SCWX - Earnings call transcript Q4 2022

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Operator

Good morning, and welcome to the SecureWorks Fourth Quarter and Full Year Fiscal 2022 Financial Results Conference Call.

Following prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] At this time, all participants are in a listen-only mode.

We are webcasting this call live on the SecureWorks Investor Relations website. After the completion of the call, a recording of the call will be made available on the same site. the Relations. to turn President Storm, now Investor of will call Andrew over Vice I

begin. may You

Andrew Storm

Thanks, everyone, are us. at CEO; for joining Paul SecureWorks. Investor VP and And Relations of with our me Parrish, Wendy our I'm Thomas, CFO. Andrew Storm,

unless call, will we indicated, measures. reference otherwise financial this During non-GAAP

changes You refer and note otherwise website measures earlier unless Please reconciliations also in to posted the GAAP the will presentation our these press all on percentages growth that year-over-year find between non-GAAP release and specified. today.

Finally, our assume a you SEC projected from during to I'd and all press of no this based results that due call forward-looking results web Actual on in are materially to future number filings. and update deck like obligation remind differ and statements. and our statements events forward-looking current uncertainties, to We risks expectations. those that made relate release, events could which discussed statements are to

it turn I'll Now, over Wendy. to

Wendy Thomas

and welcome, Thank everyone. you, Andrew,

since only. Just XXX customers $XXX our the We are of record a initial which million Taegis million added total business QX, software model over two-and-a-half to accelerating X,XXX $XX up launch, now year in finish sequentially, years customers, ARR, transition. in reached with a-third Taegis

reduce teens, by those non-strategic our invested versus from We total increasing shift XXXX. Our gross revenues million. $X.X and and to business, non-GAAP operational fiscal higher-value high last talent, year. efficiencies lower-margin XX% declined on as non-strategic enabled while the headcount in by million, by engineering while profits us we security focus Total headcount remains services driving company, in to year-end services areas increased the transforming $XX solutions scale and marketing with in actively the exited in in away

XX% a As up revenue XX%. nearly per employee was increased and gross per employee profit result,

it's up too happening, that, accelerate shift to independently adversary in solutions operating because controls. we Without increase will is as And and analysts security to our and overworked fiscal has free the the noise transition properly. address, manage point XDR in to. end security spall The And market the between Taegis non-strategic existing until capitalize prior services. XDR to XXXX, of on for to it Our has much together everything down investments weave you brought existing to legacy SIMs, through now, no building solution generated or with leaving transformation diversity volume, data detection spent platform not data catching is We on, requires defeat Creating control that like data. big building the It's and this the us approach, clear single is XDR of span security-first easy. five in billions firewall Taegis. the over effective And holistic for a ransomware payouts. lake and way a are architected with true others to to adversary a with endpoint beyond prevention, a while years vision response. analytics into been a single platform substantial

incident intelligence teams, just make XDR further security rules team, have by designed ingests to not In and email, comprehensive disparate detection response short, patterns behavioral don't across from Without fully working of a parties. Even intelligence develop don't research the dedicated analytics threat with data not operations and visibility incomplete Endpoint-only network, into cloud network, day. forms and data ingest it solution. are supplemented operational from vendors. you That's foundation scalable is noisy. takes on. single a to the a data, unnecessarily lake the data have thousands and all or scientists cloud capabilities customer's our or correlate of is providers, Our buying endpoint, every gleaned Taegis that with XDR telemetry customers detection from built with however, comprehensive the the we've powerful. intelligence threat and so the third other Architecture email. the data,

and started we detection. process an learning extended with alerts. detect we patent detector, of examples. in We through the malware, lake approach true existing it Keyboard that This signatures found built is to threat incident a local filed single our model, not positive security detector and actors, multiple and we noisy events detection to unrivaled X.X soon detector, raising data intrusions learning not detect. This more positive back solutions tools true and for be machine As find We a ways with patent-pending using the data a And to a in went machine but as Hands this brings for released trained XX%. a the which capabilities with as new example, rate malicious where uses on our point would recently were too developed market. trillion over

