Q3 2024 SecureWorks Corp Earnings Call
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Speaker 1: Good morning everyone. My name is Bruno and I'll be your conference call operator today.
Good morning, everyone. My name is Bruno and I'll be your chorus call operator today.
Speaker 1: It's time I'd like to welcome everyone to the SecureWorks Third Quarter Fiscal 2024 Financial Results Conference.
At this time I would like to welcome everyone to the secure works third quarter fiscal 2024 financial results conference call at.
Speaker 1: All lines have been placed on mute to prevent any background noise.
All lines have been placed on mute to prevent any background noise.
Speaker 1: A supplemental slide presentation to accompany the prepared remarks can be found on the company's website.
A supplemental slide presentation to accompany the prepared remarks can be found on the company's website.
Speaker 1: After the speakers remarks, there will be a question and answer session.
After the Speakers' remarks, there'll be a question and answer session.
Speaker 1: If you'd like to ask a question during this time, please press star 1 on your telephone keypad.
If you'd like to ask a question. During this time. Please press star one on your telephone keypad.
Speaker 1: To withdraw your question, we'll be star followed by two.
To withdraw your question, we'll be star followed bite too.
Speaker 1: 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.
At this time I would like to turn the call over to Kevin to me secure works Vice President of Investor Relations. Mr. <unk> you may begin your conference.
Thank you operator, good morning, and welcome to secure works third quarter fiscal 2024 earnings call. Joining me today are when do you Thomas our Chief Executive Officer, and Andrew Wagner, Our Chief Financial Officer. During this call unless otherwise indicated we will reference non.
Speaker 2: 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.
Speaker 2: During this call, unless otherwise indicated, we will reference non-GABS financial measures.
non-GAAP financial measures.
Speaker 2: You will find the reconciliations between these GAP and non- GAAP measures in the press release and presentation posted on our website earlier today.
You will find the reconciliations between these GAAP and non-GAAP measures in the press release and presentation posted on our website earlier today.
Speaker 2: 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.
Finally, I would 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 and SEC filings, which can also fund.
Speaker 2: Actual results and events can 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.
The Investor Relations website at investors don't secure works Dot com, we assume no obligation to update our forward looking statements with that I will turn the call over to secure work CEO, whether you Thomas Thank you, Kevin and welcome everyone.
Speaker 3: I'm pleased to share that our Tejas business continued to yield industry leading results in 3Q, with Tejas revenue expanding 41% year over year to over 67 million in the quarter.
I'm pleased to share that our tissue business continued to yield industry, leading results in <unk>.
With Tejas revenue, expanding 41% year over year to over $67 million in the quarter.
Can you just annual recurring revenue or <unk>.
Speaker 3: CAGE's annual recurring revenue, or ARR, now stands at $279 million, a 25% growth over last year.
<unk> now stands at $279 million or 25% growth over last year.
Speaker 3: 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.
In the context of this growth. We recently were recognized as having the largest market share of cloud native xdr at 32%. It was 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.
Speaker 3: with a sequential improvement and adjusted EBITDA, narrowing our loss to $1,000,003Q with a clear path to break even next quarter.
Our loss to $1 million and three Q with a clear path to breakeven next quarter.
Speaker 3: In the third quarter, we also advanced across several priorities.
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.
Speaker 3: 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.
Added key partners to the pages 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.
Speaker 3: and reinforced our market leadership role with new recognition in the marketplace for our platform and solutions.
Speaker 3: 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 fact, we are one of only two providers in the leader quadrant and the recent Forrester wave managed detection and response services in Europe.
In short we are building the foundation for long term sustainable growth and our highly scalable tedious business that is recognized by the market as a global leader in xdr.
Speaker 3: In short, we are building the foundation for long-term sustainable growth in our highly scalable CAGIS business that is recognized by the market as a global leader in XDR.
Why does that matter.
Speaker 3: 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.
It matters because xdr represents the next wave of security technology to address persistent security challenges unsolved My legacy Sims Edr focused prevention or services based approach.
Speaker 3: Against a threat landscape that is constantly evolving, companies continue to grapple with the specter of ransomware attacks, data breaches, and more.
Against the 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.
Speaker 3: 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 Tejas solutions to prevent detect and automate investigation and response comprehensively across the entire ecosystem brings ongoing customer protection and value.
Speaker 3: That is where the power of our Tejas solutions to prevent, detect, and automate investigation and response comprehensively across the entire ecosystem brings ongoing customer protection and value.
Speaker 3: 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.
Against this threat backdrop companies are also looking to secure works to help them navigate grilling privacy and cybersecurity compliance regulations and data provenance protections.
We helped them outpace growing cyber risk and manage against rising cyber insurance premiums.
And the advanced AI and automation capabilities and pages I mean, we scaled our security talent required to effectively manage detection and response organizations at scale.
