KNBE - Earnings call transcript Q2 2022

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Operator

Ladies and gentlemen, thank you for standing by and welcome to KnowBe4 Second Quarter 2022 Results Conference Call. [Operator Instructions] Thank you.

Now it is my pleasure to turn the call over to Ken Talanian, KnowBe4’s Senior Vice President of FP&A and Investor Relations. Please go ahead.

Ken Talanian

As a reminder, our commentary today will include non-GAAP financial measures. with financial non-GAAP limitations in may results release, website was non-GAAP our reconciliations our investors.knowbeX.com. also our today at on which and X-K our the GAAP can furnished information be regarding found results, SEC supplementary and their of earnings with in Information the Form financial and available our be Relations found Investor

in subject forward-looking assumptions to or those some uncertainties the related today, to the SEC’s from statements These of can that company projected may are Investor guidance, that our should on be described accordance addition, implied SEC. be Should filing are In assumptions. found and in sec.gov, filed materially Relations XX-Q actual including contain risks, with established materialize and deadlines These could any prove our our website. this those these the or documents by call. our differ results incorrect, on comments of risks Form to website, be during our will

call, you will Stu will our Stu. President, our Co-President, and Bob Officer And today’s and session. that, I Revenue the remarks with turn call prepared question-and-answer over CFO, Chief CEO Lars Sjouwerman; Founder, Reich. join from and will Letonoff, hear our During to

Stu Sjouwerman

Thank you, for you thank joining all us Ken and today.

resulted flow guidance. has quarter XX.X% free another We strong execution are This excited revenue margin. to over with exceeding share growth you annual this of recurring strong record our a quarter our We’ve had XX% results cash morning. and with second year-over-year results in

problem the to KnowBeX help of I manage many As know, of social engineering. you ongoing started organizations

find organizations that the layer critical in public a national today transformed believe only matter layer, to that is even all that private. public this security. securing has company We or to sizes, the prove we layer We a environment human The of itself are further. to ourselves continues dedicated securing exceedingly of the human

are environment highlights of to first our a I talk the to take our go metrics, seen monitoring to I a before impact our for moment we that any pipeline go-to-market wanted economic could I of while want record sales through strategy. constantly change Now means performance, of that have proven we KnowBeX. in this our what reiterate about material not all indication forward-looking

well, investment track Our to we philosophy continue SMB dollar international To strong and remains our logo on specifically regarding as address expansion. especially see retention. segment,

continued SMB we Our average platform indicator that selling prioritized the as being which budgets. view segment in to prices an up, for our move is

remain are we results. an active have kind close organization a Our reps to we producing free flow leading invest, and the a referral quota-bearing onboard record This viewed predictable these collectively that from will healthy, rates. opportunity cash economic to year, Historically, with cycles I excellent a of comes trends lead streamlined also who every have SMB which running historically that have generated benefit as is number of quarter.

a can is these expansion few that and profitability. this. reasons businesses, continued bring challenges balance think with are of most I conditions to say economic positioned KnowBeX There I While confidently why can the growth for

is for reason posture industry in. the It known that well resilient. confidence my first The an budgets the Cybersecurity comes that are we’re of operating is organization from cybersecurity crucial.

and However, within is time. clear plays the past more that only critical the role the become all being has human cybersecurity evident in the becoming years few

again reached seconds. more infections calls be which cost element. these published every believe to the majority attacks. cybersecurity one the of as and theft, out showing released in attacks. risk through risks. globe debilitating right XXXX. breach Working to tripling of phishing week, KnowBeX’s one have Report of equates mission-critical overall these Group million of need platform Over four For reducing that found spend The to Security actors Investigations early is the high And The quarter, that data continuing reduce property is may proven latest an Verizon Data layer $X.XX well. some of that breaches data the that all-time during a attacks stakes, are detected to its to are the are to instance, the rise secure experiencing last QX DBIR your Organizations data the for have human intellectual over We were frequent XX% X of breaches, This absolutely average breach once their involve period, paths Anti-Phishing report came key which DBIR, a of human only bad data you attack than Breach that once. or of in organizations vast IBM annual XXXX. increasingly small cost million. the across last XXXX the engineering Phishing is found of phishing social seen attacks, a cost of was which fraction many XXXX which a attacks and and report the that the accomplished eight this ransomware

position. The that success relatively we the penetration global a have confidence seen that predominantly spite second for in reason have my so is low far, still landscape a is In our market we of greenfield.

