SecureWorks Corp. (NASDAQ: SCWX) Q2 2021 Earnings Call dated September 09, 2020
Corporate Participants:
Paul Parrish — Chief Financial Officer
Michael R. Cote — Chief Executive Officer and Director
Wendy Thomas — President of Customer Success
Analysts:
Sterling Auty — JPMorgan — Analyst
Saket Kalia — Barclays Capital — Analyst
Brian Essex — Goldman Sachs — Analyst
Hamza Fodderwala — Morgan Stanley — Analyst
Blake — Stifel — Analyst
Presentation:
Operator
Good morning and welcome to the Secureworks’ Second Quarter Fiscal 2021 Financial Results Conference Call. Following prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] We are webcasting this call live on the Secureworks’ Investor Relations website. After the completion of the call, a recording of the call will be made available on the same site.
Now, I will turn the call over to Paul Parrish, Chief Financial Officer. You may begin.
Paul Parrish — Chief Financial Officer
Thanks, everyone, for joining us. With me today is Mike Cote, our CEO; and Wendy Thomas, President, will joining us for questions at the end of our prepared remarks.
During this call, we’ll reference non-GAAP financial measures, including non-GAAP revenue, gross margin, operating expenses, operating income, net income, EPS, EBITDA, adjusted EBITDA and adjusted free cash flow. A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and press release. Please also note that our growth percentages refer to year-over-year change, unless otherwise specified.
Also read: CyberArk Software Q2 2020 Earnings Call Transcript
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 this morning’s press release and our SEC reports.
Now, I’ll turn it over to Mike.
Michael R. Cote — Chief Executive Officer and Director
Thanks, Paul. Before I go through the progress toward our strategic vision, I’d like to reflect for a moment on the past five to six months as COVID-19 has certainly made it clear that the world is changing as we all strive to have greater trust, empathy and flexibility. This has impacted all of us, our teammates, our customers, our partners and everyone around the world.
I’m incredibly proud of the resiliency, determination and adaptability that is inherent in my Secureworks’ teammates’ spirit and in our culture. It’s what keeps us focused on each other and grounded in optimism knowing that we can innovate and outmaneuver the adversary under any circumstance. We are building deeper relationships internally and with our customers, prospects and partners as we continue to host live remote interactions nearly every week.
We are listening intently to our customers. We’re listening intently to our teammates. And we are listening to society and the world around us, all influencing the transformational journey we are on. We expect that most of our workforce will continue to work remotely for the foreseeable future. While working from home was the norm for many of our teammates, the pandemic has created a new normal for others. With these changes, we are focused on all aspects of all of our teammates’ health, well-being and productivity.
Again, I’m inherently proud of the resiliency, determination and adaptability my teammates have displayed in serving our customers and partners. We are especially cognizant of this as we focus on our purpose to secure human progress by outpacing and outmaneuvering the adversary. More unified, we have recommitted our efforts towards this purpose. We have immense plan that will allow us to touch more customers, prospects and partners that we couldn’t in person. And in the second quarter, a strong driver of our performance continue to be our differentiated cyber-security offerings.
So let’s get into our vision in strategic priorities. I’m pleased with our transformational progress in Q2. As we look at the overall security industry, our fundamental belief is that the ability to outpace the adversary at scale requires an integrated platform that works with point products from across the industry, enabling superior detection and remediation capabilities that are accelerated with deep learning, machine learning and workflow automation.
History has shown that point product-based security alone will never be sufficient. Through a variety of means, the adversary will evade the best intended security controls. It is therefore critical to have the ability to detect absurd behavior quickly with high fidelity to reduce dwell time and meantime to remediation. We also believe that enabling the power of the security community is a critical factor in getting ahead of the adversary. I’m proud of the steps we’ve taken in that direction this quarter, which I’ll share more on in a few minutes.
