- Earnings call transcript Q3 2023

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Operator

Thank you for standing by, and welcome to the ZeroFox Fiscal Third Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session and as a reminder, today's call is being recorded. I would now like to turn the conference call over to Marc Griffin, Senior Vice President of Investor Relations for ICR. Marc?

Marc Griffin

operator. you, Thank thank ZeroFox's and joining today us Good third you quarter review fiscal XXXX to afternoon, for financial results. the With on call James are me C. today Foster, Foster. know or of him, as many you and Foster Founder, is ZeroFox. Chief Officer the Chairman Executive of ZeroFox's Also Tim call Bender. CFO, with the me on is remarks, open we'll prepared the call After questions. for up

variety of statements subject call, federal statements These securities make our risks future but that are related of guarantees rather performance this a During may are uncertainties. business to laws. are to we forward-looking under and not statements

Our could forward-looking results differ actual reflected materially in statements. from any expectations

Forward-looking as them. statements obligation we made to today today, no speak only to our undertake revise of expectations publicly or update and

discussion on and our could and discussed section the Risk a important Factors other system the actual the other SEC's our factors earnings EDGAR to and factors affect release. filings SEC the EDGAR the For of that as risks important -- today's available material results, of website risks our please well as in refer

be like our Additionally, of Foster. to most GAAP call Please release With portions non-GAAP investor to financial measures these reconciliation and to other measures Executive the I'd our financial discussed in tables Chief of comparable in the that, Officer, the call. and press to a refer website turn directly Please this over measure. will ZeroFox's ahead. go

James Foster

a with I to on as start journey wanted public a passionate our business. milestone apparent. significant external this our and as get nice off excited with the And you transparent call speak see in in to I we you first today. capitalize good our be is genuinely represents with a you and me, glaringly cybersecurity. am pledge, a Marc, call to an this becomes I to very pledge we Thanks, know believe important everyone. afternoon, And look quarter. given company, opportunity This Been on as to

strategic acquisition new to our finalized of public started. business our capital, we IDX the were Corp. combination growth get complete August, In Acquisition able with and let's raise So L&F entity,

have category the Zscaler become is positioned career that cybersecurity We now security. opportunity edge of the is markets, longer markets platform we proud leadership are growing to we ZeroFox. that cybersecurity saw to fundamental the has market. emerged CrowdStrike and emerging has Palo though build we Alto growth next on is the emerging fact the clear and and of equity ZeroFox continue the customers well depth I Furthermore, are as endpoint market that ZeroFox and in and the established on like Networks well market of little we had a as have that significant cybersecurity and shown, it scale believe believe areas truths hoped, category the that These now these of learned is edge. and evolving, public large, reward and and leaders. and my to significant over one as position overall navigated newly our like And volatile than cybersecurity the the We external the opportunities even the in category market emergence history leader. SentinelOne leaders Endpoint We and external took course

workloads. the disrupt of the controlled cybersecurity So enables focus and External and been owned by the that is cloud to outside assets the has Owned like things networks, include systems, Traditionally, cybersecurity customers assets any the what cybersecurity? expose, organization. protecting to external perimeter. of are respond laptops, threats on

an are cybersecurity. a led and the organization. media accelerate, transformation and taken mobile continuing external deep different These their even social platforms, web, the platforms residing primary and movement data And for financial leakage, these app targeted assets is Adversaries stores. risk surface spoofing that sites ways interact digital sites, to the attacks, outside This approach grow, has of continues platforms dark for the organizations. and that an on the which code-sharing impersonations. is every channels takeovers, digital reputational notice. that is include transact web, things public This credential have the to proliferation theft, mediums, result and account control increasing of companies with now to organization reflected and domain to phishing collaboration attack like digital require surface However, increased data and through

ZeroFox. Furthermore, to monitoring platform-based continuous external is risk they control. dynamic All and visibility solution external what to built they can't exactly exist. a and given and cybersecurity its defending protection We at this don't of they organizations we can't and is believe is simply know against nature. difficult, approach, of and have environment They the the challenging. organizations, of Today, their unstructured significant their know external cybersecurity systems don't assets. requires have this very brands these and group see nor protect they assets pose challenge limited this to And threats own size what

today. and capabilities to accolades of multiple with platform strategic providing the response. post-breach awarded is and Our integrated adversary intelligence an is continuous services Historically, threat now individuals services that External largest And government IDX to cloud-native. the solution have is protecting to capabilities and cybersecurity combine of providers was disruption external federal spectrum our of that provides pillar, driven We protection continuous comprehensive our ever our one include challenge. expanded IDX and pre-breach capabilities synergies acquisition on We in acquisition the U.S. important response largest view capability breach They ZeroFox's solving Cybersecurity technology-driven our of were by include having contracts The protection, the X a States. IDX. response by see one the full fourth response Platform IDX millions and several strategic fundamental United AI to pillars response. intelligence, via of disruption. an platform breach with strategic focused into response the

