Earnings call transcript Q2 2024

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Operator

Thank you for standing by, and welcome to the ZeroFox Fiscal Second Quarter 2024 Results Conference Call. [Operator Instructions] As a reminder, today's call is being recorded.

I would like to turn the conference call over to Todd Weller, Vice President of Investor Relations for ZeroFox.

Todd Weller

Thanks, operator. Good morning, and thank you for joining us today to review ZeroFox's fiscal second quarter 2024 financial results. call Chairman; Foster, CFO. and the Executive Founder, on and Officer Tim me today our are Chief With Bender, our now, access have everyone earnings By release. press to our should financial release information Investor well website. press This as Relations can found on as be our supplemental

rather this progress performance, uncertainties. of forward-looking including SEC are any recent earnings to our future expectations and differ to risks benefits to our and are may achieving and statements opportunities and in but subject in materially acquisitions filings, make a results, description uncertainties. of from and forward-looking guarantees statements anticipated reflected could review profitability not release financial variety growth we statements. LookingGlass. of of external Please Actual call, related During these results press risks statements, from material our cybersecurity, These IDX our expected

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

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

over I'd our like that, the call to turn Foster. With CEO, to

James Foster

morning, Thanks, everyone. Todd. Good

the our Furthermore, for and generated expectations adoption announced large We month milestones. we'll record our cash delivered and anniversary strong quarter ARR, of for beat Last year. second marked first and growth, an achieved as another acceleration customer major free guidance, half one-year the we on revenue flow the company that QX for we was our a public we positive several ZeroFox, recognized where time. record raise

the relentless customer a consistently discipline, ever-growing deliver external of on challenge. with ability results and the ability focus reflection to team's direct scale platform's to cybersecurity Our is our our our

to our vision. and summaries progress a of few areas performance going key on I'm on provide continuing our

And external our for continued through and highlights walking for we spend the a few areas finally, I'll share our minutes year. demand QX of of see cybersecurity key review from growth platform. the results I'll I'll you model. the half Then First, second our focus

reported increase in than $XX both year-over-year. the of solid with XX% reported large bottom We wins and of an we quarter increase momentum $XXX,XXX. million, year-over-year in core growth customers and We results $XXX greater we QX, enterprise revenue of with of In ended with top an line saw million, XX% ARR year-over-year, a XX% across continued subscription ARR metrics.

prior exception. new which QX from environment We with except for customers on-demand forecasted for response consistent demand The demand experienced one growing. services still was both stronger reflected in revenue We was quarters, is new was by than move-in capabilities, and date, driven existing recent which and have to in that surge outperformance. number impacted believe hundreds this our and organizations of our part attacks,

and customers Customers strengths. with XX with these cyberattacks of and brazen incident one adversary records recognize our campaigns helped platform's us our We stolen an us ransomware an authoritative as million providing a to external highlight organization opportunities manage over to were where are to help attack.

engagements beyond response Internet that customers. over conduct behalf we of engagements operating each response are website, on Mandiant's most customers. is their at over with a to the they far have scale According industry. XXX active in X,XXX We year cybersecurity organizations Today,

on-demand enterprise execution, like were proven our including complex a factors customer to accelerating. Our recognition, brand customer large deal size is programs ability deliver trust and

to external visibility those Additionally, protect, into organizations threats. look platform-based demand their disrupt for approach and continuous on as and our strong external threats intelligence to surface, remains the attack more for ability respond

Nearly as have perimeter to and increasingly resonating our CrowdStrike, platform combined our an external some like protecting Palo and all or organizations. consolidate provider Crown customers said, ZeroFox. combination security their security leaders. customers few Simply Alto Zscaler with positioning platforms is sort of look includes with SentinelOne a of stacks a our they with proven endpoint internal and Akamai their like like Networks, security Triple perimeter or The robust even Trellix modern external platform security

minutes they Now land closer I'd for like expand where the cases. use look this recent on to there solve organizations. problems is past. or model external in our been customer to especially reactive customers true within area customers spend engage looking have when within a an how taking with few a go-to-market incidents we cybersecurity specific at and Typically, And ZeroFox, are

or Examples data dark of and or monitoring impersonation efforts. of digital for with threat warning organization's experts leveraging common detection use early credentials, footprint phishing, for an or intelligence compromised signs improve leakage response the to and an protecting web prevention, takeovers, include threat account attack ZeroFox cases data

