Q4 2023 CrowdStrike Holdings Inc Earnings Call

March 7, 2023

Yeah.

Thank you for standing by and welcome to crowd strike holdings fourth quarter and fiscal year 'twenty to 'twenty three financial results conference call.

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

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

You ask a question during the session you will need to press star one to one on your telephone.

I would now like to hand, the call over to Maria Riley VP 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 Cartwright.

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 first quarter and fiscal year 2024, and any assumptions for fiscal <unk>.

Periods beyond that are forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95.

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.

<unk> to risks and uncertainties.

We do not undertake and expressly disclaim any obligation to update or alter our forward looking statements, whether as a result of new information future events or otherwise.

Further information on these and other factors that could affect the 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 Companys quarterly and annual report.

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 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 cloud strife 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.

Thank you Maria and thank you all for joining us craft strike delivered a record fourth quarter that exceeded our expectations across the board I will focus my comments today on a few key points first crowd strike is executing exceptionally well in a challenging macro environment.

We believe this is best showcase by the fourth quarter's record net new <unk> of $222 million.

Record net new customers.

1873 strong retention rates record operating income record free cash flow of $209 million and our rule of 81 on a free cash flow basis.

Second the dual mandate of high efficacy and low total cost of ownership basic craft strikes strength as a leading consolidator.

<unk> growing market share showcases the Falcon platform advanced AI and technology leadership that drives better security outcomes automation and lower Tcl for customers.

And third our conviction in crowd strike expansive opportunity continues to grow we.

We see a massive opportunity to leverage our AI driven collect data once reuse many times platform to expand share across our markets.

As Bert will discuss we are continuing our thoughtful and balanced approach to investing to drive both topline and bottomline growth.

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

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

Time within fiscal year 2025.

The key to our success in the fourth quarter was execution and strong market demand for the Falcon platform.

We converted our pipeline into wins and built a record Q1 pipeline, even if sales cycles elongated as we saw late in Q3, and we did not see the typical budget flush as organizations continue to work through a macro concerns.

Our competitive win rate remains high and Asps remain consistent and we ended the year with a best in class gross retention rate and a strong net retention rate.

We believe our strong fourth quarter performance and record Q1 pipeline demonstrates the mission critical nature of cyber security for modern businesses, the resiliency of our market and cross strikes growing leadership as the cyber security platform of record.

I'd like to thank each and every craft stryker for their dedication and hard work in making the fourth quarter, our best quarter to date.

As a team we should be proud of the amazing accomplishments, we have achieved and excited about the opportunities ahead of us.

Let's take a moment to highlight several year over year milestones the crowd strike team delivered in FY2023 that I'm most excited about.

Ending <unk> grew 48% to reach 256 billion.

Net new <unk> grew 22% to reach $828 million setting a new record.

Our emerging product category contributed $182 million.

Two net new.

<unk>, which was 22% of all net new <unk> and a 97% increase.

Emerging products ended are growing 116% to $339 million surpassing.

They're passing crowd strikes total.

At the time of IPO in 2019.

This included a standout year for our identity protection modules, which contributed over $100 million.

In ending and.

And over 1000, net new identity customers.

Additionally, large scale posted over 200% ending our growth.

From a public cloud deployment view, ending <unk> surpassed the $200 million milestone to reach $224 million.

And we added a record 6694 net new customers for the fiscal year to bring us to 23019 subscription customers a 41% increase.

Crowd strike now serves 556 of the global 2271 of the Fortune 515 of the top 20 U S Bank.

On the bottom line FY 'twenty, three operating and net income growth well outpaced revenue growth showcasing the leverage in our model.

non-GAAP operating income grew 81% year over year to reach a record $356 million noncash.

non-GAAP diluted EPS grew 130% to reach a record $1 54.

Free cash flow grew 53% to reach a record $677 million and we achieved at least 30% free cash flow margin for the third consecutive year.

Our market leadership continues to grow as customers are voting for their platform of choice with their wallets crush strike ranked first in Idc's annual worldwide modern endpoint security market share report for the third consecutive year with 17, 7% market share outpacing <unk>.

All vendors by posting the largest increase in revenue and market share.

The efficacy of the Falcon platform continues to be widely tested and recognized for delivering superior outcomes, regardless of whether you are looking at Mitre Trust radius G to Frost and Sullivan Forrester wave SCE labs, Gartner peer insights or Gartner magic quadrant.

<unk> Superior technology has been awarded a lead or a number one position.

This was most recently highlighted by winning the 2023 Etsy Labs Award for Best Edr and best product development. This is the third consecutive time that craft Shrek as one and the best Edr category further reinforcing our innovation in endpoint security and putting us in the.

Pole position to help customers enter the ex Dr era.

Additionally, crowd strike was once again positioned as a leader furthest to the right for completeness of vision and Gartner Magic quadrant for endpoint protection platforms for the third consecutive year. We believe this recognition highlights our long standing track record of disruptive innovation, including our use of AI.

And indicators of attack to stop cyber adversaries in real time.

While the use of AI has become the new topic of the day it is not new to crowd strike.

We were a pioneer in applying AI and cyber security.

Falcon platform was designed from the ground up to effectively process and correlate the massive volume of data required for effective AI and leverage it across our entire platform.

From prevention through detection and response.

This enables falcon, despite same store signals and identify activity earlier in the kill chain.

We have become experts in leveraging data science to deliver best of breed attack discovery and prevention for our more than 23000 customers.

This drives an immense leverage across the platform.

And better more efficient outcomes for our customers.

There is a clear mandate from customers they want to reduce cost and head count reduced the number of point products and agents reduce complexity and simplify operation.

This mandate is even more acute for customers given the current macro climate.

And it is the exact imperative the Falcon platform was built to deliver from day, one with advanced AI engine and collect once reuse many architecture.

Strike delivers on these customer mandates with our hallmark immediate time to value that accelerates cost savings for the customer let's.

Let's take a look at a few customers that are using <unk> to drive consolidation lower tcl and realize better outcomes within their environments.

One of our marquee enterprise customer wins this quarter was with a leading financial institution in the Fortune 50 that is consolidated on silicon and replacing four vendors and multiple point products, including semantic trucks trend micro and Aqua Theyre testing.

Proved falcon superior visibility protection and threat hunting capabilities over both incumbent and prospective new vendors.

These factors along with Falcons holistic approach to protecting the cloud environment with our integrated <unk> offering drove the decision to adopt the Falcon platform.

Another customer win I'd like to highlight with a multinational Fintech company looking for a security partner to consolidate their hodgepodge of legacy and next Gen vendors.

This customer identified eight vendors they could eliminate with their initial deployment of Falcon, including Microsoft carbon Black <unk> trend micro so focused he said <unk> and <unk> <unk>.

The Falcon platform provides them the ability to significantly reduce the complexity reduce agent bloat reduce <unk> and improve security outcomes.

Additionally, this customer purchased log scale to store it security data to gain better performance and avoid the high cost associated with existing log management solution.

Another large scale win this quarter was with a leading global financial institution that wanted to increase the volume of Falcon data retain as well as gains faster query results and avoid the high cost associated with expanding the usage of their legacy log management system there.

They're testing showed that log scale deliberate query speed orders of magnitude faster than their existing tools.

This customer is now adjusting close to 40 terabytes of data per day with plans to standardize on log scale across their organization over time.

The next exciting win I'd like to share with you is an expansion to Falcon complete with.

One of the largest global transportation and logistic companies and.

In a highly targeted sector by cyber adversary. This customer wanted a round the clock 365 de stock.

While this customer had budget and head count reserve to build out an internal stock.

After performing a thorough.

Cost benefit analysis, this customer determined that Falcon complete, including Falcon complete for identity threat protection will deliver the best coverage protection and value without adding head count.

Falcon complete for identity threat protection was a key aspect to the win as they sought to run an effective and mature identity security program without the burden cost and time associated with managing it internally.

Even as doing more with fewer internal resources has become the new normal for many companies.

Outcome of stopping breaches remains the number one priority for <unk> and <unk> as.

As cited in our global threat report the threat landscape remains elevated within observed 50% increase in a number of interactive intrusion campaigns and 95% growth of the number of cloud exploitation cases in 2022.

Compromising on security can easily translate to compromise coverage added complexity and catastrophe, let me be clear there is no participation trophy for coming in second place went up against cyber adversaries. Good is never good enough on the cyber battlefield and perceived.

