Paul Parrish: As we laid out the original $265 million for Taegis and we laid that out with our Q2 call and now as we’re positioning at the end of Q3, there is a portion relates to a little bit less performance in Q3. We saw as we ended the €“ toward the tail end of our end of life for other MSS decisions being made, are somewhat being delayed by customers, may end up with some exiting of those customers versus decisions made to resolution or move over to the Taegis product. So there’s a component of this that is made up of our existing customers with a willingness to move, given the dynamics of what’s going on in the economy. FX continues to be an issue and that becomes a component of this. So, it’s roughly $5 million of this $20 million change is FX.
And then, just for new logos, that piece of this equation, which we’re all focused on, we’re growing that piece of the business, we just see that reluctance given what’s going on in the economy, customers delaying decisions. And so, that’s a chunk of this too. And that’s accelerating as we get further into the tail end of this year.
Mike Cikos: Just want to make sure I’m doing the math right and would be interested if you have the metrics handy. But for MSS specifically, so to exit the year, MSS ARR was, call it €“ I’m sorry, to exit the quarter, MSS ARR was around $119 million. So I wanted to sanity check that. And then second, do you have the MSS customer count handy?
Paul Parrish: It’s roughly the same number of customers at end of Q3, 1,600 for other MSS and 1,600 for Taegis. The average revenue per customer for other MSS is $77,000 and for Taegis $139,000.
Operator: The next question today comes from the line of Hamza Fodderwala from Morgan Stanley.
Hamza Fodderwala: Paul, maybe to start with you just as a clarification. I’m sorry if I missed this earlier, but of the guidance cut, could you just clarify how much of that is FX, macro or any other factors that I may have missed?
Paul Parrish: Let’s make sure the guidance you’re referring to are our ARR guidance. That’s what you’re focused on?
Hamza Fodderwala: Yeah.
Paul Parrish: Because on our revenue guidance, the narrowing of the band on that. So ARR, at $245 million. And we have previously said $265 million. We’d exit greater than $265 million. So we’re now $245 million or greater. So, that $20 million reduction, about half of it relates to the existing migration of customers off of other MSS to the product. There’s some delays, some hesitancy, some customers deciding not to from our previous projections. Then there’s FX and put that as maybe $5 million-ish for FX impacts. Because as we know, from what’s going on in the world, FX continues to have some drains in certain geographic areas of the world. And then the last piece of this is our focus on new logos. And we believe we have momentum, but there’s delays caused by what’s going on in the economy. And that’s another $5 million-ish issue of .
Hamza Fodderwala: Makes total sense. And it’s being seen across the board, pretty much everywhere. So on that point, Wendy, just on the budgetary pressures, I’m curious as you talk to customers and/or partners, what sense you get about security budgets for next year? Do you see them still growing at a healthy rate? And is this sort of macro pressure that we’re seeing right now just a function of perhaps projects taking longer or is it outright maybe reductions in security budgets?
Wendy Thomas: I really don’t have a crystal ball. And frankly, a lot of these prospects don’t either. I’ll sort of characterize what we’re seeing right now, which is, interestingly, kind of the pipeline, the front end, the pipeline remains healthy in terms of that growth. The time period of the sales cycle to get to the technical win, the perspective of security teams that they want to make the transition toward a kind of centralized XDR approach, those pieces haven’t moderated. As we talked about last time, and we saw this increasingly this quarter, what we see is, it’s more on the back end of the sales cycle, additional layers of scrutiny. And I think what we’re really seeing in the market now is sort of budget absolutely freezing up kind of right towards the end.
And that reflects, I would say, more uncertainty as different businesses are sort of trying to sort through what their growth opportunities are, and therefore, what they can invest next year. And so, the answer is, I couldn’t say for certain with a great deal of evidence that those budgets are disappearing permanently right now. It feels more like they’re kind of in a holding pattern as they sort out their own broader budgets. But that is where €“ as we lean into sort of the economic calculators of Taegis and help them with roadmaps around vendor consolidation and operational efficiency, that’s the opportunity for us is to really lean into that aspect to give them that visibility to a better answer that’s a better answer for us as well.
Operator: . The next question today comes from the line of Tal Liani from Bank of America.
Madeline Brooks: This is Madeline on for Tal this morning. Just two quick questions for me. The first one, the average Taegis contract going up sequentially to $139,000. Just wondering in terms of the pipeline that you’re seeing and macro deterioration across the board and security, how is that number changing throughout the pipeline? I’m going to have one follow-up question as well.
Wendy Thomas: That number has remained strong and consistent and it is higher on average than a lot of our peers in the space. What we see there is that our approach to total coverage has helped us start with a higher average revenue per customer. And then, as we’ve been increasing the number of modules that the customers take on the platform, we’ve seen our cross sells actually be a bright spot. Our customers who know us and trust us see the opportunity and the risk reduction in their business, have been increasing their existing spend with us. So, we don’t see that moderating materially in the near term relative to our business model. It remains the same.
Madeline Brooks: And that leads me to my next question as well. So, if we just breakout the growth in Taegis, any chance you could break it out between new customer versus upsell and also how you’re thinking about modeling that out for next year as well?
Paul Parrish: As we’ve referred to in the past, the upsell on existing customers moving over have been in that 20-percent-ish range. So, we get 20% more from customers when they move from the other MSS to Taegis, and those numbers are continuing to hold. And as we continue to work our way through that bottom half or bottom end of this, portion of that other MSS is moving, of course, that’s always the hardest part of the move, the tail end, but we don’t see a dynamic playing out any different than we’ve already talked about. So, it’s playing out the same way. So, we haven’t put together our full thoughts here on next year, but we still see it playing out, at least for this year and into next year, playing out the same way. And then, as we look at the average between resolutioning and what’s coming from new logo, we’ve talked about, it’s slightly heavy to the customers moving from other MSS to Taegis right now versus new logo.
But we’re focused on that new logo being the go forward and the growth areas of business.
