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KnowBe4 Announces Fourth Quarter and Fiscal Year 2021 Financial Results Along with Co-President/CFO Transition to the Board of Directors

Feb 16, 2022

Fourth Quarter 2021 Financial Results

  • GAAP revenue increased 40.6% year-over-year to $69.3 million
  • Cash flow from operations was $21.0 million
  • Free cash flow was $19.6 million and free cash flow margin was 28.2%

Fiscal Year 2021 Financial Results

  • GAAP revenue increased 40.8% year-over-year to $246.3 million
  • Cash flow from operations was $76.8 million
  • Free cash flow was $71.2 million and free cash flow margin was 28.9%

Key Metrics

  • Annual recurring revenue (ARR) increased approximately 44% year-over-year to $285.4 million
  • Total number of customers reached more than 47,000

TAMPA BAY, Fla., Feb. 16, 2022 (GLOBE NEWSWIRE) -- KnowBe4, Inc. (NASDAQ: KNBE), provider of the leading security awareness training and simulated phishing platform, today reported results for the fourth quarter and the year ended December 31, 2021.

“Our fourth quarter and full year results exceeded our expectations with record ARR and substantial growth in total customers. We continue to focus on both strong growth and high levels of capital efficiency by reporting free cash flow margins in excess of 28% for both the quarter and year ended December 31, 2021,” said Stu Sjouwerman, founder and chief executive officer of KnowBe4. “In addition to our strong results, the Company is making exceptional progress in the product development area. We are excited to report that we are on track for the release of two new products during the second half of 2022, one associated with the recent acquisition of SecurityAdvisor and the other developed internally."

Krish Venkataraman, KnowBe4’s co-president and chief financial officer, added, “Our successful fourth quarter and fiscal year 2021 financial results show that we continue to execute on our key growth initiatives. GAAP revenue for the fourth quarter and full year grew by almost 41%, ARR by almost 44%, and we added over 10,000 new customers including strong progress within the Fortune 500. Our cross-sell initiatives continue to produce strong results with multi-product attachment rates at 22% by the end of the year. We are also very pleased to report strong net retention of 108% during 2021 which we believe has contributed to our outstanding results."

Fourth Quarter 2021 Financial Highlights

 Q4-2021 Q4-2020 Change
 (in thousands, except percentage and per share amounts)
Revenue        $69,307  $49,287  + 40.6%
Annual recurring revenue1        $285,437  $198,369  + 43.9%
GAAP gross margin         86.2%  84.9% + 1.3%
Non-GAAP gross margin1         87.2%  85.1% + 2.1%
GAAP operating margin         10.3%  2.1% + 8.2%
Non-GAAP operating margin1         21.7%  6.3% + 15.4%
Cash flow provided by operating activities        $20,979  $5,240  + 300.4%
Free cash flow1        $19,562  $4,117  + 375.2%

1 A reconciliation of GAAP to non-GAAP financial measures and definitions for our key business metrics, including annual recurring revenue and free cash flow, is provided under the heading "Explanation of Non-GAAP Financial Measures."

Fiscal Year 2021 Financial Highlights

  2021   2020  Change
 (in thousands, except percentage and per share amounts)
Revenue        $246,298  $174,886  + 40.8%
Annual recurring revenue1        $285,437  $198,369  + 43.9%
GAAP gross margin         85.7%  84.7% + 1.0%
Non-GAAP gross margin1         86.3%  85.0% + 1.3%
GAAP operating margin         (2.7)%  (0.9)% + (1.8)%
Non-GAAP operating margin1         11.5%  2.3% + 9.2%
Cash flow provided by operating activities        $76,778  $44,864  + 71.1%
Free cash flow1        $71,222  $36,721  + 94.0%

1 A reconciliation of GAAP to non-GAAP financial measures and definitions for our key business metrics, including annual recurring revenue and free cash flow, is provided under the heading "Explanation of Non-GAAP Financial Measures."

CFO Transition

KnowBe4 announced today that Krish Venkataraman will be stepping down from his role as Co-President and Chief Financial Officer. Mr. Venkataraman will remain with the Company in his current capacity through filing of the Company's Form 10-K for the year ended December 31, 2021, at which time he will be appointed to the Company's Board of Directors. In addition, KnowBe4 announced that Bob Reich, who brings over 25 years of financial leadership including prior CFO experience, will assume the Chief Financial Officer role at the Company after Mr. Venkataraman's departure.

