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spk_0: good morning everyone
spk_1: my name is burner and i will be your coffers operator of today at this time i would like to welcome everyone to the secureworks fourth quarter and full year fiscal twenty twenty three financial results oh 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 speakers remarks that will be a question and answer session if you like to ask a question during this time please press start followed by one on the telephone keep that if you like to withdraw your question please post star followed by two
spk_2: at this time
spk_1: i would like to turn to pull over to kevin to me secureworks vice president of a better relations mr to be you may begin your conference
spk_3: thanks everyone for joining us with me this morning or wendy thomas or ceo and paul parish or seattle during this call unless otherwise indicated we will reference nanya financial measures you will find the reconciliation between the gap in non get measures in the press release and presentation puts it on our website earlier today please also note that all group percentages refer to year over year changes unless otherwise specified finally i like to remind you that all statement made during the call the really to future results in events are forward looking statements based on current expectations actual results in events could differ materially from those projected to do a number of risks and uncertainties which are disgusting our press release when deck and as you see filings we assume no obligation to update are forward looking statements now i'll turn the call over to secure work feel when the becomes
spk_4: thank you kevin and welcome everyone the care work continue to deliver stronger out for my qaeda sixty hours pollution he it's revenue grew a hundred and twenty percent year over year term fiscal twenty twenty three with all your revenue reaching one hundred and eighty eight million two thousand hated customers are now seeing the benefit of our xd are based approach to manage detection and response up four hundred from third quarter cages anal recurring revenue good fifty eight percent year over year to two hundred and sixty one million i've been important indication of the acceleration of our business transformation catered they are are now represent over eighty percent of our total air are up from forty two percent of the total at the end of the previous year and we expect a mix of other mss air are to be minimal by year end approximately five percent of the total primarily in japan reflecting on our business transition when we began building qaeda the xd on market didn't exist we were building a technology platform to enable solutions that pod pressing customer needs better security for their spend with fewer benders to manage and a step function reduction in the fuck up burden on their team popular and a lack of automated containment as the top abilities of xdr become clear to the market our vision remains to be the xd our platform that is fundamentally open one that evolves seamlessly with customers technology changes and one that provides superior detection an unmatched response to prevent damaging security breaches all and an industry leading return on investment and hey little unique approach to drive superior security outcome is resonating with the market and launching cages than twenty twenty we've delivered a three year compound annual growth rate of one hundred and fifty six percent and change if they are are let me die been a bit more on what makes a distinct in addressing customer security challenges across or category the first killer that differentiate cages from other solutions is superior detection capabilities detection of more than finding everything that poses a threat it's about finding and prioritizing the most potentially impactful threats you refer to this is finding the signal despite the alert noise over the last year cages filtered ninety nine percent of the high and critical alert generated from third party point security products at both positive and while traders to the powerful filter of noisy point solution with a full coverage approach to xd are cages regularly find malicious activity that other point products minutes cages the telemetry normalization technique and proprietary algorithm detect threat actor behavior based on our proprietary knowledge of their tactics and techniques in fact the top quarter we share details of our approach through the city you threat grass are proprietary data warehouse with detection algorithm powered by more than forty billion unique threat and knowledge known continuously updated by our income team of threat researchers much of the industry threat intelligence is published in a way that difficult for most organizations to apply to their protection with machine readable threat intelligence updating or cages detectors every hour cage of our superior detection we don't match speed to share a real world example of how this resonates a global manufacturing customer with a small and health security team recently life and cages with our previous security services provider it had no visibility into the effectiveness and they knew that their vulnerability management had not been keeping case they were concerned about the risk of a breach after the point agent a platform quickly detected suspicious remote access activity to a specific device that the media detection coupled with proactive monthly threat fun included in the qaeda subscription quickly demonstrated the value of are integrated approach the detection of malicious activity that other solutions myth and customer confident in their ongoing security with cages second we continue to hear from customers the cages provides an unmatched level of response the majority of security response action across cloud identity network and point infrastructure occur automatically through the native for capability indicated platform these capabilities are augmented and curated by our team of stack up experts on behalf of partners and customers and are informed by the thousands of incident investigation been responses to form to be at that age of platform each year as an example customers benefit from automated flow that can simultaneously the fabled you their loggins and eight of us while isolating relevant and point home when a critical risk of detected he cured have been using machine learning can maximize the performance of our detectors for several years we've found that over time the quantity and quality of data drive machine learning model performance the good news is we have more than we need with six hundred and fifty billion real world events per day and thousand given to them
