Secureworks Reports Taegis ARR Growth of 200 in Connection with Second Quarter Fiscal 2022 Results

ATLANTA, Sept. 2, 2021 /PRNewswire/ â€" Secureworks (NASDAQ: SCWX), a global leader in cybersecurity, today announced financial results for its second quarter, which ended on July 30, 2021.

Key Highlights

Secureworks Taegis surpassed $100 million in annual recurring revenue (ARR) and ended the second quarter of fiscal 2022 with 700 customers.

Taegis ARR grew 200 percent on a year-over-year basis and 39 percent sequentially from the first quarter of fiscal 2022.

Raising full fiscal year 2022 Taegis guidance to at least $155 million ARR by end of fiscal year 2022.

Secureworks was ranked the 8th best software company in the Top 100 Software Companies of 2021 by The Software Report.

“We’re proud to announce that just two years after launch, Taegis ARR has tripled year over year to surpass $100 million,” said Wendy Thomas, President and incoming CEO, Secureworks. “Providing customers with access to the detection and response capabilities, best practices, and threat research used by our experts in an easy-to-use XDR solution is resonating.”

Second Quarter Fiscal 2022 Financial Highlights

Taegis revenue grew 160 percent from the second quarter of fiscal 2021.

Overall revenue was $134.2 million, a decrease of 3.1 percent from the second quarter of fiscal 2021, reflective of our continued transformation.

GAAP gross margin was 57.9 percent, compared with 56.7 percent in the same period last year. Non-GAAP gross margin was 61.1 percent compared with 59.7 percent in the second quarter of fiscal 2021.

GAAP net loss was $11.8 million, or $0.14 per share, compared with $1.2 million, or $0.02 per share, in the prior year. Non-GAAP net income was $0.9 million, or $0.01 per share, compared with net income of $8.4 million, or $0.10 per share, in the same period last year.

Adjusted EBITDA for the quarter was $3.6 million, compared with $13.1 million in the second quarter of fiscal 2021.

Ended the second quarter with $197 million in cash and cash equivalents.

“Our transformation is accelerating and we’re pleased to have added $28.2 million to Taegis ARR this quarter, up 61% from the $17.5 million Taegis ARR added in the first quarter of fiscal 2022,” said Paul Parrish, Chief Financial Officer, Secureworks.

Business and Operational Highlights

Recognized as a Leader in the IDC MarketScape: U.S. Managed Detection and Response Services 2021 Assessment (doc # US48129921, August 2021).

Recipient of the 2021 Customer Value Leadership award by Frost & Sullivan in recognition of Taegis XDR’s excellence in delivering improved security outcomes to customers.

Integrated Taegis VDR (Vulnerability Detection and Response) software with proprietary threat intelligence feeds from Secureworks Counter Threat Unitâ„¢ (CTUâ„¢), helping customers eliminate the latest high-risk vulnerabilities before they can be exploited.

Named a “late stage” XDR provider in Forrester’s New Tech: Extended Detection and Response (XDR) Providers, Q3 2021, following being named a Leader in The Forrester Wave™: Managed Detection And Response, Q1 2021.

Financial Outlook

For the third quarter of fiscal 2022, the Company expects:

Revenue of $132 to $134 million.

GAAP net loss per share of $0.24 to $0.21 and net loss per share performance on a non-GAAP basis of $0.08 to $0.05.

Secureworks is providing the following updated guidance for full fiscal year 2022. The Company expects:

Fiscal Year 2022 Guidance

Prior guidance

Taegis ARR

At least $155M

At least $150M

Taegis revenue

$90M to $100M

$90M to $100M

Total revenue

$535M to $540M

$540M to $550M

GAAP net income

-$61M to -$54M

-73¢ to -66¢ per share

-$57M to -$48M

-70¢ to -59¢ per share

Non-GAAP net income

-$11M to -$5M

-13¢ to -6¢ per share

-$10M to -$3M

-13¢ to -4¢ per share

Adjusted EBITDA

-$4M to $4M

-$5M to $5M

Cash from operations

$3M to $8M

Breakeven to $10M

Conference Call Information

As previously announced, the Company will hold a conference call to discuss its second quarter fiscal 2022 results and financial guidance on Sep. 2, 2021, at 8:00 a.m. U.S. ET. A live audio webcast of the conference call and the related supplemental financial information will be accessible on the Company’s website at http://investors.secureworks.com. The webcast and supplemental information will be archived at the same location.

