CrowdStrike Holdings, Inc. (CRWD) Barclays 2022 Global Technology, Media and Telecommunications Conference (Transcript)

CrowdStrike Holdings, Inc. (NASDAQ:CRWD) Barclays 2022 Global Technology, Media and Telecommunications Conference Call December 8, 2022 2:35 PM ET

Company Participants

George Kurtz – Co-Founder & Chief Executive Officer

Burt Podbere – Chief Financial Officer

Conference Call Participants

Saket Kalia – Barclays

Saket Kalia

Excellent. Well, hey, I think it’s still good — good morning, everyone. Welcome to Day 2 of the Barclays TMT Conference. My name is Saket Kalia. I cover software here at Barclays. Honored to have the team with us from CrowdStrike. We’ve got George Kurtz, Co-Founder and Chief Executive Officer. We’ve got Burt Podbere, Chief Financial Officer. We’ve also got Maria Riley and Will Zelver in IR around here somewhere. There we go. There’s Will.

So just to frame today’s discussion, we’ve got about 30 minutes together. Let’s take maybe the first 20 or 25 minutes and do a little bit of fireside chat with the team which I know is going to be fun. And then let’s make this interactive, right? If you got any questions, just pop up your hand. We’ve got a mic right around here. We’d love to make it interactive. So maybe all of that as a framework, George, Burt, thanks so much for being with us here today.

George Kurtz

Always great to be here.

Burt Podbere

Great to be here, Saket.

Question-and-Answer Session

Q – Saket Kalia

Won’t be a conference without CrowdStrike. Guys, maybe clearly, all of us know the company. So maybe a good place to start just to level set for everybody is can we just maybe recap some of the key operational and financial highlights that you — you guys were most proud of from the most recently reported quarter?

George Kurtz

Well, I think there’s a lot to be proud of in 2 particular areas when you look at our free cash flow, record free cash flow of $174 million plus. And I always like to — we talked — Burt and I talk a lot about this is we’ve never been a growth at all cost company. And you look at our rule of 40 which is 83%, I think it was 83% on a free cash flow basis, a $2 billion-plus ARRs were [indiscernible]. So you look at that. And then obviously, everything revolves around customer. Our net retention numbers which we’ll give out in total at the end of Q4, were at record levels for the last 7 quarters in line with Q2 and then our gross retention, same. So customers like what we have. They want to buy more and we’re generating a lot of cash flow from that.

Burt Podbere

Yes. The only other one that I’d like to highlight is the record non-GAAP operating income. That just speaks to some of the unit economics that we always watch and we’re always on top of. We are not a company that grows at all costs. We want to make sure that we’re handling the expenses responsibly and we’ve been doing that for quite some time. So we’re excited about that, too.

Saket Kalia

Yes. Absolutely, lots to be excited about there. Burt, like all of our companies here at the conference, right, a lot of talk about macro. Maybe you could just tackle a little bit of that from the last quarter. Can we just walk through some of the moving pieces there with the net new ARR? And maybe part of the question as well is, at what point in the quarter did you really start to see some of the — some of those macro items start to manifest?

Burt Podbere

Yes. So for us, we really had line of sight for hitting our expectations right until the very end of the quarter. Like the last 2 weeks, we saw a couple of things. First, big picture, we saw pronounced macro headwinds and it manifested itself in 2 ways. One was on the non-enterprise deals where we saw at the end of the quarter, we saw them push out to the tune of $15 million. And we saw sales cycles in that non-enterprise market increased 11% over the last quarter. Second place where it manifests itself is in structure for our enterprise deals, where we saw some of the enterprise folks have staggered start dates. We’ve always had staggered start dates but we saw an increase over the last quarter to the tune of about $10 million.

And that’s — and to be very clear what that is, is that if a customer has 100,000 endpoints that they want to deploy our workloads, they might do 50,000 in this quarter and 50,000 next. That would be one example. Another example is a customer buys 7 modules, whatever it is. And the sixth or seventh they might push into the next quarter. So that’s how that manifested itself in terms of actual dollars.

Saket Kalia

Yes, absolutely.

