Secureworks Announces First Quarter Fiscal 2025 Results
Secureworks (NASDAQ: SCWX) announced its financial results for Q1 fiscal 2025, ending May 3, 2024. Taegis™ revenue grew 10% year-over-year to $69.1 million, with annual recurring revenue (ARR) reaching $287 million, up 7%. GAAP and non-GAAP gross margins for Taegis expanded to 71.9% and 74.3%, respectively. Total Q1 revenue was $85.7 million, down from $94.4 million in the previous year, due to the wind-down of the legacy MSS business. GAAP net loss increased to $36.1 million, largely due to a $26.2 million tax deconsolidation impact from Dell Technologies. However, non-GAAP net income was $4.2 million, compared to a non-GAAP net loss of $17.1 million last year. The company ended the quarter with $47 million in cash and no debt. Secureworks also launched new AI-driven network detection and response products and expanded partnerships in Japan.
- Taegis revenue grew 10% year-over-year to $69.1 million.
- Taegis annual recurring revenue (ARR) increased by 7% to $287 million.
- GAAP Taegis gross margin expanded to 71.9%, up from 68.2% last year.
- Non-GAAP Taegis gross margin increased to 74.3%, up from 70.0% last year.
- Non-GAAP net income was $4.2 million, compared to a non-GAAP net loss of $17.1 million last year.
- Adjusted EBITDA for the quarter was $5.6 million, compared to an adjusted EBITDA loss of $20.1 million last year.
- Launched Taegis Network Detection and Response (NDR) and enhanced integration between Taegis XDR and Taegis VDR.
- Expanded Global MSSP Partner Program with key partners in Japan, including Softbank Corp. and Tokio Marine & Nichido Fire Insurance Co.
- Total revenue for the first quarter decreased to $85.7 million, down from $94.4 million in the previous year.
- GAAP net loss increased to $36.1 million, driven by a $26.2 million valuation allowance due to tax deconsolidation from Dell Technologies.
- Revenue guidance for Q2 fiscal 2025 is lower, with an expectation of $80 million to $82 million.
- The full fiscal year 2025 revenue guidance indicates a potential decline, ranging between $325 million to $335 million, compared to previous years.
Insights
Secureworks has shown a mixed bag in its first-quarter fiscal 2025 results. The most eye-catching figure is the 10% year-over-year growth in Taegis revenue to
However, the overall revenue saw a decline to $85.7 million from $94.4 million in the same period last year, primarily driven by the strategic wind-down of the legacy Other MSS business. This restructuring reflects Secureworks' focused transition toward its more profitable Taegis platform. Notably, the GAAP gross profit and non-GAAP gross profit for Taegis have both increased compared to last year, indicating operational efficiency and effective cost management.
The GAAP net loss of
For retail investors, these mixed signals need careful consideration. While the robust growth in Taegis and the associated gross margins are promising, the overall decline in revenue and ongoing net losses could pose concerns. Investors should keep a close eye on the company’s ability to sustain and grow its Taegis platform revenue while managing its broader financial health.
Secureworks’ strategic focus on its Taegis platform is evident from its latest financials. The platform's growing revenue and increasing gross margins underscore its value proposition in the cybersecurity market. The company's decision to wind down its legacy business aligns with industry trends where companies are pivoting to cloud-based, AI-driven solutions for better threat detection and response.
The introduction of new product capabilities such as Taegis Network Detection and Response (NDR) and enhancements in Taegis XDR reflect Secureworks' commitment to innovation. These developments are likely to have a positive impact in the long run as they cater to the growing demand for comprehensive cybersecurity solutions.
Secureworks also expanded its Global MSSP Partner Program with high-profile partners like Softbank and entered into a partnership with Tokio Marine & Nichido Fire Insurance Co., Ltd. This international expansion can diversify revenue streams and bolster market presence. Recognitions and awards, such as those from Frost & Sullivan and IDC, further enhance the company’s credibility and visibility in the competitive cybersecurity landscape.
Retail investors should note that while the company’s strategic shifts are promising and align with market trends, the immediate impact on financials portrays a transitional phase. The success of these initiatives will be pivotal for long-term growth and stability.
Key Highlights
- Taegis™ first quarter revenue grew
10% year-over-year to$69.1 million - Taegis annual recurring revenue (ARR) grew to
$287 million 7% on a year-over-year basis. - Taegis GAAP gross margin and non-GAAP gross margin continued to expand in the first quarter, reaching
71.9% and74.3% , respectively.
"This quarter, we launched new product capabilities targeting high-risk attack vectors and added two high-profile partners in
"The continued expansion of our Taegis gross margin reflects our ongoing focus on operational efficiencies driven by our investments in AI and unique cloud architecture, while delivering strong security outcomes to our customers," said Alpana Wegner, Chief Financial Officer, Secureworks. "Delivering on our first quarter financial commitments furthers our confidence in achieving our fiscal 2025 outlook."