Speaker 3: And the advanced AI and automation capabilities in Tejas mean we scale the security talent required to effectively manage detection and response for organizations at scale.
The competitive advantages the pages and the secure work suite of solutions offer are resonating in the market.
Speaker 3: The competitive advantages that Tejas and the SecureWorks suite of solutions offer are resonating in the market, demonstrably reducing risk.
Demonstrably, reducing risk and supporting resilience.
Speaker 3: driving demand for our solutions, and increasing the market's recognition that XDR is the next era in security. I'll turn now.
Driving demand for our solutions and increasing the market's recognition. The next deal or is the next era and 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 secure works and greater addressable market and revenue growth opportunities for our partners.
Speaker 3: 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 partner.
Speaker 3: This past quarter, we achieved several milestones in expanding our partner ecosystem and growing our deals one together.
This past quarter, we achieved several milestones in expanding our partner ecosystem and growing our deals one together.
Speaker 3: As an indicator of traction in third quarter, more than 90% of GlobalChange's new logo business was closed with a partner, up from less than 40% this time a year ago.
As an indicator of traction in third quarter more than 90% of global Tejas, 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 and financial services.
Speaker 3: An example of the force multiplier when we partner with a solution provider is a competitive deal. We recently won with a new customer and financial service.
Speaker 3: One of its portfolio companies experienced a cyber attack that impacted business operations for an extended period, causing damaging effects, both reputationally and financially.
One of its portfolio companies experienced a cyber attack that impacted business operations for an extended period, causing damaging effects both reputation Lee and financially.
With a small centralized security team and multiple solutions deployed across its portfolio of companies.
Speaker 3: with a small centralized security team and multiple solutions deployed across its portfolio of companies.
They were looking for a holistic visibility and consistent protection across a diverse and siloed technology footprint.
Speaker 3: They were looking for holistic visibility and consistent protection across a diverse and siloed technology footprint.
Speaker 3: 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.
The customer cited two keys to their decision.
Partners Consultative services and ability to provide customized billing across their portfolio.
Our open xdr approach to securing diverse technology stocks and a unified multi tenant approach.
Given the current macroeconomic 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.
Speaker 3: Given the current macroeconomic backdrop, we're encouraged by our conversations with prospects who see the opportunity with cages to scale their spend on both security technology and talent.
Speaker 3: and to reduce the number of security vendors that they manage while delivering an improved security risk posture and outcomes for their business.
And to reduce the number of security vendors that they manage while delivering an improved security risk posture and outcomes for their business.
Speaker 3: 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.
For example, we recently signed a new customer a large healthcare provider that wanted to replace their legacy Sim because they're small security team didn't have the time or expertise to continually manage and optimize it for their security coverage.
Speaker 3: 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 Tejas platform.
We won this customer after we were able to show we had advanced detection and automated response capabilities inclusive of but well beyond the endpoints built into the <unk> platform.
Speaker 3: All this with no configuration required and with the use of the Tejas agent and unlimited 24 7 incident response included, we met their security needs with lower total spend.
All of this with no configuration required and with the use of the tedious agent and unlimited twenty-four seven incident response included we met their security needs with lower total spend.
We continue to expand our MSS P partnerships and enable our better together go to market motion this quarter.
Speaker 3: We continue to expand our MSSP partnerships and enable our better together go to market motion this quarter.
Speaker 3: We signed a new agreement with one of the largest multinational companies based in Asia Pacific, our largest CAGIS managed services partner in the region.
We signed a new agreement with one of the largest multinational companies based in Asia Pacific Our largest cages managed services partner in the region.
Speaker 3: while our MSSP partners appreciate the scale and margins available with an MDR offering on CAGES.
While our MSP partners appreciate the scale and margins available with an M D. Our offering on pages.
Speaker 3: They also cite our unique open endpoint approach with single agent capability and bolstering their ability to win in a broader addressable market.
They also side our unique open end point approach with single agent capability.
Bolstering their ability to win in a broader addressable market.
We recently worked with our partner to win a competitive deal with a new customer a large manufacturing company that was looking for a replacement for their existing MSP service wrapped around a sim.
Speaker 3: We recently worked with a partner to win a competitive deal with a new customer, a large manufacturing company that was looking for our placement for their existing MSSP service wrapped around a FIM.
Speaker 3: 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.
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 set up their game.
Speaker 3: And they additionally wanted to secure their recent investment in Microsoft D5 licenses.
And they additionally wanted to secure their recent investment and Microsoft five licenses.
The customer was pleased with our open without compromise approach with full visibility and detection capabilities across their O 365 and cloud ecosystem.
Speaker 3: The customer was pleased with our open without compromise approach with full visibility and detection capabilities across their O365 and cloud ecosystem.