Free is never free.

To demonstrate my point I'd like to share a recent win with a company that suffered a breach after relying on an OS vendor that claimed their legacy signature based product was good enough to take on today's threat actors.

This company had initially chosen Microsoft to replace existing EV products across their estate, but quickly ran into trouble when they discover that defender could not be fully deployed within their heterogeneous environment, leaving their service vulnerable. Unfortunately, it did not take long for threat actors to find these gaps and breach their environment.

Turning to one of our incident response partners, a leading global Si that uses Falcon is a key part of their response and remediation service joining engagement that customer found that Falcon provided two five times more coverage than defender and was much simpler to operationalize.

It quickly became obvious to this company why AI protection was far superior to signature based technologies and they needed a world class protection across heterogeneous operating systems.

So also determined that excluding the cost to remediate the breach defend their cost twice as much and would still fall short of the functionality simplicity and efficacy of Falcon, having lost faith in Microsoft's low cost good enough promise this new cross right customer adopted Falcon complete.

Our professional services organization is a strong lead generation engine for the Falcon platform. The average IRR per dollar of professional services revenue derived from organizations new to craft strike through our incident response of our proactive services grew to $6 and seven as of January 31.

<unk> 2023 to summarize every dollar from these professional services engagements in the past two years has turned into $6 and seven sets of <unk>.

Our thriving partner ecosystem is also growing to become a powerful source of lead generation and FY2023 MSP ending AOR grew over 100% and partner sourced ending AR grew over 50% year over year.

Additionally, revenue through channel partners grew to 83% of total revenue.

Strategically expanding and investing in our partner ecosystem with the goal of further expanding our reach within the enterprise as well as Downmarket in SMB is one of our top initiatives in FY 'twenty four.

As we recently announced we entered into a new multifaceted strategic partnership with Dell to deliver the Falcon platform to Dallas customers globally.

The Falcon platform is now offered through Dell's global go to market organization.

We have several avenues, including traditional reseller agreement.

On device for new purchases made through dell's direct sales team.

And as the cornerstone to Delta managed cyber security service offering.

While it is still early days for this new go to market partnership we expect it to significantly expand our reach across the market from large enterprises is a small S. In the SMB customers have chosen crowd strike as the platform of choice and so has Dell.

We have tremendous initial success with our Falcon go bundle, which was specifically designed as a starter package or landing point for smaller businesses with 100 endpoints or less that may be more price sensitive.

We launched Falcon go a little more than two quarters ago and have already added over 1000 net new customers through the program.

We believe this early success, reaching the ASP in the SMB demonstrates the immense demand for <unk> best in class endpoint protection, even among the smallest and cost conscious organizations.

In late January we launched the Nextgen iteration of our E Commerce engine with the goal of removing even more friction out of the buying process and driving higher connection between digital top of funnel and conversion into buying we've.

We view these advancements in our e-commerce engine as a differentiator and within just a few weeks post launch we have seen a dramatic increase in no touch digital conversions.

The market dynamics in the SMB, our velocity, driven and very different from our traditional enterprise customer base.

To accelerate growth and drive market share within the massive F&B opportunity as well as increased growth through all of our channels, we changed the organizational structure and created a new leadership role with the appointment of Daniel Bernard as Chief Business Officer.

Daniel has a proven track record in leading channel partnerships and business development at several high growth SaaS cloud and cyber security companies.

And as most recently recognized for transforming central once market awareness.

I'd also like to welcome Raj barrage of money to the crowd strike team will also join us from seven to one.

According to a mark Carney Raj as our chief product officer for data identity cloud and endpoint I've worked with Raj in the past and I am excited to have him join our team as we continue to drive disruptive innovation.

And finally, I'm extremely proud to congratulate Mike and Tony on his promotion to President <unk>.

Mike has been an invaluable contributor to <unk> success and as President He has responsibility for leading the company's product and go to market functions.

These leadership changes are designed to drive greater focus and alignment across our key growth initiatives.

And enabled me to spend more time with customers as we scale crowd strike to achieve our vision of <unk>.

$5 billion and ending <unk> and beyond.

In summary crowd strike is executing across all facets of our strategy, winning in our markets and providing customers with protection that powers them.

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 an exceptional fourth quarter and a strong finish to the year with $221 7 million in net new <unk>, bringing ending <unk>.

To to $5 6 billion.

Up 48% over last year.

During the quarter, we saw strong expansion within our customer base, including an eight figure net new air our expansion.

Ending air are for the $1 million plus cohort grew 57% year over year.

We now have over 400 subscription customers with ending air are over $1 million on an average of 10 modules.

Overall in Q4, we landed a record number of net new customers fueled by growth in enterprise non enterprise and public sector accounts.

We continue to be very pleased with the success of our land and expand strategy.

Our dollar based net retention rate was above the 120% benchmark throughout the year ending Q4 at 125, 3%.

Which is higher than last year and on a much bigger base.

For the interim FY2023 quarters net retention was 127, 6% in Q3 127, 6% in Q2 and 125, 5% in Q1.

Our best in class gross retention rate remained exceptionally strong at $98 zero percent as of year end.

Subscription customers with fiber more six or more and seven or more modules grew 50 to 60% to 75% year over year, respectively.

Now the respective module adoption cohorts represent 62, 39, and 22% of subscription customers respectively.

Given the strong momentum we have seen with our Falcon go bundle of three modules for very small businesses. We are now excluding these customers from our module adoption metrics and have provided comparable metrics for prior periods in the investor presentation on our website.

Additionally, given the growing number of smaller end customers that we serve through our MSP partners, which we estimate exceeds 18000 in our Downmarket bundles as George discussed, we don't believe that quarterly fluctuations and our new logo metric appropriately reflects the health of our business as.

We have discussed previously.

Therefore, we are moving to reporting logo metrics on an annual basis only.

We look forward to providing additional details, including the usual annual deep dive of our customer cohorts on our investor Webinar scheduled for April 4th.

Moving to the P&L total revenue grew 48% over Q4 of last year to reach $637 4 million.

Subscription revenue grew 48% over Q4 of last year to reach $593 million.

Professional services revenue was $39 1 million setting.

Setting a new record for the 10th consecutive quarter, and representing 53% year over year growth.

This brings total revenue growth for FY 'twenty, 3% to 54%.

In terms of our geographic performance in Q4, we continued to see strong growth in the U S. A 44% and international revenue growth of 57% year over year.

Fourth quarter total and subscription non-GAAP gross margins were 75 and 77% respectively.

Looking into Q1, we expect subscription gross margin to increase by up to one percentage point quarter over quarter driven by cost optimization.

Total non-GAAP operating expenses in the fourth quarter and fiscal year, 2023 was 385.0 million and 1.35 billion respectively.

Operating expenses in fiscal year, 2023 were 60% of revenue compared to 63% of revenue in fiscal year 2022.

In Q4, our magic number was one 1%, reflecting the continued efficiency of our go to market engine.

Fourth quarter non-GAAP operating income grew 19% year over year to reach a record $95 6 million.

And we reported operating margin of 15%.

Looking at fiscal year, 2023, non-GAAP operating income growth outpaced revenue growth, increasing 81% year over year to reach $355 6 million.

And 16% of revenue.

Picking up 235 basis points of operating margin for the year.

As our magic number and rule of 40 reflect we are a highly efficient model.

For the past three years, we have grown operating income faster than revenue and we remain focused on continuing to drive efficiency balancing robust growth with increased leverage.

In FY2023 we took advantage of opportunities we saw in the labor market and expanded the team by 46% over last year.

We are now more than 7000 crowd Stryker is strong.

This gives us a significant head start to achieving our goals for FY 'twenty four and enables us to significantly moderate the pace of new hires while continuing to invest responsibly for the long term.

non-GAAP net income attributable to crowd strike in Q4 grew to a record $111 6 million or.

Or <unk> 47 on a diluted per share basis.

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

We ended the fourth quarter with a strong balance sheet cash cash equivalents and short term investments increased to approximately $2 $71 billion.

Cash flow from operations grew 71% year over year to a record $273 3 million.

Free cash flow grew 65% year over year to a record $209 5 million.

We're approximately 33% of revenue.

This brings free cash flow for the year to $676 8 million.

Or 30% of revenue.

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 and a few modeling notes.

We delivered a record Q4 and have a record Q1 pipeline.

