Earnings Call: Q3 2021

Dec 2, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the CrowdStrike Fiscal Third Quarter 2021 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 Please be advised that today's conference is being recorded. I would now like to hand the conference to your speaker today, Maria Riley. Please go ahead, ma'am. Good afternoon, and thank you for your participation today. With me on the call are George Kurtz, President and Chief Executive Officer and Co Founder of CrowdStrike and Bert Podbear, Chief Financial Officer. 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 Q4 fiscal year 2021, are 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 this call. While we believe any forward looking statements we have made are reasonable, actual results could differ materially because statements are based on current expectations and are subject to risks and uncertainties. We do not undertake and expressly disclaim any obligation to update or alter our forward looking statements, whether as a result of new information, future events or otherwise. Further information on these and other factors that could affect the company's financial results is included in filings we make with the SEC from time to time, including the section titled Risk Factors in the company's quarterly and annual report that we file with the SEC. Additionally, unless otherwise stated, excluding revenue, all financial measures discussed 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 press release, which may be found on our Investor Relations website at ir.crowdstrike dotcom or on our Form 8 ks filed with the SEC today. Please also note that in light of our recent acquisition of preempt security, management will provide additional information into our Q3 results and guidance assumptions. We do not intend to provide this additional information on an ongoing basis. Now I will turn the call over to George to begin. Thank you, Maria, and thank you all for joining us today. CrowdStrike delivered a record 3rd quarter with results exceeding our expectations across the board. Our robust growth at scale underscores our growing leadership in the security cloud category and the immense value we deliver to customers seeking to transform, consolidate and fortify their quarter with over $900,000,000 in ARR, delivering strong 87% subscription revenue growth and setting a new record for professional services revenue, adding a record 11 86 identity behavior data and analysis to help customers fortify their defenses and prevent identity based attacks and insider threats. Joining forces with to help strengthen their client cybersecurity posture by using the Falcon platform. Highly successful virtual user conference with 6x the a highly successful virtual user conference with 6 times the customers and prospects attending compared with our in person event last year. It was an exceptional and active quarter. I can't emphasize enough that these results represent the market in more detail. Broad based demand and strength in multiple areas of the business fueled our growth. We added $170,000,000 in net new ARR in the 3rd quarter to end the quarter with $907,000,000 in ARR, Demonstrating the power of our sales engine and our land and expand strategy, our subscription customer base grew 85% year over year and dollar based net retention rate once again exceeded 120%. We believe we are well positioned to expand our leadership at a rapid pace, cross selling new modules to existing customers and protecting more of their cloud assets, growing our market opportunity with new modules and adjacencies and growing our international business. Today, I will focus on our ability to rapidly introduce new modules and drive adoption among both new and existing customers as we believe this is core to our competitive moat. Let me expand on this point in more detail. The very nature of our cloud native architecture powered by ThreatGraph enables our ability to innovate and bring new modules to market that customers actually adopt. Our customers recognize that ThreatGraph is unique to CrowdStrike and differentiates us from others in the market. All the data we collect is stored in one place, the ThreatGraph. Graph. This is very different from other vendors, including upstarts that silo their data, limiting their ability to scale in to deepen our competitive mode. Our massive data lake within Threat Graph grows and gets smarter by the minute, which also differentiates our managed detection services, providing visibility across all our customers. We will have access to a new set of user behaviors to drive new use cases such as preventing insider threats. With 1 data store, the data can be analyzed almost instantaneously across our entire customer base, providing real time protection and community immunity and better training data for our AI algorithms. While others in the market like to claim like for like features on slideware, customers know the difference, and as a result, CrowdStrike is rapidly expanding its leadership. In the last 9 months alone, close to 3,000 net new subscription customers have chosen Falcon. In the Q3, we announced 3 new modules, for increased situational awareness of dark web threats and Falcon Forensics, which automates the analysis for incident response investigations. Combined with the cloud discovery and cloud workload protection features we previously introduced and recently formalized as standalone modules, the Falcon platform now encompasses 16 modules. In total, we believe our addressable market will reach $32,400,000,000 in calendar year 20 21 compared to the estimated $24,600,000,000 market in 2019, which we disclosed at the