Speaker 3: which allows pages to be used collaboratively, and most importantly, transparently across customer teams, our MSSP partners, and SecureWorks 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.
Which allows teachers to be used collaboratively and most importantly, transparently across customer teams, our MSP partners and secure 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 interoperable in real time to beat the adversary.
In addition to budget considerations customers are focused on materially reducing cyber security risk and building their resilience and ability to respond successfully in case of an incident.
Speaker 3: 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.
Trends in recent years have shown an increase in customer preference for cyber insurance policies, which offer faster response from a pool of preapproved 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 and alliance of privacy focused law firms with members in 60 countries. We.
Speaker 3: We signed with several large cyber insurance partners in third quarter, including one of the largest multinational insurance providers in Asia Pacific acts to excel and an exclusive partnership with privacy rules, an alliance of privacy focused law firms with members in 60 countries.
Speaker 3: 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.
We remain confident that our partnerships are an important path to market as customers value the advisory role that they play and recommending trusted solutions and an easing the procurement process.
And insurance panel membership elevate secure X brand presence and provides strong third party validation of the tedious platform and solutions improving the go to market motions for secure works and our partners.
Speaker 3: An insurance panel membership elevates SecureWorks brand presence and provides strong third-party validation of the Tejas 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.
Speaker 3: 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.
Speaker 3: As I look at the market from a macro perspective, we continue to experience elongated sales cycles versus last year.
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 remained consistent as.
Speaker 3: The drivers during the customer decision-making process remain consistent, as most organizations are focused on fiscal prudence around all investments.
As most organizations are focused on physical prudent surround all investments.
We continue to see elevated layers of deal review with higher level of approvals required in the customer decision making process.
Speaker 3: 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.
Speaker 3: We have yet to see indications that this will change in the near term.
Speaker 3: Additionally, Q4 has historically been the strongest quarter for sequential growth in Tejas ARR.
Additionally, Q4 has historically been the strongest quarter for sequential growth in <unk>.
Speaker 3: 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.
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 'twenty for a or our 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.
Speaker 3: This quarter, we delivered on the expansion of our platform capabilities to better support partners and customers.
Speaker 3: We introduced the ability for partners to accelerate customer onboarding with streamlined tenant management and advanced customer permission configurations.
We introduced the ability for partners to accelerate customer onboarding with streamlined tenant management and advanced customer permission configurations.
Speaker 3: to efficiently threat hunt across their customer base, leveraging our advanced proactive hunting playbook.
To efficiently threat time across their customer base, leveraging our advanced proactive hunting playbooks.
Speaker 3: and to bring custom detections and intelligence to the platform with integrations natively.
And to bring custom Detections and intelligence platform with integrations natively.
Speaker 3: 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.
This is one of the many areas, where we see the power of collaboration community and being open without compromise.
Effective approach to outpacing the adversary.
Speaker 3: 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 Tejas' detection capabilities for cloud-based threats.
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 <unk> detection capabilities for cloud based threats.
Tejas endpoint agent support for additional Linux distributions, helping protect a broader set of cloud based workloads.
Speaker 3: Cage's endpoint agent support for additional Linux distributions, helping protect a broader set of cloud-based workloads.
Speaker 3: and making key cloud workload metadata available with Integis, driving faster triage, investigation, and response workflows.
And making key cloud workload meta data available within pages driving faster triage investigation and response workflows.
Speaker 3: We also delivered on the expansion of our platform capabilities to add features that advanced security and permission configurations contagious to address the needs of diverse operational environments integrating advanced threat detection for real time awareness.
We also delivered on the expansion of our platform capabilities to add features that advanced security and permission configurations contagious to address the needs of diverse operational environments integrating advanced threat detection for real time awareness.
Speaker 3: The enhanced security and permission configurations in Tejas cater to a variety of operational needs, offering partners and customers a more versatile, tailored, and comprehensive stock platform.
The enhanced security and permission configurations in cages cater to a variety of operational needs offering partners and customers are more versatile tailored and comprehensive stock platform.
Speaker 3: I continue to be pleased with the outcomes AI is generating for our customers.
I continue to be pleased with the outcomes AI is generating for our customers.
Tejas is leveraged AI since inception.
Our first advanced detectors, where machine learning and deep learning base and we've used AI heavily to drive automation and efficiency to every aspect of the platform.
This quarter, we continued to make significant advancements in the <unk> platform.
Leveraging the integration of machine learning and large language models alongside our unique cloud architecture to enhance the platform security analytics and check off sufficiency.
Speaker 3: 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.
Speaker 3: Over the last year, we saw significant gains from AI-assisted automation, decision-making, and threat detection.
Speaker 3: 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.
With our investments we have leveraged our body of investigation reports is training data for the development of our customer facing reporting system that creates enriches and escalates investigation reports and less than half the manual process time.
