CrowdStrike Q1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
June 3, 2025
Earnings Conference Call
CrowdStrike Q1 2026
00:00 / 00:00

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Operator

Hello, and welcome to CrowdStrike's fiscal first quarter twenty twenty six financial results conference call. At this time, all participants are in a listen only mode. After the speakers' presentation, we will conduct a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the call over to Maria Riley, vice president of investor relations. Maria, please go ahead.

Maria Riley
Maria Riley
VP, IR at CrowdStrike

Good afternoon, and thank you for your participation today. With me on the call are George Kurtz, Chief Executive Officer and Founder of CrowdStrike and Burt Podbeard, 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, including projections and expected performance, including our outlook for the second quarter and fiscal year twenty twenty six and any assumptions for fiscal periods beyond that 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.

Maria Riley
Maria Riley
VP, IR at CrowdStrike

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 disclosed 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 earnings press release, which may be found on our Investor Relations website at ir.crowdstrike.com or on our Form eight k filed with the SEC today. With that, I will now turn the call over to George.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Thank you, Maria, and thank you all for joining our q one f y twenty twenty six earnings call. Our fiscal year started from a position of strength. While the market navigates evolving condition, CrowdStrike is capitalizing on accelerated demand through continuous innovation, increasing win rates, and platform consolidation at scale. We consolidate point products without compromise, and most importantly, CrowdStrike stops the breach. In q one, where we met or exceeded our key metrics, highlights include, one, q one net new ARR of $194,000,000, double digit millions ahead of our expectations.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Two, q one ending ARR surpassing $4,400,000,000, maintaining our leadership as the only pure play cybersecurity software company of this size. Three, subscription gross margin of 80% demonstrating our AI platform efficiency. Four, sustained 97% gross retention as customers remain firmly committed to Falcon. Five, free cash flow of $279,000,000 or 25% of revenue, demonstrating double digit quarter on quarter growth. And six, added $774,000,000 of total FalconFlex account value, bringing the total deal value of accounts that have adopted FalconFlex to $3,200,000,000, growing 31% sequentially and more than six times year over year.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Seeing our customers and ecosystem embrace Falcon Flex at this speed and scale gives me confidence. Confidence in improving sequential net new ARR growth next quarter and accelerating back half net new ARR. Falcon Flex is significantly evolving our go to market and customer experience. The subscription model sparks Falcon platform adoption, delivers point product consolidation, and fuels partner success. I'd like to share where we are with Falcon Flex as well as a thematic customer win showcasing the power of the model.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

In less than two years since starting Falcon Flex, we've closed more than $3,200,000,000 of total account deal value across more than 820 accounts that have adopted the subscription model. Here are the trends we're seeing. One, customers spend more. The average flex customer deal size is greater than $1,000,000 in ending ARR. Two, customers commit to longer durations.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

The average flex subscription length is thirty one months. And three, flex customers adopt Falcon faster. More than 75% of flex contracts are already deployed. The outcome of these points taken together is a phenomenon we're already seeing, reflexes. 39 flex customers have already deployed their initial contract demand plan and have returned to us for a reflex.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

These customers' initial flex contracts were thirty five months, nearly three years on average, and within just five months, they came back to CrowdStrike wanting more of the Falcon platform to achieve their cybersecurity consolidation goals. The model we pioneered is a game changer. Flex accelerates what would have taken years of module sales cycles into rapid platform transformations, unlocking adoption and spend while creating even more platform stickiness. Now let's witness Flex in action at a Fortune 100 technology firm. We began our relationship with this account pre FalconFlex when they selected CrowdStrike to displace and consolidate a point product EDR and legacy AV.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Our initial EDR contract was for $12,000,000 over a three year term. When we launched FalconFlex, this customer took the opportunity to accelerate their cybersecurity modernization, executing a five year one hundred million dollar plus contract. This is the power of Flex, evolving Falcon from what was a singular outcome sale into a multidimensional platform experience more than eight times the size of the initial deal. This transformational Flex contract was for securing cloud workloads, expanding in other business units, next gen SIM to replace two legacy SIMs, and broad based adoption of Falcon Complete to standardize detection and response. Within just nine months of the initial flex contract, this customer had already utilized 95% of their initial subscription and still had more point products to consolidate and cybersecurity outcomes to deliver.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

As a result, in q one, this customer reflexed to realize the following new outcomes, expansion of Falcon Endpoint Protection across multiple additional business units, replacing and consolidating cloud protection with Falcon cloud security, which has since become the standard across a vast and growing cloud estate. Identity protection became an imperative across sensitive assets. Next gen SIEM quickly became the central enterprise data store, replacing multiple legacy SIEMs and expanding beyond security use cases into IT. Data protection is replacing legacy DLP from endpoint to cloud. Falcon for IT is replacing a legacy endpoint management tool, and Charlotte AI will deliver agentic analyst capabilities and automation, accelerating security outcomes at scale.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

