SecureWorks Corp [SCWX] Filings

10-Q 1 scwx-20241101.htm 10-Q scwx-20241101

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 November 1, 2024


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

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 class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock,	SCWX	The 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 December 2, 2024, there were 88,890,066 shares of the registrant's common stock outstanding, consisting of 18,890,066 outstanding shares of Class A common stock and 70,000,000 outstanding shares of Class B common stock.

TABLE OF CONTENTS

ITEM

PAGE

Part I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

Condensed Consolidated Statements of Financial Position as of November 1, 2024 and February 2, 2024 (unaudited)

Condensed Consolidated Statements of Operations for the three and nine months ended November 1, 2024 and November 3, 2023 (unaudited)

Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended November 1, 2024 and November 3, 2023 (unaudited)

Condensed Consolidated Statements of Cash Flows for the nine months ended November 1, 2024 and November 3, 2023 (unaudited)

Condensed Consolidated Statement of Stockholders' Equity for the three and nine months ended November 1, 2024 and November 3 , 2023 (unaudited)

Notes to Condensed Consolidated Financial Statements (unaudited)

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

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)


	November 1, 2024		February 2, 2024

ASSETS
Current assets:
Cash and cash equivalents	$	53,088	$	68,655
Accounts receivable, net of allowances of $1,739 and $1,552, respectively	53,740		54,266

Other current assets	13,388		15,218
Total current assets	120,216		138,139
Property and equipment, net	1,424		2,149
Operating lease right-of-use assets, net	3,637		5,069
Goodwill	425,118		425,472
Intangible assets, net	73,309		83,235
Other non-current assets	41,272		70,715
Total assets	$	664,976	$	724,779

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	7,389	$	8,974
Accrued and other current liabilities	63,076		61,895
Short-term deferred revenue	124,980		131,245

Total current liabilities	195,445		202,114
Long-term deferred revenue	11,235		5,706
Operating lease liabilities, non-current	4,833		7,803
Other non-current liabilities	9,110		7,831
Total liabilities	220,623		223,454
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; 18,890 and 16,392 shares issued and outstanding, at November 1, 2024 and February 2, 2024, respectively.	189		164
Common stock - Class B of $0.01 par value: 500,000 shares authorized; 70,000 shares issued and outstanding	700		700
Additional paid in capital	1,017,953		996,291
Accumulated deficit	(548,469)		(470,163)
Accumulated other comprehensive loss	(6,124)		(5,771)
Treasury stock, at cost - 1,257 shares	(19,896)		(19,896)
Total stockholders' equity	444,353		501,325
Total liabilities and stockholders' equity	$	664,976	$	724,779

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

SECUREWORKS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share data)


	Three Months Ended				Nine Months Ended
	November 1, 2024		November 3, 2023		November 1, 2024		November 3, 2023

Net revenue:
Subscription	$	71,407	$	75,212	$	214,920	$	229,296
Professional services	11,326		14,152		35,647		47,429
Total net revenue	82,733		89,364		250,567		276,725
Cost of revenue:
Subscription	19,885		25,986		61,767		87,089
Professional services	6,782		8,629		20,221		30,369
Total cost of revenue	26,667		34,615		81,988		117,458
Gross profit	56,066		54,749		168,579		159,267
Operating expenses:
Research and development	24,344		26,358		71,696		85,766
Sales and marketing	26,090		27,079		74,503		92,842
General and administrative	27,790		20,565		66,860		63,194
Reorganization and other related charges	—		—		1,476		14,232
Total operating expenses	78,224		74,002		214,535		256,034
Operating loss	(22,158)		(19,253)		(45,956)		(96,767)
Interest and other (expense) income, net	(483)		684		(561)		(1,698)
Loss before income taxes	(22,641)		(18,569)		(46,517)		(98,465)
Income tax expense (benefit)	4,860		(4,148)		31,789		(20,715)
Net loss	$	(27,501)	$	(14,421)	$	(78,306)	$	(77,750)

Loss per common share (basic and diluted)	$	(0.31)	$	(0.17)	$	(0.89)	$	(0.90)
Weighted-average common shares outstanding (basic and diluted)	88,847		86,278		88,300		85,943

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

SECUREWORKS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

(in thousands)


	Three Months Ended				Nine Months Ended
	November 1, 2024		November 3, 2023		November 1, 2024		November 3, 2023
Net loss	$	(27,501)	$	(14,421)	$	(78,306)	$	(77,750)
Foreign currency translation adjustments, net of tax	305		(2,038)		(353)		(1,379)
Comprehensive loss	$	(27,196)	$	(16,459)	$	(78,659)	$	(79,129)

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

SECUREWORKS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)


	Nine Months Ended
	November 1, 2024		November 3, 2023
Cash flows from operating activities:
Net loss	$	(78,306)	$	(77,750)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	17,065		26,028
Amortization of right of use asset	1,315		1,686
Reorganization and other related charges	—		3,272

Amortization of costs capitalized to obtain revenue contracts	11,069		12,964
Amortization of costs capitalized to fulfill revenue contracts	—		2,562

Stock-based compensation expense	28,992		24,852

Impact of income tax provision	25,486		(20,715)

Provision for credit losses	297		232
Changes in assets and liabilities:
Accounts receivable	159		15,292
Net transactions with Dell	(5,506)		3,790

Other assets	(1,407)		(2,544)
Accounts payable	(1,546)		(7,280)
Deferred revenue	(537)		(19,933)
Operating leases, net	(3,506)		(3,236)
Accrued and other liabilities	5,972		(29,127)
Net cash used in operating activities	(453)		(69,907)
Cash flows from investing activities:
Capital expenditures	(1,509)		(875)
Software development costs	(4,942)		(4,106)

Net cash used in investing activities	(6,451)		(4,981)
Cash flows from financing activities:

Taxes paid on vested restricted shares	(7,305)		(5,947)



Net cash used in financing activities	(7,305)		(5,947)
Effect of exchange rate changes on cash and cash equivalents	(1,358)		(4,577)
Net decrease in cash and cash equivalents	(15,567)		(85,412)
Cash and cash equivalents at beginning of the period	68,655		143,517
Cash and cash equivalents at end of the period	$	53,088	$	58,105

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

SECUREWORKS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

(in thousands, except per share data)


Three Months Ended November 1, 2024	Common Stock - Class A			Common Stock - Class B
	Outstanding Shares	Amount		Outstanding Shares	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
Balances, August 2, 2024	18,758	$	188	70,000	$	700	$	1,006,798	$	(520,968)	$	(6,429)	$	(19,896)	$	460,393
Net loss	—	—		—	—		—		(27,501)		—		—		(27,501)
Other comprehensive income	—	—		—	—		—		—		305		—		305
Vesting of restricted stock units	182	2		—	—		(2)		—		—		—		—

Common stock withheld as payment for withholding taxes upon the vesting of restricted shares	(50)	(1)		—	—		(294)		—		—		—		(295)
Stock-based compensation	—	—		—	—		11,451		—		—		—		11,451

Balances, November 1, 2024	18,890	$	189	70,000	$	700	$	1,017,953	$	(548,469)	$	(6,124)	$	(19,896)	$	444,353


Nine Months Ended November 1, 2024	Common Stock - Class A			Common Stock - Class B
	Outstanding Shares	Amount		Outstanding Shares	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
Balances, February 2, 2024	16,392	$	164	70,000	$	700	$	996,291	$	(470,163)	$	(5,771)	$	(19,896)	$	501,325
Net loss	—	—		—	—		—		(78,306)		—		—		(78,306)
Other comprehensive loss	—	—		—	—		—		—		(353)		—		(353)
Vesting of restricted stock units	3,679	37		—	—		(37)		—		—		—		—

Common stock withheld as payment for withholding taxes upon the vesting of restricted shares	(1,181)	(12)		—	—		(7,293)		—		—		—		(7,305)
Stock-based compensation	—	—		—	—		28,992		—		—		—		28,992

Balances, November 1, 2024	18,890	$	189	70,000	$	700	$	1,017,953	$	(548,469)	$	(6,124)	$	(19,896)	$	444,353

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

SECUREWORKS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

(in thousands, except per share data)


Three Months Ended November 3, 2023	Common Stock - Class A			Common Stock - Class B
	Outstanding Shares	Amount		Outstanding Shares	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
Balances, August 4, 2023	16,235	$	162	70,000	$	700	$	976,532	$	(447,450)	$	(5,578)	$	(19,896)	$	504,470
Net loss	—	—		—	—		—		(14,421)		—		—		(14,421)
Other comprehensive loss	—	—		—	—		—		—		(2,038)		—		(2,038)
Vesting of restricted stock units	142	1		—	—		(1)		—		—		—		—


Common stock withheld as payment for withholding taxes upon the vesting of restricted shares	(48)	—		—	—		(236)		—		—		—		(236)
Stock-based compensation	—	—		—	—		9,962		—		—		—		9,962

