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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2020
 
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to           
Commission File Number: 001-37748
https://cdn.kscope.io/80fd7f3d31dbefee05d20ec436aed25f-scwx-20200731_g1.jpg
 
SecureWorks Corp.
(Exact name of registrant as specified in its charter)
Delaware
27-0463349
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
One Concourse Parkway NE
Suite 500
Atlanta,
Georgia
30328
(Address of principal executive offices)
(Zip Code)
(Registrant’s telephone number, including area code): (404) 327-6339
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, SCWXThe Nasdaq Stock Market LLC
par value $0.01 per share(Nasdaq Global Select Market)
        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 
        Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No 
        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  Accelerated filer
Non-accelerated filer   Smaller reporting company 
Emerging growth company
  If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 
        As of September 4, 2020, there were 82,189,057 shares of the registrant's common stock outstanding, consisting of 12,189,057 outstanding shares of Class A common stock and 70,000,000 outstanding shares of Class B common stock.




TABLE OF CONTENTS
ITEM PAGE
 






Except where the content otherwise requires or where otherwise indicated, all references in this report to "Secureworks," "we," "us," "our" and "our Company" to refer to SecureWorks Corp. and our subsidiaries on a consolidated basis.

Part I. Financial Information
Item 1. Financial Statements
SECUREWORKS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)
(in thousands, except for per share data)
 July 31,
2020
January 31,
2020
ASSETS
Current assets: 
Cash and cash equivalents$181,494 $181,838 
Accounts receivable, net of allowances of $5,317 and $5,120, respectively
108,406 111,798 
Inventories, net705 746 
Other current assets28,134 27,449 
Total current assets318,739 321,831 
Property and equipment, net22,184 27,606 
Operating lease right-of-use assets, net21,415 23,463 
Goodwill416,487 416,487 
Intangible assets, net165,898 180,052 
Other non-current assets77,003 78,592 
Total assets$1,021,726 $1,048,031 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$19,696 $18,690 
Accrued and other current liabilities78,956 98,855 
Short-term deferred revenue174,948 175,847 
Total current liabilities273,600 293,392 
Long-term deferred revenue11,329 12,690 
Operating lease liabilities, non-current22,215 24,669 
Other non-current liabilities49,015 50,400 
Total liabilities356,159 381,151 
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock - $0.01 par value: 200,000 shares authorized; shares issued
  
Common stock - Class A of $0.01 par value: 2,500,000 shares authorized; 12,186 and 11,206 issued and outstanding, respectively.
122 112 
Common stock - Class B of $0.01 par value: 500,000 shares authorized; 70,000 shares issued and outstanding
700 700 
Additional paid in capital903,909 896,983 
Accumulated deficit(216,692)(207,929)
Accumulated other comprehensive (loss) income(2,576)(3,090)
Treasury stock, at cost - 1,257 shares
(19,896)(19,896)
Total stockholders' equity665,567 666,880 
Total liabilities and stockholders' equity$1,021,726 $1,048,031 
 The accompanying notes are an integral part of these condensed consolidated financial statements.
3


SECUREWORKS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share data)
Three Months EndedSix Months Ended
 July 31, 2020August 2, 2019July 31, 2020August 2, 2019
  
Net revenue$138,476 $136,605 $279,657 $269,447 
Cost of revenue59,900 63,595 122,809 126,436 
Gross margin78,576 73,010 156,848 143,011 
Research and development24,109 24,863 48,182 47,505 
Sales and marketing35,624 38,047 73,076 76,240 
General and administrative21,800 25,146 49,316 48,784 
Total operating expenses81,533 88,056 170,574 172,529 
Operating loss(2,957)(15,046)(13,726)(29,518)
Interest and other, net30 1,950 1,023 2,218 
Loss before income taxes(2,927)(13,096)(12,703)(27,300)
Income tax benefit(1,700)(2,836)(3,940)(8,770)
Net loss$(1,227)$(10,260)$(8,763)$(18,530)
Loss per common share (basic and diluted)$(0.02)$(0.13)$(0.11)$(0.23)
Weighted-average common shares outstanding (basic and diluted)81,417 80,674 81,177 80,571 
 The accompanying notes are an integral part of these condensed consolidated financial statements.


