Q3 2023 CrowdStrike Holdings Inc Earnings Call

Yeah.

Hello, and thank you for standing by and welcome to crowd strikes fiscal third quarter 2023 results conference call.

Thank you for standing by. Welcome to CrowdStrike's fiscal third quarter 2023 results conference call. At this time, all participants are in a listen-only mode.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

Ask a question during this session you will need to press star one one on your telephone.

After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone.

It is now my pleasure to introduce vice President of Investor Relations.

Yeah.

It is now my pleasure to introduce Vice President of Investor Relations, Maria Riley.

Good afternoon, and thank you for your participation today.

With me on the call are George Kurtz, President and Chief Executive Officer, and cofounder outright.

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 CrowdStrike, and Bert Podbear, Chief Financial Officer.

Hard Barrett 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 growth and expected performance, including our outlook for the fourth quarter and fiscal year 2023, as well as any assumed.

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, growth, and expected performance, including our outlook for the fourth quarter and fiscal year 2023, as well as any assumptions for fiscal periods beyond that.

<unk> for fiscal periods beyond that are forward looking statements within the meaning of the private Securities Litigation Reform Act up 1995.

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 date of this 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.

These forward-looking statements represent our outlook only as of the date of this 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 statement, whether as a result of new information future events or otherwise.

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 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.

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 disclosed on this call will be non-GAAP .

Additionally, unless otherwise stated, excluding revenue, all financial measures disclosed on this call will be non-GAAP . A discussion of why we use non-GAAP financial measures in the reconciliation schedule showing GAAP versus non-GAAP results is currently available in our earnings press release, which may be found on our investor relations website at ir.crowdstrike.com.

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 earnings press release, which may be found on our Investor Relations website at IR Dot dot com or on our form 8-K filed with the SEC today.

With that I will now turn the call over to George to begin.

or on our Form 8K filed with the SEC today. With that, I will now turn the call over to George to begin.

Thank you Maria and thank you all for joining us.

Let me start with a summary of our results and.

Thank you, Maria, and thank you all for joining us.

In Q3, we delivered 53% revenue growth year over year, 15% non-GAAP operating margin and record non-GAAP net income all of which were ahead of our guidance is.

Let me start with a summary of our results. In Q3, we delivered 53% revenue growth year over year, 15% non-GAAP operating margin, and record non-GAAP net income, all of which were ahead of our guidance.

Additionally, we achieved record free cash flow of $174 million or approximately 30% of revenue.

Additionally, we achieved record free cash flow of $174 million or approximately 30% of revenue.

There are many positive trends, we see in our business, including strong competitive win rates.

There are many positive trends we see in our business, including strong competitive win rates, consistent ASPs, and strong competitive win rates.

Consistent asps.

Exceptional retention rates and the mission critical nature of cyber security.

However, I would first like to address the increased macroeconomic headwinds we saw in the quarter, which caused Q3 net new AAR are to come in below our expectations.

exceptional retention rates, and the mission critical nature of cybersecurity.

However, I would first like to address the increased macroeconomic headwinds we saw in the quarter, which caused Q3 net new ARR to come in below our expectations.

As we discussed on our last earnings call organizations, we're starting to respond to the macroeconomic conditions by adding extra layers of required approvals and extending the time it took to close some deals at.

As we discussed on our last earnings call, organizations were starting to respond to macroeconomic conditions by adding extra layers of required approvals and extending the time it took to close some deals.

As Q3 progressed and fears of a recession grew this dynamic became more pronounced.

As Q3 progressed and fears of a recession grew, this dynamic became more pronounced.

In our smaller more transactional non enterprise accounts, we saw customers increasingly delayed purchasing decisions with average days to close lengthening by approximately 11% and net new AOR contribution decreasing $15 billion from Q2.

In our smaller, more transactional, non-enterprise accounts, we saw customers increasingly delay purchasing decisions with average days to close lengthening by approximately 11% and net new ARR contribution decreasing $15 million from Q2.

It's also impacted our net new logo additions in the quarter, even though our quarter over quarter Pov win rate increased meaningfully over more complex vendors that required more head count to manage well.

This also impacted our net new logo additions in the quarter, even though our quarter-over-quarter POV win rates increased meaningfully over more complex vendors that required more headcount to manage.

While sales cycles lengthen we believe the vast majority of these deals are not lost just delayed.

While sales cycles lengthen, we believe the vast majority of these deals are not lost, just delete.

In the enterprise sales cycles or average days to close remained consistent with last quarter's modestly higher level.

In the Enterprise, tail cycles or average days to close remain consistent with last quarter's modestly higher level.

In Q3, these larger customers continue to prioritize their crops ranking vessels, but some also had to manage timing issues related to opex budgets and cash flow amidst the rapidly evolving macro.

In Q3, these larger customers continue to prioritize their CrowdStrike investments.

but some also have to manage timing issues related to OPEX budgets and cash flow amidst the rapidly evolving macro.

To achieve the same customer signed contracts that have multi phased subscription start dates which pushes their expense and craft strikes a recognition into future quarters.

To achieve this, some customers sign contracts that have multi-phase subscription start dates, which pushes their expense and CrowdStrike ARR recognition into future quarters.

Every quarter, we have some deals with multi phased subscription start dates in comparison to last quarter in Q3, we saw approximately $10 million more.

While every quarter we have some deals with multi-phase subscription start dates, in comparison to last quarter in Q3 we saw approximately $10 million more ARR deferred into future quarters.

Our deferred into future quarters.

We expect these macro headwinds to persist through Q4. Additionally, given the increased scrutiny on budget, we're not going to expect the typical Q4 budget flush.

We expect these macro headwinds to persist through Q4. Additionally, given the increased scrutiny on budgets, we are not going to expect a typical Q4 budget flush, leading us to adjust our Q4 net new ARR expectations.

Leading us to adjust our Q4 net new <unk>, our expectations as Burt will discuss in more detail, but this caution does not deter our confidence in the long term market position of crap right.

as Burt will discuss in more detail. But this caution does not deter our confidence in the long-term market position of Krauschreig or the resiliency of the cybersecurity market.

The resiliency of the cyber security market.

We see strong inherent demand for our products and we entered Q4 with a record pipeline.

We see strong inherent demand for our products and we enter Q4 with a record pipeline.

Pipeline expansion is even more important in times of an evolving macro and elongated sales cycles.

Pipeline expansion is even more important in times of an evolving macro and elongated scale cycle.

We are working to stay out in front of pipeline creation.

We have Jennifer Johnson, our recently appointed CFO now with the marketing health, we are realigning, our marketing initiatives and increasing our focus on ramping more top of funnel initiatives and brand awareness to drive pipeline, even greater heights.

We are working to stay out in front of pipeline creation.

With Jennifer Johnson, our recently appointed CMO, now at the marketing helm, we are realigning our marketing initiatives and increasing our focus on ramping more top of funnel initiatives and brand awareness to drive pipeline to even greater heights.

We also gained significant leverage from our partner ecosystem with partners sourced are growing 55% year over year.

We also gained significant leverage from our partner ecosystem with partner sourced ARR growing 55% year over year.

There were many positives in this quarter highlighted by the record number of customers contributing at least $1 million and.

There were many positives in this quarter highlighted by the record number of customers contributing at least $1 million in net new ARR in the quarter. Additionally, ending ARR for the $1 million plus cohort surpassed the $1 billion milestone in Q3 with a 67% year-over-year growth rate.

In net new <unk>.

In the quarter.

Additionally, ending <unk> with a $1 billion plus cohort surpassed the $1 billion milestone in Q3.

With a 67% year over year growth rate.

These larger customers are standardizing on Falcon consolidating vendors and prioritizing expansion projects that represent sizable cross sell and up sell opportunity that are moving forward, even under uncertain macro conditions.

