CrowdStrike Holdings, Inc.

Hello, thank you for standing by, and welcome to the CrowdStrike Fiscal First Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, press star 1 on your telephone keypad. As a reminder, today's call is being recorded. I would now like to turn the conference over to your host, Ms. Maria Riley, Vice President of Investor Relations. 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 CrowdStripe. and Burt 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, growth, and expected performance, including our outlook for the second quarter and fiscal year 2023, 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 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 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 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.com or on our Form 8K filed with the SEC today. With that, I will now turn the call over to George to begin.

Thank you, Maria, and thank you all for joining us. I will start today's call by summarizing three key points. First, fiscal 2023 is off to a fantastic start. We believe our Q1 results exemplify that we have a winning formula that includes scale, growth, profitability, and free cash flow. Second, we saw strength across the platform, including a record quarter for modules deployed in the public cloud and over 100% year-over-year ending ARR growth for our emerging product group, which includes our Discover, Spotlight, Identity Protection, and Log Management modules. And third, we are seeing more and more customers standardized on the Falcon platform. The number of customers adopting six or more and seven or more modules both grew more than 100% year over year. We believe this underscores our wide competitive moat and our opportunity to drive long-term sustainable growth in both our core and expansion markets. Now let's discuss our results in more detail. The CrowdStrike team achieved another outstanding first quarter. Building on our historic Q4, this quarter we delivered net new ARR of $190 million, topping our expectations. We delivered ending ARR growth of 61% year over year to exceed $1.9 billion, record non-GAAP operating profit of $83 million, and free cash flow margin of 32%. In eight out of the last 10 quarters, we have delivered 30% or greater free cash flow margin. Our powerful combination of growth, profitability, and cash flow is reflected in our continued performance well in excess of the SAS industry's rule of 40 benchmark. In Q1, we achieved a rule of 78 on a non-GAAP operating income basis, and when calculated on a free cash flow basis, a rule of 93. Given our market opportunity, platform subscription business model, and high unit economics, we believe we have the ability to continue to grow at scale, generate cash, and invest in initiatives that will further widen the gap between CrowdStrike and the competition, especially at a time when companies are forced to reduce their spending and hiring plans. I'd like to thank those of you who joined our investor briefing in April, where we showcased the simplicity and the power of the Falcon platform. We also demonstrated how our differentiated single agent architecture that does not require reboot enables a frictionless go-to-market motion with an e-commerce engine. We believe this is unique to CrowdStrike and translates to increased module adoption, deal sizes, ARR growth, and sales efficiency. And in Q1, we saw the flywheel effect and strong differentiation of the Falcon platform in motion. The demand environment we see is more robust today than this time last year as cybersecurity is not discretionary. Additionally, the competitive environment has remained favorable to CrowdStrike. Our growing leadership in the market is reflected in IDC's most recent report, where CrowdStrike leapfrogged to the number one position amongst all vendors in the 2021 market share for worldwide corporate endpoint security, and once again took the top spot in modern endpoint security. In Q1, we executed well across all market segments with over 1,600 subscription customers of all sizes choosing CrowdStrike for the fourth consecutive quarter. This brings the total number of customers that rely on Falcon to protect their business to 17,945, a 57% increase year over year. The first quarter was a record quarter for our e-commerce engine. Late in Q4, we significantly expanded our trial program increasing the number of modules available for trial to 12 up from just four modules in the prior quarter. The expanded trial program provides an even larger foundation to drive velocity through our e-commerce engine and makes it even easier for companies to trial and purchase more modules on the Falcon platform. And we're very pleased with the record performance in Q1. Our ability to rapidly innovate on the Falcon platform and solve a growing number of security imperatives for our customers with a single agent platform, provides CrowdStrike strong differentiation, wide competitive moat, and multiple growth engines in both our core and expansion markets. Our frictionless adoption motion drives larger deal sizes among both large and small customers over time and has translated to increasing module adoption metrics quarter after quarter. In Q1, subscription customers with four or more, five or more, and six or more modules increased to 71%, 59%, and 35% respectively. Given subscription customers with four or more modules surpassed the 70% milestone and is now commonplace, we are retiring this disclosure and raising the bar by introducing a new metric, customers with seven or more modules which reached 19% at the end of Q1. We are pleased with our strong module performance across the Falcon platform in both our core and expansion markets. I'd like to highlight a few standouts in Q1. First is Falcon Complete, our industry-leading full turnkey managed detection and response offering that uniquely blends technology and services to stop breaches for customers of all sizes. 2021 was a record-breaking quarter for Falcon Complete, with net new ARR reaching an all-time high. Falcon Complete has continued to gain momentum in the market as companies look to address the growing cybersecurity imperative and contend with the cybersecurity skills gap. By leveraging the advanced automation in the platform, Falcon Complete offers customers and partners a way to quickly and cost-effectively scale, fortify their cyber defenses with gold standard expertise and technology. We believe our massive success with Falcon Complete is a testament to the increasing trust customers place in CrowdStrike every day. As one of our largest customers recently posted on LinkedIn, quote, CrowdStrike's complete team allows our team to focus on the bigger picture without sacrificing the quality and detail of tier one response. End quote. Our growing leadership in the MDR market is also recognized by market research firms. In Gartner's recent market share managed security services worldwide 2021 report, CrowdStrike was ranked number one by market share. As we have added modules to the Falcon platform, we have introduced new complete offerings that extend beyond core endpoint, including complete for cloud workload protection, and complete for identity protection. This ability to create new extended offerings within the complete product line generates new multi-dimensional avenues to drive ARR growth. Moving to the public cloud, building on top of a strong