"Krish has been a valuable partner to me and the entire KnowBe4 team for the past four years. During this time, he built an incredibly strong finance team and was critical to executing our successful IPO last year. He was also the visionary behind our data analytics group who now provides data and business capabilities that represent a single source of truth for the whole company." said Stu Sjouwerman, KnowBe4's founder and chief executive officer. "Although we are going to miss Krish's energy and leadership on our day-to-day management team, we wish him the best as he plans for the next steps in his professional career and we are happy he plans to offer his continued support to our organization from the Board of Directors. We are also very excited to welcome Bob Reich to the executive team and believe that his skillset will be an excellent complement to KnowBe4's future growth plans."

"It has been a privilege to lead KnowBe4's finance team through a number of funding rounds as a private company to driving our IPO process and through our initial stages of performing as a public company," said Mr. Venkataraman. "While it will be bittersweet to leave the day-to-day operations of such an exciting company, I am confident that the finance team and organization as a whole are well-positioned to continue executing on KnowBe4's strategic goals. I am looking forward to spending some time with family while I transition to the next phase of my professional career and am happy that the next phase will include joining the KnowBe4 Board of Directors."

Recent Business Highlights

  • Fourth quarter revenue and ARR increased year-over-year by approximately 41% and 44% respectively, driven primarily by overall business growth resulting from positive multi-product adoption trends, strong international growth and continued expansion of our customer base into both enterprise and SMB.
  • As announced during our third quarter earnings call, we completed the acquisition of SecurityAdvisor Technologies, Inc. on November 1, 2021. We continue to see tremendous progress with our integration plans, including establishing a new R&D focused entity in India and development efforts on a Human Detection and Response, or HDR, product utilizing the SecurityAdvisor technology. These efforts, along with continued internal development, put us on track for two new product releases later in 2022.
  • The Winter 2022 G2 Grid Report named PhishER as a leader among Security Orchestration, Automation, and Response (SOAR) software for the third consecutive quarter. Also, based on the G2 reviews, PhishER has the highest satisfaction score among the SOAR products included in the report, which we believe continues to validate our market position.
  • We reported the largest year-over-year growth for the 15 most popular apps, as reported in Okta's 8th annual Business at Work Report, based on data from more than 14,000 Okta customers. We rank 9th globally on Okta's list of most popular apps, five places higher than last year. The report also shows that collaboration and security tools are the two most popular categories of tools deployed through the Okta Integration Network. We are excited to continue receiving positive external recognition for our platform.
  • We were named the top place to work in our size category as part of the 2022 Top Workplaces USA awards issued by Energage. Winners of the Energage Top Workplaces awards are based solely on employee feedback, which we believe speaks to the strength of our corporate culture.

Financial Outlook

For the first quarter and full year 2022, the Company expects:

MetricFirst Quarter RangeGrowth
Total Revenue$72 - $73 million34 - 36%


MetricFull Year RangeGrowth
Total Revenue$328 - $330 million33 - 34%
Free Cash Flow Margin15%+N/A

Conference Call Information
KnowBe4 will host a conference call for analysts and investors to discuss its earnings results for the fourth quarter of 2021 and the year then ended and the outlook for the first quarter and full year 2022 today at 4:30 PM EST.

Conference Call: (833) 529-0227 (US/Canada Toll Free) or (236) 738-2273
Conference ID: 7378691
Webcast: https://investors.knowbe4.com/investor-relations 

A recorded webcast of the event will also be available shortly after the call, and will be made available for one year on the KnowBe4 Investor Relations website (https://investors.knowbe4.com).

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally involve risks and uncertainties, including statements regarding our future financial and operating performance and our financial outlook and guidance for the year 2021. In some cases, you can identify forward looking statements because they contain words such as "may," "will," "should," "plans," "anticipates," "going to," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these words or other similar terms or expressions that concern KnowBe4's expectations, strategy, priorities, plans or intentions. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: the impact of the COVID-19 pandemic on our and our customers’ business; our limited operating history; our ability to identify and effectively implement the necessary changes to address execution challenges; risks associated with managing our rapid growth; our limited experience with new product and subscription and support introductions and the risks associated with new products and subscription and support offerings, including the risk of defects, errors, or vulnerabilities; our ability to attract new and retain existing customers; the integration of SecurityAdvisor or companies we may acquire in the future; the failure to timely develop and achieve market acceptance of new products as well as existing products; rapidly evolving technological developments in the market; length of sales cycles; and general market, political, economic, and business conditions.

