SecureWorks - Q1 2023

Transcript

Operator (participant)

Good morning. My name is Joel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Secureworks first quarter fiscal 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. 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 star followed by one on your telephone keypad. If you'd like to withdraw your question, press the pound key. Thank you. At this time, I would like to turn the call over to Paul Parrish, Secures CFO. Mr. Parrish, you may begin your conference.

Paul Parrish (CFO)

Thanks, everyone, for joining us. With me this morning is Wendy Thomas, our CEO. During this call, unless otherwise indicated, we will reference non-GAAP financial measures. You will find the reconciliations between these GAAP and non-GAAP measures in the press release and presentation posted on our website earlier today. Please also note that all growth percentages refer to year-over-year changes unless otherwise specified. 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, 10-K, and SEC filings. We assume no obligation to update our forward-looking statements. Now I'll turn it over to Wendy.

Wendy Thomas (President and CEO)

Thank you, Paul, and welcome everyone. We executed against our first quarter plan, and the structural growth drivers of our business remain strong. The end market for XDR is growing, and our transition allows us to build a stronger, recurring revenue business designed to capture growth. We continue to build deep relationships with customers and invest in the Taegis platform, and we see benefits from accelerating Taegis adoption, new use cases, and upsell opportunities. This gives us confidence in the sustainability of future growth over the long term. The opportunity for Taegis, a true open XDR platform, is tremendous. Our open XDR approach has customers choosing Taegis as a way to future-proof their security.

They tell us Taegis is their long-term cybersecurity solution because it easily evolves to secure their changing technology infrastructure, and Taegis' expanding threat detection and response capabilities enable them to stay ahead of the threat. From the onset, we developed Taegis with a unique and purpose-built architecture designed to be flexible and enable seamless innovation, ensuring our customers achieve their best security outcomes now and in the future. The conversations we're having today with both customers and prospects are notably different from just a year ago, as we see a growing understanding that XDR is the right answer to today's security challenges. In fact, Forrester found in a recent survey of over 400 security decision-makers that XDR is their number one security priority in the next twelve months, and 60% of those had plans to invest in XDR solutions in the next twelve months. Why?

What security professionals recognize is that securing endpoints or networks individually in a siloed approach does not work. Point solutions leave critical gaps in visibility, and aggregating multiple logs often fails to yield critical detections or bury security professionals in a sea of alerts. Threat actors have learned to weave between point solutions, staying out of sight. XDR is the clear solution to this. Even with XDR, companies are faced with another key choice. Do they go with a proprietary or open XDR model? To our customers, the choice is clear. In their view, an XDR solution that only operates on a proprietary stack removes optionality with vendor lock-in and introduces risk in a forced rip-and-replace approach. The head of security operations at one of our customers said it best. "By leveraging Secures' open XDR approach, we won't have to lock ourselves into vendors.

In short, Secures' approach to XDR future-proofs our customer security program." That's reflected in our Taegis numbers, which continue to demonstrate one of the fastest customer and ARR growth rates in the market, with the addition of 900 customers since Q1 of last year and the addition of over $100 million of Taegis ARR. That represents nearly 150% year-over-year growth, and we ended first quarter at $180 million in Taegis ARR. Our focus this year remains on delivering high-value security solutions to the market and making targeted investments in Taegis to capitalize on the market transition to XDR. In terms of our strategic transformation, we remain on track as we continue to transition our Counter Threat Platform customers to Taegis and manage out non-strategic services and resale revenue.

In first quarter, we arrived at a key inflection point in this transformation journey. We ended the quarter with nearly 50% of total subscription ARR on Taegis, an important milestone for us. In parallel, we continue to drive gross margin expansion. Our combined CTP and Taegis subscription gross margins were 69.9% this quarter, an increase of over 200 basis points versus first quarter last year. Why now, and why Secures? From our customers' perspective, Taegis helps future-proof them in three ways. First, Taegis was designed from the ground up with a purpose-built big data architecture that delivers a new holistic way to see, analyze, and act upon security data. And to do so, it leverages all the data, not just data from endpoints, not just data from networks, nor from just a single public cloud provider.

