I'm Fatima Boolani . I jointly run the software research team here, and I have the absolute pleasure of hosting Burt Podbere, the CFO of CrowdStrike. Burt, you are the prettiest girl at this dance.
So I'm gonna say it out. And look, I wanna start the conversation off, you know, from the standpoint of the incident, right? It's been two months, nearly two months since the outage happened. Wanna get your perspective and a sense from you on what the most consistent feedback that you've received from your customers and the partner community, and how is a lot of this feedback now being incorporated in the way you're running the business, investing in R&D, and then ultimately, economically engaging with customers and partners?
So first, Fatima, it's great to be here. Thanks for hosting CrowdStrike. So yes, let's dive in a little bit about the incident. So for us, obviously coming out of it early, right, everybody's hot, everybody's upset. And you know, we did, I think, the best we could in terms of coming out and being transparent about it, taking ownership, and I think that went a long way with respect to customers, certainly in the long term. Obviously, in the short term, people were upset, and the full focus was, of course, getting people up and running, and that's exactly how it kinda went down. So the incident happens, we mobilized immediately.
I think we took great strides in getting people up and running, effectively, efficiently, and we took ownership. We went on TV, you know, straight away and kinda explained what happened, and so customer feedback from that, so you know, our earlier days are a little different than today. Earlier days, the customer feedback was, you know, get us up and running, and some people were really hot, and they came out and said: "You know, we want... You know, we, you need to do this for us, and you need to do that for us." But once, you know, a couple of days went by, two, three days went by, most everybody kinda saw the stats in terms of how many of the machines were back up and running.
The conversation changed a little bit, and the customers that I talked to, and my team, the first thing out of the mouths of some of those folks who had seen George, our CEO, on TV, was, "You know, how's George doing? How are you folks doing?" I know that the customers would say: "Hey, look, we saw the response. Thank you for the response. Just what happened from your lips, how it happened, what are you doing about it?" That was the first response, early days, and we came out, and we told everybody about, you know, what had happened, and you know, for this group, just really quickly, you know, we have three parts to our technology. We've got, you know, the software, which is the agent. We've got, you know, content, and we've got cloud.
So this was absolutely on the content side. It was absolutely a configuration change, not a code change. Configuration is just another word for a policy change. And so, you know, what happened was, there was a, you know, validation of all the policy changes in Channel 291. There were 21 of those, and each one of them was validated for logic and everything else, and they all passed individually. However, when the 21 were sent to the agent, the agent was only expecting 20, and so it didn't know how to handle the 21st, and that's what brought the blue screens. "So, what are you doing about it?" was the next thing out of the mouths.
And so we were obviously very concerned about getting the right information out initially, so we put out a preliminary report and described kinda, at the time, what I just talked to you all about. And that came out within, you know, the first couple of days. And then a lot of people were waiting for the RCA, the root cause analysis, which would describe in more detail what had happened and also what are we doing about it.
So in a nutshell, what was in the RCA was the following: We said, "Look, we've got this arduous process that we put our software changes through, and it's different than the config changes in terms of the quality and what we do in terms of the testing." And what we did is we took all those arduous processes and controls that we do with our software and basically did the same thing and mirrored it for the config changes, which includes you know, giving more control to customers in terms of you know, when they should take the updates to the config file.
So, you know, once we got that out and once we, you know, went through kinda the additional, you know, processes and things, process changes and strengthening of all of those things surrounding any of our updates, you know, then, we were able to go into the next phase, which was the business discussion. And so the conversation then, you know, switched over to: "Okay, we were impacted. How are you gonna help us out?" Right? And so we've been on this journey, you know, we talked a little bit about earnings, if you heard the earnings call, about something we call a Customer Commitment Package. We get it. You were impacted. We're deeply sorry for it. We're doing. We tried to get the focus, the whole company, mobilize the whole company to get people up and running.
Now, let's take care of you in the best way we know how.
Burt, just to be clear, the Customer Commitment Package are specifically designed for your heaviest impacted customers, right? This isn't a free-for-all for the entire install base, right? Cause I think there was a varying degrees of understanding around that.
I mean, there is. You know, what we've done proactively is try to reach out to every single customer. And so how do we do that? We engaged our partner community to help us and to basically take the temperature of our customers, how they were impacted, what was the depth of their impact, and then from there is the starting point in terms of where we would go with the Customer Commitment Package. . There were some folks that weren't, you know, impacted. There were some folks that were impacted, and they were up in an hour. Some people were impacted, and they were up in even less than that, and they didn't even know that, you know, they were remediated, knowing, you know, we had awesome automation that went through it.
