Q3 2021 Knowbe4 Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Knoll before third quarter 'twenty 'twenty. One results conference call. Please be advised that today's conference call is being recorded all lines have been placed on mute.
To prevent any background noise.
The speaker's remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question press the pound key.
Thank you.
And it's my pleasure to turn the call to Ken.
Delaney in no before vice President of Investor reporting.
As a reminder, our commentary today will include non-GAAP financial measures information regarding our non-GAAP financial result, there are limitations and reconciliation of our GAAP and non-GAAP results can be found in our earnings release, which was furnished with our form 8-K today with the SEC may also be found in the supplemental final.
Angela information available on our Investor Relations website at investors that know before Dot Com. In addition, some of our 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 incurred.
<unk> actual company results could differ materially from those projected or implied during this call. These risks are described in our Form 10-Q that will be filed following this call. These documents can be found on the SEC's website SEC Dot G O V and on our Investor Relations website. During today's call you will hear.
Repaired remarks from our founder and CEO, Stu shower men and CFO and co President Chris think of trauma large flatten off our chief revenue Officer and co President will join our question and answer session and with that I will turn the call over to sue. Thank.
Thank you Ken.
You all for joining us today, we're excited to share our results with you. This morning building on last quarter's strong performance, we exceeded our guidance.
Record quarter with over 40% year over year annual recurring revenue growth.
As many of you know.
Started no before to help organizations manage the ongoing problem of social engineering, we are the only public company dedicated to securing the human layer. The emphasis in cyber security has traditionally been on legacy controls. However, the exponential growth in cyber attacks.
And our relative success proves that we cannot solely rely on security software infrastructure. According to the newest Verizon in 2021 data breach investigations report, 85% breaches involved a human element ignoring the human element of this equate.
<unk> leaves organizations of all sizes are vulnerable.
Why we are dedicated to helping our customers transform their employees into a successful last line of defense against cyber attacks. This problem is not going away. It is escalating just last week in fact Wall Street Journal reported that the group behind the solar winds.
Attack is actively targeting the global supply chain.
<unk> employed in the human layer with social engineering attacks, the regulatory environment continues to evolve in response to the growing threat landscape as well in fact, a director at the NSA recently stated that the U S will have to contend with ransomware attacks every single day Fortinet.
Five years, we believe these actions helped validate our market opportunity and provide a catalyst for new business growth I will start by summarizing key results and activities for the quarter third quarter results exceeded our expectations across the board with continued growth.
And 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 $262 million in a are ahead of our expectations and up 44%.
Year over year, we have established a market leading position in the human centric cyber security space and remain focused on continuing to innovate to meet the needs of our customers. Our vision for the security awareness market finds no be forest products roadmap and this includes both exciting new features.
And new products.
Our recently announced acquisition of security advisor is yet. Another example of our commitment to our vision of the market with.
With the acquisition of security advisor and future integration into the no before our platform, we are making a big bet to transform alerts from other leading cyber security layers into real time opportunities to change human behavior with this we believe we are creating a new category.
Ari in cyber security called human detection and response or HCR.
This works is we connect to these other security layers through their cloud interface and pooling of their alerts. So we can analyze them and then take real time action. We believe the new SKU, we plan to create with this acquisition should give us an incredible upsell and cross sell opportunity given the estimated five.
Dollar Tam associated with this new category. The next several months will be spent integrating the product into the core no before platform building in automation capabilities and extending the ecosystem. We anticipate solid traction with this product offers the next few years the security advisor teams.
Maximum earn out payment is based on sales of the new products, reaching 40 million in <unk> by the end of 2024, our organic product development remains strong as well during our inaugural K before Khan EMEA conference, which had in excess of 5000 registrations.
We announced the beta release of a product code named password IQ. This is another exciting product that we expect to be of interest to customers of all sizes and all industries to be clear. This is not a password manager bachelorette IQ is used to mitigate the risk around password hygiene issues.
Such as weak or breached passwords, the product continuously monitors your organization for any issues detected with users passwords. It organizes just data on an easy to redact forward and allows for automatic employee training based on detection of any passwords risk.
As with our prior product launches, we expect this product to further expand our cross sell capabilities, we will provide an update on our expectations for this product during our Q4 earnings call given the backdrop of state sponsored threat actors, who continue to take advantage of bad password hygiene.
We believe this product will be a welcome addition to our customer's defenses and an additional cross sell opportunity. Our technology leadership is a key factor in our strong momentum in our new business wins represented by further penetration in the enterprise markets. We also continue to see strength and best in class.
Tension across our existing customer base customer growth remains strong across both SMB and enterprise with our total number of customers now reaching over 44000 are current customers are investing in our <unk> platform and adopting our additional fishy or <unk>.
<unk> and now compliance plus product at record levels as of the end of Q3, 19% of customers now have subscriptions to multiple products that is up from 12% at the end of Q3 'twenty.
