Q2 2023 CrowdStrike Holdings Inc Earnings Call
After the speaker's presentation, there will be a question and answer session.
Please limit yourself to one question each you may get back in the queue as time allows.
In order to get into the queue. Please press star one one on your telephone as a reminder, today's program may be recorded and now I'd like to introduce your host for today's program Maria Riley.
Vice President Investor Relations. Please go ahead.
Good afternoon, and thank you for your participation today with me on the call are George Kurtz, President and Chief Executive Officer, and co founder of Couch strike embark pod their chief financial Officer.
Before we get started I would like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans objectives, browsed and expected performance, including our outlook for the third quarter in fiscal year 2023 are forward looking statements within the meaning of.
The private Securities Litigation Reform Act of 1995.
These forward looking statements represent our outlook only as of the data does call.
While we believe any forward looking statements. We make are reasonable actual results could differ materially because the statements are based on current expectations and are subject to risks and uncertainties.
We do not undertake and expressly disclaim any obligation to update or alter our forward looking statements.
As a result of new information future events or otherwise.
Further information on these and other factors that could affect the company's financial results is included in the filings we make with the SEC from time to time, including the section titled Risk factors in the company's quarterly and annual reports.
Additionally, unless otherwise stated excluding revenue all financial measures 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 result is.
Currently available in our earnings press release, which may be found on our Investor Relations website at IR Doctor, how chegg dot com or on our form 8-K filed with the S E T.
With that I will now turn the call over to George to begin.
Thank you Maria and thank you all for joining us the crowd strike team delivered a strong second quarter headlined by record net new <unk> of $218 million as growth accelerated to 45% year over year record net new customer additions and record non-GAAP operating profit.
We achieved several additional milestones in the quarter.
Ending <unk> grew to $2.14 billion on a 59% year over year growth rate.
We believe this makes us the second fastest software company reported to reach the $2 billion.
Our milestone.
Ending <unk> for our emerging products grew to $219 million up 129% year over year.
This included record setting net new <unk> for both identity protection and Julio.
And we also achieved record net new <unk> for module is deployed in a public cloud.
Quarterly revenue exceeded $500 million for the first time.
We added over 1700 net new customers another first for the company.
Gross retention climbed to a new record for the second consecutive quarter and dollar based net retention reached its highest level in seven quarters.
We achieved these results while also driving record non-GAAP operating profit of $87 million, a 147% increase over Q2 of last year and growing free cash flow 84%.
As Bert will discuss in a few minutes, we are raising our revenue guidance for the year and remain committed to delivering non-GAAP operating leverage and 30% or greater free cash flow margin for the year, while investing in key initiatives that will further widen the gap between crowd strike and the competition.
Moving to our markets the competitive environment remains favorable and our win rates remain consistent.
We continue to see strong demand even as organizations responded to macroeconomic conditions for.
For crash rate this primarily manifested in the form of increased levels of required approvals on some deals as companies evaluated investment priorities, which can extend the time it takes to close deals.
However, cyber security is not a discretionary line items.
Cyber security is a priority for Cio's, Ceos, and Cfos and boards of directors and our value proposition resonates strongly with these stakeholders.
Deals committed to close in the quarter did close in the quarter and we entered Q3 with a record pipeline.
Over the past several months I have had many discussions with cio's and the message is clear.
They are looking to consolidate on our platform like Falcon.
They want fewer point products fewer agents and technologies that consume fewer resources.
Need to reduce complexity and simplify operations in their security and it stack.
<unk> is the enemy of security efficiency Mtgo. This.
This business imperative is even more crucial in times when budgets are tightening.
Which accelerates standardization on trusted platforms that deliver immediate ROI and lower tcl such as crowds strikes Falcon platform we.
We believe that with increased scrutiny comes increased opportunity for crowd strike over the long term given the Falcon platform empowers customers to consolidate technologies and achieve better protection with less time fewer resources and lower total cost this differentiates us from others in the.
A market and we believe positions us well for continued success even in the current macro environment.
And we are seeing this dynamic in our business.
As the number one vendor by market share in both Idc's 2021 worldwide corporate endpoint security and moderate endpoint security categories.
Customers are increasingly standardizing on the Falcon platform driving module adoption greater wallet share and larger customers the trademark characteristics of a generational platform.
To subscription customers with fiber more six or more and seven or more modules were 59%.
36% and 20% respectively. This represents a 70%, 84% and 105% year over year increase in these respective module adoption cohorts as customers adopt more modules Falcon is increasingly embedded in their operations and workflow.
<unk>, which we believe leads to higher retention rates and even more opportunities for future expansion customer retention is also driven by advanced capabilities built into the platform such as fusion, our customizable security automation and remediation engine.
Utilization of fusion by customers has continued to increase since its launch and in just one year.
Approximately 35% of our customers now use fusion workflows in the quarter momentum was strong among customers of all sizes from large enterprises to medium sized businesses and smaller accounts, we believe our diversified customer base adds to our resiliency and our ability to deliver durable.
Our our growth over the long term.
Ending <unk> growth from our $1 million or more of our customers accelerated in Q2 and continued to grow faster than our corporate average these larger customers are standardizing on Falcon.
Consolidating vendors and prioritizing expansion projects that represent sizable cross sell and up sell opportunities that are moving forward even under uncertain macro conditions. We are also seeing increased strength in the public sector, which in Q2 was driven by record sled performance and wins within.