Operating Metrics

The Company defines annual recurring revenue (ARR) as the value of its subscription contracts as of a particular date. Because the Company uses recurring revenue as a leading indicator of future annual revenue, it includes operational backlog. Operational backlog is defined as the recurring revenue associated with pending contracts, which are contracts that have been sold but for which the service period has not yet commenced.

Non-GAAP Financial Measures

This press release presents information about the Company’s non-GAAP revenue, non-GAAP gross margin, non-GAAP subscription cost of revenue, non-GAAP professional services cost of revenue, non-GAAP gross profit, non-GAAP research and development expenses, non-GAAP sales and marketing expenses, non-GAAP general and administrative expenses, non-GAAP operating income (loss), non-GAAP net  income (loss), non-GAAP earnings (loss) per share and adjusted EBITDA, which are non-GAAP financial measures provided as a supplement to the results provided in accordance with accounting principles generally accepted in the United States of America (“GAAP”). A reconciliation of each of the foregoing non-GAAP financial measures to the most directly comparable GAAP financial measure is provided below for each of the fiscal periods indicated.

Special Note Regarding Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In some cases, you can identify these statements by such forward-looking words as “anticipate,” “believe,” “confidence,” “could,” “estimate,” “expect,” “guidance,” “intend,” “may,” “plan,” “potential,” “outlook,” “should,” “will” and “would,” or similar words or expressions that refer to future events or outcomes. Such forward-looking statements include, but are not limited to, the statements in this press release with respect to the Company’s expectations regarding revenue, GAAP net loss per share, and non-GAAP net loss per share for the third quarter of fiscal 2022, and revenue, GAAP net loss, GAAP net loss per share, non-GAAP net loss, non-GAAP net loss per share, Adjusted EBITDA, cash flow from operations, and annual recurring revenue and revenue for its Taegis platform for full year fiscal 2022, all of which reflect the Company’s current analysis of existing trends and information. These forward-looking statements represent the Company’s judgment only as of the date of this press release.

Actual results and events in future periods may differ materially from those expressed or implied by these forward-looking statements because of risks, uncertainties and other factors, including those relating to, among others: the Company’s ability to achieve or maintain profitability; the Company’s ability to enhance its existing solutions and technologies and to develop or acquire new solutions and technologies; the Company’s reliance on personnel with extensive information security expertise; intense competition in the Company’s markets; the Company’s ability to attract new customers, retain existing customers and increase its annual contract values; the Company’s reliance on customers in the financial services industry; the Company’s ability to manage its growth effectively; the Company’s ability to maintain high-quality client service and support functions; terms of the Company’s service level agreements with customers that require credits for service failures or inadequacies; the Company’s recognition of revenue ratably over the terms of its Taegis SaaS applications and managed security services contracts; the Company’s long and unpredictable sales cycles; risks associated with the Company’s international sales and operations; the effect of Brexit on the Company’s operations; the Company’s exposure to fluctuations in currency exchange rates; the effect of governmental export or import controls on the Company’s business; the Company’s ability to expand its key distribution relationships; the Company’s technology alliance partnerships; real or perceived defects, errors or vulnerabilities in the Company’s solutions or the failure of its solutions to prevent a security breach; the risks associated with cyber attacks or other data security incidents; the ability of the Company’s solutions to interoperate with its customers’ IT infrastructure; the Company’s ability to use third-party technologies; the effect of evolving information security and data privacy laws and regulations on the Company’s business; the Company’s ability to maintain and enhance its brand; risks associated with the Company’s acquisition of other businesses; estimates or judgments relating to the Company’s critical accounting policies; the effect of natural disasters, public health issues and other catastrophic events on the Company’s ability to serve its customers, including the coronavirus (COVID-19) pandemic; the Company’s reliance on patents to protect its intellectual property rights; the Company’s ability to protect, maintain or enforce its non-patented intellectual property rights and proprietary information; claims by third parties of infringement of their proprietary technology by the Company; the Company’s use of open source technology; and risks related to the Company’s relationship with Dell Technologies Inc. and Dell Inc. and control of the Company by Dell Technologies Inc.