teams. it. over know And a With the as endpoint them customers are have final live world prevent prevention, been annually, of ecosystem the data the incident unifying X,XXX in analytics, of whenever in to that the doing human purpose-built complete of automation they they The and security at program handles true time key or context bolt-on response services wasn't engagements you're the not much incident Without pull and recently, XDR we A our vulnerabilities the that is patching. XDR our says And orchestration a fight Taegis long constantly akin threat second capabilities to otherwise. levels of workflow response customers and platform every response. and embedded has response part of When day purpose-built security category. most. taken platform big most is no by practices matter lower Like detection after-the-fact how solution the change Vulnerability The delivers enhance capabilities. the a onto and right five engineering prevention. The comprehensive playbooks, step data, relevant away enabling available building the in total don't a Yet, and XDR increasing reason all hard. information into one an embedded organizations best one. architecture, our exercising, It's the customers and ago, extends day, Taegis that management driving automation the need when response XDR provides and of health is problems. for by layer to response do from prevention, practices cost not people third-party exercising until designed it. consuming And pain managed Taegis industry automated our provides we acquisition. the exist the These together a entire know, and together, software XDR a platform security simple. be approach. Bringing access began to intelligent with and, market with With top detection active response and needed component for we were years with didn't a an still patching informed vulnerability security marketing can more response, SecOps. well beyond automation, more over hands-off marries analysts this detection a a is and We've brought viewed ownership. true XDR

to time roster With consistently we're a unique to excellent our market, the our shift behalf, is the Now our leading and built. for this scores on recognized NPS growth clear customers XDR. capitalize on a advocating market of a and solutions in product leadership we've

year. the in one that sales and to It's the peers, investing spent leadership position. capture XDR marketing our of and ARR the highest customers a last Taegis are we've to ahead rates team in and significantly marketing growth yet and our and product value that further less public testament and delivered We historically year maintain opportunity in on of

that standalone see multiple we drivers away security, investments, year, from to and Looking winds ahead, down customers organic accelerating the toward of shift including to growth, hunting sales of marketing partner a product-based additional through from upsell shift increased targeted re-solutioning of point continued approaches for new XDR the this solutions, existing sales and from long-term demand our talent program. work as logos,

tipping want highest-growing Parrish, year are teammates we the our our ahead. of their with for And just transition. to the We've majority all of a one of to for get ago cybersecurity fiscal fuel moment. I'll thank in position We the I higher-quality customers a exit ARR expect support and us substantial the point their of With our at commitment on noise been partners the we to this re-solutioning strong transition, program and the of began and turn building to building Underneath a segments and hard-work Taegis. industry. a Paul year We our and of our with to where to the XXXX business are that, over our are over we year CFO. call

Paul Parrish

And year. to Taegis and Taegis customers. had higher XQ year largest rate. ARR million million, customer of XXX% end ever $XXX This quarter resulted our ARR X,XXX in million in our XX% QX growth guidance sequentially, record a than Taegis and total from at adds Wendy. growth $XX last $XX Thanks, sequential XXX increased we

re-solutioning customer announcement, end-of-sales our accelerated. Following

As ended million XX/XX a growth, was year-over-year, subscription was but below year organic. for revenue up a $XX.X the continued expectations result, Taegis' our ARR two mix year, reflecting of Taegis strong resolution around the XXX% for reasons. versus

re-solutioning of toward closed the majority pushing of quarter, the deals the First, revenue slightly. end out

turning to their impact CTP continue customer see delays services. and security we from down a Second, timing

per last to services premium subscription of have Average quarter, non-Taegis per approximately modest customer as of continue which portion will in our ended re-solutioning Increased proportionately revenue smaller revenues we revenue average MSS we long noted averaged allocate but continuing customer at as decline to Taegis CTP place. migrate, customers, to As led other a year. as revenue we recognize some the a be $XXX,XXX, $XX,XXX. revenue customers to a was customers other as customers in to Taegis

profits full As million, shed $XX higher gross declined revenue by total businesses, $X.X were we million. year nonstrategic yet

to and on of investment compared absolute points the shifted structure we channel. of XXXX. to and costs FY from the mix margins improving an FY dollar XXX basis marketing basis, mix, to XXXX toward We solution our although manage Sales continue leading gross XX.X%, were up cost flat

