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News Summary

  • First quarter revenue of $141.2 million grew 6.3 percent year-over-year, with 25 percent growth year-over-year internationally.
  • 40 percent sequential growth in annual recurring revenue from its Red Cloak™ Threat Detection and Response (TDR) software and Managed Detection and Response (MDR) offerings.
  • Record quarterly incident response revenue, as Secureworks leveraged its resilient workforce to help global customers safely operate in their evolving remote landscapes.
  • Net loss of $0.09 per share and non-GAAP net income per share of $0.03 improved over the first quarter of fiscal 2020.
  • GAAP net loss of $7.5 million in the first quarter of fiscal 2021, down from $8.3 million in the first quarter of fiscal 2020.

ATLANTA–(BUSINESS WIRE)–Secureworks (NASDAQ: SCWX), the essential cybersecurity company for the digitally connected world, today announced financial results for its first fiscal quarter, which ended on May 1, 2020.

First Quarter Fiscal 2021 Financial Results Highlights

  • For the first quarter of fiscal 2021, both GAAP and non-GAAP revenue increased 6.3 percent to $141.2 million from $132.8 million in the first quarter of fiscal 2020.
  • GAAP gross margin increased to 55.4 percent in the first quarter of fiscal 2021, from 52.7 percent in the same period last year. Non-GAAP gross margin increased to 58.1 percent from 55.5 percent in the first quarter of fiscal 2020.
  • GAAP net loss was $7.5 million, or $0.09 per share, in the first quarter of fiscal 2021, down from $8.3 million, or $0.10 per share, in the prior year. Non-GAAP net income was $2.5 million, or $0.03 per share, in the first quarter of fiscal 2021, compared with a non-GAAP net loss of $1.9 million, or $0.02 per share, in the same prior year period.
  • Adjusted EBITDA for the quarter increased to $5.6 million from $0.8 million in the first quarter of fiscal 2020.
  • Secureworks ended the first quarter with $156 million in cash and cash equivalents.

“I’m proud of how we helped customers secure their business landscape while continuing our transformation to a software company with security at its core,” said Michael R. Cote, Chief Executive Officer of Secureworks. “Ultimately, we’re keeping our customers around the world safer, as we successfully transitioned to a remote workforce.”

“We’re pleased with our first quarter fiscal 2021 results and our continued momentum, with a year-over-year reduction in GAAP net loss, and year-over-year improvement in adjusted EBITDA and GAAP and non-GAAP gross margin,” said Paul Parrish, Chief Financial Officer of Secureworks.

Highlights include:

  • During the first quarter of fiscal 2021, differentiated customer value drove continued momentum in the Company’s SaaS-based solutions, with 40 percent sequential growth in annual recurring revenue from its Red Cloak Threat Detection and Response (TDR) software and Managed Detection and Response (MDR) offerings.
  • The Company and its Red Cloak TDR software cloud-native SaaS application earned high marks in the MITRE ATT&CK® Evaluation of 21 vendor solutions conducted by independent cybersecurity authority The MITRE Corporation. Secureworks’ TDR offering performed well across the visibility and detection threat landscape, particularly in its ability to make early threat detections.
  • Secureworks continued to advance its delivery of software-based solutions to customers with new support for VMware Carbon Black Cloud endpoints; a new MDR Manager Dashboard, providing customers with full transparency into how the software is performing on their behalf; advanced search capabilities that now aid customers in threat hunting; nearly 40 additional security telemetry integrations; and expanded security analytics and detectors.
  • The Secureworks team responded to COVID-19 market demands by quickly pivoting to remote delivery methods and a nearly 100 percent remote workforce, continuing to deliver the Company’s products and solutions seamlessly to its worldwide customer base.
  • In response to the global pandemic, Secureworks brought new capabilities – including remote access vulnerability assessment, flexible incident management retainers, and security assessments – to customers.

Conference Call Information

As previously announced, the Company will hold a conference call to discuss its first quarter fiscal 2021 results on June 4, 2020, 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 for one year.

