Q2 2024 CrowdStrike Holdings Inc Earnings Call
Okay.
Hello, and welcome to the crowd strike fiscal second quarter 'twenty 'twenty four 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 to ask a question. During the session you will need to press star one one on your telephone.
Didn't hear an automated message advising that your hand has been raised.
Please be advised that today's conference is being recorded.
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 co founder of crowd strike and Bert Potbelly 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 third quarter and fiscal year, 'twenty 'twenty, four and any assumptions for physical peer.
Beyond that our 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.
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.
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.
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 entitled Risk factors in the company's 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 crowd strike dot com or on our form 8-K filed with the SEC today.
That I will now turn the call over to George.
Thank you Maria and thank you all for joining us today.
I am pleased to report that in the second quarter, we exceeded our guidance across both top and bottom line metrics.
<unk> strong durable growth.
Scale incredible leverage and operating within our target model on every metric.
Even with a challenging macro backdrop, we delivered an impressive quarter, highlighting crossroads structural competitive moat, making falcon the definitive cyber security platform for the cloud era.
Financial highlights for the quarter include.
Ending <unk> of $2.9 billion up 37% year over year with a record contribution from cloud security <unk>.
Identity protection and log scale next Gen, Sam together, surpassing $500 million.
R R.
Record non-GAAP operating margin of 21, 3%.
Record non-GAAP net income, which grew 109% year over year.
GAAP profitability for the second consecutive quarter <unk>.
Our record Q2 free cash flow of $188 7 million and an over 80% year over year increase in deals involving eight or more falcon platform modules.
Our commitment to operational excellence and the utilization of AI within our platform and across our entire organization is driving enviable leverage in our financial results, even as we aggressively invest in fueling growth.
As Bert will discuss we are raising our revenue outlook for the year and bringing in our timeline to sustainably achieve our non-GAAP target operating model.
We now expect to exit Q4 within our target non-GAAP operating margin model and to remain within our target model on an annual basis, starting in FY 'twenty five.
In an increasingly digital cloud defined world so.
Labour security is becoming more important than ever.
The FCC's recently enacted cyber security disclosure requirements substantiate the growing gravity of cyber security threats Ella's.
Elevating the category from an operational concern to an urgent board level and CSO spend priority.
At crowd strike, we continue to build cyber securities platform of choice offering a simple and powerful promise.
We stopped breaches.
Heading into the second half of the year, we see increased momentum in the business driven by <unk>.
Our record levels of new logo and upsell pipeline.
A record deal registrations from our market leading partner ecosystem.
And record levels of customers proudly trusting crowd strike to be their long term security platform consolidator of choice.
We are also observing substantial changes in the competitive landscape.
Uniquely benefiting crowd strike.
With the business momentum, we see and competitive market dynamics, we believe our second half performance will yield double digit net new <unk> growth.
Working in cyber security for the past 30 years I have recognized and create a tectonic shift in this industry and.
And we are in the midst of one right now organs.
Organizations need better faster and more cost effective protection for a digital society.
Organizations need seamless not stitch together automation to breakdown legacy data silos.
Organizations need lower Tcl and more efficient.
ROI driven investments.
The competitive battlefield of cyber security today.
Flex these realities separating the wheat from the chaff.
Those who are platforms versus those with point products masquerading as platform stories.
What wasn't market littered with dozens of companies is quickly consolidating several vendors smaller narrower point product companies are being left behind these companies are quickly going the way of legacy a V already in the hands or looking for the safe hands of strategic or private equity buyers.
Point product single feature cloud security companies are learning the hard way that platforms built by design win at scale.
Today's competitive landscape solidifies craft strikes leadership position.
In terms of what were once competitors into immediate share donors.
Crowd strike is purpose built for this market, we have the technology innovation mission driven team and sizable scale to lead cyber security platform consolidation.
Shifting from competitive market dynamics to crowd strike here are the reasons icf's, winning in the second half and beyond.
The Falcon platform enables real consolidation with best of breed outcomes.
And we are fighting xdr transformations across cloud security identity protection and log scale Nextgen Sim.
Each of these three platform solutions are high growth sizable businesses. Each your example.
Alright.
And each are seamlessly integrated components of the Falcon platform.
Let me first provide commentary on crowd strike as cyber Securities Consolidator, and then I'll follow up with updates on our cloud identity and Nextgen Sim Falcon platform businesses.
The Falcon platform has not only become the standard for delivering AI powered cyber security. It has become the foundational cyber security platform for our customers.
Our revolutionary Cloud Native architecture consists of an AI powered data platform and lightweight sensor form factor, which remains the easiest and fastest to deploy with no reboots.
Our form factor was made for the digital anywhere enterprise not bound by operating system or hardware defined network perimeters.
