Secureworks® (NASDAQ: SCWX), a global leader in cybersecurity, today announced financial results for its second quarter, which ended on August 4, 2023.
Key Highlights
- Secureworks Taegis™ annual recurring revenue (ARR) grew to $276 million, an increase of 37% on a year-over-year basis.
- Taegis second quarter revenue grew 55% year-over-year to $66.4 million.
- Taegis GAAP gross margin and non-GAAP gross margin continued to expand in the second quarter, reaching 68.8% and 70.7%, respectively.
“We expanded our Partner First ecosystem this quarter with global, market-leading partners, increasing our scale and market reach to further position our business for growth,” said Wendy Thomas, CEO, Secureworks. “As an open XDR platform that combines security analytics, AI, threat intelligence and automation, Taegis is empowering organizations to say goodbye to point solution chaos and embrace a platform-based approach that results in better security outcomes, optimized resources and the highest return on investment for our customers and partners.”
“I’m pleased that we delivered against our financial commitments in the second quarter,” said Alpana Wegner, Chief Financial Officer, Secureworks. “The progress we are making on the acceleration of Other MSS end-of-life, which is allowing us to streamline our operating costs, and our expanded use of automation to drive scale into our growing SaaS business, gives us a clear path to breakeven adjusted EBITDA for fourth quarter this year and cash flow generation next year.”
Second Quarter Fiscal 2024 Financial Highlights
- Total revenue for the second quarter was $93.0 million, compared to $116.2 million in the second quarter of fiscal 2023.
- Taegis revenue for the second quarter was $66.4 million, compared to $42.8 million in the second quarter of fiscal 2023.
- GAAP gross profit was $52.9 million, compared with $66.6 million in the second quarter of fiscal 2023. Non-GAAP gross profit was $58.0 million, compared with $71.2 million during the same period last year.
- GAAP gross profit specific to Taegis was $45.7 million, compared with $27.3 million in the second quarter of fiscal 2023. Non-GAAP Taegis gross profit was $47.0 million, compared with $28.0 million during the same period last year.
- GAAP gross margin for the second quarter was 56.9%, compared with 57.3% in the same period last year. Non-GAAP gross margin was 62.4%, compared with 61.3% in the second quarter of fiscal 2023.
- GAAP gross margin specific to Taegis was 68.8% for the quarter, compared with 63.7% in the same period last year. Non-GAAP Taegis gross margin was 70.7%, compared with 65.5% in the second quarter of fiscal 2023.
- GAAP net loss was $32.4 million for the second quarter, or $0.38 per share, compared with net loss of $24.7 million, or $0.29 per share, in the same period last year. Non-GAAP net loss was $8.6 million, or $0.10 per share, compared with non-GAAP net loss of $11.3 million, or $0.13 per share, in the same period last year.
- Adjusted EBITDA loss for the quarter was $10.3 million, compared with adjusted EBITDA loss of $14.3 million in the second quarter of fiscal 2023.
- The company ended the second quarter with $64.9 million in cash and cash equivalents.
Business and Operational Highlights
- Secureworks partnered with EY to launch their Intelligent Extended Detection & Response (IXDR), powered by Taegis XDR, to help organizations combat cyber threats.
- Announced integrated partnership with Akamai’s Enterprise Application Access module, a leading zero trust network access solution.
- Continued executing on our Partner First strategy by launching in the Middle East, UK&I and Europe.
- Delivered Taegis platform capabilities, expanding our automation of investigations and alert triage, directly benefiting our customers by minimizing the time between detection and executing a response.
- Recognition and awards in the second quarter of fiscal 2024 include:
- Leader in Frost & Sullivan Frost Radar for XDR, 2023
- Leader in Frost & Sullivan Frost Radar for VDR, 2023
- Leader in Cybersecurity – Solutions and Services 2023,” an ISG Provider Lens™ Study
- Notable Vendor in the “Forrester Vulnerability Risk Management Landscape, Q2 2023” report
Financial Outlook
For the third quarter of fiscal 2024, the Company expects:
- Revenue of $88 million to $90 million.
- GAAP net loss per share of $0.21 to $0.23 and non-GAAP net loss per share of $0.05 to $0.07.
Secureworks is providing the following updated guidance for full fiscal year 2024. The Company expects:
| Fiscal Year 2024 Guidance | |
| Taegis ARR | $285M to $300M |
| Other MSS ARR | $15M or Less |
| Total revenue | $360M to $368M |
| Taegis revenue | $264M to $268M |
| GAAP net loss | ($94M) to ($99M) |
| ($1.09) to ($1.15) per share | |
| Non-GAAP net loss | ($31M) to ($36M) |
| ($0.36) to ($0.41) per share | |
| Adjusted EBITDA | ($31M) to ($37M) |
| Cash from operations | ($70M) to ($80M) |
Conference Call Information
As previously announced, the Company will hold a conference call to discuss its second quarter fiscal 2024 results and financial guidance on September 7, 2023, 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 https://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 Taegis Subscription Solutions cost of revenue, non-GAAP Managed Security Services cost of revenue, non-GAAP gross profit, non-GAAP subscription gross profit, non-GAAP professional services gross profit non-GAAP Taegis Subscription Solutions gross profit, non-GAAP Managed Security Services 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, adjusted EBITDA, weighted average common shares outstanding – diluted (non-GAAP), non-GAAP Taegis Subscription Solutions gross margin, non-GAAP Managed Security Services gross margin, non-GAAP subscription gross margin and non-GAAP professional services gross margin, 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 regarding revenue, GAAP net loss per share and non-GAAP net loss per share for the third quarter of fiscal 2024, and Taegis ARR, other MSS ARR, total revenue, Taegis revenue, GAAP net loss, GAAP net loss per share, non-GAAP net loss, non-GAAP net loss per share, weighted average common shares outstanding – diluted (non-GAAP), adjusted EBITDA, capital expenditures, and cash from operations for full year fiscal 2024, 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 ability to navigate economic conditions, geopolitical uncertainty and financial market volatility; the Company’s reliance on personnel with extensive information security expertise; the Company’s ability to successfully implement its strategic plan to realign and optimize its investments with its priorities; 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 expansion of the Company’s international sales and operations; the risks associated with proposed or currently enacted tax statutes, including Internal Revenue Code Section 174; the Company’s exposure to fluctuations in currency exchange rates or inflation; the effect of new 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; 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; 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; risks related to the Company’s relationship with Dell Technologies Inc. and Dell Inc. and control of the Company by Dell Technologies Inc., which include, but are not limited to, the effects of a potential deconsolidation of the Company as a part of the Dell Technologies Inc. consolidated tax group; and risks related to the volatility of the price of the Company’s Class A common stock.
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 or in the Company’s first quarter fiscal 2024 Form 10-Q filing, 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 resulting from circumstances or events that arise after the date the statements are made, new information or otherwise.
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