•Aggregate Adjustment for Income Taxes. The aggregate adjustment for income taxes is the estimated combined income tax effect for the adjustments mentioned above. The tax effects are determined based on the tax jurisdictions where the above items were incurred.


	Three Months Ended				Nine Months Ended
	October 28, 2022		October 29, 2021			October 28, 2022		October 29, 2021

	(in thousands, except per share data)
GAAP net revenue(1)	$	110,942	$	133,699		$	348,139	$	407,334


GAAP subscription cost of revenue	$	32,136	$	34,888		$	99,022	$	109,423
Amortization of intangibles	(4,371)		(4,109)			(12,751)		(11,972)
Stock-based compensation expense	(167)		(41)			(457)		(159)
Non-GAAP subscription cost of revenue	$	27,598	$	30,738		$	85,814	$	97,292
GAAP professional services cost of revenue	$	13,444	$	18,002		$	45,572	$	57,157
Stock-based compensation expense	(323)		(103)			(1,055)		(474)
Non-GAAP professional services cost of revenue	$	13,121	$	17,899		$	44,517	$	56,683
GAAP gross profit	$	65,362	$	80,809		$	203,545	$	240,754
Amortization of intangibles	4,371		4,109			12,751		11,972
Stock-based compensation expense	491		144			1,512		633

Non-GAAP gross profit	$	70,224	$	85,062		$	217,808	$	253,359
GAAP research and development expenses	$	35,263	$	32,767		$	102,232	$	91,336
Stock-based compensation expense	(3,077)		(2,268)			(8,460)		(4,908)
Non-GAAP research and development expenses	$	32,186	$	30,499		$	93,772	$	86,428
GAAP sales and marketing expenses	$	41,380	$	35,008		$	121,565	$	106,098
Stock-based compensation expense	(1,631)		(1,493)			(4,896)		(3,241)
Non-GAAP sales and marketing expenses	$	39,749	$	33,515		$	116,669	$	102,857
GAAP general and administrative expenses	$	24,725	$	28,404		$	74,359	$	80,447
Amortization of intangibles	(3,524)		(3,524)			(10,571)		(10,571)
Stock-based compensation expense	(4,367)		(6,157)			(12,636)		(14,895)

Non-GAAP general and administrative expenses	$	16,834	$	18,723		$	51,152	$	54,981
GAAP operating loss	$	(36,006)	$	(15,370)		$	(94,611)	$	(37,127)
Amortization of intangibles	7,895		7,633			23,322		22,543
Stock-based compensation expense	9,566		10,062			27,504		23,677

Non-GAAP operating (loss) income	$	(18,545)	$	2,325		$	(43,785)	$	9,093
GAAP net loss	$	(28,146)	$	(12,863)		$	(74,463)	$	(31,016)
Amortization of intangibles	7,895		7,633			23,322		22,543
Stock-based compensation expense	9,566		10,062			27,504		23,677

Aggregate adjustment for income taxes	(3,030)		(3,613)			(8,974)		(9,073)
Non-GAAP net (loss) income	$	(13,715)	$	1,219		$	(32,611)	$	6,131
GAAP loss per share	$	(0.33)	$	(0.15)		$	(0.88)	$	(0.37)
Amortization of intangibles	0.10		0.09			0.28		0.27
Stock-based compensation expense	0.12		0.12			0.33		0.28

Aggregate adjustment for income taxes	(0.04)		(0.04)			(0.11)		(0.11)
Non-GAAP (loss) earnings per share *	$	(0.16)	$	0.01		$	(0.39)	$	0.07
* Sum of reconciling items may differ from total due to rounding of individual components
GAAP net loss	$	(28,146)	$	(12,863)		$	(74,463)	$	(31,016)
Interest and other, net	661		762			1,227		2,270
Income tax benefit	(8,521)		(3,269)			(21,375)		(8,381)
Depreciation and amortization	9,213		10,051			27,728		29,914
Stock-based compensation expense	9,566		10,062			27,504		23,677

Adjusted EBITDA	$	(17,227)	$	4,743		$	(39,379)	$	16,464

Three Months Ended Nine Months Ended
November 3, 2017 October 28, 2016 November 3, 2017 October 28, 2016
(in thousands)
GAAP revenue $ 117,534
$ 107,108
$ 347,250
$ 310,554
Impact of purchase accounting 146
221
438
663
Non-GAAP revenue $ 117,680
$ 107,329
$ 347,688
$ 311,217

GAAP gross margin $ 61,808
$ 53,471
$ 181,257
$ 154,161
Amortization of intangibles 3,410
3,410
10,231
10,231
Impact of purchase accounting 156
271
468
888
Stock-based compensation expense 205
157
646
332
Non-GAAP gross margin $ 65,579
$ 57,309
$ 192,602
$ 165,612

GAAP research and development expenses $ 19,501
$ 16,963
$ 58,673
$ 51,933
Stock-based compensation expense (809 ) (692 ) (2,382 ) (1,462 )
Non-GAAP research and development expenses $ 18,692
$ 16,271
$ 56,291
$ 50,471

GAAP sales and marketing expenses $ 37,296
$ 29,725
$ 112,085
$ 91,807
Stock-based compensation expense 135
(363 ) (490 ) (768 )
Non-GAAP sales and marketing expenses $ 37,431
$ 29,362
$ 111,595
$ 91,039

GAAP general and administrative expenses $ 22,896
$ 21,626
$ 67,438
$ 64,311
Amortization of intangibles (3,525 ) (3,524 ) (10,572 ) (10,571 )
Impact of purchase accounting (257 ) (240 ) (769 ) (646 )

(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. GAAP net revenue is inclusive of both subscription and professional services revenue.

Stock-based compensation expense (2,055 ) (1,812 ) (6,574 ) (3,827 )
Other —
—
—
(1,164 )
Non-GAAP general and administrative expenses $ 17,059
$ 16,050
$ 49,523
$ 48,103

GAAP operating loss $ (17,885 ) $ (14,843 ) $ (56,939 ) $ (53,890 )
Amortization of intangibles 6,935
6,934
20,803
20,802
Impact of purchase accounting 413
511
1,237
1,534
Stock-based compensation expense 2,934
3,024
10,092
6,389
Other —
—
—
1,164
Non-GAAP operating loss $ (7,603 ) $ (4,374 ) $ (24,807 ) $ (24,001 )

GAAP net loss $ (11,601 ) $ (7,718 ) $ (37,955 ) $ (31,396 )
Amortization of intangibles 6,935
6,934
20,803
20,802
Impact of purchase accounting 413
511
1,237
1,534
Stock-based compensation expense 2,934
3,024
10,092
6,389
Other —
—
—
1,164
Aggregate adjustment for income taxes (3,897 ) (3,990 ) (11,253 ) (11,409 )
Non-GAAP net loss $ (5,216 ) $ (1,239 ) $ (17,076 ) $ (12,916 )

GAAP net loss per share $ (0.14 ) $ (0.10 ) $ (0.47 ) $ (0.41 )
Amortization of intangibles 0.09
0.09
0.26
0.27
Impact of purchase accounting 0.01
0.01
0.02
0.02
Stock-based compensation expense 0.04
0.04
0.13
0.08
Other —
—
—
0.02
Aggregate adjustment for income taxes (0.05 ) (0.05 ) (0.14 ) (0.15 )
Non-GAAP net loss per share * $ (0.06 ) $ (0.02 ) $ (0.21 ) $ (0.17 )
* Sum of reconciling items may differ from total due to rounding of individual components

GAAP net loss $ (11,601 ) $ (7,718 ) $ (37,955 ) $ (31,396 )
Interest and other, net (121 ) (1,107 ) 953
(2,323 )
Income tax benefit (6,163 ) (6,018 ) (19,937 ) (20,171 )
Depreciation and amortization 10,654
9,826
31,320
29,248
Stock-based compensation expense 2,934
3,024
10,092
6,389
Impact of purchase accounting 146
221
438
663
Other —
—
—
1,164
Adjusted EBITDA $ (4,151 ) $ (1,772 ) $ (15,089 ) $ (16,426 )

Our Relationship with Dell and Dell Technologies

On February 8, 2011, we were acquired by Dell Inc. On October 29, 2013, Dell was acquired by Dell Technologies Inc. (formerly known as Denali Holding Inc.), a parent holding corporation. For the purposes of the accompanying condensed consolidated financial statements, we elected to utilize pushdown accounting for the acquisition of Dell by Dell Technologies. On April 27, 2016, we completed our ~~IPO, as further described below.~~IPO. Upon the closing of our IPO, Dell Technologies owned, indirectly through Dell Inc. and Dell Inc.'s’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 3, 2017~~October 28, 2022 represented approximately ~~86.3%~~82.7% of our total outstanding shares of common stock and approximately ~~98.4%~~97.9% of the combined voting power of both classes of our outstanding common stock.

~~Since acquiring us in 2011,~~As a majority-owned subsidiary of Dell, ~~has provided us with~~we receive from Dell various corporate services in the ordinary course of business, including finance, tax, human resources, legal, insurance, IT, procurement and facilities related services. Through the first two quarters of fiscal 2016, the costs of such services were allocated to us based on the most relevant allocation method to the service provided, primarily based on relative percentage of total net sales, relative percentage of headcount, or specific identification. We believe the basis on which the expenses were allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by us during the periods presented. Beginning in the third quarter of fiscal 2016, theThe 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. For more information regarding the allocated costs and related party transactions, see "Notes to Condensed Consolidated Financial Statements—Note 8—10—Related Party Transactions" in our condensed consolidated financial statements included in this report.

During the periods presented in the ~~condensed~~ consolidated financial statements included in this report, Secureworks did not file separate federal tax returns, as Secureworks was generally ~~was~~ included in the tax grouping of other Dell entities within the respective ~~entity's~~entity’s tax jurisdiction. The income tax benefit has been calculated using the separate return method, modified to apply the benefits for loss approach. Under the benefits for loss approach, net operating losses or other tax attributes are characterized as realized or as realizable by Secureworks when those attributes are utilized or ~~expect~~expected to be utilized by other members of the Dell consolidated group. For more information, see "Notes to Condensed Consolidated Financial ~~Statements—Note 7—~~Statements —Note 9—Income and Other Taxes" in our condensed consolidated financial statements included in this report.

~~As a majority owned subsidiary of Dell,~~Additionally, we ~~have participated~~participate in various commercial arrangements with Dell, under which, for example, we provide information security solutions to third-party ~~clients~~customers with which Dell has contracted to provide our solutions, procure hardware, software and services from Dell, and sell our solutions through Dell in the United States and some international jurisdictions. In connection with our IPO, effective August 1, 2015, we entered into agreements with Dell that govern these commercial arrangements. The commercial agreements set the terms and conditions for transactions between Dell and us, while our shared services agreement with Dell sets the terms and conditions for certain administrative functions that continue to be provided by Dell. These agreements generally ~~are~~were initially effective for up to one to three years and include extension and cancellation options. 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. ~~As of November 3, 2017, we have established a substantial portion of our stand-alone corporate functions.~~ For more information regarding the allocated costs and related party transactions, see "Notes to Condensed Consolidated Financial Statements—Note 8—10—Related Party Transactions" in our condensed consolidated financial statements included in this report.

