Great! Well, hey, good morning, everyone. Welcome to day one of the Barclays Tech Conference. My name is Saket Kalia. I cover software here at Barclays. Honored to have my buddy, Burt Podbere, Chief Financial Officer of CrowdStrike, here. We've also got Maria Riley, Head of Investor Relations, and other members of the team as well. Maybe just to frame this, we've got about 30 minutes together.
Yeah.
Let's spend 20 or 25 minutes doing some outside chat with Burt, which I know is going to be fun. Then would love to make this interactive. Anyone that's got a question, just pop up your hand. We've got a microphone on the back of the room. So with maybe all that, Burt, thanks for being with us here today.
Saket, it's great to be here. It's great to be here every year.
Yeah. Wouldn't be a Barclays conference without CrowdStrike.
Thank you.
Absolutely. Burt, I think a lot of us were on the earnings call last week, and frankly, I think the net new ARR acceleration itself. But maybe to make sure that we're all on the same page, can you just recap some of the key items that maybe you were personally most proud of coming out of last quarter?
That makes sense to us. Absolutely. So, yes, it started with net new ARR, the re-acceleration, a record $223 million. So that was obviously a big deal. The company was focused on that. That's our metric. For those who don't follow the company, ARR is our metric. That's the one that we disclose, and that's the one that tells you about the health of the business. But this quarter had a few other, you know, really good things. I'm super proud of gross margin, right? Another record gross margin quarter for us. I spend a lot of time on gross margin, as you know. I invite the DevOps team to my monthly quotes, and we spend the first 15 minutes on DevOps and how we're doing with COGS. So it's the DevOps team and, you know, 70 accounts.
So, it's an important part, and I give it the attention it needs. So really impressed, happy with that.
Yeah.
Really happy with, you know, record GAAP and non-GAAP profitability. So that's something that, we're really proud of. I see some best use of our dollars, really enjoying the leverage in the P&L. And that just doesn't happen. It takes years, to get that in the right place, to be able to reap the benefits of preparing a company for being a public company, and then being able to execute against that model. And then finally, you know, free cash flow, $239 million, record for us, was at that 30%, free cash flow market percentage. Those are the ones that just. Okay, that's great.
Yeah.
We're really proud of that. The whole company was.
Yeah, absolutely. That's the quarter. I'm going to zoom out a little bit, Burt, and you know, George and the team really been talking more about this idea of a platform. You know, there are several security companies out there, right, that talk about the same thing. Some have built a few products, some have assembled multiple products through acquisitions. Maybe the question is, for you, what does a platform mean to CrowdStrike? How do you-how does the company think about sort of that use the word platform internally?
Yeah. So first, let's start with the fact that I think it's the most overused term in security platform, and then probably the most overused term in IT in general. So for us, if you take a look at, you know, the different types of, you know, offerings that are out there, you have companies that are institutions, right? They offer one specific thing. Then, you know, years ago, you had folks that offered what they called a suite, right? So that would be a set of different products, and they were offered in a bundle. And then you have this concept of, for us, which is the platform, which that is a set of products that are uniform, that all the integration is already done for you. It all works together seamlessly, right out of the gate.
So for us, that's who we are. And when you think about us, we have one agent, and we have one console. Not multiple agents, not multiple consoles, not multiple platforms. We have one. So it's really the unification of a set of products. It's the flexibility that you have within that platform. It's open-ended, so that we're enabling, not only internally, all of our products working together, but we have folks in what we call our CrowdStrike Store, that can leverage what we have: data and how we're able to leverage their analytics on top of our data. That's what a platform is, when other folks can use what you have. And that's what we strive to build, and we were successful at it.
It really makes it easy for the customer at the end of the day, right? One console, and it really matters. You talk to any of our customers, they'll tell you part of the reason they like CrowdStrike so much, is not only does it, does it work better than anything else in the marketplace, it's just so easy to deploy, so easy to use, so easy to manage. So that's what, that's what a true platform is for us.
Yeah, absolutely. I mean, I'm thinking back to the time of the IPO. I think George wrote this thing, sort of, "We collect once, and we analyze multiple times.