Taegis was designed to gather petabytes of data and apply its unique detection capabilities to find and prioritize security alerts. For example, this quarter we signed an international law firm who came to us from a competing XDR provider that was network-centric. The customer initially thought to implement a SIEM, but the lack of automated response capabilities, coupled with high data retention costs, enabled us to demonstrate that the SIEM implementation would be too complex and costly to maintain. With Taegis, they quickly ramped up an efficient and economical security program with round-the-clock threat tracking and protection. The company now has time to develop its internal team over time, partnering with Secures to build a stronger security stance than ever before. Second, Taegis future-proofs our customers security through broad and deep threat detection that is powered by an optimum mix of machine learning and applied security expertise.

This quarter, we introduced enhancements to our detection capabilities, adding more threat context and customization options, which drives investigation efficiency and speed to response. I'd highlight particularly the expanded capabilities of our unique detection engine, which we call Tactic Graph. We codify threat actor behavior patterns into the Taegis platform continuously. We leverage our findings from about 3,000 incident response and adversarial testing engagements each year, together with the proactive research insights of our Counter Threat Unit. Taegis' ability to correlate observations from multiple telemetry sources and security controls at scale across petabytes of data allows Tactic Graph to detect threat actor movements with high precision. As we open up development on Tactic Graph to partners and customers, we expect the detection capabilities of the platform to only accelerate further. Third, Taegis was designed from the outset as an extensible platform for collaboration and innovation.

It gives our customers direct access to our security experts so that they can actively collaborate on investigations. It's also an extensible platform. The Taegis community can share integrations, playbooks, and more. This is all backed by the security operations expertise that we bring to the table. Simply put, there are not a lot of players with a combination of XDR capability and the security services pedigree, an area where we have dominated, that Secures offers. This powerful combination helps customers scale their security team with a high degree of effectiveness. One example from this quarter was a newly signed customer, a preeminent services firm in North America. They had multiple SIEM and point technologies that were causing SecOps inefficiencies and security misses. This left them both exposed to threat actors and exposed to spiking cyber insurance rates and ISO audit challenges.

With Secures Taegis, they had day one full security visibility and threat detection across their entire environment. Plus, they benefited from Taegis playbooks for automatic and proactive threat hunting. Their team has since been collaborating with Secures experts, augmenting their capabilities and restoring some balance to their overworked SecOps team. These differentiators are open purpose-built XDR platform designed for collaboration and automation of work for security analysts, backed by deep security expertise that we infuse into our platform and solutions. These are the things that Secures customers value most. A final thought I'd like to touch on today is the opportunity that Taegis affords our customers through flexibility, particularly for customers who are looking to maximize the return on their security investments for the long run.

Taegis future-proofs them not just against the evolving threat landscape, but empowers them to maintain continuous security across future changes in their technology estate while optimizing their security spend. I'll share an example. We have an existing retail industry customer that re-sourced to the Taegis platform in Q1. They had close to 50 one-off security point solutions that were overwhelming their security team with portals and complexities, forcing them into a continuous state of reaction. With Secures Taegis, they were able to displace duplicative spend by leveraging existing Taegis capabilities to remove several point solutions and do so with a higher standard of security. They gained full coverage of their environment while relying on Taegis XDR to eliminate alert noise. Importantly, their total spend on security has declined while their spending with Secures has increased fourfold.

This industry has seen a lot of investment in security companies and growing customer spend on security. What we haven't seen is a reduction in damages from breaches. Taegis was built to fix this. The holistic and open nature of Taegis XDR puts us in a more strategic conversation with our customers about protecting their mission-critical workloads and driving better business outcomes. We're able to take their current security investments and make much more of them. Taegis XDR can analyze more data with better accuracy and greater speed than our competitors, ultimately providing more security and more value to our customers.

Taegis XDR's unique, open, and purpose-built platform can help turn the tide in the battle against the adversary. I want to thank our customers and our partners for joining forces with us, and thank our teammates for their hard work and commitment to realizing Secures' mission to secure human progress. With that, I'll turn the call over to Paul Parrish, our CFO.

Paul Parrish (CFO)

Thanks, Wendy. Taegis continues to gain traction in the market. ARR increased $108 million year-over-year to end Q1 at $180 million, 149% growth rate over prior year Q1. We've added 900 customers since Q1 of last year, up 180% over the prior year to end the quarter at 1,400 total Taegis customers. Taegis subscription revenue was $37.2 million for the quarter, up 167% year-over-year. Average revenue per Taegis customer was approximately $129 thousand, remaining a premium to our non-Taegis customers, which averaged $88 thousand per customer. As we continue to re-solution customers and grow new business on the platform, we ended the first quarter with nearly 50% of total ARR on Taegis.

