Secureworks Reports Fourth Quarter and Full Year Fiscal 2019 Results and $15 Million Increase to Stock Repurchase Program

March 27, 2019

Fourth Quarter and Full Year Fiscal 2019 Highlights

  • Revenue in fiscal 2019 of $518.7 million grew 10.9 percent over fiscal 2018, including 50 percent growth year over year in international revenue. Revenue was $130.7 million in the fourth quarter.
  • Fourth quarter 2019 net loss was $0.15 per share and $0.48 per share in the full fiscal year. Non-GAAP earnings per share were $0.02 in the fourth quarter and full fiscal year 2019.
  • GAAP net loss was $11.8 million and $39.1 million in the fourth quarter and fiscal year 2019, respectively, compared with net income of $22.5 million and net loss of $10.4 million in the fourth quarter and fiscal year 2018, respectively.
  • Adjusted EBITDA improved to $4.8 million and $11.8 million in the fourth quarter and fiscal year 2019, respectively, compared with an adjusted EBITDA loss of $5.7 million and $13.4 million in the fourth quarter and fiscal year 2018, respectively.
  • Cash flow provided by operating activities was $31.2 million and $57.2 million in the fourth quarter and fiscal year 2019, respectively, an increase from $4.0 million and $0.8 million in the fourth quarter and fiscal year 2018, respectively.
  • The Board of Directors approved a $15 million increase to the Company’s existing stock repurchase program.

ATLANTA--(BUSINESS WIRE)--Mar. 27, 2019-- Secureworks (NASDAQ: SCWX), a leading global cybersecurity company that protects organizations in the digitally connected world, today announced financial results for its fourth quarter and full fiscal year ended February 1, 2019.

“The fourth quarter marked the end to a year of strong financial results and the achievement of significant milestones in the advancement of our strategy to deliver software-driven security solutions,” said Michael R. Cote, Chief Executive Officer of Secureworks.

“The combination of our global threat intelligence, proprietary technology and multi-vendor approach, creates a powerful network effect, unique in our industry. The network effect, along with our track record of continuous innovation, are foundational to our strategy to deliver security software applications that, along with our managed security solutions and consulting services, provide customers the best available defenses,” continued Mr. Cote.

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

  • Secureworks collaborated with Dell to introduce Dell SafeGuard and Response, a portfolio of next-generation endpoint security solutions that combines the software, managed security, threat behavioral analytics and incident response expertise of Secureworks with the unified endpoint protection platform from CrowdStrike.
  • The Company recently announced the launch of its Orchestration and Automation solution to help customers speed response and streamline action to contain and eradicate threats from their environment. The solution provides open-source, digital playbooks to automate customer-specific workflows. Using a unified view of a customer’s full environment, a broad set of integrations also adds context to enrich incident data and automate response activities.

Fourth Quarter Fiscal 2019 Financial Results Highlights

  • GAAP revenue increased 8.1 percent to $130.7 million in the fourth quarter of fiscal 2019, from $120.9 million in the same period last year. Non-GAAP revenue increased 8.0 percent to $130.7 million from $121.1 million in the fourth quarter of fiscal 2018.
  • GAAP gross margin was 53.4 percent in the fourth quarter of 2019, compared with 50.2 percent in the same period last year. Non-GAAP gross margin was 56.0 percent compared with 53.3 percent in the fourth quarter of fiscal 2018.
  • GAAP net loss was $11.8 million, or $0.15 per share, in the fourth quarter of fiscal 2019, compared with GAAP net income of $22.5 million, or $0.28 per share, in the prior year. Non-GAAP income was $1.5 million, or $0.02 per share, in the fourth quarter of fiscal 2019, compared with a non-GAAP net loss of $5.3 million, or $0.07 per share, in the same prior year period.
  • Adjusted EBITDA was $4.8 million, compared with an adjusted EBITDA loss of $5.7 million in the fourth quarter of fiscal 2018.
  • Cash provided by operating activities for the three months ended February 1, 2019 was $31.2 million.
  • Secureworks ended the fourth quarter of fiscal 2019 with $129.6 million in cash and cash equivalents.
  • Monthly recurring revenue as of February 1, 2019 increased 2.5 percent to $36.2 million from $35.3 million as of February 2, 2018. The Company’s monthly recurring revenue metric represents the monthly value of its subscription contracts, including operational backlog, as of period end.