$X on Adjusted million, year. was last increase no facility. innovation from $XX continue an better year $XXX G&A operations expenses reflecting intelligence gross were $XX margins to with million and Cash a and drive by the in in year. cash, in modestly XX% last by a finished last record of credit $XX R&D was flow We year, CapEx in untapped R&D. threat We of down from million reflected million. maintain our provided in Taegis and research down with debt million investing XXXX offset EBITDA lead FY investments

XXXX. guidance Turning FY for to our

to First, a XXXX. compared FY FY mind year weeks in in have XX-week in keep XXXX we XX

million Taegis' FY XXXX $XXX year. this expect $XXX million We compared to ARR over to end

We and investments, our of through carrying million of ARR, as growth to organic expect year to sales full approximately through incremental should the XXXX. benefit the accelerate we the contribute $XX get FY

returns the meaningful with we're Taegis in XXXX, XXXX. brand half year back into the awareness accelerating the and distribution to of FY be and in expected more For investments global FY in

We expect end-of-sale $XX end services $XXX these other year. below compared have stopped MSS this XXXX announcement, we million our FY selling ARR a to exceptions. with few million Per to

a moved in-house FY partners, we be As $XXX expect to with million customers result, of $XX either XXXX to ARR to churn. in transitioned million or

ARR us the to aggressively the we a portion For most at re-solutioning for significant FY eligible with expect manage year-end, of out $XX cost. million enabling done be excess in remaining to XXXX,

expect We quarter $XXX million revenue million. first $XXX million revenue million, to be total year to to full with $XXX $XXX of

of guidance invest can XXrd be between we by investment in for EBITDA to $XX million expected negative $XX for slightly approximately the we estimate and $X R&D million there the year our growth. is approximately to lead, million million to maintain G&A million $XX OpEx. of in market you in our Full of marketing to increased expected fixed that are year million modeling, $XX expected assume this $XX and is is million, sales incurring of revenue and $XX cost This million is costs transition-related For million, following $XX expectations: as we investments approximately grow with approximately adjusted to to increase reflects duplicate $X week. revenues

approximately gross subscription to the will down though the manage impacting MSS and grow them total will cost, will out, are beyond, FY leverage a in we turn flat. XXXX, on that increase impacted gross resulting FY we we to than cost and delivering toward positively in expenses our margins our FY XXXX XXXX XXXX. services, FY should absolute fixed margins related but being overall brings model. FY XXXX transition an Operating Taegis lower duplicative and at expected us expect be basis, rate operating increase long-term XXXX FY in As margins other by

at improvement Finally, progress EPS to The our is In our in expected now time the making will have begin with growth in to $X.XX please clear for right increasingly potential. Q&A. sight, foundations end us $X.XX question? you lay in consistent the product model we we're transition it's the company. as against for and we loss the transformation and business that is we be Operator, of join Wendy can believe continued again introduce first profitability our summary, growth right our the and business range. now the to mix

Operator

[Operator call from I’ll questions. Cikos first for Instructions] Needham now open & question the Mike with take We'll Company. our

open. Your line is

Mike Cikos

Hey thanks here. guys, to taking up. for I circle the question wanted

slightly dynamics? a think you services. had quarter, were that wanted the maybe that those the further being what as the resolution as in those you from end you both mentioned Taegis to have more I the revenue guys well Can reasons deals, below turning anticipating, CTP at of prepared been bit? impact the Just into comments, the the timing customers that unpack their closing and down delve may two of

Paul Parrish

Yeah, yeah.

forecasted at the we built services. improvement our as So those expectations, would off which some their customers come we in speed own

And so improvement additional didn't occur. that

As timing the the of revenue well amount revenue, later in I the We a occur we in larger still as recognize impacting our quarter, as Taegis. business. is have which the would had

Wendy Thomas

Yeah.

to So Taegis. the MSS matter by little just company that. Taegis. to contracts of I'll revenue other versus the recognized are color and add committed being there. just It's are The a customers a The

So about is a one. a more this, value not creation transition if you this think of challenge,

Mike Cikos

Right, right.