Organizations across all verticals and sizes continue to see value in our free tools and thought leadership, Webinars, which we utilized to generate leads for our inside sales team as in previous quarters. We also saw customers by both <unk> and <unk> together to leverage the.
Medium risk reduction, it's fishy arm brings to their organization. So we do not report the growth for Fisher compliance Clos and ACM Jersey separately, the combined logo growth and revenue growth was close to triple digits year over year for the quarter. The continuation of the cross sell success seen in the last quarter.
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 continued to show the value of security awareness is resonating with customers and our platform stands out from the competition, we believe our competitive wins are.
Further proof that our platform and customer support rank well above our competition. We continue to see success in our enterprise segment, which had several big wins and to give you. Some examples of Mega Enterprise wins, we had an 80000 seat win with a global bank based in Europe.
Also in Europe, we closed a 60000 seat deal with a multinational consumer electronics store chain to close to a 45000 seat deal with a large U S retailer as well as an existing media pro customer and we close to a 40000 seat deal with a global transportation services come.
This was a great example of a deal we won by having an internal champion our key contact at discounts brought us to the RFP at her previous company and we were one of the first call Shumate upon arrival at our new job in Europe, we close to 19000 seat deal with a multinational chemical company.
This is a customer churned away from us use the competitor and saw the value in coming back to our platform in Japan with close to 16000 seat deal with a multinational electronics company in the Middle East We closed a 15000 seat deal with the National oil company in a competitive bake off against two compare.
<unk>, we believe these wins and others demonstrates that our customers continue to embrace not only the considerable risk reduction platform brings but also the thousands of hours, we save the I T Department in Triaging security events, given the current shortage in skilled at work.
Our strategy of building time saving features into our platform has paid off. This also remains a critical focus for our product roadmap outside of the commercial space. The government segment continues to be a strong vertical for us in the U S. The cyber division of one of the largest cities in.
The World purchased 150000 seats in a deal where we displaced multiple vendors in the same city a large public health care organization purchased 65000 seats. We also show than 80000 seat deal to a federal government agency and a competitive displacement, where they favored our automation capability.
We continue to see traction in the education sector, as well and a greenfield opportunity or public University system in the U S purchased 76000 seats across the globe. We closed a 12000 seat deal with an Australian University before I turn the call over to Krish I would like to thank.
Our employees and partners for their dedication commitment and customer focus that has brought <unk> to its market leading position today I'm incredibly proud not only of our financial results, but the great group of people driving this company and are contributing to our communities. We are as focused as ever on bringing high quality.
City and diverse talent in the door and this has not gone unnoticed. We were recently included in Fortune's Best places to work for Millennials and Moguls list. The top 100 workplaces with the best diversity and inclusion programs and even more recently, we received the Reader's choice.
Joyce Award from Security Insider magazine in Germany, now before it was selected as the winner in the category security awareness, which we believe clearly shows our position as a top rated security awareness provider in EMEA and those are just a few examples of the great work, we are doing behind the scenes.
And I look forward to giving you an update in the quarters to come and with that I would like Chris to discuss our financial trends. Thank you Sue.
Good morning to everyone as a quick reminder, unless otherwise noted all numbers, except revenue mentioned during my remarks on non-GAAP.
As you have hudsons too.
We see strong performance across the business.
For Q3 accelerating organically.
And second quarter of this year to 44% year over year growth. This is on the heels of over 40% in Q1 and Q2 of this year.
The growth was driven by another strong quarter of new logo additions and enterprise and F&B global expansion.
Continued cross sell to existing global platform continues to perform well across all geographies to customers of all sizes and industry I wanted to remind everyone kind of keep it all our model is the ability to efficiently scale to customers of all sizes from organizations, but less.
The address by channel partners with customers with hundreds and thousands.
Into the employee buyout.
By our hybrid inside sales model, we have continued to focus on four pillars of growth new logo expansion cross selling to existing customers international expansion and channel expansion.
Talk to.
Each of these avs throughout Q3, and it is a continuation of the growth we experienced in Q1 and Q2 of 2021.
Growth in new logo expansion.
Good day, 88% of our logos are in the SMB space, which we define as organization, but less than 1000 employees and about 12% are in the enterprise space, which we define as the organization with greater than 1000 employees are.
I can't rule over the past few years.
Im very pleased with the sales execution this year.
The customer cohort for 2021 has already surpassed what we build for the full year 2020.
Enterprise traction is a proof of not only our ability to move upmarket.
Our current go to market model.
Its strategic importance.
The largest organizations the wood now place on our platform.
Continues our trend of penetrating the enterprise market.
A couple of years, we have made very strong progress in selling into 14.
U S companies and continue to make inroads into the global 2000, and this is evident by the number of examples we have shared with you in the global enterprise win.
Q3, we saw a robust growth.