This customer more than doubled their initial Flex subscription in their q $1.09 figure reflex over an unchanged subscription duration. Through Flex, this customer now spends nearly 20 x their initial EDR purchase, Replacing more than eight technologies and deploying more than 10 Falcon modules, this customer still has much more to achieve with the Falcon platform across millions of workloads, petabytes of data, and hundreds of thousands of identities. With Flex dramatically accelerating Falcon platform adoption, customers are already seeing our agentic AI transforming their security outcomes. We're on the cusp of the fifth industrial revolution with artificial general intelligence on the horizon. What excites me the most is the necessity AgenTik AI is creating for CrowdStrike's AI native security, growing our total addressable market each and every day.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Here's why and how. In a recent market survey, 96% of respondents plan to expand their use of AI agents in the next twelve months with two thirds already building agents and some targeting to reach over 1,000,000,000 in production agents. At their core, every AI agent represents a unique superhuman identity, necessitating visibility, control, and protection for every single agent. These autonomous AI agents increasingly have access to multiple internal and external data stores, applications, and machines, automating business processes and workflows at scale. Simply put, AI agents dramatically increase speed of the enterprise attack surface.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Size, more agents everywhere. Severity, everything is connected faster than it can be contained. Speed, autonomous agents move at machine speed. This is the new attack surface, and it's an adversary's paradise. Just as enterprises need best in class protection for devices, data, workloads, and human identities, every AI agent has the same needs too.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

As an AI first company, CrowdStrike is uniquely positioned to secure the identity, the workload, the infrastructure, the data, and underlying AI models themselves. We have the platform. We have the expertise. We have the track record. CrowdStrike will be the protector of autonomous AI agents.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

While we see a massive opportunity to protect AI agents, our use of AgenTik AI is already transforming the SOC. Charlotte AI is our AgenTik security analyst, completing tasks and making decisions to supercharge human SOC personnel. With the launch of Charlotte AI's expanded detection triage, customers now have access to an agentic SOC analyst delivering autonomous expert level triage, reasoning, and response at machine speed, flattening the hiring curve, saving time, and delivering even better security outcomes. The power of Charlotte AI came to life in an 8 figure FalconFlex expansion for a global health care provider. Charlotte AI was the tip of the spear in this customer's AI native SOC transformation with NextGen SIEM where we displaced a legacy SIEM.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Charlotte AI and NextGen SIEM started a new chapter of cybersecurity for this customer. Charlotte AI enables this customer's level one threat analyst team delivering on the promise of agentic security today. We deliver an AI first automated approach eliminating clicks, panes of glass, and manual operations for a predictive, fast, and cost efficient SOC. Next, I'll share updates on the momentum we're experiencing in our cloud, identity exposure management, and next gen SIEM platform products. First, turning to our cloud business.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Cloud had a very strong start to the year with q one net new and total ARR growth accelerating year over year over the prior quarter. Our native unified offering combines cloud workload protection, posture management, application security, and SaaS security on a single back end and with both agent and agentless form factors. In q one, we built on this approach with the launch of cloud data protection all on our unified sensor, the very same sensor that also delivers our world class workload protection, which is what the market now wants and needs. Our innovation and commercial success was recognized in the 2025 Frost Radar Cloud and Application Runtime Security Report, where we scored highest out of all vendors on the innovation index. Further driving our success is recent m and a in the space, increasing our relevance and competitiveness as a hyperscaler agnostic independent solution.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

We also announced the general availability of both our AI model scanning and AI security dashboard technologies at RSA. With the rapid growth of AI tools across the enterprise, CrowdStrike is ensuring that enterprises can safely adopt AI while managing potential risks such as mono vulnerabilities, data leakage, unsanctioned use, and identity based privilege. A prime example of a customer adopting Falcon cloud security was a 7 figure technology customer doubling their spend with us. This customer had CrowdStrike on the endpoint and was using a competitor's point product, CSPM for cloud protection. The incident response call came into CrowdStrike when the competitor's CSPM didn't stop the breach.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

A rapid platform expansion including Falcon cloud security quickly illustrated the difference between just alerting on a breach and actually stopping one. This customer was able to consolidate on Falcon, save money, and most importantly, the benefits of Falcon cloud securities protection. Moving on to our exposure management business, which includes vulnerability management and attack surface management. CrowdStrike is rapidly evolving from an incumbent complement to a scaled disruptor. Historically, our biggest displacement gap was the lack of network scanning, something near and dear to me as someone who pioneered the vulnerability management space.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

With the launch of AI powered network vulnerability assessment, CrowdStrike now delivers unified exposure management for both managed and unmanaged devices. With this innovation, CrowdStrike customers no longer need to rely on legacy third party vMpoint products. Our winning offering in this space is yielding exciting share gains. A large financial services customer purchased Falcon Exposure Management across 120,000 devices through their Flex subscription. Utilizing Charlotte AI and Falcon Exposure Management together allows for AI to finally automate vulnerability detection.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Now with network vulnerability scanning, this customer is moving away from their long standing legacy VM vendor and their existing attack surface management vendor as well. Moving on to our next gen SIEM business, where we're disrupting the proverbial horse and buggy with the combustion engine. Our next gen SIEM delivered triple digit ending ARR growth while displacing antiquated expensive and poor performing point products. With lock scale as a foundational component of the Falcon platform, we're creating even deeper tie ins across the rest of the Crowd Strike and third party ecosystem. This quarter, we announced Falcon Adversary Overwatch for next gen SIEM, which brings together our world class threat hunting and our hyper performant cost efficient data platform.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