We launched a patent pending prioritization engine, which processes more than one trillion events across our customers.
Speaker 3: 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 stock analysts triage workload by 50%.
Speaker 3: This system helps surface critical threats to better secure customers while improving notification times by 80% and reducing stock analyst triage workload by 50%, largely through the elimination of low confidence alerts.
Largely through the elimination of low confidence alerts.
Speaker 3: 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.
This has led to detection improvements for our customers and efficiency gains for us yeah.
Acknowledging is crucial to bridging the widening security talent gap.
Bolstering our collective defense mechanisms and democratizing advanced security capabilities.
Speaker 3: bolstering our collective defense mechanisms, and democratizing advanced security capabilities.
Speaker 3: But at SecureWorks, we integrate generative AI into our processes with deliberation and care.
But at secure works, we integrate generative AI into our processes with deliberation and care our.
Speaker 3: Our stance is clear. No technology, however advanced, is presumed secure.
Our stance is clear no.
No technology, However, advanced is presumed secure.
Speaker 3: It must first endure our rigorous and comprehensive development practices.
It must first into our rigorous and comprehensive development practices.
Speaker 3: 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.
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.
Speaker 3: 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.
Tenuous Lee educating our team and crucially, ensuring that any new capabilities aligned with our stringent development criteria before during and after release.
Speaker 3: 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.
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.
Speaker 3: We are delivering and remain committed to building the foundation for sustainable growth that allows us to scale, realize improvements and productivity and drive operational efficiencies into the business that will enable us to deliver positive adjusted EBITDA.
We are delivering and remain committed to building the foundation for sustainable growth that allows us to scale.
Realized 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.
Speaker 3: As we saw this quarter, we are driving Tejas margin expansion through automation, continued cloud architecture scaling, and by leveraging our investments in AI.
<unk> 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.
Speaker 3: 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 'twenty five.
Speaker 3: 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.
Milestone that has a significant positive for our business and which will alleviate the remaining headwind on our total revenue.
Speaker 3: 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.
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 'twenty five.
Speaker 3: We will continue to reduce costs related to our sun-setting businesses during the first half of fiscal 25, which will contribute to our profitability into the future.
Which will contribute to our profitability into the future.
I want to thank our customers and partners for joining forces with us.
Speaker 3: 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.
And my thanks to our teammates for their diligence integrity and commitment to securing our customers.
Speaker 3: With that, I'll turn the call over to Alpana to walk through our financial results and guidance.
With that I'll turn the call over to al Panna to walk through our financial results and guidance.
Speaker 4: Thanks, Wendy. Good morning, everyone. I'm pleased we delivered against our financial commitments in the third quarter and the progress we've made on our path to profitability and cash flow generation.
Thanks, Wendy and good morning, everyone. I am pleased we delivered against our financial commitments in the third quarter and the progress we've made on our path to profitability and cash flow generation.
Speaker 4: I'll start with the highlights of our Q3 financial results, and then I will provide expectations for the remainder of the year.
Start with the highlights of our Q3 financial results and then I will provide expectations for the remainder of the year.
Total revenue for the quarter with $89 4 million slightly above the midpoint of our guidance of $88 million to $90 million.
Speaker 4: Total revenue for the quarter was $89.4 million, slightly above the midpoint of our guidance of $88 to $90 million. Total revenue continues to be impacted by the wind down of our other MSS business.
Total revenue continues to be impacted by the wind down of our other MSS business.
Speaker 4: Pages subscription revenue with 67.3 million up 1% sequentially and 41% year over year in line with our expectation pages ARR increased 25% year over year to 278.7 million now representing 92% of our total ARR.
<unk> subscription revenue was $67 3 million up 1% sequentially and 41% year over year in line with our expectation.
Hey, just a R. R increased 25% year over year to $278 7 million.
Now representing 92% of our total E. R. R.
Average revenue per kg customer expanded sequentially to 139000, driven by higher new logo, a RPC and continued expansion.
Speaker 4: Average revenue per Tejas customer expanded sequentially to $139,000, driven by higher new logo ARPC and continued expansion of spend by our existing customers. Tejas ARPC remains a premium to both the industry average and to our historical other MSS average, underscoring the value that Tejas provides our customers.
And by our existing customers.
They just are P. C remains a premium to both the industry average into our historical other MFS average underscoring the value that pages provides our customers.
Speaker 4: Non-gap cages growth margin expanded 200 basis points sequentially to 72.7% this quarter and showed an improvement of 510 basis points versus third quarter a year ago.
non-GAAP cages gross margin expanded 200 basis points sequentially to 72, 7% this quarter and showed an improvement of 510 basis points versus third quarter a year ago.
Speaker 4: Demonstrating the scale opportunity within the pages.
Demonstrating the scale opportunity within the pages business.