First Quarter Fiscal 2025 Financial Highlights
- Total revenue for the first quarter was
$85.7 million $94.4 million - Taegis revenue for the first quarter was
$69.1 million $62.6 million - GAAP gross profit was
$57.8 million $51.6 million $59.9 million $56.6 million - GAAP gross profit specific to Taegis was
$49.6 million $42.7 million $51.3 million $43.8 million - GAAP gross margin for the first quarter was
67.5% , compared with54.7% in the same period last year. Non-GAAP gross margin was69.9% , compared with59.9% in the first quarter of fiscal 2024. - GAAP Taegis gross margin was
71.9% for the quarter, compared with68.2% in the same period last year. Non-GAAP Taegis gross margin was74.3% , compared with70.0% in the first quarter of fiscal 2024. - GAAP net loss was
$36.1 million $0.41 $31.0 million $0.36 $26.2 million - Non-GAAP net income was
$4.2 million $0.05 $17.1 million $0.20 - Adjusted EBITDA for the quarter was
$5.6 million $20.1 million 6.6% . - The company ended the first quarter with
$47.0 million
Business and Operational Highlights
- Launched Taegis Network Detection and Response (NDR), a fully managed cloud offering with on-premises protection, leveraging AI to uncover hidden threats and integrating threat prevention, detection and response to halt malicious activity on the network.
- Introduced our advanced integration between Taegis XDR and Taegis VDR, enabling customers and partners to view known vulnerabilities in context of threat data to expedite investigation and remediation plans.
- Expanded our Global MSSP Partner Program with the addition of Softbank Corp., a global telecommunications company, providing Managed Detection and Response (MDR) services powered by our Taegis XDR platform.
- Entered into an incident response partnership with Tokio Marine & Nichido Fire Insurance Co., Ltd, a market leading insurance company in
Japan . - Recognized as a leader in the 2024 MDR Radar from Frost & Sullivan for our transparency, collaborative approach, and focus on the customer underpin the company's success in the MDR sector.
- Ranked as a Major Player in 2024 IDC Worldwide MDR MarketScape.
- Recognized with a CIO 100 award for Integrated AI for Better Security Operations, acknowledging our innovation in AI and its meaningful impact for our customers, partners, and internal teams.
Financial Outlook
For the second quarter of fiscal 2025, the Company expects:
- Revenue of
$80 million $82 million - Adjusted EBITDA of
$1 $3 million - Non-GAAP net earnings per share of
$0.00 $0.02
Secureworks is providing the following updated guidance for full fiscal year 2025. The Company expects:
Fiscal Year 2025 Guidance | |
Total ARR | |
Total revenue | |
Non-GAAP net income | |
Adjusted EBITDA | |
Cash from operations |
Guidance for non-GAAP financial measures excludes amortization of intangibles, stock-based compensation expense, reorganization and other related charges, and the effects of non-GAAP income tax expense (benefit). The Company has not reconciled its forward-looking non-GAAP financial measures to their most directly comparable GAAP measures because certain items are out of our control or cannot be reasonably predicted. Accordingly, reconciliations for forward-looking non-GAAP financial measures are not available without unreasonable effort.
Conference Call Information
As previously announced, the Company will hold a conference call to discuss its first quarter fiscal 2025 results and financial guidance on June 6, 2024, at 8:00 a.m.
About Secureworks
Secureworks (NASDAQ: SCWX) is a global cybersecurity leader that secures human progress with Secureworks® Taegis™, a SaaS-based, open XDR platform built on 20+ years of real-world detection data, security operations expertise, and threat intelligence and research. Taegis is embedded in the security operations of thousands of organizations around the world who use its advanced, AI-driven capabilities to detect advanced threats, streamline and collaborate on investigations, and automate the right actions.
Operating Metrics
We believe that annual recurring revenue (ARR) is a key operating metric that is useful to measure our business because it is driven by our ability to acquire new subscriptions and expand relationships with existing customers. The Company defines 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.
Explanation of Non-GAAP Financial Measures
In addition to determining results in accordance with
The Company believes that these non-GAAP financial measures provide useful information about our financial performance by enhancing the overall understanding of our past performance and future outlook, while allowing for increased transparency with respect to important metrics used by management for financial and operational decision-making. Investors are encouraged to review the related GAAP financial measures and the reconciliation of each of these non-GAAP financial measures to each of their most directly comparable GAAP financial measures, while not relying on any single financial measure to evaluate the Company's business.
Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the financial tables accompanying this press release for each of the fiscal periods presented. As presented in the "Reconciliation of GAAP to Non-GAAP Financial Measures" table below, each of the non-GAAP financial measures excludes one or more of the following items:
"Amortization of Intangible Assets" consists of amortization associated with software development costs capitalized and acquired customer relationships and technology. In connection with the acquisition of Dell by Dell Technologies in fiscal 2014 and our acquisition of Delve Laboratories Inc. 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" means non-cash, stock-based compensation expense related to the Company's equity plan. We exclude such expenses when assessing the effectiveness of our operating performance since stock-based compensation does not necessarily correlate with the underlying operating performance of the business.
"Reorganization and Other Related Charges" means expenses associated with the Company's plan to align its investments more closely with its strategic priorities, as described in further detail in the Company's Form 10-K for fiscal year ended February 2, 2024.
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," and "would," or similar words or expressions that refer to future events or outcomes. 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: achieving or maintaining profitability; enhancing our existing solutions and technologies and developing or acquiring new solutions and technologies; navigating economic conditions, geopolitical uncertainty and financial market volatility; relying on personnel with extensive information security expertise; successfully implementing our strategic plan to realign and optimize its investments with its priorities; intense competition in the Company's markets; attracting new customers, retaining existing customers and increasing annual contract values; relying on customers in the financial services industry; managing our growth effectively; maintaining high-quality client service and support functions; the terms of our service level agreements with customers that require credits for service failures or inadequacies; recognizing revenue ratably over the terms of our Taegis security solutions and managed security services contracts; long and unpredictable sales cycles; the risks associated with expansion of the Company's international sales and operations; the risks associated with proposed or currently enacted tax statutes, including, but not limited to, Internal Revenue Code Section 174; our exposure to fluctuations in currency exchange rates or inflation; the effect of new governmental export or import controls on our business or any international sanctions compliance program applicable to us; expanding our key distribution relationships and technology alliance partnerships; real or perceived defects, errors or vulnerabilities in our solutions or the failure of our solutions to prevent a security breach; the risks associated with cyber-attacks or other data security incidents; the risks associated with our development, use and adoption of artificial intelligence; the ability of our solutions to interoperate with our customers' IT infrastructure; our ability to use third-party technologies; the impact of evolving information security, cybersecurity and data privacy laws and regulations on our business; maintaining and enhancing our brand; the risks associated with our acquisition of other businesses; the effect of natural disasters, public health issues, geopolitical conflict and other catastrophic events on our ability to serve customers, including the Ukrainian/Russian conflict and the conflict between
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.
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, non-GAAP net earnings (loss) per share, and adjusted EBITDA for the second quarter of fiscal 2025, and total annual recurring revenue ("ARR"), total revenue, non-GAAP net income (loss), non-GAAP net earnings (loss) per share, adjusted EBITDA, and cash from operations for full year fiscal 2025, all of which reflect the Company's current analysis of existing trends and information.
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. These forward-looking statements represent the Company's judgment only as of the date of this press release. 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.
(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 3, | May 5, | ||
Net revenue: | |||
Subscription | $ 72,221 | $ 77,259 | |
Professional services | 13,431 | 17,136 | |
Total net revenue | 85,652 | 94,395 | |
Cost of revenue: | |||
Subscription | 20,816 | 31,019 | |
Professional services | 7,060 | 11,767 | |
Total cost of revenue | 27,876 | 42,786 | |
Gross profit | 57,776 | 51,609 | |
Operating expenses: | |||
Research and development | 24,548 | 31,172 | |
Sales and marketing | 23,901 | 34,526 | |
General and administrative | 18,518 | 22,263 | |
Reorganization and other related charges | 1,476 | — | |
Total operating expenses | 68,443 | 87,961 | |
Operating loss | (10,667) | (36,352) | |
Interest and other, net | 796 | (1,746) | |
Loss before income taxes | (9,871) | (38,098) | |
Income tax expense (benefit) | 26,205 | (7,128) | |
