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Secureworks Reports Record Second Quarter Fiscal 2019 Results

September 5, 2018

ATLANTA--(BUSINESS WIRE)--Sep 5, 2018--Secureworks (NASDAQ: SCWX), a leading global cybersecurity company that protects organizations in the digitally connected world, today announced financial results for its second quarter ended August 3, 2018.

“The global demand for cybersecurity solutions has never been greater and as a recognized industry leader, we continue to bring technology-led solutions that leverage our unique threat intelligence to provide measureable outcomes to help protect our clients,” said Michael R. Cote, Chief Executive Officer of Secureworks.

“We had a strong second quarter, finishing with MRR growth of 12% and improving operating leverage, as we continue to gain sales momentum. I am pleased with our progress and remain excited about the significant opportunity for further growth and productivity gains as we continue to execute against our objectives,” continued Mr. Cote.

Business and operational developments for the second quarter of fiscal 2019 include:

Total value of closed deals in the second quarter increased 37 percent year over year and the total value of closed deals greater than $1 million increased 30 percent over the second quarter of fiscal 2018. The Company was recently recognized by the respected industry analyst firm Forrester. The Forrester Wave™: Global Managed Security Services (MSSPs), Q3 2018 1 report recognized Secureworks as a leader, based on a comprehensive set of evaluation criteria, including current offerings, strategy and market presence.Forrester’s Now Tech: Managed Detection and Response (MDR) Services, Q2 2018 2 report recognized Secureworks as one of only two large providers with full forensics capabilities. International revenue increased 50 percent year over year, including 53 percent in Japan. The Company was recently recognized as a leader in the IDC MarketScape: Asia/Pacific Threat Lifecycle Services 2018 Vendor Assessment 3. The Company recently launched its Red Cloak TM Partner Program, working with industry leading solution providers, making the Company’s proprietary brand of behavioral analytics and high-fidelity visibility more broadly available in the marketplace. This collaboration will generate the necessary level of telemetry to apply Red Cloak analytics effectively, regardless of which endpoint detection and response solution exists within the client environment.

____________________ 1 The Forrester Wave™: Global Managed Security Services Providers (MSSPs), Q3 2018, Forrester Research, Inc., August 20, 2018 2 Now Tech: Managed Detection And Response (MDR) Services, Q2 2018, Forrester Research, Inc., April 26, 2018 3 IDC MarketScape: Asia/Pacific Threat Lifecycle Services 2018 Vendor Assessment, July 2018, IDC #AP43699718

Second Quarter Fiscal 2019 Financial Results Highlights

GAAP revenue increased 10.8 percent to $128.8 million in the second quarter of fiscal 2019, from $116.2 million in the same period last year. Non-GAAP revenue increased 10.6 percent to $128.8 million from $116.4 million in the second quarter of fiscal 2018. GAAP gross margin was 51.4 percent in the second quarter of 2019, compared with 51.9 percent in the same period last year. Non-GAAP gross margin was 54.3 percent compared with 55.1 percent in the second quarter of fiscal 2018. GAAP net loss was $9.8 million, or $0.12 per share, in the second quarter of fiscal 2019, compared with a GAAP net loss of $10.3 million, or $0.13 per share, in the prior year. Non-GAAP net loss was $0.9 million, or $0.01 per share, in the second quarter of fiscal 2019, compared with a non-GAAP net loss of $3.5 million, or $0.04 per share, in the same prior year period. Adjusted EBITDA was $1.0 million, compared with an adjusted EBITDA loss of $1.8 million in the second quarter of fiscal 2018. Cash provided by operating activities for the three months ended August 3, 2018 was $29.3 million. Secureworks ended the second quarter of fiscal 2019 with $103.3 million in cash and cash equivalents. Monthly recurring revenue as of August 3, 2018 increased 12.0 percent to $36.2 million from $32.3 million as of August 4, 2017. The Company’s monthly recurring revenue metric represents the monthly value of its subscription contracts, including operational backlog, as of period end.

Third Quarter and Full Fiscal Year 2019 Guidance

For the third quarter of fiscal 2019, the Company expects:

Revenue of $130 to $131 million on both a GAAP and non-GAAP basis. GAAP net loss per share of $0.16 to $0.17 and non-GAAP net loss per share of $0.05 to $0.06, including approximately $0.02 per share of reorganization costs.

Based on second 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 $518 to $520 million. GAAP net loss of $48 to $50 million and $0.59 to $0.61 on a per share basis. Non-GAAP net loss per share of $0.15 to $0.17. Adjusted EBITDA loss of $3 to $5 million. Monthly recurring revenue of $37.0 to $39.0 million, at the end of the fourth quarter of fiscal 2019. Cash flow from operations of $35 to $40 million.

Conference Call Information

As previously announced, the Company will hold a conference call to discuss its fiscal 2019 second quarter and outlook for its third quarter and fiscal year 2019 on September 5, 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 third 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 the third quarter of fiscal 2019 and 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 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

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