We continue to build on our expertise as a global leader in managed security to be the provider of choice in the converging XDR market that cuts across markets from MSS and MDR to next-generation SIEM and SOAR. Our cloud-native platform continues to: one, detect and respond to threats across the full environment, including endpoints, network, business systems and cloud infrastructures. Our integrated approach means customers benefit from the capabilities of our security platform without the need to rip and replace existing point products and as they digitally transform and migrate to the cloud. Two, leverage our deep security operations experience to help customers transform their security operations, automate and simplify investigations, enable collaboration across security and IT functions in a single platform that sits at the heart of their security operations. And three, it’s delivered with flexible service options for customers who have varying levels of in-house security expertise putting choice and control in our customers’ hands.
Our customers are telling us they choose us for the following reasons: deep security expertise, our understanding of threat actor behavior derived from our security operations, incident response engagements and counter threat unit research. The insights we gain in our advanced data science techniques enable higher fidelity analytics to reduce noise and find the unknown-unknown and we’ve enabled our platform with automated workflows powered by best practices refined in serving thousands of customers. They also choose us for ease of deployment, providing faster time to value, simple predictable pricing and chat-based access to our security experts real-time. We’ve achieved several milestones in our go-to-market efforts and our software product roadmap resulting in increased differentiated customer value that drives us forward towards our vision to be the essential cyber-security company for a digitally-connected world.
Let me share some highlights from Q2. First, I’m pleased to report we surpassed more than 200 customers on our new cloud-based security analytics platform with a mix of new logos and existing customer migrations. The growth rate was over 100% in both number of customers and ARR in the first half of this year. We also increased non-GAAP gross margin by 340 basis points to 60%, the highest in our company’s history. Here are some example of new customer wins from across the globe in the last 90 days.
First, in North America, a premier global consumer and commercial services company that provides pest control services to more than 2 million customers. They chose our Red Cloak Threat Detection and Response application to consolidate network, endpoint and cloud security events into a single analytic platform and help improve the investigative efficiency and collaboration between their security operation staff, resulting in improved visibility for finding and removing threat actors, while quickly understanding the scope and risk of threat activity across their environment.
Second, in EMEA, a company that designs and manufactures infant products and luggage systems sold in 50 countries around the world experienced several spearphishing attacks. As a result, they decided to partner with us and selected our managed Red Cloak TDR cloud-based application to gain visibility and proactively detect and rapidly respond to attacks.
And finally, in Asia-Pacific, a medical device technology provider initially called on us to help with the ransomware attack. The success of this engagement expanded to include Red Cloak TDR. Quickly, Red Cloak TDR machine learning capabilities resulted in less time chasing false positives and workflows that automate routine tasks, allowing limited resources to be prioritized where they matter most. The common theme, these are all customers that needed their technology solutions to work together, scale as their business needs change and provide actionable insights across their environment. We have over 20 years of historical attack data and security operations expertise across thousands of customers around the globe, which has informed the capabilities that we are continuing to build into our security analytics platform.
The three strategic areas of progress that I’ll discuss today are; first, our platform and investments; second, our go-to-market efforts; and third, I’ll wrap up with more specifics on our long-term focus areas.
Beginning with our platform and investments. We have been investing in building out the platform and applications in addition to exploring technology acquisitions. Today, I’m excited to announce our intention to acquire Delve — spelled DELVE — Laboratories, Inc., which will extend our product portfolio. Delve delivers a cloud-based SaaS product based on artificial intelligence and machine learning, which automates asset discovery, asset classification, vulnerability assessment and risk prioritization across the network, endpoint and cloud environments. The addition of Delve addresses our customers’ needs for accurate and prioritize data about the assets in their various environments and provides better threat detection, orchestration, automation and response capabilities. By integrating Delve into our portfolio, we see increased opportunities to expand our footprint to meet our customers’ security needs. I look forward to welcoming the Delve team to our secured family and we expect to close the deal soon.
So let’s talk about go-to-market. We’ve made great strides on our go-to-market efforts starting with the launch of our Global Partner Program in May. In the last 90 days, more than 100 partners selected us for our collaborative network effect approach to cyber security. We have closed several new Red Cloak TDR SaaS application and MDR deals via these new partners this quarter. One example is Condo Protego, a UAE-based IT infrastructure and information management consultancy organization. They joined our partner program in July to help address that region’s $22 billion cyber security market and close their first deal in just three days.
