Secureworks Reports over $200 Million in Taegis ARR (100% year over year growth) in Connection with Second Quarter Fiscal 2023 Results

ATLANTA, Sept. 1, 2022 /PRNewswire/ -- Secureworks (NASDAQ: SCWX), a global leader in cybersecurity, today announced financial results for its second quarter, which ended on July 29, 2022.

• Secureworks Taegis™ grew to $201 million in annual recurring revenue (ARR), an increase of 100% on a year-over-year basis.
• Added 800 Taegis Customers year-over-year, a 114% increase, to finish the second quarter of fiscal 2023 with 1,500 customers on the Taegis cloud-native security platform.
• Taegis revenue grew 131% from the second quarter of fiscal 2022 to $42.8 million.

"With the 10th consecutive quarter of triple digit growth in Taegis ARR, our pace of XDR growth underscores the strength of our product and customer base, and the execution of our transformation strategy," said Wendy Thomas, President & CEO, Secureworks. "We are defining the future of threat detection and analysis to keep our customers secure, driving sustainable growth and value creation for investors as we capitalize on the large and growing XDR opportunity with Secureworks Taegis."

"Our momentum continues as we surpassed the $200 million Taegis ARR milestone and delivered another quarter of triple-digit growth in Taegis ARR, Taegis Customer Count and Taegis-related Revenue," said Paul Parrish, Chief Financial Officer, Secureworks. "Taegis average revenue per customer remained strong, growing to $136 thousand in the second quarter."

• Overall revenue was $116.2 million, compared to $134.2 million in the second quarter of fiscal 2022, as we actively exit non-strategic, lower-margin services.
• GAAP gross profit was $66.6 million, compared with $77.7 million in the second quarter of fiscal 2022. Non-GAAP gross profit was $71.2 million, compared with $81.9 million in the same period last year.
• GAAP gross margin was 57.3%, compared with 57.9% in the same period last year. Non-GAAP gross margin was 61.3% compared with 61.1% in the second quarter of fiscal 2022.
• GAAP net loss was $24.7 million, or $0.29 per share, compared with net loss of $11.8 million, or $0.14 per share, in the prior year. Non-GAAP net loss was $11.3 million, or $0.13 loss per share, compared with non-GAAP net income of $0.9 million, or $0.01 per share, in the same period last year.
• Adjusted EBITDA loss for the quarter was $14.3 million, compared with adjusted EBITDA income of $3.6 million in the second quarter of fiscal 2022.
• Ended the second quarter with $167 million in cash and cash equivalents.

• Appointed former Goldman Sachs and Google Cloud executive, Michael Aiello, as Chief Technology Officer.
• During the second quarter, Secureworks unveiled a new Taegis™ Agent. This new endpoint agent, natively built into Taegis XDR, brings greater telemetry and visibility to detect threats faster with less noise. It also expands our reach, offering native integration into Windows, MacOS, and Linux systems. This feature improves the flexibility of the Taegis platform architecture as we build incident response, next-gen antivirus, and vulnerability detection capabilities into a single, unified agent.
• Technology Alliance Partnerships (TAP)
• Secureworks has expanded its partnership program to include integration with Secure Access Service Edge (SASE), Cloud Access Security Broker (CASB), Operation Technology (OT), and Internet of Things (IoT). To accomplish this, the company is announcing new partnership agreements with Netskope to support SASE/CASB integration and SCADAfence to expand Taegis into OT and Industrial Control Systems (ICS).
• Netskope, in the SASE framework, has a unique approach for protecting IT assets that is user-centric and prioritizes data protection across devices and applications inside and outside traditional company networks. Integration will enable customers to perform all investigations using Secureworks Taegis for a more holistic view of threats and risks.
• In its integration with SCADAfence, Secureworks expands Taegis into OT and ICS, providing improved visibility and reducing client infrastructure vulnerabilities. Integrating a truly open XDR platform with the leading OT platform in SCADAfence provides the potential for analysts to cut their workflows in half, allowing our joint customers to use a truly integrated OT plus XDR offering.
• Recognition and awards in the second quarter of 2022 include:
• Highlighted in the Cyber Top 20 by Enterprise Security Tech
• Won Silver for Taegis XDR in the Security Software Category,17th Annual 2022 Information Technology World Globee Awards
• Received Editor's Choice Award for XDR in the Cyber Defense Global InfoSec Awards for 2022

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

• Revenue of $111 million to $113 million.
• GAAP net loss per share of $0.36 to $0.38 and non-GAAP net loss per share of $0.20 to $0.22.

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

As previously announced, the Company will hold a conference call to discuss its second quarter fiscal 2023 results and financial guidance on September 1, 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.

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.

This press release presents information about the Company's non-GAAP revenue, non-GAAP gross margin, non-GAAP subscription gross margin, non-GAAP professional services gross margin, 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.

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, GAAP net loss per share, non-GAAP net loss and non-GAAP net loss per share for the third 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 from operations, Taegis ARR and other MSS ARR 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 or global inflationary environment; 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 Ukrainian/Russian conflict, and 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.

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

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This press release presents information about the Company's non-GAAP revenue, non-GAAP gross margin, non-GAAP subscription gross margin, non-GAAP professional services gross margin, 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 and supplement their review of the Company's GAAP results with the corresponding 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 associated with external software development costs capitalized and customer relationships and technology acquired. In connection with the acquisition of Dell by Dell Technologies in fiscal 2014 and our acquisition of Delve in fiscal 2021, our tangible and intangible assets and liabilities associated with customer relationships and technology were accounted for and recognized at fair value on the related transaction date.
  
  
• 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.

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