These larger customers are standardizing on Falcon.

consolidating vendors, and prioritizing expansion projects that represent sizable cross-cell and up-cell opportunities that are moving forward even under uncertain macro conditions.

Mark key brands that are new to our $1 billion plus cohort included.

A global 500 manufacturer that landed with 10 modules, providing unprecedented visibility and protection to all areas of their environment.

Marquee brands that are new to our Million Dollar Plus cohort included.

a global 500 manufacturer that landed with 10 modules.

And allowing them to consolidate for agents.

providing unprecedented visibility and protection to all areas of their environment, and allowing them to consolidate four agents and vendors with their initial deployment of Falcon.

Vendors with their initial deployment of Falcon.

Two global 500 financial institution.

We chose Falcon for its ability to replace multiple legacy security product and bolster their security posture through a single agent.

to Global 500 Financial Institutions.

who chose Falcon for its ability to replace multiple legacy security products and bolster their security posture through a single agent.

A global 500 consumer goods manufacturer that is now leveraging Falcon complete.

A Global 500 consumer goods manufacturer that is now leveraging Falcon Complete for a fully managed approach to protecting its critical infrastructure and...

We're a fully managed approach to protecting its critical infrastructure and <unk>.

Fortune 500 luxury brand leveraging falcon to protect both its traditional endpoint and cloud workloads.

a Fortune 500 luxury brand leveraging Falcon to protect both its traditional endpoints and cloud workloads.

In the third quarter. We also delivered strong results in the public sector driven by Falcon complete land with one of the largest U S. Federal agencies now standardizing on the Falcon platform.

In the third quarter, we also delivered strong results in the public sector driven by a Falcon Complete Land with one of the largest U.S. federal agencies now standardizing on the Falcon platform and a strong quarter for a sled business with the U.S. state government standardizing on CrowdStrike in the quarter as well as wins and expansions.

And a strong quarter for our sled business with a U S state government standardizing on crowd strike in the quarter as well as wins and expansion across multiple U S state and local government agencies and educational institutions.

across multiple US state and local government agencies and educational institutions.

To date 40 U S state governments are kraft right customers of.

<unk> 21 in the district of Columbia have standardized on Falcon.

To date, 40 U.S. state governments are Krauschreich customers, of which 21 in the District of Columbia have standardized on Falcon.

Additionally, we secured a win with one of the largest federal system integrators that we'll be using falcon to protect its internal estate as well as integrated into its MSP offering.

Additionally, we secured a win with one of the largest federal systems integrators that will be using Falcon to protect its internal estate as well as integrate it into its MSSP offering.

Moving to our expansion and retention performance.

Our dollar based net retention rate was well above Q3 of last year and consistent with our Q2 performance, which was at the highest level in seven quarters.

Moving to our expansion and retention performance.

Our dollar-based net retention rate was well above Q3 of last year and consistent with our Q2 performance.

Our best in class growth retention rates remained at record levels above 98%.

which was at the highest level in seven quarters.

Our best-in-class growth retention rates remained at record levels above 98%.

We are also seeing more customers standardize on the Falcon platform and adopt more modules.

We are also seeing more customers standardize on the Falcon platform and adopt more modules.

Q3 subscription customers with five or more six or more than 700, more module or 60%, 36% and 21% respectively.

Q3 subscription customers with five or more, six or more, and seven or more modules were 60%, 36%, and 21% respectively.

This represents a 55%.

66% and 81% year over year increase in these respective module adoption cohorts.

This represents a 55%, 66%, and 81% year-over-year increase in these respective module adoption cohorts.

It was another record quarter for our emerging product category, which includes our discover spotlight identity protection and large scale modules.

It was another record quarter for our emerging product category, which includes our DISCOVER, Spotlight, Identity Protection and Locked Gale Modules.

Our identity protection solutions are the largest contributor to <unk> within the emerging category in Q3 was another record quarter net.

Our Identity Protection Solutions are the largest contributor to ARR within the emerging category, and Q3 was another record quarter.

Net new <unk> core identity protection solution grew to a new all time high and the attach rate on net new logos continue to grow rapidly.

NetNew ARR for Identity Protection Solutions grew to a new all-time high, and the attach rate on NetNew logos continued to grow rapidly.

With close to 80% of cyber attack leveraging identity based tactics to compromise legitimate credential and used techniques like lateral movement to evade detection identity protection is core to stopping breaches.

with close to 80% of cyber attacks leveraging identity-based tactics to compromise legitimate credentials and use techniques like lateral movement to evade detection.

Our identity protection capabilities are a game changer in shoring up active directory as well as stopping ransomware lateral movement.

Identity protection is core to stopping breaches.

Our identity protection capabilities are a game changer in shoring up active directory as well as stopping ransomware lateral movement.

To punctuate the value of our identity protection capabilities.

I'd like to share a recent seven figure expansion with a leading global brand.

to punctuate the value of our identity protection capabilities.

This customer is a very capable security team.

I'd like to share a recent seven-figure expansion with a leading global brand.

Years building, a dedicated identity and access management team and implementing a privilege access management solution or Pam.

This customer has a very capable security team that spent years building a dedicated identity and access management team and implementing a privileged access management solution, or PAM.

Even with these efforts shortly after turning on Falcons identity protection and the POB, we identified several mis configuration, including dozens of domain administrator accounts that were not being managed by their Pam solution, a multitude of accounts without password exploration.

Even with these efforts, shortly after turning on Falcon's Identity Protection in the POV, we identified several misconfigurations, including dozens of domain administrator accounts that were not being managed by their PAM solution, a multitude of accounts without password expiration.

<unk> of users with compromised passwords, and a potential attack path from <unk> accounts to privilege launch with.

thousands of users with compromised passwords and a potential attack path from unprivileged accounts to privileged ones.

With Falcon identity, this customers shutting down route illegitimate accuracy and significantly hardening their defenses.

With Falcon Identity, this customer is shutting down routes to illegitimate access and significantly hardening their defenses.

Q3 also marked another record quarter for large scale as we secured wins across multiple verticals, including financial services insurance technology retail energy and telecommunications.

Q3 also marked another record quarter for LOCKSCALE as we secured wins across multiple verticals including financial services, insurance, technology, retail, energy and telecommunications.

Notable wins included.

Statewide insurance provider in the U S and previously mentioned, new Global 500 financial institution, where Falcon large scale has enabled both organizations to lot more data.

Notable wins included, a statewide insurance provider in the US and previously mentioned new global 500 financial institution, where Falcon log scale is enabling both organizations to log more data, retain it longer, and reduce the cost of their existing log solutions, resulting in better security and more visibility across their environment.

Dana longer and reduce the cost of their existing log solutions, resulting in better security and more visibility across their environments.

During the quarter, we acquired external attack surface management, yes.

Vendor for a positive five to help our customers identify and eliminate risk from vulnerable and unknown assets before an attacker can exploit it.

During the quarter, we acquired external attack service management, EASM, vendor Reposify to help our customers identify and eliminate risk from vulnerable and unknown assets before an attacker can exploit it.

The acquisition closed in early October and we expect to launch our external attack surface management module this quarter, which will bring us to 23 modules available across the Falcon platform.

The acquisition closed in early October and we expect to launch our external attack surface management module this quarter, which will bring us to 23 modules available across the Falcon platform.

On the public cloud front, we continued to build momentum with ending AAR are for module is deployed in a public cloud setting growing over 100% year over year.

On the public cloud front, we continue to build momentum with ending ARR for modules deployed in a public cloud setting growing over 100% year over year.

<unk> solution continues to gain industry recognition, including winning best cloud security and CRM 2022 Tech Innovators Awards.

Our CMAP solution continues to gain industry recognition, including winning Best Cloud Security in CRN's 2022 Tech Innovators Awards.