~~Initial Public Offering~~

On April 27, 2016, we completed our IPO in which we issued and sold 8,000,000 shares of Class A common stock at a price to the public of $14.00 per share. 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.

Components of Results of Operations

Revenue

We ~~sell~~generate revenue from the sales of our subscriptions and professional services.

•Subscription Revenue. Subscription revenue primarily consists of subscription fees derived from our Taegis solutions and managed security ~~solutions~~services. Taegis subscription-based revenue currently includes two applications, Extended Detection and ~~threat intelligence solutions on~~Response, or XDR, and Vulnerability Detection and Response, or VDR, along with the add-on managed service to supplement the XDR SaaS application, referred to as Managed Detection and Response, or ManagedXDR. Managed security service subscription-based arrangements typically include a ~~subscription basis~~suite of security services, up-front installation fees and ~~various professional services, including security~~maintenance, and ~~risk consulting and incident response solutions.~~also may include the provision of an associated hardware appliance. Our ~~managed security~~ subscription contracts typically range from one to three years and, as of ~~November 3, 2017,~~October 28, 2022, averaged approximately two years in duration. ~~Our initial contracts with clients may include amounts~~The revenue and any related costs for ~~hardware, installation and professional services that may not recur. Revenue related to~~ these ~~contracts is~~deliverables are recognized ratably over the ~~terms of~~contractual term, beginning on the ~~contract.~~date on which service is made available to customers.

•Professional Services Revenue. Professional services ~~clients~~revenue consists primarily of incident response solutions and security and risk consulting. Professional services engagements are typically purchased as fixed-fee and retainer-based contracts. Professional services customers typically purchase solutions pursuant to customized contracts that are shorter in duration. Revenue from these engagements is recognized under the proportional performance method of accounting. Revenue from time and materials-based contracts is recognized as costs are incurred at amounts represented by the agreed-upon billing rates. In general, these contracts have terms of less than one year. ~~Revenue related to professional services is recognized as services are performed.~~

The fees we charge for our solutions vary based on a number of factors, including the solutions selected, the number of ~~client~~customer devices covered by the selected solutions, and the level of management we provide for the solutions. ~~Approximately 80%~~In the third quarter of fiscal 2023, approximately 79% of our revenue iswas derived from subscription-based ~~solutions,~~arrangements, attributable to Taegis solutions and managed security ~~contracts,~~services, while approximately ~~20% is~~21% was derived from professional services engagements. As we respond to the evolving needs of our customers, the relative mix of subscription-based solutions and professional services we provide our customers may fluctuate. International revenue, which we define as revenue ~~earned pursuant to contracts between our clients and~~contracted through non-U.S. ~~subsidiaries,~~entities, represented approximately ~~13%~~34% and 33% of our total net revenue in the third quarter fiscal ~~2017~~2023 and ~~12% of our total net revenue in~~ fiscal ~~2016.~~2022, respectively. Although our international ~~clients~~customers are located primarily in the United Kingdom, Japan, Australia and Canada, we provided our Taegis solutions or managed security services to ~~clients~~customers across 5980 countries as of ~~November 3, 2017.~~October 28, 2022.

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. However, we may adjust our pricing to remain competitive and support our strategic initiatives.

Cost of Revenue

~~Gross Margin~~

We operate in a challenging business environment, where the complexity and number of cyber attacks are constantly increasing. 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. Gross margin has been and will continue to be affected by the above factors as well as others, including the mix of solutions sold, the mix between large and small clients, timingOur cost of revenue ~~recognition, new regulations regarding the transfer~~consists of costs incurred to provide subscription and ~~storage~~professional services.

•Cost of ~~data, and the extent to which we expand our counter threat operations centers.~~

Subscription Revenue.Cost of subscription revenue consists primarily of ~~personnel~~personnel-related expenses ~~including~~associated with maintaining our platforms and delivering managed services to our subscription customers, as well as hosting costs for these platforms. Personnel-related expenses consist primarily of salaries, benefits and performance-based ~~compensation for employees who manage or monitor solutions to our clients, provide consulting or other professional services, or perform other critical functions. Other expenses include~~compensation. Also included in cost of subscription revenue are amortization of equipment and costs associated with hardware ~~provided to clients~~utilized as part of ~~their~~providing subscription services, amortization of technology licensing fees, amortization of intangible assets, amortization of external software development costs capitalized, maintenance fees and overhead allocations. As our business grows, the cost of subscription revenue associated with our solutions may fluctuate.

•Cost of Professional Services. Cost of professional services revenue consists primarily of personnel-related expenses, such as salaries, benefits and performance-based compensation. Also included in cost of professional services revenue are fees paid to contractors who supplement or support our solutions, maintenance fees and overhead allocations. As our business grows, the cost of professional services revenue associated with our solutions may ~~expand~~fluctuate.

Gross Profit and Margin

Gross margin, or ~~fluctuate.~~

~~We operate in~~gross profit as a ~~high-growth industry~~percentage of revenue, has been and will continue to be affected by a variety of factors, including the mix between our existing solutions, introduction of new solutions, personnel-related costs and cloud hosting costs. We expect our ~~revenue~~gross margins to fluctuate depending on these factors, but we expect them to increase ~~more than cost~~over time with expected growth and higher mix of Taegis subscription solutions revenue ~~which will increase our gross margin in absolute dollars.~~compared to managed security services and professional services revenue. As we balance revenue growth ~~with~~and continue to invest in initiatives to drive the efficiency of our business, however, we expect gross margin as a percentage of total revenue ~~may~~to continue to fluctuate from period to period.

Operating Costs and Expenses

Our operating costs and expenses consist of research and development expenses, sales and marketing expenses and general and administrative expenses.

▪

~~Research and Development, or R&D, Expenses.~~ Research and development expenses include compensation and related expenses for the continued development of our solutions, offerings, including a portion of expenses related to our threat research team, which focuses on the identification of system vulnerabilities, data forensics and malware analysis, and product management. R&D expenses also encompass expenses related to the development of prototypes of new solutions offerings and allocated overhead. Our offerings include internally developed solutions as well as certain integrated third-party solutions.

•Research and Development, or R&D, Expenses. Research and development expenses include compensation and related expenses for the continued development of our solutions offerings, including a portion of expenses related to our threat research team, which focuses on the identification of system vulnerabilities, data forensics and malware analysis. R&D expenses also encompass expenses related to the development of prototypes of new solutions offerings and allocated overhead. Our customer solutions have generally been developed internally. We operate in a competitive and highly technical industry. Therefore, to maintain and extend our technology leadership, we intend to continue to invest in our R&D efforts by hiring more personnel to enhance our existing security solutions and to add complementary solutions.

•Sales and Marketing, or S&M, Expenses. Sales and marketing expenses include ~~wages~~salaries, sales commissions and performance-based compensation benefits ~~sales commissions~~ and related expenses for our S&M personnel, travel and entertainment, marketing and advertising programs (including lead generation), ~~client~~customer advocacy events, and other brand-building expenses, as well as allocated overhead.

As we continue to grow our business, both domestically and internationally, we will invest in our sales capability, which will increase our sales and marketing expenses in absolute dollars.

▪

~~General and Administrative, or G&A, Expenses.~~ General and administrative expenses include primarily the costs of human resources and recruiting, finance and accounting, legal support, information management and information security systems, facilities management, corporate development and other administrative functions, and are partially offset by allocations of information technology and facilities costs to other functions.

•General and Administrative, or G&A, Expenses. General and administrative expenses include primarily the costs of human resources and recruiting, finance and accounting, legal support, information management and information security systems, facilities management, corporate development and other administrative functions, and are partially offset by allocations of information technology and facilities costs to other functions.

Interest and Other, Net

Interest and other, net consists primarily of the effect of exchange rates on our foreign currency-denominated asset and liability balances and interest income earned on our cash and cash equivalents. All foreign currency transaction adjustments are recorded as foreign currency gains (losses) in the ~~Condensed~~ Consolidated Statements of ~~Operations included in this report.~~Operations. To date, we have had minimal interest income.

Income Tax ~~Expense (Benefit)~~

Benefit

Our effective tax benefit rate ~~after discrete items,~~ was ~~34.7%~~23.2% and ~~43.8%~~22.3% for the three months ended November 3, 2017 and October 28, 2016, respectively, and 34.4% and 39.1% for the nine months ended November 3, 2017 and October 28, 2016, respectively. Before discrete items, our effective tax rate was 36.7% for both the three months and nine months ended ~~November 3, 2017, respectively. The decrease in the Company's effective income tax rate~~October 28, 2022, respectively, and 20.3% and 21.3% for the three ~~months ended November 3, 2017 compared to the effective income tax rate for the three~~and nine months ended October ~~28, 2016~~29, 2021, respectively. The change in effective tax rate between the periods was primarily attributable to the impact of certain adjustments related to the vesting of stock-based compensation awards and the recognition of additional ~~tax~~ benefits ~~related~~relating to research and development tax credits during the third quarter of fiscal 2017 and a decrease in tax benefits related to research and development tax credits during the third quarter of fiscal 2018. The decrease in the Company's effective income tax rate for the nine months ended November 3, 2017 compared to the effective income tax rate for the nine months ended October 28, 2016 was also attributable to the vesting of certain equity

awards during the nine months ended November 3, 2017, of which the fair value on the vesting date was lower than the fair value on the date the equity awards were originally granted. This change in fair value which is measured by the price of the Class A common stock as reported on the NASDAQ Global Select Market, resulted in a lower actual tax deduction than was deducted for financial reporting purposes. Additionally, the Company's effective income tax rate has declined due to a change in the mix of geographic activity.

credits.

We calculate a provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. We provide valuation allowances for deferred tax assets, where appropriate. We file U.S. federal returns on a consolidated basis with Dell and we expect to continue doing so until such time ~~if any,~~(if any) as we are deconsolidated for tax purposes with respect to the Dell consolidated group. According to the terms of the tax matters agreement between Dell Technologies and Secureworks that went into effect on August 1, 2015, Dell Technologies will reimburse us for any amounts by which our tax assets reduce the amount of tax liability owed by the Dell group on an unconsolidated basis. For a further discussion of income tax matters, see ~~"Notes~~“Notes to Condensed Consolidated Financial Statements—Note 7—9—Income and Other Taxes" in our condensed consolidated financial statements included in this report.

