SecureWorks Corp.

Good morning, everyone. My name is Bruno and I'll be your conference call operator today. At this time, I'd like to welcome everyone to the SecureWorks Third 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's remarks, there will be a question and answer session. If you'd like to ask a question during this time, please press star one on your telephone keypad. To withdraw your question will be star followed by two. At this time, I'd like to turn the call over to Kevin Toomey, SecureWorks Vice President of Investor Relations. Mr. Toomey, you may begin your conference.

Thank you, operator. Good morning and welcome to SecureWorks third quarter fiscal 2024 earnings call. Joining me today are Wendy Thomas, our Chief Executive Officer, and Alpana 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 measures in the press release and presentation posted on our 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 our Tagus business continued to yield industry-leading results in 3Q, with Tagus revenue expanding 41% year-over-year to over $67 million in the quarter. Tagus annual recurring revenue, or ARR, now stands at $279 million, a 25% growth over last year. In the context of this growth, we recently were recognized as having the largest market share of cloud-native XDR at 32%, as published in the IDC worldwide cloud-native XDR market share report this quarter, and we are delivering on our drive to profitability with a sequential improvement in adjusted EBITDA, narrowing our loss to $1 million in 3Q with a clear path to breakeven next quarter. In the third quarter, we also advanced across several priorities. We accelerated expansion of our platform features and capabilities to provide superior security outcomes for customers and partners, added key partners to the Tejas ecosystem, broadening our reach and expanding our addressable market, and reinforced our market leadership role with new recognition in the marketplace for our platform and solutions. In fact, we are one of only two providers in the leader quadrant in the recent Forrester Wave managed detection and response services in Europe. In short, we are building the foundation for long-term sustainable growth in our highly scalable Tejas business that is recognized by the market as a global leader in XDR. Why does that matter? It matters because XDR represents the next wave of security technology to address persistent security challenges unsolved by legacy SIMs, EDR-focused prevention, or a services-based approach. Against a threat landscape that is constantly evolving, companies continue to grapple with the specter of ransomware attacks, data breaches, and more. In our recent annual threat intel report, threat actor dwell times are down from nearly five days to just 24 hours over the last year. That is where the power of our TAGIS solutions to prevent, detect, and automate investigation and response comprehensively across the entire ecosystem brings ongoing customer protection and value. Against this threat backdrop, companies are also looking to SecureWorks to help them navigate growing privacy and cybersecurity compliance regulations and data provenance protections. We help them outpace growing cyber risk and manage against rising cyber insurance premiums. And the advanced AI and automation capabilities in Tagus mean we scale the security talent required to effectively manage detection and response for organizations at scale. The competitive advantages that TAGIS and the SecureWorks suite of solutions offer are resonating in the market, demonstrably reducing risk and supporting resilience, driving demand for our solutions, and increasing the market's recognition that XDR is the next era in security. I'll turn now to our go-to-market progress. As you know, our unique open without compromise approach to XDR creates multiple go-to-market channels for SecureWorks. and greater addressable market and revenue growth opportunities for our partners. This past quarter, we achieved several milestones in expanding our partner ecosystem and growing our deals one together. As an indicator of traction, in third quarter, more than 90% of GlobalTage's new logo business was closed with a partner, up from less than 40% this time a year ago. An example of the force multiplier when we partner with a solution provider is a competitive deal we recently won with a new customer in financial services. One of its portfolio companies experienced a cyber attack that impacted business operations for an extended period, causing damaging effects both reputationally and financially. With a small centralized security team and multiple solutions deployed across its portfolio of companies, they were looking for holistic visibility and consistent protection across a diverse and siloed technology footprint. The customer cited two keys to their decision our partners consultative services and ability to provide customized billing across their portfolio. And our open XDR approach to securing diverse technology stacks in a unified multi tenant approach. Given the current macro economic backdrop we're encouraged by our conversations with prospects who see the opportunity with pages to scale their spend on both security technology and talent. and to reduce the number of security vendors that they manage while delivering an improved security risk posture and outcomes for their business. For example, we recently signed a new customer, a large healthcare provider, that wanted to replace their legacy SIM as their small security team didn't have the time or expertise to continually manage and optimize it for their security coverage. We won this customer after we were able to show we had advanced detection and automated response capabilities inclusive of but well beyond the endpoint, built into the TAGIS platform. All this with no configuration required and with the use of the TAGIS agent and unlimited 24-7 incident response included, we met their security needs with lower total spend. We continue to expand our MSSP partnerships and enable our better together go to market motion this quarter. We signed a new agreement with one of the largest multinational companies based in Asia Pacific, our largest TAGIS managed services partner in the region. While our MSSP partners appreciate the scale and margins available with an MDR offering on TAGIS, they also cite our unique open endpoint approach with single agent capability as bolstering their ability to win in a broader addressable market. We recently worked with a partner to win a competitive deal with a new customer, a large manufacturing company, that was looking for a replacement for their existing MSSP service wrapped around a SIM, which gave them no visibility into raw telemetry or alerts real time, forcing them to rely on periodic manual reports. The customer was aware that the attack sophistication had changed. They needed to, as they said, up their game. And they additionally wanted to secure their recent investment in Microsoft E5 licenses. The customer was pleased with our open without compromise approach with full visibility and detection capabilities across their O365 and cloud ecosystem. which allows TAGES to be used collaboratively and, most importantly, transparently across customer teams, our MSSP partners, and secure work security experts, all of whom 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 to beat the adversary. In addition to budget considerations, customers are focused on materially