SecureWorks Corp.

Good morning. My name is Bailey and I'll be your conference operator today. At this time I would like to welcome everyone to the SecureWorks third quarter fiscal 2023 financial results 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 would like to withdraw your question, simply press star followed by two. Thank you. At this time, I would like to turn the call over to Kevin Toomey, SecureWorks Vice President of Investor Relations. Mr. Toomey, you may begin your conference.

Thanks, everyone, for joining us. With me this morning are Wendy Thomas, our CEO, and Paul Parrish, our CFO. 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 the call over to SecureWorks CEO, Wendy Thomas.

Thank you, Kevin, and welcome, everyone. I am pleased to report that TAGE's ARR grew more than 80% to a record $222 million in the third quarter. We doubled our TAGE's customer base over the past 12 months ending the third quarter with a total of 1,600 customers. Our TAGIS ARR and customer count growth rates continue to be among the highest in the XDR and MDR space, and we've only just started to scratch the surface of the emerging market opportunity. In addition, our business model transition is accelerating. TAGIS represents 65% of our overall subscription ARR, and is now expected to be approximately 80% of ARR by the end of this fiscal year. We extended the reach and performance of our platform in third quarter with the launch of a localized version of the Tagus platform in Japan, a significant step in both the global expansion of Tagus and the strategic repositioning of our business. Since our initial market entry into Japan nearly a decade ago, We've had the privilege of securing some of the most innovative multinational organizations in the world. The launch of Cages marks the next era for SecureWorks and its customers across the Japan market, bringing access to unified prevention, detection and response in a single localized and global platform with an added layer of support available to customers and partners via managed XDR. It was an honor for me to meet so many prospects and customers top companies and their CEOs while in Japan for the launch, as well as to invest time in forging new partnerships. In the short period of time since the launch, we've seen great traction with a growing pipeline and key new logo wins. For example, I spent time with the security leaders of a $9 billion multinational retail company headquartered in Japan, and they were looking to create global consistency and streamlined management of their security operations teams across regions. They selected TAGIS to consolidate SOC management of more than 170 business applications and to align global security teams across time zones with the ability to secure regional systems with multiple service providers. The open and collaborative design of TAGIS to work seamlessly across global teams and disparate technologies meant they could secure their organization at the speed of their digital transformation. We also recently announced our partner-first go-to-market approach. Customers want choice and the ability to work seamlessly with trusted partners and advisors. Since launching our partner program in mid-2020, we have established strategic relationships within the partner community to support customers' preferred buying approach and to widen our access to market opportunities. Near to date, more than half of the new Tejas business was sold through partners. And the scalability of the Tejas platform and operating efficiency enables us to deliver growth with a sound partner-led business model. So the time was right to take the next step in the evolution of our partner-led go-to-market program, to capitalize on the momentum in our partner relationships and sales, a milestone we've been building towards since we began our journey to a SaaS company. Prospective customers come to us with a consistent set of security pain points. The need to consolidate sprawling cyber estates, moving away from disparate point solutions that are costly, don't work together, and overwhelm their short staff teams with noisy alerts. The first principles behind the design of the Tejas XDR platform address this challenge from the perspective of customers in four areas. An open platform approach that meets them where they are and can evolve seamlessly with their technology transformation, one that provides superior detection and unmatched response to prevent damaging security breaches, all at an industry-leading return on investment. Our results show that SecureWorks is delivering on these priorities. Let me share some of the proof points in the voice of our customers. First, Cages offers superior detection. Detection is more than finding everything that poses a threat. It's about finding the right things so that the headline is not buried in the noise. KJOS now ingests nearly 550 billion cybersecurity events daily, including events across hundreds of purpose-built integrations. We are able to use these events, combined with our proprietary threat intelligence, to better train our machine learning models to detect known and unknown threats. Our renowned counter-threat unit tracks more than 175 active threat groups and handles over 3,000 incident response and adversarial testing engagements annually. The threat intelligence and the hunting and detection techniques distilled from their work are infused into the TAGIS platform to accelerate detection efficacy and efficiency. Year-to-date, TAGIS XDR has filtered nearly 99% of point security product alerts which would have been noise to our customers. This difference was clear in a deal we recently signed with a large auto parts manufacturer who was facing an overwhelming number of alerts from a leading endpoint provider. This company's security leader had been challenged to improve the level of security visibility and effectiveness to be in a better position to support the constant competitive innovations and new technologies his company was introducing, all while showing cost savings. After a short proof of value deploying Cages, we were able to quickly show the ability of Cages to sort the signal from the noise in a way that demonstrated the business case for their team's improved SecOps scale and effectiveness. And the ability of Cages to work across their OT and IT environments was critical to protecting their revenue and reducing their business risk from ransomware and other