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Share Name | Share Symbol | Market | Type |
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SecureWorks Corp | NASDAQ:SCWX | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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-0.02 | -0.34% | 5.88 | 5.75 | 7.65 | 5.9348 | 5.80 | 5.93 | 17,363 | 21:30:00 |
SecureWorks (NASDAQ: SCWX), a leading provider of intelligence-driven information security solutions, today announced financial results for its second quarter of fiscal 2018, which ended August 4, 2017.
“We delivered solid performance this quarter driven by double-digit revenue growth, continued gross margin expansion, a narrowing of our net loss and strong operating cash flow,” said Michael R. Cote, Chief Executive Officer of SecureWorks. “Our solutions unlock the value of our clients’ cybersecurity investments, simplify their complex security operations and amplify their defenses by protecting components of their security ecosystem. Looking ahead, we remain confident in our position as a leader in the estimated $20 billion global managed security services market1 and in our ability to improve sales momentum as the changes we made to our sales organization take hold in the second half of the fiscal year.”
Business and operational highlights for the second quarter of fiscal 2018 include the following:
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1 Source: Frost & Sullivan estimates the global managed security services market will grow an average of 16 percent over the next four years, reaching approximately $20 billion by 2020. 2 Source: “IDC MarketScape: Worldwide Managed Security Services 2017 Vendor Assessment.” Doc # US41320917, Aug 2017Second Quarter Fiscal 2018 Financial Results Highlights
Third Quarter and Full Fiscal Year 2018 Guidance
Based on current market conditions, second quarter performance and the continued investment in its sales organization, the Company expects the following results for the third quarter ending on November 3, 2017 and the full fiscal year ending on February 2, 2018:
For the third quarter, the Company expects:
For fiscal year 2018, the Company now expects the following results, updating previously announced full year guidance:
In addition, the Company affirmed the following previously provided guidance:
Conference Call Information
As previously announced, the Company will hold a conference call to discuss its second quarter performance and outlook for its third quarter and full fiscal year 2018 on September 6, 2017, at 8:00 a.m. ET. A live audio webcast of the conference call will be accessible on the company’s website at http://investors.secureworks.com. The webcast 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 2018 and for full year fiscal 2018, net loss and adjusted EBITDA loss for full year fiscal 2018, capital expenditures for full year fiscal 2018, weighted average shares outstanding during the third quarter of fiscal 2018 and full year fiscal 2018, and monthly recurring revenue at the end of the fourth quarter of fiscal 2018, 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 3, 2017, 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 keeps organizations safe in a digitally connected world. We combine visibility from thousands of clients, artificial intelligence and automation from our industry-leading SecureWorks Counter Threat Platform™, and actionable insights from our team of elite researchers and analysts 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 to incidents, and predict emerging threats. We offer our clients a cyber-defense that is Collectively Smarter. Exponentially Safer.™ www.secureworks.com
(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 Six Months Ended August 4, July 29, August 4, July 29, 2017 2016 2017 2016 Net revenue $ 116,123 $ 103,653 $ 229,716 $ 203,446 Cost of revenue 56,325 52,907 110,267 102,756 Gross margin 59,798 50,746 119,449 100,690 Research and development 19,693 17,373 39,172 34,970 Sales and marketing 37,620 31,820 74,789 62,082 General and administrative 21,138 21,600 44,542 42,685 Total operating expenses 78,451 70,793 158,503 139,737 Operating loss (18,653 ) (20,047 ) (39,054 ) (39,047 ) Interest and other, net (425 ) 851 (1,074 ) 1,216 Loss before income taxes (19,078 ) (19,196 ) (40,128 ) (37,831 ) Income tax benefit (6,960 ) (7,145 ) (13,774 ) (14,153 ) Net loss $ (12,118 ) $ (12,051 ) $ (26,354 ) $ (23,678 ) Net loss per common share (basic and diluted) $ (0.15 ) $ (0.15 ) $ (0.33 ) $ (0.31 )Weighted-average common shares outstanding (basic and diluted)