Which is it?
Right? And so this is really seeing the fruits of that.
100%. And for us, it sounds easy, right? Yeah, sure, collect it once and then build applications on top of it. Not so easy, right? You've got to build. We built actually something called our Threat Graph from scratch. And so we have that single lightweight agent that sits on every device, cloud, collects the data, and then delivers it to the Threat Graph seamlessly. And the Threat Graph allows us to do all the things we need. It's the brains. It's the brains behind CrowdStrike.
Absolutely. You know, if I tie that philosophy back to results, Burt, you know, I think you and the team have been talking about sort of growth in multi-product deals. I think the number was 78% growth, right? Last quarter. You correct me there if I'm wrong. Maybe the questions there are w hat's driving that growth in your view? You know, is that new customers that are landing bigger because of this platform, right, as we talked about? Or are those existing customers that are adding on more as you add on more to the platform?
It's really both, to be fair. So for us, we are landing bigger, and you can see that in the numbers we give out, adoption and the numbers of the module by, you know, by customers and in terms of grouping. So customers that have five, six, or seven more of our modules are in that 63%, 42%, and 26% range, respectively. The 78% is the growth on 8 module adoption. So I know companies that would be really happy with two modules, let alone 27. And so for us to be able to delight our customers, make it easier for them to buy, consolidate, drive down TCO, get the outcome that they're looking for, well, that's a win.
So on the new logo front, we believe that, you know, we have a massive opportunity in front of us, but we also think that with existing customers, all the products that we come out with, it's more, it's more available for them to drive down TCO and get the outcome they need. So it's winning on both sides, new, new logo as well as, you know, upsell, cross-sell expansion.
Yeah, absolutely. Maybe just a tactical point just on the expansion. You know, I've had companies in the past where the size of that land gets bigger, but then that makes the Net Retention metric just maybe a little bit tougher to read. Talk to us a little bit about that and how you want us to think about that.
You're thinking about it the right way. It's a little bit of a noisy number because it could be somewhat misleading, right? We love when customers land bigger, right? And in our April webinar or seminar, we talked about the average number of modules that a customer will buy out of the gate is that new customers will buy 4.8 out of the gate. So if you're landing bigger, you're right, we might have some thrust along the net new ARR, which isn't necessarily a bad thing. Conversely, if you've got a lot of expansion in a given quarter, and you're landing less, then you know, the metric goes up. I like both. All of them work well for me.
As long as it's ARR, right?
This is, this is the idea.
Yeah. Correct.
And for I've said it many times, so we pay our sales on net new ARR, and we pay the same whether it's on new or expansion. And I think that'll go yeah.
Yeah. You know, George calls the endpoint business here, right? Valuable beach real estate, right?
Yeah.
Which, yeah, which I really love, right? But he calls it that because it's a critical enforcement point, right, as you know. I guess the question is: How does CrowdStrike sort of think about that business right now in terms of room for share gain and competitive dynamics? I mean, I think I've had some folks that have sort of gone back and said, "Well, hey, you know," they'll look at historical market shares and say, "Well, the number one player, you know, here in 2013, never got to more than 15% or 20% market share," whatever the number was. Is that a relevant lens to look at the business here, you know, in your view?
Yeah. So I'll start with share first, and then I'll go back to-
Yeah.
H ow I think about where we can go. So for share, IDC came out and said we're 18% of the modern endpoint market. The legacy vendors are at 48%. Just on that alone, you know, that's a tremendous amount of room for us to grow in new logo, right? Then you have 34% included in there would be, you know, the next end users where we are also taking share. So it's, there's just a lot of room to go on new logos. We're still,
Yeah
I'd call it maybe the second inning, right? We have so much to go. And then you've got, you know, the idea of, you know, is it the same, in terms of apples to apples, versus, you know, 10 years ago when, yes, you're right, 25% was that high bar. And I go back to a nd I was talking about it earlier, just outside. I go back to the fact that in security, we've never seen a company that's a true platform, where it's not just about the next great mousetrap, right? That's gonna be better than the last mousetrap. For us, it's all about creating this data moat, creating visibility for us to help our customers prevent the, you know, the breaches from the unknown unknowns. We've never had that before.