The U S Federal and international government agencies to date 20 of the 37 U S states that our crafts right customers as well as the district of Columbia have standardized on Falcon. One noteworthy development in Q2 was with the state of New York, which is exclusively using Falcon Edr for the.
Newly established joint Security Operation Center as part of a shared services initiatives, New York's cities and counties and the program will be protected by Falcon <unk>.
<unk> program is designed to house cyber security assets for multiple levels of government under one roof to protect against attacks across New York's interconnected network and it services. We believe this is a model program that other states will look to emulate as their communities grapple with the heightened threat environment.
And cyber security skills gap. The second quarter was also a record quarter for our E. Commerce sales engine, which is a key factor in our strategy to efficiently reach and serve the small business community at scale.
Further support small businesses during the quarter, we launched our newest bundle Falcon go the starter package is specifically designed as a landing point for smaller businesses with 100 endpoints or less that may be more price sensitive and looking to transact through our ecommerce or trial program.
We also serve small businesses through the MSP channel the Falcon platform empowers msp's to stop reaches for their customers simplify operations and drive cost efficiencies Msft's are a rapidly growing component of our partner ecosystem with Q2 year over year and the <unk>.
Increasing more than 150% and.
In a rapidly growing customer base that is excluded from our reported logo metrics in Q2, we added over 1700 net new customers, bringing the total number of reported customers that rely on falcon to protect their business to 19686.
51% increase year over year, I'm, especially proud to announce one of our new customers. This quarter included a leading incident response firm that purchased Falcon for their internal use. We are also pleased with our strong module performance across the Falcon platform I'd like to highlight a few standouts in Q2.
First is Falcon complete which has continued to gain strong momentum in the market as companies look to address the growing cyber security imperative and contend with the cyber security skills shortage over 1000 customers have adopted Falcon complete since the start of the fiscal year by leveraging the advanced <unk>.
Automation in the platform Falcon complete offers customers and partners a way to quickly and cost effectively scale and fortify their cyber defenses with gold standard expertise and technology, while lowering their total cost of ownership.
As we add modules to the Falcon complete lineup customers are standardizing on complete. An example in Q2 is a payments company that adopted our full suite of Falcon complete offerings, which includes manage identity and manage cloud workload protection Nexus of our emerging product category that solves.
Use cases outside of traditional endpoint protection, but are rapidly becoming core in the minds of customers. This category includes our discover spotlight and identity protection modules as well as EMEA, we delivered record net new <unk> from our emerging products propelling the NDA or our for this category.
To $219 million up 129% year over year.
Alright entity protection lineup achieved a record quarter and quickly grew to become the largest contributor to <unk> within our emerging category in Q2, the number of customers subscribing to our identity protection modules grew more than 100% quarter over quarter driven in part by a new logo attach rate there.
Tripled with close to 80% of cyber attacks leveraging identity based tactics to compromise legitimate credentials and used techniques like lateral movement to quickly evade detection.
Identity protection is core to stopping breaches, we see many parallels between this new market in the early days of the Edr market, including a massive greenfield opportunity with an estimated $3 7 billion dollar Tam in calendar year 2022.
A sizable uplift to asps, which can be north of 30% with our early and growing momentum. We believe crowd strike is well on the way to defining and leading the identity protection category crowd strike Falcon identity threat protection is unique in the industry as it can detect and stop in real time.
Identity based attacks and was one easy to deploy agents. The Falcon platform can respond to modern attacks with endpoint identity and workload context without the multi platform complexity and post processing other solutions require.
<unk> had a record Q2, as we secured wins across multiple verticals, including financial services healthcare retail manufacturing transportation and professional services notable wins included.
A multinational financial services firm with ingestion requirements of up to four terabytes, a day that adopted <unk> to displace its legacy provider, whose query speeds and data ingestion capabilities, where inferior and in it and security services provider in APAC that is now leveraging <unk>.
As the engine to collect and store security and observe ability data from its growing customer base.
Moving from a module perspective to a deployment environment view, our public cloud business delivered a record Q2 with any AUR growth accelerating quarter over quarter for the second consecutive quarter to reach $174 million building on the cloud native application protection platform or <unk>.
<unk>, we introduced last quarter this quarter, we announced new seen app capabilities to extend support within AWS far gate to Amazon's elastic container service.
Introduced the first AI powered indicators of attack comprehensive file this attack prevention and enhanced visibility for cloud intrusions and introduced Falcon Overwatch cloud threat hunting.
First standalone cloud threat hunting service for threats originating operating or persisting and cloud environments cloud is another evolving market, where we believe we can significantly expand our share, especially CIO is look to consolidate vendors and move away from point products as we discussed last call.
<unk> crowd strikes cloud capabilities stand alone in the market by delivering agent based an agent list solutions natively from the Falcon platform and a single user interface with a shared data backend and threat graph the combination of agent base and agent list capabilities in the cloud enables pre runtime and runtime.
Protection, whereas agent list only solutions can only offer partial visibility and cannot provide broad time securities.
Taking a moment to summarize and put everything we have shared with you today in the context customers want a trusted platform that seamlessly unifies endpoint cloud identity and data redefining what core cyber security means <unk> is leading this re platforming with Falcon and we see no other competitor with a comparable offering I believe.
