$CRWD CrowdStrike Q2 2024 Earnings Conference Call

hello and welcome to crowd strikes fiscal second quarter 2025 Financial results conference call at this time all participants or in a listen only speakers presentation we will conduct a question and answer session please be advised that today's conference is being recorded I would now like to hand the call over to Maria Riley vice president of investor relations Maria please go ahead good afternoon and thank you for your participation today with me on the call are George CTS president and chief executive officer and co-founder of crowd strike and Bert pbear Chief Financial Officer before we get started I would like to note that certain statements made during this conference call that are not historical facts including those regarding our future plans objectives growth including projections and expected performance including our outlook for the third quarter and fiscal year 2025 and any assumptions for fiscal periods Beyond that 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 of this call while we believe any forward-looking statements we make are reasonable actual results could differ materially because the statements are based on current expectations and are subject to risks and uncertainties we do not Undertake and expressly dis claim any obligation to update or alter our forward-looking statements whether as a result of new information future events or otherwise further information on these and other factors that could affect the company's Financial results is included in the filings we make with the SEC from time to time including the section titled risk factors in the company's quarterly and annual reports additionally unless otherwise stated excluding re Vue all Financial measures disclosed on this call will be non-gaap a discussion of why we use non-gaap Financial measures and a Reconciliation schedule showing Gap versus non-gaap results is currently available in our earnings press release which may be found on our investor relations website at ir. crowdstrike I would like to start today's remarks with my apology to everyone impacted by our Channel file 291 incident which transpired on July 19th I also want to take this moment to show my gratitude to everyone who worked with us through the incident thank you to our customers and partners for your continued trust thank you to our team of Relentless crowd strikers for living our mission thank you to the broader cyber security and it Community for standing with us as we Face the most challenging event in our company history the magnitude of the July 19th incident will never be lost on me and my commitment is to make sure this never happens again the days following the incident were among the most challenging in my career because I deeply felt what our customers experienced our response to the July 19th incident was immediate deliberate and focused we activated Crow strike's crisis response plan to lead through the incident we clearly communicated status with customers Partners in the Market at large on our website social media email phone and broadcast our technical teams devis new automated recovery techniques for Accelerated response our efforts were 100% focused on bringing impacted devices back online with the highest level of speed and transparency this included the mobilization of crowd Strikers in our partner Community to communicate proactively and transparently with customers as well as the market at large and then recover impact at host for many recovery was within hours we've already implemented the following actions to build a more resilient Falcon platform first enhanced content visibility and control while sensor Version Control was always a Cornerstone of the Falcon operational experience we've already released new content control configurations this allows customers to choose when and where new Falcon content is deployed with new granular controls second content Q enhancements we already shipped an enhanced content validator and content interpreter two of the components which did not properly function these components have been refactored to prevent shipping aon's content and were both made GA earlier in August and third external review and validation we've engaged two independent third-party software security vendors to review the Falcon sensor code and Quality Control process this ongoing work focuses on enhancing security and resiliency over the short medium and long term these three major actions are in addition to an enhanced content release process our content release process now mirrors the sensor release regimen it consists of sample testing internal lab and Canary systems testing Early Access soaking and lastly is staggered concentric ring deployment in adherence with customer policy settings the July 19th incident starts a new chapter for crowd strike one focused on ensuring that cyber Security's best AI platform for sock operations protection visibility response and automation is also cyber Security's most resilient platform with built-in redundancy modes new content controls and enhanced safeguards we've immediately address learnings from the incident and will continue to apply and evolve these lessons into our future moving to our Q2 results our execution following the July 19th incident highlights the resiliency of crowd strike business our focus on transparency and accountability continues to inspire trust our track record and thirdparty validation of delivering the industry's best AI powered protection continues to resonate at scale as the July 19th incident was in the final two weeks of the quarter when a meaningful portion of our sales typically close it delayed deals into subsequent quarters the vast majority of these deals remain in our pipeline despite this impact I'm encouraged by the results we delivered the enduring trust that prospects customers in the market have In Crowd strike is demonstrated by our Q2 performance ending ARR of $ 33.86 billion growing 32% year-over-year Q2 net new ARR of $218 million up 11% year-over-year withinin our pre-incident stated assumptions Q2 revenue of $964 million also ahead of our guidance record non-gaap operating income of $227 million growing 46% year-over-year gap profitability for this sixth consecutive quarter and free cash flow of $272 million at 28% of Revenue with a free cash flow rule of 60 these Financial results illustrate the resilience of our business and our team customers prospects and partners recognize Crow strike's technological leadership and role in serving the market need for ongoing platform consolidation this is why they continue to choose crowd strike in the hundreds of customer interactions I've had since the July 19th incident organizations of all sizes thematically shared three messages with me