at before the the in between border, continues our Head Ukraine. Burt, companies a of Viper Burt, destruction. Customer attack platform. XXX across shown the Security for environment & validate very of month, modern a warfare category in an early tanks XX was and has ongoing much there looks rolled and government when offering systems to days, According just interview launched world Tom Microsoft’s only different last Russia to missiles over that sector Trust, time and gave what need the this the were the cyber Ukraine geopolitical pioneering hours first a are huge like. private the glimpse all The We the is a in conflict

data as as wipe possible and context, maximum is out Viper much designed attack cause destruction. network For a to

helping conflict during am organization the customer our cycle reason to resilient. the itself these every the cybersecurity ability While potential tragic, community base our is is that economic realize a final of in like security. national of a posture execute confident matter itself international is that is that are things The I

continue can because which this charge credit of months. comes is rate well, resilient we logo aware the employees a first some feat SMB. both our multiple only of retention continued This execution A We is in with evidence QX our We cost with value SMB of a their taught some customers habits to believe customers are over as of XX,XXX results over and from environment to seat to grow to that us Keep few as card. our impact accomplished in that customers as committed of which remain the the mind, that see smaller a measurable favors the only quarter. of a this. they above this. this Enterprise are SMBs for customers spending existing in the products. reduction being number of long-term furloughed and counts are of to our at of this remain an but during continues XX,XXX we for the time to XX% few just classify highlights platform, Our our we XXXX, that COVID customers QX

resulted well meet this order is believe balanced across remain announce demonstrates to million the flow am KnowBeX in continue of on that over Ventures, top the which we entirely human-centric market-leading our to supporting as position includes performance of focused innovation generation. quarter now free the our This in over our as both XX% results in of a in cybersecurity the to in dedicated in cash continued QX. to layer. board customers. profitability exceeded fund strong line ARR, I year-over-year And space. the with needs Second We $XXX expectations innovation human pleased as end up growth this and

our supporting We are ecosystem data. focusing platform on by build enriching that and our critical organizations unique with utilize this integrations

layer discussed expand between & market, Detection budgets connect are layers of and or second to For release own and risk our called cybersecurity cloud Coach, half security our element, product a involve a human resulting new we interface is category alerts exciting An at Vision human of features positive. cybersecurity new our planned Coach, roadmap Awareness general this the Human to A take X% our in the we a public of Adviser customers’ the spend from stage with software defines currently of announce works includes open the is planning action. mismatch for cybersecurity Security well. to is this to investments Security How product in data release Coach Security innovating as for on yet, HDR. and human features less all With this that beta that to overwhelmingly breaches new reducing acquisition. existing represents. support in a we pull We of security example Security QX. integration pleased space, analyze focusing is beta the I This vision to overwhelming of a part to a creating that have being believe within By great the come. for XXXX. in year, this layer to and of our and the Security is both KBXCON initial we’re through in stack early the soon dedicated historically years helping am products. to with follow been actually number new the years, feedback real-time Response showcased closed majority This risk. organizations this than The for on we’re it we’ve still

in-person, XXXX the the attendees is to their XX% surveys the visitors adds the from attendees has hold about to our currently feature This a in Mobile beta were to planning The to be their a the expectations. great Following been exceeded our positive attend next awareness One has general and grown it feedback a KnowBeX customers XXXX. value was to expanding directly common engagement for ultimately users their general QX to overwhelmingly release new-school in in refreshing want of this particularly our believe well. from and excited customer a with request step with closed of is security one showing that number conferences, training to And base COVID KBXCON that App. phone. XXXX able as who platform that environment far is complete We It it boosting our virtual of plans was success. in mobile was expect.

purely few in cybersecurity, reminder, not only a of we are one operating areas isn’t As the area in the market. that a replacement if

superior. security our our While we competitive our continue the new of value support to resonating wins that greenfield, also that displacements. The of And show is most that business number platform of believe continue a competitive proof we customer are to are with see and are awareness greenfield wins wins customers. further

our had of a examples That’s inadequate few they be They global wins a was a We the opportunity security deal had our XXX,XXX They for been with have threat a in understood are quarter. largest We unable PhishER of their all their our culture with that multinational superior. found and deal last given top choice. that training of of closed Education. also across State their seat and the seat reason with platform Here current current a create the conglomerate. in-house quality in Above our ease all, districts. we content to competitor environment. this a our history, offering displaced to primary cited Department the deploying platform XXX,XXX

organization, momentum seat great exceeded deal, platform we example training markets was a utilizing our closed a international Germany, enterprise. Finally, we’re another the the continued their in that strong no-brainer was and XX,XXX XXX,XXX largest the internal been deal in realizing won have threat conglomerates today we has decision. in as with ourselves seat we large far multinational world. the The with of one well. a In of seeing landscape media capabilities a transportation finding This

company. competitor organization deal We a manufacturer. we building oil deal deal Swiss a a XX,XXX seat also a and with closed XX,XXX In a with a for a displaced beverage closed and XX,XXX multinational Africa, gas we materials top seat with multinational seat state large

thousands a seat We wins a examples just deal for These us. Italian manufacturer. we department that Finally, believe a IT hours also brings, customers our to that the not save platform the only can XX,XXX are medical device competitor with in displaced the demonstrate considerable types security have risk events. triaging our continue an of common embrace a they reduction but become few in of how occurrence of we the

to that workers, strategy thank would market-leading proud shortage our brought our features also customer would And the its driving being our today. Given building time-saving is of to and the a people for trends. I like like commitment said, has paying our roadmap. am critical partners current With of into company skilled our to product this financial their group off. dedication, platform focus contributing Bob I employees of I with focus our IT for to remains This and communities. great of super position that, that KnowBeX and discuss