In the old days, it was signature-based, right? And what's a signature base? That means if. Think about, think of the flu shot, right? So when you take a flu shot, you're trying to protect yourself against the known flu bug. But there are variants. Okay, stop the variants. The same with the signature-based technology. If we know that there's something bad, okay, we'll deal with that. But what about the variant? Useless, right? So the whole game has changed. When you're able to actually stop the unknown unknowns, that's something wildly different that's never been done. And that's why I think that when we think about trying to cap where we can go, it's really difficult. And then you think about number of, let's call it endpoints, we call it workloads.
In the old days, you used to just try and figure it out through how many laptops there were or what have you. Well, then the cloud came, right? So the amount of workloads is virtually boundless, right? And so we stopped thinking about it in those terms. And so the market has dictated kind of where we can go. And that's why you're also seeing the TAMs going where they're going. The expansion of TAM is huge, and a lot of it has to do with cloud. So when we think about it, we think that there's this massive opportunity for us, and we're right down the middle of the fairway to be able to go after, to be able to go after it. That's how we think about it.
Yeah, absolutely. You know, one of the. So thinking about outside of endpoint, I think one of those modules, right, that have just grown, you know, in adoption ever since the acquisition has really been this identity module, which has been so added to the business. And, you know, I feel like the team has almost compared identity to EDR in terms of its potential breadth of usage, which is saying a heck of a thing, right? Because EDR market is big. Why do you think identity is doing so well, and how is it sort of adding to deal size?
So it's a great question. I love the question. So identity. So I'll tell you where we are, where we play in identity, and where we're not, where we don't play. So where we don't play is the creation of the identity. That's Microsoft. They'll create the identity. We don't play there. Then there's the management of the identity. That's the Okta's and the Ping, the identity brokers. We don't play there either. Where we do play is securing that identity. And so what does that mean? That means we are the ones who are looking where that identity is going, lateral movement within an environment. So for example, you, Saket, if you're, you know, at your desk and somehow somebody is able to grab your credentials, and they log in as Saket. Well, we already know where Saket is going on the cloud.
Then all of a sudden, if we see that Saket is trying to go into areas that he's never gone before, okay, red flag. And then if they're he's trying to access files that are completely outside of finance, we might have a two-tier authentication to make it really impossible to come in, even if somebody stole your. And that's what our identity does. Today, the number of incidents that involve identity are greater than anything else. 80% of all instances are identity. Think about that, 80%. So this is why we think about identity as pretty much as open as AV was way back. I think the market size is the same. It's not even bigger. And so the beauty of our identity problem is that it is.
What we purchased a company, and we were able to take that technology and put it on our agent, right? So again, it goes back to one agent, and it took really 2 years to get that out. It's hard to smash agents together. Really, really hard. But we said, we're not going to do it until we can. So now, fast-forward, not only is identity an offering, but it's an offering in our complete offering, which is our managed service. So now you can buy the original managed service, which had a bunch of different applications, and you can now add identity to it, all seamlessly, all on the press of a big red button. So that's why we think identity has so much potential.
And we stated not last quarter, but the quarter before, that in a $1 million range, growing around 200%. In different times, that's an IPO in and of itself.
Right, right, right. I mean, you mentioned how identity is included in the complete solution. So, I mean, from a deal size perspective, identity is pretty, is a pretty nice add as well, right?
Absolutely.
You know?
Right. It's meaningful customers. I think every customer of ours should have that module. Only 9% do. So we've got not only going after new logo for identity, we've got a long way to go in terms of, you know, helping customers think through purchasing identity. And our last stated customer count was over 25.
