SecureWorks Corp.

Good morning. My name is Joel, and I will be your conference operator today. At this time, I would like to welcome everyone to the SecureWorks first quarter fiscal 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. A supplemental slide presentation to accompany the prepared remarks can be found on the company's website. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. Thank you. At this time, I would like to turn the call over to Paul Parrish, SecureWorks CFO. Mr. Parrish, you may begin your conference.

Thanks, everyone, for joining us. With me this morning is Wendy Thomas, our CEO. During this call, unless otherwise indicated, we will reference non-GAAP financial measures. You will find the reconciliations between these GAAP and non-GAAP measures in the press release and presentation posted on our website earlier today. Please also note that all growth percentages refer to year-over-year changes unless otherwise specified. Finally, I'd like to remind you that all statements made during this call that relate to future results and events are forward-looking statements based on current expectations. Actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our press release, web deck, and SEC filings. We assume no obligation to update our forward-looking statements. Now I'll turn it over to Wendy.

Thank you, Paul, and welcome, everyone. We executed against our first quarter plan, and the structural growth drivers of our business remain strong. The end market for XDR is growing, And our transition allows us to build a stronger recurring revenue business designed to capture growth. We continue to build deep relationships with customers and invest in the Tejas platform. And we see benefits from accelerating Tejas adoption, new use cases, and upsell opportunities. And this gives us confidence in the sustainability of future growth over the long term. Because the opportunity for Tejas, a true open XDR platform, is tremendous. Our OpenXDR approach has customers choosing Tagis as a way to future-proof their security. They tell us Tagis is their long-term cybersecurity solution because it easily evolves to secure their changing technology infrastructure, and Tagis' expanding threat detection and response capabilities enable them to stay ahead of the threat. From the onset, we developed Tagis with a unique and purpose-built architecture designed to be flexible, and enable seamless innovation, ensuring our customers achieve their best security outcomes now and in the future. And the conversations we're having today with both customers and prospects are notably different from just a year ago, as we see a growing understanding that XDR is the right answer to today's security challenges. In fact, Forrester found in a recent survey of over 400 security decision makers that XDR is their number one security priority in the next 12 months, and 60% of those had plans to invest in XDR solutions in the next 12 months. Why? What security professionals recognize is that securing endpoints or networks individually in a siloed approach does not work. Point solutions leave critical gaps in visibility, and aggregating multiple logs often fails to yield critical detections or bury security professionals in a sea of alerts. Redactors have learned to weave between point solutions, staying out of sight. XDR is the clear solution to this. But even with XDR, companies are faced with another key choice. Do they go with a proprietary or open XDR model? To our customers, the choice is clear. In their view, an XDR solution that only operates on a proprietary stack removes optionality with vendor lock-in. and introduces risk in a forced rip-and-replace approach. The head of security operations at one of our customers said it best, by leveraging SecureWorks' OpenXDR approach, we won't have to lock ourselves into vendors. In short, SecureWorks' approach to XDR future-proofs our customer security program. And that's reflected in our changes numbers, which continue to demonstrate one of the fastest customer and ARR growth rates in the market. with the addition of 900 customers since Q1 of last year, and the addition of over 100 million of CAGIS ARR. That represents nearly 150% year-over-year growth, and we ended first quarter at 180 million in CAGIS ARR. Our focus this year remains on delivering high-value security solutions to the market and making targeted investments in CAGIS to capitalize on the market transition to XDR. In terms of our strategic transformation, we remain on track as we continue to re-solution our counter threat platform customers to Tagus and manage out non-strategic services and resale revenue. In first quarter, we arrived at a key inflection point in this transformation journey. We ended the quarter with nearly 50% of total subscription ARR on Tagus, an important milestone for us. In parallel, we continue to drive gross margin expansion. Our combined CTP and TAGIS subscription gross margins were 69.9% this quarter, an increase of over 200 basis points versus first quarter last year. So why now and why SecureWorks? From our customers' perspective, TAGIS helps future-proof them in three ways. First, TAGIS was designed from the ground up with a purpose-built big data architecture that delivers a new, holistic way to see, analyze, and act upon security data. And to do so, it leverages all the data, not just data from endpoints, not just data from networks, nor from just a single public cloud provider. Cages was designed to gather petabytes of data and apply its unique detection