Bob Reich

Thanks, for the again Stu joining Thanks and good us morning call everyone. on today.

morning. results. are KnowBeX cash here for to our costs I at share business, on very full be see details first was this with my delivering quarter. pleased This more you We quarter be solid sharing able another QX to will and across the strong and execution results flow quarter of the the is exciting to it revenue, second

otherwise unless noted, numbers quick during except all a remarks As revenue mentioned my non-GAAP. are reminder,

XX.X% $XX.X million ago, our quarter go-to-market million period continue the from strong versus reported up recurring revenue compared or revenue to $XX.X XX.X% up In to a Stu, ARR, or groups. increase revenue our second GAAP same reached year-over-year. annual across various $XXX.X an a during total quarter, performance year heard just $XXX.X Similarly, As you million million see the year-over-year. for second of the we year $XX.X million ago, totaled

driven initiatives; customers new was and each another to growth existing expansion. across quarter logo cross-selling of growth key expansion, QX strong by Our international our and new

execution each these quarter. in to We see the continue areas during strong of second

new Let’s growth, which our start first execution. of with pillar is logo

XX.X% June year-over-year During or total net the quarter, That’s to a XX,XXX churn, sequentially we churn. of bringing as of count logos X,XXX added new added increase XX. nearly logos over our XX,XXX second of customer net

employees remains about as X,XXX greater XX% our customers which than space, define years. distribution space, XX% with the growth few consistent past customer the in which define employees the significant organizations seen as in total with X,XXX we’ve Our relatively of about of we SMB enterprise than we less and over where organizations

between again reminder, we As and between quarter SMB driving And generally ARR a on Enterprise. a focused remain we ARR the balanced balanced two. with mix these ended

both greater remained In logo during again than retention retention, terms of Enterprise quarter. second XX% SMB and the

particularly in is continued customer our when that customers. We strong are excess XX%, XX,XXX with rate this SMB especially over considering retention base of pleased

eye As positive. of Stu mentioned leading this close on we’re earlier, of market, indicators related remain all our keeping segment all a health the the very to indicators and

new Our customers. of is and growth to pillar second existing cross-selling

to number percentage multiple adoption, continued of multi-product to second the multiple to XX,XXX, During brings previously. from XX.X% we has last from of strong QX total quarter, XX.X% to see customers year. products subscribing resulting in This growing grown by a number products that XX% the of the with customers over

proud we KMSAT of quarter to a have strong who value expansion. as leads These of as our view we’re a of understand products, a act the multiple our that cross-sell continue continued XX,XXX all this are for over also platform to source into. While and rich customers users opportunity

closed our products. year-over-year growth Plus And and our without GRC over separately, reached for we growth report even quarter. were all of don’t seeing are individual customers to revenue KCM levels combined products products Compliance although having with We for and PhishER, three record of the again and four triple-digits bundle

cross-sell to also Our is relevant expand base, success help ARR increase customer to not our but only retention.

statistics stickier up as purchased retention the from and end our being both PhishER result, Our customers. get support more and a who platform, much KMSAT value customers

international of Penetrating key markets internationally. of expanding our growth. pillars is growth of pillar third Our remains one

revenue our and QX, This $X.X momentum, which million consistent of growth strongest delivered quarters. representing the of with XX.X% in grew continues international international quarter. revenue XX.X% XX.X% year-over-year of last during GAAP by quarter. XX.X% three from our Our sequential last reported revenue from evolve to up the domestic revenue, distribution now from our year-over-year international our grew quarter The markets total growth representing derived revenue from sequentially second geographic complements

EMEA higher which revenue point regions continues Although North market KnowBeX come addressable represented there’s the order domestic sizable total by of is America, In our strategy a the international in market, greenfield to this domestic closely go-to-market at we is opportunity, seen similar to of a fourth partner significantly U.S., the us tied to majority of our previously our expanding international in pillar continue focusing with is market. hiring to growth. and compelling this a we awareness. network APAC for growing key from on that also internationally, brand on building inflection by key invest capitalize And talent on which than believe execution both and outside international of

channel key in make channel partners. and hiring to on our building continue and We marketing resources meaningful distribution progress for capabilities team our

in through partners Stu for business, initiative deal international the channel execution For that this came be meaningful history to largest our that the domestic and of an mentioned to KnowBeX an example channel continue make, will continue contribution us. our important earlier

international The other strategy during also global remarks producing results. examples wins of Stu’s serve as mentioned investment

While expansion brands we’re early our to markets, our base a client monthly adding in we’re on still on basis. within these marquee global

profitability, As philosophy sustaining focused part expansion in we delivered the growth on our rate business, again of high and of we with our strong managing remain margin QX.