Results of Operations

Three and nine months ended October 28, 2022 compared to the three and nine months ended October 29, 2021

The following tables summarize our key performance indicators for the three and nine months ended ~~November 3, 2017~~October 28, 2022 and October ~~28, 2016.~~29, 2021.

Three Months Ended
November 3, 2017 October 28, 2016
$
% of
Revenue

%
Change
$
% of
Revenue
(in thousands, except percentages)
Net revenue $ 117,534
100.0 % 9.7 % $ 107,108
100.0 %
Cost of revenue $ 55,726
47.4 % 3.9 % $ 53,637
50.1 %
Total gross margin $ 61,808
52.6 % 15.6 % $ 53,471
49.9 %
Operating expenses $ 79,693
67.8 % 16.7 % $ 68,314
63.8 %
Operating loss $ (17,885 ) (15.2 )% 20.5 % $ (14,843 ) (13.9 )%
Net loss $ (11,601 ) (9.9 )% 50.3 % $ (7,718 ) (7.2 )%

Other Financial Information⁽¹⁾

Non-GAAP net revenue $ 117,680
100.0 % 9.6 % $ 107,329
100.0 %
Non-GAAP cost of revenue $ 52,101
44.3 % 4.2 % $ 50,020
46.6 %
Non-GAAP gross margin $ 65,579
55.7 % 14.4 % $ 57,309
53.4 %
Non-GAAP operating expenses $ 73,182
62.2 % 18.6 % $ 61,683
57.5 %
Non-GAAP operating loss $ (7,603 ) (6.5 )% 73.8 % $ (4,374 ) (4.1 )%
Non-GAAP net loss $ (5,216 ) (4.4 )% 321.0 % $ (1,239 ) (1.2 )%
Adjusted EBITDA $ (4,151 ) (3.5 )% 134.3 % $ (1,772 ) (1.7 )%

Nine Months Ended
November 3, 2017 October 28, 2016
$
% of
Revenue

%
Change
$
% of
Revenue
(in thousands, except percentages)
Net revenue $ 347,250
100.0 % 11.8 % $ 310,554
100.0 %
Cost of revenue $ 165,993
47.8 % 6.1 % $ 156,393
50.4 %
Total gross margin $ 181,257
52.2 % 17.6 % $ 154,161
49.6 %
Operating expenses $ 238,196
68.6 % 14.5 % $ 208,051
67.0 %
Operating loss $ (56,939 ) (16.4 )% 5.7 % $ (53,890 ) (17.4 )%
Net loss $ (37,955 ) (10.9 )% 20.9 % $ (31,396 ) (10.1 )%

Other Financial Information⁽¹⁾

Non-GAAP net revenue $ 347,688
100.0 % 11.7 % $ 311,217
100.0 %
Non-GAAP cost of revenue $ 155,086
44.6 % 6.5 % $ 145,605
46.8 %
Non-GAAP gross margin $ 192,602
55.4 % 16.3 % $ 165,612
53.2 %
Non-GAAP operating expenses $ 217,409
62.5 % 14.7 % $ 189,613
60.9 %
Non-GAAP operating loss $ (24,807 ) (7.1 )% 3.4 % $ (24,001 ) (7.7 )%
Non-GAAP net loss $ (17,076 ) (4.9 )% 32.2 % $ (12,916 ) (4.2 )%
Adjusted EBITDA $ (15,089 ) (4.3 )% (8.1 )% $ (16,426 ) (5.3 )%


	Three Months Ended						Nine Months Ended
	October 28, 2022				October 29, 2021				October 28, 2022				October 29, 2021
	$		% of Revenue		$		% of Revenue		$		% of Revenue		$		% of Revenue

	(in thousands, except percentages)
Net revenue:
Subscription	$	87,191	78.6	%	$	102,992	77.0	%	$	271,926	78.1	%	$	309,488	76.0	%
Professional Services	23,751		21.4	%	30,707		23.0	%	76,213		21.9	%	97,846		24.0	%
Total net revenue	$	110,942	100.0	%	$	133,699	100.0	%	$	348,139	100.0	%	$	407,334	100.0	%
Cost of revenue:
Subscription	$	32,136	36.9	%	$	34,888	33.9	%	$	99,022	36.4	%	$	109,423	35.4	%
Professional Services	13,444		56.6	%	18,002		58.6	%	45,572		59.8	%	57,157		58.4	%
Total cost of revenue	$	45,580	41.1	%	$	52,890	39.6	%	$	144,594	41.5	%	$	166,580	40.9	%
Total gross profit	$	65,362	58.9	%	$	80,809	60.4	%	$	203,545	58.5	%	$	240,754	59.1	%
Operating expenses:
Research and development	$	35,263	31.8	%	$	32,767	24.5	%	$	102,232	29.4	%	$	91,336	22.4	%
Sales and marketing	41,380		37.3	%	35,008		26.2	%	121,565		34.9	%	106,098		26.0	%
General and administrative	24,725		22.3	%	28,404		21.2	%	74,359		21.4	%	80,447		19.7	%
Total operating expenses	$	101,368	91.4	%	$	96,179	71.9	%	$	298,156	85.6	%	$	277,881	68.2	%
Operating loss	$	(36,006)	(32.5)	%	$	(15,370)	(11.5)	%	$	(94,611)	(27.2)	%	$	(37,127)	(9.0)	%
Net loss	$	(28,146)	(25.4)	%	$	(12,863)	(9.6)	%	$	(74,463)	(21.4)	%	$	(31,016)	(7.6)	%

Other Financial Information (1)




Non-GAAP cost of revenue:
Non-GAAP Subscription	$	27,598	31.7	%	$	30,738	29.8	%	$	85,814	31.6	%	$	97,292	31.4	%
Non-GAAP Professional Services	13,121		55.2	%	17,899		58.3	%	44,517		58.4	%	56,683		57.9	%
Total Non-GAAP cost of revenue	$	40,718	36.7	%	$	48,637	36.4	%	$	130,331	37.4	%	$	153,975	37.8	%
Non-GAAP gross profit	$	70,224	63.3	%	$	85,062	63.6	%	$	217,808	62.6	%	$	253,359	62.2	%
Non-GAAP operating expenses:
Non-GAAP research and development	$	32,186	29.0	%	$	30,499	22.8	%	$	93,772	26.9	%	$	86,428	21.2	%
Non-GAAP sales and marketing	39,749		35.8	%	33,515		25.1	%	116,669		33.5	%	102,857		25.3	%
Non-GAAP general and administrative	16,834		15.2	%	18,723		14.0	%	51,152		14.7	%	54,981		13.5	%
Non-GAAP operating expenses	$	88,769	80.0	%	$	82,737	61.9	%	$	261,593	75.1	%	$	244,266	60.0	%
Non-GAAP operating (loss) income	$	(18,545)	(16.7)	%	$	2,325	1.8	%	$	(43,785)	(12.6)	%	$	9,093	2.2	%
Non-GAAP net (loss) income	$	(13,715)	(12.4)	%	$	1,219	0.9	%	$	(32,611)	(9.4)	%	$	6,131	1.5	%
Adjusted EBITDA	$	(17,227)	(15.5)	%	$	4,743	3.5	%	$	(39,379)	(11.3)	%	$	16,464	4.0	%

_____________________

⁽¹⁾

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. Non-GAAP financial measures as a percentage of revenue are calculated based on non-GAAP revenue.

(1) 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. Non-GAAP financial measures as a percentage of revenue are calculated based on total GAAP net revenue, except for non-GAAP subscription cost of revenue and non-GAAP professional services cost of revenue measures, which are calculated based on GAAP subscription net revenue and GAAP professional services net revenue, respectively.

~~Three and nine months ended November 3, 2017 compared to~~

Revenue

The following table presents information regarding our net revenue for the three and nine months ended October 28, ~~2016~~2022 and October 29, 2021.


	Three Months Ended				Change				Nine Months Ended				Change
	October 28, 2022		October 29, 2021		$		%		October 28, 2022		October 29, 2021		$		%

	(in thousands, except percentages)
Net revenue:
Taegis Subscription Solutions	$	47,888	$	23,929	$	23,959	100.1	%	$	127,913	$	56,392	$	71,521	126.8	%
Managed Security Services	39,303		79,063		(39,760)		(50.3)	%	144,013		253,096		(109,083)		(43.1)	%
Total Subscription revenue	$	87,191	$	102,992	$	(15,801)	(15.3)	%	$	271,926	$	309,488	$	(37,562)	(12.1)	%
Professional services	23,751		30,707		(6,956)		(22.7)	%	76,213		97,846		(21,633)		(22.1)	%
Total net revenue	$	110,942	$	133,699	$	(22,757)	(17.0)	%	$	348,139	$	407,334	$	(59,195)	(14.5)	%

~~Revenue~~

~~Net revenue, which we refer to as revenue, increased $10.4 million, or 9.7%, for~~Subscription Revenue. For the three months ended November 3, 2017, and $36.7 million, or 11.8%, for the nine months ended November 3, 2017. These increases resulted primarily from increases in revenue generated by subscription-based solutions, as revenue attributable to these solutions represented approximately 80% of net revenue for both the three and nine months ended ~~November 3, 2017. The number of clients subscribing to such solutions grew approximately 3% over~~ October 28, ~~2016, while existing clients~~2022, subscription revenue decreased $15.8 million, or 15.3%, and $37.6 million, or 12.1%, respectively. The revenue decrease reflects our continued focus on reducing non-strategic service offerings and prioritizing the growth of our Taegis subscription solutions, which includes reselling Taegis offerings to ~~increase their contracted subscriptions for~~ our ~~solutions.~~current managed security services customer base.

Professional Services Revenue. For the three and nine months ended October 28, 2022, professional services revenue decreased $7.0 million, or 22.7%, and $21.6 million or 22.1%, respectively. The revenue decrease reflects both our focus on reducing non-strategic professional service offerings and an overall decrease of billable hours when compared with the fiscal 2022 periods.

Revenue for certain services provided to or on behalf of Dell under our commercial agreements with Dell totaled approximately ~~$5.7~~$1.2 million and ~~$18.3 million for the three and nine months ended November 3, 2017, respectively, and $5.9 million and $15.8~~$4.0 million for the three and nine months ended October 28, ~~2016,~~2022, respectively, and $2.7 million and $8.9 million for the three and nine months ended October 29, 2021, respectively. Of the revenue derived from Dell, subscription revenue represented approximately 18% and 24% for the three and nine months ended October 28, 2022, and 32% and 40% for the three and nine months ended October 29, 2021, respectively. For more information regarding the commercial agreements, see "Notes to Condensed Consolidated Financial Statements—Note 8—10—Related Party Transactions" in our condensed consolidated financial statements included ~~elsewhere~~ in this report.

