SecureWorks Corp.

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, please press star then two. Thank you. At this time, I would like to turn the call over to Kevin Toomey, SecureWorks Vice President of Investor Relations. So, Mr. Toomey, you may begin your conference.

Thank you, Operator. Good morning, and welcome to SecureWorks' second quarter fiscal 2024 earnings call. Joining me today are Wendy Thomas, our Chief Executive Officer, and Valpana Wegner, our Chief Financial Officer. During this call, unless otherwise indicated, we will reference non-GAAP financial measures You will find the reconciliations between these GAAP and non-GAAP financial measures in the press release and presentation posted on the website earlier today. 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, which you can also find on the investor relations website at investors.secureworks.com. We assume no obligation to update our forward-looking statements. With that, I'll turn the call over to SecureWorks CEO, Wendy Thomas.

Thank you, Kevin, and welcome, everyone. I'm pleased to share that we delivered on our financial commitments in the second quarter, and executed on several key strategic milestones. We also took actions to align our cost structure to our go-forward SAS business, lying the foundations for profitability in fiscal 25. CAGIS annual recurring revenue, or ARR, was $276 million at the end of the second quarter, and CAGIS revenue grew 55% year-over-year to $66 million in the quarter. To put those numbers into context, that puts us in the top three in terms of global market share for managed detection and response out of more than 50 tracked companies as published by Gartner. The majority of organizations find it challenging to outpace growing cyber risk without the technology and expertise SecureWorks and its partners bring to managing detection and response operations. Our platform design and productization strategy positions us to leverage MDR as the leading edge to drive adoption of our Tagus XDR platform, differentiating our managed XDR approach from others in the market. This, with our multiple partner-led go-to-market paths that broaden our reach and coverage, enable us to capitalize on a large and expanding market opportunity. The Tagus platform was uniquely designed to address the security challenges of our customers and partners in several ways. First, Tagis is open without compromise. This means Tagis provides customers real choice around security controls, such as endpoint, cloud, identity, and network, and more importantly, pivots with customer technology choices over time. And as market recognition of our XDR platform grows, I'm pleased to share what we were named a leader in the recent 2023 Frost & Sullivan XDR Radar Report earning the top innovation spot in the open XDR category. Second, CAGIS provides superior detection, separating the signal from the noise. And with our fixed per-end point pricing, we incent customers to share the full breadth of their security telemetry with us. This translates into enhanced detection performance for our customers, and alleviates the need for them to compromise security for the purpose of minimizing the volume-based pricing that many XDR vendors charge. And as our partner ecosystem expands, the depth and breadth of the telemetry we ingest makes Tagus even more powerful. Third, Tagus provides unmatched response with integrated proprietary orchestration and automation capabilities, a growing set of response playbooks, and access to unlimited incident response. What this means for our customers is an industry-leading return on investment with superior security outcomes. I'll turn now to a couple of market observations and then provide an update on our go-to-market results. First, consistent with the reports of others in the industry, we continue to experience longer sales cycles than a year ago. These are largely driven by longer customer decision-making cycle times, primarily a result of increased layers of deal review. In this environment of heightened fiscal responsibility, technology budget decisions more often reach the highest levels of the organization. We do not see indicators of this changing in the near term. Second, we're encouraged to see more prospects actively planning for XDR adoption as market awareness grows and customers, who have already adopted Tagus XDR, laying out roadmaps for security vendor consolidation. With native security controls, embedded orchestration, and a minimum of one year storage included, Tagus XDR makes it possible for customers to realize better security for less money with fewer vendors. Let me share some customer examples of how Tagus is resonating in the market. Last quarter, we won a leading utility infrastructure company, where the team had invested in a variety of security controls in recent years in response to a security posture assessment. But the results weren't what they were hoping for. Their team was overwhelmed with low fidelity alerts from a variety of costly and unconnected security controls and in the face of rising cyber risk to their business. This customer was seeking valid detections and a streamlined approach to investigations and remediation. and they had a mandate to scale their existing investment in their SOC team. They saw the power of Tejas XDR to work across their existing investments with a path to streamline those investments as contracts come up for renewal. And importantly, they immediately benefited from fewer higher fidelity detections with full threat context and response recommendations. They have shared with us and other prospects how powerful and reassuring it has been to have rapid access to security experts via chat in 90 seconds or less, a unique feature for subscribers to our XDR software. Another great win this quarter was an expansion with a current customer, a $6 billion multinational consumer goods manufacturing company that saw the power of Tagus in improving their security operations in Europe