Operating Metrics

Annual Recurring Revenue. The Company defines recurring revenue 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 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,” “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 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 rapidly evolving market in which the Company operates; the Company’s reliance on personnel with extensive information security expertise; fluctuations in the Company’s quarterly results and other operating measures; 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 ability to continue expansion of its sales force; 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 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 effect of adverse legislative or regulatory tax changes or unfavorable outcomes in tax audits and other tax compliance matters; 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; the Company’s recognition of revenue ratably over the terms of its managed security and threat intelligence contracts; estimates or judgments relating to the Company’s critical accounting policies; 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 compliance with the Foreign Corrupt Practices Act and similar laws; the Company’s ability to maintain effective disclosure controls and procedures; 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 technology-driven cybersecurity leader that protects organizations in the digitally connected world. Built on proprietary technologies and world-class threat intelligence, our applications and solutions help prevent, detect and respond to cyber threats. Red Cloak™ software brings advanced threat analytics to thousands of customers, and the Secureworks Counter Threat Platform™ processes more than 300 billion threat events per day. We understand complex security environments and are passionate about simplifying security with Defense in Concert™ so that security becomes a business enabler. More than 4,000 customers across over 50 countries are protected by Secureworks, benefit from our network effect and are Collectively Smarter. Exponentially Safer.™

www.secureworks.com

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SECUREWORKS CORP.

Condensed Consolidated Statements of Operations and Related Financial Highlights

(in thousands, except per share data and percentages)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

May 1, 2020

 

May 3, 2019

Net revenue

 

$

141,181

 

 

$

132,842

 

Cost of revenue

 

62,909

 

 

62,841

 

 

Gross margin

 

78,272

 

 

70,001

 

 

Research and development

 

24,073

 

 

22,642

 

 

Sales and marketing

 

37,452

 

 

38,193

 

 

General and administrative

 

27,516

 

 

23,638

 

 

 

Total operating expenses

 

89,041

 

 

84,473

 

 

Operating loss

 

(10,769

)

 

(14,472

)

Interest and other, net

 

993

 

 

268

 

 

Loss before income taxes

 

(9,776

)

 

(14,204

)

Income tax benefit

 

(2,240

)

 

(5,934

)

 

Net loss

 

$

(7,536

)

 

$

(8,270

)

 

 

 

 

 

Loss per common share (basic and diluted)

 

$

(0.09

)

 

$

(0.10

)

 

 

 

 

 

Weighted-average common shares outstanding (basic and diluted)

 

80,938

 

 

80,467

 

 

 

 

 

 

 

 

 

Percentage of Total Net Revenue

 

 

 

 

Gross margin

 

55.4

%

 

52.7

%

Research and development

 

17.1

%

 

17.0

%

Sales and marketing

 

26.5

%

 

28.8

%

General and administrative

 

19.5

%

 

17.8

%

Operating expenses

 

63.1

%

 

63.6

%

Operating loss

 

(7.6

)%

 

(10.9

)%

Loss before income taxes

 

(6.9

)%

 

(10.7

)%

Net loss

 

(5.3

)%

 

(6.2

)%

Effective tax rate

 

22.9

%

 

41.8

%

 

 

 

 

 

 

 

 

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

SECUREWORKS CORP.

Condensed Consolidated Statements of Financial Position

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

May 1,

2020

 

January 31,

2020

Assets:

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

155,990

 

 

$

181,838

 

 

Accounts receivable, net

 

 

116,791

 

 

111,798

 

 

Inventories, net

 

 

812

 

 

746

 

 

Other current assets

 

 

27,404

 

 

27,449

 

 

 

Total current assets

 

 

300,997

 

 

321,831

 

Property and equipment, net

 

 

24,541

 

 

27,606

 

Operating lease right-of-use assets, net

 

 

22,207

 

 

23,463

 

Goodwill

 

 

416,487

 

 

416,487

 

Intangible assets, net

 

 

173,069

 

 

180,052

 

Other non-current assets

 

 

76,628

 

 

78,592

 

 

 

Total assets

 

 

$

1,013,929

 

 

$

1,048,031

 

