Q2 2021 Crowdstrike Holdings Inc Earnings Call
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Investor relations for crops drugs.
Maria Riley Ma'am. Please go ahead.
Good afternoon, and thank you for your participation today.
With me on the call or George Kurtz, President and Chief Executive Officer, and co founder Couch strike impart Potbellys 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.
Loading our outlook for the third quarter in fiscal year 2021 are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These forward looking statements represent our outlook only as of today this call.
Well, we believe any forward looking statements. We may have made are reasonable actual results could differ materially because such statements are based on current expectations and are subject to risks and uncertainties.
We do not undertake expressly disclaims any obligation to update or alter our forward looking statement, 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 FCC from time to time, including the section titled Risk factors in the Companys quarterly and annual report that we filed with us see seat.
Additionally, unless otherwise stated excluding revenue all financial measures discussed on this call will be non-GAAP.
He discussion of why we use non-GAAP financial measures in a reconciliation schedule showing GAAP versus non-GAAP result is currently available in our press release, which may be found on our Investor Relations website at <unk> IR dot crowd truck dot com or on our form 8-K filed with the FCC today.
Please also note that in light of these unprecedented times I was the result of the Cup in 19 pandemic management local will provide additional information into our second quarter results and guidance assumption.
We do not intend to provide this additional information on an ongoing basis.
Lastly, Falcon our annual user conference will be held virtually on October 15th.
Invite you all to attend or keynote presentations as well as the one hour session, we will hold specifically for investors.
Just station details to both events for investors and financial analysts will be available next week now I will turn the call over to George to be again.
Thank you Maria and thank you all for joining us today.
That's right delivered another exceptional quarter, we could not be more pleased with the team's continued execution and every crowd strikers commitment and drive to take our company to new Heights, even in light of the current macro uncertainty.
A few of our accomplishments in the second quarter include.
Setting a record for net new a our with over $100 million added in the quarter and ending the quarter with a record pipelines.
Sustaining our strong subscription revenue growth rate of 89%.
Adding record net new subscription customers at 969.
Closing the second largest deal in the company history, which was sourced trial and close remotely.
For the second consecutive quarter, we generated non-GAAP operating income.
Now, let's discuss our result, and the trends we're seeing in the market in more detail.
With strength in multiple areas of the business, we added $104 million in net new era or in the second quarter, which was up 77% year over year and ahead of our pre cobot expectations.
Additionally year over year, we grew our subscription customer base by 91% delivered 89% subscription revenue growth and 84% total revenue growth.
We once again saw strong partner engagement and deal flow throughout the quarter, among both large and SMB customers that span multiple industries. Additionally, our gross retention rate remained consistently high and our dollar based net retention rate once again exceeded 120%.
We also continue to see rapid module adoption by new and existing customers, which is a key tenet of our growth strategy. This quarter the percentage of all subscription customers with four more modules increased to 57% and those with five or more modules increased 39%.
Strong secular trends and a favorable competitive environment are fueling our growth.
Organizations around the world, our shedding outdated systems and accelerating their moved to modern cloud native technologies to meet the demands of today's threat landscape and future proof their security architecture.
Additionally, as organizations rapidly adapt to the new distributed workforce paradigm and move more workloads to the cloud. It has become clear that the endpoint is the new security perimeter and inadequacies of the complex brittle patchwork of legacy solutions continues to be exposed.
From the many conversations my Carpenter fresh Ricks President of global sales in field operations and I have had with see iOS during our 100 by 100 international virtual customer tour.
We consistently heard a few themes from both customers and prospects.
First even in this challenging macro economic backdrop cyber security is mission critical and more important now than ever as a threat environment escalates any attack surface continues to grow.
This is also consistent with our Overwatch teams findings so far in the first half of 2020, we've seen a 154% increase indistinct and sophisticated intrusions.
Stopped 41000 potential breaches, which is more than all of last year.
And we have seen a sharp increase in E cried with 27 different industry verticals falling victim to criminally motivated intrusions, which is more than double in the same period last year.
Additionally, many of the security leaders, who we spoke with believed that experiencing a breach now all their business is under extreme stress due to the impact of cobot would be far more detrimental to their business versus last year.
Second to secure the hybrid workforce in today's threat landscape. The two most important aspects of security are providing visibility in protection to workloads and implementing a zero trust architecture, which endpoint security is an important foundational element.
And third to protect their businesses see ipos are looking forward not backwards you want to cloud platforms that are agile easy to deploy easy to manage even if their security teams are working remotely.
As such today's refresh is all about digital transformation and eliminating their reliance on complex and fragile legacy technologies.
We believe crowd Frank is winning combination to continue gaining new customers at a rapid pace displacing both legacy and next generation players.
Many of the attributes in Falcon that are resonating most with customers as they addressed today security challenges. We're purpose built into the platform from inception.