This list of risks, uncertainties and other factors is not complete. The Company discusses these matters more fully, as well as certain risk factors that could affect the Company’s business, financial condition, results of operations and prospects, under the caption “Risk Factors” in the Company’s annual report on Form 10-K, as well as in the Company’s other SEC filings.  Any or all forward-looking statements the Company makes may turn out to be wrong and can be affected by inaccurate assumptions the Company might make or by known or unknown risks, uncertainties and other factors, including those identified in this press release. Accordingly, you should not place undue reliance on the forward-looking statements made in this press release, which speak only as of its date. The Company does not undertake to update, and expressly disclaims any obligation to update, any of its forward-looking statements, whether as a result of circumstances or events that arise after the date the statements are made, new information or otherwise.

About Secureworks

Secureworks (NASDAQ: SCWX) is a global cybersecurity leader that protects customer progress with Secureworks® Taegis™, a cloud-native security analytics platform built on 20+ years of real-world threat intelligence and research, improving customers’ ability to detect advanced threats, streamline and collaborate on investigations, and automate the right actions.
www.secureworks.com

(Tables Follow)

SECUREWORKS CORP.

Condensed Consolidated Statements of Operations and Related Financial Highlights

(in thousands, except per share data and percentages)

(unaudited)

Three Months Ended

Six Months Ended

July 30, 2021

July 31, 2020

July 30, 2021

July 31, 2020

Net revenue:

Subscription

102,426

106,259

206,496

212,616

Professional Services

31,746

32,217

67,139

67,041

Total net revenue

134,172

138,476

273,635

279,657

Cost of net revenue:

Subscription

37,058

39,989

74,730

82,455

Professional Services

19,425

19,911

38,960

40,354

Total cost of net revenue

56,483

59,900

113,690

122,809

Gross margin

77,689

78,576

159,945

156,848

Research and development

30,417

24,109

58,569

48,182

Sales and marketing

34,685

35,624

71,090

73,076

General and administrative

26,488

21,800

52,043

49,316

Total operating expenses

91,590

81,533

181,702

170,574

Operating loss

(13,901)

(2,957)

(21,757)

(13,726)

Interest and other, net

(601)

30

(1,508)

1,023

Loss before income taxes

(14,502)

(2,927)

(23,265)

(12,703)

Income tax benefit

(2,739)

(1,700)

(5,112)

(3,940)

Net loss

$

(11,763)

$

(1,227)

$

(18,153)

$

(8,763)

Loss per common share (basic and diluted)

$

(0.14)

$

(0.02)

$

(0.22)

$

(0.11)

Weighted-average common shares outstanding (basic and diluted)

82,979

81,417

82,482

81,177

Percentage of Total Net Revenue

Subscription gross margin

63.8

%

62.4

%

63.8

%

61.2

%

Professional services gross margin

38.8

%

38.2

%

42.0

%

39.8

%

Total gross margin

57.9

%

56.7

%

58.5

%

56.1

%

Research and development

22.7

%

17.4

%

21.4

%

17.2

%

Sales and marketing

25.9

%

25.7

%

26.0

%

26.1

%

General and administrative

19.7

%

15.7

%

19.0

%

17.6

%

Operating expenses

68.3

%

58.9

%

66.4

%

61.0

%

Operating loss

(10.4)

%

(2.1)

%

(7.9)

%

(4.9)

%

Loss before income taxes

(10.8)

%

(2.1)

%

(8.5)

%

(4.5)

%

Net loss

(8.8)

%

(0.9)

%

(6.6)

%

(3.1)

%

Effective tax rate

18.9

%

58.1

%

22.0

%

31.0

%

     Note:  Percentage growth rates are calculated based on underlying data in thousands

SECUREWORKS CORP.

