SecureWorks Corp (SCWX) 2020 Q1 法說會逐字稿

Good morning, and welcome to the SecureWorks First Quarter Fiscal 2020 Financial Results Conference Call.

(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 would like to turn call over to Teri Miller, VP and Chief Accounting Officer.

You may begin.

Good morning, everyone, and thank you for joining us today to review SecureWorks' financial results for the first quarter of fiscal 2020.

This call is being recorded.

This call is also being broadcast live over the Internet and can be accessed on the Investor Relations section of SecureWorks website at investors.secureworks.com.

The webcast will be archived at the same location for 1 year.

This morning, SecureWorks issued a press release announcing results for its first quarter ended May 3, 2019.

You can access this press release on the Investor Relations section of the SecureWorks website.

During this call, management will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include but are not limited to guidance with respect to GAAP and non-GAAP revenue and net loss per share as well as adjusted earnings before interest, taxes, depreciation and amortization.

Our forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these statements.

You can find a description of these risks and uncertainties in this morning's earnings press release and in the company's annual report on Form 10-K for the year ended February 1, 2019, which is available on our Investor Relations website and on the Securities and Exchange Commission's website.

All forward-looking statements made on this call are based on assumptions that we believe to be reasonable as of this date, June 5, 2019.

We undertake no obligation to update our forward-looking statements after this call as a result of new information or future events.

Some of the financial measures we use on this call are expressed on a non-GAAP basis.

These non-GAAP measures exclude stock-based compensation, the impact of purchase accounting, amortization of intangibles and the related tax effect of these items.

We have provided reconciliations of the non-GAAP financial measures to GAAP financial measures in today's earnings press release available on our website.

Non-GAAP measures are not intended to be considered in isolation from, a substitute for or superior to our GAAP results, and we encourage you to consider all measures when analyzing SecureWorks' performance.

Also, as a reminder, all financial information discussed is non-GAAP, and growth rates are compared to the prior year period unless otherwise stated.

With us on today's call are Michael Cote, President and Chief Executive Officer of SecureWorks; and Wayne Jackson, Chief Financial Officer.

Following their prepared remarks, we will take your questions.

(Operator Instructions) Thank you for your cooperation on this.

Now I'd like to turn the call over to Mr. Cote.

Thank you, Teri.

And thank you, everyone, for joining us this morning for our first quarter fiscal 2020 earnings call.

Our first quarter financial results were positive.

Revenue is $133 million, at the high end of our expectations.

The loss per share was $0.02 and EBITDA was positive $1 million, both ahead of our expectations.

We had a use of cash of $3 million, a significant improvement from the use of cash of $18 million a year ago.

As discussed on prior calls, cash flow from operations is usually negative in the first quarter due to a payment of annual incentive compensation.

Also in the first quarter, SecureWorks was once again positioned in the leaders quadrant in Gartner's May 2019 Magic Quadrant for managed security services worldwide, making this the 11th consecutive time we have been recognized as a leader in this report.

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We are pleased with our leadership position in this segment of the cybersecurity market.

We believe it is an important part of our business.

However, as the market evolves from detection-centric product and services to comprehensive solutions that solve investigation and response challenges, we continue to bring innovative solutions to market like our detect-and-prevent and Managed Detection and Response offerings.

In addition, we have worked over the past 2 years to pivot our strategy to deliver industry-leading intelligence and security operations expertise in a different way through software-driven security solutions.

A couple of launches this quarter highlighting the application of our intelligence through software include the launch of Dell SafeGuard and Response, a portfolio of next-generation endpoint security solutions, including our software analytics and intelligence, sold by the global Dell sales force.

This offering is a prime example of the powerful solutions and go-to-market advances that we create through partnership, collaboration and coordination within the broader security community.

In a very short period of time, we've seen encouraging momentum with a strong pipeline building.

We're pleased to be working with our Dell technologies family and leveraging their expertise and tremendous distribution capabilities.