80,353 80,009 80,205 75,169 Percentage of Total Net Revenue Gross margin 51.5 % 49.0 % 52.0 % 49.5 % Research and development 17.0 % 16.8 % 17.1 % 17.2 % Sales and marketing 32.4 % 30.7 % 32.6 % 30.5 % General and administrative 18.2 % 20.8 % 19.4 % 21.0 % Operating expenses 67.6 % 68.3 % 69.0 % 68.7 % Operating loss (16.1 %) (19.3 %) (17.0 %) (19.2 %) Loss before income taxes (16.4 %) (18.5 %) (17.5 %) (18.6 %) Net loss (10.4 %) (11.6 %) (11.5 %) (11.6 %) Effective tax rate 36.5 % 37.2 % 34.3 % 37.4 % Note: Percentage growth rates are calculated based on underlying data in thousands SECUREWORKS CORP. Condensed Consolidated Statements of Financial Position (in thousands) (unaudited) August 4, February 3, 2017 2017Assets:
Current assets: Cash and cash equivalents $ 97,780 $ 116,595 Accounts receivable, net 122,664 113,546 Inventories, net 1,170 1,947 Other current assets 51,004 51,947 Total current assets 272,618 284,035 Property and equipment, net 32,779 31,153 Goodwill 416,487 416,487 Purchased Intangible assets, net 248,053 261,921 Other non-current assets 6,091 5,704 Total assets $ 976,028 $ 999,300Liabilities and Stockholders’ Equity:
Current liabilities: Accounts payable $ 23,847 $ 24,119 Accrued and other 56,287 59,704 Short-term deferred revenue 133,811 119,909 Total current liabilities 213,945 203,732 Long-term deferred revenue 14,644 14,752 Other non-current liabilities 74,993 89,392 Total liabilities 303,582 307,876Stockholders’ equity
672,446 691,424Total liabilities and stockholders’ equity
$ 976,028 $ 999,300 SECUREWORKS CORP. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Six Months Ended August 4, July 29, 2017 2016 Cash flows from operating activities: Net loss $ (26,354 ) $ (23,678 ) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 20,666 19,422 Change in fair value of convertible notes - 132 Stock-based compensation expense 7,158 3,365Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies
1,456 (1,129 ) Income tax benefit (15,098 ) (14,153 ) Provision for doubtful accounts 2,591 1,340 Excess tax benefit from share-based payments - (221 ) Changes in assets and liabilities: Accounts receivable (12,491 ) 15,388 Net transactions with parent 7,653 (21,032 ) Inventories 778 25 Other assets 606 109 Accounts payable (269 ) 4,720 Deferred revenue 13,819 2,651 Accrued and other liabilities (8,930 ) (8,519 ) Net cash used in operating activities (8,415 ) (21,580 ) Cash flows from investing activities: Capital expenditures (8,376 ) (7,930 ) Net cash used in investing activities (8,376 ) (7,930 ) Cash flows from financing activities: Proceeds from IPO, net - 99,604 Capital contribution from parent, net - 9,547 Excess tax benefit from share-based payment - 221 Principal payments on financing arrangement with Dell Financial Services (800 ) - Taxes paid on vested restricted shares (1,224 ) - Net cash (used in) provided by financing activities (2,024 ) 109,372 Net (decrease) increase in cash and cash equivalents (18,815 ) 79,862 Cash and cash equivalents at beginning of the period 116,595 33,422 Cash and cash equivalents at end of the period $ 97,780 $ 113,284Non-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 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 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 going-private transaction of Dell Inc. (“Dell”), an indirect parent of the Company, that was completed on October 29, 2013. The Company believes it is useful to exclude such purchase accounting adjustments related to the foregoing transactions as this deferred revenue generally results from multi-year service contracts under which deferred revenue is established upon sale and revenue is recognized over the term of the contract. Pursuant to the fair value provisions applicable to the accounting for business combinations, GAAP requires this deferred revenue to be recorded at its fair value, which is typically less than the book value. In presenting non-GAAP earnings, the Company adds back the reduction in revenue that results from this revaluation on the expectation that a significant majority of these service contracts will be renewed in the future and therefore the revaluation is not helpful in predicting its ongoing revenue trends. The Company believes that this non-GAAP financial adjustment is useful to investors because it allows investors to (1) evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making, and (2) compare past and future reports of SecureWorks’ financial results, as the revenue reduction related to acquired deferred revenue will not recur when related service contracts are renewed in future periods.