George Kurtz

Yes. So just to be clear on that, so ACV is there. It doesn’t convert to ARR until they start the subscription.

Saket Kalia

That’s right. That’s right. So closed deals. Just a matter of meeting the — being flexible with the customer which I think makes a lot of sense. Maybe you mentioned the non-enterprise part there, Burt, so maybe a little bit of a tag-team question. First, Burt, can you just remind us roughly how big is that non-enterprise or SMB or whatever you want to call it kind of part of the business? If I remember at the time of the IPO, it was roughly, call it, 20%. You correct me there if I’m wrong. I think the — an even more interesting question though for you, George, relatedly, is you talked about how win rates in that SMB part of the market actually went up in the quarter. So I was wondering if you could just dig into that as well. Who are you winning against? And yes, maybe we start there.

George Kurtz

So when you look at the SMB market, it’s something we spend a lot of time on, particularly with products like Falcon Go and even Falcon Complete because a lot of SMBs have high risk. They’re using other technology, signature-based technology getting attacked and ransomed. And we’ve been able to swap them over to CrowdStrike. I think what’s important to realize that some super fragmented, highly fragmented market. I mean, you’ve got everybody and their brother in the SMB from all the traditional signature-based AV players to more of the next-gen folks like us.

And again, we’ve seen a lot of success there in the product offerings but also in things like Falcon Complete because we can — and I use this example, I — Burt and I were — we look at all the deals as they come by and there was a deal that came by. It was a $2,000 just pure AV credit card buy, right? Online, no touch AV. It’s all flight. It went into the inside sales team and the inside sales team got a hold of it and convert — well, essentially, they asked the customer like what are your challenges? What are the problems? We don’t have enough people. We can’t run it but we have PCI requirements. Great. Let’s talk about Complete.

They left the building. They came in, they bought $2,000 and they left the building with a $40,000 annual contract for Falcon Complete. Now we’re literally giving them the best security where we’re putting $1 million breach warranty on it. And it would cost a couple of hundred thousand dollars for just one security person and for $40,000 to get the best of what’s out there and we handle it full.

Saket Kalia

Yes, absolutely. Burt?

Burt Podbere

Yes. So just to remind everybody, when we started the company, when George started the company, the deals we went after were enterprise and we categorized enterprise as 7,500 employees plus. And so there was a head start on the enterprise as opposed to the SMB. And then recently, we talked about the $1 million deals in terms of how much of ARR are out there for that and it’s roughly $1 billion. So you can do some of the math to kind of figure out where we are. So it’s not like one divorce the other but we’re really happy with the success of both actually. And really hard to do, right? Really hard for a company and George plated it this way that it’s the same tech, same tech that we use for our enterprise and for our SMB. Really, really hard to do.

Saket Kalia

Cast a really wide net, right, in terms of TAM.

Burt Podbere

Yes.

Saket Kalia

For sure. George, sorry to ask this question. I know it’s a fun and interesting topic but it’s a question that I got a little bit after last quarter and that was around competition with Microsoft, right? I think there was a fear that maybe Microsoft was having a greater impact on the corporate endpoint security market. The question is what do you see? Is that true? I mean — and I think even more important, why do you think CrowdStrike has a sustainable competitive advantage versus a Defender for business?

George Kurtz

Well, I mean, certainly, you have to respect Microsoft. There are big competitors out there and they got a lot of reach, right? So I mean, I’ve got to say that. But in terms of the technologies, like you have to start with the technology piece. Microsoft Defender is a legacy-based, signature-based AV product. If we thought that went so well with Symantec and McAfee, they wouldn’t be called Broadcom and Trellis, like? So we have to start there. Customers are looking for technologies that work and stop breaches. And in fact, we have a lot of customers that come to us that have been ransomed using Microsoft technologies and they’re buying a next-gen product like CrowdStrike.

So from that standpoint and we called it out in the conference call on the SMB side, our win rates are actually up and our enterprise win rates are consistent. And we actually — we were just — we had a bunch of meetings here today. We were talking to another group and they were asking about it and said, there’s a bunch of Microsoft E5 customers that use CrowdStrike. Why is that? Because it works and they’re concerned about security, right? So they have an E5 license and they’re still using CrowdStrike.

