First Quarter Fiscal 2019 Highlights
- Revenue grew 11 percent over fiscal
2018 to $126.2 million.
- Monthly recurring revenue (MRR)
increased 11 percent year-over-year to $35.5 million.
- International revenue grew 57 percent
over prior year.
- Revenue retention rate was 100 percent
in the first quarter of fiscal 2019.
Secureworks (NASDAQ: SCWX), a leading global cybersecurity
company that protects organizations in the digitally connected
world, today announced financial results for its first quarter
ended May 4, 2018.
“We had a strong start to the year with first quarter revenue
and MRR each up 11 percent and with sales continuing its momentum.
The global demand for our solutions continues to be large and
growing. As a global leader, we are well positioned to succeed in
the rapidly evolving cybersecurity space,” said Michael R. Cote,
Chief Executive Officer of Secureworks.
“Our business model combines the power of years of historical
attack data, our knowledge of the threat actors and technology
including our algorithms to create a “network effect” delivering
solutions to protect our clients. Our focus is on execution — on
development efforts to bring innovative, technology-driven
solutions to the market, on increasing velocity and impact for our
clients through automation and on productivity initiatives across
the organization,” continued Mr. Cote. “I am excited about our
progress so far this year delivering results for our clients, as
well as the progress we are making in executing against our
strategic objectives.”
Business and operational developments for the first quarter of
fiscal 2019 include:
- The annual value of closed deals in the
first quarter increased 50 percent year over year and the total
value of closed deals greater than $1 million increased 94 percent
over the first quarter of fiscal 2018.
- The Company recently launched a new
pricing model for its Managed Detection and Response (MDR)
solution. The MDR solution is a comprehensive solution that
pinpoints real security threats, speeds investigation and provides
context to improve response. The flexible, scalable pricing further
improves our MDR offering to ensure that a coordinated defense
continues across all key attack surfaces as the client organization
grows.
First Quarter Fiscal 2019 Financial Results
Highlights
- Revenue increased 11.0 percent to
$126.2 million in the first quarter of fiscal 2019, from $113.7
million in the same period last year. Non-GAAP revenue increased
10.8 percent to $126.2 million from $113.8 million in the first
quarter of fiscal 2018.
- Gross margin was 52.0 percent in the
first quarter of 2019, compared with 52.8 percent in the same
period last year. Non-GAAP gross margin was 54.9 percent compared
with 56.1 percent in the first quarter of fiscal 2018.
- Operating loss was $17.6 million
compared with $19.0 million in the first quarter of fiscal 2018;
non-GAAP operating loss was $5.9 million compared with $8.0 million
in the first quarter of last year.
- Net loss was $13.8 million, or $0.17
per share, in the first quarter of fiscal 2019, compared with net
loss of $13.3 million, or $0.17 per share, in the prior year.
Non-GAAP net loss was $4.5 million, or $0.06 per share, in the
first quarter of fiscal 2019, compared with a non-GAAP net loss of
$5.5 million, or $0.07 per share, in the same prior year
period.
- Adjusted EBITDA loss was $2.6 million,
compared to adjusted EBITDA loss of $5.0 million in the first
quarter of fiscal 2018.
- Cash used in operating activities for
the first quarter of fiscal 2019 was $18.4 million.
- Secureworks ended the first quarter of
fiscal 2019 with $77.3 million in cash and cash equivalents.
- Monthly recurring revenue as of May 4,
2018 increased 11.4 percent to $35.5 million from $31.9 million as
of May 5, 2017. The Company’s monthly recurring revenue metric
represents the monthly value of its subscription contracts,
including operational backlog, as of period end.
Second Quarter and Full Fiscal Year 2019 Guidance
Secureworks provides guidance based on current market conditions
and expectations. The guidance ranges provided below reflect
adoption of ASC 606 and ASC 340-40, effective in the first quarter
of fiscal 2019. The Company has posted historical, unaudited
information related to the impact of adopting these standards on
the investor section of its website.
For the second quarter of fiscal 2019 the Company expects:
- Revenue of $127 to $128 million on both
a GAAP and non-GAAP basis.
- Net loss per share of $0.16 to $0.17
and non-GAAP net loss per share of $0.05 to $0.06.
