ZeroFox Holdings, Inc.

Thank you for standing by and welcome to the ZeroFox Fiscal First Quarter 2024 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 over to Todd Weller, Vice President of Investor Relations for ZeroFox. Please go ahead.

Thanks, operator. Good morning and thank you for joining us today to review XeroFOSTA's fiscal first quarter 2024 financial results. With me on the call today are Foster, our founder, chief executive officer and chairman, and Tim Bender, our CFO. By now, everyone should have access to our earnings announcement. This announcement, as well as our supplemental financial information, may be found on our investor relations website. Before we begin, let me remind you that we will make forward-looking statements during the course of this call, including statements related to our anticipated financial results, growth opportunities in external cybersecurity, our progress to achieving profitability, and expected benefits from our acquisitions of IDX and Looking Glass. These statements are not guarantees of future performance, but rather are subject to a variety of risks and uncertainties. our actual results could differ materially from expectations reflected in any forward-looking statements. Forward-looking statements made today speak only to our expectations as of today, and we undertake no obligation to publicly update or revise them. For discussion of the material risks and other important factors that could affect our actual results, please refer to the risk factor sections of our SEC filings available on the SEC's EDGAR system and our website, as well as the risks and other important factors discussed today, earnings release. Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release and the investor relations portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure. With that, I'd like to turn the call over to our CEO, Foster.