Additionally, at the end of the first quarter, we launched Red Cloak Threat Detection and Response or TDR, the first patent-pending security analytics app on our application framework.

The app allows security analysts to detect unknown and advanced threats, streamline and collaborate on investigations and automate the right actions.

The software ingests and enriches data from a variety of endpoint, network, cloud and business systems.

Our proprietary Threat Intelligence is embedded in this new SaaS offering which also leverages advanced analytics like machine and deep learning.

We have taken our 20 years of security operations experience combined with significant technological advancements and reimagined how security should be done, making the complex simple.

TDR is the first in a suite of software products being developed to help organizations be more effective and efficient in their security operations.

We have confidence on the benefit from the collective knowledge across the community or the network effect.

We have a technology incubation team of world-class engineers, data scientists and threat researchers working on the development of next-generation technology solutions to enable our customers to outpace the adversary and meet changing market needs.

In developing TDR, this team iterated quickly, adjusted as needed and always kept the voice of the customer front and center.

While we had positive financial results in the quarter, the annual contract value of sales contracts closed during the quarter or ACV was below our expectations.

Based on the Q1 shortfall in ACV and a review of our pipeline, we are lowering our revenue outlook for the rest of the year.

Wayne will provide more details on the impact to guidance.

The sales execution challenges impacting our performance in Q1 included our pipeline conversion rate, which is the annual value of sales contracts closed in the quarter compared with the value of the beginning pipeline, fell below our expectation and the low end of our historical ranges.

Considering this lower conversion rate, we now believe the overall size and velocity in the current pipeline is insufficient to support growth at our original expectations.

And the majority of ACV closed in Q1 was with existing customers.

We currently do not have the appropriate focus on the consistent development and acquisition of new customers.

I am disappointed with this level of performance, and to address these challenges, we have made the following changes.

We have established a new cadence for pipeline inspection and sales activity, metric review, design the surface challenges early and allow for more rapid course correction.

We have introduced an account management role focused on the development and continued expansion of existing customer relationships, allowing sellers to focus more on new customer acquisition.

We have created a team of sales engineers dedicated to our recently launched Red Cloak TDR software app to drive sales velocity, and we have developed and have trained the sales team on solution bundles specific to each customer segment which are aligned with our security maturity assessment framework.

These sales plays, which include our MDR and detect-and-prevent offerings as well as recently announced TDR software app, are aimed at simplifying the sales process and increasing customer retention rates by packaging the best set of outcomes for our customers.

The overall market remains strong, and I am confident, with these adjustments in our go-to-market model and new offerings, we will successfully reaccelerate our growth.

I will now turn it over to Wayne to talk about our first quarter performance in more detail.

Wayne?

Thanks, Mike, and good morning, everyone.

First, I echo Mike's comments that our Q1 financial results were very solid.

In the first quarter of FY '20, revenue was $132.8 million, a 5.3% increase over Q1 FY '19 and a 1.6% increase sequentially.

First quarter revenue was at the high end of our guidance range.

Higher gross margins and lower operating expenses allowed us to generate $800,000 of EBITDA, which was ahead of our expectations.

We used $3 million of cash from operations, a significant improvement from last year's use of $18.4 million on higher EBITDA and improved DSO.

Our average annual subscription revenue per customer was $104,900 this quarter, growing 7.4% over last year.

We closed 10 deals with total contract value greater than $1 million in the first quarter.

A couple of notable examples of new large deals that we signed in the first quarter include a 3-year $4.2 million agreement with a U.S.-based manufacturing company.

Our comprehensive MDR solution which provides a unified view of the customer's environment was the foundation of this deal.

A 3-year $4.5 million agreement with a European-based manufacturing company.

In this case, we converted an incident response engagement into a broader MSS win, combining our advanced remediation and management or ARM offering along with other Red Cloak threat analytics-powered solutions.