This makes the AI powered SOC turnkey hunting across native and third party data with real time intelligence and automation to deliver full visibility, high fidelity alerts, and accelerated response. This is exactly why a leading payments company displaced a legacy SIEM in a large 7 figure win. Next gen SIEM was our entry point to the account where they were frustrated with ballooning costs, latency, and complexity. Substantially faster query times, accelerated and customizable dashboarding, and significant cost savings resulted in this new logo win. Within our identity business, we continued rapid expansion in both coverage and functionality.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

In April, we announced the general availability of Falcon Privilege Access. Before CrowdStrike's identity customers relied on third party integrations for enforcement. Today, CrowdStrike customers experience just in time access and permissions for critical applications and services all within our single AI native platform. The need is real. A foreign government expanded their 7 figure existing Falcon platform subscription with identity protection, Gaining insights into stale accounts, exposed credentials, shared passwords, and agent free unmanageable devices went beyond the incumbent's limited approach.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Falcon was the clear winner providing immediate time to value in securing identities. Our ecosystem partners continue accelerating CrowdStrike's growth with 60% of our q one annual deal value sourced by partners. Several highlights include, first, GuidePoint joins our $1,000,000,000 partner ranks as our fifth partner to achieve this noteworthy milestone, joining AWS, Optiv, CDW, and SHI, and further cementing CrowdStrike as cybersecurity's benchmark for partner success. Second, our MSSP business continues growing at a rapid pace, now representing more than 15% of our q one deal value. We won our largest Latin American deal of all time through our MSSP channel last quarter.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

And third, NVIDIA's recently announced Enterprise AI Factory, their reference AI architecture, integrates Falcon as the cybersecurity standard for securing NVIDIA's hardware and software. A marquee partnership with Microsoft, which we announced yesterday, highlights our bold ecosystem leadership. Since last summer, we've worked to find common ground where together we can make the world a safer, more resilient place. I was pleased to have Satya join me at Falcon last fall, and yesterday, we announced a joint threat actor strategic collaboration where we map each other's adversaries naming conventions. Through this Rosetta Stone collaboration, we unite defenders in knowing the adversary, both in our nomenclature and Microsoft's, so they can better defend.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Together, we take the guesswork out of adversary attribution for the benefit of our joint customers and the entire market. In closing, I'm very pleased with where we are and even more excited about where we're going. Q two will be a quarter of improving sequential net new ARR growth followed by back half net new ARR acceleration. Here's why. The platform wins.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Across 30 Falcon modules, we have the products and innovation engine that stops breaches. In addition, we're seeing momentum build across the entire business. I began today's comments talking about uncertainties facing the world. What's certain is that the world increasingly needs cybersecurity and increasingly needs CrowdStrike. CrowdStrike is best positioned to protect the workloads, identities, data, and infrastructure for the AI age and the superhuman AI agents themselves.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Our FalconFlex subscription model is accelerating platform adoption at a faster pace than we've ever seen before, and our execution is delivering speed and efficiency across the business. It's all of these elements together that gives me confidence and excitement in our future, and that's why the company has authorized up to $1,000,000,000 in share repurchases. I'm more certain than I have ever been of CrowdStrike's place as the world's leading cybersecurity platform for the AI era with the unequivocal mission of stopping breaches. Thank you to our team, partners, and customers who tell me that they cannot live without CrowdStrike. And I'll now turn the call over to Bert Podbeare, CrowdStrike's CFO.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

Thank you, George, and good afternoon, everyone. As a quick reminder, unless otherwise noted, all numbers except revenue mentioned during my remarks today are non GAAP. CrowdStrike delivered a strong first quarter to kick off the new fiscal year. Our robust Q1 performance, focused execution and growing FalconFlex momentum including reflexes further reinforce our conviction in improved sequential net new ARR growth in Q2 as well as net new ARR reacceleration and margin expansion in the second half of FY twenty twenty six. Additionally, the share repurchase authorization of up to $1,000,000,000 that we announced today reflects our confidence in CrowdStrike's long term strategy, including M and A, growth prospects and robust cash flow generation capabilities as we scale on the path to $10,000,000,000 in ending ARR.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

We will continue to prioritize investing in our growth and innovation while retaining the flexibility to opportunistically repurchase shares to maximize returns and deliver increased value to our shareholders. In Q1, we achieved net new ARR of $194,000,000 growing ending ARR to $4,440,000,000 up 22% over last year. Highlights in the quarter included significant big deal activity driven by Falcon Flex momentum and reflexes, record MSSP channel results, strength in multiple geographies including The U. S, Europe, Canada, Japan and Latin America, deep platform adoption with subscription customers with six, seven and eight or more modules representing 48%, thirty two % and twenty two % respectively, strong and increasing competitive win rates and sustained 97% gross retention and consistently strong net retention in line with our expectations demonstrating our success in both customer retention and expansion. Moving to the P and L, total revenue was within our guidance range and grew 20% over Q1 of last year to reach 1,100,000,000 Subscription revenue grew 20% over Q1 of last year to reach $1,050,000,000 and professional service revenue was a record $52,700,000 The geographic mix of first quarter revenue consisted of approximately 67% from The U.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

