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

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

 www.secureworks.com

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 Unit™ (CTU™), 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




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)




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




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.

 

 (Tables Follow)

 

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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Disclaimer: The above press release comes to you under an arrangement with PR Newswire. Business Upturn takes no editorial responsibility for the same.

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