[September 06, 2017] |
|
SecureWorks Reports Second Quarter Fiscal 2018 Results
SecureWorks (NASDAQ: SCWX), a leading provider of intelligence-driven
information security solutions, today announced financial results for
its second quarter of fiscal 2018, which ended August 4, 2017.
"We delivered solid performance this quarter driven by double-digit
revenue growth, continued gross margin expansion, a narrowing of our net
loss and strong operating cash flow," said Michael R. Cote, Chief
Executive Officer of SecureWorks. "Our solutions unlock the value of our
clients' cybersecurity investments, simplify their complex security
operations and amplify their defenses by protecting components of their
security ecosystem. Looking ahead, we remain confident in our position
as a leader in the estimated $20 billion global managed security
services market1 and in our ability to improve sales momentum
as the changes we made to our sales organization take hold in the second
half of the fiscal year."
Business and operational highlights for the second quarter of fiscal
2018 include the following:
-
SecureWorks was noted as a Leader in the recent IDC MarketScape:
Worldwide Managed Security Service 2017 Vendor Assessment report for
"threat intelligence and advanced threat detection services that are
highly sophisticated" and "Customer feedback [which] included praise
for SecureWorks' portal improvements, for the breadth of reports, and
for the flexibility of services."2
-
The Company began bundling its Red Cloak® agent with Server
Monitoring, thereby providing advanced analytics to significantly
enhance visibility into potential threats, and dramatically improving
our clients' security posture through threat detection and response.
This added functionality, which allows SecureWorks to gather
additional security-specific telemetry, is available for both
on-premises and AWS cloud servers that operate on the Windows platform.
-
Shortly after the end of the second quarter, the Company joined forces
with Carbon Black to deliver managed Advanced Endpoint Threat
Prevention (AETP). This fully managed service features strong endpoint
threat prevention via Cb Defense, a powerful Next-Generation Antivirus
(NGAV) product. SecureWorks Threat Intelligence, backed by its
advanced analyst team and built on the Counter Threat Platform™, adds
context and actionable intelligence to help clients understand and
respond to threats faster. Preventing threats and quickly identifying
those that cannot be prevented are key factors in reducing business
risk and the cost of a breach for clients.
-
The company has expanded its program to orchestrate threat prevention
to include certain products from Palo Alto Networks®, Cisco Systems®
and Juniper Networks® as a part of the SecureWorks managed solution
portfolio. This solution delivers SecureWorks' proprietary
intelligence to market-leading network security control points,
providing proactive protection from emerging threats.
-
At this year's annual Black Hat conference, SecureWorks' Counter
Threat Unit released a new threat analysis detailing an intricate,
year-long cyber-espionage campaign which used targeted spearphishing
and social engineering. By combining robust threat intelligence with
its powerful technology, SecureWorks alerted its clients to this
campaign in early 2017.
-
The Company teamed up with the National Health Information Sharing and
Analysis Center (NH-ISAC) to provide critical cybersecurity services
to its member organizations as part the NH-ISAC's CYBERFIT® services.
____________________
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1
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Source: Frost & Sullivan estimates the global managed security
services market will grow an average of 16 percent over the next
four years, reaching approximately $20 billion by 2020.
|
2
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|
Source: "IDC MarketScape: Worldwide Managed Security Services 2017
Vendor Assessment." Doc # US41320917, Aug 2017
|
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Second Quarter Fiscal 2018 Financial Results Highlights
-
Revenue increased 12.0 percent to $116.1 million from $103.7 million
in the second quarter of fiscal 2017. Non-GAAP revenue increased 11.9
percent to $116.3 million from $103.9 million in the second quarter of
fiscal 2017.
-
Gross margin was 51.5 percent, up from 49.0 percent in the second
quarter of fiscal 2017. Non-GAAP gross margin increased to 54.7
percent from 52.6 percent in the second quarter of fiscal 2017. The
increase in GAAP and non-GAAP gross margins was mainly driven by
efficiencies as the Company continues to leverage its global service
delivery model and improve its technology and processes.
-
Operating loss was $18.7 million compared to $20.0 million in the
second quarter of fiscal 2017; non-GAAP operating loss was $7.8
million compared to $9.6 million in the second quarter of last year.
-
Net loss was $12.1 million, or $0.15 per share, compared to a net loss
of $12.1 million, or $0.15 per share, in the second quarter of fiscal
2017. Non-GAAP net loss was $5.4 million, or $0.07 per share, compared
to a non-GAAP net loss of $5.6 million, or $0.07 per share, in the
second quarter of fiscal 2017.
