actually work and stop breaches ransomware has been a huge driver and signature based TV is really not capable dealing with.
Sophisticated ransomware right. So people are looking to get off that are not as a matter of security I mean, that's certainly an element, but as a matter of business resiliency and in today's environment. If we think about the health care community lasting anyone would want it would be a ransomware attack the middle of a pandemic.
So that's one or two is on the next Gen. Players again, we spent the time and effort to build the platform out from the ground up right. It's the same Salesforce Workday service now crowd strike you know, we we don't have an on premise version because that's not our model. So lot of our competitors built on premise versions they tried to.
Moving to the cloud and call it a cloud offering their data is still on each endpoint value is being able to aggregate. This data at scale, which we figured out with our threat graph and effectively that creates a data mode plus the module expansion allows customers to add more modules not agent right and even our next gen competitors are they still have three and four.
Or different agents because of their acquisitions. So people want something it's simple on something that works and wants something that's future proofing ultimately stops the breach.
Great and that includes also next gen players.
What's specifically directed at extra and players yes got it.
As a follow up question about your platform can you discuss traction or for a goal with opening up the platform to third party applications are you starting to see traction with third parties and what kind of applications are being offered are being demanded.
Yeah. We are we we opened up the platform you know a number of years back and Oh, we continue to add partners I think we're up to 11 now and again our goal is.
Higher quality you know it isn't an Apple App store right, it's really about having.
Hi quality vetted partners in there and again it gets to the pain point.
Of customers don't one more agents they want less of them and I do think.
That is an underappreciated fact in the in the industry is how painful more agents are so when we look at the opportunity we have in the store.
We continue to add apps around patch management, we continue to apps around weightlifting, we continue to add.
Absent the a the OTI space. So those are those are all being built out or built out and we keep adding more partners and we keep announcing new partners and it's been a real strategic I think weapon for us because none of our competitors have a store quite like that and people love the flexibility that we're offering them.
Collect once reuse, many and allowing that flexibility to our customers really saves them, all the time and money in their operational overhead of other endpoints.
Got it thank you.
Thank you.
Gentlemen, until such time I'm, taking your questions to one any necessary to get back into queue.
Next question spend child, Chris main with Suntrust.
John Your line is open.
Good good afternoon, guys, sorry, I was on mute congrats on a a great quarter George I want to follow up on the then your vendor consolidation story that seems to be accelerating here for you guys.
Module adoption and it's just fantastic and Bert I had talked about you more investment in R&D can you talk a little bit about some of the new modules that you're working on that are coming out and when we should start to see them VLP firewall management, maybe for a more protection some of the other stuff that you guys are worth.
Moving on to sort of grow that that 10 11 number you know to.
Continued to grow that.
Sure. Thanks, Joel if we look at the modules today, we've got 11, we do a firewall management, we do a firmware protection, which is already in the product as you might imagine we don't when I'm talking about the future margins that were going to come out with but.
We are always working on new modules and getting feedback from customers were spending a lot of time again looking at various use cases and how it can help customers with a insider threats and.
You know do use cases that again go beyond just core security I'm, a big focus you know this quarter for US was our discover module and the ability to help I T teams and there are a lot of use cases that have come back in terms of what people are looking for above and beyond just just security. So we continue to look to enhance the modules we.
Half because we're never done with them, we're always updating them. That's the beauty of the platform I've had customers tell US you know we lock in one day and the next day, there's tons of new stuff that shows up and we don't have to do anything as it is nothing they need to do it just there.
And that's the beauty the platform. So we are rapidly working on that new technologies, new modules and obviously, we're bringing on used or partner. So as we have new modules will be sure to.
Bring everybody current with them.
Thank you.
Your next question is from Matt Pet parents with RBC capital markets.
Oh, Hey, guys. Thanks for taking my question at our say it was it was great to see spotlight in action I'm wondering dig into that product a little bit more that module or maybe some of the competitive wins, you're seeing against traditional vulnerability management peers.
Yeah. Thanks, you know the module adoption was up this quarter for for spotlight it shouldn't be a surprise given the fact that everybody's working remotely from home and I guess, what compliance mandates don't really care, if you're at home or in the office right. So customers have a compliance mandate, which is they have to understand what the vulnerabilities.