This issue of a county on the East Coast said it best.
And I quote it's hard to remember the days when I didn't have immediate $24 seven remediation vulnerability reports on every device discovery of every asset on my network and a clear understanding of every account login, but I've never going back and quote I want to thank each and every crowd Stryker for your passionate focus.
To make us the best in the business. It is your work that earn crowd strikes recognition as a winner and the best Security Company category for the 2020 to SC Awards U S and Falcon Xdr as a winner and the best emerging technology category for the SC Awards Europe 2022.
Sure I turn it over to Bert I would like to invite our investors and analysts to join us at Falcon in Las Vegas in September similar to last year in conjunction with the event, we will hold an investor briefing featuring conversations with customers partners and industry experts to join in person. Please contact our IR team for.
The registration information the briefing will also be webcast live on our IR website with that I will turn the call over to Bert to discuss our financial results in more detail.
Thank you George and good afternoon, everyone. As a quick reminder, unless otherwise noted all numbers, except revenue mentioned during my remarks today are non-GAAP .
We delivered another outstanding quarter exceeding the high end of our guidance on all metrics strength in multiple areas of the business and superb execution by the crowd sprint team translated to rapid growth at an increased scale record non-GAAP operating profit and strong cash generation in the second quarter, we continued to maintain.
Very high unit Economics drive leverage and remained very capital efficient. We also continue to execute on our investment plan for the year fueling innovation on the Falcon platform expansion into new markets and growing the crowd strike team. Our second quarter results are a testament to the resilience of our markets.
<unk> of our platform and the ongoing durability of our SaaS business model that provides excellent visibility and enables us to deliver high growth with strong profitability and free cash flow.
In the quarter, ending <unk> grew 59% year over year surpassed the $2 billion milestone.
Net new <unk> growth accelerated to 45% year over year, we delivered a record $218 1 million in net new <unk>, representing our strong momentum in the market. The composition of net new <unk> in Q2 was very well balanced across deal size with no <unk>.
Outside contribution from any one deal.
Our dollar based net retention rate was above our benchmark, reaching its highest level since Q3 and fiscal 2021 gross retention reached a new record for the third consecutive quarter, demonstrating our strong commitment to stopping the breach delivering value to customers and restoring trust for the security posture.
<unk> worldwide as George mentioned, we are also seeing more customers standardize on the Falcon platform and adopt more modules. We believe these trends will create an enduring business opportunity for the years to come.
Moving to the P&L total revenue grew 58% over Q2 of last year to reach $535 2 million subscription revenue grew 60% over Q2 of last year to reach $506 2 million professional services revenue was 29.0 million.
Setting a new record for the eighth consecutive quarter, and representing a 32% year over year growth.
In terms of our geographic performance in Q2, we continued to see strong growth in the U S at 53% and international revenue growth at 73% year over year second quarter total and subscription non-GAAP gross margins remained relatively consistent at 76 and 78% respectively. As we can.
Turning to invest where growing demand we are pleased with our strong subscription gross margin performance, which remains within our target model range.
During the quarter, we executed on our plan to invest in new technologies International geographies and marketing programs. We are also executing our 2023 hiring plan and pleased to report that we added a record number of net new hires for the second consecutive quarter, bringing.
Bringing on and retaining top talent as the cornerstone to supporting our product roadmap and future growth and market share gains and new markets. We believe the investments we are making today will lead to sustained growth over the long term and maintain our position as a trusted security partner of choice given our.
Strong top line disciplined approach to investing and efficient sales motion, we were able to make these investments while also driving increased leverage and profit.
Total non-GAAP operating expenses in the second quarter were approximately $321 4 million or.
Or 60% of revenue versus $222 $4 million last year or 66% of revenue.
In Q2, our magic number was one three reflecting the phenomenal efficiency of our go to market engine. We believe a magic number in excess of 1.0 indicate very favorable go to market efficiency and supports our current investment plan.
Second quarter, non-GAAP operating income more than doubled growing 147% year over year to reach a record $87 3 million and operating margin improved by six percentage points year over year to reach 16% looking at the first half of fiscal year 2023 non-GAAP .
Operating income grew 162% year over year to reach $173 million and 17% of revenue.
non-GAAP net income attributable to crowd strike in Q2 also more than tripled over the prior year growing to a record $85 9 million.
Or <unk> 36 on a diluted per share basis, our weighted average common shares used to calculate second quarter non-GAAP EPS attributable to crowd strike was on a diluted basis and totaled approximately 239 million shares.
We ended the second quarter with a strong balance sheet cash and cash equivalents increased to approximately $2 three 2 billion.
Cash flow from operations grew 94% year over year to $209 $9 million.
Free cash flow grew 84% year over year to $135 8 million or 25% of revenue and reflects our planned increased capital investments, which more than doubled year over year.
Moving to our outlook given the growth drivers of our business as well as our strong second quarter performance record pipeline and record gross retention rate, we are raising our revenue guidance for the fiscal year 2023.
At the same time, we have factored in what we believe is an appropriately pragmatic view with respect to the current global macroeconomic backdrop.
While we do not guide to net new <unk> given.
