SecureWorks Corp.

Good morning, my name is Candice and I will be your conference operator today. At this time I would like to welcome everyone to the SecureWorks fourth quarter and four year fiscal 2024 results conference call. All lines have been placed on mute. To prevent any background noise and 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 Start followed by 1 on your telephone keypad. If you would like to withdraw your question, press Start followed by 2. Thank you. At this time, I would like to turn the conference 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' fourth quarter and full year 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. Our TAGES business continued at strong momentum in fiscal 2024. TAGES revenue grew 41% year over year, with full year revenue reaching $265 million. TAGES annual recurring revenue, or ARR, now stands at $285 million, representing 9% growth over last year. We are well on track for completing our business transformation, with TAGES ARR reaching 96% of our total ARR at year end. Today we are less than 60 days away from a significant positive milestone, the end of life of our non-strategic lines of business. And our Q4 attainment of positive EBITDA was another major milestone as we over-delivered against our plan on our path to profitability. I am energized by what we're accomplishing with progress in several areas this past quarter. We have continued the expansion and grown the impact of our partner ecosystem. grown TAJA's average revenue per customer, leading peers by more than 60% on average, advanced our industry-leading platform with features and capabilities most valued by customers and partners, and further expanded our margins through cost optimization efforts, leveraging our uniquely scalable cloud architecture, and many years of development in our automation and AI capabilities. Importantly, our unique, OpenXDR-based approach to driving superior security outcomes is increasingly receiving accolades by the market. This quarter, we were recognized by Frost and Sullivan with a Competitive Strategy Leadership Award in the global XDR industry, a testament to our strategy effectiveness and execution, competitive differentiation, and exceptional SecOps experience for our customers and partners. The threat landscape evolution is accelerating. Last year, average threat actor dwell times fell below 24 hours from four and a half days in 2022. And the pace of technological advancement, which creates opportunity for businesses to grow, also makes it challenging for them to outpace the adversary on their own. While ransomware attacks remain the primary threat facing organizations, we are now witnessing the early impacts of AI on threat vectors via deep fakes and increasingly savvy phishing attacks. This means that our AI-powered Tagus detection and response platform is more relevant than ever for customers. And our Tagus XDR platform is unique. It was built from day one to be open without compromise. And we designed it that way for several reasons. First, superior threat detection and response. Tagus' seamless integration with a wide range of technologies and systems stands as a critical advantage ensuring a cohesive and unified security posture across diverse IT environments. We also see customers with an assortment of security controls, and many of these take time to replace securely. So interoperability is a key to comprehensive and continuously effective threat detection. But detection is insufficient without broad automated response capabilities. Not only does TAGIS provide native automated investigation and response playbooks, that work in concert across our integrations, but also over 70% of our customers and partners have developed their own playbooks to adapt TAGE's automated response actions to their environments. As a result, we see over 6,000 configured playbooks running across all TAGE's tenants, thwarting millions of threats in real time. Second, security at the pace of business. Great security shouldn't hamper the choices organizations make in their next-gen technology investments and architecture design. Tagus is designed to ensure that our customers have a choice, that their security posture can evolve effortlessly with their changing technology investments, essential for maintaining an effective defense for any environment. In fact, we recently won a deal with a large transportation agency that chose Tagus to displace an MDR provider as they came up for renewal. Our open approach was an important differentiator, given our platform's ability to bidirectionally integrate and work within not only their existing technology ecosystem, but also with their technology roadmap vision. This customer was impressed by the greater visibility Tejas XDR provides, with the ability to see alerts with context, and to query data directly in a way that their MDR vendor could not, while having live chat access to a security expert when needed. and proactive threat hunting capabilities meant that they could go on the offensive. This customer chose Tejas for its ability to deploy quickly within their existing ecosystem for a more scalable detection and response answer at a compelling, predictable cost of ownership. Third, customer choice. We know for many organizations, they operate with mixed security control and sensor environments, and we anticipate that they will continue to do so into the future as they experiment and adapt to changing needs. Cages uniquely gives customers optionality to do so securely. We are unique in taking an open endpoint approach with single agent capability, which allows us to integrate XDR and MDR seamlessly for customers deploying vendors with the majority of the endpoint market, providing the speed and breadth of security coverage they need. Our supportive choice means that customers can work within their own time constraints around their technology evolution with optionality to evolve their security controls to save vendor spend and management costs at a compelling per endpoint pricing model that has no surprise variable data charges. As an example, we recently deepened our relationship with a large healthcare company based in Australia. We had deployed TAGIS with the parent company, which was able to observe the side-by-side comparison of cost and operational burdens of their subsidiary SIM solutions versus our Cages platform. With the overall value and efficiencies the parent company gained from Cages, they chose our open platform to displace both their MDR provider and SIM that were forcing them to rationalize the data they were ingesting to keep costs down. We were able to save the team time spent on maintaining customizations of their SIM, provide 12 months of data standard, and eliminate the high cost of data charges with predictable spend for them. In sum, we continue to meet the needs of customers seeking the best combination of controls to maximize security value and their return on investment across endpoint network identity and cloud. Better outcomes with a sticky yet flexible platform positions us to capture growing demand well into the future. Since the very beginning, Cages has leveraged AI to drive automation and efficiency through every aspect of the platform. We combine the best of advanced analytics, artificial intelligence, and machine learning to detect malicious activity that may be missed by