Balance between enterprise and SMB customers, although we saw strong growth across all segments SMB performed particularly well this quarter remind everyone you're always trying to drive towards an evenly balanced mix between SMB and enterprise.
Second pillar of growth.
It's cross selling to existing customers.
We see strong interest across both new and existing customers in the power of our global platform.
Q3 about 19% of customers that subscribe to multiple products.
<unk> strong interest among new customers and purchasing multiple products within their budget.
Some perspective.
Q3 2019.
About 1600 documents.
At about 6%.
All of our 28000 customers with multiple products to date, approximately 8000 fiber customers at about 19% of our.
44000 customers now have multiple product as you can see with a 130% CAGR we have made tremendous progress here.
In part due to our large base of SMB, many of which are quick to see the value of purchasing multiple products and enterprise customers.
Value of a global platform capability.
As a reminder, we don't bundle our products be particular to cross sell the product.
Results in premium pricing, but add on products looked at discounting.
An example year to date.
<unk> represent approximately a 46% increase in <unk>.
For SMB and 36% on enterprise.
Standalone camps that Bill Mudd.
The product strategy.
Civil traction with the combination of HCR.
<unk> D and now with the addition of compliance.
We're also seeing record levels of customers with three product and even a few that have all core products. These deals are closed without having to bundled product.
Our PCI compliance.
Thank you Casey and GIC Goodbye.
<unk> nearly triple digit revenue and a triple digit local growth.
You said most of the countries not only to help expand.
B, but also increase the tension we have found.
Found that customer bought both cans and PCR get more value from our platform and as a result, a much stickier estimate we remain committed to bring innovative products to our customers and ultimately driving shareholder value.
Our compliance in early June.
Yet another example of our.
Ability to innovate on the human layer and add complementary products to our platform.
Early in the launch compliance has seen similar results to what we saw from <unk>.
Initial launch.
<unk> compliance.
In the first four months launch similar to the trends you saw with <unk> and it splits for months.
It's a very positive indication.
Through the power of our cross sell motion.
Sue mentioned by the second half of next year, we expect to have fixed product to sell to new and cross sell to existing customers further enhancing our platform capability.
We have noticed is that some of our customers.
The large enterprise have trended towards signing multiyear deals without we believe this reflects the recognition we have received some third party research organization.
I'll add clarity domestic and international customers.
In our business as a result of know before going public.
Growth is.
Pending internationally penetrating international markets remain one of the key pillars of growth strategy.
Revenue grew.
Triple digits year over year to yet another record breaking quarter domestically.
We see strong momentum with about 35% yearly.
Growth in international markets, we do see more enterprise go.
Go to market motion.
The F&B motion that we started with the U S. All the international expansion, we continue to focus our investments on hiring key talent in marketing sales content and customer support we have made several key hires in the U K, Germany, Australia, and Japan and.
Ah laying the foundation of talent to scale across the globe. We also believe that we will add a strong R&D team based in India. When security advisor team is onboard at.
Lastly, our fourth pillar of growth is sound with expansion, we continue to focus on expanding our channel presence to accelerate growth both internationally as well as domestically we have invest in hiring a number of key resources in our channel team and building marketing and distribution capabilities for our channel partners.
Quarter, Yes made great progress in growing both on number of channel partners and deal volume generated from that.
Now I'll give you some details on the quarter.
Both new and existing customers have witnessed the ongoing problem of social engineering, what's been over the last year, we continue to support our customers with a platform, which includes integrated capabilities around security events.
You're already orchestration and automation and compliance in the third quarter total annual recurring revenue reached 262 million up 44% year on year.
Our growth was driven by another strong quarter for new logo additions and continued expansion of cross sell to existing logos as well as strong retention.
Mind, you we have seen.
40% growth in a R.
Each of our quarters this year.
Total customer count for the quarter grew to over 44000 up from about 35000 in Q3 2020.
That's a 26% increase in customer count.
Sure.
And as I mentioned, we now have added more customers in the first nine months of this year than all of last year.
Another achievement by our global sales and marketing team and drive the value proposition of the platform.
Local gun.
In parallel to historical levels gross dollar retention, which in our case has been very strong considering a mix of SMB and enterprise reached the highest level. We have seen this even beat out a strong levels in Q1, 2021, and Q2 of 2021, we believe.
Our increased retention is in part due to the success we are demonstrating.
Instead, it through our cross sell efforts.
And multi product capabilities on the platform.
<unk> are low.
Retention and cross sell puts and takes.
One of the.
Level ever hence the effect on retention rate has been very positive.
Increased every quarter this year in.
In Q3.
GAAP revenue grew 42% year over year, reaching 64 million, which was well ahead of our expectations. We continue to execute at a high level.
My focus across all four pillars of growth.
Scully the vast majority of our revenue was derived from North America.