first necessity to understand the incident our response and our actions to ensure it doesn't happen again second acknowledgement of our trust record gratitude for crowd strike safeguarding their organization over the years and third steadfast support for Crow strike continuing to be cyber Security's Innovation leader and their consolidation partner of choice the breadth and depth of the Falcon platform spans 28 modules that revolutionize cyber security stopping breaches for tomorrow's AI powered sock covering Cloud security identity protection device security data protection it Automation and Next Generation Sim our portfolio is Diversified Crow strike is much more than EDR and we appeal to a variety of personas across cyber security it Digital Risk and compliance teams over the past year our log scale nextg Sim identity protection and Cloud security businesses each expanded the power and reach of the Falcon platform each representing resilient growth vectors outside of what was once considered our Market back when I started the company and Q2 our lock scale nextg Sim identity protection and Cloud security hyper growth businesses together surpassed $1 billion in ending ARR and grew more than 85% year-over-year these results reaffirm our continued and increasing investment in innovation ushering in the next chapter of the Falcon platform let me provide a few examples showcasing how these products are disrupting their respective markets importantly each of these customer wins was closed after the July 19th incident began I'll start with Falcon Cloud security the industries only integrated cspm aspm dspm C cwp agent and agentless solution crou strike's Cloud security business is now more than $515 million in ARR and grew faster than 80% year-over-year two noteworthy post July 19th wins an8 figure deal in a major enterprise software firm where Falcon Cloud security was already running on a part of the environment replacing another NextGen Cloud security vendor allowed this customer the opportunity to standardize on Falcon Cloud security for ease of management across broad distributions and Superior Cloud security protection next a 9figure falcon Cloud security purchase across a million hosts in a large Enterprise for their production environment Falcon Cloud Security's leading protection visibility and operational scoring in their evaluation placed crou strike ahead of other Cloud security products Falcon identity protection continues to set the industry standard in the identity threat detection and response space as of Q2 identity ending ARR surpassed 350 million growing over 70% year-over-year we pioneered this category and it's a key differentiator in our xdr value proposition now let's move to the log scale nextg Sim business which is greater than $220 million in AR and grew more than 140% year-over-year the Sim Market continues to be in a state of Renaissance where organizations of all sizes are drafting their next chapter of security and it data management our lock scale NextGen Sim momentum showcases Crow strike's ability to displace Legacy Sims at scale and capitalize on market demand for AI powered sock operations two exciting post July 19th wins include an 8 figure win in which log scale NextGen Sim replaced two Legacy Sims this customer was already a large crowdstrike customer and the ability to store visualize and action large amounts of first-party crowdstrike data natively in the platform significantly lowered cost by more than 60% while increasing functionality ingesting third-party data into the Falcon platform is not only more cost effective but also differentiated in our incident workbench which brings novel visibility an AI powered response to the hands of every sock analyst what once took two Legacy Sims is now natively in Falcon and finally a leading generative AI company that started using log scale next gen Sim over a year ago standardized on the technology and a seven figure win winning the totality of their Sim business as well as observability use cases was a function of log scale NextGen Sim search speed the native nature of Falcon data coupled with third party data and resp resp actions and improve TCO relative to their legacy Sim I'm reassured by customers and Prospects feedback wanting to do more with crowdstrike post incident as evidenced by multiple seven and8 figure platform expansions with most opting for multi-year deals eliminating complexity is a key component of achieving resilience and we see the Falcon platform continuing to help solve a wide range of customer problems simplifying cyber security and most importantly stopping breaches our partner first go to market continues to deliver at scale connecting our technology platform with new and existing customers Crow strike's preeminent partner position as a top security Vendor by business size and number of transactions serves as a competitive mode in Q2 66% of our new logo business was sourced by our partners showcasing our best-in-class partner go to market in Q2 our systems integrator business grew over 100% % year-over-year highlighting Falcon as an industry driver in delivering multidisciplinary cyber security transformation our partners were instrumental in helping customers recover with noteworthy engagement from Accenture KPMG and ey among a dozen others our strategic alignment and deep partnership extend our reach in this vein global system integrators are increasingly becoming a central part of our partner strategy as a falcon Flex subscription model highly resonates with the transformative nature of GSI engagements we unite and align our entire partner ecosystem with our use of cloud marketplaces in Crow strikes go to market we've demonstrated the success and results of this strategy with AWS helping customers not only secure their AWS cloud services but also procure crowd strike for the full range of their cyber security needs now two quarters into our expanded relationship with Google Crow strike is the fast growing cyber security vendor on the Google Cloud Marketplace this year customers of all sizes are increasingly looking to utilize their committed hyperscaler spend adding an additional layer of resilience to our goto Market aligning our entire ecosystem from reseller to systems integrator msps to Distributors makes crowd strike cyber Security's partner of choice with Crow strike the entire ecosystem wins together our rilian business platform and go to market positioned crowdstrike to execute on our unchanged vision and Mission whether on July 18th or today on August 28th our Tam and Market opportunity remain unchanged this is because first the need for cyber security simplification organizations of all sizes remain eager to simplify consolidate and rationalize their cybercity product lineups streamlining