As Wendy shared earlier, our unique cloud architecture allows us to improve our operational efficiency to drive margin expansion by using automation investment in AI and machine learning.
Speaker 4: As Wendy shared earlier, our unique cloud architecture allows us to improve our operational efficiency to drive Tejas margin expansion by using automation, investment in AI, and machine learning.
Speaker 4: Adjusted EBITDA loss was 1.2 million compared to a 17.2 million loss in the prior year period, reflecting the expansion of gross margin within our CAGIS business I just discussed, as well as the benefit of the restructuring activities from earlier this year.
Adjusted EBITDA loss was $1 2 million compared to a $17 2 million loss in the prior year period.
Reflecting the expansion of gross margin within our kgs business I, just discussed as well as the benefit of the restructuring activities from earlier this year.
Turning to the balance sheet and capital allocation. We ended the third quarter with a strong balance sheet with $58 1 million in cash no debt and an undrawn credit facility.
Speaker 4: Turning to the balance sheet and capital allocation, we ended the third quarter with a strong balance sheet with $58.1 million in cash, no debt, and an undrawn credit facility.
We used $4 5 million of cash from operations compared with $26 8 million used in the prior year period, which primarily reflects the decrease in our net loss and the timing of working capital.
Speaker 4: We used four and a half million of cash from operations compared with 26.8 million used in the prior year period, which primarily reflects decrease in our net loss and the timing of working capital.
Speaker 4: Now turning to our guidance. Before I go through our detailed guidance, I'd like to provide some commentary on what is shaping our four-year outlook for CAGIS ARR. First, we continue to experience a challenging macro environment that is leading to elongated sales cycles, and we don't see any evidence of this changing in the near term.
Now turning to our guidance before I go through our detailed guidance I'd like to provide some commentary on what is shaping our full year outlook for cages are our first we continue to experience a challenging macro environment that is leading to elongated sales cycles and we don't see any evidence of this changing in the near term.
And second we are not expecting the same magnitude of fourth quarter budget flush that we've seen historically.
Speaker 4: And second, we are not expecting the same magnitude of fourth quarter budget flush that we've seen historically.
Speaker 4: For the full year, we now expect Tejas ARR to end at 280 million or greater.
For the full year, we now expect Cajun <unk> and at 280 million or greater.
We continue to expect other MSS air or are to represent 5% or less of total a R. R.
And we expect he gets revenues and between 264 to 266 million.
On a total revenue between $363 million to $365 million, reflecting the continued wind down of our other NSS business with an expected end of life in first quarter of next fiscal year, our outlook on profitability has slightly improved taking into consideration. Our Q3 results. We now expect.
Speaker 4: We now expect for the full-year TAGIS growth margins to be greater than 71 percent.
For the full year cadence gross margins to be greater than 71%.
Speaker 4: with Q4 margins remaining relatively flat to the third quarter.
With Q4 margins remaining relatively flat to the third quarter we.
Speaker 4: We expect adjusted EBITDA to be between negative 31 to 33 million with Q4 adjusted EBITDA of break even to slightly positive.
We expect adjusted EBITDA to be between negative <unk> 31 to 33 million with Q4, adjusted EBITDA of breakeven to slightly positive.
We expect full year non-GAAP EPS loss to between.
Speaker 4: We expect full-year non-GAAP EPS loss to be between
33 to 35 cents and.
Speaker 4: 33 cents to 35 cents. And we continue to expect net cash used in operating activities to be between 70 and 80 million and CapEx of 6 to 8 million.
And we continue to expect net cash used in operating activities to be between 70, and 80 million in capex of $6 million to $8 million.
In terms of fiscal 2025, we will provide guidance for Q1 and the full year on our Q4 earnings call in March.
Speaker 4: In terms of fiscal 2025, we will provide guidance for Q1 and the full year on our Q4 earnings call in March.
In closing we remain confident in the ability to drive sustainable profitable growth based on the progress we've made in building a strong partner ecosystem the customer outcomes reinvestments in our unique pages xdr platform. The continued opportunity for scale driven by our cloud architecture and the upcoming end of life of our <unk>.
Speaker 4: In closing, we remain confident in the ability to drive sustainable, profitable growth based on the progress we've made in building a strong partner ecosystem, the customer outcomes from the investments in our unique Tejas XDR platform, the continued opportunity for scale driven by our cloud architecture, and the upcoming end of life of our other MSS business.
Other NSS doesn't it.
Thank you for joining us on our call today, when do you will know rejoin us as we begin Q&A operator can you. Please introduce the first question.
Speaker 4: Thank you for joining us on the call today. Wendy will now rejoin us as we begin Q and a operator. Can you please introduce the 1st question?
Sure ladies.
Speaker 1: Sure. Ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad. That's star 1.
Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
Thats Star one on your telephone keypad.
Speaker 1: To withdraw your question, star followed by 2. And please do also remember to unmute your microphone when it's your turn.
