SecureWorks Corp (NASDAQ: SCWX) Q1 2024 earnings call dated Jun. 08, 2023
Corporate Participants:
Kevin Toomey — Vice President, Investor Relations
Wendy Thomas — Chief Executive Officer
Christian Grant — Interim Chief Financial Officer
Analysts:
Saket Kalia — Barclays — Analyst
Mike Cikos — Needham — Analyst
Hamza Fodderwala — Morgan Stanley — Analyst
Madeline Brooks — Bank of America — Analyst
Presentation:
Operator
Good morning, everyone. My name is Bruno, and I’ll be your conference operator for today. At this time, I would like to welcome everyone to the SecureWorks First Quarter Fiscal 2024 Financial Results 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 remarks, there’ll be a question-and-answer session. [Operator Instructions]
At this time, I would like to turn the call over to Kevin Toomey, SecureWorks’ Vice President of Investor Relations. Mr. Toomey, you may begin your conference.
Kevin Toomey — Vice President, Investor Relations
Thanks, everyone, for joining us. With me this morning are Wendy Thomas, our CEO; and Christian Grant, our Interim CFO.
During this call, unless otherwise indicated, we will reference non-GAAP financial measures. You will find 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 the call over to SecureWorks’ CEO, Wendy Thomas.
Wendy Thomas — Chief Executive Officer
Thank you, Kevin; and welcome, everyone. Taegis continues to lead the industry with 68% year-over-year revenue growth, expanding to $63 million in the first quarter. Taegis annual recurring revenue expanded to $269 million at the end of first quarter, and now represents over 85% of our total ARR, up from less than half of total ARR this time last year. To put that into context, this quarter we were recognized by multiple leading industry analyst reports as one of the top three largest providers of managed detection and response in the market. That’s important, because customers have a choice in a noisy market and they’re choosing SecureWorks.
In my conversations with potential customers, in this climate of increased focus on fiscal responsibility, they are focused on the win-win that Taegis can deliver, a solution that helps them consolidate and reduce the number of security vendors that they have to manage, that scales their spend on both security technology and talent, while simultaneously delivering an improved security risk posture and outcomes. We are well-positioned to address this market need based on our unique approach to the design of our Taegis XDR platform. And customers are reaping the benefits of our XDR-enabled MDR. We solved the signal-to-noise problem that drives alert fatigue from multiple point products. We provide the comprehensive protection to stop adversaries who lurk between point products. And our open-without-compromise approach gives customers choice, future flexibility and an easy deployment path to achieve comprehensive detection and response.
In this vein, we are addressing an acute need to replace legacy SIM, which are difficult to deploy and configure and their complexity makes them costly to maintain. For example, in first quarter, we won a global provider of smart building solutions that can to SecureWorks originally for penetration testing services. We quickly discovered a ransomware attack despite their significant investments in a SIM, an endpoint and vulnerability management technologies. Like so many organizations, it did not have the resources to constantly manage the SIM and so left many of their office locations unmonitored. They quickly recognized the return on investment of managed detection and response with Taegis, reduced their vendor sprawling spends, while fully securing their entire environment.
Customers choose Taegis for its measurable and superior return on investment to let some streamline security vendors and spend, increase the value of uptime of their business operations and revenue streams, and the ability to optimize investments in internal security teams, all while achieving superior security outcomes and quantifiable risk reductions.
We also expanded our platform capabilities and portfolio of offerings this quarter. We recently announced two new offerings to unify the way companies prevent, detect and respond to threats across both OT and IT environments, eliminating the visibility challenges often associated with the separation of those systems and addressing the risks of greater attack surface exposure in legacy OT systems.
Industrials and multiple sectors have been increasingly under attack by threat actors. And with our significant presence and expertise in this vertical today, we see untapped potential to solve a pressing security need by unifying detection and response across OT and IT via the Taegis platform. And staying true to our overall approach to XDR. The pricing is simple and predictable endpoint based upcharge with no data overage, storage or other surprise fees.