spk_5: punch each year
spk_4: the proven combination of take a holistic detection an automated response capability lead to a deal recently one with an international health care company frustrated with their existing since solution with the burden of maintaining integration for security monitoring and a lack of automated investigation they're small team was stretched beyond capacity hey just the name of them to focus on real cyberthreats without adding to their security team while addressing their log management these are less total span the added capability of the platform to help them pro actively and continuously understand and optimize their security posture in comparison to industry piers where the keys selling point to their executive team three treated with the open without compromise we design created to address the reality and complexity of customer technology environment many customers come to us with and point technology from multiple benders deployed simultaneously across their organization additionally we the team to manage across hybrid and make a cloud environment unlike other xdr or eighty our platform we design pages to excel and detection across these mixed environment but the proven ability to automate sophisticated response action album a single pane of glass that means better faster protection scaled youth of security reported and we continue to make investments to protect even more customer attack tax purposes for example we recently announced enhanced integration with google cloud platform and google workspace extended support for google environments and he had to alert visibility and treat ability delivering a simplified work flow for soccer analysts i'll share stories from or recently fine deal with a financial services firm who had found gaps in there and point centered solution during the security assessment and also had a small and helped by teaching that with overburden would alert cages not only provided better protection for their entire technology state putting on point network and cloud but also entered their need for attention and centralization of log data with the either deployment and the valuable mdr partner that secure brought the table they were quickly able to optimize their span provide relief to their team while delivering better security outcome to their business finally customers to stages but the measurable and superior return on investment to help customers demonstrate the value of security investments to their leadership team secure works launched a new security posture dashboard and cage it the dashboard is dynamic enabling customers to regularly monitor maintain and improve their readiness in the paper ongoing security alert and do so in real time comparison for other than their industry let me share a customer story we recently find with a global provider of insurance and reinsurance solution the customer needed to defend itself and it climbs data by proactively anticipating cyber security threat protecting their brand from reputation damage and breaches but they were also excited about the opportunity to drive new revenue opportunity by developing safe and secure cloud application operator the service to their existing customers the shared with us that treatise enabled them direct saving of at least seven hundred and fifty thousand dollars per year and potential cost avoidance of up to one hundred million dollars from a breach and that their productivity with enhanced by approximately three hundred and seventy five thousand dollars a year due to an increase in their teens productivity another provider of cyber security insurance a customer of looking ahead to the benefit of increasing revenue and reduce cyber breaches from traded paved offerings they were license to their customers as we look at the security challenges but organizations faith we see that technology alone cannot solve all of the challenges many organizations struggle with a shortage of security challenge and the diversity of skill needed to effectively manage security program our product pages xdr was created to address these challenges qaeda has embedded orchestration and a collaborative interface and work flow designed to enable transparency and collaboration across customer team or partners and our security experts it's a lot of the everyone's work together and real time to the same information making the security program more effective no matter how it is delivered our unique open approach allow them to bring customers xdr based mdr across multiple go to market patch for we partner with pollution providers to sell changes with secureworks provided mdr second managed services providers so and delivered hated coward mdr to their and customers on your their brand we now have multiple and with p partners were building their business on pages because we have demonstrated a compelling return on investment this is the growing opportunity for our business and a focus of our long term strategy shared enterprise customers you have their own fuck capability or who intend to grow their teams over time to a full time fuck you changes to filter the signal from the noise automate investigation been refined capabilities hunch and managing to at work flow these customers know that hated flip them automate the mundane and focus on adding value of security experts in summary our strategy is for our xd our platform to power industry leading mdr capability allowing us to grow our customer base and be the platform of choice of the xt or market matures let me change gears and talk about our path to profitability as we near the end of our business model shift for the past few years we have effectively been managing true distinct businesses making investments in a growing higher margin south subscription bergman while winding down or other amasa and outsourcing purposes one to business with the acceleration last year and our transformation we have also been actively manage him down or cop structure as we funny that don't want a business with the and of life and other amazon services outside of japan effective february or it of this year we announced a workforce reduction or approximately nine percent a key up in aligning art been paid to our go forward goodness with the continue growth and scale that are cages platform bring and our ability to reduce the remaining duplicative cross structures over the course of the fiscal year we expect to exit or quarter of fiscal twenty four near break even