operational processes goes hand inhand with sock transformation with the goal of faster more effective cyber security delivered at lower cost decreasing TCO and increasing efficiencies through Ai and automation are clearly voiced organizational priorities and will be for years to come second adversary proliferation and threat landscape acceleration released in our annual threat report several weeks ago Crow strikes analyst and Industry lauded threat intelligence is in a class of its own Now tracking over 245 adversary groups in the past year our threat intelligence teams uncovered threat actors applying to and actively working for more than 100 unique companies the realities of the threat landscape necessitate effective cyber protection and that is only intensifying in the face of universally accepted Market needs in adversary realities the resounding feedback I hear from customers is that Crow strike is their number one and most effective cyber security control this is not only because of of product performance and efficacy but also because of the organizational process and orchestration built on and around Falcon with greater than seven modules on average deployed in organizations spending $100,000 or more per year the Falcon platform is firmly rooted with replacement requiring a multi- vendor costly and timeconsuming process a Banning the protection and TCO benefits of a single platform consolidation our best-in-class module adoption supercharged by Charlotte AI our generative AI sock analyst makes the Falcon platform sticky for all users as well as the data foundation of the sock this is why we continue aggressively investing in Innovation to advance our track record of revolutionizing cyber security this is why customers are looking to not only stay with us but also expand their Falcon platform adoption this is why our upcoming annual customer and Industry conference Falcon is what I refer to as our largest selling event of the year it is already in overflow with more than 5,000 security and it Executives and more than 95 sponsoring Partners our unchanged vision and Mission propels us to become an even better even more resilient and even more customer obsessed crowd strike in working with customers post incident we quickly mobilized around Customer Loyalty we took inspiration from our Falcon Flex subscription program a licensing model that's been rapidly gaining traction across all of our customer segments in the years since we built the Falcon Flex program the customers who have subscribed to this new licensing model represent over $700 million in total deal value Flex supercharges platform adoption making it easier and faster for organizations to displace other Technologies through flexibility turning on and moving between modules without procurement and legal friction customers love the flex ability as it makes it easy to use more Falcon in Falcon Flex We also found a simple and effective mechanism to drive retention by offering compelling customer commitment packages our customer commitment package takes traditional module by module licensing into our Falcon Flex model where customers can use any and all modules they wish add compelling economic values depending on need the customer commitment package encompasses discounting module ads Professional Services flexible payment terms as well as adding duration to a customer subscription our best-in-class module adoption is differentiating and leading indicator of crowdstrike customers behavior and post incident our customer commitment package will drive even more Falon utilization and platform value realization in both the short and long term customers see this as an immediate win to realize maximum and differentiated value from the Falcon platform it is also a long-term win for for Crow strike cementing us as the organization cyber security platform of record customer feedback has been extremely positive because we're proactive in our approach and customers benefit because they get what they want more Falcon the blueprint for our customer commitment packages were Falcon Flex deals like this Fortune 500 Insurance firm that I referenced before in the next gen Sim discussion this customer has been with us for five years building over time from endpoint to Identity they had aspirations of consolidation and saw crowd strike as a platform where they could achieve their protection Automation and economic objectives in the midst of this deal discussion the incident happened we work with them on a rapid recovery our trust record and value from the platform over time stood out through Falcon Flex this customer accelerated consolidation they contracted for every Falcon module displacing seven Technologies and through the AWS Marketplace their spend with Crow strike will grow from $2.2 million in AR to more than $5 million in AR over the subscription Falcon Flex grew platform adoption through the subscription term and increased AR over the multi-year period our customer commitment package will grow Falcon adoption increasing platform stickiness Roi and protection levels customer commitment packages are a proactive and concerted investment we're making to build long-term loyalty and see long-term platform adoption in closing the past few weeks have been some of the most formative for crowd strike Beyond apologies I want our actions to speak even louder than our words we work to recover customers quickly no matter the location or need we focused on helping customers challenging and unprecedented moments like these are the true tests of companies teams and individuals our response has shown me that the Golden Rule I've LED crowd with since day one put the customer first always isn't just alive and well it's thriving cyber Security's Mission critical role in today's Digital Society is undeniable Crow strike's contribution to cyber security bringing cyber security to the cloud bringing AI to cyber security has profoundly redefined the industry and we will continue to do so we continue to invest in growth and Innovation as well as safeguards to build cyber Security's most resilient AI powerered platform the mission of we stop breaches Rings just as true today as it did prior to July 19th the most important part of crowd strike is the crowd the people working at Crow strike isn't a job it's a mission the fight the creativity and the will to make the world a safer place by stopping breaches is here our mission is alive and well and I know that crowd strikes very best days are ahead of us thank you for your unwavering trust and now I'll turn the call over to our CFO Bert pod bear thank you George and good afternoon everyone as a quick reminder unless otherwise noted all numbers except Revenue mentioned during my remarks today are non-gaap in today's discussion I will Briefly