As Wendy mentioned, this is an important milestone for Secures as it means we've arrived at a key inflection point in our multi-year business strategy. We continue to see Taegis expanding to about three-quarters of total ARR by the time we exit FY twenty-three as we continue transitioning from non-strategic services to our Taegis-led business model. On an overall basis, total revenue was $121 million in Q1, which was consistent with our expectations. We continue to scale our cost structure and benefit from our Taegis-led solution mix shift. Overall, Q1 gross margins expanded 120 basis points from the prior year first quarter, with subscription gross margins at 69.9%, up 210 basis points year-over-year.

We continue to raise our voice and profile in the market with targeted investments, resulting in sales and marketing costs increasing to 31.1% of total revenue, up from 25.6% in Q1 of FY 2022 and 29.9% in Q4. We are continuing to work closely with our customers to innovate and deliver new features that align with their strategic priorities and our development roadmap, further differentiating Taegis in a fast-growing market. Accordingly, R&D has increased to 25.3% of revenue, up from 19.4% of revenue in the first quarter of last year and 22.6% of revenue in Q4. G&A expenses were down slightly in dollars compared to Q1 of the prior year on lower professional service and consulting-related costs.

Adjusted EBITDA loss was $7.8 million compared to an $8.1 million dollar gain in prior year Q1. The overall swing of $16 million was driven by a combination of reduced revenue and gross profit as we actively exited non-strategic lower-margin services and continued investments focused on our long-term growth strategy. Cash flow used by operations in 1Q fiscal FY twenty-three was $25 million as compared to a $30 million use of cash in prior year Q1. Note that Q1 is typically impacted by our annual performance payout. While the Adjusted EBITDA differential swung approximately $16 million year-over-year, we improved use of cash year-over-year on lower DSOs. CapEx was $2 million for the quarter, relatively flat with prior year.

We finished the quarter with a strong balance sheet, $186 million of cash, no debt, and an untapped credit facility. Turning to our guidance for FY 2023. We reiterate our guidance and continue to expect the following for full year fiscal 2023. Taegis ARR to end FY 2023 over $265 million, demonstrating our confidence in end market growth opportunities and in our ability to win deals and execute. Organic growth to contribute approximately $50 million of incremental ARR. Sales should accelerate through the year as we get the full benefit of our investments carrying through to FY 2024 and beyond. We're accelerating investments in brand awareness and global distribution, with returns expected to be more meaningful in the back half of the year and into FY 2024. Other MSS ARR to end FY 2023 below $80 million.

Of the approximately $80 million of ARR remaining at year-end, we expect a significant portion to be eligible for re-platforming, with most done in FY 2024, enabling us to eliminate duplicative cost of the CTP platform. Total revenue to be $475 million-$490 million. Full year Adjusted EBITDA to be in the -$58 million to -$68 million range, which includes our investments in sales and marketing and R&D. Finally, full year EPS loss to be in the $0.61-$0.70 range. Regarding Q2, we expect revenue of $115 million-$117 million with an EPS loss in the $0.15-$0.17 range.

FY 2023 continues to be an inflection point in the company's transition as we shed non-strategic services and complete the re-solutioning of our base to Taegis, with a significant majority of customers completing that transition by FY 2023 year-end. The re-solutioning of our base is positioning Taegis for future organic growth. In summary, we're making consistent progress against our transformation with continued improvement in our business mix and growth potential. The end of our business model transition is now in sight, and we believe that it's increasingly clear we have the right product at the right time to lay the foundations for growth and profitability for the company. Wendy will now join us again as we begin Q&A. Operator, can you please introduce the first question?

Operator (participant)

At this time, I would like to remind everyone in order to ask a question, you can press star one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. The first question is from the line of Saket Kalia with Barclays. You may ask your question.

Saket Kalia (Managing Director and Equity Research Analyst)

Okay. Great. Hey, good morning, folks, and thanks for taking my questions here.

Wendy Thomas (President and CEO)

Good morning.

Saket Kalia (Managing Director and Equity Research Analyst)

Morning. Wendy, maybe just to start with you. A lot of great customer examples in your prepared remarks. I was wondering if you could just double-click a little bit on the idea of SIEM replacement. More specifically, to what extent do you find Taegis is replacing SIEM installations at your customers versus coexisting with SIEM at your customers? Does that make sense?

