SecureWorks Corp (SCWX) SEC Filing 10-Q Quarterly report for the period ending Friday, November 2, 2018

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Exhibit 99.1
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Secureworks Reports Record Third Quarter Fiscal 2019 Financial Results

Third Quarter Fiscal 2019 Highlights
Revenue grew 13.6 percent over fiscal 2018 to $133.1 million, including 51 percent growth year over year internationally.
Net loss of $0.05 per share and non-GAAP earnings per share of $0.06 were better than our expectations and Adjusted EBITDA was $8.6 million.
Cash provided by operating activities was $15.2 million.

ATLANTA, Ga, December 6, 2018 -
Secureworks (NASDAQ: SCWX), a leading global cybersecurity company that protects organizations in the digitally connected world, today announced financial results for its third quarter ended November 2, 2018.
“We had a strong third quarter, with revenue growth of 13.6 percent and continued improvements in our operating leverage. I am pleased with our progress and remain excited about the significant opportunities for further growth and productivity enhancements as we continue executing against our objectives,” said Michael R. Cote, Chief Executive Officer of Secureworks.
“Amidst a constantly evolving threat landscape and increasingly complex technology ecosystems, we continue to bring intelligence-driven, software-enabled solutions to the market, delivering integrated visibility and effective security for our customers,” continued Mr. Cote.
Business and operational highlights for the third quarter of fiscal 2019 include:
International revenue increased 51 percent year over year.
Revenue in EMEA increased 47 percent over the prior year, with the company recently recognized by Forrester as a Leader in its Managed Security Services Providers, Europe report.1 
Revenue in Asia/Pacific increased 65 percent year over year.
The company was recognized as a Leader in the IDC MarketScape: U.S. Incident Readiness, Response and Resiliency Services 2018 Vendor Assessment.2 The company continues to expand this important offering -- recently including it within its Managed Detection and Response (MDR) package -- and has performed over 1,000 incident response engagements over the last twelve months.
The company has added industry leaders CrowdStrike and Carbon Black to its Red Cloak Partner Program. The Program expands the scope of Secureworks' endpoint visibility so threats observed across different products and organizations can be transformed into effective threat intelligence and threat indicators that help detect adversaries across customers.
____________________
1 The Forrester Wave™: Managed Security Services Providers (MSSPs), Europe, Q4 2018, Forrester Research, Inc., 19 November 2018
2 IDC MarketScape: U.S. Incident Readiness, Response, and Resiliency Services 2018 Vendor Assessment - Beyond the Big 5 Consultancies, by Christina Richmond and Pete Lindstrom, September, 2018, IDC #US44257117