-
Adjusted EBITDA loss was $4.6 million, compared to an adjusted EBITDA
loss of $7.0 million in the second quarter of fiscal 2017.
-
Cash used by operating activities for the six months ended August 4,
2017 was $8.4 million and cash provided by operating activities in
second quarter of fiscal 2018 was $11.2 million.
-
The number of weighted average shares outstanding during the second
quarter was approximately 80.353 million.
-
Monthly recurring revenue as of August 4, 2017 increased 8.4 percent
to $32.3 million from $29.8 million as of July 29, 2016. The Company's
monthly recurring revenue metric represents the monthly value of its
subscription contracts, including operational backlog, as of period
end.
Third Quarter and Full Fiscal Year 2018 Guidance
Based on current market conditions, second quarter performance and the
continued investment in its sales organization, the Company expects the
following results for the third quarter ending on November 3, 2017 and
the full fiscal year ending on February 2, 2018:
For the third quarter, the Company expects:
-
Revenue to be in the range of $115 to $116 million on both a GAAP and
non-GAAP basis.
-
Net loss per share to be in the range of $0.17 to $0.19 and non-GAAP
net loss per share to be in the range of $0.09 to $0.10.
-
Approximately 80.362 million weighted average shares to be outstanding
during the third quarter of fiscal 2018.
For fiscal year 2018, the Company now expects the following results,
updating previously announced full year guidance:
-
Revenue to be in the range of $462 to $465 million and non-GAAP
revenue to be in the range of $463 to $466 million.
-
Net loss to be in the range of $52 to $54 million and adjusted EBITDA
loss to be in the range of $21 to $25 million.
-
Net loss per share to be in the range of $0.65 to $0.68 and non-GAAP
net loss per share to be in the range of $0.29 to $0.32.
In addition, the Company affirmed the following previously provided
guidance:
-
Monthly recurring revenue to be in the range of $34.4 to $36.4 million
at the end of the fourth quarter of fiscal 2018.
-
Approximately 80.286 million weighted average shares to be outstanding
during fiscal year 2018.
-
Capital expenditures to be approximately $18 to $20 million.
Conference Call Information
As previously announced, the Company will hold a conference call to
discuss its second quarter performance and outlook for its third quarter
and full fiscal year 2018 on September 6, 2017, at 8:00 a.m. ET. A live
audio webcast of the conference call will be accessible on the company's
website at http://investors.secureworks.com.
The webcast will be archived at the same location for one year.
Non-GAAP Financial Measures
The 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 loss, non-GAAP net loss,
non-GAAP net 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
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.
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 concerning its GAAP and non-GAAP revenue and GAAP and
non-GAAP net loss per share for the third quarter of fiscal 2018 and for
full year fiscal 2018, net loss and adjusted EBITDA loss for full year
fiscal 2018, capital expenditures for full year fiscal 2018, weighted
average shares outstanding during the third quarter of fiscal 2018 and
full year fiscal 2018, and monthly recurring revenue at the end of the
fourth quarter of fiscal 2018, 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:
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 clients, retain existing clients and increase its annual contract
values; the Company's reliance on its largest client and on clients 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; the Company's service level
agreements with clients requiring 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
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 ability of the Company's
solutions to interoperate with its clients' 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; the effect of
timing differences between the expensing of sales commissions paid to