S. And 33% from international geographies. Total gross margin was 78% and subscription gross margin was best in class at 80% of revenue. Total non GAAP operating expenses in the first quarter were $656,000,000 or 59% of revenue. In the first quarter, non GAAP operating income was $201,100,000 and operating margin was 18%, exceeding our guidance.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

We achieved strong non GAAP operating income performance alongside strategic upfront investments in internal automation, go to market and AI innovation. We expect these investments to fuel our growth in the back half of FY 2026 and beyond as we progress towards our long term targets. GAAP net loss attributable to CrowdStrike was $110,200,000 and included $39,700,000 of expenses for outage and related matters. Non GAAP net income attributable to CrowdStrike was $184,700,000 or $0.73 on a diluted per share basis, exceeding our guidance. Cash and cash equivalents grew to a record 4,610,000,000 Cash flow from operations was a record $384,100,000 and free cash flow was $279,400,000 or 25% of revenue.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

Expenses for outage and related matters impacted Q1 free cash flow by approximately $61,000,000 Moving to our outlook and modeling notes. We believe cybersecurity remains mission critical in today's AI accelerated threat environment. We continue to see strong demand for the Falcon platform, growing momentum with Falcon Flex, including reflexes and a robust and growing pipeline building for the second half of FY twenty twenty six. While we do not guide to net new ARR, our Q2 assumptions include the sequential net new ARR growth rate to be at least double over what we saw from Q1 to Q2 in the prior fiscal year. I'd like to take a minute to discuss the near term relationship between ARR and subscription revenue in FY twenty twenty six.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

As we previously discussed, our successful CCP program that concluded in Q4 of FY twenty twenty five provided customers the one time ability to choose more product, more time or both, which results in an impact to subscription revenue. In addition, a limited special partner program related to CCP success also has an amortization impact on subscription revenue. As a result of these CCP related programs, we expect to see a temporary near term separation between ARR and subscription revenue recognition, which was reflected in our revenue guidance. This amounted to approximately $11,000,000 in Q1. We expect the impact to be in the range of $10,000,000 to $15,000,000 in each remaining quarter of this fiscal year, subsiding in Q4.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

Moving to the strategic realignment plan we announced in early May, we continuously look for optimizations and efficiencies across the business. We identified opportunities to reallocate and focus investment in one, platform growth areas of cloud, identity, exposure management, AI and next gen SIEM as well as platform resilience. Two, AI to accelerate our internal execution and efficiency. And three, go to market and customer success as we scale. The timing of executing the realignment in early May was focused on minimizing in quarter business disruption while maximizing in quarter financial benefit.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

We expect the full benefit of the realignment to add at least 1% to next year's non GAAP operating margin from our previously discussed target increasing our target in FY 2027 to at least 24%. Additionally, we now anticipate an FY 2027 improved free cash flow margin of more than 30%. Moving to cash, we expect to incur Q2 cash charges of approximately $26,000,000 in connection with the aforementioned strategic plan. Additionally, we expect Q2 free cash flow to be impacted by approximately $29,000,000 for outage and related expenses. As I just mentioned, we now anticipate an FY twenty twenty seven free cash flow margin of more than 30%.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

Moving to our outlook. For the second quarter of FY twenty twenty six, we expect total revenue to be in the range of $1,144,700,000 to $1,151,600,000 reflecting a year over year growth rate of 19%. We expect non GAAP income from operations to be in the range of 2 and 26,900,000.0 to $233,100,000 and non GAAP net income attributable to CrowdStrike to be in the range of $209,100,000 to $213,800,000 We expect diluted non GAAP net income per share attributable to CrowdStrike to be approximately $0.82 to $0.84 utilizing a 22.5% tax rate and weighted average share count of approximately $255,000,000 shares on a diluted basis. For the full fiscal year 2026, we currently expect total revenue to be in the range of $4,743,500,000 to $4,805,500,000 reflecting a growth rate of 20% to 22% over the prior fiscal year. Non GAAP income from operations is expected to be between 9 and $70,800,000 to $1,010,800,000.0 dollars We expect fiscal twenty twenty six non GAAP net income attributable to CrowdStrike to be between $878,700,000 and $909,700,000 Utilizing a 22.5% tax rate and approximately $256,000,000 weighted average shares on a diluted basis, we expect non GAAP net income per share attributable with CrowdStrike to be in the range of $3.44 to $3.56 Please refer to our earnings presentation with additional modeling notes that we just posted on the website. George and I will now take your questions.

Operator

Thank you. If you would like to ask a question, please click on the raise hand button, which can be found on the bar at the bottom of the Zoom window. You may remove yourself from the queue at any time by lowering your hand. When it is your turn, you will hear your name called and receive a message on your screen notifying that you may unmute yourself. In the interest of time, participants will be limited to one question.