Full Year Fiscal 2019 Financial Results Highlights

  • GAAP revenue in fiscal 2019 increased 10.9 percent to $518.7 million from $467.9 million in fiscal 2018. Non-GAAP revenue increased 10.7 percent to $518.7 million from $468.5 million in fiscal 2018.
  • GAAP gross margin increased to 52.6 percent in fiscal 2019, up from 51.9 percent in the prior year. Non-GAAP gross margin increased to 55.3 percent from 55.1 percent year-over-year.
  • GAAP net loss was $39.1 million, or $0.48 per share in fiscal 2019, compared with a net loss of $10.4 million, or $0.13 per share last year. Non-GAAP net income was $1.4 million, or $0.02 per share, in fiscal 2019, compared to a non-GAAP net loss of $17.4 million, or $0.22 per share, in fiscal 2018.
  • Adjusted EBITDA was $11.8 million in fiscal 2019, compared with a loss of $13.4 million in fiscal 2018.
  • Cash provided by operating activities for the fiscal year ended February 1, 2019 was $57.2 million.

First Quarter and Full Fiscal Year 2020 Guidance

For the first quarter of fiscal 2020, the Company expects:

  • Revenue of $131 to $133 million on both a GAAP and non-GAAP basis.
  • GAAP net loss per share of $0.17 to $0.18 and non-GAAP loss per share of $0.05 to $0.06.

For the full fiscal year 2020, the Company expects:

  • GAAP and non-GAAP revenue of $565 to $575 million.
  • GAAP net loss of $48 to $51 million and $0.60 to $0.64 on a per share basis.
  • Non-GAAP loss per share of $0.09 to $0.13.
  • Adjusted EBITDA of $2 to $6 million.
  • Cash flow from operations of $25 to $35 million.

Conference Call Information

As previously announced, the Company will hold a conference call to discuss its fourth quarter and fiscal 2019 results and outlook for its first quarter and fiscal year 2020 on March 27, 2019, 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 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 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 earnings (loss) per share for the first quarter of fiscal 2020 and for full year fiscal 2020, net income (loss) and adjusted EBITDA (loss) for full year fiscal 2020, and cash flow from operations for full year fiscal 2020, 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 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 effect of Brexit on the Company's 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 risks associated with cyber attacks or other data security incidents; 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; 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 1, 2019, 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 close gaps in security layers with a Defense in Concert that combines 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 of 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.
Consolidated Statements of Operations and Related Financial Highlights
(in thousands, except per share data and percentages)
(unaudited)
                       
          Three Months Ended   Fiscal Year Ended
         

February 1,

2019

 

February 2,

2018*

 

February 1,

2019

 

February 2,

2018*

Net revenue   $ 130,710     $ 120,911     $ 518,709     $ 467,930  
Cost of revenue   60,906     60,253     246,117     225,084  
  Gross margin   69,804     60,658     272,592     242,846  
  Research and development   21,687     21,491     87,608     80,164  
  Sales and marketing   35,854     34,242     141,818     139,937  
  General and administrative   22,663     25,288     91,898     92,726  
    Total operating expenses   80,204     81,021     321,324     312,827  
  Operating loss   (10,400 )   (20,363 )   (48,732 )   (69,981 )
Interest and other, net   196     (1,782 )   2,778     (2,735 )
  Loss before income taxes   (10,204 )   (22,145 )   (45,954 )   (72,716 )
Income tax expense (benefit)   1,574     (44,662 )   (6,853 )   (62,299 )
  Net income (loss)   $ (11,778 )   $ 22,517     $ (39,101 )   $ (10,417 )
                 
Net income (loss) per common share (basic)   $ (0.15 )   $ 0.28     $ (0.48 )   $ (0.13 )
                 
Net income (loss) per common share (diluted)   $ (0.15 )   $ 0.28     $ (0.48 )   $ (0.13 )
                 

Weighted-average common sharesoutstanding (basic)

