Earnings call transcript Q4 2023

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Operator

Thank you for standing by and welcome to the ZeroFox Fiscal Fourth Quarter 2023 Results Conference Call. [Operator Instructions] And as a reminder, today's call is being recorded.

I would now like to turn the conference over to Marc Griffin, Senior Vice President of Investor Relations for ICR. Marc?

Marc Griffin

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

During and external expected These profitability financial of from securities our statements our laws, that guarantees this related make our cybersecurity, results, future forward-looking IDX. achieving progress are to uncertainties. rather variety to benefits we acquisition of to related may statements of anticipated growth including and in opportunities risks statements call, our and a statements business under not are are performance but federal subject

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

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

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

the on release portion Additionally, most comparable be financial will these to refer our of website measures for conference our GAAP measure. and the of directly in discussed measures Please call. to on non-GAAP the Relations financial tables earnings this Investor a reconciliation

over the ZeroFox's Foster, turn that, Executive call go to I'd to like With ahead. please Chief Officer.

James Foster

continued opportunity see profitability. and for taking close to with approach year today everybody. the Good a cybersecurity about on path morning, speak growth our capitalizing our Marc. growth strong we the the year, upcoming our I'm on to and you external between focus on really progressing to excited balanced in fiscal Thanks, significant

a with high-level QX performance. our look start at Let's

high note, I'm the million of ARR year ended to beating for the only second of guidance We the a cybersecurity of grew with end closed year accomplish. team out We and XXXX, high what to in ARR able our public platform XX%. our on company the proud quarter. year-over-year As go was consecutive the $XXX

We year-over-year. increase customers, continued new larger ending wins saw with XX% customer success quarter XX% greater deals subscription XXX an up over ARR quarter the another had year-over-year. X,XXX We as subscription also winning ending with strong than year customers with of $XXX,XXX, well, the

the and remaining were consistent QX demand we the The in environment. with particularly more continued and experienced we and and environment pleased continued to certain like a volatile other it has with than of Overall, cybersecurity was experience increased sales demand. on cases performance, and uncertain We the said, not stable is technology overall macro thus our we far in in QX attribute companies, macro what given larger scrutiny this and deals execution. go-to-market geographies longer saw see environment. our That we've but to affected cybersecurity cycles resiliency

existing and offerings. also continue new closer recognize of across positive healthy emerging QX, platform size we the a external are our and Taking factors. our cybersecurity see from customers demand nature market look service to We and smaller at both

competitive and intelligence the key using coordinated This threat several multi our a is that displacement XXX Fortune dark web campaigns key U.S. multiple mobile wins, disrupt deal to During quarter, the to customer competitors. ZeroFox across executives The and deal public company with won detect protect apps brands, products. domains, X-figure grocery through we platform we and was had service over a including chain. a opportunity

we to action ZeroFox ability personal disrupt XXX Fortune removing new signed the their domains. strength deal ZeroFox corporate X-figure is capabilities a service. retail disruption against due to our a with using and and won media this deal threats with threats discovered, social and executive ops comprehensiveness and our our to and accounts We platform, of and differentiated web leak dark the including dark protect company take data to PII information and that

also infrastructure This ZeroFox displacement customers across competitive X intelligence large for a critical X-figure our comprehensive company. We deal with pillars, digital the multiyear risk European was of with won disruption. a platform and including protection, X threat our selecting a

response in brought where Response, breach large capabilities, selected had and the We including center. fourth when was of newest well deal and restaurant ZeroFox on response customer with operations at track delivering wins, to competitive we performed the record incident platform brief deal a This our our key scale. a because proven quarter. pillar a and Response focused several U.S. also in leverage services ZeroFox market-leading our of chain

synergies we Importantly, following of QX see our to QX, IDX. of started signs early acquisition in

our disruption IDX PII recently end-quarter joint deals. ZeroFox was and for a removal innovation, required example, service, For key [ph] platform launched a several ZeroFox capability

the our time first a long-standing media provider. legacy customers, ZeroFox One with ZeroFox engaged technology their of over Fortune company, XX and for incumbent Response also

able rates some were in Response more by to also example combined established capabilities go-to-market This ZeroFox's of the launching drive drive businesses. an education is how and the larger of synergies. win drive to to campaigns leveraging X We marketing value improvement and we're

more to Because more public to early work this of are become I'd us. like just quarter, going half spend synergies some of of last the expect with few in is an said a to we what meaningful continue these a we newer to minutes are year. to we While with know pleased there ahead and only this overview is we our this second earnings the since external story, cybersecurity. progress, still provide Consistent lot investors latter call