4


SECUREWORKS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(in thousands)
Three Months EndedSix Months Ended
July 31, 2020August 2, 2019July 31, 2020August 2, 2019
Net loss$(1,227)$(10,260)$(8,763)$(18,530)
Foreign currency translation adjustments, net of tax1,736 (1,709)514 (1,942)
Comprehensive income (loss)$509 $(11,969)$(8,249)$(20,472)

The accompanying notes are an integral part of these condensed consolidated financial statements.
5


SECUREWORKS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Six Months Ended
 July 31,
2020
August 2,
2019
Cash flows from operating activities:
Net loss$(8,763)$(18,530)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization20,872 21,148 
Stock-based compensation expense11,594 10,525 
Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies(1,242)(1,650)
Income tax benefit(3,940)(8,770)
Other non cash impacts150 1,830 
Provision for doubtful accounts1,314 1,026 
Changes in assets and liabilities:
Accounts receivable2,352 20,147 
Net transactions with parent3,822 (12,902)
Inventories41 (622)
Other assets3,537 5,514 
Accounts payable1,507 7,423 
Deferred revenue(1,784)7,175 
Accrued and other liabilities(23,437)(19,082)
Net cash provided by operating activities6,023 13,232 
Cash flows from investing activities:  
Capital expenditures(1,709)(10,659)
Net cash used in investing activities(1,709)(10,659)
Cash flows from financing activities:  
Taxes paid on vested restricted shares(4,658)(8,072)
Purchases of stock for treasury (6,377)
Net cash used in financing activities(4,658)(14,449)
Net decrease in cash and cash equivalents(344)(11,876)
Cash and cash equivalents at beginning of the period181,838 129,592 
Cash and cash equivalents at end of the period$181,494 $117,716 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6


SECUREWORKS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(in thousands, except per share data)

Three Months Ended July 31, 2020Common Stock - Class ACommon Stock - Class B
 Outstanding SharesAmountOutstanding SharesAmountAdditional Paid in CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Treasury
Stock
Total Stockholders' Equity
Balances, May 1, 202012,120 $121 70,000 $700 $898,370 $(215,465)$(4,312)$(19,896)$659,518 
Net loss     (1,227)  (1,227)
Other comprehensive income (loss)      1,736  1,736 
Vesting of restricted stock units76 1   (1)    
Grant of restricted stock awards          
Common stock withheld as payment for withholding taxes upon the vesting of restricted shares(10)   (167)   (167)
Stock-based compensation    5,707    5,707 
Balances, July 31, 202012,186 $122 70,000 $700 $903,909 $(216,692)$(2,576)$(19,896)$665,567 

Six Months Ended July 31, 2020Common Stock - Class ACommon Stock - Class B
 Outstanding SharesAmountOutstanding SharesAmountAdditional Paid in CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Treasury
Stock
Total Stockholders' Equity
Balances, January 31, 202011,206 $112 70,000 $700 $896,983 $(207,929)$(3,090)$(19,896)$666,880 
Net loss     (8,763)  (8,763)
Other comprehensive income (loss)      514  514 
Vesting of restricted stock units918 9   (9)    
Grant of restricted stock awards 455 5   (5)    
Common stock withheld as payment for withholding taxes upon the vesting of restricted shares(393)(4)  (4,654)   (4,658)
Stock-based compensation    11,594    11,594 
Balances, July 31, 202012,186 $122 70,000 $700 $903,909 $(216,692)$(2,576)$(19,896)$665,567 

Three Months Ended August 2, 2019Common Stock - Class ACommon Stock - Class B
 Outstanding SharesAmountOutstanding SharesAmountAdditional Paid in CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Treasury
Stock
Total Stockholders' Equity
Balances, May 3, 201911,521 $116 70,000 $700 $882,012 $(184,533)$(3,117)$(14,433)$680,745 
Net loss     (10,260)  (10,260)
Other comprehensive loss      (1,709) (1,709)
Vesting of restricted stock units90         
Grant of restricted stock awards          
Common stock withheld as payment for withholding taxes upon the vesting of restricted shares(8)   (607)   (607)
Stock-based compensation    5,609    5,609 
Shares repurchased(400)(4)     (5,463)(5,467)
Balances, August 2, 201911,203 $112 70,000 $700 $887,014 $(194,793)$(4,826)$(19,896)$668,311 