Also during the quarter, the addition of Arrow Electronics, which expands our reach with one of the world’s largest distributors and value-added services providers. The North American distribution agreement makes our TDR cloud-based application available to Arrow’s partners for their customers. These partners find our program to be simple, easy and see large growth opportunities. I’m excited about the long-term opportunities of our Global Partner Program.
Another example of deepening and enhancing our relationships. This quarter, we also hosted our first virtual Global Threat Intelligence Summit. More than 1,200 customers and prospects attended. The Secureworks’ Counter Threat unit unveiled research that has subsequently been featured in major media outlets around the world covering a variety of important cyber threat topics such as Iranian nation-state threats, cyber espionage as part of statecraft and ransomware expertise and knowledge such as the WastedLocker breach. We also know the importance for the security community to come together to combat the threat actors who already work well together in a coordinated and organized underground ecosystem.
One way to get ahead of the threat actors and better serve CISOs and security practitioners is to share consistent threat actor naming convention profiles. That’s why we publish threat actor profiles on secureworks.com, providing a Rosetta Stone of who’s who in the cyber criminal world inviting the cyber community to participate and better collaborate.
We’re pleased that the industry analysts are taking note of our strategic progress. Secureworks is noted as a leader in the Forrester Wave for global managed security service providers and a strong performer in the Forrester Wave for European security service providers. The Global Report noted, and I quote, Secureworks’ strengths include threat intelligence research and system criticality and alert context, which client references mentioned. Forrester also noted in the European Wave that, and I quote, Secureworks has recently augmented its MSS offerings with its software-driven Red Cloak Threat Detection and Response application release, which remains an option to customers.
We were also noted as a leader in the 2020 IDC MarketScape for worldwide managed security services vendors. Not only did they acknowledge our history of MSSP leadership, but they also recognized our software transformation and its benefits for customers, noting in the report, quote, a great deal of time and monetary investment has been put into the SaaS product Red Cloak Threat Detection and Response capability, moving it into a software provider, shifting Secureworks into a product plus MSSP hybrid category over the last 24 to 36 months.
In my opinion, this kind of validation acknowledges our history of MSSP leadership and recognition of our software transformation and its benefit for customers. I’m extremely excited about our progress to-date. This is a multi-year evolution for our company and we’ll continue to focus on three key areas: one, advancing the delivery of our SaaS security analytics platform and applications; two, delivering a differentiated experience for our customers and innovating in our go-to-market; and three, driving our platform to bring the community together and accelerate the benefit of the network effect across our customers and partners. We will continue to re-imagine the future of security and we continue to be the company to outpace and outmaneuver adversaries on behalf of our customers and partners around the world.
Finally, I’d like to thank our customers for continuing to partner with us and keep them secure as we together shape their digital future. I also want to again personally acknowledge the hard work and dedication of my teammates around the globe. Thank you.
And now, I’d like to turn it over to Paul to take you through the full financial results.
Paul Parrish — Chief Financial Officer
Thanks, Mike. We are pleased with our Q2 financial results. Some highlights include record gross margin percentage, record EPS, record adjusted EBITDA, now our ninth consecutive quarter of positive adjusted EBITDA, and $26.4 million of positive cash flow from operations delivered in that quarter. Maneuvering within a dynamic global environment, we maintained our strong financial position. We continue the significant growth in our new SaaS solutions. We exited the quarter with annual reoccurring revenue of $441 million and we made progress with our channel program as you just heard from Mike.
In the second quarter of FY ’21, revenue of $138.5 million exceeded the top end of our guidance range and represents a 1.4% increase over Q2 FY ’20. The composition of our revenue continues to reflect our shift from less custom consulting and staffing type MSS work to more software-driven threat detection and response services that provide depreciated value.