Because the Falcon platform is cloud native and our lightweight agent does not require reboot. Unlike most of our competitors customers can easily and remotely deployed managed and protect their workloads at scale.
Security effectiveness is directly related to the quantity and quality of data collected in the ability to analyze it in real time, all the data we collect is stored in one place the threat graph, whereas analyzed almost instantaneously across our entire customer base, providing real time protection and community immunity.
My streaming to telemetry to the cloud with our proprietary smart filtering technology. We believe we have a fundamental time and performance advantage over most vendors because they store their data locally on the endpoint.
Correct graph is also foundational to our ability to dynamically scale and expand our product lineup as we collected data once and have the ability to reuse. It. Many times. This is not only a technology advantage, but also a business model advantage that drive strong gross margin performance.
It's more business is conducted virtually in more workloads move to the public clouds protecting those workloads is now a priority for see iOS.
Crush shrink Falcon was built in the cloud for the cloud and a core differentiator of the Falcon architecture is that we offer one platform for all workloads. The cross Red Falcon platform protects workloads across all environments, including workloads in containers running in both public and private clouds with a single agent and unified.
User interface.
Today, we protect over 1 billion unique container instances and are continuing to build strong momentum with Dev ops and security teams.
We hope you join our virtual Investor session Falcon on October 15th to learn more about our cloud capabilities.
Our technology superiority in protecting cloud workloads, let to one of our marquee customer wins this quarter.
With a rapid transition to working and socializing from home zoom experienced a surge in popularity and became a target for bad actors looking to exploited its success.
They're Linux environments, and ADW West an Oracle cloud, we're growing very rapidly to accommodate the increased demand for their SAS offerings seeking a strategic partner with a mature product and proven track record in protecting large scale Linux deployment for other cloud leaders soon called on crowd strike help protect their critical cloud.
Linux workloads.
Let me share a few additional stories that demonstrate how the power of the Falcon platform translated into customer wins.
The next customer when I will highlight is with a multinational financial services company and showcases the velocity of our sales motion as well as this strategic value of our platform.
Well this organization had been a professional services client in the past the threat Intel customer for some time, they were averse to cloud technologies and entrenched with legacy on premise vendors.
However in order to adapt to the new realities of work from anywhere model.
They embrace cloud.
Accelerated their digital transformation plans in the process realized he also needed to transform their security architecture and gain visibility into their endpoints.
This company was also looking to free themselves from their hodgepodge of legacy solutions and move onto a single platform that could be easily and rapidly deployed globally.
The speed of deployment and time to value were critical factors in their purchasing decision as the mirror thought of having to reboot. It's complex network of systems had kept this organization from moving to a modern architecture sooner.
Patrick single lightweight agent that can be deployed in seconds and does not require reboot significantly set us apart from the competition was a large contributor in accelerating this customer's time to value.
The customer recognize craft strikes superior technology and business value and we closed this deal with eight weeks from proof of value the purchase order all virtually.
We ultimately displaced three incumbent vendors with Falcon prevent for next year Navy insight for visibility discover for IP hygiene and Overwatch for threat hunting.
The next customer when I will share his with a leading airline and shows how even companies in severely impacted industries are willing to change course. During this critical time and under immense budget constraints in order to have security that just works. This organization was frequently being attacked by adversaries and a secured.
He was frustrated and fed up with the inability of their patchwork of legacy and next gen vendors to keep up.
As a result, they were spending a lot of money on services to supplement their fragile security tools.
By demonstrating the superior capabilities and quick ROI of the Falcon platform. We won this new customer, beating and displacing nexgen vendors that had ineffective and cheaper solution.
The last customer when I will share with you is with a leading U.S. hospital based in the Pacific Northwest that was looking to replace for income at legacy vendors in support of their initiative to move to the cloud and use of virtual desktops.
Organization was looking for a suite of solutions on an extensible platform, including an open ecosystem like the crowd shrink store.
It was also interested in managed security services. So they can free up constrained internal resources of the same time fortifying their security posture.
Well the competition was trying to leverage their bundled license structure, along with their cloud hosting relationship they could not produce one single reference I could speak to the quality of their managed services.
Crowd strike on the other hand offered multiple references in their own industry in one the deal on the spot.
In addition to Falcon complete our fully managed endpoint protection offering its new customer is using six falcon modules.
These are just a few of our 7230 subscription customers as of the ended the quarter, then turn to craft strike to help them stop breaches transform their security posture and streamline their I T operations.
As you can see from the exceptional results. We reported today, we are building strong momentum in the market as companies fast forward their businesses to an all digital world and embraced the future.
In this new normal companies recognize that security transformation is fundamental to digital transformation.
With our cloud native platform purpose built to solve modern security challenges crowd shrike isn't unique position to capitalize on this long term sustainable trend and expand our leadership in the security cloud category.
With that I'll turn the call over to Bert.
