Q3 2021 CrowdStrike Holdings Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and the welcome to the crowd strike. The Scott third quarter 2021 results conference call. At this time, all participants I know listen only mode. After the speakers presentation, though the question and answer session.
Ask the question during the session you and me the press Star one on your telephone. Please be advised that todays conference is being recorded if you acquire any for their systems. Please press star zero.
And Alex and the conference just speak of today Maria Riley. Please go ahead of them.
Good afternoon, and thank you for your participation today with me on the call are George current President and Chief Executive Officer, and cofounder of called try and Bert Potbellys Chief financial.
Officer.
Before we get started I would like to note that certain statements made during this conference call that are non historical facts, including those regarding our future plans objectives and expected performance, including our outlook for the fourth quarter and fiscal year 2021 are forward looking statements within the meaning of the <unk>.
Private Securities Litigation Reform Act of 1995.
These forward looking statements represent our outlook only as of the date of this call.
While we believe any forward looking statements. We of me are reasonable actual results could differ materially because the statements are based on current expectations and are subject to risks and uncertainties.
We do not undertake and expressly disclaim any obligation to update or alter our forward looking statements, whether as a result of new information future events or otherwise.
Further information on these and other factors that could affect the Companys financial results included and filings we make for the FCC from time to time, including the section entitled Risk factors and the company's quarterly and annual reports that we file with the FCC.
Additionally, unless otherwise stated excluding revenue all financial measures discussed on this call will be non-GAAP.
A discussion of why we use non-GAAP financial measures and a reconciliation schedule showing GAAP versus non-GAAP results is currently available in our press release, which may be found on our Investor Relations website at IR <unk> held true dot com or on our form 8-K filed with the FCC today.
Please also note that in light of our recent acquisition of premium security management will provide additional information into our third quarter results and guidance assumption, we 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.
From a freight delivered a record third quarter with results exceeding our expectations across the board a robust growth at scale underscores our growing leadership and the security cloud category and the immense value we deliver it to customers seeking to transform consolidate and fortify the security posture.
A few of our accomplishments and the third quarter include.
Setting a new record for net new air or generated and ending the quarter with over 900 million and they are.
Delivering strong 87 per cent subscription revenue growth and setting a new record for professional services revenue.
Adding a record 1186 net new subscription customers.
Generating non-GAAP operating income for the third consecutive quarter of positive operating and free cash flow for the fifth consecutive quarter.
Introducing the three new modules and driving strong module adoption among customers.
Acquiring preempt security, which expands the crowd strikes zero trust capabilities and incorporates critical identity behavior of data and analysis to help customers for to fly there of defenses and prevent identity based attacks and insider threats.
Joining forces with the white to help strengthen their client cyber security posture by using the Falcon platform.
Our alliance with the why has already influence multiple deals.
And lastly, hosting a highly successful virtual user conference with six times of the customers and prospects attending compared with our in person event last year.
It was an exceptional and active quarter I can't emphasize enough that these results represent the phenomenal execution of our team and I'm very proud of what we've achieved now lets discuss the results and the trends, we're seeing and the market in more detail.
Broad based demand and strength in multiple areas of the business fueled our growth.
We added $170 million and net new air or in the third quarter and the quarter with $907 million and they are.
Demonstrating the power of our sales engine and our land and expand strategy, our subscription customer base grew 85% year over year and dollar based net retention rate and once again exceeded 120 per cent.
We believe we are well positioned to expand our leadership and drive strong growth at scale.
We have multiple avenues to drive sustained growth, including.
Winning new customers at a rapid pace.
Cross selling new modules to existing customers and protecting more of their cloud assets.
Growing our market opportunity with new modules and adjacent fees and growing our international business.
Today, I will focus on our ability to rapidly introduce new modules and drive adoption among both new and existing customers. As we believe this is core to our competitive moat.
Let me expand on this point in more detail.
The very nature of our cloud native architecture powered by threat graph enables our ability to innovate and bring new modules to market that customers actually adopt or.
Our customers recognize that red graph is unique the crowd strike and differentiates us from others in the market.
All the data we collect it's stored in one place the threat graph.
This is very different from other vendors, including upstarts debt silo their data and limiting their ability to scale and the customer's environment.
To be clear of any vendor with an on Prem solution is currently unable to replicate our threat graph capabilities, which allows us to deepen our competitive moat.
Our massive data lake within threat graph grows and gets smarter by the minute, which also differentiates our managed detection services, providing visibility across all our customers.
Threat craft processes over four trillion high fidelity signals per week.
Additionally, with the recent acquisition of preempt security, we will have access to a new set of user behaviors to drive new use cases, such as preventing insider threats.
With one day the store the data can be analyzed the almost instantaneously across our entire customer base, providing real time protection and community immunity and better training data for our AI algorithms.
While others in the market like the claim like for like features on slide where customers know the difference and as a result crowd strike is rapidly expanding its leadership in the last nine months alone close to 3000 net new subscription customers have chosen Falcon.