In support of customer choice and align with our pillar to be open-without-compromise, we recently added out-of-the-box support for our growing integration requests from our customers and partners, SentinelOne Singularity Complete. Taegis now ingest SentinelOne telemetry into an overall view of cloud, identity, network and other application data in the Taegis XDR UI, enriches and correlate that data with threat context and applies our unique detectors and response actions in the platform to drive superior security outcomes.
With our unique approach in Taegis, customers can leverage a single EDR agent for holistic XDR and MDR coverage, further removing the friction and complexity of multi-vendor environments. With this addition, we now integrate seamlessly with nearly 70% of the endpoint market. Another example of how we optimize customers’ existing and future cybersecurity investments, while also providing the breadth of security coverage they need. Taegis is increasingly the single pane of glass for our customers’ entire security stack.
We recently won a partner source deal with a manufacturing company that had a small IT team, no SOC and very limited visibility into their environments. And a competitor in their space had recently been the victim of a cyberattack and data breach, creating urgency in their leadership team around ensuring they can prevent a similar breach. The customer had recently implemented SentinelOne with our partner. And our demo and proof-of-concept demonstrating the ease of deployment and holistic visibility of XDR, while leveraging their existing single-agent, those are what sealed the deal.
Another topic that is top-of-mind for customers and investors is how we leverage and govern AI in our Taegis platform and offerings. From the beginning, AI has been part of our Taegis platform vision and architecture, leveraged to drive more effective and faster detection and response outcomes for customers. Among many approaches, we leveraged deep learning and machine learning and our thousands of detectors to find the true positives that other products miss. And AI-enabled threat scores support the prioritization of the hundreds of billions of alerts and indicators we receive from our customers daily.
While approaches and AI algorithms can change rapidly, the key to staying ahead is having vast amounts of labeled training data. And we believe that we have one of the most valuable security training datasets globally. For example, we’ve performed more than 10,000 investigations annually for more than a decade. Leveraging that dataset, we recently implemented natural language processing, generative AI and other techniques to automate approximately 45% of our Taegis security investigation reports.
While more opportunity lies ahead, this has further improved our market-leading response time for customers and the efficiency of our security operations. While AI is not a panacea and is not applicable to all security use cases, we are well-positioned to capitalize on its momentum and opportunity. We have a deep bench of data scientists, software engineers and threat researchers working on a true XDR platform designed to take advantage of advancements in AI and data analytics to rapidly innovate, to improve outcomes for our customers, while protecting their most valuable assets. As importantly, we have educated our teams and put in place sustained governance around the responsible use of AI, and we’ll continue to safely incorporate it into our business and service of customers, teammates and investors.
I’ll now turn to our go-to-market. We are in the early innings of our go-to-market transformation aligned to our Taegis-centric business model, but I’m pleased with our progress. We designed Taegis to be transparent and collaborative, providing flexibility and optionality around who manages detection and response activities. This enables MDR to be delivered by SecureWorks, a partner or a customer’s own SOC team, all leveraging Taegis XDR. In addition to solution providers as the go-to-market path, this has enabled us to tap into the MSSP market opportunity, enabling partners to deliver high-margin and effective MDR leveraging Taegis.
In Q1, one of our MSSP partners work with us on an MDR deal with a data analytics software provider that was using multiple security providers to manage different aspects of their security operations. They had a small security team, which made it challenging for them to keep track of threats and costly to manage and get the security value across the disparate partners. Taegis brought the holistic streamlined approach they needed, while also addressing their growing compliance needs with the scaled MDR services from our partner.
Recall that last December SecureWorks launched our partner first go-to-market approach in North America, elevating our collaboration with critical managed service and solution providers, as well as technology alliance partners. Our open-without-compromise strategy creates greater business opportunities for partners of all types. As an indicator of traction, in first quarter, more than 60% of global Taegis new logo business was closed with a partner, up from 40% this time a year ago. And partners with active pipelines have increased 40%, leading to a doubling of our partner pipeline in first quarter, a trend we expect to ramp over the course of this year. And we will continue to extend this partner-first strategy globally over the course of this year.
