ZeroFox Holdings, Inc. (Nasdaq: ZFOX), a leading external
cybersecurity provider, today announced financial results for the
third quarter ended October 31, 2022. The financial statements
reflect the results of operations from the closing of the business
combination with L&F Acquisition Corp. and ID Experts Holdings,
Inc. on August 3, 2022, and are for a shortened reporting period of
August 4, 2022, through October 31, 2022. The comparison to prior
year GAAP operating results is not meaningful because the financial
results for the prior year's period consist only of our
predecessor, ZeroFox, Inc. and do not include the operating results
of IDX.
“As a newly listed public company, we continued
to achieve positive quarterly results driven by sustained demand
for our external cybersecurity platform from both new and existing
customers,” said James C. Foster, Chairman and CEO of ZeroFox. "Our
August debut on Nasdaq, resulting from the completion of our new
growth capital financing of approximately $180 million, the highly
strategic acquisition of IDX, and our business combination with
L&F, was an important milestone for our organization. This
transaction further increases the market's awareness of ZeroFox,
our scale and efficiencies, and overall platform strength enabling
us to better protect organizations around the world from external
cyber threats."
Third Quarter Fiscal Year 2023 Financial
Highlights
- Revenue: Total revenue was $43.0 million.
- Annual Recurring Revenue was $153.3
million.
- Gross margin: GAAP gross margin was 30% and
non-GAAP gross margin was 40%. GAAP subscription gross margin was
41% and non-GAAP subscription gross margin was 72%.
- Loss from
Operations: GAAP loss from operations was $717.2 million.
Non-GAAP loss from operations was $5.8 million. GAAP loss from
operations includes a goodwill impairment charge of $698.7 million.
L&F was deemed the accounting acquirer and goodwill was
initially valued based on L&F’s closing stock price on the
August 3, 2022, closing date and the share consideration issued to
the stockholders of predecessor ZeroFox and IDX. During the third
quarter of fiscal year 2023, the market price of ZeroFox Holdings,
Inc.’s common stock and market capitalization declined
significantly resulting in the goodwill impairment charge.
- Cash and Cash Equivalents were $53.4 million
on October 31, 2022.
Recent Highlights
- ZeroFox became a publicly traded
company, trading on the Nasdaq under ZFOX.
- Completed the acquisition of ID
Experts Holdings, Inc. and its business combination with L&F
Acquisition Corp.
- Ended the quarter with 1,138
subscription customers.
- Announced the expansion of
comprehensive breach response services to multinational companies
who have suffered a data breach impacting people living outside the
United States.
- Launched PII removal solution to
find and remove executive personal information from over 100 data
broker sites that could be leveraged for digital or physical
attacks.
Financial Outlook
ZeroFox is providing the following guidance for
the second half of fiscal 2023:
- Revenue of $84 million to $86 million.
Additional information regarding the non-GAAP
financial measures and key business measures discussed in this
release, including an explanation of these measures and how each is
calculated, is included below under the heading “Use of Non-GAAP
Financial Measures and Key Business Measures.” A reconciliation of
non-GAAP to GAAP financial measures has also been provided in the
financial tables included below.
About ZeroFox
ZeroFox (Nasdaq: ZFOX), an enterprise
software-as-a-service leader in external cybersecurity, has
redefined security outside the corporate perimeter on the internet,
where businesses operate, and threat actors thrive. The ZeroFox
platform combines advanced AI analytics, digital risk and privacy
protection, full-spectrum threat intelligence, and a robust
portfolio of breach, incident and takedown response capabilities to
expose and disrupt phishing and fraud campaigns, botnet exposures,
credential theft, impersonations, data breaches, and physical
threats that target your brands, domains, people, and assets. Join
thousands of customers, including some of the largest public sector
organizations as well as finance, media, technology and retail
companies to stay ahead of adversaries and address the entire
lifecycle of external cyber risks. ZeroFox and the ZeroFox logo are
trademarks or registered trademarks of ZeroFox, Inc. and/or its
affiliates in the U.S. and other countries. Visit www.zerofox.com
for more information.
Conference Call and Webcast
Information
ZeroFox will host a conference call today,
December 6, 2022, at 4:30 p.m. to discuss its financial results. To
access this call, please pre-register using this link: ZeroFox
F3Q23 Earnings Pre-Registration. The live webcast and a webcast
replay of the conference call be accessed from the investor
relations page of ZeroFox’s website at https://ir.zerofox.com.