And the third quarter, we announced three new modules, including Falcon horizon for proactive management of cloud security posture.
The Falcon ex recon for increase situational awareness of dark web threats, and the Falcon forensics, which automates the analysis for incident response investigations.
Combined with the cloud discovery and cloud workload protection features we previously introduced and recently formalized and Standalone modules for.
Falcon platform now encompasses 16 modules.
In total we believe our addressable market will reach $32.4 billion in calendar year 2021 cash.
The character of the estimated 24.6 billion dollar market in 2019, which we disclosed at the time of our IPO.
And the third quarter. We also took our platform for the next level by building extensibility points and the platform for policy Detections work flow user experience and third party integrations. This enables each product group within crops right to accelerate the development of new modules the.
The same extensibility points are also being made available to our crops for Exterran partners further reducing the investment they need to build a store.
Our industry, leading cloud native platform also gives us a fundamental business model advantage as we capture the date of ones and monetize it many times.
Importantly, customers are able to quickly try and adopt new falcon modules without deploying any new infrastructure, where agents, making the process frictionless.
The measure our success, we look at the percentage of all subscription customers.
For a more modules.
And the third quarter, we continued to see rapid module adoption as a percentage of all subscription customers with for more margin with increased the 61% and those with five or more modules increased to 44%.
I'm pleased to announce and Q3, we reached a new milestone with 22% of our subscription customers, having adopted six for more modules for.
Driving adoption of our expanding module lineup is the Keystone to our growth strategy as it increases the strategic value, we provide the customers, which also translates the higher retention rates.
Moving to our markets, we continue to see a heightened the threat environment strong positive secular trends and a favorable competitive landscape.
Organizations around the world are shedding outdated systems and accelerating their move to modern cloud native technologies to meet the demands of today's threat landscape for.
And your proof their security architecture and adopt the zero Trust security model six.
The Securities mission critical to businesses around the World and security transformation is foundational to digital transformation.
We believe these are positive long term sustainable trends for our business.
Stopping the breach is no longer just about protecting and points.
And also encompasses cloud workloads security and identity protection.
We have been investing and the innovating and both our cloud workload and zero Trust capabilities and we believe we will see significant growth opportunities in the years ahead.
As more business is conducted virtually and more workloads move to the cloud protecting those workloads as a priority for C. iOS. However.
However, heavy performance training agents built on legacy technology are often the left behind because they can't keep up with the speed agility and scalability required and the cloud.
As a result, we believe todays cloud workloads are massively under protected and this could represent a 10 ex market opportunity and 2023 compared to Idcs estimate of the cloud security market and 2020 as Weve illustrated in our cloud security Webinars for investors and our virtual Falcon.
Conference in October.
Cross 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 for.
The March through October of 2020, we have seen more than 14 ex growth and protection for containers and greater than 20 per cent of all of the servers, we protect the across the entire fleet of customers are in the public cloud.
As briefly mentioned earlier, we've recently expanded our cloud capabilities with the launch of Falcon Horizon, which automates the cloud security posture management across the application development lifecycle for every major cloud provider.
This enables customers to securely deploy applications and the cloud with greater speed and efficiency as well and satisfying compliance and regulatory requirements.
It also provides visibility into private public hybrid and multi cloud environments and enable security teams to proactively minimize threats and ensure continuous compliance and governance against organizational security policies.
With the recent acquisition of preempt security Crouch strike is leading the charge and delivering an end to end the zero Trust solution.
We believe combining workload security with identity protection is foundational for establishing true zero trust environments.
This is another area, where the Falcon platform and provide a clear advantage for securing today's distributed workforce by providing enhanced protection against identity attacks and insider threats.
The solves the huge problem and close is a considerable hole and security that conventional zero trust models can't the dress.
Based on the ITC estimates, we believe the identity protection market will be a 2.2 billion dollar and market in 2021 for.
<unk> is a leading security provider in the market with the zero Trust approach that combines endpoint and workload protection with identity protection behavioral analytics and AI.
As the pioneer and cloud delivered endpoint and workload security. We believe Crouch Reich has created a winning formula of to gain new customers at a rapid pace displacing both legacy and next generation vendors.
As you May recall last quarter, we joined forces with docket to help customers adopt a modern identity centric zero Trust security ecosystem.
This quarter, we are thrilled to announce the OCC. The is now of crops for a customer and excited by this opportunity to deepen our relationship.
A few additional marquee wins include a win with target debt highlights how our single agent cloud Native architecture intuitive console and rapid reboot list deployment capabilities continue to be significant differentiators for us.
Target Corporation was looking to rapidly move away from Symantec and transition to a single agent cloud solution that could be deployed and days not months or years.
As a fast growing company with the mature security organization. They were looking for a solution that would enhance their security posture without impacting performance and cross their expansive of state of business critical systems for.