Balances, November 3, 2023	16,329	$	163	70,000	$	700	$	986,257	$	(461,871)	$	(7,616)	$	(19,896)	$	497,737


Nine Months Ended November 3, 2023	Common Stock - Class A			Common Stock - Class B
	Outstanding Shares	Amount		Outstanding Shares	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
Balances, February 3, 2023	14,749	$	147	70,000	$	700	$	967,367	$	(384,121)	$	(6,237)	$	(19,896)	$	557,961
Net loss	—	—		—	—		—		(77,750)		—		—		(77,750)
Other comprehensive loss	—	—		—	—		—		—		(1,379)		—		(1,379)
Vesting of restricted stock units	2,355	24		—	—		(24)		—		—		—		—

Grant and forfeitures of restricted stock awards	—	—		—	—		—		—		—		—		—
Common stock withheld as payment for withholding taxes upon the vesting of restricted shares	(775)	(8)		—	—		(5,938)		—		—		—		(5,947)
Stock-based compensation	—	—		—	—		24,852		—		—		—		24,852

Balances, November 3, 2023	16,329	$	163	70,000	$	700	$	986,257	$	(461,871)	$	(7,616)	$	(19,896)	$	497,737

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

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 cybersecurity provider of technology-driven security solutions, singularly focused on protecting the Company’s customers.

The Company has one primary business activity, which is to provide customers with technology-driven cybersecurity 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.

On April 27, 2016, the Company completed its initial public offering, or IPO. Upon the closing of the IPO, Dell Technologies Inc., or Dell Technologies, owned, indirectly through Dell and its subsidiaries, all shares of the Company’s outstanding Class B common stock, which as of November 1, 2024, represented approximately 78.7% of the Company’s total outstanding shares of common stock and approximately 97.4% of the combined voting power of both classes of the Company’s outstanding common stock.

Except where the context otherwise requires or where otherwise indicated, all references in this report to “Secureworks,” “we,” “us,” “our,” and “Company” refer to SecureWorks Corp. and our subsidiaries on a consolidated basis. References to “Dell” refer to Dell Inc. and its subsidiaries on a consolidated basis.

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, or GAAP. Certain amounts from prior years have been reclassified to conform to current year presentation. Preparing 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 condensed consolidated financial statements include assets, liabilities, revenue, and expenses of all majority-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation.

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, as amended or amended and restated, in part, from time to time, that went into effect on August 1, 2015. For more information regarding related party transactions, see “Note 10—Related Party Transactions.”

Merger Agreement

On October 21, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Sophos Inc., a Massachusetts corporation (“Parent”) and Project Green Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub” and together with Parent, the “Buyer Parties”). Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and becoming a wholly owned subsidiary of Parent (the “Merger”). The Buyer Parties are affiliates of investment funds managed by Thoma Bravo, L.P.

If the Merger is consummated, the Company intends to delist its Class A common stock from the Nasdaq Global Select Market of the Nasdaq Stock Market LLC and deregister its Class A common stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as promptly as practicable following the Effective Time (as defined in the Merger Agreement).

At the Effective Time each share of Class A common stock of the Company, par value $0.01 per share, and Class B common stock, par value $0.01 per share, that is issued and outstanding as of immediately prior to the Effective Time (other than Dissenting Shares (as defined in the Merger Agreement) or shares (i) held in the Company’s treasury, (ii) owned by Parent, Merger Sub or their respective direct or indirect wholly owned subsidiaries or (iii) owned by any direct or indirect wholly owned subsidiary of the Company) will be converted into the right to receive cash in an amount equal to $8.50, without interest thereon.

SECUREWORKS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

any order or other legal restraint that makes consummation of the Merger illegal or otherwise prohibited, (iv) at least 20 calendar days have elapsed since the Company’s mailing to the Company’s stockholders of the information statement on Schedule 14C, and (v) the absence of any Company Material Adverse Effect (as defined in the Merger Agreement) since the date of the Merger Agreement that has occurred that is continuing.

Following the execution of the Merger Agreement, on October 21, 2024, Dell Technologies Inc., a Delaware corporation, who, as of October 21, 2024 indirectly held approximately 97.4% of the combined voting power of the outstanding shares of Class A common stock and Class B common stock executed and delivered to the Company a written consent, or Written Consent, approving and adopting the Merger Agreement and the transactions contemplated therein, including the Merger. As a result of the execution and delivery of the Written Consent, the holders of at least a majority of the outstanding shares of Class A common stock and Class B common stock with the right to vote thereon have adopted and approved the Merger Agreement. The delivery of the Written Consent constituted the necessary approvals of stockholders for the approval of the Merger, subject to the other conditions set forth in the Merger Agreement.

During the period prior to the closing of the Merger and pursuant to the terms of the Merger Agreement, the Company is subject to certain contractual restrictions that limit the Company’s ability to take certain actions, including the ability to undertake acquisitions, investments or capital expenditures or to incur indebtedness, subject to certain exceptions.

The Merger Agreement contains certain termination rights for the Company, on the one hand, and Parent, on the other hand, including that, subject to certain limitations, the Company or Parent may terminate the Merger Agreement if the Merger is not consummated by 11:59 p.m. Eastern Time, on June 20, 2025 or such other date as may be mutually agreed upon in writing by the parties (the “End Date”). Upon termination of the Merger Agreement under specified circumstances, including if the Merger Agreement is terminated under certain circumstances and prior to such termination, an Acquisition Proposal for an Acquisition Transaction (each as defined in the Merger Agreement) is publicly known and not publicly withdrawn and, within twelve months after the date of such termination, an Acquisition Transaction is consummated or the Company enters into an agreement providing for the consummation of an Acquisition Transaction, the Company will be required to pay Parent a termination fee of $26,000,000.

In addition, Parent will be required to pay the Company a termination fee of $52,000,000 under certain circumstances, including if the Company terminates the Merger Agreement (i) due to Parent or Merger Sub breaching its representations, warranties or covenants that would have a Parent Material Adverse Effect and is incapable of being cured by the End Date or (ii) because all conditions to the Merger have been satisfied (subject to customary exceptions) and the Buyer Parties fail to consummate the Merger within three business days after the later of receiving written notification from the Company and the day on which the Closing should have occurred.

On November 22, 2024, the Company filed with the SEC its definitive information statement on Schedule 14C in connection with the Merger.

Completion of the Merger is currently expected to occur in early 2025, subject to regulatory approvals and other conditions.

Revisions

The Company’s historical classification of the effects of exchange rate changes on the Company’s foreign-denominated cash and cash equivalents balances was not presented separately as the effect of exchange rate changes on cash and cash equivalents in the Company’s Condensed Consolidated Statements of Cash Flows, but rather was included as a component of net cash provided by (used in) operating activities and investing activities. The Company has revised the Condensed Consolidated Statements of Cash Flows for each fiscal quarter of fiscal 2024 to correct these classifications. For the nine months ended November 3, 2023, the impact of this correction was a decrease of $4.6 million in net cash used in operating activities and other de minimis impacts to cash flows from capital expenditures, as included in total cash used in investing activities. The corresponding amounts are presented separately as the effect of exchange rate changes on cash and cash equivalents. These revisions do not impact the Condensed Consolidated Statements of Operations, the Condensed Consolidated Statements of Comprehensive Loss, or the Condensed Consolidated Statements of Financial Position.

The Company has concluded that the effects of this revision are not material to any of our previously issued financial statements. This revision impacts our unaudited interim Condensed Consolidated Financial Statements for each fiscal quarter in fiscal 2024.

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 fiscal year ending January 31, 2025, and fiscal year ended February 2, 2024, as fiscal 2025 and fiscal 2024, respectively. Fiscal 2025 and fiscal 2024 each consist of 52 weeks and each quarter consists of 13 weeks. Unless otherwise indicated, all changes identified for the current-period results represent comparisons to results for the prior corresponding fiscal periods.

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, estimating the impact of contingencies, and evaluating long-lived asset impairment. 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, capitalized software, goodwill, and other identifiable intangible assets. Estimates are also used in determining the reported amounts of liabilities, such as taxes payable and the impact of contingencies. All estimates 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 and impacts of inflation. The Company considered the potential impact of the current economic and geopolitical uncertainties on its estimates and assumptions, and it determined there was not a material impact to the Company’s condensed consolidated financial statements as of and for the three and nine months ended November 1, 2024. As the current economic environment and certain geopolitical uncertainties continue to develop, many of the Company’s estimates could require increased judgment and be subject to a higher degree of variability and volatility. As a result, the Company’s estimates may change materially in future periods.

Liquidity

The Company has incurred losses from operations and operating cash outflows in recent periods and, as of the balance sheet date, the Company has reported a deficit in working capital.