Given the seasonal strength in net new air are delivered in both Q1 and Q2 of this fiscal year. We believe it is prudent to assume less pronounced quarter to quarter seasonality in the back half in comparison to prior years also as a reminder, we suggest that investors adjust their seasonality expectations.
To exclude the impact of significant large deals such as the two approximately eight figure accounts, we discussed in Q4 of last year.
On the bottom line. We are also raising our guidance for fiscal year 2023, and as our guidance reflects we remain committed to deliver non-GAAP operating margin leverage for the year, while continuing to invest in the business. We also remain committed to achieving 30% or more free cash flow margin for the year for the <unk>.
Third quarter of FY 'twenty, three we expect total revenue to be in the range of $569 one to $575 9 million.
Reflecting a year over year growth rate of 50% to 52% with subscription revenue being the dominant driver of growth. We expect non-GAAP income from operations to be in the range of $72 7 million to $77 7 million and non-GAAP net income attributable to cross rate to be in the range of 73 point.
Arrow to 78 points or $1 million we.
We expect diluted non-GAAP net income per share attributable gross rate to be in the range of 30 to 32, Utah.
Utilizing our weighted average share count of 241 million shares on a diluted basis.
For the full fiscal year 2023, we currently expect total revenue to be in the range of 2000 223.0 to 2000 232.0 million.
Reflecting a growth rate of 53% to 54% over the prior fiscal year non-GAAP income from operations is expected to be between $321 eight and $328 $5 million. We expect fiscal 2023, non-GAAP net income attributable to crowds rate to be between 313.
Seven and $325 million.
Utilizing 240 million weighted average shares on a diluted basis, we expect non-GAAP net income per share attributable to cross right to be in the range of $1 31 to $1 33.
George and I will now take your questions.
Certainly ladies and gentlemen, if you have a question at this time as a reminder, please press star one one.
Analysts will be limited to one question each one moment for our first question.
And our first question comes from the line of <unk> <unk> from Barclays. Your question. Please.
Okay, Great Hey, folks thanks for taking my question here.
George a lot of great great stuff to talk about that but maybe maybe the one that I'd love to hone in on is the higher attach rate on an identity.
Can you just remind us.
Whether the identity module here is is displacing something else within your customer base and what do you think is driving that a higher attach rate to new logos.
Yes, great. Thanks for the question, it's not displacing anything because nothing else exist and that was one of the things that we really got ahead of it with our preempt acquisition well before anyone else in the market and when we think about the sort of attacks that are out there 80% of the attacks leverage leverage compromised identities.
And lateral movement, which is a big part of of how breaches occur. So when we think about our identity module, which is baked into our agents single agent.
As much differentiated from everything else that's out there it works with active directory and Azure EDI.
It's been a real game changer for customers and I continue to see.
Customer feedback even during the proof of value stage that they've never seen this level of visibility in their identity and active directory.
The structure and they continue to find many many weaknesses. So to me, it's a real game changer, and I think it can be as big as.
As xdr, and it's going to be a core module going forward.
Very helpful. Thanks, guys.
Operator, you can please take our next question.
Thank you. Our next question comes from the line.
Andrew No investments from Wells Fargo. Your question. Please.
Congrats on another great quarter.
I just wanted to ask you about your new logo adds it looks like you added four fortune 100 customers this quarter.
Which I presume are larger deals even though you said there were no outside of the deals in the quarter.
I'm wondering.
New logo adds.
In total only increased maybe mid single digits, but I'm wondering if you're just focusing on larger customers now or if youre seeing.
More customers starting the initial deal with more modules like preempt and <unk> et cetera that might.
Whereas it might've been.
A smaller initial land.
A year or two ago.
Thanks.
Hey, Andy it's Bert Thanks for the question. So first and foremost we're very pleased with the net new logo count of $17 41, a new record for us.
And we're pleased with what we've seen in the makeup of the <unk> 141, new logos.
I think that when we when we go through.
The <unk>.
Various details with respect to the new logos, we found that Hey, we got new logos coming in from large companies, we have new logos coming in smaller companies and as a typical of the velocity is driven more by mid market and SMB.
It's also worthy to note.
We do have a very strong MSP business, we talked about the fact that it has grown 150% year over year and that is not reflected in the 17 41 in terms of.
Net new logos. So overall, we're very pleased with the Q2 performance.
We think that we have great opportunities to go after new logos and to continue to gain new business, especially when you think of the backdrop in terms of what's available to US sure just under 20000 logos to date.
That's great and we're very pleased about that but when you think about the overall market that's available to us that's a very small number and so we think that we're still in the very early very early innings in terms of net new logos that we can go after.
Thank you. Our next question comes from the line of Don <unk> from.
Guggenheim Partners your question please.
This is George <unk>.
Really impressive results here, especially given the macro backdrop.
George you mentioned that security is not discretionary and that makes sense, but when you when youre displacing someone at least for your core products and in our observation because world I guess.
It.
As this becomes a prolonged and even perhaps deeper macro slowdown we've seen is customers.
Customers start to freeze, it's almost as if they've gotten by with what they have up until now and then they don't want to introduce any more change which brings risk.
And there is enough risk in the macro environment I'm just wondering.
How do you see this developing going forward.
<unk> avoided.
This up until now for sure.
How do you think it happens going forward not only for cross streak, but even for the broader security.
Security space, because a lot of your brother and a sort of held up really well in this too.
