Magnet Forensics Inc

TSX:MAGT

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Magnet Forensics 2022 Third Quarter Results Conference Call. [Operator Instructions]

Listeners are reminded that portions of today's discussion contain forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as plans, targets, expects, estimates, forecasts, strategy, intend, belief or variations of such words or phrases. In addition, any statement that refers to expectation, intentions, projections, or other characterizations of future events or consensus contain forward-looking information. Statements containing forward-looking information are not a source of facts, but instead represent management's current expectations, estimates, and instructions regarding future events or consensus. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially than those projected in the forward-looking information.

For more information on the company risks and uncertainties related to the forward-looking information, please refer to the factors described in the Summary of Factors Affecting our Performance section of the company's MD&A for the 3 months ending September 30th, 2022, and in the Risk Factor section of the company's Annual Information Form dated March 9th, 2022, posted on SEDAR. Although the company has attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking information, there remain the other risk factors not presently known to the company or that the company presently believes are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking information. No forward-looking statement is a guarantee of future results.

Accordingly, you should not place undue reliance on forward-looking information which speaks only as of the date we met. The forward-looking information referenced in today's discussion represents the company's expectations as of today's date, and is subject to change without obligation to update any forward-looking information, except as required under applicable securities laws. The company reports its financial results under IFRS and all values are U.S. dollars, unless stated otherwise. This morning's call is being recorded on Wednesday, November 9, 2022, at 8:00 AM Eastern Time.

I would like to turn the call over to Mr. Adam Belsher, Chief Executive Officer of Magnet Forensics. Please go ahead, sir.

Good morning, and thank you for joining us today. This morning we released our 2022 third quarter results, which you can find on our website at magnetforensics.com.

It was a strong Q3. Revenue was up 41% to $25 million compared to the same period last year. ARR was up 50% to $80.9 million at the end of Q3 compared to the same point last year. ARR is an important metric that we monitor to assess how the company is performing.

Adjusted EBITDA was $5.9 million in Q3, up 25% from last year, representing margin of 23% in the quarter. With this morning's results, we are raising our revenue and adjusted EBITDA guidance for the remainder of the year to reflect the performance year-to-date and what we are seeing in our pipeline.

Our confidence in our ability to continue to consistently grow across both our top and bottom line is supported by multiple tailwinds that are benefiting the cybersecurity sector today, coupled with our team's ability to execute on our strategy.

Cybersecurity is taking on an increasing level of importance and cyberattacks increase in both frequency and sophistication. The war in the Ukraine and the situation in Taiwan are heightening the threat level. Experts believe Western economies are already facing a cyberwar from multiple nation-state actors and criminal organizations.

Adding to this threat level are an increased attack service from the hybrid work environment and work from anywhere approach -- approaches that have expanded widely through the pandemic. We are seeing increased regulation and new requirements for critical infrastructure and public companies to notify regulators of cyberattacks in the U.S., Europe and parts of Asia like India and Australia.

Cybersecurity and incident response are increasingly top of mind with executive teams and Board members. With the frequency, variety and impact of cyber threats today, 100% breach prevention is impossible. Instead, organizations are facing -- are focusing on cyber resiliency. As a result, security budgets are being prioritized. As we enter a period of potential economic instability, security budgets are growing as a percentage of the overall IT spend.

The scarcity of talent means the public sector and private enterprise are searching for technology solutions that leverage existing resources through the use of automation, analytics, the cloud and intuitive workflow solutions that enable nontechnical personnel to contribute in a risk-managed way. These tailwinds play to our strengths at Magnet Forensics.

In the enterprise market, we are seeing broad-based adoption across multiple verticals beyond the highly regulated markets like financial services and utilities.

In North America, new customer wins during the quarter included a major airline, a major chemicals company, an insurance company, an electric vehicle maker as well as technology and data center companies.

In Europe, new account wins include a multinational mining company, a national financial services institution, an international news organization, a leading medical device company as well as technology companies focused on aerospace, telecommunications and a manufacturer of semiconductors.