At the same time, we believe there is a sizable addressable market for <unk> internationally, and we continue to invest across both EMEA and APAC and bullet buildable button, there and expanding our channel relationships, 15% of our revenue now is derived from international markets representing <unk>.
Approximately a triple digit increase in international revenues year over year, while it's still early in our international expansion.
The strategy of investing in these markets is producing results.
And you are adding Mark key global brands to our client base.
Since Q3 of 2020, we have added approximately 59, new heads Novacor international team.
Over the past two years, we have open offices in Australia, Japan, Norway and Dubai.
We've also completed building our shared service center in the Netherlands to help drive long term support for our clients and our sales team with the addition of security advised that we are adding another center of excellence. This one in India.
Remain committed to ensuring we have the right resources in place to execute on our international expansion investments in R&D and product will continue to be a key part of our investment strategy.
Part of our philosophy of running the business, we remain focused on sustaining a high growth.
<unk> margin.
Non-GAAP gross margins improved to 85, 4% from 85% a year ago as we gain efficiency with scale.
We continue to scale, our international business, we expect non-GAAP gross margins in the low to mid 80 per se long term total non-GAAP operating expense for the quarter was about $51 8 million.
About $37 8 million for the same quarter last year, we continue to invest in the head count across the business, which drove the vast majority of the expense increase this quarter, we have seen and expect to continue to see wage inflation in the U S. You do both current labor market conditions.
And the dynamic that is develop due to remote working.
As we continue to invest globally by building centers of excellence around the world.
As you diversify some of these tight labor market condition, non-GAAP sales and marketing expenses as opposed to digital revenue was lower year over year.
Scale of the business.
We continue to invest in sales capacity in our core market.
And while it's still early stages of international expansion, we expect to deploy additional resources to support growth in this market. As an example, we hosted a global corn powertrain in EMEA in September.
We expect to invest in both sales and marketing exactly all the upcoming quarter.
G&A cost increased reflect our continued effort to support life as a public company and that's it.
Exactly expansion.
We are investing across legal finance internal audit and shocking.
No people way.
Captain deficiency and use the cash.
So for the quarter was approximately 18 million driven by strong cash collection as well as sales performance Ah had a plant in an efficient go to market. What my results you can see do you have a resilient and cashing it in sacks model.
And strong balance sheet supporting a balance of top line growth and expanding profitability. We have continued to expand our resource food invest in new products and capabilities, both organically and in organically, while maintaining suitable profitable growth.
Lead this new category in cyber security.
And onto guidance. He entered the fourth part with strong customer and business momentum. This momentum is being T. In all our segment and international market and across all our full keeping up with growth.
<unk> 2021, B expect total revenue in the range of 66.8 million to 67.2 million or approximately 35% to 36% Yoda, what you're a girl.
Full year 2021, yeah, raising our total revenue guidance to 243.8 billion two two 244.2 million at approximately 39% to 40% beautiful your growth. This revenue guidance is up from guidance of two.
237.52, 239.5 million issued blocks water he can't seem to expect free cash flow margins to be greater than 20% for the full year.
A reminder that is seasonality.
Free cash flow, which can cause does that too many quarter to quarter.
Water tends to see lower level, the free cash flow generation driven.
Payout and your company wide performance bonus during the quarter for modeling purposes, you're getting a Jew a non-GAAP value debated average shakedown all between 174 and 176 million shares for coupons and hundred 67 269 million share.
As for the full year 2021, as we look forward to queue for vitamin.
Women confident that will finish 2021 from B.
We see continued growth and momentum in the business and he had a laser focus on maintaining a market leadership and the most importantly, or insecurity dedicated to the human endpoint and driving innovation around H D. R.
The Doc you open the lines of question.
At this time, if you'd like to ask a question. Please press Star then the number one on your telephone keypad.
Again that Star then the number one to ask a question.
Your first question comes from Brian Ethics with Goldman Sachs.
Great. Good morning, and thank you for taking the question Yeah, maybe maybe Chris.
<unk> on are are as you expand both kind of.
Increased penetration upmarket as well as expanding internationally great progress during the quarter. It looks like a lot of that you know incremental new air ours coming from new logos as opposed to the existing so maybe can you talk a little bit about improving in net retention rates and as you expand feature fun.
Chanel already on your platform how is reception from your existing customers with regard to some of the new products that you're expanding into and what do you think there's a potential for increasing your penetration rate within your existing installed base.
Choi morning, Brian So I actually want to talk about a R. In two different ways. Firstly, we have seen a our growth significantly, especially as we grow our new logo edition as you mentioned.
But at the same time. They are growth is also being driven by cross sell to existing logos.
Additional seats in our existing logo base.
And with new customers. We are also seeing hi attachment rates associated with multiple products, which of course drives either they are so across board existing as well as new customers BSC strong growth from an <unk> perspective now.