Net loss | $ (36,076) | $ (30,970) | |
Loss per common share (basic and diluted) | $ (0.41) | $ (0.36) | |
Weighted-average common shares outstanding (basic and diluted) | 87,512 | 85,431 | |
SECUREWORKS CORP. | |||||||
Condensed Consolidated Statements of Financial Position | |||||||
(in thousands) | |||||||
(unaudited) | |||||||
May 3, | February 2, | ||||||
Assets: | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ 47,024 | $ 68,655 | |||||
Accounts receivable, net | 46,805 | 54,266 | |||||
Inventories, net | 1,123 | 727 | |||||
Other current assets | 16,646 | 14,491 | |||||
Total current assets | 111,598 | 138,139 | |||||
Property and equipment, net | 1,851 | 2,149 | |||||
Operating lease right-of-use assets, net | 4,632 | 5,069 | |||||
Goodwill | 425,282 | 425,472 | |||||
Intangible assets, net | 79,674 | 83,235 | |||||
Other non-current assets | 44,838 | 70,715 | |||||
Total assets | $ 667,875 | $ 724,779 | |||||
Liabilities and Stockholders' Equity: | |||||||
Current liabilities: | |||||||
Accounts payable | $ 10,934 | $ 8,974 | |||||
Accrued and other current liabilities | 44,292 | 61,895 | |||||
Short-term deferred revenue | 126,083 | 131,245 | |||||
Total current liabilities | 181,309 | 202,114 | |||||
Long-term deferred revenue | 4,535 | 5,706 | |||||
Operating lease liabilities, non-current | 6,815 | 7,803 | |||||
Other non-current liabilities | 7,990 | 7,831 | |||||
Total liabilities | 200,649 | 223,454 | |||||
Total stockholders' equity | 467,226 | 501,325 | |||||
Total liabilities and stockholders' equity | $ 667,875 | $ 724,779 | |||||
SECUREWORKS CORP. | ||||
Condensed Consolidated Statements of Cash Flows | ||||
(in thousands) | ||||
(unaudited) | ||||
Three Months Ended | ||||
May 3, 2024 | May 5, 2023 | |||
Cash flows from operating activities: | ||||
Net loss | $ (36,076) | $ (30,970) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||
Depreciation and amortization | 5,867 | 8,980 | ||
Amortization of right of use asset | 408 | 627 | ||
Amortization of costs capitalized to obtain revenue contracts | 3,849 | 4,574 | ||
Amortization of costs capitalized to fulfill revenue contracts | — | 954 | ||
Stock-based compensation expense | 8,969 | 7,270 | ||
Impact of income tax provision | 23,586 | (7,128) | ||
Provision for credit losses | (3) | (223) | ||
Changes in assets and liabilities: | ||||
Accounts receivable | 7,135 | 15,661 | ||
Net transactions with Dell | (2,130) | 7,026 | ||
Inventories | (396) | (55) | ||
Other assets | (3,950) | (3,295) | ||
Accounts payable | 1,912 | (4,073) | ||
Deferred revenue | (5,429) | (6,167) | ||
Operating leases, net | (1,198) | (1,060) | ||
Accrued and other liabilities | (15,193) | (32,745) | ||
Net cash used in operating activities | (12,649) | (40,624) | ||
Cash flows from investing activities: | ||||
Capital expenditures | (552) | (470) | ||
Software development costs | (1,382) | (1,210) | ||
Net cash used in investing activities | (1,934) | (1,680) | ||
Cash flows from financing activities: | ||||
Taxes paid on vested restricted shares | (5,974) | (5,134) | ||
Net cash used in financing activities | (5,974) | (5,134) | ||
Effect of exchange rate changes on cash and cash equivalents | (1,074) | (1,569) | ||
Net decrease in cash and cash equivalents | (21,631) | (49,007) | ||
Cash and cash equivalents at beginning of the period | 68,655 | 143,517 | ||
Cash and cash equivalents at end of the period | $ 47,024 | $ 94,510 | ||
Non-GAAP Financial Measures
In addition to determining results in accordance with GAAP, this press release presents information about the Company's 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 Taegis Subscription Solutions 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 operating margin, non-GAAP net income (loss), non-GAAP net income (loss) before income taxes, non-GAAP earnings (loss) per share before income taxes, non-GAAP income tax expense (benefit), non-GAAP net earnings (loss) per share, adjusted EBITDA, non-GAAP gross margin, and non-GAAP Taegis Subscription Solutions gross margin, which are non-GAAP financial measures provided as a supplement to the GAAP results . A detailed discussion of our reasons for including these non-GAAP financial measures, the limitations associated with these measures, the items excluded from these measures, and our reasons for excluding these items are presented in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures" in our periodic reports filed with the SEC. The Company encourages investors to review the non-GAAP information presented in these reports in conjunction with, and as a supplement to, the presentation of GAAP financial measures.
(Tables Follow)
SECUREWORKS CORP. | |||
Reconciliation of GAAP to Non-GAAP Financial Measures | |||
(in thousands, except per share data) | |||
(unaudited) | |||
Three Months Ended | |||
May 3, | May 5, | ||
Revenue: | |||
FAQ
What was Secureworks' Q1 fiscal 2025 total revenue?
How much did Taegis revenue grow in Q1 fiscal 2025?
What is the annual recurring revenue (ARR) for Taegis as of Q1 fiscal 2025?
What was Secureworks' GAAP net loss in Q1 fiscal 2025?
How did Secureworks' non-GAAP net income perform in Q1 fiscal 2025?
What are the expected revenue and adjusted EBITDA for Secureworks in Q2 fiscal 2025?
What are Secureworks' revenue expectations for full fiscal year 2025?