And there were some people obviously that it took longer to get them up and running. And so we were just listening to the customers, and the Customer Commitment Package is potentially for everybody, but it's a slider in terms of how we impact and the assessment of the temperature of the customer and size of customer and all those things. It's not one size fits all, but it's there as a tool for the sales team to start the dialogue. And that's what we're trying to achieve today, is start the dialogue, right? Let's move it away from all the heated discussions that we had, you know, in the first couple of weeks, and move it into a business discussion, as opposed to legal and everything else.
And so the discussions now are all about if we, if we're talking to customers, it's all about again, you know, "Hey, we saw what you did, and, we saw the response that you had, so, we're gonna give you some kudos for that. We were still impacted. We were still hurt. Now let's have a business discussion.
I wanna come back to the Customer Commitment Packages because it is very much a multidimensional, not bespoke per se, but there's a framework involved here, right, with a number of different factors. So I wanna come back to that. But before I do, you know, going back to the quarter's performance, I mean, incident happened July 19th. You closed the quarter on July 31st. You still put up 11% growth on net new ARR. So can you give us kind of the postmortem of what actually happened over the course of the last two weeks in so far as you were still able to execute and transact, you know, on a normal course of business, almost business as usual, right?
I think you gave some quantification around some hiccups that would obviously be natural, but I wanna go back to that point because, you know, notwithstanding all of this, you still grew net new ARR at 11%.
Yeah, and, it would've been a lot more than that. We gave out, you know, a number of $60 million of deals that we had targeted to close in the quarter that got delayed, for future quarters. And so, it would've been... You know, the number, that we would've posted would've, been beyond, what we had, you know, disclosed at the end of the quarter. So what happened, right? So at the end of the day, some deals closed post, the incident. Some big deals closed post the incident. We had a nine-figure, you know, total contract value deal that closed. And, they wanted to, you know, go all in on CrowdStrike. Best stack fit their needs.
We also had an eight-figure deal that closed that also wanted to do the exact same thing. We had another eight-figure deal that had two different SIEM products and replaced it with our SIEM. And so we came in, and we were able to serve you know, you know, that customer. So there were big customers that we were able to close post the July 19th incident. Having said that, there were a bunch that paused.
Right? Part of that $60 million that were paused, that said, "Hey, we just wanna see where, you know, where we are and what the, how the dust settles," right? "We wanna wait and see." And, and, you know, we disclosed that. Having said that, the discussions that took place post were always focused on customers first, first and foremost, and then second, how we are going to manage, you know, going forward. And so for us, the post has been, you know, a journey, right? What I described earlier. Getting the RCA out was pretty big, and then, the good news was everything that we promised that we would do in the RCA, we did it.
And so when we talk about the RCA with our customers, we go and show them exactly what we did and how we did it. And so that's a big piece of that next step of the discussion is what? Okay, what are you gonna do for us? How are you gonna take care of us? So that's where those Customer Commitment Packages came in, and those can come in the form of more products, right? We'll give you some more products for free trial, for, you know, the length of your contract or for a year. Depends, it's very bespoke, as you said. It could be anything from training. It could be anything to, you know, coming to our Fal.Con. Or it could be anything. It could be more time on your contract. So there's a whole variety of things-
... including, by the way, flexible payment terms, right? You know, our business model has always been pay up front, and then, you know, we'll turn on the service. Now it could be, well, maybe pay in six months or something of that nature. We wanna work with our customer what matters to them, and by the way, not every customer has the same needs.
You know, that's that truly has come through with this, in this process. So that's that next phase.
We're, and we're there now. We're touching a lot of customers. You know, people asked us at the IPO, which was in 2019, "Okay, you had the IPO, what next?" And for us, it was, "Okay, let's go touch a hundred customers in a hundred days," right? We had it all planned out. This time, it's more like, "Let's touch a hundred customers in two days," right? And really, you know, it really exaggerate, you know, how we're, you know, managing our customer base.
We're aggressive. We wanna make sure that our customers stay with us. We wanna do right, you know, by them. We wanna do all the right things with them, take care of them. By the way, for a new customer, for prospects too, we're gonna aggressively go after our prospects. The message we wanna get across to all of our customers and prospects is, now's the time to deal with CrowdStrike, right? We've announced all these publicly, Customer Commitment Packages . Now's a great time to do a deal with us.