Amortization of intangible assets. Amortization of intangible assets consists of amortization of customer relationships and acquired technology. In connection with Dell’s going-private transaction, all of the Company’s tangible and intangible assets and liabilities were accounted for and recognized at fair value on the transaction date. Accordingly, for periods after October 29, 2013, amortization of intangible assets consists of amortization associated with intangible assets recognized in connection with Dell’s going-private transaction.
Stock-based compensation. Non-cash stock-based compensation relates to awards under both the Dell Technologies 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.
Other expenses. Other expenses include professional fees incurred by the Company in connection with the Company’s initial public offering and amounts expensed in the settlement of a legal matter. The Company excludes these expenses for the purpose of calculating the non-GAAP financial measures because it believes these items are outside the ordinary course of business and do not contribute to a meaningful evaluation of its current operating performance or comparisons to its past operating performance.
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 Six Months Ended August 4, July 29, August 4, July 29, 2017 2016 2017 2016 GAAP revenue $ 116,123 $ 103,653 $ 229,716 $ 203,446 Impact of purchase accounting 146 221 292 442 Non-GAAP revenue $ 116,269 $ 103,874 $ 230,008 $ 203,888 GAAP gross margin $ 59,798 $ 50,746 $ 119,449 $ 100,690 Amortization of intangibles 3,411 3,411 6,821 6,821 Impact of purchase accounting 156 356 312 617 Stock-based compensation expense 217 156 441 175 Non-GAAP gross margin $ 63,582 $ 54,669 $ 127,023 $ 108,303 GAAP research and development expenses $ 19,693 $ 17,373 $ 39,172 $ 34,970 Stock-based compensation expense (759 ) (688 ) (1,573 ) (770 ) Non-GAAP research and development expenses $ 18,934 $ 16,685 $ 37,599 $ 34,200 GAAP sales and marketing expenses $ 37,620 $ 31,820 $ 74,789 $ 62,082 Stock-based compensation expense (411 ) (362 ) (625 ) (405 ) Non-GAAP sales and marketing expenses $ 37,209 $ 31,458 $ 74,164 $ 61,677 GAAP general and administrative expenses $ 21,138 $ 21,600 $ 44,542 $ 42,685 Amortization of intangibles (3,523 ) (3,523 ) (7,047 ) (7,047 ) Impact of purchase accounting (256 ) (177 ) (512 ) (406 ) Stock-based compensation expense (2,143 ) (1,799 ) (4,519 ) (2,015 ) Other - - - (1,164 ) Non-GAAP general and administrative expenses $ 15,216 $ 16,101 $ 32,464 $ 32,053 GAAP operating loss $ (18,653 ) $ (20,047 ) $ (39,054 ) $ (39,047 ) Amortization of intangibles 6,934 6,934 13,868 13,868 Impact of purchase accounting 412 533 824 1,023 Stock-based compensation expense 3,530 3,005 7,158 3,365 Other - - - 1,164 Non-GAAP operating loss $ (7,777 ) $ (9,575 ) $ (17,204 ) $ (19,627 ) GAAP net loss $ (12,118 ) $ (12,051 ) $ (26,354 ) $ (23,678 ) Amortization of intangibles 6,934 6,934 13,868 13,868 Impact of purchase accounting 412 533 824 1,023 Stock-based compensation expense 3,530 3,005 7,158 3,365 Other - - - 1,164 Aggregate adjustment for income taxes (4,122 ) (3,997 ) (7,356 ) (7,419 ) Non-GAAP net loss $ (5,364 ) $ (5,576 ) $ (11,860 ) $ (11,677 ) GAAP net loss per share $ (0.15 ) $ (0.15 ) $ (0.33 ) $ (0.31 ) Amortization of intangibles 0.09 0.09 0.17 0.18 Impact of purchase