time of our IPO. In the Q3, we also took our platform to the next level by building extensibility points in a platform for policy, detections, workflow, user experience and third party integrations. This enables each product group within CrowdStrike to accelerate the development of new modules. The same extensibility points are also being made available to our CrowdStrike store partners, further also gives us a fundamental business model advantage as we capture the data once and monetize it many times. Importantly, customers are able to quickly try and adopt new Falcon modules without deploying any new infrastructure or agents, making the process frictionless. To measure our success, we look at the percentage of all subscription customers that have 4 or more modules. In the Q3, we continued to see rapid module adoption as a percentage of all subscription customers with 4 or more modules increased to 61% and those with 5 or more modules increased to 44%. I'm pleased to announce that in Q3, we reached a new milestone with 22% of our subscription customers having adopted 6 or more modules. Driving adoption of our expanding module lineup is a key stone to our growth strategy as it increases the strategic value we provide to customers, which also translates to higher retention rates. Moving to our markets, we continue to see a heightened threat environment, strong future proof their security architecture and adopt a 0 trust security model. Security is mission critical to businesses around the world, transformation is foundational to digital transformation. We believe these are positive long term sustainable trends for our business. Stopping the breach is no longer just about protecting endpoints. It also encompasses cloud workload cloud to the cloud, protecting those workloads is a priority for CIOs. However, heavy performance training agents built on legacy technology are often left behind because they can't keep up with the speed, agility and scalability required in the cloud. As a result, we believe today's are massively under protected and this could represent a 10x market opportunity in 2023 compared to IDC's estimate of the cloud security market in 2020, as we've illustrated in our cloud security webinar at our virtual Falcon conference in October. CrowdStrike Falcon was built in the cloud for the cloud and a core differentiator of the Falcon architecture is that we offer one platform for all workloads. From March through October of 2020, we have seen more than 14x growth in protection for containers and greater than 20% of all the servers we protect across our entire fleet of customers are in the public cloud. As briefly mentioned earlier, we recently expanded our cloud capabilities with the launch of Falcon Horizon, which automates cloud security posture management across the application development lifecycle for every major cloud provider. This enables customers to securely deploy applications in the cloud with greater speed and efficiency as well as satisfying compliance and regulatory requirements. It also provides visibility into private, public, hybrid and multi cloud environments and enables security teams to proactively minimize threats and ensure continuous compliance and governance against trust solution. We believe combining workload security with identity protection is foundational for establishing true 0 0 hole the identity protection market will be a $2,200,000,000 market in 2021. CrowdStrike is a leading security provider in the market with a 0 trust approach that combines endpoint and workload protection with identity protection, behavioral analytics and AI. As pioneer in cloud delivered endpoint and workload security, we believe CrowdStrike has created a winning formula to gain new customers at a rapid a to help customers adopt the modern identity centric 0 trust security ecosystem. This quarter, we are thrilled to announce that Okta is now a CrowdStrike customer and excited by this opportunity to deepen our relationship. A few additional marquee wins include a win win target that highlights how our single agent cloud native architecture, intuitive console and rapid reboot list deployment capabilities from Symantec and transition to a single agent cloud solution that could be deployed in days, not months or years. As a fast growing company with a mature security organization, they were looking for a solution that would enhance their security posture without impacting performance across their estate of business critical systems. Falcon was deployed across their environment in less than 10 days, allowing them to immediately take advantage of the platform and drive ROI. Pella, a design and manufacturing firm in Iowa with Another customer win I'd like to highlight in the quarter demonstrates the immense customer value that our Falcon platform has delivered to a Fortune 1,000 company with dozens of independently operated subsidiaries and an equal number of disparate security teams solutions. This customer needed a solution that could be rapidly deployed and managed by a diverse set of teams, bringing their security posture to a best in class level across the organization. This customer took advantage of multiple aspects of the Falcon platform, spanning peace of mind. With Falcon Complete, they were able to standardize their cybersecurity and rapidly deploy a single solution and remove multiple legacy and next gen technologies, including Microsoft, SentinelOne, Cylance, Sophos, Symantec, McAfee and Trend Micro. Additionally, with Falcon Discover for cloud and containers, they now have much needed visibility into their AWS workloads and are leveraging our proactive incident response services. Despite