In Asia, our new customers include a telecommunications company, a high-tech company, a national financial services institution, a university, as well as multiple cybersecurity providers.

Demand within private enterprise is a result of an increase in cybercrimes, including malware and ransomware attacks, identity theft, phishing scams, insider threats and other cybercrimes, pushing corporations into a more defensive posture. We are seeing a trend across private enterprise to move beyond detection and prevention to include digital forensics, incident response, risk mitigation and cyber resilience.

Organizations are choosing to build out their internal investigative capabilities with our AXIOM Cyber offering. We've designed AXIOM Cyber to run in the cloud, which has empowered our customers to do global investigations from anywhere in the world, which is critical in the new work-from-anywhere environment. This enables timely investigations at a lower cost.

We lead with AXIOM Cyber, but we are seeing more and more traction in the early days of the launch of AUTOMATE Enterprise solution as customers recognize the benefits of workflow automation, to be more proactive with potential compromises, and respond more quickly if there is a security incident.

We are also seeing Magnet solutions getting greater integration into the broader security ecosystem. As examples, we have been asked to integrate AUTOMATE Enterprise into a customer's ServiceNow Trouble ticketing system. We've also been asked to integrate into a customer's Palo Alto endpoint detection and response platform. In each instance, it's deepening our reach into their enterprise workflow.

In addition to our success with corporates, cybersecurity service providers are a significant portion of our private enterprise customer base at approximately 45%. Our Magnet Digital Investigation Suite, or MDIS, offers them opportunities for cost efficiencies through Magnet AUTOMATE Enterprise and rapid instant response to triage endpoints with our Magnet IGNITE solution.

We deliver solutions that can help get to the relevant evidence faster to solve the case. Close threat factors get back online faster and doing so in a manner that improves customer satisfaction as well as help improve their profit margins.

There are 2 avenues to grow within private enterprise today, new logo wins and expanding our solutions within existing accounts. On the new account front, the focused go-to-market effort, we implemented last year and the investments in both the platform and the sales and marketing team during the past 2 years are beginning to pay dividends.

The pace of new account wins within private enterprise is accelerating in the second half of 2022 compared to where it stood at the end of last year. And the new solutions we launched like AUTOMATE Enterprise and IGNITE expand our total addressable market within this category.

An AXIOM Cyber account is worth more than 4x the value of our annual recurring revenue per account from 2021. And with our automation and orchestration solutions, it totals more than 16x. We don't expect to deliver the entire product suite to every account, but you can see the impact the broader range of solutions can have as we increase our penetration rate within our existing base and pursue new accounts.

It's still early days, but the new logo wins in the private sector are already starting with a higher base of recurring revenue than what we were generating 2 years ago or even last year.

Our private enterprise vertical is growing through both new logo wins and expansion within our existing accounts. On a relative basis, it's growing faster than our public sector vertical, but it's off a smaller installed base. So the absolute growth that is coming from the public sector is still larger. We expect continued growth across both segments and over time, our private sector business to represent closer to 50% of our revenue.

In the public sector, our primary growth is expanding within our existing base of customers. We already have many of the relevant accounts represented by leading federal, state and city police agencies around the globe. A key element of our expansion strategy within the public sector is our MDIS offering.

Digital forensic specialists are critical to the investigation process today with the prevalence of cybercrime and the importance of digital evidence to investigators. These specialists use a toolkit approach. They might use 2 or more tools for extraction and another for analysis and reporting.

We lead with our AXIOM platform as the consolidated platform where the unstructured data can come together. The data is structured and analytics are used to understand the critical evidence and then assemble the report. We've designed AXIOM as the primary platform for the workflow of the digital forensic specialist and we're leaders in that category today.

What's exciting in the public sector is the opportunity for our MDIS offering to earn the workflow beyond the specialists from the investigators and other reviewers like the prosecution and defense. These stakeholders are a much larger base who aren't specialists and who can benefit from an intuitive digital evidence platform that delivers workflow automation, case management and digital evidence review.