  80,587     80,357     80,710     80,280  
                       

Weighted-average common shares outstanding (diluted)

  80,587     80,528     80,710     80,280  
                       
                       

Percentage of Total Net Revenue

               
Gross margin   53.4 %   50.2 %   52.6 %   51.9 %
Research and development   16.6 %   17.8 %   16.9 %   17.1 %
Sales and marketing   27.4 %   28.3 %   27.3 %   29.9 %
General and administrative   17.3 %   20.9 %   17.7 %   19.8 %
Operating expenses   61.4 %   67.0 %   61.9 %   66.9 %
Operating loss   (8.0 )%   (16.8 )%   (9.4 )%   (15.0 )%
Loss before income taxes   (7.8 )%   (18.3 )%   (8.9 )%   (15.5 )%
Net income (loss)   (9.0 )%   18.6 %   (7.5 )%   (2.2 )%
Effective tax rate   (15.4 )%   201.7 %   14.9 %   85.7 %
                       
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.
Consolidated Statements of Financial Position
(in thousands)
(unaudited)
               
         

February 1,

2019

 

February 2,

2018*

Assets:

         
Current assets:          
  Cash and cash equivalents     $ 129,592     $ 101,539
  Accounts receivable, net     141,344     157,764
  Inventories     468     1,030
  Other current assets     27,604     40,551
    Total current assets     299,008     300,884
Property and equipment, net     35,978     33,457
Goodwill     416,487     416,487
Purchased intangible assets, net     206,448     234,184
Other non-current assets     78,238     72,069
    Total assets     $ 1,036,159     $ 1,057,081

Liabilities and Stockholders' Equity:

         
Current liabilities:          
  Accounts payable     $ 16,177     $ 23,266
  Accrued and other     86,495     81,625
  Deferred revenue     157,865     137,697
    Total current liabilities     260,537     242,588
Long-term deferred revenue     16,064     14,948
Other non-current liabilities     66,851     68,455
    Total liabilities     343,452     325,991
Stockholders' equity     692,707     731,090
Total liabilities and stockholders' equity     $ 1,036,159     $ 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.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
         
    Fiscal Year Ended
   

February 1,

2019

 

February 2,

2018*

Cash flows from operating activities:        
Net loss   $ (39,101 )   $ (10,417 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:        
Depreciation and amortization   41,207     42,171  
Stock-based compensation expense   19,370     13,790  
Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies   (1,818 )   3,256  
Income tax benefit   (6,853 )   (62,299 )
Provision for doubtful accounts   2,356     3,947  
Changes in assets and liabilities:        
Accounts receivable   13,750     (48,540 )
Net transactions with parent   (1,797 )   11,024  
Inventories   562     917  
Other assets   (7,277 )   14,610  
Accounts payable   (6,117 )   3,302  
Deferred revenue   20,942     19,560  
Accrued and other liabilities   21,975     9,466  
Net cash provided by (used in) operating activities   57,199     787  
Cash flows from investing activities:        
Capital expenditures   (10,200 )   (13,819 )
Net cash provided by (used in) investing activities   (10,200 )   (13,819 )
Cash flows from financing activities:        
Principal payments on financing arrangement with Dell Financial Services   (2,208 )   (800 )
Taxes paid on vested restricted shares   (2,207 )   (1,224 )
Purchases of stock for treasury   (13,531 )    
Payments on financed capital expenditures   (1,000 )    
Net cash provided by (used in) financing activities   $ (18,946 )   $ (2,024 )
Net (decrease) increase in cash and cash equivalents   28,053     (15,056 )
Cash and cash equivalents at beginning of the period   $ 101,539     $ 116,595  
Cash and cash equivalents at end of the period   $ 129,592     $ 101,539  
         
Supplemental Disclosures of Non-Cash Investing and Financing Activities:        
Financed capital expenditures   $ 373     $ 1,390  
Income taxes paid   $ 1,961     $ 1,152  
                 

* 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 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. 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.

Impact of Tax Cuts and Jobs Act. The impact of the Tax Cuts and Jobs Act relates to final tax provision impacts of complying with the U.S. tax reform that was enacted in December 2017, recorded in fiscal 2019, as well as the provisional tax benefit of $27.0 million that was recorded in the fourth quarter of fiscal 2018.