having many competing CrowdStrike for its clear value proposition, fast and frictionless deployment and ease of use, making us one of the only technology standardized across the entire organization. Our next customer win is a leading healthcare services their unique systems and did not impact performance or uptime. McAfee and SentinelOne had to be removed from their environment or cannot be deployed because of performance and or interoperability problems. Unlike our competitors, CrowdStrike was able to thousands of endpoints and servers in just 3 days without a reboot. This customer adopted multiple modules, including Prevent for next gen AB, Insight for visibility, Overwatch for managed threat hunting, device control and our elite level package. These are just a few of our 8,416 subscription customers as of the end of the quarter that have turned to CrowdStrike to help them stop breaches, transform their security posture and streamline their IT operations. As you can see from the enterprises around the world. We believe we are still in the early innings of our growth journey and are well positioned to continue our momentum further expand our leadership. Lastly, before I turn the call over to Bert, I would like to welcome Laura Schumacher to our Board of Directors. Laura has a distinguished career and is currently Vice Chairman, External Affairs and Chief Legal Officer of Abdi, a Fortune 100 global biopharmaceutical company. We believe her deep experience will be a critical asset to CrowdStrike as we continue to build the company into a global industry leader. With that, I'll turn the call over to Bert. Thank you, George, and good afternoon, everyone. As a quick reminder, unless otherwise noted, all numbers mentioned during my remarks today are non GAAP. Before we get started, I will note that the results we are reporting today include the acquisition of Preempt Security. To assist with your models, we will share select details regarding Preempt's impact on Q3. However, we do not intend to disclose these details on an ongoing basis. The acquisition of Pre EMP contributed approximately 6 $800,000 to ending and net new ARR and resulted in the addition of 64 net new customers in the purchase accounting adjustments related to deferred revenue, the GAAP revenue recognized from preamp was de minimis to our results. The acquisition also added approximately $1,000,000 to operating expenses in the quarter, which again represents about 1 month of quarterly expenses. Moving to our results, we delivered another outstanding quarter. Our record performance highlights our continued exceptional execution and ability to rapidly scale our business, while at the same time maintaining best in class operations. During the quarter, we saw broad based in Q3 was well balanced between new customers and expansion business and between large enterprises and midmarket and commercial accounts. We once again ended the quarter with a record pipeline, which we believe indicates a strong foundation for future growth. In the Q3, we delivered 81% ARR growth year over year to reach 907,400,000 Rapid new customer acquisition as well as expansion business within existing customers drove substantial growth in the quarter, once again resulting in record net new ARR of $116,800,000 Additionally, contraction and churn remained consistent, and we maintained our exceptional gross retention rate. Our dollar based net retention rate once again exceeded 120 percent. Moving to the P and L. Total revenue grew 86% over Q3 of last year to reach 232 $500,000 Subscription revenue grew 87% over Q3 of last year to reach $213,500,000 Professional services revenue was $18,900,000 setting a new record and representing 74% year over year growth. We continue to see record demand for our services business as we are in a heightened threat environment and our brand continues to This translated to a record number of 7 figure subscription ARR deals resulting from our services engagements for the 2nd consecutive quarter. In terms of our geographic performance, we continue to see strong growth in the U. S. As well as our international markets. Markets. Approximately 72% of 3rd quarter revenue was derived from customers in the U. S, 14% from Europe, Middle East and Africa markets, 9% from Asia Pacific and 5% from other markets. We remain focused on building a long term business with sustainable growth and compelling margins. In Q3, we recognized significant operating leverage in our SaaS model and the benefits of scale even as we increased investments in our global reach and cloud platform. 3rd quarter non GAAP gross Our non GAAP subscription gross margin increased to 78% compared with 76% in Q3 of last year. We are very pleased with our strong subscription gross margin operating expenses in the Q3 were $157,000,000 or 68 percent of revenue versus $106,700,000 last year or 85 percent of revenue. We continued investing aggressively in our business during the quarter. Scaling our business efficiently remains a top priority, which is why we intensely focus on our unit economics, including Magic Number. In Q3, we ended with a Magic Number of 1.4, which is a new record. We attribute this to our frictionless go to market engine, including our digital lead generation and self-service e commerce capabilities. The leverage we have generated year to date demonstrates the efficiency in our model and enables us to step up investments in international geographies and other marketing programs as well as continue to hire aggressively. We believe this will lead to sustained growth over the long term. As a result of our rapid top line growth, record gross margin and continued disciplined