The Company’s prior reorganization actions are expected to result in significant cost savings as the Company completes a

transition to higher value, higher margin Taegis solutions. The Company expects that this transition better positions the Company for growth with improving operating margins over time. In the event the Company’s financial results are below its expectations, the Company may need to take additional actions to preserve existing cash reserves.

As of November 1, 2024, the Company held $53.1 million in cash and cash equivalents. There were no amounts drawn on the $50 million revolving credit facility with Dell as of November 1, 2024. The Company believes that its cash and cash equivalents and access to the revolving credit facility will provide sufficient liquidity to meet its cash requirements, including to fund its business and meet its obligations, for at least 12 months from the filing date of this report.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, “Income Statement (Topic 220): Disaggregation of Income Statement Expenses”, which requires additional, disaggregated disclosure about certain income statement expense line items. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. The Company is currently evaluating the potential impact of adopting this guidance on our Consolidated Financial Statements and related disclosures.

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The updated standard is effective for our annual periods beginning in the fiscal year ending January 31, 2025 and interim periods beginning in the first quarter of fiscal 2026. The Company is currently evaluating the potential impact of adopting this guidance on our Consolidated Financial Statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which expands the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. The ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024. The Company is currently evaluating the potential impact of adopting this guidance on our Consolidated Financial Statements and related disclosures.

Recently Adopted Accounting Pronouncements

None.

Summary of Significant Accounting Policies

There have been no significant changes to the Company’s significant accounting policies as of and for the three and nine months ended November 1, 2024, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2024.

SECUREWORKS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 it excludes any dilutive effects of 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 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 of common stock. 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				Nine Months Ended
	November 1, 2024		November 3, 2023		November 1, 2024		November 3, 2023
Numerator:
Net loss	$	(27,501)	$	(14,421)	$	(78,306)	$	(77,750)
Denominator:
Weighted-average number of shares outstanding:
Basic and Diluted	88,847		86,278		88,300		85,943

Loss per common share:
Basic and Diluted	$	(0.31)	$	(0.17)	$	(0.89)	$	(0.90)

Weighted-average anti-dilutive share-based awards	10,593		8,845		9,673		7,693

SECUREWORKS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3 — CONTRACT BALANCES AND CONTRACT COSTS

The Company derives revenue primarily from subscriptions and professional services. Subscription revenue is derived from (i) Taegis software-as-a-service, or SaaS, security platform and supplemental Managed Detection and Response, or MDR, services, and (ii) Managed Security Services. Taegis’ core offerings are the security platform, Taegis Extended Detection and Response, or XDR, and the supplemental MDR service, ManagedXDR. Managed Security Services are subscription-based arrangements that typically include a suite of security services utilizing the Company’s legacy platform. During the three months ended November 1, 2024, the Company did not derive any subscription revenue from Managed Security Services. Professional services typically include incident response, adversarial testing services, and other security consulting arrangements.

The following table presents revenue by service type (in thousands):


	Three Months Ended				Nine Months Ended
	November 1, 2024		November 3, 2023		November 1, 2024		November 3, 2023
Net revenue:
Taegis Subscription Solutions	$	71,407	$	67,346	$	211,681	$	196,368
Managed Security Services	—		7,866		3,239		32,928
Total Subscription revenue	$	71,407	$	75,212	$	214,920	$	229,296
Professional Services	11,326		14,152		35,647		47,429
Total net revenue	$	82,733	$	89,364	$	250,567	$	276,725

Promises to provide the Company’s subscription-based SaaS solutions are accounted for as separate performance obligations and managed security services are accounted for as a single performance obligation. Our subscription contracts typically range from one to three years. Performance obligations related to the Company’s professional services contracts are separate obligations associated with each service. Although the Company has multi-year customer relationships for various professional service solutions, the arrangement is typically structured as a separate performance obligation over the contract period and recognized over a duration of less than one year.

The deferred revenue balance does not represent the total contract value of annual or multi-year, non-cancelable subscription agreements. The Company invoices its customers based on a variety of billing schedules. During the nine months ended November 1, 2024, on average, approximately 66% of the Company’s recurring revenue was billed annually in advance and approximately 34% was billed on either a monthly or quarterly basis in advance. 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, billing frequency, and invoice timing.

Changes to the Company’s deferred revenue during the nine months ended November 1, 2024 and November 3, 2023 are as follows (in thousands):


	As of February 2, 2024		Upfront payments received and billings during the nine months ended November 1, 2024		Revenue recognized during the nine months ended November 1, 2024		As of November 1, 2024
Deferred revenue	$	136,951	$	159,528	$	(160,264)	$	136,215


	As of February 3, 2023		Upfront payments received and billings during the nine months ended November 3, 2023		Revenue recognized during the nine months ended November 3, 2023		As of November 3, 2023
Deferred revenue	$	156,332	$	150,135	$	(173,281)	$	133,186

SECUREWORKS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 are expected to 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, or active; and (ii) the value of subscription-based solutions contracted with customers that have not yet been provisioned, or 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 backlog is recorded as revenue or deferred revenue, as appropriate. The Company applies the practical expedient in Accounting Standards Codification 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 revenues.

As of November 1, 2024, the Company expects to recognize remaining performance obligations as follows (in thousands):


	Total		Expected to be recognized in the next 12 months		Expected to be recognized in 12-24 months		Expected to be recognized in 24-36 months		Expected to be recognized thereafter
Performance obligation - active	$	175,011	$	108,018	$	45,622	$	17,253	$	4,118
Performance obligation - backlog	5,284		1,876		1,525		1,303		580
Total remaining performance obligations	$	180,295	$	109,894	$	47,147	$	18,556	$	4,698

Deferred Commissions and Fulfillment Costs

The Company capitalizes a significant portion of its commission expense and related fringe benefits earned by its sales personnel and recognizes these deferred commissions on a straight-line basis over the life of the customer relationship (estimated to be six years). Historically, the Company capitalized certain costs to install and activate hardware and software used in its managed security services, primarily related to a portion of the compensation for the personnel who perform the installation activities. These deferred fulfillment costs were amortized on a systematic basis consistent with the transfer to the customer of the goods or services to which the assets relate.

Changes in the balance of total deferred commission and total deferred fulfillment costs during the nine months ended November 1, 2024 and November 3, 2023 are as follows (in thousands):


	As of February 2, 2024		Amount capitalized		Amount recognized		As of November 1, 2024
Deferred commissions	$	41,815	$	4,906	$	(11,069)	$	35,652
Deferred fulfillment costs	—		—		—		—


	As of February 3, 2023		Amount capitalized		Amount recognized		As of November 3, 2023
Deferred commissions	$	49,565	$	6,155	$	(12,964)	$	42,756
Deferred fulfillment costs	3,232		—		(2,562)		670

During the fourth quarter of fiscal 2022, Secureworks announced the end-of-sale for a number of managed security service offerings effective the first day of fiscal 2023. In addition, renewals associated with many of these existing other managed security subscription services were not extended beyond the end of fiscal 2023. These deferred fulfillment costs were fully amortized as of the end of fiscal 2024, and the Company no longer has new deferred fulfillment costs related to these offerings that meet the criteria for capitalization in accordance with ASC 340.

SECUREWORKS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 4 — GOODWILL AND INTANGIBLE ASSETS

Goodwill relates to the acquisition of Dell by Dell Technologies and represents the excess of the purchase price attributable to Secureworks over the fair value of the assets acquired and liabilities assumed, as well as subsequent business combinations completed by the Company. Goodwill decreased $0.4 million due to foreign currency translation for the nine months ended November 1, 2024, compared to February 2, 2024. Goodwill totaled $425.1 million and $425.5 million as of November 1, 2024 and February 2, 2024, respectively.

Goodwill and indefinite-lived intangible assets are tested for impairment on an annual basis during the third fiscal quarter of each fiscal year, or earlier if an indicator of impairment occurs. The Company completed the most recent annual impairment test in the third quarter of fiscal 2025 by performing a "Step 0" qualitative assessment of goodwill at the reporting unit level, as well as the Company’s indefinite-lived trade name asset at the individual asset level. The Company has one reporting unit. The qualitative assessment includes the Company’s consideration of the relevant events and circumstances that would affect the Company’s single reporting unit and indefinite-lived assets, including macroeconomic, industry and market conditions, the Company’s overall financial performance including changes to its cost structure and trends in the market price of the Company’s Class A common stock. After assessing the totality of these events and circumstances, the Company determined it was not more-likely-than not that the fair value of the reporting unit and indefinite-lived intangible asset was less than their respective carrying values. No triggering events have transpired since the performance of the qualitative assessment that would indicate a potential impairment occurred during the period through November 1, 2024.

