ATLANTA, Dec. 7, 2023 /PRNewswire/ -- Secureworks^®(NASDAQ: SCWX), a global leader in cybersecurity, today announced financial results for its third quarter, which ended on November 3, 2023.

Key Highlights

Secureworks Taegis™ annual recurring revenue (ARR) grew to $279 million, an increase of 25% on a year-over-year basis.
Taegis third quarter revenue grew 41% year-over-year to $67.3 million.
Taegis GAAP gross margin and non-GAAP gross margin continued to expand in the third quarter, reaching 70.4% and 72.7%, respectively.

"Our Taegis business is consistently delivering market-leading growth and Q3 was no exception. We expanded the breadth and depth of our Partner ecosystem, and recognition within the analyst community for our leadership in the XDR market accelerated. As we continue to enrich our partner experience and launch new product capabilities, we strengthen our ability to scale with partners, expand their addressable market and most importantly deliver superior customer outcomes," said Wendy Thomas, CEO, Secureworks. "These elements lay the foundation for long-term Taegis growth."

"We've made significant progress on our path to profitability, increasing our confidence in achieving breakeven adjusted EBITDA milestone in fourth quarter this year," said Alpana Wegner, Chief Financial Officer, Secureworks. "The Taegis gross margin expansion we delivered this quarter demonstrates the scalability of our platform and longstanding use of AI in driving operational efficiencies."

Third Quarter Fiscal 2024 Financial Highlights

Total revenue for the third quarter was $89.4 million, compared to $110.9 million in the third quarter of fiscal 2023, reflecting the strategic wind-down of our Other MSS business.
Taegis revenue for the third quarter was $67.3 million, compared to $47.9 million in the third quarter of fiscal 2023.
GAAP gross profit was $54.7 million, compared with $65.4 million in the third quarter of fiscal 2023. Non-GAAP gross profit was $59.2 million, compared with $70.2 million during the same period last year.
GAAP gross profit specific to Taegis was $47.4 million, compared with $31.3 million in the third quarter of fiscal 2023. Non-GAAP Taegis gross profit was $48.9 million, compared with $32.4 million during the same period last year.
GAAP gross margin for the third quarter was 61.3%, compared with 58.9% in the same period last year. Non-GAAP gross margin was 66.3%, compared with 63.3% in the third quarter of fiscal 2023.
GAAP gross margin specific to Taegis was 70.4% for the quarter, compared with 65.4% in the same period last year. Non-GAAP Taegis gross margin was 72.7%, compared with 67.6% in the third quarter of fiscal 2023.
GAAP net loss was $14.4 million for the third quarter, or $0.17 per share, compared with GAAP net loss of $28.1 million, or $0.33 per share, in the same period last year. Non-GAAP net loss was $0.0 million, or $0.00 per share, compared with non-GAAP net loss of $13.7 million, or $0.16 per share, in the same period last year.
Adjusted EBITDA loss for the quarter was $1.2 million, compared with adjusted EBITDA loss of $17.2 million in the third quarter of fiscal 2023.
The company ended the third quarter with $58.1 million in cash and cash equivalents.

Business and Operational Highlights

Published 2023 State of the Threat Report and completed the Secureworks 8th annual Global Threat Intelligence Summit, with keynote by Jen Easterly, Director of the Cybersecurity and Infrastructure Security Agency (CISA).
Introduced new features in the Taegis platform to broaden our market reach, including enhanced cloud security, custom configurations and advanced tools for threat hunting.
Recognition and awards received during the third quarter of fiscal 2024 include:
- Leader in The Forrester Wave™: Managed Detection And Response Services In Europe, Q4 2023
- #1 Marketshare in IDC Marketshare: Worldwide Cloud-Native XDR 2022 Share Snapshot, published September 2023
- Leader in Innovation in Frost & Sullivan XDR Radar report, Open XDR category published August 2023
- XDR Platform of the Year in Cybersecurity Breakthrough

Financial Outlook

For the fourth quarter of fiscal 2024, the Company expects:

Revenue of $86 million to $88 million.
GAAP net loss per share of $0.16 to $0.18 and non-GAAP net loss per share of $0.03 to $0.05.