One investigator had a great phrase for it. He said, our platform is designed to unconfuse all the recovered digital evidence for the case officers, who are great officers, but they're not digital forensic specialists. In short, it takes complicated unstructured data and structures it in a way that humans can easily review it.

Bringing digital forensic evidence to the investigator and other stakeholders beyond the forensic lab personnel is a greenfield opportunity. There's not a Gartner report for this market. Our Magnet REVIEW and our Magnet AUTOMATE platforms are leading the way in creating 2 new solution categories.

We are seeing early traction with AUTOMATE, the combination of growing case backlogs and the talent shortage create a situation where there aren't enough resources to keep up with the work, which ultimately puts the pursuit of justice at risk.

Leveraging technology is a natural solution for law enforcement, but changing the way they work requires patience. Not every agency moves at the same pace. We heard a great antidote from a major U.S. police force that adopted MDIS. Their initial deployment is with 5 nodes of our Magnet AUTOMATE platform. The technology has become so entrenched that they've given each processing node a human name. They see them as new team members that work 24/7, never call in sick and generate consistent output.

AUTOMATE enables an agency to work through the backlog of digital evidence to turn it over to the investigators for their review. A great example is our work with the Greater Manchester Police who is the fourth largest police agency in the U.K. They have seen an incredible increase in the volume of digital evidence year-over-year for the past 10 years. They are rolling out Magnet AUTOMATE as an essential function of all their digital investigations.

This decision was based on a 1-year pilot program focused on child sexual exploitation cases where our technology help them complete cases 9.5 hours faster on average. AUTOMATE enabled them to process digital evidence 55% faster. With that foundation, they are now rolling it out across all case types.

AUTOMATE is addressing a real need of police agencies and the market interest is strong. What we found through the early product launch is the implementation of AUTOMATE is also opening up opportunities for Magnet REVIEW. As the case backlog is processed more efficiently, the agencies start to appreciate the full benefits of Magnet REVIEW can bring to the investigators from all the new digital evidence that is available.

We're in an exciting stage in the adoption cycle. It's still early, but we are seeing the impact MDIS can have for our public safety customers. The opportunity from an expanded user base and an enhanced offering is a tenfold increase to our existing ARR per account from last year. That's a significant increase to our existing total addressable market, and it's working.

During the quarter, we grew ARR with the new MDIS offering or an expanded service offering at multiple existing public sector customers. In North America, we won new MDIS accounts, MDIS customers and expanded ARR at federal and state agencies, including a 580% increase with the transportation agency, a 239% increase with the Federal security agency, a 379% increase with the state justice agency and a 66% increase with another Federal security agency.

In Europe, we expanded ARR with several organizations, including a 228% increase with a national police agency, a 210% increase with a second national police agency, 169% increase at a state law enforcement agency and a 49% increase at a Federal law agency to name just a few.

In Asia Pacific, the ARR expansion successes included a 700% increase at a national defense ministry, a 313% increase at an international law enforcement agency, a 439% increase at regional police academy. These examples are not exhaustive, but to give you a sense of the breadth of our impact and the geographic reach.

We have built a market-leading digital investigation platform. We invested 12 years and a significant level of proprietary knowledge, feedback from accounts and trial and error.

Our artifact library is one of the largest in the sector. It contains the current versions of the most frequently used applications that we all live and use every day. And we possess the library of all the prior versions of those applications. It's an incredibly powerful mode.

Replicating that comprehensive coverage would be extremely challenging for anyone. It's that comprehensive coverage that enables our depth of collection across the broadest possible array of devices and data sources. That depth, breadth and time are the advantages we bring to market as we continue to innovate and extend our lead within the digital investigations market.

We believe there is a significant top line growth ahead of us, which is why we continue to invest in the business in a disciplined manner, while at the same time, maintaining profitability by monitoring our unit economics and margin profile.

Moving forward, we expect to continue to invest in line with our historical ranges, 35% to 40% of revenue in sales and marketing and low 30% in R&D.