Well I think it goes to the durability of security in the business model that we built in certainly the platform play and.
I think if you're a point product Youre comments will resonate I think when you look at a true platform like crowd strike the conversations that we're having.
And I've had many of them with with Cio's Board members Ceos over the last quarter couple of quarters.
And it really was about how do we do more with crowd strike, we want to consolidate so we didn't necessarily see them freezing we saw them thinking about how they could spend more with crops strike and reduce their overall spend in security and as we've talked about before we spend a lot of time and value selling and something we call our business value assessment, where we actually computer.
And Roy which typically is a 150% within the first year. So that's the kind of strategic conversations that we're having up and down the stack and then when you think about the macro environment people don't want to add heads Falcon complete is a game changer for them. They couldnt do what we do.
For the for the price that we charge an army of internal people to try to do what we do and it's just not possible with a level of expertise. So we look at the macro is an opportunity a crowd strike to further consolidate and our customer base.
Thank you and as a reminder, ladies and gentlemen, if you have a question at this time. Please press star one one on your telephone.
One moment for our next question.
Our next question comes from the line of Rudy Kessinger from D. A Davidson your question. Please.
Hey, guys. Thanks for taking my questions certainly a lot to like here given the macro backdrop I guess of a narrow in on one maybe one metric.
The customers with six plus seven plus modules that stepped up a point.
From Q1, but the customers science customers with five plus was flat at 59%. We've seen that figure go up two to three points a quarter for the last several years now.
Anything to note there did you see any customers on the new new.
New logo front that may be just given the macro maybe took one or two fewer modules to start out.
And if so obviously identity it sounds like that attach rates, increasing nicely, but any modules in particular that maybe a bit more of the impacted demand and others.
Hi, This is Bruce so great.
Great question. So when we think about the module that has been doing really well. We go back to the April 7th Webinar, when we talked about the hyper growth modules and these are modules that you have year over year growth rates that are significantly higher than the overall customer growth and we zoom in on a few of them. There are things that we've been talking about for <unk>.
Long time like spotlight, that's our vulnerability management product module and Thats gone really well, we think about some of our cloud modules, whether there are cloud workload protection horizon.
These are.
Getting traction, but also the identity threat protection George just talked about it we're really excited about how that's been taken up by not only existing customer base, but by new customers that are coming in and enjoying all the benefits of attaching themselves to a true cloud native platform.
And so I think that there are a lot of opportunities to go in terms of more module adoption with customers.
You said, we've had an uptick on both the seven plus and six plus and I think that we're going to continue to see customers come in.
Enjoying all the benefits of attaching themselves to a true cloud native platform and so I think that there are a lot of opportunities to go in terms of more module adoption with customers.
As you said, we've had an uptick on both the seven plus and six plus and I think that we're going to continue to see customers come in and land with more modules and future and certainly as we continue to come out with new modules. So we're excited about those module adoption rates and I think they are best in class.
We're glad to see that we saw the uptick.
And the 67 million remember, we got rid of the four category, which is amazing.
Over and above that 7% benchmark so.
That was exciting and encouraging just in and of itself.
Good question. Thank you.
Thank you.
And our next question comes from the line of Matt Hedberg from RBC. Your question. Please.
Great. Thanks for taking my question guys guys George for you there.
Other thing obviously, we've been talking about for a while it's great to see it Hasnt had another record quarter. When you think about your expansion motion.
One or two instruments.
Like Kubernetes cluster is when you look at the ability to flow data.
Something like an elastic they're certainly looking for alternatives and <unk>.
<unk> is flexibility of the fact that it can take data from anywhere and it can do that ingestion free it doesn't need an index and it's very very.
Efficient from a cost perspective, so we continue to get pulled into security and non security deals.
We had a record quarter with some great wins.
C frustration.
With incumbent vendors across the same space as well as the observer ability space.
And a lot of times companies will they'll try to roll their own a.
Good open source and try to pull in different stacks and it's really complex and they just love the ease of use and the flexibility that <unk> provides so we continue to be extremely bullish on <unk> and its various use cases, which are security nonsecurity related and we had some great wins in both Sim replacement.
And log management as well as observed ability.
Thank you Russell.
And our next question comes from the line.
Rob Owens from Piper Sandler your question. Please.
Yeah.
Robert Your line is open.
Sorry, my phone cut out there hey, guys. Thanks for taking my questions George would love for you to expand around your your comments on consolidation.
We've seen a few cycles, obviously, maybe not as many as Mr to Fucci, who had been a doozy earlier, but.
That being said why are you hearing now given we've had platform place before and do you think this is this is economic this is technical that part of the problem Seth. Thanks.
Sure.
I think now is the time given the current macro and when we think about platform plays.
We're both probably showing our age but there aren't a whole bunch of platform plays out there in security and I think that's one of the things that we've really focused on from a crowd strike perspective to be that that foundational cloud platform that you think about in other spaces. So now that that a true platform company is out there covering.
22 modules.
He is the perfect opportunity.
With the current macro backdrop and it certainly has stimulated to conversations.
And our ability to reduce cost and complexity for large and small companies and then when you combine that with a very unique offering again with Falcon complete.
Customers are theyre not interested in adding a bunch of heads right. So they want to take advantage of that.