Secureworks is providing the following updated guidance for full fiscal year 2024. The Company expects:


     
              Fiscal Year 2024 Guidance



     Taegis ARR                           
            $280M or Greater



     Other MSS ARR                            
            $15M or Less



     Total revenue                          
            $363M to $365M



     Taegis revenue                         
            $264M to $266M



     GAAP net loss                           ($91M) to ($93M)


                                              ($1.06) to ($1.08) per
                                               share



     Non-GAAP net loss                       ($28M) to ($30M)


                                              ($0.33) to ($0.35) per
                                               share



     Adjusted EBITDA                         ($31M) to ($33M)



     Cash from operations                    ($70M) to ($80M)

Conference Call Information

As previously announced, the Company will hold a conference call to discuss its third quarter fiscal 2024 results and financial guidance on December 7, 2023, at 8:00 a.m. U.S. ET. A live audio webcast of the conference call and the related supplemental financial information will be accessible on the Company's website at https://investors.secureworks.com. The webcast and supplemental information will be archived at the same location.

Operating Metrics

The Company defines annual recurring revenue (ARR) as the value of its subscription contracts as of a particular date. Because the Company uses recurring revenue as a leading indicator of future annual revenue, it includes operational backlog. Operational backlog is defined as the recurring revenue associated with pending contracts, which are contracts that have been sold but for which the service period has not yet commenced.

Non-GAAP Financial Measures

This press release presents information about the Company's non-GAAP revenue, non-GAAP subscription cost of revenue, non-GAAP professional services cost of revenue, non-GAAP Taegis Subscription Solutions cost of revenue, non-GAAP Managed Security Services cost of revenue, non-GAAP gross profit, non-GAAP subscription gross profit, non-GAAP professional services gross profit non-GAAP Taegis Subscription Solutions gross profit, non-GAAP Managed Security Services gross profit, 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 net income (loss), non-GAAP earnings (loss) per share, adjusted EBITDA, weighted average common shares outstanding - diluted (non-GAAP), non-GAAP gross margin, non-GAAP Taegis Subscription Solutions gross margin, non-GAAP Managed Security Services gross margin, non-GAAP subscription gross margin and non-GAAP professional services gross margin, which are non-GAAP financial measures provided as a supplement to the results provided in accordance with accounting principles generally accepted in the United States of America ("GAAP"). A reconciliation of each of the foregoing historical and forward-looking non-GAAP financial measures to the most directly comparable historical and forward-looking GAAP financial measure is provided below for each of the fiscal periods indicated.

Special Note Regarding Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In some cases, you can identify these statements by such forward-looking words as "anticipate," "believe," "confidence," "could," "estimate," "expect," "guidance," "intend," "may," "plan," "potential," "outlook," "should," and "would," or similar words or expressions that refer to future events or outcomes. Such forward-looking statements include, but are not limited to, the statements in this press release with respect to the Company's expectations regarding revenue, GAAP net loss per share and non-GAAP net loss per share for the fourth quarter of fiscal 2024, and Taegis ARR, other MSS ARR, total revenue, Taegis revenue, GAAP net loss, GAAP net loss per share, non-GAAP net loss, non-GAAP net loss per share, weighted average common shares outstanding - diluted (non-GAAP), adjusted EBITDA, capital expenditures, and cash from operations for full year fiscal 2024, all of which reflect the Company's current analysis of existing trends and information. These forward-looking statements represent the Company's judgment only as of the date of this press release.