Only 9%. That's got a lot of room. I'd love to shift to another opportunity that was just so front and center at the Falcon Conference, right? Which, like, you could tell George and the team were excited about, and that is really disrupting the SIEM market. And maybe just to give you another comparison, I mean, I think George compares them to the likes of Legacy AV, right? With just the recent M&A in the space. So maybe the question for you, Burt, is: What are you seeing in terms of, you know, of course, the competitor product here is or the product we're competing with is LogScale. What are you seeing in LogScale activity, and do you feel like you have the go-to-market investments ready to really drive more pipeline?
Yeah, that's a George is, George is very proud of that acquisition. We did that about two years ago. It provided, you know, logging as well as XDR on the basis of our XDR platform. So it was a great acquisition for us, and we took our time to develop it and make sure it was ready to go to market. So a couple of things there. One, when we bought it, the reason we were interested in going into that space was twofold.
One, there was a tremendous amount of dissatisfaction from customers with that, with that offer, and a lot of it wasn't necessarily the tech- the tech, but it could have been related to pricing, packaging, and so there was just a tremendous amount of dissatisfaction, and we thought there was an opportunity to go into that market and satisfy our customers. And then, two, we thought there was a better way. We thought there was a way to buy some technology. We looked at a lot of different technologies, and this notion of an index-free type of technology where you can query and you get back your answer in, you know, a fraction of what you were able to do with the legacy SIEMs was important to us. So we decided to buy it. It took us a while to.
Not a while, it took us a standard amount of time to go and smash agents and everything together, about two years. We came out with it today, we announced that it, that business, clips $100 million. So we have been investing. We have been saying, "Hey, this is a team, and this is a product that can really take off." We all kinda know backham. I get any less so because there's no really identity player out there in what we do. Go ahead.
Okay, question on the queue.
Yeah.
Is the SQL actually the queue still separate from the Splunk that you use for the back end for EDR, and how does the Cisco acquisition kind of impact that relationship? Does that accelerate you moving to a single data lake, or will those two-
You read my mind! I was just getting there.
Okay, good.
So, you know, some good questions there. So for us to be super clear, we use Splunk very in a very, very, very limited capacity on the observability. That's it. It's not really part of our portfolio that we use Splunk. Humio, on the other hand, that'll be part of, you know, our data lake. That's gonna be the t he XDR, you know, takes over for everything else. It's obviously first-party ingestion as well as third-party ingestion. That's the key for us. Today, for our customers, they're getting, you know, free first-party ingestion, right? So when we announced that our user forums and all customers who are on the Falcon Pro platform are getting first-party ingestion as part of offering, no extra charge, that was a big deal.
Mm.
They'll be paying for third-party ingestion, and that's based on the number of connectivity, connections they have, because there's a lot of areas where you can pull data from. So we've got to build all the connections that are out there, and we've done a really good job in terms of the number. So that's how we think about, you know, the SIEM, and you talked about the acquisition. So I consider that acquisition a gift, right? For us, a gift. It's gonna take a while for that to unravel and to be integrated into SIEM. And I think that to do it at that scale is really, really hard.
Do you know the nearby data lake for all of your customers is separate from-
It's included. It's-
Everything now is just-
That's the XDR piece. Yeah. So-
Okay, good.
For us, that acquisition was, as I said, a gift for us. There's a lot of disruption, a lot of w e've gotten two things. A lot of customers coming over and saying, "Well, we actually want to be part of Falcon," right? And number two is we're getting a lot of resumes. A lot of folks want to come over to us from Splunk, and that's a good thing, right? So that's how, that's how I think about it. That's why George is really excited.
absolutely. I want to tie some of this back to going back to Falcon. Thanks for the question, by the way. I want to tie some of this back to going back to Falcon. I think a really big point, right? Which is, you know, as I think about, you know, a lot of these businesses contribute a long-term target of $10 billion in ARR. Maybe first of all, can you just remind us what you said on the timing, right, of that ARR target? And then secondly, you know, we've talked about, we've talked about LogScale, we've talked about identity, you know, we've touched on cloud, on cloud, on CNAPP as well. You know, if I call these sort of these platform businesses, how much can these platform businesses sort of contribute as part of that $10 billion? Sorry, a lot there. Does that make sense?
I got it.
