KnowBe4, Inc.

Ladies and gentlemen, thank you for your standby and welcome to the Know Before Fourth Quarter 2021 Results Conference Call. Please be advised that today's conference call is being recorded. At this time, all participants are in listen-only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. Now, it's my pleasure to turn the call to Ken Talanian, known before Senior Vice President of Investor Reporting. Please go ahead.

As a reminder, our commentary today will include non-GAAP financial measures. Information regarding our non-GAAP financial results, their limitations, and reconciliations of our GAAP and non-GAAP results can be found in our earnings release, which was furnished with our Form 8K today with the SEC. It may also be found in the supplemental financial information available on our Investor Relations website, at investors.knowbefore.com. In addition, some of the comments today, including those related to our guidance, may contain forward-looking statements that are subject to risks, uncertainties, and assumptions. Should any of these materialize or should our assumptions prove to be incorrect, actual company results can differ materially from those projected or implied during this call. These risks are described in our Form 10-K that will be filed in accordance with the filing deadlines established by the SEC. These documents can be found on the SEC's website, sec.gov, and on our investor relations website. During today's call, you will hear prepared remarks from our founder and CEO, Stu Showerman, and CFO and co-president, Krish Venkataraman. Lars Lettenhoff, our chief revenue officer and co-president, will join our question and answer session. And with that, I will turn the call over to Stu.

Thank you, Ken, and thank you all for joining us today. We're excited to share our results with you this afternoon. We ended a year of strong execution with fourth quarter results exceeding our guidance. We have a record quarter with 44% year-over-year annual recurring revenue growth and a 28% free cash flow margin. Now, before I begin, I am sure you've seen the press releases regarding the organizational developments in our executive structure. We'll provide more detail about these changes later on, but I first wanted to go over our quarterly and annual highlights. As many of you know, I started KnowBe4 to help organizations manage the ongoing problem of social engineering. We are the only public company dedicated to securing the human layer. We're excited to expand our platform even further as we plan to introduce the HDR category or human detection and response. Following the integration of Security Advisor in the second half of this year. The emphasis in cybersecurity has traditionally been on legacy controls. However, the exponential growth in cyber attacks and their relative success proves that we cannot solely rely on security software infrastructure. Just last month, the 2021 Annual Data Breach Report was published by the Identity Theft Resource Center, a nonprofit organization with over 20 years of experience and a recommended resource of the Department of Justice. In their report, they explained that 2021 had more data compromises in the US than any other year, up 68% over 2020. Phishing, smishing, and business email compromise were collectively the number one attack vector, just as they were in the years prior. I would like to think this is an alarming statistic for some, but sadly, it's a trend that we're all too familiar with at this point. It is clear that this problem is escalating as well. In fact, in December of 2021 alone, data from an organization responsible for somewhere between 15 to 30 percent of the world's Internet traffic, Akamai Technologies, reported over 722 million cyber attacks worldwide. That amounts to nearly 17,000 cyberattacks every second across the globe. And remember, bad actors only need to be right once. The unfortunate reality is that in a lot of these cases, bad actors are manipulating the human element of organizations without any regard to their size or industry. untrained or poorly trained employees are walking liabilities that could bring potentially devastating consequences to the security posture of any organization. With that being said, employees who are properly trained using an effective platform and are frequently sent realistic phishing simulations have the potential to become one of the most powerful security assets of those same organizations. That is why we are dedicated to helping our customers transform their employees into a successful last line of defense against cyber attacks. Both private and government organizations increasingly recognize the need to defend against this growing threat landscape. On the government side, the regulatory environment continues to evolve and address this. The U.S. Department of the Treasury, for example, released new guidance last quarter specifically identifying cybersecurity training as one of the meaningful steps to reduce the risk of ransomware extortion. This kind of guidance is on the heels of CISA, the cybersecurity infrastructure brands of the U.S. Department of Homeland Security. who stated that user awareness training programs are a key way of mitigating the risk of phishing email attacks. We believe that these actions help validate our market opportunity and provide a catalyst for new business growth. Another example came from Octus 2022 Businesses at Work report. I am proud