If you look at we don't comment on net dollar attention, but at the same time I can provide some color in terms of what we are seeing especially in Q1 of the <unk> of this year and continuing to Q3 of this year.
Given for about sales motion, we always go first with a Cam sad sale.
We have seen extremely strong.
Bought retention rate from a local perspective, which is one of the highest we have ever seen and the cross-sell person data to see has reached around 19.3% of a base right, which is a substantial increase just over a year.
So if you put those two key points together. They are seeing we are seeing very strong growth and neck dollar attention and what we're seeing the momentum is growing from Q1 to queue to add into Q3. In fact, we have seen growth in every quarter. This year in terms of board.
All mentioned all varieties of a redemption metrics, including both growth as well as net dollar.
Got it that's that's helpful. Maybe if I could just follow up.
In terms of international penetration what is the mix tend to be I know you noted some.
Nice large enterprise wins in your prepared remarks.
Does that tend to be skewed I guess more to towards SMB, particularly in Europe or how how are you finding penetration and where are you seeing the most initial traction as you expand internationally.
This large I'll I'll take that Brian so.
Initially here in the U S. We started really strong and S. M B and moved up market, we're finding out a little bit different in the international markets. It's <unk>, we are selling S. M b, but it's initially starting with enterprise and large enterprise and then.
You know as we're doing that were expanded into S. M B.
Got it that that's very helpful. Thank you very much.
Your next question comes from Rob Owens with Piper Sandler.
Great. Thanks for taking my question and good morning, I'm wondering if you could expand on the strength you guys are seeing in in public sector and the broader opportunity for both fed and fled as you mentioned multiple wins in the theaters. Thanks.
Okay. That's great question for a large morning, Rob Yeah, we were seeing one of the things. We're seeing is you know.
We were penetrate in those markets I'm kind of on a one on one basis, especially federal government. You know you have these huge three letter acronym names and we are hitting the different offices, what we're seeing now which is some you know.
Really growing fast witnesses a consolidation of that where the entire organization comes in at once or in particular states or University systems, where we were initially going after the individual universities or the or or the individual state departments. We're now seeing.
Those those organizations moving that up to the state level and now they're coming in broad and we're signing deals for the entire for the entire state or the entire university system at once.
And that's actually.
When we go into those were work competing with our competitors and we're displacing them at local levels all at once and then no before it goes in.
From the top for the whole entire organization.
[noise] great. Thank you.
Your next question comes from Hamzah Auto Walla with Morgan Stanley.
Agents good morning.
Just one one question from from my end.
Maybe for crush just given a lot when you talked about some of the cross the momentum of multiple products the larger enterprise traction.
I'm curious how.
Are you starting to get near the point, where you're starting to see the seven figure type it our our customer deals or is that a milestone that.
It hasn't quite been crossed yet.
I think if you look at the deals that we are doing homes.
They are definitely becoming pretty large.
In fact, I would say a couple of years back in 19, Laska and add some more color also on this we're seeing relatively we were penetrating the mid size and a smaller sized enterprise now literally every quarter. We are seeing really really large deals coming in in the enterprise segment and one.
One thing. We also are noticing is we are starting to penetrate at a decent clip the fortune 500 in the U S and more importantly, the global 2000, either relatively strong pace. So yes, we are seeing really large deals and they have they are happening.
Pretty much every quarter loss any other addiction can on that yeah, I think homes I I answered part of that question previously with Rob We're also seeing only.
Government sector again, the consolidation of.
Multiple different units all into one large sale and again, we're seeing a lot of strength a lot of interest with these big global companies again, uhm those deals take a little longer to move through the process. The sales process, but we have you know a ton of that business in the pipeline.
Right now and more coming at us each day.
Yeah, I can add one thing too that is we've been investing in making our platform truly global.
And we have a a <unk> huge.
Huge amount of content now available in 34 languages, including things like the user interface and training materials and a series of other <unk> artifact.
That global companies can roll out all over the world in the local language of their users there and that gives us a significant traction in in global 2000 type organizations.
Thank you.
Your next question comes from D J Hines with Canaccord.
Hey, guys congrats.
Congrats on the strong results uhm, so if I think about the portfolio of solutions, it's expanded pretty significantly I think we're going to have six skews be selling here at some point next year.
<unk> I know you hate the idea bundles, so I'm gonna avoid that word but look in itself serve motion. When you. When you have a bunch of skews. It can add complexity to the buying process. So how are you guys thinking about this should we expect some product packaging over time that takes friction out of the multiproduct product buying behavior would <unk> would love to get.
Just get some thoughts there.
So I'll take the first part and I think a delight and stew will actually add a little bit color. You are absolutely right I do hate the word bundle, but I think it's.
Sentiment that is shared by Stu in laws equally or maybe even higher so for us.
The focus has always been building incremental value on the platform, which in tons hubs drive. Additionally are now one point I things to a loss can give you a color in terms of how we train our salespeople and how stews philosophy of pricing has been has has evolved.