Additional risks and uncertainties that could affect our financial results are included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth from time to time in our filings and reports with the Securities and Exchange Commission (“SEC”), including in our most recent Quarterly Report on Form 10-Q and any subsequent filings with the SEC. Copies of these filings are available free of charge at the SEC’s website at www.sec.gov or upon request from our investor relations department. You should not rely on these forward-looking statements, as actual outcomes and results may differ materially from those contemplated by these forward-looking statements, including, as a result of such risks and uncertainties. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we do not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

Use of Non-GAAP Financial Information
We believe that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to our financial condition and results of operations. For further information regarding these non-GAAP measures, including the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, please refer to the financial tables below, as well as the “Explanation of Non-GAAP Financial Measures" section of this press release.

About KnowBe4
KnowBe4 is the leading provider of “new-school” security awareness training and simulated phishing platform. Our mission is to enable your employees to make smarter security decisions, every day. Through our subscription-based services, your organization will have access to the leading security awareness training platform.

Available Information
KnowBe4 announces material information to the public about KnowBe4, its products and other matters through a variety of means, including filings with the SEC, press releases, public conference calls, webcasts, its Investor Relations website, its Twitter accounts (@KnowBe4) and its blogs (including blog.knowbe4.com/) in order to achieve broad, non-exclusionary distribution of information to the public and for complying with its disclosure obligations under Regulation FD.

Investor Relations Contact:
Ken Talanian
ir@knowbe4.com 

Press Contact:
Kathy Wattman
pr@knowbe4.com 

Explanation of Non-GAAP Financial Measures

To supplement our financial information presented in accordance with generally accepted accounting principles in the United States ("GAAP"), we consider certain financial measures that are not prepared in accordance with GAAP, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income (loss), non-GAAP operating margin, free cash flow and free cash flow margin, as useful in evaluating our operating performance. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it assists investors in seeing our operating results through the eyes of management, and because we believe that these measures provide an additional tool for investors to use in comparing our operating results over multiple periods with other companies in our industry. 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 as GAAP gross profit excluding stock-based compensation expense, amortization of acquired intangible assets and acquisition and integration related costs. Costs associated with acquisitions and integration include legal, accounting and other professional fees, changes in the fair value of contingent consideration obligations and other costs related to the transition of the acquired business. We believe non-GAAP gross profit and non-GAAP gross margin provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of our results of operations, as this metric generally eliminates the effects of certain variables unrelated to our overall operating performance.

Non-GAAP Operating Income (Loss) and Non-GAAP Operating Margin
We define non-GAAP operating income (loss) as GAAP operating income (loss) excluding stock-based compensation expense, amortization of acquired intangible assets and acquisition and integration related costs. Costs associated with acquisitions and integration include legal, accounting and other professional fees, changes in the fair value of contingent consideration obligations and other costs related to the transition of the acquired business. We believe non-GAAP operating income (loss) provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this metric generally eliminates the effects of certain variables unrelated to our overall operating performance. Non-GAAP operating margin is calculated as non-GAAP operating income (loss) divided by revenue.

Free Cash Flow and Free Cash Flow Margin
We define free cash flow as net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP, less purchases of property, equipment, amounts capitalized for internal-use software and principal payments on finance leases. We believe that free cash flow is a meaningful indicator of liquidity to management and investors about the amount of cash generated from our operations that, after the investments in property, equipment and capitalized internal-use software, can be used for strategic initiatives. Free cash flow margin is calculated by dividing free cash flow by revenues.

Explanation of Key Business Metrics

In addition to GAAP measures of performance, we regularly monitor certain financial and operating metrics, including Number of Customers and Annual Recurring Revenue (ARR), in order to measure our current performance and estimate our future performance. We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy.

Number of Customers
We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution or a distinct business unit of a large company that has an active contract with us to access our platform. We do not consider our channel partners as separate customers as our contracts are executed with the end user, and we treat MSPs, who may purchase our products on behalf of multiple companies, as a single customer. We believe that our ability to increase and retain the number of customers on our platform is an indicator of our market penetration, the growth of our business and potential future business opportunities.

Annual Recurring Revenue
We define ARR as the annualized value of all contractual subscription agreements as of the end of the period. We perform this calculation on an individual contract basis by dividing the total dollar amount of a contract by the total contract term stated in months and multiplying this amount by twelve to annualize. Calculated ARR for each individual contract is then aggregated to arrive at total ARR. We believe that ARR is a key metric to measure our business performance because it is driven by our ability to acquire new customers and to maintain and expand our relationship with existing customers.