Okay, and what's the point across the environment and less than 10 days, allowing them to immediately take advantage of the platform and drive ROI.
Hello of design and manufacturing from and Iowa with more than 7000 employees was looking to fortify the endpoint defenses and it's now of Falcon complete customer.
Another customer win I'd like to highlight in the quarter demonstrates the immense customer value that our Falcon platform has delivered to a fortune 1000 company with dozens of independently operated subsidiaries and an equal number of disparate security teams and solutions.
Customer and needed a solution that could be rapidly deployed and managed by a diverse set of teams, bringing their security posture to a best in class level across the organization.
This customer took advantage of multiple aspects of the Falcon platform spanning traditional endpoints and servers as well as cloud assets to solve several business problems and give the parent company and its board of directors peace of mind.
With Falcon complete they were able to standardize their cyber security and rapidly deployed a single solution and remove multiple legacy and next gen technologies, including Microsoft setting the one silence, so pfos Symantec Mcafee and trend micro.
Additionally, with Falcon discover for cloud and containers. They now have much needed visibility into their ADW EPS workloads and.
For leveraging our proactive incident response services.
Despite having many competing solutions already deployed and their environment. This customer pick crowd strike for its clear value proposition fast and frictionless deployment and ease of use making us one of the only technology standardized across the entire organization.
Our next customer win is a leading healthcare services organization it.
It was mission critical for this customer to select a security partner and was fully compatible with the unique systems and did not impact performance or uptime Mack.
Mcafee and central one has to be removed from their environment for cannot be deployed because of performance and to our interoperability problems. Unlike our competitors crowd strike was able to deploy to thousands of endpoints and servers and just three days without a reboot. This.
This customer adopt and multiple modules, including prevent for next Gen Navy insight for visibility Overwatch from managed red hunting, the vice control and our elite level support package.
These are just a few of our 8416 subscription customers as the of the end of the quarter and of turns the crowd strike to help from stop breaches transform their security posture and streamline their IP operations.
As you can see from the exceptional results we reported today, our Falcon platform is increasingly recognized as a mainstream market choice for enterprises around the world.
We believe we are still in the early innings of our growth journey and are well positioned to continue our momentum and further expand our leadership.
Lastly, before I turn the call over to Bert I would like to welcome Laura Schumacher to our board of directors.
For has a distinguished career and is currently Vice Chairman external affairs, and Chief legal officer of add the a fortune 100 global biopharmaceutical company.
We believe for deep experience will be a critical asset the crowd strike as we continue to build the company into a global industry leader.
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 for revenue mentioned during my remarks today are non-GAAP.
Before we get started I will note that the results. We are reporting today include the acquisition of PM security.
To assist with your models, we will share of select details regarding preempts impact on Q3. However, we do not intend to disclose these details on an ongoing basis.
The acquisition of free and contributed approximately $6.8 million, the ending and net new air are and the resulted in the addition of 64 net customers in the quarter.
Given the acquisition closed on September Thirtyth 2020.
What's the two months into the quarter and the impact of fair value of purchase accounting adjustments related to deferred revenue. The GAAP revenue recognized from PM was de minimis to our results.
The acquisition also out of approximately $1 million the operating expenses in the quarter, which again represents about one month of quarterly expenses.
Moving to our results we delivered another outstanding quarter.
Our record performance highlights our continued exceptional execution and ability to rapidly scale our business while at the same time, maintaining best in class operations.
During the quarter, we saw broad based strength in multiple areas of the business with multiple large deals non being outsized.
Demand for our solutions and Q3 was well balanced between new customers and expansion business and between large enterprises and mid market and commercial accounts.
We once again ended the quarter with a record pipeline, which we believe indicates a strong foundation for future growth.
In the third quarter, we delivered 81% air our growth year over year to reach $907.4 million.
Rapid new customer acquisition as well as expansion business within existing customers drove substantial growth in the quarter. Once again, resulting in record net new air are of $116.8 million.
Additionally, the contraction and churn remained consistent and we maintained our exceptional gross retention rate.
Our dollar based net retention rate once again exceeded 120%.
Moving to the PML total revenue grew 86% over Q3 of last year to reach $232.5 million.
Subscription revenue grew 87% over Q3 of last year to reach $213.5 million.
Professional services revenue was $18.9 million setting, a new record and representing 74% year over year growth.
We continue to see record demand for our services business as we are in the heightened threat environment and our brand continues to grow.
This translated to a record number of seven figure subscription and they are our deals resulting from our services engagements for the second consecutive quarter.
In terms of our geographic performance, we continued to see strong growth and the U.S. as well as our international markets.
Approximately 72% of third quarter revenue was derived from customers and the U.S.
14% from Europe, Middle East and African markets, 9% from Asia Pacific and 5% from other markets.
We remain focused on building a long term business with sustainable growth and compelling margins.