To withdraw your question Star followed by two and pleased to also remember on mutual microphone when it's your turn to speak.
Speaker 1: Our first question comes from Mike Sykos from Needham. Mike, your line is now open.
Our first question comes from Mike cycles from Needham Your.
Your line is open.
Hey, guys you have like she goes here.
Speaker 5: Hey, guys, you have Mike here and thanks for taking the questions. I did just want to follow up since since I know I'll just went through. Uh, the guidance considerations here, and I know you're, um, we have this revised. They are guidance for pages. With respect to the elongated sales cycles and the now we're expecting. Not a similar budget plus the previous years and like, can you help us unpack?
Taking the questions I did just want to follow up creeps up.
I'll, probably just went through the guidance considerations here and I know you.
We have this revised guidance for pages with respect to be elongated sales cycles.
Now, we're expecting not a similar budget flush in previous years.
Like can you help us unpack.
Those two items as far as imports for the AOR guide how much is coming from.
Speaker 5: those two items as far as inputs for the AOR guide. How much is coming from the elongated sales cycles versus the reduced budget flush expectations? And really, if you could also qualify, that sales cycle elongation we're seeing, is that
Long dated sales cycles versus the.
The reduced budget flush expectations and really if you could also qualify that that sales cycle elongation, we're seeing is that.
Even on a sequential basis or is it more of a year to year comment.
Speaker 5: even on a sequential basis, or is it more of a year-to-year comment?
Sure. Good morning, Mike. Thanks for the question. So let me break those two apart for you in terms of the elongated sales cycle that continues to be up versus last year, not a material change sequentially from from to Q. So the the majority of for US is <unk>.
Speaker 3: Sure. Good morning, Mike. Thanks for the, for the questions. So, let me break those two apart for you in terms of the elongated sales cycle that continues to be up versus last year, not a material change sequentially from from to Q. So, the, the majority for us is looking as we head into the, the fourth quarter, not seeing the.
As we head into the fourth quarter not seeing the.
Normal sort of seasonal shift in pipeline as they come in from the normal kind of budget flush I think thats just related to the continued.
Speaker 3: Normal sort of seasonal shift in pipeline as we come in from the.
Speaker 3: budget flush. I think that's just related to the continued caution around making investments, right? These are multi-year investments in security and it's important and the additional layers of review and approval to make sure that those decisions that lock them in are good ones and that's just the piece that we see along with not getting to kind of use your budget this year. It's kind of more lose it than use it.
Caution around.
We're making investments right. These are multi year investments in security and it's important and the.
Additional layers of review and approval to make sure that those decision, but that lock them in or are good ones.
That's just the piece that we see along with not getting to kind of use your budget.
This year, it's kind of more lose it then use it in the fourth quarter.
Got it and I did just want to come back.
Speaker 5: Got it, and I did just want to come back to the comment as well. I believe Wendy in the prepared remarks and correct me if I'm wrong on go to market, but more than 90% of global pages.
So the comment as well I believe Wendy in the prepared remarks, and correct me if I'm wrong on go to market, but.
More than 90% of global pages.
Speaker 5: New logo business in the quarter was driven from quarters, but from partners, I'm sorry, versus 40% last year.
New logo business in the quarter, we triggered from quarters.
I'm sorry.
Since 40% last year.
Speaker 5: And I just wanted to make sure I'm interpreting that correctly, like the the pages customer account, I think, has been relatively stable around 2000 customers now for the last four quarters. And I'm trying to just figure out. Does it take time for those new logos to show up in the customer account or or how is, I guess, when can we expect broader market traction with with pages just given.
And I just wanted to make sure I'm interpreting that correctly.
Tejas customer count I think it's been relatively stable around 2000 customers now for the last four quarters and I'm trying to just figure out.
Does it take time for those new logos to show up in the customer count.
Or where are Howard I guess when can we expect broader market traction with with pages just given.
That customer count for Tejas had been relatively stable for the I guess a year ago.
Speaker 5: that customer count for Tejas has been relatively stable for the, I guess, a year now.
Sure. So it's a part of our partner go to market strategy is is going to market with managed security partners and as I talked about we continue to sign a.
Speaker 3: Sure. So part of our partner go-to-market strategy is going to market with managed security partners. And as I talked about, we continue to sign larger, high-profile partners in that space because they see the efficacy of the platform.
Larger high profile partners in that space, because they they see the efficacy of the platform.
Speaker 3: But currently in our customer count, we only count those partners, no matter how many end customers they add as one, one customer in our account.
Currently in our customer count, we only count those partners no matter how many end customers. They are this is one one customer in our accounts. So we have.
Speaker 3: So we have highlighted the expansion in average revenue per customer. So as you saw, that was 139,000 versus up from 135 or so last quarter. And that's that's why we measure both of those is because that's an important measure of market traction that isn't necessarily reflected in the way we report our customer.