We primarily generate revenue from sales in the United States. However, for the three months ended November 3, 2017, international revenue increased to $20.0 million, or 45.9%, from the three months ended October 28, 2016. For the nine months ended November 3, 2017, international revenue increased to $55.3 million, or 41.2%, from theand nine months ended October 28, ~~2016.~~2022, international revenue, which we define as revenue contracted through non-U.S. entities, totaled $37.3 million and $116.6 million, respectively, and represented 34% of our total revenue in both periods. For the three and nine months ended October 29, 2021, international revenue totaled $44.3 million and $133.7 million and represented 33% and 32% of total revenue, respectively. Currently, our international ~~clients~~customers are primarily located in ~~the~~Australia, United ~~Kingdom.~~Kingdom, Japan and Canada. We are focused on continuing to grow our international ~~client~~customer base in future periods.

Cost of Revenue

The following table presents information regarding our cost of revenue for the three and nine months ended October 28, 2022 and October 29, 2021.


	Three Months Ended				Change				Nine Months Ended				Change
	October 28, 2022		October 29, 2021		$		%		October 28, 2022		October 29, 2021		$		%

	(in thousands, except percentages)
Cost of revenue:
Subscription	$	32,136	$	34,888	$	(2,752)	(7.9)	%	$	99,022	$	109,423	$	(10,401)	(9.5)	%
Professional Services	13,444		18,002		(4,558)		(25.3)	%	45,572		57,157		(11,585)		(20.3)	%
Total cost of revenue	$	45,580	$	52,890	$	(7,310)	(13.8)	%	$	144,594	$	166,580	$	(21,986)	(13.2)	%
Other Financial Information
Non-GAAP cost of revenue:
Non-GAAP Subscription	$	27,598	$	30,738	$	(3,140)	(10.2)	%	$	85,814	$	97,292	$	(11,478)	(11.8)	%
Non-GAAP Professional Services	13,121		17,899		(4,778)		(26.7)	%	44,517		56,683		(12,166)		(21.5)	%
Total Non-GAAP cost of revenue(1)	$	40,718	$	48,637	$	(7,919)	(16.3)	%	$	130,331	$	153,975	$	(23,644)	(15.4)	%

(1)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.

Subscription Cost of Revenue.For the three months ended October 28, 2022, subscription cost of revenue decreased $2.8 million, or 7.9%. As a percentage of revenue, subscription cost of revenue increased 300 basis points to 36.9%. On a non-GAAP basis, subscription cost of revenue as a percentage of revenue increased 190 basis points to 31.7%. The decrease in subscription cost of revenue was primarily attributable to lower employee-related expenses.

For the nine months ended October 28, 2022, subscription cost of revenue decreased $10.4 million, or 9.5%. As a percentage of revenue, subscription cost of revenue increased 100 basis points to 36.4%. On a non-GAAP basis, subscription cost of revenue as a percentage of revenue increased 20 basis points to 31.6%. The decrease in subscription cost of revenue was primarily attributable to lower employee-related expenses.

Professional Services Cost of Revenue.For the three months ended October 28, 2022, professional services cost of revenue decreased $4.6 million, or 25.3%. As a percentage of revenue, professional services cost of revenue decreased 200 basis points to 56.6%. On a non-GAAP basis, professional services cost of revenue as a percentage of revenue decreased 310 basis points to 55.2%. The decrease in professional services cost of revenue was primarily attributable to lower employee-related expenses associated with the reduction of non-strategic professional services offerings.

For the nine months ended October 28, 2022, professional services cost of revenue decreased $11.6 million, or 20.3%. As a percentage of revenue, professional services cost of revenue increased 140 basis points to 59.8%. On a non-GAAP basis, professional services cost of revenue as a percentage of revenue increased 50 basis points to 58.4%. The decrease in professional services cost of revenue was primarily attributable to lower employee-related expenses associated with the reduction of non-strategic professional service offerings.

Gross Profit and Gross Margin

~~Our total~~The following table presents information regarding our gross profit and gross margin ~~increased $8.3 million, or 15.6%,~~for thethree and nine months ended October 28, 2022 and October 29, 2021.


	Three Months Ended						Change					Nine Months Ended						Change
	October 28, 2022			October 29, 2021			$			%		October 28, 2022			October 29, 2021			$			%

	(in thousands, except percentages)
Gross Profit:
Subscription	$	55,055		$	68,104		$	(13,049)		(19.2)	%	$	172,904		$	200,065		$	(27,161)		(13.6)	%
Professional Services	10,307			12,705			(2,398)			(18.9)	%	30,641			40,689			(10,048)			(24.7)	%
Total Gross Profit	$	65,362		$	80,809		$	(15,447)		(19.1)	%	$	203,545		$	240,754		$	(37,209)		(15.5)	%

Gross Margin:
Subscription	63.1		%	66.1		%	(3.0)		%			63.6		%	64.6		%	(1.0)		%
Professional Services	43.4		%	41.4		%	2.0		%			40.2		%	41.6		%	(1.4)		%
Total Gross Margin	58.9		%	60.4		%	(1.5)		%			58.5		%	59.1		%	(0.6)		%

Other Financial Information
Non-GAAP Gross Profit:
Non-GAAP Subscription	$	59,593		$	72,254		$	(12,661)		(17.5)	%	$	186,112		$	212,196		$	(26,084)
Non-GAAP Professional Services	10,630			12,808			(2,178)			(17.0)	%	31,696			41,163			(9,467)
Total Non-GAAP Gross Profit(1)	$	70,224		$	85,062		$	(14,838)		(17.4)	%	$	217,808		$	253,359		$	(35,551)

Non-GAAP Gross Margin:
Non-GAAP Subscription	68.3		%	70.2		%	(1.9)		%			68.4		%	68.6		%	(0.2)		%
Non-GAAP Professional Services	44.8		%	41.7		%	3.1		%			41.6		%	42.1		%	(0.5)		%
Total Non-GAAP Gross Margin	63.3		%	63.6		%	(0.3)		%			62.6		%	62.2		%	0.4		%

Subscription Gross Margin. Subscription gross margin decreased 3.0% for the three months ended ~~November 3, 2017,~~October 28, 2022 and ~~$27.1 million, or 17.6%,~~decreased 1.0% for the nine months ended ~~November 3, 2017. As a percentage of revenue, our~~October 28, 2022. We expect subscription gross margin ~~increased 270 basis points~~ to ~~52.6% for the three months ended November 3, 2017, and 260 basis points~~fluctuate from period to ~~52.2% for the nine months ended November 3, 2017. The increase in gross margin percentage was mainly driven by operational efficiencies~~period as we continue to ~~leverage~~prioritize the growth and delivery of comprehensive higher-value security offerings with our ~~global~~Taegis subscription solutions, while driving scale and operational efficiencies associated with reducing our non-strategic managed security service ~~delivery model and improve our technology and processes.~~offerings.

~~Gross~~Subscription gross margin on a GAAP basis includes amortization of intangible assets and ~~purchase accounting adjustments.~~stock-based compensation expense. On a non-GAAP basis, excluding these adjustments, gross margin ~~increased $8.3 million, or 14.4%,~~decreased 1.9% for the three months ended ~~November 3, 2017, and $27.0 million, or 16.3%, for~~October 28, 2022. For the nine months ended ~~November 3, 2017.~~October 28, 2022, gross margin decreased 0.2%.

Professional Services Gross Margin. Professional services gross margin increased 2.0% for the three months ended October 28, 2022. For the nine months ended October 28, 2022, gross margin decreased 1.4%. We expect professional services gross margin to fluctuate due to the timing of the revenue and related expense reductions associated with the reduction of our non-strategic professional services offerings.

Professional services gross margin on a GAAP basis includes stock-based compensation expense. On a non-GAAP basis, excluding that adjustment, gross margin increased 3.1% for the three months ended October 28, 2022. For the nine months ended October 28, 2022, non-GAAP professional services gross margin decreased 0.5%.

Operating Expenses

The following table presents information regarding our operating expenses duringthe three and nine months ended ~~November 3, 2017~~October 28, 2022 and October ~~28, 2016.~~

Three Months Ended
November 3, 2017 October 28, 2016
Dollars
% of
Revenue

%
Change
Dollars
% of
Revenue
(in thousands, except percentages)
Operating expenses:

Research and development $ 19,501
16.6 % 15.0 % $ 16,963
15.8 %
Sales and marketing 37,296
31.7 % 25.5 % 29,725
27.8 %
General and administrative 22,896
19.5 % 5.9 % 21,626
20.2 %
Total operating expenses $ 79,693
67.8 % 16.7 % $ 68,314
63.8 %

Other Financial Information
Non-GAAP research and development $ 18,692
15.9 % 14.9 % $ 16,271
15.2 %
Non-GAAP sales and marketing 37,431
31.8 % 27.5 % 29,362
27.4 %
Non-GAAP general and administrative 17,059
14.5 % 6.3 % 16,050
15.0 %
Non-GAAP operating expenses ⁽¹⁾
$ 73,182
62.2 % 18.6 % $ 61,683
57.5 %

Nine Months Ended
November 3, 2017 October 28, 2016
Dollars
% of
Revenue

%
Change
Dollars
% of
Revenue
(in thousands, except percentages)
Operating expenses:

Research and development $ 58,673
16.9 % 13.0 % $ 51,933
16.7 %
Sales and marketing 112,085
32.3 % 22.1 % 91,807
29.6 %
General and administrative 67,438
19.4 % 4.9 % 64,311
20.7 %
Total operating expenses $ 238,196
68.6 % 14.5 % $ 208,051
67.0 %

Other Financial Information
Non-GAAP research and development $ 56,291
16.2 % 11.5 % $ 50,471
16.2 %
Non-GAAP sales and marketing 111,595
32.1 % 22.6 % 91,039
29.3 %
Non-GAAP general and administrative 49,523
14.2 % 3.0 % 48,103
15.5 %
Non-GAAP operating expenses ⁽¹⁾
$ 217,409
62.5 % 14.7 % $ 189,613
60.9 %

29, 2021.