So again, we’re the — by market share in modern endpoint at 12.7%, we’re the number one leader but it’s still 12%, right? There’s still a lot more to go. And I think that is super important when you look at the efficacy, the cost advantage to using CrowdStrike and the fact that in a heterogeneous environment, it’s not even close.

Saket Kalia

Yes, absolutely. It’s funny. I mean, one of your other next-gen competitors mentioned something about the cost of going with a Defender for business actually being a lot more than the true next-gen solution.

George Kurtz

It’s a lot more people having 5, 6, 7 consoles and a lot more people actually manage it. And there’s a little bit of the just like on Christmas. You get the toy, batteries not included. Like where are the batteries, right? Servers are not included and it’s an extra expense for the sentinel. And by the time you’re done with it all, it’s like, well, we didn’t save any money, right?

Saket Kalia

Yes. I think it was really important. That’s interesting to hear. Burt, maybe shifting back to some of the financials. Again, like a lot of the other companies in security, we adjusted some of the nearer-term guide on revenue and ARR. I think the number that surprised a lot of us was the Q4 net new ARR potentially being down over Q3. I mean, just with — just the enterprise customers at CrowdStrike service, I mean, that I don’t think we’ve really seen it be down sequentially over Q3. So maybe the question for you, Burt, is can we just talk about some of the puts and takes there, whether it’s pipeline, close rates, discount, etcetera. Open ended, how do you think about that different seasonality?

Burt Podbere

Yes. So a couple of things. So one is with the uncertainty in the market and the macro headwinds that we’ve seen, we really didn’t assume the typical budget flush that we see in Q4. So that was number one. Number two is with — we saw, as I mentioned earlier, at the end of Q3, we saw this pronounced headwind. And what we said was we’re going to carry that pronounced headwind into Q4, right? And I think those 2 things were the reasons that we gave indication in terms of net new which is something we’ve never really done other than Q4 or Q1. We thought the additional transparency into how we think about net new is, I think, important for everybody. And that’s not — I think that’s consistent with how we’re trying to be giving out different stats over the years to help everybody kind of understand our business better.

George Kurtz

I think what’s important to realize is that we’re an OpEx budget, not a CapEx, right? So the OpEx moves around a bit more. And as companies are looking — I mean, every company is saying, okay, well, what do we need to do? We got to be profitable cash flow, etcetera. They look at their own business and they’re figuring out where they can spend those OpEx dollars. So I think that’s important. And then as Burt said, going into next year, I think we wanted to be prudent and just carry those headwinds forward.

Saket Kalia

Yes, absolutely.

George Kurtz

But what’s important to realize though is and I look at it and just try to simplify it, customers like the product, they buy more of it, net retention, gross retention, they keep the product. And in a space like we’re — I mean, in the current environment we’re in today, consolidate A, more agents and consolidate spend. And the one thing they really don’t have is headcount, to a product like Falcon Complete is a game changer for them. And we have a video that’s coming out, it’s not out yet but a customer, a real customer, they have 5 security people. They basically said, without Complete, they would need 40.

Saket Kalia

Wow. Well, I mean, a real ROI, right, in this type of environment, particularly. And George, I think that segues into an interesting question maybe back to you, Burt. First of all, thank you for the transparency for next year. I thought that was really helpful just kind of thinking through net new ARR conceptually. One of the questions that I got afterwards, right, just kind of thinking about the shape of that net new ARR next year. I think we’re assuming a little bit of improvement in the back half. I was wondering if you talk to that. I know in the first half, I think we’re thinking about a similar type of decline that we’re thinking about in Q4. You correct me there if I’m wrong. But obviously, there’s a lot of uncertainty here in the — for next year. But talk to us a little bit about that shape in the back half, why you feel comfortable with that?