ZeroFox cases unified and addresses single a through these use more platform.

and Our platform spans of pillars, for protection, each strategic and response capabilities including intelligence, available include four multiple purchase. modulars disruption that are pillars these

protection deal removal, include modules intelligence PII size. there on-demand brand factors search, platform, and drive populars and scope our our and takedowns digital purchase protection When two primary customers that notifications. domain protection, of and are Examples

is the number and digital modules second those first can the the number of is they The protect of assets protect assets. purchase they to

and purchase deals, In modules. to increasingly new multiple common is multiple for it protect customers assets

purchased This number portion multiple typically three. only assets. protected frequently the new provides in with And of digital was a average future their example, assets, white over opportunities. of include in being expansion space deals assets For us total deals while QX, represent new the just modules small

also increasing to to additional the and customers volumes, addition In asset have our upsell ability we cross-sell modules.

incident, experienced to modules first as or response one the pillar our reactively have within For two they to because customers introduced become organization. with have that security found land they we typically a ZeroFox

a in couple of walk our To through put perspective, deals. this QX let's

modules, data customer and Fortune including X a operating purchased lines XX,XXX-plus This The intelligent big takedowns first and digital customer win domains win The additional customer hundreds domain, Protect more. ZeroFox is for six-figure of brand, company search, XX chose is new a included ZeroFox. that several business. XXX a assets. of initially This with brands feeds,

We and gate. modules footprint, solutions, point they protecting also intelligence new external customer Fortune This six-figure other of platform threat eight to customer services and with the company. had a is This consolidate ZeroFox selected their protection approach. risk XXX our validating digital purchased customer their global win another software of several also out

Due seven-figure response a new Fortune seven-figure in and part with for two of to public the multi on-demand ransomware This proliferation of sector with number QX, large our customer. included companies deals a record XXXX a deal we campaigns, saw deals services.

the focus Shifting gears, to on our I'd for like of half the year. second goals

our and increase to accomplish on base while adoption. to continue profitability. our plan will capabilities, we also will expand to And strategic execute our We grow progressing this on our further platform customer path

to From perspective, two highlight. a continuously specific I'm areas are there we while going platform innovate,

last we capabilities. progress quarter, Over finalizing completing made integration combining LookingGlass the and of our plans the significant prospective platform the for

intelligence a threat seen this our we that and daily brief new free very We service some nice pickup call intelligence launched also have summer.

The second artificial is area, you and it, intelligence. sure guessed I'm

a mentioned AI into As of I nearly our various implementing we platform. quarter, capabilities experience decade last have

As a mature. in reminder, issued our we program have and over XX innovation today, our patents is name

we use will of to automate AI increasingly ensure continue can leverage that protect our evolve attacks, we sophisticated of customers. development our AI adversaries to the to the As

For table stakes. ZeroFox, this is

perfect a are social of attack long platforms a example, success from worded have me an ChatGPT and receiving $X a attacks use rapidly poorly can now phishing a are million targeted asking a English chat individual. for Attackers as language, becoming via better, second to that and are platforms media increasing. exponentially gone. like e-mail against external The spear prince for days example, rates For hold the them

to language And models provide and leverage for in a Now threats. large opportunities easier recent us these going by to large assess better advancements for and contextualized infusing more risk are platform. our language and broadly different across creating models AI increase we're it making to understand in our intelligence customers, value to for manner more generative new AI them

customers Our years. like the our receive benefit of have the over past they to program continue several innovation quarters will in the