to customers goal beyond been with category outside has of disrupt perimeter. threats helps device and endpoints the internal cybersecurity respond assets cybersecurity Traditionally, with the security products and focus owned of and of firewalls controls. the on protecting expose, external The the

security include social web, media protected and collaboration Examples propelling is digital platforms surface and mobile proliferation traditional sharing controls. dark the transformation sites these and organizations assets platforms, on web, by external platforms outside sites, that digital of of deep data stores. However, a code are and of control not app the

the and continues grow, are risk surface increasing those attack and external use and surface targeting to potential business takeovers, phishing exposed platforms. The the At brands making frauds As account even it And from continuous for the visibility increasingly threat this adversaries continuous every real. the continues for attacks, executives, threats increase, attacking online, financial external reputational to to is with shifts intelligence threats same companies, of impersonations more time, and external risk. critical protection beyond organization perimeter. volume the of attack actionable

external And today, the into response is solutions. with entire we to surface of with threat scale attack need breaches. continuous external threats to visibility driving comprehensive capabilities protection provide incidents and investigations, size ability The external disrupt for and surface, that active the assist and robust a attack growing cybersecurity intelligence,

opportunity? So on why believe is do main we that this Three positioned to reasons. ZeroFox capitalize well

the what upon. our that believe cybersecurity we a solving to approach. is will We continue requires first The platform-based exactly platform. build have is external This problem we and what

patented Customers Our disruption response adversary a platform AI-powered glass. want single comprehensive intelligence, pane spectrum analysis, threat of solution. single full combines and a into capabilities

scale. represents the on a our we believe is threats and a reason basis customers that which second daily for scale disrupt at advantage. The We competitive operate

in customer reason time. in increase advantage today. we're We scale less growing and macro base the and size third this experience is also operating this like focus. over believe believe predictable that And We especially will will our our environments true be

Solving has years the we our company the been focus just external XX cybersecurity problem since over founded ago.

We platform every innovate to have external disrupt attack. identified continue and and deepen to our we ensure that

the and IDX, ZeroFox. to acquisition for we were was we We We have capital expanded new company transformational our raised 'XX breakeven ZeroFox last over the next Fiscal cash public flow year strategically cross only the of required free growth to late capital to Response. go with platform include year and year. cybersecurity

platform has towards disciplined upcoming As scale time, we a we important in year. depth this believe way us to resources, believe ZeroFox growth progress same that successful that look to allows At to profitable. to another pursue the year, this make the it's growth becoming we ensure and fiscal

to and our the these you'll I be X able F-O-X. would Looking outline acronym, like forward, by to priorities remember top simple

for is First focus.

lead to customer will and cybersecurity capabilities continue strategic and our our We on plan to grow platform, focus base. external executing

reflected with on growth. focus will a Success be core metrics here performance quarterly in

important for the support leverage. ZeroFox. focus O Second, that path profitability an we the is of for to drive year, know our focus for laying investors and area operational continue optimization. area We infrastructure for This growth to is to while to efficiencies foundation key a our will it's and optimize near-term

breakeven goal is flow to achieve late next cash Our year.

executing X our improving our year, X from represents x-factor driving overall meaningful efforts on factor. Lastly, cross-selling recent will and This synergies acquisitions. our be more

our well platform. for Foxes the ZeroFox. execute initiatives In capped is to off that on summary, energy, continued a a further the of quarter fourth passion I with ZeroFox world, and our leverage And and transformational commitment year strong around our positioned believe

like call I this who would With to QX the Bender, year. performance our CFO, guidance and will more fiscal and financial on color that, our our provide Tim over turn for to

yours. floor is Tim, the

Tim Bender

Foster. Thanks,

fiscal As a mentioned, its ZeroFox in note. Foster on 'XX year positive

take at do on a transaction, to I of IDX. reflect results, of look financials and results closer to include prior wanted ZeroFox only results we presented a the of stand-alone period due the requirements accounting Before QX the remind the our not that everyone basis

be both financial that For our on found supplemental provided for Investor website. financial purposes, we can information have ZeroFox IDX. comparable stand-alone investors information and with includes This historical Relations statements

a Now closer let's look at QX results. take our

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

of revenue and platform high services from million. revenue of from revenue guidance $XX.X million. was million. incurred consists QX, Subscription revenue Subscription well sales. $XX.X For ZeroFox revenue intelligence of consists This the revenue QX revenue Response of revenue Services reported range. recurring as from nonrecurring our ZeroFox Services $XX.X was as services. exceeded end

of annual government the small X,XXX our revenue primarily consists and as a of quarter was $XX from with contract. recurring ended XX, subscription ARR subscriptions We amount platform As $XXX recurring large million million. January of services intelligent as well customers. our