eva shutting up are growing profitability and argo forbidden in fiscal twenty five i wanna thank our customers and partners for joining forces with us and i think are teaming with a hard work and commitment to the security mission of securing human progress in addition i'd like to thank paul or cfl who last month announced have been can't retire from secureworks i'll join secureworks shortly after we launched asia bringing highly relevant experience in the fast pace leading similar business transformation you'd let our finance and accounting came with absolute integrity and our financial reporting and business operations with a lasting impact on our transformation in shame that we can all be proud of we have an active search the way and expect to announce an appointment prior to paul's retirement to ensure a smooth transition all that when a valued partner and i'm grateful for leadership and without altering the call over to paul parish rc fo to discuss our fourth quarter results an outlook for the first quarter and fiscal year twenty twenty four
spk_3: thanks for the after nearly forty one years in industry or made the decision to retire and i'm looking forward to the next chapter my lord it's been an honor of service the or polls cure once during that time and security industry and i think all my teammates and peers obscure works for the proper term
spk_6: how you showed strong growth in the corner
spk_3: tiger subscription revenue was sixteen point two million dollars for fourth quarter of hundred six percent your we're for the full fiscal year twenty twenty four in terms of revenue one the hundred and eight million dollars growing a hundred twenty percent year over year or or increased ninety seven million dollars year over year to him to for or to run sixty one million dollars representing your your group of picky a person thank you for your was driven pellman are stronger reflection of sale and her we added eight hundred customers since for last year to end the year or two thousand tamil tigers customers an average revenue per customer was approximately one hundred and thirty two thousand dollars a meaningful premium to the overall industry average it is important to note also that are on pc of from work for new titles cut foundations and reflation customers an important milestone we set out the year to achieve or your or from the tigers platform contributing more than seventy five percent of total subscription iraq we're happy to report that we ended the fourth quarter and eighty two percent of a are are are tied tighter sparkle up from forty two percent at the beginning of f y twenty three approximately five percent remain by the end of of what warning for enabling us to address or duplicative cost structure over the course of year total revenue was one hundred and fifteen million dollars and to for which was above the high end of our gardens of one hundred and ten million dollars two hundred and twelve million dollars driven by our performance and boss description and professional services rise and cute for or total gross profits decrease didn't revenue declines associated with the end of life for non strategic services were able to keep gross margins relatively flat are continuing to scale tattoos and as the other emulators business the scales and to sunset
spk_6: description gross margins including both teachers and other end of this war sixty nine point four percent better than shoot threes description gross margins of sixty eight point three percent with the mix shift to titus
spk_3: to for professional services adjusted gross margins of forty two point eight percent were down slightly from to for npr year
spk_6: as we continue to focus our professional service offerings on pages adjacent services are professional services revenue now represents only twenty one percent of our total revenue in line with our revenue next objectives
spk_3: silva malcolm smith and que por was similar to the power your core the increase to thirty five percent of revenue from twenty nine point nine percent and into for about four twenty two is do the change in total revenue associated with the end of life or are non strategic services our investment themselves marketing have increased or recognition as the leading xd york platform and empty provider and supported our transition to a partner first model are the expense was twenty nine point eight percent of revenue up from twenty two point six percent of in the fourth quarter of last year or changes investments reflect the launch of integrations capabilities and features a line directly the feedback from our partners and customers total gina expense as compared to the par your cue for reflects the impact of the benefit realized and to for a for twenty two from the timing of expensive rules during of what twenty two dna was seventeen percent of revenue up from twelve point three percent to for last year which also reflects the decline and revenue affecting the percentage adjusted about our loss was nineteen point seven million dollars compared to a two point one billion dollar again and barrier to for the overall change was driven by a combination of lower gross profits and eight million dollars and the remainder of your delighted to offer an expense items are just discussed and keyboard that y twenty three adjusted even are excludes fifteen point five million dollars of one time reauthorization cost consisting primarily of severance and other termination benefits and roll state reduction related expenses cash flow provided by operations and key for f y twenty three was six million dollars compared with nineteen million dollars provided by operations and prior for which primarily reflects the impact of lore adjusted ebitda callbacks was one million dollars for the quarter lot of weight flat with a prior year we finish the quarter of the strong balance sheet one hundred and forty three point five million dollars in cash no debt an untapped credit facility turning to our got it's for l y twenty four weeks spectators a are our to end up like twenty four at three hundred million dollars or higher we expect other mss a are our to represent approximately five percent of total a or are at the end of f y twenty four we expect for your total revenue to be three hundred and eighty million dollars to four hundred million dollars with the first quarter revenue of ninety six million dollars to ninety eight million dollars keep in mind we had a pretty pretty week year and f y twenty four he compared to fifty two weeks and i watch twenty for we expect all year teachers revenue to be too