Falcon complete continues to shine with net new <unk> are growing close to 20% quarter over quarter as customers embrace our expanded lineup of complete services <unk>.

Falcon Complete continues to shine with net new ARR growing close to 20% quarter over quarter as customers embrace our extended lineup of complete services.

Including identity complete and cloud complete.

Additionally, we launched Falcon complete log scale during Q3 and already secured several wins.

including Identity Complete and Cloud Complete.

Additionally, we launched Falcon Complete Lock Scale during Q3 and already secured several fans.

In a more challenging economic environment. There is appeal for a solution like Falcon complete that allows companies to decrease head count or hold head count stable.

In a more challenging economic environment, there is a peel for a solution like Falcon Complete that allows companies to decrease headcount or hold headcount stable.

The significant advantages of crowd strikes Falcon complete offering were showcased in our first mitre attack evaluation for security service providers.

The significant advantages of CrowdStrike's Falcon Complete offering were showcased in the first MITRE ATT&CK evaluation for security service providers.

Out of 60 participants evaluated the Falcon platform integration of industry, leading technology and human expertise enabled us to deliver the highest coverage.

Out of 16 participants evaluated, the Falcon platform's integration of industry-leading technology and human expertise enabled us to deliver the highest coverage.

This was minus first closed door test, which means their participants did not have prior knowledge of the adversary and retesting was not allowed.

This was MITRE's first closed-door test, which means the participants did not have prior knowledge of the adversary and retesting was not allowed.

We believe this evaluation demonstrates why crowd strike is the clear leader in Edr Xdr.

We believe this evaluation demonstrates why CrowdStrike is the clear leader in EDR and XDR, whether our capabilities are delivered as a fully managed service from CrowdStrike, or through our network of MSSP partners, or operated independently by our customers.

Whether our capabilities are delivered as a fully managed service from crowd strike or through our network of MSP partners or operated independently by our customers.

The Falcon platform also one assay lab, Edr ransomware detection and protection cast.

The Falcon platform also won SC Labs EDR ransomware detection and protection tests.

Well regarded third party testing firm involved 270, ransomware variation and deep attack tactics Falcon achieved 100% ransomware prevention with zero false positives, let me repeat zero false positive, which we believe reflects our superior AI.

This well-regarded third-party testing firm involved 270 ransomware variations.

and deep attack tactics.

Falcon achieves 100% ransomware prevention with zero false positives.

And machine learning models and the data moat advantage, we derive from our unique graph technology and threat graph.

Let me repeat, zero false positives.

which we believe reflects our superior AI and machine learning models and the data mode advantage we derive from our unique graph technology in ThreadGraph.

Falcon exceptionally low false positive rate represents a tremendous operational win for our customers as it enables them to significantly increase their speed to triage investigate and remediate our verified alert.

Falcon's exceptionally low false positive rate represents a tremendous operational win for our customers as it enables them to significantly increase their speed to triage, investigate and remediate a verified alert.

Based upon our business value assessment and realised analysis, we estimate that on average enterprise customers observed a 68% increase in operational efficiencies with the Falcon platform.

based upon our business value assessment and realized analysis.

We estimate that on average enterprise customers observe a 68% increase in operational efficiencies with the Falcon platform, equating to an offset of approximately 3.5 full-time employees.

Waiting to an offset of approximately $3 five full time employees.

We believe today's macro pressures on businesses and the escalating threat environment make falcon value proposition as a consolidator more important today than at any other time in crowd strikes history.

We believe today's macro pressures on businesses and the escalating threat environment make Falcon's value proposition as a consolidator more important today than at any other time in CrowdStrike's history.

In order to solve agent bloating complexity within the security Nike stack.

Also protecting the business from cyber adversary and reducing operating costs.

in order to solve agent bloating complexity within the security and IP stack, while also protecting the business from cyber adversaries and reducing operating costs.

Companies need to consolidate on a truly integrated platform.

Non acquired technologies stitched together by an invoice.

Companies need to consolidate on a truly integrated platform.

Prostrate Falcon continues to be the gold standard and the security platform of record.

not acquired technology stitched together by an invoice.

Cross-right Falcon continues to be the gold standard and the security platform of record.

While the cyber security market is not immune to macro pressures. It is a mission critical technology.

While the cybersecurity market is not immune to macro pressures, it is a mission critical technology.

The adversary store stock.

As detailed in our latest threat hunting report Overwatch observed a nearly 50% year over year increase in interactive intrusion campaigns.

The adversaries don't stop.

As detailed in our latest threat hunting report, Overwatch observed a nearly 50%

We believe cyber security investment is resilient and has prioritized, especially among the world's largest organizations as represented in our $1 billion plus customer cohort.

year-over-year increase in interactive intrusion campaigns.

We believe cybersecurity investment is resilient and is prioritized, especially among the world's largest organizations.

And best in class retention rates and module adoption rates.

as represented in our million dollar plus customer cohort and best in class retention rates and module adoption rates.

With the escalating threat environment, expanding attack surface and extensibility of the Falcon platform.

With the escalating threat environment, expanding attack surface.

It is our belief that we are still in the early innings of craft strikes growth journey.

and accessibility of the Falcon platform, it is our belief that we are still in the early innings of CraftStrike's growth journey.

We believe the early and rapid success of our identity protection solutions best demonstrates our ability to leverage our unique and vast threat intelligence.

We believe the early and rapid success of our Identity Protection solutions

best demonstrates our ability to leverage our unique and vast threat intelligence.

Create and dominate new and legacy markets.

We intend to continue our disruptive innovation.

to create and dominate new and legacy markets.

Expand our technology leadership and bring new modules to market.

We intend to continue our disruptive innovation, expand our technology leadership, and bring new modules to market.

Even with these investments we are responding to current macro conditions and plan to balance growth with profitability and free cash flow as Burt will discuss in more detail.

Even with these investments, we are responding to current macro conditions and plan to balance growth with profitability and free cash flow, as Burt will discuss in more detail.

We remain steadfast in our vision to grow ending <unk> 5 billion.

By the end of fiscal year, 2026, and reach our target operating model in fiscal year 2025.

We remain steadfast in our vision to grow ending ARR to $5 billion by the end of fiscal year 2026 and reach our target operating model in fiscal year 2025.

With that I will turn the call over to Bert to discuss our financial results in more detail.

With that, I will turn the call over to Burt to discuss our financial results in more detail.

Thank you George and good afternoon, everyone.

A quick reminder, unless otherwise noted all numbers, except revenue mentioned during my remarks today are non-GAAP .

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 .

Before we get started I will note that the results. We are reporting today include the acquisition of deposit, which was de minimis to revenue and <unk>.

Before we get started, I will note that the results we are reporting today include the acquisition of Repositify.

<unk> less than $1 million for Q3.

which was de minimis to revenue and ARR, contributing less than $1 million to Q3 ARR.

In the quarter, ending <unk> grew 54% year over year.

In the quarter, ending ARR through 54% year-over-year.

Net new <unk> grew 17% year over year to $198 1 million.

Net new ARR from 17% year-over-year to $198.1 million.

Given the elongated sales cycles due to macro pressures and smaller non enterprise accounts that George discussed.

Given the elongated sales cycles due to macro pressures in smaller, non-enterprise accounts that George discussed,

The composition of net new <unk> in Q3 was weighted more heavily toward our $1 billion plus customer cohort with no outsized contribution from any one deal.

The composition of net new ARR in Q3 was weighted more heavily toward our million dollar plus customer cohort with no outsize contribution from any one deal.

Our dollar based net retention rate was above our benchmark and consistent with Q2, maintaining the highest levels of Q3 and fiscal 2021.

Our dollar-based net retention rate was above our benchmark and consistent with Q2, maintaining the highest levels since Q3 in fiscal 2021.