We exited the quarter with monthly recurring revenue of $36.1 million.

Our annual recurring revenue at quarter end was $433 million.

Consulting revenue grew 22.9% year-over-year and comprised 25.4% of total revenue for the quarter.

We anticipate our subscription to consulting revenue mix will continue around the 76% level for the next several quarters as incident response and other consulting services continue to be an important component of a comprehensive security solution for our customers.

Revenue retention ending Q1 FY '20 was 99.1%.

Finally, revenue outside the U.S. represented 24% of total revenue in the first quarter, up from 20% of total revenue in Q1 last year on consistently strong growth in U.K., Middle East and Japan.

Gross margin totaled $73.7 million in the first quarter of FY '20 or 55.5% of revenue, a 60 basis point increase from the prior year.

First quarter operating expenses totaled $76.3 million compared with $75.2 million last year, a 220 basis point decrease as a percentage of revenue.

Research and development expenses totaled 16.2% of revenue in the quarter compared with 16.9% for Q1 FY '19.

Sales and marketing expenses were approximately 28.2% of revenue in the first quarter compared with 27.8% for prior year Q1.

General and administrative expenses totaled 13.1% of revenue in the first quarter compared with 15% for the same quarter last year, a 190 basis point improvement as we realize operating leverage on our G&A.

Adjusted EBITDA in Q1 was $800,000 compared with a $2.6 million loss last year.

Non-GAAP net loss was $2.6 million compared with a net loss of $5.9 million in Q1 last year as the margin on higher revenue offset the increased sales cost in Q1 FY '20.

Non-GAAP loss per share was $0.02.

Regarding cash flow and balance sheet items, as I mentioned, cash flow from operating activities was $3 million in the first quarter compared with $18.4 million use of cash in Q1 of last year.

DSO was 93 days at the end of Q1, down from 98 days at the end of Q4 last year and an improvement from 106 days at the end of Q1 last year.

We finished the quarter with cash of $111.2 million and have an untapped $30 million credit facility.

CapEx was $7 million in the first quarter.

Now for guidance.

In the second quarter of FY '20, we expect both GAAP and non-GAAP revenue to be in the range of $132 million to $134 million, and we expect non-GAAP net loss per share to be between $0.04 and $0.05.

For FY '20, we now expect the following: GAAP and non-GAAP revenue to be in the range of $535 million to $545 million, adjusted EBITDA to be positive for the full year in the range of $2 million to $5 million and non-GAAP net loss per share to be $0.10 to $0.13 per share, GAAP net loss per share to be in the range of $0.55 to $0.58.

For modeling purposes, we estimate that the tax benefit rate will be approximately 24% for the remainder of the year, cash provided by operations to be between $25 million and $35 million, CapEx to be in the range of $12 million to $14 million.

A few points about the revised guidance.

The impact of lower Q1 ACV performance accounts for a significant portion of the revenue revision.

The remainder of the revenue revision relates to the amount of time needed to increase the size and quality of the pipeline and fully ramp our new solutions.

Lastly, we will continue to invest in the development of additional apps and software offerings throughout FY '20 but will take a balanced approach as we continue our transition towards software-driven solutions that Mike alluded to earlier.

We have a strong financial foundation with a company that will generate well over $500 million of revenue and be cash flow positive for the year, and we have launched our new software offerings into a market as we transform the business for long-term success.

I believe the teams are very focused on the actions needed to drive the revenue growth and financial results we expect.

I will now return the call to Mike.

Thanks, Wayne.

Before I turn it over to the operator for questions, I would first like to thank the SecureWorks team for their hard work and dedication on behalf of our customers.

I am proud of our accomplishments working with our partners at Dell and for the successful launch of the SafeGuard and Response solution and celebrating the launch of the Red Cloak TDR, our first software app.

Our business is undergoing an important transition, and there is no doubt we have work to do.