We continue our significant to leverage were opportunity the of continue the we growth of cash balancing also coming we with to profitability. pleased efficiency very quarters. business understand in a and the QX we'll performance additional and in see growth importance drive front flow While with into us,

As have. their of a Tim expect energy, breakeven passion all customers With our that we and for commitment to quarter our of record in we year. half we more ever to continue in or are we'll this Foxes was near and to the at protect fast second continue QX be detail, will we as the as that, ZeroFox, world. moving thank as for around discuss I want

I'd call like to turn Bender. our to CFO, Tim over the

Tim Bender

Foster. Thanks,

metrics. results ZeroFox As both across QX generated Foster top mentioned, and bottom line strong

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

revenue QX, million, $XX.X $XX.X million on-demand of $XX $XX.X reported our increase million million, services. was including recurring of was consisting Subscription government an of from revenue Services $X.X $XX.X ZeroFox from million, from revenue For revenue million strategic our customer LookingGlass. and XX% of year-over-year. response

performance our than was revenue with in even customers Fortune services our While we stronger XXX in expected an improved QX, success anticipated. capturing revenue deals for large

continued bookings QX strength revenue we in our expect in performance, Given services QX.

less business business. when compared predictable services be to continues subscription Our to our

return beyond more look a we normalized we to historical revenue services expect to As would QX, level.

basis performance of would we our assess business our for performance to growth at Given an encourage the services potential. look short-term on volatility, annualized potential to the and investors

We of XX, X,XXX and government small from subscription contract. recurring a million. As annual platform record consists July our on-demand subscriptions, of a high amount $XX was quarter million $XXX of recurring ARR with services strategic the ended revenue customers.

continued XXX $XXX,XXX, ARR in mentioned, increase year-over-year. QX, QX Foster As XX% greater ended deals. of with an winning represented success which with than We we larger customers saw

margin. gross to Turning

was subscription was to to levels. and quarter, Services we consistent subscription QX, second margin in be for consistent the compared XX%, gross For margin XX% gross with margin QX. expect with XX% gross QX QX

response higher expected indicated we margin driven from by to to quarter's our QX decline of to sequential due this we deals. call, an was The a QX XXX decline notification mix last even large attributable of Fortune services mix on engagements. higher-than-expected As

gross deals continued large in margin compared would quarter. relatively was gross returning gross in QX, services before QX normalized from levels. Total decrease the margin be margin XX% mix by The and last services in levels, XX% we with higher of services driven to impact to gross Given decline margin was to consistent revenue. expect the the more

QX, would levels margin with quarters. look in to be As improving with subsequent we margin expect gross consistent QX to we

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

declined expense in continued from by and investments quarter driven as to increase transaction did in in expenses professional acquisition for were requirements Total and of annual LookingGlass. costs was our expenses. the G&A including fees audit, last quarter. in the The million expenses filing research residual sequentially operating QX. expenses Turning $XX.X operating development, we incur not versus leaseback

from operations million. loss Our $X.X was

balance the $XX debt. outstanding $XXX,XXX revenue In $XX and we with at ended and million in the quarter of receivable, flow operations of in and $XXX cash, cash in flow. We flow approximately million accounts sheet cash cash $XX total Looking $XXX,XXX. total deferred from QX, generated million in free million

the As by of lower fees QX impacted transaction costs. expected, our customers professional and larger from cash and positively collections our was flow performance timing

Now to outlook. our

assumes near-term cybersecurity our platform consistent business. for anticipates services on-demand material environment, external macro no Our changes the continued and our outlook in within Demand strength remains

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

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

our customers. in by the amount be impacted QX. we collections On will free our breakeven. continue or quarter, Consistent of with at a basis, We expect cash cash we to followed positive to cash focus expect flow an of on to profitability. And fiscal negative we flow the quarterly in offsetting flow QX, for the what large year therefore, timing remainder by said from be last be near

that basis the half in will on free we fiscal sustained of We flow a continue achieve to expect cash quarterly year second 'XX.