Actual results and events in future periods may differ materially from those expressed or implied by these forward-looking statements because of risks, uncertainties and other factors that include, but are not limited to, the following: the Company's ability to achieve or maintain profitability; the Company's ability to enhance its existing solutions and technologies and to develop or acquire new solutions and technologies; the Company's ability to navigate economic conditions, geopolitical uncertainty and financial market volatility; the Company's reliance on personnel with extensive information security expertise; the Company's ability to successfully implement its strategic plan to realign and optimize its investments with its priorities; intense competition in the Company's markets; the Company's ability to attract new customers, retain existing customers and increase its annual contract values; the Company's reliance on customers in the financial services industry; the Company's ability to manage its growth effectively; the Company's ability to maintain high-quality client service and support functions; terms of the Company's service level agreements with customers that require credits for service failures or inadequacies; the Company's recognition of revenue ratably over the terms of its Taegis SaaS applications and managed security services contracts; the Company's long and unpredictable sales cycles; risks associated with expansion of the Company's international sales and operations; the risks associated with proposed or currently enacted tax statutes, including Internal Revenue Code Section 174; the Company's exposure to fluctuations in currency exchange rates or inflation; the effect of new governmental export or import controls on the Company's business or any international sanctions compliance program applicable to the Company; the Company's ability to expand its key distribution relationships; the Company's technology alliance partnerships; real or perceived defects, errors or vulnerabilities in the Company's solutions or the failure of its solutions to prevent a security breach; the risks associated with cyber-attacks or other data security incidents; the ability of the Company's solutions to interoperate with its customers' IT infrastructure; the Company's ability to use third-party technologies; the effect of evolving information security and data privacy laws and regulations on the Company's business; the Company's ability to maintain and enhance its brand; risks associated with the Company's acquisition of other businesses; the effect of natural disasters, public health issues, geopolitical conflict and other catastrophic events on the Company's ability to serve its customers, including the Ukrainian/Russian conflict; the Company's reliance on patents to protect its intellectual property rights; the Company's ability to protect, maintain or enforce its non-patented intellectual property rights and proprietary information; claims by third parties of infringement of their proprietary technology by the Company; the Company's use of open source technology; 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 a potential deconsolidation of the Company as a part of the Dell Technologies Inc. consolidated tax group; and risks related to the volatility of the price of the Company's Class A common stock.

This list of risks, uncertainties and other factors is not complete. The Company discusses these matters more fully, as well as certain risk factors that could affect the Company's business, financial condition, results of operations and prospects, under the caption "Risk Factors" in the Company's annual report on Form 10-K or in the Company's first quarter fiscal 2024 Form 10-Q filing, as well as in the Company's other SEC filings.

Any or all forward-looking statements the Company makes may turn out to be wrong and can be affected by inaccurate assumptions the Company might make or by known or unknown risks, uncertainties and other factors, including those identified in this press release. Accordingly, you should not place undue reliance on the forward-looking statements made in this press release, which speak only as of its date. The Company does not undertake to update, and expressly disclaims any obligation to update, any of its forward-looking statements, whether resulting from circumstances or events that arise after the date the statements are made, new information or otherwise.

About Secureworks

Secureworks (NASDAQ: SCWX) is a global cybersecurity leader that secures human progress with Secureworks® Taegis™, a SaaS-based, open XDR platform built on 20+ years of real-world detection data, security operations expertise, and threat intelligence and research. Taegis is embedded in the security operations of over 4,000 organizations around the world who use its advanced, AI-driven capabilities to detect advanced threats, streamline and collaborate on investigations, and automate the right actions.
www.secureworks.com

(Tables Follow)

                                                                                                       
              
                SECUREWORKS CORP.


                                                                              
              Condensed Consolidated Statements of Operations and Related Financial Highlights


                                                                                            
              (in thousands, except per share data and percentages)


                                                                                                                 
              (unaudited)


                                                                                                                                                                            Three Months Ended                           Nine Months Ended


                                                                                                                                                                November 3,                    October 28,  November 3,                    October 28,
                                                                                                                                                                       2023                            2022          2023                            2022



       Net revenue:



       Subscription                                                                                                                                                $75,212                         $87,191      $229,296                        $271,926



       Professional services                                                                                                                                        14,152                          23,751        47,429                          76,213



       Total net revenue                                                                                                                                            89,364                         110,942       276,725                         348,139



       Cost of revenue:



       Subscription                                                                                                                                                 25,986                          32,136        87,089                          99,022



       Professional services                                                                                                                                         8,629                          13,444        30,369                          45,572



       Total cost of revenue                                                                                                                                        34,615                          45,580       117,458                         144,594



       Gross profit                                                                                                                                                 54,749                          65,362       159,267                         203,545



       Operating expenses:



       Research and development                                                                                                                                     26,358                          35,263        85,766                         102,232



       Sales and marketing                                                                                                                                          27,079                          41,380        92,842                         121,565



       General and administrative                                                                                                                                   20,565                          24,725        63,194                          74,359



       Reorganization and other related charges                                                                                                                          -                                      14,232



       Total operating expenses                                                                                                                                     74,002                         101,368       256,034                         298,156



       Operating loss                                                                                                                                             (19,253)                       (36,006)     (96,767)                       (94,611)