Thank you George and good afternoon, everyone.
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 I could not be more pleased with the teams exceptional performance, especially in light of these challenging times.
And the second quarter, we delivered 87% air our growth year over year to reach $790.6 million.
We added $104.5 million in net new air are representing 77% year over year growth, which was above our pre cobot expectations.
The growth in air our was broad based and driven by another strong quarter for new logo additions and strong expansion business, but low contraction, ensuring consistent with prior quarters.
As George mentioned, we signed the second largest deal in the company's history and this contributed low eight figures that are.
Excluding this deal we still delivered quarter over quarter gross and net new air all.
Moving to the PML total revenue grew 84% over Q2 of last year to reach $199.0 million.
Subscription revenue grew 89% over Q2 of last year to reach a $184.3 million.
Professional services revenue was $14.7 million up 40% year over year.
Professional services, our strategic part of our business as these engagements lead to new subscription business.
This quarter, we saw record demand for our services business and a record number of seven figure subscription air our deals resulted from our services engagements.
Additionally, we continue to grow the average subscription air are derived for every $1 spent on an initial incident response or proactive services engagement from the $3.73 level reported as of January 31st 2020.
In terms of our geographic performance, we continue to see strong growth in the U.S. as well as our international markets.
Approximately 71% of second quarter revenue was derived from customers in the U.S., 14% from Europe Middle East African markets, 9% from Asia Pacific and 6% from other markets.
We remain focused on building a long term business was sustainable growth and compelling margins.
In Q2, we recognize significant operating leverage in our SaaS model on the benefits of scale, even as we increased investments in our global reach and cloud platform.
Second quarter non-GAAP gross margin increased to 75% from 73% a year ago.
Our non-GAAP subscription gross margin increased to 78% compared with 76% in Q2 of last year and 78% last quarter.
We're very pleased with our strong subscription gross margin performance again this quarter, but as a reminder, we expect gross margin to fluctuate quarter to quarter, but within our target range as we wrap new data centers.
Total non-GAAP operating expenses in the second quarter were $140.9 million or 71% of revenue versus $99.1 million last year or 92% abrupt.
We continued investing aggressively in our business during the quarter, including shifting more of our sales and marketing spend from in person activities to digital and ramping new hires in key areas.
Scaling our business efficiently remains a top priority, which is why we focus on our unit economics, including Magic number.
In Q2, we ended with a magic number of 1.3, which is a new with an indication that we can continue investing aggressively in the business.
I'm also pleased to highlight that we reported non-GAAP operating income for the second consecutive quarter.
Non-GAAP operating income was $7.8 million.
I was 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 23 percentage points year over year.
Q2 represents our seventh consecutive quarter of improving bond GAAP operating performance on both the dollar and margin basis.
Given the incredible opportunities and dynamics, we see in the market today, along with our strong unit economics, we intend to increase our investments in our go to market engine, a higher aggressively in key areas in order to create even more distance between crowd strike on the competition.
At the same time, we've increased our operating performance expectations for the year and now expect a deliberate operating income for the full year.
Non-GAAP net income in Q2 was $7.9 million or three cents on a diluted per share basis.
Given we reported non-GAAP income in the quarter the weighted average common shares used to calculate second quarter non-GAAP EPS was on a diluted basis and totaling 233.2 million shares.
Turning now to the balance sheet.
Cash and cash equivalents increased to approximately $1.1 billion.
Cash flow from operations was approximately positive at $55.0 million and free cash flow was positive $32.4 million. Both measures ahead of our expectations.
Moving to our guidance.
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 second quarter performance and momentum into the third quarter, we are raising our guidance for this fiscal year 2021.
While we do not specifically guide to ending or net new air are given the exceptional strength of Q2, which included the second largest deal in our history, we expect to see atypical seasonality in that there are as we moved from Q2 into Q3.
Additionally, as we discussed last quarter, we're maintaining our pragmatic outlook regarding the uncertain global macro economic backdrop and have prudently maintain our higher assumption for contraction in churn for the remainder of the year, even though we have not seen significant increase in this metric to date.
For the third quarter, we expect total revenues to be in the range of $210.6 million to $215 million.
Reflecting a year over year growth rate of 60% to 72% with subscription revenue being the dominant driver of growth.
We are guiding to be approximately breakeven at the midpoint of our operating income guidance, which was a quarter ahead of our previous cool.
We expect non-GAAP operating income to be in the range of a loss of $1.4 million to income of $1.6 million and non-GAAP net income to be in the range of a loss of $2.2 million to income of $900000.
We expect diluted non-GAAP net income per share in the range of a loss of one cents to breakeven.
For modeling purposes. Please note that if we reported positive net income in Q3, we expect our share count to be 235 million fully diluted shares versus 219 million basic shares if we reported a net loss.