the Company's strategic and distribution partners and the recognition of
associated revenues; 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 and other catastrophic events on the Company's ability
to serve its clients; 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 for the fiscal year ended
February 3, 2017, 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 leading global cybersecurity company
that keeps organizations safe in a digitally connected world. We combine
visibility from thousands of clients, artificial intelligence and
automation from our industry-leading SecureWorks Counter Threat
Platform™, and actionable insights from our team of elite researchers
and analysts to create a powerful network effect that provides
increasingly strong protection for our clients. By aggregating and
analyzing data from any source, anywhere, we prevent security breaches,
detect malicious activity in real time, respond rapidly to incidents,
and predict emerging threats. We offer our clients a cyber-defense that
is Collectively Smarter. Exponentially Safer.™ www.secureworks.com
(Tables Follow)
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|
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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
|
|
|
Six Months Ended
|
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net revenue
|
|
|
$
|
116,123
|
|
|
|
$
|
103,653
|
|
|
|
$
|
229,716
|
|
|
|
$
|
203,446
|
|
|
Cost of revenue
|
|
|
|
56,325
|
|
|
|
|
52,907
|
|
|
|
|
110,267
|
|
|
|
|
102,756
|
|
|
Gross margin
|
|
|
|
59,798
|
|
|
|
|
50,746
|
|
|
|
|
119,449
|
|
|
|
|
100,690
|
|
|
Research and development
|
|
|
|
19,693
|
|
|
|
|
17,373
|
|
|
|
|
39,172
|
|
|
|
|
34,970
|
|
|
Sales and marketing
|
|
|
|
37,620
|
|
|
|
|
31,820
|
|
|
|
|
74,789
|
|
|
|
|
62,082
|
|
|
General and administrative
|
|
|
|
21,138
|
|
|
|
|
21,600
|
|
|
|
|
44,542
|
|
|
|
|
42,685
|
|
|
Total operating expenses
|
|
|
|
78,451
|
|
|
|
|
70,793
|
|
|
|
|
158,503
|
|
|
|
|
139,737
|
|
|
Operating loss
|
|
|
|
(18,653
|
)
|
|
|
|
(20,047
|
)
|
|
|
|
(39,054
|
)
|
|
|
|
(39,047
|
)
|
|
Interest and other, net
|
|
|
|
(425
|
)
|
|
|
|
851
|
|
|
|
|
(1,074
|
)
|
|
|
|
1,216
|
|
|
Loss before income taxes
|
|
|
|
(19,078
|
)
|
|
|
|
(19,196
|
)
|
|
|
|
(40,128
|
)
|
|
|
|
(37,831
|
)
|
|
Income tax benefit
|
|
|
|
(6,960
|
)
|
|
|
|
(7,145
|
)
|
|
|
|
(13,774
|
)
|
|
|
|
(14,153
|
)
|
|
Net loss
|
|
|
$
|
(12,118
|
)
|
|
|
$
|
(12,051
|
)
|
|
|
$
|
(26,354
|
)
|
|
|
$
|
(23,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share (basic and diluted)
|
|
|
$
|
(0.15
|
)
|
|
|
$
|
(0.15
|
)
|
|
|
$
|
(0.33
|
)
|
|
|
$
|
(0.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding (basic and diluted)
|
|
|
|
80,353
|
|
|
|
|
80,009
|
|
|
|
|
80,205
|
|
|
|
|
75,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total Net Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
51.5
|
%
|
|
|
|
49.0
|
%
|
|
|
|
52.0
|
%
|
|
|
|
49.5
|
%
|
|
Research and development
|
|
|
|
17.0
|
%
|
|
|
|
16.8
|
%
|
|
|
|
17.1
|
%
|
|
|
|
17.2
|
%
|
|
Sales and marketing
|
|
|
|
32.4
|
%
|
|
|
|
30.7
|
%
|
|
|
|
32.6
|
%
|
|
|
|
30.5
|
%
|
|
General and administrative
|
|
|
|
18.2
|
%
|
|
|
|
20.8
|
%
|
|
|
|
19.4
|
%
|
|
|
|
21.0
|
%
|
|
Operating expenses
|
|
|
|
67.6
|
%
|
|
|
|
68.3
|
%
|
|
|
|
69.0
|
%
|
|
|
|
68.7
|
%
|
|
Operating loss
|
|
|
|
(16.1
|
%)
|
|
|
|
(19.3
|
%)
|
|
|
|
(17.0
|
%)
|
|
|
|
(19.2
|
%)
|
|
Loss before income taxes
|
|
|
|
(16.4
|
%)
|
|
|
|
(18.5
|
%)
|
|
|
|
(17.5
|
%)
|
|
|
|
(18.6
|
%)
|
|
Net loss
|
|
|
|
(10.4
|
%)
|
|
|
|
(11.6
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%)
|
|
|
|
(11.5
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%)
|
|
|
|
(11.6
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%)
|
|
Effective tax rate
|
|
|
|
36.5
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%
|
|
|
|
37.2
|
%
|
|
|
|
34.3
|
%
|
|
|
|
37.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Percentage growth rates are calculated based on underlying
data in thousands
|
|
|
|
|
|
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SECUREWORKS CORP.