Crowd strike has the visibility to detect and prevent attacks.
And the workflow integrations and automation to remediate, we have the prime enterprise real estate on devices, and multi cloud workloads to automate and consolidate cyber security.
Customer after customer I met with at the Black Hat Security conference wants to anchor their cyber security on the Falcon platform.
These customers see us as their core partner and their security journey with consolidation being a hot topic, let's talk about what security outcomes really mean.
Stopping the breach this is the most important outcome companies need vendors, who are trusted partners that can understand prevent and respond to the threat actors to stop breaches.
<unk> strike is uniquely positioned to stop breaches with our technology threat intelligence and services.
Saving time, delivering everything in a single modern console, coupled with generative AI reduces dwell time and make cyber security faster and easier.
Saving money with most enterprises still buying north of 60, cyber security point products. There is too much cyber security Shelfware.
Individual products require learning and maintenance building integrations and higher staffing costs.
Eliminating the time, managing integrating updating and operating superposed tools represents real savings regarding product people process and cost.
And finally doing more crowd strike Falcon unlocks new capabilities for organizations such as deploying their first code to cloud security identity protection exposure management attack surface reduction Nextgen Sim and more all.
In one integrated platform.
The breadth of native Falcon capabilities, and our prime real estate within the enterprise and F&B technology stack is our advantage and create significant customer expansion path.
Our open xdr platform the ability to take it first party and third party data is quickly becoming the enterprise data destination, we see data gravity for the management of cyber security, but also broader observe ability use cases as a competitive moat for crowd strike.
Customers gain greater value with every module, they adopt reducing agents security gaps complexity and cost enabling them to transform and consolidate their security stack with the Falcon platform.
Let me share several recent new customer wins that speak to this.
First is a major auto manufacturer that tried but failed to consolidate their security on Microsoft <unk> five.
This company security team quickly realized Microsoft's complexity multiple consoles lack of integration mis detections and complex deployments hampered the ability to defend themselves and consolidate this customer is now consolidating on the Falcon platform with Falcon complete for endpoint identity and cloud.
Now with a single agent single user interface and single platform. They have complete visibility across their endpoints cloud and identities and the ability to stop threats in real time.
By moving from expensive Microsoft E. Five to crowd strike organizations can say, 50% plus per user per year on Microsoft licensing costs, adding up to millions of dollars of savings.
Another seven figure consolidation win was with a leading residential construction manufacturer who took their falcon complete subscription to the next level.
Beyond the endpoint this customer purchased Falcon cloud security identity protection log scale in Falcon surface, our external attack surface management offering.
Falcon has become the platform of consolidation and trust for this enterprise, reducing spend with three other vendors by more than 60% and wholly eliminating multiple vendors from their stack.
Consolidation is not only fueling bigger new logo lands, but also increased platform adoption, especially in the areas of cloud security identity protection and log scale, which in aggregate contribute well over half a billion dollars.
<unk>.
Financial services technology, retail and manufacturing industry verticals continue to demonstrate strong demand with large deal sizes.
In Q2, we closed over 80% more deals involving eight or more modules than a year ago as customers increasingly look to crowd strike to consolidate their security stack.
Let me now discuss our momentum in the platform areas of cloud identity and log scale Nextgen, Tim where we are setting new records.
Let's start with cloud security, where net new <unk> growth accelerated meaningfully and reached a new record during the quarter ending <unk> Falcon module is deployed in a public cloud grew to $296 million up 70% year over year larger than almost.
Every single vendor and cloud security today.
Driving this inflection is our focused innovation on Falcon cloud security are C suite, offering, which unifies agent and agent with cloud native security capabilities into a single offering providing immediate time to value across all major cloud environments.
Net new <unk> growth for Falcon cloud security accelerated to 70% quarter over quarter.
We have made it easier for customers to consume Falcon cloud security with a single SKU and customers are rapidly standardizing on crowd strike as their cloud security platform of choice.
Customers are eager to move away from multiple point product vendors to Falcons unified best of breed platform.
We added many new capabilities to our snap offering including infrastructure as code.
<unk> scanning and attack path analysis, creating the most comprehensive <unk> solution on the market.
Combined with Falcon surface, our external attack surface monitoring solution that we acquired last year. We now provide a complete outside in an inside out view of a customer's security posture.
This past quarter, we executed a go to market emphasis on cloud security hosting a virtual cloud security summit with over 12500 security and Dev Op participants.
Followed by cloud focused partner and sales plays.
Our integrated cloud suite easy management, and lower Tcl value propositions are resonating at scale.
We closed a record number of cloud customer wins in Q2, including multiple seven figure cloud expansions with fortune 500 customers together in excess of $20 million in deal value.