However, given continued increased budget scrutiny and elongated sales cycles. We believe it is prudent to maintain the FY 'twenty four.

Our assumptions, we discussed on our last earnings call that normalized first half of the year for the current macro environment with our full year net new air our assumption of roughly flat to very modestly up year over year, albeit on a higher base than expected three months ago.

This would imply a low thirties, ending <unk> growth rate for the year.

As our guidance implies we expect to deliver operating margin leverage for the full year with operating income growing faster than revenue.

In terms of seasonality, we expect operating margin leverage to be more weighted to the back half of the year in comparison to FY2023.

We expect to deliver a free cash flow margin of approximately 30% of revenue in FY 'twenty four.

This assumes capex as a percentage of revenue to be between six and 8% for FY 'twenty, four and approximately $32 million in cash outlay for income taxes, compared with $12 million in FY2023.

The midpoint of our FY 'twenty four non-GAAP net income guidance assumes $129 million in it.

Income and we expect interest expense to remain consistent with FY2023.

And lastly, as implied in our guidance, we expect weighted average diluted share count to increase less than 2% in fiscal 2024.

For the first quarter of FY 'twenty four we expect total revenue to be in the range of $674 nine to $678 2 million.

Reflecting a year over year growth rate of 38% to 39% with subscription revenue being the dominant driver of growth.

We expect non-GAAP income from operations to be in the range of $107, one to $109 5 million.

And non-GAAP net income attributable to crowd strike to be in the range of $121 one to $123 5 million.

We expect diluted non-GAAP net income per share attributable to crowd strike to be in the range of 52.

51 <unk>.

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

For the full fiscal year of 2024, we currently expect total revenue to be in the range of 2955, one to $3014 8 million, reflecting a growth rate of 32% to 35% over the prior fiscal year.

non-GAAP income from operations is expected to be between 474.0 and $518 7 million.

We expect fiscal 2024, non-GAAP net income attributable to crowd strike to be between $535 nine and $587 million.

Utilizing 243 million weighted average shares on a diluted basis, we expect non-GAAP net income per share attributable to crowd strike to be in the range of $2 21.

Two $2 39.

We look forward so sharing additional details about our business on our next investor Webinar scheduled for April 4th.

George and I will now take your questions.

Thank you as a reminder to ask a question you will need to press star one on your telephone.

You are to limit yourself to one question and then return to the queue. Please standby, while we compile the Q&A roster.

Our first question.

Comes from the line of <unk> Kalia of Barclays. Your question. Please.

Hey, good afternoon, guys. Thanks for taking my question here.

Okay.

Sure.

George maybe for you.

Yes.

Hey, George maybe maybe I'll direct my one question to you very helpful. Customer example, there of the Microsoft switch out.

The numbers certainly wouldn't indicate it but curious if you can just talk about the general competitive environment.

Particularly with respect to Microsoft and how if at all that competitive backdrop is impacting industry pricing.

Sure. Thanks.

Our asps remain consistent.

Certainly you've seen.

As an example in Idc's modern endpoint security market share as I pointed out were 17, 7% and we gained three eight percentage points, which is more share gain than any other vendor, including outpacing Microsoft and what customers are really telling us is that Microsoft good enough security is not good enough.

And we've been winning because of our coverage across multiple operating systems.

<unk> of Microsoft six consoles in fact.

Today alone they had six signature updates and in general as I called the three CS that last one a catastrophe.

During our incident response engagements the majority of the systems that are breached are using defenders. So when you wrap all that together, we feel good about our competitive positioning and <unk>.

And then from a pricing perspective asps have remained consistent.

Thank you our next question.

It comes from the line of Sterling Auty of Moffett Nathanson. Please go ahead Sterling.

Yeah. Thanks, Hi, guys. So my question actually is on.

George what you touched on with F. N B I'm wondering if you can kind of go a layer deeper in terms of what youre doing to drive the business there because that's one area that we've seen some sluggishness out of vendors.

What are you doing to drive the velocity in that business and how much durability do you think that gives you.

Well, we're really excited about that segment as I mentioned, we hired Daniel Bernard had said no. One is now our chief business Officer, and a big part of his remit not only channel and partnerships is the SMB market you saw the partnership with Dell, We're excited about that as <unk>.

Exclusive partner for the endpoint piece.

And their market and then when we think about Falcon go. It really is a very lightweight bundle that is perfect for the SMB market. The SME SMB. So we can go down market. We've got some updates that we've done in our e-commerce engine to make it even more frictionless to acquire customers.

And we've seen great adoption in those markets and not only delivering what we believe is the best technology, but making it also the best go to market motion with our partnerships and channels. So.

We continue to focus on that we're still in the early innings of our SMB journey.

But again customers are wanting this.

They are telling the likes of Dell.

That they want our technology, which is why we were selected by Dell and.

More to go but early innings in very favorable in the SMB market.

Thank you. Our next question comes from the line of Joel Fishbein.

Your question please Joe.

Thanks for taking my questions and congrats Mike on the promotion.

For you just you had a very tough comp this quarter and you called out the eight figure net new <unk> expansion, just like to get any more color on any larger deals that contributed this quarter and obviously this is a big renewal quarter, how those trended as well that would be really helpful. Thank you.

Hi, Joe Yes, we were really pleased with.

With <unk> being able to sell an eight figure deal into an existing client.

I think in general we were really happy with the overall mix of our million dollar plus deals as well as our F&B. So overall, just a really well balanced quarter and we're really happy with that result.

Thank you our next question.

It comes from the line of Matt Hedberg of RBC. Your question. Please met.

Great guys. Thanks for taking my question.

A lot of great year end metrics I think the emerging product growth is particularly exciting and identity really sticks out to us from what you've said and what we've been hearing a fast forward a year from now which emerging product I think we will look back having the biggest incremental impact on fiscal 'twenty four and why.

Well, we continue to be excited about identity as you called out it's a big business for US. It's one of those modules that super easy to turn on this tremendous amount of competitive differentiation between what we have in a single agent and how it actually works versus our competitors.

Including the likes of Microsoft.

So we feel really good about that and then I called out large scale I think that.

To have one of the largest financial institutions in the world adopt our technology battle tested they understand the scalability and when it's able to do in sub second search results.

I'm really excited about that.

And even our surface, which is <unk>.

Enterprise attack surface management has been one of our fastest growing sort of early adopter modules.

Post acquisition.

No.

By and large when you look at sort of the kind of emerging business, including cloud great opportunities. There are fantastic growth and I think it really showcases the power of the platform.

Thank you. Our next question comes from the line of.

Rob Owens with Piper Sandler. Please go ahead Rob.

Thank you for taking my questions building on Matts question, a little bit are you seeing those emerging modules.

As the tip of the spear as Youre seeing new customer acquisition at this point and can you give us some color with regard to that thanks.

Sure when we think about how a customer can come into the crowd strike family. It's certainly the traditional way has been on the endpoint your core modules of Edr things of that nature, but when you look at something like.

Surface and so easy to get up and running and just you know you can get a trial you can use it you don't have to install anything and we see customers coming in in various ways I think log scale is another good example.

Someone might have a need for the collection of data at scale.

Looking at the cost and expense of their current Sim and looking at this and saying Hey can we get something that's faster better cheaper and they might enter that way and then even when you think about our cloud offering we have plenty of customers that actually come to us in the cloud first before they actually deploy it on their internal network. So I think we've got enough modules and coverage and breadth in the environment.

And the marketplace that customers can get to us in various ways, depending on what their needs are.

Yes.

Thank you. Our next question comes from the line of Andrew Nowinski of Wells Fargo. Please go ahead Andrew.

Okay, great. Thank you great quarter, and nice recovery from last quarter, despite not seeing a real change in the macro.

I just had a question on the Dell partnership So I thought that was really interesting and I know you said it will help you reach SMB customers all the way up to large enterprise, but.

Can you give us any more color around how that partnership will work in any sort of framework for how youre thinking about it as it relates to your fiscal 'twenty for guidance.

Sure Let me take the first part of that so when we think about what we're doing with Dell will be on the box. So you can check the button and will be shipped on the box as you buy.

Dell computer.

We will actually Dell will have the ability to actually sell subscriptions to customers I think they cover 96% of the fortune 500, so large and small customers.

And SMB bundles, so they actually have a device as a service which is really.

