Q4 2024 SecureWorks Corp Earnings Call
Operator: 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 0.
Good morning, My name is Candice and I will be your conference operator today at this time I would like to work with them on to the secure blocks fourth quarter and full year fiscal 2024.
Results Conference call.
All lines have been placed on mute.
To prevent any background noise.
Slide presentation to accompany the patch remarks can be found on the company's web site. After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by one on your telephone keypad.
If you would like to withdraw your question.
Presto well, it's by Kate Thank Keith.
Kevin J. Toomey: Thanks. 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, 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.
At this time I would like to turn the conference over to Kevin to make two kilowatts, Vice President of Investor Relations Mr.
Mr to me.
You may begin your conference. Thank you operator, good morning, and welcome to secure works fourth quarter and full year fiscal 2024 earnings call. Joining me today are Wendy Thomas our Chief Executive Officer, Panna Wagner, our Chief Financial Officer.
During this call unless otherwise indicated we will reference non-GAAP financial measures.
Kevin J. Toomey: 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.
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 don't secure works Dot com.
We assume no obligation to update our forward looking statements with that I'll turn the call over to secure work CEO Andy Thomas.
Wendy K. Thomas: With that, I'll turn the call over to SecureWorks CEO, Wendy Thomas. Thank you, Kevin, and welcome, everyone. Artesia's business continued its strong momentum in fiscal 2024. Tejas revenue grew 41% year-over-year, with full-year revenue reaching $265 million. CAGE's annual recurring revenue, or ARR, now stands at $285 million, representing 9% growth over last year.
Thank you, Kevin and welcome everyone.
Our tedious business continued its strong momentum in fiscal 2024.
<unk> revenue grew 41% year over year with full year revenue, reaching $265 million.
Tejas annual recurring revenue or <unk> now stands at $285 million, representing 9% growth over last year.
Wendy K. Thomas: We are well on track to completing our business transformation, with Tejas' 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 overdelivered 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 are well on track for completing our business transformation with Tejas are are reaching 96% of our total air or at year end.
Today, we are less than 60 days away from a significant positive milestone at the end of life of our non strategic lines of business.
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.
Wendy K. Thomas: We have continued the expansion and grown the impact of our partner ecosystem, generated a grantageous 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 from the market. This quarter, we were recognized by Frost & Sullivan with the 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.
We have continued the expansion and grown the impact of our partner ecosystem.
<unk> average revenue per customer.
Tears my 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 and automation and AI capabilities.
Importantly, our unique open xdr based approach to driving superior security outcomes is increasingly receiving accolades by the market.
This quarter, we were recognized by Frost <unk> Sullivan with a competitive strategy leadership award in the global Xdr industry.
A testament to our strategy effectiveness and execution competitive differentiation and exceptional checkups experience for our customers and partners.
The threat landscape evolution is accelerating.
Wendy K. Thomas: Last year, average threat actor dwell time 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 organization, we are now witnessing the early impacts of AI on threat vectors, via DeepFakes and increasingly savvy PhishingAttack This means that our AI-powered CAGIS detection and response platform is more relevant than ever for customers, and our Tejas XDR platform is unique. It was built from day one to be open without compromise.
Last year average threat actor dwell times still below 24 hours from four five 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 tejas detection and response platform is more relevant than ever for customers.
And art pages Xdr platform is unique it was built from day, one to be open without compromise and we designed it that way for several reasons.
Wendy K. Thomas: And we designed it that way for several reasons. First, superior threat detection and response. Kages' 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.
First superior threat detection and response.
Tejas this seamless integration with a wide range of technologies and systems stands as a critical advantage and.
Ensuring a cohesive and unified security posture across diverse 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.
Wendy K. Thomas: Not only does CAGES 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 CAGE's automated response actions to their environment. As a result, we see over 6,000 configured playbooks running across all Tejas 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. CAGIS is designed to ensure that our customers have a choice, that their security posture can evolve effortless with their changing technology investments, essential for maintaining an effective defense in any environment.
Not only does pages 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 pages automated response actions to their environments.
As a result, we see over 6000 configured playbooks running across all pages tenants supporting millions of threats in real time.
Second security at the pace of business.
Great security shouldn't hamper the choices organizations make and their Nextgen technology investments and architecture design.
Tejas is designed to ensure that our customers have a choice.
But their security posture can evolve effortlessly with our changing technology investments.
Central for maintaining an effective defense for any environment.
Wendy K. Thomas: In fact, we recently won a deal with a large transportation agency that chose Tejas 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 solution at a compelling, predictable Third, customer choice. We know that many organizations 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. Kages uniquely gives customers the option to do so securely.
In fact, we recently won a deal with a large transportation agency the chose pages to displace that MTR provider as they came up for renewal.
Our open approach was an important differentiator given our platform's ability to bi directionally integrate and work with them 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 they're MTR vendor could not.
Well, 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 pages 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.
He just uniquely gives customers optionality to do so securely.
Wendy K. Thomas: 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 deployed Tejas with the parent company, which was able to observe the side-by-side comparison of cost and operational burdens of their subsidiary SimSolutions versus our Tejas platform. With the overall value and efficiencies the parent company gained from CAGES,
We are unique and taking an open end point approach with single agent capability, which allows us to integrate X D. R and M. D are seamlessly for customers deploying vendors with the majority of the endpoint market.
Providing the speed and breadth of security coverage they need.
Our support of 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.
Impelling per endpoint pricing model. It has no surprise variable data charges.
As an example, we recently deepened our relationship with a large health care company based in Australia.
We had deployed changes with the parent company, which was able to observe the side by side comparison, well cost and operational burdens of their subsidiaries Sim solutions versus our cages platform.
With the overall value and efficiencies the parent company gained from cages.
Wendy K. Thomas: They chose our open platform to displace both their MDR provider and SIM that was 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 position us to capture growing demand well into the future. Since the very beginning, Tejas 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.