attacks. And Cages regularly finds malicious activity that other products missed with our unique capabilities to detect threat actor behavior based on our knowledge of threat actors tactics and techniques. For example, Cages recently identified a business email compromise in a third party cloud environment and email application where a threat actor was able to steal credentials and create a malicious inbox rule to hide emails from the primary owner. The security controls and email application and cloud provider did not alert around the compromise of the user nor around the creation of the malicious rules. The second way our XDR platform solves a key customer pain point is through unmatched response. Our vision remains to automate detection, threat hunting, security investigations, and response actions to the greatest extent possible, always moving the line forward to free up security talent to focus on the things only humans can solve. The SOAR capabilities native to Tejas enable this, and this is not a bolt-on that customers have to build and tune, but rather are designed and curated by our security experts and software developers. Automated response matters so much because the pace required of security has accelerated. The median dwell time for ransomware attacks is about four days compared to 55 days just three years ago. TAGIS prevents threat actors from lingering in blind spots, and by enabling rapid response, key to preventing costly breaches. In third quarter, a multi-billion dollar holding company with numerous operating units in the sports and entertainment industries asked us to assess all of their disparate systems to determine if a threat was lingering in their environment. Leveraging the capabilities of TAGIS, We demonstrated the value of the speed to visibility of compromise in their environment and of capabilities for automated response actions in real time. With the additional benefit of the ability to access a security expert in less than one minute via the Tagus UI chat feature, the customer subscribed to Tagus XDR to maintain their security posture going forward and added managed XDR to complement their team with additional security expertise. Three. We are open without compromise. Why is this important? Because the one constant in technology is change. And security has to stay ahead of the curve while being a business enabler. Transparency and open interoperability have always been first order principles for Tagus. And this is resonating with our customers and our partners. For example, EDR technology choice is one of the differentiators of Tagus. Unlike with other XDR providers, TAGIS customers can leverage leading third-party endpoint solutions or our own endpoint agent included natively with TAGIS. But EDR or EDR-centric XDR is insufficient for holistic security visibility and effectiveness. Year-to-date, less than half of the investigations on TAGIS leveraged any endpoint telemetry. Point security solutions are no longer the answer to holistic visibility and effective security. Another important difference in our open without compromise approach is that we design cages to be used collaboratively and transparently. Across customer teams, our MSSP partners and security experts at SecureWorks all have the same visibility into the efficacy and actions in the platform, the detection sources, threat context, investigation steps, and more. working interoperably in real time. Black box MDR solutions make it difficult for organizations to hold their vendor accountable because it's opaque as to how they are making decisions about threats in an environment. You'd never let your investment advisor send you only occasional reports with your returns without access to your underlying investments and trades. Why would anyone accept that from their MDR security provider? Finally, customers choose TAGIS for the measurable and superior return on investment. We demonstrate return on security investments across three primary areas, streamlining of security vendors and spend, the value of uptime of business operations and revenue streams, and the ability to optimize investments in internal security teams. To make this point concrete, we recently won a global aviation manufacturing customer that was looking to reduce their overall risk with a more effective cyber defense program. This customer was able to reduce total direct security spend by approximately $500,000 annually by leveraging CAGIS to drastically reduce false positives and by implementing a roadmap to rationalize other vendors and unify their security operations functions. They had the added benefit of another $1.8 million in reduced cyber insurance and recovery costs all while demonstrating for the first time a security posture protecting all of the 75 product lines driving their revenue. While it's clear that the market cannot solve security challenges with either people or point solutions alone, the XDR and even MDR markets are still early in the emergence stage, but awareness and momentum are accelerating. A recent study by Forrester showed that 47% of buyers were actively assessing and planning for an XDR implementation, while another 25% were interested but needed to further research XDR's capabilities. Cages XDR is the unification and automation answer to today's security challenges. But the majority of the market lacks the security expertise to fully manage XDR independently. we see customers choosing managed XDR as the better MDR solution, putting them on a path to achieve the benefits of XDR while addressing their security talent challenges. With the Tagus platform, SecureWorks and our partners are delivering the most transparent, interoperable, and open XDR and MDR solutions. Customers will increasingly demand better security at the same or lower total spend levels. With fewer vendors to manage, and fewer operational burdens on their team. Cages is well positioned to accomplish this for customers. As we keep our customers secure and do this at the highest possible ROI for them, our customers and the broader market will continue to choose SecureWorks. I want to thank our customers and partners for joining forces with us and thank our teammates for their hard work and commitment to realizing the SecureWorks mission to secure human progress. With that, I'll turn the call over to Paul Parrish, our CFO, to discuss our third quarter results and the outlook for the fourth quarter and fiscal year 2023. Thanks, Wendy.