       Interest and other, net                                                                                                                                         684                           (661)      (1,698)                        (1,227)



       Loss before income taxes                                                                                                                                   (18,569)                       (36,667)     (98,465)                       (95,838)



       Income tax benefit                                                                                                                                          (4,148)                        (8,521)     (20,715)                       (21,375)



       Net loss                                                                                                                                                  $(14,421)                      $(28,146)    $(77,750)                      $(74,463)





       Loss per common share (basic and diluted)                                                                                                                   $(0.17)                        $(0.33)      $(0.90)                        $(0.88)



       Weighted-average common shares outstanding (basic and diluted)                                                                                               86,278                          84,584        85,943                          84,277




                                                     Percentage of Total Net Revenue
                  
                
                
                   (1)

    ---


       Subscription gross margin                                                                                                                                    65.4 %                         63.1 %       62.0 %                         63.6 %



       Professional services gross margin                                                                                                                           39.0 %                         43.4 %       36.0 %                         40.2 %



       Total gross margin                                                                                                                                           61.3 %                         58.9 %       57.6 %                         58.5 %



       Research and development expenses                                                                                                                            29.5 %                         31.8 %       31.0 %                         29.4 %



       Sales and marketing expenses                                                                                                                                 30.3 %                         37.3 %       33.6 %                         34.9 %



       General and administrative expenses                                                                                                                          23.0 %                         22.3 %       22.8 %                         21.4 %



       Reorganization and other related charges                                                                                                                        - %                           - %       5.1 %                            - %



       Operating expenses                                                                                                                                           82.8 %                         91.4 %       92.5 %                         85.6 %



       Operating loss                                                                                                                                             (21.5) %                       (32.5) %     (35.0) %                       (27.2) %



       Loss before income taxes                                                                                                                                   (20.8) %                       (33.1) %     (35.6) %                       (27.5) %



       Net loss                                                                                                                                                   (16.1) %                       (25.4) %     (28.1) %                       (21.4) %



       Effective tax rate                                                                                                                                           22.3 %                         23.2 %       21.0 %                         22.3 %



       Note:  Percentage growth rates are calculated based on underlying data in thousands




     
     (1) Financial measures as a percentage of revenue are calculated based on total GAAP net revenue, except for GAAP subscription gross
              margin and GAAP professional services gross margin measures, which are calculated based on each of their respective GAAP net
              revenue measures.

                                           
              
                SECUREWORKS CORP.


                               
              Condensed Consolidated Statements of Financial Position


                                                   
              (in thousands)


                                                     
              (unaudited)




                                                                                                  November 3, February 3,
                                                                                                         2023         2023



       
                
                  
                    Assets:

    ---


       Current assets:


          Cash and cash
           equivalents                                                                                $58,105     $143,517


          Accounts receivable,
           net                                                                                         55,914       72,627


          Inventories, net                                                                                759          620


          Other current assets                                                                         12,865       17,526


            Total current assets                                                                      127,643      234,290



       Property and equipment, net                                                                     2,626        4,632



       Operating lease right-of-use assets, net                                                        5,262        9,256



       Goodwill                                                                                      425,241      425,519



       Intangible assets, net                                                                         86,942      106,208



       Other non-current assets                                                                       72,236       60,965


            Total assets                                                                             $719,950     $840,870


                                                     Liabilities and Stockholders' Equity:

    ---


       Current liabilities:


          Accounts payable                                                                            $11,675      $18,847


          Accrued and other
           current liabilities                                                                         60,890       81,566


          Short-term deferred
           revenue                                                                                    126,198      145,170


            Total current
             liabilities                                                                              198,763      245,583



       Long-term deferred revenue                                                                      6,988       11,162



       Operating lease liabilities, non-current                                                        8,800       12,141



       Other non-current liabilities                                                                   7,662       14,023


            Total liabilities                                                                         222,213      282,909



       Total stockholders' equity                                                                    497,737      557,961



       Total liabilities and stockholders' equity                                                   $719,950     $840,870

                                                                                                   
              
                SECUREWORKS CORP.