I am excited about the opportunity in front of us and believe we have the right people, the right strategy and the right focus to succeed in this evolving and dynamic cybersecurity market.

On behalf of the entire SecureWorks team, we appreciate your continued interest and support.

Operator, can you open the line?

Operator, we're ready for the question-and-answer session.

(Operator Instructions) And our first question is from Rob Owens with KeyBanc Capital.

Mike, wanted to drill down into these 10 deals that you talked about that expended over $1 million in ACV.

I take it that the majority of that came from the installed base.

And if so, kind of given the dynamics and the meaningful cut around the annual expectation, are you running into some churn issues?

I know you gave your net retention rate, but curious what churn looks like within that.

Rob, this is Wayne.

I'll take the churn.

So similar to prior quarters, we have 2 dynamics along churn.

One, the logo churn is primarily from our SMB.

The larger dollars comes from service churn, primarily in the enterprise space.

So that is background.

What was your question around the 10 new deals?

You mentioned 10 new deals with $1 million -- over $1 million in ACV, excuse me.

The majority of that must be coming from the installed base then given the difficulties you're seeing on customer acquisition.

Is that true?

Rob, this is Mike.

Wayne took the question because he was the one that had it in the prepared remarks.

I would tell you that on the new customers we signed, about half of those deals were new -- I'm sorry, of the 10 deals over $1 million, about half of those were new customers.

About half of that was in the installed base.

And then if you could just address, I guess, from a broader perspective what you're seeing in the market.

I think it was maybe a little more tepid first quarter, kind of first half for a lot of the security companies.

Are you seeing -- you talked about close rates.

Is it competition?

Is it distraction?

Are people pausing a little bit in this environment?

Maybe just a little more color around some of that new customer acquisition and some of the reasons you don't think you're getting it done there.

Yes.

So from a first quarter perspective, I would say we're not -- we are not seeing demand constrain.

It was mostly execution challenges that we had in Q1.

When you -- if I put the range, over the last 3 years or so that we've been public, of the demand scale, I would say that yes, there was kind of maybe fewer RFPs in certain parts of the market, but overall, the demand was still strong.

And the miss and the disappointment we have relates to our execution with not enough new pipe coming through and then on the focus on the new pipe.

Our focus has been and will continue to be our customers first, and we're working to keep the business that we have, the new offerings, our MDR, the Red Cloak partner program, the SafeGuard and the TDR and then on the execution front.

And tying into that, you mentioned the churn aspect of things.

Our net retention rate was 99% as we mentioned.

We are still experiencing, as Wayne mentioned, more service churn, but it's particularly, as I've said in my prepared remarks, some of the older legacy business that was around the detect-only part.

Your next question is from Sterling Auty with JPMorgan.

So wanted to dive into the pipeline a bit.

Would you say that the biggest sticking points are top of funnel in terms of the quantity of qualified leads coming in the top of the funnel?

Or is the bigger issue, once you've got the qualified leads, how you're progressing or nurturing those leads through, I'm guessing, if I use a 4- or 5-stage sales process?

It's the top of the funnel, Sterling.

We -- I think what we basically did was spend more time focused, as I mentioned, on our customers.

And from a marketing perspective, I think some of the effort we had from a demand gen perspective, and we were not building the top end of the funnel as much as we should have been.

Our belief was that there was higher quality in the funnel and that the conversion rate in Q1 would have been closer to the higher end of where our historic range has been.

And the long and the short of it is it came in at the lower end of the range.

And having that happen in the beginning -- in the first quarter of the year has an impact on revenue throughout the year.

And can you kind of give a little detail as to where more the concentration was?

Was it U.S. or international?

And the reason I ask is there's definitely been particular questions over the demand environment in cybersecurity in the U.S. If we look at names like Fortinet and others, U.S. was not particularly strong in the March quarter.

I know you talked about your own sales execution issues, but perhaps could it actually still be in part of something broader that's happening in cybersecurity?

This is Mike.