	Three Months Ended				Change				Nine Months Ended				Change
	October 28, 2022		October 29, 2021		$		%		October 28, 2022		October 29, 2021		$		%

	(in thousands, except percentages)
Operating expenses:
Research and development	$	35,263	$	32,767	$	2,496	7.6	%	$	102,232	$	91,336	$	10,896	11.9	%
Sales and marketing	41,380		35,008		6,372		18.2	%	121,565		106,098		15,467		14.6	%
General and administrative	24,725		28,404		(3,679)		(13.0)	%	74,359		80,447		(6,088)		(7.6)	%
Total operating expenses	$	101,368	$	96,179	$	5,189	5.4	%	$	298,156	$	277,881	$	20,275	7.3	%

Other Financial Information
Non-GAAP research and development	$	32,186	$	30,499	$	1,687	5.5	%	$	93,772	$	86,428	$	7,344	8.5	%
Non-GAAP sales and marketing	39,749		33,515		6,234		18.6	%	116,669		102,857		13,812		13.4	%
Non-GAAP general and administrative	16,834		18,723		(1,889)		(10.1)	%	51,152		54,981		(3,829)		(7.0)	%
Non-GAAP operating expenses (1)	$	88,769	$	82,737	$	6,032	7.3	%	$	261,593	$	244,266	$	17,327	7.1	%


⁽¹⁾	~~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.~~

Research and Development Expenses. For the three months ended October 28, 2022, R&D expenses increased $2.5 million, or 15.0%, and $6.7 million, or 13.0%, for the three and nine months ended November 3, 2017, respectively. The increases were primarily attributable to compensation and benefit costs for additional engineers, the effect of which was partially offset by a reduction in costs associated with the use of outside resources.7.6%. As a percentage of revenue, R&D expenses increased 80730 basis points to ~~16.6%~~31.8%, and ~~increased 20 basis points to 16.9% for the three and nine months ended November 3, 2017, respectively. On~~on a non-GAAP basis, R&D expenses as a percentage of revenue increased 70620 basis points to ~~15.9% for~~29.0%. The increase in R&D expenses was primarily attributable to higher employee-related expenses associated with R&D personnel resulting from the continued development of our Taegis solutions.

For the nine months ended October 28, 2022, R&D expenses increased $10.9 million, or 11.9%. As a percentage of revenue, R&D expenses increased 700 basis points to 29.4% and on a non-GAAP basis, R&D expenses as a percentage of revenue increased 570 basis points to 26.9%. The increase in R&D expenses was primarily attributable to higher employee-related expenses associated with R&D personnel resulting from the continued development of our Taegis solutions.

Sales and Marketing Expenses. For the three months ended ~~November 3, 2017 and was substantially unchanged at 16.2% for the nine months ended November 3, 2017.~~

~~Sales and Marketing Expenses~~.October 28, 2022, S&M expenses increased ~~$7.6~~$6.4 million, or 25.5%, and $20.3 million, or 22.1%, for the three and nine months ended November 3, 2017, respectively. The increases were primarily attributable to an increase in compensation-related expenses related to the Company's investment in sales personnel.18.2%. As a percentage of revenue, S&M expenses increased ~~390~~1,110 basis points to ~~31.7%~~37.3%, and ~~270 basis points to 32.3% for the three and nine months ended November 3, 2017, respectively. On~~on a non-GAAP basis, S&M expenses as a percentage of revenue increased ~~440~~1,070 basis points to ~~31.8%~~35.8%. The increase in S&M expenses was primarily attributable to costs incurred in connection with our Taegis marketing campaigns and ~~280~~headcount growth.

For the nine months ended October 28, 2022, S&M expenses increased $15.5 million, or 14.6%. As a percentage of revenue, S&M expenses increased 890 basis points to ~~32.1% for~~34.9%, and on a non-GAAP basis, S&M expenses as a percentage of revenue increased 820 basis points to 33.5%. The increase in S&M expenses was primarily attributable to costs incurred in connection with our Taegis marketing campaigns and headcount growth, the ~~three and nine months ended November 3, 2017, respectively.~~effect of which was partially offset by a decrease in commission expenses.

General and Administrative Expenses. For the three months ended October 28, 2022, G&A expenses ~~increased $1.3~~decreased $3.7 million, or ~~5.9%, and $3.1 million, or 4.9%, for the three and nine months ended November 3, 2017, respectively.~~13.0%. As a percentage of revenue, G&A expenses ~~decreased 70~~increased 110 basis points to ~~19.5%~~22.3%, and ~~130~~on a non-GAAP basis, G&A expenses as a percentage of revenue increased 120 basis points to ~~19.4% for~~15.2%. The decrease in G&A expenses were primarily attributable to lower employee-related expenses, professional services and consulting-related costs, which were partially offset by a higher allocation of shared expenses.

For the ~~three and~~ nine months ended ~~November 3, 2017, respectively. These decreases resulted from the increases in~~October 28, 2022, G&A expenses decreased $6.1 million, or 7.6%. As a percentage of revenue, ~~as well as $0.2 million and $1.8 million in benefits relating~~G&A expenses increased 170 basis points to Georgia Quality Jobs Tax credits received during the three and nine months ended November 3, 2017, respectively. The effect of these decreases was partially offset by investment in personnel and an overall increase in our allowance for doubtful accounts.21.4%. On a non-GAAP basis, G&A expenses as a percentage of revenue ~~decreased 50~~increased 120 basis points to ~~14.5%~~14.7%. The decrease in G&A expenses were primarily attributable to lower employee-related expenses, professional services and ~~130 basis points to 14.2%~~consulting-related costs, which were partially offset by a higher allocation of shared expenses.

Operating Loss

Our operating loss for the three ~~and nine~~ months ended ~~November 3, 2017,~~October 28, 2022 and October 29, 2021 was $36.0 million and $15.4 million, respectively.

~~Operating Loss~~

~~Our GAAP operating loss increased $3.0 million for both the three and nine months ended November 3, 2017.~~ As a percentage of revenue, our operating loss ~~decreased to 15.2%~~was 32.5% and ~~16.4%~~11.5% for the three ~~and nine~~ months ended ~~November 3, 2017,~~October 28, 2022 and October 29, 2021, respectively. The increase in our ~~GAAP~~ operating loss ~~on a dollar basis~~ was primarily attributable to our decreased gross profit and increased ~~investments~~operating expenses as we continue to invest in the business to drive growth.

Our operating loss for the nine months ended October 28, 2022 and October 29, 2021 was $94.6 million and $37.1 million, respectively. As a percentage of revenue, our operating loss was 27.2% and 9.0% for the nine months ended October 28, 2022 and October 29, 2021, respectively. The increase in our operating loss was primarily attributable to our decreased gross profit and increased operating expenses as we continue to invest in the business including the addition of sales, support and research and development personnel, the effect of which was partially offset by increased gross margin and decreases in estimated performance-based compensation expense of approximately $1.8 million. to drive growth.

Operating loss on a GAAP basis includes amortization of intangible assets ~~purchase accounting adjustments~~ and stock-based compensation expense. On a non-GAAP basis, excluding these ~~charges, our operating loss as a percentage~~adjustments for amortization of ~~revenue increased to 6.5% for the three months ended November 3, 2017,~~intangible assets and ~~decreased to 7.1% for the nine months ended N~~

ovember 3, 2017. The increase in our non-GAAP net operating loss as a percentage of revenue during the three months ended November 3, 2017 was primarily attributable to increased investments in our business, including the addition of sales, support and research and development personnel, the effect of which was partially offset by increased gross margin and decreases in estimated performance-basedstock-based compensation expense, ~~of approximately $1.7 million. The decrease in~~our non-GAAP operating loss ~~as a percentage of revenue during the nine months ended November 3, 2017~~ was ~~primarily due to improved operational efficiency on higher revenue, which was partially offset by increased sales investments.~~

~~Interest and Other, Net~~

~~Our interest and other, net reflected income of $0.1~~$18.5 million and ~~expense of $1.0~~$43.8 million for the three and nine months ended ~~November 3, 2017,~~October 28, 2022, respectively, compared to operating income of ~~$1.1~~$2.3 million and $9.1 million for the three and nine months ended October 29, 2021, respectively.

Interest and Other, Net

Interest and other, net represented expense of $0.7 million for the three months ended October 28, 2022 and net expense of $1.2 million for the nine months ended October 28, 2022, compared with net expense of $0.8 million and $2.3 million for the three and nine months ended October ~~28, 2016,~~29, 2021, respectively. The ~~changes were~~change primarily ~~due to~~reflected the effects onof foreign currency transactions and related exchange rate fluctuations.

~~Net Loss~~

Income Tax Expense (Benefit)

Our ~~net~~income tax benefit was $8.5 million, or 23.2%, and $21.4 million, or 22.3%, of our pre-tax loss ~~increased $3.9 million and $6.6 million for~~during the three and nine months ended ~~November 3, 2017,~~October 28, 2022, respectively, and $3.3 million, or 20.3%, and $8.4 million, or 21.3%, of our pre-tax loss during the three and nine months ended October 29, 2021, respectively. The change in the effective tax benefit rate was primarily attributable to the impact of certain discrete adjustments related to the vesting of stock-based compensation awards in the current quarter and the recognition of additional benefits related to research and development credits.

Net Income (Loss)

Our net loss of $28.1 million increased $15.3 million, or 118.8%, for the three months ended October 28, 2022 compared to the three months ended October 29, 2021. Our net loss of $74.5 million increased $43.4 million, or 140.1%, for the nine months ended October 28, 2022 compared to the nine months ended October 29, 2021. Net loss on a non-GAAP basis ~~increased $4.0~~for the three months ended October 28, 2022 was $13.7 million ~~and $4.2~~compared to non-GAAP net income of $1.2 million for the three ~~and~~months ended October 29, 2021. For the nine months ended ~~November 3, 2017, respectively.~~October 28, 2022, Non-GAAP net loss was $32.6 million compared to non-GAAP net income of $6.1 million for the nine months ended October 29, 2021. The changes ~~in net loss~~on both a GAAP and non-GAAP basis were attributable to lower revenue from our continued focus on reducing non-strategic service offerings and to our increased operating expenses, the ~~operating loss results discussed above.~~effect of which was offset in part by the higher income tax benefit recognized in the current quarter.

Liquidity and Capital Commitments ~~and Contractual Cash Obligations~~

Overview

~~Following our IPO, our capital structure and sources of liquidity changed significantly from our historical capital structure.~~ We believe that our cash and cash equivalents ~~which include the net proceeds from our IPO not yet invested in our business, and our accounts receivable~~ will provide us with sufficient liquidity to meet our material cash requirements, including to fund our business and meet our obligations for at least 12 ~~months.~~months from the filing date of this report and for the foreseeable future thereafter. 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 and market conditions. We may need to raise additional capital or incur indebtedness to continue to fund our operations in the future or to fund our needs for less predictable strategic initiatives, such as acquisitions. In addition to our $30 million revolving credit facility from Dell, described below, sources of financing may include arrangements with unaffiliated third parties, depending on the availability of capital, the cost of funds and lender collateral ~~requirements. On March 28, 2017, the original term of our facility with Dell was extended on the same terms for an additional one-year term ending on April 21, 2018.~~

requirements

Selected Measures of Liquidity and Capital Resources

~~Selected measures of our liquidity and capital resources are as follows:~~

November 3, 2017 February 3, 2017
(in thousands)

Cash and cash equivalents $ 99,690
$ 116,595
Accounts receivable, net $ 136,646
$ 113,546

~~As of November 3, 2017, our~~Our principal sources of liquidity, ~~consisted~~consisting of cash and cash equivalents, ~~of $99.7 million and accounts receivable of $136.6 million. Our cash and cash equivalents balance~~are set forth below as of ~~November 3, 2017 consisted primarily of net proceeds from our IPO. As of November 3, 2017, we held $58.8 million in money market funds related to proceeds from our IPO. In addition to~~ the IPO proceeds, the Company received a cash payment of $24.1 million during the three months ended November 3, 2017, related to our net operating loss tax sharing receivable under the Company's agreement with Dell.dates indicated.