approach to investing in our business, we drove strong operating income and leverage in the quarter. Non GAAP operating income was a record 18 $900,000 and operating margin improved 21 points over Q3 of last year to reach 8.1%. Q3 represents our 8th consecutive quarter of improving non GAAP operating performance on both a dollar and margin basis. Non GAAP net income in Q3 was $18,600,000 or 0 point 0 $8 on a diluted per share basis. Given we reported non GAAP income the quarter, the weighted average common shares used to calculate 3rd quarter non GAAP EPS was on a diluted basis and totaled 234 point 6,000,000 shares. We ended the 3rd quarter with a strong balance sheet. Cash and cash equivalents was consideration that we invested to acquire Preams Security. Cash flow from operations was $88,500,000 and free cash flow was 76 $100,000 both measures ahead of our expectations. Moving to our guidance. We continue to remain optimistic about the demand for our offerings and the powerful secular trends fueling our growth. Given the growth drivers of our business as well as our strong 3rd quarter performance and momentum into the Q4, we are raising our guidance for the fiscal year 2021. While we do not specifically guide to ending or net new ARR, we expect seasonality in net new ARR to be less pronounced relative to prior years as we move from Q3 into Q4 given the exceptional outperformance in Q3. For the Q4, we expect total revenue to be in the range of 240 $5,500,000 to $250,500,000 reflecting a year over year growth rate of 61% to 65 percent, with subscription revenue being the dominant driver of growth. We expect non GAAP income from operations to be in the range of $18,500,000 to $22,100,000 and non GAAP net income to be in the range of $17,700,000 to 21,300,000 dollars We expect diluted non GAAP net income per share to be in the range of 0 point $8 2021, we currently expect total revenue to be in the range of $855,000,000 to $860,000,000 reflecting a growth rate of 78% to 79% over the 2020 fiscal year. Non GAAP income from operations is expected to be between $46,400,000 $50,000,000 We expect fiscal 2021 non GAAP net income to be between $48,800,000 52,400,000 utilizing weighted average shares used in computing diluted non GAAP net income per share of $233,000,000 we expect non GAAP net income per share to be in the range of $0.21 to 0 point dollars George and I will now take your questions. Thank Morgan. So George, with the traction and the talk about protecting cloud workloads, can you give us a sense what part of the business at this point is protecting these cloud workloads, containers, etcetera? And what do you think that will look like in terms as a percentage of the mix maybe a year or 2 years down the road? Yes. Hey, Sterling. Well, we talked about 20% of our customers and workloads in terms of being in the cloud. And from our perspective, we believe that's going to continue to grow. When we think about digital transformation and it's 20% of the service in the cloud, when we think about digital transformation, it's one of those areas that continues to accelerate. We've seen a massive movement to cloud servers. We've seen people skinning down some of their on prem, but explosion in the cloud itself. So it's still early days, obviously, in the cloud journey for many companies, but we see it as a long term sustainable trend. Great. And then one quick follow-up. Preempts, I'm curious now that it's under your umbrella for a little while, what's been the customer reaction in early conversations around the technology? For some time. They see this as a very unique property that we've acquired and integrated into our solution. They just they don't see others being able to do that. And combined with our platform single agent architecture, it's been a home run. So we're in the process now of field enablement and getting all the sales teams up and running, but early wins with preempt and we're really excited about the integration that's forthcoming. Great. Thank you. Thank you. Our next question comes from Saket Kalia with Barclays. Your line is now open. Okay, great. Hey, guys. Thanks for taking my questions Maybe first for you, George, we've seen Broadcom announce some end of support for some legacy Symantec endpoint protection agents. I guess the question is, what are you hearing from customers on that move? And to what extent do you think that encourages customers to maybe explore other options? Thanks, Saket. Well, whenever you have agent that's being removed or deprecated, traditionally, there's a lift and shift, where you have to install another agent and require all kinds of reboots. I think as we've articulated in some of our success stories, our ability to install and get up and running is unparalleled in the industry. So it's a force function for companies as they think about what they need to do. And I think that's just another accelerator to why people are coming to CrowdStrike. Their unhappiness with some of their support, they're looking for a more modern architecture and a solution that has multiple legs to it, not just anti malware is why they're coming. And I think this is just an accelerant in terms of why they would talk to CrowdStrike and choose CrowdStrike. Got it. Makes sense. Maybe for my follow-up for you, Bert. You touched on this a little bit in the prepared remarks. Services, obviously, isn't a huge part of that business, but the gross margins there have actually been better than expected. The question, Bert, maybe is how sustainable do you think that is? And anything that you would call out on what drove the services strength in the quarter? Saket, thanks for your question. And you're