Interesting and Thats a subscription service they have will be part of that and then part of their managed service. They actually selected us to drive their managed service on the endpoint side. So theres various go to market motions with them, which we're really excited about and again I think it showcases our technology leadership in the market and the <unk>.

Paul.

Because customers have been clamoring.

For this technology to Dell, So Bert you want to talk about the outlook sure. Thanks George.

The partnership is just getting started so we have not factored that into our guidance.

As with any new alliance. It does take time to ramp, but we are excited to be reengage with Dell.

Thank you. Our next question comes from the line of Tagliani Bank of America. Please go ahead Sir.

Did you say polyone, yes.

Yes, Sir please go ahead.

Sorry, I didn't hear my name.

I have a few questions.

Gross so you beat on revenues great numbers, but gross margin was down and you get this kind of north.

Not much above expectation. So is the pricing environment deteriorating did you have to give.

Price concessions in order to grow faster or is it the impact of Microsoft just anything about pricing and the difference between the beat on revenues and margins.

Maybe I'll start with that.

Sure.

So first on gross margin, it's not it's not really about pricing I think we expect it to fluctuate quarter over quarter and as I said on the prepared remarks, we expect that to increase up to 1% in Q1, but there are a few things that are impacting gross margin in the short term, which will pay dividends in the long term. One is we're continuing to invest in our data centers and as we.

Continue to do that but that is going to impact our gross margin again in the short term, but long term. That's what we believe is the right strategy and second.

With our acquisition of Humira. It has not been fully synchronized so when that does happen that will take some pressure off of our Cogs. So those two things.

Or really some of the drivers on the cost side and I think as we continue to move into Q1 and beyond we'll be looking for more of that cost optimization and I still strongly and firmly believe in our long term model, which talks about our subscription gross margin going up to 82%.

Thank you. Our next question comes from the line.

Hamzah firewall a Morgan Stanley Your question. Please hamzah.

Good afternoon, and thank you for taking my question.

George you talked about AI being.

Nothing new in cyber security, obviously, theres a lot of focus on it these days from.

Customers.

Can you talk about.

How you're equipping yourself to sort of handle the growing threat around AI and how being on the endpoint.

Gives you that strategic real estate to attack this growing opportunity on Brett.

Sure.

And when we think about AI, we really are one of the pioneers.

In AI from a security perspective, we started the company.

Leveraging big data AI to be able to identify threats has never been seen before and prevent against those we continue to build out our AI capabilities across all of our different modules.

With the massive data and telemetry that we collect.

Every week.

It's mindboggling, we can use that to continually train and learn and our AI continues to get smarter as we put more data into the system. So when we think about stopping breaches the tip of the spear really is the endpoint the workloads.

That's where the adversaries are targeting and that's where they're focused on stealing data and correcting it and breaking in and and doing damage and.

Think when you look at our technology.

Lead in this area, we've proven our efficacy through various testing outlets, we continue to get.

Incredible scores and at the end of the day, it's really about the brand promise of stopping breaches in AI is a massive part of what we're able to do to implement to how we stopped those breaches and it does represent a competitive advantage and moat for us.

Thank you.

Our next question comes from the line of Brian Essex from J P. Morgan Your question. Please Brian .

Hi, good afternoon, and thank you for taking the question I guess for you.

I would like to dig in a little bit in terms of the levers that you see for margin expansion and I. Appreciate the commentary that you had an accelerated higher than 2022 and it sounded like the moderation in 2023, but you've already hit.

Free cash flow margins of about 30% on operating margins of about 16.

As we kind of model out and fine tune our models over the next few years, how should we think about the levers that you have for better.

Operating profitability and cash flow.

What should the spread between the two b.

And how should we think of that obviously you've consistently been conservative.

Want to understand.

How youre thinking about the spend versus growth and prioritization given the success that we've seen so far with good margin expansion. Thank you.

Yeah, Great question. So number one we're going to continue our balanced approach to supporting our rapid growth.

Even our greater scale with profitability I think it's always going to be a slider in I think we've done a great job in being able to manage that growth not at all costs, but with a realized to the bottom I mean operating on a magic number above one and our rule of 81 on a free cash flow basis or best in class and we're excited about being able to continue to monitor that.

And watch that.

Look I think we posted record operating income in Q4, and FY2023 growing operating margin.

60% for the year.

I think that what we talked about last quarter with respect to our hiring and our pace of hiring.

We've taken a really solid approach about moderating the pace of hiring for this year.

And I think that it goes to watching how and who we're hiring with them increased eye to making sure we're hiring the best.

And for us that really matters and we're going to get the results that we want to get by doing that.

Thank you.

Our next question comes from the line of Gabriela Borges Goldman Sachs. Your line is open Gabriele.

Good afternoon, and thank you Sir.

Mr. Rfps and latest change question I'm, a bunch that environment lost plenty gains in just a second deal taking 11% of our tech players.

So looking for a quantitative update there and then any qualitative overlay.

The mutual national insurance.

Willing complaint in 2020 versus maybe what they were expecting.

Thank you.

Hi, Gabriel its great to hear your voice.

So first.

Deals do take longer to close this quarter.

Didn't see that.

And we do anticipate to see.

Those headwinds continue throughout next year.

And for US as we think about next year.

Our thoughts are consistent with what we said last quarter I'll turn it over to George Yes in terms of modernizing there.

The security stack I think that's front and center there isn't a CIO that I haven't talked to that doesn't want to consolidate their hodgepodge of technologies out there.

And again that goes beyond just.

Just endpoint right in terms of the things that we offer in our capabilities and the outcomes and if you just think about the endpoint market itself as we talked about the IDC numbers were 17, 7%.

There's a lot more to go right. There is still a massive massive amount of legacy technology that's out there.

And again customers are looking to really take a modern platform approach and consolidate their spend so.

It's been something that customers are not.

Looking to just stick with what they have and breaches are not getting any any better or getting worse. The threat actors it could be more sophisticated and its going to require better protection.

With a better outcome.

Thank you. Our next question comes from the line of Brian Colley of Stephens. Your question. Please Brian .

Hi, Thanks for taking my question.

So im curious on the Xdr front, if you've seen an acceleration in xdr adoption since you've introduced Falcon insight xdr.

The new pricing strategy. There and then also wondering if you could kind of share what the average IRR or ASP uplift as it looked like from those customers that have implemented it next to our strategy.

Yes sure so.

We haven't given that level of information out specific to xdr, So I can't comment on that but when we think about xdr.

Think as an industry, it's still in the early innings.

Of course, one of the pioneers of Edr, we've extended that out into xdr with our third party integrations.

I think we've got.

Some incredible partners that we're now flowing data into the crowd strike platform and being able to make.

Advanced decisions on whether something is good or bad across multiple platforms, including crowd strike and it's been well received so far but still in the early innings.

Just add that we are seeing great early traction.

Thank you. Our next question comes from the line of <unk> Kidron of Oppenheimer. Your line is open.

Thanks, guys and nice quarter.

Hoping I could get some more color on the SMB clearly, it's a very big opportunity for you again.

The go bundles youre doing after a very good start there maybe.

But maybe it's a point of reference can you tell us how much of your revenue IRR is concentrated in that tier how do you how much do you think where do you think that can go within a year's time and also Bert specifically on the dollar retention rate.

I can't imagine the expansion opportunity with those type of customers is similar to that end of enterprise customer. So how do you think about the impact of those of the growing mix of those type of customers.

On the dollar.

Dollar based retention rates.

So look we're really excited about our F&B faith, George talked about then opening hours coming onboard.

We've got great products for them to come in and to expand its not just limited to our enterprise. Although certainly the MBR is going to be driven by our enterprise customers.

For dollar based net retention as I think about next year.

Think.

We're going to see.

Slightly more net new <unk> coming from expansion deals than net new <unk> coming from new logos.

That we've got this incredible base of 23000 subscription customers today, and we can certainly continue to add more modules to their security stack and continue to delight them. So that's how we that's how we think about the slips.

Thank you. Our next question comes from the line of Patrick Kozol Scotiabank. Your line is open this is Patrick.

<unk>.

Hey, this is Patrick <unk> from Scotiabank.

My question is about.

Net cash you guys have about $2 billion of net cash on.

The balance sheet, we saw CRM, we saw workday and just last week Snowflake announced buyback programs do you think thats something that you guys might consider on a go forward basis to limit dilution in calendar 'twenty, two 'twenty three and beyond.