The following information was filed by SecureWorks Corp on Thursday, December 6, 2018 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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  • 18487860_133
    Financial - Earnings
    We continue to invest in initiatives to drive the efficiency of our business to increase gross margin as a percentage of total revenue.
  • 18487860_159
    Other - Other
    _____________________ See "Non-GAAP Financial Measures" and "Reconciliation of Non-GAAP Financial Measures" for more information about these non-GAAP financial measures, including our reasons for including the measures, material limitations with respect to the usefulness of the measures, and a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure.
  • 18487860_92
    Financial - Shares / Equity
    Upon the closing of our IPO, Dell Technologies owned, indirectly through Dell Inc. and Dell Inc.'s subsidiaries, no shares of our outstanding Class A common stock and all shares of our outstanding Class B common stock, which as of November 2, 2018 represented approximately 85.6% of our total outstanding shares of common stock and approximately 98.4% of the combined voting power of both classes of our outstanding common stock.
  • 18487860_111
    Revenue - Product
    The revenue and any related costs for these deliverables are recognized ratably over the contract term, beginning on the date on which service is made available to clients.
  • 18487860_184
    Financial - Expense
    The increase in R&D; expenses on a dollar basis was primarily attributable to increased compensation and benefits for the continued development of our solutions offerings as well as maintenance costs associated with the development of a new application framework.
  • 18487860_94
    Financial - Expense
    The costs of these services have been charged in accordance with a shared services agreement that went into effect on August 1, 2015, the effective date of our carve-out from Dell.
  • 18487860_80
    Other - Other
    Accordingly, amortization of intangible assets consists of amortization associated with intangible assets recognized in connection with this transaction.
  • 18487860_127
    Financial - Earnings
    Gross margin has been and will continue to be affected by these factors as well as others, including the mix of solutions sold, the mix between large and small clients, timing of revenue recognition and the extent to which we expand our counter threat operations centers.
  • 18487860_41
    Revenue - Product
    The increase in average revenue per client is primarily related to the persistence of cyber threats and the results of our sales and marketing efforts to increase the awareness of our solutions.
  • 18487860_134
    Revenue - Product
    However, as we balance revenue growth and efficiency initiatives, gross margin as a percentage of total revenue may fluctuate from period to period.
  • 18487860_125
    Financial - Earnings
    Gross Margin We operate in a challenging business environment, where the complexity and number of cyber attacks are constantly increasing.
  • 18487860_174
    Financial - Earnings
    On a non-GAAP basis, excluding these adjustments, gross margin increased $9.0 million, or 13.7%, for the three months ended November 2, 2018, and $20.3 million, or 10.5%, for the nine months ended November 2, 2018.
  • 18487860_171
    Financial - Earnings
    Gross Margin Our total gross margin increased $9.1 million, or 14.8%, for the three months ended November 2, 2018, and $20.6 million, or 11.3%, for the nine months ended November 2, 2018.
  • 18487860_103
    Other - Other
    These agreements generally are effective for up to one to three years and include extension and cancellation options.
  • 18487860_47
    Revenue - Product
    Our increase in monthly recurring revenue has been driven primarily by our continuing ability to expand our offerings and sell additional solutions to existing clients, as well as by growth in our client base.
  • 18487860_121
    Revenue - Product
    Over all of the periods presented in this report, our pricing strategy for our various offerings was relatively consistent, and accordingly did not significantly affect our revenue growth.
  • 18487860_33
    Revenue - Product
    We have achieved much of this growth by providing solutions to large enterprise clients, which generate substantially more average revenue than our small and medium-sized business, or SMB, clients and by continually expanding the volume and breadth of the security solutions that we provide to all clients.
  • 18487860_201
    Financial - Income
    The changes in our non-GAAP operating income and non-GAAP operating loss as a percentage of revenue during the three and nine months ended November 2, 2018 were primarily attributable to improved operating leverage resulting from our continued growth, the effect of which was partially offset by research and development investments in our business, including the addition of personnel.
  • 18487860_211
    Financial - Earnings
    The changes in net income (loss) were attributable to our improved operating results offset in part by the lower income tax benefit recognized in the current periods.
  • 18487860_132
    Financial - Earnings
    Accordingly, we expect our gross margin to increase in absolute dollars.
  • 18487860_189
    Financial - Expense
    The decreases in S&M; expenses as a percentage of revenue were primarily attributable to lower headcount, a decrease in commission expense, and greater leverage on the overall cost base as revenue increased.
  • 18487860_116
    Revenue - Product
    Revenue from time-and materials-based contracts is recognized as costs are incurred at amounts represented by the agreed-upon billing rates.
  • 18487860_3
    Other - Other
    Factors that could cause or contribute to these differences include those discussed in "Risk Factors" in Part I, Item 1A of our Annual Report.
  • 18487860_79
    MA - Other
    In connection with the acquisition of Dell by Dell Technologies in fiscal 2014, all of our tangible and intangible assets and liabilities were accounted for and recognized at fair value on the transaction date.
  • 18487860_40
    Revenue - Product
    We believe that our ability to grow our average revenue per client represents significant future revenue opportunities for us.
  • 18487860_42
    Revenue - Product
    Additionally, our client composition of both enterprise and SMB companies provides us with an opportunity to expand our professional services revenue.
  • 18487860_34
    Revenue - Product
    This has resulted in steady growth in our average revenue per client.
  • 18487860_52
    Revenue - Product
    By dividing the retained recurring revenue by the base recurring revenue, we measure our success in retaining and growing installed revenue from the specific cohort of clients we served at the beginning of the period.
  • 18487860_101
    Other - Other
    In connection with our IPO, effective August 1, 2015, we entered into agreements with Dell that govern these commercial arrangements.
  • 18487860_66
    Other - Other
    Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies.
