8-K/A: Secureworks Reports Q1 Fiscal 2025 Results, Taegis Revenue Up 10% Year-Over-Year

Secureworks announced its first quarter fiscal 2025 results, highlighting a 10% year-over-year growth in Taegis revenue and an expansion in gross margins.

Summary

• Secureworks reported its financial results for the first quarter of fiscal year 2025, which ended on May 3, 2024.
• Total revenue was $85.7 million, a decrease from $94.4 million in the same quarter of the previous year, due to the strategic wind-down of the legacy Other MSS business.
• Taegis revenue grew to $69.1 million, up from $62.6 million in the first quarter of fiscal 2024.
• Taegis annual recurring revenue (ARR) reached $287 million, a 7% increase year-over-year.
• GAAP gross profit was $57.8 million, compared to $51.6 million in the prior year's first quarter.
• Non-GAAP gross profit was $59.9 million, up from $56.6 million year-over-year.
• The company reported a GAAP net loss of $36.1 million, or $0.41 per share, primarily due to a $26.2 million valuation allowance related to tax deconsolidation from Dell Technologies Inc.
• Non-GAAP net income was $4.2 million, or $0.05 per share, compared to a non-GAAP net loss of $17.1 million, or $0.20 per share, in the same period last year.
• Adjusted EBITDA was $5.6 million, exceeding guidance, compared to an adjusted EBITDA loss of $20.1 million in the first quarter of fiscal 2024.
• The company ended the quarter with $47.0 million in cash and cash equivalents and no borrowings on its credit facility.

Sentiment

Score: 7

Explanation: The document shows positive trends in Taegis revenue growth, gross margin expansion, and improved profitability, but the GAAP net loss and overall revenue decline temper the positive sentiment. The company is making progress but still has challenges to overcome.

Positives

• Taegis revenue showed strong growth, increasing by 10% year-over-year.
• The company's annual recurring revenue (ARR) for Taegis grew by 7% year-over-year.
• Gross margins for Taegis continued to expand, reaching 71.9% on a GAAP basis and 74.3% on a non-GAAP basis.
• Adjusted EBITDA turned positive at $5.6 million, exceeding expectations.
• Non-GAAP net income was positive at $4.2 million, a significant improvement from the previous year.
• The company launched new product capabilities and expanded its partner program.
• Secureworks received industry recognition for its MDR services and AI innovation.

Negatives

• Total revenue decreased to $85.7 million from $94.4 million in the same quarter last year due to the wind-down of the legacy Other MSS business.
• The company reported a GAAP net loss of $36.1 million, or $0.41 per share, primarily due to a $26.2 million valuation allowance.
• Cash and cash equivalents decreased to $47.0 million from $68.655 million at the end of the previous quarter.

Risks

• The company is navigating the strategic wind-down of its legacy Other MSS business, which is impacting total revenue.
• The GAAP net loss was significantly impacted by a $26.2 million valuation allowance related to tax deconsolidation from Dell Technologies Inc.
• The company faces intense competition in the cybersecurity market.
• There are risks associated with the development, use, and adoption of artificial intelligence.
• The company is exposed to fluctuations in currency exchange rates and inflation.
• The company relies on patents to protect its intellectual property rights.

Future Outlook

For the second quarter of fiscal 2025, the company expects revenue of $80 million to $82 million, adjusted EBITDA of $1 to $3 million, and non-GAAP net earnings per share of $0.00 to $0.02. For the full fiscal year 2025, the company expects total ARR of $300 million or greater, total revenue of $325 million to $335 million, non-GAAP net income of $3 million to $8 million, or $0.03 to $0.09 per share, adjusted EBITDA of $6 million to $12 million, and cash from operations of -$2 million to $8 million.

Management Comments

• Wendy Thomas, CEO, stated that the company launched new product capabilities and added two high-profile partners in Japan.
• Wendy Thomas, CEO, highlighted that Taegis enables customers to streamline spend, reduce risk, and evolve their tech stack.
• Alpana Wegner, CFO, noted that the expansion of Taegis gross margin reflects the company's focus on operational efficiencies driven by investments in AI and cloud architecture.
• Alpana Wegner, CFO, expressed confidence in achieving the fiscal 2025 outlook based on the first quarter financial commitments.

Industry Context

This announcement reflects the ongoing shift in the cybersecurity industry towards cloud-based solutions and managed detection and response (MDR) services. Secureworks' focus on its Taegis platform and its expansion of partnerships align with these trends. The company's recognition by Frost & Sullivan and IDC highlights its position in the competitive MDR market.

Comparison to Industry Standards

• Secureworks' Taegis platform competes with other XDR and MDR solutions from companies like CrowdStrike, SentinelOne, and Palo Alto Networks.
• The 10% year-over-year growth in Taegis revenue is a positive sign, but it is important to compare this to the growth rates of its competitors to assess its relative performance.
• The expansion of Taegis gross margins to 71.9% (GAAP) and 74.3% (non-GAAP) is a strong indicator of operational efficiency and is comparable to other leading SaaS companies in the cybersecurity space.
• The adjusted EBITDA of $5.6 million, compared to a loss in the same quarter last year, shows significant improvement and is a key metric for investors to track.
• The company's recognition in industry reports like the Frost & Sullivan MDR Radar and IDC MarketScape suggests that its technology and services are well-regarded within the industry.

Stakeholder Impact

• Shareholders will be encouraged by the growth in Taegis revenue and the improvement in profitability.
• Employees may benefit from the company's growth and recognition in the industry.
• Customers will benefit from the new product capabilities and expanded partner program.
• Suppliers and creditors will be reassured by the company's improved financial performance.

Next Steps

• The company will hold a conference call to discuss its first quarter fiscal 2025 results and financial guidance on June 6, 2024.
• The company will continue to focus on expanding its Taegis platform and partner program.
• The company will work towards achieving its fiscal year 2025 financial guidance.

Key Dates

Keywords

cybersecurity, Taegis, XDR, MDR, ARR, revenue, EBITDA, gross margin, AI, cloud security