In Q3, we recognize significant operating leverage and our SaaS model and the benefits of scale, even as we increased investments and our global reach and cloud platform.
Third quarter non-GAAP gross margin improved to a record 76% up from 72% a year ago.
Our non-GAAP subscription gross margin increased to 78% compared with 76% and Q3 of last year.
We are very pleased with our strong subscription gross margin performance again this quarter.
Which increased 85 basis points quarter over quarter.
Total non-GAAP operating expenses and the third quarter were $157 million for 68% of revenue versus $106.7 million last years for 85% of revenue.
We continued investing aggressively in our business during the quarter.
Scaling our business efficiently remains a top priority, which is why we are intensely focused on our unit economics, including magic number.
In Q3, we ended with a magic number of one point for which is a new record.
We attribute the store frictionless go to market and you're including our digital lead generation and self service E commerce capabilities.
The leverage we have generated year to date demonstrates the efficiency and our model and enables us to step up investments and international geographies and other marketing programs as well as continued to hire aggressively.
We believe this will lead to sustained growth over the long term.
As the result of a rapid topline growth record gross margin and continued disciplined approach to investing and our business. We drove strong operating income and leverage in the quarter.
Non-GAAP operating income was a record $18.9 million and operating margin improved 21 points over Q3 of last year to reach 8.1%.
Q3 represents our eighth consecutive quarter of improving non-GAAP operating performance on both the dollar and margin basis.
Non-GAAP net income in Q3 was $18.6 million or eight cents on a diluted per share basis.
Given we reported non-GAAP income and the quarter the.
The weighted average common shares used to calculate the third quarter non-GAAP EPS was on a diluted basis and total 234.6 million shares.
We ended the third quarter with a strong balance sheet.
Cash and cash equivalents was approximately $1.1 billion and.
This takes into account for the $85.5 million cash consideration the we invested to acquire the cm security.
Cash flow from operations was $88.5 million and free cash flow was $76.1 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 third quarter performance and momentum into the fourth quarter, we are raising our guidance for the fiscal year 2021.
While we did not specifically guide to ending or net new air are we expect seasonality and net new air are to be less pronounced relative to prior years as we moved from Q3 into Q4, given the exceptional outperformance in Q3.
For the fourth quarter, we expect total revenue to be in the range of $245.5 million to $250.5 million, reflecting a year over year of growth rate of 61 for 65% the subscription revenue being the dominant driver of growth.
We expect non-GAAP income from operations, the being the range of $18.5 million to $22.1 million and non-GAAP net income to be in the range of $17.7 million to $21.3 million.
We expect diluted non-GAAP net income per share to be in the range of eight and nine cents utilizing a weighted average share count of 236 million shares.
For the full fiscal year 2021, we currently expect total revenue to be in the range of $855 million to $860 million, reflecting the growth rate of 78 and 79% over the 2020 fiscal year.
Non-GAAP income from operations is expected to be between 46.4 and $50 million.
We expect fiscal 2021, non-GAAP net income to be between 48.8 and $52.4 million.
Utilizing weighted average shares used and computing diluted non-GAAP net income per share of 233 million. We expect non-GAAP net income per share to be in the range of 21 to 22 cents.
George and I will now take your questions.
Thank you as a reminder to ask the question you and meet the press Star one on the telephone let's try the question pest and on key and the interest of time, we ask that you. Please limit yourself to one question and one follow up please stand by love the compiled the 10 day last day.
Our first question comes from Sterling Auty with JP Morgan Your line is now open.
Yes, Thanks, Hi, guys, so George with with the traction and the talk about protecting cloud workloads can you give us a sense what part of the business. At this point is protecting these cloud workloads containers et cetera, and what do you think that will look like in terms of as a percentage of the mix.
Maybe a year or two years down the road.
Yeah, Hey, Sterling.
What we talked about a 20%.
Of our customers and and workloads in terms of being in the cloud and from our perspective, we believe that's going to continue to grow when we think about digital transformation and its net 20% of the service and the cloud and we think about digital transformation. It's one of those areas that continues to accelerate.
We've seen the massive movement to cloud servers.
We've seen you know people skinning down some of their their on Prem and by the explosion in the cloud itself. So it's still early days, obviously and in the cloud journey for and for many companies.
But we see it as a long term sustainable trend.
Great and then one quick follow up pre and I'm curious now that it's under your umbrella for a little while what's been the customer reaction and early conversations around the technology.
Well, it's been a fantastic reception from our customers. This is something that they've been looking for for some time. They see this as a very unique property.
Property that we've acquired and integrated into our solution and they just they don't see others being able to do that and combined with our platform single agent architecture.
It's it's been a home run so we're in the process now of the fields enablement and getting all the sales teams up and running but early wins with preempt and we're really excited about the integration that's forthcoming.
Great. Thank you.
Thank you and next question comes from the Saket Kalia of Barclays. Your line is now open.
Okay, Great Hey, guys. Thanks for taking my questions here.
