Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CrowdStrike Holdings Inc (CRWD, Financial) reported Q2 revenue of $964 million, ahead of guidance.
- Ending ARR grew 32% year-over-year to $3.86 billion.
- Record non-GAAP operating income of $227 million, growing 46% year-over-year.
- GAAP profitability for the sixth consecutive quarter.
- Free cash flow of $272 million at 28% of revenue, achieving a Rule of 60.
Negative Points
- The July 19 incident delayed deals into subsequent quarters, impacting Q2 results.
- Extended sales cycles and additional scrutiny are expected to impact near-term results.
- Customer commitment packages are expected to temporarily mute upsell dollar values and increase subscription terms.
- Potential legal exposure related to the July 19 incident remains uncertain.
- Visibility into the back half of the year is less than typical, impacting guidance.
Q & A Highlights
Q: There's been a lot of talk around whether Microsoft or customers may want to limit kernel access for future updates. Will CrowdStrike have to rearchitect their approach to the Falcon agent?
A: George Kurtz, CEO: Despite false narratives, this was not a kernel update but a configuration update. We have best-in-class architecture, leading the industry in efficacy, manageability, and scalability. We will continue to work with Microsoft on kernel access enhancements but remain confident in our current architecture.
Q: What are you seeing from the pipeline and competitive perspective post-incident?
A: George Kurtz, CEO: Customer conversations have been positive, focusing on our transparent response and continued trust in CrowdStrike. Many customers are looking to do more with us, emphasizing the consolidation benefits and superior outcomes of our platform.
Q: Can you touch on Falcon Flex and how it's helping post-outage?
A: George Kurtz, CEO: Falcon Flex was developed based on customer demand for easier and more flexible consumption of our platform. It allows customers to turn on and move between modules without procurement friction, driving better security outcomes and long-term loyalty.
Q: Have you seen any change in customers' willingness to buy more modules post-incident?
A: George Kurtz, CEO: Customers still prefer consolidation over a patchwork of products. They recognize the adversary lives in the gaps between products and continue to see CrowdStrike as a key consolidator in the market.
Q: Can you explain the guidance methodology for the back half of the year?
A: Burt Podbere, CFO: The biggest impact comes from the customer commitment package, which we estimate will impact net new ARR and subscription revenue by approximately $60 million. We applied a consistent and prudent approach to our guidance, considering delayed pipeline generation, longer sales cycles, and muted upsell values.
Q: How should we think about the impact of customer commitment packages on future growth?
A: Burt Podbere, CFO: The impact will diminish over time, with Q3 being the hardest hit. We expect to see an acceleration in the business starting in the back half of next year, driven by increased module adoption and deeper customer partnerships.
Q: Will Falcon Flex become the predominant go-to-market approach?
A: George Kurtz, CEO: Yes, Falcon Flex will be a primary mechanism for go-to-market, allowing customers to consume our entire product portfolio flexibly. It minimizes procurement cycles and supports long-term growth.
Q: Can you provide more color on the mix of renewals throughout the year?
A: George Kurtz, CEO: There is seasonality in our business, with Q4 typically having the most renewals. The impact of the incident will lessen over time, with the hardest hit in the nearer quarters.
Q: How is the federal momentum, especially given the recent incident?
A: George Kurtz, CEO: We have good momentum in the federal space, with strong relationships and continued success in winning deals. The federal market is a long-term opportunity, and we are encouraged by our progress.
Q: Are you giving away modules to existing customers as part of the customer commitment packages?
A: George Kurtz, CEO: We aim to solve business problems for our customers, and greater module adoption is beneficial for both customers and CrowdStrike. The long-term opportunity from increased module usage is positive for our growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