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

As 'XX, increase $XXX,XXX, customers continued winning XXX representing we the a than with success greater year-over-year mentioned, We year Foster with fiscal ARR subscription XX%. in saw year of deals. ended the larger

to gross margin. Turning

quarter's last subscription from an subscription quarter, margin gross XX%, fourth the For increase XX%. of margin was gross

weighted some margin seasonality From half positive were be more perspective, heavily there tend year. gross of timing of impacts investments also to increased first our efficiencies, fiscal the from benefited While from the investments. our to a subscription

to this, Given decline expect QX over subscription and then year. gross the the increase remainder in would moderately slightly of margin we 'XX

to an have for margin as gross subscription volatility, a moderate consistent, on done potential While there we several is so improvement for quarter-to-quarter basis deliver goal our years. is annual

compared in to margin XX% was XX% last margin the subscription improvement higher Total margin by was quarter. gross driven above. gross primarily The total gross referenced

scale margin continue to efficiencies overall as cost greater see drive our revenue to revenue of becomes improve opportunities overall a subscription our margin greater our our We business, portion mix. and we higher gross

expense operating increased comparing primarily million and becoming in aside, in us, quarter, commissions Turning related investment by this driven partial to in the public. was were R&D levels continued QX transaction expenses. that the Total in for that in When is well operating to was fewer to which quarter. QX of as typical increase a in as last expenses expenses G&A expenses. days quarter reflected $XX expenses X Setting mind keep sales

the in year. costs 'XX, the half absolute investments provide operating would expenses As our slightly and of increase should to professional planned residual timing look the fees transaction-related audit, second of QX we by filing expect we dollars for that in driven operating annual leverage to

operations loss was Our $X.X million. from

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

provide to interest the on flexibility prudently and was growth debt option rate $XXX PIK PIK note debt. in for XX. with interest business. opportunity We our last due of outstanding X.XX%. invest quarter, PIK has convertible $XXX the our option Consistent March including us in second X% to rate a million of elected a total Our The we cash convertible payment million, the and continues believe of the

cash in $X.X cash used flow; flow was to Turning million. operations

Now to our outlook.

fiscal we are we As providing and loss 'XX. from year QX indicated quarter, and revenue non-GAAP operations last for guidance

our our demand and volatility Our 'XX our QX within assumes environment and for service no anticipate solutions business. reflects changes cybersecurity in macro results, outlook solid consistent does the external material

operating and incorporates outlook the prior also Our expenses margin of regarding commentary trajectory my gross QX. for subscription

to 'XX, be we $X.X expect non-GAAP million million. the QX in million currently loss operations in the range $XX.X range to of For to revenue and $X.X from million be to of $XX.X

be be to $XX the and the year non-GAAP range expect currently million. to million to to $XXX range in fiscal in 'XX, of we revenue For $XX of from million million loss $XXX operations

on free mentioned breakeven year profitability to we are continue earlier, latter focused expect Foster and As to cash of achieve we fiscal path flow the the part will 'XX. that we in

questions. we'd that, to With like Operator? take your

Operator

first Instructions] [Operator question The from comes Jefferies. Gallo with Joseph

Joseph Gallo

factors lot about growth transaction. of truer between macro and probably components business think there's the revenue which a following is ARR business? impact that of revenue Obviously, versus trending a the the the the we How should health of growth the reflection of different guide

Tim Bender

Joe, this subscription about does think side business Yes, you grow the overall I little the a Tim. bit is mean, if of growth, our faster.

growth. little of expect would grow would bit total revenue that the ARR a overall you So ahead our

Joseph Gallo

puts just, of and then helpful. And that's have to maybe Tim, just you, I the guidance. the takes while Okay, talk

prudent. growth. just believe, digits. I at think you I full year the revenue mean And you're year I Your exiting mid-single your appears guide XX% would did guidance, implies

should move business? So as headwinds, think should these your methodology? macro one, about rate about maybe guidance we growth how how think two, we And of the the beyond sustainable we

Tim Bender

Yes.

