CrowdStrike Holdings, Inc. (CRWD) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial performance, with record net income and high subscription gross margins. Product development is robust, with emerging segments performing well and AI integration enhancing offerings. Market strategy is solid, with strategic partnerships and a focus on observability. Financial health is strong, despite high operating expenses. Shareholder returns are not explicitly mentioned, but overall guidance is optimistic. The Q&A section supports these positives, with analysts showing interest in growth areas. The absence of market cap data suggests a moderate reaction, leading to a positive stock price prediction.
Key Financial Performance
Net New ARR $265 million, grew 73% year-over-year, beating expectations by more than 10%. This growth was driven by strong customer demand and platform consolidation.
Ending ARR $4.92 billion, accelerated to 23% growth year-over-year. This reflects the success of the single platform strategy and increased customer adoption.
Free Cash Flow $296 million, representing 24% of revenue. This was a record quarter for free cash flow, driven by strong operational performance.
Operating Income $265 million, representing 21% of revenue. This marks the second consecutive quarter of record operating income, driven by strong top-line performance and operational efficiency.
Falcon Flex Ending ARR More than $1.35 billion, growing more than 200% year-over-year. This growth was attributed to the adoption of the Flex subscription model, which facilitates faster platform adoption.
Revenue $1.23 billion, grew 22% year-over-year. Subscription revenue grew 21% to $1.17 billion, and professional services revenue was $65.5 million. Growth was broad-based across geographies and customer segments.
Non-GAAP Gross Margin 78%, with subscription gross margin at 81%. This improvement reflects operational efficiencies and strong revenue growth.
Non-GAAP Operating Expenses $703.2 million, representing 57% of revenue. This includes a typical increase in sales and marketing expenses due to the annual Falcon conference.
Non-GAAP Net Income $245.4 million, or $0.96 per diluted share. This was a record quarter for net income, driven by strong revenue growth and operational efficiency.
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Operating Highlights
Falcon Next-Gen SIEM: Achieved record net new ARR quarter, integrated into a unified single platform, and expanded partnership with AWS to provide access to millions of AWS customers.
Falcon Shield: Had a record net new ARR quarter, growing nearly 50% sequentially, addressing SaaS application security needs.
Falcon Cloud Security: Delivered Q3 record net new ARR, positioned as a leader in cloud runtime security, and expanded with acquisitions like Pangea.
AWS Partnership: Expanded partnership with AWS, making Falcon Next-Gen SIEM the default SIEM for AWS customers, enabling federated search and prepopulated AWS data.
Global Expansion: Strong performance in U.S. federal and higher education sectors, and significant international growth, particularly in APAC.
Falcon Flex Subscription Model: Ending ARR from accounts adopting Flex grew to $1.35 billion, more than tripling year-over-year, and driving platform consolidation.
Operational Efficiency: Achieved record Q3 free cash flow of $296 million and record operating income of $265 million, reflecting strong execution and cost management.
AI-Driven Cybersecurity: Positioned as a leader in securing AI infrastructure and addressing AI-driven threats, leveraging acquisitions like Pangea and Onum.
Ecosystem Partnerships: Strengthened partnerships with EY, Deloitte, and Wipro for SIEM and SOC transformations, and announced a significant MSSP partnership with Kroll.
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Risk or Challenges
AI-driven attack surface expansion: The rapid adoption of AI technologies is expanding the attack surface, creating new vulnerabilities and risks for businesses. Each AI agent increases the risk profile, necessitating robust cybersecurity measures.
AI-enabled adversarial threats: AI is being used by adversaries to create sophisticated cyber intrusion agents, as evidenced by state-sponsored attacks. This democratization of destruction poses significant challenges to cybersecurity.
Fragmented cybersecurity platforms: The use of multiple cybersecurity platforms creates inefficiencies and vulnerabilities, as adversaries exploit the gaps between systems. A unified platform is critical for effective protection.
Third-party SaaS application risks: The elevated risk environment for third-party SaaS applications, including data exfiltration and shadow instances, demands immediate visibility and protection.
Cloud security challenges: As the cloud security market matures, customers are realizing that posture management alone is insufficient. Active defense within cloud environments is necessary to prevent breaches.
Endpoint vulnerabilities: The rapid adoption of AI-driven applications and browsers on endpoints introduces significant new risks, making endpoints a critical vulnerability point.
Incident-related costs: The company incurred $26.2 million in costs related to a cybersecurity incident, highlighting the financial impact of breaches.
Economic pressures on customers: Customers are consolidating their security needs to reduce total cost of ownership, which could impact the company's pricing power and revenue growth.
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Guidance & Outlook
Revenue Guidance for Q4 FY '26: Total revenue is expected to be in the range of $1.290 billion to $1.300 billion, reflecting a year-over-year growth rate of 22% to 23%.
Revenue Guidance for Full FY '26: Total revenue is expected to be in the range of $4.797 billion to $4.807 billion, reflecting a growth rate of 21% to 22% over the prior fiscal year.
Net New ARR Growth: Low to mid-teens sequential net new ARR growth is expected from Q3 to Q4, bringing ending ARR growth for FY '26 to 23% year-over-year. Second half net new ARR growth is expected to be at least 50% year-over-year.
FY '27 Net New ARR Growth: FY '27 year-over-year net new ARR growth is expected to be at least 20% from the increased FY '26 net new ARR assumptions.