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

Operator

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

open. is line Your

Joseph Gallo

question, towards revenue seeing your you bit the Thanks. a congrats flows of the are like looks What results. more macro-wise that? Guidance beat. for for the market or strong that the Thanks through guys. it confidence Hi, on kind lends than in little and XQ year doing

James Foster

question. Hi. morning, Good the for Joe, thanks

of here some acknowledge think is demand in think we the a easing we maybe year and this which we continued stronger our for beginning seeing had saw result than in slight of of I a forecasted QX, morning. and platform. we we're which pressures what And the announced I macro part the

Joseph Gallo

cash How line Tim, of profitability and how versus debt, acquisitions, should the Awesome. how should we growth time your out. then eventually even kind those flow or free on that congrats with investments of think about And that about then, combine the and or think play debt investors repayments profitability. Thanks. for maturity ultimately,

Tim Bender

good a little over ago. just a Well, quarter acquired for LookingGlass Thanks question. we a

got base to and into I expanded to of in customer continue quarters plenty opportunity think upside the the coming we've realize sell from some our platform. there

our think being about the leveraged term. balance in don't I very as position, sheet for So strength current our cash near acquisitions

companies proven an in in last we Although to acquiring four general, the say, have years. I company would four be acquisitive

rest be on near the think would at profitability, think the back year. said I we to maybe or point your other for that I of breakeven we go to

cash the flow a two opportunity So remain of we yes, put cash and positive next also well. flow we QX, summer next kind see we've then in cash basis around for that quarters. had the And flow as positive sustained on we'd to be right positive

that doing we is back we the all all, into leverage on think do right were things said flow and think, growth getting balanced we So front. And were the cash all to for the going to model our in approach thing business. I the I

James Foster

growth, of as flow our We one anything for different our Yes. And built clarify assumptions. to don't business as into model on just Joe, far have that's to investments cash in Tim, the do our kind question.

So to marketing expenses operating we to manage Foster do just drive efforts growth, we're and flow and deliver go-to-market cash mentioned. to we in and the can going invest and sales our think continue that our to

with date As the we're now XXXX debt, And listen, treating - as interest performance continue that we August XXXX, our today, two deal to around we're the the due as get when it We'll likely from the on matures. as conversations continues we the that we'll But path now, is how pick. via strengthen, is convertible to doing the years that. large we're about August way is down road. relates as the to far looking that same note have the right further right out want

Joseph Gallo

for the Thanks color. guys. Awesome. Congrats

Operator

Thank you.

Our Brad with next comes from question Reback Stifel.

Your line is open.

Brad Reback

the can you quick us of margin Great. ones. The like response on-demand A profitability gross Thanks looks a much. of very sense couple perspective give business, what on a there?

Tim Bender

is Historically, in Tim. seen we've margins Thanks, This of kind Sure. Brad. the the mid-XXs.

very a was what substantively had what quarter deals deals. as of that margins. deal. compressed a to and or a large past lower We materially much bit larger or than used were This seen were little the as we We those define larger that some we deals in large saw couple two had we've

with in had back beat start the deal we into I But what So large margins get we that more as what normalized those think compression. call revenue and QX as deals way see said the be up. the back we working would we would their sizes, in

James Foster

mean $XXX,XXX, on double I interesting that QX, will six-figure growth really thing you, think large for is actually over saw were customers we which one an I to when as lead north ARR so customers right? will trust of I our And ongoing to some to in accelerant time well. of out we're of those that an we of call finding And relationships that continue you their indicator with as trust. help early think kind need, larger customers in Brad.

business, in trusted get need. the fact So we time few their we one providers to that like like those we that and calls are the of of

Brad Reback

of you accurate 'XX, going convert to that address the current? it'd to before before And right, becomes say great. the that be back have position, to debt August That's

Tim Bender

have mean, parties -- we're that's we I but we're all fair assessment. do think that the interest it's don't think a I I you best that's to, looking at. actively of and something that,

of think have plenty I too. we there, options

Brad Reback

You do options? of think you'll have plenty

James Foster

as you macro, think of next anything, if long But continue be general. we'll are I foolish the to as would but prior that think the debt it'd have Brad, this I at rates options think there. to August seen out that say - tough I in I market, is yes. we've we a really anybody some to mean say interest highest look perform,

Brad Reback

Thanks great. It's much. very

Operator

Thank you.