And iconic fortune 50 retailer prioritized, a full not fazed Falcon cloud security purchase of $5 million in deal value choosing crowd strike over a point product cloud security scanner and displacing their firewall vendor.
Additionally, a major fortune 500 manufacturers sought product superiority in a single platform approach, replacing with with Falcon Cloud security. Other cloud wins include new lands with financial technology media and healthcare companies as well as public sector accounts.
Finally, I want to highlight a cloud expansion with a fortune 1000 retail brand facing increasing cost from their incumbent cloud security vendor and struggling with limited visibility over their cloud assets.
This customer launch an initiative to unify their security stack and removed gaps between traditional endpoint cloud run time security and posture management crowd strike is the only vendor that met these requirements and a unified platform and help them drive down their overall operational cost.
The cloud security market opportunity is massive and growing rapidly with the potential to reach $18 billion in calendar year 2026.
Exploitation by adversaries increased 95% year over year.
And the only way to stop threats at all time is with a fully fledged agent and agent list cloud suite like Falcon.
Only crowd strike delivered a fully integrated <unk> solution that unifies cloud workload protection cloud security posture management.
<unk> infrastructure entitlement management threat intelligence and threat hunting in one platform across hybrid and multi cloud environments.
Our leadership in cloud security was recognized and Frost <unk> Sullivan recently published 2023 Frost radar cloud workload protection platform report based on our impressive.
<unk> business growth, our comprehensive cloud visibility and our unrivaled cloud detection and response services.
Identity protection also stands out with over $200 million in ending a are up 194% year over year <unk>.
Identity based attacks represented 62% of all interactive intrusions, we observed in the last 12 months.
<unk> Falcon identity protection delivers the best protection against identity attacks recently, winning the CRM Tech Innovator award as the best solution on the market.
The identity protection adoption rate for new customers grew more than 100% year over year and the total number of deals tied to identity increased 200%.
Highlighting this in Q2 is a financial services firm that initially turned the crowd strike for incident response, following a breach where an attacker legitimate credentials to bypass the company's existing security products and remain undetected for a week.
Following remediation by crowd strike incident responders this customer consolidated on the Falcon platform adopting Falcon complete Falcon identity complete and Falcon cloud security complete displacing and consolidated four vendors in the process Microsoft Sentinel won.
Arctic Wolf and so forth.
Moving to large scale net new <unk> from large scale next Gen. Sim reached a new record as customers increasingly adopt our solution to solve multiple use cases there.
The number of customers using large scale grew more than three <unk> year over year.
Log scale, ending <unk> grew over 200% year over year and is quickly approaching the $100 million AAR, our milestone, which we expect to achieve in Q3.
A fortune 500 manufacturing company expanded on the Falcon platform with a nearly $4 million deal value walk scale purchase after becoming frustrated with their legacy Sim vendor due to its increasingly prohibitive cost complex licensing and poor forced on prem to cloud migration experience given.
Large scales unparalleled speed and flexibility and cost effective licensing model. This customer is now leveraging the falcon platform to transition away from legacy Sim Supercharging, the speed of both or observe ability and security use cases.
Falcon is a platform that brings the benefits of generative AI to life for every sock Cisco <unk> and enterprise.
We do it with proprietary threat data and we do it with industry, leading AI expertise.
Charlotte AI is the engine powering our portfolio of generative AI capabilities.
Cross the platform utilizing crowds rates high fidelity data advantage.
Charlotte AI helps Falcon users of all skill levels to do more in the platform by automating workflows, which fuels module adoption and reduces the meantime to detect and respond the net benefit to customers from our pioneering use of AI in a single platform is faster results better security outcomes and lower.
Overall cost ushering in a new era of machine speed security.
We showcase Charlotte AI earlier this month at Black hat, where we're the only vendor of consequence to showcase a live not powerpoint demo of generative AI in action.
Reception was fantastic and we will really Charlotte AI pricing at Cellcom.
Moving to partners, 64% of new customers from large enterprises to Smbs were sourced from our partners in the quarter our industry, leading partner ecosystem is embracing the broader Falcon platform building long term differentiated businesses with crowd strike.
Crowd strike as AWS is largest cyber security go to market partner.
And we recently won their ISP partner of the year Award validating our cloud security category leadership.
Commitment to innovation and go to market success, particularly in cloud security.
Finally, the initial momentum we are building through our partnership with Dell is exciting delivering eight figures in deal value in just a few months as we highlighted previously our reseller agreement with Dell hit the market in Q1 delivering in quarter new deals in every major geography region in the second quarter, we went live with it.
TACE device sales globally and rapidly achieved industry, leading device attach rates.
Demand in our markets has remained resilient and even as we continue to operate in a time of macro uncertainty and increased deal scrutiny. Our win rates remain high the momentum we are building with consolidation deal specifically tied to cloud security identity protection Nextgen salmon increased partner engagement is dry.