They chose our open platform to displace both their M D. Our provider and Sim that were forcing them to rationalize the data they were adjusting to keep costs down.
We were able to save the team time spent on maintaining customization 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 the 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 Tejas 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 maybe missed by signatures prioritize the threats that matter.
Automate routine investigations and respond in near real time to any advancements made by the adversary.
Wendy K. Thomas: 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, K just 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 Tejas' 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, and our patent-pending alert prioritization system that increased the triage productivity for SecOps analysts using Kages by over 100% last year.
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 Sock investigations conducted every month.
Hey, just a monster Billy protects our customers more effectively than our competitors.
AI is key to enabling pages to scale the security talent required to manage detection and response for organizations of all sizes.
A few examples of pages is AI and practice include our patent pending hands on keyboards detector, it's finding threat actors living off the land even with zero days are used as the initial access vector.
Our patent pending alert prioritization system that increase the triage productivity for SEC ops analysts using pages by over 100% last year.
Wendy K. Thomas: 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 security operations 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.
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 suck ups become even more efficient.
Automating initial investigation summaries, improving detection logic and decision making.
Rapidly normalizing third party alerts that may be new to the system.
Today, approximately half of all Tejas investigations are automated.
Wendy K. Thomas: 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 wallets. I'll turn now to our progress in going to market. 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 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 in addressable market.
We now work with more than 400 partners across tech alliances solution providers managed services providers and cyber insurers.
<unk> leading providers in each category.
Wendy K. Thomas: 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 cages from their existing sim.
And we remain committed to supporting and expanding these partnerships globally.
For example, we continued to advance our global MSP partner program in Q4 with the addition of a forward thinking multinational MSP headquartered in India.
This partner provides services for some of the worlds 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 Sim.
Wendy K. Thomas: In the 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 were 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 Tejas and our partner programs bringing to their customers. In the fourth quarter, around 90% of Global Tejas' new logo business was closed with a partner, more than double the prior year period.
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 changes in our partner programs, bringing to their customers.
In the fourth quarter around 90% of global pages, New logo business was closed with a partner.
More than double the prior year period.
Wendy K. Thomas: 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 CAGES cross-correlating detections efficiently across all of their data. As a result, they quickly saw fewer but higher-fidelity critical alerts.
And the market is recognizing our successful shift to a partner first approach over the last year.
We were recently named to CRM 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.
The power of Tejas 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 13, new they can focus more time elsewhere advancing their overall security posture and program.
Wendy K. Thomas: 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 content. 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.
Okay.
Before I shift gears and discuss our drive to profitability I would like to provide some market context.
Demand for our open Xdr platform solution remains strong and cyber security 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 of approvals in the decision making process.
However, we have not seen any need for changes in pricing or discounting to win deals.
Wendy K. Thomas: Alpana 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 in growing Artegia's business while completing the transformation of our business model and actively streamlining our cost structure. We are delivering on 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.
Oh, Panna will discuss our Q4 results and fiscal twenty-five 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 tedious 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 'twenty five I'm excited about the opportunity ahead of us.
As I noted earlier Q.
Q1 of fiscal 2025 will mark the Sunset of our other MSS business, we announced at the end of life just over two years ago, and we have delivered on our committed timeframe.
Wendy K. Thomas: 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 in EBITDA. We have delivered on and are committed to further CAGIS Gross Margin Expansion, which we drive in primarily two ways. First, through continued optimization of our cloud architecture while supporting the best customer security outcomes.
This major milestone will alleviate the remaining transformation headwind on our total revenue and EBITDA.
We delivered on and are committed to further changes gross margin expansion.
Which we drive and primarily two ways.
First through continued optimization of our cloud architecture, while supporting the best customer security outcomes.
Wendy K. Thomas: 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 customer 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 Tejas revenue grew double digits last year, and customer satisfaction and NPS scores increased year over year as well, our spend on SecOps remained flat.
We carefully consider how we transport processing stored data throughout our platform with a cost effective approach to data access speed and resilience.
Our engineering team delivered 12 months of data storage for customers standard against competitors, who average one month.
Yeah, 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 MTR delivery.
Our Tejas revenue grew double digit last year and customer satisfaction and NPS scores increased year over year as well our spend on SEC ops remained flat.
Wendy K. Thomas: In conclusion, demand for our open platform remains strong. We have and will continue to invest in innovations for our contagious XDR solution to meet the security needs of our customers and partners, providing security outcomes that are 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 the platform of choice for organizations to bolster their security posture now and in the years ahead, setting the foundation that will drive our growth.
In conclusion demand for our open platform remains strong we have and will continue to invest in innovations for our Tejas xdr solution to meet the security needs of our customers and partners, providing security outcomes that are fully predictable and compelling total cost of ownership.
We remain confident that our open without compromise approach ongoing investments in pages and our growing successful partnerships will ensure contagious as the 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 are joining forces with us.
And I deeply appreciate our teammates for their diligence integrity and commitment to securing our customers.
Wendy K. Thomas: 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. Thanks, Wendy. Good morning, everyone.
With that I'll turn the call over to our panel to walk through our financial results and guidance.
Thanks, Randy Good morning, everyone I will review, our Q4 and full year results for fiscal year 'twenty four before I provide expectations for fiscal year 'twenty five.
We delivered Q4 total revenue of 89 2 million above our guidance range of 86 to 88 million, primarily due to new deals closing earlier in the quarter and professional services revenue.
Alpana Wegner: I will review our Q4 and full year results for fiscal year 24 before I provide expectations for fiscal year 25. We delivered Q4 total revenue of $89.2 million, above our guidance range of $86 to $88 million, primarily due to new deals closing earlier in the quarter and professional services revenue. Total revenue continues to be impacted by the winding down of our non-strategic legacy business, which contributed to 27 points of the decline year over year. Page's subscription revenue was 68.9 million, up 15% year-over-year and up 2% sequentially, in line with our expectation. CAGES ARR increased 9% year over year to $284.9 million, slightly higher than expected.