Revenue from our Managed Security Solutions, including increased revenue from our TDR and MDR offerings grew 3.4% year-over-year and comprised 76.7% of total revenue. In contrast, consulting revenue decreased 4.8% year-over-year. Gross margin totaled $82.6 million in the second quarter of FY ’21, a record 59.7% of revenue. While gross margin did benefit some from reduced travel-related expenses, our performance this quarter reflects our shift to new solutions and the emphasis on lower margin services as we transform. Of note, our cloud-based SaaS security analytics platform now represents 5% of customers, 17% of Q2 ACV sold, 36% of ending Q2 pipeline and although we’re in the early phases, we’re encouraged by initial customer reception feedback, particularly regarding speed to value for customers.
Moving to OpEx. Second quarter operating expenses totaled $72.7 million compared with $79.3 million last year, largely driven by reduced travel. Research and development expenses improved as a percent of revenue totaling 16.6% of revenue in the quarter compared to 17.5% in Q2 FY ’20. Sales and marketing expenses were 25.1% of revenue in the second quarter compared to 27.2% from prior year Q2. General and administrative expenses totaled 10.8% of revenue in the second quarter compared with 13.4% from the same quarter last year. Adjusted EBITDA in Q2 was a record $13.1 million compared with $1.3 million last year.
This record performance is driven by a combination of gross margin gains from the ongoing mix shift described earlier with continued automation in our service delivery as well as from reduced OpEx as we navigate the current environment and the business continues to find creative, efficient ways to engage our customers and collaborate. We will continue to invest prudently balancing the R&D investment mix in the new software platform, expansion of our partner program and leverage in G&A to grow cash flow and expand profitably.
I mentioned earlier cash flow provided by operating activities was $26.4 million in the second quarter. This compares with $16.3 million of cash provided by operating activities in Q2 FY ’20. DSOs improved to 71 days from 75 days in Q1. We finished the quarter with cash of $181.5 million, which increased from $156 million in Q1 and from $117.7 million at the end of the second fiscal quarter last year. Capex was $700,000 in the second quarter and our $30 million credit facility remains untapped.
Now, for guidance. In the third quarter of FY ’21, we expect both GAAP and non-GAAP revenue to be in the range of $137 million to $139 million. And we expect non-GAAP net income per share performance to be between $0.04 to $0.06. For FY ’21, we expect the following: GAAP and non-GAAP revenue to be in the range of $554 million to $558 million; adjusted EBITDA to be positive for the full year in the range of $29 million to $33 million; non-GAAP net income per share to be $0.19 to $0.23 per share; GAAP net loss per share to be in the range of $0.28 to $0.31.
For modeling purposes, we estimate that tax benefit rate will be approximately 27% for the remainder of the year. Cash provided by operations to be between $55 million and $60 million and we expect second half cash flow to be weighted more towards Q4, given the expected collection of the tax receivable from Delve in that quarter and capex to be in the range of $3 million to $5 million.
Before we move to Q&A, I also want to share that we’re hosting an Investor Day in early December and we’ll provide details on that virtual event soon. Additionally, to learn more about Delve Laboratories, Inc., you can visit their website, which is delvesecurity.com.
Finally, I want to reiterate Mike’s thanks to our Secureworks teammates for their dedication to our customers. And on behalf of the entire Secureworks team, we appreciate your continued interest and support. Wendy Thomas will join Mike and I during the Q&A session.
Operator, please open the lines for questions. Operator?
[Technical Issues] I think there’s a couple of — this is Mike — I think there’s a couple of folks teed up to ask questions. We’re trying to see if we can contact the operator to make sure the lines are open. Sorry, I apologize. As we’re trying to work through this — this is Mike again — maybe what I’d suggest is, if you want to text the question, you may have — I think, Sterling, you look like you’re first in the queue. If you want to text in a question, Paul and Wendy and I can try and respond, while we see if we can figure out what’s going on here. Here we go.
Questions and Answers:
Operator
[Speech Overlap] Our first question comes from Sterling Auty with JPMorgan. Your line is now open.
Sterling Auty — JPMorgan — Analyst
Hey, Mike.
Michael R. Cote — Chief Executive Officer and Director
Good [Indecipherable].
Sterling Auty — JPMorgan — Analyst
No big deal. All is well that ends well. So, I did have one question and one follow-up. In terms of the first question, yeah, looking at the results in the quarter, last quarter you had a really strong incident response quarter relative to expectations, but we are seeing some of the SRC revenue decline. Just — can you update what’s happening with incident response versus the rest of the consulting piece not only in the quarter but what did you factor into your outlook? And I have one follow-up.
