IronNet, Inc.

Greetings. Welcome to the IronNet Inc. Q3 Fiscal Year 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Nancy Fazioli, Investor Relations. Thank you. You may begin.

Thank you, Operator. Hello, and thank you for joining us. Today's conference call will address IronNet's financial results for the third quarter ended October 31st, 2021 that were announced this afternoon. Before we begin, please note that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. We therefore refer you to the risk factors included in our latest SEC filings. Our comments today also include non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures can be found in our third quarter earnings release, which is on the investor relations portion of our website at ir.ironnet.com. And now I'll turn the call over to our co-CEOs, General Alexander and Bill Welch, who have some remarks. They will be joined by our CFO, Jamie Gerber, for the question and answer portion of the call. General Alexander?

Good afternoon, and thank you for joining us today. I'd like to address our disappointing third quarter results and revise fiscal year outlook right up front. Our prior outlook for this fiscal year was supported by what we assessed as late-stage, multimillion-dollar strategic customer opportunities. The majority of these customers are in the U.S. public sector. We had previously expected to finalize these opportunities in the second half of this fiscal year. However, a number of them are now being impacted by delays in funding at the federal level. Given the delayed timing, we have removed these strategic opportunities from our fiscal year ARR outlook. I want to be clear that these are not lost deals. They remain, almost without exception, in the pipeline as strong viable opportunities. Let me give you several examples that might help illuminate these delays. The first is a double-digit million-dollar ARR opportunity with a branch of the military that is held up as part of the federal funding delays playing out in Washington. This contract continues to grow, but at a reduced pace. The second is another multimillion-dollar defense industrial-based customer whose contract with us is making its way more slowly through government procurement than we anticipated. We have several deals with states that are gaining momentum as the American Rescue Plan funds are arriving and being approved by state legislatures. We also have a large multi-million dollar opportunity with an international government that was working through political turmoil and the impacts of the pandemic. At our stage, large strategic opportunities remain an important driver of growth. These are also extremely important in developing the public-private partnership. As you saw in our press release, we now expect revenue of approximately $26 million in fiscal year 2022, which would be down from 10% from the prior fiscal year. We reduced our outlook for exit ARR for the fiscal year to approximately $30 million, which giving timing uncertainty now excludes large strategic opportunities. We have missed our expectations and we understand the criticality of being accountable and predictable as a public company. While we are not proud of our performance, we remain optimistic about our future. I would like to underscore that our conviction about our technology and market opportunities is unchanged and that we remain committed to our mission. transforming cybersecurity through collective defense. Our proof of value pilot opportunities have doubled over the last year, and collective defense as a concept is gaining momentum in the marketplace. Let me give you a few examples. A major state power authority in the Northeast asked to have additional electrical suppliers in its area added to its collective defense group. Malicious nation-state activity was quickly identified and eradicated with the help of Iron Dome and Iron Defense. This model of energy sector leadership is also now being considered for replication in major states in the Midwest and south-central United States. Another example is a Midwest-based insurance customer. This past quarter, we displaced a competitor's network detection and response solution to expand our own footprint. We are expanding in the Midwest in both financial services and the healthcare industry. A third example is a U.S. Department of Defense organization with advanced cyber capabilities that asked IronNet to submit to a laboratory evaluation to validate IronNet's network detection and response capabilities. This focused on detecting advanced cyber threats using behavioral analytics and artificial intelligence. The rigorous test simulated an advanced low and slow attack against a representative commercial network. The scenario was specifically designed to evade common signature detection tools and endpoint detection technology. IronNet was tested against 25 separate sophisticated attacks representing nearly a dozen specific MITRE attack techniques. The evaluation concluded that the iron defense capability identified all attacks within the environment. We are currently engaged with government contract representatives as a result of this positive outcome. On the product development side, we have made important progress this quarter as well. First, in expediting time to deployment, thanks to significant orchestration effort, Iron Defense can now be provisioned and deployed in Amazon Web Services in minutes. We continue to build our virtual network sensor capabilities, which will allow the customer to leverage compute resources already existing in their data center. Second, with regard to our user interface, we developed and are now implementing a comprehensive training curriculum to improve knowledge of the significant features included in our product and to facilitate increased product adoption. We have made strides in making the user interface more user-friendly, facilitating greater collaboration among secure users of various levels of experience. Third, and notably, we have developed a proprietary and further differentiating event correlation engine we call CODA, or Correlation of Detection Analytics, which allows us to effectively chain events and entities together and provide the user a view of all related events in an attack sequence. This evolution of the product provides incredible alert efficiency while reducing overall alert fatigue of the users. We are in beta testing with key customers and anticipate that this will be a highly appreciated development for customers as we roll it out more broadly next year. In a recent example of our product strength, The log4j vulnerability highlighted IronNet's detection and collaboration capabilities. We leveraged our cyber operations center and hunt diagnostics to understand the exposure of the vulnerability. We deployed more than 400 rules and nearly 30 new behavioral analytics to ensure our customers remain protected. Our confidence in our underlying model is bolstered by the dynamics at play in security software in general. With digitization comes heightened cyber risks that continue to increase. We saw it this weekend with Log4J. The Department of Justice announced last month that a ransomware attack has targeted as many as 1,500 companies this past summer. The FBI issued a warning to U.S. companies about the threat from Iranian hackers. And the Canadian health care system was subjected to a disruptive attack. The escalation of malicious cyber activity is happening despite what has been reported as the highest level of investment in cybersecurity suspending on infrastructure protection that software has ever seen, which according to Gartner is almost $25 billion this year and growing at nearly 17% worldwide. Clearly, it's the significant investments that the private and public sectors have made in cyber defense and the manner in which they are being employed is still not working. The companies, states, and nations that are the foundation of global economies remain vulnerable. Collective defense is an important way to break the defend in isolation model that continues to show itself to be too slow, too inefficient, and is in fact a hindrance to the public and private sector alike from enabling each of their significant investments to become more than the sum of their parts. IronNet is the sole cyber technology addressing this gap. Our network detection response solution and our unique collective defense model has been evaluated and then recognized and lauded as a transformative technology that's absolutely critically needed. Recently, Chris Inglis, U.S. National Cyber Director, is quoted as having commented on IronNet's collective defense model that we need to make it such that if you are entering in this space, that you need to beat all of us to beat one of us. He acknowledged that we have not done that before, and we have had the wrong model when we were attempting to do that in the past. IronNet extended the concept of collective defense into cybersecurity, developed capabilities to make collective defense possible, and we are uniquely positioned to develop this market further. We missed our financial expectations for this year. We are working hard to rebuild your trust in us. I will now turn it over to Bill to address changes we are making and our plans to accelerate our business in important ways. Bill. Thank you, General.