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KnowBe4 Announces Second Quarter 2021 Financial Results

Aug 2, 2021
  • Total GAAP revenue increased 43.0% year-over-year to $59.4 million
     
  • Annual recurring revenue increased 42.4% year-over-year to $240.6 million
     
  • Total number of customers reached over 41,000
     
  • Cash flow from operations was $14.1 million and free cash flow was $12.8 million

TAMPA BAY, Fla., Aug. 02, 2021 (GLOBE NEWSWIRE) --  KnowBe4, Inc. (NASDAQ: KNBE), provider of the leading security awareness training and simulated phishing platform, today reported results for the second quarter ended June 30, 2021.

“Our second quarter results exceeded our expectations across the board with record annual recurring revenue (ARR) of $241 million and total customers of over 41,000,” said Stu Sjouwerman, founder and chief executive officer of KnowBe4. “We are excited about the extremely positive response to the release of our newest product, Compliance Plus, which reaches an entirely new but adjacent market for us. This product allows us to leverage the automation and other advanced capabilities of our existing platform while tapping into a massive compliance market. We also continue to benefit from a regulatory environment that recognizes the growing threat of social engineering and look forward to capitalizing on the current environment to further our growth strategies.”

Krish Venkataraman, KnowBe4’s co-president and chief financial officer, added, “Our successful second quarter financial results were a testament to the organization's execution on our key growth initiatives. GAAP revenue grew by 43.0% year-over-year, reflecting robust growth across all of our products and geographies, including increasing multi-product attachment rates of 17% and year-over-year international growth of 95%. We are also very pleased to report continued strong gross margins in excess of 80% and strong free cash flow generation of $12.8 million for the quarter.”

Second Quarter 2021 Financial Highlights

  Q2-2021   Q2-2020   Change
  (in thousands, except percentage and per share amounts)
Revenue $ 59,350     $ 41,489     + 43.0  %
Annual recurring revenue1 $ 240,595     $ 169,003     + 42.4  %
GAAP gross margin 85.5  %    84.8  %    + 0.7  %
Non-GAAP gross margin1 85.9  %    85.0  %    + 0.9  %
GAAP operating margin (26.6 )%   (0.1 )%   + (26.5)  %
Non-GAAP operating margin1 7.6  %    3.2  %    + 4.4  %
Cash flow provided by operating activities $ 14,076     $ 13,034     $ 1,042  
Free cash flow1 $ 12,771     $ 11,201     + 14.0  %

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

Recent Business Highlights

  • Revenue and ARR increased year-over-year by 43.0% and 42.4% 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.
  • In June 2021, we released the Compliance Plus product which brings our "new-school" approach to security awareness into the compliance market. Compliance Plus provides organizations' employees with relevant and engaging content as well as training modules that address compliance topics ranging from data privacy to diversity, equity and inclusion. Compliance Plus is accessible through our existing platform as an add-on subscription to our core KMSAT product allowing users to benefit from the existing automation features of our platform.
  • We successfully completed an initial public offering, or IPO, of our Class A common stock on April 26, 2021. We issued and sold a total of 10,425,000 shares of Class A common stock for net proceeds of $156 million which we plan to use for general corporate purposes, including continuing to execute on our growth strategies.

Financial Outlook

For the third quarter and full year 2021, the Company expects:

 Metric Third Quarter Range Growth
 Total Revenue $60.5 - $61.5 million 35 - 37%

 

 Metric Full Year Range Growth
 Total Revenue $237.5 - $239.5 million 36 - 37%
 Free Cash Flow Margin 20%+ N/A

Conference Call Information
KnowBe4 will host a conference call for analysts and investors to discuss its earnings results for the second quarter of 2021 and outlook for the third quarter and full year 2021 today at 8:30 AM EDT.

Conference Call: (833) 529-0227 (US/Canada Toll Free) or (239) 738-2273
Conference ID: 4665104
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 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 Operating Income (Loss), Non-GAAP Operating Margin and Free Cash Flow, 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 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.

Free Cash Flow
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.