We’ve brought in a seasoned Chief Revenue Officer to accelerate our go-to-market transformation. Allan Peters comes with a powerful combination of CRO leadership across SaaS, security product and services companies with a partner-led sales approach. He brings demonstrated success in driving incremental ARR growth by accelerating new customer acquisition, platform adoption and channel growth, and an expanding gross margin through better solutions mix and discount control, all driving improvements in key sales efficiency measures.
Before I transition into our path to profitable growth, I’ll just add color on our perspective on the macro environment in terms of its impact on sales. We did see longer sales cycles in first quarter than a year ago, largely as a result of increased layers of deal review at customers. But those sales cycle times have been largely in line with more recent quarterly trends. Based on what we see currently, we expect this to continue in the near-term.
We are driving our business to profitable growth as we complete our business transformation. Taegis continues to perform, growing faster than the industry and scaling gross margins. And as a business we have and will continue to take decisive actions to align our cost structure with the SaaS nature and the revenue opportunity of our Taegis-centric business model.
While Chris will provide more details, I’ll highlight three primary areas of action that give us confidence in our ability to drive growing profitability into next year. First, we will continue to take advantage of automation and scale throughout the business. Second, our go-to-market transformation, in addition to benefiting the topline, will drive increased sales efficiency. Third, we are accelerating the reduction of the remaining duplicative and transition costs as we wind-down our other MSS business. Of note, the second quarter of this fiscal year will represent the inflection point for total revenue for SecureWorks, with a return to sequential total revenue growth in the second half of this year.
Very shortly, Alpana Wegner will join us as our new CFO. Alpana brings to SecureWorks extensive experience developing business strategies to drive outsized growth and strengthening organization’s financial profiles by increasing scale and expanding EBITDA margins through operational efficiencies. We have a clear path and a commitment to managing our business to profitable growth.
I want to thank our customers and partners for joining forces with us and my thanks to our teammates for their hard work and commitment to the SecureWorks’ mission of securing human progress. I particularly want to thank Chris Grant for his partnership and support acting as our Interim CFO for the past month.
And with that, I’ll turn the call over to Chris to walk through our financial results and guidance.
Christian Grant — Interim Chief Financial Officer
Thanks, Wendy. Good morning, everyone. Today I will cover our first quarter results and outlook for the second quarter and fiscal year 2024. Total revenue was $94.4 million in the first quarter, which compares to our guidance of $96 million to $98 million. The lower total revenue was driven by accelerated wind-down of our other MSS business and customers delaying professional services projects.
As a reminder, our professional services business includes both retainer-based and transactional services. In Q1, the delays we saw were in the transactional revenue, which can fluctuate from quarter to quarter due to the dependency on customer resource availability.
Adjusted EBITDA loss was $20.1 million compared to a $7.8 million loss in prior year first quarter. The overall change was driven by the other MSS and professional services revenue just discussed, offset by Taegis gross profit expansion and opex savings, as we continue to align our cost structure with our Taegis-centric business.
Overall, Taegis business performed in the first quarter as expected. Taegis subscription revenue was $62.6 million, up 68% year-over-year, in line with expectations. Taegis ARR increased nearly $90 million year-over-year to $169 million, now representing more than 85% of our total ARR. With our re-solutioning efforts substantially completed at the end of fiscal ’23, the majority of our Taegis ARR growth this quarter was driven by new logos, upsell and cross-sell. Average revenue per Taegis customer was approximately $132,000, and we’ve added 600 Taegis customers since the first quarter of last year, representing year-over-year growth of 43%.