Yeah look we will evaluate every quarter.

Our position so I think that that's just a quarter by quarter decision that will come up with we do look at it we.

We do look at what's happening in the environment. There are many factors that we're going to decide whether we were going to do something like that so we've been really on a quarter by quarter basis, where we with UV evaluation.

Thank you. Our next question comes from the line of John The Fucci with Guggenheim. Please go ahead John .

I'm sorry can you hear me.

Yep.

Uh huh.

Hi.

Thanks for taking my question.

George.

Sort of a follow up to several of the questions. There. It has to do with the enterprise versus the mid market.

New logos versus add on sales I mean, I would think Mike it's a lot tougher to sell to new logos.

In this macro backdrop, especially in the enterprise, but you obviously sold a lot of new logos this quarter and it sounds like a lot to the mid market and SMB I guess could you remind us how you think a typical mid market customer or SMB customer will evolve will they eventually buy as many modules as.

I could see how they could because since it really makes security security easier for them to have an integrated solution, but then again, it's tough to say I mean, the mid market customers are typically much less sophisticated buyers of it just.

Just your thoughts there.

Sure.

Let's think about this on a worldwide basis mid market customer in the U S is much different than a mid market customer in APAC. As an example, right. So the sizing is quite different but when you think about sort of non enterprise customers. They still have all the same problems. These are.

$1 billion companies.

They have one person to keep people.

Have a security person and we think that's a perfect opportunity for.

For Falcon complete where we can sell them multiple modules, we've added now identity into Falcon complete.

And to and we can service that account and basically take a lot of the burden away in a challenging macro environment. They are not getting more head count, but they still have a great risk from a security perspective so.

That's the mid market all the way down to SMB, we have very small companies that are falcon complete customers. So if they can't quite digest everything that we have that's okay. What they're buying is an outcome and our outcome of stopping the breaches, reducing complexity and lowering their overall cost and that is resonating with customers as we consolidate.

In this challenging macro environment.

Thank you I would now like to turn the conference back over to George Kurtz for closing remarks, Sir.

Great.

Thank all of you today for your time, we certainly appreciate your interest and look forward to seeing you at our upcoming Investor webinar. Thanks, So much and we'll see you soon.

This concludes today's conference call. Thank you for participating you may now disconnect.

The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.

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Thank you for standing by and welcome to crowd strike Holdings fourth quarter and fiscal year 2023 financial results Conference call. At this time all participants are in a listen only mode. After the speaker.

<unk> there will be a question and answer session.

To ask a question during the session you will need to press star one one on your telephone.

I would now like to hand, the call over to Maria Riley VP 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 <unk>.

And Brian Bird Chief Financial Officer.

Before we get started I would like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans objectives and expected performance, including our outlook for the first quarter and fiscal year, 'twenty 'twenty, four and any assumptions for fiscal period.

Beyond that our forward looking statements within the meaning of the private Securities Litigation Reform Act at $19 95.

These forward looking statements represent our outlook only as of the data in this call. While we believe any forward looking statements. We make are reasonable actual results could differ materially because of statements are based on current economics.

They are subject to risks and uncertainties.

We do not undertake and expressly disclaim any obligation to update or alter our forward looking statements, whether as a result of new information future events or otherwise.

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 and a reconciliation schedule showing GAAP versus non-GAAP results.

Currently available in our earnings press release, which may be found on our Investor Relations website at IR <unk> 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.

Record net new <unk> of $222 million record net new customers of 1873 strong retention rates record operating income record free cash flow of $209 million and our rule of 81 on a free cash flow basis.

Second the dual mandate of high efficacy and low total cost of ownership base to crowd strike strength as a leading consolidator.

<unk> growing market share showcases the Falcon platform advanced AI and technology leadership that drives better security outcomes automation and lower Tcl for customers.

And third our conviction in crowd strikes expansive opportunity continues to grow.

We see a massive opportunity to leverage our AI driven collect data once reuse many times platform to expand share across our markets.

As Bert will discuss we are continuing our thoughtful and balanced approach to investing to drive both topline and bottomline growth.

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

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

Time within fiscal year 2025.

The key to our success in the fourth quarter was execution and strong market demand for the Falcon platform.

We converted our pipeline into wins and built a record Q1 pipeline, even as sales cycles elongated as we saw late in Q3, and we did not see the typical budget flush as organizations continue to work through macro concerns.

Our competitive win rate remained high and Asps remain consistent and we ended the year with a best in class gross retention rate and a strong net retention rate.

We believe our strong fourth quarter performance and record Q1 pipeline demonstrates the mission critical nature of cyber security for modern businesses, the resiliency of our market and crowd strike growing leadership as the cyber security platform of record.

I'd like to thank each and every craft stryker for their dedication and hard work in making the fourth quarter, our best quarter to date.

As a team we should be proud of the amazing accomplishments, we have achieved and excited about the opportunities ahead of us.

Let's take a moment to highlight several year over year milestones the crowd strike team delivered in FY2023 that I'm most excited about.

Ending <unk> grew 48% to reach 256 billion.

Net new <unk> grew 22% to reach $828 million setting a new record.

Our emerging product category contributed $182 million.

Two net new <unk>, which was 22% of all net new <unk> and a 97% increase.

Emerging products ended are growing 116% to $339 million surpassing.

They are passing crowd strikes total.

At the time of IPO in 2019.

This included a standout year for our identity protection modules, which contributed over $100 million.

In ending and.

And over 1000, net new identity customers.

Additionally, large scale posted over 200% ending our growth.

From a public cloud deployment view ending <unk>.

Surpassed the $200 million milestone to reach $224 million.

And we added a record 6694 net new customers for the fiscal year to bring us to 23019 subscription customers a 41% increase.

Crowd strike now serves 556 of the global 2271 of the Fortune 515 of the top 20 U S Bank.

On the bottom line FY 'twenty, three operating and net income growth well outpaced revenue growth showcasing the leverage in our model.

non-GAAP operating income grew 81% year over year to reach a record $356 million noncash.

non-GAAP diluted EPS grew 130% to reach a record $1 54.

Free cash flow grew 53% to reach a record $677 million and we achieved at least 30% free cash flow margin for the third consecutive year.

All vendors by posting the largest increase in revenue and market share.

The efficacy of the Falcon platform continues to be widely tested and recognized for delivering superior outcomes, regardless of whether you are looking at Mitre Trust radius G to Boston Sullivan Forrester wave SCE labs, Gartner peer insights or Gartner magic quadrant.

<unk> Superior technology has been awarded a lead or a number one position.

This was most recently highlighted by winning the 2023 Etsy Labs Award for Best Edr and best product development. This is the third consecutive time that <unk> has one and the best Edr category further reinforcing our innovation in endpoint security and putting us in the.

Pole position to help customers enter the ex Dr. Eric.

And indicators of attack to stop cyber adversaries in real time.

While the use of AI has become the new topic of the day it is not new to crowd strike.

We were a pioneer in applying AI and cyber security.

Falcon platform was designed from the ground up to effectively process and correlate the massive volume of data required for effective AI and leverage it across our entire platform.

From prevention through to detection and response.

This enables falcon to spot St signal and identify activity earlier in the kill chain.

We have become experts at leveraging data science to deliver best of breed attack discovery and prevention for our more than 23000 customers.

This drives an immense leverage across the platform.

And better more efficient outcomes for our customers.

There is a clear mandate from customers they want to reduce cost and head count reduced the number of point products and agents reduce complexity and simplify operation.

His mandate is even more acute for customers given the current macro climate.

And it is the exact imperative the Falcon platform was built to deliver from day, one with advanced AI engine and collect once reuse many architecture.

Strike delivers on these customer mandates with our hallmark immediate time to value that accelerates cost savings for the customer.

Let's take a look at a few customers that are using cross sure I could drive consolidation lower tcl and realize better outcomes within their environments.

We're testing proved Falcon superior visibility protection and threat hunting capabilities over both incumbent and prospective new vendors.

These factors along with Falcons holistic approach to protecting the cloud environment with our integrated <unk> offering drove the decision to adopt the Falcon platform.

Another customer win I'd like to highlight was with a multinational fintech company looking for a security partner to consolidate their hodgepodge of legacy and next Gen vendors.

This customer identified eight vendors they could eliminate with their initial deployment of Falcon, including Microsoft carbon Black <unk> trend micro.