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Condensed Consolidated Statements of Financial Position
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(in thousands)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
August 4,
|
|
|
February 3,
|
|
|
|
2017
|
|
|
2017
|
Assets:
|
|
|
|
|
|
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Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
97,780
|
|
|
$
|
116,595
|
Accounts receivable, net
|
|
|
|
122,664
|
|
|
|
113,546
|
Inventories, net
|
|
|
|
1,170
|
|
|
|
1,947
|
Other current assets
|
|
|
|
51,004
|
|
|
|
51,947
|
Total current assets
|
|
|
|
272,618
|
|
|
|
284,035
|
Property and equipment, net
|
|
|
|
32,779
|
|
|
|
31,153
|
Goodwill
|
|
|
|
416,487
|
|
|
|
416,487
|
Purchased Intangible assets, net
|
|
|
|
248,053
|
|
|
|
261,921
|
Other non-current assets
|
|
|
|
6,091
|
|
|
|
5,704
|
Total assets
|
|
|
$
|
976,028
|
|
|
$
|
999,300
|
Liabilities and Stockholders' Equity:
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
|
$
|
23,847
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|
|
$
|
24,119
|
Accrued and other
|
|
|
|
56,287
|
|
|
|
59,704
|
Short-term deferred revenue
|
|
|
|
133,811
|
|
|
|
119,909
|
Total current liabilities
|
|
|
|
213,945
|
|
|
|
203,732
|
Long-term deferred revenue
|
|
|
|
14,644
|
|
|
|
14,752
|
Other non-current liabilities
|
|
|
|
74,993
|
|
|
|
89,392
|
Total liabilities
|
|
|
|
303,582
|
|
|
|
307,876
|
Stockholders' equity
|
|
|
|
672,446
|
|
|
|
691,424
|
Total liabilities and stockholders' equity
|
|
|
$
|
976,028
|
|
|
$
|
999,300
|
|
|
|
|
|
|
|
|
|
|
SECUREWORKS CORP.
|
Condensed Consolidated Statements of Cash Flows
|
(in thousands)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2017
|
|
|
2016
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
|
$
|
(26,354
|
)
|
|
|
$
|
(23,678
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
20,666
|
|
|
|
|
19,422
|
|
Change in fair value of convertible notes
|
|
|
|
-
|
|
|
|
|
132
|
|
Stock-based compensation expense
|
|
|
|
7,158
|
|
|
|
|
3,365
|
|
Effects of exchange rate changes on monetary assets and
liabilities denominated in foreign currencies
|
|
|
|
1,456
|
|
|
|
|
(1,129
|
)
|
Income tax benefit
|
|
|
|
(15,098
|
)
|
|
|
|
(14,153
|
)
|
Provision for doubtful accounts
|
|
|
|
2,591
|
|
|
|
|
1,340
|
|
Excess tax benefit from share-based payments
|
|
|
|
-
|
|
|
|
|
(221
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
(12,491
|
)
|
|
|
|
15,388
|
|
Net transactions with parent
|
|
|
|
7,653
|
|
|
|
|
(21,032
|
)
|
Inventories
|
|
|
|
778
|
|
|
|
|
25
|
|
Other assets
|
|
|
|
606
|
|
|
|
|
109
|
|
Accounts payable
|
|
|
|
(269
|
)
|
|
|
|
4,720
|
|
Deferred revenue
|
|
|
|
13,819
|
|
|
|
|
2,651
|
|
Accrued and other liabilities
|
|
|
|
(8,930
|
)
|
|
|
|
(8,519
|
)
|
Net cash used in operating activities
|
|
|
|
(8,415
|
)
|
|
|
|
(21,580
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
(8,376
|
)
|
|
|
|
(7,930
|
)
|
Net cash used in investing activities
|
|
|
|
(8,376
|
)
|
|
|
|
(7,930
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Proceeds from IPO, net
|
|
|
|
-
|
|
|
|
|
99,604
|
|
Capital contribution from parent, net
|
|
|
|
-
|
|
|
|
|
9,547
|
|
Excess tax benefit from share-based payment
|
|
|
|
-
|
|
|
|
|
221
|
|
Principal payments on financing arrangement with Dell Financial
Services
|
|
|
|
(800
|
)
|
|
|
|
-
|
|
Taxes paid on vested restricted shares
|
|
|
|
(1,224
|
)
|
|
|
|
-
|
|
Net cash (used in) provided by financing activities
|
|
|
|
(2,024
|
)
|
|
|
|
109,372
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
|
(18,815
|
)
|
|
|
|
79,862
|
|
Cash and cash equivalents at beginning of the period
|
|
|
|
116,595
|
|
|
|
|
33,422
|
|
Cash and cash equivalents at end of the period
|
|
|
$
|
97,780
|
|
|
|
$
|
113,284
|
|
|
|
|
|
|
|
|
|
|
|
|
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 loss, non-GAAP net loss,
non-GAAP net loss per share and adjusted EBITDA, which are non-GAAP
financial measures provided as a supplement to the results provided in
accordance with GAAP. The Company believes these non-GAAP financial
measures provide useful information to help evaluate its operating
results by facilitating an enhanced understanding of its operating
performance and enabling more meaningful period-to-period comparisons.