to say that we're now within the top 10 of their top 15 most popular apps by number of customers. Quoting the report in their own words directly, this is up a jaw-dropping five notches and 56% the largest year-over-year growth from our top 15 most popular apps. KnowBe4 was consistently a fastest-growing app between 2017 and 2019 for those keeping track at home. End quote. This progress... places us next to titans of the software industry such as Salesforce, Zoom, Atlassian, Slack, and DocuSign. Even more recently, G2's Winter 2022 grid report named PhishER as their top-ranked SOAR software with the highest customer satisfaction among a dozen contenders in the space. Our G2 score was 93 out of 100, placing us well ahead of the competition. For context, the second place contender had a G2 score of 73. We believe that this is the kind of recognition that really sheds light on the great work we are doing. I will now walk you through our key results, which highlight our execution during 2021. Fourth quarter results exceeded our expectations across the board with continued growth as well as strong free cash flow generation. our inside sales motion continues to win both new enterprise and SMB customers across all industry verticals. This resulted in $285 million in ARR ahead of our expectations and up about 44% year over year. We believe this performance demonstrates our market-leading position in the human-centric cybersecurity space, and we continue to remain focused on innovation in order to meet the needs of our customers. Our vision for the security awareness markets defines KnowBe4's product roadmap. This includes both exciting new features and new products. A great example of this is the two products that we are planning to launch in the second half of this year. One code named PasswordIQ and the other representing our integration of the Security Advisor acquisition. As a reminder, These will be two entirely separate SKUs, each expanding our TAM as well as fueling our existing effective cross-cell momentum. With the Security Advisor product, we believe we are creating a new category in cybersecurity called Human Detection and Response, or HDR. How this works is we connect to other security layers through their cloud interface and pull in security alerts so we can analyze them and take real-time action. We believe this new SKU will add an estimated $5 billion TAM as well. I am pleased to announce that the integration of this product is on track for release in the second half of 2022. Our R&D team is laser-focused on making sure that this new product, which is highly technical in nature, can be implemented into our existing customer base in the simplest way possible. This is the kind of automation that supports our high-velocity sales motion as well as reinforces our proven go-to-market engine. Our organic product development remains strong as well. with the product codenamed PasswordIQ also on track for release in the second half of this year. This is another exciting product that we expect to be of interest to customers of all sizes and industries and as part of our organic product development pipeline. As a reminder, this product is not a password manager. PasswordIQ will be used to mitigate risk related to password hygiene issues such as weak or breached passwords. The product will continuously monitor your organization for any issues detected with users' passwords. It organizes this data on an easy-to-read dashboard and facilitates automatic employee training based on detection of any password risk. Among the new features we have released, there is one we are particularly excited about. Nobiforce industry benchmarking has been expanded. To now include comparison data for Nobi4's security culture survey. You may have heard us talk about the ABCs of security. This stands for awareness, behavior, and culture. The goal of Nobi4's platform is to enable a culture of security awareness that produces real results. It creates a sense of collective responsibility that results in strong security behaviors. With the new security culture survey, we give our customers the ability to track their progress and also compare their security culture to that of their peers. As a potential area to explore, we believe that cyber insurance companies in particular could find this feature useful as a method to more accurately measure risk. These new products and features are a key driving factor in the strong momentum of our new business wins, represented by further penetration in the enterprise markets. Customer growth remains strong across both SMB and enterprise with our total customers reaching over 47,000. In just 2021, we added over 10,000 customers to the platform. We believe that this scale is hard to match in cybersecurity. Our current customers are investing in our KMSAT platform and adopting our additional KCR, KCMGRC and Compliance Plus products at record levels. At the end of Q4, Over 22% of customers now have subscriptions to multiple products. That is up from about 14% at the end of Q4 2020. As in previous quarters, we also saw customers buy both KMSAT and VCR together to leverage the immediate risk reduction that VCR brings to their organizations. Though we do not report the growth for FisherYard Compliance Plus and KCMGRC separately, the combined logo growth and revenue growth were about triple digits year over year for 2021, a continuation of our cross-sell momentum. In terms of new business, most