Wendy Thomas (President and CEO)

It does, and I'm gonna talk about that in probably two different ways in terms of SIEMs and then what I would call more IT observability platforms. When we think about traditional SIEMs, even next-gen SIEMs, there's not a coexistence model. It doesn't make sense, right? Taegis can do all that they do and more. It's got the detections that you don't have to maintain, reporting that's either standardized or customizable, so you can have that angle. You have the log retention included. We include 12 months as standard with options to extend. What we have that they don't, obviously, is the automated response capabilities and much lower cost to maintain. It's cloud-native, and we're doing the heavy lifting on maintaining and building out the detections and response automations.

From that perspective, it economically and from a security efficacy standpoint doesn't make sense to coexist. Where we do see some coexistence, again, is where the core system, if you will, is really around IT observability or IT use cases. In those cases, XDR fulfills the security aspect of that. From our seat, that in many cases can be a pretty powerful partnership opportunity to work with those platforms who, you know, potentially ingest a good bit of data in order to fulfill their use cases, and we can leverage that data mutually to add a much more effective security program on top of that. Does that answer your question?

Saket Kalia (Managing Director and Equity Research Analyst)

Yeah. That does. That's super helpful. Paul, maybe for my follow-up for you. You know, you touched on this a little bit in your prepared remarks, but can you just dig into the conversion opportunity a little bit, or resolution opportunity, maybe I should call it, for Counter Threat customers over to Taegis and sort of how you're thinking about the timing of that conversion and what you're doing to encourage that conversion, if you will?

Paul Parrish (CFO)

As Wendy mentioned in her opening comments, you know, we see the XDR market is hot. It's growing. That is encouraging our customers to take a look at our solutions as we talk to them about the resolution. As we set our guidance this year, we had a perspective on how we would exit this year with the balance on our remaining Counter Threat Platform, which we gave guidance of $80 million or less. We still see all this syncing together how we set guidance. We're still feeling very good. We believe our customers are looking at our product favorably. Matter of fact, when they do resolution, we're still seeing that positive uplift when they exchange out of the older product to the new product and still hovering somewhere around that 20% uplift as they exchange that product.

We still feel very good about that progress.

Saket Kalia (Managing Director and Equity Research Analyst)

Got it. Very helpful. Thanks, guys.

Operator (participant)

Thank you. The next question is from the line of Mike Cikos with Needham. You may proceed.

Mike Cikos (VP and Senior Equity Research Analyst)

Hi, team. Thanks for getting me on the call this morning, and good morning.

Wendy Thomas (President and CEO)

Morning.

Mike Cikos (VP and Senior Equity Research Analyst)

I wanted to ask you guys about the ARR or spend behavior that you're seeing with existing Taegis customers. It's probably still a little too early to start calling trends just based on the latency of the product or maybe the cohort of customers that we had a year ago. I'm curious, can you provide any detail or color on how customers' Taegis spend has changed over the course of the year if they're coming up on 12 months? What's the behavior like within that cohort?

Wendy Thomas (President and CEO)

Sure. Let me sort of level set on the average revenue per customer on Taegis relative to CTP and talk about new and resolution first, and then we can talk about sort of expansion of those customers with multiple modules. The average revenue per customer on Taegis this quarter was $130,000, pretty close to what it was in fourth quarter. We see that average is pretty consistent now across both new, newly signed customers and resolution customers.

We did have a tick down in average revenue per customer in 4Q with just the resolution customers as we moved deeper into the base of smaller customers historically. What we see though is that our target remains, especially as we continue to move up into the enterprise space, a $200,000 average revenue per customer model based on our current target market. Part of the way that we get there is the opportunity to upsell our customers on additional modules. You already see us with a higher average revenue per customer than many of our competitors in the space, which is both a function of the market that we play in, as well as what's included versus additional modules.

We include much more in the core XDR product than competitors who try to monetize those separately. For us, we are now seeing a substantive number of customers have at least one additional module from Taegis, which is helping us to continue to expand our spend, and frankly, we think that will help with renewal rates as well as they become stickier customers.

Mike Cikos (VP and Senior Equity Research Analyst)

Thanks for that. I appreciate the color there. Just one follow-up, really on that last comment there. I think it was that you're seeing a substantive number of customers have at least one additional module, right? Maybe to square that away for

Wendy Thomas (President and CEO)

Yes

Mike Cikos (VP and Senior Equity Research Analyst)

a more apples-to-apples comparison, but if I think about it even quarter-over-quarter or year-over-year, is that one additional module? How does that compare to where we were even a year ago? Are we seeing higher attach rates or more cross-sell in the current environment, given the maturing platform that you guys have out there now?