Total revenue continues to be impacted by the wind down of our non strategic legacy business, which contributed 27 points.
Year over year.
Hey, Jess subscription revenue was $68 9 million up 15.
10% year over year and up 2% sequentially in line with our expectations.
Pages are our increased 9% year over year to $284 9 million.
Slightly higher than expectations, we saw a handful of deals pulled forward into the quarter.
Average revenue per cases customary expanded sequentially to 145000, driven by higher new logo, a RPC and continued expansion of spends their existing customers.
Alpana Wegner: We saw a handful of deals pulled forward into the quarter. Average revenue per Tejas customer expanded sequentially to $145,000, 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 legacy other MSS average, underscoring the values that Tejas provides our customers. We ended the quarter with 2000 pages of customers.
Hey guess AARP remains at premiums above the industry average into our legacy other NFS average underscoring the value that takes us to provide our customers.
We ended the quarter with 2000 pages customers.
We see an increase in large new customers reflected in our ERP see the customer count.
The decline is smaller network only customers with a P of less than 15000.
And our ticket pricing is largely on a per employee basis.
Alpana Wegner: While we see an increase in large new customers reflected in our ARPC, the customer count also reflects the decline in smaller network-only customers with ARPC of less than 15,000. As Arcadia's pricing is largely on a per-endpoint basis, growth in endpoints is another indicator of platform expansion. Our endpoint count grew 9% year-over-year in the fourth quarter.
And finally as another platform.
Platform expansion.
White cap grew 9% year over year in the fourth quarter.
Our Q4 operating results were strong, reflecting our focus on operational efficiency and productivity improvements.
Cost discipline.
Q4, non-GAAP gross margin expanded 40 basis points sequentially to 73, 1% and shows an improvement of 390 basis points versus fourth quarter, a year ago, demonstrating the scale of opportunity within the pages business driven by our unique cloud architecture.
Alpana Wegner: Our Q4 operating results are strong, reflecting our focus on operational efficiency, productivity improvements, and cost discipline. Q4 non-gap pages growth margin expanded 40 basis points sequentially to 73.1% and showed an improvement of 390 basis points versus the fourth quarter a year ago, demonstrating the scale opportunity within the pages business driven by our unique cloud architecture and investments in automation, AI, and machine learning. Adjusted EBITDA was $3.8 million, exceeding our guidance of breakeven and improving $23.5 million from Q4 of the prior year. Pages revenue grew 41% year-over-year to $265 million, and In Line With Our Expectations. Tejas's non-gap gross margins expanded 380 basis points to 71.7%.
And investments in automation and AI and machine learning.
Adjusted EBITDA was $3 8 million.
Beating our guidance of breakeven and improving $23 5 million from Q4 of the prior year.
To recap our full year 2004 results.
Hey, just revenue grew 41% year over year to 265 million.
In line with our expectations.
Hey, just non-GAAP gross margins expanded 380 basis points to 71, 7%.
Progressive expansion through fiscal year, 'twenty four underscores the scalability of our platform.
Alpana Wegner: The progressive expansion through fiscal year 24 underscores the scalability of our platform. Non-gap-adjusted EBITDA was a loss of $28 million, improving year-over-year from a loss of $59 million, expanding EBITDA margins by 500 basis points as we balance the top-line headwind from exiting our non-strategic business and managing our cost structure to increase operating leverage. Turning to the balance sheet and capital, we ended Q4 with a strong balance sheet with $69 million in cash, no debt, and an undrawn $50 million credit facility. Cash flow from operations was $11 million in the quarter, compared with $9 million in the prior year period, reflecting our improved adjusted EBITDA.
non-GAAP adjusted EBITDA was a loss of 28 million improving year over year and a loss of 59 million.
Expanding EBITDA margins 500 basis points as we balance the top line headwind from exiting our nonstrategic business.
And managing our cost structure to increase operating leverage.
Turning to the balance sheet and capital allocation.
We ended Q4 with a strong balance sheet with $69 million cash no debt and an undrawn $50 million credit facility.
Cash flow from operations was $11 million in the quarter compared with 9 million in the prior year period.
Reflecting our improved adjusted EBITDA.
Alpana Wegner: Now turning to our Fiscal Year 25 Guidelines, I'll share some color on what is shaping our four-year outlook. First, as Wendy commented, we expect a stable macroeconomic backdrop consistent with the past few quarters in the year ahead. Second, this year's cohort of Tejas customers that are renewing is the largest we've seen since the launch of Tejas. While we continue to see positive trends in our already strong customer satisfaction scores, we have taken a measured approach to our renewal assumption to reflect the current spending caution organizations are taking. And third, in terms of our non-strategic business, we expect other MSSAR to be zero by the end of the first quarter. We will see a return to sequential quarter over quarter total revenue growth in the second half of the year. And the resumptive costs related to the non-strategic business of $4 million to $6 million on an annualized basis will be eliminated in the second half of fiscal 25.
Now turning to our fiscal year 'twenty Fad guidance.
I'll share some color on what is shaping our full year outlook.
First when he commented we expect a stable macro economic backdrop consistent with the past few quarters in the year ahead.
Second this year's cohort of customers that are renewing is the largest we've seen since the launch of patients. While we continue to see positive trends in our already strong customer satisfaction scores.
Taken a measured approach to our renewal assumptions to reflect current spending caution organization that theyre taking.
And third in terms of our nonstrategic business, we expect other and that's S. A R will be zero by the end of the first quarter, we will see a return to sequential quarter over quarter total revenue growth in the second half of a year.