For the full fiscal year 2021, we currently expect total revenue to be in the range of 809.1 $826.7 million, reflecting a growth rate of 68% to 72% over the 2020 fiscal year.
Non-GAAP income from operations is expected to be between 3.6 and $16.4 million.
We expect fiscal 2021, non-GAAP net income to be between 5.6, an $18.4 million.
Utilizing weighted average shares used in computing diluted non-GAAP net income per share of 234 million. We expect non-GAAP net income per share could be in the range of two to eight cents.
Lastly, we saw strong free cash flow in the first half of the year and expect to be operating cash and free cash flow positive for the back half of the year.
George and I will now take your questions.
Thank you.
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My first question comes from a line of Sterling Auty O.J.P. Morgan Your line is open.
Yeah. Thanks, guys.
Just in your commentary around all the benefits that you're seeing in the current environment I guess one of the questions. We hear for investors is how much is the business directly benefiting from co. Good and what would you expect as the economy opens back up and we move Pascoe bid to happen to the you know so the growth rates of the business.
They certainly [noise].
What's your so you know when we think about Covidien you know, there's certainly been some puts and takes but on balance we believe it's been a tailwind for us.
And really what it's done is to accelerate the a deterioration of the perimeter and as more companies moved to a distributed work from anywhere paradigm, we believe.
It helps accelerate a this movement and from a security perspective. It really enables this digital transformation. So [laughter] companies can't really keep their there.
No systems behind the perimeter anymore and you know overall from my perspective, it's something that's a sustainable trend, whether it's worked from anywhere or whether it's actually moving these systems.
To the cloud so you know.
If you look at just the airline as an example, I mean, even in a kobin environment. You know, we're still getting big deals done in stressed industries and I think we're doing that because people are saying how can they be how can they run their business more efficiently.
In the current environment and being able to consolidate all those agents and reduce cost and come out with a better outcome is ultimately what they're looking for.
Makes sense. Thank you.
Thank you. Your next question comes from Saket Kalia of Barclays. Your line is open.
Okay, Hey, guys. Thanks for taking my questions here, how you doing.
Thanks.
Hey, <unk> first maybe Hey, Bird, Hey, George Hey, George maybe first for you.
Can you talk about the market size and end point long term.
And and I don't necessarily mean just growth of units, but I'm also curious how you think about what other Tam.
Is being created as to your point endpoint is sort of becoming that new perimeter and what other markets or potentially being consolidated into that endpoint security Tam does that answer that question makes sense.
It does yeah. If you look at where we are today, where their modules and typically when we add a new module, we add new tandem opportunities you know we're.
Probably above.
30 billion with all the Tam opportunity, we have today, you know and growing right. So that's that's today and into the future I actually think it's bigger than that because when you look at the opportunity in cloud and cloud workloads and we talked about.
As an example is opportunity for us to protect those workloads.
That's really underrepresented in the Tam market today, and there's a lot of Jason fees related to cloud and cloud protection and just it's just a different model. So between understanding what the hygiene of those those systems are understand what the vulnerabilities are having the ability interact with them using some of our discover for I.T. modules.
You know, it's it's a growing Pam and I think as I said in some areas is probably under represented because what were you know we get lumped in the endpoint security category, which is is a category you know we view it more as is workload protection right and point, it's just a subset of that workload and you have everything from mobile devices to I have two devices to cloud workloads.
Femoral workloads and that's a massive opportunity for us, particularly as you think about like Fiveg and its proliferation. So.
Hopefully that gives you a kind of a quick snapshot of the Tam that we have today, but as we had anymore as we add more modules. You know we continue to add more cam to two or opportunity.
Yeah sure that does that makes a ton of sounds George maybe maybe for my follow up for you burn.
Hey, nice to see the shift of profitability in the guide you touched on this a little bit in the prepared remarks around overall investing but could you just maybe double click a little bit on how you feel about your pace of hiring particularly in sales.
As we start preparing for next year.
Sure second so first of course, we isn't as mentioned we are continuing to aggressively invest our business.
Given the over performance in Q2, we have an eye to ensure that we'd be whether the requisite.
We have increased we definitely increase our hiring plans he areas and we'll continue to do so having said that as you've been focused on for a while I'm unit economics remains important to us. So we talk with the magic number of being 1.3, the highest it's ever been in company history, We don't plan to take.
Our oil it but it does tell us that we have room to invest.
So I think that so far do they have had excellent return or estimate investments. It's interesting you know business, we have a strong position today in the market or upper <unk> I think that yeah.
Ladies and traffic that without better and we're on.
I mean, it's a unique time as you know you have the right solution. It's the right market and we have an excellent competitive from a a backdrop I think we're going to take advantage of all those things on summary, we're not going to take our but all of the capital and we're going to continue to invest.
Very helpful. Thanks, guys.
Well.
Thank you. Our next question comes from Gur Talpaz of Stifel. Your line is open.