capabilities to find and prioritize security alerts. For example, this quarter we signed an international law firm who came to us from a competing XDR provider that was network centric. The customer initially thought to implement a SIM, but the lack of automated response capabilities, coupled with high data retention costs, enabled us to demonstrate that the SIM implementation would be too complex and costly to maintain. With TAGIS, they quickly ramped up an efficient and economical security program with round-the-clock threat tracking and protection. The company now has time to develop its internal team over time, partnering with SecureWorks to build a stronger security stance than ever before. Second, TAGIS future-proofs our customer security through broad and deep threat detection. Detection that is powered by an optimum mix of machine learning and applied security expertise. This quarter, we introduced enhancements to our detection capabilities, adding more threat context and customization options, which drives investigation efficiency and speed to response. I'd highlight particularly the expanded capabilities of our unique detection engine, which we call TacticGraphs. We codify threat actor behavior patterns into the TAGIS platform continuously. We leverage our findings from about 3,000 incident response and adversarial testing engagements each year, together with the proactive research insights of our counter-threat unit. Pages' ability to correlate observations from multiple telemetry sources and security controls at scale across petabytes of data allows TacticGraphs to detect threat actor movements with high precision. As we open up development on TacticGraphs to partners and customers, We expect the detection capabilities of the platform to only accelerate further. Third, Tagus was designed from the outset as an extensible platform for collaboration and innovation. It gives our customers direct access to our security experts so that they can actively collaborate on investigations. It's also an extensible platform. The Tagus community can share integrations, playbooks, and more. This is all backed by the security operations expertise that we bring to the table. Simply put, there are not a lot of players with a combination of XDR capability and the security services pedigree, an area where we have dominated, that SecureWorks offers. This powerful combination helps customers scale their security team with a high degree of effectiveness. One example from this quarter was a newly signed customer, a preeminent services firm in North America. They had multiple SIM and point technologies that were causing SecOps inefficiencies and security misses. This left them both exposed to threat actors and exposed to spiking cyber insurance traits and ISO audit challenges. With SecureWorks TAGES, they had, day one, full security visibility and threat detection across their entire environment. Plus they benefited from TAGES playbooks for automatic and proactive threat hunting. their team has since been collaborating with SecureWorks experts, augmenting their capabilities and restoring some balance to their overworked SecOps team. These differentiators are open, purpose-built XDR platform, designed for collaboration and automation of work for security analysts, backed by deep security expertise that we infuse into our platform and solutions. These are the things that SecureWorks customers value most. A final thought I'd like to touch on today is the opportunity that Tejas affords our customers through flexibility, particularly for customers who are looking to maximize the return on their security investments for the long run. Tejas future proofs them not just against the evolving threat landscape, but empowers them to maintain continuous security across future changes in their technology estate while optimizing their security spend. I'll share an example. We have an existing retail industry customer that re-solutioned to the Tagus platform in Q1. They had close to 50 one-off security point solutions that were overwhelming their security team with portals and complexities, forcing them into a continuous state of reaction. With SecureWorks Tagus, they were able to displace duplicative spend by leveraging existing Tagus capabilities to remove several point solutions and do so with a higher standard of security. They gained full coverage of their environment while relying on Tejas XDR to eliminate alert noise. And importantly, their total spend on security has declined, while their spending with SecureWorks has increased fourfold. This industry has seen a lot of investment in security companies and growing customer spend on security. But what we haven't seen is a reduction in damages from breaches. Tejas was built to fix this. The holistic and open nature of Tejas XDR puts us in a more strategic conversation with our customers about protecting their mission critical workloads and driving better business outcomes. We're able to take their current security investments and make much more of them. And Tejas XDR can analyze more data with better accuracy and greater speed than our competitors, ultimately providing more security and more value to our customers. Tagus XDR's unique open and purpose-built platform can help turn the tide in the battle against the adversary. I want to thank our customers and our partners for joining forces with us and thank our teammates for their hard work and commitment to realizing SecureWorks mission to secure human progress. With that, I'll turn the call over to Paul Parrish, our CFO.