Based on first quarter fiscal 2019 performance and current
business trends, the Company has updated its guidance for the full
fiscal year 2019. The Company now expects:
- GAAP and non-GAAP revenue of $515 to
$518 million.
- Net loss of $48 to $51 million and
$0.59 to $0.63 on a per share basis. The increased net loss and net
loss per share are primarily attributable to a lower tax benefit
rate now anticipated for fiscal 2019 of approximately 22
percent.
- Non-GAAP net loss per share of $0.15 to
$0.19.
- Adjusted EBITDA loss of $3 to $7
million.
- Monthly recurring revenue of $38 to $39
million, at the end of the fourth quarter of fiscal 2019.
- Cash flow from operations of $15 to 20
million.
Conference Call Information
As previously announced, the Company will hold a conference call
to discuss its fiscal 2019 first quarter and outlook for its second
quarter and fiscal year 2019 on June 6, 2018, at 8:00 a.m. ET. A
live audio webcast of the conference call and the supplemental
financial information referred to above 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 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 second quarter of fiscal 2019
and for full year fiscal 2019, net loss and adjusted EBITDA loss
for full year fiscal 2019, capital expenditures and effective tax
rate for full year fiscal 2019, weighted average shares outstanding
during full year fiscal 2019, monthly recurring revenue at the end
of the fourth quarter of fiscal 2019, and cash flow from operations
for full year fiscal 2019, 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 capital structure and 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 2, 2018, 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 protects organizations in the digitally connected
world. We combine visibility from thousands of clients, machine
learning and automation from our industry-leading Secureworks
Counter Threat Platform™, and actionable insights from our team of
elite researchers, analysts and consultants 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, and predict emerging threats. We
offer our clients a cyber-defense that is Collectively Smarter.
Exponentially Safer.™ www.secureworks.com
(Tables Follow)
SECUREWORKS CORP. Condensed Consolidated Statements of
Operations and Related Financial Highlights (in thousands, except
per share data and percentages) (unaudited)
Three Months Ended May 4, 2018 May 5, 2017*
Net revenue $ 126,161 $ 113,678 Cost of revenue 60,530
53,613 Gross margin 65,631 60,065 Research and
development 22,354 19,479 Sales and marketing 35,670 36,178 General
and administrative 25,197 23,404 Total operating
expenses 83,221 79,061 Operating loss (17,590 )
(18,996 ) Interest and other, net 505 (649 ) Loss before
income taxes (17,085 ) (19,645 ) Income tax benefit (3,266 ) (6,368
) Net loss $ (13,819 ) $ (13,277 ) Net loss per common share
(basic and diluted) $ (0.17 ) $ (0.17 )
Weighted-average common shares outstanding
(basic and diluted)
80,522 80,056
Percentage of
Total Net Revenue
Gross margin 52.0 % 52.8 % Research and development 17.7 % 17.1 %
Sales and marketing 28.3 % 31.8 % General and administrative 20.0 %
20.6 % Operating expenses 66.0 % 69.5 % Operating loss (13.9 )%
(16.7 )% Loss before income taxes (13.5 )% (17.3 )% Net loss (11.0
)% (11.7 )% Effective tax rate 19.1 % 32.4 % Note:
Percentage growth rates are calculated based on underlying data in
thousands
* Certain prior period amounts have been adjusted as a result of
the adoption of the accounting standard for revenue recognition set
forth in ASC 606.
SECUREWORKS CORP. Condensed Consolidated Statements of
Financial Position (in thousands) (unaudited)
May 4, 2018
February 2,2018*
Assets:
Current assets: Cash and cash equivalents $ 77,302 $ 101,539
Accounts receivable, net 146,823 157,764 Inventories, net 670 1,030
Other current assets 42,125 40,551 Total current assets
266,920 300,884 Property and equipment, net 32,549 33,457 Goodwill
416,487 416,487 Purchased intangible assets, net 227,250 234,184
Other non-current assets 75,979 72,069 Total assets $
1,019,185 $ 1,057,081
Liabilities and
Stockholders' Equity:
Current liabilities: Accounts payable $ 19,458 $ 23,266 Accrued and
other 53,142 81,625 Short-term deferred revenue 146,700
137,697 Total current liabilities 219,300 242,588 Long-term
deferred revenue 14,926 14,948 Other non-current liabilities 66,541
68,455 Total liabilities 300,767 325,991 Stockholders'
equity 718,418 731,090 Total liabilities and stockholders'
equity $ 1,019,185 $ 1,057,081
* Certain prior period amounts have been adjusted as a result of
the adoption of the accounting standard for revenue recognition set
forth in ASC 606.