Operator

Our first question comes from Saket Kalia with Barclays. Please unmute your line.

Saket Kalia
Saket Kalia
Managing Director at Barclays Capital

Okay. Great. Thanks for taking my question here and solid start to the year here, guys.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Thank you. Thanks, Saket.

Saket Kalia
Saket Kalia
Managing Director at Barclays Capital

Sure thing. George, maybe for you. I'd love to dig a little bit more into Falcon Flex. You had a couple interesting customer examples in your prepared remarks. Maybe the question is, as you look broadly at that at that growing FalconFlex installed base, what products do you feel like are benefiting most in terms of usage as as customers adopt FalconFlex?

Saket Kalia
Saket Kalia
Managing Director at Barclays Capital

And maybe relatedly, how is the sales motion changing as FalconFlex gets more broadly adopted?

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Sure. Well, I think that the net of it is FalconFlex has been a real home run for a second. And as I said in my prepared remarks, a real game changer for adoption. Customers are asking for it. They're talking to each other.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

They're hearing more about it. Our partners are now able to talk about it and and sell part you know, through it. And a big part of this has been around next gen cloud, and identity. I think if you look at next gen SIEM with some of our larger GSIs, Falcon Flex is the perfect complement to running out existing legacy licenses and then being able to to bring up next gen SIEM. So I think, for sure, next gen SIM is one of the areas that's benefiting.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

And when you look across the metrics, 3,200,000,000 total account value for FalconFlex customers, 820 customers, thirty one months on average. It's been just unbelievable and more successful than we thought. And one of the things that I pointed out here in the earnings script is the reflex. We're seeing more and more reflexes faster than we thought. And the key to to flex is it does change our selling motion where we're not selling module by module, but we're selling outcomes, and we're doing demand planning with our customers.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

And ultimately, they're using more of our licenses faster, which ultimately results in net new increase in ARR.

Saket Kalia
Saket Kalia
Managing Director at Barclays Capital

Very helpful. We'll move to

Maria Riley
Maria Riley
VP, IR at CrowdStrike

our next question.

Operator

Next question comes from Tal Liani with Bank of America. Please go ahead with your question.

Tal Liani
Tal Liani
Analyst at Bank of America

Hi, guys. I would like to go back to something you said about the divergence between revenue growth and ARR growth. I understand why CCP is pressuring revenue growth just near term, But why is it causing a divergence? Why don't why isn't it impacting the same way ARR? And just a follow-up on this is why you said that you expect ARR growth to accelerate in the second half. Why is it what drives it?

Burt Podbere
Burt Podbere
CFO at CrowdStrike

Thanks, Tal. So one, in terms of the divergence, we talked about it in the modeling notes where we went through our, you know, overall CCP programs, and then we highlighted specifically our CCP program, well, that had with respect to a limited partner program. And we talked about how the amortization impacts revenue. So when you look at the two of them and you say, hey. How does this work with respect to, you know, the our, you know, our revenue?

Burt Podbere
Burt Podbere
CFO at CrowdStrike

When you look at when partners have a program with us, we then are able to recognize the amortization within within revenue. So this would be part of a ASC six zero six, and so this is how we account for it, and that's why you see the divergence. In terms of, you know, how we think about, you know, reacceleration in the back half. So reacceleration in the back half is due to many things. One, we think about we think about not only our what we expect from our our products that we have.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

You know, clearly, we have momentum with respect to what George talked about, next gen SIM, identity, cloud. So we feel great about where we have the momentum with respect to the products. We feel like we have momentum with respect to Flex. We talked about Flex. We talked about the the numbers that we had with reflect with respect to Flex, 774,000,000 with respect to account value in the quarter.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

This is over double that we did, you know, year over year. So we're really excited about how we think about flex. And then when we talk about reacceleration in the in in ARR, we're also talking about how we think about the momentum just in our overall platform. We are the consolidator. We're the one that people are looking to to not only get the best outcome but to save money.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

So when you wrap that all together, we get we get confidence with respect to our conviction in back half reacceleration.

Operator

And we'll go to our next question. Our next question comes from Gabriela Borges with Goldman Sachs. Please unmute your line.

Gabriela Borges
Gabriela Borges
Analyst at Goldman Sachs

Hi. Good afternoon. Thank you. George and Bert, some of these reflex deals are really interesting. Talk to us a little bit about the budget conversation that happens.