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 (ARR)
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)

  June 30, 2021   December 31, 2020
  (unaudited)    
Assets      
Current assets:      
Cash and cash equivalents $ 257,056       $ 85,582    
Accounts receivable, net 42,714       38,664    
Deferred commissions 15,559       13,177    
Prepaid expenses and other current assets 13,124       6,124    
Total current assets 328,453       143,547    
       
Deferred commissions, non-current 27,267       24,022    
Capitalized software and content, net 14,473       15,523    
Property and equipment, net 9,342       10,284    
Operating lease right of use assets, net 11,330       12,067    
Intangible assets, net 8,142       2,985    
Goodwill 43,028       8,605    
Other assets 1,194       1,177    
Total assets $ 443,229       $ 218,210    
       
Liabilities and stockholders' (deficit) equity      
Current liabilities:      
Accounts payable and accrued expenses $ 32,249       $ 19,265    
Current portion of deferred revenue 137,406       112,469    
Current portion of operating lease liabilities 2,860       2,651    
Total current liabilities 172,515       134,385    
       
Non-current liabilities:      
Deferred revenue 84,541       73,227    
Operating lease liabilities, net of current portion 9,008       9,766    
Other non-current liabilities 2,259       3,991    
Total liabilities 268,323       221,369    
       
Stockholders' equity (deficit)      
Preferred stock, Series A, A-1, B, C, C-1          
Common stock          
Common stock, Class A          
Common stock, Class B 2          
Additional paid-in capital 351,124       158,483    
Accumulated deficit (175,966 )     (161,303 )  
Accumulated other comprehensive loss (254 )     (339 )  
Total stockholders' equity (deficit) 174,906       (3,159 )  
Total liabilities and stockholders' equity (deficit) $ 443,229       $ 218,210    

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

  Three Months Ended June 30,   Six Months Ended June 30,
  2021   2020   2021   2020
Revenues, net $ 59,350       $ 41,489       $ 112,900       $ 80,667    
Cost of revenues 8,591       6,303       15,934       12,346    
Gross profit 50,759       35,186       96,966       68,321    
Operating expenses:              
Sales and marketing 31,510       19,875       54,581       39,502    
Technology and development 6,760       4,391       12,502       9,297    
General and administrative 28,284       10,976       42,913       21,096    
Total operating expenses 66,554       35,242       109,996       69,895    
Operating loss (15,795 )     (56 )     (13,030 )     (1,574 )  
Other income (expense):              
Interest income 7       14       25       139    
Interest expense (66 )     (16 )     (262 )     (29 )  
Other (loss) income (416 )     80       (559 )     113    
Income (loss) before income tax (expense) benefit (16,270 )     22       (13,826 )     (1,351 )  
Income tax (expense) benefit (593 )     407       (837 )     419    
Net Income (loss) $ (16,863 )     $ 429       $ (14,663 )     $ (932 )  
Net income (loss) per share, basic and diluted(1)              
Net income (loss) per share, basic and diluted(1) $ (0.14 )     $       $ (0.24 )     $ (0.02 )  
Weighted-average shares used in calculating basic net income (loss) per share 122,273,944       42,118,845       61,136,973       42,089,816    
Weighted-average shares used in calculating diluted net income (loss) per share 122,273,944       164,160,470       61,136,973       42,089,816    