The offerings that we have in that area, where we can do it much more cost effectively and efficiently than they ever Ken with a better outcome. So I think it's really a combination of a robust platform with many many modules in multiple categories as well as some of the very unique offerings like Falcon complete that is has really driven the conversation homeless.
Customers again, better outcome, but we're having that financial discussion at the right levels with many large and small customers.
Thank you Rob.
Thank you. Our next question comes from the line of Alex Henderson from Needham Your question. Please.
Great. Thank you very much.
So.
Lot of people of overtime thought of you guys as an endpoint company. Obviously, we've always thought of you as a platform and the first thing you ever told me with your platform and I totally agree with it and there's been a lot of conversation about the <unk>.
<unk> pressure.
As an endpoint company are seeing price pressure or.
Some churn.
The statistics here strongly suggest that youre not seeing either.
I was hoping you could talk a little bit about you know.
The proof points that youre, not seeing any pricing pressure in <unk>.
There is no evidence of any.
Customer churn I think a gross retention being at a record.
Pretty good indicator of that as well as the Gms and the.
Net retention rates, but could you talk to those two issues a little bit.
Sure I'd say I'll start with the latter comments that you made if you look at our gross retention.
At a record if you look at net retention, just how well we've done and obviously, we will put that out at the end of the year.
What it means is customers like our our technology, they stay with us and they buy more from us.
In a market like ours is always going to be companies like to compete on price because.
They're only and I think you've got to look at our platform and say well you've got AAV, which is differentiate it but it's one module and.
If companies are trying to compete on.
Price there.
End of the day, what we're selling is prevention of breaches right. It's not just malware prevention, which we've seen a lot of companies legacy and non legacy just trying to focus on that and if thats where they started.
And Avi company, our next Gen AAV in any bulk other things on it really isn't a true platform and I think the <unk>.
Genius and the beauty of what we built here is is probably the most scalable and cloud architecture on the planet in terms of our ability to ingest no reboots.
<unk> immediate time to value and it just works so.
Even if there was pricing pressure in one module.
Which we don't always see I mean, obviously there is competition out there when we put together all of the modules our ability to consolidate our PCL play.
With a with a real ROI this is very compelling.
For customers large and small so.
Again, there's always been lots of companies in our space and I think to your point, we've proven that while our form factor is agent cloud we're doing many more things in a different way that go beyond just traditional endpoint protection.
Thank you. Our next question comes from the line of <unk> <unk> from Citi. Your question. Please.
Hey, good afternoon, gentlemen, thank you for taking the questions.
And George maybe this one's for you just with respect to some of the traction and the hyper growth trajectory, you're seeing with capabilities that are embedded in Falcon complete and even overwatch.
One of the things that some of your competitors or peers in the past have stumbled into his sort of rules of engagement with the channel.
Yet you disclosed doing MSP business that was up 150% year over year, So I'd love to kind of get your perspective on how you're thinking threading that needle between.
Staying cooperative without getting too competitive and really driving triple digit growth in modules and capabilities that otherwise on the surface with Stephen.
Gosh encroach into some of your partners.
No.
Thank you.
Sure. That's a good question I think there's a lot of thought from our competitors out there because they don't have anything like Falcon complete as an example.
Which is absolutely top of the industry and when you look at what we've done we try to make it a win win.
You look at the partnership.
We have with <unk>, obviously, they've got those capabilities.
In certain areas, but they are leveraging our technology and that's the key area can they leverage our technology.
If they bring us into account fantastic, we're happy with that or in some managed service providers don't take our offering and then and kind of re bundle it into a broader offering that might cover network or other areas and we're happy with that too.
As a manufacturer we are experts in what we do so we try to make it a win win and that's the reason why our MSP business has grown so dramatically <unk>.
Best technology, and the rules of engagement have been really important.
There are deal Reg as we protect the account and then we also focus on leveraging our services as part of a broader service debt and MSP half.
And at the end of the day the numbers don't lie in terms of our success. There. So that's what we're focused on the fact not the fiction.
Thank you. Our next question comes from the line of Roger Boyd from UBS. Your question. Please.
Hey, Thanks for taking the question and congrats on the impressive results.
I wanted to go back to cloud security really impressive growth there and I think you've done a really good job of proving out the need for a tightly integrated agent plus agent was technology, but I was curious if you could talk a little bit about the reception you have seen specifically to the horizon product and how you think that stacks up against the pure plays out there. Thanks.
Sure.
We are absolutely excited about horizon as well as the combination of cloud workload protection, and we think it stacks up very well and more importantly.
Where is the differentiation that differentiation is in things like the ability to actually protect the workload and.
The infrastructure right. So you've got agent listen horizon, you've got our cloud workload protection, which we have tremendous capabilities. There. This is what customers want if you look at the pure plays out there, they're just covering agent listing and candidly that's the easiest thing to do because you just plug into Apis, we've got to build some workflows around it and then there is certainly some good competitors in the market at the end of the day it's.
Really the combination of agent and agent list on our platform that's going to give you visibility in the cloud.
As well as in your hybrid data centers.
And that's what we're seeing we continue to add many many capabilities. We've added overwatch threat hunting for cloud, we've got dynamic container analysis and image assessment. So we continue to build in those areas and we're seeing a great reception.
And I think when you look at our heritage of threat intelligence and things like indicators of attack a lot of our competitors just doing sort of policy Ms configurations and not really.