<unk> our pipeline to record levels.
Additionally, Falcon our annual customer conference is our biggest selling event of the year and this year registration is already up 80% from last year.
The Falcon ecosystem will be on full display with over 70 technology go to market partners sponsors and attendance.
I would like to invite our investors and analysts to join us at Falcon.
Similar to last year in conjunction with the event, we will hold an investor briefing featuring conversations with customers and partners. This year's briefing will also include a financial discussion led by our CFO Bert pod bear. Please note the customer sessions will not be available on the webcast. So please join us in person.
And with that I will turn the call over to Bert to discuss our financial results.
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 a strong second quarter amid a continued challenging macro environment.
In Q2, we scaled the business to new Heights and drove significant operating leverage.
New milestones in the quarter included record operating margin, which was within our target operating model for the first time in company history record non-GAAP net income attributable to crowd strike, which more than doubled year over year and GAAP profitability for the second quarter in a row.
The demand environment remained resilient and we built record levels of new logo and upsell pipeline.
We achieved Q2 net new <unk> of $196 2 million.
Which was above stated assumptions as our relentless focus on sales execution enabled us to perform well even as we continue to see heightened deal scrutiny and elongated sales cycles.
We ended the quarter with ending air are reaching $2 93 billion up 37% over last year.
We continue to be very pleased with the success of our land and expand strategy with our dollar based net retention rate effectively at our benchmark in Q2.
Subscription customers with five or more six or more and seven or more modules increased to 63, 41% and 24% of subscription customers respectively.
Moving to the P&L total revenue grew 37% over Q2 of last year to reach $731 6 million.
Subscription revenue grew 36% over Q2 of last year to reach 690.0 million.
Professional services revenue was $41 $7 million setting a new record for the 12th consecutive quarter and representing 44% year over year growth.
During the quarter. We also saw strength in Latin America, the middle East and Japan.
International revenue grew 43% year over year.
Our second quarter non-GAAP gross margin performance remains strong.
Total non-GAAP gross margin was 78% and we achieved subscription gross margin of approximately 80% for the second consecutive quarter.
We look forward to discussing the initiatives and investments we are making to drive subscription gross margin higher and beyond our target model in more detail at our stock on investor briefing in September .
Total non-GAAP operating expenses in the second quarter were $412 5 million or <unk>, 56% of revenue versus $321 $4 million last year or 60% of revenue.
Q2 sales and marketing and R&D expenses grew 26% and 35% year over year, respectively.
We expect sales and marketing and R&D expenses to fluctuate quarter to quarter due to the timing of in person events marketing and technology development programs.
As a result of our dedication to operational excellence and profitable growth at scale in Q2, we achieved multiple new milestones for the profitability of the business.
These milestones included record non-GAAP operating income of $155 $7 million growing 78% year over year.
<unk>, our target model range for non-GAAP operating margin for the first time in company history, and a record 21% of revenue well ahead of our planned timeline.
More than doubling non-GAAP net income attributable to crowd strike, which grew to a record $180.0 million or <unk> 74 on a diluted per share basis, and finally, achieving GAAP profitability for the second consecutive quarter.
These achievements speak to the power of our financial model and focus on running an efficient business.
We are accelerating our timeline to reach the target model.
As implied in our guidance, we now expect to exit Q4 within our target non-GAAP operating margin model and to remain within our target model on an annual basis, starting in FY 'twenty five.
We ended the second quarter with a strong balance sheet cash and cash equivalents increased to $3 $1 7 billion.
Cash flow from operations grew 17% year over year to a Q2 record of $244 8 million.
Free cash flow grew 39% year over year to a Q2 record of $188 $7 million or 26% of revenue achieving a rule of 63 on a free cash flow basis.
Looking at the first half of fiscal year 2020 for free cash flow grew 42% year over year to reach $416 1 million and 29% of revenue putting us well on track to reach our stated goal of 30% free cash flow margin for the full fiscal year.
Moving to our outlook, we are raising our revenue guidance for the fiscal year and maintaining our net new air our assumptions for the second half and fiscal year, which call for in line to modestly up net new <unk> for the full year.
For the third quarter of FY 'twenty four we expect total revenue to be in the range of 775 four to 778.0 million.
Reflecting a year over year growth rate of 33% to 34%.
We expect non-GAAP income from operations to be in the range of $154 four to $156 3 million and non-GAAP net income attributable to crowd strike to be in the range of $179 eight to $181 8 million.
We expect diluted non-GAAP net income per share attributable to crowd strike to be approximately <unk> 74.
Utilizing our weighted average share count of 244 million shares on a diluted basis.
We are raising our revenue and profitability guidance for the full fiscal year 2024.
We currently expect total revenue to be in the range of 3037 to $3042 9 million.