Condensed Consolidated Statements of Financial Position

(in thousands)

(unaudited)

July 30,
2021

January 29,
2021

Assets:

Current assets:

Cash and cash equivalents

$

196,961

$

220,300

Accounts receivable, net

97,835

108,005

Inventories, net

627

560

Other current assets

17,143

17,349

Total current assets

312,566

346,214

Property and equipment, net

13,149

17,143

Operating lease right-of-use assets, net

20,085

22,330

Goodwill

426,149

425,861

Intangible assets, net

146,128

157,820

Other non-current assets

76,516

75,993

Total assets

$

994,593

$

1,045,361

Liabilities and Stockholders’ Equity:

Current liabilities:

Accounts payable

$

15,446

$

16,769

Accrued and other

76,415

109,134

Short-term deferred revenue

168,001

168,437

Total current liabilities

259,862

294,340

Long-term deferred revenue

7,418

9,590

Operating lease liabilities, non-current

19,736

22,461

Other non-current liabilities

50,059

51,189

Total liabilities

337,075

377,580

Stockholders’ equity

657,518

667,781

Total liabilities and stockholders’ equity

$

994,593

$

1,045,361

SECUREWORKS CORP.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Six Months Ended

July 30, 2021

July 31, 2020

Cash flows from operating activities:

Net loss

$

(18,153)

$

(8,763)

Adjustments to reconcile net loss to net cash provided by operating activities

Depreciation and amortization

19,863

20,872

Amortization of right of use asset

2,098

2,247

Stock-based compensation expense

13,615

11,594

Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies

1,344

(1,242)

Income tax benefit

(5,112)

(3,940)

Other non cash impacts

â€"

150

Provision for doubtful accounts

448

1,314

Changes in assets and liabilities:

Accounts receivable

9,532

2,352

Net transactions with parent

(8,903)

3,822

Inventories

(67)

41

Other assets

4,418

1,444

Accounts payable

(1,293)

1,507

Deferred revenue

(2,912)

(1,784)

Operating leases, net

(2,970)

(856)

Accrued and other liabilities

(25,185)

(22,735)

Net cash used in operating activities

(13,277)

6,023

Cash flows from investing activities:

Software development costs

(3,218)

â€"

Capital expenditures

(1,033)

(1,709)

Net cash used in investing activities

(4,251)

(1,709)

Cash flows from financing activities:

Proceeds from stock option exercises

4,134

â€"

Taxes paid on vested restricted shares

(9,945)

(4,658)

Net cash used in financing activities

(5,811)

(4,658)

Net decrease in cash and cash equivalents

(23,339)

(344)

Cash and cash equivalents at beginning of the period

220,300

181,838

Cash and cash equivalents at end of the period

$

196,961

$

181,494

Non-GAAP Financial Measures

This press release presents information about the Company’s non-GAAP revenue, non-GAAP gross margin, non-GAAP subscription cost of revenue, non-GAAP professional services cost of revenue, non-GAAP gross profit, non-GAAP research and development expenses, non-GAAP sales and marketing expenses, non-GAAP general and administrative expenses, non-GAAP operating income (loss), non-GAAP net income (loss), non-GAAP earnings (loss) per share and adjusted EBITDA, which are non-GAAP financial measures provided as a supplement to the results provided in accordance with GAAP.  A detailed discussion of the Company’s reasons for including these non-GAAP financial measures, the limitations associated with these measures, the items excluded from these measures, and our reason for excluding those items are presented below. The Company encourages investors to review its GAAP results in conjunction with the presentation of non-GAAP financial measures.

The following is a summary of the items excluded from the most comparable GAAP financial measures to calculate our non-GAAP financial measures:

Amortization of Intangible Assets. Amortization of intangible assets consists of amortization of customer relationships and acquired technology. In connection with the acquisition of Dell by Dell Technologies in fiscal 2014 and our acquisition of Delve Laboratories, Inc. in fiscal 2021, all of our tangible and intangible assets and liabilities were accounted for and recognized at fair value on the transaction date. Accordingly, amortization of intangible assets consists of amortization associated with intangible assets recognized in connection with each such transaction.