I'm not really able to understand if they are under attack or where an attack might be possible and we've applied that indicator of attack knowledge from our endpoints into the cloud. So we feel really good about that obviously.
Everyone's in the early innings in the cloud journey, which is exciting because it's a greenfield opportunity and we feel like we've got the right products and the right go to market motion around it.
Thank you. Our next question comes from the line of Joe <unk> from Jefferies. Your question. Please hey.
Hey, guys. Thanks for the question just a follow up to John's earlier question no comment on his age by the way George on those extra levels of scrutiny any incremental context, where they SMB or enterprise any geo location, specifically and are these deals pure cyber or are they broader with <unk> and other infrastructure aspects and then Bert are you including any.
Extra conservatism in your guidance because of that.
Thanks.
Yes, I think if you look across.
Across either geographies or segments, I mean, theres nothing that really stands out, it's really company dependent and industry dependent.
And again, you would expect an additional level of scrutiny.
The beauty is as I called out in the in the report.
In the script is the fact that the deals that we forecast to close closed right and I think.
That's really important when we think about the current macro.
Backdrop, and what we're doing is really from a sales perspective make sure. We're getting ahead of it right through our BVA process make sure that we've got all of who we need and understand the accounts of who has to sign off if there is additional sign off that has to happen. So.
Sort of my commentary on that I don't know Bert.
If you want to add to it.
Yes, just on the guide I mean, I think we've stuck to our guns, we guide to what we've seen up to what we don't see and we took a an appropriately pragmatic view.
On the macro.
That's how we looked at the guide for this year.
Thank you. Our next question comes from the line of Kindred from Oppenheimer. Your question. Please.
Thanks, Hey, guys great quarter, a couple for me George you haven't talked about Xdr, the Xdr Alliance and cost traction moving along there maybe you could give us an update there.
Berke.
Fix you haven't mentioned at all in the quarter can.
Can you talk about the impact to your business on FX and housing impacting U globally.
Yes, perfect I'll start when we think about xdr, it's going.
Well and in fact, we've got some I think great announcements at forecast. So we talked about that in our script is making sure that people attend that or even our investor event virtually so.
We continue to build out our alliance, we've actually also partnered with AWS and some of it.
That they have to standardize on our open formats.
Which I think is good for the industry, we continue to add integrations and again when you look at our Xdr approach. It starts with the best Edr and our ability to add third party information into our decision, making so so far so good I think.
US included as well as the rest of the industry, it's still an emerging category and Theres a lot of marketing hype around it and we're focused on delivering the best technology outcome for customers and it really extending that experience that we have with with our insight product, which as you know in our opinion the best Edr in the market and extending that to third parties. So that the work for.
Lows are similar and we're looking for additional infections that are outside of just the end point to me.
So thats a little bit about xdr.
Yeah, I'll jump in George really on the FX question I think there was nothing material or we would have talked about it.
Primarily invoice in U S dollars, but we do have expenses incurred in currencies outside the U S. But on the deal side. It goes back to what George has been talking about it's the platform play is lowering <unk>. It's all of those things that we're able to bring to bear that nobody else can.
Thank you. Our next question comes from the line of Hamzah <unk> from Morgan Stanley . Your question. Please.
Hey, guys. Thanks for squeezing me in just a quick one for Bert I was <unk>.
Wondering if you could give more context.
On your comments around second half seasonality.
I think normally Q4 generally stronger Q3, you do see a little bit of lighter seasonality. Although you do have the <unk>.
That vertical really take off during that quarter. So can you give us a sense of how the net new air our pattern should be should it be similar to last year year before that just any color you could give us would be really helpful.
Open formats, which I think is good for the industry. We continue to add integrations and again, when you look at our XDR approach, it starts with the best Ed and our ability to add third party information into our decision making. So so far, So good, I think us included as well as the rest of the industry. It's still an emerging category and there's a lot of marketing hype around it and we're focused on delivering the best.
Sure.
Take a step back and just look at the current quarter, we outperformed our expectations for really the full first half of the year I'm really pleased with our strong start to the year with.
Record.
With record pipe, we just posted $218 million that new Aric, we're really pleased about that.
Technology outcome for customers and are really extending that experience that we have with with our insight product, which is, in our opinion, the best e in the market, and extending that- the third party- So that the workflows are similar and we're looking for additional detections that are outside of just the endpoint domain. So that's a little bit about xbr.
And we expect to see a seasonal build throughout the year, albeit less pronounced quarter to quarter seasonality in comparison to what we've seen in the prior years. So so that's how I would frame it.
Thank you. Our next question comes from the line of Charles <unk> from Cowen Your question. Please.
Yeah I'll jump in George really, on the the FX question. I think there was nothing material or we would have talked about it. We primarily in voice, in U's dollars, but we do have expenses incurred, incurrencies out of the U's. But on the deal side it goes back to what George has been talking about. It's the platform play, it's lowering TCO o, it's all those things that we're able to bring to bear that nobody else can.
Good afternoon, guys congrats on the solid performance.
Last quarter.
Premium grew 30% quarter by quarter this quarter, it's accelerated to 100%.
In recent months, we've witnessed an accelerated level of consolidations specific it within the <unk> category pain data point to name a few.
How is that impacting the premium business in the context of.