is services relates I new that for that overall flow that see growth mindful service growth. more weigh get performer. the line OPM have in Obviously, line as and of into overall weighs obviously, a growth, acquisition year. but and fiscal cash the first And -- excuse the strongest if in QX -- the continue I me. contract an we're now revenue, thing, you'll business we subscription is then it the of just on bit of does there's fairly business. us the a we rates, So anchor really very through that our philosophy, the think subscription as on guess business volatility right revenue Again, the And to certainly the consistent generating contract or methodology

Joseph Gallo

company? more. growth if algorithm And focusing biggest just are maybe F maybe in a in sneak quarter I the are growth on Awesome. in inputs can And what fiscal first the then 'XX? the as you And what public for you're your one surprised opportunities to Foster, in? that in what the factoring Fox, then

James Foster

that melt of first fact we wrench Well, banking Thanks, mean, Yes. I throwing a outside hours XX before Joe. public our a days the had down near ago, call. tech earnings

QX performance. had we think strong I a

uncertainty we with is of us. team iterated, the uncertainty. range. environment Tim to XX mindful I'm in given that we our project have being of synergies we beat a growth end have. year more adding that meaningfully the element this As hours, But we're available guidance this the last macro the high pleased of what doing And certainly, we new in the but

terms of back up to here that look in our another growth mentioned towards large did rate. proof numbers businesses customers. growth subscription the in businesses our we you point outpacing is put Tim like If QX, that I'd the rest at far the of And growth for draw

pay is is demonstratable growth. customers that That's positive outpacing trust $XXX,XXX in there also shows that's set, cognizant we customers growth from it general sure when customers our to our believe in to a that we cybersecurity solution that everybody's I'd that a have like problem a solve more factor enough out ARR make on of over mean there and I behalf. in large their that for is overall our

keep we close a important that And that's a very so metric eye on.

Operator

next Our question with Brad from comes Reback Instructions] [Operator Stifel.

Brad Reback

up synergies there? maybe everyone IDX. or is Can to of the a there is is indicated force you still early training? with opportunity some And sales Great. where in speed Foster, us on sense give you cross-selling fully

James Foster

Yes. question, the I appreciate Brad.

hours. kickoff sales have in We XX

reestablish platform capability did, re-anchor we the opportunities that We I'd of foundation we The as year. for our catalyst that disruption of position, of using synergies IDX win QX changes PII a that the using synergies this this every in some We're year what in customer as service revenue we're that pricing in reenable, call, new our as so see any And meaningful from nice, QX. mentioned. multiple however, to we a release the was meaningful to have. do the accelerate acquisition early

fast those positively small demand QX. were were from customers in of percentages single-digit net we traction surprised at those the we that saw the we the new total just think the deals move and And pipeline and through I how those acquired customers.

And looking anticipate with year of tackling I is and so from now. our just and IDX platform really at of saturation opportunity we of think are team our base. the in couple of that There's points white a a total space upside customer technologies that lot the this our opportunity,

Brad Reback

on about had us Tim, great. mentioned seasonality cash seasonality How some helping on you flow? then, That's with And expenses.

Tim Bender

be for Sure. has you always standpoint I I expect know a flow the perform the throughout most would we guys quarter again each that that our our but cash typical like mean it's and but this and history, short the to would just getting think for different from year this cash expense flow, history happen a year challenged ZeroFox wouldn't flow in year. been tends expect I quarter better and to QX

Operator

The Instructions] Yi Cantor. Lee Fu from next [Operator comes question with

Yi Lee

on about a us double-click the with could strong on if IDX, updates generations was questions cross-sell? finish, the us wondering synergies? deal media joint for A deal Foster you or the IDX, of and know, Starting revenue company. ZeroFox you I cross-sell course give synergy from that you upsell, some on Wonder platform, company. -- for Foster, on couple mentioned between could and one a a guys Tim, Congrats if of I revenue public the Foster Tim. as

James Foster

Yi. Good morning,

or synergies, in it in I minimal of revenue better was For think terms worse, QX.

the revenue demand within that say whole. see doing really feature I an disservice as be pipeline manifesting won platform a itself I and to improvement. that just to a We our we cycles call, year for net fiscal accelerated alone, deals generation but see, that of would will those me demand be Where here this are sales because feature excited synergies what platform overall probably

We this trends terms from could QX, are in of what the although of consistent we're year bring seeing mindful being macro.

