Exclusive Networks SAS

PAR:EXN

Earnings Call Transcript 2022-Q3

[Operator]

Hello, and welcome to Exclusive Networks Third Quarter 2022 Update Conference Call. My name is Priscila, and I'll be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions]

I will now hand you over to your host, Mr. Hacene Boumendjel, the Head of Investor Relations, to begin today's conference. Thank you.

[Hacene Boumendjel, executive]

Thank you. Good morning, everyone, and welcome to Exclusive Networks third quarter 2020 conference call, which is broadcasted live and will be available on demand on our website. The presentation slides and press release for this call are also available on our website in the Investor Relations section.

First, I would like to draw your attention to the disclaimer on Slide 2 of this deck regarding the information contained within this document and in particular, the forward-looking statements. I invite all participants to read this. Today's call is scheduled to last about 60 minutes, and I'd like to introduce our key speakers this morning, Jesper Trolle, CEO of Exclusive Networks; and Pierre Boccon-Liaudet, CFO; as well as Laurence Galland, Chief People Officer.

The presentation will last about 30 minutes and will be followed by a Q&A session. If we don't have the time to take everyone's question in this session, I am available and happy to take any of your questions following up the call.

I will now pass it over to Jesper for his opening remarks and his overview of the third quarter results. Jesper, the floor is yours.

[Jesper Trolle, executive]

Thank you, Hacene, and welcome, everyone to our Q3 2022 trading update. As this is our first update since the 1-year anniversary of our successful IPO, I wanted to take a moment to briefly recap our journey so far as a public company.

Since day 1, we have been steadfast in our mission to become the global specialist for cybersecurity solutions and services, helping to enable the transition to a totally trusted digital world. We have kept focus on scaling our brand equity, industry reputation and market awareness as we transcend beyond our traditional IT security stronghold and into more business-oriented environments, increasing our global reach and influence to a broader audience. Our global partnership with the International Chamber of Commerce and our alliance with the Cybersecurity Coalition in Belgium are just 2 examples of this.

We stayed resolute in maximizing and capitalizing on our unique position at the epicenter of a rapidly expanding cybersecurity ecosystem where we continue to be the catalyst for growth for our vendors and our partners, helping them to scale their reach, accelerate their go-to-market momentum, increase sales and drive real business value. We remained relentless in expanding our market opportunity through our existing partner expansion and new vendor acquisition strategy. We have added more than 2,200 new channel partners to our ecosystem, acquired 13 new vendors and signed 24 expansion agreements with existing members. This has all resulted in an additional serviceable addressable market opportunity of EUR 9 billion since the time of our IPO.

We continued our commitment through investing in our people, attracting, nurturing and growing our talented teams around the world, helping them develop and equipping them with the skills and capabilities needed to support their own personal growth and the future growth of our business. This continues to remain a top priority. We took a lead in addressing the global cyber talent shortage through industry-led partnerships with NightDragon and ThriveDX and in collaboration with educational institutions such as Cal Poly in the U.S. and Guardia and Oteria in France. We also enhanced our own capabilities through the exclusive training center with comprehensive range of courses delivered to an estimated 12,000 professionals trained during the first 9 months of 2022. But above all, we remained unwavering in the execution of our growth strategy, consistently demonstrating our ability to achieve success even against the backdrop of challenging headwinds caused by global supply chain issues, geopolitical unrest, economic uncertainty and a global cyber talent shortage.

Despite these factors, we consistently delivered strong financial results, continued to outperform the market, delivered robust top line growth, delivered excellent profitability and generated record cash conversion, while substantially reducing our debt position. These exceptional results and outstanding performance clearly validates our unique business model and our proven growth strategy, demonstrating both our relevance and resilience as a business.

As the CEO of Exclusive Networks, I am extremely proud of these achievements, none of which would have been possible without the hard work and the commitment of our global teams, and I would like to thank each and every one of them for their continued dedication and support.