SECUREWORKS CORP. Condensed Consolidated Statements of Cash
Flows (in thousands) (unaudited)
Three Months
Ended May 4, 2018 May 5, 2017* Cash flows from
operating activities: Net loss $ (13,819 ) $ (13,277 ) Adjustments
to reconcile net loss to net cash used in operating activities
Depreciation and amortization 10,287 10,261 Stock-based
compensation expense 4,730 3,628 Effects of exchange rate changes
on monetary assets and liabilities denominated in foreign
currencies (377 ) 649 Income tax benefit (3,266 ) (6,368 )
Provision for doubtful accounts 1,492 889 Changes in assets and
liabilities: Accounts receivable 9,176 (10,494 ) Due to/from parent
1,103 7,506 Inventories 360 475 Other assets (2,350 ) (1,124 )
Accounts payable (3,343 ) 1,027 Deferred revenue 8,668 8,155
Accrued and other liabilities (31,065 ) (20,982 ) Net cash used in
operating activities (18,404 ) (19,655 ) Cash flows from investing
activities: Capital expenditures (2,216 ) (3,350 ) Net cash used in
investing activities (2,216 ) (3,350 ) Cash flows from financing
activities: Principal payments on financing arrangement with Dell
Financial Services (1,104 ) (800 ) Taxes paid on vested restricted
shares (2,013 ) (1,224 ) Payments on financed capital expenditures
(500 ) — Net cash (used in) provided by financing activities
(3,617 ) (2,024 ) Net (decrease) increase in cash and cash
equivalents (24,237 ) (25,029 ) Cash and cash equivalents at
beginning of the period 101,539 116,595 Cash and cash
equivalents at end of the period $ 77,302 $ 91,566
* Certain prior period amounts have been adjusted as a result of
the adoption of the accounting standard for revenue recognition set
forth in ASC 606.
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 acquisition of Dell
Inc. (“Dell”) by Dell Technologies Inc. in fiscal 2014.
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 Inc. in fiscal 2014, all of the Company’s
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
this transaction.
Stock-based compensation. Non-cash stock-based compensation
relates to awards under both the Dell Technologies Inc. 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.
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 May 4, 2018
May 5, 2017* GAAP revenue $ 126,161 $ 113,678 Impact of
purchase accounting — 146 Non-GAAP revenue $ 126,161
$ 113,824 GAAP gross margin $ 65,631 $ 60,065
Amortization of intangibles 3,410 3,410 Impact of purchase
accounting — 156 Stock-based compensation expense 269 224
Non-GAAP gross margin $ 69,310 $ 63,855
GAAP research and development expenses $ 22,354 $ 19,479
Stock-based compensation expense (1,031 ) (814 ) Non-GAAP research
and development expenses $ 21,323 $ 18,665
GAAP sales and marketing expenses $ 35,670 $ 36,178 Stock-based
compensation expense (621 ) (214 ) Non-GAAP sales and marketing
expenses $ 35,049 $ 35,964 GAAP general and
administrative expenses $ 25,197 $ 23,404 Amortization of
intangibles (3,524 ) (3,524 ) Impact of purchase accounting — (256
) Stock-based compensation expense (2,809 ) (2,376 ) Non-GAAP
general and administrative expenses $ 18,864 $ 17,248
GAAP operating loss $ (17,590 ) $ (18,996 ) Amortization of
intangibles 6,934 6,934 Impact of purchase accounting — 412
Stock-based compensation expense 4,730 3,628 Non-GAAP
operating loss $ (5,926 ) $ (8,022 ) GAAP net loss $ (13,819
) $ (13,277 ) Amortization of intangibles 6,934 6,934 Impact of
purchase accounting — 412 Stock-based compensation expense 4,730
3,628 Aggregate adjustment for income taxes (2,391 ) (3,234 )
Non-GAAP net loss $ (4,546 ) $ (5,537 ) GAAP net loss per
share $ (0.17 ) $ (0.17 ) Amortization of intangibles 0.09 0.09
Impact of purchase accounting — 0.01 Stock-based compensation
expense 0.06 0.05 Aggregate adjustment for income taxes (0.03 )
(0.04 ) Non-GAAP net loss per share * $ (0.06 ) $ (0.07 ) *
Sum of reconciling items may differ from total due to rounding of
individual components GAAP net loss $ (13,819 ) $ (13,277 )
Interest and other, net (505 ) 649 Income tax benefit (3,266 )
(6,368 ) Depreciation and amortization 10,287 10,261 Stock-based
compensation expense 4,730 3,628 Impact of purchase accounting —
146 Adjusted EBITDA $ (2,573 ) $ (4,961 )
* Certain prior period amounts have been adjusted as a result of
the adoption of the accounting standard for revenue recognition set
forth in ASC 606.