Maybe first for you George the we've.
We've seen broadcom announcing some and of support for some legacy Symantec endpoint protection agents. The I guess the question is what are you hearing from customers on that and move and to what extent. The you think that encourages customers to maybe explore other options.
Thanks second well whenever you have of an.
And age and Thats being removed or deprecated traditionally, there's a lift and shift.
Where you have to install and other agent and require all kinds of re boots, I think as we've articulated and some of our success stories, our ability to install and get up and running is unparalleled in the industry. So it's a it's a forced function for companies as they think about what the need to do and you know I think thats just another accelerator to why people are.
I mean, the craft strike their unhappiness with some of their support.
They're looking for a more modern architecture and a solution that has multiple legs to it and not just anti malware is why they're coming and I think this is just an accelerant in terms of why the with talk the cross shrink and choose crush Rick.
Got it makes sense maybe for my follow up for you Bert you touched on this a little bit in the prepared remarks of services, obviously isn't a huge part of the business, but the gross margin is there have actually been better than the unexpected. The question. Bert maybe is how sustainable do you think that is and anything that you would call out on on what drove the.
The service the strength from the quarter.
[noise] Hey, Saket.
Thanks for your question and you're right services is a smaller piece of our business, but we are seeing strong momentum for our services business sort of.
Brand continues to build and we're getting more momentum more inbound calls and so that's a really good.
And for us because of the talks about or as I talked about earlier it results in the platform deals and as I mentioned.
And the prepared remarks.
Record number of seven figure of subscription air our deals revolting, resulting from per service engagement in terms of gross margins of yeah.
Yeah, we were very pleased with the our gross margins that we achieved in Q3.
In terms of you know outlook, we don't really explicitly to gross margin. We don't guide specifically to gross margin, but you can make and princes based on the guidance. We did provide and generally speaking you know you can see some seasonality in our services business. If there's a there's a quarter with them lot of holidays, obviously both.
The revenue and gross margin.
Dollars will go down so that's how we think about services the channel.
Very helpful. Thanks, guys.
Thank you and next question comes from Tal Liani with Bank of America. Your line is now open.
Hi, guys.
The big picture because.
Right.
Like.
[noise] for.
Going into the year.
As you look into next year the.
Question I have is.
What do you think is good.
How will the year looks like when you start the comparing it to the cobiz quarters, meaning.
Two Q3 Q.
The Cove, its such a big factor that we need to be careful with year over year comps.
And then another question, which is the same but the differently. When you look at the various components of your solutions. What are the things that you think will naturally slow down and things that will kick in to give you. The so a great guidance or did the giving you the the basis for your great guidance for next year. Thanks.
Sure total thanks. Thanks for the question all all of I'll take the first part and turn it over to George for the second parts. So I'm you know of course, you know we you know we don't softness and we guide till next year, we're really excited about.
You will be able to go a little deeper in terms of what next year looks like next quarter and so for US we're extremely pleased with but this quarter and we're.
We're extremely pleased with the momentum that weve seen going into Q4.
We enter the Q4 with a record pipeline and I think that for US you know that.
That's a good signal in terms of the in terms of what we're seeing out there in terms of the bad for our products.
I'll turn it over to George with respect to your second part of your question.
Sure I think just in general when you look at our our cloud offerings and you look at the new modules.
That that we're delivering at a rapid pace.
I think you know things like forensics, and certainly a horizon or all of winners for US we continue expand the capabilities across all the margins we have a lot more modules at some point next year. So you know it's broad based demand from lots of modules and you know we continue to see strong demand across the board and.
And we're excited about that so thank you.
And are you concerned the cove it up.
The uplift to the numbers this year that the may create the difficult comp for next year or was not a this was not a big driver.
So you know for us what we think about co bid as more of a a catalyst for the acceleration of you know two of the digital security transformation I think.
A lot of folks and a lot of companies have purchased the laptops and you know the work from home and in prior quarters and you know we're through that and so now we're seeing this kind of a steady state of the acceleration continuing into into the future with respect of demand for cloud products and digital transformation. That's that's how we see it overall as a broad based strength.
You know continues and so that's how we think about the.
The future kind.
Got it thank you.
Sure.
Thank you and next question comes from Brian Essex of Goldman Sachs. Your line is now open.
Hi, good afternoon, and thank you for taking the question and and correct. Congratulations on the quarter of some really great results I was wondering if I could dig in a little bit to some of the key growth drivers in terms of subscriber accounts as well as revenue per subscriber and wanted to ask specifically how things are changing relative to prior periods with regard to.
The initial landed deals size versus selling into your expansion into your installed base.
Hey, Brian.
Good question. So you know big picture. The the good news is we still see a lot of headroom with respect to both new logos and the expansion and we've been able to see larger deals come in and and obviously that is part and parcel with more modules that we have that we have today and the value of itself. So as we continue to value sell and as we continue.