Magnet AXIOM is well known in the market, but AXIOM Cyber, which we launched in Q1 of 2020 and our MDIS offering are still relatively new. Looking across our account base, we've penetrated less than 2% of it with our MDIS offering that includes automation, case management and evidence review solutions. We believe that represents a significant opportunity in addition to any new customer wins.

During Q3, you can start to see the operating leverage that the business can generate with an adjusted EBITDA margin of 23%. We believe this is a level more in line to what we can deliver on a sustainable basis.

So to sum it up, we see continued top line growth, supported by strong macro tailwinds, growing momentum for our MDIS offering, which leads to a larger addressable market across both the public sector and private enterprise. And we're delivering on that, while maintaining and growing our profitability. Those are the ingredients for long-term success.

With that, I'll turn it over to Peter to outline the financial impact that it's having on our business.

Thank you, Adam, and good morning, everyone. Total revenue was $25 million in Q3, an increase of $7.2 million or 41% compared to the same period in 2021. Our continued strong performance was a result of our new customer acquisitions and our land and expand strategy, where we win new accounts and expand within our customer base.

We delivered strong growth across all of our major revenue streams. Software license revenue was $7.7 million, an increase of $3 million or 63%. Software maintenance and support revenue was $14.5 million, an increase of $3.9 million or 36%, and professional services revenue was $2.8 million, an increase of $400,000 or 15% each compared to the same period in 2021.

Total recurring revenue was $21.8 million in the quarter, representing 87% of total revenue. This is an increase from 82% in the same quarter in 2021. The growth in recurring revenue is in line with our expectations as we see more customers adopt term licenses of our products.

Adjusted EBITDA was $5.9 million in Q3, an increase of $1.2 million compared to the same period in 2021. The improvement is primarily due to operating leverage being generated in the business, where our investments made in our research and development and our sales and marketing teams over the last year have driven strong top line revenue growth.

Our adjusted EBITDA margin profile was 23% in Q3 compared to 26% in the same period in 2021. As Adam mentioned, the margin profile in Q3 is more reflective of what we believe the business can deliver compared to the first half of the year. The comparative 2021 margin, while higher was bolstered by reduced expenses due to limited travel and marketing programs as a result of COVID-19 restrictions.

We have demonstrated a track record of positive cash flows on an annual basis, which has been a key factor for our growth. For Q3, we've reported cash provided by operating activities of $7.2 million compared to $6.7 million in the same period in 2021, primarily driven by higher revenue and bookings as well as timing of payments and receipt of cash.

We expect to continue to generate positive cash flows from operations on an annual basis, and this demonstrates our ability to both invest ahead for future growth and still maintain meaningful profitability.

As of September 30, 2022, cash and cash equivalents stood at $122.3 million compared to $118.1 million at the end of fiscal 2021.

We are closely monitoring the macroeconomic environment with rising interest rates and inflationary pressures. We are prioritizing our investments to ensure we deliver against our plan. Based on our performance in the year-to-date period and what we are seeing in the market today, we are updating our outlook for fiscal 2022 with this morning's announcement.

We have increased our expected revenue for fiscal 2022 to a range of $96 million to $98 million, moving the range up $3.5 million at the top and bottom end, which represents growth of approximately 37% to 39% in fiscal '22 compared to fiscal 2021.

We have increased our expected adjusted EBITDA for the full year 2022 to a range of $16 million to $19 million, which represents a margin of 17% to 19% for the year.

As Adam mentioned earlier, we believe we can continue to deliver top line growth and that capacity exists within the business to deliver improved EBITDA margin performance in 2023 and beyond compared to fiscal 2022.

In the current uncertain macroeconomic environment, we will continue to be disciplined, striking an appropriate balance between revenue growth and further investment in the business with a continued focus on unit economics to ensure we're growing in a sustainable fashion.

Thank you again to everyone for participating in today's call. And with that, I'll pass it back to Adam.

Thanks, Peter. We are passionate about assisting public safety agencies in the pursuit of justice and the support of victims. Our work supporting private enterprises to safeguard their corporate assets and reduce organizational risk is equally important for us.