I would like to highlight that Taegis average revenue per customer remains a premium to the industry average. We took a unique approach or bundling a number of core capabilities such as one-year data retention, orchestration and hunting playbooks, endpoint agent and unlimited response in our core offering. Our higher average revenue per customer than our competitors benefits from this strategy and our target buyers segments.
To provide more insights into the underlying financials of our Taegis business, we’ve enhanced our disclosures this quarter, providing a breakout of Taegis cost of revenue and gross margin. Taegis gross margin continues to scale, reaching 70% this quarter, 110 basis points higher than the first quarter a year ago.
As we move towards the other MSS end-of-life in Japan in Q1 of next year, ARR and revenue in that business will continue to wind-down. We anticipate eliminating the remainder of our other MSS cost structure at the same time that we sunset other MSS in Japan in Q2 of next year. As Wendy shared, we have also been actively managing down our opex as we align our expense base to our Taegis-centric business.
Turning now to our cash and balance sheet. We finished the quarter with a strong balance sheet with $95 million of cash, no debt and an undrawn credit facility. We used $42 million of cash from operations compared with $25 million used in the prior year first quarter, which primarily reflected lower adjusted EBITDA. As a reminder, our first quarter is seasonally the highest use of cash due to annual incentive payouts.
Turning to our guidance for the second quarter and fiscal year ’24. We are reiterating our guidance for Taegis ARR to end FY ’24 at $300 million or higher. We expect other MSS ARR to represent approximately 5% of total ARR at the end of this fiscal year. Our full-year total revenue guidance range is $380 million to $400 million with second quarter revenue of $90 million to $92 million. We continue to anticipate full-year Taegis revenue to be $270 million to $280 million. Taegis gross margins are expected to expand from first quarter levels as we progress throughout the year. The benefit of that within total gross margin will be offset by duplicative fixed and transition costs as we sunset support for our other MSS services in Japan.
We have previously stated that there are approximately $25 million duplicative fixed and transition-related costs that we are incurring with $15 million in cost of revenues and $10 million in operating expenses. As we turn down other MSS services, we will manage the related cost-out, one of several positive impacts to our operating structure in fiscal ’24 and fiscal ’25.
As Wendy shared, we are actively managing our cost structure. We expect reductions in our operating cost to begin in the second half of the year, as we align our resource allocation based on the faster run-off of the other MSS business. We have experienced significant improvements in our cost structure from our ongoing use of automation. We continue to drive automation and scale into our growing SaaS business. As our teams deploy AI across operations, we see improvements in all areas of our business both in ways that directly benefit customers and then the scale of our operating model.
Our investment in sales and marketing over the past year has enabled the repositioning of our brand, completing the re-solutioning outside of Japan and supporting our transition to partner-first model.
It is early days in our partner-first go-to-market, but with the re-solutioning behind us in North America, we began recomposing our sales force by expanding our hunter capacity and reducing investments in account executives, focused on re-solutioning. This will be apparent in lower sales and marketing dollars spent this year, as we are no longer compensating account executives to move existing customers from our other MSS platform to Taegis. R&D will also trend lower as we continue to reduce our engineering support cost related to our other MSS business. Full-year adjusted EBITDA range is expected to be between negative $29 million and $39 million.
Finally, full-year non-GAAP EPS loss is expected to be between $0.34 and $0.43. We expect Q2 non-GAAP EPS loss to be between $0.15 to $0.17.
In summary, Taegis continue to show strong momentum in the first quarter, in line with our expectations. As the sunset of our other MSS accelerates and we benefit from scale on our Taegis-centric business, Q2 was the trough in the transformation of our business. We expect our actions in fiscal ’24 to lead our business to profitable growth next year.
Thank you for joining us on the call today. Wendy will rejoin us as we begin Q&A. Operator, can you please introduce the first question.
Questions and Answers:
Operator
Certainly. [Operator Instructions] And our first question comes from Saket Kalia from Barclays. Saket, your line is now open. Please go ahead.
Saket Kalia — Barclays — Analyst
Okay. Great. Hey, good morning, guys. Thanks for taking my questions here.