With that, let's now take a look at our performance for the third quarter of 2022. Before we look at the main financial highlights, I thought I wanted to share with you some context around the key market drivers we are witnessing during the quarter that have contributed to our third quarter performance. Clearly, demand for cybersecurity have remained very strong despite growing macroeconomic pressures and uncertainties. [ CISOs ] are being challenged to secure an increasingly distributed enterprise and new hybrid working environments. We are seeing this drive a number of factors, including the transition from traditional virtual private networks to zero trust network access and the shift to cloud-based delivery models. The threat landscape continues to be volatile. Cyber breaches shows no signs of slowing as attacks become more complex and more intense. Major breaches continue to hit the headlines and, only last month, cryptocurrency exchange, Binance, fell victim to a $570 million crypto hack.

Despite economic uncertainty and budgetary pressures, cybersecurity spending has remained resilient as CIOs prioritize their investments towards combating the escalating threat of cyber attacks and managing business risks. The global talent crisis continues to impact end customers, which has led to a shortage of cybersecurity skills and resources. To overcome these challenges, organizations are leaning more and more into channel partners to provide expertise, managed services and support packages to augment their own capabilities as they strive to consolidate and harden their cyber defenses.

With that, let's take a look at the main financial highlights for Q3. Healthy market demand for cybersecurity continued to fuel very strong growth in the third quarter, with gross sales totaling EUR 1.127 billion, up an impressive 42% year-over-year. This has been largely driven by tremendous organic growth across existing vendors in existing geographies, demonstrating our ability to continually grow market share where we currently operate through our unique market position and the value we bring to our ecosystem. This strong organic growth has been complemented by existing vendor expansions into new geographies as well as the addition of net new vendors to our portfolio, which has created an additional EUR 1.2 billion in serviceable addressable market opportunity. Through the quarter, we continued to see an uptick in large enterprise deals, especially with our strategic vendors. This has been driven by deepening relationships and tractions with some of our large reseller partners who have had strong performance over the quarter and continues to gain momentum.

From a regional perspective, we continue to see solid growth in gross sales across all 3 operating theaters. Most notably was the performance of our Americas region, which grew by an impressive 66% year-over-year and, for the first time ever, exceeded our APAC region in sales. This outstanding performance is the result of the focused execution of our growth strategy and the hard work of our teams across the region. I want to commend them all on this fantastic achievement. Our strong EMEA growth continued into Q3 with gross sales reaching EUR 856.9 million, up 43.5% year-over-year, a solid performance across the whole region, which was fueled by continued growth in the enterprise, resulting in some exceptional enterprise deals during the quarter. APAC delivered gross sales of EUR 114.6 million, which represents a growth of 11.2% year-over-year. The business performance was mainly driven by strong activity in Australia that benefited from an accelerated demand. Bookings momentum remained positive for the region.

And finally, we are starting to see some slight improvements in the supply chain, which is helping to ease the backlog of orders. Bookings growth, however, continued to outpace gross sales growth in the quarter, which is a positive indicator of continued market demand and building momentum into the year-end. Based on these strong third quarter results, we remain confident in the increased full year outlook that we presented in September of 2022.

As in previous quarters, let's now look at the progress that we have made against our execution pillars in Q3. We continue to attract and transact with new partners in Q3, adding more than 225 net new partners to our rapidly growing ecosystem, which now totals almost 26,000 partners on an annual basis. Sales of SaaS-based cybersecurity solutions via our on-demand subscription platform, X-OD continues to grow with more than 2.6x more resellers trading on the platform and over 4.8x more transactions than the same time last year.

On the vendor front, we signed expansion agreements with 2 existing vendors and are in ongoing discussions with another 14. We signed 5 new vendors in Q3 with a further 10 in the pipeline. And as mentioned previously, these combined expansions have increased our serviceable addressable market by EUR 1.2 billion.

We have also seen a rapid rise in services opportunities following our expanded agreements with some of our vendors. One such vendor is Netskope where we recently became an authorized support center. This has led to growing opportunities for professional services that we are addressing through our newly created global solutions teams. And finally, I've previously mentioned our focus on addressing the global cyber talent shortage, and I'm glad to announce that in Q3, we finally launched the Exclusive Academy in partnership with Guardia and Oteria cyber schools in France. This reinforces our commitment to solving one of, if not, the biggest challenge facing the global cybersecurity market today, and it builds on our previous initiatives and partnerships with Cal Poly in the U.S. as well as NightDragon and ThriveDX.