Those things actually help drive that non bundling concept and more towards additionally are.
Yeah, if you look at blood in an I T professional would prefer.
Each day like.
Strong.
Single product and a combination of those that are integrated well much better than a sweet because you're in a suite of products or a bundle of products you always have to compromise some product or another or more than one, whereas we talk to the customer. We we do discovery, we find out where the.
Pain points are and at that point in time, we are able to present.
The right way to manage that problem.
An up sell to other problems that they identify in that environment and.
And then that way, we feel we provide the maximum value maybe large can add something there yeah I'll just touch on something Chris mentioned, we train our sales team to an inch of their lives. They fully know everything about the product and they they are actually very important.
In that they can create all the value they need to justify the pricing and again our pricing is is pretty much. We do no brainer pricing. So there there's there's not a lot of room, there where the customer feels like they need discounting or bundling in order to put the deal together and.
Then often what we're seeing in some cases, especially with CMP, we're finding that the budget for CMP is a completely different budget than the budget for Cam set so we're not having two products compete against each other for the exact same budget.
Yeah, Yeah, Okay that makes sense and very helpful color. Thank you guys.
You're welcome D J.
Your next question comes from Joel Fishman choice.
Hey, good morning, everyone I just have a quick one for you crash.
<unk> security adviser looks like an amazing acquisition.
I just wanted to know what what did you think that you'll actually start to see revenue.
And start to penetrate that 5 billion dollar team.
Yeah. So I think the first part I think store would be the perfect person to talk about product evolution.
Now.
I think the first thing I would really doing and I would say this is how we have built this company.
Is we focus a lot on integrating the product, but high level of automation upfront itself because it helps our sales motion, which in our case is a high velocity sales motion for the next next part of this year and next year, we're gonna be focusing dark for the security advisor product. So it's integral.
Into the <unk> platform now, we expect the product to be ready to be shipped and I think still can provide logged mccullum that into the second half of next year. But this is this is a long term investment in terms of acquisition is for this product that we put into place. So if you're going to spend our time <unk>.
Investing in the product and integration before we get to market.
Yeah, Let me amplify just submitted this is a really strategic M&A transaction. This is brand new technology that we a position as human detection in response and we we are going to take our time, we have said.
Pretty much on purpose, we don't expect revenue until the second half next year and it might even be Q4.
So.
That is it's a conservative start.
We do see huge.
Yeah.
Up sell potential and also increased a space simply because the price points for security adviser is going to be somewhat similar to the K M said platform.
And this is why we gave the existing team and earn out based on 40 mail in the end of 2024.
Great. Thank you.
Your next question comes from Mike Sea Coast with medium and company.
Hey, guys. Thanks for taking the questions here, just a lot to like as far as the queue through results you just put out there with the upside the revenues versus guidance consensus estimates and I'm trying to.
The fact, they're all the different I guess details you guys are bringing bringing to light regarding the strong operations you have out there can you help us think about.
The.
The the core upside drivers in Q3 versus where we were three months ago. When we were.
Starting out with a quarter.
Any of us could to take that but I think ratio would be the best wanted to give it a kickoff.
Yeah, I think Mike you are perfectly right B R. <unk>.
Absolutely firing in every cylinder possible.
This if you look at the four key pillars of our growth and I think that's important to go back to those.
And look at the progress of you made across all of them.
This includes cross-sell, adding new logos and the product, adding multiproduct capability on the platform channel expansion, we've seen considerable progress.
In all of them.
And this is overall.
A strategic vision that still can actually add a little bit more color in terms of adding additional skews additional capabilities on the platform to create for the strength and provide our customers with a suite of capabilities are on the human layer.
Yeah, I actually look at this particular.
<unk> Tim Mike.
What you are looking at is still mostly greenfield.
And especially international.
C.
If it's 90%.
Conservative.
So being able to provide a platform internationally.
And then up sell cross sell.
Gives us but.
But we believe.
Huge potential for the next.
Five or 10 years. This is only really only the very early days does that answer your question to some degree.
It does it does thanks for the color of their and if I could just tack on one more coming back to some of the prepared or more.
Around password IQ could you just give us a sense for a house.
<unk> the pilots have gone so far what is what is customer feedback then and then what is the what's the timeline for bringing this to market more broadly.
Sure.
This is a an early beta we just announces like Curry shed in our K before Khan anemia.
We have very early users, but it is a bit too early to say how things are.
Looking because guess what we have just finished our cyber security awareness month. So everyone was fully focused on.
And users and training them.
What this product will do 44 to our customer.
His monitor bad password hygiene, so we're looking at weak passwords, but Moreover, also.
Passwords that sit in a data breach.
And we will be able to get back to the enterprise.
Essentially credentials that already have been broken that users are currently using.
