SecureWorks Corp.

Good morning, everyone. My name is Bruno, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the SecureWorks first quarter fiscal 2024 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 remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by one on your telephone keypad. To withdraw your question, 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 Christian Grant, our interim 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. Cages continues to lead the industry with 68% year-over-year revenue growth. expanding to 63 million in the first quarter. TAGE's annual recurring revenue expanded to 269 million at the end of first quarter, and now represents over 85% of our total ARR, up from less than half of total ARR this time last year. To put that into context, this quarter we were recognized by multiple leading industry analyst reports as one of the top three largest providers of managed detection and response in the market. That's important because customers have a choice in a noisy market, and they're choosing SecureWorks. In my conversations with potential customers in this climate of increased focus on fiscal responsibility, they are focused on the win-win that TAGIS can deliver, a solution that helps them consolidate and reduce the number of security vendors that they have to manage, that scales their spend on both security technology and talent, while simultaneously delivering an improved security risk posture and outcomes. We are well-positioned to address this market need based on our unique approach to the design of our Cages XDR platform, and customers are reaping the benefits of our XDR-enabled MDR. We solved the signal-to-noise problem that drives alert fatigue from multiple point products. We provide the comprehensive protection to stop adversaries who lurk between point products. And our open without compromise approach gives customers choice, future flexibility, and an easy deployment path to achieve comprehensive detection and response. In this vein, we are addressing an acute need to replace legacy SIMs, which are difficult to deploy and configure, and their complexity makes them costly to maintain. For example, in first quarter, we won a global provider of smart building solutions that came to SecureWorks originally for penetration testing services. We quickly discovered a ransomware attack despite their significant investments in a SIEM, an endpoint, and vulnerability management technologies. Like so many organizations, they did not have the resources to constantly manage the SIEM and so left many of their office locations unmonitored. They quickly recognize the return on investment of managed detection and response with Tagus, reduce their vendor sprawl and spend, while fully securing their entire environment. Customers choose Tagus for its measurable and superior return on investment that lets them streamline security vendors and spend, increase the value of uptime of their business operations and revenue streams, and the ability to optimize investments in internal security teams. all while achieving superior security outcomes and quantifiable risk reduction. We also expanded our platform capabilities and portfolio of offerings this quarter. We recently announced two new offerings to unify the way companies prevent, detect, and respond to threats across both OT and IT environments, eliminating the visibility challenges often associated with the separation of those systems and addressing the risks of greater attack surface exposure in legacy OT systems. Industrials in multiple sectors have been increasingly under attack by threat actors. And with our significant presence and expertise in this vertical today, we see untapped potential to solve a pressing security need by unifying detection and response across OT and IT via the TAGIS platform. And staying true to our overall approach to XDR, The pricing is simple and predictable, endpoint-based upcharge with no data overage, storage, or other surprise fees. In support of customer choice and aligned with our pillar to be open without compromise, we recently added out-of-the-box support for our growing integration requests from our customers and partners. Sentinel-1's singularity completes. Tagis now ingests Sentinel-1 telemetry into an overall view of cloud, identity, network, and other application data in the Tagis XDR UI, enriches and correlates that data with threat context, and applies our unique detectors and response actions in the platform to drive superior security outcomes. With our unique approach in Tagis, customers can leverage a single EDR agent for holistic XDR and MDR coverage. further removing the friction and complexity of multi-vendor environments. With this addition, we now integrate seamlessly with nearly 70% of the endpoint market, another example of how we optimize customers' existing and future cybersecurity investments while also providing the breadth of security coverage they need. KGIS is, increasingly, the single pane of glass for our customers' entire security stack. We recently won a partner source deal with a manufacturing company that had a small IT team, no SOC, and very limited visibility into their environment. And a competitor in their space had recently been the victim of a cyber attack and data breach, creating urgency in their leadership team around ensuring they could prevent a similar breach. The customer had recently implemented Sentinel-1 with our partner. and our demo and proof of concept demonstrating the ease of deployment and holistic visibility of XDR while leveraging their existing single agent, those are what sealed the deal. Another topic that is top of mind for customers and investors is how we leverage and govern AI in our Tagus platform and offering. From the beginning, AI has been part of our Tagus platform vision and architecture leverage to drive more effective and faster detection and response outcomes for customers. Among many approaches, we leverage deep learning and machine learning and our thousands of detectors to find the true positives that other products miss. And AI-enabled threat scores support the prioritization of