Gross retention also maintained its record level, demonstrating our strong commitment to stopping the breach delivering value to customers and restoring trust to the security posture of companies worldwide.

Gross retention also maintained its record level, demonstrating our strong commitment to stopping the breach, delivering value to customers, and restoring trust to the security posture of companies worldwide.

As George mentioned, we are also seeing more customers standardize on the Falcon platform and adopt more modules.

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.

We believe these trends will create an enduring business opportunity for the years to come.

Moving to the P&L total revenue grew 53% over Q3 of last year to reach $589 million.

Moving to the P&L, total revenue grew 53% over Q3 of last year to reach $580.9 million.

Description revenue grew 53% over Q3 of last year to reach $547 4 million.

Subscription revenue grew 53% over Q3 of last year to reach $547.4 million.

Professional services revenue was $33 $5 million setting a new record for the ninth consecutive quarter and representing 46% year over year growth.

Professional Services revenue was $33.5 million, setting a new record for the ninth consecutive quarter and representing 46% year-over-year growth.

In terms of our geographic performance in Q3, we continued to see strong growth in the U S at 46% and international revenue growth at 72% year over year.

In terms of our geographic performance in Q3, we continue to see strong growth in the U.S. at 46% and international revenue growth at 72% year over year.

Third quarter total and subscription non-GAAP gross margins remained relatively consistent at 75% and 78% respectively.

Third quarter total and subscription non-GAAP gross margins remained relatively consistent at 75 and 78 percent respectively.

Total non-GAAP operating expenses in the third quarter were approximately $348 6 million or 60% of revenue versus $239.0 million last year or 63% of revenue.

Total non-GAAP operating expenses in the third quarter were approximately $348.6 million, or 60% of revenue, versus $239.0 million last year, or 63% of revenue.

In Q3, our magic number was $1 two reflecting the continued efficiency of our go to market engine.

In Q3, our magic number was 1.2, reflecting the continued efficiency of our go-to market engine.

We believe our magic number in excess of 1.0 indicates very favorable go to market efficiency and supports our current investment plan.

We believe a magic number in excess of 1.0 indicates very favorable go-to-market efficiency and supports our current investment plan.

As George mentioned, we are focusing marketing investments.

Specific initiatives with the goal to drive an even bigger pipeline in response to the macroeconomic environment, while at the same time, maintaining our disciplined approach to unit economics.

As George mentioned, we are focusing marketing investments on specific initiatives with the goal to drive an even bigger pipeline in response to the macroeconomic environment while at the same time maintaining our disciplined approach to unit economics.

Third quarter non-GAAP operating income grew 77% year over year to reach a record $89 7 million and operating margin improved by two percentage points year over year to reach 15%.

Third quarter non-GAAP operating income grew 77% year-over-year to reach a record $89.7 million, and operating margin improved by 2 percentage points year-over-year to reach 15%.

Looking at the first nine months of fiscal year 2023, non-GAAP operating income grew 125% year over year to reach $261 million and 16% of revenue.

Looking at the first nine months of fiscal year 2023,

non-GAAP operating income grew 125% year-over-year to reach $260.1 million and 16% of revenue.

non-GAAP net income attributable to crowd strike in Q3 also more than doubled over the prior year growing to a record $96 1 million or 40 on a diluted per share basis.

non-GAAP net income attributable to CrowdStrike in Q3 also more than doubled over the prior year, growing to a record $96.1 million, or 40 cents on a diluted per share basis.

Our weighted average common shares used to calculate third quarter non-GAAP EPS attributable crowd strike was on a diluted basis and totaled approximately 240 million shares.

Our weighted average common shares used to calculate third quarter non-GAAP EPS attributed to the crowd strike was on a diluted basis and totaled approximately 240 million shares.

We ended the third quarter with a strong balance sheet.

Cash and cash equivalents increased to approximately $2 $4 7 billion.

We ended the third quarter with a strong balance sheet.

And reflects the approximately $19 million payment net of cash acquired for the acquisition of <unk>.

Cash and cash equivalents increase to approximately $2.47 billion and reflect the approximately $19 million payment net of cash acquired for the acquisition of Reposify.

Cash flow from operations grew 53% year over year to a record $242 9 million.

Cash flow from operations grew 53% year-over-year to a record $242.9 million.

Free cash flow grew 41% year over year to a record $174 1 million or.

Free cash flow grew 41% year-over-year to a record $174.1 million, or approximately 30% of revenue.

Ultimately 30% of revenue.

Before I move to our guidance I would like to provide a few comments about how we view the ongoing impact of the current macro climate on our business.

Before I move to our guidance, I'd like to provide a few comments about how we view the ongoing impact of the current macro climate on our business.

We are maintaining our revenue guidance for fiscal year 2023, while raising our bottom line guidance.

We are maintaining our revenue guidance for fiscal year 2023 while raising our bottom line guidance. We are maintaining our revenue guidance for fiscal year 2023 while raising our bottom

As George mentioned, even though we entered Q4 with a record pipeline. We are expecting the elongated sales cycles due to macro concerns to continue and we are not expecting to see the typical Q4 budget flush given the increased scrutiny on budgets.

As George mentioned, even though we entered Q4 with a record pipeline,

We are expecting the elongated sales cycles due to macro concerns to continue and we are not expecting to see the typical Q4 budget flush given the increased scrutiny on budgets.

While we do not provide net new air our guidance given the current macro uncertainty. We believe it is prudent to assume that Q4 net new <unk> will be below Q3 by up to 10%.

While we do not provide net new ARR guidance, given the current macro uncertainty,

we believe it is prudent to assume that Q4 net new ARR will be below Q3 by up to 10%.

Looking into FY 'twenty four.

Coming in approximately 10% year over year headwind in the first half of the year on net new <unk> and for the full year net new <unk> would be roughly flat to modestly up year over year.

Looking into FY24, assuming an approximately 10 percent year-over-year headwind in the first half of the year on net new ARR, and for the full year, net new ARR would be roughly flat to modestly up year-over-year.

This would imply a low thirties, ending our growth rate in our subscription revenue growth rate in the low to mid <unk> for FY 'twenty four.

This would imply a low 30s ending ARR growth rate and a subscription revenue growth rate in the low to mid 30s for FY24.

Similar to how we partnered with customers during the height of the COVID-19 pandemic.

Similar to how we partnered with customers during the height of the COVID-19 pandemic, we are exercising more flexibility with new contract payment terms as organizations navigate macroeconomic conditions.

Exercising more flexibility with new contract payment terms as organizations navigate macroeconomic conditions.

We also expect more multiyear deals converting to one year renewals than in previous quarters. As a result, we expect free cash flow as a percent of revenue to be in the range of 28 and 30% for FY 'twenty three.

We also expect more multi-year deals converting to one-year renewals than in previous quarters.

As a result, we expect free cash flow as a percent of revenue to be in the range of 28 and 30 percent for FY23.

Throughout fiscal year 2023 to date, we have taken advantage of market dynamics and brought onto Percy talent in key functions at an accelerated pace.

Throughout fiscal year 2023 to date, we have taken advantage of market dynamics and brought on superb talent and key functions at an accelerated pace.

At the same time employee retention rates have increased.

As of the end of Q3, we have grown our team by 40% in FY 'twenty three putting us in a really good position to execute on our plan for next year.

At the same time, employee retention rates have increased.

As of the end of Q3, we have grown our team by 40% in FY23.

This allows us to shift our near term focus to enablement and productivity, while significantly slowing the pace of new hires needed to execute our plans.

putting us in a really good position to execute on our plan for next year.

This allows us to shift our near-term focus to enablement and productivity, while significantly slowing the pace of new hires needed to execute our plans.