Michael R. Cote — Chief Executive Officer and Director
So, Paul, do you want take that?
Paul Parrish — Chief Financial Officer
Yeah.
Michael R. Cote — Chief Executive Officer and Director
Wendy?
Paul Parrish — Chief Financial Officer
So, the — as we approached our year, we were looking at how do we continue to focus on our software offerings, how do we get our focus toward where we’re growing our business. And as you see in our numbers, the percent increased in our MSS overall revenue to the total revenue year-over-year and that reflects the mix as we are selling more of what provides more value to the company and additional profits for us. And so that’s what we’re seeing in our margin, improving our margin, as well as there’s some small benefit from travel. We reduced travel in those numbers, but the larger is the composition of our revenue.
Sterling Auty — JPMorgan — Analyst
All right. Got it. And then, in terms of the acquisition of Delve, it looks like it’s a VM tool — vulnerability management tool. And what I’m curious is, as you become more of a product company, how has this impacted some of your third-party relationships? So, as you rolled out endpoint, I know you have the strong partnership obviously with — where Carbon Black is part of VMware. How did these new product introductions impact the overall business for you and what does it do for your partners revenue? Because I think about the VM space, I think Qualys has been one of your largest partners on the VM side for many years. Just kind of curious how this will unfold.
Wendy Thomas — President of Customer Success
Sure. Thanks for that. It’s Wendy. I’ll take that one. So, you’re right. We have a long history of really providing customer choice. I mean, we do see different segments of customers choosing sort of integrated one-stop-shop with us and then others want to select certain security products and still have us bring all of that together in terms of a holistic security program. So this is really just a continued extension of that same approach. There’s no change to how we support our current Qualys customers with today’s announcement, similar to the way we worked with partners like Carbon Black and others before.
Sterling Auty — JPMorgan — Analyst
Got it. Thank you.
Operator
Thank you. And our next question comes from the Saket Kalia from Barclays Capital. Your line is now open.
Saket Kalia — Barclays Capital — Analyst
Okay. Great. Hey, guys. Thanks for taking my questions here. Hey, Paul, maybe first for you. Great to see the better gross margin. I think you’ve touched on this a little bit earlier, but can you just maybe talk about the relative gross margin differences between traditional MSS versus some of the newer software offerings like TDR and MDR and how that perhaps contributed to the better gross margin? It sounds like there is definitely a mix effect, but I’m curious of the magnitude of the gross margin difference between two, like TDR, for example, and sort of your traditional counteract MSS?
Paul Parrish — Chief Financial Officer
Yeah. So, let’s just talk in the bigger sense about consulting, our SRC margins are lower than MSS, so that’s the overall mix as we mix more into MSS. Then within MSS, as we’re driving to more software-only type offerings, and of course there’s some services that could be offered along with that along the way, but we have greater margins in that mix. And as we get to more, obviously it’s not a large percent right now software-only, but it’s growing. And that’s what slowly tilting this. As we grow over time, we’ll have more improved margins as more and more software-only type offerings are provided.
Saket Kalia — Barclays Capital — Analyst
Got it. That makes sense. And for my follow-up for you, Mike. Great to see the customer traction with MDR and TDR. And also, by the way, some of the distribution agreements like you mentioned with Arrow and maybe just on that broader point around go-to-market, can you just talk about how Secureworks is sort of managing the sales force in terms of selling both MSS — traditional MSS and software and how that transition within the sales force is perhaps playing out?
Michael R. Cote — Chief Executive Officer and Director
Sure, Saket. Thanks for the question. So, as we talked about earlier, I’ll try and deal with this regionally. We changed the model at the beginning of this fiscal year in North America back to, if you will, an acquisition of Hunter and Farmer model. So, in North America, we have continued to incent through the compensation plan and add a fair amount of training with the sales organization on software and on the new TDR platform direction that we’re heading. It’s allowed the acquisition team to focus on the target market for the application, the TDR MDR application, if you will, the TDR and then the managed aspect of it. And the traction has been good, particularly considering the COVID situation this year. And I would say, the improvement, as Paul alluded to, in the size of the pipeline growing from the new software applications that we have.