... whether you're an existing or new. And, no, it's not business as usual, 'cause we're doing things a little differently.
But we wanna... We're in the business of protecting you, and we're gonna do our best to kind of make you come on board or stay with us, if that's the case.
Burt, the anecdotes around the seven- to nine-figure expansions after the incident is a very remarkable set of outcomes for you, right? So after the customer had gone through their five stages of grief, right, what compelled them to say, "Okay, well, I'm not only gonna come back, but I'm gonna come back in a big way?" 'Cause I think some of the anecdotes you referenced were affected customers who still came back and still continued to expand. So what were some of the defining features of those conversations that were so powerful that they were able to, you know, single-handedly overcompensate for, you know, the disruption in their business?
Yeah. So there's multiple phases to that to answer that question. First, I'll start with, okay, what's compelling them to stay with us, right? One, they saw our response, right? They saw a company that reached out to its customers, didn't try to hide anywhere, came front and center, so that there was an appreciation for that. Two, you know, our tech, right? We're who we are because we have tech that really works. And, you know, all of our customers that you guys know the numbers in terms of how many we have, that's an example of, you know, hey, people are using this thing and it works, and the community is small.
Thirty of our analysts who are out there testing us and comparing us to others, whether it's, you know, Gartner, or whether it's MITRE, whether it's Forrester, they're all coming out and saying the same thing: "You know, this product really, really works." And it's basically, it's second to none in its effectiveness and efficiency, its manageability, and its scale, you know, its ability to scale. Those are the three things that... and vision. Those are the three or four things that the analysts look at. And then we look at, okay, well, what's really the alternative to take this thing off? Yes, you can press the uninstall button, and we're able to deploy in seconds. Part of the reason we were really successful, we can actually uninstall it in seconds. What's really involved in that?
So by just pressing that button, sure, you can just go like this, and you can uninstall it. However, all of our customers, they have CrowdStrike as a center of their foundation of their security stack. There's processes that are tied into our technology. There's people that are trained on our technology. They know how to use it, read it, make it efficient, make it effective. To uninstall all of that, there is a cost, and a lot of companies don't want to go through that cost. And then there's, okay, well, what do we do? A lot of our customers, we gave it a stat at the earnings call. If you were customers that were over $100,000 in ARR, 38% of those customers have eight or more modules. So what does that mean?
If I take off CrowdStrike, I likely have to put on three more r ight? And nobody wants more agents. And why is that? Why does more technology, why is that not necessarily a good thing? Well, if you have, you know, three agents, you, you, and you, I can already see a gap between the two of you in your chairs, right? So if I have two technologies trying to talk to each other, I got to fill that gap. That's where the adversaries go, right there. And so that's where they're gonna try and exploit you.
So the more of those gap you have, the more risk you have in your business to be breached. Whereas us, we're all integrated, everything we have. So to go and uninstall us and then add a whole bunch of new, different technologies, that could be problematic in terms of stopping the breach. So for us, you know, that's part of the reason we've been as successful as we've been. So the idea to go and reverse, you know, taking off what we've already done in terms of consolidation, it's not so appealing.
So all those reasons make it really tough to, you know, or swap off of CrowdStrike. And we did disclose, you know, our gross retention rate 98% at the end of Q2, and we also disclosed that the retention in the, at the time, five weeks post, the incident, our our gross retention rate actually went modestly up, year over year. And it's because people want to stay with us. They want to do more with us. Look, what, what hasn't changed in the customer's mind pre and post?
So pre the incident, all customers, they wanted to spend less and get more. That has not changed post the incident. They want to spend less and get more. Now, they can get even more with us, right? And so that's even more appealing. You're getting more value. So, yes, the incident was bad, and we've done what we can to make amends, and we're continuously doing that, on the one hand.
On the other hand, in terms of stopping breaches, we are who we are and we've been successful for a reason. Let's now do more with you. And by the way, we know you went through this incident. We know you went through this remediation. We know you hired a bunch of consultants to come out and, you know, look at all your processes and come out with a stronger, more resilient platform. And, you know, ultimately, you're gonna come out with this- we're gonna come out with this binder of eight hundred pages.