Both <unk> and <unk>.

Silicon platform provides them the ability to significantly reduce the complexity.

<unk> agent bloat, reduce <unk> and improve security outcomes.

Additionally, this customer purchased log scale to store it security data to gain better performance and avoid the high cost associated with existing log management solution.

Legacy log management system.

They're testing showed that log scale deliberate query speed orders of magnitude faster than their existing tools.

This customer is now ingesting close to 40 terabytes of data per day with plans to standardize on log scale across their organization over time.

The next exciting win I'd like to share with you is an expansion to Falcon complete.

One of the largest global transportation and logistic companies.

In a highly targeted sector by cyber adversary. This customer wanted a round the clock 365 de stock.

While this customer had budget and head count reserve to build out an internal stock.

After performing a thorough.

Even as doing more with fewer internal resources has become the new normal for many companies the outcome of stopping breaches remains the number one priority for <unk> and <unk> as.

Three is never free.

To demonstrate my point.

To share a recent win with a company that suffered a breach after relying on an OS vendor that claimed their legacy signature based product was good enough to take on today's threat actors.

This company had initially chosen Microsoft to replace existing AAV products across their estate, but quickly ran into trouble when they discover that defender could not be fully deployed within their heterogeneous environment, leaving their service vulnerable. Unfortunately, it did not take long for threat actors to find these gaps and breach their environment.

Turning to one of our incident response partners, a leading global Si that uses Falcon is a key part of their response and remediation service joining engagement and the customer found that Falcon provided two five times more copper than defender and was much simpler to operationalize.

It quickly became obvious to this company why AI protection was far superior to signature based technologies and they need a world class protection across heterogeneous operating systems.

So also determined that excluding the cost to remediate the breach defend their cost twice as much and would still fall short of the functionality simplicity and efficacy of Falcon, having lost faith in Microsoft low cost good enough promise this new Kraft right customer adopted Falcon complete.

2023 to summarize every dollar from these professional services engagements in the past two years has turned into $6 and seven sets of <unk>.

Our thriving partner ecosystem is also growing to become a powerful source of lead generation and FY2023 MSP ending <unk> grew over 100% and partner sourced ending AR grew over 50% year over year.

Additionally, revenue through channel partners grew to 83% of total revenue.

As we recently announced we entered into a new multifaceted strategic partnership with Dell to deliver the Falcon platform to delta customers globally.

The Falcon platform is now offered through Dell's global go to market organization.

We have several avenues, including traditional reseller agreement.

On device for new purchases made through dell's direct sales team.

And as the cornerstone to Delta managed cyber security service offering.

While it is still early days for this new go to market partnership we expect it to significantly expand our reach across the market from large enterprises is a small <unk> in the SMB customers have chosen crowd strike as the platform of choice and so has Dell.

We had tremendous initial success with our Falcon go bundle, which was specifically designed as a starter package or landing point for smaller businesses with 100 endpoints or less that may be more price sensitive.

Last Falcon go a little more than two quarters ago and have already added over 1000 <unk>.

Net new customers through the program.

We believe this early success, reaching the ASP in the SMB demonstrates the immense demand for <unk> best in class endpoint protection, even among the smallest and cost conscious organizations.

In late January we launched the next Gen iteration of our E Commerce engine with the goal of removing even more friction out of the buying process and driving higher connection between digital top of funnel and conversion into buying we've.

We view these advancements in our e-commerce engine as a differentiator and within just a few weeks post launch we have seen a dramatic increase in no touch digital conversions.

The market dynamics in the F&B, our velocity, driven and very different from our traditional enterprise customer base.

Daniel has a proven track record in leading channel partnerships and business development at several high growth SaaS cloud and cyber security companies.

And as most recently recognized for transforming central once market awareness.

I'd also like to welcome Raj <unk> to the crowd strike team will also join us from seven to one.

And finally, I'm extremely proud to congratulate Mike and Tony on his promotion to President <unk>.

Mike has been an invaluable contributor to <unk> success and as President He has responsibility for leading the company's product and go to market functions.

These leadership changes are designed to drive greater focus and alignment across our key growth initiatives.

And enabled me to spend more time with customers as we scale crowd strike to achieve our vision of <unk>.

$5 billion and ending IRR and beyond.

In summary crowd strike is executing across all facets of our strategy, winning in our markets and providing customers with protection that powers them.

With that I will turn the call over to FERC 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 an exceptional fourth quarter and a strong finish to the year with $221 7 million in net new <unk>, bringing ending <unk> to $2 $5 6 billion.

Up 48% over last year.

During the quarter, we saw strong expansion within our customer base, including an eight figure net new air our expansion.

Ending air are for the $1 million plus cohort grew 57% year over year.

We now have over 400 subscription customers with ending air are over $1 million at an average of 10 modules.

Overall in Q4, we landed a record number of net new customers fueled by growth in enterprise non enterprise and public sector accounts.

We continue to be very pleased with the success of our land and expand strategy.

Our dollar based net retention rate was above the 120% benchmark throughout the year ending Q4 at 125, 3%, which is higher than last year and on a much bigger base.

For the interim FY2023 quarters net retention was 127, 6% in Q3 127, 6% in Q2 and 125, 5% in Q1.

Our best in class gross retention rate remained exceptionally strong at $98 zero percent as of year end.

Subscription customers with five or more six or more and seven or more modules grew 50 to 60% to 75% year over year, respectively.

Now the respective module adoption cohorts represents 62, 39, and 22% of subscription customers respectively.

Additionally, given the growing number of smaller end customers that we serve through our MSP partners, which we estimate exceeds 18000, and our down market bundles as George discussed we don't believe that quarterly fluctuations in our new logo metric appropriately reflects the health of our business.

As we have discussed previously therefore.

Therefore, we are moving to reporting logo metrics on an annual basis only.

We look forward to providing additional details, including the usual annual deep dive of our customer cohorts on our investor Webinar scheduled for April 4th.

Moving to the P&L total revenue grew 48% over Q4 of last year to reach $637 4 million.

Subscription revenue grew 48% over Q4 of last year to reach $598 $3 million.

Professional services revenue was $39 $1 million setting a new record for the 10th consecutive quarter and representing 53% year over year growth.

This brings total revenue growth for FY 'twenty, 3% to 54%.

In terms of our geographic performance in Q4, we continued to see strong growth in the U S. A 44% and international revenue growth at 57% year over year.

Fourth quarter total and subscription non-GAAP gross margins were 75 and 77% respectively.

Looking into Q1, we expect subscription gross margin to increase by up to one percentage point quarter over quarter driven by cost optimization.

Total non-GAAP operating expenses in the fourth quarter and fiscal year, 2023 was 385.0 million and 1.35 billion respectively.

Operating expenses in fiscal year, 2023, where 60% of revenue compared to 63% of revenue in fiscal year 2022.

In Q4, our magic number was $1 one reflecting the continued efficiency of our go to market engine.

Fourth quarter non-GAAP operating income grew 19% year over year to reach a record $95 6 million.

And we reported operating margin of 15%.

Looking at fiscal year, 2023, non-GAAP operating income growth outpaced revenue growth, increasing 81% year over year to reach $355 6 million and 16% of revenue picking up 235 basis points of operating margin for the year.

As our magic number and rule of 40 reflect we have a highly efficient model.

For the past three years, we have grown operating income faster than revenue and we remain focused on continuing to drive efficiency balancing robust growth with increased leverage.

In FY2023 we took advantage of opportunities we saw in the labor market and expanded the team by 46% over last year.

We are now more than 7000 crowd Stryker is strong.

non-GAAP net income attributable to crowd strike in Q4 grew to a record $111 6 million.

Or <unk> 47 on a diluted per share basis.

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

We ended the fourth quarter with a strong balance sheet cash cash equivalents and short term investments increased to approximately $2 $71 billion.

Cash flow from operations grew 71% year over year to a record $273 3 million.

Free cash flow grew 65% year over year to a record $209 5 million.

Or approximately 33% of revenue.

This brings free cash flow for the year to $676 8 million or 30% of revenue.

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 and a few modeling notes.

We delivered a record Q4 and have a record Q1 pipeline.

However, given continued increased budget scrutiny and elongated sales cycles. We believe it is prudent to maintain the FY 'twenty for our assumptions we discussed on our last earnings call that normalized first half of the year for the current macro environment with our full year net new <unk> assumption of roughly flat.

