Secureworks announces financial results for 4th quarter & fiscal year

Secureworks (NASDAQ: SCWX), a global leader in cybersecurity, today announced financial results for its fourth quarter and full fiscal year, which ended on January 28, 2022.

Key Highlights

• Secureworks Taegis grew to $165 million in annual recurring revenue (ARR), an increase of 34% sequentially and 200% on a year-over-year basis.
• Added a record 400 Taegis customers in the fourth quarter of fiscal 2022, to finish the year with 1,200 customers on the Taegis cloud-native security platform.
• Both GAAP and Non-GAAP quarterly gross margins rose to record highs, at 60.5% and 64.1%.

“With the first true XDR solution, Secureworks Taegis has one of the fastest XDR customer and ARR growth rates in the market due to the superior outcomes and ROIs we’re delivering customers,” said Wendy Thomas, CEO, Secureworks. “Just two and a half years after launch, Taegis reached $165 million in ARR – a remarkable accomplishment.”

Fourth Quarter Fiscal 2022 Financial Highlights

• Taegis revenue grew 156% from the fourth quarter of fiscal 2021 to $29.2 million.
• Overall revenue was $127.9 million, a decrease of 8.5% from the fourth quarter of fiscal 2021, reflective of our continued shift to higher-margin business.
• GAAP gross profit was $77.3 million, compared with $80.0 million in the fourth quarter of fiscal 2021. Non-GAAP gross profit was $81.9 million, from $84.2 million in the same period last year.
• GAAP gross margin was 60.5%, compared with 57.2% in the same period last year. Non-GAAP gross margin was 64.1% compared with 60.2% in the fourth quarter of fiscal 2021.
• GAAP net loss was $8.8 million, or $0.11 per share, compared with $9.5 million, or $0.12 per share, in the prior year. Non-GAAP net income was $2.6 million, or $0.03 per share, compared with $0.3 million, or breakeven per share, in the same period last year.
• Adjusted EBITDA for the quarter was $2.1 million, compared with $3.2 million in the fourth quarter of fiscal 2021.
• Ended the fourth quarter with a record $221 million in cash and cash equivalents.

Full Year Fiscal 2022

• Taegis revenue in fiscal 2022 grew 167% to $85.6 million from $32.1 million in fiscal 2021.
• Overall fiscal 2022 revenue was $535.2 million, a decrease of 4.6% from fiscal 2021 revenue of $561.0 million, reflective of our continued shift to higher-margin business.
• GAAP gross profit was $318.1 million, compared with $318.9 million in full year fiscal 2021. Non-GAAP gross profit increased to $335.3 million from $334.8 million for fiscal 2021.
• Full year fiscal 2022 GAAP gross margin was 59.4%, compared with 56.8% for full year fiscal 2021.  Non-GAAP gross margin was 62.6% for fiscal 2022, compared with 59.7% for the prior fiscal year.
• GAAP net loss was $39.8 million, or $0.48 per share, compared with $21.9 million, or $0.27 per share, for the prior fiscal year. Non-GAAP net income was $8.7 million, or $0.11 per share, compared with net income of $17.9 million, or $0.22 per share, for the prior fiscal year.
• Adjusted EBITDA for the full year was $18.6 million, compared with $33.2 million for full year fiscal 2021.

“We’re pleased with the continued expansion of our Taegis customer base, resulting in Taegis ARR growth of 200% year over year,” said Paul Parrish, Chief Financial Officer, Secureworks. “As we actively shift the company to a higher-margin mix of solutions, full year GAAP subscription gross profit margins are expanding – up 270 bps over the prior full fiscal year.”

Business and Operational Highlights

• Continued to expand breadth and depth of detection capabilities with 2,090 countermeasures added to Taegis, including launch of the patent-pending Hands on Keyboard detector.
• Launched a Ukraine Crisis Response Center to provide threat intelligence and updated security guidance. Operationally, implemented global Red Cloak process disruption rule for known Russian Wiper Hashes to protect customers.
• Named Winner of Frost & Sullivan’s 2021 Company of the Year Award in the North American Managed and Professional Security Services Market, recognizing the company for its innovation in XDR with Taegis XDR and Taegis ManagedXDR.
• Awarded Gold in 2022 Cybersecurity Excellence Awards for Best Managed Detection and Response Solution, in recognition of Taegis ManagedXDR’s excellence, innovation and leadership in the MDR category. 
• Joined CISA’s Joint Cyber Defense Collaborative (JCDC) as a strategic Alliance Partner, supporting the company’s mission to contribute to the broader security community and help protect US national critical infrastructure. 

Secureworks continues to be recognized in the industry for its world-class solutions and services built around the Taegis security platform. Additional recognition and awards in 2021 include: 

• Named winner of 2021 Customer Value Leadership Award by Frost & Sullivan in recognition of Taegis XDR’s excellence in delivering improved security outcomes to customers.
• Recognized as an experienced XDR provider in Forrester’s New Tech: Extended Detection and Response (XDR) Providers, Q3 2021
• Leader in the IDC MarketScape: U.S. Managed Detection and Response Services 2021 Assessment 
• Leader in The Forrester Wave™: Managed Detection and Response, Q1 2021
• Leader in the IDC MarketScape: Worldwide Incident Readiness Services 2021 Assessment 
• Winner of Security Current’s inaugural CISO Choice Award for Security Analytics 
• Winner of CyberSecurity Breakthrough’s Cloud Based Network Security Solution of the Year Award
• Earned 5-Star rating in the 2021 CRN® Partner Program Guide for Global Partner Program, recognizing an exclusive group of companies that offer solution providers the best partner programs

Financial Outlook

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

• Revenue of $120 million to $122 million.
• GAAP net loss per share of $0.30 to $0.31 and non-GAAP net loss per share of $0.14 to $0.15.

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

Conference Call Information

As previously announced, the Company will hold a conference call to discuss its fourth quarter and full year fiscal 2022 results and financial guidance on March 17, 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.

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  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 first 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 flow from operations, and annual recurring revenue and revenue for its Taegis platform 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; 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 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.

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