I would now like to introduce Laurence Galland, Exclusive Networks' Chief People Officer, who is with us today. I have asked Laurence to present the work we are doing around Exclusive Academy. Laurence, over to you.

[Laurence Galland, executive]

Thank you, Jesper. Hi, everybody. As Jesper has mentioned on previous calls, one of the biggest challenges in cybersecurity is the ongoing global cyber skills and talent gap, with an estimated 3.5 million unfulfilled roles. As a tangible and concrete step towards addressing this alarming problem, we are proud to announce that we have recently launched the Exclusive Academy, a global initiative to recruit, train and retain the next generation of cyber experts to stay on the cutting edge of cyber technology. With only 15% of cybersecurity professionals in the world attaining their position through cybersecurity training, there is a clear need to increase this number, which we plan to do with this academy through a combination of practical field experience and theoretical but specialized training, culminating in high-level qualification as part of our 3-year program.

To effectively [indiscernible] against rising cyber attacks, the global security workforce need to grow by 65%. This is a massive challenge and one we are fully committed to addressing. The initial Exclusive Academy pilot phase was launched last month in France in partnership with Guardia and Oteria cyber schools, 2 dedicated French cyber schools, with a focus on technical profiles. The goal is to recruit students in the first year with a selection process focused on inclusivity to ensure greater diversity within the cybersecurity industry. We are today extremely proud of this initiative and the role that Exclusive is playing in addressing the current cyber talent crisis and growing the cybersecurity defenders of tomorrow.

[Jesper Trolle, executive]

Thank you, Laurence, for that overview and for driving such an important initiative for the combined cybersecurity industry.

With that, let's take a look at the key highlights from our vendor portfolio. In the third quarter, we saw continued benefits from our land-and-expand strategy with existing vendors and with the signing of 2 expansion contracts. As we have discussed many times before, our vendor portfolio strategy serves as a key component in our overall growth strategy and in our ability to constantly grow and capture a larger and larger part of our serviceable addressable market.

In EMEA, we signed a contract expansion with Axonius to cover France and Israel. While in APAC, we expanded our partnership with Mimecast into Hong Kong, Singapore and Malaysia as the latest phase in a strategic global rollout with them. In addition to these expansion contracts, we added 5 vendors to our leading portfolio of cybersecurity innovators in Q3, including global contracts with Cymulate and ThriveDX and a regional agreement with Claroty across APAC. These new and expanded agreements have created an additional EUR 1.2 billion in serviceable addressable market opportunity moving forward, which means that today, our serviceable addressable market stands at over EUR 47 billion, up from EUR 38 billion at the end of 2021.

Looking at the top cybersecurity sectors, I'm proud to announce that in Q3, we continued our trend of outgrowing the market, demonstrating that we have the right portfolio of technologies in the right market and segments, and this, at the right time. Our Q3 sales were fairly balanced across network security, endpoint data security, cloud security and vulnerability management. SASE adoption is gaining traction with work-from-home, shift-to-cloud and even people not wanting to go into the data centers and instead opting for software and SaaS form factors.

As I mentioned before, the slight easening of the supply chain have helped with more hardware shipments that's driving a strong performance within the network security segment. Identity, SASE and cloud security, all are repeatedly seen as continue to be strong focus areas for CISOs along with app modernization or DevOps, which is supporting the strong demand for app security. Our success in gaining market share in these segments is a testament to our ongoing vendor selection process, our partner recruitment, development and enablement capabilities and the ability to identify end user challenges that's leading to market opportunities.

Now moving on to our cloud business. I'm pleased to announce that we have reached an annual run rate of EUR 1 billion for our cloud-based gross sales. This is a fantastic achievement and cloud-based gross sales now represent 25% of our total gross sales. As I've mentioned before, cloud continues to be a strong market driver for cybersecurity spending, both as a catalyst for digital transformation and IT modernization, but also as the delivery model of choice for today's cloud-based security and SaaS offerings. Our on-demand SaaS consumption platform, X-OD, continues to build momentum and gain market relevance. The number of partners trading on the platform is up 164% over the same quarter last year, while at the same time, these partners are becoming more productive, which has led to an increase in the number of transactions on X-OD, growing by close to 400% compared to same quarter last year. We are very pleased with our progress in this segment and cloud technologies, associated services and cloud delivery models continues to be a strategic focus for Exclusive Networks going forward.

