CRWD Q2 Earnings Call
Analyst Questions/Answers
09/02/2020
IR: Maria Riley
CEO George Kurtz
CFO Bert Podbere
Analyst Questions
JP Morgan Question: ow much is business benefiting from Covid. What will happen after Covid?
George’s Answer: Covid has accelerated to a curation of the perimeter and accelerates movement to digital transformation. Companies can’t really keep their systems behind the perimeter any more. Reduces cost and produces a better outcome.
Barklay Question: George: Can you talk about the market size in endpoint? What other TAM is being created as endpoint is becoming the new perimeter? When new modules are added it adds to TAM. $30B is current TAM now, but it’s actually bigger than that. 5G, IOT, cell phones all get lumped into the “security” category.
Hiring: Continuing to aggressively invest in the business. Increased hiring in sales and marketing and have seen ROI that is working. Not going to take foot off the gas pedal.
Steifel Question: George- Appetite for replacing legacy and next-gen systems.
Answer: Seeing an acceleration in this area in order to get legacy systems into the cloud, they’ve first got to have the space secured. Digital transformation is here to stay and so is security. Right now, security transformation is under-covered, which means runway for CRWD’s solution.
Module adoption. Seeing increase in customers adding modules. Overall consider this to mean strong adoption that is and will continue to take place. Profitability means after the first module, it’s all profit, in terms of new logos and new expansion and upside, they feel there’s a unique opportunity to go after both. Bring them in seamlessly and drive more profitability while adding new modules to the platform.
Needham Question: Rapid rate of adoption last quarter was 75% q to q. Please provide update re growth vs. deceleration. George said seeing similar adoption re: big wins in the cloud such as Zoom and seeing great adoption. Only see it continuing to go very well in this regard. Metered billing being used and working well for customers.
Kubernetes – Beauty of CRWD technology is that it’s seamless for developers. DEV/Ops teams don’t have to change much because CRWD is so seamless and they run beneath the containers.
Question: NET New ARR was expected to be a low point, but it stayed stronger than they thought. Why is that? Acceleration of the deterioration of the perimeter. The single agent, single platform, data driven and ease of deployment and ease of management combined w/ competitive environment have resulted in better results than anticipated in this area this qtr.
New module additions: Winning net new logos, cross-sells and upsells/expansion. Feel there’s a tremendous amount of opportunity in both and they believe they’ll continue to expand in these areas. They pay their sales team the same in both areas.
Aquarry Capital Question: What’s driving the better unit economics? Are there some better than expected performance areas and profitability?
Answer from George: Since day 1, they’ve had an eye to unit economics. May of competitors cannot keep up with their technology and sales growth, which is driving the unit economics. Product and geo adoption are triangulated with this and it’s being done very successfully. Platform sells itself. Built a scalable technology and scalable sales model. Continuing to refine how they go to market and keeping cost of sales as low as possible.
City Question: RE: Home systems –How hard are you pushing monetizing on people working from home systems. They see a lot of interest in it but have not tried to monetize it heavily.
In SMB, where is your progress there? Had a lot of success in this market w/ sales process, changing from legacy systems that resulted in customers experiencing ransom ware.
Growing across the board, strong enterprise growth. Seeing the velocity of SMB picking up due to frictionless process in SMB and enterprise market.
Question: How are customers implementing Falcon compared to others?
Answer: Customers have different systems running side-by side w/ Falcon. API Driven is beauty of system, so CRWD can be plugged into other systems. Once they get in with their CRWD systems, overall, many customers start to expand into multiple CRWD modules.
Question: OKTA partnership - Do you have a shared economics agreement w/ OKTA and others?
Answer: No shared economics at this point, rather, focused on just creating the best outcome for the customers. Helping to drive zero trust, which helps and serves customers best. Customers are looking for vendors to just put together the best solution to meet customers needs.
Question: By how much do you think the endpoint footprint w/ your customers has increased in the last 6 months?
Answer: Have to look at it that w/ every device the customer buys, customer is putting more exposure in the cloud than just the one device, rather several apps per device.
Oppenheimer Question: MSFT – Endpoint security, has anything meaningfully increased?
Answer: Fundamentally it’s legacy and customers are looking for church and state, single solutions. MSFT is harder to operationalize. Customers want to keep it simple.
DA Davidson Question: Revenue contribution from cloud vs. traditional endpoints?
Answer: Have ability to bill on metered billing basis or on individual device. Just scratching the surface now and staring at 2023 transformation plan and yet they’re doing the transformation in 2020 because they have to secure the system first.
Question: RE: CRWD store –added Illumeo. Store vs. __________________.
Answer: Customers want to use API’s and workdflows vs. another agent, seamless integration is hugely helpful. 14 partners today and continuing to grow it out. Will look to monetize in the future. Now working on solving problems and serving customers.
Question: Customer case studies. Displacement rates –Has this shifted and accelerated?
Answer: Remains favorable. Shared donors including next gen players as they go through their renewal cycle. Customers are looking for better solutions and reducing the number of agents and consolidation.
Misc. Notes from earnings call
Huge increase in cyber crime
Customers are leaving legacy and next generation systems in droves.
Most systems store the threat at the endpoint, whereas CRWD stores it at the data center, fixes problem/breeches nearly immediately and distributes this threat across their network.
ZOOM now uses CRWD to protect their critical cloud and Lynix systems.
Speed of deployment and time to value are drivers for customers selecting CRWD. Displacing a patchwork of 3 separate silos of legacy and next gen security companies.
7,230 subscription customers as of the end of the quarter.
New customers realize that security transformation is critical to digital transformation.
Geographic performance is 71% of growth in US, 14% from Europe, etc. etc.
78% margin growth in subscriptions
They expect margins to fluctuate as they continue to invest in additional data centers.
Non-GAAP op income for the past 2 quarters, and expect to do so for the remainder of the year.
Will increase spending to invest in and grow their business
$1.1 B cash and cash equivalents
Guidance
Given the growth drivers of their business, they’re raising guidance for balance of yr.
Net new ARR