Reflecting a growth rate of 35% to 36% over the prior fiscal year.
non-GAAP income from operations is expected to be between 601, three and $610 $5 million.
We expect fiscal 2024, non-GAAP net income attributable to crowd strike to be between 684 and $689 $7 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 80 to $2 84.
George and I will now take your questions.
Thank you.
As a reminder to ask a question you will need to press star one one on your telephone.
And due to time constraints, we ask that you please limit yourself to one question.
One moment for our first question please.
And our first question comes from the line of socket <unk> with Barclays.
Okay, Great Hey, George Hey, Bert Thanks for taking my question here.
Yeah.
Okay, Great to hear me say, hey, guys same hear Bert and great to see the profitability. So much fun stuff to talk about in the quarter, but maybe I'll just hit one topic head on which is the scrutiny that I think all of us have on on the second half net new <unk> ramp.
And and listen I think we've heard it from from you and George for multiple quarters now that the multi product pipeline just look strong.
But I was wondering if if either of you could help us maybe look at that ramp from another lens.
Maybe help us get a little bit more confidence.
Whether that's based on on things like net revenue retention or implied new logo business any other lens that you would have us look at.
I guess look through when kind of stress testing that second half net new <unk> ramp that you are guiding to.
Sure Let me take the first part and I'll turn it over to Bert So when we think about the back half of the year and our confidence I think it starts with the product and the consolidation that we're seeing.
Customer after customer looking to consolidate on our platform and the product portfolio has never been stronger, particularly in the areas that I talked about cloud log scale identity. We gave you some great numbers around that when you look to our partners our industry leading partners in our ecosystem. We continue to grow that we've got tremendous focus on that internally with with a new lead.
Sure.
Yeah on <unk> I mean, I can go down the list of our partners and certainly AWS and I called out.
All contributing to our momentum and then the pipeline a record pipeline as we see this the partners and crowd shrank are delivering record pipeline because the products are there. So that's the way I look at it.
Yes, I would just add a couple of things one I would add we're very happy with our retention rates, we think they're best in class as well as I think we're seeing strength from multiple aspects of the business right from either our enterprise or SMB, we see strength in both so that's why we've got confidence in the second half.
Thank you one moment please for our next question.
And our next question comes from the line of Sterling Auty with Moffett Nathanson.
Yeah. Thanks, Hi, guys I also wanted to drill in on that same topic, but specific George to one of the comments you made about the sales pipeline and wondering if you can just peel back the onion and talk about what you saw in this quarter and what is happening with the strengthened maturity.
The pipeline coverage specifically.
To drive that acceleration.
Sure I think you have to start with the ramp reps that we have we did a lot of hiring last year. It takes a while to ramp reps. So we're going into the back half of the year with with ramp capacity, which we're obviously excited about and then a lot of it has to do with me being in the field and talking to customers and just what I'm hearing from them I was recently on.
On a call with a large fortune 200 company I was on the CIO, the CTO and Theyre CSO and they said the reason we have all these people together is because of the spent which is eight figures and two we were so strategic rationally handing their handling or observe ability and their security use cases, so when I look at that and I look at the product portfolio.
And.
Where we are.
It's encouraging.
Combined with the sales ramp.
And the capacity we have as we go into the back half of the year.
Thank you one moment please for our next question.
And our next question comes from the line of Andrew Nowinski with Wells Fargo.
Great Good afternoon, and congrats on a quarter and it echoes sockets comments about profitability that is really an amazing outlook.
I wanted to just.
Asking another question on the on the back half of the year guidance I mean, the way you described everything George with products consolidation partners growing record pipeline ramped reps.
I know the back half does look fairly aggressive, but you also have easy comps too so maybe.
Why not.
It gives you caution about raising that guidance, a little bit more coming off of a really good quarter.
And heading into with all of those positive trends you have going for your business right now.
Hey, Andy has fared so when it comes to guidance.
We take a very prudent approach and we we guide to and basically what we see when we don't see we don't we definitely don't guide underwriting team, Brian tables, and you've also got its still factor in that is still we're still.
Tough macro we do see deals getting elongated.
Cycles, taking longer so I think those are the things why why we guided to the way we guided.
Thank you.
Please for our next question.
Our next question comes from the line of Rob Owens with Piper Sandler.
Great. Thanks for taking my question. This is Ethan on for Rob here.
George I just wanted to touch on that observer ability point that just came up again.
And you highlighted the success you've seen with long scale. So can you talk a little bit more about some of those observe any observer ability use cases that you're seeing success with and maybe where youre seeing a little bit of differentiation. Thank you.
Sure. So when you look at large scale. Its capabilities are obviously nextgen same but also an observer ability and we have many customers that use it just for that use case and we have an opportunity to go back in and sell them security things like managing and monitoring their kubernetes clusters to a cloud environment.