Forward-Looking Statements
Certain statements in this press release are
“forward-looking statements” under the Private Securities
Litigation Reform Act of 1995. All statements, other than
statements of historical fact, that address activities, events or
developments that we expect, believe or anticipate will or may
occur in the future, including statements related to our
anticipated financial results for our third quarter of fiscal year
2023 and our guidance for future results of operations for our
second half of fiscal year 2023, are forward-looking statements.
Forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially from those
anticipated by these forward-looking statements. The inclusion of
any statement in this press release does not constitute an
admission by ZeroFox or any other person that the events or
circumstances described in such statement are material. These risks
and uncertainties include, but are not limited to, the following:
our ability to recognize the anticipated benefits of the business
combination; defects, errors, or vulnerabilities in the ZeroFox
platform, the failure of the ZeroFox platform to block malware or
prevent a security breach, misuse of the ZeroFox platform, or risks
of product liability claims that would harm our reputation and
adversely impact our business, operating results, and financial
condition; if our enterprise platform offerings do not interoperate
with our customers’ network and security infrastructure, or with
third-party products, websites or services, our results of
operations may be harmed; we may not timely and cost-effectively
scale and adapt our existing technology to meet our customers’
performance and other requirements; our ability to introduce new
products and solutions and features is dependent on adequate
research and development resources and our ability to successfully
complete acquisitions; our success depends, in part, on the
integrity and scalability of our systems and infrastructure; we
rely on third-party cloud providers, such as Microsoft Azure,
Amazon Web Services, and Cloudflare, to host and operate our
platform, and any disruption of or interference with our use of
these offerings may negatively affect our ability to maintain the
performance and reliability of our platform which could cause our
business to suffer; we rely on software and services from other
parties; our predecessor, ZeroFox, Inc., has a history of losses,
and we may not be able to achieve or sustain profitability in the
future; if organizations do not adopt cloud, and/or SaaS-delivered
external cybersecurity solutions that may be based on new and
untested security concepts, our ability to grow our business and
our results of operations may be adversely affected; we have
experienced rapid growth in recent periods, and if we do not manage
our future growth, our business and results of operations will be
adversely affected; we face intense competition and could lose
market share to our competitors, which could adversely affect our
business, financial condition, and results of operations;
competitive pricing pressure may reduce revenue, gross profits, and
adversely affect our financial results; adverse general and
industry-specific economic and market conditions and reductions in
customer spending, in either the private or public sector,
including as a result of inflation and geopolitical uncertainty
such as the ongoing conflict between Russia and Ukraine, may reduce
demand for our platform or products and solutions, which could harm
our business, financial condition and results of operations; the
COVID-19 pandemic could adversely affect our business, operating
results, and financial condition; if we fail to adapt to rapid
technological change, evolving industry standards and changing
customer needs, requirements or preferences, our ability to remain
competitive could be impaired; historically, one U.S. government
customer has accounted for a substantial portion of IDX’s revenues
and accounts for a substantial portion of our revenues following
the business combination; and we rely heavily on the services of
our senior management team.
Additional information concerning these, and
other risks, is described under the “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations of ZeroFox” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations of IDX” sections of
our final prospectus filed with the Securities and Exchange
Commission (the “SEC”) pursuant to Rule 424(b) under the Securities
Act of 1933 on October 7, 2022, in connection with our registration
statement on Form S-1 and in subsequent reports filed with the SEC.
We expressly disclaim any obligation to update any of these
forward-looking statements, except to the extent required by
applicable law.
Use of Non-GAAP Financial Measures and
Key Business Measures
In addition to our results determined in
accordance with GAAP, we believe the following non-GAAP measures
and key business measures are useful in evaluating our operating
performance. We use the following non-GAAP financial information
and key business measures to evaluate our ongoing operations and
for internal planning and forecasting purposes. We believe that
non-GAAP financial information, when taken collectively, may be
helpful to investors because it provides consistency and
comparability with past financial performance by excluding certain
items that may not be indicative of our business, results of
operations or outlook. However, non-GAAP financial information is
presented for supplemental informational purposes only, has
limitations as an analytical tool, and should not be considered in
isolation or as a substitute for financial information presented in
accordance with GAAP.
