Categories Earnings Call Transcripts, Technology

SecureWorks Corp (SCWX) Q1 2023 Earnings Call Transcript

SCWX Earnings Call - Final Transcript

SecureWorks Corp (NASDAQ: SCWX) Q1 2023 earnings call dated Jun. 02, 2022

Corporate Participants:

Paul Parrish — Chief Financial Officer

Wendy Thomas — President and Chief Executive Officer

Analysts:

Saket Kalia — Barclays — Analyst

Mike Cikos — Needham — Analyst

Hamza Fodderwala — Morgan Stanley — Analyst

Brian Essex — Goldman Sachs — Analyst

Presentation:

Operator

Good morning, my name is Joel, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the SecureWorks First Quarter Fiscal 2023 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Paul Parrish, SecureWorks CFO Mr. Parrish, you may begin your conference.

Paul Parrish — Chief Financial Officer

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, web deck, 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 Chief Executive Officer

Thank you, Paul, and welcome everyone. We executed against our first quarter plan and the structural growth drivers of our business remains 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 up-sell opportunities, and this gives us confidence in the sustainability of future growth over the long term, because the opportunity for Taegis, a true open XDR platform is tremendous.

Our open XDR approach, as customers choosing Taegis as a way to future proof their security. They tell us Taegis is their long-term cyber security solution because it easily evolves to secure their changing technology infrastructure and Taegis is 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 enables seamless innovation, ensuring our customers achieve their best security outcomes now and in the future.

And 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 the recent survey of over 400 security decision makers and XDR is their number one security priority in the next 12 months, and 60% of those had plans to invest in XDR solutions in the next 12 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 [Phonetic] security professionals in a sea of alerts [Indecipherable] have learned to weave [Phonetic] between point solutions staying out of sight. XDR is the clear solution to this.

But 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 and of course, rip and replace approach, the head of security operations at one of our customers said at best. By leveraging Secureworks open XDR approach, we won’t have to lock ourselves into vendors. In short, SecureWorks’ approach to XDR future proves our customer security program and 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 a 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 re-solution 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.

So why now and why SecureWorks? From our customers’ perspective, Taegis helps future proof [Phonetic] them in three ways: first, Taegis was designed from the ground up with a purpose-built Big Data architecture. It 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 SIM, but the lack of automated response capabilities coupled with high data retention costs enabled us to demonstrate that the SIM implementation will be too complex and costly to maintain. With Taegis, they quickly ramped up an efficient and economical security program with round the clock stretch, tracking and protection. The company now has time to develop its internal team over time, partnering with SecureWorks to build a stronger security stance than ever before.

Second, clock future proofs are customer security through broad and deep threat detection. Protection 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 drive investigation efficiency and speed to response. I’d highlight particularly the expanded capabilities of our unique detection engine, which we call tactic graphs. We quantify 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 control that scale across petabytes of data allows tactic graphs to detect threat actor movement with high-precision. As we open up development on tactic graphs 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 the combination XDR capability and the security services pedigree, an area where we have dominated that SecureWorks 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, the pre-eminent services firm in North America. They had multiple SIM 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 traits and ISO audit challenges. With SecureWorks Taegis they had day one for 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 SecureWorks experts, augmenting the 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 SecureWorks customers value most.

The final slide I’d like to touch on today is the opportunity that Taegis supports 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 empower 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 resolutioned to the Taegis platform in Q1. They had close to 51 off security point solutions that were overwhelming their security team with portals and complexities, forcing them into a continuous state of reaction. With SecureWorks 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, again full coverage of their environment while relying on Taegis XDR to eliminate alert noise. And importantly, their total spend on security has declined, while they’re spending with SecureWorks has increased fourfold. This industry has seen a lot of investment in security companies and growing customer spend on security, but what we haven’t seen as 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, were able to take their current security investments to make much more of them. And Taegis XDR can analyze more data with better accuracy and greater speeds than our competitors. Ultimately, providing more security and more value to our customers. Taegis XDRs unique open a 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 SecureWorks mission to secure human progress.

And with that, I’ll turn the call over to Paul Parrish, our CFO.

Paul Parrish — Chief Financial Officer

Thanks, Wendy. Taegis continues to gain traction in the market. ARR increased $108 million year-over-year to end Q1 at $180 million, a 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. And Taegis subscription revenue was $37.2 million for the quarter, up 167% year-over-year. Average revenue per Taegis customer was approximately $129,000, remaining a premium to our non-Taegis customers, which averaged 88,000 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 SecureWorks, 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 3/4 of total ARR by the time we exit FY ’23, 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 cost increasing to 31.1% of total revenue, up from 25.6% in Q1 of FY ’22 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 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 ’23 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 ’23. We reiterate our guidance and continue to expect the following for full year fiscal ’23. Taegis ARR to end FY ’23 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 ’24 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 ’24. Other MSS IRR to end FY’23 below $80 million, that’ll be approximately $80 million of ARR remaining at year end, we expect a significant portion to be eligible for re-solutioning with most done in FY ’24, enabling us to eliminate duplicative cost of the CTP platform. Total revenues to be $475 million to $490 million. Full year adjusted EBITDA to be in the negative $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 to $0.70 range.

