Secureworks Reports Third Quarter Fiscal 2022 Results with 193% Taegis™ ARR Growth and Record Gross Margins

ATLANTA, Dec. 2, 2021 /PRNewswire/ -- Secureworks (NASDAQ: SCWX), a global leader in cybersecurity, today announced financial results for its third quarter, which ended on October 29, 2021.

Key Highlights

• Secureworks Taegis grew to $123 million in annual recurring revenue (ARR), an increase of over 20% sequentially and 193% on a year-over-year basis.
• Ended the third quarter of fiscal 2022 with 800 customers on the Taegis cloud-native security platform.
• Both GAAP and Non-GAAP gross margins rose to record highs, at 60.4% and 63.6%.
• Won Frost & Sullivan's 2021 Best Practices Company of the Year, for the visionary innovation of Taegis XDR and Secureworks' demonstrated commitment to enabling customers with different needs and maturity levels to benefit from an XDR-powered defense.

"The strength of our Taegis cloud-native security platform is generating strong industry validation and positive customer feedback," said Wendy Thomas, CEO, Secureworks. "We continue to be encouraged by customer reception to our business model shift and are proud of the expansion we are seeing with Taegis adoption."

Third Quarter Fiscal 2022 Financial Highlights

• Taegis revenue grew 161% from the third quarter of fiscal 2021 to $23.9 million.
• Overall revenue was $133.7 million, a decrease of 5.6% from the third quarter of fiscal 2021, reflective of our continued shift to higher-margin business.
• GAAP gross margin was 60.4%, compared with 57.9% in the same period last year. Non-GAAP gross margin was 63.6% compared with 60.7% in the third quarter of fiscal 2021.
• GAAP net loss was $12.9 million, or $0.15 per share, compared with $3.6 million, or $0.04 per share, in the prior year. Non-GAAP net income was $1.2 million, or $0.01 per share, compared with net income of $6.7 million, or $0.08 per share, in the same period last year.
• Adjusted EBITDA for the quarter was $4.7 million, compared with $11.3 million in the third quarter of fiscal 2021.
• Ended the third quarter with $205 million in cash and cash equivalents.

"We're pleased with the continued expansion of our Taegis customer base, resulting in Taegis ARR growth of 193% this quarter," said Paul Parrish, Chief Financial Officer, Secureworks. "As we actively shift the company to a higher-margin mix of solutions, GAAP subscription gross profit margins are expanding – up this quarter over 300 bps from last year."

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.)"
• Recognized as a Leader in the "IDC MarketScape: Worldwide Incident Readiness Services 2021 Assessment (doc # US46741420, November 2021.)"
• Winner of Security Current's inaugural CISO Choice Award for Security Analytics recognizing the company for real-world innovation that addresses emerging risks in new and creative ways.
• Winner of CyberSecurity Breakthrough's Cloud Based Network Security Solution of the Year award.
• Released Taegis NGAV next-generation endpoint threat prevention and ManagedXDR Elite to deliver continuous threat hunting with a designated threat hunter.
• Expanded international operations with new cloud instance in Frankfurt, Germany, for European Union (EU) customers and channel partners.

Financial Outlook

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

• Revenue of $128 million to $130 million.
• GAAP net loss per share of $0.24 to $0.23 and net loss per share performance on a non-GAAP basis of $0.09 to $0.07.

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

Conference Call Information

As previously announced, the Company will hold a conference call to discuss its third quarter fiscal 2022 results and financial guidance on Dec. 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 fourth 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)

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)