right, services is a smaller piece of our business. But we are seeing strong momentum for our services business. As our brand continues to build, we're getting more momentum, more inbound calls. And so that's a really good thing for us because as we talked about or as I talked about earlier, it results in platform deals. And as I mentioned in the prepared remarks, we had a record number of 7 figure subscription ARR deals resulting from our service engagement. In terms of gross margins, yes, we were very pleased with our gross margins that we achieved in Q3. In terms of outlook, we don't really explicitly to gross margin. We don't guide specifically to gross margin, but you can make inferences based on the guidance we did provide. And generally speaking, you can see some seasonality in our services business. If there's a quarter with a lot of holidays, obviously, both revenue and gross margin dollars would go down. So that's how we think about services in general. Very helpful. Thanks, guys. Thank you. Our next question comes from Tal Liani with Bank of America. Your line is now open. Hi guys. I want to ask about the bigger picture because I'm trying to see how a next year looks like. Your growth this year, if I look at the last four quarters, it's very stable at 85%, 89%, extremely high. We did not even expect it to be that strong going into the year. As you look into next year, the question I have is, what do you think is how will the year look like when you start comparing it to the COVID quarters? Meaning, 2Q, 3Q, was COVID such a big factor that we need to be careful with year over year comps? And then another question, which is the same but differently, when you look at the various components of your solutions, what are the things that you think will naturally slow down and things that will kick in to give you this guidance giving you the basis for your great guidance for next year? Sure, Tal. Thanks for the question. I'll take the first part and turn it over to George for the second part. So, of course, we don't specifically guide till next year. We're really excited about being able to go a little deeper in terms of what next year looks like next quarter. And so for us, we're extremely pleased with this quarter. And we're truly pleased with the momentum that we've seen going into Q4. We entered Q4 with a record pipeline, and I think that for us, that's a good signal in terms of the in terms of what we're seeing out there in terms of demand for our products. I'll turn it over to George with respect to your second part of your question. Sure. I think just in general, when you look at our cloud offerings and you look at the new modules that we're delivering at a rapid pace, I think things like forensics, certainly Horizon are all winners for us. We continue to expand the capabilities across all the modules we have. We'll have more modules at some point next year. So it's broad based demand from lots of modules and we continue to see strong demand across the board and we're excited about that. So thank you. And are you concerned of COVID uplift to the numbers this year that may create a difficult comp for next year or was not this was not a big driver? So for us, we think about COVID as more of a catalyst to the acceleration to the digital security transformation. I think a lot of folks and a lot of companies have purchased the laptops to work from home in prior quarters, and we're through that. And so now we're seeing this kind of steady state of acceleration continuing into the future with respect to demand for cloud products and digital transformation. That's how we see it overall as a broad based strength continues. And so that's how we think about the future. Got it. Thank you. Sure. Thank you. Our next question comes from Brian Essex with Goldman Sachs. Your line is now open. Hi, good afternoon and thank you for taking the question. And Craig, congratulations on the quarter, some really great results. I was wondering if I could dig in a little bit to some of the key growth drivers in terms of subscriber count as well as revenue per subscriber. And wanted to ask specifically how things are changing relative to prior periods with regard to initial landed deal size versus selling into or expansion into your installed base? Yes. Hey, Brian, good question. So big picture, the good news is we still see a lot of headroom with respect to both new logos and expansion. And we've been able to see larger deals come in. And obviously, that is part and parcel with more modules that we have today and the value sell. So as we continue to value sell and as we continue to increase our offerings, the deal sizes end up being bigger. The great news is, I think we have a tremendous amount of headroom in both going after new logos and we have a tremendous opportunity for expansion opportunities. Got it. And then if you were to kind of grade the 2 kind of going into next year, where do you see the greatest opportunity? Is it do you still have, I guess, in your view, with incremental modules a lot I mean, would you gauge your opportunity in your installed base larger than what you might realize from new customers? Or what do you think will be incrementally more impactful for growth or acceleration in growth over the next several quarters? Hey, Brian, it's George. I think when you look at our module expansion and you look at our ability to cross sell with a frictionless process in that trial, things of that nature, I think it's across the board. And there isn't one particular area that just stands out. It's really broad based strength across all the modules and all the customers. And even from perspective, I mean enterprise