summarize our second quarter Financial results and provide our assumptions and investment priorities for the second half of the fiscal year the strength of our our second quarter results We Believe demonstrates our resilience focused execution commitment to financial discipline and the long-term durability of our business despite the challenges of the last couple of weeks of the quarter we delivered better than expected Revenue operating profit and net income in Q2 ending ARR grew 32% year-over-year to 3.86 billion of which $218 million was net new added in the quar up 11% over Q2 of last year and within our previously stated assumptions for the quarter in Q2 we achieved our second largest quarter of all time for net new customer additions expansion business and net new ARR contribution from cloud identity and log scale combined prior to July 19th we are on Pace to deliver net new ARR growth well ahead of these results the July 19th incident had a significant impact on the last two weeks of the quarter as we rapidly mobilized teams to assist customers but we continue to close deals including a nine figure in Deal value expansion while deals can push in any given quarter this quarter we experienced elevated levels with more than $60 million in deals that we had line of sight for the quarter and remain open as of Monday we expect these deals to close in future quarters our retention metrics and module adoption metrics remain strong in Q2 highlighting our deep partnership with customers and the significant value the Falcon platform delivers our dollar-based gross and net retention rates were consistent with our expectations for the quarter subscription customers with five six and seven or more modules represented 65 45 and 29% of subscription customers respectively notably deals with eight or more modules grew by 66% over the prior year and 48% of all customers with $100,000 or more in ending ARR adopted at least eight modules an increase of more than 10 percentage points over the prior year moving to the p&l total revenue grew 32% over Q2 of last year to reach $963.66 over Q2 of last year to reach $98.3 million Professional Services Revenue was $ 45.6 million representing 10% year-over-year growth the sequential decrease in Professional Services Revenue was primarily attributed to deploying complimentary remediation services to help customers impacted by the July 19th incident record total gross margin of 78% increased by approximately 80 basis points year-over-year record subscription gross margin of 81% increased approximately 90 basis points over the prior year total non-gaap operating expenses in the second quarter were $529 million or 55% of Revenue compared to 56% of Revenue in the prior year consistent with our plan we increased the pace of hiring primarily in the areas of sales and marketing and R&D growing total headcount by 22% year-over-year in the second quarter nonap operating income grew 46% year-over-year to reach $226.1 million an operating margin increased by more than two percentage points year-over-year to reach 24% we delivered Gap net income attributed to crowd strike of $ 47.0 million growing more than 5x over Q2 of last year non-gap net income attributable to crowd strike grew 45% to reach $26.8 million or $14 on a diluted per share basis cash and cash equivalents grew to $ 4.04 billion free cash flow grew 44% over Q2 of last year to reach $272.00 million or 28% of Revenue in line with our expectations and we delivered a rule of 60 on a free cash flow basis in regards to the impact of potential legal exposure related to the July 19th incident I would like to note the following the outcome of litigation is inherently difficult to predict particularly in the early stages and it is still too early for us to estimate any potential legal exposure we may have at this time our customer agreements contain Provisions limiting our liability and we maintain insurance policies intended to mitigate the potential impact of certain claims and have a strong cast position we continue to work hand inhand with our customers to ensure their success and are well positioned to continue investing in the business for long-term growth turning to our Outlook taking care of our customers has always been and will continue to be our number one priority we believe this focus and commitment will benefit us and them over the long term customer retention remains remarkably strong and we do not expect this to meaningfully change in the foreseeable future gross retention was 98% at the end of Q2 and dollar base churn in the last five weeks as of Friday was modestly lower than the same period last year however visibility into the back half of the year is less than typical we expect the following factors to impact our near-term results first we delayed the vast majority of outbound pipeline generation activities for a few weeks following the July 19th incident outbound prospecting has since fully resumed and is rising to pre-incident levels of responses second we expect to see extended sales cycles for both new and existing customers with additional scrutiny requiring higher levels of approval at the CEO and some cases board of directors level third as George mentioned through our customer commitment packages we are encouraging customers to commit to more of the Falcon platform for longer periods of time we are focused on making sure these commitments to the Falcon platform are one of the best decisions that it and security teams make as reflected in our Revenue guidance in the short term we expect our commitment packages will result in temporarily muted upsell dollar values and temporarily higher than typical levels of contraction due to elongated subscription terms we estimate these packages will impact net new AR and subscription Revenue by approximately $60 million and Professional Service Revenue by high singled digigit million in the back half of fy2 in the long term we expect our customer commitment packages will ultimately lead to higher platform and module adoption and deeper Partnerships with customers and fourth specific to free cash flow we expect to have increased flexible payment terms for our customers and we will incur additional GNA costs associated with the July 19th incident at this point in time we are not providing a free cash flow margin expectation for the full year we will maintain our long-standing focus on financial discipline and the bottom line with our attention squarely on the highest and best use of every dollar as reflected in our guidance for the remainder of the year while we will shift some plann investment from sales and marketing to further R&D quality assurance and customer support We are continuing to invest in our FY 2025 plan for the remainder of the year at this point in time this