(1) At June 30, 2021, basic and diluted (loss) income 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 June 30,   Six Months Ended June 30,
  2021   2020   2021   2020
Cash flows from operating activities:              
Net (loss) income $ (16,863 )     $ 429       $ (14,663 )     $ (932 )  
Adjustments to reconcile net (loss) income to net cash from operating activities:              
Additions to capitalized content (1,401 )     (1,394 )     (2,619 )     (2,421 )  
Depreciation and amortization expense 3,353       2,923       6,600       5,619    
Deferred commissions amortization 4,651       3,430       8,735       6,805    
Equity-based compensation expense 18,810       1,327       20,481       2,037    
Other, net 524       (184 )     400       (91 )  
Changes in operating assets and liabilities, net of business combinations:              
Accounts receivable (5,515 )     1,231       (2,741 )     3,145    
Deferred commissions (8,539 )     (4,791 )     (14,386 )     (9,958 )  
Prepaid and other assets (6,151 )     (2,078 )     (8,279 )     (950 )  
Accounts payable and other liabilities 7,480       4,511       10,021       3,140    
Deferred revenue 17,727       7,630       32,397       20,569    
Net cash provided by operating activities 14,076       13,034       35,946       26,963    
Cash flows from investing activities:              
Business combinations, net of cash acquired             (11,323 )        
Purchases of property and equipment (536 )     (1,185 )     (1,055 )     (3,855 )  
Capitalized internal-use software costs (759 )     (639 )     (1,121 )     (1,506 )  
Net cash used in investing activities (1,295 )     (1,824 )     (13,499 )     (5,361 )  
Cash flows from financing activities:              
Proceeds from the exercise of stock options 605       75       952       135    
Repurchase of common stock and options       (228 )     (1,171 )     (497 )  
Proceeds from the issuance of common stock 155,958             155,958          
Acquisition-related contingent liability payments (375 )     (252 )     (375 )     (252 )  
Proceeds from finance lease obligations                   214    
Payments for finance lease obligations (10 )     (9 )     (20 )     (15 )  
Taxes paid for the net share settlement of restricted stock units (6,782 )           (6,782 )        
Net cash provided by (used in) financing activities 149,396       (414 )     148,562       (415 )  
Effect of exchange rate changes on cash and cash equivalents 232       45       465       (284 )  
Net change in cash and cash equivalents 162,409       10,841       171,474       20,903    
Cash and cash equivalents, beginning of period 94,647       58,926       85,582       48,864    
Cash and cash equivalents, end of period $ 257,056       $ 69,767       $ 257,056       $ 69,767    

Non-GAAP Gross Profit and Non-GAAP Gross Margin

  Three Months Ended June 30,
  2021   2020
  (in thousands, except percentages)
Gross profit $ 50,759     $ 35,186  
Add: Stock-based compensation expense 76     31  
Add: Amortization of acquired intangible assets 147     60  
Non-GAAP gross profit $ 50,982     $ 35,277  
       
GAAP gross margin 85.5 %   84.8 %
Non-GAAP gross margin 85.9 %   85.0 %

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

  Three Months Ended June 30,
  2021   2020
  (in thousands, except percentages)
Operating loss $ (15,795 )     $ (56 )  
Add: Stock-based compensation expense 18,869       1,316    
Add: Amortization of acquired intangible assets 294       83    
Add: Acquisition and integration related costs 1,137          
Non-GAAP operating income $ 4,505       $ 1,343    
       
GAAP operating margin (26.6)%       (0.1)%    
Non-GAAP operating margin 7.6%       3.2%    

Non-GAAP Net Income Per Share

  Three Months Ended June 30,
  2021   2020
GAAP net loss per share, diluted $ (0.14 )     $ 0.00  
Add: Stock-based compensation expense 0.15       0.03  
Add: Amortization of acquired intangible assets        
Add: Acquisition and integration related costs 0.01        
Non-GAAP net loss per share, diluted $ 0.02       $ 0.03  
       
Weighted-average shares used in the calculation of GAAP net loss per share 122,273,944       42,118,845  
Weighted-average shares used in the calculation of Non-GAAP net income per share(1) 173,142,448       42,118,845  

(1) At June 30, 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 June 30, 2020.

Free Cash Flow

  Three Months Ended June 30,
  2021   2020
  (in thousands)
Net cash provided by operating activities $ 14,076       $ 13,034    
Less: Purchases of property and equipment (536 )     (1,185 )  
Less: Capitalized internal-use software (759 )     (639 )  
Less: Principal payments on finance leases (10 )     (9 )  
Free Cash Flow $ 12,771       $ 11,201    

Key Business Metrics

  June 30,
  2021   2020
  (dollars in thousands)
Number of customers 41,601     33,056  
Annual recurring revenue $ 240,595     $ 169,003  

Stock-based Compensation Expense

  Three Months Ended June 30,
  2021   2020
  (in thousands)
Cost of revenues $ 76     $ 31  
Sales and marketing 5,662     251  
Technology and development 148     100  
General and administrative 12,983     934  
Total stock-based compensation expense $ 18,869     $ 1,316