And outside of North America or let me actually hit the account management team in North America, because they’ve created sales plays and resolutioning plays to go through the current installed base to show them the increased higher value that we have with the existing — or with the new platform, the new TDR application. So, the conversion as we talked about over 200 customers, part of that is resolutioning and conversion with existing customers and a big portion of those new customers are through the acquisition side of things. So, we’ve seen great receptivity to the sales team members who are getting into selling the software both some new ones that we’ve hired, the existing people that had software experience in the training and sales within North America.
Outside of North America, most of our sellers are more, I’ll say, hybrid where they have existing account teams and do hunting. And many of them had prior software experience. So, we’ve seen great — and you saw some of the examples that I gave in my prepared remarks. We’ve seen great traction in APJ and EMEA from software growth. I really feel like we’re hitting a bit of a tipping point here as we head further into the back half of this year. So there is — hopefully you heard some of the optimism and excitement Paul and I have in the way things are moving along.
Saket Kalia — Barclays Capital — Analyst
Yep. Absolutely. Thanks for taking my questions here. Thank you.
Michael R. Cote — Chief Executive Officer and Director
Thank you.
Operator
[Operator Instructions] Our next question is from Brian Essex with Goldman Sachs.
Brian Essex — Goldman Sachs — Analyst
Hi. Good morning, guys. Thank you for taking the question. Mike, I was just wondering if maybe you could dig into a little bit what you’re seeing in the market as you kind of shift to go-to-market strategy both from a — I guess maybe more from an existing customer perspective? And I guess, where I’m going with this is, what are you seeing in terms of potential headwinds due to maybe the percentage of SMB exposure? Is it purely seat loss, is it budget reduction and then maybe compare that to what you saw last quarter? Are we seeing any relative improvement or are we kind of like running at a steady state here in terms of your ability to penetrate the market with existing customers as well as in the progress you’ve made on the new customer front?
Michael R. Cote — Chief Executive Officer and Director
Thanks, Brian. Thanks for the question. There was a lot in that. So, let me know if I don’t address it with my response.
Brian Essex — Goldman Sachs — Analyst
Sure.
Michael R. Cote — Chief Executive Officer and Director
Because I was trying to get a sense. First of all, I would tell you that I think second quarter and the momentum we’re feeling right now from an overall market perspective is continuing to increase and feel good. We are not seeing headwinds, if you will, from the SMB marketplace. Actually the traction from a software perspective, particularly the managed aspect of TDR, has been very, very good in our, what we term, commercial space. So there has not been anything.
I think Paul mentioned earlier some of the industries, but we don’t have major exposure to the industries from a COVID perspective or from an economic development perspective at this point in time. So, we’ve really seen — we have seen increased demand across all segments of the customer base that we’re focused on both our existing customers and the new acquisition customers that we’re focused on going after.
Now, with that, I would say that there is a little bit of — some of the — and Paul said this in his prepared remarks as well, some of the things that we’re doing and have historically done, we are moving to higher value solutions, the higher value — higher differentiated value from a customer’s perspective. So, with our existing customer base, our account management team is really focused on trying to show the customer and resolution so that they can see and experience the incremental value with the new software platform that we’ve developed and the new applications that we’re putting on top of it.
Brian Essex — Goldman Sachs — Analyst
Got it. That’s helpful. And then, maybe if I could just kind of circle back on billings seems a little bit soft. Is that primarily due to terms and duration that you may be seeing within your customer base or is there something else there that we need to kind of consider as we evaluate what steady state kind of post-pandemic billings rate might be?
Paul Parrish — Chief Financial Officer
No, there is no systemic issues going on in billing. As a matter of fact, we’re finding collections are continuing to run along on the collections side of that, which would be an early indicator. You’ve got concerns over how do you bill in the future. So, our collections, our DSOs, as I indicated, dropped down to 71 so that we don’t see any systemic problems there. They are early indicators that people are trying to prolong their payments. We were concerned about that going into this, but doesn’t seem to be an issue.