will enable us to remain focused on our customers protect the world against cyber threats and stay on track with our long-term investment and growth priorities we expect these headwinds to remain in varying degrees for about a year with acceleration starting in the back half of next year from the longer term perspective we expect to see operating margin Improvement on an annual basis in FY 26 additionally we remain committed to reaching 10 billion in ending ARR by the end of fiscal year 20131 and achieving our Target non-gaap operating model on an annual basis by fiscal year 2029 I will provide a detailed update of our long-term model and FY 26 Outlook after the conclusion of fiscal year 2025 moving to our guidance for the third quarter of fy2 we expect total revenue to be in the range of 9792 to 9847 million reflecting a year-over-year growth rate of 25% this includes an estimated $30 million impact from the customer commitment package we discussed earlier we expect non-gap income from operations to be in the range of 66.7 to $17.8 million and non-gaap net income attributable to Crow strike to be in the range of 21.2 to $25.2 million we expect diluted non-gaap net income per share attributed to crowd strike to be approximately 80 cents to 81 cents utilizing a weighted average share count of approximately 252 million shares on a diluted basis for the full fiscal year 2025 we currently expect expect total revenue to be in the range of 3,890 to $ 3,922 million reflecting a growth rate of 27 to 28% over the prior fiscal year this includes an estimated $60 million impact from the customer commitment package we discussed earlier non-gaap income from operations is expected to be between 7747 and 7839 million we expect fiscal 2025 non-gaap net income attributable to crowd strike to be between 98.8 and 98.0 million utilizing approximately 252 million weighted average shares on a diluted basis we expect non-gaap net income per share attributable to Crow strike to be in the range of $361 to $365 as George mentioned Falcon 2024 is going to be our biggest customer event yet the investor briefing will be held on September 18th and will feature conversations with customers and partners to join Falcon in person please contact our IR team for the registration information The Briefing will also be webcast live on our IR website we look forward to seeing many of you there George and I will now take your questions thank you if you would like to ask a question please click on the rais hand button which can be found on the bar at the bottom of your Zoom window you may remove yourself from the Queue at any time by lowering your hand when it is your turn you will hear your name called and receive a message on your screen notifying you that you may unmute yourself in the interest of time participants will be limited to one question our first question comes from Hamza fala at Morgan Stanley unmute your line and ask your question great thank you for taking my question um and congrats on the strong results wanted to commend you George Mike and the entire crowd Strike Team for for your response and and transparency since the outage event um so there's been a lot of talk uh George around whether Microsoft or customers perhaps may want to limit kernel access for future updates I'm curious in response to this outage whether or not Crow strike will have to rearchitecturing and if so would that be a meaningful undertaking that might push you away from the future Innovation road map thank you thank you Hamza uh yeah let me try to let me just try to take you through this with a little bit of detail so despite a lot of the false narratives and misinformation from our competitors I want to be clear that this was not a kernel update this was a code update uh it was not a code update it was a configuration update and we already covered the Remediation in uh in our PRI prior remarks um when we think about the architecture of what we've built and re architecting it uh I've got to set the record straight on that as well we have best-in-class architecture and we lead the industry for a reason we have greater efficacy greater manageability and greater scalability than our competitors and I just want to give you an example of that if you look at the latest miter results uh Falcon had 98% coverage our next competitor had 79% coverage it took Falcon 4 minutes uh from meantime to detection it took our competitor 47 minutes um and the list goes on and on if we think about the architecture as well you know we have a very lightweight agent requires 100 Megs of storage our competitor as a heavy agent requires three gigabytes of storage in the windows environment so um we didn't become number one in the market by having a poor architecture we became number one by having a great architecture we talked about uh what we've changed here in terms of our configuration updates and we feel confident about that going forward and our customers feel confident about that so um you know we'll continue to work with Microsoft as part of the ecosystem as they look to provide further enhancements around uh kernel axis but just to be clear there are thousands of uh software kernel drivers that are out there that go well beyond security like VPN virtualization software it management software backup software and a lot more so we are one part of the ecosystem and we're certainly uh you know a player that's going to help and work with Microsoft um as they think about uh adding other mechanisms to allow the ecosystem to to flourish our next question comes from Brian Essex with JP Morgan please unmute your line and ask your question great good afternoon and thank you for taking the question congratulations for me on a you know one a fantastic response uh to the to the incident and then two um execution on the back of that uh is is impressive um I guess George for me um you know obviously you've got peers out there talking about benefit in their pipeline uh we still have to see that in their numbers but from your perspective we love to get um insight into what you're seeing from the pipeline you know obviously you've called out that the 60 million and deals that kind of pushed into into 3Q but from a competitive perspective um what what are you seeing in terms of the the the number of peers that are invite invited into the process um you know the conver maybe a little color around the conversations that you're having at the sea level that are leading to some of those extended sales cycles that would be really helpful to get that Insight sure uh obviously there's a lot of lot of noise uh in the marketplace and we can only control control and I think the best way for me to articulate that is to just recount some of the conversations I had two customer calls this morning and uh most