SecureWorks Corp.

Good morning, everyone. My name is Bruno, and I will be your conference operator of today. At this time, I would like to welcome everyone to the SecureWorks fourth quarter and full year fiscal 2023 financial results. 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'd like to ask a question during this time, please press star followed by one on your telephone keypad. If you'd like to withdraw your question, please press star followed by two. 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. SecureWorks continues to deliver strong growth from our TAGIS XDR solutions. TAGIS revenue grew 120% year-over-year during fiscal 2023, with full-year revenue reaching $188 million. 2,000 TAGIS customers are now seeing the benefits of our XDR-based approach to manage detection and response, up 400 from third quarter. TAGES annual recurring revenue grew 58% year over year to $261 million. As an important indication of the acceleration of our business transformation, TAGES ARR now represents over 80% of our total ARR, up from 42% of the total at the end of the previous year. And we expect the mix of other MSS ARR to be minimal by year end, approximately 5% of the total, primarily in Japan. Reflecting on our business transition, when we began building Tagus, the XDR market didn't exist. We were building a technology platform to enable solutions that solved pressing customer needs, better security for their spend with fewer vendors to manage, and a step function reduction in the SecOps burden on their teams from false alerts and a lack of automated containment. As the possibilities of XDR become clear to the market, our vision remains to be the XDR platform that is fundamentally open, one that evolves seamlessly with customers' technology changes, and one that provides superior detection and unmatched response to prevent damaging security breaches, all in an industry-leading return on investment. And Tagus's unique approach to drive superior security outcomes is resonating with the market. Since launching Tagus in 2020, We've delivered a three-year compound annual growth rate of 156% in TAGIS ARR. Let me dive in a bit more on what makes TAGIS distinct in addressing customer security challenges across four categories. The first pillar that differentiates TAGIS from other solutions is its superior detection capabilities. Detection is more than finding everything that poses a threat. It's about finding and prioritizing the most potentially impactful threats We refer to this as finding the signal despite the alert noise. Over the last year, Cages filtered 99% of the high and critical alerts generated from third-party point security products as false positives. And while Cages is a powerful filter of noisy point solutions, with a full coverage approach to XDR, Cages regularly finds malicious activity that other point products miss. Cages' telemetry normalization techniques and proprietary algorithms detect threat actor behavior based on our proprietary knowledge of their tactics and techniques. In fact, this past quarter, we shared details of our approach through the CTU Threat Graph, our proprietary data warehouse with detection algorithms powered by more than 40 billion unique threat and knowledge nodes continuously updated by our in-house team of threat researchers. Much of the industry threat intelligence is published in a way that is difficult for most organizations to apply to their protection. With machine readable threat intelligence, updating our TAGIS detectors every hour, TAGIS powers superior detection with unmatched speed. To share a real world example of how this resonates, a global manufacturing customer with a small in-house security team recently licensed TAGIS. With their previous security services provider, They had no visibility into the effectiveness, and they knew that their vulnerability management had not been keeping pace. They were concerned about their risk of a breach. After deploying TAGIS, the platform quickly detected suspicious remote access activity to a specific device. This immediate detection, coupled with proactive monthly threat hunts included in the TAGIS subscription, quickly demonstrated the value of our integrated approach, the detection of malicious activity that other solutions missed, and customer confidence in their ongoing security with Tagis. Second, we continue to hear from customers that Tagis provides an unmatched level of response. The majority of security response actions across cloud, identity, network, and endpoint infrastructure occur automatically through the native SOAR capabilities in the Tagis platform. These capabilities are augmented and curated by our team of SecOps experts on behalf of partners and customers and are informed by the thousands of incident investigations and responses performed via the TAGIS platform each year. As an example, customers benefit from automated workflows that can simultaneously disable user logins in AWS while isolating relevant endpoint hosts when a critical risk is detected. SecureWorks has been using machine learning to maximize the performance of our detectors for several years. We found that over time, the quantity and quality of data drives machine learning model performance. The good news is we have more than we need, with 650 billion real-world events per day and thousands of incident responses each year. The proven combination of Tagus's holistic detection and automated response capabilities led to a deal recently won with an international healthcare company that was frustrated with their existing SIM solution. With the burden of maintaining integrations for security monitoring and a lack of automated investigations, their small team was stretched beyond capacity. Cages enabled them to focus on real cyber threats without adding to their security team while addressing their log management needs for less total spend. The added capability of the platform to help them proactively and continuously understand and optimize their security posture in comparison to industry peers was a key selling point to their executive team. Three, Tagus is open without compromise. We designed Tagus to address the reality and complexity of customer technology environments. Many customers come to us with endpoint technologies from multiple vendors, deployed simultaneously across their organizations. Additionally, we