Here are the things that we've done. Okay, if they're gonna have that conversation with us, they're probably gonna have that same conversation with our competitors. Right? So for us, we want to come out, you know, as a more resilient company in terms of availability and uptime and, in terms of, you know, not blue screening. And then as well, you know, still continue to enhance and invest more in our R&D to continue to do the things that we're known for. That's our path.
But going back to the Customer Commitment Packages , the CCP, we did talk about, you know, it's bespoke, so there's a framework in terms of a menu on more modules, flexible payment terms. Now, the optionality is great for customers, but as an organization, your go-to-market organization, how are you giving these options but making sure they're within the bounds of a framework so that not every conversation becomes a snowflake conversation, that every conversation is different? And the spirit of the question here is, if a salesperson's spending most of their time, you know, mollifying a customer, talking about the options of what the CCP, you know, parameters are gonna be for them, that's frankly less time that they're using to build pipe, right?
So how are you putting some guardrails around that, you know, these CCP conversations don't actually suck up the sales resource time in doing more valuable things like generating pipe and any more things?
So I separate the two with respect to generating pipe and, you know, how we're delivering this thing and how does it make it work and win-win for us and the customers. So first, on the pipe, we have a whole other organization that's pipe gen, right? We have demand gen in terms of what we have sales development reps. They're prospecting. They're doing outbound prospecting. They're even working with even existing customers. There's a group that works internally, that works with existing customers to find out what they want to what they, you know, what they want to use with us.
So the prospecting is on, you know, one side of the house, and I did talk a little bit about that we did pause it for about three weeks after the incident, just to, you know, get people in running mode, not selling mode, right? That kind of made sense. Now we're back to, you know, pre-incident levels with respect to outbound prospecting. And now back to the rep in terms of how that discussion goes and how do you have guardrails in terms of what we're doing. About a year ago, at Fal.Con Fusion last year, we announced something called our Flex program. And Falcon Flex is an elegant way to go-to-market . Really, really elegant, and well, what is it
Think of Amazon and think of, you know, giving a commit and then being able to, you know, draw down on that commit, like, you know, like a, you know, cafeteria style.
The elegance in something like that is that, the customers get to, you know, pick and choose what they want to use, when they want to use it, right? And so if a customer is in, you know, mid-cycle with another, you know, another vendor for one of the things that they want to use with us, okay, they can turn us on at the end of that term, if there's six months left. And they only, you know, internally, it only hits their budget for six months.
... as opposed to a full year. So they have a lot of flexibility to kind of work around their own budgets. That's number one. Number two is, once you enter a Flex contract, you don't have to renegotiate when you want to use something else from our technology stack, right? Which saves time, money, effort, all that, all that kind of thing that, you know, has so much friction in this than the normal sales cycle. So it's a beautiful, elegant way to avoid that friction. And third, we are going to our customers and telling them, "You don't have to have an annual minimum," right? In year one, if it's a three-year deal for $3 million, you don't have to spend the $1 million in year one. You can spend $500,000. You have that...
We have no annual requirements, which means that you have flexibility in terms of when you want to use stuff. If you're back-end loaded or the customer has, "Well, I want to do this deployment, but I don't want it on all my machines, but I want it on some of my machines and then more later," this is a beautiful, elegant solution for you, and you know, for us, we love it because we're getting the commitment longer. You know, we're being more deeper with our customers. That's the delivery tool of choice for us to do the CCP, the Customer Commitment Package , and think about why. What we want to do is we want to, you know, seed our customer base and new customers with more product.
Right? We wanna see them to do that, and the easy way to do it is in a Flex licensing agreement, where we've got, you know, it's a price list for each of the products, and two of them, because we're in negotiations, might have or one of them might have a zero next to it. for a year. So it adds. So I've got this BOM within the Flex. I've got these five products that I'm layering on my existing customer.
I'm already using them. And then I can add one more for free. There's a $0 value. Well, a year from now, at the term of the contract, it won't be zero. It'll be some other number. You know, the customer knows that up front. You know, you're getting it for a year free. It's a $0 value.
Limited time only.
Limited time only!
Then, there's a built-in upsell. So that's why I went out and said at our earnings call that we anticipate acceleration in the back half of next year when some of these things come home to roost.
Right? And so what we're doing is seeding the market with more of our product, more of our platform, having deeper relationships with our customers, and being more involved in the customer's journey, and that's our whole premise. Be a longer-term customer with us, commit to more, use more of our stuff and then benefit from it, with respect to this Flex contract. So that's how I would separate the two in terms of how we think about it.