SECUREWORKS CORP. Reconciliation of GAAP to Non-GAAP
Financial Measures (in thousands) (unaudited)
Three Months Ended
Percentage of
Total Net Revenue
May 4, 2018 May 5, 2017* GAAP gross margin
52.0 % 52.8 % Non-GAAP adjustment 2.9 % 3.3 % Non-GAAP gross margin
54.9 % 56.1 % GAAP research and development expenses 17.7 %
17.1 % Non-GAAP adjustment (0.8 )% (0.7 )% Non-GAAP research and
development expenses 16.9 % 16.4 % GAAP sales and marketing
expenses 28.3 % 31.8 % Non-GAAP adjustment (0.5 )% (0.2 )% Non-GAAP
sales and marketing expenses 27.8 % 31.6 % GAAP general and
administrative expenses 20.0 % 20.6 % Non-GAAP adjustment (5.0 )%
(5.4 )% Non-GAAP general and administrative expenses 15.0 % 15.2 %
GAAP operating loss (13.9 )% (16.7 )% Non-GAAP adjustment
9.2 % 9.7 % Non-GAAP operating loss (4.7 )% (7.0 )% GAAP net
loss (11.0 )% (11.7 )% Non-GAAP adjustment 7.4 % 6.8 % Non-GAAP net
loss (3.6 )% (4.9 )%
* Certain prior period amounts have been adjusted as a result of
the adoption of the accounting standard for revenue recognition set
forth in ASC 606.
SECUREWORKS CORP. Reconciliation of GAAP to Non-GAAP
Financial Measures (in millions, except per share data) (unaudited)
Three Months EndingAugust 3,
2018
Fiscal Year EndingFebruary 1,
2019
Low End of Guidance High End of Guidance
Low End of Guidance High End of Guidance
GAAP revenue $ 127 $ 128 $ 515 $ 518 Impact of
purchase accounting — — — — Non-GAAP
revenue $ 127 $ 128 $ 515 $ 518
GAAP net loss per share $ (0.17 ) $ (0.16 ) $ (0.63 ) $ (0.59 )
Amortization of intangibles 0.09 0.09 0.34 0.34 Stock-based
compensation expense 0.06 0.06 0.23 0.23 Aggregate adjustment for
income taxes (0.03 ) (0.03 ) (0.13 ) (0.13 ) Non-GAAP net loss per
share* $ (0.06 ) $ (0.05 ) $ (0.19 ) $ (0.15 ) GAAP net loss
$ (51 ) $ (48 ) Interest and other, net — — Income tax benefit (14
) (14 ) Depreciation and amortization 40 40 Stock-based
compensation expense 18 18 Adjusted EBITDA* $ (7 ) $
(3 ) Other Items Effective tax rate 22 % Weighted average
shares outstanding (in millions) 80.8 Cash flow from operations
$15-$20 Capital expenditures $16-$17 Monthly recurring revenue
(MRR) $38-$39
* Sum of reconciling items may differ from total due to rounding
of individual componentsSum of quarterly guidance may differ from
full year guidance due to rounding
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version on businesswire.com: https://www.businesswire.com/news/home/20180606005435/en/
SecureworksInvestor
Inquiries:Teri Miller, 678-268-4389VP, Chief Accounting
Officertemiller@secureworks.comorMedia Inquiries:Doreen Kelly Ruyak,
202-744-9767Corporate Communicationsdkellyruyak@secureworks.com
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