Gabriela Borges
Gabriela Borges
Analyst at Goldman Sachs

If I was budgeting for thirty five months and I burned through my usage in five months, where does the incremental budget come from, and how does the ROI conversation change? Clearly, customers are getting value out of it if they're using the product. Just curious how that map works out. Thank you.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Yeah. Great question. So a lot of what we're doing with customers, is going through the demand plan and our business value assessment, and that's really where we can talk about how we can replace other point products. So, typically, the conversation will look at customer road map. They'll look at, certainly, our road map and the products we have in the 30 modules, and then we'll begin to plan the phased rollout of our products to replace what they have.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

And, you know, in general, what we're focused on is how can we save them money by replacing those point products and ultimately getting a better outcome. So Flex is gonna give them the best discounted rates. The more they commit, bigger the discounts. And then, also, it takes all the friction out of procurement. So they can roll us out, and within five months, as we talked about, they can consume that that flex license, but we're now on a path to adding more modules faster.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

And once they see the value of it and they they're using all of the products or the products that they're licensed for within the flex suite, it it just incentives to to use more and more of those. So that's the way we see it. It's instead of module by module sale, it's more of a demand planning exercise with real tangible ROI and financial benefits, which has been a huge success for us and our partners.

Maria Riley
Maria Riley
VP, IR at CrowdStrike

And we'll take our next question.

Operator

Our next question comes from Brian Essex with JPMorgan. Please unmute your line.

Brian Essex
Brian Essex
Executive Director at JP Morgan

Great. Good afternoon. Thank you for taking the question. George, I was wondering if you could talk about the sales go to market effort and how that's changed. Obviously, you're coming off a pretty meaningful period of disruption in the second half of the year, and you you try to adjust compensation structures and focus to focus on CCP and penetration of flex.

Brian Essex
Brian Essex
Executive Director at JP Morgan

How have things changed in one q? Have have have plans materially changed the way that you're you're compensating quota bearing reps in the channel? And, you know, how has response been from the Salesforce? Thank you.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Well, I think the response has been great from a Salesforce perspective and customer perspective. They the customers have put it in the rearview mirror. We've moved forward, with our customers and partners. And, you know, the focus really has been on innovation that we're delivering on how we can consolidate the point products they have, the power of the Falcon platform, Charlotte AI. You know, we're back to business in the areas that that we've always focused on, which is really exciting for us.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

And I the big takeaway is customers wanna do more and more with us. And we're seeing that with the adoption rates, and we're seeing that with the burn down of the the FalconFlex licensing much faster than we originally anticipated. So, you know, there's there's still more work to do in terms of, you know, educating partners and and our own Salesforce in this go to market motion around demand planning, but, you know, that's an exercise that always be ongoing, but we're seeing tremendous success both internally and with our partners.

Maria Riley
Maria Riley
VP, IR at CrowdStrike

And with that, we'll go to the next question.

Operator

Our next question comes from Andy Nowinski with Wells Fargo. Please unmute your line.

Andrew Nowinski
Andrew Nowinski
Analyst at Wells Fargo

Okay. Thank you for taking the question. I wanted to follow-up on Falcon Flex and the really the impact it has on both revenue and ARR because it seems like it has a very different impact. So I guess, you know, when a customer burns through their contracted credits faster than they expected and they reflex, does that overage flow into your subscription revenue or do they have to reflex to a new contract right away? And where where do we see that showing up?

Andrew Nowinski
Andrew Nowinski
Analyst at Wells Fargo

I mean, does that show up in your net new ARR when they reflex, or is that RPO? Just any help you can give us on on hours how we can measure the success of that reflex and where we see it showing up? Thank you.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

Hey, Andy. Great question. So the you know, where it shows up is basically on the reflex. So when a customer burns through all of their their flex, they're gonna come back to us and say, look. We wanna reflex with you.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

We enjoyed what you have. We wanna do more of what you have, and that's where you're gonna start seeing, you know, the net new ARR come into play.

Maria Riley
Maria Riley
VP, IR at CrowdStrike

And we can go to the next question.

Operator

Our next question comes from Keith Weiss with Morgan Stanley. Please unmute your line.

Keith Weiss
Keith Weiss
Equity Analyst at Morgan Stanley

Excellent. Thank you guys for taking the question, and congratulations on a solid start to the fiscal year. George, I wanted to touch on something, you said in your prepared remarks about the, generative AI demand on on the horizon. And definitely agree with you in terms of the expansive sort of demand potential there is behind generative AI. There's also a lot of different types of demand that you could see.

Keith Weiss
Keith Weiss
Equity Analyst at Morgan Stanley

Like, you're talking a lot about surface area, but you also have it in your products. There's also the threat environment. Can you give us a little bit of visibility on on what's hitting today? What's actually driving demand today for you guys? Is it what you guys are doing in your SIEM product?

Keith Weiss
Keith Weiss
Equity Analyst at Morgan Stanley

And and what's up more on the horizon? What should we be looking forward to going forward in terms of what could be future demand drivers?

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Sure. Well, when we think about AI, when I started CrowdStrike, it was AI first company. You know, years ago, it was machine learning, now AI. But at the end of the day, what we're able to do is to deliver the right outcomes to customers. We'll take Charlotte AI as an example.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

It just seemed tremendous growth in the product itself and the adoption within the customer base and what we're able to really solve for them in saving hours and hours of work coming up with the right results, which really helps to automate level one triage and really free up those resources internally. So that's, again, how we use AI to drive workflow automation as well as get better security outcomes. When we think about the protection piece, we have model scanning model protection today, and we're we're doing that for customers. But, really, what I highlighted in the call is something that I'm really excited about, and that is if you think about CrowdStrike and you think about what we do and how we've evolved, we protect workloads, computers, users' identities. Right?