And there were some costs related to the non strategic business of 4 million to $6 million on an annualized basis will be eliminated in the second half of fiscal 'twenty.
To help with modeling, we expect operating leverage to be more weighted to the second half of the year driven primarily by the timing of redundant cost elimination.
For the full year fiscal 'twenty five we expect total air are to be 300 million or greater total revenue of 325 to 335 million.
Alpana Wegner: To help with modeling, we expect operating leverage to be more weighted to the second half of the year, driven primarily by the timing of redundant cost elimination. For the full year fiscal 25, we expect total ARR to be $300 million or greater, and total revenue of $325 to $335 million. Total gross margins to be 68%, inclusive of pages gross margins to be 74%, adjusted EBITDA to be between $4 and $12 million, non-GAAP EPS to be between breakeven and 8 cents, cash flow from operations to be between cash use of $2 million and cash generated of $8 million. And we expect CapEx to be in line with fiscal year 24. For Q1 fiscal 25, we expect total revenue of $83 to $85 million, adjusted EBITDA to be between breakeven and $2 million, and non-GAAP EPS to be between a loss of one cent and income of one cent. Our outlook for Q1 EBITDA also reflects seasonal timing of spend related to benefits and marketing program activities. We expect cash flow to trend lower in Q1, driven by the concentration of cash payments early in the year.
Total gross margins to be 68% inclusive of.
<unk> gross margin to be 74%.
Adjusted EBITDA to be between four and $12 million.
non-GAAP EPS to be between breakeven and eight cents.
Cash flow from operations to be between cash used of 2 million and cash generated of 8 million and.
We expect capex to be in line with fiscal year 'twenty four for Q1 fiscal 'twenty five we expect total revenue of $83 million to $85 million adjusted EBITDA to be between breakeven to 2 million non.
non-GAAP EPS to be between a loss of one cents.
Income at once.
Our outlook for Q1, EBITDA also reflects seasonal timing of spend related to benefits and marketing program activities.
We expect cash flow to trend lower in Q1, driven by concentration of cash payments early in the year in closing we remain confident in the ability to drive profitability and sustainable growth based on the continued scale opportunities driven by our unique cloud architecture, the delivery of differentiated and better security outcomes.
For our customers on our open platform and the progress we've made in building a strong partner ecosystem.
Alpana Wegner: In closing, we remain confident in the ability to drive profitability and sustainable growth based on the continued scale opportunity driven by our unique cloud architecture, the delivery of differentiated and better security outcomes for our customers on our OpenPages platform, and the progress we've made in building a strong partner ecosystem. Thank you for joining us on the call today. Wendy will now rejoin us as we begin the Q&A. Operator, can you please introduce the first question?
Thank you for joining us on the call today when do you will know rejoin us as we begin Q&A operator can you. Please introduce the first question.
Thank you at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad, we will pause here for just a moment to compile the Q&A walks, though.
Last question comes from the line of socket pallet of Barclays. Your line is now by putting please go ahead.
Operator: Thank you. At this time, I would like to remind everyone that in order to ask a question, please press star then the number one on your telephone keypad. We will pause here for just a moment to compile the Q&A roster. Our first question comes from the line of Saket Kalia of Barclays. Your line is now open, please go ahead.
Okay, Great Hey, good morning, guys. Thanks for taking my questions here how are you.
Good morning.
Hey, good morning, Yeah, Hey, Thanks Wendy.
Maybe maybe I'll start with you when do you for my first question.
I was wondering if could just talk a little bit about just the competitive backdrop.
Saket Kalia: Okay, great. Hey, good morning, guys. Thanks for taking my questions here. How are you?
In the Sim market.
It just feels like there's there's a decent bit of disruption happening there how much of a SaaS business. Here do you think is sort of exposed to the trend in and what are you sort of seeing out there as you spend time with customers.
Wendy K. Thomas: Good morning. Hey, good morning. Yeah, hey, thanks, Wendy. Maybe, maybe I'll start with you, Wendy, for my first question. I was wondering if you could just talk a little bit about the competitive backdrop in the SIM market. You know, it just feels like there's a decent bit of disruption happening there. How much of the fast business here do you think is sort of exposed to that trend? And what are you sort of seeing out there as you spend time with customers? Sure, that time is here.
Sure that that time is here.
No.
C N nextgen sense for that matter haven't ever lived up to the promise because data collection doesn't equate to security efficacy.
Wendy K. Thomas: You know, legacy and NextGen SINs, for that matter, haven't ever lived up to the promise because data collection doesn't equate to security efficacy, and they're really just aggregators of data. It's very difficult to maintain those in order to detect high-fidelity alerts, and they certainly aren't built for the kind of automated response that KSX-VR is, given the dwell times that we see, which absolutely require automation in that process.
And they're really just aggregators of data.
It's very difficult to maintain those in order to detect a high fidelity alerts and they certainly aren't built up for the kind of automated response, but tejas xdr is given the dwell times that we see with absolutely requires automation in that in that process.
So from from our seat we view that as a tailwind vendor consolidation generally is a tailwind, but I think that their time is.
Wendy K. Thomas: So from our seat, we view that as a tailwind, you know, vendor consolidation generally is a tailwind, but it's here in terms of customer requirements. And replacement of that technology is certainly one of the areas where we win a lot of deals, not just with solution provider partners. But we increasingly see that with MSFPs who have been running a business where there's still a lot of margin opportunity to move to Tages XDR in terms of their ability to deliver services at scale but also just get better results for their customers. So we view that as a good talent for us.
It's here.
In terms of customer requirements and that replacement of that technology is certainly one of the areas, where we win a lot of deals not just.
With our solution provider partners, but we increasingly see that with MFS teams, who have been running a business, where there's still a lot of.
Margin opportunity to move to Tejas XT are in terms of their ability to deliver services at scale, but also just get better results for their customers in terms of security. So we view that as a good tailwind for us.