7


Six Months Ended August 2, 2019Common Stock - Class ACommon Stock - Class B
 Outstanding SharesAmountOutstanding SharesAmountAdditional Paid in CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Treasury
Stock
Total Stockholders' Equity
Balances, February 1, 201911,016 $110 70,000 $700 $884,567 $(176,263)$(2,884)$(13,523)$692,707 
Net loss     (18,530)  (18,530)
Other comprehensive loss      (1,942) (1,942)
Vesting of restricted stock units907 9   (9)    
Grant of restricted stock awards 122 1   (1)    
Common stock withheld as payment for withholding taxes upon the vesting of restricted shares(404)(4)  (8,068)   (8,072)
Stock-based compensation    10,525    10,525 
Shares repurchased(438)(4)     (6,373)(6,377)
Balances, August 2, 201911,203 $112 70,000 $700 $887,014 $(194,793)$(4,826)$(19,896)$668,311 


The accompanying notes are an integral part of these condensed consolidated financial statements.



8

SECUREWORKS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 — DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Description of the Business
SecureWorks Corp. (individually and collectively with its consolidated subsidiaries, "Secureworks" or the "Company") is a leading global provider of technology-driven information security solutions singularly focused on protecting the Company's customers from cyber attacks.
On April 27, 2016, the Company completed its initial public offering ("IPO"). Upon the closing of the IPO, Dell Technologies Inc. ("Dell Technologies"), owned, indirectly through Dell Inc. ("Dell") and Dell's subsidiaries, no shares of the Company's outstanding Class A common stock and all outstanding shares of the Company's outstanding Class B common stock, which as of July 31, 2020 represented approximately 85.2% of the Company's total outstanding shares of common stock and approximately 98.3% of the combined voting power of both classes of the Company's outstanding common stock.
The Company has one primary business activity, which is to provide customers with information security solutions. The Company's chief operating decision maker, who is the Chief Executive Officer, makes operating decisions, assesses performance, and allocates resources on a consolidated basis. There are no segment managers who are held accountable for operations and operating results below the consolidated unit level. Accordingly, Secureworks operates its business as a single reportable segment.
Basis of Presentation and Consolidation
The Company's condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in accordance with GAAP requires management to make assumptions and estimations that affect the amounts reported in the Company's financial statements and notes. The inputs into certain of the Company's assumptions and estimations considered the economic implications of the coronavirus disease 2019 ("COVID-19") pandemic on the Company's critical and significant accounting estimates. The condensed consolidated financial statements include assets, liabilities, revenue and expenses of all majority-owned subsidiaries.
For the periods presented, Dell has provided various corporate services to the Company in the ordinary course of business, including finance, tax, human resources, legal, insurance, IT, procurement and facilities-related services. The cost of these services is charged in accordance with a shared services agreement that went into effect on August 1, 2015. For more information regarding the charges for these services and related party transactions, see "Note 11—Related Party Transactions."
During the periods presented in the financial statements, Secureworks did not file separate federal tax returns, as the Company is generally included in the tax grouping of other Dell entities within the respective entity's tax jurisdiction. The income tax benefit has been calculated using the separate return method, modified to apply the benefits for loss approach. Under the benefits for loss approach, net operating losses or other tax attributes are characterized as realized or as realizable by Secureworks when those attributes are utilized or expected to be utilized by other members of the Dell consolidated group. See "Note 10—Income and Other Taxes" for more information.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the requirements of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statement presentation. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments consisting of normal recurring accruals and disclosures considered necessary for a fair statement have been included. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended January 31, 2020 included in Part II, Item 8 of the Company's Annual Report on Form 10-K filed with the SEC on March 27, 2020 (the "Annual Report").
Fiscal Year
The Company’s fiscal year is the 52- or 53-week period ending on the Friday closest to January 31. The Company refers to the fiscal year ending January 29, 2021 and the fiscal year ended January 31, 2020 as fiscal 2021 and fiscal 2020, respectively. Both fiscal 2021 and fiscal 2020 have 52 weeks, and each quarter has 13 weeks.
9