The increase our offerings of.
The deal sizes or end up being bigger and on.
The Great News is I think we have a tremendous amount of headroom and both going after new logos and we have a tremendous opportunity for expansion opportunities.
Got it and then if you were to kind of grade the two kind of going into next year, where do you see the greatest opportunity is it do you still have.
I guess in your view with incremental modules. The large and would you would you gauge your opportunity and your installed base of larger than what you might realize.
You know from from new customers or what do you think will be incrementally the more more impactful for growth for acceleration and growth of over the next several quarters.
Hey, Brian Schwartz I I think when you look at our module expansion and you look at our ability to cross sell where the frictionless process and that trial things of that nature.
I I think it's across the board and you know there is and one.
Particular area that is that just stands out it's really broad based strength across all of the modules and all the customers and and even from.
The segment perspective, I mean enterprise all the way down the SMB and we certainly talk a lot about our enterprise deals, but our SMB business has been and been doing fantastic and because of our cloud.
Delivering modules or cloud delivery I should say, it's very easy for smaller companies to adopt this and and constrained costs times, you know, they're looking for ways to drive efficiency. So across the board I think broad based modules segment and even geographies.
That's helpful. Thank you.
Thank you and next question comes from Alex Henderson with Needham. Your line is the open.
Great. Thank you very much.
I appreciate the you telling us the the 20% of your workloads or in the cloud and so that's a great data point and we appreciate it but it's it's hard to utilize that the particularly given the.
The difference between the amount of revenue you get from on premise to the education and and we're both the per user type footprint.
Can you talk a little bit about how you think about it as a percentage of your business. The as opposed to just simply percentage of workloads, because it's it's not clear to us that there's a couple of probability and the revenue per workload in that context or is there can you help us understand the mechanics around that a little bit.
[music].
Hey, Alex you know, we don't specifically disclose that and my comment on that really is the it's still early days for for cloud.
We have we have a huge huge runway ahead of us and we think we are ahead of the current and where we think we are ahead of everybody else and what we can offer of but I still think you know it's still early days and it's one of those and one of those areas, where we just see a tremendous amount of opportunity.
Okay, well could I try and another way and as we look out over the next the you know three or four years is it reasonable to think that this could be 20% of revenues you and it's obviously, 20% of workloads day, but it could it be.
20% of revenues and say two or three years.
There are two or three years and a long time and in this day, Alex and we'll see.
You know where the there's a lot of there's a lot of things that can happen between now and then but.
And that one we'll just wait and see how it turns out.
Okay, and I can't blame the GAAP for dry and thanks [noise].
Thank you and next question comes from Rob the Olin's the type of sand. The your line is now open.
Great. Thanks for taking my questions guys and I guess the want to start with the net customer additions and just the velocity that you're seeing and I guess, it's you.
And you touched on a little bit earlier, but why why here I mean, we probably saw the the cove and trade or the the play and the March quarter and the June quarter, yet, you're showing even more meaningful acceleration here in the <unk>. If there's some reason you're hitting an inflection point and your business at this point.
Hey, Rob, Yes, George here so.
You hit the nail on the head to be clear of when we think about laptop purchases, that's well behind us right.
We're talking about real transformation real adoption of our technology consolidation of agents and and winning in the market because we've got the best technology solving really big problems that are even beyond security and and that's why you've seen and acceleration you know.
And and customer adoption as I mentioned earlier it it's across the board. It's not just enterprise is not just mid markets not just SMB. It is across all of those particular areas because the technology works and you know, we're we're saving companies lots of money and delivering lots of value. So and when you think about sort of the the.
Total piece of it as I mentioned that that's the well behind us and this is a much more sustainable trend that we see a you know for the foreseeable future as people move to the cloud and transform digitally they have to have their security transformation as part of that.
And I appreciate the color and the 20 per cent relative to cloud and and cloud servers and if we look at the cloud workloads and totality in terms of the bare metal and containers.
Moving up against their from the competitive standpoint, and and where is the customer in terms of their buying how much of the evangelical sale versus Oh, it's being pulled more so thanks.
Yeah, So with rich maybe you can clarify Rob with respect to bare metal.
Yes, I wouldn't when you're looking at more sort of the kit the protecting containers and the workloads from that perspective, because we give a more holistic solution I think there's definitely a natural transition when we've had lift and shift and just cloud servers versus on Prem servers to your technology, historically, but I'm looking more kind of at that next generation type of of the.
You should more cloud native if you will George and who you're running into there and what the sales process looks like.
Well, when we think about containers, whether it's cloud for on premise and and there's certainly a lot of companies that have hybrid environments. As you know depending on their industry, you know, whether they're rolling up their own or whether we're in a a infrastructure provider. We have an architecture that can provide a security across all of those and and again its way.
The single agent, which is again.
You fairly unique I would say to us in the marketplace people have to have different agents and different the architecture. So.