Our we to year a improved continued deliver to ago direct performance second non-GAAP quarter XX.X% margins XX.X% from structure. an in our as cost efficient gross

X.X% to up operating also non-GAAP a structure total XX.X% our in to the scale. overall of during leverage from demonstration healthy ability of improvement the quarter second as XXXX, our quarter, margin we Our continue showed cost to

and of As reminder, a stock exclude compensation costs. acquired non-GAAP intangibles measures our expenses, acquisition and integration-related amortization

XX%. non-GAAP from $XX.X an expenses quarter in for totaled of total up year, increase operating prior million, roughly the million Our the $XX

headcount-related and Year-over-year primarily increases. including attributable the marketing, We in total and about drove as continue that generation for and quarter expenses versus business costs operating of towards events contributing headcount-related our higher increasing spend demand subscriptions marketing events April. marketing vast were costs, in-person revenue allocations across versus increased expense industry as sales PR This overhead incredibly shift year-over-year to XXXX. to we higher XX% to headcount that customer KBXCON the QX in arrangements increases It’s event the of successful the also by in hosted growth. an year, on end non-GAAP the invest in back worth with including noting our as we headcount prior virtual well our also majority primarily

deploy support And invest development expect increases continue primarily in in additional early content core We to and our year-over-year, markets. we stages Non-GAAP resources to and expansion, capacity to costs increased have continue still the technology sales we international of these markets. are to product due our in while growth across development teams. in to headcount

are continue critical Stu expand our our will ongoing year-over-year establish to costs headcount-related IT primarily public necessary product attributable we expansion As in in teams. referenced the technical have as key you and internal support administrative see These features included been company. new investments the legal, across development and and that globe. international offerings, The resources increases investments also to finance, own a talent our to support investments and and headcount general non-GAAP administrative investments products the headcount HR to to additional costs, earlier. the life of in These across

capabilities $X.X We These over as and XXX% from XXXX. are our than continue also the $XX non-GAAP of more million in execute at quarter year-over-year, and to by necessary related to second second globalize in work We approach quarter operating build QX non-headcount-related And scale. our by million XXXX foundational to administrative our the evidenced is saw first to profitability. investments to income doubling systems. services to professional both optimize increase growth we highlight of this an balanced in to growing try consistently expenses in ensure efficiently we the to and

million, at continued quarter equivalents capital to with from our and now $XXX.X flow efficiency utilization and year a of on our liquidity. We Let’s $XXX.X turn up maintaining million the focus level XXXX illustrating of and high cash liquidity. cash end, cash of finished

that include this We also now Ventures. to are highlight excited KnowBeX will utilization

with an is his The purpose early-stage innovation that of ecosystem supporting dedicated a KnowBeX’s cybersecurity. program program support that is is building integrations mentioned layer fully to of investments earlier products. actively organizations to As of Stu this in in human the this remarks, provide

You’ll investments that we the note statement made our flow venture in million cash of second quarter. during $X.X

sales in XX.X% were to for flow margin our free performance of quarter, flow free results same realized free quarter upfront timing-related in some second driven $XX.X quarter. to resulting a cash compares of XX.X%. efficiencies during cash This free flow the we collections by primarily margin free The cash the on of Moving the $XX.X cash ago. cash a to of cash year related million million flow flow during period the continued flow, favorable cash cost and free second our and generated

XX% we of related margins, six there is generally As have year free of which in our over quarterly the the sales and discussed as the is flow expenses ranged contracts anywhere the a from cash as disbursements in during last investments past, to quarter. has for and given well XX% quarters. seasonality to This throughout timing profiling billings

second supporting very balance performance, cash-generating top-line which healthy is pleased and which our of growth sheet, indicative are is our of quarter and SaaS balance model We a with profitability. resilient strong

to invest capabilities, pool, in cybersecurity. this continuing resource profitable and expand maintaining We’re products sustainable we as while category new growth new in lead our

results, demand the economic moment on to Stu’s continue to a regarding Before remarks that we on wanted into to our to go dynamics guidance just dovetail I future take attention.