Intangible Assets

The Company’s intangible assets as of November 1, 2024 and February 2, 2024 were as follows:


	November 1, 2024						February 2, 2024
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net

	(in thousands)
Customer relationships	$	189,518	$	(158,195)	$	31,323	$	189,518	$	(147,624)	$	41,894
Acquired Technology	141,784		(139,817)		1,967		141,784		(139,042)		2,742
Developed Technology	22,012		(12,111)		9,901		17,070		(8,589)		8,481
Finite-lived intangible assets	353,314		(310,123)		43,191		348,372		(295,255)		53,117
Trade name	30,118		—		30,118		30,118		—		30,118
Total intangible assets	$	383,432	$	(310,123)	$	73,309	$	378,490	$	(295,255)	$	83,235

Amortization expense related to finite-lived intangible assets was approximately $5.0 million and $14.9 million for the three and nine months ended November 1, 2024, respectively, and approximately $7.3 million and $23.4 million for the three and nine months ended November 3, 2023, respectively. Amortization expense is included within cost of revenue and general and administrative expense in the Condensed Consolidated Statements of Operations. There were no impairment charges related to intangible assets during the three and nine months ended November 1, 2024 or November 3, 2023.

SECUREWORKS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 5 — DEBT

Revolving Credit Facility

SecureWorks, Inc., a wholly-owned subsidiary of SecureWorks Corp., is a party to a revolving credit agreement with a wholly-owned subsidiary of Dell Inc. under which the Company obtained a $50 million senior, unsecured revolving credit facility. Effective September 6, 2023, the Company executed an amendment to the revolving credit agreement that was effectuated on March 23, 2023. This amended agreement (1) increased the maximum principal amount of borrowings outstanding under the revolving credit facility to $50 million, (2) removed the one-time increase of up to an additional $30 million in borrowings upon mutual agreement by lender and borrower, (3) extended the commitment and required repayment date under the revolving credit agreement to March 23, 2026, and (4) modified the rate at which interest accrues on funds drawn against the revolving credit agreement to the Secured Overnight Finance Rate, or SOFR, plus 2.00%. During the period prior to the closing of the Merger and pursuant to the terms of the Merger Agreement, we are subject to certain contractual restrictions that limit our ability to incur indebtedness (including under the revolving credit facility), subject to certain exceptions.

Amounts under the facility may be borrowed, repaid and reborrowed from time to time during the term of the facility. The proceeds from loans made under the facility may be used for general corporate purposes. The credit agreement contains customary representations, warranties, covenants, and events of default. The unused portion of the facility is subject to a commitment fee of 0.35%, which is due upon expiration of the facility. There was no outstanding balance under the credit facility, and the Company was in compliance with all covenants, as of November 1, 2024 and February 2, 2024. Additionally, there were no amounts borrowed under the credit facility during the three and nine months ended November 1, 2024.

The borrower will be required to repay, in full, all of the loans outstanding, including all accrued interest, and the facility will terminate upon a change of control of SecureWorks Corp. or following a transaction in which SecureWorks, Inc. ceases to be a direct or indirect wholly-owned subsidiary of SecureWorks Corp. Under the terms of the Merger Agreement, any obligations incurred under the revolving credit facility will be repaid in full at the Effective Time. The facility is not guaranteed by SecureWorks Corp. or its subsidiaries.

SECUREWORKS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 6 — COMMITMENTS AND CONTINGENCIES

Legal Contingencies— The Company is periodically involved in claims and legal proceedings that arise in the ordinary course of business. The Company accrues a liability when it believes that it is both probable that a liability has been incurred and it can reasonably estimate the amount of the loss. The Company reviews the status of such matters at least quarterly and adjusts its liabilities as necessary to reflect ongoing negotiations, settlements, rulings, advice of legal counsel, and other relevant information. Whether the outcome of any claim, suit, assessment, investigation, or legal proceeding, individually or collectively, could have a material adverse effect on the Company’s business, financial condition, results of operations, or cash flows will depend on a variety of factors. Such factors include the nature, timing, and amount of any associated expenses, amounts paid in settlement, damages, or other remedies or consequences. Where new information is later obtained and the Company’s views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, the Company would record changes in accrued liabilities during the period in which such a determination is made. As of November 1, 2024, the Company does not believe that there were any such matters that, individually or in the aggregate, would have a material adverse effect on its business, financial condition, results of operations, or cash flows.

Customer-based Taxation Contingencies—Various government entities, or taxing authorities, require the Company to bill its customers for the taxes they owe based on the services they purchase from the Company. The application of the rules of each taxing authority concerning which services are subject to each tax and how those services should be taxed involves the application of judgment. Taxing authorities periodically perform audits to verify compliance and include all periods that remain open under applicable statutes, which generally range from three to four years. These audits could result in significant assessments of past taxes, fines, and interest if the Company were found to be non-compliant. During the course of an audit, a taxing authority may question the Company’s application of its rules in a manner that, if the Company were not successful in substantiating its position, could result in a significant financial impact to the Company. In the course of preparing its financial statements and disclosures, the Company considers whether information exists that would warrant disclosure or an accrual with respect to such a contingency.

As of November 1, 2024, the Company is under audit with various state taxing authorities in which rulings related to the taxability of certain of its services are pending; the Company has recorded an estimated liability of $1.8 million related to such matters. The Company expects to continue to appeal certain of these rulings, but should the Company not prevail, it could be subject to obligations to pay additional taxes together with associated penalties and interest for the audited tax period.

Indemnifications and Guarantees—In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to indemnify its customers from certain losses incurred by the customer from third-party claims relating to the services performed on behalf of the Company or for certain losses incurred by the customer as to third-party claims arising from certain events as defined within the particular contract. Such indemnification obligations may not be subject to maximum loss clauses. Historically, payments related to these indemnifications have been immaterial.

Other guarantees include guarantees of product and service performance. These contingent obligations are not recognized as liabilities and have not had any significant impact on our condensed consolidated financial statements to date.

Concentrations—The Company sells solutions to customers of all sizes through a combination of partners and its sales organization. During the three and nine months ended November 1, 2024 and November 3, 2023, the Company had no customer that represented 10% or more of its net revenue.

SECUREWORKS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 7 — LEASES

The Company’s leases primarily relate to office facilities that have remaining lease terms of 0.2 years to 2.2 years, inclusive of renewal or termination options that the Company is reasonably certain to exercise.

The components of lease expenses were as follows:


	Three Months Ended				Nine Months Ended
	November 1, 2024		November 3, 2023		November 1, 2024		November 3, 2023

	(in thousands)
Operating lease cost	$	674	$	1,079	$	1,809	$	3,243
Variable lease costs	160		98		415		249

Total lease costs	$	834	$	1,177	$	2,224	$	3,492
Supplemental cash flow information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,364	1,352		$	4,075	$	4,013

Weighted-average information associated with the measurement of remaining operating lease obligations is as follows:


	November 1, 2024
Weighted-average remaining lease term	2.1 years
Weighted-average discount rate	5.43	%

The following table summarizes the maturity of the Company’s operating lease liabilities as of November 1, 2024 (in thousands):


Fiscal Years Ending	November 1, 2024
2025	$	1,194
2026	4,526
2027	4,088


Thereafter	—
Total operating lease payments	$	9,808
Less imputed interest	486
Total operating lease liabilities	$	9,322

During the second quarter of fiscal 2024, as part of its actions to rebalance investments cross-functionally in alignment with its current strategy and growth opportunities, the Company ceased use of certain corporate office space as a part of its real estate-related cost optimization actions. The right-of-use asset was assessed to be part of an asset group separate from the Company-level single asset group. Fair value of the asset was determined using a discounted cash flow methodology considering the asset’s specific use to generate cash flows. The Company determined the asset values were not recoverable and recorded an impairment loss of $2.9 million to its operating lease right-of-use assets in the second quarter of fiscal 2024. There were no impairments recorded during the three and nine months ended November 1, 2024. See Note 12 —“Reorganization and other related costs” for further discussion.

SECUREWORKS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 8 — STOCK-BASED COMPENSATION AND OTHER LONG-TERM PERFORMANCE INCENTIVES

The SecureWorks Corp. 2016 Long-Term Incentive Plan, or the 2016 Plan, provides for the grant of options, stock appreciation rights, restricted stock, restricted stock units, whether time-based, performance-based or time- and performance-based, deferred stock units, unrestricted stock, dividend equivalent rights, other equity-based awards, and cash bonus awards. Awards may be granted under the 2016 Plan to individuals who are employees, officers, or non-employee directors of the Company or any of its affiliates, consultants and advisors who perform services for the Company or any of its affiliates, and any other individual whose participation in the 2016 Plan is determined to be in the best interests of the Company by the compensation committee of the board of directors.