Their infrastructure.
I mean, we have a customer who manages like the train schedules on it. So it can manage a large set of data and it does it extremely efficiently.
And what we're seeing right now is customers telling other customers about it we have huge.
25 reference sample customers in the space.
I think the success begets more success in that area. So that's why we're pretty excited about it and you've seen the growth in that area and customers are looking for something thats, better and faster and it gives them an outcome that.
As more contemporary than what they're using today.
Thank you one moment please.
For our next question.
And our next question comes from the line of Keith Bachman with BMO capital markets.
Hi, many thanks for taking the question I wanted to ask about the $500 million.
Our run rate that you mentioned for log scale and others and a is that the same.
Composition from the analyst event, where you referenced it was $399 million in the January quarter. So it's up.
25% and only.
In only two quarters, so pretty healthy growth there be.
Any comments on how you anticipate that continuing to scale over the next couple of quarters to help realize that back half year guidance fee.
Any update on the thoughts on M&A.
That might contribute to the growth of that emerging portfolio. Thanks very much.
Yes, that's a great question so for us.
Way, we broke it out on this earnings call and this model is not be emerging category that we had talked about in the past.
And we wanted to give increased visibility into the specific business lines and we thought that it would be very important for everybody to see how well, they're performing and how well you have scale are performing so you've got to believe you've got obviously, our cloud momentum and got our log scale momentum in alright entity momentum and we wanted to show.
Everybody exactly how we're doing in those in those areas and we've been taking place at scale.
Other questions over to George when we think about the current environment I think everyone is seeing there is a shift.
And the competitive environment and companies that are moving around in terms of.
M&A activity, we think.
The back half of the year will be a great opportunity we continue to evaluate many many different.
Candidates as we normally do and we think the environment is getting better from an M&A perspective, and we're very diligent in how we buy things in the bar and how we look to integration because we focus on a seamless one platform approach and we remain true to that so.
Back half of the year, we will see how it goes but certainly excited about that and we continue to.
Drive innovation internally and we will look externally.
Good companies with good culture and good people.
Thank you one moment please.
And our next question comes from the line of Mike Walkley with Canaccord Genuity.
Great. Thank you George it's cleared platform leaders are gaining wallet share as enterprises consolidate vendors.
Digging a little bit more it seems like there's even a big shift more favorable to crowd strike from your comments, even a quarter ago.
One and Blackberry silence potentially up for sale are you already generating strong share gain opportunities in the SMB market or can you just let us know how about can go is trending versus your expectations.
Yes, we already see that in the marketplace. We've got customers that are very concerned about the uncertainty.
<unk> seen the silence Blackberry movie before in their concerns and uncertainty is never a good thing for security buyers. So we.
We've already seen deals come our way and again as a consolidator.
And as the leader of this space.
We think that just the crews more value to us So we'll see how everything shakes out but for sure of what we're hearing from partners and customers about some of the latest movements in our space.
Is concern.
In terms of other competitors and again Theyre looking for a long term viable partner in those are that's what we're hearing from multiple sources.
Thank you one moment for our next question.
Our next question comes from the line of Gray Powell with BTG.
Oh great.
Thanks for taking the question and congratulations on the good results.
So maybe one on the competitive side.
Yes.
The biggest concern we've heard from investors is just on pricing and the endpoint security space, particularly edr adoption move.
It moves past the 50% Mark.
So I guess my question would be how much room is left in the global 2000, and then how sensitive.
Do you think the incremental buyer is today compared to what you've seen the last few years.
Okay.
Well from buyer as what we've seen is they're buying platform and not just buying one particular area.
The way our technology works its single agent architecture common data store and in modules and then we've been able to obviously monetize that across different areas protection is just one area, but when you look at cloud you look at agents as you look at some of the other offerings log scale identity.
It's really about the platform sale not an individual area and getting the right outcome as I talked about in the earnings script, stopping breaches I talk to a customer recently, they have 60 different products and controls and we were the only one that actually detected activity in their environment and prevented a potential issue. So.
That's really been the focus for us and.
I think when you look at even the legacy areas.
It's almost 50% of the market is still available from a legacy perspective near 50% so 48%.
I think when you look at that is still a big opportunity in legacy displacements as well as.
The platform.
Areas that we called out are just massive tam opportunities and as I mentioned in the script. They could each be an IPO of the business on a standalone basis is as big as they are.
Thank you for our next question please.
Our next question comes from the line of Brian Essex with J P. Morgan.
Yes, good afternoon, and thank you for taking the question maybe just for Bert.
Wanted to understand how youre balancing.
Balancing spending both on a GAAP and non-GAAP perspective, it looks like operating operating expenses on a non-GAAP basis actually declined.