So very modestly up year over year, albeit on a higher base than expected three months ago.

This would imply a low thirties, ending <unk> growth rate for the year.

As our guidance implies we expect to deliver operating margin leverage for the full year with operating income growing faster than revenue.

In terms of seasonality, we expect operating margin leverage to be more weighted to the back half of the year in comparison to FY2023.

We expect to deliver a free cash flow margin of approximately 30% of revenue in FY 'twenty four.

This assumes capex as a percentage of revenue to be between six and 8% for FY 'twenty, four and approximately $32 million in cash outlay for income taxes, compared with $12 million in FY2023.

The midpoint of our FY 'twenty four non-GAAP net income guidance assumes $129 million in interest income and we expect interest expense to remain consistent with FY2023.

And lastly, as implied in our guidance, we expect weighted average diluted share count to increase less than 2% in fiscal 2024.

For the first quarter of FY 'twenty four we expect total revenue to be in the range of $674 nine to $678 2 million.

Reflecting a year over year growth rate of 38% to 39% with subscription revenue being the dominant driver of growth.

We expect non-GAAP income from operations to be in the range of 107, one to $109 5 million.

non-GAAP net income attributable to crowd strike to be in the range of $121, one to $123 5 million.

We expect diluted non-GAAP net income per share attributable to crowd strike to being the range of 50 to 51 utilizing.

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

For the full fiscal year 2024, we currently expect total revenue to be in the range of $2955, one to $3014 8 million, reflecting a growth rate of 32% to 35% over the prior fiscal year.

non-GAAP income from operations is expected to be between 474 zero and $518 7 million.

We expect fiscal 2024, non-GAAP net income attributable to crowd strike to be between $535 nine and $587 million.

Utilizing 243 million weighted average shares on a diluted basis, we expect non-GAAP net income per share attributable to crowd strike to be in the range of $2 21.

$2 39.

We look forward to sharing additional details about our business on our next investor Webinar scheduled for April 4th.

George and I will now take your questions.

Thank you as a reminder to ask a question you will need to press star one on your telephone.

You are to limit yourself to one question and then return to the queue. Please standby, while we compile the Q&A roster.

Our first question.

Comes from the line of <unk> Kalia.

Barclays. Your question please.

Hey, good afternoon, guys. Thanks for taking my question here.

Yeah.

George maybe for you.

Yes.

Hey, George maybe I'll direct my one question to you very helpful. Customer example, there of the Microsoft switch out.

The numbers certainly wouldn't indicate it but curious if you can just talk about the general competitive environment, particularly with respect to Microsoft and how if at all that competitive backdrop is impacting industry pricing.

Sure. Thanks.

Our asps remain consistent.

Certainly you've seen.

What we've been able to do in the SMB market and I think we've been very focused on that where we have run some promotions, which is where we designed the promotions to be run, but I think when you look at the competitive positioning just as an example in Idc's modern endpoint security market share as I pointed out were 17, 7% and we gained three 8%.

<unk> points, which is more share gain than any other vendor, including outpacing Microsoft and what customers are really telling us is that Microsoft good enough security is not good enough.

And we've been winning because of our coverage across multiple operating systems.

<unk> of Microsoft fixed consoles in fact, just today alone they had six signature updates and in general.

As I call them the <unk> the last one is a catastrophe.

Our incident response engagements the majority of the systems that are breached are using defenders. So when you wrap all that together, we feel good about our competitive positioning and.

Again from a pricing perspective asps have remained consistent.

Thank you our next question.

It comes from the line of Sterling Auty of Moffett Nathanson. Please go ahead Sterling.

Yeah. Thanks, Hi, guys. So my question actually is.

George what you touched on SMB I'm wondering if you can kind of go a layer deeper in terms of what youre doing to drive the business there because that's one area that we've seen some sluggishness out of vendors.

What are you doing to drive the velocity in that business and how much durability do you think that gives you.

Well, we're really excited about that segment as I mentioned, we hired Daniel Bernard.

<unk> is now our chief business Officer.

And a big part of his remit.

Not only channel and partnerships is the SMB market you saw the partnership with Dell, We're excited about that as an exclusive partner for the endpoint piece.

And they're in their market and then when we think about Falcon go. It really is a very lightweight bundle that is perfect for the SMB market. The SME SMB. So we can go down market. We have got some updates that we've done in our e-commerce engine to make it even more frictionless to acquire customers.

And we've seen great adoption.

In those markets and it's not only delivering what we believe is the best technology, but making it also the best go to market motion with our partnerships and channels. So.

We continue to focus on that we're still in the early innings of our SMB journey.

But again customers are wanting this.

They are telling the likes of Dell.

They want our technology, which is why we were selected by Dell and.

More to go but early innings in very favorable in the SMB market.

Thank you. Our next question comes from the line of Joel Fishbein of <unk>.

Your question please Joe.

Thanks for taking my questions and congrats Mike on the promotion.

Hi, Joe Yes, we were really pleased with.

With <unk> being able to sell an eight figure deal into an existing client.

Thank you our next question.

It comes from the line of Matt Hedberg of RBC. Your question. Please met.

Great guys. Thanks for taking my question.

A lot of great year end metrics I think the emerging product growth is particularly exciting and identity really sticks out to us from what you've said and what we've been hearing a fast forward a year from now which emerging product I think we will look back and having the biggest incremental impact on fiscal 'twenty four and why.

Including the likes of Microsoft.

So we feel really good about that and then I called out large scale I think that.

To have one of the largest financial institutions in the world adopt our technology battle tested they understand the scalability and what its able to do in sub second search results.

I'm really excited about that.

And even our surface, which is <unk>.

Enterprise attack surface management has been one of our fastest growing sort of early adopter modules.

Post acquisition.

No.

By and large when you look at sort of the kind of emerging business, including cloud great opportunities there fantastic growth and I think it really showcases the power of the platform.

Thank you. Our next question comes from the line of.

Rob Owens with Piper Sandler. Please go ahead Rob.

Thank you for taking my questions building on Matts question, a little bit are you seeing those emerging modules.

As the tip of the spear as Youre seeing new customer acquisition at this point and can you give us some color with regard to that thanks.

Surface and so easy to get up and running and just you can get a trial you can use it you want to install anything and we see customers coming in in various ways I think log scale is another good example.

Someone might have a need for the collection of data at scale.

Looking at the cost and expense of the current stem and looking at this and saying Hey can we get something that's faster better cheaper and they might enter that way and then even when you think about our cloud offering we have plenty of customers that actually come to us in the cloud first before they actually deploy it on their internal network. So I think we've got enough modules and coverage and breadth in the environment.

In that marketplace that customers can get to us in various ways, depending on what their needs are.

Yes.

Thank you. Our next question comes from the line of Andrew Nowinski of Wells Fargo. Please go ahead Andrew.

Okay, great. Thank you great quarter, and nice recovery from last quarter, despite not seeing a real change in the macro.

I just had a question on the Dell partnership So I thought that was really interesting and I know you said it will help you reach SMB customers all the way up to large enterprise, but.

Can you give us any more color around maybe how that partnership will work in any sort of framework for how youre thinking about it as it relates to your fiscal 'twenty for guidance.

Sure Let me take the first part of that so when we think about what we're doing with Dell will be on the box. So you can check the button and will be shipped on the box as you buy.

Dell computer.

We'll actually Dell will have the ability to actually sell subscriptions to customers I think they cover 96% of the fortune 500, so large and small customers.

In SMB bundles, so they actually have a device as a service which is really into.

Paul.

Because customers have been clamoring.

For this technology.

Dell So Bert you want to talk about the outlook sure. Thanks, George look the partnership is just getting started so we have not factored that into our guidance.

As with any new alliance. It does take time to ramp, but we are excited to be reengage with Dell.

Thank you. Our next question comes from the line of Liana <unk> Bank of America. Please go ahead Sir.

Did you say polyone.

Sir. Please go ahead, okay, sorry, I didn't hear my name.

I have a few questions.

Gross so you beat on revenues great numbers, but gross margin was down in EBIT.

Of note the above not much above expectation. So is the pricing environment deteriorating did you have to give.

Price concessions in order to grow faster or is it the impact of Microsoft just anything about pricing and the difference between the beat on revenues and margins.

Maybe I'll start with that.