Burt Podbere

Yes. So first, let’s start with — in Q2, we mentioned on our earnings call that we saw additional scrutiny right on deals. Then we just talked about Q3 in terms of where we saw more pronounced headwinds, both in the non-enterprise and enterprise. And then I think when we think about Q4, we just talked about the fact that we are not anticipating a budget flush. And so you’re looking already at a lower Q4 and year than originally thought about. And then that was the baseline. And then we said, hey, look, when you look at our first half of this year, it was robust. Q1, Q2 before the macro headwinds, it was robust. So then we gave the indication next year that, hey, the first half, we see up to 10% decline from where we were this year.

And then we said — we took it a step further and we said, okay, for the full year, we’re going to be flat or modestly up. And I think that it goes to the fact that we took the end of Q3 headwinds, the sharper headwinds that we saw, we carried them all the way though.

Saket Kalia

I think that’s really prudent, by the way. That makes a lot of sense. So maybe putting that — moving beyond the quarter, George, I wanted again some of the fun stuff with you, particularly with some of the newer emerging products. But actually, even before we went there, I want to talk about kind of where we are in the shift of legacy endpoint to next-gen. Maybe the question for you, George, is because you’ve been around security for years and years, right? I mean, what metrics do you maybe look at to gauge where we are in that shift? And what are those metrics telling you?

George Kurtz

Well, I can get back to our 12% number. We’re still pretty early on in the shift, right? And if you look, it’s still fragmented market. Obviously, we’re excited about our position in it but there’s a lot more to go. And there’s a lot more Symantec. There’s a lot more McAfee down market. There’s trend. There’s Sophos. There’s a cast of characters that are out there in different — and different geographies, right? You think about Japan. It’s a trend stronghold, right, as an example. So from the overall opportunity, you’ve got massive opportunity in still displacing legacy vendors. And then I’m sure we’ll talk about the cloud piece but then you move to the cloud and there’s actually no one to this place. It’s just nobody there, right? So that’s a total greenfield opportunity, still in the early innings of the journey even though we’ve been at it for a while. There’s still a lot of legacy technologies out there.

Saket Kalia

Yes, for sure. One thing I want to add to that as well is, in my view, this hasn’t just been sort of a one-for-one replace but I would argue with the shift to next-gen endpoint, we’ve actually helped expand the TAM as well, right? Because it’s just — this hasn’t just been AV. It’s been EDR. It’s been all the different modules on top of that.

George Kurtz

Well, it’s really the platform piece and that’s what I’ve said for a long time and you’ve known us way before the IPO. But I don’t look at the company as an endpoint company. I look at it as a security platform company that delivers its security via a form factor of an endpoint and cloud. And I think that’s really important because when you look at when I started the company, had one module, we got 23 today. We see how that is — that reflects itself into the unit economics and kind of the margin profile. But it’s not a point solution. It really is how do we do more with CrowdStrike, how do we collect data onetime and then use that for various workflows and then monetize those workflows.

Saket Kalia

Yes, absolutely. Burt, maybe just to dig deeper into some of the faster-growing parts of the business. I mean, I think you’ve recently — very helpful, by the way, provided some data points just on both the size and the growth rates around the amount of ARR coming through the public cloud as well as emerging module ARR. So maybe just to level set for all of us because I think they are important metrics, can you just remind us what modules are included in those categories? How are they performing?

Burt Podbere

Yes. So we’ve got four modules that are in the cutter. We start with our hygiene which will be called discover, so it’s IT hygiene. That’s number one. Number two is we’ve got a vulnerability management module which we call spotlight. Number three, we have our identity module which is identity detection and protection. And then we’ve got our fourth which is we call LogScale which is observability and log management. So those are the four. And then when we think about — we gave some additional data on cloud. And when we think about cloud in terms of the data that we’ve given out, it’s our Falcon modules that are in the public cloud environment. That’s how we think about our faster-growing modules. And we had a record in identity and record in LogScale. So we’re really happy with the results.

Saket Kalia

Yes, absolutely. I mean, a lot of those are exciting. But I got to tell you, I think identity is a really exciting area, right? So I mean, I think a few quarters ago, George, you mentioned that you see parallels in identity to the early days of EDR, right which I think is very interesting. Maybe you could just go into why you think identity has been so successful and how big that business can be over time?