Under the 2016 Plan, the Company granted 146,653 and 7,775,270 restricted stock units during the three and nine months ended November 1, 2024, respectively, and 222,185 and 8,276,147 restricted stock units during the three and nine months ended November 3, 2023, respectively. The annual restricted stock units granted during these periods vest over a three-year period. Approximately 22% and 17% of such awards granted during the nine months ended November 1, 2024 and November 3, 2023, respectively, are subject to performance conditions. The majority of the 7,391,716 restricted stock unit awards made during the three months ended May 3, 2024 were subject to stockholder approval at the Company’s 2024 annual meeting of stockholders, which took place on June 25, 2024, of an amendment to the 2016 Plan. The amendment to the 2016 Plan increased the number of shares of Class A common stock issuable under the plan by 7,500,000 shares. Such stockholder approval was obtained at the annual meeting on June 25, 2024, and those awards were deemed granted and outstanding for accounting purposes as of the approval date.

The Company may grant long-term cash awards to certain employees under the 2016 Plan. The cash awards issued during the last three fiscal years are not subject to any performance conditions and vest in equal installments over a three-year period. The Company granted an immaterial amount of cash awards during the nine months ended November 1, 2024 and November 3, 2023, respectively. The Company recognized $12 thousand and $0.3 million of related compensation expense for the three and nine months ended November 1, 2024, respectively, and $0.4 million and $1.5 million of related compensation expense for the three and nine months ended November 3, 2023, respectively.

SECUREWORKS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 9 — INCOME AND OTHER TAXES

The Company’s loss before income taxes, income tax expense (benefit), and effective income tax rate for the three and nine months ended November 1, 2024 and November 3, 2023 were as follows (in thousands, except percentages):


	Three Months Ended						Nine Months Ended
	November 1, 2024			November 3, 2023			November 1, 2024			November 3, 2023

Loss before income taxes	$	(22,641)		$	(18,569)		$	(46,517)		$	(98,465)
Income tax expense (benefit)	$	4,860		$	(4,148)		$	31,789		$	(20,715)
Effective tax rate	(21.5)		%	22.3		%	(68.3)		%	21.0		%

On March 13, 2024, Dell’s economic ownership of the Company dropped below 80%. As a result, the Company no longer qualifies for inclusion in Dell Technologies’ consolidated U.S. federal income tax return, as well as tax returns in certain U.S. state jurisdictions that follow similar consolidation requirements. Commencing with this deconsolidation, the Company will file its own consolidated U.S. federal income tax return. Given the Company’s recent history of cumulative losses, a valuation allowance was recorded against its federal deferred tax assets, as well as certain U.S. state deferred tax assets. The Company recorded an initial valuation allowance of $26.2 million during the three months ended May 3, 2024. Net deferred tax balances, which include the impacts of valuation allowances, are included in other non-current assets and other non-current liabilities in the Condensed Consolidated Statements of Financial Position. The Company’s effective tax rate for the nine months ended November 1, 2024 is primarily impacted by the increase in the valuation allowance and certain non-recurring discrete period items.

For certain U.S. state jurisdictions where the Company continues to be included in consolidated filings with Dell Technologies, related deferred tax assets continue to be recognized under 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 by the Company when those attributes are utilized by other members of the Dell consolidated group.

During the nine months ended November 3, 2023, the Company did not file separate federal tax returns as the Company generally was 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 by the Company when those attributes are utilized by other members of the Dell consolidated group.

Effective for tax years beginning on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development, or R&D, expenses in the year incurred and instead requires taxpayers to capitalize R&D expenses, including software development cost, and subsequently amortize such expenses over five years for R&D activities conducted in the United States and over fifteen years for R&D activities conducted outside of the United States. This legislation has materially impacted the Company’s deferred tax assets and corresponding valuation allowance.

As of November 1, 2024 and February 2, 2024, the Company had a net operating loss receivable from Dell of $3.3 million and $5.0 million, respectively. The Company had $4.5 million and $4.9 million of unrecognized tax benefits as of November 1, 2024 and February 2, 2024, respectively.

SECUREWORKS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 10 — RELATED PARTY TRANSACTIONS

Allocated Expenses

For the periods presented, Dell has provided various corporate services to Secureworks in the ordinary course of business. The costs of these services are governed by a shared services agreement between Secureworks and Dell Inc. The total amounts of the charges under the shared services agreement with Dell were $0.7 million and $2.0 million for the three and nine months ended November 1, 2024, respectively, and $0.7 million and $2.3 million for the three and nine months ended November 3, 2023, respectively. Management believes that the basis on which the expenses have been allocated reasonably reflects the utilization of services provided to or the benefit received by the Company during the periods presented.

Related Party Arrangements

For the periods presented, related party transactions and activities involving Dell Inc. and its wholly-owned subsidiaries were not always consummated on terms equivalent to those that would prevail in an arm’s-length transaction where conditions of competitive, free-market dealing may exist.

The Company purchases computer equipment for internal use from Dell Inc. and its subsidiaries that is capitalized within property and equipment in the Condensed Consolidated Statements of Financial Position. Purchases of computer equipment from Dell and EMC Corporation, or EMC, an indirect, wholly-owned subsidiary of Dell Technologies that provides enterprise software and storage, totaled $0.1 million and $0.2 million for the three and nine months ended November 1, 2024, respectively, and $7 thousand and $0.4 million for the three and nine months ended November 3, 2023, respectively.

The Company also recognized revenue related to solutions provided to significant beneficial owners of Secureworks common stock, which include Mr. Dell and affiliates of Mr. Dell. The revenues recognized by the Company from solutions provided to Mr. Dell, MSD Capital, L.P. (n/k/a, DFO Management, LLC, a firm founded for the purposes of managing investments of Mr. Dell and his family), DFI Resources LLC, an entity affiliated with Mr. Dell, and the Michael and Susan Dell Foundation were immaterial to the Company.

The Company provides solutions to certain customers whose contractual relationships have historically been with Dell rather than Secureworks, although the Company has the primary responsibility to provide the services. Effective August 1, 2015, in connection with the IPO, Dell transferred many of these customer contracts to the Company, forming a direct contractual relationship between the Company and the end customer. For customers whose contracts have not yet been transferred or whose contracts were subsequently originated through Dell under a reseller agreement, the Company recognized revenues of approximately $14.1 million and $42.0 million for the three and nine months ended November 1, 2024, respectively, and $13.6 million and $42.9 million for the three and nine months ended November 3, 2023, respectively.

As the Company’s customer, Dell also purchases services from the Company. The Company recognized revenues from such purchases of approximately $0.1 million and $0.3 million for the three and nine months ended November 1, 2024, respectively, and $0.2 million and $0.6 million for the three and nine months ended November 3, 2023, respectively. For each of the periods presented, the majority of these revenues represented professional services revenue.

As a result of the foregoing related party arrangements, the Company has recorded the following related party balances in the Condensed Consolidated Statements of Financial Position as of November 1, 2024 and as of February 2, 2024 (in thousands):


	November 1, 2024		February 2, 2024
Net related party receivable (included in "Other current assets") / (payable) (included in "Accrued and other current liabilities")	$	1,808	$	(4,868)

Accounts receivable from customers under reseller agreements with Dell (in accounts receivable, net)	$	6,763	$	5,748

Net operating loss tax sharing receivable under agreement with Dell	$	3,320	$	4,976

SECUREWORKS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 11 — FAIR VALUE MEASUREMENTS

The Company measures fair value within the guidance of the three-level valuation hierarchy. This hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The categorization of a measurement within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

•Level 1 - Quoted market prices in active markets for identical assets or liabilities

•Level 2 - Other observable market-based inputs or unobservable inputs that are corroborated by market data

•Level 3 - Significant unobservable inputs

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The assets and liabilities of the Company that are measured at fair value on a recurring basis using the respective input levels as of November 1, 2024 and February 2, 2024 were as follows (in thousands):


	November 1, 2024		February 2, 2024
	Level 1		Level 1
Cash equivalents - Money Market Funds	$	1,751	$	1,691

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The carrying amounts of the Company’s accounts receivable, accounts payable, and accrued expenses approximate their respective fair value due to their short-term nature.

SECUREWORKS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 12 — REORGANIZATION AND OTHER RELATED COSTS

Beginning in fiscal year ended February 3, 2023, the Company committed to a plan to align its investments more closely with its strategic priorities to meet the expected future needs of the business by reducing the Company’s workforce and implementing certain real estate‑related and other cost optimization actions. Under this plan and through continued reorganization actions, the Company began rebalancing investments cross-functionally in alignment with the Company’s current strategy and growth opportunities, such as focusing on the higher value, higher margin Taegis solutions, optimizing the Company’s organizational structure to increase its scalability, and other priorities, to better position the Company for continued growth with improving operating margins over time. Expenses associated with these actions consisted primarily of severance and other termination benefits, real estate-related expenses, and various other cost saving measures. The Company incurred expenses associated with the plan of approximately $1.5 million during the nine months ended November 1, 2024.