XXXX, a of element be remind question us And as guess out services those what other as this there like on fiscal expected? follow-up slower right, just can would longer I the cause on customer guidance we would think provided be, when as some expected? those you customers and assumption the than again is down, about look to So so hold far turning to may other I you turning services guess to than the

Wendy Thomas

Sure.

So I the of customers. can speak the the examples to -- to some of

some are So customers in are who cases, most transitioning. larger these of the

-- absolutely And they pace on sure which internal just, so no couple things threat end. at slower expected. checking behind essentially make their One, they're than there's was to sort transition is gaps that. their twice often monitoring the of, off turning are There's a of platform in

security often in The second transition, we've in particularly piece with particularly supporting really required are staffing, this customers. larger that some which making of struggling is them of seen staffing, the is IT team type for

fourth working that's then cases, been quarter some that in-house. to something we've as challenges you or in so them economy. services definitely saw overall with in And the we staffing been to transition for And with certain few in a partners know,

so Is dotting that that transition transition a little Ts, crossing where some again, examples -- been taken the longer. the bit just And and just there's has

Mike Cikos

it's the when guys those sales front-year just brand could. awareness, to more been you. accelerating Got should be think I in year. be incremental. how can initiatives might upcoming focused, it good evenly get it, marketing I it'll be of whether more partners, those you on one either again if guys you OpEx Or got to or investments And comment And those I other granular I year? are is focused? deployed. heavily in it out, are and you the is one to want relatively we have a it. -- there that of The expected Anything know see the dollars through did spread around would amount be color that expect more, the calling thinking provide Thank thought that items? back-half about we're investments

Wendy Thomas

the have speak Paul to business then piece. I'll speak Well, I'll to spread and the side, Sure.

at the right time. thing, us, is right the really this for about doing So

seen market of And is, a are the market to a advocates, XDR ideal into leadership is with position we in product what proof clear do now get space both categorize our and the of we've value, and lean of us the in. the to time And of on, those of it, deals. start shift beginning. to majority in we an as So recognition conversations XDR win finally fit, sort we secular really third-party recognition the to customer clear having

lower And proof a customer's so, the given the to and product the investments of this the prospect's hands or date, value frankly, marketing our sales of when it's is point hands. in

get deal spend this single because so every is marketing about conversation open, And is into we investing ourselves possibly we're to can, to going door that that when win.

in partners, this right, the their them So is for us, our education, market with go-to-market. doing supporting with hand-in-hand this XDR also

And as around And you support absolutely are what broad pieces brand call awareness. of that the sort and about response this is so demand spend think brand of I'll the opposed pieces, as generation partner that. some to continued and, of XDR And work. then, into extent, would lesser it's education what why third-party the to extent, customer I some recognition support solution integrated the a of and call to security right that primarily advocacy

the to I I'll targeted, very generic spend, Paul. of then, broad very really increasing what brand would So sort than turn the we've awareness. where you, call rather of seen win, areas majority to targeted the it And

Paul Parrish

And we stepped spend QX. in the, into

this. And we it's time. so right in we And believe thing believe this do the at to

during it's a in And So equally into rest beyond the that. split stepped increase the we of QX, there's but quarters that. slight considered

Mike Cikos

guys. will I you Paul. you. much, Thank very see Thank forward

Operator

you. Thank

comes question Sterling JPMorgan. next with from Our Auty

Your line is open.

Sterling Auty

Yeah. Thanks. Hey guys.

I'm So wondering,…

Wendy Thomas

Good morning.