Fu comes Cantor next with Yi Our from Fitzgerald. Lee question

open. is line Your

Yi Lee

Good for Tim. on Tim. on Foster morning about upside great of Foster and strong quarter one Congrats schedule. ones the execution and cash good another quick morning Two one flow positive year quick ahead and consistent for free one

beginning was year were this your of going obviously, judge to ZeroFox play we And are that of fiscal Fox so So expectation what principle expect I year, far on you is platform the things think quarter. focus needs cross-selling. seen on and beyond in because the mark for the some Foster, wondering, of at at to you things we've optimization about if the the half hit this already, you and ZeroFox standing year, on the like that execution that this focus talk forward?

James Foster

think will company, has around not that at I the an in to and happening types just fortitude of the kind particularly year-to-date. the offices time employees employee, of and a we're of through an are unbelievable that be overall going been world. This power our is the economic to situation and changes, things tech in easy back

here. really of I'm Fox so, our And do proud have what able been to

the effort And a show think stronger that the because results of and a ZeroFox I are of customers. and about an O our just I better really I I Star better do behalf and that's that mean employees. North our our getting QX on mean we we is when everything as that as O at making about that think Fox optimization I of we the talk it's that Capital, mean here company. company,

Yi Lee

How on right, response done opportunities, quarters the .NET growth stuff, that that, two just it what AI in all - you near enhancements You most impactful on versus these the upside right? in you opportunities wanted might ago, opportunities the rank like about the most long-term? the - on I obviously, of Gen looking text cloud the it's in to you bridge sounds for opportunities these Google color look deploying to a lot market you Okay. bolus is follow-up LookingGlass platform on I term these would long-term, integration, like to guys announced partnership do think the Of other missed? good. term versus or lay have the

James Foster

right. in modules. time for appreciate customers we differently, with on follow-up bit answer one And eight longer first our a mean nine about averaged I'll a the is contextual Thanks had things detail. time focused models maybe disclosed said questions. modules. general the Yes, spend three about call the QX we of of our customer talking or Maybe of or signed day new I kind couple in a renewed focus slightly I earnings little that a up And that that ZeroFox then purchases of in

really are making adopt our protected, more to fundamentally make think you there time and opportunity platform. that there's of So, And adopt customers our up our it the the continue the better we you spend a really got for that half full in sure the we'll set ultimately, when of to capability because platform, year, sure of this the breadth, that I interesting us, improved. second platform, and metrics we've are and customers results back believe, adopt

Yi Lee

one for Okay. And then is Tim. last the

year positive On guys ahead a of schedule. our reached about side, cash financial flow the free obviously, you

first collection? are seeing - terms sustainable. give of better the for half, puts like like? And cash flow Like us that What a is it like second but 'XX, takes to this expected. year In for side? it can from Thank you did than are more cash half you on we're you you us? current What's negative that's make positive, about the upside the fiscal mean And free is team. driving and earlier this fiscal they

Tim Bender

factor - basic LookingGlass has working is maybe the think of we exactly. right picked just we'll It's revenue cross I Certainly, up you about some I start really $XXX to a our and answer acquisition as model not helped solid is it's QX. see Listen, scale ARR million, that so as Yes. think is But really scale. we as with the that. in

model it's scale in regard. So that

that we 'XX, of little working cash and think as think free on. bit see We second as the the in I once get the I throughout into working capital position. and script, half this then But think, into far steady you're mitigates, timing of spot you a And some of of our a is between year, of capital our collections flow there year. our the rest ARR and volatility maybe we're do in

Yi Lee

and Makes Tim sense. Thanks very Foster. We'll much. soon. catchup Thanks.