and seventy million dollars to two hundred eighty million dollars changes description gross margins are expected increase in a lot twenty four and beyond the benefit of that within total gross margin will be offset by duplicate it fixed and transition cost as we sunset support or other mss services oh you're adjusted even all range is expected to be between negative twenty nine million dollars to thirty nine million dollars this got it reflects the following expectations seldom marketing as were center revenues expected to decline modestly and apart one for our investment in our day will remain flat as a percentage of the lower revenue base as we continue the war our engineering or calls for our other and as business jian a spin will decline and expected to remain flat as muslims or revenue your beer operates meant as an app what twenty four should decrease on an absolute bases as we manage the past in proportion to the revenue opportunity we estimate there is approximately twenty five million dollars of the plugin it fixed and transition related past that we are incurring with fifteen million dollars in costs to revenues and ten million dollars in our backs as we turned down our other amateur services we will manage the related costs out possibly impacting f y twenty four and up y twenty bar as we accelerate the sunset of other mss and benefit from scale and our teachers centered go card business we expect to be near break even even are in the fourth quarter of a lot one for as we entered this year our business will have the transition behind us with a path to even all profitability and the on fiscal year finally he s loss is expected to be in the twenty six cents to thirty percent range in summary f y twenty three was a year of significant milestone the company expansion of it's tedious xt our platform and f y twenty four the year that will begin to reflect shipped in our business mix and growth potential are go for business when they will now join his began as will begin to and i operator can you please introduce the first question
spk_1: at this time i would like to remind everyone they in order to ask a question you have to press star followed by one on your telephone keypad we will cost would just a moment to compile the q and a roster our first question comes from sick each clip from barclays to keep your life now open please go ahead
spk_3: okay great hate at barclays morning an expert ex reading like questions here and talk and grass are now on your next chapter
spk_7: i keep the mornings i'm sure hey morning like maybe they'll start with you yeah you had an example or to of of have sinned displacements in in a prepared remarks maybe maybe the question for you when the is how do you think about the velocity of of sim displacements in the industry right now and and related to that the feel like you're that leaders that getting enough reference customers here where the sale cycles or maybe getting a little shorter or or at at the very least more predictable
spk_4: yeah the great question i think we're just at the beginning edge of this opportunity of transition and displacement i think there's two two questions that we've seen like customers are going into this the first one was loud get out his ex the are better solution what is this how did that work and talk a little bit about that and the second one is how do i transitioned minutely with no risk no gap no no bad experience and for the any is there and so on that solution crimes avidly of the xdr market of getting much more recognition attractions are a third party validation the the elements of and better economic better security effectiveness and better efficiency at soccer team is proven true at loggerheads mentioned included in the base priced out of xdr without any surprise data over to those types of things really catch the economics and predictability the tuned attraction to the filtering of noise that cages and particular speak to the effectiveness and then the embedded orchestration investigation hunting response and and i'm workloads really drive the sucked up sufficiency it's i think that part it becoming pretty clear the second part is where we have a unique advantage and that's because we have been recently listening customers kit ages or for the last couple of years and the playbook the customer reference ability the eye towards towards either the end user experience or in the case of them as eat their customer experience in we can demonstrate the the ways that we make that an incredibly smooth and risk free and good experience transition has played well not just with them customers but particularly way mss please who want to make that that transition and that's where we are uniquely positioned in terms of those reference to go customers and frankly tactics that the that the customers can get comfortable at
spk_3: got it got it the makes little sense paul maybe maybe for you i think it has a little bit at the end you're prepared comics but just maybe ask the question slightly differently can we just talked about how big mss revenue is expected to be at the school toy for know we can get a five percent of a rapper just remind us how
spk_7: big and it's it's revenue should be here and fiscal twenty four i think it's primarily going to be japan and maybe it's part of that am i going on a any targets letter of the a a gross margin sorta trajectory right but but if you just look at the gross margins on just versus other it's are actually just go the gross margin on pages it's an affair
spk_3: to go to sort of zero right over time what does that gross margin look like just for the taste business yeah looks like watched them out as a point out in the out of paired remarks pay just revenues going to be to seventy to two eighty for the year and our overall revenue striated or hundred so think of teachers being about seventy percent of our overall revenue and our professional services are running somewhere close to twenty percent was the last couple percentages points and so that leaves the are other mss about ten percent range plus or minus upset during the year and see that ramping down that rabbit you are during year years not strategic services
spk_6: it what other mss walls all and dog
spk_8: gross margins in their cages isn't is running are higher than other mss but we have the drag on our other m s s about typically typically services as well as are just the sti scaling of our other mss as it was toward the tail end of this so you're going to see the true true impact of our tate of revenues as we are excel out into a lot of with following year of what way fox so ah we're not providing specifically that individual got got it's around gross margins between titus mother emma south but see the benefit is were roland l y twenty five of having cages