Wendy Thomas — Chief Executive Officer
Good morning.
Saket Kalia — Barclays — Analyst
Wendy, maybe for you — good morning. Wendy, maybe for you, appreciate the talk about ROI on Taegis in your opening remarks. I was wondering if you can just go one level deeper into that. And I guess the question is, based on your conversations with customers, where do you think or how do you think Taegis is driving the most ROI for those customers?
Wendy Thomas — Chief Executive Officer
Sure. Great question. Thanks, Saket. Hope you’re doing well. We really see three primary areas, and I will try to do them in sort of order of magnitude order. The first one is clearly the productivity of their IT and security teams. When we think about the burden moving off of their team in terms of managing and building integrations, building detectors, the automation in the investigation and the response workflow, if there is — if they have MDR with us for a partner that aspect of unlimited incentive response for high and critical alerts from Taegis, so they can either — and they do do this both kinds of math, I don’t need to struggle to hire and retain scare security talent for as much or very often they can turn their team to sort of a strategy of their security program as opposed to kind of the day-to-day management just talking to CSO in earlier this week, who was looking to move on that journey now that she had moved to Taegis.
The second one is they can clearly see a path to displace spend and frankly the friction of managing a lot of different vendors. As you know, we continue to expand the XDR platform and a lot of individual point products right now frankly features or capabilities of Taegis. And of course, we include the endpoint agent, which we often see organizations deploy our agent in areas where they didn’t deploy any type of other AV type agent, because it’s included in the pricing and things like our ability to include one year of storage, you don’t need separate log retention, those are great examples of the path they can go on on that front.
And then the third one, which is a little bit harder to measure depending on the organization, but there’s just less business downtime and user friction, sometimes that does show up in terms of cyber insurance actual lower rates, but a lot of times it’s just their sense of their ability to provide assurances to their board that they now have absolutely full holistic coverage and frankly often better coverage than they had before for the same spend. So those are really the three areas I’d point to.
Saket Kalia — Barclays — Analyst
Got it. Got it. That’s helpful. Maybe for my follow-up for you, Christian. You touched on some of these in your prepared remarks, but I just wanted to make sure I was clear. So for the 14%, roughly 14% of ARR in other MSS that is largely Japan, can you just talk about sort of when that’s expected to mostly go to zero? And then relatedly, the magnitude of the duplicative costs and sort of the path for those winding down presumably to zero as well?
Christian Grant — Interim Chief Financial Officer
Yeah. Good morning, Saket. Thank you for your question. Yeah. So, as we talked about when it comes to the remaining 14%, right, with the acceleration in Q1 of the the non-Japan other MSS, we got more than half is left in Japan, in which we’re actively managing down with the expected end-of-life in Q1 of next year. When it comes to those costs, right, as I mentioned in my remarks, there is about $25 million that is directly tied to the wind-down of the other MSS, which is split $15 million in cost of service and $10 million in opex that we’re actively — we’re aligning that managing as the rundown of the 14% occurs. There’s a little bit of timing that will happen as some costs will comes off after the revenue. But the expectation is although duplicative and transition costs will exit the business by mid FY ’25.
Wendy Thomas — Chief Executive Officer
Right. I think that’s the thing I’d emphasize, Saket, is —
Saket Kalia — Barclays — Analyst
Very helpful. Thanks, guys.
Wendy Thomas — Chief Executive Officer
Yes. Thank you.
Operator
Our next question comes from Mike Cikos from Needham. Mike, your line is now open. Please go ahead.
Mike Cikos — Needham — Analyst
Hey, guys. Thanks for taking the questions here. I appreciate you providing the guidance and metrics. But I just wanted to tease out a little bit more around the revenues. With Q1 coming in, obviously below where you guys have expected based on that more active management of other MSS, is it fair to think that you guys probably tracking towards the lower end of that revenue guidance range we have today? And maybe in conjunction with that response, can you help us think about what needs to go right or what are the vectors that would help you guys come in towards the higher end of that revenue guidance for the reiterated full-year guide that we have today?