We invoice our clients based on a variety of billing schedules. In general, we bill approximately 48% of our recurring revenue in advance and approximately 52% on either a monthly or a quarterly basis. Invoiced accounts receivable generally are collected over a period of 30 to 120 days. The increase in accounts receivable was due to increased revenue as well as the timing of submission of invoices to our clients during our implementation of a new enterprise accounting software system. Additionally, the fourth quarter of fiscal 2017 had 14 weeks as compared to 13 weeks for the third quarter of fiscal 2018 and thus reflected an additional week of collections that resulted in a lower accounts receivable balance as of February 3, 2017. We regularly monitor our accounts receivable for collectability and believe that we are adequately reserved for expected credit losses. We monitor the aging of our accounts receivable and continue to take actions to reduce our exposure to credit losses.


	October 28, 2022		January 28, 2022

	(in thousands)

Cash and cash equivalents	$	139,032	$	220,655

Revolving Credit Facility

SecureWorks, Inc., our wholly-owned subsidiary, ~~has entered into~~is party to a revolving credit agreement with a wholly-owned subsidiary of Dell Inc. under which we have obtained a $30 million senior unsecured revolving credit facility. ~~The current term of the facility will expire on April 21, 2018.~~ Under the facility, up to $30 million principal amount of borrowings may be outstanding at any time. The maximum amount of borrowings may be increased by up to an additional $30 million by mutual agreement of the lender and borrower. The proceeds from loans made under the facility may be used for general corporate purposes. The facility is not guaranteed by us or our subsidiaries. There was no outstanding balance under the facility as of ~~as of November 3, 2017~~October 28, 2022 or ~~February 3, 2017.~~

~~Each loan made~~January 28, 2022, and we did not borrow any amounts under the ~~revolving credit~~ facility ~~will accrue interest at an~~during any period covered by this report. Effective March 23, 2022, the facility was amended and restated to extend the maturity date to March 23, 2023 and to modify the annual rate ~~equal~~at which interest accrues to the applicable ~~London Interbank Offered Rate~~LIBOR plus ~~1.60%~~1.23%. Amounts under the facility may be borrowed, repaid and reborrowed from time to time during the term of the facility. The borrower will be required to repay in full all of the loans outstanding, including all accrued interest, and the facility will terminate upon a change of control of us or following a transaction in which SecureWorks, Inc. ceases to be a direct or indirect wholly-owned subsidiary of our Company. The credit agreement contains customary representations, warranties and events of default. The unused portion of the facility is subject to a commitment fee of 0.35%, which is due upon expiration of the facility. For more information regarding the facility, see "Notes to Condensed Consolidated Financial Statements—Note 5—Debt" in our condensed consolidated financial statements included in this report.

Cash Flows


	Nine Months Ended
	October 28, 2022		October 29, 2021

	(in thousands)
Net change in cash from:
Operating activities	$	(68,178)	$	(1,773)
Investing activities	(4,961)		(5,822)
Financing activities	(8,484)		(7,576)
Change in cash and cash equivalents	$	(81,623)	$	(15,171)

~~The following table presents information concerning our cash flows during~~ ~~the nine months ended November 3, 2017 and October 28, 2016.~~

Nine Months Ended
November 3, 2017 October 28, 2016
(in thousands)
Net change in cash from:

Operating activities $ (3,205 ) $ (18,674 )
Investing activities (11,676 ) (13,285 )
Financing activities (2,024 ) 109,372
Change in cash and cash equivalents $ (16,905 ) $ 77,413

Operating Activities — Cash used in operating activities totaled ~~$3.2~~$68.2 million and ~~$18.7~~$1.8 million for the nine months ended ~~November 3, 2017~~October 28, 2022 and October ~~28, 2016,~~29, 2021, respectively. The ~~increase in~~increased use of our operating cash ~~flows~~ was ~~mainly due to~~primarily driven by our ~~net transactions with Dell,~~strategic investment in the business focused on marketing and research and development initiatives regarding our 11.8% increase in revenue, and our receipt of payment of the tax sharing receivable from Dell described above. These increases were partially offset by higher stock-based compensation expense and an increase in our net accounts receivable balance.Taegis offerings.

We began fiscal 2018 with a net payable to Dell of $10.2 million. On a continuing basis, we incur liabilities to Dell for charges under the various commercial agreements in place and for costs Dell continues to pay directly on our behalf, such as the cost of Secureworks employee benefits provided for under the Dell benefit plans. Offsetting these liabilities, we charge to, or through, Dell for sales to our clients that we make through Dell legal entities or for services we provide directly to Dell. As of November 3, 2017, the amount due to Dell had increased to approximately $18.0 million. During the third quarter of fiscal 2017, we began settling in cash our related party balances with Dell and will continue doing so on a quarterly basis. We expect that over time our transactions with Dell will not be a use of cash as we anticipate that our charges to Dell will continue to exceed Dell's charges to us, although the timing of charges and settlements may vary period to period.

Investing Activities — Cash used in investing activities totaled ~~$11.7~~$5.0 million and ~~$13.3~~$5.8 million for the nine months ended ~~November 3, 2017~~October 28, 2022 and October ~~28, 2016,~~29, 2021, respectively. ~~For the periods presented, investing~~Investing activities consisted primarily of ~~capital expenditures~~capitalized expenses related to the development of our Taegis software platform and SaaS applications, which decreased slightly for ~~property and equipment to support our data center and facility infrastructure.~~the nine months ended October 28, 2022 from the same period in fiscal 2022.

Financing Activities — Cash ~~flows (used in) provided by~~used in financing activities totaled ~~$(2.0)~~$8.5 million and ~~$109.4~~$7.6 million for the nine months ended ~~November 3, 2017~~October 28, 2022 and October ~~28, 2016,~~29, 2021, respectively. The ~~usage in~~use of cash flows for the nine months ended ~~November 3, 2017~~October 28, 2022 reflected employee tax withholding payments of ~~$1.2~~$8.5 million on restricted stock awards paid by ~~us and payment~~us. The use of ~~an intercompany obligation of $0.8 million. Financing activities~~cash flows for the nine months ended October ~~28, 2016 included our receipt~~29, 2021 reflected such employee tax withholding payments of ~~$99.6~~$11.7 million, offset in ~~net cash~~part by $4.1 million of proceeds from ~~our IPO and a $10.0 million capital contribution by Dell in March 2016.~~

stock option exercises.

Off-Balance Sheet Arrangements

As of ~~November 3, 2017,~~October 28, 2022, we were not subject to any obligations pursuant to any off-balance sheet arrangements that have or are reasonably likely to have a material effect on our financial condition, results of operations or liquidity.

Critical Accounting Policies

The unaudited condensed consolidated financial statements included elsewhere in this report have been prepared in accordance with GAAP for interim financial information and the requirements of the SEC. Accordingly, they do not include all of the information and disclosures required by GAAP for a complete financial statement presentation. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments consisting of normal recurring accruals and disclosures considered necessary for a fair interim presentation have been included. All inter-company accounts and transactions have been eliminated in consolidation.

As described in "Notes to Condensed Consolidated Financial Statements—Note 1—Description of the Business and Basis of Presentation" in our consolidated financial statements included in this report, management assessed the critical accounting policies as disclosed in our Annual Report and determined that there were no changes to our critical accounting policies or our estimates associated with those policies during the three and nine months ended October 28, 2022.

Recently Issued Accounting Pronouncements

See "Notes to Condensed Consolidated Financial Statements—Note 1—Description of the Business and Basis of Presentation" in our condensed consolidated financial statements included in this report for a description of recently issued accounting pronouncements and our expectation of their impact, if any, on our financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~Our expenses in international locations and payments made by clients in those locations generally are denominated in the currencies of the countries in which our operations are located.~~ Our results of operations and cash flows have been and will continue to be subject to fluctuations because of changes in global inflation and foreign currency exchange rates, particularly changes in exchange rates between the U.S. dollar and the Euro, the British Pound, the Romanian Leu, the Japanese Yen, the Australian Dollar and the Canadian Dollar, ~~which are~~ the currencies of countries where we currently have our most significant international operations. Our expenses in international locations are generally denominated in the currencies of the countries in which our operations are located.

As our international operations grow, we may begin to use foreign exchange forward contracts ~~as a strategy~~ to partially mitigate the impact of fluctuations in net monetary assets denominated in foreign currencies.

Item 4. Controls and Procedures

Limitations on Effectiveness of Disclosure Controls

and Procedures

In designing and evaluating ~~the~~our disclosure controls and procedures, as defined below under SEC rules, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their ~~costs.~~

cost.

Evaluation of Disclosure Controls and Procedures

~~Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure~~Disclosure controls and procedures ~~as of November 3, 2017. The term "disclosure controls and procedures," as~~(as defined in ~~Rule 13a-15~~Rules 13a‑15(e) and 15d‑15(e) under the Securities Exchange ~~Act~~ of 1934, or ~~the~~ Exchange ~~Act, means controls and other procedures of a company that~~Act) are designed to ensure that information required to be disclosed ~~by a company~~ in ~~the~~ reports ~~that it files~~filed or ~~submits~~submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in ~~the SEC's~~SEC rules and ~~forms. Disclosure controls~~forms and ~~procedures include, without limitation, controls and procedures designed to ensure~~ that such information ~~required to be disclosed by a company in the reports that it files or submits under the Exchange Act~~ is accumulated and communicated to ~~the company's~~ management, including ~~its principal~~the chief executive officer and ~~principal~~the chief financial ~~officers, as appropriate~~officer, to allow timely decisions regarding required ~~disclosure.~~disclosures.

In connection with the preparation of this report, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of October 28, 2022. Based on ~~our~~that evaluation, our ~~chief executive officer and chief financial officer~~management has concluded that ~~as of November 3, 2017,~~ our disclosure controls and procedures were ~~effective.~~

effective as of October 28, 2022.