Sterling Auty

you that what you as fiscal about new we think about this talk that year? …the XX-XX split exit being now, should split

Wendy Thomas

we're expand. Paul's how that's we that accelerated that more guided had the just in continue implies in a of the we've FY ended is a current with basically And piece to as the customer the of for growth buoyed XXXX, broader spoke should and ability split the the rate for total XXXX, exit still safe marketing the organic XX% and As organic the by with this guidance. $XX terms that XDR about But to So between million we That XX-XX market. fiscal in of and end all right? two. so to organic in puck growth base frankly life, shift of the traction. In that on year. conversations, or pretty remarks organic, continuing partner guide Obviously balance still -- we XXXX, tailwinds things more we definitely program transformation the fiscal from growth have just moving use healthy to confident

Sterling Auty

with follow-up going of convert fiscal right, that's what's that be over? one type versus MSS process can the use that XXXX, thought left tail finally kind you to $XX to in the of sticks that all be, then, of ARR And would million carrots exiting of what under terms of to motivate kind what

Wendy Thomas

So there based we market-specific for of -- capabilities. platform some a Asia, it's deploying where piece that, in are

all chunk of It's not big a terms customers, of priorities transition of a if of choice to transition really overall opposed those for are transition the Where or conversations with timing really But we timing it's of carrots. provide their engage whether So now in that we're to our conversations, incentive. particular to will. in having section you than a special -- a business needing them that about more planning for remainder, it's as to the to is make really about that need now.

Sterling Auty

Understood. Thank you.

Wendy Thomas

Thank you.

Operator

Fodderwala comes question with next Hamza Morgan from Stanley. Our

line Your open. is

Hamza Fodderwala

you question. my Thank for the taking Wendy, strategy. question a for you morning. on XDR Good

and only seems you but security XDR, that with multiple a component. that ingest of issues ingestion how was et the it network, within how the is properly do and do so you It cetera, lake endpoint, from data the it your of to data data mentioned analyze one things one you me a standardize the action vectors standpoint. from not So the organization you upon cloud, from also

that, we're it how I'm away doing models. because having you're security, curious, in from So about just seems far really open telemetry going like just

where So secret analysts Or had that guys when that and other you that your aware analysis about experts assistance? some is that sauce the in your come human-level think threat you and of? is portion, not we're threat there intel provide

Wendy Thomas

about dataset means thanks ecosystem. look question, and that having cutting one, part for because data great I the importance it's you is, it there processing, the mean perspective. market a the to that important that the of entire -- if environment But events probably that like the a day-to-day, right, broad way because across endpoint. for in at that adversary here weaves the that's about have really telemetry we're the holistic is us, of our talks only you're we're It's through a a that XX% that processing lot is

actor's speed top time to to techniques. remediation. to that get XDR remediation That in with a that, that of that be is that it's a lets our So response, experience, the using and telemetry data sauce anomalies a security to to mentioned generating It those of ingesting defense detections to across in detection And then a is a it reverse-engineer course, them easy then detect and do is big that, into automation teams but is for massive that understanding of But knowledge high the is apply at it basically the will, that bury industry data anomalies, should is basically techniques that way bunch these this machine to relevant understand really detection quickly, us we of foundational answer of every on adversarial telemetry our is across in testing, the a data that if the platform how absolutely start, leveraged and the our and just understanding have but based probabilities secret alerts. true not lets to of historically, detections a because case hard you those across is readable, the platform. not damage not product the operations that high-fidelity working point that the telemetry on as our very just service noise. to providing way potential provider big normalization of that that our experience leverage threat learnings of teams have leveraging techniques penetration then make we you as of us piece, haystack

Hamza Fodderwala

it Thank keep you. Got at it. I’ll one.

Wendy Thomas

Sure.

Operator

Thank you.

next Kalia Barclays. from with Saket question Our comes

open. is line Your

Wendy Thomas

Saket. morning, Good

Saket Kalia

to on Great. here. morning, this a Okay. you, and for taking the but joined just Thanks good I my was with you your Hey traditional Wendy, all right with coexisting focus much asked, XDR, Wendy. little a say, or talk let's SIM late, traditional with are a base? Maybe start can you how inside customer questions bit little perhaps SIM instances, just displacing if apologies installations, about versus

Wendy Thomas

good So question, it an that of answer lengths over it's is right, frankly with evolving up grows the that based as a understanding XDR and XDR more customers and come to contract of replacement that their both clear. time, knowledge SIM for now of on renewal getting or

So there was more of coexistence. in the much sort beginning, a

how this see Let's goes.