mentioned were then overlap had the as organization. getting we small go And of customers as that, we outside we to in an that public, ready very

mind that's about record, year. upsell would lead we customers factor the talk total think And at X% Let about believe lot there to us a between look for on was math of upsell you top if ARR, for cross-sell which an me a ARR. less it X subscription our in is organizations that meaningful And see and for quick our that upside cross-sell, growth performance. X put would rate of or by incremental accelerated when about definition leaves that something we overlap this you improvement any

Yi Lee

total solutions That makes X-figure on about long coming what type from then sense, did platform of went Foster. you deal is color the concerned [ph]? wondering, we multi They give was ZeroFox. deal, ownership, the you within you deal us Can to understand that cycle? Was on that's of customer lower to why ZeroFox cost? the want [indiscernible]? more play. multi-X-figure mentioned a And I with is the How cost they their -- TCO,

James Foster

we our problem note customers the a But as of to from a on couple -- longer mind. a differentiated have than view. and thanks longer focused our market intelligence platform. set customer to been to that think We've path this A options a organization, question. take and really enterprise When on educated We're on of working solutions competitors. they're folks is within that but Yes. pillar customer for multiple cybersecurity strategy set our Come in think capability of competitors. DRP we're been I just points to the market. to problem or in is by about and of this top every to getting innovation, I And what it's we the that's that see been competitive as multi-pillar our problem they're something this built one see, feel an think value. organization customer-first Yi, starting don't threat for thing than multiple really And in maybe get the about especially multiple from we've competitive pillars, allows pillar maybe and asked customers. for whole good come deal The demand. thoughts is I our our like do some that's enterprise, we the is And competitors our is of nature. true innovation that on a feedback

nature too for to that We searching somebody have tired we intelligence basis, a or and take expensive where think and constant what's action they're I work We to our where find displace want immediately. intelligence. and companies the we our we're us platform threat And on as we appreciate we need We actionable feedback regular for understand opposed hear help constantly nature want protective to proactive search want data and is more a don't of to our customers platform. answers. search of

Yi Lee

to existing existing? makes percentage end And That And you the sense. mentioned your the first logos macro versus breakdown investments, first Tim, to on like new off, like of then if fiscal I breakup going Any between the between I'm half questions, heavy financial be is going deals, heavy. half it's may, we X more one is conditions, 'XX -- about the last right? understand

et for Foxes me. What's investment XXX about at it your cetera? plans, moment. hiring plans, that's have And You the

James Foster

you would of mind clarifying Yi, question again. the first that part

Yi Lee

the and base? is much new your existing existing from investment coming part versus revenue the of customer deals, then the is And On generation new logo plans. your how like second

I Foxes the investment now, the year, right -- wondering XXX throughout was about have first for your plans half You actually?

Tim Bender

So yes.

revenue does think existing our revenue customers. about it's mix, and growth ARR again, we with that I our come like the think from Most customers. talked about from existing line new So of in customers we if

nice about that maybe if adding roughly customers but we're quarter a XXX think And a new number. have base. We you

numbers, need hiring where to And company because the to mostly still in to in without that I a aligned plan, maybe the have balanced our I would customer growth. the hiring on and strong be it's, growth exact again, base we see support it's the going the regard. think our I base we existing giving So then say mean

Again, grow grow keep about we revenue, with our that of in we'll delivery our commensurate as line. year. talking growth moderate course services So over the our adding margin to the

and as grow, growth -- And in R&D as customers, to there. we we add more to moderate of and have as think our our to mature. I Foster future we add marketing marketing G&A the as then we then handle just we'll continue is will balanced competition become customers mentioned, we for handle strong out capacity to and and And is growth kind to sales customers be and functions but drive new Sales want upcoming Again, robust have years. platform a in and our there's investment. in

to well driver innovate So we platform, keep strengthening, revenue. continue as to of our a our it's want our strong as platform keep as

think I there. investing I balanced growth. think over So, we're we're in don't

I handle balance it's our right think to the revenue growth.

Operator

for the no I to back remarks. Foster like questions show turn time. further would now to at conference closing I this

James Foster

Thank you, operator.

also to we we to great thank to Again, thanks Cheers. special I can opportunity us the that to excited everybody taking are a that mindful see a I about front for asked on a Have that focused we and questions. on As joining our us. today on making this the day. for us tell, those allows emphasize in you want progress want of growth very profitability. path capitalize opportunity approach year, while are

Operator

participating. for This call. Thank conference you concludes today's

disconnect. now may You

ZeroFox (ZFOX) 14 Mar 232023 Q4 Earnings call transcript