Free Cash Flow Margin for Q4 FY '26: Free cash flow margin is expected to be 27%, including cash payments of approximately $33 million in connection with incident-related costs.
Free Cash Flow Margin for Full FY '26: Full year FY '26 free cash flow margin expectation is 25%.
Non-GAAP Operating Margin for Q4 FY '26: Non-GAAP income from operations is expected to be in the range of $315 million to $319 million.
Non-GAAP Net Income for Q4 FY '26: Non-GAAP net income attributable to CrowdStrike is expected to be in the range of $282 million to $287 million, with diluted non-GAAP net income per share of approximately $1.09 to $1.11.
Non-GAAP Net Income for Full FY '26: Non-GAAP net income attributable to CrowdStrike is expected to be between $950 million and $954 million, with diluted non-GAAP net income per share of $3.70 to $3.72.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you provide an update on the performance of emerging segments of the business, particularly after the initial CCP initiatives?
A:Emerging products performed fantastically, with Next-Gen SIEM being a standout. Identity and cloud segments also showed strong results. CCP initiatives helped accelerate Flex adoption, and the company had a strong endpoint quarter.
Q:What is the impact of Pangea and Onum on ARR and seasonality?
A:The impact of Pangea and Onum on revenue and net new ARR is de minimis. These will roll into the platform in Q4.
Q:Can you elaborate on the value captured in SIEM displacements and the timetable for legacy SIEM renewals?
A:The company offers disruptive pricing due to having EDR data in the platform. All customers are Next-Gen SIEM enabled, and the focus is on licensing exercises to grow wallet share over time. The opportunity is seen as a multiyear journey.
Q:Do you see a further push into observability, and is it a consolidation opportunity?
A:Yes, observability is seen as a consolidation opportunity. The company has been leveraging its LogScale technology and data collection capabilities for observability use cases, and customers are already using it for such purposes.
Q:How does Flex licensing impact customer expansion and NRR?
A:Flex licensing makes it easier for customers to consolidate and buy more products. It drives bigger and longer deals, and the company sees it as a continuous tailwind for net ARR over time.
Q:How is AI changing customer conversations and deployments?
A:AI has moved beyond chatbots to doing actual work within the platform. Charlotte AI and its agents are deeply embedded, delivering faster results and differentiating the company from competitors. Customers see it as a key part of their SOC success.
Q:Which products are expected to have an outsized growth impact next year?
A:Next-Gen SIEM, cloud solutions, runtime protection, and Falcon Shield are expected to drive growth. These products expand wallet share and provide value by collecting and analyzing more data.
Q:Does the partnership with AWS complicate relationships with other hyperscalers?
A:No, the partnership with AWS does not preclude working with other hyperscalers. The company remains open to partnerships and focuses on leveraging the best technology for customers.
Q:What is driving core EDR acceleration, and how does AI play a role?
A:AI adoption at the endpoint is creating new threat vectors, driving the need for monitoring and protection. The company sees this as a massive market opportunity and continues to displace legacy AV.
Q:How is the company approaching discounting levels?
A:Discounting is a normal part of enterprise sales. The company uses tools like CCP to protect price points while being competitive. Gross margins remain strong at 81%.
Q:Does the partnership with F5 expand the endpoint TAM?
A:Yes, the partnership with F5 allows the company to protect appliances that were previously unprotected, expanding the endpoint TAM and creating new market opportunities.
Q:What is the long-term opportunity with MSPs like Kroll?
A:The partnership with Kroll accelerates market penetration and creates opportunities in incident response and insurance panels. The company aims to replicate this model with other MSPs.
Q:Can you provide segmentation of revenues by verticals or customer types?
A:The company sells to all segments, including SMBs, enterprises, and MSSPs. The technology is the same for all customers, and the company is successful across all segments.
Q:How does the company approach buy versus build decisions, especially in AI?
A:The company is opportunistic and strategic, focusing on best-of-breed acquisitions that integrate well into its platform. It has a strong balance sheet to support both building and buying.
Q:What is the outlook for the identity business, particularly PAM?
A:The identity business is evolving, with a focus on modern solutions like just-in-time access. The company sees strong demand and plans to build out its identity stack further.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the segmentation of revenues by verticals or customer types, stating only that the company is successful across all segments. Additionally, they did not provide granular data on NRR and GRR, noting that these metrics would be disclosed at the end of Q4.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI attack
AI source
AWS Falcon
AWS Global
AWS million
BIG IP
CRM
CrowdStrike market
Falcon Gen
Falcon product
Fortune
Gen SIEM
Partner
SIEM AWS
SIEMs Falcon
SOC transformation
Security team
Wiz
addition
adoption cybersecurity
agent attack
announcement AWS
appliance
armor
console backend
cost benefit
cybersecurity era
cybersecurity necessity
deployment
expansion deal
figure expansion
market position
mission
nonhuman
productivity
system cybersecurity
workforce
CRWD Transcript
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Positive3-4
The earnings call reveals strong financial performance, with significant revenue and net income growth, along with robust ARR and subscription revenue increases. The consistent gross margin and improved operating income demonstrate operational efficiency. Despite the lack of new strategic or operational updates, the financial metrics and optimistic guidance for FY '27 suggest positive market sentiment. The absence of concerning details in the Q&A section further supports this outlook. Overall, these factors indicate a likely positive stock price movement in the short term.
CRWD Slides
CRWD Report
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