our our of greenfield proven change at to While obviously time, market our in we or material largely monitor matter monitoring this we pipeline, is referrals of seen anything opportunity. forward-looking closely. go-to-market metrics, we’re constantly any strategy quotes, indication haven’t that and impacting This the leads, our all a significantly continue

million the third we $XX total revenue to of range the in quarter $XX million. For XXXX, of expect

million, from our million. current prior $XXX expectations of $XXX For we is range mix to $XXX guidance $XXX million revenue product XXXX. up our million on This revenue year the expect full guidance XXXX, for in the of now to based

our appropriate our and product is an has a level reported recognized reminder, current variability guidance reflects conservatism. believe dynamics in revenue portion a result, of product We can our that mix of KMSAT an upfront. on And economic impact small the revenue. a As have as

result free high to can and model variations greater We growth level of free this cash profitability. mentioned, strength indicative is in from expect our the I of flow, We ability the margin our maintain flow for to full with now or as equal to operating XX% balance cash And seasonality which is in of also than year. guidance be quarter-to-quarter. believe of a a there

modeling count For weighted a and million average purposes, XXX you year shares assume share both and can of XXXX. between diluted for full XXX QX

look forward XXXX, to As we’ve continue the we remainder the of we the to and growth business. be in very by momentum energized seen

defense to to laser-focused market are up our to innovation this introduce later any maintaining questions. human with on and to the we leadership the around year. dedicated cybersecurity it category We like of that, would we ecosystem the are open to HDR, excited And layer driving new which

Operator

Thank Essex from first ahead. you. Brian Sachs. Your from Please Instructions] Goldman [Operator go comes question

Brian Essex

Thank SMB drive you those there? Can maybe guess, focus Stu, quota I you good your is sales results. strong great. and you you. look as growth us to Hi, Good SMB efforts? for that? to scalable does to, And I you question the with this understand the efficiency economics morning unit for maybe, help see and and on guess, like one the thank maintain How look like continued question what reps. regard adding motion taking what

Stu Sjouwerman

question. good Yes,

that understand least is to have You XX% still greenfield. like at this

execute. of So, limited achieve can only is to we the ability scale own by amount really our

future domestic. team about to that foreseeable only to and the for planning U.S. really expand talking continue are We

a Xx greenfield is and than Xx U.S. look a TAM larger If even larger that international, that to domestic. at you is

work a channel Now and international, later down little that. with I’m can sure that Lars expand we partners, on

Brian? early earlier Does still new in brand an mentioned, answer category. So your that question, is this as a was stage

Brian Essex

just any looks grow internationally? insight versus really domestically might follow-up, Yes, can primarily Is Compliance rates. maybe still that get nicely. around and are attach this give you how of customer I differ It PhishER you think cap per more us that’s KMSAT kind to to continues helpful. ARR or starting and a And like

Stu Sjouwerman

starts Bob. additional in generally give defer we maybe the to Compliance healthy color. But to for yes, Bob speaking, gets nicely. I it very But When kick PhishER some can Plus attach numbers, and have rates generally to

Bob Reich

the Honestly, morning. around of Brian. the you, Hey, a of well. Compliance Plus really strong had second the Good strong quarter as to a sort honest quarter. really, very with it quarter very distribution be consistent attach sequentially PhishER, very, been rate. But has had in

sort little any it’s average of hasn’t those in products probably domestically respect the So, attaching of are to there of change increase very And to really more dynamics attach are the products strongly. internationally, distribution the obviously versus Both distribution in rate. or contributing with both biased domestically. been ARR. of bit still those And the a towards

over Just rates. the have the international consistent of changing last really, and usually terms several deals unusual been those deals and the are attach overall, or really KMSAT. those with larger are anything really deals starting generally larger quarters But in trends we haven’t seen

Brian Essex

it. very much. Thank you Really helpful. Got

Operator

question ahead. go Cowen. Shaul from next your comes And from Please Eyal

Shaul Eyal

Customers on and healthy, maybe are margins consistent Thank coming you. modules. better guys morning challenging performance Good environment. remained And absolutely for Bob, the congrats gross expected. a additional in purchasing than

moderation about expecting gross or have I same the pretty should be margin we now? second we that As within levels half, think should follow-up. are we some we right be a And much the at

Bob Reich

see in Yes. than the Good had cost the the morning prepared honestly, had and my Shaul. originally and better exact in word structure on – performance cost – a again, an performance direct quarter I did around anticipated. code did in little I remarks It’s was we It’s question efficient this interesting. we direct And the structure. same had first we

people scale. structure, in is that things providing relation of like some elements And more our of population, a really manager that and cost our are direct support. tech bit around direct is those Some the more the fact that achieving little efficiency in that we reside customer more

though we originally So, hiring a think do trying were there. in to do. delays little that of we expecting some has there better are some been been seeing efficiencies than bit I have the we that

a And and And of biased. won’t bit, little that biasing are I to could internal resources customer really significant in into those compress the terms own normally support think we continue side CRM we as add so forecast side. very we be it our margins but have the