Changes in Internal Control over Financial Reporting

During the third quarter of fiscal 2018, we completed the migration of our accounting and financial reporting systems to a new enterprise resource planning ("ERP") system. This ERP system implementation impacts various internal processes and controls for business activities within accounting and also impacts our financial reporting. While the Company believes that this new system and the related changes to internal controls ultimately will strengthen its internalInternal control over financial reporting ~~there are inherent risks~~(as defined in ~~implementing any ERP system,~~Rules 13a-15(f) and 15d-15(f) under the Exchange Act) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the ~~Company will continue~~preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures which (a) pertain to ~~evaluate~~the maintenance of records that, in reasonable detail, accurately and ~~test control changes.~~fairly reflect the transactions and dispositions of assets, (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, (c) provide reasonable assurance that receipts and expenditures are being made only in accordance with appropriate authorization of management and the board of directors, and (d) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.

~~Except for our implementation of the ERP system as described above, there~~There were no changes in our internal control over financial reporting that occurred during the quarter ended ~~November 3, 2017~~October 28, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ~~The Company has modified and will continue to modify its internal controls relating to its business and financial processes throughout the entire ERP system implementation period.~~

Part II. Other Information

Item 1A. Risk Factors

~~There~~We have ~~been no material changes to the risk factors previously disclosed~~discussed risks affecting us under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended ~~February 3, 2017~~January 28, 2022 filed with the SEC on March ~~29, 2017.~~23, 2022. The risks described in ~~that~~our Annual Report are not the only risks facing us. There are additional risks and uncertainties not currently known to us or that we currently deem to be immaterial that may also materially adversely affect our business, financial condition or operating results.

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

As of November 3, 2017, we have expended approximately $40.8 million of the net proceeds of our IPO for general corporate purposes and have invested approximately $58.8 million of such proceeds in money market funds pending their use in our business.

Item 6. Exhibits

Secureworks hereby files or ~~incorporates by reference into this report~~furnishes the following exhibits:



Exhibit No.						Description
~~31.1~~10.1*						Amendment #2 to Security Services Customer Master Services Agreement, effective as of August 18, 2022, between Dell USA L.P., for itself and its subsidiaries (excluding SecureWorks, Inc.), and SecureWorks, Inc., for itself and its subsidiaries. Filed herewith.
31.1						Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31.2						Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.1						Certifications of Chief Executive Officer and Chief Financial Officer of the Company pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
101.INS						Inline XBRL Instance ~~Document.~~Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						Inline XBRL Taxonomy Extension Schema Document. Filed herewith.
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document. Filed herewith.
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document. Filed herewith.
101.LAB						Inline XBRL Taxonomy Extension ~~Labels~~Label Linkbase Document. Filed herewith.
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document. Filed herewith.
104						Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document, which is contained in Exhibit 101).


________

* Certain identified portions of this exhibit have been omitted in accordance with Item 601(b)(10)(iv) of Regulation S-K.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	SecureWorks Corp.

	~~SecureWorks Corp.~~ By:	/s/ Paul M. Parrish
		Paul M. Parrish
	~~By:~~	~~/s/ R. Wayne Jackson~~
~~R. Wayne Jackson~~
Chief Financial Officer
		(Duly Authorized Officer)

Date: December ~~6, 2017~~1, 2022


~~For the quarterly period ended November 3, 2017~~or
or
¨☐							TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock,	SCWX	The Nasdaq Stock Market LLC
par value $0.01 per share		(Nasdaq Global Select Market)


	October 28, 2022		January 28, 2022

ASSETS
Current assets:
Cash and cash equivalents	$	139,032	$	220,655
Accounts receivable, net of allowances of $2,426 and $3,510, respectively	64,054		86,231
Inventories, net	683		505
Other current assets	26,174		26,040
Total current assets	229,943		333,431
Property and equipment, net	5,426		8,426
Operating lease right-of-use assets, net	14,245		17,441
Goodwill	425,353		425,926
Intangible assets, net	113,762		133,732
Other non-current assets	62,124		68,346
Total assets	$	850,853	$	987,302

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	19,682	$	15,062
Accrued and other current liabilities	65,240		88,122
Short-term deferred revenue	136,950		163,304

Total current liabilities	221,872		266,488
Long-term deferred revenue	7,566		12,764
Operating lease liabilities, non-current	13,125		16,869
Other non-current liabilities	22,391		43,124
Total liabilities	264,954		339,245
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock - $0.01 par value: 200,000 shares authorized; — shares issued	—		—
Common stock - Class A of $0.01 par value: 2,500,000 shares authorized; 14,650 and 14,282 shares issued and outstanding, at October 28, 2022 and January 28, 2022, respectively.	147		143
Common stock - Class B of $0.01 par value: 500,000 shares authorized; 70,000 shares issued and outstanding	700		700
Additional paid in capital	958,420		939,404
Accumulated deficit	(344,085)		(269,622)
Accumulated other comprehensive loss	(9,387)		(2,672)
Treasury stock, at cost - 1,257 and 1,257 shares, respectively	(19,896)		(19,896)
Total stockholders' equity	585,899		648,057
Total liabilities and stockholders' equity	$	850,853	$	987,302



	November 3, 2017			February 3, 2017

ASSETS
Current assets:
Cash and cash equivalents	$	99,690		$	116,595
Accounts receivable, net of allowances of $8,522 and $6,132, respectively	136,646			113,546
Inventories, net	963			1,947
Other current assets	27,835			51,947
Total current assets	265,134			284,035
Property and equipment, net	33,974			31,153
Goodwill	416,487			416,487
Purchased intangible assets, net	241,118			261,921
Other non-current assets	4,698			5,704
Total assets	$	961,411		$	999,300

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	23,931		$	24,119
Accrued and other	62,602			59,704
Short-term deferred revenue	124,633			119,909
Total current liabilities	211,166			203,732
Long-term deferred revenue	15,284			14,752
Other non-current liabilities	71,433			89,392
Total liabilities	297,883			307,876
Commitments and Contingencies (Note 5)
Stockholders' equity:
Preferred stock - $0.01 par value: 200,000 shares authorized; 0 shares issued	—			—
Common stock - Class A of $.01 par value: 2,500,000 shares authorized; 11,077 and 10,566 issued and outstanding as of November 3, 2017 and February 3, 2017, respectively.	111			107
Common stock - Class B of $.01 par value: 500,000 shares authorized; 70,000 shares issued and outstanding as of November 3, 2017 and February 3, 2017	700			700
Additional paid in capital	863,758			854,907
Accumulated deficit	(198,814		)	(160,859		)
Accumulated other comprehensive loss	(2,227		)	(3,431		)
Total stockholders' equity	663,528			691,424
Total liabilities and stockholders' equity	$	961,411		$	999,300


	Nine Months Ended
	October 28, 2022		October 29, 2021
Cash flows from operating activities:
Net loss	$	(74,463)	$	(31,016)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	27,728		29,914
Amortization of right of use asset	2,853		3,081
Amortization of costs capitalized to obtain revenue contracts	13,319		14,693
Amortization of costs capitalized to fulfill revenue contracts	3,635		4,002

Stock-based compensation expense	27,504		23,677
Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies	1,386		2,374
Income tax benefit	(21,375)		(8,381)

Provision for credit losses	(552)		73
Changes in assets and liabilities:
Accounts receivable	21,584		12,460
Net transactions with Dell	(3,741)		(6,794)
Inventories	(178)		45
Other assets	(9,709)		(10,588)
Accounts payable	4,550		(3,814)
Deferred revenue	(33,171)		(8,830)
Operating leases, net	(4,086)		(4,266)
Accrued and other liabilities	(23,462)		(18,403)
Net cash used in operating activities	(68,178)		(1,773)
Cash flows from investing activities:
Capital expenditures	(1,609)		(1,248)
Software development costs	(3,352)		(4,574)

Net cash used in investing activities	(4,961)		(5,822)
Cash flows from financing activities:

Taxes paid on vested restricted shares	(8,484)		(11,710)

Proceeds from stock option exercises	—		4,134

Net cash used in financing activities	(8,484)		(7,576)
Net decrease in cash and cash equivalents	(81,623)		(15,171)
Cash and cash equivalents at beginning of the period	220,655		220,300
Cash and cash equivalents at end of the period	$	139,032	$	205,129



	Three Months Ended						Nine Months Ended
	November 3, 2017			October 28, 2016			November 3, 2017			October 28, 2016

Net revenue	$	117,534		$	107,108		$	347,250		$	310,554
Cost of revenue	55,726			53,637			165,993			156,393
Gross margin	61,808			53,471			181,257			154,161
Research and development	19,501			16,963			58,673			51,933
Sales and marketing	37,296			29,725			112,085			91,807
General and administrative	22,896			21,626			67,438			64,311
Total operating expenses	79,693			68,314			238,196			208,051
Operating loss	(17,885		)	(14,843		)	(56,939		)	(53,890		)
Interest and other, net	121			1,107			(953		)	2,323
Loss before income taxes	(17,764		)	(13,736		)	(57,892		)	(51,567		)
Income tax benefit	(6,163		)	(6,018		)	(19,937		)	(20,171		)
Net loss	$	(11,601	)	$	(7,718	)	$	(37,955	)	$	(31,396	)

Net loss per common share (basic and diluted)	$	(0.14	)	$	(0.10	)	$	(0.47	)	$	(0.41	)
Weighted-average common shares outstanding (basic and diluted)	80,355			80,009			80,254			76,783


Three Months Ended October 28, 2022	Common Stock - Class A			Common Stock - Class B
	Outstanding Shares	Amount		Outstanding Shares	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income		Treasury Stock		Total Stockholders' Equity
Balances, July 29, 2022	14,970	$	150	70,000	$	700	$	949,248	$	(315,939)	$	(6,670)	$	(19,896)	$	607,593
Net loss	—	—		—	—		—		(28,146)		—		—		(28,146)
Other comprehensive loss	—	—		—	—		—		—		(2,717)		—		(2,717)
Vesting of restricted stock units	168	2		—	—		(2)		—		—		—		—
Grant and forfeitures of restricted stock awards	(423)	(4)		—	—		4		—		—		—		—
Common stock withheld as payment for withholding taxes upon the vesting of restricted shares	(65)	(1)		—	—		(396)		—		—		—		(397)
Stock-based compensation	—	—		—	—		9,566		—		—		—		9,566

Balances, October 28, 2022	14,650	$	147	70,000	$	700	$	958,420	$	(344,085)	$	(9,387)	$	(19,896)	$	585,899