KnowBe4, Inc.
Consolidated Balance Sheets
(in thousands)

 December 31, 2021 December 31, 2020
 (unaudited)  
Assets   
Current assets:   
Cash and cash equivalents$273,723  $85,582 
Accounts receivable, net 54,071   38,664 
Deferred commissions 17,842   13,177 
Prepaid expenses and other current assets 10,580   6,124 
Total current assets 356,216   143,547 
    
Deferred commissions, non-current 33,869   24,022 
Capitalized software and content, net 27,074   15,523 
Property and equipment, net 9,120   10,284 
Operating lease right of use assets, net 12,998   12,067 
Intangible assets, net 7,992   2,985 
Goodwill 89,329   8,605 
Other assets 1,080   1,177 
Total assets$537,678  $218,210 
    
Liabilities and stockholders' equity (deficit)   
Current liabilities:   
Accounts payable and accrued expenses$37,642  $19,265 
Current portion of deferred revenue 184,496   127,043 
Current portion of operating lease liabilities 2,938   2,651 
Total current liabilities 225,076   148,959 
    
Non-current liabilities:   
Deferred revenue 81,278   58,653 
Operating lease liabilities, net of current portion 10,484   9,766 
Other non-current liabilities 3,573   3,991 
Total liabilities 320,411   221,369 
    
Stockholders' equity (deficit)   
Preferred stock, Series A, A-1, B, C, C-1     
Common stock     
Common stock, Class A 1    
Common stock, Class B 2    
Additional paid-in capital 391,803   158,483 
Accumulated deficit (173,148)  (161,303)
Accumulated other comprehensive loss (1,391)  (339)
Total stockholders' equity (deficit) 217,267   (3,159)
Total liabilities and stockholders' equity (deficit)$537,678  $218,210 

KnowBe4, Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)

 Three Months Ended December 31, Year Ended December 31,
  2021   2020   2021   2020 
Revenues, net$69,307  $49,287  $246,298  $174,886 
Cost of revenues 9,572   7,466   35,115   26,730 
Gross profit 59,735   41,821   211,183   148,156 
Operating expenses:       
Sales and marketing 25,207   21,934   107,519   82,188 
Technology and development 8,029   5,685   28,110   19,804 
General and administrative 19,377   13,170   82,142   47,706 
Total operating expenses 52,613   40,789   217,771   149,698 
Operating income (loss) 7,122   1,032   (6,588)  (1,542)
Other income (expense):       
Interest income 16   38   57   197 
Interest expense (67)  (15)  (396)  (60)
Other (expense) income (585)  665   (1,030)  807 
Income (loss) before income tax expense 6,486   1,720   (7,957)  (598)
Income tax expense (2,088)  (1,516)  (3,888)  (1,832)
Net income (loss)$4,398  $204  $(11,845) $(2,430)
Net income (loss) per share, basic and diluted(1)$0.03  $  $(0.10) $(0.06)
Weighted-average shares used in calculating basic net income (loss) per share 47,629,155   41,851,400   116,938,683   42,049,840 
Weighted-average shares used in calculating diluted net income (loss) per share 172,720,568   166,077,560   116,938,683   42,049,840 

(1) For the three and twelve months ended December 31, 2021, basic and diluted loss per share for Class A and Class B common stock are the same.

KnowBe4, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

 Three Months Ended December 31, Year Ended December 31,
  2021   2020   2021   2020 
Cash flows from operating activities:       
Net income (loss)$4,398  $204  $(11,845) $(2,430)
Adjustments to reconcile net (loss) income to net cash from operating activities:       
Additions to capitalized content (2,410)  (1,152)  (6,914)  (5,215)
Depreciation and amortization expense 3,640   3,102   13,639   11,762 
Deferred commissions amortization 5,668   3,836   19,474   14,238 
Equity-based compensation expense 6,196   1,996   29,347   5,281 
Other, net 1,828   940   2,155   848 
Changes in operating assets and liabilities, net of business combinations:       
Accounts receivable (9,472)  (7,806)  (14,415)  (6,978)
Deferred commissions (11,228)  (6,734)  (34,340)  (22,161)
Prepaid and other assets 1,456   (103)  (6,200)  679 
Accounts payable and other liabilities (4,383)  (4,768)  9,292   2,328 
Deferred revenue 25,286   15,725   76,585   46,512 
Net cash provided by operating activities 20,979   5,240   76,778   44,864 
Cash flows from investing activities:       
Business combinations, net of cash acquired (22,597)     (33,824)   
Purchases of property and equipment (796)  (734)  (3,010)  (5,426)
Capitalized internal-use software costs (611)  (378)  (2,506)  (2,682)
Net cash used in investing activities (24,004)  (1,112)  (39,340)  (8,108)
Cash flows from financing activities:       
Proceeds from the exercise of stock options 2,339   63   5,774   220 
Proceeds from issuance of common stock under the employee stock purchase plan 3,339      3,339    
Repurchase of common stock and options    (4,360)  (1,171)  (4,857)
Proceeds from the issuance of common stock    4,274   155,958   4,274 
Acquisition-related contingent liability payments       (375)  (252)
Proceeds from finance lease obligations          214 
Payments for finance lease obligations (10)  (11)  (40)  (35)
Taxes paid for the net share settlement of options and restricted stock units (361)     (12,253)   
Net cash provided by (used in) financing activities 5,307   (34)  151,232   (436)
Effect of exchange rate changes on cash and cash equivalents (832)  498   (529)  398 
Net change in cash and cash equivalents 1,450   4,592   188,141   36,718 
Cash and cash equivalents, beginning of period 272,273   80,990   85,582   48,864 
Cash and cash equivalents, end of period$273,723  $85,582  $273,723  $85,582 