First, IDX accelerates our multi-pillar platform roadmap.

combat across response, capabilities other pillars. around enhances personal organizations listed data removal. customers with websites Internet. our broker example for our of identifiable helps strategic that a provided is recent service disruption on PII is core all this and of sale IDX While One our launch the for This of of include ZeroFox. is that us it capability This also information individuals important an capabilities new

now front, The the last second new combined synergy globalize but upselling and is of base. the revenue XXX% recently IDX's our to And of expansion response an by globalization. to solution. accelerating traditional opportunity capabilities services customer We in the opportunity Today, capability cross-selling multinational the accelerate On international an support is go-to-market leverage to business see announced least, we see nearly organizations. ZeroFox's to not U.S. this we our full to

are still are the excited integrating the are we ZeroFox making and IDX, about and of stages of While we progress pace our combined we in early innovation.

next expect We year. the synergies to over see meaningful fiscal become more IDX

quarter. capabilities. and And gratifying, to several discuss our third our in the reported though you is as partial challenges our execution. of revenue gears we heard $XX change This very total I'd operated Now given We macro and the launched a joint current already, million. especially like I'm new in Even quarter, with we results pleased environment.

Europe. reported this. new and leaders continued signs on lengthening healthy scrutiny to too sales have have of signs deals, cycles from existing customers. of We seen demand see have cybersecurity of Other softness increased and We both growth in category and

seeing demand of smaller North Europe. the and we our the size course, market, given and excluding world, However, consistent in America are emerging of rest

our Looking I'd X the forward, for to outline year. of priorities remainder like main the fiscal

in We our are QX.

by remember to simple these able FOX. the be acronym, You'll

focus. for is F First,

base. on executing focus our and reflected customer We will to in Cybersecurity strategic External and be lead grow here performance our quarterly Success our will Platform metrics. capabilities plan

Second, O for is optimization.

As company, to a flow. over growth efficiently our leverage free the scale also the we'll in several efficiencies, of to to continue the while driving support foundation new laying and our cash next public years near-term operational anticipation infrastructure optimize business

Lastly, for X IDX. is

and rapidly be We X will to efficiencies overnight. will are realize achieved not cost know to we the our These growth organizations and continue revenue goals possible. that integrate thoughtfully

Tim of continued continue the to cybersecurity. in of world, we I'd of financial with on like to the to QX Tim, guidance. Bender, passion turn will call more standard our set and nuances I'm yours. energy, and gold that our CFO, will With commitment Foxes transaction around color However, who is the the confident performance, the the floor all that, over our external provide

Tim Bender

around remain Foster. to excitement echo in Thanks, we public company. the Foster's external milestone company. we excited significant a have cybersecurity would even I'm about the more I a market-leading becoming achieved like And opportunity to

there at to story understand sure be progress. you closer I look and quarter important a set like would Before our third are our a future better can points so results, we few our level measure to take

QX closed and August the results October a represents of partial Foster XX. X, as First, operations earlier, and through our period. on IDX transaction August mentioned accordingly, combined ZeroFox The X from QX reflect

accounting Second, due requirements the transaction, of the to acquirer. deemed accounting the was SPAC, the L&F

found However, ZeroFox, of purposes. investors financial can financial Inc. include the basis on reflect results IDX. the website. information historical information IR of entity this financials we ZeroFox supplemental only a predecessor IDX. results Inc. do for stand-alone presented that be This This our means on To with provided and assist and comparability, that of the lack includes statements have not ZeroFox prior for is reporting stand-alone period

take quarter look fiscal a third let's closer results. our XXXX at Now

non-GAAP financial today financial results measures. between of With earnings discuss revenue GAAP stated, the found and non-GAAP Reconciliations otherwise can results be exception all our our and in release. unless we are will

Services was from revenue the as that $XX.X Services ZeroFox QX, million. of response For in services the revenue. ZeroFox consists intelligent Subscription breach of investigative accompany revenue revenue services revenue and million. revenue $XX Platform. primarily Subscription ZeroFox as from $XX.X largely well Platform. consists reported revenue million from was revenue

with We October As $XXX was annual our customers. X,XXX recurring the of subscription ended revenue quarter million. XX,

to continue and customers new within expand We capabilities services existing land customer a base. to opportunity and platform both see the significant