With that, I would like to hand it over to Pierre to provide more details on our gross sales and revenue for the quarter. Pierre?

[Pierre Boccon-Liaudet, executive]

Thank you, Jesper, and good morning, everyone. Before we start, some preliminary comments on the difference between our 2 sales KPIs, gross sales and revenue, also called IFRS revenue. Please refer to the definition presented in the universal reference document. The second methodology comment is on the change that we initiated in the second quarter of 2022 with the elimination of intercompany transaction from the gross sales KPI and the restatement of historical figures. This new definition of the reconciliation of gross sales before and after intercompany elimination are presented in the appendix. This change has no impact on net margin and profitability.

Now let's review our third quarter growth sales key trends. Gross sales in the third quarter of 2022 were EUR 1.127 billion, up 42% year-over-year, same growth as in our second quarter and at the biggest level of growth over the last 3 years. In constant currency, gross sales grew by 38%. As Jesper just mentioned, the momentum in cybersecurity industry was extremely strong in the third quarter. Our superior growth in all segments was clear, and we continued the deployment of our 5 pillar growth strategy with vendor geographical expansion, new vendors, development of services and M&A.

Our gross sales benefited this quarter from a price list inflation and a strong U.S. dollar, which were reflected in our sales price. We also benefited from a very dynamic demand for large solutions defined as greater than EUR 500,000, in particular, from large resellers. We started to see some slight improvements on the supply chain front, even if the situation is still tense and we worked relentlessly with our vendors and partners to accommodate their expectation at best.

As you can see on the right-hand side, in EMEA, gross sales were EUR 157 (sic) [ 857 ] million, an increase of 44% year-over-year. This represents the same level of year-over-year growth acceleration in percentage as in the second quarter this year. All regions benefited from the continuous momentum on cybersecurity demand. In general, delivery times were stable compared to the second quarter. We saw a strong increase in the average deal size driven by large resellers performance, USD strengthening and price list inflation and all the strategic recent acquisitions continue to perform well, including Nuaware, Eastern Europe, Ignition and Sub-Sahara Africa. Overall, another outstanding quarter in Europe, Middle East, Africa, with this 44% growth.

In Americas, the spectacular growth continued as gross sales reached EUR 155 million in the third quarter of 2022, plus 66% year-over-year after a growth of 62% in the first quarter and 46% in the second quarter of 2022. Same as in Q1 and Q2, this growth was partly explained by the U.S. dollar strengthening to the euro, but the growth was still 45%, when excluding the currency effect. This growth was driven by both historical vendors such as Fortinet and by the addition to the portfolio of Juniper in Q3, Docker in Q4 and [indiscernible] in Q1. The onboarding of new partners resellers for these vendors were particularly rapid in Q3 '22, leveraging more with gross selling opportunities with also historical vendors. And finally, the backlog continued to increase during the quarter with strong bookings and still some sourcing shipment delays for the Americas.

In APAC, gross sales were EUR 115 million, up 11% from last year, flat at constant currency. Demand remained sustained as seen in Q2 '22, but discussions were more cautious in APAC related to the rest of the world and less large deals were signed this quarter.

IFRS revenue and IFRS revenue growth for the third quarter are presented in Slide 18 in the appendix. IFRS revenue growth was 40%, slightly lower than gross sales growth of 42% with a slightly higher growth of support and maintenance in the mix.

Let's now look at which growth drivers contributed to the 42% year-over-year growth in Q3. Another positive sign of the third quarter performance is that the gross sales growth was mainly generated by pure organic growth, 88% of the growth came from the sales of products and solutions of existing vendors in territories we were already working with them in. This reflects the demand continuously accelerating and partnering with always a larger base of resellers. In the third quarter of 2022, vendors retention rate came in at 140%, and net customer retention rate came in at 141%, which testifies the engagement of our channel partners on both sides and which is the most accretive way as these sales requires less investments.