Cybersecurity is an evolving and fast-growing market. It's becoming more important in the face of constantly evolving threat landscape. We are committed to continuing to scale our business, so shareholders can benefit from the full potential of our innovative platform and market-leading position.

We appreciate the trust that you have shown in us, and I look forward to updating you further on our progress during our Q4 call in the new year.

With that, I'll turn it back to the operator to open up the call for questions. Thank you.

[Operator Instructions] Your first question comes from Doug Taylor from Canaccord.

Congratulations on another set of stellar results. You made the comment in your prepared remarks about building momentum into 2023, which I'll take as an invitation to speak about the model for next year. with 50% ARR growth heading into the year at this point and accelerating what's -- what should we think about -- is there anything preventing you from delivering another year of the kind of revenue growth that you've delivered so far here in 2022?

Yes. I mean, what we're seeing, as I outlined in my prepared remarks, is accelerating momentum in the business, right, both on the private sector as we see with the general threat landscaping increasing and more companies realizing that there's no such thing as being 100% -- preventing a breach 100% of the time. So digital forensics and incident response has become a really important part of their cybersecurity toolkit, if you will. So that's -- we see that accelerating in our business. And certainly, the macro trends would support that.

And then in the public sector, similar type of kind of momentum where these agencies are just dealing with such an overwhelming amount of data with the backdrop of not enough people, the talent shortage. So they're really looking for different ways of working and how do they leverage things like automation and empowering more people within an agency to actually review that digital evidence. So those trends from our perspective are strong and they're going to continue to go into next year and beyond, frankly.

And so I mean, if I could just maybe pin you more of a quantitative answer. The market currently is looking for a little under 30% growth. You've got a higher proportion of your revenue coming from recurring revenue and a higher ARR growth at this point than you had last year. Why wouldn't that translate? Or is there any reason why that wouldn't translate into a comparable top line growth performance?

Yes. The numbers that were -- that we've consistently spoke about is like 30% plus on the revenue growth, and then that's something that we're comfortable with for next year. And then as we close out the year and then get into next year Q4 results, then we'll certainly provide some more color around range. But for now, we're happy with the 30-plus percent on revenue growth.

Okay. You speak about -- and we can see the benefits of these investments you made kind of earlier this year driving the strong top line metrics. How should we think about you measuring your pace of hiring and balancing ongoing top line growth with demonstrating operating leverage as you move into 2023. I'm trying to balance the comments you made about Q3 being more representative of the margin profile you expect to produce with the spend on sales and marketing and R&D that you mentioned. Can you help me with that?

Yes. So I mean the last couple of years, '20 and 2021, there was a lot of investment across the company both in R&D, sales and marketing, building out the teams to pursue the opportunity. We're going through our planning right now for next year. And yes, we're going to be hiring certainly less people than we have in the last couple of years, but there's key parts in the business.

We are a growth company, so we got to continue to invest in key areas around new product development or maturing our current products. So quite a bit of headcount. They're going to be adding in R&D just to support that. But generally, we'll be at lower levels than we have in the past couple of years.

And then on the adjusted EBITDA margin, yes, we do believe that this quarter is more representative as a percentage -- from a percentage perspective, that will be for next year. So hopefully, that gives you a bit of color.

Your next question comes from the line of Thanos Moschopoulos from BMO Capital Markets.

Adam, could you speak to the ramp of recent sales hires. I mean you obviously did a lot of hiring over the last few months. And so as we look at your stellar results, is it a function of the existing sales guys knocking it out of the park? Or are you seeing maybe a quicker ramp than expected on some of the new hires?

Yes, I'd say it's a couple of things. I mean, we've got like the macro stuff is certainly working in our favor. But yes, from a -- we spent in 2020 and 2021, we hired quite a few in sales, and we also introduced an inside sales team, which have been really great in terms of -- especially on new logo growth and getting that foot in the door with those new accounts.

So I would say it's really a combination of both. It's the hiring that we did in '20 and 2021, like the new folks are starting to deliver now, but the people that have been here longer are continuing to sell and selling MDIS and they have deeper relationships with their customers.