There's and one in particular, there's a lot of small players that are out there, but I think when you look at what we built it and how seamless it is to work on prem or and hybrid environment public private cloud. It's the reason why people are choosing us and and the fact that we've added cloud security posture management to our run type protection is just another reason to choose crops right.
All right. Thanks.
Thank you and next question comes from the team of the lobby with U.P.S. Your line is now open.
Good afternoon gentlemen, thank you for taking my questions George just to start with you and you announced a pretty murky distribution relationship with the why just a couple of weeks of around the the new product launch I'm curious if you can talk in broad strokes as to how you expect that.
Relationship to flourish, both from a financial standpoint, as well as the go to market standpoint, and the have a follow up for Bert.
Sure what we're really excited about the why relationships.
And we've already seen the the fruit of that relationship with some some big deals as you know they've got a tremendous amount of penetration and large enterprises, they've got your of the board of directors and and executives and have crowd shrink partner with the why to help secure.
Secure that digital transformation I think is a win for everyone included.
The other area too is looking through out you know how we go to market with them you know driving alignment and the comp model is between you why and crashed shrink. It's important right. We always want to drive performance in the feel of and I think we've got a.
Hi, good set up between the two organizations to make sure that people are really focused on delivering value.
Oh, you to the customers and and creating these these larger deals for both the wide as well as crowd shrink.
That's very helpful and Bert for you I think you had cautioned us and just around some aberration with respect to hear our and seasonality of the air or as the we're moving into the back half of the year. I think you mentioned that contraction and churn and the business was relatively stable. So I'm curious if you can pinpoint.
As to.
<unk> Soccer's, specifically provided upside relative to maybe some of your conservatism.
Around a are you near our trajectory into the back half of relative to some of the caution that you were discussing it we were heading for the back half.
Yeah. Great question. So first you know for Q3 of the Overperformance you got to have the nice backdrop of.
For the heightened threat environment, the strong positive secular tail.
Tailwinds and a favorable competitive competitive environment. Those are the the those are the things that were in the backdrop of I think the other I think the biggest reason but.
But we have a good performance in Q3, and so we expect executed extremely well and the on the record pipeline going in.
And so we saw customers continue to look for a security platform solution, which allowed them for easy adoption of losses, and it's clear that security remains mission critical of the customers wherever they are regardless of size of the industry I think what's changed for US is that you know we've lowered our assumption.
Onshoring of contraction looking for it I think we haven't seen any movement with respect to that particular piece of the business and it's been really stable for a really long time, and we're seeing customers adopt more we're seeing customer as mentioned by George on the adoption rates of our customer base, we're seeing them at the.
GAAP more we are seeing them move to the cloud of more and they're looking for you know value, which is what we're able to provide so you combine all those things together and the GAAP a tremendous a Q3 overperformance.
And then you've got the lowered the assumption the turn and contraction and looking for those things out of to what you're seeing today and the good news for us when we think about value selling and you think about even impact of industries is we've got solutions like bout the complete which are good for can screen budgets with limited resources and we come in and we're able to provide the subs.
And of that suppose I'm, highly effective and and and and affordable. So that's how we've that's how we look at it.
I appreciate that thanks for the color.
Sure.
Thank you and next question comes from Shaul Eyal with Oppenheimer and company. Your line is now open.
Thank you so lots of good afternoon, guys. Congrats on on results and any guide and I'm sure.
George or birth back in the summer of use the announced the reliance suite of oxygen net scope and and proof point can you talk to us about and this indicates and success that you've been seeing from it.
It is this the line, making the likes the little easier when we think about it from the potential off and we 65 displacement than current disclosure I brought the same question would cut and Freddie just minutes ago on their current quarterly conference.
The conference calls they were absolutely bullish about it by the way.
Yes, thanks, good too good to hear your voice.
It has when you look at we're still in the early days of it but when you look at what customers are looking for the looking for choice and they're looking for best of free platforms and the past we've talked about best of breed plot of products customers want best of breed platforms and the one it was simple them together the tired of building things on the rail and they want these platforms to connect and inter operate.
And they're looking for the best of breed against the Microsoft and this is a great opportunity for us to put the pieces altogether to provide and integrated solution that can add tremendous value to any organization and.
And have it all work and you know weve seen CIO after CIO come to us and say Hey, we love. This combination because we watch the another alternative if we want the best of breed rather than having a you know something that we're locked into so so far so good but still in the early days.
Got it got it and any question and for Burke.
On on professional services dollars converting into new subscription and dollars do you recall Q2 years ago.
We were talking about every one dollar of professional services being converted into the $3 and use subscription revenue that number of you see have accelerated through from not mystic and $5 and in recent quarters, showing the great adoption rate, we would be seeing.
And that kind of Roche and number of potentially ex that are baked within the next couple of years.
I know you can brainstorm with.
Little bit on on that front.
So you know great to hear from you and thanks for your comments.
