SecureWorks(US:SCWX)2022-09-01 13:38Financial Data and Key Metrics Changes - Taegis ARR increased by $100 million year-over-year, reaching $201 million, reflecting a triple-digit growth rate [30] - Total revenue for Q2 was $116 million, consistent with expectations despite a $3 million FX headwind [32] - Gross margins expanded to 61.3% from the prior year [33] - Adjusted EBITDA loss was $14.3 million compared to a $3.6 million gain in the prior year [35] - Cash flow used by operations was $17 million, compared to $17 million provided by operations in the prior year [36] Business Line Data and Key Metrics Changes - Taegis now represents 56% of overall subscription ARR, with expectations to reach approximately 75% by the end of the fiscal year [6][31] - Taegis subscription revenue was $42.8 million for the quarter, up 131% year-over-year [30] - Average revenue per Taegis customer increased to approximately $136,000, up from $130,000 in Q1 [31] Market Data and Key Metrics Changes - The endpoint detection and response market is valued at $9 billion and growing, with increasing customer interest in XDR solutions [23] - The SIM market is worth close to $5 billion, with customers increasingly displacing their SIMs for XDR solutions [21] Company Strategy and Development Direction - The company is transforming into a leading XDR solution provider with a strong recurring revenue model [5] - Focus on expanding Taegis' market presence and enhancing customer acquisition through targeted investments in sales and marketing [39] - The company aims to consolidate security budgets for customers, driving better efficiency in their spending [42] Management's Comments on Operating Environment and Future Outlook - Management noted that the strength of the dollar has resulted in FX headwinds and a lower level of professional services revenue than previously guided [38] - The company remains optimistic about capturing XDR spend with Taegis solutions while completing the transition from non-strategic services [42] - Management highlighted the importance of customer education regarding XDR and the ongoing shift from traditional SIMs [56] Other Important Information - The company finished the quarter with a strong balance sheet, holding $167 million in cash and no debt [36] - A new Chief Technology Officer, Mike Aiello, has joined the company to shape the next horizon for Taegis [26] Q&A Session Summary Question: Clarification on fiscal 2023 revenue guidance reduction - Management indicated that approximately 50% of the $21 million revenue cut is tied to FX impacts, with the remainder due to lower demand for non-strategic professional services [48][50] Question: Total customer base for MSS and migration to Taegis - The total customer base includes 1,900 MSS customers and 1,500 Taegis customers, totaling 3,100 customers [51] Question: Market awareness around XDR and demand environment - Management noted that awareness of XDR is growing, but it is still early in the market cycle, with customers in investigation mode [55][56] - Sales cycles for Taegis have lengthened due to additional procurement layers and turnover in prospects [60] Question: Customer count strategy and average revenue - The company is targeting customers with a minimum of 500 endpoints for Taegis, leading to a shift in customer demographics and average revenue per customer [65] Question: Gross margins and cost structure - Gross margins were impacted by the revenue mix shift and costs associated with transitioning from the older CTP platform [70]