Q4, the first quarter was a record quarter with ending ARR growth for public cloud deployments, accelerating quarter over quarter. As organizations are moving more workloads to the cloud, the adversaries are quickly following, and traditional security tools are not enough to keep pace with the ever-changing nature of cloud environments. CrowdStrike's cloud capabilities stand alone in the market by delivering agent-based and agentless solutions delivered natively from the Falcon platform in a single user interface with a shared data backend in ThreatGraph. The combination of agent-based and agentless capabilities in the cloud enables pre-runtime and runtime protection, whereas agentless only solutions can only offer partial visibility and lack remediation capabilities. Additionally, the dynamics of the public cloud put an even higher emphasis on the importance of a lightweight agent. The time we took at the inception of CrowdStrike to design the agent with the lightest footprint amongst all competitors and that doesn't require reboot, makes our agent perfectly suited for cloud deployments. One of our marquee wins this quarter was a global financial software company that was looking to protect its private cloud and growing public cloud environment. In this cloud win, CrowdStrike was chosen over the competition given Falcon's unified interface across public, hybrid, and multi-cloud assets, ease of use, superior performance, and speed of detections. In the quarter, we introduced new cloud native application protection platform or CNAP capabilities to accelerate threat hunting for cloud environments and workloads and reduce the mean time to respond. The new capabilities we announced provide the visibility, automation and cloud hygiene necessary to defend against today's adversaries. Identity protection is another emerging area where we are seeing growing success in the market with the number of customers subscribing to these modules growing more than 30% quarter over quarter. Our identity protection solution is a game changer in the fight against ransomware and preventing lateral movement. This was demonstrated in the recent MITRE prevention evaluation in which Falcon achieved 100% prevention and our identity protection module stopped the would-be attacker before it could even gain access to the target environment. redefining what it means to stop the breach. In terms of opportunity, we see many similarities between this new emerging market and the EDR market at its inception, with customers not knowing how much they needed until they saw it in action. To demonstrate this point, I'd like to share feedback I personally received via text from a longstanding Falcon customer. Quote, we are doing our POC of identity protection. And it alerted us that all members of domain users errantly had permissions to reset the machine for one of our domain controllers. We fixed it immediately and identified the root cause. We never would have found this in a million years, and it could have been used to do great harm. We really are in love with this product. Thanks to you and the team for building these amazing tools for us, end quote. And on the Humio front, we are seeing increasing momentum in the log management space with customers. Additionally, our resellers, MSSPs, and technology partners are excited about building their businesses with Humio. With the recent sales enablement and quota assignment for the global CrowdStrike sales team, our pipeline of log management opportunity is rapidly growing. Specifically in Q1, we secured wins with new and existing CrowdStrike customers, including a Fortune 100, industrial company, a Fortune 500 materials manufacturer, and a large health services provider. Moving to the market dynamics and threat environment, we continue to see powerful tailwinds fueling our market, and we do not currently see any indication that these trends will abate anytime soon. These tailwinds include a rapidly expanding attack surface and digital supply chains as organizations embrace digital transformation and move more workloads to the cloud. the cybersecurity skills gap, and a heightened threat environment. We remain in a shields-up threat environment with adversaries rapidly evolving their tactics. Ransomware is no longer enough for advanced e-criminals. They are now weaponizing the data they extract by periodically leaking it to the public in an effort to extort their victims and drive even higher paydays. Over the past few months, I spent significant time traveling to meet with customers, prospects, partners, and fellow CrowdStrikers. I found it energizing and inspiring to resume in-person engagement, and I would like to share with you a few recurring themes from my conversations. First, cybersecurity is an essential technology that underpins modern business, and we see this growing as regulators sharpen their lens on cybersecurity requirements. As a result, cybersecurity is a growing priority in boards of directors, and initiatives to fortify an organization's security posture and reduce enterprise risk are being discussed, evaluated, and funded at the highest levels. Second, in order to cope with the skills gap, organizations are looking for technologies that help them achieve more with fewer human resources. CIOs and CISOs are looking for a true platform that delivers on the promise to consolidate agents, reduce complexity, simplify operations, and reduce operational costs. This includes replacing legacy log management and SIM products, and that is why they are so excited about Falcon XDR. And that brings me to my third point, trust. I heard directly from boards, CIOs, and CISOs that when it comes to cybersecurity, the importance of trust increasingly eclipses price during the buying decision. In fact, we saw this exact dynamic in a key win with a leading-edge tech innovator and S&P 500 listed company where we were competing against Microsoft. Even though this new customer is a Microsoft-first shop, we were told that the buying decision, which the board of directors was actively involved in, ultimately came down to who they trusted to protect them from their worst day. Before I hand it over to Bert, I will share one more recent new subscription customer win where the incumbent vendor fell short of expectations. This global business process service provider based in Europe was struggling with their Microsoft deployment as complexity and misconfiguration pitfalls were hampering their efforts to protect their heterogeneous environment. After months of continuous issues, they fell victim to a breach and turned to CrowdStrike for incident response and endpoint recovery services. During the remediation process, this customer was able to experience firsthand the value of trusted expertise, and the ease and speed of deploying Falcon across their environment. This led them to adopt Falcon Complete, which was fully up and running only 24 hours after the expanded engagement was completed. Falcon Complete is highly differentiated in the market as competing offerings only notify the customer of a problem, whereas Falcon Complete with Fusion no-code security automation will proactively remediate any issues. In closing, I would like to thank each and every CrowdStriker for your passionate focus on making CrowdStrike the trusted cybersecurity company. With that, I will turn the call over to Bert to discuss our financial results in more detail.