Turning to margin. gross

we subscription our greater opportunities subscription improve total greater mix. quarter, gross was overall gross the We scale For revenue our a revenue and XX%, was XX%. becomes margin non-GAAP and of portion as see drive business, gross margin cost margin to higher-margin our third efficiencies our non-GAAP overall

in Total were million $XX Turning non-GAAP to operating expenses. expenses quarter. the operating

invest drive innovation We R&D a continue and market to remain to in leader.

lot marketing, costs external our we see cybersecurity. a sales transaction. absolute spend in in look dollars directly were space Regarding we expenses, increased impacted deeper to the to more increase by white G&A Taking expect of capabilities go-to-market at attributable and a they to since

We expect in additional costs absorb the to transaction fourth some quarter. nonrecurring

run in fiscal we more However, after see expect to rate a that, normalized XXXX.

operations million. loss non-GAAP was Our from $X.X

we in million $XX in deferred ended and total Looking at with revenue. sheet, balance receivable million $XX in the accounts million the quarter cash, $XX

in was kind, part provides the debt convertible it in of The the is ZeroFox Our million, the million that balance. $XXX raised total rate the to outstanding in of interest cash thereby X% the including $XXX the or interest convertible is option PIK Provisions was pay to debt as note adding rate to debt cash X.XX%. convertible transaction. pay and

SPAC due our our rising a charge the has rate. option the the on senior is determine variable was a to August for the will charge. of acquirer closing valuation For in us $XXX used which In impairment ZeroFox statement, accounting the price to million XX, the the the We the interest see treatment rates the believe to which decline of option. surviving L&F on in opportunity financial rate elected the the October impairment statements, prudently debt $X.X note PIK we attributable subsequent PIK entity. reported The in flexibility charge. payment bank accounting business. our was the XX interest convertible on first of the million invest provide reflects and led income interest day will X and December initial to stock goodwill, expense our growth We you market but our goodwill and as This wherein was PIK

no of takeaway impact impairment ZeroFox. operations important is that The has charge the this on

release. in operations to cash Again, operations approximately aforementioned cash transaction treatment used million was and for flow Cash used the $XX presentation in the costs legal advisory, associated $XX capital flow. includes the the million. in accounting flow with other reflects The cash Turning SPAC.

we from and G&A we'd our transaction similar the and indicated normalize As additional impact to fourth quarter expect costs some earlier, these to in in expect XXXX. fiscal expense, moderate

Now to our outlook.

We environment. are certainly macro cognizant of the

expect we of seeing, Based currently achieving range are of are the second revenue QX low 'XX year previous our we our million in raising million, end half achievements, QX so outlook. our guidance we $XX what be by on now in for the based $X fiscal million. confident remain to $XX of to on we However, the

for to year. earnings we'd like questions. your take guidance please During call, you our we QX questions. full Operator, providing anticipate with poll for year With that, next

Operator

Instructions] from Reback Our the line question [Operator first will come of from Brad Stifel.

Brad Reback

XQ optimization, ballpark? cause commentary there So income op of some you may for the about onetime we But on, range. provide items be these around of as thoughts think significantly Or that an deviate should obviously, any in didn't are same we that in to guide and the the XQ? some

Tim Bender

sales this quarter a bit listen, think a those standpoint, But slight Tim. all, so Listen, more it And then one. all, start I make a think first so the see think OpEx, G&A continue see to we impact to I an all have we're kind talked about that in tick going OpEx will will we costs an us Brad, and relatively about standpoint, this again, QX I'll of from as our take is there. days a strong But few a relates think as albeit is generally the sales consistent. of to I of tick-up we'll mix, might from OpEx away. But some it kind away a in little partial from investments. trickle quarter, number, on should for as of you transaction be QX marketing. to

Brad Reback

obviously effectively going here Foster, some And over your and forward? but smaller it your augment the to set, M&A as historically. years, biggest ones have great. now you help What's philosophy used M&A being relates very other the That's to product then IDX

James Foster

incredibly my bar is It thanks starts for that single in or of we when every to years. the comes making it's high. than I raise team Yes, I in time. the mean, fundamentally to M&A it with is par question. culture acquire sure general, Brad, with We the changed previous believe don't look merge and the the better bar on ours.

have with think to work I we IDX. tremendous a amount do of

us strong evaluate and we We execution QX integration, setting When address for and solely them next find we of as we'll get here foundation them. are through new with opportunities, on we a in focused see year. up kind

Operator

[Operator the Instructions] comes from line Jefferies. of next Gallo Our question from Joseph

Joseph Gallo

company if and in the just combos congrats to time. a I out you combined the I've just publicly on Tim, And Foster, results the talk about on few good. congrats the maybe Foster, feel start that in may. results macro, you've to got lot can spend look a a you're know like? questions, current you got drill What getting and does threats reporting. but tough with It's Foster. into door are your thinking the their customers? priority year? just and their maybe for stack where customers with having budgets missed I those how said largely customers. of fall And about the your the down environment next But external

James Foster

Yes. question, Thanks the for Joe.

a think it's fair I question.