George Kurtz

Well, if you sort of rewind a little bit, it gets back to the early beginnings of CrowdStrike, right which was my thesis is you have to stop breaches, not stop malware. And every other company, all the signature-based folks, it’s already focused on let’s stop malware and that’s not going to stop a breach, right? So you fast forward to today and when you look at the big breaches that you’ve read about in the news, they’re all identity-based. And just about all of it is around Microsoft technologies in Active Directory, right, either on-prem or on cloud. In some cases, again, somebody may again get with a vulnerability. And then as soon as the identity is stolen, they’re bouncing and moving laterally across the network which is a real problem.

So in 2022, I think there’s a recognition for any company, why did they want EDR? Well, they weren’t stopping breaches. They were just focused on malware. Okay, they bought EDR for that. Well, in 2022, there’s a huge element of non-breach-related activity that is identity-based over 80%. So if you want to stop breaches, if you bought into EDR, you’re going to have to buy into identity. And that’s really just the next extension of it. And the beauty of what we bought in pre-empt and now it’s totally integrated into a single agent is that in order to turn it on, we’ll send you a license. You know what I mean? There’s nothing to do. It’s already there. And that’s really important because we have the high ground in many of these critical infrastructures and domain controllers. Literally just turn it on and you get immediate results.

And what are we seeing? We’re seeing companies that use PAM technology, I’ll give you a great example. We had a huge company, big financial services that kept failing their PAM test, even though they had PAM because the identities were — it just wasn’t working for what a real breach. And they had to buy our identity product in order to pass the audit from the red teamers, right? And they knew what they were doing with identity and they had a PAM technology. So that’s the power of what we see. And there isn’t a customer that we have that should not be an identity customer.

Saket Kalia

Yes, that’s really interesting. We’ve got about 10 minutes left and shift to a couple of financial questions. But before we go there, any questions here from the audience? Burt, I — actually, you know what? Sorry, maybe I’ll start with just an ARR financial question. So I think, Burt, we said in the second quarter, emerging ARR kind of broke through that $200 million mark, right? And again, correct me there if I’m wrong, growing triple digits, right? So I mean, significantly faster than the base for several quarters now. Maybe the question is, maybe this is more of a qualitative answer than a quantitative one but how big of a contributor, right, can that emerging line be to ARR over time? And are these the type of products that are more so cross sold into your base? Or are these ones that you land with as well?

Burt Podbere

We’ll take the second part first. I think it could be both, right? I think we can lead with one of the emerging products or it could be an add-on into an existing base. So we’re really excited about the fact that they can be standalone or not, right? And that’s really important to understanding you have a platform, right? You can do either. And then with respect to where it can go, we’re really excited about those products. They’ve done well for us. They can be a meaningful part of net new ARR. Obviously, as a percentage of the total, they got a while to catch up but those can be a meaningful part of net new.

And I think that we’ve seen some great traction in identity. We’ve got great traction in LogScale. And we’ve got some other products that we think can really be disruptive in markets and I’ll let George talk about that.

George Kurtz

Well, yes, if you look at cloud, we just won CRM CNAPP Award of the Year for our cloud technology. And what’s interesting to your point is we — there’s a couple of huge banks that use us that were just late in cloud adoption, shall we say. And the first thing they did was they put us in their cloud before we got the internal endpoint piece.

Saket Kalia

Oh, interesting.

George Kurtz

Yes. So we land it in the cloud and they’re like, okay, this actually really works well. And they let their licenses run out and then we were there. And basically, we got some really massive deals out of it.

Saket Kalia

Sure. Sure. it’s — I think it’s been a couple of years but I still think it’s a really compelling stat. How do you think about sort of the size of that security market, George? I mean, to your point, very much a greenfield market. How do you think about sizing that opportunity for cloud?