There are limitations to the use of the non-GAAP financial measures
presented in the press release. These non-GAAP financial measures may
not be comparable to similarly titled measures of other companies. Other
companies, including companies in SecureWorks' industry, may calculate
non-GAAP financial measures differently than the Company does, limiting
the usefulness of those measures for comparative purposes.
A reconciliation of each non-GAAP financial measure to the most directly
comparable GAAP financial measure is provided below for each of the
periods indicated. Investors are encouraged to review the
reconciliations in conjunction with the presentation of the non-GAAP
financial measures for each of the periods presented. In future fiscal
periods, the Company may exclude such items and may incur income and
expenses similar to these excluded items. Accordingly, the exclusion of
these items and other similar items in this non-GAAP presentation should
not be interpreted as implying that these items are non-recurring,
infrequent or unusual.
The Company excludes the following items from one or more of its
non-GAAP financial measures:
Impact of purchase accounting. The impact of purchase accounting
consists primarily of purchase accounting adjustments related to a
change in the basis of deferred revenue for the going-private
transaction of Dell Inc. ("Dell"), an indirect parent of the Company,
that was completed on October 29, 2013. The Company believes it is
useful to exclude such purchase accounting adjustments related to the
foregoing transactions as this deferred revenue generally results from
multi-year service contracts under which deferred revenue is established
upon sale and revenue is recognized over the term of the contract.
Pursuant to the fair value provisions applicable to the accounting for
business combinations, GAAP requires this deferred revenue to be
recorded at its fair value, which is typically less than the book value.
In presenting non-GAAP earnings, the Company adds back the reduction in
revenue that results from this revaluation on the expectation that a
significant majority of these service contracts will be renewed in the
future and therefore the revaluation is not helpful in predicting its
ongoing revenue trends. The Company believes that this non-GAAP
financial adjustment is useful to investors because it allows investors
to (1) evaluate the effectiveness of the methodology and information
used by management in its financial and operational decision-making, and
(2) compare past and future reports of SecureWorks' financial results,
as the revenue reduction related to acquired deferred revenue will not
recur when related service contracts are renewed in future periods.
Amortization of intangible assets. Amortization of intangible
assets consists of amortization of customer relationships and acquired
technology. In connection with Dell's going-private transaction, all of
the Company's tangible and intangible assets and liabilities were
accounted for and recognized at fair value on the transaction date.
Accordingly, for periods after October 29, 2013, amortization of
intangible assets consists of amortization associated with intangible
assets recognized in connection with Dell's going-private transaction.
Stock-based compensation. Non-cash stock-based compensation
relates to awards under both the Dell Technologies and SecureWorks
equity plans. We exclude such expenses when assessing the effectiveness
of our operating performance since they do not necessarily correlate
with the underlying operating performance of the business.
Other expenses. Other expenses include professional fees incurred
by the Company in connection with the Company's initial public offering
and amounts expensed in the settlement of a legal matter. The Company
excludes these expenses for the purpose of calculating the non-GAAP
financial measures because it believes these items are outside the
ordinary course of business and do not contribute to a meaningful
evaluation of its current operating performance or comparisons to its
past operating performance.
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.
As the excluded items can have a material impact on earnings, management
compensates for this limitation by relying primarily on GAAP results and
using non-GAAP financial measures supplementally. The non-GAAP financial
measures are not meant to be considered as indicators of performance in
isolation from or as a substitute for revenue, gross margin, research
and development expenses, sales and marketing expenses, general and
administrative expenses, operating loss or net loss prepared in
accordance with GAAP, and should be read only in conjunction with
financial information presented on a GAAP basis.