all the way down to SMB, we certainly talk a lot about our enterprise deals, but our SMB business has been doing fantastic because of our cloud delivery modules, our cloud delivery, I should say, it's very easy for smaller companies to adopt this. And in constrained cost times, they're looking for ways to drive efficiency. So across the board, I think broad based modules, segments and even geographies. Got it. That's helpful. Thank you. Thank you. Our next question comes from Alex Henderson with Needham. Your line is now open. Great. Thank you very much. I appreciate you telling us that 20% of your workloads are in the cloud. A great data point and we appreciate it. But it's hard to utilize that, particularly given the difference between the amount of revenue you get from on premise edge and remote per user type footprint. Can you tell a bit about how you think about it as a percentage of your business as opposed to just simply a percentage of workloads? Because it's not clear to us that there's a comparability on the revenue per workload in that context. Or is there? Huge, huge runway ahead of us, and we think we're ahead of the curve. And we think we're huge, huge runway ahead of us, and we think we're ahead of the curve. And we think we're ahead of everybody else in what we can offer. But I still think it's still early days and it's one of those areas where we just see a tremendous amount of opportunity. Okay. Well, could I try it another way? As we look out over the next 3 or 4 years, is it reasonable to think that this could be 20% of revenues? It's obviously 20% of workloads today, but could it be 20% of revenues in, say, 2 or 3 years? Yes, 2 or 3 years is a long time in this space, Alex. We'll see. There's a lot of things that can happen between now and then. But on that one, we'll just wait and see how it turns out. Okay. I can't blame the guy for drying. Thanks. Thank you. Our next question comes from Rob Owens with Piper Sandler. Your line is now open. Great. Thanks for taking my questions, guys. I guess I want to start with the net customer additions and just the velocity that you're seeing. And I guess it's you touched on it a little bit earlier, but why here? I mean, we probably saw the COVID trade or the play in the March quarter and June quarter yet, you're showing even more meaningful acceleration here. Is there some reason you're hitting an inflection point in your business at this point? Hey, Rob. Yes, George here. So, you hit the nail on the head. To be clear, when we think about laptop purchases, well behind us, right? We're talking about real transformation, real adoption of our technology, consolidation of agents and winning in the market because we've got the best technology solving really big problems that are even beyond security. And that's why you've seen an acceleration in customer adoption. As I mentioned earlier, it's across the board. It's not just enterprise. It's not just mid market. It's not just SMB. It is across all of those particular areas, because the technology works and we're saving companies lots of money and delivering lots of value. So when you think about sort of the COVID piece of it, as I mentioned, that's well behind us and this is a much more sustainable trend that we see for the foreseeable future as people move to the cloud and transform digitally. They have to have their security transformation as part of that. And I appreciate the cloud servers. And if we look at the cloud workloads in totality in terms of bare metal and containers, who are you running up against there from a competitive standpoint? And where is the customer in terms of their buying? How much is it an evangelical sale versus it's being pulled more so? Thanks. Yes. So, with maybe you can clarify, Rob, with respect to bare metal. Yes. When you're looking at more so the protecting containers and workloads from that perspective, perspective because I think you have a more holistic solution. I think there's definitely a natural transition when we've had lift and shift in just cloud servers versus on prem servers to your technology historically. But I'm looking more kind of at that next generation type of application, more cloud native, if you will, George, and who you're running into there and what that sales process looks like? Well, when we think about containers, whether it's cloud or on premise, and there's certainly a lot of companies that have hybrid environments, as you know depending on their industry. Whether they're rolling at their own or whether we're in a infrastructure provider, we have an architecture that can provide security across all of those. And again, it's with a single agent, which is again fairly unique, I would say, to us in the marketplace. People have to have different agents and different architecture. So there isn't one in particular. There's a lot of a a reason why people are choosing us. And the fact that we've added cloud security posture management to our runtime protection is just another reason to choose CrowdStrike. All right. Thanks. Thank you. Our next question comes from Fatima Boolani with UBS. Your line is now open. Good afternoon, gentlemen. Thank you for taking my questions. George, just to start with you. Announced a pretty marquee distribution relationship with just a couple of weeks ago around the new product launch. I'm curious if you can talk in broad strokes as to how you expect that relationship to flourish both from a financial standpoint as well as a go to market standpoint? And then I have a follow-up for Bert. Sure. Well, we're really excited about the relationships, and we've already seen the fruit of that relationship with some big