Okay, great. Thanks for taking my questions I've got one for you George and I went for your Bert George you alluded to this in the prepared remarks, but can you talk about the appetite for workload security transformation and I think ultimately displacement of legacy and next Gen systems, and I think more importantly, he's going to shift here over the past quarter and if so why.
Well, we have seen a I think an acceleration in that area and a shift because as people are trying to execute on their their digital transformation plans. They actually figured out that need to security transformation first and in order to get all these legacy systems up into the cloud from a compliance perspective, you have to have security and typically.
We've seen in cloud workloads is there under protected there's just there's not there's really nothing there protecting them. So we see it as a greenfield opportunity for us I.
I mentioned that you know on a daily basis, which we protect that were billion cloud containers affiliates and those are femoral containers that come come and go. So we've really built I think a great reputation and tremendous capabilities from a technology perspective in that area and we continue to double down.
In a in cloud workloads protection. So if we think digital transformation is here to stay which I do security transformation as part of it moving to the cloud cloud workloads are going to need to be protected and right now they're they're under protected there's there's not much there. So we feel really good about it.
That's a that's helpful. And then and then Bert you continued ramp here in module adoption I think remains really impressive and you could walk us through but continued growth there and means for the model, particularly from a margin standpoint. Thank you.
Sure grade. So so first of all we're very pleased with with our module which is.
We have seen an increasing the number of customers using both you know discovered as BOLI and core.
And I mean, they've been two critical markets for us outside of core the quarterly to be three that we talk about Uh huh.
You know overall, though you see this baskin Robbins easy strong adoption for our models with customers adopting for more modules, increasing to 57% and those with five of them are models increasing to 39%.
I think that you know that in of itself you know should give an idea so or how well we think we're dealing with respect to watch.
With respect to profitability and what this means for us every new model or after the first I'll add to our bottom line is virtually its virtually all the new modules that that come on board become virtually all.
So as we think about the opportunity in front of us both in new logos, and and a new or expansion and and also.
We feel that there is a unique opportunity for us to can seem to go after boat.
So because we can go after both and because we think that we've got this great platform. We can add new modules bring them in seamlessly into our platform, we're able to drive more profitability into our business as we continue to expand our module adoption as well and new modules to the.
Great. Thank you.
You're welcome.
Your next question comes from Alex Henderson of Needham. Your your line is open.
Thank you very much.
Last quarter, you guys talked about the rapid rate of adoption of your endpoint technology through.
Hey, Ws uptake.
Thank you said it was 70, 585% type quarter to quarter growth.
I was hoping you could give us some sense of what that update looks like at this point, whether that's continuing get those very high rates of growth sub or whether it's starting to level off little but.
Sure Hey, this is George so we didn't give any specific guidance around the actual numbers, but you know we're seeing similar adoption.
We think again about some of these big wins in the cloud.
Talked again about seeing them and their E.W.S. environment and in particular.
Talking free Ws, Yeah, we're seeing great adoption, there and we don't you know we only we only seeing it we only see it continuing to do really well.
As I said before there there's not a lot of solutions a competitive solutions that really operates it seamlessly in the cloud and customers like it we integrate with their marketplace in store, we have metered billing. So it makes it super easy for customers to be able to implementing use it and and get filled appropriately.
If I can follow up clearly there is a big opportunity for you and one time deployments around kubernetes, but have you started to work on pushing back to pre deploy environment. So yeah, you know into the Jenkins process and the like to tie in both the discipline and then.
Back into that process.
Well the the beauty of our technology is that it doesn't necessarily have.
I have to be in the flow of that process, because we run underneath all of the containers.
Seamless for developers to just deploy and not have to worry about putting another agent in a container. Unlike our competitors. So.
You know, we certainly have lot of interaction with the Dev ops teams, but the reality is they don't have to change much in terms of deployment, because it's sort of seamless behind the scenes.
Great. Thank you very much.
Thank you. Our next question comes from Tamiami of Bank of America.
Line is open.
Hi, guys.
This quarter you expected to be the low 0.4 net newly hour and it was actually a very strong quarter I'm just wondering.
Brett do you can take us through what.
What changed in the quarter versus your previous expectation. That's my first question.
Yeah, Hey, so so first let's be clear what what I said was is that you know that Q1 may not be the low order.
So you know I didnt necessarily columns on Q2, we're obviously I'm excited for the phenomenal order that we just put up on the board, even even without the oversized deal that Georgia talked about on the call I think that you know a lot of things that George talked about kind of led to the great quarter you know with.
Yeah, I think that the acceleration of deterioration of the perimeter that's number one clearly.
You know that acceleration towards digital transformation I think you know that has also helped in the quarter, but overall it goes back to what George.
I mean, he built the company, where we do you know it's a single each and I'm single platform, It's David driven you.
Once you reuse it many times and of course, it goes to the ease of deployment and ease of bad all those things are working well today and really lends itself to today's environment for years to call.