Shaul Eyal

mentioned Understood. Stu fair And share. his Lars to maybe contribute is that going

is international opportunity. question Is on greenfield it next my So, displacement-driven? more the or it more is

Lars Letonoff

So, greenfield. more yes, absolutely is international

markets, bigger each these are different If are way. we the a in companies, little sized less greenfield have training. those international talk you security look XXX% awareness going kind with it’s in you level the markets and so when really different we something of a they opportunity in the having international, a But for for to of are of regard here to well maturity with are global way at about than primary after U.S., you because the on SMB, enterprise,

Shaul Eyal

Thank Understood. you.

Operator

comes Please ahead. from Boolani question Citi. next Your from go Fatima

Unidentified Analyst

morning on for my guys. is questions. taking Mark Thanks This Good for Fatima. Hey.

maybe to and just the off, the to current for on cycle really views But pipeline environment, we sales sales thanks are to frequently starting speak start your hear high-level So, go-to-market. companies in elongation.

And So, if And can how of especially your impact matter, you enterprise? seeing pricing, are on on is adjustments? to a are type discounting, go-to-market in having negotiations, maybe there you that adjusting the your you of what are Thanks. sense what us any deal it elasticity? give

Stu Sjouwerman

cranking reaction mean up it lead we for along but a like more see part single And sales cycles to number deal horrible not a are seeing war really elongation, every a Even with our are really opportunities be the some globally. far the cycle. normal. coming our know cycles actually either. in temporary cycle. I monitor extending definitely not point sales seeing material be just of this the shorten, as as seeing everything of as don’t sales to time we anything, sales any changes event I We to in really We there that’s Ukraine, of seems changes the of in, – our generation, any

Unidentified Analyst

Okay. Thank efforts the expect can Got you very give Maybe of magnitude deeper us we maybe you monetization terms helpful. in just that maybe it. And little ramp a timing, That’s you. Security then of And forward? sense side? a expect Thanks. to the dive Coach going how a can on there? follow-on, revenue

Stu Sjouwerman

Sure.

good with closed very in currently are We beta results.

later QX. in beta open We are into going

product changed. are release still to The scheduled We in QX. expectations this haven’t

earlier about category. are The mentioned new that up. We excited very holding we TAM is still this

finished yet We final haven’t and price. pricing surveys the setting our

We have uniformly shows trade few very a shown positive feedback. the with product at

us This product. really revenues QX. see this this a not meaningful product I will you XXXX year. So, in release is expect do

Unidentified Analyst

Thank Great. much. guys very you

Operator

Your Rob from Sandler. next from ahead. comes Owens go Please Piper question

Rob Owens

and of front? Should year thanks that and result. growth the question. we But Sales-related should on year we how Good Great. will strong X,XXX the a morning flat added questions, for was relatively that that to could flat am look taking customer see we Lars. relatively that do customer it think with about shift wondering acquisition record be at year? half and the you last But my over what acquisition year-over-year still on some back as or guessing, think I you a you

Stu Sjouwerman

Rob, we are just steady moving same along pace. at the

of in So, but expect to I is, wouldn’t it kind would accelerations expect the just see remain that. big way I it flat, to any

year, start next – picking And in but investments international. should up, material in I are We that. any we in should see some international those acceleration real don’t investments making

Lars Letonoff

arm Most right add would give let their cybersecurity quarter. logos X,XXX away No, companies Rob. adding for there, per me something

So, flat. may it be

hand, other the fantastic execution. On it is

Rob Owens

Absolutely. Department I question with third you as Education. us the especially your are opportunity, the it’s we enter for where guess, guys of Can quarter SLED morning, State you mentioned two since large color. of overall? Kind Thanks. here? Fed the Thanks at you the deal remind a And

Stu Sjouwerman

huge SLED go-to-market. always been Fed of So, has part our a

and SLED piece is organizations one in just we you. success We at from of of X in huge you say, now time. the organization want and our large then previous that that we now of in of these we Federal, So, seeing hey, what and at away entire these chipping a are especially mega once. XX kind seeing be things about And in what in and of we pieces the very also involved are are good are would is buy to have hearing been come departments. saying, organizations now seeing, coming are for are I then we we would market

see to that of a lot in Federal in future. as that could expect we the the more well So, space. accelerate And

Rob Owens

Thanks. Great.