Alpana Wegner: Yeah, yeah, absolutely. Alpana, maybe for you, for my follow-up, it's great to see the transition away from sort of the non-strategic businesses really come to completion, I think, here in the next quarter or so. I think you answered part of my question, which was, I think, the $4 to $6 million in annual cost that's going to be eliminated. But I just wanted to make sure, is there anything left?
Yeah, Yeah absolutely.
El pen on maybe maybe for you for my follow up it's great to see the transition.
Away from sort of the non strategic businesses really really come to come to completion.
Here in the next quarter or so.
I think you answered part of my question, which was I think the $4 million to $6 million in annual cost that's going to be eliminated, but I. Just wanted to make sure is there anything left right and particularly maybe why you ask that question is just the gross margin I think the gross margin. The total gross margin will still be below where we.
Alpana Wegner: And particularly, maybe why I asked that question is just the gross margin. I think the gross margin, the total gross margin will still be below where we will be for Tejas. So can you just walk us through, after that sunset happens, what's sort of left on the cost side of the equation? Does that make sense? Yeah, it's a good morning.
We will be for Tejas. So can you just walk us through kind of after that sunset happens, what's sort of left.
On the cost side of the equation that makes sense.
Got it.
It does and good morning, yeah happy to share a little bit about.
Alpana Wegner: Yeah. I'm happy to share a little bit about that. You know, once we get past the legacy business transition, our focus from a margin perspective is really around pages, which we shared. We're continuing to see opportunity there for continued progressive improvement. Uh, in gross margins, that's primarily coming from. Our ongoing focus on and automation, you know, we see a lot of opportunity in terms of continuing to be able to deliver high-quality SEC and DR services but doing it with and automation and helping us get greater leverage there. And then 2nd place from a standpoint would be really great.
Once we get past the legacy business transition.
Our focus from a margin perspective is really around pages, which we shared we're continuing to see them.
Opportunity there for continued progressive improvement.
In gross margin, that's primarily coming from.
Our ongoing focus on AI.
AI and automation, we see a lot of opportunity.
In terms of continuing to be able to deliver high quality SEC ops M D. Our services, but doing it with AI and automation is helping us get.
Greater leverage there and then the second place from a tedious standpoint would be really are.
Alpana Wegner: Our cloud architecture, our cloud architecture has enabled us to be able to have an effective and cost-effective way in which we transport, process, and store data. And so we see continued opportunity there. Those things sometimes take a little time to be able to get the full magnitude, but we, in our guide, have taken into consideration what we think is realistic in terms of realization in the current year. The other component of gross margins that you're seeing is also what I would consider the strategic value-add portion of our services business. So we continue to see opportunities, particularly as it relates to strategic consulting, but that will hold a lower margin than what we see from ATAGIS. So on a mixed basis, we've provided the guide on the overall gross margin. Super helpful.
<unk> caught out architect our cloud architecture.
It has enabled us to be able to have an effective and cost effective way in which we transport process store data and so we see continued opportunity there.
Sometimes take a little time to be able to get the full magnitude.
In our guidance taking into consideration what we think is realistic in terms of realization in the in the current year. The other component of gross margins that Youre seeing is I'll say, the what I would consider it a strategic value add portion of our services business.
We continue to see opportunity, particularly as it relates to the strategic consulting.
But that will that will hold at a lower margin than what we see from our pages. So on a mixed basis. We've provided the guide on the overall gross margin.
Super helpful. Thanks, a lot guys.
Saket Kalia: Thanks a lot, guys. Thank you. Your next question comes from the line of Mike Cikos of Needham & Co. Your line is now open, please go ahead. Hey, thanks for getting me on, guys.
Thank you Andy.
Your next question comes from the line of Mike cycles, often need them and cause the Lagerfeld license. Please go ahead.
Hey, Thanks for getting me in guys I just had two questions for you I guess the first if I could just frame the AOR here.
Michael Joseph Cikos: I just had two questions for you. I guess the first is, if I could just frame the AOR here and how I'm looking at things, and please provide some color, but I know that you guys are citing some deals that were pulled forward, and I just want to get a better sense. If I go back a quarter ago, you guys had taken down the guidance from $285 million plus to $280 million plus. Here we are a quarter later, and we did $285 million. So that delta, if I think about the outperformance to ARR this quarter of $5 million, is that really explaining the pulled forward deals, or is there anything more to consider there? Hey, good morning, Mike. This is Alpana. Thanks for the question. There were, I would say it was a mix.
And how I'm looking at things and please provide provide some color but.
I know that you guys are citing some.
Deals that were pulled forward.
And I just wanted to get a better sense.
If I go back a quarter ago, you guys had been taken down the guidance from 285 million close to 280 million plus.
Here, we are a quarter later than we did $285 million so.
That.
Is that Delta if I think about the outperformance of anymore in this quarter.
A $5 million is that really explaining the.
The pull forward deals or is there anything more to consider there.
Hey, good morning, Mike the SAP Hana Thanks for the question there.
There were I would say what doesn't mix, we certainly had a little bit of a pull forward of deals. We also had as Wendy mentioned.
Alpana Wegner: We certainly had a little bit of pull forward of deals. But we also had, as Wendy mentioned, we saw a good amount of momentum with some larger-size deals closing in the quarter. It helped our ARPC, as we mentioned in our comments. We saw a nice increase there sequentially from $139,000 to $145,000. And so I would say it's a combination of both.
We saw a good amount of momentum with some larger sized deals closing in the quarter. It helped our RPC as we mentioned in our comments.
Saw a nice increase there sequentially from 139000 145000, and so I don't think it's a combination of both we we saw a little bit of pull forward activity and we saw a little bit more of just.
Alpana Wegner: We saw a little bit of pull forward activity, and we saw a little bit more of just positive momentum in the fourth quarter. Thank you. Thank you for that, Alpana. And I guess a follow-up question will probably fall on you.
