ZeroFox Holdings, Inc.

ZeroFox reported Q3 revenue of $65 million, up 45% year over year. Subscription revenue was $23.7 million, up 51% year over year, and services revenue was $41.3 million, up 42% year over year. Core revenue was $44 million, up 89% year over year, and ARR was $186 million, up 21% year over year. Subscription gross margin was 73% versus 72% in Q2; services gross margin was 18%; total gross margin was 38%. Loss from operations was $2.5 million versus $4.8 million in Q2. The company ended Q3 with $30 million in cash, $38 million in accounts receivable, $88 million in total deferred revenue, and $194 million in total outstanding debt, while generating about $1.8 million of cash from operations and about $1.6 million of free cash flow. For Q4, management expects revenue of $56 million to $58 million and non-GAAP loss from operations of $5.8 million to $4.8 million. For fiscal 2024, revenue is expected to be $228.7 million to $230.7 million and non-GAAP loss from operations to be $21.4 million to $20.4 million. Management also said Q4 free cash flow should be at or near breakeven and now expects annual free cash flow in fiscal 2025.

CEO James Foster framed Q3 as a record-setting quarter and emphasized that the company is benefiting from rising demand for external cybersecurity across protection, intelligence, disruption, and response. His tone was confident and explicitly focused on the One Platform strategy, saying customers want fewer point products and more unified external security coverage. He also highlighted major customer wins and said the company is building momentum with enterprise and public-sector customers, while still balancing growth with profitability.

CFO Tim Bender focused on the mix behind the quarter: services revenue was boosted by record on-demand response bookings, while subscription revenue and ARR continued to grow at a healthy pace. He pointed to gross margin strength, with subscription gross margin at 73%, services gross margin at 18%, and total gross margin at 38%, and said operating expenses fell to $27 million due to acquisition-related cost synergies. He also highlighted $1.8 million in operating cash flow and $1.6 million in free cash flow, said Q1 is typically the toughest cash-flow quarter, and noted there are no financing plans currently, while the company considers options to manage its convertible debt and capital structure.

Analysts pressed on why full-year revenue guidance was raised by more than the quarter’s beat, and management said strong Q3 execution and timing of subscription and services deals improved the outlook, while they have not seen a material slowdown in large deals. Questions also focused on margin leverage and synergies; Foster said subscription gross margin may keep improving modestly and that acquisition synergies from LookingGlass will continue to flow through over coming quarters. On cash and financing, Bender said no raise is planned, Q1 is the seasonally weakest cash quarter, and management wants to reach annual free cash flow in fiscal 2025, while Foster noted the convertible matures in roughly 18 months or beyond and said better profitability improves optionality.