(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
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
GAAP revenue
|
|
|
$
|
116,123
|
|
|
|
$
|
103,653
|
|
|
|
$
|
229,716
|
|
|
|
$
|
203,446
|
|
Impact of purchase accounting
|
|
|
|
146
|
|
|
|
|
221
|
|
|
|
|
292
|
|
|
|
|
442
|
|
Non-GAAP revenue
|
|
|
$
|
116,269
|
|
|
|
$
|
103,874
|
|
|
|
$
|
230,008
|
|
|
|
$
|
203,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP gross margin
|
|
|
$
|
59,798
|
|
|
|
$
|
50,746
|
|
|
|
$
|
119,449
|
|
|
|
$
|
100,690
|
|
Amortization of intangibles
|
|
|
|
3,411
|
|
|
|
|
3,411
|
|
|
|
|
6,821
|
|
|
|
|
6,821
|
|
Impact of purchase accounting
|
|
|
|
156
|
|
|
|
|
356
|
|
|
|
|
312
|
|
|
|
|
617
|
|
Stock-based compensation expense
|
|
|
|
217
|
|
|
|
|
156
|
|
|
|
|
441
|
|
|
|
|
175
|
|
Non-GAAP gross margin
|
|
|
$
|
63,582
|
|
|
|
$
|
54,669
|
|
|
|
$
|
127,023
|
|
|
|
$
|
108,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP research and development expenses
|
|
|
$
|
19,693
|
|
|
|
$
|
17,373
|
|
|
|
$
|
39,172
|
|
|
|
$
|
34,970
|
|
Stock-based compensation expense
|
|
|
|
(759
|
)
|
|
|
|
(688
|
)
|
|
|
|
(1,573
|
)
|
|
|
|
(770
|
)
|
Non-GAAP research and development expenses
|
|
|
$
|
18,934
|
|
|
|
$
|
16,685
|
|
|
|
$
|
37,599
|
|
|
|
$
|
34,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP sales and marketing expenses
|
|
|
$
|
37,620
|
|
|
|
$
|
31,820
|
|
|
|
$
|
74,789
|
|
|
|
$
|
62,082
|
|
Stock-based compensation expense
|
|
|
|
(411
|
)
|
|
|
|
(362
|
)
|
|
|
|
(625
|
)
|
|
|
|
(405
|
)
|
Non-GAAP sales and marketing expenses
|
|
|
$
|
37,209
|
|
|
|
$
|
31,458
|
|
|
|
$
|
74,164
|
|
|
|
$
|
61,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP general and administrative expenses
|
|
|
$
|
21,138
|
|
|
|
$
|
21,600
|
|
|
|
$
|
44,542
|
|
|
|
$
|
42,685
|
|
Amortization of intangibles
|
|
|
|
(3,523
|
)
|
|
|
|
(3,523
|
)
|
|
|
|
(7,047
|
)
|
|
|
|
(7,047
|
)
|
Impact of purchase accounting
|
|
|
|
(256
|
)
|
|
|
|
(177
|
)
|
|
|
|
(512
|
)
|
|
|
|
(406
|
)
|
Stock-based compensation expense
|
|
|
|
(2,143
|
)
|
|
|
|
(1,799
|
)
|
|
|
|
(4,519
|
)
|
|
|
|
(2,015
|
)
|
Other
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
(1,164
|
)
|
Non-GAAP general and administrative expenses
|
|
|
$
|
15,216
|
|
|
|
$
|
16,101
|
|
|
|
$
|
32,464
|
|
|
|
$
|
32,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating loss
|
|
|
$
|
(18,653
|
)
|
|
|
$
|
(20,047
|
)
|
|
|
$
|
(39,054
|
)
|
|
|
$
|
(39,047
|
)
|
Amortization of intangibles
|
|
|
|
6,934
|
|
|
|
|
6,934
|
|
|
|
|
13,868
|
|
|
|
|
13,868
|
|
Impact of purchase accounting
|
|
|
|
412
|
|
|
|
|
533
|
|
|
|
|
824
|
|
|
|
|
1,023
|
|
Stock-based compensation expense
|
|
|
|
3,530
|
|
|
|
|
3,005
|
|
|
|
|
7,158
|
|
|
|
|
3,365
|
|
Other
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
1,164
|
|
Non-GAAP operating loss
|
|
|
$
|
(7,777
|
)
|
|
|
$
|
(9,575
|
)
|
|
|
$
|
(17,204
|
)
|
|
|
$
|
(19,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net loss
|
|
|
$
|
(12,118
|
)
|
|
|
$
|
(12,051
|
)
|
|
|
$
|
(26,354
|
)
|
|
|
$
|
(23,678
|
)
|
Amortization of intangibles
|
|
|
|
6,934
|
|
|
|
|
6,934
|
|
|
|
|
13,868
|
|
|
|
|
13,868
|
|
Impact of purchase accounting
|