Positive momentum in the fourth quarter.
Thank you. Thank you for that I'll kind of and I guess, a follow up it's probably fallen you sorry would be better.
Wendy K. Thomas: Sorry, Wendy, but just on the financials again, I know in the prepared remarks you were trying to frame or give us some parameters for the guidance, which I really do appreciate. I think one of the things that kind of struck me, and I'm hoping you could kind of tease it out a bit, but with respect to the renewal cohort for Tejas, I think the direct line was that you guys are taking a measured approach to renewal. Can you help me parse through that?
Just on the on the financials again I know in the prepared remarks again, you were you were trying to frame or give us some parameters for the guidance, which I really do appreciate it.
I think one of the things that kind of struck me and I'm, hoping you could kind of tease it out a bit but with respect to the renewal cohort four tejas.
I think the direct line was you guys are taking a measured approach to renewals can you help parse through that are we expecting.
Alpana Wegner: Are we expecting any impact, whether it's gross retention or net retention? How should we consider that comment in the context of the guidance that we have today? Yeah, and I'll let Wendy weigh in here too.
Any impact.
Whether it's gross retention or net retention like how should we consider that my comment in the context of the guidance that we have today.
Yeah Yeah.
Yeah, I'll, let Wendy weigh in here too she might have a little bit of color to add but just from a guidance perspective, what we tried to do is make sure that we took into consideration what we're seeing from.
Alpana Wegner: She might have a little bit of color to add, but just from a guidance perspective, what we tried to do was make sure that we took into consideration what we're seeing from the broader macro environment. You know, we continue to see deal cycle times being stable. We continue to see what I would consider, you know, kind of stabilization, but continued scrutiny around deals, the additional layers of approvals, and just overall a bit of cautionary spend behavior. And so when we thought about the guide, in particular around the renewal pool, we took that into consideration as well as on balance, and the use of the term measured was what we were just trying to be really balanced about.
The broader macro environment.
We continue to see you'll cycle times being stable, we continue to see them. What I would consider you know kind of stabilization, but the continued scrutiny around deals the additional layers of approvals and just overall.
A bit of cautionary spend behavior and so when we thought about the guide in particular around the renewal pool, we took that into consideration as well as <unk>.
On balance and the use of the term measure. It was we were just trying to be really balanced about our we do have a large.
Alpana Wegner: We do have a large number of renewals coming up this year. That's a function of, as you look at our history, you will see that in late fiscal year 22 and going into fiscal year 23, we had a significant ramp of new customer acquisition. As those deals are now coming up for renewal, it's creating a larger renewal pool.
Amounted renewals coming up this year, that's a function of as you look into our history. You will see we had some in late fiscal year 'twenty, two and going into fiscal year 'twenty. Three we had a significant ramp of new customer acquisition as those deals are now coming up for renewal is creating a larger renewal pool.
And just being.
Wendy K. Thomas: And just being considerate of the macro environment, wanted to make sure we put that on balance with what I would say is a strong customer satisfaction and performance that we get from our, you know, things like CSAT and NPS. And so we're just being balanced between the two in thinking about our guide.
Consider it a.
The macro environment wanted to make sure we put that on balance with what I would say is a.
<unk>, we view it to be a strong.
Customer.
Satisfaction and performance that we get from our you know things like VSAT and N P. S.
And so we're just being balanced between the two.
And thinking about our guide.
Wendy K. Thomas: Yeah, I'll just add a little color to that in terms of us looking ahead in terms of customer health scores and SAC scores and NPS and those things, and those continue to be the highest they've been in Q4. So that's a good leading indicator for us. And we still see the demand for the platform and the customer usage on that platform as indicators of how important it is to the security of their organizations. But we are just going into the year ahead with a measured approach of looking out for the full year, given a big base up for renewal for the first time in this journey with Tejas, and just being measured about that. Terrific.
Yeah, I'll, just add a little color to that in terms of we do look ahead in terms of customer health scores and sat scores and NPS in those things and those continue to be the highest they've been in Q4. So that's a good leading indicator for us and we still see the demand for the <unk>.
Platform and the customer usage on that platform as indicators of how.
And it is to the security of their organizations.
But we are just going into the year ahead with a measured approach.
Looking out for the full year, given a big base up for a renewal for the first time in this journey with pages.
Okay and is that just being measured about that.
Michael Joseph Cikos: Thank you very much, guys. I'll turn it over to my colleagues.
Terrific. Thank you very much guys I'll turn it over to my colleagues.
Thank you.
Operator: Again, if you'd like to ask a question, please press star followed by the number one on your telephone keypad. Our next question comes from Hamza Fodderwala from Morgan Stanley. Your line is now open; please go ahead.
Again, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
Our next question come from Hamas Ottawa.
Morgan Stanley. Your line is now open. Please go ahead.
Okay.
Hamza Fodderwala: Thank you for taking my question. Maybe I'll start with Wendy. You mentioned how the spending environment has been more or less stable. At the same time, I think customers are looking for more value from their security spend. So maybe just walk us through how SecureWorks is helping deliver good security outcomes but also driving ROI. Absolutely.
Thank you for taking my question.
Maybe I'll start good morning.
Wendy you mentioned how.
You mentioned how the.
Spending environment has been.
More or less stable.
At the same time I think customers are looking for more.
More value from their security spend so maybe just walk us through how secure work for helping deliver good security outcomes, but also driving or what.
Absolutely.
Wendy K. Thomas: There's a couple of ways that we see ourselves as unique in that approach, and I'll kind of give you two sides of the coin. The first side of the coin is that we have a unique approach to pricing that's very transparent. So we have always had fixed per endpoint pricing, even though we are securing, detecting, and responding across all telemetry types, from business systems, email, to firewall2, to end point kind of the whole spectrum. So that pricing is easily comparable in terms of the incremental value that you get. It also doesn't have any variable data charges despite the fact that we store 12 months of data versus most competitors' 30 days.