I -- get what tech the budgets get stack. what are of threats they like be the tell year some modern to threats from perimeter Street waiting believe security given that guidance see arising. year. we full fiscal attack your And our attack that think executive can customers I evaluating critical inside customers tell still beyond we They teams firmly on their of network. Wall from can will importantly, inside, more where the our we're and and look perimeter. part I We assets next what can mean, attack we the traditional in try and our to of but customers, feedback

increase an in seen those have attacks. We

also critical we us and note value our customers that taken seen I stack. adding are material have and think alongside their of to

plays. look Cybersecurity vision for the stay in an will it's say, the of that our help we is, the And a then ZeroFox future glass And economic pane they any of got a time or a I looks product got longer potential on I advantage situation like they their think no being so new company, a We're here past, has would will where consistent? where than External people combined expanded consolidation also evaluating view I And opportunities a less at we've customers when now right of think consolidate are our get from certain unified relatively budgets budgets are point platform. single with Platform. to and

Joseph Gallo

maybe then question then like relates imply that what's worse in call does as Tim. better, you my just your things forward how stay hear. macro? tougher the us Maybe about be same and That's a as guidance could in think methodology? just in And your fourth or great it And underpins guardrails first if to to should second with And think guidance, going that just provide of quarter since about we some to your what maybe profit how kind get for future, to inflection environment. leverage on the

Tim Bender

you here today, in so we We how prudently. be as And invest couple a so to our we about see think our providing you We're of and growth. And going environment, I it how important them do the of again, But affects going certainly have we them I of lot for get guess take guidance. head. we're we're in we that kind other I Listen, remains that know going guidance, to an into metric maybe going I'll has kind about reporting. dovetails into macro profitability, questions, will our sit but I seeing. we that a at order heard in and kind of prudent our several the growth is to profitability, 'XX fiscal know us. impacts We my that be a demand Sure. on. steady, as we're so in talked cognizant we'll that of first update how time. it think we're companies

that, We where plans, software again, being company taking we're like where sees in to a in scale. larger we the our where that's our we're happening going said, our to stretching conditions. guidance, as macro relates it what's But of we're -- a full and for growth. internal conservative, that the do important for general, know have again, you Just macroeconomic an security, approach size I want we're to in

Joseph Gallo

can That's is of helpful. if million squeeze ARR. maybe that, just $XXX of I $XX in believe, so I a OPM. gave but And you -- clarification, million

You could millions, probably subtract for a IDX. of rest the out handful digits single of low

to XX% you've a look call XXs to versus ARR supplementals the that correct that Am acceleration think XX% I growth I core that's imagine thinking that about gets quarter. then rate? ZeroFox if a I I low would high imply, that, mid- that implies an of at Does the kind ARR you had? number. like last it, And

So And true? is what inflection of have other that seen kind that moderation in drove then when most a rates? vendors growth

Tim Bender

Yes. And correctly, it Joe, are your of I components you're individual you think so Yes, about questions. the some thinking [indiscernible]. fairly different answered

is the as that seen. So accelerating you've is growth correct. then And

seeing So the we of of our just in But might base -- a again, real we're our than again, a One couple smaller and so base a some what nice customer higher is maybe factors. demand, little of ARR. be that's combination bit our enterprise especially competitors. drove

James Foster

still then security are and to did conservatism our part of quarter, a what us you our the a Joe, we bucket future, be forth, QX. two, QX our block want in I revenue all general, performance rate and to of what that inferred kid using core as on put of to you'll think planning would kind as philosophy, allowing to us raised. is think which the And growth rate here will And This sure a I judge Foster. guidance about clarification. growth government come exactly make in of there. and that this very to. new here the go, the different all alluded X of we had to raise I in add and that's our we would X looks to able do beat One, back evaluate as to and as revenue and in federal methodology that, I framework that think being the is part quarters that points ZeroFox put too, on that our contract for was guidance on And

Operator

remarks. turn to like Foster for any I'd closing call the to back James over

James Foster

you, Thank operator.

front of tell, us. can excited about you very we are opportunity As the in

us even morning, presenting again, thank Conference, those at Investor site. want webcast great access investors that information, via everybody looking to tomorrow Raymond our that will more Relations For for Technology James you a be And today. Cheers. day. the are joining for we and Have can I

Operator

for And participating. this call. concludes today's conference Thank you

now great Everyone, have may disconnect. a day. You

ZeroFox (ZFOX) 6 Dec 222023 Q3 Earnings call transcript