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

That those are those are today's speed. When we think about generative AI and and really what I would call autonomous agents, they have the same needs, but they're superhuman. They have access to data. They have identities. They have access to systems outside of their own environment.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

They have workflows. They take action. So it's building those guardrails and then instrumenting the visibility and protection across the entire AI workflow. And the every agent, and there could be billions of agents, are gonna need protection, and that's where we see a fantastic future opportunity. And we're gonna be at the tip of the spear being able to protect those in the future.

Operator

And we will move to the next question. Our next question comes from Matt Hedberg with RBC. Please unmute your line.

Matthew Hedberg
Matthew Hedberg
Software Analyst at RBC Capital Markets

Great. Thanks for taking my questions, guys. Congrats on the results. Not an easy environment for sure. George, I wanted to ask about US Fed.

Matthew Hedberg
Matthew Hedberg
Software Analyst at RBC Capital Markets

I guess, how has it been trending? Sort of what's baked into the guide? And if if there's any comment that you could make on you know, there's a Bloomberg article earlier in May, that that would certainly be helpful.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

So I'll take I'll take the the second part of your question. Any comments with respect to Bloomberg? So for us, the the company, you know, and how and how the and how Bloomberg, you know, reported what they reported. The company received requests for information from the DOJ and the SEC relating to revenue recognition and reporting of ARR for certain transaction for certain transactions, the July 19 outage, and related matters.

Maria Riley
Maria Riley
VP, IR at CrowdStrike

And with that, we'll go

Operator

to the next question. Our next question comes from Joe Gallo with Jefferies. Please unmute your line.

Joseph Gallo
Senior Vice President at Jefferies & Company Inc

Hey, guys. Thanks for the question. Bert, can you provide some guardrails on how to think about free cash flow margin this year? I think previously, you talked through an exit rate. And then maybe just talk a little bit more about what underpins your confidence in 30% plus margin next year. Thanks.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

Yeah. Sure. So, yeah, though, we we we did talk about, you know, the 27% exit rate on q four for free cash margin. We're we're excited about that. And then the 30%, we get most of our conviction from, you know, what we've already been talking about.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

We get it from Flex. We get it from larger, longer, bigger deals, and we get a lot of momentum with respect to, you know, how customers, you know, burn through Flex. We gave you those examples faster than we anticipated, and all that's gonna turn into into dollars for us. And that's where we get excited about next year's free cash flow free cash flow numbers that we provided.

Operator

Next question comes

Mike Cikos
Senior Analyst at Needham & Company

from Mike Sikos with Needham. Please unmute your line. Great. Thanks for taking the questions here, guys. I I just wanted to get a quick update on what you're seeing more from a macro standpoint as far as April and May.

Mike Cikos
Senior Analyst at Needham & Company

We we received some differing data points depending on which of the fiscal quarter end cyber companies you're speaking to, And just wanted to sanity check if you guys are seeing any movement at the margin when we think about how things are playing out in in the month of April versus the linearity in the quarter and then how things have trended with May in the rearview mirror at this point. Thank you.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Yeah. I I think we did a great job on execution. And with the right platform and solving the problems that we're solving, you know, we powered through it. Like, you look at the results with net new ARR. It was fantastic.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Again, customers wanna buy more and more from us. Next gen SIM has been a total home run. So, you know, I can only focus on what we can control, and I think the team did a fantastic job in an environment that had a lot of noise to power through it and and deliver the results that we delivered.

Maria Riley
Maria Riley
VP, IR at CrowdStrike

And we'll go to the next question.

Operator

Our next question comes from Shaul Eyal with TD Cowen. Please unmute your line.

Shaul Eyal
Managing Director - Equity Research at TD Cowen

Thank you. Hi. Good afternoon, guys. Jordan, my question is on next gen SIEM. Success is absolutely unquestionable.

Shaul Eyal
Managing Director - Equity Research at TD Cowen

I listened to your tone. Looking at the presentation. It's it's unequivocal. If if we think about one or two legacy same incumbents that you are most frequently displacing, who would those be?

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

You know, I would say it's across the board, but I certainly, a big player out there is Splunk and QRadar. So and, you know, others are out there, but you have to look at the the legacy incumbents and, you know, customers are looking for better, faster, and better value. So that's what we're delivering, and it's all in an integrated package. And a big part of our success has been it's already built in. All of our customers actually have next gen SIM, and they get 10 gigabytes of it basically built in.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

So it's it makes it easy for them to try it out. And then when they see the results of it, they don't have to move data out of our platform. It's already there. And then we're converting them internally and and as well as working with our GSI partners. So I think this is one of the the most exciting areas that we have.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

And for us, it feels a lot like the legacy AV market when I started the company. And I I think, you know, we've got a tremendous amount of runway in front of us, and I just hear time and time again from customers. We cannot believe how fast it is, how well it works, and, you know, the value we're getting from it. So I think overall, we'll continue to see great success with it.

Maria Riley
Maria Riley
VP, IR at CrowdStrike

And we'll go to the next question.