of them start out the same they they you know talk about our response um how transparent we were and how we dealt with the problem um we talk about some of the mitigating uh steps that we've taken and it generally ends with we want to do more with crowd strike I had one this morning which was um you know a customer that had an impact we talked through it they were s satisfied with um you know the controls we put in place and in fact um on the call they basically said we won the next gen Sim project they had um which we won against another nextg Sim competitor so this is what we're seeing uh and again I'm recounting my calls and many many of them uh sort of start and end the same way so that gives me encouragement again that we've built a lot of trust with our uh our customers over time and we put a lot of trust in the bank yes we had an issue on July 19th we've been very clear about that very transparent um but consistently the calls have been you have saved us way more times than this incident and um we are all in on crowd strike and we're all in for all the reasons we've talked about in the past the consolidation play the ability to save time money get better outcomes and take you know four five six and seven products and move them to the Falcon platform that hasn't changed uh before the eight the 19th of July and hasn't changed after the 19th of July and this is what customers are coming back to us with the next question from comes from saket Kalia with Barclays please unmute your line and ask your question okay great can you hear me hey uh hey can you hear me yes sorry about that awesome sorry about that guys thanks a ton for taking my question and offer my uh my my congrats as well just on on the resilience here in in the face of a very tough couple weeks um George maybe my question is for you I I'd love to just touch on Falcon Flex a little bit you know this was something that that you were investing in before the outage as well but it sounds like it's something that can also be help for for customers to maybe drive better security outcomes as well C can you just maybe touch on that and and and how it's maybe helping that conversation post outage sure well when we think about Falcon Flex um this was born out of demand from our customers if you look at our our module attach rates which we've gone through again many times in the past and they continue to go up as customers rely more and more on Crow strike they came to us and said hey we want an easier and more flexible way to consume your Falcon platform when you start with one module when I started the company and you're you're at 28 today is's a lot you know that you have to uh go through with a customer and we wanted to meet customers where they wanted us uh to be which is more crowd strike make it easier through procurement cycles and then ultimately allow them to consume it how and when they wanted to consume it so we started down this journey a while back and it continues to to gain a lot of traction with our customers we've taken this and and you heard this in my prepared remarks and and we are able now through our customer commitment package to be able to offer Falcon flex and again some of the things that we went through whether it's modules or time or what have you we can we can allow our customers to be able to consume that uh as part of the customer commitment package and you know we think overall it's great for our customers because we're coming to the table and solving business problems and also it's great for Crow trik long term because we're allowing them a very flexible model to continue to consume uh Crow which they know and love our next question comes from taliani with Bank of America please unmute your line and ask your question oh here we go now I now you can hear me um last night there was one of your competitors that said that the customers would um be more afraid now to buy to put all the eggs in one basket meaning buy more modules from a single vendor and they'll opt for diversification of customers sorry of vendors and for you at least in previous quarters I didn't calculate this quarter but about two-thirds of your growth came from upsell to existing customers and the question is whether you have any evidence if the events um change the appetite of customers to buy from a single vendor uh to buy from you specifically have you seen any change of uh customers is uh uh willing to uh buy up you know for your ability to upsell to them the other modules Etc and there's just I know it's one question but there's just one thing that is a follow up on something uh bir the fouryear EPS guidance translates into a very big 4q EPS if you can somehow go over it to make sure that we have the right numbers thanks okay to let me let me take the first part so when we think about more modules it gets back to uh what I what I just went through customers want to do more with us um you know obviously we we talk about what happened why it's not going to happen again but they want to buy more from us and again customers comments back to me are they don't want to go backwards they don't want a bunch of disperate products they don't want a bunch of different consoles and they specifically told me that the adversary lives in the gaps between products in the seams between products so what they're looking for is the ability to cover more of their estate right to have a complete View and when you look at nextg Sim it allows us to take Telemetry uh and logs in from other systems beyond the first party data that Crow shrike is generating so I I would say that the the long and the short of that is customers don't want to go backwards and have a patchwork of products they are still FOC focused on the consolidation piece and they're looking at us as one of the key consolidators in the market yeah so on your question with respect to uh EPS you know as we as we thought about uh the impacts to non-gaap operating income uh we talked about the some of the headwinds that we had uh mostly driven from you know Revenue side of the house and we Tred to be consistent in the way that we approach the guide on both Q3 and full year um so so that's how we thought about it when we when we gave our Guidance the next question comes from fishbine with truest please unmute your line and ask your question thanks for taking my question and uh also uh really uh great uh transparency George and Bert thank you very much um my question um is on guidance methodology of ber can you just go through um a little bit of how you came up with the guide for the back half of the Year considering all the moving pieces um and I guess the question you know um how it changed relative to how you've you know done your guidance for that would be really helpful thank you sure uh on the revenue side on