Sure.

So first on gross margin, it's not it's not really about pricing I think we expect it to fluctuate quarter over quarter and as I said on the prepared remarks, we expect it to increase up to 1% in Q1, but there are a few things that are impacting gross margin in the short term, which will pay dividends in the long term. One is we're continuing to invest in our data centers and as we can.

We need to do that but that is going to impact our gross margin again in the short term, but long term. That's what we believe is the right strategy and second.

With our acquisition of Helio. It has not been fully synchronized so when that does happen that will take some pressure off of our Cogs. So those two things.

There are really some of the drivers on the cost side and I think as we continue to move into Q1 and beyond we'll be looking for more of that cost optimization and I still strongly and firmly believe in our long term model, which talks about our subscription gross margin going up to 82%.

Thank you. Our next question comes from the line.

Hamzah firewall a Morgan Stanley Your question. Please hamzah.

Hi, good afternoon, and thank you for taking my question.

George you talked about AI being.

Nothing new in cyber security, obviously, theres a lot of focus on it these days.

Customers.

Can you talk about.

How you're equipping yourself to sort of handle this growing threat around AI and how being on the endpoint.

As you that strategic real estate to attack this growing opportunity.

Sure.

And when we think about AI.

We are one of the pioneers.

In AI from a security perspective, we started the company.

Leveraging big data AI to be able to identify threats has never been seen before and prevent against those we continue to build out our AI capabilities across all of our different modules.

With the massive data and telemetry that we collect.

Every week.

That's where the adversaries are targeting and that's where they're focused on stealing data and correcting it and breaking in and and doing damage and.

Think when you look at our technology.

Lead in this area, we've proven our efficacy through various testing outlets, we continue to get.

Thank you.

Our next question comes from the line of Brian Essex from J P. Morgan Your question. Please Brian .

Hi, good afternoon, and thank you for taking the question I guess for you.

I would like to dig in a little bit in terms of the levers that you see for margin expansion I. Appreciate the commentary that you had an accelerated hired in 2022 and it sounded like the moderation in 2023, but you've already hit.

Free cash flow margins at about 30% on operating margins of about 16.

As we kind of model out and fine tune our models over the next few years, how should we think about the levers that you have for better.

Operating profitability and cash flow.

What should the spread between the two b.

And how should we think of that obviously.

<unk> been conservative, but just.

Just want to understand.

How youre thinking about the spend versus growth and prioritization given the success that we've seen so far with good margin expansion. Thank you.

Yeah, Great question. So number one we're going to continue our balanced approach to supporting our rapid growth.

Even our greater scale with profitability I think it's always going to be a flatter and I think we've done a great job in being able to manage that growth not at all cost, but with a realized to the bottom I mean operating on a magic number above one and the rule of 81 on a free cash flow basis, our best in class and we're excited about being able to continue to monitor that.

And watch that.

Look I think we posted record operating income in Q4, and FY2023 growing operating margin.

60% for the year.

I think that what we talked about last quarter with respect to our hiring and our pace of hiring.

We've taken a really solid approach about moderating the pace of hiring for this year.

And I think that it goes to watching how and who we're hiring with an increased eye to making sure we're hiring the best.

And for us that really matters and we're going to get the results that we want to get by doing that.

Thank you.

Our next question comes from the line of Gabriela Borges Goldman Sachs. Your line is open Gabriele.

Good afternoon. Thank you.

Mr Rfps or latest change question I'm, a bunch of environment Lastly, Gail satcom deal, taking a 11%.

Now looking for a quantitative update.

Any qualitative overlay.

Thats all for me charged with ensuring from Kaufman unwilling complaint in 2020 versus maybe what they are expecting now.

Well thank you.

Hi, Gary its great to hear your voice.

So first.

Deals do take longer.

To close this quarter.

Didn't see that.

And we do anticipate to see.

Those headwinds continue throughout next year.

And for US as we think about next year.

Our thoughts are consistent with what we said last quarter I'll turn it over to George Yes in terms of modernizing there.

The security stack I think that's front and center there isn't a CIO that I haven't talked to you that doesn't want to consolidate their hodgepodge of technologies out there.

And again that goes beyond just.

Just endpoint right in terms of the things that we offer and the capabilities and the outcomes and if you just think about the endpoint market itself as we talked about the IDC numbers were 17, 7%.

There's a lot more to go right. There is still a massive massive amount of legacy technology that's out there.

And again customers are looking to really take a modern platform approach and consolidate their spend so.

It's been something that customers are not.

Looking to just stick with what they have and breaches are not getting any any better they're getting worst of threat actors it could be more sophisticated and its going to require better protection.

With a better outcome.

Thank you. Our next question comes from the line of Brian Colley of Stephens. Your question. Please Brian .

Hi, Thanks for taking my question.

So im curious on the SDR front, if you've seen an acceleration in xdr adoption since you introduced Falcon insight xdr.

The new pricing strategy. There and then also wondering if you could kind of share what the average IRR or ASP uplift as it looked like from those customers that have implemented and xdr strategy.

Yes sure so.

We haven't given that level of information out specific to xdr, So I can't comment on that but when we think about xdr.

Think as an industry, it's still in the early innings.

Of course, one of the pioneers of Edr, we've extended that out into xdr with our third party integrations.

I think we've got.

Some incredible partners that we're now flowing data into the crowd strike platform and being able to make.

Advanced decisions on whether something is good or bad across multiple platforms, including crowd strike and it's been well received so far but still in the early innings.

Just add that we are seeing great early traction.

Thank you. Our next question comes from the line of <unk> Kidron of Oppenheimer. Your line is open.

Thanks, guys and nice quarter.

Hoping you could give us some more color on the SMB clearly, it's a very big opportunity for you again.

The gold bundles, you're doing after a very good start there maybe.

Maybe it's a point of reference can you tell us how much of your revenue IRR is concentrated in that tier how do you how much do you think where do you think that can go within a year's time and also Bert specifically on the dollar retention rate.

On the dollar.

Dollar based retention rates.

So look we're really excited about our F&B faith, George talked about are coming on board.

We've got great products for them to come in and to expand its not just limited to our enterprise. Although certainly the MBR is going to be driven by our enterprise customers.

For dollar based net retention as I think about next year.

Think.

We're going to see.

Slightly more net new <unk> coming from expansion deals than net new <unk> coming from new logos.

We've got this incredible base of 23000 subscription customers today, and we can certainly continue to add more modules to their security stack and continue to delight them. So that's how we that's how we think about the slips.

Thank you. Our next question comes from the line of Patrick causal of Scotiabank. Your line is open this is Patrick.

<unk>.

Hey, this is Patrick <unk> from Scotiabank.

My question is about.

Net cash you guys have about $2 billion of net cash on.

Yeah look we will evaluate every quarter.

Our position so I think that that's just a quarter by quarter decision that will come up with we do look at it we.

Thank you. Our next question comes from the line of John <unk> Guggenheim. Please go ahead John .

I'm sorry can you hear me.

Yep.

Uh huh.

Hi.

Thanks for taking my question.

George.

Sort of a follow up to several of the questions. There. It has to do with the enterprise versus the mid market.

New logos versus add on sales I mean, I would think Mike it's a lot tougher to sell to new logos.

As I could see how they could because since it really makes security security easier for them to have an integrated solution, but then again, it's tough to say I mean, the mid market customers are typically much less sophisticated buyers of Iot just curious your thoughts there.

Sure.

Billion dollar companies.

They have one person to IP people.

Our security person and we think that's a perfect opportunity for.

Sure.

Sal can complete where we can sell them multiple modules. We've added now identity into Falcon complete.

And to and we can service that account and and basically take a lot of the burden away in a challenging macro environment, they're not getting more head count, but they still have a great risk from a security perspective so.

That's the mid market all the way down to SMB, we have very small companies that are falcon complete customers. So if they can't quite digest everything that we have that's okay. What they are buying as an outcome and our outcome of stopping the breach is reducing complexity and lowering their overall cost and that is resonating with customers as we consolidate.

In this challenging macro environment.

Thank you I would now like to turn the conference back over to George Kurtz for closing remarks, Sir.

Great.

Thank all of you today for your time, we certainly appreciate your interest and look forward to seeing you at our upcoming Investor webinar. Thanks, So much and we'll see you soon.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q4 2023 CrowdStrike Holdings Inc Earnings Call

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