ZeroFox Holdings, Inc.

Thank you for standing by and welcome to the XeroFOX fiscal second 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. 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 XeroFOX.

Thanks, operator. Good morning, and thank you for joining us today to review XeroFox's fiscal second 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 press release. This press release, as well as supplemental financial information, can be found on our investor relations website. During this call, we may make forward-looking statements 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. Actual results could differ materially from expectations reflected in any forward-looking statements. Please review our earnings press release and recent SEC filings, description of these material risks and uncertainties. Forward-looking statements made today speak only to our expectations as of today, and we undertake no obligation to publicly update or revise them. 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 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. Last month marked our one-year anniversary as a public company, and Q2 was another record quarter for XeroFox, where we achieved several major milestones. we delivered strong revenue growth, record ARR, recognized an acceleration on our large customer adoption, and generated positive free cash flow for the first time. Furthermore, we announced that we beat our guidance and will raise expectations for the second half of the year. Our ability to consistently deliver results is a direct reflection of our team's discipline, our relentless focus on the customer, and our platform's ability to scale with the ever-growing External Cybersecurity Challenge. I'm going to provide summaries on a few key areas of our performance and continuing progress on our vision. First, I will review highlights from our Q2 results and the continued demand we see for our external cybersecurity platform. Then I'll spend a few minutes walking you through our growth model. And finally, I'll share key areas of focus for the second half of the year. In Q2, we reported solid results across both top and bottom line metrics. We reported core revenue of $42 million, an increase of 78% year over year. We ended the quarter with ARR of $182 million, an increase of 22% year over year. And we saw continued momentum and large enterprise wins with a 35% year over year growth and subscription customers with ARR greater than $100,000. The Q2 demand environment for both new and existing customers was consistent with prior quarters except for one exception. We experienced stronger than forecasted demand for our new on-demand response capabilities, which was reflected in our services revenue outperformance. We believe this was driven in part by recent surge and move-it attacks. which have impacted hundreds of organizations to date, and that number is still growing. Customers recognize us as an authoritative organization to help with external cyber attacks, and these adversary campaigns are providing us with opportunities to highlight our platform's strengths. We helped one of our customers manage to an incident where over 10 million records were stolen in a brazen ransomware attack. We are operating on a scale that is far beyond most organizations in the cybersecurity industry. According to Mandiant's website, they conduct over 900 incident response engagements each year on behalf of their customers. Today, we have over 1,100 active response engagements with customers. Our brand recognition, customer trust, and proven execution, including our ability to deliver large, on-demand, complex programs were factors in why enterprise customer deal size is accelerating. Additionally, demand for a platform-based approach remains strong as more organizations look for continuous visibility into their external attack surface, intelligence on external threats, and the ability to protect, disrupt, and respond to those threats. The modern security triple crown includes endpoint security platforms like CrowdStrike, SentinelOne, or Trellix, combined with a robust perimeter provider like Palo Alto Networks, Zscaler, or even Akamai, and an external platform like ZeroFox. Nearly all of our customers have some sort of internal perimeter and external security combination protecting their organizations. Simply said, our platform and positioning is increasingly resonating with our customers as they look to consolidate their security stacks with a few proven leaders. Now I'd like to spend a few minutes taking a closer look at an area within our go-to-market model on how we land and expand within customer organizations. Typically, when customers engage with Xerofox, they are looking to solve specific external cybersecurity problems or use cases. And this is especially true for reactive customers where there have been incidents in the recent past. Examples of common use cases for XeroFOX include protecting an organization's digital footprint with phishing, impersonation, or account takeovers, monitoring the dark web for compromised credentials, data leakage, or early warning signs of an attack, or leveraging threat intelligence data and experts to improve threat prevention, detection, and response efforts. XeroFOX addresses these use cases and more through a single, unified platform. Our platform capabilities span four strategic pillars, including protection, intelligence, disruption, and response. And each of these pillars include multiple modulars that are available for purchase. Examples of our modules include brand protection and domain protection, intelligence search, takedowns and PII removal, digital populace protection, and on-demand notifications. When customers purchase our platform, there are two primary factors that drive deal scope and size. The first is the number of digital assets they protect, and the second is the number of modules they can purchase to protect those assets. In new deals, it is increasingly common for customers to protect multiple assets and purchase multiple modules. For example, in Q2, the average number of modules purchased in new deals was just over three. And while new deals frequently include multiple assets, the assets being protected typically only represent a small portion of their total digital assets. This white space provides us with future expansion opportunities. In addition to increasing asset volumes, we also have the ability to cross-sell and up-sell our customers additional modules. For customers that have found ZeroFox reactively or because they have experienced a security incident, We typically land with one or two modules within our response pillar first as they become introduced to the organization. To put this in perspective, let's walk through a couple of our Q2 deals. The first is a six-figure new customer win with a Fortune 500 company that included several operating lines of business. This customer chose Xerofox for tech 40 brands 10,000-plus domains, and hundreds of additional digital assets. The customer initially purchased nine modules, including brand, domain, intelligent search, data feeds, takedowns, and more. This is a big win for Xerofox. We also had another six-figure new customer win with a Fortune 500 software company. This customer is also protecting their global footprint, and they purchased eight modules out of the gate. This customer selected ZeroFox to consolidate several of their other external threat intelligence and digital risk protection services point solutions, validating our platform approach. Due in part to the proliferation of ransomware campaigns, Q2, we saw a record number of large deals for our on-demand response services. This included two multi-seven-figure deals with Fortune 1000 companies and a seven-figure deal with a new public sector customer. Shifting gears, I'd like to focus on our goals for the second half of the year. We will continue to execute on our strategic plan to expand our platform capabilities, grow our customer base, and increase adoption. And we will accomplish this while also further progressing on our path to profitability. From a platform perspective, while we continuously innovate, there are two specific areas I'm going to highlight. Over the last quarter, we made significant progress completing the integration of Looking Glass and finalizing our plans for combining the perspective platform capabilities. We also launched a new free threat intelligence service that we call our Daily Intelligence Brief that has seen some very nice pickup this summer. The second area, and I'm sure you guessed it, is artificial intelligence. As I mentioned last quarter, we have nearly a decade of experience implementing various AI capabilities into our platform. As a reminder, we have over 54 patents issued in our name today, and our innovation program is mature. As adversaries increasingly leverage AI to automate the development of sophisticated attacks, we will continue to evolve the use of our AI to ensure that we can protect our customers. For Xerofox, this is table safe. For example, spear phishing attacks via external platforms like social media and chat platforms are becoming exponentially better and the success rates are rapidly increasing. Attackers that have English as a second language, for example, can now use chat GPT to perfect a targeted attack against an individual. The days of receiving a poorly worded email from a prince asking you to hold a million dollars for them are long gone. Now, recent advancements in generative AI and large language models are creating new opportunities for us to increase value by more broadly infusing AI in different manner across our platform. And we're going to leverage these large language models to provide more contextualized intelligence for our customers, making it easier for them to better assess and understand risk and threats. Our customers will continue to receive the benefit of our innovation program in the quarters like they have in the past several years. While we continue to see a significant growth opportunity in front of us, we also understand the importance of balancing growth with profitability. We were very pleased with our Q2 cash flow performance and will continue to drive additional efficiency and leverage into the business in the coming quarters. As Tim will discuss in more detail, we continue to expect that we'll be at or near break-even the second half of this year. With that, I want to thank all of our FOXs for their energy, passion, and commitment as we continue to protect our customers around the world. Q2 is a record quarter for XeroFOX, and we are moving as fast as we ever have. I'd like to turn the call over to our CFO, Tim Bender.