  • 18487860_67
    Other - Other
    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.
  • 18487860_178
    Other - Other
    30 30 See "Non-GAAP Financial Measures" and "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure.
  • 18487860_152
    Financial - Income
    The change in the Company's effective income tax rate for the three and nine months ended November 2, 2018 compared to the effective income tax rate for the three and nine months ended November 3, 2017 was primarily attributable to the impact of the Tax Cuts and Jobs Act of 2017 on the federal statutory rate and the impact of certain discrete adjustments and non-deductible stock-based compensation expense in fiscal 2019.
  • 18487860_50
    Revenue - Product
    Our revenue retention rate is an important measure of our success in retaining and growing revenue from our subscription-based clients.
  • 18487860_108
    Revenue - Product
    We received net proceeds of $99.6 million from the sale of shares of Class A common stock, after deducting $12.4 million of underwriting discounts and commissions and unpaid offering expenses payable by us.
  • 18487860_222
    Other - Other
    We regularly monitor our accounts receivable for collectability, particularly in markets where economic conditions remain uncertain, and continue to take actions to reduce our exposure to credit losses.
  • 18487860_162
    Revenue - Product
    29 29 Three and nine months ended November 2, 2018 compared to the three and nine months ended November 3, 2017 Revenue Net revenue, which we refer to as revenue, increased $16.0 million, or 13.6%, and $41.0 million, or 11.8%, for the three and nine months ended November 2, 2018, respectively.
  • 18487860_149
    Revenue - Geography
    All foreign currency transaction adjustments are recorded as foreign currency gains (losses) in the Condensed Consolidated Statements of Operations.
  • 18487860_26
    Other - Other
    Incident response minimizes the impact and duration of security breaches through proactive client preparation, rapid containment and thorough event analysis followed by effective remediation.
  • 18487860_213
    Revenue - Product
    Our future capital requirements will depend on many factors, including our rate of revenue growth, the rate of expansion of our workforce, the timing and extent of our expansion into new markets, the timing of introductions of new functionality and enhancements to our solutions, potential acquisitions of complementary businesses and technologies, continuing market acceptance of our solutions, and general economic conditions.
  • 18487860_181
    Financial - Expense
    R&D; expenses increased $1.6 million, or 8.3%, and $7.2 million, or 12.4%, for the three and nine months ended November 2, 2018, respectively.
  • 18487860_186
    Financial - Expense
    S&M; expenses increased $0.7 million, or 2.0%, for the three months ended November 2, 2018 and $0.3 million, or 0.3%, for the nine months ended November 2, 2018.
  • 18487860_59
    Other - Other
    We believe these non-GAAP financial measures provide useful information to help evaluate our operating results by facilitating an enhanced understanding of our operating performance and enabling more meaningful period-to-period comparisons.
  • 18487860_229
    Other - Other
    The maximum amount of borrowings may be increased by up to an additional $30 million by mutual agreement of the lender and borrower.
  • 18487860_206
    Financial - Expense
    The decrease in the effective tax rate was primarily attributable to the decrease in the federal statutory rate from 35% to 21% as a result of the Tax Cuts and Jobs Act of 2017, an overall decrease in our pre-tax losses and the impact of certain discrete adjustments and non-deductible stock-based compensation expense in the current periods.
  • 18487860_48
    Revenue - Product
    Overall, we expect monthly recurring revenue to continue to grow as we retain and expand our client base, and as our clients extend the use of our solutions over time.
  • 18487860_164
    Revenue - Product
    Our existing clients continued to increase their contracted subscriptions for our solutions, with average revenue per client increasing 9% year over year.
  • 18487860_203
    Revenue - Geography
    The changes primarily reflected the effects of foreign currency transactions and related exchange rate fluctuations.
  • 18487860_64
    Revenue - Product
    We believe that this non-GAAP financial adjustment is useful to investors because it allows investors to (1) evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making, and (2) compare past and future reports of financial results of our Company as the revenue reduction related to acquired deferred revenue will not recur when related service contracts are renewed in future periods.
  • 18487860_78
    MA - Other
    Amortization of intangible assets consists of amortization of customer relationships and acquired technology.
  • 18487860_151
    Financial - Income
    Income Tax Expense (Benefit) Our effective tax rate was a benefit of 32.2% and 35.6% for the three months ended November 2, 2018 and November 3, 2017, respectively, and 23.6% and 34.9% for the nine months ended November 2, 2018 and November 3, 2017, respectively.
  • 18487860_230
    Other - Other
    The proceeds from loans made under the facility may be used for general corporate purposes.
  • 18487860_104
    Financial - Expense
    To the extent that we choose to or are required to transition away from the corporate services currently provided by Dell, we may incur additional non-recurring transition costs to establish our own stand-alone corporate functions.
  • 18487860_77
    Other - Other
    Amortization of Intangible Assets.
  • 18487860_209
    Financial - Earnings
    Net income on a non-GAAP basis was $5.2 million, which represented a increase of $8.2 million, or 274.3% from the three months ended November 3, 2017.
  • 18487860_71
    Other - Other
    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.
  • 18487860_37
    Other - Other
    We believe the operating metrics described below provide further insight into the long-term value of our subscription agreements and our ability to maintain and grow our client relationships.
  • 18487860_216
    Other - Other
    32 32 Selected Measures of Liquidity and Capital Resources Selected measures of our liquidity and capital resources are as follows: As of November 2, 2018, our principal sources of liquidity consisted of cash and cash equivalents of $115.8 million and accounts receivable of $134.4 million.
  • 18487860_126
    Other - Other
    Accordingly, initiatives to drive the efficiency of our Counter Threat Platform and the continued training and development of our employees are critical to our long-term success.

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  • Form Type: Quarterly
  • Number of times amended: 0
  • Accession Number: 0001468666-18-000049
  • Submitted to the SEC: Thursday, December 6, 2018 4:37:46 PM EST
  • Accepted by the SEC: Thursday, December 6, 2018
  • Period ending: November 2018
  • Industry: Prepackaged Software