Liabilities and Stockholders’ Equity:

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

 

$

26,629

 

 

$

18,690

 

 

Accrued and other

 

 

64,321

 

 

98,855

 

 

Short-term deferred revenue

 

 

175,671

 

 

175,847

 

 

 

Total current liabilities

 

 

266,621

 

 

293,392

 

Long-term deferred revenue

 

 

14,260

 

 

12,690

 

Operating lease liabilities, non-current

 

 

23,246

 

 

24,669

 

Other non-current liabilities

 

 

50,284

 

 

50,400

 

 

 

Total liabilities

 

 

354,411

 

 

381,151

 

Stockholders’ equity

 

 

659,518

 

 

666,880

 

Total liabilities and stockholders’ equity

 

 

$

1,013,929

 

 

$

1,048,031

 

SECUREWORKS CORP.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

 

 

 

 

Three Months Ended

 

 

May 1, 2020

 

May 3, 2019

Cash flows from operating activities:

 

 

 

 

Net loss

 

$

(7,536

)

 

$

(8,270

)

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

 

 

 

 

Depreciation and amortization

 

10,486

 

 

10,365

 

Stock-based compensation expense

 

5,887

 

 

4,916

 

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

 

(856

)

 

70

 

Income tax benefit

 

(2,240

)

 

(5,934

)

Provision for doubtful accounts

 

909

 

 

779

 

Changes in assets and liabilities:

 

 

 

 

Accounts receivable

 

(5,987

)

 

5,221

 

Net transactions with parent

 

2,494

 

 

5,850

 

Inventories

 

(66

)

 

(164

)

Other assets

 

5,267

 

 

2,747

 

Accounts payable

 

8,495

 

 

8,965

 

Deferred revenue

 

1,291

 

 

3,264

 

Accrued and other liabilities

 

(38,481

)

 

(30,834

)

Net cash used in operating activities

 

(20,337

)

 

(3,025

)

Cash flows from investing activities:

 

 

 

 

Capital expenditures

 

(1,020

)

 

(7,016

)

Net cash used in investing activities

 

(1,020

)

 

(7,016

)

Cash flows from financing activities:

 

 

 

 

Taxes paid on vested restricted shares

 

(4,491

)

 

(7,465

)

Purchases of stock for treasury

 

 

 

(910

)

Net cash used in financing activities

 

(4,491

)

 

(8,375

)

Net decrease in cash and cash equivalents

 

(25,848

)

 

(18,416

)

Cash and cash equivalents at beginning of the period

 

181,838

 

 

129,592

 

Cash and cash equivalents at end of the period

 

$

155,990

 

 

$

111,176

 

Non-GAAP Financial Measures

This press release presents information about the Company’s non-GAAP revenue, non-GAAP gross margin, 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 in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” in our periodic reports filed with the SEC. The Company encourages investors to review its GAAP results in conjunction with the presentation of non-GAAP financial measures.

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SECUREWORKS CORP.

Reconciliation of GAAP to Non-GAAP Financial Measures

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

May 1, 2020

 

May 3, 2019

GAAP and non-GAAP revenue

 

$

141,181

 

 

$

132,842

 

 

 

 

 

 

 

 

GAAP gross margin

 

$

78,272

 

 

$

70,001

 

 

Amortization of intangibles

 

3,460

 

 

3,410

 

 

Stock-based compensation expense

 

355

 

 

260

 

 

 

Non-GAAP gross margin

 

$

82,087

 

 

$

73,671

 

 

 

 

 

 

 

 

GAAP research and development expenses

 

$

24,073

 

 

$

22,642

 

 

Stock-based compensation expense

 

(1,291

)

 

(1,176

)

 

 

Non-GAAP research and development expenses

$

22,782

 

 

$

21,466

 

 

 

 

 

 

 

 

GAAP sales and marketing expenses

 

$

37,452

 

 

$

38,193

 

 

Stock-based compensation expense

 

(741

)

 

(781

)

 

 

Non-GAAP sales and marketing expenses

 

$

36,711

 

 

$

37,412

 

 

 

 

 

 

 