Meaning an immediate and high risk of being penetrated and being infected by for instance, ransomware.
So we expect this product to be a good addition.
And a good up cell.
But we're still in the process of testing surveying the customers and we will be able to get you a little more color.
Q for earnings call next year.
Thanks for the detailed guys I appreciate it.
Your next question comes from Joshua Tilton with Wolf Research.
Yeah, Hi, Thanks for taking my questions and congrats on the results.
I think it's pretty clear that you guys did very well in the enterprise segment. This quarter I am just curious was there a noticeable change in the mix of customer additions between SMB, an enterprise and how did the mix trend maybe versus private quarters.
Yeah, So hey, Joshua I'll take the first part and additionally color requires some stool ours now.
Think this trend on SMB, an enterprise has been going for some time walk you are definitely noticing.
Is the expansion of our enterprise business at scale internationally. The international market is to mention in terms of all the product capabilities now which are on the platform is a good strong driver of the international enterprise expansion W. A scene and what we are extremely angry.
<unk> Bye is markets that'd be just started or more recently entered we are seeing very very strong global brands coming on the platform, which shows the power of the platform and the capabilities that are already built into it for global enterprise customers. The second thing that you see in terms of.
Rice expansion is what you're seeing in terms of the research community coming out in terms of the strength of the platform and its capabilities.
And finally, the third thing is especially in international it is important to understand is companies, especially which now have public level financial information that actually also helps because when you are a private company in the U S. Your financial strength are not available for everybody to see but once you pick.
Public it's available.
And of course.
That drives.
The reduction in length in terms of a sales motion because those questions don't have to be answer.
Screw with you guys see anything else.
I don't see a whole lot more to add to that Malcolm that's it.
Yeah that would be helpful.
Yeah, just just maybe as a follow up I kind of wanted to ask the net revenue retention question, a little differently I understand you guys don't disclose it but in the one you did kind of give us enough bread crumbs to sort of calculated at our our could you, possibly just talk you out directionally as to where the rate is today relative to that prepandemic level right.
Yeah, So I'll answer it.
Similar to I think a question, maybe Brian Aust upfront now.
It's important for people to understand in terms of a sales motion our sales motion as tends to be getting 100% of the seats upfront for court can sack.
Now, especially in the loss I would say a couple of years and you can see that trend in terms of the cross product penetration. We have added multiple layers of product on the core camps that platform that are available for our customers a cell.
And the one other thing, which we are.
Honestly extremely impressed with is our continued growth in terms of court logo retention venue add this extremely strong motion in terms of cross sell but should now is 19.3% of our total customer base and you add maybe one of the best we have ever seen.
<unk> in terms of local redemption, you can see the positive momentum that you see in net dollar attention. So the net dollar attention is definitely in Q3 higher than Q1, and it's definitely higher than Q2, and Q2 was greater than Q1. So every quarter of you're seeing strong momentum in every.
He metric Ah social better attention.
That was helpful. Thanks.
Your next question comes from Jonathan Rukeyser with Bird.
Yeah, Hey, guys.
That's on the on the strong.
Performance once again.
I'm curious if you could talk a little bit about the I guess, it's relatively new at this point that the compliance plus module, just how how that sale.
Progress and and also maybe some color on just how you're capturing that by senator relative to.
18, and he can be some of the challenges you've seen or or is that not the case.
I'll I'll take a stab at the first half and large will grab the second half <unk>.
Compliance pluses performing quite well we.
We have an internal contest to.
Beat the initial product rollout of fishy R and two hour.
Great surprise actually early on.
Compliance plush be trashy are in the sense of monthly sales. So it's ramping up relatively quick.
We are very encouraged by.
The the direction, it's literally hockey stick.
Note that compliance plus content, which is about 100 modules at the moment, there's still use domestic and we are next year expanding that to international so.
We're preparing the road like we did with Cam set.
First domestic U S and international expansion will be next year.
So this is very encouraging first couple of months and maybe a large can.
Provide some color on who were exactly selling too yeah. So.
Well first compliance plus.
We've entered the market with disruptive pricing so that immediately opens the door to conversations force, which is great when for a sales guy what we're seeing in the Smb's space. It. It's it's a pretty simple sale and the person we're talking to is very involved in the sale.
As we move upstream.
Becomes a little more complicated to sell because we're having other stakeholders that we have to pull into the sale.
And then other budgets as well, so but again with the disruptive pricing.
Our our tech people that were talking too quickly just open that door make the referrals and pull those people into the deal.
Yeah, and Ah help fantastic, yes. It does thank you and then.
Quick follow on and and correct me, if I'm off base, there, but it seems like Casey.
Has maybe been a little bit less successful historically, well intended fishy or I'm. Just wondering how you see compliance plasma Avi influence say that at trial for Casey could it help facilitate.
A better ourselves motion.
Yeah, that's actually a very good observation, obviously anyone who is.