Wendy Thomas — Chief Executive Officer
Good morning, Mike. Yeah, thanks for that. There are a couple of factors in first quarter. There certainly wasn’t — as you recall, the other MSS has two pieces of a handful of larger contracts that were that were originally extended beyond the non-Japan end-of-life date that we are just working through with those customers for a smooth transition, and we were able to accelerate some of that, which is a good good thing and we can align our cost structure accordingly.
The second piece was really the transactional consulting revenue, which was more — those revenues were sold. But the revenue is dependent on customer resourcing to implement those, so think of that more as a timing issue than a sort of permanent issue. And then within the existing Taegis guidance range, we can see the offset of the other MSS piece, which, as I said, the sooner we can kind of get to one-go forward business, the more that’s good for the overall Company.
Mike Cikos — Needham — Analyst
Got it. And I know that you guys have spoken about the go-to-market earlier in your prepared remarks as well. And I think Chris had pointed to some of the success you guys continue to see with Taegis ARR coming from whether it’s new customers or upsell or cross-sell. So a two-parter here, but first, maybe for Chris, can you help us think how many of — I guess, how many customers were added for Taegis in Q1 versus Q4 of last year? And then to Wendy, this is more of a product view here, but can you help us think about the marriage of the IT and OT with respect to the, I guess, tie-up of those environments and where SecureWorks envisions itself playing in that field? Thank you.
Wendy Thomas — Chief Executive Officer
Sure. I can hit the product one, and then I’ll hand it back to Chris to talk about the customer and the kind of the new cross obvious majority now that we’re past all of the re-solutioning outside of the handful that’s left. Sure, we’re really proud to bring to market these offerings that help unify the security of OT systems for customers. All of you know that the — we’ve all seen, right, personally been impacted by industrial companies being impacted by ransomware attacks and their needs for unified security particularly for the systems that generate the majority of their revenue. And our approach to embedding that now into the Taegis platform as those systems frankly become much more exposed to the IT side of their house and of course are under attack, because they’re lucrative to attack, this is a great extension of the platform to provide that holistic single pane of glass protection and visibility for customers and in a space that we’ve just seen a lot of growth in and this is an opportunity to tap into a fast-growing segment of the market.
I’ll turn it back to you, Chris, in terms of new cross customers.
Christian Grant — Interim Chief Financial Officer
Yes. Mike, our quarterly ARR was led by the majority new and cross-sells, which was evenly kind of distributed between the two. ARPC remains at a premium to the market. This is the second quarter in a row where our new customer ARPC is greater than our re-solutioned customers. And then our accounts are rounded, so you lose some of the visibility into the growth happening on the customer base.
Mike Cikos — Needham — Analyst
Terrific. Thank you very much, guys.
Operator
Our next question comes from Hamza Fodderwala from Morgan Stanley. Hamza, your line is now open. Please go ahead.
Hamza Fodderwala — Morgan Stanley — Analyst
Hey. Good morning, everyone. Thank you for taking my question. Wendy, first one for you. I know it’s super early days, but I was wondering as you talk to customers, how are they thinking about using some of these more advanced AI models as far as their security process is concerned? Any applications that you would call out that they are discussing with you about?
And then second part was around you talked about using AI internally to make the business more efficient. Maybe if you could elaborate on that would be super-helpful to hear.
Wendy Thomas — Chief Executive Officer
Sure. And it is early days and this is a sort of a hot topic in terms of do ask customers and they ask us about how we’re using AI and how they’re seeing it impacting the evolution of their businesses. And the applications are pretty myriad. I mean, they are looking to accelerate anything that is a repeatable type of activity by their teams. They are looking to AI to figure out new ways to disintermediate sort of things that are done by humans. Code creation is a great example. Anything around content creation, digital media, there’s just a pretty endless list of what they’re considering. What we haven’t seen is obviously deep implementation and just much more experimentation right now. We’re keeping a close eye on what that might mean in terms of their security needs.