the revenue side the biggest Ina impact comes from the customer commitment package that George walk through so that's the one that's going to drive um you know the biggest impact and we walk through the numbers in terms of uh Revenue the impact we said 60 million in the back half um 30 million in Q3 and 30 million in Q4 so that was the biggest driver on revenue and then obviously that falls down uh to non-gap operating income and so we did you know as we thought about about it and we thought about how you know it impacts everything from revenue to EPS um we really took that prudent approach um there has been nothing in terms of big changes in terms of how we got it we got to what we see not to what we don't see but again the biggest impact was the you know how the the customer commitment ptions impacted um you know both the top and bottom and they were consistent in how we applied the approach our next question comes from Gabriella Wares with Goldman Sachs please unmute your line and ask your question hi good afternoon thank you I would love to get a little bit more detail George and B on the customer commitment packages and you mentioned a couple of Dynamics there alongside duration and concessions so maybe just a little more on how you came up with that 30 Million number in in 3Q and 4q and what are some of the guard rails and how you think about the appropriate amount of duration or discounting or concessions that you want to give a customer to keep them happy and satisfied with the crowd strike problem thank you thanks Gabriela so in terms of how we came about the um the 60 million in the back half we'll just focused on on the net new ARR we we thought about you know three things right we thought about um hey um we've got uh you know we talked about the delay in in in pipeline generation so that has an impact um we talked about longer sales Cycles um you know that's due to increased scrutiny um and that's not just for for us but that's for I think most people in in software and Tech um and then we talked about you know the muted upsell value so we took all those things into consideration when we thought about you know the impact on the on the on the on the on the customer commitment packages as as far as the the packages themselves you're right we have different pieces within the package George uh you know outlaid them pretty well we talked about some of them being discounts um we talked about some of them being duration duration has an impact um of course on on net new air are but we also talked about um you know product and product will have an impact uh you know more on on on re on cogs so you know that's going to impact um the bottom so we took all those factors uh together to come up with our guide and that's how we came up with the you know the 60 million our next question comes from Rob Owens with Piper Sandler please unmute your line and ask your question yeah B I guess as a as a follow on to that thanks for taking my question here 60 million through the remainder of this year but you talked about some of the the weakness potentially persisting for a year in terms of net new ARR so I know you're not guiding to the oute but as we kind of contemplate this should we think about this more on a 12-month basis and then as the selling of these customer commitment packages starts to anniversary a more normalizing relative to net new AR growth and relative to maybe where margins were historically thanks thanks Rob so I think that uh this type of infinite this type of incident you know has a halfway right so there'll be a diminishing impact over time so Q3 will be harder than Q4 Q4 you know will be harder than q1 and so on and so forth I think the biggest piece for us is that when we get to the back half of next year we'll start to see an acceleration in the business and that's the big picture and that's what I want everybody to walk away from our next question comes from Matt Hedberg with RBC please unmute your line and ask your question thanks for taking my question actually maybe a little bit of follow to Rob's question I think you know ber you kind of addressed it but I mean do do you think part of that acceleration is some of these commitments then you know expanding usage in other words you know what's what's a bit of a headwind now is part of that you know broader commitment that that just kind of compounds on itself in other words like is that part of that Tailwind that we should think about next year is is this renewal playful of these commitments uh yeah this is this George so when we think about the consumption of uh Falcon Flex typically what we've seen is um customers consume more of it faster uh than than they originally anticipate because we're providing value so um when we think about to Bert's comments next year obviously you know be more modules in use and I think we have the ability to go back to those customers and understand you know what other things we can do for them including um you know looking at additional Flex opportunities based upon what they've been using over the last uh period of time anything that today yeah no I think it's you know what George talked about it's seating for the future and I think you know that starts to take uh start to take you know play you know back half next year our next question comes from FMA bulani with City please unmute your line and ask your question okay good afternoon thank you for taking my questions I appreciate it um George uh and even Bert please chime in so on this uh procurement vehicle Falcon Flex clearly you've seen a tremendous amount of positive data points you shared them in the script $700 million deal value created with just one year uh in the market um I'm wondering if this is now going to be the predominant goto Market approach uh for you all uh in in terms of incentivizing broader portfolio option and then related to that Bert um as we think about um extrapolating some of the financial implications in the out years you know beyond your framed guidance how should we think about renewal cycles and um in renewal conversations uh coming up that you could potentially steer towards these contracts such that you do still get an elongated period of maybe net newr growth can you help me sort of um stradle those too thank you yeah so when we think about Falcon Flex again born out of what customers wanted we've seen tremendous success with it because it opens up the entire product portfolio to our customers they can pick and choose what modules they want they can uh leverage it where they want it um as they acquire new companies as an example it's very easy for them to to to add new modules or or new endpoints or Cloud workloads uh it minimizes procurement Cycles so it's a great thing for customers a great thing for us and uh you know it