Picking up compliance plush as an additional Q.
Who would be elite four K C M and we have a strong internal referral system.
Which will feed those leads into the <unk>.
Okay perfect. That's all I have thank you.
Thank you Jonathan.
Again at this time, if you'd like to ask a question. Please press star one on your telephone keypad.
Again that star one to ask a question.
Your next question comes from Tyler Radke with city.
Hey, good morning, everyone. Thanks for taking my question I wanted to ask you about the record new logo ads that you saw in the quarter, maybe just unpack what what was the biggest driver of the upside whether it was kind of international.
Chan or or.
Just kind of what what surprised you the most.
Tyler Great question by the way, it's across the board, but I will tell you.
We have a very strong partner program. Our channel is very much ramp it up and what you see with that with with Ah direct sales team. They start from zero every month.
But our channel sales team once they they build that partner they get them trained they get them selling it actually creates an annuity where they're just bringing us deals every month and I think one of the drivers of that is just seeing that.
Continuing channel business starting to ramp up.
Which is less effort for us as well as.
Adding some of our additional products, that's really drive in that as well.
Great and follow up for Christian you talked a little bit about.
Some of the trends in hiring and I know you guys aren't the only ones facing some of the.
Labor shortages and cost pressures, but but just help us understand how maybe a little bit more detail higher how you're thinking through that.
In terms of Go's that you are investing in in and.
I guess, how are you managing through that from the standpoint of continuing to deliver upside.
On the margin front.
Yeah. So I think it's important to understand that we have built now.
Strong geography code base in multiple places you heard me speak about centres of excellence that we built.
<unk> centres of excellence in multiple locations and now with the addition of the security advisor team. We are now building a footprint now in India, especially for R&D team.
I think by diversifying our workforce.
And that makes sense given the strength of.
And a growth of international business, we have actually started to really put a lot of emphasis on international hiring now, especially the support teams.
He built a shed so the center just outside Amsterdam, and Amsterdam is growth a very very strong attraction because multi-language capabilities, great strength in terms of G&A talent and we are using basis like that to help.
Help cushion some of the the price increases from a calm perspective that every company in the U S is facing so I think that's been a core strategy and the great thing is we have actually coming into this year those centers are up and running.
And at full steam which helps really.
From a margin perspective, but at the same time I can W.
We all of us and software or any industry are going to feel somewhat of age inflation pressures.
Thank you.
Alright.
Your next question comes from Roger Blade with UBS.
Hey, Thanks for taking my question and congrats on the results.
I'm wondering on the competitive from.
Some good traction brownfield opportunities wondering what you're seeing out of the public email gateway.
Gateway vendors that bundle security awareness training, if maybe they seemed more distracted as of late and.
And maybe have that competitive dynamic ascension cooling rates.
Yeah. So.
We first.
In the SMB market, we really don't compete with anyone that's still very much a greenfield's without much competition coming into the deals. If you go into the enterprise side, we kind of approach that from two different angles, one would be that new business coming in where there's a bake off situation where.
<unk> companies looking at us in multiple vendors in that case, we we pretty much when the majority of those deals.
We're we're actually seeing the bundling and that kind of stuff is are the other half of our strategy for the large enterprise and that's us.
Actively going out and poaching our competitors customers and in that case, it's typically a last ditch effort where they'll.
They'll go into the bundling and discounting and they're really just struggling to keep that customer there but.
But again on just competitive product against product, we typically when those almost every time.
Yeah. The additional color there really is that for them. That's just a me too product.
And they don't necessarily spend.
Time effort to increase the platform capabilities.
Or as we have done practically nothing but.
And in bake-offs, and and comparisons, especially like Gardner and forced her we we.
Oh literally all of those we wind up is on the number one slot because we are so much further advancing in the camps at a platform that any competitor.
Does that answer your question Roger.
It does thank you both maybe as a quick follow up in the general demand for for security awareness seems pretty strong and you are talking prior quarters about the regulatory environment has been growing emphasis on security awareness there how much.
Showing up with with new customer conversations and how are you thinking about that tailwind over the next year or so.
Well, if you look at new customers they are.
Really worried about ransomware.
And are really getting.
Geared up to lock down their Holy infrastructure.
And a very large percentage of ranch and where infections are caused by fishing and social engineering. So that is a particular strong driver.
Which is not stopping.
As I said in my comments earlier.
The NSA expects us for the next five years. So we have to deal with ransomware attacks literally every day and so getting a really strong last line of defense, having the human firewall there.
Any organization has by now understood that that is critical.
And then they do their research and I, usually wind up with us.
Got it thanks for the call.
You bet at.
At this time there are no further questions.
I will turn the call over to Stu for any closing remarks.
Thank you very much for attending we appreciate your interesting no before and we do look forward to speaking with you again soon.
Thank you for participating he may disconnect at this time.
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