                                                                                           
              Condensed Consolidated Statements of Cash Flows


                                                                                                           
              (in thousands)


                                                                                                             
              (unaudited)




                                                                                                                                                                  Nine Months Ended


                                                                                                                                                      November 3,                   October 28,
                                                                                                                                                             2023                           2022



     Cash flows from operating activities:



     Net loss                                                                                                                                          $(77,750)                     $(74,463)



     Adjustments to reconcile net loss to net cash used in operating activities:



     Depreciation and amortization                                                                                                                        26,028                         27,728



     Amortization of right of use asset                                                                                                                    1,686                          2,853



     Reorganization and other related charges                                                                                                              3,272



     Amortization of costs capitalized to obtain revenue contracts                                                                                        12,964                         13,319



     Amortization of costs capitalized to fulfill revenue contracts                                                                                        2,562                          3,635



     Stock-based compensation expense                                                                                                                     24,852                         27,504



     Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies                                                 1,575                          1,386



     Income tax benefit                                                                                                                                 (20,715)                      (21,375)



     Provision for credit losses                                                                                                                             232                          (552)



     Changes in assets and liabilities:



     Accounts receivable                                                                                                                                  15,951                         21,584



     Net transactions with Dell                                                                                                                            2,028                        (3,741)



     Inventories                                                                                                                                           (139)                         (178)



     Other assets                                                                                                                                        (1,237)                       (9,709)



     Accounts payable                                                                                                                                    (7,462)                         4,550



     Deferred revenue                                                                                                                                   (24,011)                      (33,171)



     Operating leases, net                                                                                                                               (4,031)                       (4,086)



     Accrued and other liabilities                                                                                                                      (30,299)                      (23,462)



     Net cash used in operating activities                                                                                                              (74,494)                      (68,178)



     Cash flows from investing activities:



     Capital expenditures                                                                                                                                  (865)                       (1,609)



     Software development costs                                                                                                                          (4,106)                       (3,352)



     Net cash used in investing activities                                                                                                               (4,971)                       (4,961)



     Cash flows from financing activities:



     Taxes paid on vested restricted shares                                                                                                              (5,947)                       (8,484)



     Net cash used in financing activities                                                                                                               (5,947)                       (8,484)



     Net decrease in cash and cash equivalents                                                                                                          (85,412)                      (81,623)



     Cash and cash equivalents at beginning of the period                                                                                                143,517                        220,655



     Cash and cash equivalents at end of the period                                                                                                      $58,105                       $139,032

Non-GAAP Financial Measures

This press release presents information about the Company's non-GAAP revenue, non-GAAP subscription cost of revenue, non-GAAP professional services cost of revenue, non-GAAP Taegis Subscription Solutions cost of revenue, non-GAAP Managed Security Services cost of revenue, non-GAAP gross profit, non-GAAP subscription gross profit, non-GAAP professional services gross profit, non-GAAP Taegis Subscription Solutions gross profit, non-GAAP Managed Security Services gross profit, 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 net income (loss), non-GAAP earnings (loss) per share, adjusted EBITDA, weighted average common shares outstanding - diluted (non-GAAP), non-GAAP gross margin, non-GAAP Taegis Subscription Solutions gross margin, non-GAAP Managed Security Services gross margin, non-GAAP subscription gross margin and non-GAAP professional services gross margin, which are non-GAAP financial measures provided as a supplement to the results provided in accordance with GAAP. A detailed discussion of our reasons for including these non-GAAP financial measures, the limitations associated with these measures, the items excluded from these measures, and our reason for excluding those items are presented in "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Non-GAAP Financial Measures" in our periodic reports filed with the SEC. The Company encourages investors to review the non-GAAP discussion in these reports in conjunction with the presentation of non-GAAP financial measures.

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                SECUREWORKS CORP.


                                                                                    
              Reconciliation of GAAP to Non-GAAP Financial Measures


                                                                                            
              (in thousands, except per share data)


                                                                                                         
              (unaudited)


                                                                                                                                                                 Three Months Ended                          Nine Months Ended


                                                                                                                                                     November 3,                    October 28,  November 3,                   October 28,
                                                                                                                                                            2023                            2022          2023                           2022



     GAAP net revenue:



     Taegis Subscription Solutions                                                                                                                      $67,346                         $47,888      $196,368                       $127,913



     Managed Security Services                                                                                                                            7,866                          39,303        32,928                        144,013



     Total Subscription revenue                                                                                                                          75,212                          87,191       229,296                        271,926