Sterling, thanks for the question.

There clearly could be an impact of something that's happening broader in cybersecurity.

For us, all regions did miss.

[U.

S.] was a bigger miss than other areas.

And as I said, we had expected the range of conversions of what was in the pipe to be at the higher end, and the impact of it coming at the lower end as we really begun to inspect it.

There's a renewed focus and effort we'll have on building the top end of the funnel, back to your first question.

But I think your question is an interesting one, which is had we built up the top end of the funnel, we may have made progress, but maybe not all that we wanted, I don't know.

Your next question is from Fatima Boolani with UBS.

Mike, you've walked us through a lot of the dynamic that contributed to the new ACV shortfall.

But I did want to take a step back and sort of ask you, over the course of the last 3 years since you've been public, there have been some sales changes that you've undertaken in the organization.

There has been new leadership.

So what I wanted to ask you was are you seeing above-average sales turnover?

Or turning that question around, what is the tenure and the ramp level like that you've seen in the sales force?

And are you seeing levels of attrition that are maybe above historical levels that's maybe a contributing factor to some of the new ACV shortfall?

And then I have a follow-up for Wayne, if I could.

So Fatima, thank you for your question.

The turnover -- since our new sales executive came in a little over a year ago, on a trailing 12-month quarterly basis, our turnover level in the quota-carrying sellers has actually decreased each of the last 4 quarters.

So we've not seen an increase in quota-carrying people over that time period.

Your second question for Wayne?

Yes.

And Wayne, just around the gross margin profile.

That still seems steady improvement even as the mix has shifted away from monthly recurring revenue on MSS contract.

So I'm wondering if you can speak to sort of delivery efficiencies or any other investments that you've made in the past that are bearing fruit and showing yields and sort of how we should expect you to accrete those margins to your longer-term target level, closer to 60% -- 60%-plus levels?

Fatima, absolutely.

So I think we touched on it a little bit in the last call.

We continue to make investments on the ops side.

And basically, in the software, we need to deliver our services in the automation and orchestration.

We are definitely seeing improvements there again on the subscription side.

Our consulting services, we're focused on those margins as well.

But it's all about the ops team delivering more effective, more efficient solutions.

Your next question is from Walter Pritchard with Citi.

More of a longer-term business strategy question for you, Mike.

I mean how are you thinking about investments in technology and R&D and sort of almost product-like investments, things like Red Cloak and so forth?

As it -- I mean it just seems like, given the challenges in the underlying sale of the services, maybe some focus could help.

And I'm curious if you think that could be part of this here, where just focusing on services versus kind of R&D and product-like investments might make the message to customers more clear as to what you're doing and hone the value proposition.

So Walter, thanks for the question.

You had a couple of them in there.

Let me try and answer it this way.

I don't -- there was no impact from a focus perspective in that the new software solutions were coming out with the Red Cloak Threat Detection and Response on the new analytics platform, which is really more the SaaS-based software-only solution.

It just came out at the end of the quarter so there was no effort from a seller perspective.

They have been trained earlier, but it wasn't as if we were out preselling it.

From an R&D investment perspective, we are clearly continuing to ramp the R&D in that area.

Now that it has been announced, we actually have the engineering organizations working together as we are looking to bring the old parent threat platform or the legacy kind of threat platform and the new platform and operations into a single focus of what we're doing.

So the transition plan and the migration plan of how we're going to -- and the incremental apps that we're going to invest in, as Wayne said in his prepared remarks, will continue.

And from a sales perspective, in Q2 and going forward, there's clearly an increased focus on smaller, if you will, offerings that we've talked about to bring to market that have higher value, the Managed Detection and Response, the detect and prevent, the Red Cloak partner program.

SafeGuard, which -- most of which is being done by the Dell sales organization, and the Red Cloak Threat Detection and Response are the core offerings where the market is seeing value.