Stock-based Compensation Expense. Non-cash stock-based compensation expense relates to both the Dell Technologies and Secureworks equity plans. We exclude such expense when assessing the effectiveness of our operating performance since stock-based compensation does not necessarily correlate with the underlying operating performance of the business.

Aggregate Adjustment for Income Taxes. The aggregate adjustment for income taxes is the estimated combined income tax effect for the adjustments mentioned above. The tax effects are determined based on the tax jurisdictions where the above items were incurred.

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SECUREWORKS CORP.

Reconciliation of GAAP to Non-GAAP Financial Measures

(in thousands, except per share data)

(unaudited)

Three Months Ended

Six Months Ended

July 30,
2021

July 31,
2020

July 30,
2021

July 31,
2020

GAAP net revenue

$

134,172

$

138,476

$

273,635

$

279,657

GAAP subscription cost of revenue

$

37,058

$

39,989

$

74,730

82,455

Amortization of intangibles

(4,044)

(3,648)

(7,863)

(7,108)

Stock-based compensation expense

(15)

(219)

(117)

(448)

Non-GAAP subscription cost of revenue

$

32,999

$

36,122

$

66,750

$

74,899

GAAP professional services cost of revenue

$

19,425

$

19,911

$

38,960

$

40,354

Stock-based compensation expense

$

(176)

$

(179)

$

(372)

$

(304)

Non-GAAP professional services cost of revenue

$

19,249

$

19,732

$

38,588

$

40,050

GAAP gross margin

$

77,689

$

78,576

$

159,945

$

156,848

Amortization of intangibles

4,044

3,648

7,863

7,108

Stock-based compensation expense

190

398

489

753

Non-GAAP gross margin

$

81,923

$

82,622

$

168,297

$

164,709

GAAP research and development expenses

$

30,417

$

24,109

$

58,569

$

48,182

Stock-based compensation expense

(1,542)

(1,097)

(2,640)

(2,388)

Non-GAAP research and development expenses

$

28,875

$

23,012

$

55,929

$

45,794

GAAP sales and marketing expenses

$

34,685

$

35,624

$

71,090

$

73,076

Stock-based compensation expense

(1,016)

(882)

(1,748)

(1,623)

Non-GAAP sales and marketing expenses

$

33,669

$

34,742

$

69,342

$

71,453

GAAP general and administrative expenses

$

26,488

$

21,800

$

52,043

$

49,316

Amortization of intangibles

(3,523)

(3,524)

(7,047)

(7,047)

Stock-based compensation expense

(4,832)

(3,330)

(8,738)

(6,830)

Non-GAAP general and administrative expenses

$

18,133

$

14,946

$

36,258

$

35,439

GAAP operating loss

$

(13,901)

$

(2,957)

$

(21,757)

$

(13,726)

Amortization of intangibles

7,567

7,172

14,910

14,155

Stock-based compensation expense

7,580

5,707

13,615

11,594

Non-GAAP operating income (loss)

$

1,246

$

9,922

$

6,768

$

12,023

GAAP net loss

$

(11,763)

$

(1,227)

$

(18,153)

$

(8,763)

Amortization of intangibles

7,567

7,172

14,910

14,155

Stock-based compensation expense

7,580

5,707

13,615

11,594

Aggregate adjustment for income taxes

(2,463)

(3,278)

(5,460)

(6,081)

Non-GAAP net income (loss)

$

921

$

8,374

$

4,912

$

10,905

GAAP loss per share

$

(0.14)

$

(0.02)

$

(0.22)

$

(0.11)

Amortization of intangibles

0.09

0.08

0.18

0.17

Stock-based compensation expense

0.09

0.07

0.16

0.14

Aggregate adjustment for income taxes

(0.03)

(0.04)

(0.07)

(0.07)

Non-GAAP earnings (loss) per share *

$

0.01

$

0.10

$

0.06

$

0.13

* Sum of reconciling items may differ from total due to rounding of individual components

GAAP net loss

$

(11,763)

$

(1,227)

$

(18,153)

$

(8,763)

Interest and other, net

601

(30)

1,508

(1,023)

Income tax benefit

(2,739)

(1,700)

(5,112)

(3,940)

Depreciation and amortization

9,945

10,386

19,863

20,872

Stock-based compensation expense

7,580

5,707

13,615

11,594

Adjusted EBITDA

$

3,624

$

13,136

$

11,721

$

18,740

SECUREWORKS CORP.