     Professional services                                                                                                                               14,152                          23,751        47,429                         76,213



     GAAP net revenue(1)                                                                                                                                $89,364                        $110,942      $276,725                       $348,139





     GAAP Taegis Subscription Solutions cost of revenue                                                                                                 $19,927                         $16,558       $60,575                        $44,550



     Amortization of intangibles                                                                                                                        (1,208)                          (960)      (3,404)                       (2,519)



     Stock-based compensation expense                                                                                                                     (313)                           (80)        (561)                         (188)



     Non-GAAP Taegis Subscription Solutions cost of revenue                                                                                             $18,406                         $15,518       $56,610                        $41,843





     GAAP Managed Security Services cost of revenue                                                                                                      $6,059                         $15,578       $26,514                        $54,472



     Amortization of intangibles                                                                                                                        (2,576)                        (3,411)      (9,397)                      (10,232)



     Stock-based compensation expense                                                                                                                      (53)                           (87)        (160)                         (269)



     Non-GAAP Managed Security Services cost of revenue                                                                                                  $3,430                         $12,080       $16,957                        $43,971





     GAAP subscription cost of revenue                                                                                                                  $25,986                         $32,136       $87,089                        $99,022



     Amortization of intangibles                                                                                                                        (3,784)                        (4,371)     (12,801)                      (12,751)



     Stock-based compensation expense                                                                                                                     (366)                          (167)        (721)                         (457)



     Non-GAAP subscription cost of revenue                                                                                                              $21,836                         $27,598       $73,567                        $85,814





     GAAP professional services cost of revenue                                                                                                          $8,629                         $13,444       $30,369                        $45,572



     Stock-based compensation expense                                                                                                                     (344)                          (323)        (991)                       (1,055)



     Non-GAAP professional services cost of revenue                                                                                                      $8,285                         $13,121       $29,378                        $44,517





     GAAP gross profit                                                                                                                                  $54,749                         $65,362      $159,267                       $203,545



     Amortization of intangibles                                                                                                                          3,784                           4,371        12,801                         12,751



     Stock-based compensation expense                                                                                                                       711                             491         1,713                          1,512



     Non-GAAP gross profit                                                                                                                              $59,244                         $70,224      $173,781                       $217,808





     GAAP Taegis Subscription Solutions gross profit                                                                                                    $47,419                         $31,330      $135,793                        $83,363



     Amortization of intangibles                                                                                                                          1,208                             960         3,404                          2,519



     Stock-based compensation expense                                                                                                                       313                              80           561                            188



     Non-GAAP Taegis Subscription Solutions gross profit                                                                                                $48,940                         $32,370      $139,758                        $86,070





     GAAP research and development expenses                                                                                                             $26,358                         $35,263       $85,766                       $102,232



     Stock-based compensation expense                                                                                                                   (3,794)                        (3,077)      (9,077)                       (8,460)



     Non-GAAP research and development expenses                                                                                                         $22,564                         $32,186       $76,689                        $93,772





     GAAP sales and marketing expenses                                                                                                                  $27,079                         $41,380       $92,842                       $121,565



     Stock-based compensation expense                                                                                                                     (836)                        (1,631)      (2,774)                       (4,896)



     Non-GAAP sales and marketing expenses                                                                                                              $26,243                         $39,749       $90,068                       $116,669





     GAAP general and administrative expenses                                                                                                           $20,565                         $24,725       $63,194                        $74,359



     Amortization of intangibles                                                                                                                        (3,524)                        (3,524)     (10,571)                      (10,571)



     Stock-based compensation expense                                                                                                                   (4,621)                        (4,367)     (11,288)                      (12,636)



     Non-GAAP general and administrative expenses                                                                                                       $12,420                         $16,834       $41,335                        $51,152





     GAAP operating loss                                                                                                                              $(19,253)                      $(36,006)    $(96,767)                     $(94,611)



     Amortization of intangibles                                                                                                                          7,308                           7,895        23,372                         23,322



     Stock-based compensation expense                                                                                                                     9,962                           9,566        24,852                         27,504



     Reorganization and other related charges                                                                                                                 -                                      14,232



     Non-GAAP operating (loss) income                                                                                                                  $(1,983)                      $(18,545)    $(34,311)                     $(43,785)