That said you combine that with you know the competitive environment, which is.
In a very good for us and I think that you know given all those things come together, we saw you know the over performance in Q2.
Got it so when you look at the next new way, our and the performance can you give us a flavor of.
I don't know anything exact numbers, but at least talk about it what's the split about between new customers.
Additional endpoints within existing customers and also new module additions.
Sure. So as I mentioned right now we are winning both new logos and we're winning upsell and cross sells.
Very robust so for us.
Well, obviously saw you saw the number it's a record for us. So we're really excited there and of course on the a on the cross on expansion another great quarter, as well and we feel that.
Tremendous amount of headroom on both.
I think what was really special about Q2 was that it was strong and both of those areas and we're going to continue to go after both in a meaningful way and we back it up with our comments today, we pay for next year or whether it comes from the new logo or whether it comes from an upsell expansion we're paying sales.
Equally for both so they because we feel we have a lot of headroom.
Becton logos and play well in that area and also because if our unique customer base. This opportunity to continue to upsell and cross sell to that you need customer base and of course has got a new models. It just gives us a an opportunity to sell that any module to our ever growing customer base.
Excellent. Thank you.
Well.
Thank you. Your next question comes on the line of Sarah handling a ball from Macquarie Capital. Your line is open.
Alright, great. Thank you so much thanks for taking my questions George in part good to hear from you and congrats on another stellar quarter and so I know you've been asked about this a little bit but I wanted to follow up on sockets question on what's driving really the better unit economics, you've outlined on the call for.
Forest Park is there still better than expected success in some of your new go to market initiatives with maybe some of the self serve on his adoption of new cloud products. Just scaling really quickly you still get your gross margins are improving a little bit faster and there's some flow through there is there just a little bit of additional color you.
And give us on what's driving that really strong unit economics and this better March towards profitability. Then then I was expecting.
Hey, Sarah Great to hear your voice as well so thanks for the question. So first you know since day one we've been we've had a an eye to unit economics. We you know the way that process, we're still seeing works with financing to develop the capacity planning then we look at the capacity plans.
And then we Oh, we picked and we put it into our financial models and we come out with you know range of unit economics that we get comfort.
And so when it starts there and when we see you know this opportunity problems with respect to many of our competitors, but being able to keep up with our cat and our go to market what's been happening as we've seen you know success across all of our different swim lanes and success along a a crawford years. So when you have all.
It's going to eat just from a unit economics and for US we continue to measure that we continue to look at how we think about each of the reps in each of the different category each of the different territories and then we triangulate that with respect to you know the product adoption as well the geo adoption and so far we've seen you know.
Great success across the board on all of those different elements.
Back to our marketing plans and with respect to where we live in today with respect to the increase importance on on digital you know we funded those accordingly, we've looked at you know the returns that we get on those particular initiatives and they've been successful for us maybe for a little color on that all customer.
George with respect what programs.
Yeah. Thanks, Bert So I you know you touched on that the digital piece and we spent a lot of time I'm, having a platform sell itself with enough trials in the ability to instrument what customers are doing and really be able to take that information and convert that into sales. So you know one of the things that we really are focused on building the company's not only billing and scalable technology.
Gee to prevent breaches, but are also build a very scalable sales model, which uses technology behind the scenes that people never see so I think that's part of it and we continue to refine how we go to market and in how we get the customers and burden are always looking at the cost of sales.
And trying to make it as efficient as possible.
Well. Thank you both that was very helpful. I appreciate you didn't congratulation.
Thank you think there.
Thank you once again, we remind you to limit yourself to one question and one follow up My next question comes at a line of Walter Pritchard, Oh Citi. Your line is open.
Hi, Thanks to product question, sorry, just one product one go to market on the I know you've been doing that program with home systems and you know some employees are working at home offer different systems I'm curious, what what how hard you pushed on monetizing not an interest in update there and then how to follow up on a SMB segment.
You know we're still in the in the cycle of helping companies get through this so we haven't pushed that hard and monetizing it Ah theres been a tremendous amount of interest and that was a program that we put together a specifically for co. It but you know what is something that we can continue or we can continue if we'd like going forward and we see a lot of demand for it so.
So no real updates on that other than lots of people taking advantage of it and you know at this point, we really haven't pushed on monetizing it as people just trying to get their sea legs and get through this pandemic.
Great then on SMB, how would you articulate the mix the business or success, you're seeing incrementally in that market a little hard to tell on a customer counts been great and it doesn't look like they're getting not much smaller but wanted to see.
Where you feel like your progress is there.
Well I'll, let Bert jump in here too as well, but I I think just at a you know the broad strokes level. We've had a lot of success in the SMB market I can tell you we've got a very well refined inside selling motion combined with the trial.