Other companies, including companies in our
industry, may calculate similarly titled non-GAAP measures
differently or may use other measures to evaluate their
performance, all of which could reduce the usefulness of our
non-GAAP financial measures as tools for comparison.
A reconciliation is provided below for each
non-GAAP financial measure to the most directly comparable
financial measure stated in accordance with GAAP. Investors are
encouraged to review the related GAAP financial measures and the
reconciliation of these non-GAAP financial measures to their most
directly comparable GAAP financial measures and not rely on any
single financial measure to evaluate our business.
Non-GAAP Gross Profit and Non-GAAP Gross
Margin
We define non-GAAP gross profit and non-GAAP
gross margin as GAAP gross profit and GAAP gross margin,
respectively, excluding stock-based compensation expense and
amortization of acquired intangible assets.
Non-GAAP Subscription Gross Profit and
Non-GAAP Subscription Gross Margin
We define non-GAAP subscription gross profit and
non-GAAP subscription gross margin as GAAP subscription gross
profit and GAAP subscription gross margin, respectively, excluding
stock-based compensation expense and amortization of acquired
intangible assets.
Non-GAAP Loss from
Operations
We define non-GAAP loss from operations as GAAP
loss from operations, excluding stock-based compensation expense,
amortization of acquired intangible assets, costs incurred for the
business combination and goodwill impairment charge.
Annual Recurring Revenue
(ARR)
We define ARR as the annualized contract value
of all recurring revenue related to contracts in place at the end
of the reporting date assuming any contract is renewed on its
existing terms. We continue to include ARR from customers whose
term has expired within 90 days of the applicable measurement date
for which we are actively negotiating renewal.
Subscription Customers
We define a subscription customer as any entity
that has entered into a distinct subscription agreement for access
to the ZeroFox platform or services for which the term has not
ended or with which we are continuing to provide service and
negotiating a renewal contract that expired within 90 days of the
applicable measurement date. We do not consider our channel
partners as customers, and we treat managed service security
providers, who may purchase our offerings on behalf of multiple
companies, as a single subscription customer.
|
ZEROFOX HOLDINGS, INC.Condensed Consolidated Statement of
Operations (Unaudited) |
|
(in thousands, except share and per share
data) |
|
August 4, 2022 through
October 31, 2022 |
|
|
|
|
|
Revenue |
|
|
|
Subscriptions |
|
$ |
15,174 |
|
Services |
|
|
27,815 |
|
Total revenue |
|
|
42,989 |
|
Cost of revenue (1)(2) |
|
|
|
Subscriptions |
|
|
8,921 |
|
Services |
|
|
21,359 |
|
Total cost of revenue |
|
|
30,280 |
|
Gross profit |
|
|
12,709 |
|
|
|
|
|
Operating expenses (1)(2) |
|
|
|
Research and development |
|
|
5,637 |
|
Sales and marketing |
|
|
16,747 |
|
General and administrative |
|
|
8,902 |
|
Goodwill impairment |
|
|
698,650 |
|
Total operating expenses |
|
|
729,936 |
|
Loss from operations |
|
|
(717,227 |
) |
Other (expense) income |
|
|
|
Interest expense, net |
|
|
(4,428 |
) |
Change in fair value of warrant liability |
|
|
5,837 |
|
Change in fair value of sponsor earnout shares |
|
|
9,211 |
|
Total other income |
|
|
10,620 |
|
Loss before income taxes |
|
|
(706,607 |
) |
Benefit from income taxes |
|
|
(2,449 |
) |
Net loss after tax |
|
$ |
(704,158 |
) |
Net loss per share attributable to common stockholders, basic and
diluted |
|
$ |
(6.03 |
) |
Weighted-average shares used in computation of net loss per share
attributable to common stockholders, basic and diluted |
|
|
116,853,297 |
|
|
|
|
|