Wendy Thomas (President and CEO)

Yeah, it's a good question. It's definitely a material lift in that. Nearly 70% of our customers now have at least one additional module, and that could be a additional product or a services module like Elite Threat Hunting. I would have to get the exact number from a year ago, but it definitely has expanded quite a bit in the last year, both as we've expanded the base and just over time cross-sold back into the original customers and had additional modules to offer.

Mike Cikos (VP and Senior Equity Research Analyst)

Very helpful. Thank you very much, guys. I'll turn it over to my other colleagues.

Operator (participant)

Thank you. The next question is from the line of Hamza Fodderwala with Morgan Stanley. You may ask your question.

Hamza Fodderwala (Executive Director of Equity Research)

Hey, good morning, everyone. Thanks for taking my question.

Wendy Thomas (President and CEO)

Good morning.

Hamza Fodderwala (Executive Director of Equity Research)

Wendy, maybe first question for you. Just, if you could, just talk a little bit about what you're seeing in the security spending environment. Obviously, it sounds like it's been pretty strong year to date, but I'm wondering if you're seeing any changes at all in a less certain macro environment. Then, just a follow-up to that is, when you constructed your guidance, did you factor in any, you know, changes around sales cycles or pipeline conversion at all?

Wendy Thomas (President and CEO)

Sure. I can just talk about what we're seeing in sales cycles, and then let Paul speak a little bit to the guidance. In terms of the economy, you know, I was here at Secures back in the 2008 time frame when there was a bit of a blip in the market. We were obviously a lot smaller and watching our cash. What we saw then is, you know, and your guess is as good as mine around the economy, is probably what we're seeing right now, which is that the, you know, security spend is pretty mission-critical. It's really one of the stickiest areas of spend in enterprise budgets. They may look to have some trimming, but not necessarily full type cutbacks.

What we saw before and potentially could see now is a sales cycle lengthening as opposed to, you know, a precipitous drop in spend. That would be my best guess on that front. However, we haven't seen that yet. We've had a sales cycle of about a quarter for Taegis, that is, longer on the legacy platform for quite some time. So far, no big change there, but if I had to make a guess, that would be the area I would look to.

Paul Parrish (CFO)

As we set guidance, we looked at our trends, and we took that into consideration as we set guidance, as well as the continued growth and pace at the growth with our product in relation to the market growing. All that was considered as we put our guidance out.

Hamza Fodderwala (Executive Director of Equity Research)

Just specifically, Paul, if I could follow up, you know, did you assume perhaps a bit lower pipeline conversion or longer sales cycles in your guidance explicitly?

Paul Parrish (CFO)

We looked at what was occurring as we exited Q4. To the extent there was a range that we could put our parameter around, we included that in our guidance. Definitely we captured a portion. Is it what could occur during Q2, Q3, so forth out? Yet to be determined, but we have an element there in our guidance setting.

Hamza Fodderwala (Executive Director of Equity Research)

Got it. Makes sense. Just one last question on Taegis. I'm just curious how you get around avoiding some of the data ingest costs that we've seen some traditional SIEM vendors have that make them obviously sometimes cost prohibitive from a customer standpoint. How do you get around that with Taegis so that you can not only deliver effective security, but also deliver it at a more efficient price point?

Wendy Thomas (President and CEO)

Sure. I'll talk about that from two angles. The most important angle is from the customer seat. We very consciously made the decision to price Taegis based on endpoint count. That way for customers, it is very predictable. There are no additional data charges unless they decide to purchase longer storage than 12 months. But there is no variable data charges that catch customers by surprise, and their ability to outlook their endpoints is their ability to outlook their spend with us. That's a real differentiator, not just against SIEMs, but against some other XDR providers who do create that exposure for customers to charges.

Frankly, from my seat, create a disincentive to do the very thing that makes them more secure, which is to have all the data to be able to run highly correlated detections, find that needle in the haystack. We do not want to disincent the security value of that data either. Of course, the flip side of that question is, well, how do you manage that in terms of your cost structure? As you can see, even with the MDR services included in our subscription margins, we are just at 70% gross margins this quarter because we have a purpose-architected XDR platform that is very conscious about the types of data that we need quickly, right?