We've been able to help customers through time and needs, where they've been using legacy technologies and have been hit really hard by ransomware. So we've done really well in that environment and again, we continue to I'd say made great strides in how we market to those SMB customers and rubber is there anything else you want to.
Yes, I think sourcing, yes, sure I'm not going though of course is that that'd be answers roll business is still these smaller portion of our business, we're growing across the board so well that.
We will remain a there for a little bit I think the strength and then talk some more on the strength of our strong enterprise growth and some of these deals were able to land and this quarter also you have enough I feel of what we're seeing the velocity of or of our SMB space can pick up and I think it talks to the fact of you know the <unk>.
Pretty good frictionless go to market that we've created and I'm really favorable.
Competitive environment, which is driving that growth both on the on the enterprise though.
Thank you.
You're welcome.
Thank you at this kind of ladies and gentlemen, Im essence of time, we ask that you. Please limit yourself to one question.
Our next question comes from Brad Zelnick of Credit Suisse. Your line is open.
Great. Thanks, so much for taking the question and congrats once again.
To all of you.
George I wanted to ask about how customers are deploying salkin in conjunction with legacy and even newer Sim and observe ability platforms. For example, elastic acquired an endpoint capability and I totally get your value prop extends well beyond endpoints, but how do you think about he's worlds aligning or even.
Converging.
Well, we've got customers that have you know different technologies in their environments and they may have something where we're running side by side. We we may replace a lot of technologies that are in their environment or we may run you know side by side and then replace a bunch of technologies. It really depends on the customer and there are cycle and you know.
When they're subscriptions run out things of that nature.
The beauty the technology is that it's really all apiay driven so if a customer needs to plug things together get data out of our system. You know we believe in best the platform approach. So they can be plugged into other technologies out there and you know were open right. So we realize this other security tools that are out there and and a you know worked with others, but.
At the end of the day once we get in either one module. We know we have a very high conversion rate in many other modules because of how easy it works.
You know you deploy efficacy et cetera. So you know it depends customer by customer, but overall, it's just a matter of getting into a a customer with either one or more module and and being able to expand that out.
Appreciate the answers. Thank you so much guys be well.
Thank you.
Right.
Thank you. Your next question comes from the T Mobile Bonnie view the your line is open.
Good afternoon. Thank you for taking the questions on George maybe one for you just on this even topic of go to market and go to market efficiency I did want to drilling on E auction proof point in Mexico partnership on the depth of technical integration there is pretty clear, but I'm wondering if you have a formalized <unk> or joint.
Go to market motion place, where there are shared economics, and just to kind of extend that out any tangible go to market successes successes, you've seen in the field kind of going to market together are certainly anything that you're seeing in the pipeline that kind of gives you confidence that this is the right combination.
Partners.
Sure well I would say, we're still in the crawl walk run stage and that doesn't have shared economics at this point, but what we're really focused on is getting the best outcome for customers and putting best of breed platforms together and I think what we've seen over time as a customers aren't interested in in building things they're interested in assembling if you will taking you know crowd shrink in October.
Proofpoint, others, putting them together and I think thats important so we've got the integrations there and in a big part of what we're doing as well and things like October is helping to drive a zero trust initiatives right, where the endpoint really has a view of what's happening in an idea of what's happening from like any perspective, that's really important for a lot of these identity brokers if you will.
So I mean overall, it's been very very well received by customers in a lot of joint customers that are using all these technologies and they're looking for vendors to be able to come up with solutions that just seamlessly work together and share information and that's really what we're focused on.
Appreciate the color. Thank you.
[noise]. Thank your next question comes from Gray Powell.
BTI T. Your line is open.
Great. Thanks for taking the question.
Yes, I'll be quick.
I think with the trend tends to work from home just about everybody knows it companies had to go out and they had to buy more laptops and the bikes footprints had increased I just roughly speaking a ballpark number by how much do you think the endpoint footprint at your typical customer has increased over the last six months and then where do you think customer.
As our with that spending cycle is you're still more to go or do you think there where they need to be.
Well, it's a good question I don't know that I have a an exact answer we have seen you know acceleration in companies buying laptops that we've seen Ah Ah freed up tick in mobile protection or we've done some really big deals and on the mobile side as well.
Where organization couldn't afford maybe laptops are they bought some some a lower cost mobile devices and I think you know overall you know.
That's sort of a expansion is one way to look at it but I think you also have to look at in combination for it you know forever every asset they they actually create or or new acid. They buy how many new cloud instances are they spending up to support those assets and.
What we've seen is that there is a pretty big increase and just all the cloud workloads is as these you know you made by laptop and as you know many more cloud instances.
So it's hard to it depends on the company and it's hard to pin down, but overall as I said before I think it really to sustainable trend that these devices you know, they're not going to go away. They bought them, they're not going to go away and they're going to probably by more of them, but at the same time, there also putting more in the cloud and all those cloud workloads me protection as well.