And one of the other things, just being able to get out in front of customers, obviously, COVID, we couldn't do that. It was very limited. So we're spending a lot more time in the field with our customers, which is important when you're selling a solution and trying to get them to think about a new way of working. So that's been -- we do quite a few customer workshops and events and one-on-one calls with meetings with customers. So that's really starting to pay off. It's just that touch with customers face-to-face.

Great. And then as we look at the strength in private sector, I mean, I know that your existing private sector revenue is more weighted towards investigating employees relative to cyber. As we look at bookings, so what's that relative way, is cyber now representing the majority of new private sector bookings? Or is it a fast-growing component with employee investigations being the lion's share of it?

Yes. I mean I'd still say the #1 use case just given our history is around, what we call insider threats, so yes, employee misconduct, if you will, so fraud, IP theft. So that continues to be, I'd say, the #1 use case. But a fast follow is the cyberattacks, right, whether that's -- and it doesn't make -- it's not as flashy from a media perspective, but there's something called business e-mail compromise, and that's usually how most of these attacks happen. Through a phishing e-mail they compromise someone's account in a company and then that's how they move within the company, and they find out where the key IP is. And then they encrypt it and then they ask for ransom. So that business e-mail compromise seems to be a really growing use case for us that customers are adopting AXIOM Cyber to address, help them investigate that.

Great. And the last one for me is, as you're selling REVIEW, are those deals generally uncontested or what are you seeing as far as competition? I mean, are the customers evaluating the option of bringing in the consulting firm to build something? Are you seeing any of your pure-play competitors or in most cases it's by REVIEW versus status quo that you're evaluating?

Yes. I mean what we see with REVIEW is it's really getting them to think differently about their workflow, right? It's not like we are typically going in and replacing some legacy or incumbent solution. It's really a different way of -- today, they share the digital evidence on a USB drive or on a DVD, which, as you can imagine, passing that back and forth between a forensic specialist and an investigator is not ideal. It's very hard to collaborate and make comments and things like that.

So that's how 99% of these agencies are working with digital evidence, which isn't efficient. There's a lot of risk when you're passing digital media back and forth and things like that. So really where we focus on is, say, the customers that are ready to think a bit differently about how they share results and how they collaborate on digital evidence. So we don't -- we're not coming up against, I would say, a lot of competition in that because it is a new area, a new category that we're leading in.

Your next question comes from John Shao from National Bank of Canada.

Congratulations on strong results. My first question is regarding that your new customer wins, especially in the enterprise space. So how much of the win has been driven by their switch from the legacy product to Magnet versus how much of the win was driven by new customers just establishing their digital forensics practice?

Yes, it's a good question. I don't have like the specific numbers in front of me. My guess is it's probably a good mix of both. We do have customers that may have been using a legacy computer forensics tool that just hasn't kept up with the world we live in today, mobile device data, app data, Internet based communications. So there's definitely some of that.

But there is -- on the flipside is we're seeing more organizations that are realizing that, hey, we have to go beyond our endpoint security products and solutions and how do we deal with some security incident. And whether that's using a third party to help assist with that or it's building out those capabilities and people internally, it kind of depends on the company.

We win in both situations because, as I mentioned in my prepared remarks, almost 50% of our private sector customers are service providers. So whether we sell to them or directly to the customer, we win in both situations. But we're seeing more and more, I would say -- even if I compare to a couple of years ago, the majority would have been displacing incumbents, if you will, in terms of enterprise forensics. And today, that has definitely grown to new customers that are building out these capabilities that prior hadn't even thought about it just because of the threat landscape and everything that's kind of happening around cybercrime.

That's great color. And I know it's a bit early here, but I'm just curious about your capital allocation strategy going to 2023. Are there still discussions on the M&A front, given the pullback in the technology valuation? So do you see any like new opportunities surfacing else?

Yes. I mean we've been more active probably in the last 6 months than certainly prior to that. So there is a lot of companies we're talking about -- talking to, I should say, in terms of potential targets. And it does seem like valuations are coming down in the private market, which is always good, but it takes time to work through these deals, but we've had success with the ones we've done, especially the tuck-in acquisitions, they've been really successful. So we're continuing to keep our eye out on other tuck-in type acquisitions that make sense to strengthen our portfolio.