But from a revenue guidance perspective, you know, pre-outage to now, there's been roughly $110 million dollar revision to the top line. You specifically explicitly quantified $60 million of that tied to the CCP, with the balance being kind of the amalgam of sales cycle elongation and more scrutiny. I'd love for you to go into a little bit more detail on that, but specifically on the CCP side, because we talked about kind of the different dimensions a customer can elect in CCP. Can you give us a sense of what that, the meatiest part of that $60 million, where it's coming from? Is it straight-up hard discounts? Is it foregone revenue for incremental modules that are being taken on?
Help us frame that, because I think you've talked very explicitly on the revenue degradation mechanics, but if you can add some more specificity on that sixty million and what's actually moving the needle.
Yeah. We did talk about the $100 million in the back half, in terms of taking down the revenue guide, but let's talk about the $60 million. It's $60 million for the commitment packages, both on revenue and ARR.
So just on the revenue, I'll touch on it for a second, and then we'll move to ARR. On the revenue side, you know, you have the $60 million, and it's directly related to the CCP, to the commitment package. And that's specific to our subscription products. There's still I did talk about, you know, high single digits impact on our services cause there's gonna be impact. So you got, let's call it $70 million out of the $100 million, and then the $30 million is gonna be based on what you just described, the longer sales cycles, more scrutiny, you know, we paused the prospecting and just, you know, the muted upsell values.
I mean, those are the biggies.... Right. On the ARR side, again, I tried to quantify it to the extent I can. I don't have the visibility that I had before the incident, because we're doing all these new programs, and I just don't know enough. But I estimated, you know, based on the number of customers I have, you know, I tried to generate, you know, how much each customer, an average value type of thing, and it's gonna impact, you know, ARR, you know, specifically is, you know, if we give away, you know, more extended time. So if you've got a deal that's $3 million ARR over three years, and you give a year for free, it's gonna be $750,000.
So, you're gonna... It's gonna come down. So that's specifically related to, you know, ARR in terms of how we thought about it, and we took a look at that. Got a lot of customers, and it's not only the ones that are up for renewal. So I tried to have enough in there and be prudent about it in terms of taking into account that some of our customers are gonna come to us before the year renewal date and say: "Okay, we were impacted. Help me out." Right? So I'm trying to build that in as well. So the bulk of it is gonna be, you know, you know, the extension of time, right? Obviously, if we give more product, that's not gonna impact the ARR.
and that's our preferred mechanism. So going back to your other question about guardrails, we've tried to prioritize with our sales team what we would like them to offer our customers first, and it's generally what customers, we think are gonna want, which is more product, right? "We're staying with you. We want to be with you." You know, time will tell. You know, we're still reall early in terms of data that makes sense for me to share with everybody.
We've tried to do, as you know, a good job in our disclosures and trying to give more than anybody else on the street. And I want to give more, and I will give more once I know the data is not misleading. Right? I want to get a good sense of, you know, where customers are going with the Customer Commitment Package before I disclose it. Maybe, I'll have some more information at Fal.Con in a few weeks, maybe, maybe enough, but-
Ooh, that's a sizzling teaser.
Yeah, a sizzling teaser, but no promises on that one. But other stuff there. We're gonna. You can talk to our customers this time. But the, you know, potentially end of Q3, and certainly at the end of Q4, you know, when we're gonna, you know, provide guidance for the following year, and maybe we'll have enough data points at that point to really give you an understanding of where our customers are going with these Customer Commitment Packages and how, quite frankly, how Flex is working. I would like nothing more than for every single one of our customers to be on a Flex license.
That would be a goal, and-
What's the proportion of the base?
Small.
That's on Flex.
Flex is small. We only announced it last year. It took some time to, you know, get the sales rep, you know, up and running in terms of how to sell it and customers to get accustomed to it. We did give out one stat. We said, "Customers that have Flex, the total contract value of those customers is $700 million." So it's a, it's a real number, but not all of that is Flex. But you know, so we're excited about the elegance of the license. By the way, it's what customers asked us for. Help us find a way to use more than we bought it.
And that was the genesis of where Flex came from, and we're excited that we were able to provide something so elegant, for them. And for us, it's just, "Hey, let's..." The idea is, even before the incident: "Hey, commit to more "I like where that was." "Commit to more, and you get more discount." Right? And that's very appealing for our customers, even in today's environment.