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   Fiscal Year Ended
       

February 1,

2019

 

February 2,

2018*

 

February 1,

2019

 

February 2,

2018*

GAAP revenue   $ 130,710     $ 120,911     $ 518,709     $ 467,930  
  Impact of purchase accounting       146         584  
    Non-GAAP revenue   $ 130,710     $ 121,057     $ 518,709     $ 468,514  
                     
GAAP gross margin   $ 69,804     $ 60,658     $ 272,592     $ 242,846  
  Amortization of intangibles   3,411     3,411     13,642     13,642  
  Impact of purchase accounting       156         624  
  Stock-based compensation expense   12     245     780     891  
    Non-GAAP gross margin   $ 73,227     $ 64,470     $ 287,014     $ 258,003  
                     
GAAP research and development expenses   $ 21,687     $ 21,491     $ 87,608     $ 80,164  
  Stock-based compensation expense   (1,163 )   (879 )   (4,133 )   (3,261 )
    Non-GAAP research and development expenses $ 20,524     $ 20,612     $ 83,475     $ 76,903  
                     
GAAP sales and marketing expenses   $ 35,854     $ 34,242     $ 141,818     $ 139,937  
  Stock-based compensation expense   (511 )   (245 )   (2,652 )   (735 )
    Non-GAAP sales and marketing expenses   $ 35,343     $ 33,997     $ 139,166     $ 139,202  
                     
GAAP general and administrative expenses   $ 22,663     $ 25,288     $ 91,898     $ 92,726  
  Amortization of intangibles   (3,524 )   (3,522 )   (14,094 )   (14,095 )
  Impact of purchase accounting       (256 )       (1,025 )
  Stock-based compensation expense   (3,209 )   (2,330 )   (11,805 )   (8,903 )
    Non-GAAP general and administrative expenses $ 15,930     $ 19,180     $ 65,999     $ 68,703  
                     
GAAP operating income (loss)   $ (10,400 )   $ (20,363 )   $ (48,732 )   $ (69,981 )
  Amortization of intangibles   6,934     6,933     27,736     27,737  
  Impact of purchase accounting       412         1,649  
  Stock-based compensation expense   4,895     3,699     19,370     13,790  
    Non-GAAP operating loss   $ 1,429     $ (9,319 )   $ (1,626 )   $ (26,805 )
                     
GAAP net income (loss)   $ (11,778 )   $ 22,517     $ (39,101 )   $ (10,417 )
  Amortization of intangibles   6,934     6,933     27,736     27,737  
  Impact of purchase accounting       412         1,649  
  Stock-based compensation expense   4,895     3,699     19,370     13,790  
  Impact of Tax Cuts and Jobs Act   4,325     (34,993 )   4,325     (34,993 )
  Aggregate adjustment for income taxes   (2,848 )   (3,876 )   (10,978 )   (15,129 )
    Non-GAAP net income (loss)   $ 1,528     $ (5,308 )   $ 1,352     $ (17,363 )
                     
GAAP earnings (loss) per share   $ (0.15 )   $ 0.28     $ (0.48 )   $ (0.13 )
  Amortization of intangibles   0.08     0.09     0.34     0.35  
  Impact of purchase accounting       0.01         0.02  
  Stock-based compensation expense   0.06     0.05     0.24     0.17  
  Impact of Tax Cuts and Jobs Act   0.05     (0.44 )   0.05     (0.44 )
  Aggregate adjustment for income taxes   (0.03 )   (0.05 )   (0.13 )   (0.19 )
    Non-GAAP earnings (loss) per share *   $ 0.02     $ (0.07 )   $ 0.02     $ (0.22 )
                     
* Sum of reconciling items may differ from total due to rounding of individual components    
                     