SECUREWORKS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Estimates are revised as additional information becomes available. In the Condensed Consolidated Statements of Operations, estimates are used when accounting for revenue arrangements, determining the cost of revenue, allocating cost and estimating the impact of contingencies. In the Condensed Consolidated Statements of Financial Position, estimates are used in determining the valuation and recoverability of assets, such as accounts receivables, inventories, fixed assets, goodwill and other identifiable intangible assets, and estimates are used in determining the reported amounts of liabilities, such as taxes payable and the impact of contingencies, all of which also impact the Condensed Consolidated Statements of Operations. Actual results could differ from these estimates due to risks and uncertainties, including uncertainty in the current economic environment due to the COVID-19 pandemic. The Company considered the potential impact of the COVID-19 pandemic on its estimates and assumptions and determined there was not a material impact to the Company's condensed consolidated financial statements as of and for the three and six months ended July 31, 2020. As the COVID-19 pandemic continues to develop, many of the Company's estimates could require increased judgment and be subject to a higher degree of variability and volatility. As events continue to evolve, the Company's estimates may change materially in future periods.
Recently Adopted Accounting Pronouncements
Debt— The Company adopted Accounting Standard Update ("ASU") 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships, and other transactions, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 was effective for the Company beginning on March 12, 2020 and will apply the amendments prospectively through December 31, 2022. There was no impact to the Company's unaudited condensed consolidated financial statements as a result of adopting this standard update. Currently, the Company's revolving credit facility references LIBOR and the Company is assessing how this standard update may be applied to any contract modification.
Intangibles - Goodwill and Other - Internal-Use Software—The Company adopted ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," effective February 1, 2020. ASU 2018-15 aligns the requirements for capitalizing implementation costs in such cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The adoption of the standard had no material impact on the condensed consolidated financial statements.
Intangibles - Goodwill and Other—The Company adopted ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," effective February 1, 2020. ASU 2017-04 eliminates Step 2 of the goodwill impairment test, which required the Company to determine the implied fair value of goodwill by allocating the reporting unit's fair value to each of its assets and liabilities as if the reporting unit was acquired in a business acquisition. The updated guidance requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit to its carrying value, and recognizing a non-cash impairment charge for the amount by which the carrying value exceeds the reporting unit's fair value, with the loss not exceeding the total amount of goodwill allocated to that reporting unit. The adoption of the standard had no impact on the condensed consolidated financial statements.
Financial Instruments - Credit Losses—The Company adopted ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," effective February 1, 2020. The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The adoption of the standard had no material impact on the condensed consolidated financial statements.
Under the new standard, the Company assesses its allowance for credit losses on trade receivables by taking into consideration forecasts of future economic conditions, information about past events, such as its historical trend of write-offs, and customer-specific circumstances, such as bankruptcies and disputes. The allowance for credit losses on trade receivables is recorded in operating expenses in the Company's condensed consolidated statement of operations.
Summary of Significant Accounting Policies
There have been no significant changes to the Company’s significant accounting policies as of and for the six months ended July 31, 2020, as compared to the significant accounting policies described in the Annual Report.

10

SECUREWORKS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Recently Issued Accounting Pronouncements
Income Taxes. In December 2019, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU No. 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocation of consolidated income taxes to separate financial statements of entities not subject to income tax. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of this new standard on its condensed consolidated financial statements.
NOTE 2 — LOSS PER SHARE
Loss per share is calculated by dividing net loss for the periods presented by the respective weighted-average number of common shares outstanding, and excludes any share-based awards that may be anti-dilutive. Diluted net loss per common share is computed by giving effect to all potentially dilutive common shares, including common stock issuable upon the exercise of stock options and unvested restricted common stock and restricted stock units. The Company applies the two-class method to calculate earnings per share. Because the Class A common stock and the Class B common stock share the same rights in dividends and earnings, earnings per share (basic and diluted) are the same for both classes. Since losses were incurred in all periods presented, all potential common shares were determined to be anti-dilutive.
The following table sets forth the computation of loss per common share (in thousands, except per share amounts):
Three Months Ended Six Months Ended
July 31, 2020August 2, 2019July 31, 2020August 2, 2019
Numerator:
Net loss$(1,227)$(10,260)$(8,763)$(18,530)
Denominator:  
Weighted-average number of shares outstanding: 
Basic and Diluted81,417 80,674 81,177 80,571 
Loss per common share:  
Basic and Diluted$(0.02)$(0.13)$(0.11)$(0.23)
Weighted-average anti-dilutive stock options, non-vested restricted stock and restricted stock units6,584 5,246 5,949 5,351 
NOTE 3 — CONTRACT BALANCES AND CONTRACT COSTS
Promises to provide services related to the Company's subscription-based solutions are accounted for as a single performance obligation over an average period of two years. Performance obligations related to the Company's security and risk consulting professional service contracts are separate obligations associated with each service. Although the Company has many multi-year customer relationships for its various professional service solutions, each arrangement is typically structured as a separate performance obligation over the contract period and recognized over a duration of less than one year.
The following table presents revenue by service type (in thousands):
Three Months EndedSix Months Ended
July 31, 2020August 2, 2019July 31, 2020August 2, 2019
Managed Security Solutions revenue$106,259 $102,768 $212,616 $201,866 
Security and Risk Consulting revenue32,217 33,837 67,041 67,581 
Total revenue$138,476 $136,605 $279,657 $269,447 