 

GAAP general and administrative expenses

 

$

27,516

 

 

$

23,638

 

 

Amortization of intangibles

 

(3,524

)

 

(3,524

)

 

Stock-based compensation expense

 

(3,500

)

 

(2,699

)

 

 

Non-GAAP general and administrative expenses

$

20,492

 

 

$

17,415

 

 

 

 

 

 

 

 

GAAP operating loss

 

$

(10,769

)

 

$

(14,472

)

 

Amortization of intangibles

 

6,984

 

 

6,934

 

 

Stock-based compensation expense

 

5,887

 

 

4,916

 

 

 

Non-GAAP operating income (loss)

 

$

2,102

 

 

$

(2,622

)

 

 

 

 

 

 

 

GAAP net loss

 

$

(7,536

)

 

$

(8,270

)

 

Amortization of intangibles

 

6,984

 

 

6,934

 

 

Stock-based compensation expense

 

5,887

 

 

4,916

 

 

Aggregate adjustment for income taxes

 

(2,803

)

 

(5,467

)

 

 

Non-GAAP net income (loss)

 

$

2,532

 

 

$

(1,887

)

 

 

 

 

 

 

 

GAAP loss per share

 

$

(0.09

)

 

$

(0.10

)

 

Amortization of intangibles

 

0.09

 

 

0.09

 

 

Stock-based compensation expense

 

0.07

 

 

0.06

 

 

Aggregate adjustment for income taxes

 

(0.03

)

 

(0.07

)

 

 

Non-GAAP earnings (loss) per share *

 

$

0.03

 

 

$

(0.02

)

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

GAAP net loss

 

$

(7,536

)

 

$

(8,270

)

 

Interest and other, net

 

(993

)

 

(268

)

 

Income tax benefit

 

(2,240

)

 

(5,934

)

 

Depreciation and amortization

 

10,486

 

 

10,365

 

 

Stock-based compensation expense

 

5,887

 

 

4,916

 

 

 

Adjusted EBITDA

 

$

5,604

 

 

$

809

 

SECUREWORKS CORP.

Reconciliation of GAAP to Non-GAAP Financial Measures

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

Percentage of Total Net Revenue

 

May 1, 2020

 

May 3, 2019

 

 

 

 

 

GAAP gross margin

 

55.4

%

 

52.7

%

 

Non-GAAP adjustment

 

2.7

%

 

2.8

%

Non-GAAP gross margin

 

58.1

%

 

55.5

%

 

 

 

 

 

 

 

GAAP research and development expenses

 

17.1

%

 

17.0

%

 

Non-GAAP adjustment

 

(1.0

)%

 

(0.8

)%

Non-GAAP research and development expenses

 

16.1

%

 

16.2

%

 

 

 

 

 

 

 

GAAP sales and marketing expenses

 

26.5

%

 

28.8

%

 

Non-GAAP adjustment

 

(0.5

)%

 

(0.6

)%

Non-GAAP sales and marketing expenses

 

26.0

%

 

28.2

%

 

 

 

 

 

 

 

GAAP general and administrative expenses

 

19.5

%

 

17.8

%

 

Non-GAAP adjustment

 

(5.0

)%

 

(4.7

)%

Non-GAAP general and administrative expenses

 

14.5

%

 

13.1

%

 

 

 

 

 

 

 

GAAP operating loss

 

(7.6

)%

 

(10.9

)%

 

Non-GAAP adjustment

 

9.1

%

 

8.9

%

Non-GAAP operating income (loss)

 

1.5

%

 

(2.0

)%

 

 

 

 

 

 

 

GAAP net loss

 

(5.3

)%

 

(6.2

)%

 

Non-GAAP adjustment

 

7.1

%

 

4.8

%

Non-GAAP net income (loss)

 

1.8

%

 

(1.4

)%

 

Contacts

Investor Inquiries:
Richie Downum

Investor Relations Director

404-235-1021

rdownum@secureworks.com

Media Inquiries:
Doreen Kelly Ruyak

Corporate Communications

202-744-9767

druyak@secureworks.com

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