These metrics have always been above 100% for the last 3 years since we have tracked them but here in the third quarter, they are really at high levels -- record high levels. 7% of the growth came from vendor expansion, first, by onboarding new vendors such as Claroty, Cymulate and ThriveDX, as Jesper explained to us just before; and second, by expanding our relationship with some existing vendors to a wider geographical footprint, such as in the third quarter, Axonius in France and Israel and Mimecast to Hong Kong, Singapore and Malaysia.

And the 5% contribution of M&A into the total growth is now limited to the acquisition of Networks Unlimited, early December 2021. The gross sales of Ignition Technology are now considered as like-for-like in the first bucket as the acquisition occurred in early July 2021. This explains the reduction of contribution of M&A to 5% for the first time since IPO.

On a year-to-date basis -- sorry, the trend in the Americas and in EMEA was particularly strong. They represented a growing portion of the gross sales of the group in the third quarter, respectively 14% and 76%. Year-to-date, they represent, respectively, 12% and 77% of the gross sales of the group. In terms of deal size, the share of deals greater than EUR 1 million continued to significantly grow, moving up by plus-99% from 11% to 16% of the total gross sales. This is obviously the consequence of the successful penetration into large enterprise markets and [indiscernible] and also the consequence of price list inflation and U.S. dollar [ strength ].

So year-to-date, after 9 months of activity, gross sales growth accelerated to reach EUR 3.074 billion in the first 9 months of 2022, up 37% compared to the same period in 2021. On a reported basis, this is EUR 825 million addition of gross sales compared to the same period last year. EMEA, the largest region representing 77% of the gross -- group's sales is up 38%, in line with the global growth strong in all these markets. The Americas showed a spectacular growth of 58%, representing, in the first 9 months, 12% of group sales and becoming the second theater of Exclusive Networks' sales size. And APAC with a growth of 13%, contributed to 11% of the group sales of Exclusive Networks. Both America and APAC benefited from favorable ForEx transactions effect with lower growth when we look at constant currency.

I'll now hand it over to Jesper to conclude with some key takeaways.

[Jesper Trolle, executive]

Thank you, Pierre and Laurence. Let me wrap up this call now by offering a few closing comments. So clearly, the cybersecurity market remained strong despite budgetary pressures that are being caused by economic uncertainties. We see organizations continue to play catch-up to secure their rapidly expanded digital infrastructure against the rising tide of cyber threats. And CIOs continue to prioritize cybersecurity spend as it remains of strategic importance to global organizations around the world.

Exclusive Networks' strong organic growth to date demonstrates the market relevance of our leading cybersecurity portfolio, which together with our specialist expertise and unique position within the cybersecurity ecosystem only grows ever more relevant for vendors, partners and end customers alike. Based on our Q3 results, we remain confident in achieving the increased FY 2022 outlook that we gave back in September of this year.

And finally, I will end where we started, which is to thank all of our teams and employees around the world for their hard work and dedication. It is truly them that we can thank for our strong performance to date.

Thank you for your time, and I will now hand it back to Hacene to open up for Q&A.

[Hacene Boumendjel, executive]

Thank you, Jesper. Thank you, everyone, for your attention. And now we are able to take your questions. Operator?

[Operator]

[Operator Instructions] We will now take our first question from David Vignon from Stifel.

[David Vignon, analyst]

So I have 3 questions. First is could you give us a bit of details on the level of booking growth that you saw in Q3 and the current state of your backlog. You had disclosed in the previous 2 quarters that booking new growth had outpaced sales growth. Is that still the case? The second question is, several U.S. vendors have indicated dealing with weaker business environment not only in security, but overall [ intake ]. Could you give us some color on what you are seeing currently? What could be the magnitude of the year-end budget flush and how confident you are heading into 2023? And the third question is, could you please detail the impact of pricing on your growth during the third quarter?