GAAP net income (loss)   $ (11,778 )   $ 22,517     $ (39,101 )   $ (10,417 )
  Interest and other, net   (196 )   1,782     (2,778 )   2,735  
  Income tax expense (benefit)   1,574     (44,662 )   (6,853 )   (62,299 )
  Depreciation and amortization   10,335     10,851     41,207     42,171  
  Stock-based compensation expense   4,895     3,698     19,370     13,790  
  Impact of purchase accounting       146         584  
    Adjusted EBITDA   $ 4,830     $ (5,668 )   $ 11,845     $ (13,436 )
                                     

* 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
(unaudited)
                     
                     
        Three Months Ended   Fiscal Year Ended

Percentage of Total Net Revenue

 

February 1,

2019

 

February 2,

2018*

 

February 1,

2019

 

February 2,

2018*

                 
GAAP gross margin   53.4 %   50.2 %   52.6 %   51.9 %
  Non-GAAP adjustment   2.6 %   3.1 %   2.7 %   3.2 %
Non-GAAP gross margin   56.0 %   53.3 %   55.3 %   55.1 %
                     
GAAP research and development expenses   16.6 %   17.8 %   16.9 %   17.1 %
  Non-GAAP adjustment   (0.9 )%   (0.8 )%   (0.8 )%   (0.7 )%
Non-GAAP research and development expenses   15.7 %   17.0 %   16.1 %   16.4 %
                     
GAAP sales and marketing expenses   27.4 %   28.3 %   27.3 %   29.9 %
  Non-GAAP adjustment   (0.4 )%   (0.2 )%   (0.5 )%   (0.2 )%
Non-GAAP sales and marketing expenses   27.0 %   28.1 %   26.8 %   29.7 %
                     
GAAP general and administrative expenses   17.3 %   20.9 %   17.7 %   19.8 %
  Non-GAAP adjustment   (5.1 )%   (5.1 )%   (5.0 )%   (5.1 )%
Non-GAAP general and administrative expenses   12.2 %   15.8 %   12.7 %   14.7 %
                     
GAAP operating income (loss)   (8.0 )%   (16.8 )%   (9.4 )%   (15.0 )%
  Non-GAAP adjustment   9.1 %   9.1 %   9.1 %   9.3 %
Non-GAAP operating income (loss)   1.1 %   (7.7 )%   (0.3 )%   (5.7 )%
                     
GAAP net income (loss)   (9.0 )%   18.6 %   (7.5 )%   (2.2 )%
  Non-GAAP adjustment   10.2 %   (23.0 )%   7.8 %   (1.5 )%
Non-GAAP net income (loss)   1.2 %   (4.4 )%   0.3 %   (3.7 )%
                         

* 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 Ending

May 3, 2019

   

Fiscal Year Ending

January 31, 2020

     

Low End

of

Guidance

 

High End

of

Guidance

   

Low End

of

Guidance

 

High End

of

Guidance

                     
  GAAP revenue   $ 131     $ 133       $ 565     $ 575  
                     
  GAAP net loss per share   $ (0.18 )   $ (0.17 )     $ (0.64 )   $ (0.60 )
  Amortization of intangibles   0.09     0.09       0.34     0.34  
  Stock-based compensation expense   0.07     0.07       0.33     0.33  
  Aggregate adjustment for income taxes   (0.04 )   (0.04 )     (0.16 )   (0.16 )
  Non-GAAP net loss per share*   $ (0.06 )   $ (0.05 )     $ (0.13 )   $ (0.09 )
                     
  GAAP net loss             $ (51 )   $ (48 )
  Interest and other, net                  
  Income tax benefit             (16 )   (15 )
  Depreciation and amortization             42     42  
  Stock-based compensation expense             27     27  
  Adjusted EBITDA*             $ 2     $ 6  
                     
  Other Items                  
  Effective tax rate                 24 %
  Weighted average shares outstanding (in millions)                 80.5  
  Cash flows from operations                 $25-$35
  Capital expenditures                 $12-$14
                     

*

Sum of reconciling items may differ from total due to rounding of individual components

 

Sum of quarterly guidance may differ from full year guidance due to rounding

 

Source: Secureworks

Investor Inquiries:
Teri Miller
VP, Chief Accounting Officer
678-268-4389
temiller@secureworks.com

Media Inquiries:
Doreen Kelly Ruyak
Corporate Communications
202-744-9767
press@secureworks.com


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