and decided to extend Tagus to the rest of their organization. Cages enable them to implement a global governance model across their corporate headquarters and regional security teams across all major continents of the world. The ease of deployment and the ability to seamlessly manage operations across a follow-the-sun SOC model, as well as predictable pricing, were the key drivers for this customer to expand their relationship with SecureWorks as their global security platform partner. I'd like to share a few highlights on how we are expanding our partner ecosystem through our multiple go-to-market channels, including MSSPs that sell and deliver Tagus-powered security services under their brands, solution providers that sell Tagus with SecureWorks-delivered services in targeted markets, cyber risk partners who can reduce breach exposure for their customers by leveraging our portfolio of solutions, and technology alliance partners who create seamless protection for our joint customers. We made great progress in our MSSP partner program this quarter, a large and growing market opportunity for us. Partners are choosing to build their MCR business on TAGIS based on the compelling return on investment opportunity and positive TAGIS customer feedback. While these relationships have a long sales cycle, we're seeing the beginning stages of pipeline conversion with our MSSP partners, as indicated by our new partnership with EY. EY recently announced their intelligent extended detection and response service powered by SecureWorks Tagus XDR. Tagus is uniquely positioned to be the platform of choice for MSSPs to run their security operations with maximum effectiveness and efficiency, creating better outcomes for their customers, and grow their business profitably. Turning to solution providers. We've expanded our partner first motion since our launch in North America last December, having executed on our plan to extend the program to the Middle East, the United Kingdom, and to Europe. We remain confident that these partners are an important path to market as customers value the advisory role that solution providers play in recommending trusted solutions and easing the procurement process. With any new sales motion, instead of relationships like this, it takes time to ramp. Under the leadership of our new CRO, who started this past quarter, we are deepening our relationships with the partner community globally and refining the sales motions to capitalize on the partner-led opportunity. Year-to-date, more than 60% of global TAGIS new acquisition business was closed with a partner. We are also expanding our technology alliance relationships. We remain committed to cementing new partnerships with market leading technologies to create seamless security visibility and superior security outcomes for our customers enabled by the open XDR approach of Cages. For example, we recently announced a partnership with Akamai, a global cloud services leader, integrating their leading zero trust network access solution into Cages. Embedding the data and intelligence to scale secure access is fundamental in an era of work anywhere. which is driving an identity to become the new perimeter. Moving to an update on product development, this quarter we expanded our platform capabilities to improve alert triage with an automated rule-based process for creating and updating investigations, directly benefiting our customers by minimizing the time between detection and executing a response. This also drives scale by reducing the workload for MDR analysts. This is just one example of our investments in automation this year that have yielded a significant reduction in the time to complete investigations, supporting more rapid response, and driving our highest customer satisfaction ratings in this area to date. If you recall in the first quarter, we discussed two new offerings to unify the way companies prevent, detect, and respond to threats across both IT and OT or operational technology environments. During the second quarter, we launched Tagus integrations with two leaders in OT monitoring, Clarity and Dragos, which can be managed via the Tagus UI in the context of a customer's entire attack surface. These new partnerships provide more visibility, threat detection and response for traditionally siloed IT and OT environments, while improving the search, event analysis and response experience in Tagus. We are seeing strong interest in our OT offering as we are well positioned to address the rising risk of breach from converged OT and IT environments in the industrial space. Before I hand the call over to Alpana to walk through our financial results, let me shift gears and talk about our path to profitable growth. Our competitive advantages are resonating in the market and demand for our solutions is increasing. The depth and breadth of our partnership ecosystem provide diverse vectors for growth well into the future. I am pleased with the progress our team has made since the launch of our partner-first go-to-market motion. But with broader sales cycle elongation, the conversion to the top line is taking longer than we initially projected. In addition, our other MSS business lines are sunsetting faster, which is a positive for the business in the long term. However, it is creating a near-term headwind on our total revenue this year. As such, we are revising our full-year revenue and ARR guidance to reflect these shifts in timing. We are delivering and remain committed to improving adjusted EBITDA while investing in the highest quality solutions and security outcomes for our customers and partners to retain our market leadership position. 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 also want to welcome Alpana Wegner to her first SecureWorks earnings call since joining us in June. I look forward to working closely with her as we drive growth and scale into our business. With that, I'll turn the call over to Alpana to walk through our financial results and guidance.