Yeah.
But thanks. So, yeah, at Falcon, you know, I was, we were talking about $10 billion, sort of an illustrative view, and then further illustration about how do we get there, right? So in some of those businesses, so cloud, we see cloud, something that's a nation. There's no one out there. We're taking share, greenfields for us. We believe that can be a $2 billion to $3 billion business in that same time frame we gave to the $10 billion, which is 5 to 7 years. When you think about identity and LogScale, we thought about those businesses being in the $1 billion to $1.5 billion. So that's how we, that's how we thought about it.
And then I also gave an illustration of, you know, some of the modules that we have when we put together, whether it's next-gen SIEM, OverWatch. So we kind of laid it out, right? And for us, we think that, you know, today there are three businesses that can likely IPO in a different market. We talked about One Identity. Cloud could be another one, you know, with our product, Cloud , and then, LogScale . Not today, maybe 25. You can IPO those, but, that's a good thing. You know, all of those have a potential to be really, really big. And we haven't even talked about some of the newer modules that we announced at, at Falcon, which can be equally as big, right?
There is a tremendous amount of upside, I believe, in terms of product offering. Then you're going to go to market, and I think we have some potential also in the international space. Anyway, a lot there.
Yeah, absolutely. You know, it's funny, one of the things I think we were I, personally, I was so enthralled with the $10 billion target. One of the things that I think was really interesting was just taking some of those numbers, the diversification of the business as you sort of see it down the road. I mean, it's basically 50%, you know, roughly round numbers, 50% coming from those, those kind of platform businesses, and the other 50% sort of coming from endpoint. That's pretty powerful. That's, that's interesting. That's a diversification story.
That's powerful.
Yeah.
Right?
Yeah.
So today, though, there was an evolution, right? I mean, we came out, we tried to disrupt the AV market. We think we were successful there, and we were known as an endpoint company, and then we added more and more technologies, and we continued that growth and expansion of how people think about us to, you know, a true security platform. And today it's another re-evolution, which is adjacencies to security as well. So it's really becoming more than just a security platform, and that allows for the diversification, right? And who wins? The customer. The customer wins.
Because all of a sudden, they're going to be able to replace some of the legacy stuff, whatever it is that they're using, with us, because, you know, you know, because, you know, leading edge, and not only a leading edge, but when you combine all the different technologies together, we're lowering the customer's more functionality, less cost. Sounds like that old commercial, "Tastes great, filling.
Absolutely. You know, I wanna touch on a topic very near and dear to all of us, right? Which is the 30% free cash flow margins, right? So not only are we growing the business, we're diversifying it, we're doing it very profitably, right? You know, one of the questions, since Billings is just such a big contributor to cash flow, I wanna make sure we just ask a question here in a public forum. We don't manage the business to Billings , right? I think you've said that ever since the IPO, right? We manage to ARR. But as we think back to last quarter, was there anything that you want us to consider when thinking about the Billings growth? A lot of folks look at, you know, Billings growth and ARR growth don't always align, right?
Is there anything that you want us to kind of think about with that metric, maybe the last quarter going forward? Open-ended.
Open-ended question. And, and so, thanks for bringing it up. So Billings, for us, as you said, that's not how we run the business. So Billings, some other companies, typically you see it in hardware companies, where they don't disclose bookings, they'll use Billings as a proxy. Not us, we use ARR, as we talked about. But Billings does have an impact on cash flow, for sure.
Yeah.
So, you know, and Billings can be, you know, Billings could be impacted by many things, duration, for one of, for example, you know, payment terms that we give to our customers. In time like this, we might have certain customers that we would, you know, have flexible billing programs with. And so all that can be impacted in terms of how the Billings number comes out. And for us, whether it was Billings or calculated Billings , short term, long term, RPO, they were all up year-over-year.
Yeah.
Right? So we do look at it, right? And I do look at it with my team from a cash flow perspective. But I always go back to, "Hey, look, you know, for example, Q4 for the year, for fiscal fourth quarter, we were talking about 30% Free Cash Flow." Right? We've done all our calculations internally, and that's what we were comfortable about disclosing to everybody. And regardless of t here's not enough movement that happens internally to move that dial, right? That's how I think about it, right.