     GAAP net loss                                                                                                                                    $(14,421)                      $(28,146)    $(77,750)                     $(74,463)



     Amortization of intangibles                                                                                                                          7,308                           7,895        23,372                         23,322



     Stock-based compensation expense                                                                                                                     9,962                           9,566        24,852                         27,504



     Reorganization and other related charges                                                                                                                 -                                      14,232



     Aggregate adjustment for income taxes                                                                                                              (2,856)                        (3,030)     (10,469)                       (8,974)



     Non-GAAP net (loss) income                                                                                                                            $(7)                      $(13,715)    $(25,763)                     $(32,611)





     GAAP loss per share                                                                                                                                $(0.17)                        $(0.33)      $(0.90)                       $(0.88)



     Amortization of intangibles                                                                                                                           0.08                            0.10          0.27                           0.28



     Stock-based compensation expense                                                                                                                      0.12                            0.12          0.29                           0.33



     Reorganization and other related charges                                                                                                                 -                                        0.17



     Aggregate adjustment for income taxes                                                                                                               (0.03)                         (0.04)       (0.12)                        (0.11)



     Non-GAAP (loss) earnings per share *                                                                                       
              $                  -                        $(0.16)      $(0.30)                       $(0.39)



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





     GAAP net loss                                                                                                                                    $(14,421)                      $(28,146)    $(77,750)                     $(74,463)



     Interest and other, net                                                                                                                              (684)                            661         1,698                          1,227



     Income tax benefit                                                                                                                                 (4,148)                        (8,521)     (20,715)                      (21,375)



     Depreciation and amortization                                                                                                                        8,067                           9,213        26,028                         27,728



     Stock-based compensation expense                                                                                                                     9,962                           9,566        24,852                         27,504



     Reorganization and other related charges                                                                                                                 -                                      14,232



     Adjusted EBITDA                                                                                                                                   $(1,224)                      $(17,227)    $(31,655)                     $(39,379)




     
     (1) Historically the Company has presented non-GAAP net revenue as a financial measure. There are no such adjustments that give
              rise to non-GAAP net revenue for any of the periods presented.

                                                                      
              
                SECUREWORKS CORP.


                                                                    
     Reconciliation of GAAP to Non-GAAP Financial Measures


                                                                                
              (unaudited)


                                                                                                                                Three Months Ended                           Nine Months Ended



       
                
                  Percentage of Total Net Revenue                                                 November 3,                    October 28,  November 3,                    October 28,
                                                                                                                           2023                            2022          2023                            2022

    ---




       GAAP Taegis Subscription Solutions gross margin                                                                  70.4 %                         65.4 %       69.2 %                         65.2 %



       Non-GAAP adjustment                                                                                               2.3 %                          2.2 %        2.0 %                          2.1 %



       Non-GAAP Taegis Subscription Solutions gross margin                                                              72.7 %                         67.6 %       71.2 %                         67.3 %





       GAAP Managed Security Services gross margin                                                                      23.0 %                         60.4 %       19.5 %                         62.2 %



       Non-GAAP adjustment                                                                                              33.4 %                          8.9 %       29.0 %                          7.3 %



       Non-GAAP Managed Security Services gross margin                                                                  56.4 %                         69.3 %       48.5 %                         69.5 %





       GAAP subscription gross margin                                                                                   65.4 %                         63.1 %       62.0 %                         63.6 %



       Non-GAAP adjustment                                                                                               5.6 %                          5.2 %        5.9 %                          4.8 %



       Non-GAAP subscription gross margin                                                                               71.0 %                         68.3 %       67.9 %                         68.4 %





       GAAP professional services gross margin                                                                          39.0 %                         43.4 %       36.0 %                         40.2 %



       Non-GAAP adjustment                                                                                               2.5 %                          1.4 %        2.1 %                          1.4 %



       Non-GAAP professional services gross margin                                                                      41.5 %                         44.8 %       38.1 %                         41.6 %





       GAAP gross margin                                                                                                61.3 %                         58.9 %       57.6 %                         58.5 %



       Non-GAAP adjustment                                                                                               5.0 %                          4.4 %        5.2 %                          4.1 %



       Non-GAAP gross margin                                                                                            66.3 %                         63.3 %       62.8 %                         62.6 %