spk_5: margins
spk_7: very helpful thanks guys
spk_1: we get our next question from mike seacoast from need ham mike your lines not open please go ahead
spk_9: great thanks guys and i had a question really first down on a housekeeping but can you give is what the i'm a man says customer counted the total subscription customer cat was exiting to two twenty three
spk_3: yeah so total cost me cats forty five hundred
spk_6: hey just customer recount his two thousand
spk_3: ah other mss a seven hundred subscription customers twenty five hundred
spk_7: got it thank you thank you for that and i'm one of the things that i'm trying to back into here
spk_9: and i guess if i look at the ninety six million that the t just is generated in that you a or or over the course of fiscal twenty three
spk_8: he their wait for us to think about how much of that let you a or ways from migrating existing customers vs landing in and addressing new customers that previously were in on the secureworks platform
spk_6: yeah so it's it's somewhere in that forty ish percentile was the ah our new logo cross sale type activity the resolutely side of that sixty ish percentage points little bit less than that are was resolutely as we execute four weeks talk about that earlier quarters that are ah that makes was slightly off that fifty fifty that we were are projecting for the year but a slightly higher resolution queue for but very similar to keep or eight and as we project out and to apply twenty four were saying eighty five percent of our growth coming from our new new logo crossville organic growth and so we still have a small portion mainly japan to a solution and that's gonna be what make about fifteen percent of that broke
spk_3: god and i think you'd probably answer my next question already been but i just want a stretch has been here so i think about he detail or guidance and out year on expected to be at least three hundred million and we're seeing it we can try that at the low and forty million dollars in that new a all over the course of this for twenty four if i compare that forty million and fiscal twenty border the ninety six million a typical twenty three the reason for that guppies really just because we've we've done a good job week loosening on a large chunk of the custom
spk_8: murray's and really that book is valid can be ah but one landing new logos with pages is that a fair characterization or is there anything else i should be thinking through there
spk_3: now that you're you're right we're focused on new customers and cross selling our existing customer selling more all up with additional features like sally to existing customers
spk_9: got it got a and then one more if i could
spk_10: but on the
spk_11: revenue
spk_9: i guess you guys are deliver this outperformance and queue for if i go back a quarter you guys had said you were expecting about i'm one and a half million dollar head when from fx can you just reminded spin that one and a half million dollars essentially play out or would do any movement there to to think about when try to diagnose that the upside you delivered
spk_8: yeah fx actually swung a little bit our favor of wasn't that the big had when we we expected are going in the cure for ah but it is continued to blow directions on a back what are we don't see it as a a big tell when coming into this year but i'm not getting what affects us down
spk_9: i understood understood that you are a lot of my colleagues appreciate the color they pull
spk_1: thanks
spk_4: our next question comes from madeline books from bank of america madeline your lunch not open please go ahead
spk_12: one didn't call that planning for taking a question and them to hear from me
spk_4: the restructuring and i'm thinking that how the trying a week salary well month a transition complete and you feel comfortable that is that they have now at best of luck with that there will be able to deliver on growl at once you get past and with economic had when i'm like a concussion kill it just a follow up on the net new customers thank you for providing know compete at your path like outside of krakow old you let me take the first one and the not let you take that the second one so in terms of the restructuring think about and and then i'll answer that the sales had count we have essentially to do business is that we are managing trail obviously the restructuring is related to be ah end of life the for our other mss didn't have outside of japan february third and third the obviously the stopping and the construction related to that we add a set restructuring actions related to manage our class structure down relative to the to the sunset of many of those line of business and we will continue to manage that process that we as we end this year with paul said less than five percent of the air are on the on the other mss revenue line when you than separate that out there's other parts of the business of course where we are growing the organization different set of feel said they'll to certainly one of those one of the key things for us on the on the field and marketing side is that we had a number of fails professionals who were focused on read solution with that listening to not quite a third of our
spk_13: and quota carrying headcount and we transitioned those at the end of the year again outside of a handful in japan to hunting to new territories
spk_4: where they also can we can benefit from profile and upset opportunities that well that a primary role is focused on new business from new customers so we get sort of about a lift if you will in terms of hunting new from from that transition of a ramp their territory
spk_14: but and in total that's remaining about the same as it was before the total sales
spk_3: a caring income
spk_15: and then for the split of new logo and cross crossville were thinking about half and how between the new logos and crossville and others how we have our sights set for a high twenty four
spk_1: they think that
spk_3: we currently have no further questions i would like to hang back to mr to meet for fun remarks
spk_1: right now that wraps the q and a in today's call a replay of this webcast will be available on our investor relations pay to secure work dot com along with argued for supplemental deck with additional financial tables thanks again for joining us today
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