I want to continue on this, on this cash line of questioning, but maybe before we do that, any questions here from the audience? Look, Burt, maybe on, on a related point, just given the cash flow generation, great thing to say here that this next but, I mean, CrowdStrike's built up over $3 billion in cash, right? I mean, maybe strategically, how, how do you how do we think about capital allocation, right? Or maybe just the pecking order, right, of, of, of, uses of cash, you know, whether that's M&A, whether that's share buyback. How does the, how does the company think about that?
Yeah, it's a great question. So for us, you know, we're really proud of the fact that we've got a really strong balance sheet, and we want to put it to work, right? What do I mean by that? M&A. M&A is something that we've had success with. We've talked about a few of them. There's going to be more technologies out there where it makes sense for us to purchase as opposed to build, and we'll do that. I'm looking forward to the years to come as we anticipate that more companies, more technologies are going to come out that are going to be really suitable for our platform. The cash enables us to do it, right? Cash, you know, right now is king, right?
As valuations of private companies come down a little bit, we've seen a little bit of that, makes it more attractive for us. Cash is one area that we can leverage to be able to acquire companies, and that's the overall thinking. From the CFO seat, I work really tightly with our DevOps, sorry, our corporate dev team, who you know.
Yeah.
They're quite good. We've had success with M&A. We're gonna continue that strategy. Generally, it's, you know, good tech and people, right? ARR is not really part of that equation.
Mm-hmm.
It's worked, right? You know, you see companies out there that are the same. They're able to buy good tech and good people, put it on their distribution, and off you go.
Right. That was Bionic, right?
Bionic!
That's right.
Excited about Bionic, our latest acquisition. That, that's in the cloud application space. We already had technology in the cloud that protected the infrastructure. Think about that as the house. And Bionic, was the, technology that we use to protect what's in the house, the chairs, TV sets, the entertainment units. So, we're really excited to be able to bring to market those two things together, which is a big deal. You know, those are the two things who by far outweigh anything else that's in the cloud.
Absolutely. Maybe last question here in the couple of minutes that we've got. I guess, you know, the macro backdrop is something that's impacted all my coverage companies, whether, you know, security and alike. And so maybe the question for you here is, and I think we just finished up our Q3, what's your latest thinking on the macro backdrop as you think about planning for next year? And is there anything that you learned this year, through this kind of year's tough macro, that you want to keep in mind for next year? Similarly, open-ended question.
Yeah, it's a good one. So for us, the assumption is that the macro isn't going to get any better. That's the assumption. Whether it does or not, I don't know. You guys pick. A lot of people say it's going to be a soft landing, some people say it's a hard, hard landing. It. Who knows? I don't have the crystal ball out. Having said that, there were learnings this year, right? A big one, that it's not really a learning, it's something we have to do better, which was get in front of those deals faster. That's one. Also, dealing with people like me, right? The CFOs. It's hard, right? So the sales team is smart.
They try to leverage myself, in terms of being able to reach out to other CFOs and try to turn those CF-Nos into CF-Gos. "Yes, CrowdStrike's the right answer for you. Here's the ROI, here's why." It's a very different conversation, CFO to CFO, versus CFO versus salesperson. It's a very different conversation. And so I do get them all involved in quite a few deals, as you know.
Yeah.
And so for me and for the team, those are, those are takeaways. And, I'm trying to train the sales team by not only just me talking, but I'll bring in other CFOs. You have one here at your conference, Kelly from Zoom. We invited her to our scope to talk to the sales team about how she thinks about purchasing different technology and what she thinks about in terms of how to approach a CFO. So not just my words, but words from a customer as well as from a CFO that I deeply respect.
Excellent. Well, so much more fun things to talk about with CrowdStrike, but we're going to have to end it there. Burt, CrowdStrike team, thanks so much for the time.
Thank you.
Really appreciate it.
As always.
Thanks.
Thank you.