Assuming the macro environment does not materially weaken from current levels, we see a path to free cash flow margin of 30% of revenue in FY 'twenty, four and we plan to generate modest incremental non-GAAP operating margin leverage in FY 'twenty four as we continue to March toward our target operating model.

Assuming the macro environment does not materially weaken from current levels, we see a path to free cash flow margin of 30% of revenue in FY24, and we plan to generate modest, incremental, non-GAAP operating margin leverage in FY24 as we continue to march toward our target operating model. For more information, visit www.fema.gov

For the fourth quarter of FY 'twenty three we expect total revenue to be in the range of $619, one to $628 $2 million, reflecting a year over year growth rate of 44% to 46% with subscription revenue being the dominant driver of growth.

For the fourth quarter of FY23, the

We expect total revenue to be in the range of $619.1 to $628.2 million.

reflecting a year-over-year growth rate of 44 to 46%, with subscription revenue being the dominant driver of growth.

We expect non-GAAP income from operations to be in the range of 87, 2% to $93 7 million.

We expect non-GAAP income from operations to be in the range of $87.2 to $93.7 million and non-GAAP net income attributable to CrowdStrike to be in the range of $100.9 to $107.5 million.

non-GAAP net income attributable to crowd strike to be in the range of 109 to $107 5 million.

We expect.

Diluted non-GAAP net income per share attributable to crowd strike to be in the range of 42 to 45 utilizing.

We expect diluted non-GAAP net income per share attributable to CrowdStrike to be in the range of $0.42 to $0.45, utilizing a weighted average share count of 241 million shares on a diluted basis.

Utilizing our weighted average share count of 241 million shares on a diluted basis.

Yeah.

For the full fiscal year 2023, we currently expect total revenue to be in the range of 2223 through to 2000 232.0 million.

For the full fiscal year 2023, we currently expect total revenue to be in the range of $2,223.0 to $2,232.0 million, reflecting a growth rate of 53 to 54 percent over the prior fiscal year.

non-GAAP income from operations is expected to be between 347 to $353 8 million.

non-GAAP income from operations is expected to be between $347.2 and $353.8 million.

We expect fiscal 2023 non-GAAP net income attributable to CrowdStrike to be between $357.6 and $364.4 million.

Utilizing 240 million weighted average shares on a diluted basis, we expect non-GAAP net income per share attributed with crouch rate to be in the range of $1 49 to $1 52.

Utilizing 240 million weighted average shares on a diluted basis, we expect non-GAAP net income per share attributed with CrowdStrike to be in the range of $1.49 to $1.52.

George and I will now take your questions.

Thank you.

George and I will now take your questions.

Ladies and gentlemen, as a reminder to ask a question you will need to press star one one on your telephone once again to ask a question. Please press star one one.

Thank you.

Ladies and gentlemen, as a reminder, to ask a question, you will need to press star 11 on your telephone.

And due to time constraints, we ask that you please limit yourself.

Once again to ask a question please press star 1 1.

Two one.

and due to time constraints we ask that you please limit yourself.

to one.

And our first question comes from the line of socket <unk>.

With Barclays.

And our first question comes from the line of Socket Kalia with Barclays.

Yes.

Okay, great. Hey, guys, thanks for thanks for taking my questions here are a lot to unpack George, maybe, maybe for you. I was wondering if you could dig just one level deeper. Into any competitive data that you've reviewed, you know, kind of looking back on the quarter, they feel like any big competitors here, like Microsoft, or perhaps even smaller next gen competitors are having an impact. If I could squeeze a housekeeping question in as well.

A lot to unpack George maybe maybe for you I was wondering if you could dig just one level deeper into any competitive data that you've reviewed kind of looking back in the quarter do you feel like any big competitors here like Microsoft or perhaps even smaller nextgen competitors are having an impact Burt if I.

I could squeeze in a housekeeping question as well.

Nearly <unk> is the metric that you managed to but maybe for everybody's benefit can you also talk to how our appeal and AOR growth might have different drivers.

Clearly, ARR is the metric that you manage to, but maybe for everybody's benefit, can you also talk to how RPO and ARR growth might have different drivers?

Yeah. Thanks <unk> so.

Again, if you look at what we've seen and what we've commented on the inherent demand for our products remains strong. Obviously there was an increase in the macro headwinds we talked about some of the smaller customers, having elongated sales cycles, we saw 11%.

Yeah, thanks, Saket. So, again, if you look at what we've seen and what we've commented on, the inherent demand for our products remains strong. Obviously, there's an increase in the macro headwinds. We talked about some of the smaller customers having elongated sale cycles. We saw 11% increase in days to close, and those are delayed deals, not lost deals.

Increase in days to close and those are delayed deals not lost deals.

And on the enterprise again, we're seeing consistent win win rates they remain high and in fact in the smaller customers, we've actually seen them significantly improve quarter over quarter. So.

And, on the enterprise, again, we're seeing consistent win rates. They remain high. And, in fact, in the smaller customers, we've actually seen them significantly improve quarter over quarter. So –

From our standpoint, and we look at this very closely as you might imagine the landscape remains favorable to us I really don't see another true consolidator like Falcon.

From our standpoint, and we look at this very closely, as you might imagine, the landscape remains favorable to us. I really don't see another true consolidator like Falcon, and customers are looking for technologies that reduce costs, reduce complexities, actually work and stop breaches, and that's what we were delivering. So again, when we look at the competitive landscape, it remains favorable to us. And as we pointed out,

And our customers are looking for technologies that reduce costs reduce complexities actually work and stopped breaches and thats. What we are delivering so again when we look at the competitive landscape.

It remains favorable to us and as we pointed out we saw increased.

Increased macro headwinds and that's why we talked about so I'll turn it over to Bert.

Thanks.

So first big picture when we think about <unk>, we think that is a noisy metric and it's really not designed to match or correlate with <unk>. Given the fact that <unk> is a normalized annual number and what do I mean by a noisy metric.

Well, what I mean by that is there are several positive trends in our business that can create headwinds on duration relative to prior periods and as Rob not necessarily fully captured in <unk>.

metric. Well what I mean by that is there are several positive trends in our business that can create headwinds on duration relative to prior periods and as well not necessarily fully captured in CRPO.

Some examples would include for us.

For one year deals compared to prior periods and software it's typical for multi year lands to renew as one year deals.

Some examples would include for us more one-year deals compared to prior periods. In software it's typical for multi-year lands to renew as one-year deals. And as renewals become a bigger portion of the business, which for us it is, this creates a headwind to CRPO.imeter.

As renewals become a bigger portion of the business, which for US. It is this creates a headwind to <unk>.

And given where we are with respect to our high gross retention rates.

One year deals provide us the opportunity to expand within the customer to drive bigger bundles.

Given where we are with respect to our high gross retention rates, one-year deals provide us the opportunity to expand within the customer to drive bigger bundles.

With the expansion and cross sell sold co terminus to existing contracts. These are often less than one year in duration. So our expansion business has been as our expansion business has been increasing as evidenced by our net new retention rate. This would have pressure on <unk> and finally.

Two, with the expansion and cross-sell sold co-terminus to existing contracts, these are often less than one year in duration. So our expansion business has been, as our expansion business has been increasing as evidenced by our net new retention rate, this would have pressure on our CRPO.

On duration, we do have some usage based deals it could be <unk>. The vast majority of NSF fees, how are usage based and those are billed monthly.

And finally, on duration, you know, we do have some usage-based deals. It could be MSSBs, the vast majority are MSSBs, are usage-based, and those are built monthly. And as MSSBs become a more rapidly growing part of our business, that's going to impact CRPO, as well as non-committed consumption billings in cloud. And then finally, just a comment on ARR. You pointed out that's how we run our business.

And.

As <unk> has become a more rapidly growing part of our business that's going to impact <unk>.

<unk> as well as non committed consumption billings and cloud.

And then finally just to comment on your.