reducing cybersecurity risk and building their resilience and ability to respond successfully in case of an incident. Trends in recent years have shown an increase in customer preference for cyber insurance policies, which offer faster response from a pool of pre-approved incident response providers in a more cost efficient manner for the customer. We signed with several large cyber insurance partners in third quarter. including one of the largest multinational insurance providers in Asia Pacific, AXA XL, and an exclusive partnership with Privacy Rules, an alliance of privacy-focused law firms with members in 60 countries. We remain confident that our partnerships are an important path to market as customers value the advisory role that they play in recommending trusted solutions and in easing the procurement process. An insurance panel membership elevates SecureWorks' brand presence and provide strong third-party validation of the TAGES platform and solutions, improving the go-to-market motions for SecureWorks and our partners. As with any new go-to-market motion, it takes time for investments to bear fruit, but we are putting the building blocks in place to position our business for long-term growth. As I look at the market from a macro perspective, we continue to experience elongated sales cycles versus last year. The drivers during the customer decision-making process remain consistent, as most organizations are focused on fiscal prudence around all investments. We continue to see elevated layers of deal review with higher-level approvals required in the customer decision-making process. We have yet to see indications that this will change in the near term. Additionally, Q4 has historically been the strongest quarter for sequential growth in TAGIS ARR. However, we do not expect to see the same level of budget flush we've seen in past fourth quarters, which we are reflecting in our updated fiscal 24 ARR guidance. Moving to an update on new product capabilities. This quarter, we delivered on the expansion of our platform capabilities to better support partners and customers. We introduced the ability for partners to accelerate customer onboarding with streamlined tenant management and advanced customer permission configurations, to efficiently threat hunt across their customer base, leveraging our advanced proactive hunting playbooks, and to bring custom detections and intelligence to the platform with integrations natively. This is one of the many areas where we see the power of collaboration, community, and being open without compromise as the most effective approach to outpacing the adversary. Because we understand the growing importance of cloud protection for our customers, we launched several new capabilities this quarter, including additional AWS integrations, providing increased visibility and leveraging Tagus's detection capabilities for cloud-based threats. Tagus endpoint agent support for additional Linux distributions, helping protect a broader set of cloud-based workloads and making key cloud workload metadata available within Tagus, driving faster triage, investigation, and response workflows. We also delivered on the expansion of our platform capabilities to add features that advanced security and permission configurations in Tagus to address the needs of diverse operational environments, integrating advanced threat detection for real-time awareness. The enhanced security and permission configurations in Tagus cater to a variety of operational needs, offering partners and customers a more versatile, tailored, and comprehensive SOC platform. I continue to be pleased with the outcomes AI is generating for our customers. Tejas has leveraged AI since inception. Our first advanced detectors were machine learning and deep learning based, and we have used AI heavily to drive automation and efficiency through every aspect of the platform. This quarter, we continue to make significant advancements in the Tagus platform, leveraging the integration of machine learning and large language models alongside our unique cloud architecture to enhance the platform's security analytics and SecOps efficiency. Over the last year, we saw significant gains from AI-assisted automation, decision-making, and threat detection. With our investments, we have leveraged our body of investigation reports as training data for the development of a customer-facing reporting system that creates, enriches, and escalates investigation reports in less than half the manual process time. We launched a patent-pending prioritization engine, which processes more than 1 trillion events across our customers. This system helps surface critical threats to better secure customers while improving notification times by 80%, and reducing SOC analyst triage workload by 50%, largely through the elimination of low confidence alerts. This has led to detection improvements for our customers and efficiency gains for us. AI technology is crucial to bridging the widening security talent gap, bolstering our collective defense mechanisms, and democratizing advanced security capabilities. But at SecureWorks, we integrate generative AI into our processes with deliberation and care. Our stance is clear. No technology, however advanced, is presumed secure. It must first endure our rigorous and comprehensive development practices. Only after thorough testing by our product team and security analysts do we consider deploying new capabilities into our platform and making them available to our customers. Our approach is methodical, conducting controlled experiments, continuously educating our team, and, crucially, ensuring that any new capabilities align with our stringent development criteria before, during, and after release. In this way, we not only stay at the forefront of AI development, but we ensure it's not only secure but underpins rapid innovation while upholding our unwavering commitment to deliver on our company purpose to secure human progress. We are delivering and remain committed to building the foundation for sustainable growth that allows us to scale, realize improvements in productivity, and drive operational efficiencies into the business that will enable us to deliver positive adjusted EBITDA. As we saw this quarter, we are driving Tejas margin expansion through automation, continued cloud architecture scaling, and by leveraging our investments in AI. It's equally important that we continue to invest in the highest quality solutions to reduce risk and provide superior security outcomes for our customers and partners. to retain our market leadership position. We are rapidly approaching the sunset of our other MSS business in the first quarter of fiscal 25, a milestone that is a significant positive for our business and which will alleviate the remaining headwind on our total revenue. Our Q3 results give us further confidence in reaching the key milestone of adjusted EBITDA profitability, and we're reaching the inflection point before we complete the wind down of our other MSS business lines. We will continue to reduce costs related to our sunsetting businesses during the first half of fiscal 25, which will contribute to our profitability into the future. I want to thank our customers and partners for joining forces with us, and my thanks to our teammates for their diligence, integrity, and commitment to securing our customers. With that, I'll turn the call over to Alpana to walk through our financial results and guidance.