And actually, in my travels both with prospects and customers, it's resonating very, very well and particularly the overall strategy and our point of view on what the SOC of the future will look like.

Did I answer your questions, Walter?

Okay.

Yes, that does.

No, that helps.

I appreciate it.

Your next question is from Melissa Franchi with Morgan Stanley.

Mike, I'm just curious about your expectations for the new products.

The execution issue that you're discussing, is that lowering your expectations for how those new products, particularly TDR, will ramp this year?

Or is it really just the execution issues are impacting kind of the core managed security service offerings?

The latter.

The execution impact -- the execution issue has been impacting the core managed security service and what we're doing.

The pipeline has built -- so TDR in particular, which came out at the very end of the quarter, I think it was 3 or 4 days before our quarter ended, the pipeline is built nicely.

We have signed customers that are in production, and we have dedicated, as I mentioned, some trained sales engineers to be in a position to help.

And we're in the process of looking to bring on some dedicated TDR sellers that will be able to work -- since software is a little bit differently, so they will work to sort of seed the market and with the existing sales organization.

If I use MDR, our more recent offering, just before TDR, our growth is double digit.

So we've got nice growth on the MDR front.

And we are -- tying this into Walter's comment.

We are continuing to invest and balancing that investment across the organization by continuing to invest in the new area where we're going and the value that we see in the market on the TDR side and the new application framework.

Okay.

And then I guess following up on that to Wayne.

Thinking about what's embedded in your guidance for FY '20 in terms of the new products, is it fairly kind of immaterial at this point?

Or should we expect that we'll start to see the impact maybe in the second half of the year of some of those new products?

Melissa, we definitely believe we'll see impact in Q3 and Q4.

And then as maybe a follow-up to the margin question asked earlier from Fatima, as those ramp much better, much higher margins.

So that's going to help us on our margin walk to higher overall margins as well.

Your next question is from Gur Talpaz with Stifel.

Mike, I was hoping you could talk about TDR in relation to stand-alone EDR solutions.

Where does one end and the other begin?

And maybe taking this a step further, can you speak to how the competitive set here changes as you make a bigger push into security software?

So Gur, that's a great question -- or great questions.

The TDR, as I sort of mentioned in my prepared remarks, and actually, with the installed customers we're working with today, it's kind of a reenvisioning of the whole security operations center and the way it operates from a community perspective.

It considers or brings in data from the cloud, from business systems, from the network and from the endpoint.

So it's not an EDR-only solution.

It also has all of our analytics embedded in it, over what we've learned in the last 20 years on operating security centers or security operations centers for 4,000 clients in 60 countries around the globe, including our embedded machine learning and deep learning expertise that we've created.

So -- and it works in a collaborative fashion.

So if you and I were both operating on it, we could collaborate via a chat feature and work together in a manner across our operation centers or across the customer base in order to create the appropriate detection, prevention and then ticketing and workflows to take the embedded orchestration actions that need to be done.

So it's a complete revision of what we're looking to do.

Actually, one of the things -- and your question is a good one in that we've -- we're talking about trying to see if there's a way we should bring a little more clarity to this for those of you on the call to understand how we're reimagining the security operation centers of the future and how TDR is actually sort of the first step in that journey and disclose kind of our point of view on what the security operations center of the future will look like 3 to 5 years from now.

So hold for now, and we'll look to get back to you with hopefully a little more in-depth conversation we can have and maybe bring some of the team that's been leading this effort over the last couple of years now that we're driving it forward.

On the second part of your question with regard to competitors, it will change who we're competing with substantially.

And I think I don't know of anyone that's doing something exactly the way we're doing it in the market.

And I think there will be other tangential competitors from a product perspective and from the MSSP or MDR markets that will look to play in this space slightly differently.

Nobody really has the diversity of -- and I'll say the diversity and depth of the data and the experience doing exactly what we've been doing in a vendor-neutral manner for a 20-year period of time, which is really what we're trying to do is to bring that expertise to market in an open community to share it, if you will, almost from a crowdsourcing type of perspective.