Operator

ahead. from comes Please next Hynes Canaccord. DJ question Your from go

DJ Hynes

some couple take bit felt this remember Hey. was of said made Stu, margin you a quarters you guys. Good sense to like where morning try to back, year it a the faster. grow little I and and

thinking it just like So, the sound aggressive curious plan guidance, there? seems right? was if bit doesn’t based It too Just has a changed initial there. demand-driven, happening the on what’s or

Stu Sjouwerman

going It’s in said, that question I little listen, to possibly Bob were we a invest going well, as is it’s to we a little reality thinking, good we quarters slower, moving can, be it lower. international. as fast much because And earlier. a can internationally going are indicated as a is we The but couple we of as are ago like

that we the not I was So, going was spend. money to thinking are spending I just

margin percentage. moment. hop it that explains simple the Keeping but… for higher in, So, Maybe wants Bob to this really

Bob Reich

happen is sequential Stu absolutely our international Hey it’s sequence is this mean DJ, and in a expansion honestly, – I a manner. in things correct.

ahead get And bear a to any make not of one ultimately doesn’t going fruit money and so for internationally and it return. the spend to sense step step with us provide that’s us different

So, sequence just than taking the that profiling are little working through a and suggested. just it’s longer we original

DJ Hynes

you. Yes. is push to this maybe going sense environment. Lars, for back no and in one higher That one margins makes on

a you to am curious, like upfront know I this to more in spending and the that ask, environment they ROI-focused that the future me to pitch have isn’t in spend is save seems reason Just something the tight are easiest in just this I customers do money need or And buyers find potentially environment. it it?

So, curious how conversations? you those manage

Lars Letonoff

cycles lot or side, sales I like do we the year you business usual. pretty Gosh, that, we are seeing terms just TV multiple It’s asking not aren’t am that am I for for as lot to offering offering where what really I changing. have kind on of and on see are and the a about purchase here hearing change. there The a – economics. of – But our don’t us. payments. much is they or changing What terms now are seeing trying not

DJ Hynes

hear. Yes. That’s to great

Stu Sjouwerman

is still ourselves to addition This organization’s can’t a Yes. have to have front in stack. ROI small One We mind. is this. cybersecurity critical employees links. This isn’t more no-brainer. question expose clicking an And is price there. we a the of necessarily on The phishing layer

not honestly so do And we that see up come much.

Bob Reich

to add that. will I DJ, Hey, it. Got

We is buck. is it’s a a huge for relative This technology of not has This spend. are an not the a expensive kind no-brainer to price. other item. it – bang And

DJ Hynes

Yes. helpful Thank color Super you. guys. Congrats.

Operator

Please comes ahead. question next of from America. from Your Bank Liani Tal go

Madeline Brooks

Madeline our taking it’s for Thanks on for Tal question. Liani. Stu, Hi Brooks

hiring delayed talk the you you how going into I have as are Can And know earlier some had hiring. little hiring you a question one us, Just slowdown? from you plan. bit we are about thinking the too said

you. half just how should about Thank second the the we that of in think So, year?

Stu Sjouwerman

cycle international Yes. the Madeline, that two I slowdown our lived we still opportunity do see where expand. on. business have I that not to great plan to at because up all, generally a opportunity capitalize ramping We to is through of huge as is want hiring especially a lives these.

were a hope that’s reason illustrates percentages up. we the also these short behind this at. why really it I so margin our are where but we the I And and frankly, hope targets, is – answer, are hiring

Madeline Brooks

much. so Thanks it. Got

Operator

question go next Truist from comes Brandon Please from ahead. Securities. Mar Your

Joel Fishbein

some know and that love robust, to with coming the I you to I recent Hi. I to have products bringing QX. actually market in of on regard soon. wanted would is talk out the know Can remarks pipeline from the about It’s Fishbein – you you pipeline. Joel to remaining new the are hear your add-ons your Stu, follow-up, product products? Truist. pipeline I

Stu Sjouwerman

are Joel, for team, it’s them but internal mostly thrust on R&D, that we major also products Coach. That’s a etcetera, a release divisions, marketing that that to many in we that working sectors, are in because the ramping the our we are Security team looking pipeline of sense few sit are is a our forward we also year the different That on the focus this is to. but are company-wide. that etcetera. sales There Security product call focus customers is training, main on, this. find There other Coach is decided up the

Joel Fishbein

you. Thank Great.