deals. As you know, they've got a tremendous amount of penetration in large enterprises. They've got the ear of the Board of Directors and executives. And to have CrowdStrike partner with to help secure that digital transformation, I think is a win for everyone included. The other area too is looking throughout how we go to market with them, driving alignment in the comp models between and CrowdStrike is important, right? We always want to drive performance in the field. And I think we've got good setup between the 2 organizations to make sure that people are really focused on delivering value to customers and creating these larger deals for both as well as Crowd Strength. That's very helpful. And Bert for you, I think you had cautioned us just around some aberration with respect to ARR and seasonality of ARR as we were moving into the back half of the year. I think you mentioned that contraction and churn in the business was relatively stable. So I'm curious if you can pinpoint as to what factors specifically provided upside relative to maybe some of your conservatism around ARR your ARR trajectory into the back half relative to some of the caution that maybe you were discussing as we were heading into the back half? Yes, great question. So first, for Q3 and the over performance, you got to have the nice backdrop of the heightened threat environment, the strong positive secular tailwinds and a favorable competitive environment. Those were the things that were in the backdrop. And I think the other I think the biggest reason that we had over performance in Q3 is that we executed extremely well on the record pipeline going in. And so we saw customers continue to look for a security platform solution, which allowed them for easy adoption of modules. And it's clear that security remains mission critical to customers wherever they are, regardless of size or the industry. I think what's changed for us is that we've lowered our assumption on churn and contraction looking forward. I think we haven't seen any movement with respect to that particular piece of the business. It's been really stable for a really long time. And we're seeing customers adopt more. We're seeing customers, as mentioned by George, on the adoption rates of our customer base. We're seeing them adopt more. We are seeing them move to the cloud more, and they're looking for value, which is what we're able to provide. So you combine all those things together, and you've got a tremendous Q3 over performance. And then you've got the lowered assumption with churn and contraction looking forward, those things add up to what you're seeing today. The good news for us when we think about value selling and we think about even impacted industries is we've got solutions like Falcon Complete, which are good for constrained budgets with limited resources. And we come in and we're able to provide a solution that's both highly effective and affordable. So that's how we look at it. I appreciate that. Thanks for the color. Sure. Thank you. Our next question comes from Shaul Eyal with Oppenheimer and Company. Your line is now open. Thank you so much. Good afternoon, guys. Congrats on results and guidance. George Orberth, back in the summer, you've announced your alliance with OktaNetscope and Proofpoint. Can you talk to us about initial indication success that you've been seeing from it? Is this aligned to making the lives a little easier when we think about it from a potential Office 365 65 displacement? And for disclosure, I brought that same question with Todd and Freddie just minutes ago on their concurrent quarterly conference calls. They were absolutely bullish about it, by the way. Yes, thanks. Good to hear your voice. It has. When you look at we're still in the early days of it, but when you look at what customers are looking for, they're looking for choice and they're looking for best of breed platforms. In the past, we've talked about best of breed products. Customers want best of breed platforms and they want to assemble them together. They're tired of building things on their own. They want these platforms to connect and interoperate and they're looking for the best of breed against the Microsoft. And this is a great opportunity for us to put the pieces all together to provide an integrated solution that can add tremendous value to any organization and have it all work. And we've seen CIO after CIO come to us and say, hey, we love this combination because we want another alternative. We want the best of breed rather than having something that we're locked into. So, far so good, but still in the early days. Got it. Got it. And a question for Bert. On professional services dollars converting into new subscription dollars, so you recall 2, 3 years ago, we were talking about every $1 of professional services being converted into $3 in new subscription revenue. That number obviously has accelerated to, if I'm not mistaken, dollars 5 in recent quarters, showing the great adoption rates we've been seeing. Where could that conversion number potentially accelerate within the next couple of years, if I know you can brainstorm with us a little bit on that front? Joe, great to hear from you and thanks for your comments. I think that when we think about professional services, obviously, as I mentioned earlier on the call, it really is strategic for us and it's strategic in many ways, one of which you've just described, the cross sell. That's a metric we follow closely. That's a metric we actually compensate our teams with and that's a metric we're going to continue to monitor and try and accelerate and boost. Where it could go, time will tell. But it's something we are