So we're excited to get to market.

My -- as I've explained this to prospects and customers, the receptivity has been very, very good.

And now what I think we need to do is really help tell everyone what it is we're doing and what we're trying to do and get TDR into the market and then get some of the other applications or apps we're going to look to roll out into the marketplace as well.

(Operator Instructions) And you have a follow-up question from Sterling Auty with JPMorgan.

So just 2 follow-ups.

The MRRs of $36.1 million, based on the guidance, should we expect that number to be flat or even potentially down next quarter?

So Sterling, we see -- just maybe to review what's in MRR.

It includes both installed base plus backlog.

We have not guided, but I'll share my thoughts on it, maybe not a number.

We don't expect it to go down.

The answer to your question is no.

I think it's sort of modest growth and then the acceleration in the back half that I mentioned very briefly earlier.

But -- so does that help?

Okay.

Yes, it does.

And then one other question.

I think it's a little bit of a follow-on from an earlier question.

So obviously, you've given us the EBITDA guidance for the full year, but how are you thinking about the cost structure in light of the impacts that you saw here in the quarter?

Is there any cost actions you think that will be necessary through this process?

So Sterling, thanks for the question.

It's Mike.

We continue to invest -- we will continue to invest, as I mentioned a few moments ago, in the analytics framework and incremental apps for -- that will follow on from TDR.

We are also, and have also since we learned and saw what happened in Q1, managing our costs appropriately.

So doing the things that makes sense for the investment in the business and the future of where we're looking to transition while, at the same time, we are looking at the growth or lack thereof that we had in some of the core legacy parts of the business.

So as I -- a couple of the key areas.

We did integrate the engineering teams and are looking to increase the velocity of the production from the engineering teams.

And some of the increased scale that we saw in areas such as G&A, I would expect to continue to see into the future.

Basically trying to balance our cost with our growth but continuing to invest in the future areas we're going.

And your next question is from Howard Smith with First Analysis.

My question was about the expenses and costs that Sterling asked.

So since you just answered that, let me ask -- in the past, you talked about automating particularly remediation, I believe, that, that was a pretty manual process and you were taking some steps.

I just -- I know it's a never-ending journey, but I think you had some fairly specific aims in the near term.

Where are you on that journey?

And how much is left to do?

So in the orchestration and automation area, we have both written playbooks to use this internally across the customer base that we're doing the managed security services for, and we've incorporated that work into our threat detection and response application.

So we have playbooks embedded to be able to take the appropriate steps in an automated manner from, again, both an orchestration and automation prospective.

And Wayne touched on it in the prepared remarks, from an operating efficiency perspective, we're using it to increase the leverage and the operating margin, of which -- or gross margin, of which we're serving our customers in a manner that provides more clarity and ease for them as well rather than having manual intervention get -- as much manual intervention get.

The investigation steps are where we're doing a lot more of the automation as we're looking across what happened.

Does that help?

It does.

Okay.

Thank you, everyone, for joining us on today's call.

Is there another question, operator?

No, there are no questions, sir.

Thank you again for joining us on today's call and for all of the questions.

We appreciate your support and look forward to our second quarter call in early September.

If we did not get to your questions this morning, please do not hesitate to reach out to us for follow-ups.

Thank you very much.

Thanks, everyone.

Cheers.

Ladies and gentlemen, this concludes today's call.

You may all disconnect at this time.

[1] Gartner, "Magic Quadrant for Managed Security Services, Worldwide", Toby Bussa, Kelly M. Kavanagh, Sid Deshpande, Pete Shoard, 2 May 2019.

The report was formerly titled Magic Quadrant for Global MSSPs and Magic Quadrant for MSSPs, North America.

Positioned as Secureworks from 2019-2018, SecureWorks in 2017, 2010-2007, and as Dell SecureWorks from 2015-2011

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