Your next question comes from Paul Treiber from RBC Capital.

Just wanted to hone in a bit on your comments on cyber and your value proposition there. How important is your ability to provide forensics across multiple services, so smartphones in the cloud in addition to PCs?

Yes, it is. I mean because if you're an enterprise, you -- and you have employee data certainly on things like e-mail, so on your computer, on your endpoint, but also depending on the company, they may have a bring your own device policy and many companies will put some kind of mobile device management where they have at least access to the corporate data on a personal device. So mobile is important as well. But the cloud, right, and what's a lot of the data, whether it's Office 365, SharePoint, et cetera. Most of that data is stored in the cloud.

So what we see from customers and hear from customers that they actually want to have that single pane of glass to look at everything. If they're investigating an employee, for example, they want to see what data is in the cloud, what's on the -- in the local computer. If they have a mobile device that's connected to the corporate assets. So having that integrated view to do the investigation is really important.

And that wades my next question. Just in terms of digital forensics on mobile devices, the SEC in September defined multiple banks for failing to track electronic communications of their employees on mobile devices. Have you seen a pickup in inbound leads for digital forensics following that or related to that in any way?

Yes. I haven't seen anything, Paul, that like to specifically attributed to that, at least in our results or from the sales team so far.

Okay. So maybe at some point in the future. In terms of foreign exchange, can you call out the impact to Q3 revenue in EBITDA if there was anything material and there's any change in guidance related to foreign exchange?

Yes. So from an FX perspective, I mean, our approach from a billing model is that we bill most of our contracts in U.S. dollars. So from a revenue perspective, there aren't very many that are underwritten in a currency other than U.S. dollars. So we don't see any material impact currently for FX on our top line revenue.

And then leading into next year, I think we're watching we're watching closely what's happening in the foreign exchange markets because obviously, markets in Europe are like their purchasing power is reduced. So we are looking at the potential for next year of that having a material impact. But as of now, as we look at our pipelines and look at demand, currently not a material impact.

Your next question comes from the line of Suthan Sukumar from Stifel.

My first question here is. I just wanted to touch on the MDIS suite. The solving interest level remains quite high here. Can you speak a little bit about how you're seeing -- how attach rates and adoption looks like today for new customers versus your existing base? And how has that been evolving really over the past year when you look at both your public sector and the private sector customers?

Yes, sure. Yes. So from an MDIS perspective, which, as you know, includes the case management, automation, an evidence review. In the public sector, really the pattern that we see, and we've seen it kind of over the last 11 years is we have to get those accounts first on Magnet AXIOM, right? That's the flagship with the public sector. So most of our accounts, I would say, almost all of them would have AXIOM in the public sector. So that's the first condition.

And then if that condition is met, we then will talk to that customer and understand what's more important to them, right? Some of them are really focused on how do they automate these repetitive processes in the lab, like how do they get through processing the devices faster and more efficiently. In that case, a bunch of customers are ready for AUTOMATE.

We have other customers that the priority for them is not necessarily processing the lab, but how do they share the workload beyond the forensic specialists, how do they get that digital evidence in a web-based format to their investigators to the detectives, et cetera.

So I would say all of our MDIS in the public sector are with existing customers, right? They're customers that we build relationships and trust with they want to do more with us. So that's -- that continues to build. The interesting thing is what we're seeing now with customers that adopt either REVIEW or AUTOMATE, but even more on the automated side is once they adopt AUTOMATE, now they have -- now they get through all the devices faster and get through all the digital evidence, but they need an easier way to then share those results with the broader agency -- with the investigators and detective.

So that's where Magnet REVIEW comes in. So they're very complementary in what we're seeing is that they adopt one, maybe, again, that's a priority automation today. But actually, that leads to then a discussion on Magnet REVIEW how do you then take those results and share them and make them easy to collaborate from the broader agency.