Stu Sjouwerman

Joel. you, Thank

Operator

ahead. Alex question next from from comes Needham. Henderson go Your Please

Alex Henderson

Great. actually I questions I two like have to would ask.

now markets, gone changed Mimecast Proofpoint is the for in having has the with larger behaving one to private Any that private business, the environment? the pricing they and Has how and first implications it accounts? market? are the changed The competitive with

Stu Sjouwerman

color to I Lars best is give there. positioned some think

Lars Letonoff

to think we service of same level the thing prior. I Proofpoint And quality don’t Alex, think main seeing with us. are – are Yes. I I getting the Mimecast would they that and coming that the think are they is and had customers

door more lot So, interest we the a in product. our are coming getting on

the case, immediately. pricing. see typically that’s least I acquisitions, most don’t on with As pressure at any

But how you really product quality our these a really on or are even, their on I change guys for on of need been really We do product. these are many when the The guys again, we actively with on for aggressive sell the have based the pulling one bundling area We some we pricing, business, cases, know those in. free their competing see product. that in give going see that’s poaching We and bundle. where is exactly pricing when to – in product that away we I be would years. to see don’t them are side best-of-breed

threat a us. So, hasn’t to big been it

Alex Henderson

The second just do question before but compliment I it, to you I ask, wanted I to guys. want

out You It fundamentals. guys like sell-side great was was written analyst. really it the would to It did what by a almost exactly laying people job was of a hear. want

I So, have to primary to it. related the I two wanted of questions compliments there. international it’s I to growth But side a mean of driver go it. obviously, and

international are the is of the in market. enormous as is, international economy it international stress. we into Europe, just buying under is the at look portion importantly, here customers, But first in the multinational that simply what more companies particular, domestic The

of them up the the to with versus seen of lot exchange a U.S. exporting Pricing the inflation swing rate euro the of and top pound. the on in value gone have of We products have that. XX% the

point, could how how your increases the Is they are assume looking issue And given cost because that internationally? that of price pricing absorbing that? them for handling I of for tech lot are XX%, probably you address the there there? at are But denominated are you cost is you they there budgets handling that So, in The to giving are discounts? conceptual XX% Are flat? second, low. you more of have you I that their much pressure enormous products increase businesses your so dollar U.S. how field. a question better is, in a, isn’t

Stu Sjouwerman

count way did that we is think give part the of is where probably positioned but the your there, revenues, want insights I question. sale to you to The I lands. headquarters our quickly the best answer is, Bob some where first

actually if sales Bob so And in from are take here. are international, countries. those it And other we logos will that talk

Bob Reich

all With respect our are with of Hey ultimately actually Good of the to and international the users, our international channel through USD. most majority end our of vast end morning. partners business Alex. the of navigating in transactions FX, customers. channel up sort Yes. FX end revenue We do denominated with partners the

it’s are not denominated of super significant. it’s actually X% roughly very some almost not billing revenues USD, of but of international – in all our USD. is is most There UK, all generally There a euros, in our we So, total is Germany Overall, in Ireland Europe is – are USD. currencies other denominated is revenue the USD. than exceptions, of but

Lars and their So, – negotiations taking consideration are in from impacts rate sales standpoint. know can the obviously channel into know number. That that with it’s a do really, do really the reps the this. discounting small We partners said, exchange confirm a we

– So, impact, denominated. is even denominated being a I FX in a transactions are USD. of being natural think These there is sort we there though are natural

Alex Henderson

you are how So, it? handling

Bob Reich

are which you ultimately discounts mean impact, being in sort higher the it FX is are right. slightly in resulting I even USD, it’s Well, proxy what of a denominated I though for predicting, up ends think that

Alex Henderson

It’s Thank helpful. Alright. very you much.

Operator

question from Stanley. ahead. Hamza comes Please next Your from go Fodderwala Morgan

Hamza Fodderwala

in. Hey morning. for squeezing me guys. Good Thanks

appreciate you. the one quick I for all earlier really great the me, this for one and Just color is call. Bob, on

I think like overall pretty said seems It demand strong. a you remained healthy pipeline.

back macro into Are Any got a you us half? of some just pipeline. give the Just rate have half, can look color the just the pipeline healthy you on in around close conservatism as back lower assuming uncertainty? the that this you given embedded you

Bob Reich

I when and to between think with We respect QX I QX. of in philosophy guided XX% exact roughly to the growth sort honestly, the year. and of somewhere actually comes No, we XX% QX Hamza, have full and guides, used the guides same it – year-over-year

little are of reflects estimated, We the QX. now north same thing doing XX% year-over-year an bit growth. in a Full year

terms So, I of of or don’t anything that’s think that in there here. is in any rates sort our assumptions growth that in granular change calculus

And I of way still August think pretty is we of we guided indicators here five we with terms we QX, bit early is we obviously Xth, any are the consistent not anything, go. the the in year just of that the of little full a there seeing just very uncertainties. more on think level and year, there of fact be sort though natural sort conservative are are guiding have to precision bias QX. sit high to as that a even given I months in the do

Hamza Fodderwala

you. Thank

Operator

the will There are remarks. for no time. call over back to turn closing further this presenters I the at questions

Stu Sjouwerman

to in three see all. Hope much Thank you you is months. for very really and that attending

Operator

today’s concludes call. conference This

You may now disconnect.

KnowBe4 (KNBE) 7 Aug 222022 Q2 Earnings call transcript