Tim Bender

Thank you.

Operator

you. Thank

question Cantor next with Fitzgerald. Our comes Ruykhaver Jonathan from

line Your open. is

Jonathan Ruykhaver

Good you. Yes, morning. thank

to to broadly, So just been Foster, were pipe more through responses those about in cited talk out those can sales were these the reactive an nature? you impact external of Or nine the that of or eight external breach that with you cycles nine out maybe looking they had the a deals for to months fiscal modules And deals could issues so? year? you think gate, six how

James Foster

Yes, I a what couple right? eight propeller and only a in our A few pillar heard modules. of about adoption gave, couple per call I Jonathan. I nine I general, of reactive modules those the multiple Like platform, for broad near-term pillars, relationship, what modules call examples response Not got platform. long-term or multiple we've things, of of a

adopted So platform, off when they've right? modules are I adopting me bat six, nine seven, that the the at look that eight, customers right that tells

general had pillars. case that's be because one that in That they've They've them that to they've customer possible. fast as pain in vision bought adopted incident. use When they It on or as and they've a two or that two causing an pain things alleviate means we and one quickly. multiple understand ZeroFox. and see all that's consolidated I the have got They that approach modules, want means some gone particular a could

our us maybe move opportunity platform. with vision niche at to the off a provider, starts platform the an Maybe had wanted to maybe there's inside. That's before of seat for when then earn into just someone replace couple and because but a modules a they issue table they sell they full

part of the question. we're second year. So - I the the how maybe that thinking about the growth half kind heard of that's of in answers

what that that seeing And I an - customers. it's proves problems think think I'm large we're grow. [ph] I cyber. just working yield adoption a on I to our acceleration ARR we're the believer mean for that firm in six-figure continues

If up you, matters. you're is adoption your going working going is that your large cyber ASP and customers a your problem on up, and tell matters. And external I'll

Every CECL about groups, years continues X was halfway kind worried and more. world number to nation attacked getting by threat the actors less the of remember, issue. we're around ago, be insider worried about right that's by state what's they're the we're cyber-criminal that the worry, I up in an external we attack night, at at think keeping is top place right these earn time. guys And not XX

Jonathan Ruykhaver

pretty are you're Yes, across the trends demand is platform. entire the like saying what it's strong not

do there so And to sale? on sales handling you to of need protection how pillars? speed those guess, of work Or disruption? they the up is fully do intelligence execution Are one lines, see there along organization across that platform you kind each more I that you drive to do how a - sell those of to equipped

James Foster

the athletes best performers mean training all I the I I'm the best we've or still think some ever Jonathan. of trained daily. analogy done, and enablement. mean, believer in consistent time, consistent we here I a of used don't

to and you play what still you best do, peak you're even to reach antennas, the get daily quarter ever if play, the you're your practice better. sport you the ever so And back best

because of our the for go-to-market on is house, think side - sales team our space, efforts would lag best-in-class to we internal And focused unless say, I but always our our continuing improve that's our on channel team. them. I we think the we're though, in

is block, can still out So the cyber go right? do We're still there. still there. on public. one to last the we We're there more company the certainly the We're smallest baby

footprint of we of to now. so, out have some that the the there peers And other us that's have don't right we envious

to approach. awareness, channel, and continue And and continue they the sure to platform our channel understand so, got brand we've build make to and enable differentiated our

Jonathan Ruykhaver

of ton you. a sense. Makes Thank

James Foster

you. Thank

Operator

you. call Foster at remarks. Thank the to There no to for over any I'd this closing back are like turn further time. questions

James Foster

Thank the for of second you, And had record QX. year. We opportunities of operator. front the as remain the about we half a can you in tell, excited us

you a for joining wonderful again, Cheers. call have the this us and on So thank morning, Wednesday.

Operator

you Thank program, This may Everyone, disconnect. participation. for great your and the a does have conclude now day. you

ZeroFox (ZFOX) 6 Sep 232024 Q2 Earnings call transcript