Other comprehensive loss |
|
|
|
Foreign currency translation |
|
|
(18 |
) |
Total other comprehensive loss |
|
|
(18 |
) |
Total comprehensive loss |
|
$ |
(704,176 |
) |
|
|
|
|
|
|
|
|
|
ZEROFOX HOLDINGS, INC.Condensed Consolidated Statement of
Operations (Unaudited) |
|
1 Includes stock-based compensation as
follows: |
(in thousands) |
|
August 4, 2022 through
October 31, 2022 |
|
Cost of revenue - subscription |
|
$ |
8 |
|
Cost of revenue - service |
|
|
1 |
|
Research and development |
|
|
57 |
|
Sales and marketing |
|
|
84 |
|
General and administrative |
|
|
155 |
|
Total stock-based compensation expense |
|
$ |
305 |
|
2 Includes amortization of acquired intangible
assets as follows: |
(in thousands) |
|
August 4, 2022 through
October 31, 2022 |
|
Cost of revenue - subscription |
|
$ |
4,635 |
|
Cost of revenue - service |
|
— |
|
Research and development |
|
— |
|
Sales and marketing |
|
|
5,850 |
|
General and administrative |
|
|
854 |
|
Total amortization of acquired intangible assets |
|
$ |
11,339 |
|
|
|
|
|
|
ZEROFOX HOLDINGS, INC.Condensed Consolidated Balance Sheet
(Unaudited) |
|
(in thousands, except share data) |
|
October 31, 2022 |
|
|
|
|
|
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
|
$ |
53,421 |
|
Accounts receivable, net of allowance for doubtful accounts |
|
|
29,027 |
|
Deferred contract acquisition costs, current |
|
|
5,054 |
|
Prepaid expenses and other assets |
|
|
6,677 |
|
Total current assets |
|
|
94,179 |
|
|
|
|
|
Property and equipment, net of accumulated depreciation |
|
|
716 |
|
Capitalized software, net of accumulated amortization |
|
|
169 |
|
Deferred contract acquisition costs, net of current portion |
|
|
7,842 |
|
Acquired intangible assets, net of accumulated amortization |
|
|
274,161 |
|
Goodwill |
|
|
406,608 |
|
Other assets |
|
|
627 |
|
Total assets |
|
$ |
784,302 |
|
|
|
|
|
Liabilities and stockholders' equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
|
$ |
3,275 |
|
Accrued compensation, accrued expenses, and other current
liabilities |
|
|
18,093 |
|
Current portion of long-term debt |
|
|
938 |
|
Deferred revenue, current |
|
|
45,956 |
|
Total current liabilities |
|
|
68,262 |
|
|
|
|
|
Deferred revenue, net of current portion |
|
|
7,104 |
|
Long term debt, net of deferred financing costs |
|
|
169,684 |
|
Warrants |
|
|
2,108 |
|
Sponsor earnout shares |
|
|
2,868 |
|
Deferred tax liability |
|
|
31,038 |
|
Total liabilities |
|
|
281,064 |
|
Commitments and contingencies |
|
|
|
Stockholders' equity |
|
|
|
Common stock, $0.0001 par value; 136,657,312 authorized shares;
118,180,539 shares issued and outstanding |
|
|
12 |
|
Additional paid-in capital |
|
|
1,241,432 |
|
Accumulated deficit |
|
|
(738,188 |
) |
Accumulated other comprehensive loss |
|
|
(18 |
) |
Total stockholders’ equity |
|
|
503,238 |
|
Total liabilities and stockholders' equity |
|
$ |
784,302 |
|
|
ZEROFOX HOLDINGS, INC.Condensed Consolidated Statement of Cash
Flows (Unaudited) |
|
(in thousands) |
|
August 4, 2022 through
October 31, 2022 |
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
Net loss |
|
$ |
(704,158 |
) |
Adjustments to reconcile net loss to net cash used
in operating activities: |
|
|
|
Goodwill impairment |
|
|
698,650 |
|
Depreciation and amortization |
|
|
153 |
|
Amortization of software development costs |
|
|
5 |
|
Amortization of acquired intangible assets |
|
|
11,339 |
|
Amortization of deferred debt issuance costs |
|
|
11 |
|
Stock-based compensation |
|
|
305 |
|
Provision for bad debts |
|
|
3 |
|
Change in fair value of warrants |
|
|
(5,837 |
) |
Change in fair value of sponsor earnout shares |
|
|
(9,211 |
) |
Deferred taxes |
|
|
(2,546 |
) |
Noncash interest expense |
|
|
3,184 |
|
Changes in operating assets and liabilities: |
|
|
|
Accounts receivable |
|
|
(3,125 |
) |