|
|
|
412
|
|
|
|
|
533
|
|
|
|
|
824
|
|
|
|
|
1,023
|
|
Stock-based compensation expense
|
|
|
|
3,530
|
|
|
|
|
3,005
|
|
|
|
|
7,158
|
|
|
|
|
3,365
|
|
Other
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
1,164
|
|
Aggregate adjustment for income taxes
|
|
|
|
(4,122
|
)
|
|
|
|
(3,997
|
)
|
|
|
|
(7,356
|
)
|
|
|
|
(7,419
|
)
|
Non-GAAP net loss
|
|
|
$
|
(5,364
|
)
|
|
|
$
|
(5,576
|
)
|
|
|
$
|
(11,860
|
)
|
|
|
$
|
(11,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net loss per share
|
|
|
$
|
(0.15
|
)
|
|
|
$
|
(0.15
|
)
|
|
|
$
|
(0.33
|
)
|
|
|
$
|
(0.31
|
)
|
Amortization of intangibles
|
|
|
|
0.09
|
|
|
|
|
0.09
|
|
|
|
|
0.17
|
|
|
|
|
0.18
|
|
Impact of purchase accounting
|
|
|
|
0.01
|
|
|
|
|
0.01
|
|
|
|
|
0.01
|
|
|
|
|
0.01
|
|
Stock-based compensation expense
|
|
|
|
0.04
|
|
|
|
|
0.04
|
|
|
|
|
0.09
|
|
|
|
|
0.04
|
|
Other
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
0.02
|
|
Aggregate adjustment for income taxes
|
|
|
|
(0.05
|
)
|
|
|
|
(0.06
|
)
|
|
|
|
(0.09
|
)
|
|
|
|
(0.10
|
)
|
Non-GAAP net income loss per share *
|
|
|
$
|
(0.07
|
)
|
|
|
$
|
(0.07
|
)
|
|
|
$
|
(0.15
|
)
|
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Sum of reconciling items may differ from total due to rounding
of individual components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net loss
|
|
|
$
|
(12,118
|
)
|
|
|
$
|
(12,051
|
)
|
|
|
$
|
(26,354
|
)
|
|
|
$
|
(23,678
|
)
|
Interest and other, net
|
|
|
|
425
|
|
|
|
|
(851
|
)
|
|
|
|
1,074
|
|
|
|
|
(1,216
|
)
|
Income tax benefit
|
|
|
|
(6,960
|
)
|
|
|
|
(7,145
|
)
|
|
|
|
(13,774
|
)
|
|
|
|
(14,153
|
)
|
Depreciation and amortization
|
|
|
|
10,405
|
|
|
|
|
9,796
|
|
|
|
|
20,666
|
|
|
|
|
19,422
|
|
Stock-based compensation expense
|
|
|
|
3,530
|
|
|
|
|
3,005
|
|
|
|
|
7,158
|
|
|
|
|
3,365
|
|
Impact of purchase accounting
|
|
|
|
146
|
|
|
|
|
221
|
|
|
|
|
292
|
|
|
|
|
442
|
|
Other
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
1,164
|
|
Adjusted EBITDA
|
|
|
$
|
(4,572
|
)
|
|
|
$
|
(7,025
|
)
|
|
|
$
|
(10,938
|
)
|
|
|
$
|
(14,654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECUREWORKS CORP.
|
Reconciliation of GAAP to Non-GAAP Financial Measures
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
August 4,
|
|
|
July 29,
|
|
|
August 4,
|
|
|
July 29,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
Percentage of Total Net Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP gross margin
|
|
|
51.5
|
%
|
|
|
49.0
|
%
|
|
|
52.0
|
%
|
|
|
49.5
|
%
|
Non-GAAP adjustment
|
|
|
3.2
|
%
|
|
|
3.6
|
%
|
|
|
3.2
|
%
|
|
|
3.6
|
%
|
Non-GAAP gross margin
|
|
|
54.7
|
%
|
|
|
52.6
|
%
|
|
|
55.2
|
%
|
|
|
53.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP research and development expenses
|
|
|
17.0
|
%
|
|
|
16.8
|
%
|
|
|
17.1
|
%
|
|
|
17.2
|
%
|
Non-GAAP adjustment
|
|
|
(0.7
|
%)
|
|
|
(0.7
|
%)
|
|
|
(0.8
|
%)
|
|
|
(0.4
|
%)
|
Non-GAAP research and development expenses
|
|
|
16.3
|
%
|
|
|
16.1
|
%
|
|
|
16.3
|
%
|
|
|
16.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP sales and marketing expenses
|
|
|
32.4
|
%
|
|
|
30.7
|
%
|
|
|
32.6
|
%
|
|
|
30.5
|
%
|
Non-GAAP adjustment
|
|
|
(0.4
|
%)
|
|
|
(0.4
|
%)
|
|
|