I think that it's what do we think about professors, obviously as I mentioned earlier on the call it really of strategic for us and and it's strategic in many ways one of which you just described the crossover.
You know that's a metric we follow closely that's the metric, we we actually compensate or teams with and that's a metric we're going to continue to monitor and try and accelerate and boost where it could go and time will tell but.
But it's something we're going to continue to invest and it's something we're going to continue to pay on as that continues to as that continues to be opportunistic for us.
Understood. Congrats again, thank you.
Thanks, Joe.
Thank you and next question comes from Andrew Nowinski with D.A. Davidson. Your line is now open.
Okay, and congrats on another amazing quarter I I'd like to start with the just a question on the target deal that you announced and also they it's free interesting that the state of the legacy provider for so long considering the mega breach the sustained a number of years ago. So just wondering you know how long have you been working on the deal and how competitive that was.
And I have a follow up thanks.
Yeah, well you know the if they certainly spend a lot of time and effort or moving past that situation they had and you.
We certainly look forward to be parting to be part of a broader solution for them going forward, which we are the deal came together actually very quickly was the played very quickly and there was a lot of dissatisfaction with their current vendor how they were being treated and the again they were looking for a more contemporary solution they've looked.
You know the words very thorough and who they looked at the.
That we could deliver and we can deliver immediately with our value of me to get an organization like that up and running and such a short period of time is unheard of so we're excited to be partnering with them and they've got a fantastic team and you know we're looking forward to the future as a true.
To continue to become a great partner with them.
Going.
Going forward.
Oh, that's great George Thanks, and then you know a lot of people think the endpoint security market is from a competitive standpoint is somewhat of a knife fight with so many vendors but.
I would guess the reality is really that it's not nearly as competitive as people think just because there's so many legacy vendors selling legacy solutions. So I'm kind of in that same day and I'm. Just wondering have you seen any sort of change and competitive pressure from mcafee following their IPO other putting any more marketing dollars into the market and try to sustain their share losses or the.
Is it the same as us mantech things well.
I think it's a good question and the reality is it goes across the board for both legacy and next and vendors.
You know I've never seen the Powerpoint that was that was actually wrong, but when you put things into practice you know things don't work right. So slide where I think is a big part of the industry and unfortunately, and when customers actually go through the testing process and we called out a few of them in this earnings call. The stuff doesn't work and the lab, it's hard to get rolled out at the in capacity.
Below the issues and you can't just add marketing dollars to of legacy technology, and <unk> and hope It works right, which is the reason why we started from scratch for in the cloud delivering from the cloud when we felt crouch for like so there's a lot of noise, but we continue to get through and as you've seen from the results today.
Okay and keep up the good work for us.
Thanks, Andrew.
Thank you our last question and from that and had backed with RBC capital markets. Your line is now open.
Oh, Hey, guys, great and congrats again for me George I wanted to double click on the and why partnership and put asked it a little bit more broad the I guess I'm curious what percentage of deals today, our partner for our partner led and where might that go in the future.
Yeah. The majority of the deals are all partner led as the as the channel first company just about all the deals go for the channel in some fashion some of them are sourced by us some of the resource by the channel and in general what we've seen and we're really excited about is the fact that we've seen more deal registration from our partnership.
Bills being brought by the channel because of the strong demand for our technology, our partners are winning they're making money with crowds strike.
And that will continue to grow but then you have other areas like the ws marketplace right and these these kind of unique.
The marketplaces, where we continue to see strong demand and success. So when we think about you why we're really excited because they're just you know so embedded and large enterprises.
Theres, so trusted and to have our technology as part of the solution.
Worldwide is a is really great win for us and them and the customer.
That's great and the maybe maybe on the identity side and obviously it was great to hear about OCC, the both customer and partner and you know we talked the <unk> talked about the set your at your user and your customer event, but the maybe just remind us again sort of where your view of the identity services sort of start and and versus what October.
Is providing.
Sure and we started down it's a good question. We started down this journey some time ago, but when we think about what we do and and the visibility. We have we know that the the state of that endpoint right. We know the state of that workload and we know the identity of the users that are involved in it that is a very unique set of data and we've got a tremendous amount of visibility there so our.
Our our role and this is to provide identity information and trust information on what's happening on that system and score it and be able to provide that too and identity broker like octo are paying or others right. So the brokering the identities the.
They can provide additional challenges things of that nature. So it works well together in tandem because we're providing so much information to make to make better decisions for both our joint customers.
Got it thanks, well done guys.
Thank you Mike.
It's Matt Thank you. Thanks.
Thank you I'm not showing any other questions at this time I would now like the 10 the call back over to George cuts for closing remarks.
Great well I'd like to thank everyone for attending today. We appreciate everyone's time, we wish everyone, well and stay safe and we look forward to talking with you next quarter. Thank you so much.
Ladies and gentlemen. This concludes today's conference calls. Thank you for participating you may now disconnect.
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