Real-time search capabilities for security efficacy, and those that we can have lower cost storage structures for things that you just wanna search over time. The combination of that architecture with our kind of constant management of instances and such with AWS is how we're able to to grow our margins at scale while still having a pricing model that is predictable for customers.

Hamza Fodderwala (Executive Director of Equity Research)

Thank you.

Operator (participant)

Thank you. The next question is from the line of Brian Essex with Goldman Sachs. You may proceed.

Brian Essex (Equity Research Analyst)

Hi, good morning, and thank you for taking the question. You know, maybe Wendy, I'd love to get a sense for what you're seeing so far with, you know, kind of adoption of the Taegis platform. And I guess the question is more along the lines of where you see yourself fitting in relative to some of the other business models that are out there in terms of, you know, we have, you know, some managed service providers, you know, going through kind of an incident response-related channel and kind of leading their XDR technology behind. We have EPP vendors that are extending into XDR. You know, how do you see yourself? Obviously, I totally get the, you know, the ability to have an agnostic platform that's kind of open in nature.

you know, right now you've got a nice tailwind from the resolution, but where do you end up. Where do you think this environment kind of ultimately ends up in terms of competitive dynamics versus the way that other vendors are kind of trying to penetrate the space?

Wendy Thomas (President and CEO)

Sure. Good question. I'll, you know, the simplest way I think about it is really the X, the D, and the R in XDR, what makes us different from different approaches to the market, and you really called out several of them. The X truly is the extended piece, which is right. That is not just endpoint only, and then it's not just a proprietary stack where you have to use their endpoint, their firewalls, et cetera. I think that's one of the fundamental differences. On the other end of the spectrum is the R. There are a lot of XDR players out there who do not have what I call the big R.

They may promise that come in with a low price point, and then what customers find out is that they are truly on their own. When we think about being able to compete with a very well-regarded incident response program underneath of that 40 hours a quarter included in our MDR program, which is a real differentiator from competitors, that's the truly big R.

In the middle there, it's really around the detection, and that's where we win against all players who come from all angles because of the way that we don't just ingest data, which many XDR providers say, "Well, we ingest everything." It's really about the normalization of that data and the powerful detections across that data that we compete against those players in those three areas, and no one has that combination of truly the X, the D, and the R.

Brian Essex (Equity Research Analyst)

Got it. That's super helpful. I guess, you know, maybe relative to some vendors that may come at this from an EPP angle and, you know, the catalyst of displacing a legacy endpoint vendor would be kind of, you know, their tip of the spear, so to speak, to go to market. How do you envision the way that you might penetrate the market as primarily direct sales or, you know, are you getting traction with some of the solution providers that may be, I guess architecting a more holistic solution around an EPP conversion? Like, how do we think about, you know, your ability to get in front of customers to actually, you know, illustrate the benefit of your platform?

Wendy Thomas (President and CEO)

Sure. I'll take that in two pieces. One is kind of the EPP play generally, and then two is the partner play, which really goes beyond just that particular displacement strategy. You know, the reason that we have our own proprietary agent. We have next-gen AV capabilities to make it frictionless for customers to choose. If they want a more economical approach to XDR, including EPP, we absolutely have that for partners to be able to offer to customers who run that play. That was a conscious decision on our part. Do we require it? No. They have a leading endpoint product. We work with those products in order to prevent risk to customers of force rip and replace.

We get in, we become the interface to the customer and show them economic models over time that they can shift into. The second piece is really around partners and as we've stated before, it is a key part of our strategy to expand both with partners who resell Secures products, as well as provide ancillary services on top of that. We've very much been working to enable those partners with speed to market by sharing our bridge support around developing service models and security operations centers to do that. We do see continued increase in the percent of partner sales as a percent of our revenue. I would like to see that go faster. I anticipate that's gonna start to go faster as we've been building these relationships and getting partners ramped.

Pleased on both fronts and we wanna give them more than just the EPP play, the SIEM play, and others, for them to go in and seek opportunities to increase revenue with their base.

Brian Essex (Equity Research Analyst)

Got it. Got it. Very helpful color. Thank you.

Operator (participant)

Thank you. There are no further questions at this time. Mr. Parrish, I will turn the call back over to you.

Paul Parrish (CFO)

Okay. That wraps up 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 Q1 web deck with additional financial tables. Thanks again for joining us today. Have a good day.

Wendy Thomas (President and CEO)

Thank you.

Operator (participant)

This concludes today's conference call. You may now disconnect.