is a prime the one of the primary mechanisms we're using from a go to market motion going forward so uh it is something that we put in place we've seen the the tremendous results from it and we'll continue to lead with that into our customer base yeah so um you know all those things you know are are the things that we're looking for and as I think about you know the future in terms of you know our renewal opportunities the flex does offer you know more ability for the customers to consume more to take on more and that just bodess well for our renewal Cycles right we want them to do that and so by seing them now you know that's only going to B you know better for us in the future and better for the customers more importantly I think they're going to benefit more and more as look we're going to come up with new new products right and those are going to be available to them and so that's how we think about you know the renewals and the new renewal possibilities as we look out into the future our next question comes from Andrew nowinsky with BS Fargo please unmute your line and ask your question okay good afternoon thank you for taking the question and I'm uh I sure every uh organization that was impacted appreciates the transparency and the contrite response you have uh today uh so I wanted to ask about really on the on the renewal cycle as well you know I was wondering if you could just give us any more color around the mix of renewals throughout the year I would imagine Q4 is typically has the most renewals out of all four quarters but maybe if you could just provide more color in the mix maybe which quarter do you think there's more risk um you know to to a higher mix of renewals in case they don't potentially renew thank you thanks Andy so two things so one there is definitely seasonality right in our business and we've talked about it you've highlighted Q Q4 that's that's typically our highest quarter um of deals and I think second what I've talked about earlier it's you know this um this idea of a halflife um you know the closer you are to the Sun the hotter it is uh the more difficult it is in terms of the headwinds and as you move farther and farther out uh you see um you know more relief so the impact gets less so if you combine those two things that's how that's how I would think about the renewal cycle our next question comes from Roger Boyd with UBS please unmute your line and ask your question great thanks for taking the questions and I will uh add my congrats on the response and resilience demonstrated over the last month um George just on the hypergrowth modules nice to see that group pass hundred billion dollars collectively or one billion collectively um it's sounded like the timeline you reiterated the 101 billion doll AR Target sound like the timeline got pushed towards the longer side of the five to seven year range you You' provided before um would just love to get kind of your your view on on the durability of growth there get there's a lot of uncertainty but just kind of any view on on how you expect it to play out is the Right View that you just see this as kind of a one-year speed bump towards those longer term um uh guidance yeah I'll start and then I'll turn over to bird when we think about the durability of crowd strike I think we we've demonstrated it this quarter we've you know had a history of durable growth uh because we're solving real problems for customers and when you look at uh some of the businesses that we talked about identity and cloud and uh nextg Sim a billion dollars is is incredible you look at the growth rate so we've got uh multiple vectors uh of growth for crowd strike we've got a massive Tam opportunity that's only getting bigger and you know we we always at crowd strike have and will continue to take a long-term view of the market so um we're going to deal with this you know in the short term and then obviously um I think this sets us up well for the future Bert yeah so uh Roger the key here is that we remain committed to reaching the 10 billion in ARR by the end of 2031 I mean that's the you know that was part of the range that we gave out uh you know in Prior periods and and we're still committed to it our next question comes from Joseph Gallow with Jeff please unmute your line and ask your question hey guys thanks for the question um can you just update us on the the federal momentum you're you're entering their biggest quarter and how how should we think about that business does the it outage slow momentum there given they're they're typically pretty conservative thanks sure well Q3 obviously is is is the federal quarter um I think we've got good momentum uh we've done uh I think well with the sisa relationship that we have and you know as as many things in the federal space it takes time and we continue to build momentum and uh and win deals in those categories and not only Federal but we think about state and local uh incredibly strong across the board and and we're just talking about the US right we do this uh for the rest of the world so we like our opportunity there those are always long-term opportunities um but we're certainly encouraged uh in terms of the success that we've had so far our next question comes from Greg Moscow Moscow ktz with mizuo please unmute your line and ask your question okay uh thank you for taking the question um and uh also uh well done in terms of the transp Arcy I had a clarification just on the customer commitment packages and crowd strike's future expansion strategy uh is part of the plan effectively giving away um you know modules to existing customers for upwards of a year in other words when you speak about um an expectation of muted upsell dollar values and temporarily temporarily higher um levels of contraction is this part of the seaing strategy that uh you're referring to well start with uh we always want to do the right thing for the customer and um you know customers we're solving business problems and they like our technology they love our technology right so when we think about the opportunity uh to drive greater platform adoption um certainly that should be added into the conversation and um what we've seen over time and we' built a history of Greater module adoption you can see that uh since you've been tracking this uh from our IPO so from that standpoint um we do think the long-term opportunity Cruise well for crowd strike and um having customers use more modules is always a good thing and that's what we're focused on thank you this concludes today's question and answer session I would now like to turn the call back over to George CTS for closing remarks so thank you all for your time today we appreciate your continued support and look forward to seeing you at our upcoming investor event at Falcon thank you