George Kurtz

Well, I look at the cloud market itself. And if you look at some of the numbers, I mean, massive TAMs, right? And then — and we did — I think it was about 2 years ago, 1.5 years, we did some webinar on this. But you kind of looked at the security — projected security spend and I think it was an IDC number. It was like 1% going to 0.9. Like 1% of your cloud on security just seems way low because on average, Gartner number is like 5.7% of an IT budget. So, we just thought that was artificially low. And how can you have a security spend actually go down? Like the numbers went down. It didn’t make any sense. So when we look at it, we think it’s like a 10x opportunity. And even just to 5.7%, it’s a massive, massive opportunity and it’s not just in one area. You have cloud workload protection, pretty easy to understand. You have things like CSPM which is kind of compliance and reporting using the APIs of a cloud infrastructure provider.

And then, you have all of the kind of shift left technologies, CI/CD pipeline, hygiene. How do you make sure that you’re not putting tainted containers and vulnerabilities into your pipeline and you have everything in between, right? And we think it’s a massive opportunity because there’s no one there and it’s still pretty fragmented. Whoever is there, it’s still fragmented because it’s in early innings.

Saket Kalia

Yes, yes, absolutely. Burt, one of the things we said at the outset was just the growth not being at all costs, right? And I just want to touch on that a little bit. I think in terms of margins, a lot of your security peers have been talking about slowing their pace of investments. You touched on that a little bit last quarter. But really, maybe the question is, how is CrowdStrike adopting or — yes, adopting to the changing environment, while still balancing sort of the need to invest for the future? And maybe as part of that, just remind us what you said about the target operating model.

Burt Podbere

Yes. So first and foremost, I just want to reiterate, we were never that company that bought growth at all costs. We’ll start there. Then as we think about the evolving macro, we said, “Hey, we had tremendous success in hiring talent this year, 40% from the end of last year through the first 3 quarters.” And we said, “Hey, we have a great opportunity to take that talent and really turn it into a high-performing talent across the board.” And we said, “Hey, what we’re going to do is we’re going to slow down hiring and we’re going to take what we have and make it better, more productive, enablement.”

And I think that, that goes a long way. It’s not that we’re not going to hire. We’re going to hire in very specific areas. We never want to sacrifice on our capacity planning. We want to make sure that, that’s still going to be what we’ve seen in the past and what it’s going to take to be successful in the future. And then we also talk about making sure that we’re not going to short-change ourselves on R&D. I think that curve still needs to continue. So for us, as we think about all of our spend which has been a great opportunity for George and myself to kind of drive that efficiency throughout the entire company, we have an opportunity to continue to show that leverage. And so an uptick, modest uptick next year in terms of our NGOI.

And then in terms of the target models, from a non-GAAP perspective, we start with subscription gross margin. We took that up over the years. It’s now 77% to 82% plus. In the near term, it’s going to fluctuate where it’s been. But I think the investments that we’re making, we have line of sight to getting to that 82% — 80% plus. It’s not going to be immediate. A lot of the things and investments that we’re making today, we need to continue to deploy that, those dollars to get there but we have a line of sight to get there. In terms of S&M, we look at 30%, 35%; R&D, 15% to 20%; G&A, 7% to 9%; operating margins, 20% to 22%. We’re committed to getting there by FY ’25. And then cash flow, we talked about free cash path to 30% for next year.

So all those things are talking about the continued leverage that we have and the model that we’ve built, the durable model. We’ve got in line of sight. We’ve got a really good handle in terms of our spend and a lot of that is true about tone at the top. George and I are in the — obviously, I run the annual operating plans but George is my partner of this, right, to go through the entire organization. And I talk about it with the entire company highest and best use. I think I say that 5 times a day to my own team and we drive that through the entire company.

Saket Kalia

Absolutely. I think maybe a somewhat related question here for George. But one of the questions that I got — just thinking about the capital margins which were great to see. One of the questions that I got after the last quarter was some of the customers that we have that were signing multiyear contracts are renewing with annual contracts. And so one of the questions that I got was, is that something that’s being driven by the customer? Is that something that’s being driven by CrowdStrike? And is there anything to read into that? Is there that macro? Is that just kind of par for the course? I’d love to address that a little bit if possible.