[Jesper Trolle, executive]

Thank you, David. Let me answer question 1 and 2, and then I'll let Pierre give you the feedback on the dollar rates. So we saw, also in Q3, similar to what we've seen through Q1 and Q2 that our bookings growth did outstrip our sales growth. So bookings remained above our gross sales numbers for Q3. So in line with what we said in the prepared remarks and also what we've seen in Q1 and Q2. In terms of the backlog, it remains all-time high. As I did mention on the call, we have seen some improvements in certain product categories across some vendors. It is not what I would call a broad-based supply chain easening. There are still some products that are very hard to get, switches, APs and products of that nature. And there are some other products from some vendors that have actually seen a bit of easening. So it's not a broad-based improvement.

To your second question on trends in the markets. In Q3, we saw still a very strong momentum. We had some very significant enterprise deals, good performance in the enterprise segment and also in customers buying more across, I would say, platform vendors. And so we remain confident for the rest of the year. In terms of budget flush, I think you were alluding to, this is not really a big concept in cybersecurity. Cybersecurity is a critical need. And therefore, it's not about getting a good deal at the end of the year to maybe flush our budget. So we don't really and have really historically not really seen this. And then I'll let Pierre answer for the currency effect.

[Pierre Boccon-Liaudet, executive]

Yes. So on price inflation, we have 2 aspects, the price list increase in dollars and then the dollar effect on our price in other currencies. So we saw, in Q3, a 3% price inflation from the price list in local currency from the vendors, overall, our portfolio of products which is in the same range of what we saw in Q1 and Q2. It was 3% in Q1 and 5% in Q2. On the other side, the impact of the U.S. dollar on our pricing has been increased as the U.S. dollar has strengthened. This is an additional 12% in Q3, the USD inflation. So overall, if you see, we have a combined effect of price list inflation and U.S. dollar inflation of 15% now on our sales, which is higher than what we had in Q1, 7% and in Q2, 12%.

[Operator]

We will now move on to the next participant, Mr. Ben Castillo from BNP Paribas.

[Ben Castillo-Bernaus, analyst]

Can I just ask on the large deal momentum, Slide 13 that you highlight? It looks like really good momentum in the kind of EUR 1 million plus and EUR 500,000 plus. Is that just a function of market demand? Or is it something you're specifically doing in targeting and executing on those? And then just as we're looking to Q4, in the past I think sequential growth from Q3 into Q4 has been around 30% or above. Is there any reason why that would be materially different in nature this year if Q3 is perhaps a little stronger? But any color on the Q4 outlook would be helpful.

[Jesper Trolle, executive]

Thank you, Ben. So on the large deals, the momentum we are seeing is really driven by the market, I would say, and by the vendor portfolio we have. It's supported by a couple of things. Obviously, one thing is the increase that Pierre just went through in pricing that pushed up the average price of every deal, including the big ones, both from a U.S. dollar to euro or whatever the local currency is and also the price list increases. And secondly, we do have a couple of vendors that are offering a holistic platform approach to cybersecurity, and there is a trend that some end customers are looking to consolidate more spend on fewer vendors to also combat the cybersecurity skill shortage that we have gone through today. So those are some of the key drivers of the increase in large deals. And I think the last piece maybe alluding to that is cybersecurity continues to grow and grow as a priority for spending. Customers are doing more and more digital transformation, and that leads to more cybersecurity spend. And so all in all, that's sort of also a supporting factor.

In terms to your question on sequential growth, I'll answer it a little bit differently, which is, we feel good about the outlook for the full year and getting to the guidance that we presented in September. We have guided for about EUR 2 billion of gross sales. Getting to the gross sales number, we feel, is achievable. But where we really are focused as a company is to make sure that we deliver on our net margin range and our EBITDA range and where the gross sale is. I think, it's clear to everyone now on the call after a year of experience with our business is really a function of the composition of the deal mix, the regional mix and the vendor mix within our portfolio. So what we are driving towards and try to control is the net margin range that we have given and the EBITDA range that we've given.

[Operator]

We'll now move on to our next participant, Alastair Nolan from Morgan Stanley.

[Alastair Nolan, analyst]

I think a couple of mine have already been asked. Maybe just on wage inflation, kind of, what you're seeing currently, what the market is looking like and how you then -- you're thinking about the development of wage inflation into next year. You've obviously launched the academy to kind of solve for some of the shortages in the industry, but just keen to hear how you're thinking that will come together for next year?