of our wins continue to be Greenfield, but we also saw a number of competitive displacements. The Greenfield wins continue to show that the value of security awareness is resonating with customers, And we believe our competitive wins are further proof that our platform and customer support rank well above our competition. I am proud to announce that we've penetrated roughly 20% of the Fortune 500 list by now and have made strong progress into the global 2000s. On top of this, our upmarket penetration has continued in general. Here are a few examples of our global wins that we've had this last quarter. We've had a 175,000-seat deal with one of the largest technology companies in the world. We also won a 130,000-seat deal with one of the largest mega healthcare system providers in the U.S., We closed a 25,000-seat deal with a global technology supplier as well. This opportunity was a perfect example of a competitive displacement. With the product they were using, they noticed that their phishing templates were stale and that the platform in general lacked the automation and reporting capabilities needed to run their global enterprise. It became a no-brainer decision for them after seeing how an effective platform One with AI, ML, and automation woven throughout could provide them with the tools necessary to achieve true risk reduction, as well as save the IT department valuable time. The strong momentum we've been seeing in the international markets has only continued as well. In Europe, we closed a 23,000-seat deal with a multinational manufacturer. Also in Europe, we had a 10,500-seat deal with a multinational financing firm. This is an example of an organization that had already been successfully using our platform in Australia and Germany. and wanted to deploy us throughout the rest of their subsidiaries. We also displaced a competitor in a 20,000-seat deal with a top European medical university. In Australia, we closed deals with two top universities, one being 14,000 seats with the other being 30,000 seats. The latter opportunity closed through an RFP process where we came out as the preferred platform. We also had a 15,000-seat deal with one of the largest utility companies in Brazil, who chose us. due to the wide variety of Portuguese content we provide. And finally, we had a 26,500-sheet deal with one of the largest banks in Southeast Asia. Outside of the commercial space, the government segment continues to be a strong vertical for us. In the US, we displaced a competitor in a 65,000-seat deal at one of the largest law enforcement agencies in the country. We also displaced a competitor in an 81,000-seat deal at a large US public university who favored the automation of our platform. Finally, we closed a 102,500-seat deal with the Department of Education in a Midwestern state. This opportunity was also a great example of what's driving our cross-sell momentum, as they were already a know-before customer who decided to add FishER after seeing all of the time-saving features that we've added throughout the year. These kinds of wins have become a monthly occurrence for us. And we believe that they demonstrate how our customers continue to embrace not only the considerable risk reduction our platform brings, but also the thousands of hours we save IT departments in triaging security events. Given the current shortage of skilled IT workers, our strategy of building time-saving features into our platform has paid off. This also remains a critical focus for our product roadmap. With that being said, I would like to thank our employees and partners for the dedication, commitment and customer focus that has brought KnowBe4 to its market leading position today. I'm super proud of not only our financial results, but the great group of people driving this company and contributing to our communities. And this has not gone unnoticed. We were named as a 2021 customer's choice by Gartner Peer Insights, putting us in the upper right quadrant ahead of other companies who we are often compared with. We believe that our retention rates speak for themselves in regards to customer satisfaction, but awards like this certainly help reinforce the fact. Lastly, before I turn the call over to Krish, I wanted to give you the organizational update that I mentioned at the beginning of the call. Our current CFO and co-president Krish Venkataraman will be nominated to join our board of directors as a director. Krish, over the last four years, has built an incredibly strong finance organization, helped us refine and mature our strategy, and led us through a successful IPO. We value his leadership and know he will continue to help us from the board level as we expand. As part of this promotion, we are bringing on a new CFO to lead the finance organization. Following the filing of our Form 10-K, Bob Rich, a three-time CFO, will assume the position of Chief Financial Officer at KnowBe4. Local to Tampa Bay, Bob most recently served as CFO for Catalina, a marketing firm. He brings over 25 years of financial experience in both private and and public companies, including organizations of significant scale. I would like to thank Krish for his incredible contributions to KnowBe4 and welcome Bob as one of our newest Knowsters. Krish will continue to help drive the business strategically from the board of directors, as well as supporting Bob during this transition. And with that, I would like Krish to discuss our financial trends.