Deferred contract acquisition costs |
|
|
(956 |
) |
Prepaid expenses and other assets |
|
|
(1,367 |
) |
Accounts payable, accrued compensation, accrued expenses, and
other current liabilities |
|
|
(8,755 |
) |
Deferred revenue |
|
|
467 |
|
Other liabilities |
|
|
(274 |
) |
Net cash used in operating activities |
|
|
(22,112 |
) |
|
|
|
|
Cash flows from investing activities: |
|
|
|
Proceeds from Trust account |
|
|
34,864 |
|
Business acquisition - IDX, net of cash acquired |
|
|
(49,803 |
) |
Business acquisition - ZeroFox, net of cash acquired |
|
|
(48,369 |
) |
Purchases of property and equipment |
|
|
(156 |
) |
Capitalized software |
|
|
(174 |
) |
Net cash used in investing activities |
|
|
(63,638 |
) |
|
|
|
|
Cash flows from financing activities: |
|
|
|
Proceeds from issuance of convertible notes, net of issuance
costs |
|
|
149,872 |
|
Proceeds from the PIPE |
|
|
20,000 |
|
Exercise of stock options |
|
|
112 |
|
Repurchase of class A ordinary shares |
|
|
(24,626 |
) |
Payment of deferred underwriting fee |
|
|
(6,054 |
) |
Repayment of debt |
|
|
(234 |
) |
Net cash provided by financing activities |
|
|
139,070 |
|
|
|
|
|
Foreign exchange translation adjustment |
|
|
(9 |
) |
|
|
|
|
Net change in cash, cash equivalents, and restricted cash |
|
|
53,311 |
|
Cash, cash equivalents, and restricted cash at beginning of
year |
|
|
210 |
|
Cash, cash equivalents, and restricted cash at end of year |
|
$ |
53,521 |
|
|
|
|
|
|
ZEROFOX HOLDINGS, INC.Condensed Consolidated Statement of Cash
Flows (Unaudited) |
|
|
|
|
The following table provides a reconciliation of cash, cash
equivalents, and restricted cash reported within the condensed
consolidated balance sheets that sum to the total of the same such
amounts shown in the condensed consolidated statements of cash
flows. |
|
|
August 4, 2022 through
October 31, 2022 |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
53,421 |
|
Restricted cash included in other assets |
|
|
100 |
|
Total cash, cash equivalents, and restricted cash shown in
the condensed consolidated statements of cash flows. |
|
$ |
53,521 |
|
|
|
|
|
|
ZEROFOX HOLDINGS, INC.Non-GAAP Financial Measures and
Reconciliation to GAAP Results (Unaudited) |
|
GAAP gross profit and gross margin to non-GAAP gross profit
and gross margin |
|
|
|
(in thousands) |
|
August 4, 2022 to October 31, 2022 |
|
Revenue |
|
$ |
42,989 |
|
Gross profit |
|
|
12,709 |
|
Add: Stock-based compensation expense |
|
|
9 |
|
Add: Amortization of acquired intangible assets |
|
|
4,635 |
|
Non-GAAP gross profit |
|
$ |
17,353 |
|
Gross margin |
|
|
30 |
% |
Non-GAAP gross margin |
|
|
40 |
% |
|
|
|
|
|
|
|
|
GAAP subscription gross profit and gross margin to non-GAAP
subscription gross profit and gross margin |
|
|
|
(in thousands) |
|
August 4, 2022 to October 31, 2022 |
|
Subscription revenue |
|
$ |
15,174 |
|
Subscription gross profit |
|
|
6,253 |
|
Add: Stock-based compensation expense |
|
|
8 |
|
Add: Amortization of acquired intangible assets |
|
|
4,635 |
|
Non-GAAP subscription gross profit |
|
$ |
10,896 |
|
Subscription gross margin |
|
|
41 |
% |
Non-GAAP subscription gross margin |
|
|
72 |
% |
|
|
|
|
|
|
|
|
GAAP loss from operations to non-GAAP loss from
operations |
|
|
|
(in thousands) |
|
August 4, 2022 to October 31, 2022 |
|
Loss from operations |
|
$ |
(717,227 |
) |
Add: Stock-based compensation expense |
|
|
305 |
|
Add: Amortization of acquired intangible assets |
|
|
11,339 |
|
Add: Expenses related to the Business Combination |
|
|
1,161 |
|
Add: Goodwill impairment |
|
|
698,650 |
|
Non-GAAP loss from operations |
|
$ |
(5,772 |
) |
|
|
|
|
Media Inquiries Malory Van
Guilder press@zerofox.com
Investor Relations Marc P.
Griffin, ICR Todd Weller, ZeroFox investor@zerofox.com
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