the hundreds of billions of alerts and indicators we receive from our customers daily. While approaches and AI algorithms can change rapidly, The key to staying ahead is having vast amounts of labeled training data. And we believe that we have one of the most valuable security training data sets globally. For example, we've performed more than 10,000 investigations annually for more than a decade. Leveraging that data set, we recently implemented natural language processing, generative AI, and other techniques to automate approximately 45% of our TAGIS security investigation reports. While more opportunity lies ahead, this has further improved our market leading response time for customers and the efficiency of our security operation. While AI is not a panacea and is not applicable to all security use cases, we are well positioned to capitalize on its momentum and opportunity. We have a deep bench of data scientists, software engineers, and threat researchers working on a true XDR platform. designed to take advantage of advancements in AI and data analytics to rapidly innovate to improve outcomes for our customers while protecting their most valuable assets. As importantly, we have educated our team and put in place sustained governance around the responsible use of AI and will continue to safely incorporate it into our business in service of customers, teammates, and investors. I'll now turn to our go-to-market. We are in the early innings of our go-to-market transformation, aligned to our CAGIS-centric business model, but I'm pleased with our progress. We designed CAGIS to be transparent and collaborative, providing flexibility and optionality around who manages detection and response activities. This enables MDR to be delivered by SecureWorks, a partner, or a customer's own SOC team. all leveraging KGIS XDR. In addition to solution providers as a go-to-market path, this has enabled us to tap into the MSSP market opportunity, enabling partners to deliver high margin and effective MDR, leveraging KGIS. In Q1, one of our MSSP partners worked with us on an MDR deal with a data analytics software provider. that was using multiple security providers to manage different aspects of their security operations. They had a small security team, which made it challenging for them to keep track of threats and costly to manage and get the security value across these disparate partners. Pages brought the holistic, streamlined approach they needed while also addressing their growing compliance needs with the scaled MDR services from our partner. Recall that last December, SecureWorks launched our partner-first go-to-market approach in North America, elevating our collaboration with critical managed service and solution providers, as well as technology alliance partners. Our open without compromise strategy creates greater business opportunities for partners of all types. As an indicator of traction in first quarter, more than 60% of Global's new logo business was closed with a partner. up from 40% this time a year ago. And partners with active pipelines have increased 40%, leading to a doubling of our partner pipeline in first quarter, a trend we expect to ramp over the course of this year. And we will continue to extend this partner first strategy globally over the course of this year. We've brought in a seasoned chief revenue officer to accelerate our go-to-market transformation. Allen Peters comes with a powerful combination of CRO leadership across SaaS, security product, and services companies with a partner-led sales approach. He brings demonstrated success in driving incremental ARR growth by accelerating new customer acquisition, platform adoption, and channel growth, and in expanding gross margins through better solutions mix and discount control, all driving improvements in key sales efficiency measures. Before I transition into our path to profitable growth, I'll just add color on our perspective on the macro environment in terms of its impact on sales. We did see longer sales cycles in first quarter than a year ago, largely as a result of increased layers of deal review at customers. But those sales cycle times have been largely in line with more recent quarterly trends. Based on what we see currently, we expect this to continue in the near term. We are driving our business to profitable growth as we complete our business transformation. Tejas continues to perform, growing faster than the industry and scaling gross margins. And as a business, we have and will continue to take decisive actions to align our cost structure with the SaaS nature and the revenue opportunity of our Tejas-centric business model. While Chris will provide more details, I'll highlight three primary areas of action that give us confidence in our ability to drive growing profitability into next year. First, we will continue to take advantage of automation and scale throughout the business. Second, our go-to-market transformation, in addition to benefiting the top line, will drive increased sales efficiency. Third, we are accelerating the reduction of the remaining duplicative and transition costs as we wind down our other MSS business. Of note, the second quarter of this fiscal year will represent the inflection point for total revenue for SecureWorks, with a return to sequential total revenue growth in the second half of this year. Very shortly, Alpana Wegner will join us as our new CFO. Alpana brings to SecureWorks extensive experience developing business strategies to drive outsized growth and strengthening organizations' financial profiles by increasing scale and expanding EBITDA margins through operational efficiencies. We have a clear path and a commitment to managing our business to profitable growth. I want to thank our customers and partners for joining forces with us, and my thanks to our teammates for their hard work and commitment to the SecureWorks mission of securing human progress. I particularly want to thank Chris Grant for his partnership and support, acting as our interim CFO for the past month. And with that, I'll turn the call over to Chris to walk through our financial results and guidance.