Got it thank you very much.
Thank you My next question comes from show.
Oppenheimer Your question please.
Thank you.
Good afternoon, guys. Congrats on a quarterly performance and improved outlook yet again.
[laughter] Joels question on on Microsoft up you know, we keep hearing about them advancing with into security arena with a growing focus on from categories and point I Didnt get email on some other included.
How do you see there advancement and has anything meaningfully change from my personal perspective in that regard.
Well again, Microsoft is still primarily a signature based legacy JV product and they certainly made some strides but nothing fundamentally you know he's got a lot of legacy tech in the news you've got some acquisitions thrown in there and what we've seen in the field is that customers want a single agent a solution that works across not just windows, but across Linux and Mac seamlessly and.
A company, that's really focused on stopping breaches and you know we've seen a lot of customers that just or looking for a church and state and there's just so many microsoft patches and vulnerabilities come out I think 7000 security issues just from May through July alone that they're looking for solutions to help deal with some of that and.
I think they're looking for church and state. So, yes, certainly they've got some offerings there but.
A lot of it is very complex with multiple cancels and and harder to to really Operationalizing I think a lot of people [noise].
[noise] understood. Thank you.
Thank you. Our next question comes from Andrew Nowinski of D.A. Davidson. Your line is open.
Okay. Thank you and congrats on nice quarter, you spoke a lot about cloud workloads today and I understand it's based on metered billing versus on a per endpoint basis, but can you give us anymore color on the revenue contribution from cloud workloads.
Relative to the revenue contribution from your traditional endpoints and then where would you rank cloud workloads on the list of your top revenue growth drivers going forward.
Well, we haven't put out anything specific on on actual numbers and cloud workloads and just to be clear we have the ability to to bill on a metered billing basis, but we also have the ability to.
Leverage the traditional model, we haven't we have cut companies that do both right. So it's not one or the other its actually both but I would say you know in general when we look at at the opportunity in cloud I really think we're just scratching the surface.
I don't I haven't run into too many <unk> or folks and technology I believe that you know cloud is going to slow down anytime soon in fact really what we're seeing is you know where it was sort of staring at 2020 threes digital transformation plan and we're looking at in 2020 right. They've just everything has been accelerated and yeah. They said earlier there's Joe.
Just a lack of protection and it was environments and companies it really figured out they have to go through security transformation before they can actually get their digital transformation off the ground to support it.
Got it thanks George.
Thanks.
Thank you weren't next question comes from Matt Hedberg of RBC capital markets. Your question. Please.
Okay, guys. Thanks, George regarding the crowd shrake store.
You added a number of applications this quarter, including Leumi, Oh, Yeah. I'm wondering can you talk about the longer term strategy and really monetization opportunity of the store versus your core platform.
Yeah sure I think illuminate was a great example of a you know what we've been able to do and really what we've been able to create it's really more than a story you can think about it as endpoint pass right platform as a service, where we've got very valuable beachfront real estate, which happens to be these endpoints in workloads and customers don't want yet another agent so our store.
Partners can take advantage of the infrastructure, we felt the microservices <unk>, the workflows and instead of putting out yet another agent they leverage our infrastructure you know we get paid for that and ultimately it's a great went for the customer you know not another agent because of leveraging what we have and a seamless integration.
You know for other capabilities and the case of aluminum older. They are helping to prevent lateral movement based upon some of their expertise and microsegmentation space. So you know were 14 partners today, we continue to grow that out and I'm against been very strategic to us and well look to to really harvest and monetize that in future in future years, but right now.
Now, it's about solving problems for customers and making it really stick.
Thank you.
[noise]. Thank you our last question come from the line Gregg Gregg Moskowitz of Mizuho. Your line is open.
Alright, thanks, very much and thanks for taking the question George just getting back to the competition you called out some interesting customer case studies.
More broadly if you were to look at just the rate and pace of displacement activity in terms of what you're seeing and hearing from.
From your Salesforce from your channel and just kind of look at that over the past few months has that shifted at all or has that sort of accelerate it as it relates to competing against those legacy as well as more next Gen type solutions.
Yeah, it's been favorable it continues to ramp remain favorable obviously, there's there's a lot of shared the owners out there we made a substantial gains in the latest IVC report.
In terms of our market share and there's there's a lot of donors right. It certainly semantic but lot of other donors.
Including Nexion players you know when they're going through there the renewal cycles. So you know overall, it's a it's actually I think than to integrate market for us and customers again are looking for that consolidation play reduction of agents reduction cost and and better outcomes and that's where we're able to deliver.
Terrific. Thank you.
Thank you at this time I like to turn the call back over to George Kurtz for closing remarks, Sir.
Well. Thank you were excited about the quarter and we look forward to talking everyone next quarter, and we certainly I want to wish everyone, well and we stay safe and well talk soon thank you so much.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
Good bye.
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