Reconciliation of GAAP to Non-GAAP Financial Measures

(in thousands)

(unaudited)

Three Months Ended

Six Months Ended

Percentage of Total Net Revenue

July 30, 2021

July 31, 2020

July 30, 2021

July 31, 2020

GAAP gross margin

57.9

%

56.7

%

58.5

%

56.1

%

     Non-GAAP adjustment

3.2

%

3.0

%

3.0

%

2.8

%

Non-GAAP gross margin

61.1

%

59.7

%

61.5

%

58.9

%

GAAP research and development expenses

22.7

%

17.4

%

21.4

%

17.2

%

     Non-GAAP adjustment

(1.2)

%

(0.8)

%

(1.0)

%

(0.8)

%

Non-GAAP research and development expenses

21.5

%

16.6

%

20.4

%

16.4

%

GAAP sales and marketing expenses

25.9

%

25.7

%

26.0

%

26.1

%

     Non-GAAP adjustment

(0.8)

%

(0.6)

%

(0.7)

%

(0.5)

%

Non-GAAP sales and marketing expenses

25.1

%

25.1

%

25.3

%

25.6

%

GAAP general and administrative expenses

19.7

%

15.7

%

19.0

%

17.6

%

     Non-GAAP adjustment

(6.2)

%

(4.9)

%

(5.7)

%

(4.9)

%

Non-GAAP general and administrative expenses

13.5

%

10.8

%

13.3

%

12.7

%

GAAP operating loss

(10.4)

%

(2.1)

%

(7.9)

%

(4.9)

%

     Non-GAAP adjustment

11.4

%

9.3

%

10.4

%

9.2

%

Non-GAAP operating income (loss)

1.0

%

7.2

%

2.5

%

4.3

%

GAAP net loss

(8.8)

%

(0.9)

%

(6.6)

%

(3.1)

%

     Non-GAAP adjustment

9.5

%

6.9

%

8.4

%

7.0

%

Non-GAAP net income (loss)

0.7

%

6.0

%

1.8

%

3.9

%

SECUREWORKS CORP.

Reconciliation of GAAP to Non-GAAP Financial Measures

(in millions, except per share data)

(unaudited)

Three Months Ending

Fiscal Year Ending

October 29, 2021

January 28, 2022

Low End of Guidance

High End of Guidance

Low End of Guidance

High End of Guidance

GAAP and non-GAAP net revenue

$

132

$

134

$

535

$

540

GAAP net loss

$

(20)

$

(18)

$

(61)

$

(54)

Amortization of intangibles

8

8

30

30

Stock-based compensation expense

10

10

33

33

Aggregate adjustment for income taxes

(4)

(4)

(14)

(14)

   Non-GAAP net (loss)*

$

(7)

$

(4)

$

(11)

$

(5)

GAAP net loss per share

$

(0.24)

$

(0.21)

$

(0.73)

$

(0.66)

Amortization of intangibles

0.09

0.09

0.36

0.36

Stock-based compensation expense

0.13

0.13

0.40

0.40

Aggregate adjustment for income taxes

(0.05)

(0.05)

(0.16)

(0.17)

   Non-GAAP net (loss) per share*

$

(0.08)

$

(0.05)

$

(0.13)

$

(0.06)

GAAP net loss

$

(61)

$

(54)

Interest and other, net

2

2

Income tax benefit

(18)

(16)

Depreciation and amortization

39

39

Stock-based compensation expense

33

33

   Adjusted EBITDA*

$

(4)

$

4

Other Items

Effective tax rate

22

%

Weighted average shares outstanding (in millions)

82.9

Cash flow from operations

$3 to $8

Capital expenditures

$7 to $10

*

Sum of reconciling items may differ from total due to rounding of individual components

Sum of quarterly guidance may differ from full year guidance due to rounding

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