For us, there’s really — I’ll talk about two broad-brush areas. One is in the platform itself and we have been using AI from the very beginning and the platform was architected to take advantage of the vast training data that we have in place. And so when you think about, we’ve been using deep learning and machine learning models from the very beginning. The powerful thing for us that’s this kind of this era is this idea of sort of generative AI to find the unknown unknown, and I think that’s where the real power comes from in terms of security value for customers that were on the curve for. And that ability to clearly detect more detect faster and thereby prevent breaches is an incredible opportunity for us to create more value for customers and beat the adversary.
Hamza Fodderwala — Morgan Stanley — Analyst
Thank you.
Operator
[Operator Instructions] Our next question comes from Tal Liani from Bank of America. Tal, your line is now open. Please go ahead.
Madeline Brooks — Bank of America — Analyst
Thank you. Madeline Brooks on for Tal this morning. Just a few quick ones from me. I guess, I want to dive into macro. In the opening remarks, I understand that obviously we have some of the revenue being weighed down by MSS, but I also wanted to just touch on what you’re seeing from an economic cycle. And then as we look into the back half of the year, assuming stronger revenue growth for the back-half and candidly across-the-board I think are cyber companies over the course of this quarter have tried to put in place just more conservative guidance for back-half. So what are you guys seeing differently in the market that gives you the confidence that the back-half to be stronger for you. Thanks.
Wendy Thomas — Chief Executive Officer
Thanks for that. So, let me — I’ll just add a little color on the macro environment. For us, as I mentioned, the last three quarters or third quarter, fourth quarter last year, first quarter of this year definitely looked a lot different in terms of profile from either the first half of last year, even the year prior, but we didn’t see a material shift in customer behavior or a potential customer behavior in terms of their scrutiny of deals, which is definitely more elevated and their own attention to their budget, their business. I think it’s kind of continuation of the same.
For us, while we, of course, see a continued growth in Taegis, our second-half inflection in total revenue is more a function of the roll-off and transition of the other MSS business as opposed to us saying there’s materially different trajectory in our core business and you can see that in the Taegis ARR guide. So hopefully, we’re in a little bit of a different situations and hopefully that color helps.
Madeline Brooks — Bank of America — Analyst
Okay. Thanks so much. And just one follow-up too. I think [Technical Issues] customers year-over-year. Can you talk a little bit about where we are in terms of the transition of your existing customer base? And maybe out of that 600, what percent of customers were net new?
Wendy Thomas — Chief Executive Officer
Sorry, you broke up just a little bit. I’m going to say back that question which I think you asked. And if it doesn’t hit your questions, then we can hit it on follow-up.
I think the first question was around, of the 600 customers we added year-over-year, what percentage were net new versus re-solutioned. And the — I’d say we’re [Speech Overlap] exact numbers for you. About 60-40, I think that’s been about consistent in terms of — obviously, first quarter was a new customer story as opposed — and cross-sells, of course, as opposed to re-solutioning.
And the second question, I don’t know if you all heard.
Christian Grant — Interim Chief Financial Officer
I did.
Wendy Thomas — Chief Executive Officer
Can you maybe try again on the second question?
Madeline Brooks — Bank of America — Analyst
Actually you answered it. So, thank you.
Wendy Thomas — Chief Executive Officer
Okay. Great. All right. You’re welcome.
Operator
We currently have no further questions. So I would like to turn the call back to Mr. Toomey for final remarks. Please go ahead.
Kevin Toomey — Vice President, Investor Relations
Thank you. That ends the Q&A and today’s call. A replay of this webcast will be available on our Investor Relations page at secureworks.com along with our Q1 supplemental deck with additional financial tables. Thank you all for joining us today.
Operator
[Operator Closing Remarks]