Highlighted the expansion in average revenue per customer so.
That was 139000 versus.
Up from 135, or so last quarter and that's why we measure both of those is because that's an important measure of market traction that isn't necessarily reflected in the way we report our customer counts today.
Speaker 4: Yeah, and Mike, this is Alpana. One other thing I might just add.
Yeah.
This without paying out one other thing I might just add.
Speaker 4: The, the, the logo counts also don't as Wendy said, don't give us the reflection from that. Um, overall sort of scale and 1 of the other things that we do look to. Is endpoints and I would say that, you know, what we see sequentially there, you know, quarter of a quarter is growth. Again, just underscoring the, the expansion may not be. Be able to be seen through the logo count, but we are, we're pleased with the progress.
Be well.
I'll go count also down when he said don't give us the reflection from that.
Overall sort of scale and one of the other things that we do look to his end points and I would say that you know what we see sequentially there quarter over quarter its growth.
Again, just underscoring the expansion may not be able to be seem to me to logo counts that we are we're pleased with the progress that we're making.
Got it. Thank you. Thank you both for qualifying that last comment thank you.
Speaker 5: Got it. Thank you. Thank you both for qualifying that last comment. Thank you.
Thanks, Mike.
As a reminder to ask a question. Please press star one on your telephone keypad.
Speaker 1: As a reminder, to ask a question, please press star 1 on your telephone keypad. That's it.
Thats Star one on your telephone keypad.
Speaker 1: Our next question comes from Amza Fodwala from Morgan Stanley . Amza, your line is now open.
Our next question comes from I'm, sorry, Footwall La from Morgan Stanley. Your line is open.
Great. Thanks, This is Matt saltzman on for Hamzah.
Speaker 6: Great, thanks. This is Matt Saltzman for HAMSA. So, I know you mentioned that the Q4 pipeline might be a little bit lighter just since you're not expecting that same level of budget flush this year. But could you talk a little bit about pipeline early into fiscal 25? I know you're not ready to formally guide yet, but how are demand trends looking as the pipeline builds for next year and anything we should be thinking about in terms of demand dynamics that you're seeing in the market today? Thanks.
So I know you mentioned that the.
Q4 pipeline might be a little bit lighter just since youre not expecting that same level of budget flush this year, but could you talk a little bit about pipeline early into fiscal 'twenty five I know, you're not ready to formally guide yet, but power demand trends looking.
Pipeline builds for next year, but anything we should be.
Thinking about in terms of demand dynamics that you're seeing in the market today. Thanks.
Yeah.
Sure. Thanks, Matt Good morning.
Speaker 3: Sure. Thanks, Matt. Good morning. We absolutely see the, the total pipeline remaining healthy. What we didn't see was the kind of pull into fourth quarter that we typically see around trying to take advantage of of end of year budget. So that that's one one thing for us. The other is that for for our go to market shift here, the, the increasing mix from partners is also pretty important.
We absolutely see that the total pipeline remaining healthy what we didn't see was kind of pull into fourth quarter that we typically see around trying to take advantage of of end of year budgets.
So that's one one thing for us the other is that fair or.
For our go to market shift here.
Increasing mix from partners is also pretty important.
Speaker 3: Uh, what we see around other things of kind of.
What we see around other things of kind of the.
Speaker 3: case of the win rates on sort of technical approvals and win rates on proof of value or proof of concepts remain steady. So it's just that same sort of cautious multi-layered assessment of things and and not not the rush to to buy inside of that pipeline that we may have seen in years past.
The pace of or the win rates on sort of technical approvals and win rates on proof of value or proof of concept remains steady.
So it's just that same sort of cautious.
Multilayered assessment of things and not not the rush to buy inside of that pipeline that we may have seen in years past.
Got it and maybe if I could just ask a quick follow up.
Speaker 6: Got it. And maybe if I could just ask a quick follow up just around the go to market orientation being more skewed towards partners. Now, do you feel that maybe things might actually not be as.
Strong go to market orientation being more skewed towards partners now do you feel that maybe things might actually not be.
And.
I guess, maybe there aren't as many headwinds in Q4 as you would usually expect but maybe there's just less visibility because you're going through that partner channel.
Speaker 6: I guess maybe there aren't as many headwinds in Q4 as you would usually expect, but maybe there's just less visibility because you're going through that partner channel.
In terms of the pipeline.
Speaker 6: Yeah, just in terms of customer spend attention, since a lot of those engagements are happening at the partner level now, perhaps there's just lower visibility and things may not actually be that bad or kind of, I guess, to ask a better question, how do you think about assessing the demand environment when more of when more of the go to market is going via external sources?
Yeah, just in terms of customer spending since a lot of those engagements are happening at the partner level now perhaps.