[Jesper Trolle, executive]

Sure. Thanks, Alastair. So I'm going to answer wage inflation similar to what we did last -- on our last call, which is wage inflation is not really a new concept in the world of cybersecurity. We are living in a part of the segment of the market that has a constant lack of people. Hence, why we have launched initiatives like Exclusive Academy. And so we deal with this on an ongoing yearly basis. Obviously, this year, we have also inflationary pressures, and we are dealing with this and managing this on a country-by-country basis because, as we all know, inflation is not the same across the world.

And we are taking this into consideration as we plan for the years ahead of us. The academy is not really an answer short term to the talent shortage. We feel it's incumbent upon us as a company in this ecosystem to step into the ring and do our part for good here. And I hope that we will see some of our ecosystem partners and vendors also chip in and raise similar initiatives so that together we can attract more talent and skills into the cybersecurity market. That's why I'll remind everyone on the call that about 95% of breaches actually happens with a human mistake. So getting more talent in and raising the level of awareness and skill sets in the cybersecurity sector is absolutely critical for the health of the sector.

[Operator]

We will now move on to our next participant, Ross Jobber from Citi.

[Rosslyn Jobber, analyst]

2 questions, if I may. The first one is on your reseller community. You're in a very unique position to give us some color, if you'd be so kind. I'm interested to know what kind of trends you're seeing in the resellers. I think from your statement, I got the impression that your larger resellers are perhaps buying more from you like-for-like than the smaller resellers, maybe the larger resellers are doing better. And given your position in EMEA, any color on that would be interesting from a country perspective. Are you seeing any countries particularly strong or particularly weak?

And public or private sector or anything like that would be interesting, more color on resellers. And then the second question is, I'm just wondering whether or not, as you go forward, your margin, to be clear, as a percentage, not as an absolute number, but could your margin come under increasing, more than, pressure than expected just by virtue of the fact that, obviously, America is growing so quickly, and I'm wondering whether America might be a lower margin in percentage terms opportunity? And also the number of large deals you're doing, which I would imagine are certainly lower margin in percentage terms.

[Jesper Trolle, executive]

Thank you, Ross. So on the resellers or the partners, because we have more than just resellers, right, we have -- I like to say we have 3 types of customers, global system integrators, resellers and managed service providers. If I look at them like that, we see larger and larger cybersecurity projects going towards the global system integrators. These are obviously companies that are very entrenched with the big sort of Global 2000 customers. And as a natural extension of digital transformation projects, cybersecurity is becoming a part of that and hence why they become more and more a chosen route to market for these types of cybersecurity opportunities. We still see a lot of partners in the more traditional sort of local regional space. By the way, by the numbers, when you look at our 26,000 partners, those are, by far, the largest proportion of our partners. These tends to be local or regional players that are only active in one or a couple of markets. They do well as well, and particularly the ones that have built up really strong practices around cybersecurity.

There are still some partners out there that have not, today, a cybersecurity practice, and some of those will struggle to compete against the knowledgeable partners in the marketplace. And then the last group are the managed service providers. We see managed service providers gaining a lot of traction. And they are also, by the numbers, the largest category of customers we have on our SaaS consumption platform, X-OD. And the reason why this segment is growing is because they are selling a service to customers. And so if you think about a customer that don't have capabilities and skill sets in-house and frankly, are giving up a little bit of staying up to date on the cybersecurity market and needs, they more and more often choose to buy a service where it's a fully sort of end-to-end delivered service with products and the associated services that are delivered by, what we call, the managed security service providers.

To your second question on margin percent, yes, there is -- the margin percent will probably -- or is sort of slightly compressing over time, but it's a function of mix. And so as we have said and explained many times, of course, we pay a lot of attention to the margin percent in our business. But given it's a function of the mix of our business, the one metric we truly look at is the EBIT to net margin ratio. And so as we are doing more business in the Americas, it's true, it has a downward pressure on the margin percent of gross sales, but it does not need to, and will not have the same effect on our EBIT to trade margin because the cost of delivering that margin in the Americas marketplace is far lower, given the scale in that market versus the partisan Asia Pacific, where our trade margins are higher as a percentage of gross sales, but so is the cost of delivering and hence why the EBIT to net margin is not vastly different than what we see in other parts of the world.