You pointed out that's how we run our business, though is really an X ray into into the contracts themselves and as we view that as the most important or most transparent metric into the outlook of our business. That's the one where we're focused on so hopefully that gives some more clarity on how we think about <unk> and <unk>.

AR, though, is really an x-ray into the contracts themselves.

And as we view that as the most important or most transparent metric into the outlook of our business, that's the one where we're focused.

So hopefully that gives some more clarity on how we think about CRVO and ARR.

Thank you.

And our next question comes from the line of Rob Owens with Piper Sandler.

Thank you.

And our next question comes from the line of Rob Owens with Piper Sandler.

Good afternoon. Thanks for taking my question I'm wondering if you guys could compare and contrast, what you saw domestically versus internationally.

Thanks for taking my question. I'm wondering if you guys could compare and contrast what you saw domestically versus internationally. And a little surprising to see international actually strengthen based on growth rates and the US fall off. So if you could provide a little clarity there, that'd be great. Thanks.

Little surprising to see international actually strengthened based on growth rates in the U S. Falloff. So if you could provide a little clarity there that'd be great. Thanks.

Hey, Rob this is Bert thanks for the question. So in general we saw the macro hit all the Geos.

Hey Rob, this is Burt. Thanks for the question. So in general, you know, we saw the macro hit, you know, all the geos, but as we think about our splits between United States and internationally, obviously the United States is the biggest portion overall of our business, so any impacts to ARR will generally be driven from that sector.

But as we think about our splits between United States and internationally, obviously, the United States is the biggest portion overall of our business. So any impacts to <unk> will generally be driven from that sector.

Thank you.

Please.

And our next question comes from the line of Sterling Auty with Moffett Nathan.

Thank you. One moment please.

And our next question comes from the line of Sterling Audie with Moffitt Nathanson.

Yeah, Thanks, Hi, guys and thank you for the extra commentary on macro and next year. In particular my question is really how do you think about those macro headwinds manifesting themselves in terms of net dollar retention or expansion rates versus the growth rate in new customers. It's one <unk>.

Yeah, thanks. Hi, guys. And thank you for the extra commentary on macro and next year in particular. My question is really, how do you think about those macro headwinds manifesting themselves in terms of net dollar retention or expansion rates versus the growth rate in new customers? Is one side going to be more particularly hit?

<unk> going to be more particularly hit versus the other as it unfolds over the next several quarters.

Thanks very much so.

versus the other as it unfolds over the next several quarters? Thanks, Erling. So, you know, for us the good news is that we have a very healthy install base, and we feel that we've got great opportunities in that traditional land and expand model. You know, and we saw that in the, you know, in the ratios that we saw. Having said that, we still feel that there's a tremendous opportunity in new logos.

For us the good news is that we have a very healthy instant installed base.

And we feel that we've got great opportunities in that traditional land and expand model.

And we saw that in the.

In the in the.

And the ratios that we saw.

Having said that we still feel that there's a tremendous opportunity in new logos, we think that the.

The opportunity for us to go and capture some of those new logos really has that goes to our model that we started and talked about since since day one.

So today, we still think about a tremendous opportunity in the land and expand model.

As evidenced by our dollar based net retention rates, but also in terms of the net new logos that we have the opportunity to go capture we talk about the Tam that we've we've seen ever increasing from IDC and the fact that we've just been able to add new modules at a nice clip we feel that we have a great opportunity to go after those new logos as well.

capture. We talk about the TAMs that we've seen ever increasing from IDC and the fact that we've just been able to add new modules at a nice clip. We feel that we have a great opportunity to go after those new logos as well.

Thank you.

Our next question comes from the line of Joel Fishbein with truest.

Thank you. And our next question comes from the line of Joel Fishbein with Truist. Hi, thanks for taking my question. George, at your bot Reposify, External Attack Surface Management, a lot of customers were talking about it positively at the analyst day or the user conference.

Hi, yes, thanks for taking my question George at you bought.

Pacify external.

External attack surface management, a lot of customers, we're talking about are positively at.

The analyst day or the user conference loved to hear you said theres going to be launched this year and wanted to see if there's any initial indication of <unk>.

Interest there and how do you think that will trail our track in terms of demand.

Yes.

We've seen tremendous interest since the acquisition, we announced that at Falcon customers are looking to understand their exposures externally.

As they move more and more to the cloud a lot of their exposures that really configuration and policy driven so it's a fantastic add for us it fits very nicely within our platform. It ties into what we're doing on the vulnerability management and risk side and overall, we're really excited about it and customers are not only looking at it for them.

their exposures externally and as they move more and more to the cloud, a lot of their exposures are really configuration and policy driven. So it's a fantastic ad for us. It fits very nicely within our platform. It ties into what we're doing on the vulnerability management and risk side. And overall, we're really excited about it and customers are not only looking at it for themselves, but also looking at it from a...

Cells, but also looking at it from a.

Third party risk perspective, and leveraging it across their supply chain.

In terms of making sure that their suppliers are secure and not putting customers at risk. So so.

So far very positive feedback and we're excited to get the product launched and bring it to market.

Thank you.

And our next question comes from the line of Hamzah firewall with Morgan Stanley .

Thank you.

And our next question comes from the line of Hamza Fadarwala with Morgan Stanley .

Hi, good evening, Thanks for taking my question.

George a question for you.

I think it's pretty clear that the macro is going to impact pretty much every company security not excluded from that.

Hi, good evening. Thanks for taking my question. George, a question for you.

I think it's pretty clear that the macro is going to impact pretty much every company. Security, you know, not excluded from that. I'm curious how you're thinking about balancing sort of growth and profitability from here. Because on the one hand, clearly growth is going to slow for CrowdStrike and for everybody else. But on the other hand, you've got this big market opportunity in front of you.

Im curious, how youre thinking about balancing growth.

Growth in profitability from here because on the one hand, clearly growth is going to slow for crowd strike and for everybody else.

On the other hand, you've got this big market opportunity in front of you as an emerging consolidator and cyber security do you feel like this is the time to maybe.

as an emerging consolidator in cybersecurity, do you feel like this is a time to maybe continue to invest as maybe others are gonna struggle more, they don't have that free cash flow generation that you do? Or do you feel like this is a time to maybe show a little bit more leverage? I'm just curious how you're thinking about that.

To invest as maybe others are kind of struggling more they don't have the free cash flow generation that you do or do you feel like this is the time to maybe show a little bit more leverage just curious how youre thinking about that.

Well, great question, Hamzah and it's always been.

A balanced growth approach and it's never been a growth at all costs and I think we've shown that with our performance and track record.

Well, great question Hamza, and it's always been a balanced growth approach and it's never been a growth at all costs. And I think we've shown that with our performance and track record. And we continue to play the long game. But if you put things into perspective, we're a rule of 83 last quarter. I mean, you think about the growth and the cash flow generation at scale at, you know, small quarters to individuals, but we don't really really have to see that in an initial aspect of the population. I mean, it's part of our McG Curiosity of how things work, but not part of the acc model of the economy. And this has been a really evolving and stormy curriculum, I think part of why we'reparameter Mobility or infrastructure is to consume certain resources.

And we continue to play the long game, but if you put things into perspective, we're rule of 83 last quarter. I mean, you think about the growth in the cash flow generation at scale it.

2 billion plus <unk>.

Remarkable.

We actually see this as a great opportunity for crowd strike as we go forward is as <unk>.

2 billion plus ARR is pretty remarkable. We actually see this as a great opportunity for CrowdStrike as we go forward. As smaller competitors fall by the wayside, as private companies look for exits, we think it's a very attractive opportunity for us with our balance sheet, almost 2.5 billion in cash. And at the end of the day as these macro trends...

Smaller competitors fall by the wayside as.