The following table summarizes the liability associated with these charges that is included in accrued and other current liabilities on the accompanying Condensed Consolidated Statements of Financial Position (in thousands):


	Workforce		Real estate-related		Other		Total




Balance as of February 3, 2023	$	7,550	$	—	$	1,394	$	8,944
Reorganization charge	13,873		3,272		—		17,145
Charges settled in cash	(15,802)		—		(1,394)		(17,196)
Charges settled in non-cash	—		(3,272)		—		(3,272)
Balance as of February 2, 2024	$	5,621	$	—	$	—	$	5,621
Reorganization charge	$	1,476	$	—	$	—	$	1,476
Charges settled in cash	(5,671)		—		—		(5,671)

Balance as of November 1, 2024	$	1,426	$	—	$	—	$	1,426

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q 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. The words “believe,” “may,” “would,” “could,” “potentially,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “aim,” “seek,” and similar expressions that convey uncertainty regarding future events or outcomes as they relate to us or our management are intended to identify forward-looking statements. Our results could be materially different from our expectations because of various risks, including risks related to: the completion of the Merger on the anticipated terms and timing; the satisfaction of the conditions to the completion of the Merger, including obtaining required regulatory approvals; achieving or maintaining profitability; enhancing our existing solutions and technologies and developing or acquiring new solutions and technologies; navigating economic conditions, geopolitical uncertainty and financial market volatility; relying on personnel with extensive information security expertise; successfully implementing our strategic plan to realign and optimize our investments with our priorities; intense competition in the Company’s markets; attracting new customers, retaining existing customers and increasing annual contract values; relying on customers in the financial services industry; managing our growth effectively; maintaining high-quality client service and support functions; the terms of our service level agreements with customers that require credits for service failures or inadequacies; recognizing revenue ratably over the terms of our Taegis security solutions and managed security services contracts; long and unpredictable sales cycles; the risks associated with expansion of the Company’s international sales and operations; the risks associated with proposed or currently enacted tax statutes, including, but not limited to, Internal Revenue Code Section 174; our exposure to fluctuations in currency exchange rates or inflation; the effect of new governmental export or import controls on our business or any international sanctions compliance program applicable to us; expanding our key distribution relationships and technology alliance partnerships; real or perceived defects, errors or vulnerabilities in our solutions or the failure of our solutions to prevent a security breach; the risks associated with cyber-attacks or other data security incidents; the risks associated with our development, use and adoption of artificial intelligence; the ability of our solutions to interoperate with our customers’ IT infrastructure; our ability to use third-party technologies; the impact of evolving information security, cybersecurity and data privacy laws and regulations on our business; maintaining and enhancing our brand; the risks associated with our acquisition of other businesses; the effect of natural disasters, public health issues, geopolitical conflict and other catastrophic events on our ability to serve customers, including the Ukrainian/Russian conflict and ongoing conflicts in the Middle East; our reliance on patents to protect its intellectual property rights; protecting, maintaining or enforcing our non-patented intellectual property rights and proprietary information; claims by third parties of infringement of their proprietary technology by us; our use of open source technology; the risks related to the Company’s relationship with Dell Technologies Inc. and Dell Inc. and control of the Company by Dell Technologies Inc., which include, but are not limited to, the effects of our deconsolidation as a part of the Dell Technologies Inc. affiliated tax group; the volatility of the price of the Company’s Class A common stock; and other risks discussed in "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended February 2, 2024 that was filed with the SEC on March 22, 2024, in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q for the quarterly period ended November 1, 2024 and in our other periodic and current reports filed with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. All statements by us regarding our expected financial position, revenues, cash flows and other operating results for future periods, business strategy, the outcome of legal proceedings and similar matters are forward-looking statements. Our expectations expressed or implied in these forward-looking statements may not turn out to be correct. There can be no assurance that the Merger will be completed, or if it is completed, that it will close within the anticipated time period. Any forward-looking statement speaks only as of the date as of which such statement is made, and, except as required by law, we undertake no obligation to revise or update any forward-looking statement after the date as of which such statement was made, whether to reflect changes in circumstances or our expectations, the occurrence of unanticipated events, or otherwise.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This management's discussion and analysis is based upon the financial statements of Secureworks which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, and should be read in conjunction with our audited financial statements and related notes for the year ended February 2, 2024 included in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended February 2, 2024 that was filed with the SEC on March 22, 2024, which we refer to as the Annual Report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs, and future expectations. Our actual results could differ materially from those discussed or implied in our forward-looking statements. Factors that could cause or contribute to these differences include those discussed in “Cautionary Note Regarding Forward-Looking Statements” above and in "Risk Factors" in Part I, Item 1A of our Annual Report and in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q for the quarterly period ended November 1, 2024.

Our fiscal year is the 52- or 53-week period ending on the Friday closest to January 31. We refer to the fiscal year ending January 31, 2025 and the fiscal year ended February 2, 2024 as fiscal 2025 and fiscal 2024, respectively. Fiscal 2025 and fiscal 2024 each consist of 52 weeks, and each quarter consists of 13 weeks. Unless otherwise indicated, all changes identified for the current-period results represent comparisons to results for the prior corresponding fiscal periods.

All percentage amounts and ratios presented in this management’s discussion and analysis were calculated using the underlying data in thousands.

Except where the context otherwise requires or as otherwise indicated, (1) all references to "Secureworks," "we," "us," "our," and "our Company" in this management’s discussion and analysis refer to SecureWorks Corp. and our subsidiaries on a consolidated basis, (2) all references to "Dell" refer to Dell Inc. and its subsidiaries on a consolidated basis and (3) all references to "Dell Technologies" refer to Dell Technologies Inc., the ultimate parent company of Dell Inc.

Overview

We are a leading global cybersecurity provider of technology-driven solutions singularly focused on protecting our customers.

Our vision is to be the essential cybersecurity company for a digitally connected world. We believe we are the security platform of choice to deliver a holistic approach to security at scale for our customers to achieve their best security outcomes. We combine our considerable experience from securing thousands of customers, for whom we process billions of customer events leveraging artificial intelligence and machine-learning in our security platform, with the actionable insights from our team of elite researchers, analysts, and consultants to create a powerful network effect that provides increasingly strong protection for our customers.

Our proprietary Taegis security platform utilizes an open architecture that is designed to process a wide variety of telemetry to see security threats quickly and leverage our customers’ existing investments. Our solutions collect and process vast amounts of data across the IT ecosystem by integrating a wide array of proprietary and third-party security products. This open-platform approach allows us to aggregate events from a wide range of endpoint, network, cloud, and business systems to increase the effectiveness of our solutions.

By aggregating and analyzing data from sources around the world, we offer solutions that enable organizations to:

•prevent security breaches,

•detect malicious activity,

•respond rapidly when a security breach occurs, and

•identify emerging threats.

We believe a platform that supports innovation and collaboration enables the power of the security community to outmaneuver the adversary. Leveraging our extensive security expertise and threat intelligence, we utilize our unique insights to extend our Taegis XDR platform to defend against cyber-attacks.

The integrated approach we have pioneered enables us to deliver a broad portfolio of security solutions to organizations of varying size and complexity. We seek to provide the right level of security for each customer’s particular situation, which evolves with our customers as their organizations grow and change over time. Our flexible and scalable solutions secure the evolving needs of large enterprises as well as small and medium-sized businesses and U.S. state and local government agencies with limited in-house capabilities and resources.

We offer our customers:

•software-as-a-service, or SaaS, solutions,

•managed solutions, and

•professional services, including incident response and adversarial testing services.

Our security solutions leverage our proprietary technologies, security operations workflows, and extensive expertise and knowledge of the tactics, techniques, and procedures of the adversary that we have developed over more than two decades. As key elements of our strategy, we seek to:

•be the SaaS security platform of choice,

•broaden our reach with security service providers to deliver our security platform globally, and

•empower the global security community to beat the adversary at scale.

Taegis was purpose-built as a SaaS platform that combines the power of artificial intelligence and machine-learning capabilities with actionable security analytics and threat intelligence to unify detection and response across endpoint, network, cloud, email, and other systems for better security outcomes and simpler security operations. The Taegis security platform is a core element of our SaaS solutions, which leverage workflows designed from our extensive security operations expertise and our integrated orchestration and automation capabilities to increase the speed of response actions.

We offer an integrated suite of technology-driven security solutions enabled by our Taegis security platform and team of highly skilled security experts. Our technology-driven security solutions offer an innovative approach to prevent, detect, and respond to cybersecurity breaches. The platform collects, aggregates, correlates, and analyzes billions of events daily from our extensive customer base utilizing sophisticated algorithms to detect malicious activity and deliver security countermeasures, dynamic intelligence and valuable context regarding the intentions and actions of cyber adversaries. Through our Taegis solutions, which are sold on a subscription basis, we provide global visibility and insight into malicious activity, enabling our customers to detect, respond to, and effectively remediate threats quickly.