see teams who manage across hybrid and multi-cloud environments, Unlike other XDR or EDR platforms, we designed cages to excel in detections across these mixed environments with the proven ability to automate sophisticated response actions, all from a single pane of glass. This means better, faster protection with scaled use of security resources. And we continue to make investments to protect even more customer attack surfaces. For example, we recently announced enhanced integrations with Google Cloud Platform and Google Workspace. Extended support for Google environments enhances alert visibility and traceability, delivering a simplified workflow for SOC analysts. I'll share a story from a recently signed deal with a financial services firm who had found gaps in their endpoint-centric solution during a security assessment and also had a small in-house IT team that was overburdened with alerts. Cages not only provided better protection for their entire technology estate, including endpoint, network, and cloud, but also answered their need for retention and centralization of log data. With the ease of deployment and the valuable MDR partner that SecureWorks brought to the table, they were quickly able to optimize their spend, provide relief to their team, while delivering better security outcomes to their business. Finally, customers choose Tagis for the measurable and superior return on investment. To help customers demonstrate the value of security investments to their leadership team, SecureWorks launched a new security posture dashboard in Tagis. The dashboard is dynamic, enabling customers to regularly monitor, maintain, and improve their readiness in the face of ongoing security alerts, and do so in real-time comparison to others in their industry. Let me share a customer story we recently signed with a global provider of insurance and reinsurance solutions. This customer needed to defend itself and its clients data by proactively anticipating cyber security threats protecting their brand from reputation damaging breaches. But they were also excited about the opportunity to drive new revenue opportunities by developing safe and secure cloud applications offered as a service to their existing customers. They shared with us that Tagus enabled them direct savings of at least $750,000 per year and potential cost avoidance of up to $100 million from a breach, and that their productivity was enhanced by approximately $375,000 a year due to an increase in their team's productivity. And as a provider of cybersecurity insurance, the customer is looking ahead to the benefit of increasing revenue and reduced cyber breaches. from Tagus-based offerings they will license to their customers. As we look at the security challenges that organizations face, we see that technology alone cannot solve all of the challenges. Many organizations struggle with a shortage of security talent and the diversity of skills needed to effectively manage security programs. Our product, Tagus XDR, was created to address these challenges. Tagus has embedded orchestration, and a collaborative interface and workflow designed to enable transparency and collaboration across customer teams, our partners, and our security experts. This allows everyone to work together in real time and see the same information, making the security program more effective no matter how it is delivered. Our unique open approach allows us to bring customers XDR-based MDR across multiple go-to-market paths. First, We partner with solution providers to sell Tagus with SecureWorks provided MDR. Second, managed services providers sell and deliver Tagus powered MDR to their end customers under their brands. We now have multiple MSSP partners who are building their business on Tagus because we have demonstrated a compelling return on investment. This is a growing opportunity for our business and a focus of our long-term strategy. Third, Enterprise customers who have their own SOC capabilities or who intend to grow their teams over time to a full-time SOC use Tagus to filter the signal from the noise, automate investigations and response capabilities, hunt, and manage incident workflows. These customers know that Tagus lets them automate the mundane and focus on adding value as security experts. In summary, Our strategy is for our XDR platform to power industry leading MDR capabilities, allowing us to grow our customer base and be the platform of choice as the XDR 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 two distinct businesses. making investments in a growing higher margin SaaS subscription business while winding down our other MSS and outsourcing services lines of business. With the acceleration last year in our transformation, we have also been actively managing down our cost structure as we sunset those lines of business. With the end of life in other MSS services outside of Japan effective February 3rd of this year, we announced a workforce reduction of approximately 9%, a key step in aligning our expense base to our go-forward business. With the continued growth and scale that our TAGIS platform brings and our ability to reduce the remaining duplicative cost structures over the course of this fiscal year, we expect to exit fourth quarter of fiscal 24 near breakeven EBITDA, setting us up for growing profitability in our go-forward business in fiscal 25. I want to thank our customers and partners for joining forces with us, and I thank our teammates for their hard work and commitment to the SecureWorks mission of securing human progress. In addition, I'd like to thank Paul, our CFO, who last month announced his intent to retire from SecureWorks. Paul joined SecureWorks shortly after we launched Aegis, bringing highly relevant experience in the SaaS space, leading similar business transformation, He's led our finance and accounting team with absolute integrity in our financial reporting and business operations, with a lasting impact on our transformation team that we can all be proud of. We have an active search underway and expect to announce an appointment prior to Paul's retirement to ensure a smooth transition. Paul has been a valued partner, and I'm grateful for his leadership. And with that, I'll turn the call over to Paul Parrish, our CFO, to discuss our fourth quarter results. and outlook for the first quarter and fiscal year 2024.