Secureworks (NASDAQ:SCWX) has reported its financial results for the third quarter of fiscal year 2024, showcasing a significant growth in its Taegis business and a narrowed loss. The cybersecurity company's Taegis platform revenue surged by 41% year-over-year (YoY) to over $67 million, with annual recurring revenue (ARR) climbing to $279 million, marking a 25% increase from the previous year. Despite not expanding through logo count, the company has made substantial progress in its financial metrics and go-to-market strategies, including partnerships that are reshaping its customer engagement model.
Key Takeaways
- Secureworks' Taegis business grew 41% YoY with revenue exceeding $67 million.
- The company's ARR for Taegis reached $279 million, a 25% growth YoY.
- Secureworks is the market leader in cloud-native XDR with a 32% share.
- The company narrowed its quarterly loss to $1 million and anticipates breakeven next quarter.
- New product capabilities and AI integration have enhanced security analytics and operational efficiency.
- Secureworks is approaching the sunset of its other MSS business in Q1 fiscal year 2025 to reduce headwinds on total revenue.
Company Outlook
Secureworks has expressed a strong commitment to achieving sustainable growth and forecasts reaching adjusted EBITDA profitability. The company plans to continue reducing costs, particularly those associated with sunsetting businesses. With a total revenue of $89.4 million for Q3, slightly above the midpoint of its guidance, Secureworks is optimistic about the future, expecting the ARR for Taegis to end at $280 million or greater for the full year.
Bearish Highlights
The company's representative, Wendy Thomas, acknowledged challenges in assessing the demand environment due to the increasing role of partners, which has introduced unpredictability in forecasting. The lack of a usual end-of-year budget flush, as noted by Alpana Wegner, was unexpected and has impacted the natural increase in demand that was anticipated in the company's guidance.
Bullish Highlights
Secureworks has seen a healthy total pipeline for fiscal year 2025 and is pleased with the progress made, despite the challenges. The growing involvement of partners in the go-to-market strategy and the increasing mix of partners are viewed as long-term positives, with the company learning and adjusting to the new sales dynamics.
Misses
The company did not experience the usual end-of-year budget flush, which has historically contributed to a fourth-quarter surge in demand. This absence was contrary to the company's expectations and previous experiences.
QA Highlights
During the Q&A, concerns about the pipeline for fiscal year 2025 were addressed, with Thomas reassuring that the total pipeline remains healthy. The shift to a partner-heavy go-to-market strategy has introduced a learning curve, impacting visibility and predictability. Wegner's comments on the unexpected lack of budget flush further highlighted the challenges in demand forecasting.
Secureworks continues to innovate with AI technology, enhancing their security analytics and threat detection capabilities. The company's focus on AI is cautious, with a priority on security and rigorous testing. With the introduction of a customer-facing reporting system and a prioritization engine that handles over 1 trillion events, Secureworks aims to streamline investigations and reduce workloads for security operations.
The earnings call concluded with remarks from Kevin Toomey, emphasizing the company's strategic direction and focus on growth. A replay of the webcast will be available on the Secureworks Investor Relations page for those interested in the full discussion.
InvestingPro Insights
Secureworks' latest financial results reveal a strong performance in its Taegis business, yet InvestingPro Tips suggest a more nuanced picture. The company holds more cash than debt, which is a positive indicator of financial health. However, analysts are concerned about a declining trend in earnings per share and have revised their earnings expectations downwards for the upcoming period, indicating potential headwinds for profitability.
InvestingPro Data underscores these concerns with a market capitalization of $516.55 million and a negative adjusted P/E ratio for the last twelve months as of Q3 2024 at -4.81, reflecting the company's current lack of profitability. Additionally, revenue has decreased by 17.64% over the same period, which aligns with analysts' anticipation of a sales decline in the current year.
For readers looking to dive deeper into Secureworks' financial health and future prospects, there are additional InvestingPro Tips available. These tips provide insights such as the company's low return on invested capital and the fact that short-term obligations exceed liquid assets. It's worth noting that analysts do not expect the company to be profitable this year, and Secureworks does not pay a dividend to shareholders, which may influence investment decisions.
To access these insights and more, consider a subscription to InvestingPro, which is currently on a special Cyber Monday sale with discounts of up to 60%. To get an additional 10% off a 2-year InvestingPro+ subscription, use the coupon code sfy23. With 10 more InvestingPro Tips available, subscribers can gain a comprehensive understanding of Secureworks' financial standing and make more informed investment choices.
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