Sequentially, but stock based comp spiked up.
Would love to know how the hiring environment is playing into that and how you think about.
Managing that going forward and any impact that might have.
Toward achieving your cash flow targets. Thank you.
Sure Andrew.
Thanks for the question. So number one we are going to continue to invest as aggressively as we can while seabee, while keeping to our commitment to our profitability metrics and for US I think that the key here you had mentioned on the on the stock based compensation a lot of that is based on.
Timing of grants.
For us we're going to continue to use grants to attract and retain having said that we think that we're going to continue to show low dilution less than 2% this year and strive to keep it under 3% for next year.
For us today, we think it's a good hiring environment, we're taking the time in terms of how we're going about hiring and where and we're very very soon in terms of where we're deploying head count.
As we've mentioned in prior calls we are managing the pace of hiring in accordance with what we think is what we need to continue to hit our targets.
That's how we see it.
Thank you one moment please for our next question.
Our next question comes from the line of Jonathan Ho with William Blair.
Okay.
Hi, good afternoon, and congrats on the strong results can you maybe give us some additional color in terms of what youre seeing for these attach rates, especially with the eight or more products and how do we think about maybe net retention going forward as you start to realize that platform vision. Thank you.
Yes, Jonathan.
Great to hear your voice again, we're really pleased with what we've seen with respect to customer customers adopting.
Almost across the board 5678 modules so for US when you talk about DB.
<unk> remember, it's a noisy metric and it can fluctuate quarter to quarter and we've talked about that repeatedly some quarters are bigger lamson somehow bigger expense.
At the end of the day for US what we're seeing is that we've got a lot of headroom in both new logo opportunities George talked about the available market from our legacy providers, 48%, but we also are having an ever growing customer base and as we continue to delight our customers theyre going to continue to buy more for us and it goes along.
<unk> seen that we've been talking about here. So it really plays into our favor. The great News is that in addition to strong expansions net neumayer our contribution from new logos remains high even higher than we were expecting so far for the year.
Thank you.
Please for our next question.
And our next question comes from the lineup Gregg Moskowitz with Mizuho.
Okay. Thank you for taking the question George obviously, it's extremely early as it remains to be as it relates rather to the archive generate AI, but you did mentioned in your prepared remarks that you plan to release Charlotte AI pricing, it's alcon, presumably that means there will be some form of <unk>.
Discrete monetization for Charlotte, we haven't really seen that Dell from other cyber security vendors as yet so when it comes to your data and the application of AI Tech, maybe just help us understand kind of why you think youll be able to not just deliver incremental value to your customers that monetize it as well thanks.
Sure.
When you look at outcomes as I mentioned, one of them is doing more with less and in security. There is upwards of probably 3 million person gap and the ability to actually hire security folks and as I mentioned, when we launched Charlotte AI in public preview.
Is.
The fact that it really.
It really is a virtual analyst stock analysts, which are super expensive and hard to maintain so for our purposes. When we look at the total value of customer if we can create more virtual analysts just as an example that takes eight hours of work and compress it into 10 minutes, we think there's real value to that which is why.
We will have pricing around it which we're going to deliver it shall con and even from what we've shown recently in.
One of the security conferences.
It's out there or people liked it they wanted and its differentiated from others that were just showing powerpoint. So we're really excited about it obviously, it's early innings.
But if we can show real value in creating these virtual analyst around Charlotte AI, we think customers are going to pay for them.
Thank you.
Please for our next question.
And our next question comes from the line of Gabriella mortgages with Goldman Sachs.
Good afternoon, Thank you alright.
I understand the impact that MACRA and may be having on the upselling bonds telecom part of our mission.
<unk> customers coming up for annual contracts trying to optimize the number of end points. They have with the number of complaints that they.
Is that causing pressure on NR.
When do you think that headwind might abate.
Hey, guys.
So first I think we talked about why we were.
Giving guidance the way we did we did talk about.
10% headwinds for the first half.
Came in better than that.
We talked about coming in flat to slightly up for the second half over last year and I think at the end of the day, we're still in a tough macro we believe all of the things that George talked about we're very adamant that we feel that we're going to be able to achieve those things having said that you got to remember that still as I said earlier on this call deals.
Deals are taking longer to close there is more scrutiny on the P&L.
And so we have to overcome those things to be able to really.
<unk>.
Anything that we would put out there and for US I think that we have a great opportunity to do so and if so long as we continue to stay the course invest where we need to invest I would take a prudent approach I think I think we're going to be in good shape.
Thank you.
Thank you one moment please for our next question.
And our next question comes from the line of Patrick Colville with Scotiabank.
Thank you for taking my question and this one too, but I mean, you gave us lots of juicy metrics and I.
I guess I just wanted to get some clarifications.