Brian Essex — Goldman Sachs — Analyst
Got it. Super helpful. Thank you very much.
Operator
Thank you. We’ll take our next question from Hamza Fodderwala with Morgan Stanley.
Hamza Fodderwala — Morgan Stanley — Analyst
Hi, guys. Thank you for taking my question. My first question was on the SaaS security analytics platform. I’m wondering where you guys are in sort of building the ecosystem around that in terms of third-party integrations. You talked a little bit about the Global Partner Program. How important is that to having a competitive solution in this marketplace, which does have a number of vendors competing in this category going forward?
Wendy Thomas — President of Customer Success
Sure. Good morning. It’s Wendy. I’ll take that one. So, we are really pleased with the progress in terms of the platform and the ability to bring visibility to customers across a variety of existing point products in their network and then also to be expanding access to folks to build APIs into the platform themselves either through our own professional services team or on their own. And when we think about that sort of technical functionality in relationship to expanding the partner ecosystem, those really go hand in hand.
So, the program that our Chief Channel Officer, Maureen Perrelli, is building out really wants to be able to work with partners in a variety of business models. So, whether they are a traditional resale of our entire portfolio of both services and software, now extending into new relationships where they provide value-added services on top of the platform and frankly can build out capabilities on the platform whether as we roll out orchestration capabilities and playbook building capabilities to automate workflows or even to build out additional analytics on the platform. Supporting that kind of flexibility and interaction with partners who have different models is absolutely part of the strategy here.
Hamza Fodderwala — Morgan Stanley — Analyst
Got it. And if I could sneak in a follow-up. Just curious how the quarter shook out in terms of renewal rate versus new business. And then, on the operating margin, to what extent was that just better operating leverage versus some COVID-related savings? And that’s it for me. Thank you.
Paul Parrish — Chief Financial Officer
Yeah. Renewal rates continue to be something we focus on. We’re not happy where they are, but they are where they have been trailing [Phonetic] in the prior quarters. So it’s not a concern other than a normal. I don’t know if that addresses your question?
Hamza Fodderwala — Morgan Stanley — Analyst
Were they sort of consistent, I guess, with the prior quarter or maybe slightly better? Just curious on it.
Paul Parrish — Chief Financial Officer
It’s consistent. Nothing that’s overly concerning, but certain — we’re always focused on we want to keep every customer.
Hamza Fodderwala — Morgan Stanley — Analyst
Of course, right. And then, on the new business side?
Paul Parrish — Chief Financial Officer
Yeah. New business, the pipe continues to be — continue to grow in the direction we want to grow related to our new product offerings. And operating margins associated with that will clearly reflect that as those deals close over time and continue to report into our results. So, from an operating margin standpoint, it is reflective of that mix change in our business.
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Hamza Fodderwala — Morgan Stanley — Analyst
Thank you.
Operator
We’ll now take our final questions from Gur Talpaz with Stifel.
Blake — Stifel — Analyst
Hey. Good morning, everyone. This is Blake [Phonetic] on for Gur. Thanks for taking the question. I was curious if you could talk about where you’re seeing so far in Q3, specifically with regards to customer visibility into their budgets and if some enterprises are deferring purchases into the fourth quarter when they might have better visibility into their 2021 budgets? Thank you.
Michael R. Cote — Chief Executive Officer and Director
So this is Mike. Appreciate the question. We have not seen — let me just answer, we’ve not — we are not anticipating or seeing budgets being pushed from Q3 to Q4.
Blake — Stifel — Analyst
Okay. Great. Thank you.
Michael R. Cote — Chief Executive Officer and Director
You’re welcome.
Operator
Thank you. And I’m showing no further questions. I turn the call back over to Paul Parrish.
Paul Parrish — Chief Financial Officer
That wraps up today’s call. A replay of this webcast will be available on our Investor Relations page of secureworks.com, along with our Q2 FY ’21 web deck with additional financial tables. Thanks again for joining us today.
Operator
[Operator Closing Remarks]