In addition to our Taegis solutions, we offer a variety of professional services to advise customers on a broad range of security and risk-related matters, which include incident response, penetration testing services, and Taegis professional services, that we believe will accelerate the adoption of our software solutions.

Merger Agreement

The Merger Agreement contains a number of conditions that must be satisfied or waived prior to the completion of the merger transaction, or Merger, including (i) the Company receiving the Written Consent (as defined below) (which has been satisfied, as described below), (ii) (a) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and (b) the clearance or approval under certain specified antitrust laws and foreign investment laws, (iii) the absence of any governmental authority of competent authority in certain specified jurisdictions issuing any order or other legal restraint that makes consummation of the Merger illegal or otherwise prohibited, (iv) at least 20 calendar days have elapsed since the Company’s mailing to the Company’s stockholders of the information statement on Schedule 14C, and (v) the absence of any Company Material Adverse Effect (as defined in the Merger Agreement) since the date of the Merger Agreement that has occurred that is continuing.

On November 22, 2024, we filed with the SEC our definitive information statement on Schedule 14C in connection with the Merger.

Completion of the Merger is currently expected to occur in early 2025, subject to regulatory approvals and other conditions.

Key Factors Affecting Our Performance

We believe that our sustained success will depend on many factors, including the adoption of our Taegis solutions by organizations, continued investment in our technology and threat intelligence research, our introduction of new solutions, our ability to increase sales of our solutions to new and existing customers, and our ability to attract and retain top talent. Although these areas present significant opportunities, they also present risks that we must manage to ensure we remain successful. We operate in an intensely competitive industry and face, among other competitive challenges, pricing pressure resulting from actions taken by our larger competitors to reduce the prices of their security prevention, detection, and response solutions, as well as the prices of their managed security services. If we are unable to continue to manage our investments in an efficient manner or to effectively execute our strategies aimed to foster sustained success, our business could be adversely affected.

The key factors affecting our performance include the following:

Adoption of Technology-Driven Solution Strategy. The evolving landscape of applications, modes of communication, and IT architectures makes it increasingly challenging for organizations of all sizes to protect their critical business assets, including proprietary information, from cyber threats. New technologies heighten security risks by increasing the number of ways in which a threat actor can attack a target, giving users greater access to important business networks and information, and facilitating the transfer of control of underlying applications and infrastructure to third-party vendors. An effective security strategy requires the coordinated deployment of a solution across the entire network infrastructure. Our Taegis security solutions are designed to facilitate the successful implementation of such a strategy, but continuous investment in, and adaptation of, our technology will be required in the ever-evolving threat landscape. Our financial results will be affected by the degree to which prospective and current customers recognize the mission-critical nature of our technology-driven information security solutions and subsequently purchase our solutions.

Investment in Our Technology and Threat Intelligence Research. Our software platform serves as the core of our technology-driven security solutions. We believe it provides our customers with an integrated perspective and key visibility into their network environments and potential security threats. Our software platform is augmented by threat intelligence from our Counter Threat Unit research team, which conducts exclusive research into threat actors, uncovers new attack techniques, analyzes emerging threats, and evaluates the risks posed to our customers. We expect to continue making investments into our research and development efforts, including remaining on the forefront of threat intelligence so that we can adapt our software platform to new technologies as well as to changes in existing technologies. It is our belief that our performance will be significantly dependent on our ability to adapt to the rapidly evolving threat landscape, and we believe that continued investment into our Taegis subscription solutions will contribute to our long-term revenue growth, while the costs of such investments may continue to adversely affect our prospects for near-term profitability.

Introduction of New Security Solutions. Our performance is significantly dependent on our ability to continue to innovate and introduce new information security solutions, such as our Taegis solutions, that protect our customers from an expanding array of cybersecurity threats. We intend to continue to invest in security solutions innovation and leadership, including by hiring top technical talent and focusing on core technology innovation. In addition, we will continue to evaluate and utilize third-party proprietary technologies, where appropriate, for the continuous development of complementary offerings. We believe that our investment in security solutions development will increase the likelihood we will achieve long-term revenue growth, but this investment may continue to adversely affect our prospects for near-term profitability.

Investments in Expanding Our Customer Base.

Embracing our Partner Ecosystem. To support future sales, we expect to need to continue to devote resources to developing strategic partnerships with our channel partners, technology alliance partners, and system integrators. We have made, and plan to continue making, investments in both marketing and go-to-market efforts with our partners. These investments may not result in increasing revenue or improving our results of operations in the near term, although we do expect both will improve in the long term from these investments.

Deepening Our Customer Relationships. The continued growth of our business also depends in part on our ability to sell additional solutions to our existing customers. As our customers realize the benefits of the solutions they previously purchased, our portfolio of solutions provides us with a significant opportunity to expand these relationships.

Investment in Our People. The difficulty in providing effective information security is exacerbated by the highly competitive environment for identifying, hiring, and retaining qualified information security professionals. We believe our technology leadership, brand, exclusive focus on information security, customer-first culture, and robust training and development program enable us to attract and retain highly talented professionals with a passion for building a career in the information security industry. These professionals are led by a highly experienced and tenured management team with extensive IT security expertise and a record of developing successful new technologies and solutions to help protect our customers. We expect to continue to invest in attracting and retaining top talent to support and enhance our information security offerings.

Key Operating Metrics

We use certain operating metrics and our financial results to evaluate our performance and monitor the growth of our business. Relevant key operating metrics are presented below as of the dates indicated and for the fiscal periods then ended.


	November 1, 2024		November 3, 2023
Taegis subscription customer base	1,900		2,000



Total customer base	3,000		4,300





Taegis annual recurring revenue (in millions)	$	288.8	$	278.7


Total annual recurring revenue (in millions)	$	288.8	$	304.0

Taegis average subscription revenue per customer (in thousands)	$	154.0	$	139.1

Total average subscription revenue per customer (in thousands)	$	154.0	$	134.9

Taegis Subscription Customer Base. We define our Taegis subscription customer base as the number of customers who have a Taegis subscription agreement as of a particular date.

Total Customer Base. We define total customer base as the number of customers that subscribe to our Taegis solutions and managed security services and customers that buy professional services from us, as of a particular date.

Total Annual Recurring Revenue. We define total annual recurring revenue as of the measurement date. Changes to recurring revenue may result from the expansion of our offerings and sales of additional solutions to our existing customers, as well as the timing of customer renewals.

Total Average Subscription Revenue Per Customer. We define total average subscription revenue per customer as the average annual revenue per customer that subscribes to either our Taegis or other managed security subscription solutions, or both, as of the measurement date. Total average subscription revenue per customer is primarily driven by the persistence of cyber threats and the results of our sales and marketing efforts to increase the awareness of our solutions. Our customer composition of both enterprise and small and medium sized businesses provides us with an opportunity to expand our professional services revenue. As of each of November 1, 2024 and November 3, 2023, approximately 46% of our professional services customers subscribed to our Taegis solutions or managed security services.

Net Revenue Retention Rate. Net revenue retention rate is an important measure of our success in retaining and growing revenue from our subscription-based customers. To calculate our revenue retention rate for any period, we compare the annual recurring revenue of our subscription-based customers at the beginning of the fiscal period, or base recurring revenue, to the same measure from that same cohort of customers at the end of the period, which we refer to as retained recurring revenue. By

dividing the end-of-period retained recurring revenue by the base recurring revenue from the beginning of the period, we measure our success in retaining and growing installed revenue from the specific cohort of customers we served at the beginning of the period. Our calculation includes the positive revenue impacts of selling and installing additional solutions to this cohort of customers and the negative revenue impacts of customer attrition during the period. The calculation, however, does not include the positive impact on revenue from sales of solutions to any customers acquired during the period.

Our net revenue retention rate slightly decreased year-over-year as of November 1, 2024, reflecting the end-of-life transition of our non-strategic managed security services which was completed in fiscal 2025. Net revenue retention rates may increase or decline from period to period as a result of various factors, including the timing of solutions installations, customer renewal rates, and changes to solution offerings.

Non-GAAP Financial Measures

We use supplemental measures of our performance, which are derived from our financial information, but which are not presented in our financial statements prepared in accordance with generally accepted accounting principles in the United States of America, referred to as GAAP. Non-GAAP financial measures presented in this management’s discussion and analysis include non-GAAP cost of revenue, non-GAAP Taegis Subscription Solutions cost of revenue, non-GAAP Managed Security Services cost of revenue, non-GAAP subscription cost of revenue, non-GAAP professional services cost of revenue, non-GAAP gross profit, non-GAAP Taegis Subscription Solutions gross profit, non-GAAP Managed Security Services gross profit, non-GAAP subscription gross profit, non-GAAP professional services gross profit, non-GAAP gross margin, non-GAAP Taegis Subscription Solutions gross margin, non-GAAP Managed Security Services gross margin, non-GAAP subscription gross margin, non-GAAP professional services gross margin, non-GAAP operating expenses, 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 income (loss) before income taxes, non-GAAP income tax expense (benefit), non-GAAP net income (loss), non-GAAP earnings (loss) per share before income taxes, non-GAAP income tax expense (benefit) per share, non-GAAP earnings (loss) per share, weighted-average shares used in computing non-GAAP earnings (loss) per share, diluted, and adjusted earnings before interest, taxes, depreciation and amortization, stock-based compensation, merger-related costs and reorganization and other related charges, or adjusted EBITDA. We use non-GAAP financial measures to supplement financial information presented on a GAAP basis. We believe these non-GAAP financial measures provide useful information to help evaluate our financial performance and operating results by enhancing the overall understanding of our past performance, while allowing for increased transparency with respect to important metrics used by management for financial and operational decision-making and enabling more meaningful period-to-period comparisons and comparisons to our peers. Non-GAAP measures have been utilized as metrics used to determine variable compensation for employees.