There's a couple of ways that that we see ourselves is unique in that approach.
I'll kind of do two sides of the coin.
Her side of the coin is that we have a unique approach to pricing that's very transparent so we.
We have always had fixed.
Fixed her endpoint pricing, even though we are securing response to detecting and responding across all telemetry types from business systems from email to firewall too.
To end point kind of the whole spectrum, so that pricing is easily comparable in terms of the incremental value that you get it also doesn't have any variable data charges. Despite the fact that we started 12 months of data versus most competitors 30 days again tremendous security value in <unk>.
Wendy K. Thomas: Again, tremendous security value in terms of detection capabilities and proactive hunting capabilities because of the way we treat our data. But that pricing incents customers to share that data for better security. So pricing remains a strategic advantage, and that could not be possible without the cloud architecture that we've built. On the other side, you have to show the value, the security value, to customers. We've spent. Goodwill is development in terms of the platform itself, being able to show customers, in our quarterly security posture reviews, the efficacy of both the detections and response that we've done for them, the times, et cetera, but in comparison to benchmark them against peers in their industry, so that they can also translate the value of security to their C-suite, their board, et cetera, in terms Detection and Response.
The detection capabilities proactive hunting capabilities because of the way, we treat our data, but that pricing incent customers to share that data for better security outcomes, so that pricing remains.
Strategic advantage and that could not be possible without the cloud architecture that we felt on the other side you have to show the value of the security value to customers.
But.
Good development in terms of the platform itself being able to show customers and our quarterly security posture reviews, the efficacy of both the detection and response that we've done for them, but the times et cetera.
But in comparison to benchmark them against peers in our industry. So that they can also translate the value of security to their C suite their board et cetera in terms of their risk posture.
With them on our ability perspective, as well as the actual protections from detection and response.
Hamza Fodderwala: And we built that into an account management relationship that we've increasingly invested in, especially with larger customers, to be able to translate that into constantly evolving with their technology roadmap, their business priorities, perhaps for acquisitions and integrations, to just make sure that they see that seamless continuation of security value over time. Because we know we win this business every single day.
We build that into an account management relationship that we've increasingly invested in especially with larger customers too.
Be able to transfer that translate that into evolving constantly with their technology roadmaps their business priorities, perhaps for acquisitions and integrations. So just make sure that they see that seamless continuation of security value overtime, because we know we win this business every single day.
That's helpful and maybe just a follow up.
Alpana Wegner: You've been with SecureWorks now for a few quarters. You just gave us guidance for fiscal 25. I'm curious just to understand your guidance philosophy here. Can you walk us through a little bit more on how you're being conservative, particularly around the renewal assumptions and new business, just to give us a sense of whether or not this guidance is more or less de-risked as you continue through the last phases of this transition? Thank you. Yeah, thank you for the question and you're right.
You've been secure secure works now for a few quarters.
You just gave the guidance for fiscal 'twenty five.
I'm curious just to understand your guidance philosophy here.
Can you walk us through a little bit more on how you are being conservative, particularly around the renewal assumptions new business.
Just to give us a sense of whether or not this guidance is more or less derisked as you.
Continued through the last phases of this transition thank you.
Yeah. Thank you for the question and.
Alpana Wegner: This is the first annual guide that I'm setting with the company, and Wendy and I certainly partner on it and think both about what we see as the leading indicators within the business, as well as the macro and what we do have visibility and predictability into as we've made the transition for our business to the SaaS and highly subscription-oriented, at least from a top-line perspective. We've got a good amount of predictability, and from the amount that we don't have predictability into, it is really where we lean in and use judgment there. I do try and take a balanced approach. Weighing in on what we have high confidence in versus where's the risk in our plan?
You're right. This is the first annual guide that I'm sitting with the company and Wendy and I certainly partner on it and think both about what.
What we see as leading indicators within the business as well as the macro and what we do have visibility and predictability into as we've made the transition for our business too that the SaaS in a highly subscription oriented.
At least from a topline perspective.
We've got a good amount of predictability and from the amount that we don't have predictability into is really where we lean in and use judgment there I do try and take a balanced approach I'm taking.
Taking weighing and you know, what we have high confidence that versus where the risk in our plan.
Alpana Wegner: And I would say that that's reflected in the guidance range that we've given. And I do also think that we continue to see opportunity from a balanced approach between growth and profitability. We are very much focused on making sure we're investing appropriately from a growth perspective, both in product innovation, as well as in our go-to-market strategy. But getting leverage in the business where we can, as you heard me talk about earlier, particularly around gross margins and even our operating costs, how we think about G&A, where we can get some additional opportunity there, but also creating a positive EBITDA and transitioning the business to having a And so that's kind of the approach that I take from an overall view of the business financially, as well as from a guidance perspective. Hopefully, that gives you a little bit of color without me being new within the organization. It does indeed.
And I would say that that's reflected in the guidance range that we've given them and I do also think that we continue to see opportunities from a.
Balanced approach between growth and profitability.
Are very much focused on making sure we're investing appropriately from a growth perspective.
Product innovation as well as in our go to market strategy, but getting leverage in the business, where we can as you've heard me talk about earlier, particularly around gross margins and even our operating costs.
How we think about G&A, where we can get some additional opportunity there, but also creating a positive EBITDA and in transitioning the business to being.
Having our cash flow from operations that gives us the ability to fund our business and so that's kind of the approach that I take from an overall view of the business financially as well as from a guidance perspective, hopefully that gives you a little bit of.
Color without them.
With that with with me being like.
The new within the organization.
Hamza Fodderwala: Thank you. Nice results. And our next question comes from Tal Liani of Bank of America. Your line is now open, please go ahead. Hi, here's Madeline. I'm so tall this morning.