Operator

Our next question comes from Roger Boyd with UBS. Please unmute your line.

Roger Boyd
Roger Boyd
Executive Director at UBS Group

Great. Thanks for taking the question. George, I wanted to hit on MSSP. I think you said 15% of bookings coming from that channel this quarter. If I look at kind of two years ago, it was maybe kind of in the mid single digits, so a much more significant piece today.

Roger Boyd
Roger Boyd
Executive Director at UBS Group

Can you just expand on the momentum there? What's going well, your competitive positioning with those partners and where you see the channel going, particularly as you look to engage partner first on a managed SIEM, managed SOC basis?

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Yeah. Well, we've spent a lot of time and effort over the last couple years of working with those channel partners, working with the managed service providers, adding the capabilities that they need to be able to deploy and manage CrowdStrike very easily. There's always been a demand for us in the SMB and through managed service providers, and we had to meet that demand in a way that makes sense for the managed service providers. We've made those changes. It's very easy to use and deploy within those environments.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

And the big thing is customers have been and continue to ask for it, and we're winning against our competitors. I mean, we we are now in a market that we weren't necessarily in, and we're having an impact on in in the competitive environment. And that, for me, is, I think, a bright spot and really highlights the partner first mentality we have.

Maria Riley
Maria Riley
VP, IR at CrowdStrike

And we'll go to the next question.

Operator

Our next question comes from Peter Levine with Evercore ISI. Please unmute your line.

Peter Levine
Managing Director at Evercore ISI

Great. Now thank you for taking my question. Maybe for you, George. You know, at RSA, I think you announced a privileged access management, product for identity. You know, you have identity FalconFlex identity.

Peter Levine
Managing Director at Evercore ISI

So maybe if you could share with us, like, what are what's your vision within getting deeper into the identity management space?

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

Well, when you look at what we have with our identity protection, we're we are there with our agents. We're built in. We've run on very critical domain controllers. And customers for years have asked us, can you do more in that space? They love our identity product, and now we have the ability to help them with privileged access.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

And we continue to add more and more capabilities. It's a it's a it's a big TAM. It's an area that we've got expertise. We've got the real estate of having these agents, and customers are looking for the consolidate the consolidation play, and they're also looking to save money. Some of the other solutions are very expensive.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

And by consolidating on CrowdStrike in that area, it's a win for them, and it's a win for us. So we'll continue to add more and more capabilities, and it does unlock a new TAM for us today in the future.

Maria Riley
Maria Riley
VP, IR at CrowdStrike

And we'll go to our last question.

Operator

Our last question comes from Keith Backman with BMO. Please unmute your line.

Keith Bachman
Keith Bachman
Senior Research Analyst at BMO Capital Markets

Thank you very much. Hopefully, you can hear me okay. Bert, I wanna direct this to you if I could. On the CCP, just trying to get a little bit of help how to think about it in the second half of the year. So last year in the October and January quarter, you identified 80,000,000 of CCP.

Keith Bachman
Keith Bachman
Senior Research Analyst at BMO Capital Markets

And so presumably, as custom as you anniversary that, how does that layer into the back half of the year opportunities in terms of ARR? Does would we just add it to kind of normal back half of the year growth? Or any comments on exactly how that layer cakes into the second half of the year? And if you don't mind, could you just repeat what you said about the July in terms of sequential growth in terms of net new ARR? Many thanks.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

Yeah. So, Keith, thanks for the question. So first, let me just, you know, start with saying that, you know, as I said earlier about Flex, you know, when the Flex licenses start burning out, that's the opportunity for customers to buy more. If that and all the new purchases that they make, that all goes into net new ARR. And the momentum we're seeing, it gets us to that confidence level with respect to, you know, back half acceleration that we keep talking about and have more and more, you know, conviction too.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

When we think about the 80,000,000 so the 80,000,000 was with respect to deal value that we gave out, and we talked about that number. And then, you know, when you heard the my prepared remarks today, I'm I'm talking about impact from CCP on revenue specifically, and then I got into specifically about, you know, the the partner programs that we have. And, you know, we talked about, basically, for q two and beyond, around 10 to 15,000,000 per quarter. The other thing I wanna mention is that when we think about our module and module retention rates, we're over we're around approximately 95% with respect to module retention rate. That gives us that confidence with respect that our customers are gonna come back to flex and and re up with with flex, which is a big piece of how we're thinking about, you know, neck the back half of this year.

Burt Podbere
Burt Podbere
CFO at CrowdStrike

Not only, by the way, do we think about, you know, net new ARR, but I talked about, Keith, you know, margin expansion in the back half of next year. I don't wanna lose sight I want you to lose sight of that as well.

Operator

Thank you.

Maria Riley
Maria Riley
VP, IR at CrowdStrike

Operator?

Operator

This concludes today's question and answer I would now like to turn the call back over to George Katz for closing remarks.

George Kurtz
George Kurtz
Founder, CEO & Director at CrowdStrike

I want to thank everyone for joining us today, and we look forward to seeing you on our next earnings call. Stay well.

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