Regarding Q2, we expect revenue of $115 million to $117 million with an EPS loss in the $0.15 to $0.17 range. FY ’23 continues to be an inflection point in the company’s transition, as we shared non-strategic services and complete the re-solutioning of our base to Taegis with a significant majority of customers completing that transition by FY ’23 year end. The re-solutioning of our base is positioning Taegis for future organic growth.

In summary, we are 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 is 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.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Saket Kalia with Barclays. You may ask your question.

Saket Kalia — Barclays — Analyst

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

Wendy Thomas — President and Chief Executive Officer

Good morning.

Saket Kalia — Barclays — Analyst

Good 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 on the idea of SIM replacement? And more specifically, to what extent do you find Taegis is replacing SIM installations at your customers versus coexisting with SIM at your customers. Does that make sense?

Wendy Thomas — President and Chief Executive Officer

It does, and I’m going to talk about that in probably two different ways in terms of SIMs and then what I would call more IT observability platforms. So when we think about traditional SIMs, even NextGen SIMs, there is not a coexistence model, it doesn’t make sense, right. Taegis can do all that they do and more. So it’s got the detections that you don’t have to maintain reporting that these are standardized or customizable, so you can — you have that angle. You have the log retention included, we include 12 months as the standard with options to extend. And what we have that they don’t obviously is the automated response capabilities and much lower cost to maintain that its cloud native and and we’re doing the heavy lifting on maintaining and building out the detections and response automations. So 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. And in those cases, XDR fulfills the security aspect of that and from our see, that in many cases that can be a pretty powerful partnership opportunity to work with those platforms who 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 — Barclays — Analyst

Yeah, that does. That’s super helpful. Paul, maybe for my follow-up for you. You touched on this a little bit in your prepared remarks, but can you just — can you just dig into the conversion opportunity a little bit, a resolution opportunity maybe I should call it for the — 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 to encourage that conversion, if you will?

Paul Parrish — Chief Financial Officer

So, as Wendy mentioned in her opening comments, we see the XDR market is hot, it’s growing, and so that is encouraging our customers to take a look at our solutions as we talk to them about the resolution. So as we said, our guidance this year, we have a perspective on how we will exit this year with the balance on our remaining Counter Threat platform, which we gave guidance of $80 million or less. And so we still see all this thinking together how we set guidance. So we’re still feeling very good. We believe our customers are looking at — I’ll c all it favorably. And as 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 are exchange that product. So we still feel very good about that progress.

Saket Kalia — Barclays — Analyst

Got it. Very helpful. Thanks, guys.

Operator

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

Mike Cikos — Needham — Analyst

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

Wendy Thomas — President and Chief Executive Officer

Good morning.

Mike Cikos — Needham — Analyst

I’m wondering to ask you guys about. Thanks. I wanted to ask you guys about the ARR spend behavior that you’re seeing with existing Taegis customers, its probably still a little too early to start calling trend just based on the nascencey [Phonetic] of the product or maybe the cohort of customers that we had a year ago. But I’m curious, can you provide any detail or color how customers — Taegis spend has changed over the course of the year if they are coming up on 12 months, what’s the behavior like within that cohort?

Wendy Thomas — President and Chief Executive Officer

Sure, so let me sort of level set on the average revenue per customer on Taegis relative to CTP, you talk about new and re-solutions first and then we can talk about sort of expansion of those customers with multiple modules. So the average revenue per customer on Taegis this quarter was $130,000, really close to what it was in fourth quarter and 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 [Phonetic] average revenue per customer model based on our current target market, and part of the way that we get there is the — is the opportunity to upsell our customers on additional modules. So 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 and then competitors who try to monetize those separately. And 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 — Needham — Analyst

Thanks for that. I appreciate the color there. Just one follow-up and really on that last comment there. I think it was is that you’re seeing a substantive number of customers have at least one additional module, right? Maybe to square that away for a more apples-to-apples comparison. But if I think about it even quarter-to-quarter or year-to-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 them the sharing platform that you guys have out there now.

Wendy Thomas — President and Chief Executive Officer

Yeah, its a good question. So it’s definitely a material lift in, so nearly 70% of our customers now have at least one additional module and that could be a additional product or services module like a 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 the base and just over time cross back into the original customers and had additional modules to offer.

Mike Cikos — Needham — Analyst

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

Operator

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

Hamza Fodderwala — Morgan Stanley — Analyst

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

Wendy Thomas — President and Chief Executive Officer

Good morning.