11

SECUREWORKS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The deferred revenue balance does not represent the total contract value of annual or multi-year, non-cancelable subscription agreements. Rather, it represents the aggregate amount of billing in advance of service delivery. The Company invoices its customers based on a variety of billing schedules. During the six months ended July 31, 2020, on average, 58% of the Company's recurring revenue was billed in advance and approximately 42% was billed on either a monthly or a quarterly basis. In addition, many of the Company's professional services engagements are billed in advance of service commencement. The deferred revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration and invoice timing.

Changes to the Company's deferred revenue during the six months ended July 31, 2020 and August 2, 2019 are as follows (in thousands):
As of January 31, 2020Upfront payments received and billings during the six months ended July 31, 2020Revenue recognized during the six months ended July 31, 2020As of July 31, 2020
Deferred revenue$188,537 $165,081 $(167,341)$186,277 

As of February 1, 2019Upfront payments received and billings during the six months ended August 2, 2019Revenue recognized during the six months ended August 2, 2019As of August 2, 2019
Deferred revenue$173,929 $158,769 $(151,495)$181,203 

Remaining Performance Obligation
The remaining performance obligation represents the transaction price allocated to contracted revenue that has not yet been recognized, which includes deferred revenue and non-cancellable contracts that will be invoiced and recognized as revenue in future periods. The remaining performance obligation consists of two elements: (i) the value of remaining services to be provided through the contract term for customers whose services have been activated (“active”); and (ii) the value of services contracted with customers that have not yet been installed (“backlog”). Backlog is not recorded in revenue, deferred revenue or elsewhere in the consolidated financial statements until the Company establishes a contractual right to invoice, at which point it is recorded as revenue or deferred revenue, as appropriate. The Company applies the practical expedient in Accounting Standards Codification (“ASC”) paragraph 606-10-50-14(a) and does not disclose information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less.
The Company expects that the amount of backlog relative to the total value of its contracts will change from year to year due to several factors, including the amount invoiced at the beginning of the contract term, the timing and duration of the Company's customer agreements, varying invoicing cycles of agreements and changes in customer financial circumstances. Accordingly, fluctuations in backlog are not always a reliable indicator of future revenue. 
As of July 31, 2020, the Company expects to recognize remaining performance obligations as follows (in thousands):
TotalExpected to be recognized in the next 12 monthsExpected to be recognized in 12-24 monthsExpected to be recognized in 24-36 monthsExpected to be recognized thereafter
Performance obligation - active$285,117 $161,740 $83,941 $28,445 $10,991 
Performance obligation - backlog17,286 6,624 6,309 4,104 249 
Total$302,403 $168,364 $90,250 $32,549 $11,240 

Deferred Commissions and Fulfillment Costs
The Company capitalizes a significant portion of its commission expense and related fringe benefits earned by its sales personnel. Additionally, the Company capitalizes certain costs to install and activate hardware and software used in its managed security solutions, primarily related to a portion of the compensation for the personnel who perform the installation activities. These deferred costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the assets relate.
12

SECUREWORKS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Changes in the balance of total deferred commission and total deferred fulfillment costs during the six months ended July 31, 2020 and August 2, 2019 are as follows (in thousands):
As of January 31, 2020Amount capitalizedAmount recognizedAs of July 31, 2020
Deferred commissions$62,785 $7,259 $(10,834)$59,210 
Deferred fulfillment costs11,366 3,005 (2,865)11,506 
As of February 1, 2019Amount capitalizedAmount recognizedAs of August 2, 2019
Deferred commissions$62,895 $