Can you give us the emerging products number so we can kind of triage, what we had previously versus kind of what you've given us now and then I guess the second part of my question is in reference to your comments about fiscal 'twenty five operating margin.
Being in line with the target model.
Can you just remind us what the target model is that youre referencing.
Yes, so first on the emerging products, we thought it would be better to give you full numbers on our on our businesses that are meaningful that are taking place. So we won't be going back to anything to go fix that we used to call emerging products with respect to our target model for FY 'twenty five and.
Any of those targets the last one that we were talking about was certainly the operating margin.
Said, we were going to be between the 20, and 22% plus and we and we actually hit that one that was the last one of several that we gave out from subscription gross margin to <unk> G&A to R&D. We also gave a free cash and for the year.
Still talking about that 30% to 32% plus.
One moment please.
Okay.
Our next question comes from the line of <unk>, Li with Cantor Fitzgerald.
Congrats on those short cycle results. This is Ian Hello, Jonathan block have either just one question around.
We also now see that obviously sounds like it's building snap around endpoint with wonder if maybe George you Jenny.
During this versus other vendors that building it off like let's say a zero trust exchanged.
That's it from us.
Yeah.
Yes, so when we think about our cloud business.
And I went into some detail on this.
Agent and the agent list. So it's not just around the cloud workload protection, but it's also around the cloud security posture management and everything really from code to cloud and we've added tremendous capabilities, which I've called out in the earnings script as well in terms of our ability to instrument in flight.
Containers and understand if their code is being put into the CIC pipeline et cetera. So.
We've always been strong in the agent World and what we're finding is that customers are looking at agent listen and moving to our solution because it combines the best of both worlds agent and agent list together in one single SKU and we had tremendous success last quarter, we've got a dedicated sales team on cloud.
And customers are seeing the benefits of an integrated platform.
With with Falcon so.
We will continue down that path and again, we continue to build out our <unk> capabilities and win new business there.
Thank you one moment please.
Sure.
Our next question comes from the line of Trevor Walsh with JMP Securities.
Great. Thanks for taking my question George maybe just to follow up on that that last response around seen up what's the appetite for customers to or at least start to look at combining <unk> capabilities with xdr or at least kind of bridging the two together as far as kind of all the.
Just another point of telemetry from cloud kind of feeding into that xdr outlook, and where do you see it either happening what's kind of just current state and where do you see it going thanks.
Well the current state is the reality, which is that's what we're doing today. So we're taking all of that rich telemetry from.
The <unk> offering agent agent listen and even the exposure management that all from and Xdr perspective is coming back into the Falcon platform and is available to any of the algorithms to identify and prevent any sort of malicious activity. Its also available from a compliance perspective.
To help customers manage their compliance and risk.
It's available from an asset draft perspective, which gives customers an idea of what's actually in their environment and then from a cloud detection response perspective, we actually have some of our managed services that are able to help cloud customers, which at this point, it's sort of an epidemic of.
Issues in cloud environments. The weighted average series are operating so we're really pioneering.
That space and putting it altogether.
There is a reason why we're one of the largest cloud security.
By revenue vendors in the market today.
Thank you one moment please.
Your next question comes from the line of Peter Levine with Evercore ISI.
Great. Thanks, guys for taking my questions George maybe just to piggyback off of that other AI question every vendor is telling us.
Dietary.
The outcomes are proprietary to their data so maybe explain to us.
Really where the competitive moat comes from.
Microsoft has talked about or at least push all their products their customers within our co pilot.
Hello, Zee scalar all talking about kind of the same outcomes, but maybe put a finer point on why you think what your moat is around Charlotte.
Sure It really it's a good question and I certainly.
Agree with you there's a lot of people talking about it and I think we're actually delivering it one of the things that I would point you to is the the data set itself and what's important to realize it isn't just about the most data youll hear that from a lot of vendors.
One vendor with say a more data than the other it's really about sorry.
The curated data set because when we think about generative AI actually has to be trained and we think about chat GPT theres, a bunch of humans, helping to train it.
Just so happens probably more by luxe and understanding generative I AI was going to be on the horizon.
When we started the company, we actually have a very well defined training set thats annotated.
Based upon all the threat hunting that we've done over the last 10 years. So we believe our 10 year head start in terms of having a data set that's actually curated is going to give us a distinct advantage of helping our customers. So that's a big area and then it's a foundational platform component, which is made available to every other service on the platform, which is different than others. So.
Again first innings.
We'll see how it all unfolds, but initial customer reaction has been very very positive.
I would now I'll hand, the call back over to CEO , George Kurtz for any closing remarks.
Great well I want to thank everyone for their time today, we certainly appreciate your interest and look forward to seeing you in person at our upcoming <unk> conference. Thanks, So much and we'll talk soon.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
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