Just Laura visibility and things may not actually be that bad or kind of I guess.
To ask a better question, how do you think about.
Assessing the demand environment when more of when more of the go to market is going.
External sources.
So it's a it's a good question and we have been.
Speaker 3: Sure, it's a, it's a good question and we have been cautious in terms of learning the win rates and cycle times with with.
Cautious in terms of learning of the win rates and cycle times with with relatively new partnerships. So there's certainly a learning curve that we're on there in terms of predictability, we do engage with those deals and have some amount of visibility into the pipeline from Dell.
Speaker 3: relatively new partnerships, so there's certainly a learning curve that we're on there in terms of predictability. We do engage with those deals and have some amount of visibility into the pipeline from deal registration and such, but it is true it is a different motion and therefore our sort of range of outcomes on that can be a little more dispersed than it was when we were a pure direct model, you know, a couple years ago.
At registration and such but it is true it is a different motion and therefore.
Or sort of range of outcomes on that can be a little more dispersed than it was when we were a pure direct model yeah, a couple of years ago.
Got it thank you.
Our next question comes from Liana <unk> from Bank of America. Your line is now open.
Speaker 1: Our next question comes from Tal Liany from Bank of America. Tal, your line's now open.
18 years modeling on for Paul This morning.
Speaker 7: Hey team, you have Madeline on for tall this morning. Just one quick one for me. I just want to go back to the budget flush commentary. You know, if we look across cyber peers over the last year budget flush, you know, the lack of the 4Q budget flush also happened last year. And, you know, some would argue to a bigger extent because it was definitely more unexpected last year. I feel like though, given the macro environment that we've been in over the last 12 months, and, you know, potentially even more.
Quick one for me I just want to go back to that budget flush commentary, if we look across five of our parents over the last year or two.
Plus you know thought the lack of the 14th budget plus also happened last year and some would argue to a bigger extent because it was definitely more unexpected last year I feel like those given the macro environment that we've been in over the last 12 months ending or perhaps even more.
Speaker 7: Budget flush was, you know, the lack of budget flush was expected, right? We thought last year. So, I guess I just want to understand why it's new for just you guys this year or why maybe the impact is greater for you this year versus peers who aren't feeling the same.
I get flustered was the lack of budget flush. It was expected right. We thought last year I'm, sorry, I guess I just want to understand why it is new for you guys. This year or why maybe the impact is greater for you this year versus parents, who aren't feeling the same things.
Yeah. Good morning, Matt on the SAP Hana. Thanks for the question I would say that for US It was more in in our commentary is really around the change in the guide.
Speaker 4: Yeah, good morning, Madeline. This is Alpana. Thanks for the question. I would say that for us, it was more in in our commentary is really around the change in the guide. Last year in Q4, we did see a good amount of budget flush come through. You can see sequentially when you look from Q3 to Q4 last year, we had a nice quarter from an ARR growth perspective and
Last year in Q4, we did see a good amount of budget flush come through you can see sequentially. When you look from Q3 to Q4 last year, we had a nice quarter from an AOR growth perspective, and and and then and really the commentary was just around when we set our guide.
Speaker 4: And then, and really the commentary was just around when we set our guide last quarter, we had some expectations, not the same level as last year, but we did think we'd see some. And so the, the, the, the revised view is really, as we move through Q3, and as we've looked at the pipeline and the demand that we're seeing, well, there's a lot of good activity and good discussions with prospects. And we're seeing the sales cycles in the, in the demand holding. We didn't see.
Last quarter, we had some expectations not at the same level as last year, but we did think we'd see some and so.
But that the revised view is really as we move through Q3 and as we've looked at the pipeline and the demand that we're seeing.
While there is a lot of good activity and good discussions with prospects and we're seeing the sales cycles and the demand holding we didn't see that natural increase, albeit at a lower level than last year that we were expecting when we had previously said our guide.
Speaker 4: You know, that natural increase, I'll be at a lower level than last year that we were expecting when we had previously set our guide.
Got it thank you.
We currently have no further questions. So I would like to hand, the call back to Kevin Toomey for closing remarks, Kevin. Please go ahead.
Speaker 1: We currently have no further questions, so I would like to have the call back to Kevin to me for closing remarks. Kevin, please go ahead.
Yeah.
Okay. Thank you that wraps the Q&A on today's call a replay of this webcast will be available on our Investor Relations page of secure works Dot com, along with our supplemental web deck with additional financial tables. Thanks again for joining us today.
Speaker 2: Okay, thank you. That wraps the Q&A in today's call. A replay of this webcast will be available on our investor relations page at secureworks.com along with our supplemental web deck with additional financial tables. Thanks again for joining us today.
Yeah.
Speaker 1: Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
Thank you.
[music].
Speaker 8: You
Okay.