But one of the questions I've been getting as well, you know, since the earnings call is: Okay, CCP is the right move. It's, you're doing right by the customer exactly on their terms. But is there a time bound on CCP, right? Are you-- Is this gonna now perennially be part of the sales motion, or is it gonna just be an adjunct to Falcon Flex? And by the time we anniversary sometime next year, back to your commentary about, "Hey, you do see prospects for back-half re-acceleration in ARR and revenue growth," how much, how much of a time bound should we expect on CCP?
Because I think some of the challenges and certainly the challenges you are having with respect to visibility on how the impact is going to be on financials because of the different variables and dimensions inside CCP, how should investors think about kind of the longevity on CCP? And I'm asking you this because I think you've been very clear in the way you're saying: Hey, this is your opportunity to strike and be aggressive in the market is now, and CCP, alongside Flex, is a conduit for you to do that, right? So it's almost like: Hey, are we now gonna be in this open-ended timeframe where you are going to be more aggressive in the marketplace?
Good question. So what I've talked about is, and even the numbers, is, you know, CCP is available for the back half of this year, right? And it's accumulating data from there. But I don't know enough, and you know, I, we've prided ourselves on our ability to give visibility and give disclosures that you know. But you know, no one really you know anticipated an outage that we went through.
So I've lost that, a lot of that visibility because it's new, right? We're trying to do right by our customer. I don't have visibility in terms of the uptick. I don't have visibility into what the packages, what part of the packages the customers want. So we've been going out and saying: "Look, now is your time to strike," right? Now is, and we're closer, like anything else, we're closer to an incident, closer to the sun, I call it.
It's very close to the sun. Then, as you move further and further away, it cools down, and then reasonable discussions are taking place. And so for us, it's about, you know, getting through that first phase, which we have, and then now going into the second and third phases, which is making it right by the customer. And this whole, Customer Commitment Package with Flex, is a really elegant way to do it, and it's right now. I can't really comment on the future. I don't know what's gonna happen, you know, at the beginning of next year until we get there and then I'll have more data and more understanding and feedback from customers and then determine, you know, what we want to do at that time.
Again, I know it's early days. The market structure and behavior from your peers and competitors is also changing. How much of what you're doing with CCP and even Falcon Flex and really doubling down on making this sort of the go-to-market message, an offensive strategy, but in some ways, naturally, a defensive strategy is because I think we've all heard some of your larger peers in the space talk about, hey, they're ready to play ball, right? Because there has been a shakeup, right? So from your perspective is, you know, you know, we can look at your margins, right? You did bring your margins down by a bigger factor than you took down revenue, right? So is there something to be said there about the fact that you are being more offensive but also defensive?
Yeah, I think, you know, this is an opportunity for us, and look, our competitors, there's been, you know, a very wide, variety of responses from some of our competitors. Some are jumping on it in a very awkward way, and some are taking a different road and working with us, and there's a bigger industry, you know, problem we're solving, and they're jumping on, and all of them are being opportunistic, as I would. Having said that, for us, being aggressive now is the right time, right? There are some of our competitors that have come out there and, you know, publicly said what they're doing to cede the market, and we're doing it because we're now forced to. It's interesting, you know, some of our competitors were already doing it years before We've been selling against, inverted commas, "free" for a long time.
But they came out with new terminology, right, for the market to absorb, to think it's kind of new, and that's good marketing, good for them. But now we've actually come out and said what we said with the CCP, and it's, and it's real, and it's here, and it's, you know, people to take advantage of. And so I think it's a good, you know, it's a good combat at this point, apples to apples, in terms of not only what's actually happening but how it's being perceived in the market. So we're excited for, you know, for being able to go out there and do the things and having our deeper dialogue with customers. And, you know, I don't think the threat landscape's changed. I think it's still really, really bad, and there's all kinds of reasons why.
But we think we have that competitive advantage on our technology and you've all heard about that for years. And we're going to continue to spend in R&D, so our margins are. We're not cutting to, you know, to save a penny on this stuff because that's the bloodline of our business.
Right thing to do .
Yeah. And on margin, there are things on margin that, you know, we're, you know, that we know are kind of like some of the... You know, there are additional things that I have to spend money on, right? There's consultants, and there's this, that, and the other thing with the incident. And, you know, we know that there is cost to and when we give away the products that we want to give away, there's a cost to that.