(0.4
|
%)
|
|
|
(0.2
|
%)
|
Non-GAAP sales and marketing expenses
|
|
|
32.0
|
%
|
|
|
30.3
|
%
|
|
|
32.2
|
%
|
|
|
30.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP general and administrative expenses
|
|
|
18.2
|
%
|
|
|
20.8
|
%
|
|
|
19.4
|
%
|
|
|
21.0
|
%
|
Non-GAAP adjustment
|
|
|
(5.1
|
%)
|
|
|
(5.3
|
%)
|
|
|
(5.3
|
%)
|
|
|
(5.3
|
%)
|
Non-GAAP general and administrative expenses
|
|
|
13.1
|
%
|
|
|
15.5
|
%
|
|
|
14.1
|
%
|
|
|
15.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating loss
|
|
|
(16.1
|
%)
|
|
|
(19.3
|
%)
|
|
|
(17.0
|
%)
|
|
|
(19.2
|
%)
|
Non-GAAP adjustment
|
|
|
9.4
|
%
|
|
|
10.1
|
%
|
|
|
9.5
|
%
|
|
|
9.6
|
%
|
Non-GAAP operating loss
|
|
|
(6.7
|
%)
|
|
|
(9.2
|
%)
|
|
|
(7.5
|
%)
|
|
|
(9.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net loss
|
|
|
(10.4
|
%)
|
|
|
(11.6
|
%)
|
|
|
(11.5
|
%)
|
|
|
(11.6
|
%)
|
Non-GAAP adjustment
|
|
|
5.8
|
%
|
|
|
6.2
|
%
|
|
|
6.3
|
%
|
|
|
5.9
|
%
|
Non-GAAP net loss
|
|
|
(4.6
|
%)
|
|
|
(5.4
|
%)
|
|
|
(5.2
|
%)
|
|
|
(5.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECUREWORKS CORP.
|
Reconciliation of GAAP to Non-GAAP Financial Measures
|
(in millions, except per share data)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low End of Guidance
|
|
|
High End of Guidance
|
|
|
|
Three Months Ending
|
|
|
Full Year Ending
|
|
|
Three Months Ending
|
|
|
Full Year Ending
|
|
|
|
October 3, 2017
|
|
|
February 2, 2018
|
|
|
October 3, 2017
|
|
|
February 2, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP revenue
|
|
|
$
|
115
|
|
|
|
$
|
462
|
|
|
|
$
|
116
|
|
|
|
$
|
465
|
|
Impact of purchase accounting
|
|
|
|
-
|
|
|
|
|
1
|
|
|
|
|
-
|
|
|
|
|
1
|
|
Non-GAAP revenue
|
|
|
$
|
115
|
|
|
|
$
|
463
|
|
|
|
$
|
116
|
|
|
|
$
|
466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net loss per share
|
|
|
$
|
(0.19
|
)
|
|
|
$
|
(0.68
|
)
|
|
|
$
|
(0.17
|
)
|
|
|
$
|
(0.65
|
)
|
Amortization of intangibles
|
|
|
|
0.09
|
|
|
|
|
0.35
|
|
|
|
|
0.09
|
|
|
|
|
0.35
|
|
Impact of purchase accounting
|
|
|
|
0.01
|
|
|
|
|
0.02
|
|
|
|
|
0.01
|
|
|
|
|
0.02
|
|
Stock-based compensation expense
|
|
|
|
0.05
|
|
|
|
|
0.19
|
|
|
|
|
0.05
|
|
|
|
|
0.19
|
|
Aggregate adjustment for income taxes
|
|
|
|
(0.05
|
)
|
|
|
|
(0.20
|
)
|
|
|
|
(0.05
|
)
|
|
|
|
(0.20
|
)
|
Non-GAAP net loss per share *
|
|
|
$
|
(0.10
|
)
|
|
|
$
|
(0.32
|
)
|
|
|
$
|
(0.09
|
)
|
|
|
$
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net loss
|
|
|
|
|
|
$
|
(54
|
)
|
|
|
|
|
|
$
|
(52
|
)
|
Interest and other, net
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Income tax benefit
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
(29
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
41
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
15
|
|
Impact of purchase accounting
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Adjusted EBITDA *
|
|
|
|
|
|
$
|
(25
|
)
|
|
|
|
|
|
$
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* 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
|
|
|
|
|
|
|
|
|
|
|
View source version on businesswire.com: http://www.businesswire.com/news/home/20170906005330/en/
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