very be from or that data perspective. ownership better do them Let's now, security But data relevant with Taegis, at And XDR it. with much see those for and than it the outcomes a reasonable looking make very difficult frankly ROI all not our be ongoing, like to use of and on cases of of wallet, you think detectors those data, SIM much frankly, at the can from where are to that understanding build plus platform expensive work increasingly opportunity are. from ingest you you're build the platform XDR maintain, if an the more a use we about giving user more asset and a an the that to that really could as to that better again of relevant helping could ability customers about, fact data address, to information, and, it essentially cost here Because, better real-time maintain that to we with while makes to an enrich customers, just it's context. SIM but what shift share basis we

Saket Kalia

with maybe Got to apologies it. as at space, it. or your versus you look part at MSS you, explore quantitatively sort what as question Paul, qualitatively traditional maybe was your takes the my -- MSS I talked but you customer look either them sure, place? earlier. chose was of of a looking that you’ve and per maybe Taegis again, but see -- backwards, what's other think after basis, event can sort about that choose you that percentage revenue follow-up an mentioned the you options? for resolution of Got typical of for this And does when wasn't second if total already average I uplift earlier, if on is, to resolution, customer

Paul Parrish

Yeah.

excited So I customers Taegis are of all the products. about our think

ask all of are So their walk. for interested, where the are we this all to in right when them listening, you And board. see about they for that, their so trying all the across interest determine them? -- time Is

high they happy their interest level, or our if resolutions with average So customer. your selling is On And you're effect that very either asking the we're we're actual very technology. the per across when their roughly all walk where not. new revenue revenue customers. are The per customer a into plays logos out. average on Where in customer, roughly seeing we're a resolution customer coming in at

Wendy Thomas

Taegis comparison, for $XXX,XXX on low the And compares Yeah. XXs. to

CTP its platform. think on I $XX,XXX the So

their the feature a other full spend, situation. in of estate -- now displace to to posture and They're continue we again, platform. see with So higher of standalone is cases average coverage able, up-shifting for some their are entire the spend the which same

that So trend continues.

Saket Kalia

Helpful. Thank Got you. it.

Wendy Thomas

you. Thank

Operator

Thank you. We'll now take our Sachs. from question Brian with Goldman final Essex

line Your open is

Unidentified Analyst

of of you. is Can these for about existing It's were question. base? net on Thank record number logos logos versus customers your talk how to conversion you Taegis nice see in Brian. This many of of XQ new Hi. the Quick Charlotte XXX.

Wendy Thomas

terms for the that about the Yes. base is our in on a the We XX-XX growth talked year, call split. of of about Taegis ARR

the per average revenue shift material a seen customer. haven't We in

shift. so mix the And generally have those been same following

Unidentified Analyst

Taegis. on another Got And question you.

that have seen you competitive seen changes? that Now have a your landscape? you last what announced -- with -- you have in Or partnership you year, shift endpoint the you any

Wendy Thomas

not endpoint, to? exactly the AV next-gen in -- what the is which In of you're I'm referring terms terms sure of --

Unidentified Analyst

Yes.

Wendy Thomas

simplicity that got customers shop. for We've a strategy traction the quite in is want mid-market endpoint that whole the Again, controls lower nice the tend where capabilities, security partnerships. giving vendor a that. Taegis end few them in from together sometimes Yes, one-stop and find with We then the and end customers market simplicity, on the We've of individual of engagement option XDR. pricing, customers want larger select bring the do to absolutely. behind to seen

that just with of simple capabilities holistic again makes for partner wallet, us. the things So XDR for of and just making platform. is to sense And share easy ton about customers capturing for of a it a us,

Unidentified Analyst

Great. Thank insight. you for the

Unidentified Analyst

Thank you.

Operator

turn remarks. in questions the other no are to queue. the for I'd back closing Andrew like There call to

Andrew Storm

today's Q&A ends call. QX web you Investor Well, Thank be available in at page again today. the additional this our A webcast secureworks.com, joining with deck and replay Great. will that tables. our for Relations financial along on of us

Wendy Thomas

Thank you.

Operator

gentlemen, and today's concludes call. Ladies this

disconnect You time. may this now at

SecureWorks (SCWX) 17 Mar 222022 Q4 Earnings call transcript