accounting 0.01 0.01 0.01 0.01 Stock-based compensation expense 0.04 0.04 0.09 0.04 Other - - - 0.02 Aggregate adjustment for income taxes (0.05 ) (0.06 ) (0.09 ) (0.10 ) Non-GAAP net income loss per share * $ (0.07 ) $ (0.07 ) $ (0.15 ) $ (0.16 ) * Sum of reconciling items may differ from total due to rounding of individual components GAAP net loss $ (12,118 ) $ (12,051 ) $ (26,354 ) $ (23,678 ) Interest and other, net 425 (851 ) 1,074 (1,216 ) Income tax benefit (6,960 ) (7,145 ) (13,774 ) (14,153 ) Depreciation and amortization 10,405 9,796 20,666 19,422 Stock-based compensation expense 3,530 3,005 7,158 3,365 Impact of purchase accounting 146 221 292 442 Other - - - 1,164 Adjusted EBITDA $ (4,572 ) $ (7,025 ) $ (10,938 ) $ (14,654 ) SECUREWORKS CORP. Reconciliation of GAAP to Non-GAAP Financial Measures (unaudited) Three Months Ended Six Months Ended August 4, July 29, August 4, July 29, 2017 2016 2017 2016Percentage of Total Net Revenue
GAAP gross margin 51.5 % 49.0 % 52.0 % 49.5 % Non-GAAP adjustment 3.2 % 3.6 % 3.2 % 3.6 % Non-GAAP gross margin 54.7 % 52.6 % 55.2 % 53.1 % GAAP research and development expenses 17.0 % 16.8 % 17.1 % 17.2 % Non-GAAP adjustment (0.7 %) (0.7 %) (0.8 %) (0.4 %) Non-GAAP research and development expenses 16.3 % 16.1 % 16.3 % 16.8 % GAAP sales and marketing expenses 32.4 % 30.7 % 32.6 % 30.5 % Non-GAAP adjustment (0.4 %) (0.4 %) (0.4 %) (0.2 %) Non-GAAP sales and marketing expenses 32.0 % 30.3 % 32.2 % 30.3 % GAAP general and administrative expenses 18.2 % 20.8 % 19.4 % 21.0 % Non-GAAP adjustment (5.1 %) (5.3 %) (5.3 %) (5.3 %) Non-GAAP general and administrative expenses 13.1 % 15.5 % 14.1 % 15.7 % GAAP operating loss (16.1 %) (19.3 %) (17.0 %) (19.2 %) Non-GAAP adjustment 9.4 % 10.1 % 9.5 % 9.6 % Non-GAAP operating loss (6.7 %) (9.2 %) (7.5 %) (9.6 %) GAAP net loss (10.4 %) (11.6 %) (11.5 %) (11.6 %) Non-GAAP adjustment 5.8 % 6.2 % 6.3 % 5.9 % Non-GAAP net loss (4.6 %) (5.4 %) (5.2 %) (5.7 %) SECUREWORKS CORP. Reconciliation of GAAP to Non-GAAP Financial Measures (in millions, except per share data) (unaudited) Low End of Guidance High End of Guidance Three Months Ending Full Year Ending Three Months Ending Full Year Ending October 3, 2017 February 2, 2018 October 3, 2017 February 2, 2018 GAAP revenue $ 115 $ 462 $ 116 $ 465 Impact of purchase accounting - 1 - 1 Non-GAAP revenue $ 115 $ 463 $ 116 $ 466 GAAP net loss per share $ (0.19 ) $ (0.68 ) $ (0.17 ) $ (0.65 ) Amortization of intangibles 0.09 0.35 0.09 0.35 Impact of purchase accounting 0.01 0.02 0.01 0.02 Stock-based compensation expense 0.05 0.19 0.05 0.19 Aggregate adjustment for income taxes (0.05 ) (0.20 ) (0.05 ) (0.20 )Non-GAAP net loss per share *
$ (0.10 ) $ (0.32 ) $ (0.09 ) $ (0.29 ) GAAP net loss $ (54 ) $ (52 ) Interest and other, net 2 2 Income tax benefit (30 ) (29 ) Depreciation and amortization 41 41 Stock-based compensation expense 15 15 Impact of purchase accounting 2 2Adjusted EBITDA *
$ (25 ) $ (21 )* 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
View source version on businesswire.com: http://www.businesswire.com/news/home/20170906005330/en/
SecureWorksInvestor Inquiries:Rebecca Gardy, 404-417-4803Investor Relations Officerrgardy@secureworks.comorMedia Inquiries:Elizabeth W. Clarke, 404-486-4492Director of Media Relationseclarke@secureworks.com
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