Private companies look for exits, we think it's a very attractive opportunity for us with our balance sheet almost $2 5 billion in cash.

<unk>.

At the end of the day as these macro trends.

Evolve.

We see a great opportunity for us now and into the future to continue to consolidate customers as well as.

you know, evolve, you know, we see a great opportunity for us, you know, now into the future to continue to consolidate customers as well as, you know, other technologies that might fit within our platform. So that's the way we look at it. Balanced investment, and again, focus on making sure that we're delivering cash flow for our shareholders.

Other technologies that might fit within our.

Platform. So that's the way we look at it balanced investment.

And again, a focus on making sure that we're delivering cash flow.

For our shareholders.

Thank you.

Our next question comes from the line of Andrew Nowinski with Wells Fargo.

Thank you.

Great. Thank you for taking my question. This afternoon. So.

And our next question comes from the line of Andrew Nowinski with Wells Fargo.

No totally are $2 3 billion growing 54%.

Great, thank you for taking the question this afternoon. So, you know, total ARR of 2.3 billion growing 54% is still absolutely amazing. I was

Still absolutely amazing.

I was.

And as that scale, but I was wondering.

Were you surprised that the net new logos that you added were down 9% this quarter.

you know, and it's at scale, but I was wondering.

Were you surprised that the net new logos that you added were down 9% this quarter?

Thanks, Andy So when we think of the net new logo is it really corresponds to what we talked about in terms of what we saw in that in that SMB space. The SMB space is the one that drives the philosophy of our net new logos and as we talked about we saw an 11% increase in our sales side.

Thanks, Andy. So when we think of the net new logos, it really corresponds to what we talked about in terms of what we saw in that SMB space. The SMB space is the one that drives the velocity of our net new logos. And as we talked about, we saw an 11% increase in our sales cycle in the SMB space. And that actually equated into 15 million dollars in sales.

In the SMB space and.

And you know that that.

That actually equated into $15 million in terms of deals in that space that could pushed out.

And so when you think about $50 million in that space and what it means in terms of logos. What you can do the math, it's a pretty big number.

That's how we think about net new logos corresponding to what we saw in net new <unk> from the SMB space. So from that perspective, we werent surprised at the end of the day when we saw that what happened with respect to the the increase sales cycles and the amount of money that got pushed out in the SMB space.

Thank you.

And our next question comes from the line of Jonathan Ho with William Blair.

in the S&P space.

Thank you.

And our next question comes from the line of Jonathan Ho with William Blair.

Jonathan are you there.

Okay.

Jonathan, are you there?

Operator, maybe we can move to the next question.

Certainly and our next question comes from the line of Matt Hedberg with RBC capital markets.

Okay.

Operator, maybe we can move to the next question.

Certainly. And our next question comes from the line of Matt Hedberg with RBC Capital Markets.

Hey, Thanks for taking my question George for you, you've obviously been running <unk> been in the security industry for a long time, when you see macro headwinds like this pop up are there things that you all can do from a sales perspective to accelerate cycles like going customers sooner than you'd normally do I'll just anything tactically that you do.

Great, thanks for taking my question. George, for you, you've obviously been running, you've been in the security industry for a long time. When you see macro headwinds like this pop up, are there things that you all can do from a sales perspective to accelerate cycles like going at customers sooner than you'd normally do? Anything tactically that you do in times like this? And has anything changed competitively in the smaller side of the business that you run?

In times like this if anything change competitively.

Some of the smaller side.

The business that you play in.

Sure. So let me take the latter question first as I mentioned, we actually saw when rates go up in the Downmarket F&B space. So I think we continue to do well there and this burt talked about deals getting pushed out from that segment. We saw the impact of that but when we think about what we can do and what we continue to focus on obviously X.

<unk> is really important to us in getting ahead of it.

The lengthy sales cycles that you see like in the enterprise with all of the various approvals and legal that you have to do go through compliance privacy.

getting ahead of the lengthy sales cycles that you see like in the enterprise with all the various approvals and legal that you have to go through, compliance, privacy, and just making sure that you have all of those checked off to try to fit the deals in to kind of a normal cycle that you would expect and it just, it takes more work and effort and.

And it just it just making sure that you have all of those checked off to try to.

Fit to deals in.

Kind of a normal cycle that you would expect and it just it takes more work and effort and we continue to focus on.

Full reviews of the pipeline.

Making sure that we're working with not only our internal sales teams, but also our partners and leveraging that vast partner network that we have.

we continue to focus on full reviews of the pipeline and making sure that we're working with not only our internal sales teams, but also our partners in leveraging that vast partner network that we have. And that's been the focus. So again, as you pointed out, I've been through multiple sales cycles and economic cycles, if you will, in security. And as I said in an earlier question, I do think it's a great opportunity.

And that's been the focus so again as you pointed out I've been through multiple.

Sales cycles and economic cycles, if you will in security and as I said in an earlier question I do think it's a great opportunity.

Long term as we as we push through the macro headwinds.

long term as we push through the macro headwinds.

term as we push through the macro headwinds.

Thank you.

Next question comes from the line of Tal Leone with Bank of America.

Hi, I hope for better than yesterday after the women's soccer, but it's okay. We will take what you have.

And our next question comes from the line of taall Liani with Bank of America.

I wanted to ask about budgets.

So we're working off 2022 budgets now and we see lengthening sales cycle in the low end of the market.

The question is as we go into 2023 and the new budgets are set which is around January what's the risk that we're going to see.

Similar behavior of larger companies work of budgets and are less.

Sensitive to kind of quarterly fluctuations.

And if you don't mind just to touch on no one asked about pricing and about the quarterly linearity, which are two important.

Thanks, Yeah sure I'll take I'll take the first part of that when.

When we think about budgets again, all the feedback that we've seen is that.

Budgets are not in the enterprise getting cut theres. So many mandates around security and just as customers move to the cloud what they are looking to do though is optimize that spend and consolidate so they may not be spending as much money with a whole bunch of vendors and they're looking to consolidate with companies.

Crowd strike, we spent a lot of time on selling the value and when we think about this and we've talked about this in the past, though is the consolidation of agents its a huge pain point for customers. The complexity the cost so all the conversations that I'm, having CEO all the way down.

<unk> has been around how do we help consolidate the cost because theyre going to spend the money they'd rather spend it with fewer vendors and how did they get a better outcome and that's I think where crowd strike shines and in some cases that may take a little extra work because we're upsizing some deals and we've got to go through more approvals and go through more of the value selling but again, that's what we're focused on.

So obviously.

We will monitor the environment and see if theres any changes, but in all the conversations that I've had.

Security remains still top of mind and top of budget for enterprise customers.

I'll take the second part.

So first on pricing what I can comment on is that a couple of things. So one is we see that discounting is consistent with Q2, we didn't see any change there there were no additional escalations to George and I for outsized discounting on deals.

Number two is we've seen asps being consistent.

So.

And that drives the point home about just our overall platform play.

Our ability to sell value and I think that.

I think that enterprise sales cycles increased a bit in Q2, and Q3 was consistent with that level. So I think that when you think about linearity to the second part of your question I think that's how I think about that.

We did talk about on peripheral pricing anyway, when we do talk about.

Net new <unk> to talk about in the prepared remarks about how we how we think about.

Up to 10% headwinds going into Q4 from Q3 and Thats just to coincide with some of the headwind activity that we saw or accelerated at the end of at the end of this quarter. So that's how we think about that.

Thank you.

Next question comes from the line of John Fucci with Guggenheim.

Thanks for taking my question.

You said in the prepared remarks, you talked about large customers pursuing multi phased subscriptions just maybe if we can dig into that a little bit how long do you expect that ramp period to be and do you have commitments for the ramp parts of the deal or just verbal intentions.

Thanks, John So I'll take the second part first so we do have commitments from those deals. They are signed deals just that when we think about structure.