George Kurtz

Well, I think it depends on the customer and what they want to do and how they want to manage cash flow and business. From our standpoint, if you look at our gross retention rates, I mean, they’re 90-plus [ph], right? So we don’t mind a yearly renewal and then it’s a natural touch point for new budget, new modules, cross-sell, etcetera. So it always allows us to continue to upsell and co-term and things of that nature. And we’ve always had a flexible model in terms of if they want to buy 3 years, if they want to pay all 3 years upfront, if they want to pay just 1 year but a 3-year contract and having annual escalators. I mean, we — I think to Burt’s point, we try to be flexible to fit within their budgetary requirements. Some customers more cash flow sensitive. Other customers more P&L sensitive, right?

Saket Kalia

Yes. No, I think [indiscernible].

Burt Podbere

At the end of the day, we’re really trying to be the partner to our customers. And we’re going to do whatever it takes to do that.

Saket Kalia

Yes, absolutely. George — I’m sorry, Burt, just maybe on that point. Maybe a housekeeping financial question for you but I think it’s a helpful one. ARR is the metric that matters to Burt Podbere. We all know that. CRPO is something that every once in a while, we’ll get a question about them. Those are metrics, CRPO and ARR, just to make sure that’s said. But maybe just talk to us about some of the reasons why those growth rates might be different.

Burt Podbere

Yes. So we think about CRPO as a very noisy metric. First, that ARR is the metric that we focus on and it’s an annualized number. Let’s start there.

Saket Kalia

Yes.

Burt Podbere

And then what do I mean by noisy? It means that CRPO could be impacted by — with a headwind type of framework then we have seen positive trends in the business. So, I’ll give some examples. So number one, when we think about — George talked about — or we’re just talking about deal duration, right? So as we move from some of the 3-year deals that we initially struck to a renewal that’s 1 year that we like that, right? There’s some opportunities there. It’s a natural touch point for cross-sell and upsell but it has a — it will impact CRPO in a negative way. Another one could be our co-term, right? When we co-term, it could be less than a year. So we like — customers like co-term and it’s not bad for our business. It just would have an impact on CRPO.

And then finally, we do have billing schedules that are monthly or even on a consumption base. It could be whether it’s our cloud offerings or MSSP. And those durations are much shorter but that’s okay. That’s how an MSSP runs their business on a monthly basis. That could impact our CRPO. So we can have some benefits to the company but that have headwinds on our CRPO. So that’s why, again, we focus on that ARR.

Saket Kalia

Yes, absolutely. Maybe just in the last minute or so that we’ve got together, I mean, George, it was interesting. I mean, the lightweight agent and the power of the cloud, obviously, has been super disruptive, right, in the security market. There’s some interesting workflows, it feels like that you can kind of put around that. I was wondering if you had any thoughts on what sort of the future of that might look like.

George Kurtz

Well, as we continue to gain share and ground mind share and acceptance in many large companies and small customers have come back to us and said, “Hey, we want to do more in other areas. You have this really valuable beachfront real estate called the agent and it works. And people actually like it and the cloud architecture is super smooth. So can you give us more functionality around IT like asset information, the health and hygiene of systems, performance like at the operating system level?” So there’s — we’re already there. We already have that data. So things like Discover 2.0 with our asset graph and others are providing more value above and beyond just the initial security use case. And we think that’s good because we’re — the deals we’re doing, we’re at the CIO level.

The CIO is really economic buyer and your sort of budget holder to CISO. So we’re at both. But if you can talk to the CIO and say, “Hey, we can add other value in these areas.” Like just telling you what assets you have or providing automation. I can tell you during COVID, we were doing patch management. We did passwords resets. We did fixing people’s remote like code that they would blow things up. They would use our technology to do all of that. And that was the IT team because they couldn’t touch all these assets all over the globe.

Saket Kalia

Absolutely. Well, lots of fun things that we’d be asking George and Burt here but I think that’s about all the time we’ve got left. George, Burt, thanks so much for coming. Really enjoyed this.

George Kurtz

Great. Thanks, Saket.

Burt Podbere

Thanks, Saket. Thanks, guys.

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