Non-GAAP Gross Profit and Non-GAAP Gross Margin

 Three Months Ended December 31, Year Ended December 31,
  2021   2020   2021   2020 
 (in thousands, except percentages)
Gross profit$59,735  $41,821  $211,183  $148,156 
Add: Stock-based compensation expense 217   66   470   188 
Add: Amortization of acquired technology and intangible assets 465   60   848   240 
Non-GAAP gross profit$60,417  $41,947  $212,501  $148,584 
        
GAAP gross margin 86.2%  84.9%  85.7%  84.7%
Non-GAAP gross margin 87.2%  85.1%  86.3%  85.0%

Non-GAAP Operating Income (Loss) and Non-GAAP Operating Margin

 Three Months Ended December 31, Year Ended December 31,
  2021   2020   2021   2020 
 (in thousands, except percentages)
Operating income (loss)$7,122  $1,032  $(6,588) $(1,542)
Add: Stock-based compensation expense 6,073   1,981   29,345   5,234 
Add: Amortization of acquired technology and intangible assets 626   83   1,397   332 
Add: Acquisition and integration related costs 1,235      4,271    
Non-GAAP operating income$15,056  $3,096  $28,425  $4,024 
        
GAAP operating margin 10.3%  2.1%  (2.7)%  (0.9)%
Non-GAAP operating margin 21.7%  6.3%  11.5%  2.3%

Non-GAAP Net Income (Loss) Per Share

 Three Months Ended December 31, Year Ended December 31,
  2021  2020  2021   2020 
GAAP net income (loss) per share, basic         $0.03 $0.00 $(0.10) $(0.06)
Add: Stock-based compensation expense         0.03  0.01  0.17   0.03 
Add: Amortization of acquired technology and intangible assets             0.01    
Add: Acquisition and integration related costs         0.01    0.03    
Non-GAAP net income (loss) per share, diluted        $0.07 $0.01 $0.11  $(0.03)
        
Weighted-average shares used in the calculation of GAAP net loss per share         172,720,568  166,077,560  116,938,683   42,049,840 
Weighted-average shares used in the calculation of Non-GAAP net income (loss) per share(1)         180,041,581  166,077,560  169,446,757   42,049,840 

(1) At December 31, 2021, non-GAAP weighted average shares used assumes that all historical preferred stock and all common stock outstanding prior to the Company’s IPO were reclassified into Class B common stock as of January 1, 2021 and that all vested and exercisable stock options were exercised as of the earlier of January 1, 2021 or the beginning of the quarter in which they became vested and exercisable. There were no adjustments to weighted-average shares outstanding at December 31, 2020.

Free Cash Flow

 Three Months Ended December 31, Year Ended December 31,
  2021   2020   2021   2020 
 (in thousands)
Net cash provided by operating         $20,979  $5,240  $76,778  $44,864 
Less: Purchases of property and          (796)  (734)  (3,010)  (5,426)
Less: Capitalized internal-use          (611)  (378)  (2,506)  (2,682)
Less: Principal payments on finance          (10)  (11)  (40)  (35)
Free Cash Flow        $19,562  $4,117  $71,222  $36,721 
Free Cash Flow Margin(1)         28.2%  8.4%  28.9%  21.0%

(1) Free Cash Flow Margin is calculated as Free Cash Flow divided by Revenues, net for each period.

Key Business Metrics

 December 31,
  2021  2020
 (annual recurring revenue in thousands)
Number of customers         47,174  36,753
Annual recurring revenue        $285,437 $198,369

Stock-based Compensation Expense

 Three Months Ended December 31, Year Ended December 31,
  2021  2020  2021  2020
 (in thousands)
Cost of revenues        $217 $66 $470 $188
Sales and marketing         1,197  754  8,474  1,579
Technology and development         1,176  573  1,706  896
General and administrative         3,483  588  18,695  2,571
Total stock-based compensation expense        $6,073 $1,981 $29,345 $5,234