       GAAP research and development expenses                                                                           29.5 %                         31.8 %       31.0 %                         29.4 %



       Non-GAAP adjustment                                                                                             (4.3) %                        (2.8) %      (3.3) %                        (2.5) %



       Non-GAAP research and development expenses                                                                       25.2 %                         29.0 %       27.7 %                         26.9 %





       GAAP sales and marketing expenses                                                                                30.3 %                         37.3 %       33.6 %                         34.9 %



       Non-GAAP adjustment                                                                                             (0.9) %                        (1.5) %      (1.1) %                        (1.4) %



       Non-GAAP sales and marketing expenses                                                                            29.4 %                         35.8 %       32.5 %                         33.5 %





       GAAP general and administrative expenses                                                                         23.0 %                         22.3 %       22.8 %                         21.4 %



       Non-GAAP adjustment                                                                                             (9.1) %                        (7.1) %      (7.9) %                        (6.7) %



       Non-GAAP general and administrative expenses                                                                     13.9 %                         15.2 %       14.9 %                         14.7 %





       GAAP operating loss                                                                                            (21.5) %                       (32.5) %     (35.0) %                       (27.2) %



       Non-GAAP adjustment                                                                                              19.3 %                         15.8 %       22.6 %                         14.6 %



       Non-GAAP operating (loss) income                                                                                (2.2) %                       (16.7) %     (12.4) %                       (12.6) %





       GAAP net loss                                                                                                  (16.1) %                       (25.4) %     (28.1) %                       (21.4) %



       Non-GAAP adjustment                                                                                              16.1 %                         13.0 %       18.8 %                         12.0 %



       Non-GAAP net (loss) income                                                                                          - %                      (12.4) %      (9.3) %                        (9.4) %

                                                                       
              
                SECUREWORKS CORP.


                                                                   
       Reconciliation of GAAP to Non-GAAP Financial Measures


                                                                     
             (in millions, except per share data)


                                                                                 
              (unaudited)




                                                                                                                               Three Months Ending                                         Fiscal Year Ending


                                                                                                                                 February 2, 2024                                           February 2, 2024


                                                                                                                    Low End of                           High End of           Low End of                             High End of
                                                                                                         Guidance                               Guidance              Guidance                   Guidance



              GAAP net revenue                                                                                            $86                                    $88                  $363                                     $365





              GAAP net loss                                                                                             $(16)                                 $(14)                $(93)                                   $(91)



              Amortization of intangibles                                                                                   5                                      5                    28                                       28



              Stock-based compensation expense                                                                             10                                     10                    35                                       35



              Aggregate adjustment for income taxes                                                                       (4)                                   (4)                 (14)                                    (14)



              Reorganization and other related charges                                                                                                                                14                                       14



              Non-GAAP net loss*                                                                                         $(4)                                  $(2)                $(30)                                   $(28)





              GAAP net loss per share                                                                                 $(0.18)                               $(0.16)              $(1.08)                                 $(1.06)



              Amortization of intangibles                                                                                0.05                                   0.05                  0.33                                     0.33



              Stock-based compensation expense                                                                           0.12                                   0.12                  0.41                                     0.41



              Aggregate adjustment for income taxes                                                                    (0.04)                                (0.04)               (0.16)                                  (0.16)



              Reorganization and other related charges                                                                                                                              0.17                                     0.17



              Non-GAAP net loss per share*                                                                            $(0.05)                               $(0.03)              $(0.35)                                 $(0.33)





              GAAP net loss                                                                                                                                                        $(93)                                   $(91)



              Interest and other, net                                                                                                                                                  4                                        4



              Income tax benefit                                                                                                                                                    (25)                                    (25)



              Depreciation and amortization                                                                                                                                           31                                       31



              Reorganization and other related charges                                                                                                                                14                                       14



              Stock-based compensation expense                                                                                                                                        35                                       35



              Adjusted EBITDA*                                                                                                                                                     $(33)                                   $(31)





              Other Items



              Effective tax rate                                                                                                                                                                                            21 %



              Weighted average shares outstanding (in millions) -                                                                                                                                                           86.2
    diluted (non-GAAP)



              Cash flow from operations                                                                                                                                                               
           $(80) to $(70)



              Capital expenditures                                                                                                                                                                           
              $6 to $8



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


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

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