So that's going to hit the bottom. And so, you know, we're cognizant of that. I don't have that whole crystal ball. I don't have all the details. So, you know, I tried to be prudent in our approach to, you know, give you guys an understanding of how we think of the top, how we think bottom. I know we didn't talk a whole lot about cash, and the reason I didn't talk a lot about free cash flow is because I have even less visibility with that, right? Yes, you know, we, there are legal expenses internally, externally, you know, and I just don't know where it's all going to shake out. Any time we have a potential legal discussion we are doing our very best to move that from a legal discussion to a business discussion.
And as of this morning, to the best of my knowledge, we actually haven't seen a lawsuit against us by a customer for the incident. So we don't know how this is all going to shake out. Everything we're doing and trying to do is take the legal discussion away from, you know, our interaction with customers and move it to the business discussion with the CCP, and as time goes on, that does get easier because we're moving further away from the sun. Right? And that's how we think about it.
So, you know, as we work down the P&L, you know, the capital efficiency of the business kind of speaks for itself, right? But clearly, we're taking some deliberate measures, you know, from a customer retention, customer loyalty ensuring standpoint. So when we think about the short-term impacts and the medium-term impacts and the way you're managing OpEx, right? You just alluded to some of that, right. There's some consultant costs, legal costs, et cetera. But over the medium term, as you you know put more resources behind shoring up and, you know, bolstering the R&D organization, you know, how does that maybe change the calculus in terms of what you're thinking about, the medium-term envelope and how that would impact unit economics, again, against the top-line pressures? It's self-inflicted, right?
But how does that sort of move downstream? Because, again, there's a time-bound question here, right? We're used to you producing a lot of profitability and margin expansion and free cash flow conversion. So, you know, how do you kind of navigate those turns?
Yeah, I mean, the good news is we built a really strong model with strong unit economics, and so we have some degree of opportunity to move those along the way we need to in the short term, and we've talked about that. In the midterm, and I'll define midterm by, you know, anything over a year. Not everything, but short term is anything under a year. Midterm is midterm, long term is long term. But for the short term, we've talked about all the dynamics. We've given some numbers. We'll give more numbers at the end of Q4. Midterm, it really all goes back to the fact that we're going to reaccelerate. We plan on reaccelerating the business in the back half of next year. And then a lot of other good things happen with that.
Right? You know, you get back to, you know, unit economics that drive margin to the way they were, so slowly but surely building back to those measures. Obviously, they're going to be impacted by the incident based on the CCPs-
It's going to impact everything. But we anticipate that, you know, like, if we do everything right by the customer in the short term, it's going to pay dividends beyond what we expected certainly in the long term. And then, when you look at the long term in terms of our target models... You know, the ten billion that I put out there w e kept it within the range at the end of 2031 .
Or 2031, you know, that's when we're gonna achieve the 10 billion in ARR. We didn't change that range, and then we're excited about that. 'Cause I think if you were to ask me, you know, July 21, how did I think we were gonna come out of this thing? I probably wouldn't have said we'd come out stronger at that point.
Fast-forward to today, not only do I think that we're gonna come out stronger as a company, but we're gonna come out stronger in a quicker time.
So a lot has changed, obviously, since July 19th. And there's been a lot of visibility, and people are watching us and how we responded. And I think that, we've, again, as I said kind of set the bar. But more importantly, I think people are watching the customer interaction closely. You saw some of the results or originally from, you know, Q2, and we gave you as much information that made sense at the time. I'm looking forward to giving out more. I want to give out more.
Right? And-
We're eager to hear it.
I'm eager to tell you, believe me. I just don't want to give any misleading information. But we are very active with our customer base and new prospects.
On the $10 billion, you know, big, hairy, audacious goal, five-to-seven years, you still in the band. But, let me ask you this question, what would need to happen for you to get pulled to the five-year timeframe again? T o eliminate that two-year gap and get to the low... I n this case, in a good way low end of the range .
Yeah. I mean, you know, it. I don't have a crystal ball but, you know, certainly, newer, some of our newer technologies would accelerate faster you know, than anticipated. There, there's a whole bunch of things that can get us there. But look, I think, you know, similar to how we guide on a quarterly and a yearly basis in terms of our methodology and the prudence we take, it's the same with the ten-year. Sorry, with the five-to-seven-year range that we gave out last year. I really do believe that, you know, when you have a company like this that's just, you know, surfaced above everybody else in terms of what we do, you have a moment, right?