Our on their systems and to have real time visibility into your vulnerabilities irrespective of where that endpoint or workload is huge for customers. So we saw that being rolled out pretty rapidly and you want to click of a button people have visibility I think again it goes back to the consolidation play people don't want yet another agent.
You know some of the VM players have have pushed their cloud agents and at the end of the day. These are just kind of scanning technologies that add a lot of overhead to the endpoint and the beauty of our model again is the fact that we've already collected the data we're not putting extra burden on the endpoint from a performance perspective, and we're not waiting for scan the happen it's always real.
Time.
Thanks, guys.
Okay.
Our next question is I'm, sorry in them all written Macquarie.
Hi Times, Hi, George and burn, it's great to hear your voices and I'm glad everyone's well I'm going to ask Oh actually have a couple of questions, but I'll just go.
Right, you George and a follow up with bird and a bad but this was clearly a phenomenal quarter and I know your strength is being driven by digital transformation, but if I can dig a little bit down deeper.
I think about the upside and what's driving it the most between all of these major or trend do you have driving these results work from home competitive positioning versus the incumbents and even your new products is is there anyway. You can give me a sense of the mix and if it's evenly distributed are skewed to one or the other.
Thanks, guys.
Thanks, Sarah good to hear from you and it's it's a hard question to answer because each customers a bit different if certain customers that have too much complexity and you know again, they just want to simplify others have suffered breaches under a different technologies and they're looking for something that's.
More effective others are looking for force multiplier is like Falcon complete where they just don't have the head count that was been they a huge opportunity for us. This this past quarter. So when you put all that together I mean, there's a lot of Tailwinds as you as you talked about you've got the incumbents, losing market share and banning the market you've got work from home.
Tom you've got cloud adoption digital transformation.
There's a there's a lot of opportunity for us and some of it is white space in the cloud workloads. Its total greenfield opportunity. There just nobody there is cloud workloads in the fact that weve tied in with you know metered billing makes it easy for people to adopt so it gets to down you know to it just works it's simple it's easy.
To use and people can consume it the way they want to consume it and that you know has has really benefit us in one of the things that we talked about in the call as well as the mobile piece I think that you know gets on the represented sometimes and we saw some really nice wins because of work from home and.
We're.
One of the leaders really in and EDI, our endpoint for mobile we kind of develop that from scratch that category and we've seen on some really great traction in that in that area as well.
[noise] phenomenal, but I, just really I really appreciate the update on guidance. How you built out the year. It was really helpful. I just wanted to ask one quick thing shall we expect to see any increase in churn as a result of just these kind of current frozen economic conditions or workloads and device growth enough.
In the existing customer base to help to offset that.
So Ah hey, great to hear voice as well Sarah So we are assuming more churn and contraction in our guidance I'm well why we have things that we have not yet seen a meaningful impact a contraction in shown as a result took over 19.
Given the impact of the broader macro economy.
So taking into consideration we have prudently increased our assumptions for construction concerning the court. You know this is one way as you pointed out de risk our guidance in here and as we disclosed it you know in the prepared remarks. So that's how we're thinking about contraction sure.
I think you guys. So much congratulations amazing results.
Thank you.
Thank you and our last question some gray Powell with the Tianjin quicker.
All right. Thank some nice work in one of the questions have been asked already but maybe I'll I just a high level question. So on when things get back to something closer to normal and the economy fully reopens how are things be different crowd strike <unk> will you will travel as much and do as many face to face meetings.
As you are doing previously or do you see a permanent change to the way that you run your business.
Well, it's a great question ill try to be brief, but a you know we haven't been more productive.
Mike Carpenter and I are having meeting after meeting after meeting customers are available there not traveling and a it's been very productive it a little bit like Groundhog day, sometimes as you might imagine for everybody feels that but.
We've been able to get to the customers, we've been able to get to the CIO is it more importantly, we've been able to close the deals and you know that's that's what matters and it's just a new normal. So certainly there'll be a hybrid will can you know will travel where customers will except us and where it safe.
But I think it's you know a different way of doing business in enterprise selling in a in the SAS world.
Got it okay. Thank you very much.
Thank you Carol and I will turn that called back to the charge for his final thoughts.
Well thanks, everyone for the for the call in their time and attention. We hope to see you next quarter and of course.
In today's environment, we hope everyone to stay safe and Oh, We hope you have a great day. Thank you so much.
And with that ladies and gentlemen, thank you for participating in todays program you may now disconnect.
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