Doug Thank you nice results.
Thank you.
Our next question comes from Tal <unk> of Bank of America. Your line is how I think go ahead.
Hi, This is Matt on for Paul. This morning, just one question for Mark just going back to the renewal cohort.
Operator: Just one question from us. Just going back to the renewal cohort, are you more worried about gross turn, or are you more worried about discounting and pricing pressure? I guess what's driving that conservative there. If you had to pick one of those to be more overweight than the other, which would it be?
Are you more worried around gross order more worried around discounting and pricing pressure I guess, what's driving that conservative there if they have to.
To pick one of those being more overweight to the other thank you.
Madeline Nicole Brooks: Thank you. I can speak to kind of the broad pricing market if that's helpful. As I mentioned, we do have a unique pricing strategy that I think is very predictable and compelling for customers. And our approach to sort of holistic coverage is creating the best security, something you see in our higher average revenue than our peers, in fact, quite significantly. What we don't see and have not done is make any changes to our, you know, discounting strategy or average discounts that we're giving.
Sure I can speak to kind of a broad pricing market. If that's helpful.
As I mentioned, we do have a unique pricing strategy that I think is very.
Predictable and compelling for customers and our approach to sort of holistic coverage, that's creating the best security outcomes.
You can see on our higher average revenue per customer than our than our peers in fact quite quite significantly what we don't see and have not done is make any changes to our.
Discounting strategy or average discounts that we're giving and we see our partners continuing to grow.
Wendy K. Thomas: And we see our partners continuing to grow, grow pipeline with us, and have higher win rates. So clearly, our pricing with them is providing them with the economics that they're looking for. So despite there sometimes being, you know, occasional events in the market where competitors try to come in with cheap or free, that never works on a sustained basis. So I have never been one to chase that kind of pricing. The fact is, most organizations take the purchase of security pretty seriously relative to its potential impact on their business if it's chosen poorly. So I just don't think that that's a winning approach, and that's not the case. For us, we're really just continuing to look at an environment of, But I think it's, as I said, a really rational fiscal assessment of all spend across all vectors for most businesses these days. And so we just want to be measured about what may happen in the macro that we're not necessarily in control of as we look to that pool ahead.
Grow pipeline with us and have higher win rates. So clearly our pricing with them is providing them the economics there they're looking for.
So despite there are some times.
You know occasional events in the market where competitors try to come in with cheap or free that's never works on a sustained basis. So I've never been one to chase that kind of.
Pricing. The fact is most organizations take the purchase of security pretty seriously relative towards potential impact to their business. If it's chosen poorly.
So I just don't think that that's a winning winning approach and that's not been the case.
For us were really just continuing to look at an environment of but I think as I said really rational.
Physical assessment of all spend across all vectors for for most businesses. These days.
And so we just wanted to be measured about.
What may happen in the macro that we're not necessarily in control of as we as we looked at that pool ahead.
Madeline Nicole Brooks: Sorry, Wendy, I appreciate the comments on pricing in general, but I guess I'm just looking for where the conservatism in the guidance is being driven around this renewal cohort. Yeah, I'll let Hannah out. It's been really great.
Alright, sorry Wendy.
Hate to comment on pricing in general, but I guess I'm, just looking for where the conservative in the guidance is being driven around this from your old cohort, yeah, I'll, let I'll kick it off you know.
Okay, great. Thank you.
Alpana Wegner: Yeah. Thanks, Madeline. Yep. And just piggybacking off of Wendy's comments there, I would say that it's not lost on us, you know, the value of an existing customer over losing a customer. So, our focus is going to be, and I would say, you know, we would prioritize retaining all of those customers that are in that renewal pool. And so, for us, you know, the risk that we've fought through is more probably on the NRR side than I would say on the GRR side. And the reason I say that is we do have strong customer stats. We do see that customers have positive feedback on the ROI that they're receiving from us. And in the current environment, you know, if there are budgetary constraints that are driving cautionary spend or any of that type of behavior that would put pressure on those renewals, we will approach it in a partnership manner with our customers and our partners and be looking for, you know, the right, long-term value economic answer that's a win-win for both organizations and that typically manifests as you point out you know through the NRR as opposed to a GRR.
Yeah. Thanks, Marilyn Yeah, and just piggybacking off of Wendy's comments, there I would say that it's not lost on US you know that the value of an existing customer over.
Losing a customer so our focus is going to be and I would say, we would prioritize retaining all of those customers that are in that renewal pool and and so for US you know the risks that we.
<unk> through its more probably I mean in our our side than I would say on the <unk> side and the reason I say that is we do have strong customers that we do see that customers have positive feedback on the ROI that they're receiving from us and in the current environment.
If there are budgetary constraints that are driving cautionary spend or any.
Any of that type of behavior that would put pressure on those renewals, we will approach it in a partnership manner with our customers and our partners and be looking for the right.
Long term value economic answer that's a win win for both organizations and that typically manifest as you point out you know through the NR or as opposed to a G. R. R.
Alpana Wegner: Thank you so much. Thank you. There are no further questions at this time, so Mr. Toomey, I turn the conference call back over to you. Great.
Yeah. Thank you so much that's it for me.
Thanks, I think Keith.
There are nice to have questions at this time, so Mr. Toomey I turn the conference call by type of tea.
Great. Thank you that wraps today's call a replay of this webcast will be available on our Investor Relations page at secure works Dot com, along with our supplemental web deck and additional financial tables.
Kevin J. Toomey: That wraps up 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 and additional financial tables. Thank you all for joining us today. This concludes today's conference call. You may now disconnect your line, www.secureworks.com. You may now disconnect your line
Thank you all for joining us today.
Thank you.
This concludes today's conference call you may now disconnect your lines.
Yeah.
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