SecureWorks - After Its IPO

According to Gartner, the worldwide cyber security market was estimated to grow 4.7% to $75.4 billion in 2015. Growth in cloud computing, mobile computing, and the Internet of Things as well as advanced cyber attacks have spurred interest in security technologies. Another report by MarketsAndMarkets expects the global cyber security to grow 9.8% annually over the next five years to be worth $170.2 billion by 2020.

SecureWorks’ Offerings

SecureWorks is a leading global provider of intelligence-driven information security solutions focused on defending cyber attacks. Its suite of solutions enable organizations to prevent security breaches, detect malicious activity in real-time, prioritize and respond rapidly to security breaches, and predict emerging threats. Its proprietary Counter Threat Platform provides global visibility into the threat landscape by aggregating as many as 150 billion incidents. The platform keeps learning from experience and is able to deliver enhanced actionable security information and incident response measures.

SecureWorks has over 4,100 customers spread across 61 countries. Its customer list includes Bank of America Merrill Lynch, Morgan Stanley, Goldman Sachs, JPMorgan, Barclays Capital, and Citigroup Global Markets. Bank of America is its biggest customer and it generated 12% of its revenues in fiscal 2016.

SecureWorks’ History

Atlanta-based SecureWorks was originally founded in 1999 by Michael Pearson and Joan Wilbanks to deliver information security offerings to companies worldwide. In 2011, it was acquired by Dell for $612 million. At that time, it was a Security-as-a-Service company providing Managed-Security Services, Security and Risk Consulting Services, and Threat Intelligence and was trending at revenues north of $120 million.

Following the $67 billion acquisition of EMC, Dell has restructured its business portfolio. In April, SecureWorks listed on the NASDAQ exchange under the ticker SCWX at an offering price of $14, missing its previously indicated range of $15.50 to $17.50. Although cyber security companies have attracted much venture funding over the last couple of years, several have fumbled in the public market. Investors are therefore looking out for cyber security companies that have turned profitable.

SecureWorks’ Financials

SecureWorks operates on a subscription-based service for its managed security and threat intelligence solutions. Additionally, it also generates revenues from security and risk consulting engagements through fixed-price or retainer-based contracts. In fiscal 2016, its revenues grew 30% to $339.5 million and losses grew 88% to $72.3 million driven by 47% growth in operating expenses.

SecureWorks recently reported its Q1 FY17 results that beat analyst estimates. First quarter revenue grew 29% to 99.8 million. Net loss per share narrowed down to $0.17 from a loss per share of $0.25 a year ago. Non-GAAP net loss per share was $0.09. Analysts expected loss of $0.15 on revenue of $94.84.

Monthly recurring revenue was $28.9 million, as compared to $24.0 million last year. Gross margin was 50%, up from 43.2% a year ago. SecureWorks ended the quarter with $123.7 million in cash and cash equivalents, including the net proceeds from its IPO of 8 million shares of its Class A common.

For the second quarter, SecureWorks expects revenue of $100 million to $102 million and non GAAP net loss per share in the range of $0.07 to $0.09. Analysts are projecting loss of $0.12 per share on revenue of $99 million.

For the fiscal year 2017, it expects revenue between $423 million and $425 million. Non GAAP net loss per share is expected to be in the range of $030 and $0.33. Analysts expect loss per share of $0.46 on revenue of $418.8 million.

Its stock is currently trading at $13.49, below its IPO listing price. Its market cap is around $1.14 billion. It hit a low of $11.96 in May. SecureWorks will need to fix its profitability for this jittery market to warm up to it.

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