Secureworks Reports 149% Taegis™ ARR Growth in Connection with First Quarter Fiscal 2023 Results

ATLANTA, June 2, 2022 /PRNewswire/ -- Secureworks (NASDAQ: SCWX), a global leader in cybersecurity, today announced financial results for its first quarter, which ended on April 29, 2022.

• Secureworks Taegis grew to $180 million in annual recurring revenue (ARR), an increase of 149% on a year-over-year basis.
• Added 900 Taegis Customers year-over-year, a 180% increase, to finish the first quarter of fiscal 2023 with 1,400 customers on the Taegis cloud-native security platform.
• Taegis revenue grew 167% from the first quarter of fiscal 2022 to $37.2 million.

"Our customers recognize that Secureworks Taegis future proofs their security program," said Wendy Thomas, President & CEO, Secureworks. "Our customers are investing in Secureworks Taegis as a long-term security solution that can easily evolve with their technology environments and ever-changing adversarial attack tactics and techniques. Taegis' Open XDR architecture was purpose-built to be flexible and enable seamless innovation to ensure our customers achieve their best security outcomes, now and in the future."

"We're pleased with the continued expansion of our Taegis customer base, resulting in Taegis ARR growth of 149% year over year," said Paul Parrish, Chief Financial Officer, Secureworks. "Taegis now comprises nearly 50 percent of Secureworks overall ARR, an important milestone and key inflection point for our business."

• Overall revenue was $121.0 million, compared to $139.5 million in the first quarter of fiscal 2022, as we actively exit non-strategic, lower-margin services.
• GAAP gross profit was $71.6 million, compared with $82.3 million in the first quarter of fiscal 2022. Non-GAAP gross profit was $76.4 million, compared with $86.4 million in the same period last year.
• GAAP gross margin was 59.1%, compared with 59.0% in the same period last year. Non-GAAP gross margin was 63.1% compared with 61.9% in the first quarter of fiscal 2022.
• GAAP net loss was $21.6 million, or $0.26 per share, compared with $6.4 million, or $0.08 per share, in the prior year. Non-GAAP net loss was $7.6 million, or $0.09 per share, compared with $4.0 million net income, or $0.05 earnings per share, in the same period last year.
• Adjusted EBITDA loss for the quarter was $7.8 million, compared with income of $8.1 million in the first quarter of fiscal 2022.
• Ended the first quarter with $186 million in cash and cash equivalents.

• During the first quarter, Secureworks unveiled several new feature enhancements to Taegis, including:
• New Alerts Experience and Custom Dashboards for Taegis XDR. A combination of new and enhanced features enables Security Operation (SecOp) teams to prioritize the most relevant alerts and quickly comprehend threat data through custom dashboards. Security teams can identify threat activity faster and improve incident response capabilities.
• Taegis XDR Detections. Taegis also offers broad and deep threat detection that is powered by the optimum mix of machine learning and deep security expertise, including a new Tactic Graph Engine announced in Q1. This new, patent-pending detection engine allows the Secureworks Counter Threat Unit to codify threat actor behavior patterns more rapidly based on findings from over 1,400 IR engagements performed every year, together with Threat Research activities, and insights gleaned from adversarial testing engagements. Taegis' ability to correlate observations from multiple telemetry sources and security controls at scale, including petabytes of data, allows Tactic Graphs to detect threat actor activity with high precision. Over time, the ability to create new Tactic Graphs will be opened to partners and customers.
• Secureworks published Incident Response 2021: Year in Review, which brings together notable trends in cyber threats and threat actor behavior based on a year of incident response engagements.
• Secureworks continues to be recognized in the industry for its world-class solutions and services built around the Taegis security platform. Recognition and awards in the first quarter of 2022 include: 
• Named a Strong Performer in New Forrester Wave™ on Cybersecurity Incident Response & Readiness, Q1 2022.
• Recognized a Gold Winner for Managed Detection and Response in North America for Cyber Security Excellence Awards for Taegis ManagedXDR.
• Honored as one of the 30 Most Innovative Brands of the Year by Silicon Review.

For the second quarter of fiscal 2023, the Company expects:

• Revenue of $115 million to $117 million.
• GAAP net loss per share of $0.30 to $0.32 and non-GAAP net loss per share of $0.15 to $0.17.

Secureworks is providing the following guidance for full fiscal year 2023. The Company expects:

As previously announced, the Company will hold a conference call to discuss its first quarter fiscal 2023 results and financial guidance on June 2, 2022, 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.

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.

This press release presents information about the Company's 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 the foregoing historical and forward-looking non-GAAP financial measures to the most directly comparable historical and forward-looking GAAP financial measure is provided below for each of the fiscal periods indicated.

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 second quarter of fiscal 2023, and revenue, GAAP net loss, GAAP net loss per share, non-GAAP net loss, non-GAAP net loss per share, adjusted EBITDA, cash from operations, annual recurring revenue and revenue for its Taegis platform, and other MSS ARR for full year fiscal 2023, 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 that include, but are not limited to, the following: 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 or global inflationary environment; the effect of governmental export or import controls on the Company's business or any international sanctions compliance program applicable to the Company; 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, geopolitical conflict and other catastrophic events on the Company's ability to serve its customers, including the Ukrainian/Russian conflict, and 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.

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

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This press release presents information about the Company's 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, non-GAAP earnings 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 and supplement their review of the Company's GAAP results with the corresponding 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 associated with external software development costs capitalized and customer relationships and technology acquired. In connection with the acquisition of Dell by Dell Technologies in fiscal 2014 and our acquisition of Delve in fiscal 2021, our tangible and intangible assets and liabilities associated with customer relationships and technology were accounted for and recognized at fair value on the related transaction date.
• 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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