Where you can take advantage of that, and that's not lost on us, and yes, we had this incident, and we're trying to do our best in the CrowdStrike way to kind of make customers stay with us and do more with us and all those good things, but we also know the opportunity in terms of when we started the company is still there. Right? There is still a lot of customers out there that don't have CrowdStrike, that are facing risk with respect to being breached, and so we have... I think it's still around 50% of legacy technology out there, that we've all seen what's happened when you have legacy technology in terms of the news and what's been breached, and we want to be there for them.
Right? And so, you know, we're trying to get back to normal in terms of prospects and everything else now. We still think we have this opportunity to go after and procure, you know, new business, new logos, as well as, you know, all the things we talked about in terms of the CCP, to give our current base excitement to continue with us and stay with us.
If you went to Falcon and you were there and asked our customers, customers are looking at this thing and going, "Wow, the response you gave is even beyond what I expect. And some of my other service providers and software providers, I have a number, and I don't even get through to anybody.
Right? And you guys, even before the incident, were really good about responding. We're not perfect by no means, but really, really, you know, heads and shoulders above, you know, some of the others. Not necessarily in just security, but in software in general.
On the $10 billion objective, you know, about a quarter of your business today is, you know, what I've characterized as some of your emerging products, right? They were born in the last three to five years, if even, right? So very new vintage
So when you think about the $10 billion target, when you think about the monetization switches that are gonna flip on after customers have had a taste of more modules under Falcon Flex, under CCP, and the expectation that you will be able to monetize this on the other side, not now. When you look at the $10 billion objective at fiscal 2031, where does that mix go, and what do you think is gonna be the star product? 'Cause we know Identity is really punching well above its weight, its weight class right now. But, you know, in the future, again, if you had your druthers, what's that gonna look like in terms of the biggest driving force?
Yeah. The great news for us is I think there's a bunch of different acts that can get us there. You know, people talk about second act. I think we have five different acts. Right? Identity could be one of them, a next-gen SIEM. Cloud could be really big, right? And I think that, you know, this is an emerging market, but, you know, that, that is gonna be, I think, you know, a real battleground. Right? And 'cause there's no incumbent there.
So, you know, there's us and a couple of others. And so I think that, you know, those technologies and all the things we've done in cloud give us a real head start, right, in terms of going after that market, being both having an agent and agentless, and we're the only technology security company that has both. And you know, that really matters. So I think those emerging products can really, really do well, and we do it internally, too. We take a look at our map. When we came up with that $10 billion, we kind of broke it down between some of our earlier products versus some of our emerging, versus some that we haven't even come out with yet. And, you know, some of those products in the emerging were done through M&A, right?
And then they were able to scale really quickly especially Identity. That thing took off really quickly. But we have other, you know, other goodies in the bag to kind of tell and show our customers what's coming out, and, you know, we listen. The reason we've been successful is we listen to our customers and tell us, "Hey, we... You should have this." We're going: "Okay, we're gonna build that." And so we've been really, really good and on point. in that. And look, we have 28 different modules today. Twenty-
It was nine at IPO.
I mean, it's come a long way. And, and the beauty, believe it or not, not only the technology is gonna help us get us there, but the Flex licensing, the go-to-market, is just as important as the technology in this case. And the Flex licensing program can be a big accelerant you know, in terms of how well it's, you know, received by the customers.
So that can be a big one, too. So there's a lot of different acts, acts two, three, and four, in terms of a product line. But in terms of even the go-to-market , the Flex program, I make it akin, if you're familiar with our technology, to our Complete offering.
So our Complete offering is our managed service, and when it first came out, you know, people were some hesitancy on whether this thing was gonna take off, is it gonna work? It's been a big, big winner for us.
But it took some time to get there. I think Flex is gonna be a similar thing, and I think Flex will, you know, we already have, you know, a bunch of customers ahead. It's still very small in terms of our base, but we have this opportunity to flow it through the entire, customer base. My goal is to have every customer on Flex. It's better for customers.
Right? And then it's, you know, it's good for us because we get this long-term commitment.
Right. Flex is the future.
Flex is the future, 100%.
Thank you so much, Burt. Really appreciate your candid perspectives. This was a fantastic conversation.
Thank you. Great to be here.