And then in the private sector, AXIOM Cyber really, as we see that, that's the product that's helped us go out the new logos, right? It's the wedge product into these enterprise accounts. But what we're seeing is a similar kind of pattern where they'll adopt AXIOM Cyber and then that often leads to a conversation around automation and it's like, okay, how do you -- could you automate your response if you have a security incident from your endpoint detection platform? Or can you integrate it in with ServiceNow, which is a popular trouble ticketing.

So what's been interesting is we're getting more embedded in that workflow and that enterprise ecosystem, security ecosystem as we get closer with these customers. So MDIS is certainly further along, I would say, in the public sector, AUTOMATE Enterprise, we just released earlier this year, but it's really resonating with customers in a world where they don't have enough people often to do the work and they need to leverage technology to help fill some of those gaps. So it seems to be working well.

That's helpful. I want to touch on the partner ecosystem next. Can you speak a little bit about what the contribution was from the channel this quarter? And what are some of your priorities for expanding your partner ecosystem going forward? I mean earlier, you talked about some success with integrations within the enterprise. How might that be influencing your strategy going ahead?

Yes. So a lot of our partners around the globe, especially in EMEA and Asia are more reseller partners. So they would sell a suite of different cybersecurity or forensics products. We will leverage them because they would have like local contracts or have people that would speak the local language, where we don't physically have boots on the ground, if you will. So we have a bunch of those reseller partners around the world.

We have partners like NICE Public Safety, which are another software vendor in the public safety space that we partnered with. We have some others kind of in the hopper that we're working towards getting them on as partners. I mean one of the things that we're working on right now is making sure that we have the APIs in, for example, our Magnet REVIEW product to ensure that we can connect and integrate more easily with some of these other public safety vendors.

So that's something that we're working on that we're going to deliver in Q1, which are really put us in a great spot to accelerate some of these partnerships because the product integration is a big piece of that for customers, right? They want an integrated workflow. They want it streamlined. So that will really start opening up the potential for bringing on more partners.

And are you able to confirm what the -- I guess, what the contribution to revenue was this quarter from partners and how that might expand as you go ahead?

Yes, yes. We don't have that. We don't disclose -- we don't call out the partnership separately.

[Operator Instructions] Your next question comes from Christian Sgro from Eight Capital.

This is Kiran on for Christian. Congratulations on the strong [indiscernible]. Could you talk about changes to pricing models? Are you contemplating pricing in some areas and applicable to all the newer launch?

Yes. So we have -- most of the license we sell now -- or any new licenses are term, really almost across all our products, which has been a change over the last few years where if you rewind 3 years to 5 years ago, most of the license we sold were perpetual. So most of them are now terms. So that's certainly been a change. We do look at from a pricing perspective every year in terms of price increases, right, and what makes sense. So that's something that we do.

From a consumption-based pricing model, the Magnet IGNITE product is -- we charge in a different way. It's not a term license. It's charged per case, right? So that's really more consumption based in terms of how we look at that. But the other products we have are term based.

This was a strong U.S. government quarter. Have you seen more of your existing top [Technical difficulty] there or would this strength be [Technical difficulty]

Yes. No, it's both, right? New customers are buying terms, but we are seeing more and more of existing customers in our base move to term as well. So it's both.

And then finally here, congratulations on the new Australian office. Can you talk about Magnet's market positioning there today and the penetration opportunities across both public and private, would the new logos be more greenfield or displacement in it?

Yes. I mean we've had customers in Australia for 10 years, and we have partners there as well that service some of those customers. So we've been in that market for quite a long time. But we recently opened the office and putting people in the market. But I would say the Australian government is getting -- they recently had a pretty big breach with their major telco there. And the Australian government is really putting in strong policy and regulation around reporting of cyberattacks and breaches and things like that. So we believe that's going to drive more demand, especially in the private sector to make sure that they have the solutions to deal with that and report on it to the regulator. So I think that's going to increase over time.

There are no further questions at this time. I turn the call back over to Mr. Belsher.

Great. Thanks, everyone. Have a great day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you disconnect your lines.