CRWD has prouced sterling results for the third quarter. I am posting summary highlights from the earnings call which I found interesting along with a bit of editorial comment in parenthesis. Hopefully some will find this useful.
Crowdstrike Q3 Earnings Call
Kurtz- In the third quarter we set a new record for net new ARR generated ; ending the quarter with over 900 million in ARR; delivering strong 87% subscription revenue growth and setting a new record for professional services revenue; adding a record 1,186 net new subscription customers; generating non-GAAP operating income for the third consecutive quarter and positive operating and free cash flow for the fifth consecutive quarter; introducing three new modules; acquiring Preempt Security which expands CrowdStrike’s Zero Trust capabilities and critical identity behavior data to prevent identity based attacks and insider threats; joined forces with EY to h strengthen their client cyber security posture with the Falcon platform.
… $117 million in net new ARR in the third quarter to end the quarter with $907 million in ARR. … our subscription customer base grew 85% year-over-year and dollar based net retention rate once again exceeded 120%.
No vendor is currently able to replicate our Threat Graph capabilities, which allows us to deepen our competitive moat.(CRWD has no serious competition on this score)
Our massive data lake within Threat Graph grows and gets smarter by the minute, providing visibility across all our customers. Threat Graph processes over 4 trillion high fidelity signals per week. Recent acquisition of Preempt Security, gives us access to a new set of user behaviors to drive new use cases such as preventing insider threats.(a massive opportunity)
… one data store, can analyze data almost instantaneously across our entire customer base providing real-time protection and community immunity and better training data for our AI algorithms. In the last nine months alone, close to 3,000 net new subscription customers have chosen Falcon.(competition can’t match this capability)
In total, we believe our addressable market will reach $32.4 billion in calendar year 2021, compared to the estimated $24.6 billion market in 2019, which we disclosed at the time of our IPO.
. In the third quarter, we continued to see rapid module adoption as percentage of all subscription customers with four or more modules increased to 61% and those with five or more modules increased to 44%.
In Q3 we reached a new milestone with 22% of our subscription customers having adopted six or more modules.
Stopping the breach is no longer just about protecting endpoints. It also encompasses cloud workload security and identity protection. We have been investing and innovating in both our cloud workload and Zero Trust capabilities… (Zero trust services are increasingly in demand)
………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 cloud workloads are massively under protected and this could represent a 10x market opportunity in 2023.,(and so there is a migration fromlegacy structures to CRWD services)
Based on IDC estimates, we believe the identity protection market will be a $2.2 billion market in 2021. CrowdStrike is a leading security provider in the market with a Zero Trust approach that combines endpoint and workload protection with identity protection, behavioral analytics, and AI.
We joined forces with Okta to help customers adopt a modern, identity-centric Zero Trust security ecosystem. This quarter, we are thrilled to announce that Okta is now a CrowdStrike customer.
Our Falcon platform is increasingly recognized as a mainstream market choice for enterprises around the world. We believe we are still in the early innings of our growth journey…
Podbere- In Q3, we delivered 81% ARR growth year-over-year to reach $907.4 million.New customer acquisition, and expansion business within existing customers drove substantial growth in the quarter resulting in record net new ARR of $116.8 million.We maintained our exceptional gross retention rate. Our dollar-based net retention rate once again exceeded 120%.
Revenue grew 86% over Q3 of last year to reach $232.5 million. Subscription revenue grew 87% over Q3 of last year to reach $213.5 million. Professional services revenue was $18.9 million, setting a new record and representing 74% year-over-year growth. We continued to see record demand for our services business.
This translated to a record number of seven-figure subscription ARR deals resulting from our services engagements for the second consecutive quarter.
We see strong growth in the U.S., as well as our international markets. Approximately 72% of third 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.
Third quarter non-GAAP gross margin improved to a record 76%, up from 72% a year ago. Our non-GAAP subscription gross margin increased to 78% compared with 76% in Q3 of last year.
Non-GAAP operating income was a record $18.9 million and operating margin improved 21 points over Q3 of last year to reach 8.1%. Non-GAAP operating income was a record $18.9 million and operating margin improved 21 points over Q3 of last year to reach 8.1%.
Cash and cash equivalents was approximately $1.1 billion. . Cash flow from operations was $88.5 million and free cash flow was $76.1 million.
For the fourth quarter, total revenue will be in the range of $245.5 million to $250.5 million, a Y/Y growth of 65% with subscription revenue being the dominant driver of growth. We expect total revenue to be in the range of $245.5 million to $250.5 million, reflecting a year-over-year growth rate of 61% to 65% with subscription revenue being the dominant driver of growth…
For the full fiscal year 2021, we currently expect total revenue to be in the range of $855 million to $860 million, reflecting a growth rate of 78% to 79% over the 2020 fiscal year. Non-GAAP income from operations is expected to be between $46.4 million and $50 million.
Q&A.
Q , … 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?
A we’re extremely pleased with this quarter and we’re extremely pleased with the momentum that we’ve seen going into Q4. We enter Q4 with a record pipeline and that’s a good signal in terms of what we’re seeing out there in terms of demand for our products.
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
Q… could you dig in a little bit to some of the key growth drivers in terms of subscriber count, as well as revenue per subscriber and how things are changing relative to prior periods with regard to initial landed deal size versus selling into or expansion into your install base?
A George Kurtz
, 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 tremendous amount of headroom in both going after new logos and we have a tremendous opportunity for expansion opportunities.
I think when you look at our module expansion and you look at our ability to cross-sell with a frictionless process, in-app trials, things of that nature, it’s across the board and there isn’t one particular area that just stands out. ……
we certainly talk a lot about our enterprise deals, but our SMB business has been doing fantastic because of our cloud delivery modules –
, it’s very easy for smaller companies to adopt this 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.
(evidently SMB growth is an increasingly significant future contributor.)
Q. Is there some reason you’re hitting an inflection point in your business at this point?
A George Kurtz…… you hit the nail on the head. To be clear, when we think about laptop purchases that’s 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
.
…., 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 (CRWD success is not Covid related. Expectation is growing demand for across the board for all services.)
Q… what factors specifically provided upside relative to maybe some of your conservatism around ARR
A…. for Q3 and the overperformance, there was a 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 the biggest reason that we had overperformance 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.( This is a major driver of current and future growth superior execution and strong customer demand).
Q.I’m curious what percentage of deals today are partner-led and where might that go in the future?
A…… the majority of the deals are all partner-led. As a channel first company, just about all the deals go through the channel … 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 the channel.
Because there is a strong demand for our technology, our partners are winning, they’re 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 EY, we’re really excited because they’re just so embedded in large enterprises, they are so trusted and to have our technology as part of the solution worldwide is really a great win for us and them and the customer.( and it also strengthens an already formidable moat)
lots of food for thought here
cheers
arnie