signatures, prioritize the threats that matter, automate routine investigations, and respond in near real time to any advancements made by the adversary. Our competitive advantage in this area is driven by the volume and variety of data we ingest. Combined with the intuition we get from our expert security analysts, that enables the platform to constantly learn and adapt to the adversary. With more than 700 billion security events per day and thousands of real-world SOC investigations conducted every month, Cages demonstrably protects our customers more effectively than our competitors. AI is key to enabling Cages to scale the security talent required to manage detection and response for organizations of all sizes. A few examples of Tagis' AI in practice include our patent-pending hands-on keyboard detector that's finding threat actors living off the land, even when zero days are used as the initial access vector. Our patent-pending alert prioritization system that increased the triage productivity for SecOps analysts using Tagis by over 100% last year. Building on these capabilities, we launched our AI-powered threat score last quarter, which leverages our alert prioritization system to further reduce alert noise while more rapidly and accurately surfacing critical threats, leading to better security outcomes for our customers and efficiency gains for all. We're also using large language models to help SecOps become even more efficient, automating initial investigation summaries, improving detection logic and decision-making, and rapidly normalizing third-party alerts that may be new to the system. Today, approximately half of all Tejas investigations are automated. And this is only the beginning. We are continuing to invest in new capabilities through both add-on and native security products to deliver additional value to our customers and give us the opportunity to expand our share of wallet. I'll turn now to our go-to-market progress. We accelerated the expansion of our partner ecosystem over the last year, broadening our reach and addressable market. We now work with more than 400 partners across tech alliances, solution providers, managed services providers, and cyber insurers, including leading providers in each category. And we remain committed to supporting and expanding these partnerships globally. For example, we continue to advance our global MSSP partner program in Q4 with the addition of a forward-thinking multinational MSSP headquartered in India. This partner provides services for some of the world's most recognizable brands and saw the need to improve security for their customers and deliver better results for their business by shifting to Tejas from their existing SIEM. In fourth quarter, we also saw improving levels of sales productivity with our Better Together go-to-market motion. Partner-created opportunities were up 20% in Q4, and our partner win rate and sales contribution per partner was up sequentially each of the last four quarters. Our partners are winning more, growing faster, and registering more opportunities with us based on the value they see TAGIS and our partner programs bringing to their customers. In the fourth quarter, around 90% of global TAGIS new logo business was closed with a partner, more than double the prior year period. and the market is recognizing our successful shift to a partner-first approach over the last year. We were recently named to CRN Security 100, recognizing our commitment and work with our partners to protect businesses from cyber threats. One great example of the success of a great combined win, both for the customer and one of our Technology Alliance partners, is a deal we closed this quarter with a large European law firm. During the proof of value, we were able to quickly demonstrate the increased value to the customer of our combined solution through the power of TAGIS cross-correlating detections efficiently across all of their data. As a result, they quickly saw fewer but higher fidelity critical alerts. And because of that noise reduction, their team knew they could focus more time elsewhere, advancing their overall security posture and program. Before I shift gears and discuss our drive to profitability, I would like to provide some market context. Demand for our OpenXDR platform solution remains strong, and cybersecurity remains a top priority for C-suite executives. In our conversations with prospects, they see the opportunity for Tejas 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 organization. In terms of buyer behavior, we have yet to see any material changes that would indicate a significant change in behavior in the year ahead. It remains an environment with a rational focus on fiscal responsibility with customers continuing to follow more layers of deal review and higher level approvals in the decision-making process. However, we have not seen any need for changes in pricing or discounting to win deals. Our panel will discuss our Q4 results and fiscal 25 outlook in a moment, but it is important for me to recognize the progress on profitability. achieving positive EBITDA in Q4. This is a testament to the hard work of our teammates, growing our TAGES business while completing the transformation of our business model and actively streamlining our cost structure. We are delivering and remain committed to driving sustained growth while improving the scale, productivity, and operational efficiencies of our business. As we look to fiscal 25, I'm excited about the opportunity ahead of us. As I noted earlier, Q1 of fiscal 2025 will mark the sunset of our other MSS business. We announced its end of life just over two years ago, and we have delivered on our committed timeframe. This major milestone will alleviate the remaining transformation headwind on our total revenue and EBITDA. We delivered on and are committed to further CAGIS growth margin expansion, which we drive in primarily two ways. First, through continued optimization of our cloud architecture. while supporting the best customer security outcomes. We carefully consider how we transport, process, and store data throughout our platform with a cost-effective approach to data access speed and resilience. Our engineering team delivers 12 months of data storage for customers standard against competitors who average one month, yet we've driven cloud cost per endpoint down nearly 20% over the last two years. Two, Our margins also reflect our use of AI and automation to scale MDR delivery. While our Tagus revenue grew double digit last year and customer satisfaction and NPS scores increased year over year as well, our spend on SecOps remained flat. In conclusion, demand for our open platform remains strong. We have and will continue to invest in innovations for our Tagus XDR solution to meet the security needs of our customers and partners providing security outcomes at a fully predictable and compelling total cost of ownership. We remain confident that our open without compromise approach, ongoing investments in Tejas, and our growing successful partnerships will ensure Tejas is a platform of choice for organizations to bolster their security posture now and in the years ahead, setting the foundation that will drive our growth. I want to thank our customers and partners for joining forces with us. and I deeply appreciate 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.