[Operator]

We will now move on to our next participant, which is [ Alexander Casas ] from [ Casas and Associates ].

[Unknown Analyst]

You hear me?

[Jesper Trolle, executive]

Yes. Yes, we do.

[Unknown Analyst]

My name is [ Alexander Casas ] and I'm a shareholder of your stock. So I have 4 questions, and my questions are relative to the strange valuation of the stocks. So the first question, your price IPO, 1 year ago, September 2021 was EUR 20. And despite your very excellent figures, sales, reduction of net debt and earnings, the share price now is around EUR 16, so 20% less. So my first question is this one, do the share IPO price 1 year ago was too expensive or inaccurate, the quotation, in Euronext Paris, and it would be better to be listed in New York, NASDAQ where the valuation are definitively better. What is your feeling? The second question again about valuation is when I'm looking at Fortinet valuation at USD 50, the market cap of Fortinet is near USD 40 billion. So roughly 26x better than the valuation of Exclusive Networks, so EUR 1.5 billion.

Given the Q3 sales of '22 that you gave this morning, the difference of sales between the 2 company is roughly 30% or 40% and not 26x. So how do you explain that incredible difference even if I understand very well that the operating margin of Fortinet is 20%? The third question, again to better understand your company, is it possible theoretically that one day Exclusive Networks will be bought by Fortinet or by Palo Alto Networks? And if not, for what reason? And the last question is this one, 1 month ago -- roughly 1 month ago, a U.S. company, KnowBe4, will be bought by Equity Partners for USD 4.6 billion for enterprise value in cash. My question is this one, do some businesses of Exclusive Networks will be similar to those of KnowBe4?

[Pierre Boccon-Liaudet, executive]

Okay. I'll take -- this is Pierre Boccon-Liaudet, the CFO of the group. I'll take the first 2 questions, and then I'll let Jesper answer the 2 second ones. So on the stock price, first of all, we don't really comment on the stock price. The market is the market. Just one comment, you have seen that the market itself has changed the valuation for the last year significantly, in particular, in the U.S. But we -- overall, we don't comment. Then the valuation compared to Fortinet, so there are 2 very big difference and maybe you've not attended the IPO presentation we made. But Fortinet is a vendor. The activity is in the spectrum of cybersecurity, but their activity as a vendor, it's a completely different business model. Yes, they have the same similar sales, but that's, I would say, the only same financial aspect of the model that they share with us. It's based on R&D, it's based on significant cash generation and it's a pure gross value, much more investment as well.

And also the second, [ no similarity ] with Fortinet in the history. Fortinet has been listed for more than 15 years, which is not the case of Exclusive Networks. And we hope that time after time, the investors will start to know us better to know the strength of our financial model, which is very, very equivalent between sales growth, profitability and low cash -- high cash generation, low capital intensive and this is what we try to demonstrate.

[Jesper Trolle, executive]

Okay. So -- and this is Jesper Trolle. So on your third question, frankly, whether Palo Alto or Fortinet would consider acquiring Exclusive Networks, I think the question is -- it's a question you need to post to them and not us. So I can't really comment on this in my place. I think on the fourth question, though, it's an interesting one, KnowBe4. KnowBe4 is a business that has developed a training model to ensure the human part of cybersecurity. And to your question, does Exclusive do something similar? Yes, we do. As I mentioned in our prepared remarks, we have, year-to-date, trained 12,000 technical professionals across the industry and training people on technical cybersecurity solutions is a large part of the value we bring in all of the markets that we operate within. So there are some similarities to what KnowBe4 do with their focus on the human element of cybersecurity.

[Operator]

[Operator Instructions] It appears there is no further questions at this time. I'd like to turn the conference back to you, Mr. Hacene for any additional or closing remarks.

[Hacene Boumendjel, executive]

Thank you all for your attention. And again, I repeat, if you have any follow-up question or any commentary, please reach out to me directly. Thank you all.

[Jesper Trolle, executive]

Thank you.

[Laurence Galland, executive]

Thank you.

[Pierre Boccon-Liaudet, executive]

Thank you.

[Operator]

Thank you for joining today's call. You may now disconnect.