Thank you. Our next question comes from the line of hamah hodowell or from Morgan Stanley . Your question, Please.
Both displacement and greenfield opportunities.
Y guys, thanks for sleeing me in. Just a quick one for Bert. I was wondering if you could give more context on your comments around second half season, ality I think normally Q4, generally stronger Q3. You do see a little bit of lighter seasonality, although you do have the Fed vertical really take off during that quarter. So can you give us a sense of?
Well good question and I'll reiterate again as I do I think on every call that we partner with with Ping, an okta and others right and our our identity product is really specific to the endpoints and active directory identity threat protection and <unk>.
Detection.
No.
We continue to work with them and I think when you look at the environment today, There's just a.
Continued demand for having a handle on identity and we're one piece of it on the endpoints of servers in the directory structures and there's other players in the market that.
How the net new AR pattern should be should be similar to last year, year before that. Just any color could give us would be really helpful.
Handel identity access brokering et cetera, so from our standpoint, we as I reiterated continued to see very very strong demand with a very differentiated technology.
Sure you know, TA stepback and just look at the. The current quarter. We have, you know, outperformed our expectations, you know, for really the full first half of the year and really pleased with our strong start to the year with, you know, record with record pipe. We just posted 218 million. That new are course really pleased about that. And we expect to see a seasonal build throughout the year, albeit less pronounced quarter-to quar season now in comparison to what we've seen in the prior years. So So that's how I would frame it.
As you pointed out 100% quarter over quarter growth.
Logo attach rate tripled quarter over quarter.
And the answer is why it gets back to the architecture of the single lightweight agent very easy for us to activate it very easy for us to activate it at scale and trials and.
A lot of times, what we'll see is when there is.
Hi.
Thank you. Our next question comes from the line of shaala from callan your question Please.
Threat environments customers will activate and get immediate value and then we can convert them over into paying customers. So again. This is I think youre going to be a standout for us in terms of the acquisition. We did in also in terms of integration and our ability to go to market with it.
Good often guys congresss, on the solid performance droed last quarter prem to go 30% quarter by quarter. This quarter is accelerating to 100%. In recent months we witnessed an accelerated level of consolidation, specifically within the eight entity category, paying Sal point, to name few howounds that impacting the pmpt business in the context of.
Thank you and our final question for today comes from the line of Gregg Moskowitz from Mizuho. Your question. Please.
Alright. Thank you for taking the question congrats on a very good AOR performance I did want to ask about <unk>, which historically has risen by double digits sequentially in Q2 periods.
Both displacement and gradal opportunities.
Well a good question and I'll reiterate again as I do I think on every call that we partnered with Ping. An ock and others right and our identity product is really specific to the endpoints and active directory in terms of identic threat protection and detection. So we continue to work with them and I think when you look at the environment. Today there's just a continued demand for.
Although this quarter went up mid single digits.
Were there any changes to average duration is this perhaps somewhat reflective of the increased levels of approval that you noted earlier or is there anything else that you would call out thanks.
Hey, Greg.
Thanks for the question. So really I think the focus really is on net new that really in any way or are that's really the one that tells the health of the business as opposed to RVO or as opposed to billings or what have you and we're excited about the fact that we're going in with.
Having a handle on identity and we're one piece of it on the endpoints of servers and the directory structures. And there's other players in the market that handle identity access prokgreraming, et cetera. So from our standpoint we, as I reiterated, continue to see very, very strong demand with a very differentiated technology, as you pointed out: one hundred percent quter-over-quarter growth, new logo attached rate, tripled quarter-over-quarter.
Our record pipeline, we've just posted the strongest net new <unk> quarter at quarter end.
Company history.
So I think that when you think about reaching a record $218 million.
And that new with any outsize deals youre really showing strong health in the business.
And the answer is why. It gets back to the architecture, the single lightweight agent. Very easy for us to activate it, very easy for us to activate it at scale and trials, and a lot of times what we'll see is when there is high threat environments, customers will activate to get immediate value and then we can convert them over into paying customers. So again, this is- I think it're going to be- a standout for us in turn of the acquisition we did and also in terms of integration and our ability to go to market with.
So overall, we're just really pleased with results and that's the metric that we zoom in on Thats the metric that our whole company is rallying around and that's the focus for us.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to George Kurtz for any further remarks.
Great. Thank you well I certainly want to thank all of you for your time today. We appreciate your interest and look forward to seeing you in person at our upcoming <unk> conference and our Investor day via webcast. Thank you so much and that concludes the call.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Although this quarter went up mid-single digits, were there any changes to average duration? Is this perhaps somewhat reflective the increased levels of approoval that United earlier, or is there there anything else to do would call out?
Greg, thanks for the question. So you know really, I think the focus really is, you know, on on that new that really, that you R R, that's really the one that tells the health of the business as opposed to R P? O or as opposed to fillings or what have you. And we're excited about the fact that you know we're going in with you know, a record pipeline. We've just posted a, you know, the strongest net new a, a cororate quarter in company history. So I think that when you think about you know, reaching a record, two hundred eighteen million.
Further remarks.
That's great, Thank you. Well, I certainly want to thank all of you for your time today. We appreciate your interest and look forward to seeing you in person at our upcoming fealcon conference and our Investor Day via webcast. Thank you so much, and that concludes the call.
Thank you, Ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect good day.
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