Hamza Fodderwala — Morgan Stanley — Analyst

Wendy, maybe first question for you is 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? And then just a follow-up to that is when you constructed you’re guidance, did you factor in any changes around sales cycles or pipeline conversion at all?

Wendy Thomas — President and Chief Executive Officer

Sure. And I can just talk about what we’re seeing in sales cycles, and then Paul speak a little bit to the guidance. So in terms of the economy, I was here at SecureWorks back in 2008 timeframe when there was a bit of a blip in the market, we were obviously a lot smaller and watching our cash and what we saw then is in your guess is as good as mine, our main economy is probably what we’re seeing right now which is that the security spend is pretty mission critical, that’s really one of the stickiest areas of spend in enterprise budgets or they may look to have some trimming, but not necessarily for full type cutbacks. What we saw before and potentially could see now is a sales cycle lengthening as opposed to precipitous drop in spend that would be my — 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 — Chief Financial Officer

And then as we set guidance, we looked at our trends and so we took that consideration as we set guidance as well as the continued growth in pace at the growth with our product in relation to the market growing. So all that was considered as we put our guidance out.

Hamza Fodderwala — Morgan Stanley — Analyst

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

Paul Parrish — Chief Financial Officer

We looked at what was occurring as we exited Q4, and to the extent there was a range that we could put our prime around, we included that in our guidance. So 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 there.

Hamza Fodderwala — Morgan Stanley — Analyst

Got it. Makes sense. Just one last question on Taegis. I’m just curious how you can get around avoiding some of the data ingest costs that we’ve seen from traditional SIM 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 at a more efficient price point?

Wendy Thomas — President and Chief Executive Officer

Sure. And I’ll talk about that from two angles. The most important angle is from the customer see, and we very consciously made the decision to price Taegis based on endpoint count, and 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 endpoint is their ability to outlook their spend with us. So that’s a — that’s a real differentiator, not just against SIMs but against some other XDR providers who do create that exposure for customers to charges. And frankly from my see, 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 correlate detections, find that needle in the haystack. So we do not want a disincentive the security value of that data either. So of course, the flip side of that question is well how do you manage that in terms of your cost structure. And as you can see even with the MDR services included in our subscription margins, we are just at 70% gross margin 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 or things that you just want to search over time. And the combination of that architecture with our kind of constant management of instances and such with AWS is how we’re able to grow our margins at scale, while still having a pricing model that is predictable for customers.

Hamza Fodderwala — Morgan Stanley — Analyst

Thank you.

Operator

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

Brian Essex — Goldman Sachs — Analyst

Hi, good morning, and thank you for taking the question. Maybe, Wendy, I’d love to get a sense for what you’re seeing so far with kind of adoption in 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 — we have some managed service providers going through kind of in a response-related channel and kind of leaving our XDR technology behind we have, you could give vendors that are extending into XDR. How do you see yourself, and obviously, totally get the — the ability to have an agnostic platform that’s kind of open in nature, but want to see — right now you’ve got a nice tailwind from the resolution, but where 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 Chief Executive Officer

Sure, a good question, and I’ll — the simplest way I think about it is really the C, the D and R, and XDR. What makes us different from different approaches to the market and you really called out several of them and the X truly is the extended piece, which is right, that it’s not just endpoint only and then it’s not just proprietary stack where you have to use there and behind their firewalls, etc. So I think that’s — that’s one of the fundamental differences. On the other end of the spectrum is the R, and so 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. So when we think about being able to compete with a very well regarded Incident Response Program underneath that 40 hours a quarter included in our MDR program which is a real differentiator from competitors, that’s the truly big R.

And 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 provider say, well we ingest everything. It’s really about the normalization 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 — Goldman Sachs — Analyst

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

Wendy Thomas — President and Chief Executive Officer

Sure, I’ll take that in two pieces, one is kind of the CTP play generally and then two, is the partner play which really goes beyond just that particular displacement strategy. And the reason that we added — 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 CTP, we absolutely have that for partners to be able to offer to customers to run that way, and 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 our customers, of course rip and replace. But we get in, we become the interface to the customer and show them economic models over time that you 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 SecureWorks 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. So we do see a continued increase in the percent of partner sales as a percent of our revenue. I would like to see that grow faster, anticipate that’s going to start to go faster as we’ve been building these relationships and getting partners ramped, but pleased on both fronts and we want to give them more than just the CTP player that’s in play and others for them to go in and seek opportunities to increased revenue with their base.

Brian Essex — Goldman Sachs — Analyst

Got it. That’s very helpful color. Thank you.

Operator

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

Paul Parrish — Chief Financial Officer

Okay. That wraps up the Q&A in todays call. A replay of this webcast will be available on our Investor Relations page of 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 Chief Executive Officer

Thank you.

Operator

[Operator Closing Remarks]

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