When we think about structure.

We have this.

We have the speed of start date with respect to the subscriptions. So that's so that's how we think about.

Those multi phase deals.

And then I think that when we think about those multiphase deals in the.

The patterns that we've seen I think that we're going to see something consistent with what we've seen in Q3 I think that.

More of those larger enterprise deals are going to they're going to sign those deals they're going to look at their budgets. So they can look at their opex and theyre going to say, okay. Well. This makes sense. If we turned around at this point, which could be a date post the quarter end, but the deals I think the most important part about your question is that the deals are locked in.

And Thats and Thats and Thats, what we saw in Q3, and we anticipate that in Q4.

Thank you.

And our next question comes from the line of Brad Zelnick with Deutsche Bank.

Well great. Thanks, so much for fitting me in guys Burt your comment, saying that you expect no budget flush. This Q4 is like telling a kid Santa Claus isn't coming for Christmas.

I think you guys are the only ones explicitly saying this and I am guessing its because youre being more prudent maybe more transparent than others, but I'm also wondering how much of it is is pipeline versus conversion rate assumptions.

Inform your perspective.

And I guess, maybe to ask a little bit differently, how is your forecasting methodology.

Opting to the environment and the assumptions that youre putting into it in Q4. Thanks.

Yes so.

Really I want to attack that question from the standpoint of it starts from the fact that we did see record pipeline again going into the quarter. So I think it goes back to what we've seen this quarter both on the SMB and the enterprise space I think we're going to see the consistent themes that the macro is driving I think we're going to see the SMB space, we're going to see deals continue to be.

Pushed out.

And on the enterprise, we're going to see more multi phase yields. So that's how I think about.

The quarter end.

Yes.

The one thing that I want to add is it is important that we are continuing to drive top of funnel.

And we've got a lot of programs that are focused in on that and it's just going to be one of those things that we have to just overcome the macro.

Thank you.

And our next question comes from the line of Fatima <unk> with Citi.

Good afternoon. Thank you for taking my questions Burt tiara prepared commentary around some of the flexibility that you're in tricky, saying with respect to contract negotiations, particularly on the invoicing front wondering if you can share a little bit more detail with respect to <unk>.

How some of those engagements are becoming more flexible and sort of the implications on collections activity I can appreciate you shared preliminary.

Fiscal 'twenty four guidance with us on a number of those fronts, but with just to get a little bit more detail as to how some of these changes in.

Business activity behavior from customers is influencing how youre doing negotiations and on a related matter as the business does become more and more renewal.

Average and the model will start coming from maybe changed incentives to your sales team around.

Renewal business, maybe getting a lower threshold of quota attainment first said net new business, which is clearly becoming a little bit more challenging to do in this environment. Thank you.

Okay. Good questions, so I'll take them both.

So with respect to structure there are two things that come to mind. One is obviously on the on the enterprise deals and the phased.

Subscription start dates that will obviously impact billings and cash.

The second one is flexibility on when those payments become due.

So we're working with our customers to meet their budgets to meet their timelines and we've been flexible with respect to that and of course that will have an impact on cash as well.

But overall I still see because of our business model and our strong business model.

Consistent bismol hasn't changed I think that we've got this great opportunity to be comfortable in terms of what I talked about on the prepared remarks and.

From a cash flow standpoint, we see a path.

30% free cash flow margin next year, and I think that that just goes back to the strength of the model and the fact that we've got this business.

That is.

Is is really durable.

And with respect to how we see the big picture I think that the things that we're doing with respect to structure really talks to the partnering with respect to our customers and that was well appreciated well back in the when the pandemic first fit it is being appreciated now in a macro with the headwinds that we all have so we're I think we're.

We're still very excited about the opportunity to be able to part with it partner with our customers and then second with respect to how.

How do we think about.

Compensating our sales team.

And in light of our renewal business, becoming larger and larger I think that the good news. There is that when you think about renewable business the actual cost.

That it is too to continue to generate net new IRR from an existing client is definitely lower than to go out.

With respect to going out and getting a new logo.

There is some leverage to that so that's why I think that we.

In a really good spot with respect to me talking about leverage for next year.

Thanks for the question.

Okay.

Thank you.

And our next question comes from the line of Alex Henderson with Needham <unk> Company.

Great. Thanks.

I was hoping if we could talk a little bit about.

The cloud segment of the market.

Not necessarily in terms of your rate of growth per se, but rather what youre seeing in terms of companies willingness to accelerate or decelerate.

Sure.

Question to the cloud of cloud workloads.

And within that context.

Kind of share do you think youre picking up.

Or are you.

Gaining share in that in those workloads that are moving.

Thanks, Jeff Thanks.

Obviously customers are going to flex what they put in the cloud and <unk>.

The cloud growth is.

Sure.

Is what it is in terms of the macro cloud growth in terms of what we see in our cloud workload protection, we continue to win in those areas.

We win because we've got a combination of both workload protection as well as.

Cloud security posture management, and a full suite of protection capabilities.

And we have more and more customers that continue to leverage our technologies as they migrate to the cloud. So there's still migrating to the cloud they are leveraging our technologies.

It's all integrated and.

In terms of.

Cloud workload protection across the board.

It's certainly been been very very strong. So that's that's what we've seen in our business and obviously.

There is a broader cloud theme.

In the environment and customers are going to.

Choose when and how they migrate but we are therefore them and we continue to win those environments.

Thank you.

And our next question comes from the line of Roger Boyd with UBS.

Great. Thanks for taking my questions just a follow up on the multifamily subscription start dates I just wanted to.

Packed the behavior, there a little bit it sounds like its mostly a cash flow consideration by customers, but are there any other factors driving this behavior, whether it's resource constraints timing of Roadmaps.

Pregnancy more care on the line at the end and then start dates of third party solutions being consolidated on the Falcon platform and just a follow up I think you mentioned that these are confirmed deal. So I just want make sure that that is showing up those deals are showing up in our OPI. Thanks.

Yes, thanks, Roger So to answer your first part of your question.

So I think the biggest driver is that that opex, they're looking at starting those subscription data.

Staggered times, what makes sense for them they've got to align their resources on their end and making sure that they have the right folks looking at it.

And I think for us.

The good news is that those deals are all confirmed they are locked in we sign the deal.

So it might be deployed now so it might be later and they will be in the <unk> calculations.

Thanks for the question.

Thank you.

And our next question comes from the line of Joe Gallo with Jefferies Hey.

Guys really appreciate the question George I appreciate your comments on <unk> and <unk> macro based on your conversation with customers. What is their view on 2023 cyber budgets as they start to think about them are they expecting near term alleviation with quick Bandaid rip off or is this more of a long term new normal that we might see for the next year or so.

Well as I as I mentioned earlier, we haven't seen any customers come back and say hey, our budgets are cut next year, we just haven't seen it.

And as I mentioned, they are looking to consolidate they're obviously looking to.

Deploy those resources wisely and.

And do it with fewer vendors and get better outcomes. So again, that's an area, where I think we have tremendous strength.

But nothing in my conversations and as you might imagine I've talked a lot of customers all over the globe and prospects nothing has come back that said they are spending less on security.

Next year.

Cloying to the cloud they are adding capabilities. There is a whole slew of compliance requirements that are coming in around the globe.

That will drive additional spend and again they want to do it in a way that they get the most bang for their Buck in a consolidated fashion and that's exactly what we've seen and we haven't seen anything to deviate from that.

Thank you and that concludes our question and answer session I would now.

Now I'd like to turn the call back over to George Kurtz for any closing remarks.

I wanted to thank all of you today for your time and we certainly appreciate your interest and look forward to seeing you at our upcoming investor events. Thank you and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.

Yes.

The conference will begin shortly to raise your hand during Q&A you can dial one one.

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