Thanks, Todd. Good morning, everyone. I am really excited to speak to you today. XeroFox got off to a strong start to the fiscal year with Q1 revenue exceeding the high end of our guidance range. I'm proud of what our team was able to accomplish given the continued uncertain macro environment and a very busy quarter for XeroFox. In Q1, we hosted our company and sales kickoffs, announced an exciting new partnership with Google Cloud, launched our large language model capabilities at the RSA Security Conference, and we completed our acquisition of Looking Glass. Today, I'm gonna provide you with summaries on a few key areas of our performance and continuing vision. To begin, we'll provide an overview of our Q1 results and the continued demand we see for our external cybersecurity platform. Second, we'll walk through some key customer wins that demonstrate continued success, adding large enterprise customers and cross-selling are multiple platform pillars. And third, I'll talk about our partnership with Google Cloud and our recent acquisition of Looking Glass, both of which strengthen our platform capabilities. What a very nice start to the year. We ended the quarter with ARR of 178 million, which represents 24% year-over-year growth. We also saw another record quarter for total subscription customers where we ended the quarter with 1,251 recurring customers. And lastly, we saw continued strength on our large deals with 31% year-over-year growth in subscription customers with ARR greater than $100,000 per year. Overall, we continue to see healthy demand for our external cybersecurity platform from both new and existing customers. The Q1 demand environment was consistent with prior quarters and thus far is remaining more stable than the macro environment. We attribute our experience to this resiliency to that of the industry, the emerging nature of the external cybersecurity category, and our go-to-market execution. The external cybersecurity challenge for organizations around the world continues to increase due to the attack sophistication and volume we are seeing. Specifically, we see that organizations are struggling with the sheer fact that the external attack surface for every company continues to increase. These organizations have limited visibility in this attack surface, and it's not protected by traditional security controls. And finally, threats to this external attack surface, including phishing attacks, impersonations, and account takeovers, are increasing in automation, and thus, again, like I said, overall attack volume. The result is that organizations are increasing investment in external cybersecurity solutions with a clear preference for a platform-based approach. This aligns well with the vision driving our Xerofox external cybersecurity platform, which fuses together AI-powered analysis, advanced analytics, intelligence, and automated protection to solve the external cyber challenges The dawn of artificial intelligence for cybersecurity and the masses is finally here. AI has been a critical component of our platform at ZeroFox since inception. We have a robust intellectual property and innovation program and over 54 patents already issued today. For example, we have long used capabilities like natural language processing and computer vision to detect sophisticated threats. a couple of examples of using NLP to identify written languages and sentiment, or leveraging advanced AI and computer vision to identify hidden threats and high-rich media content within images and video. There is no doubt that recent advancements in generative AI and large language models will have significant impacts on the cybersecurity industry. Extending upon our program and this trend, we launched FoxGPT in Q1, which is a material advancement for our program, like I said, where we have begun to deploy a new large language model into our platform. FoxGPT optimizes security analyst workflows by accelerating the analysis and summarization of threat intelligence across large datasets. For defenders, it means that leveraging ZeroFox AI to detect and disrupt threats becomes even more critical, and it saves them time. AI will be key to increasing the efficiency of security operations and reducing the time to respond to attacks. And with automation, the time to respond continues to shrink. For adversaries, it makes life easier for them. They now can develop more sophisticated threats in areas like phishing, fraud, social engineering, and spam. Quite honestly, ChatGPT makes it much easier to create a written attack. Like we have always done, we will track our adversaries so that we can continue to fight back on behalf of our customers. Now I'd like to highlight a couple key customer wins that we believe validate the strength of our platform and market leadership position. One of these wins was a six-figure deal with a Fortune 500 media company. This customer was looking to protect hundreds of brands, social media accounts, and executives from impersonations, fraud, scams, and piracy. They also invested in ZeroFox's continuous dark web monitoring and on-demand investigation products. The customer selected ZeroFox because of our comprehensive platform capabilities across multiple pillars, including protection and intelligence, and our ability to quickly operationalize our platform. This was a competitive win where we displaced a legacy digital risk protection managed service provider. Another key win was a six-figure deal with a Fortune 500 real estate company. This customer wanted actionable threat intelligence to seamlessly integrate into their environment given the relentless external attacks they were experiencing, and they invested in protection across all of our platform pillars. Two quarters ago, we launched our strategic ZeroFox on-demand response platform capabilities, which includes brief response, incident response, and on-demand intelligence capabilities. In Q1, we experienced strong demand across all of these areas, and we were actively engaged with approximately 1,200 on-demand customers. Additionally, we had multiple large response deals that were more heavily weighted towards the end of the quarter. While the timing of these deals slightly impacted our Q1 services revenue, as Tim will discuss in more detail shortly, we believe we are set up for a strong response revenue performance in Q2. Furthermore, the overall demand for these capabilities continues to give us confidence of our fiscal year guidance. In Q1, we made further progress driving synergies between ZeroFox Response and our other platform pillars. For example, while engaged with a global medical technology company on a platform opportunity, the customer had an urgent requirement for on-demand incident response and intelligence services. We were able to demonstrate immediate value to the customer with ZeroFox response, which served as a positive influencer and the customer signing a six-figure platform deal to protect multiple brands and digital assets. While engaged with a large restaurant company for a data breach response, we were also able to cross-sell them ZeroFox protection and disruption. And last quarter, we talked about a Fortune 50 media and technology company that engaged with Xerofox Response for the first time over their legacy incumbent provider. In Q1, we signed a six-figure on-demand breach response deal with this customer, which represented a 7x increase in their Xerofox Response investment quarter over quarter. Overall, I am pleased with the meaningful progress of our expanding platform and our ability to become a true cybersecurity ally for our customers. Our customers are looking for opportunities to consolidate on our platform. Let's shift our attention to two recent announcements we made in Q1. First, our partnership with Google Cloud, and second, the acquisition of Looking Glass. Both of these expand our platform capabilities and increase our value to customers. In April, we announced our partnership with Google Cloud, where ZeroFox was the first enterprise partner to integrate our external protection and intelligence capabilities with the Google Cloud Web Risk Service. This service protects end users across 5 billion devices from malicious URLs and targeted attacks. This partnership further strengthens our market-leading disruption capabilities and improves our relationship with Google. We also announced our acquisition of Looking Glass, a leader in external attack surface management and vulnerability intelligence. This acquisition accelerates our platform roadmap and external attack surface management, an area that we believe is strategic to external cybersecurity. Looking Glass also provides us with powerful attack surface technology, including its comprehensive internet asset and data lake. Integrating these capabilities into our platform will accelerate our ability to provide complete visibility across all internet-facing assets, regardless of type or location. Looking Glass's technology is battle-tested and is being used by very large, sophisticated organizations, including strategic public sector customers. We believe that strengthening our attack service management capabilities will increase the strategic value of our platform and increase our growth opportunities with existing customers. This acquisition also increases our TAM. IDC has estimated the quickly growing EASM market will hit nearly 1 billion in revenue by 2026. Additionally, this acquisition provides us with other benefits, including, but not limited to, strengthening and expanding our public sector opportunity, increasing the scale of our revenue, and we believe it will positively impact our path of profitability and cash flow breakeven. We are making rapid progress with the integration. I look forward to providing you with updates in the coming quarters. This summer, we will continue to focus on executing our strategic plan to lead and grow our external cybersecurity platform capabilities and customer base, And success here will be reflected in our quarterly performance metrics. We will also continue to optimize our infrastructure to support our long-term growth while laying the foundation to drive operational efficiencies and leverage. And lastly, we will deliver more meaningful synergies across our platform, including improving our overall cross-tiling efforts. I want to thank all of our FOXes around the world for their energy, passion, and commitment as we continue to execute on our initiatives and the opportunity in front of us. In short, Q1 was a strong start to the year, and we remain very optimistic about the next few quarters. With that, I'd like to turn the call over to our CFO, Tim Bender.