There are, however, limitations to the use of the non-GAAP financial measures presented in this management’s discussion and analysis. Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.

The non-GAAP financial measures we present, as defined by us, exclude the items described in the reconciliation below. As the excluded items can have a material impact on earnings, our 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, subscription revenue, professional services revenue, Taegis Subscription Solutions revenue, Managed Security Services revenue, gross profit, subscription gross profit, professional services gross profit, Taegis Subscription Solutions gross profit, Managed Security Services gross profit, cost of revenue, subscription cost of revenue, professional services cost of revenue, Taegis Subscription Solutions cost of revenue, Managed Security Services cost of revenue, operating expense, research and development expenses, sales and marketing expenses, general and administrative expenses, gross margin, subscription gross margin, professional services gross margin, Taegis Subscription Solutions gross margin, Managed Security Services gross margin, operating income (loss), net income (loss), or earnings (loss) per share in accordance with GAAP. The non-GAAP financial measures should be read only in conjunction with financial information presented on a GAAP basis.

Reconciliation of Non-GAAP Financial Measures

The table below presents a reconciliation of each non-GAAP financial measure to its most directly comparable GAAP financial measure. We encourage you 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, we 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 our non-GAAP presentation should not be interpreted as implying that these items are non-recurring, infrequent or unusual.

The following is a summary of the items excluded from the most comparable GAAP financial measures to calculate our non-GAAP financial measures:

•Amortization of Intangible Assets. Amortization of intangible assets consists of amortization associated with software development costs capitalized and acquired customer relationships and technology. In connection with the acquisition of Dell by Dell Technologies in fiscal 2014 and our acquisition of Delve Laboratories Inc. in fiscal 2021, our tangible and intangible assets and liabilities associated with customer relationships and technology were accounted for and recognized at fair value on the related transaction date.

•Stock-based Compensation Expense. Non-cash, stock-based compensation expense relates to the Company’s equity plan. We exclude such expense when assessing the effectiveness of our operating performance since stock-based compensation does not necessarily correlate with the underlying operating performance of the business.

•Reorganization and other related charges. The aggregate adjustment for expenses associated with the Company’s plan to align its investments more closely with its strategic priorities, as described in the “Notes to Condensed Consolidated Financial Statements—Note 12—Reorganization and Other Related Costs.

•Merger-related costs. Merger-related costs associated with the Company’s pending acquisition by Sophos Inc.


	Three Months Ended				Nine Months Ended
	November 1, 2024		November 3, 2023		November 1, 2024		November 3, 2023

	(in thousands, except per share data)
Revenue:
Taegis Subscription Solutions	$	71,407	$	67,346	$	211,681	$	196,368
Managed Security Services	—		7,866		3,239		32,928
Total Subscription revenue	$	71,407	$	75,212	$	214,920	$	229,296
Professional services	11,326		14,152		35,647		47,429
Total revenue	$	82,733	$	89,364	$	250,567	$	276,725



GAAP gross profit	$	56,066	$	54,749	$	168,579	$	159,267
Amortization of intangibles	1,444		3,784		4,297		12,801
Stock-based compensation expense	926		711		2,296		1,713
Non-GAAP gross profit	$	58,436	$	59,244	$	175,172	$	173,781

GAAP Taegis Subscription Solutions gross profit	$	51,522	$	47,419	$	152,316	$	135,793
Amortization of intangibles	1,444		1,208		4,297		3,404
Stock-based compensation expense	485		313		1,102		561
Non-GAAP Taegis Subscription Solutions gross profit	$	53,451	$	48,940	$	157,715	$	139,758

GAAP Managed Security Services gross profit	$	—	$	1,807	$	837	$	6,414
Amortization of intangibles	—		2,576		—		9,397
Stock-based compensation expense	—		53		48		160
Non-GAAP Managed Security Services gross profit	$	—	$	4,436	$	885	$	15,971




























GAAP operating loss	$	(22,158)	$	(19,253)	$	(45,956)	$	(96,767)
Amortization of intangibles1	4,968		7,308		14,868		23,372
Stock-based compensation expense2	11,451		9,962		28,992		24,852
Reorganization and other related charges	—		—		1,476		14,232
Merger-related costs3	6,487		—		6,487		—
Non-GAAP operating income (loss)	$	748	$	(1,983)	$	5,867	$	(34,311)

GAAP net loss	$	(27,501)	$	(14,421)	$	(78,306)	$	(77,750)
Income tax expense (benefit)	4,860		(4,148)		31,789		(20,715)
Amortization of intangibles1	4,968		7,308		14,868		23,372
Stock-based compensation expense2	11,451		9,962		28,992		24,852
Reorganization and other related charges	—		—		1,476		14,232
Merger-related costs3	6,487		—		6,487		—
Non-GAAP income (loss) before income taxes	265		(1,299)		5,306		(36,009)
Non-GAAP income tax expense (benefit)4	62		(1,292)		1,247		(10,246)
Non-GAAP net income (loss)	$	203	$	(7)	$	4,059	$	(25,763)

GAAP loss per share	$	(0.31)	$	(0.17)	$	(0.89)	$	(0.90)
Income tax expense (benefit)	0.05		(0.05)		0.36		(0.24)
Amortization of intangibles	0.06		0.08		0.17		0.27
Stock-based compensation expense	0.13		0.12		0.33		0.29
Reorganization and other related charges	—		—		0.02		0.17
Merger-related costs	0.07		—		0.07		—
Non-GAAP earnings (loss) per share before income taxes	$	0.00	$	(0.02)	$	0.06	$	(0.42)
Non-GAAP income tax expense (benefit)	0.00		(0.02)		0.01		(0.12)
Non-GAAP earnings (loss) per share*	$	0.00	$	0.00	$	0.05	$	(0.30)
Weighted-average shares used in computing non-GAAP earnings (loss) per share, diluted	91,199		86,278		90,418		85,943
* Sum of reconciling items may differ from total due to rounding of individual components


	Three Months Ended				Nine Months Ended
	November 1, 2024		November 3, 2023		November 1, 2024		November 3, 2023

	(in thousands, except per share data)
GAAP net loss	$	(27,501)	$	(14,421)	$	(78,306)	$	(77,750)
Interest and other, net	483		(684)		561		1,698
Income tax expense (benefit)	4,860		(4,148)		31,789		(20,715)
Depreciation and amortization	5,651		8,067		17,065		26,028
Stock-based compensation expense	11,451		9,962		28,992		24,852
Reorganization and other related charges	—		—		1,476		14,232
Merger-related costs	6,487		—		6,487		—
Adjusted EBITDA	$	1,431	$	(1,224)	$	8,064	$	(31,655)

1 Includes amortization of intangibles as follows:
Cost of revenue	$

SecureWorks Corp [SCWX] Filings
10-Q	[2024-12]
10-Q	[2024-09]
10-Q	[2024-06-07]
10-K	[2024-03-22]
10-Q	[2023-12-08]
10-Q	[2023-09-08]
10-Q	[2023-06-08]
10-K	[2023-03-23]
10-Q	[2022-12-01]
10-Q	[2022-09-01]
10-Q	[2022-06-02]
10-K	[2022-03-23]
10-Q	[2021-12-02]
10-Q	[2021-09-02]
10-Q	[2021-06-03]
10-K	[2021-03-25]
10-Q	[2020-12-03]
10-Q	[2020-09-09]
10-Q	[2020-06-04]
10-K	[2020-03-27]
10-Q	[2019-12-05]
10-Q	[2019-09-05]
10-Q	[2019-06-05]
10-K	[2019-03-28]
10-Q	[2018-12-06]
10-Q	[2018-09-05]
10-Q	[2018-06-06]
10-K	[2018-03-28]
10-Q	[2017-12-06]
10-Q	[2017-09-06]
10-Q	[2017-06-06]
10-K	[2017-03-29]
10-Q	[2016-12-07]
10-Q	[2016-09-07]
10-Q	[2016-06-01]
S-1	[2015-12-17]