going to continue to invest in. It's something we're going to continue to pay on as that continues to be opportunistic for us. Understood. Congrats again. Thank you. Thanks, Shoal. Thank you. Our next question comes from Andrew Nowinski with D. A. Davidson. Your line is now open. Okay. Congrats on another amazing quarter. I'd like to start with just a question on the Target deal that you announced. So it's pretty interesting that they've stayed with a legacy provider for so long considering the mega breach they sustained a number of years ago. So just wondering how long have you been working on that deal and how competitive that was? And then I have a follow-up. Thanks. Yes. Well, they've certainly spent a lot of time and effort moving past that situation they had. And we certainly look forward to be part of a broader solution for them going forward, which we are. The deal came together actually very quickly. It was deployed very quickly and there was a lot of dissatisfaction with their current vendor, how they were being treated. And again, they were looking for a more contemporary solution. They looked they were very thorough in who they looked at across the market. They knew that we could deliver, and we can deliver immediately with our value. I mean to get an organization like that up and running in such a short period of time is unheard of. So we're excited to be partnering with them. They've got a fantastic team and we're looking forward to the future as to continue to become a great partner with them going forward. That's great, George. Thanks. And then a lot of people think the endpoint security market is from a competitive standpoint is somewhat of a knife fight with so many vendors. But I would guess the reality is really that it's not nearly as competitive as people think just because there's so many legacy vendors selling legacy solutions. So I'm kind of in that same vein, I'm just wondering, have you seen any sort of change in competitive pressure from McAfee following their IPO? Are they putting any more marketing dollars into the market to try to sustain their share losses? Or is it the same as Symantec? Thanks. Well, I think it's a good question. And the reality is it goes across the board for both legacy and next gen vendors. I've never seen a PowerPoint that was actually wrong, but when you put things into practice, things don't work, right? So slideware, I think, is a big part of the industry, unfortunately. And when customers actually go through the testing process, and we called out a few of them in this earnings call. This stuff doesn't work in the lab. It's hard to get rolled out. It's incompatibility issues. And you can't just add marketing dollars to a legacy technology and hope it works, right, which is the reason why we started from scratch, born in the cloud, delivering from the cloud when we built CrowdStrike. So there's a lot of noise, but we continue to get through it as seen from the results today. Okay. Keep up the good work guys. Thank you. Thanks, Andrew. Thank you. Our last question is from Matt Hedberg with RBC Capital Markets. Your line is now open. Hey guys, great and congrats again from me. George, I wanted to double click on the E and Y partnership, but ask it a little bit more broad. I guess I'm curious, what percentage of deals today are partner led? And where might that go in the channel just about all the deals go through the channel in some fashion. Some of them are sourced by us. Some of them are sourced by the channel. And in general, what we've seen and we're really excited about is the fact that we've seen more deal registration from our partners, so deals being brought by channel. Because there's a strong demand for our technology, our partners are winning and making money with CrowdStrike, and that will continue to grow. But then you have other areas like the AWS marketplace, right, and these kind of unique marketplaces where we continue to see strong demand and success. So when we think about we're really excited because they're just so embedded in large enterprises. They're so trusted and to have our technology as part of the solution worldwide is really a great win for us and identity side, obviously, it was great to hear about Okta, both customer and partner. I don't know we talked about this at your user event, your customer event, but maybe just remind us again sort of where your view of the identity services sort of start and end versus what Okta is providing? Sure. It's a good question. We started down this journey some time ago. But when we think about what we do and the visibility we have, we know the state of that endpoint, right? We know the state of that workload and we know the identity of the users that are involved in it. That is a very unique set of data and we've got a tremendous amount of visibility there. So our role in this is to provide identity information and trust information on what's happening on that system and score it and be able to provide that to an identity broker like Okta or King or others, right? So they're brokering the identities. They can provide additional challenges, things of that nature. So it works well together in tandem because we're providing so much information to make better decisions for both our joint customers. Got it. Thanks. Well done, guys. Thank you. Thanks, Matt. Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to George Kurtz for closing remarks. Great. Well, I'd like to thank everyone for attending today. We appreciate everyone's time. We wish everyone well and stay safe and we look forward to talking with you next quarter. Thank you so much. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.