Nine Months Ended October 28, 2022																					Nine Months Ended October 28, 2022	Common Stock - Class A			Common Stock - Class B
																						Outstanding Shares	Amount		Outstanding Shares	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income		Treasury Stock		Total Stockholders' Equity
	Common Stock - Class A					Common Stock - Class B
	Outstanding Shares		Amount			Outstanding Shares	Amount		Additional Paid in Capital			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Total Stockholders' Equity
Balances, February 3, 2017	10,566		$	107		70,000	$	700	$	854,907		$	(160,859	)	$	(3,431	)	$	691,424
Balances, January 28, 2022																					Balances, January 28, 2022	14,282	$	143	70,000	$	700	$	939,404	$	(269,622)	$	(2,672)	$	(19,896)	$	648,057
Net loss	—		—			—	—					(37,955		)	—			(37,955		)	Net loss	—	—		—	—		—		(74,463)		—		—		(74,463)
Other comprehensive loss	—		—			—	—		—			—			1,204			1,204			Other comprehensive loss	—	—		—	—		—		—		(6,715)		—		(6,715)
Vesting of restricted stock units	376		4			—	—		(4		)	—			—			—			Vesting of restricted stock units	1,549	15		—	—		(15)		—		—		—		—
Grant of restricted stock awards	284		2			—	—		(2		)	—			—			—
Grant and forfeitures of restricted stock awards																					Grant and forfeitures of restricted stock awards	(423)	(4)		—	—		4		—		—		—		—
Common stock withheld as payment for withholding taxes upon the vesting of restricted shares	(149	)	(2		)	—	—		(1,235		)	—			—			(1,237		)	Common stock withheld as payment for withholding taxes upon the vesting of restricted shares	(758)	(8)		—	—		(8,477)		—		—		—		(8,484)
Stock-based compensation	—		—			—	—		10,092			—			—			10,092			Stock-based compensation	—	—		—	—		27,504		—		—		—		27,504
Balances, November 3, 2017	11,077		$	111		70,000	$	700	$	863,758		$	(198,814	)	$	(2,227	)	$	663,528

Balances, October 28, 2022																					Balances, October 28, 2022	14,650	$	147	70,000	$	700	$	958,420	$	(344,085)	$	(9,387)	$	(19,896)	$	585,899


Three Months Ended October 29, 2021	Common Stock - Class A			Common Stock - Class B
	Outstanding Shares	Amount		Outstanding Shares	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income		Treasury Stock		Total Stockholders' Equity
Balances, July 30, 2021	14,092	$	141	70,000	$	700	$	925,131	$	(247,984)	$	(574)	$	(19,896)	$	657,518
Net loss	—	—		—	—		—		(12,863)		—		—		(12,863)
Other comprehensive loss	—	—		—	—		—		—		(621)		—		(621)
Vesting of restricted stock units	183	2		—	—		(2)		—		—		—		—


Common stock withheld as payment for withholding taxes upon the vesting of restricted shares	(73)	(1)		—	—		(1,764)		—		—		—		(1,765)
Stock-based compensation	—	—		—	—		10,062		—		—		—		10,062

Balances, October 29, 2021	14,202	$	142	70,000	$	700	$	933,427	$	(260,847)	$	(1,195)	$	(19,896)	$	652,331


Nine Months Ended October 29, 2021	Common Stock - Class A			Common Stock - Class B
	Outstanding Shares	Amount		Outstanding Shares	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income		Treasury Stock		Total Stockholders' Equity
Balances, January 29, 2021	12,450	$	124	70,000	$	700	$	917,344	$	(229,831)	$	(660)	$	(19,896)	$	667,781
Net loss	—	—		—	—		—		(31,016)		—		—		(31,016)
Other comprehensive loss	—	—		—	—		—		—		(535)		—		(535)
Vesting of restricted stock units	1,380	14		—	—		(14)		—		—		—		—
Exercise of stock options	1,417	14					4,120								4,134
Grant and forfeitures of restricted stock awards	485	5		—	—		(5)		—		—		—		—
Common stock withheld as payment for withholding taxes upon the vesting of restricted shares	(1,530)	(15)		—	—		(11,695)		—		—		—		(11,710)
Stock-based compensation	—	—		—	—		23,677		—		—		—		23,677

Balances, October 29, 2021	14,202	$	142	70,000	$	700	$	933,427	$	(260,847)	$	(1,195)	$	(19,896)	$	652,331



	Three Months Ended October 28, 2016
	As Reported		Reclassification			As Reclassified
Statement of Operations Data:
Research and development	$	12,181	$	4,782		$	16,963
Sales and marketing	26,424		3,301			29,725
General and administrative	29,709		(8,083		)	21,626
Total operating expenses	$	68,314	$	—		$	68,314

	Nine Months Ended October 28, 2016
	As Reported		Reclassification			As Reclassified
Statement of Operations Data:
Research and development	$	38,625	$	13,308		$	51,933
Sales and marketing	82,559		9,248			91,807
General and administrative	86,867		(22,556		)	64,311
Total operating expenses	$	208,051	$	—		$	208,051


	As of January 28, 2022		Upfront payments received and billings during the nine months ended October 28, 2022		Revenue recognized during the nine months ended October 28, 2022		As of October 28, 2022
Deferred revenue	$	176,068	$	175,301	$	(206,853)	$	144,516


	As of January 29, 2021		Upfront payments received and billings during the nine months ended October 29, 2021		Revenue recognized during the nine months ended October 29, 2021		As of October 29, 2021
Deferred revenue	$	178,027	$	224,152	$	(232,420)	$	169,759


	Total		Expected to be recognized in the next 12 months		Expected to be recognized in 12-24 months		Expected to be recognized in 24-36 months		Expected to be recognized thereafter
Performance obligation - active	$	253,298	$	133,478	$	85,863	$	33,014	$	943
Performance obligation - backlog	10,400		3,649		3,438		3,313		—
Total	$	263,698	$	137,127	$	89,301	$	36,327	$	943


	As of January 28, 2022		Amount capitalized		Amount recognized		As of October 28, 2022
Deferred commissions	$	53,978	$	8,319	$	(13,319)	$	48,978
Deferred fulfillment costs	7,597		241		(3,635)		4,203


																October 28, 2022						January 28, 2022
	November 3, 2017							February 3, 2017								Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
	(in thousands)															(in thousands)
Customer relationships	$	189,518	$	(59,534	)	$	129,984	$	189,518	$	(48,963	)	$	140,555	Customer relationships	$	189,518	$	(130,006)	$	59,512	$	189,518	$	(119,435)	$	70,083
Technology	135,584		(54,568		)	81,016		135,584		(44,336		)	91,248
Acquired Technology															Acquired Technology	141,784		(124,944)		16,840		141,784		(113,937)		27,847
Developed Technology															Developed Technology	11,475		(4,183)		7,292		8,123		(2,439)		5,684
Finite-lived intangible assets	325,102		(114,102		)	211,000		325,102		(93,299		)	231,803		Finite-lived intangible assets	342,777		(259,133)		83,644		339,425		(235,811)		103,614
Trade name	30,118		—			30,118		30,118		—			30,118		Trade name	30,118		—		30,118		30,118		—		30,118
Total intangible assets	$	355,220	$	(114,102	)	$	241,118	$	355,220	$	(93,299	)	$	261,921	Total intangible assets	$	372,895	$	(259,133)	$	113,762	$	369,543	$	(235,811)	$	133,732


Fiscal Years Ending	October 28, 2022
2023	$	1,421
2024	5,668
2025	5,095
2026	4,526
2027	4,088
Thereafter	—
Total operating lease payments	$	20,798
Less imputed interest	2,151
Total operating lease liabilities	$	18,647


	October 28, 2022
Weighted-average remaining lease term	3.9 years
Weighted-average discount rate	5.39	%


	October 28, 2022		January 28, 2022
Related party payable (in accrued and other current liabilities)	$	1,783	$	3,088

Accounts receivable from customers under reseller agreements with Dell (in accounts receivable, net)	$	5,401	$	7,700

Net operating loss tax sharing receivable under agreement with Dell (payable in accrued and other and receivable in other current assets)	$	12,621	$	10,693



	November 3, 2017		February 3, 2017
	Level 1		Level 1
Cash equivalents - Money Market Funds	$	58,802	$	84,339


	October 28, 2022			October 29, 2021
Managed security subscription customer base	1,600			2,900
Taegis subscription customer base	1,600			800
Total subscription customer base	2,900			3,500

Total customer base	4,800			5,100





Managed security annual recurring revenue (in millions)	$	119.9		$	282.4
Taegis annual recurring revenue (in millions)	222.2			123.1
Total annual recurring revenue (in millions)	$	342.1		$	405.5

Managed security average subscription revenue per customer (in thousands)	$	77.0		$	97.5
Taegis average subscription revenue per customer (in thousands)	$	139.2		$	149.1
Total average subscription revenue per customer (in thousands)	$	116.1		$	115.3

Net revenue retention rate	83		%	91		%



Stock-based compensation expense	(2,055		)	(1,812		)	(6,574		)	(3,827		)
Other	—			—			—			(1,164		)
Non-GAAP general and administrative expenses	$	17,059		$	16,050		$	49,523		$	48,103

GAAP operating loss	$	(17,885	)	$	(14,843	)	$	(56,939	)	$	(53,890	)
Amortization of intangibles	6,935			6,934			20,803			20,802
Impact of purchase accounting	413			511			1,237			1,534
Stock-based compensation expense	2,934			3,024			10,092			6,389
Other	—			—			—			1,164
Non-GAAP operating loss	$	(7,603	)	$	(4,374	)	$	(24,807	)	$	(24,001	)

GAAP net loss	$	(11,601	)	$	(7,718	)	$	(37,955	)	$	(31,396	)
Amortization of intangibles	6,935			6,934			20,803			20,802
Impact of purchase accounting	413			511			1,237			1,534
Stock-based compensation expense	2,934			3,024			10,092			6,389
Other	—			—			—			1,164
Aggregate adjustment for income taxes	(3,897		)	(3,990		)	(11,253		)	(11,409		)
Non-GAAP net loss	$	(5,216	)	$	(1,239	)	$	(17,076	)	$	(12,916	)

GAAP net loss per share	$	(0.14	)	$	(0.10	)	$	(0.47	)	$	(0.41	)
Amortization of intangibles	0.09			0.09			0.26			0.27
Impact of purchase accounting	0.01			0.01			0.02			0.02
Stock-based compensation expense	0.04			0.04			0.13			0.08
Other	—			—			—			0.02
Aggregate adjustment for income taxes	(0.05		)	(0.05		)	(0.14		)	(0.15		)
Non-GAAP net loss per share *	$	(0.06	)	$	(0.02	)	$	(0.21	)	$	(0.17	)
* Sum of reconciling items may differ from total due to rounding of individual components

GAAP net loss	$	(11,601	)	$	(7,718	)	$	(37,955	)	$	(31,396	)
Interest and other, net	(121		)	(1,107		)	953			(2,323		)
Income tax benefit	(6,163		)	(6,018		)	(19,937		)	(20,171		)
Depreciation and amortization	10,654			9,826			31,320			29,248
Stock-based compensation expense	2,934			3,024			10,092			6,389
Impact of purchase accounting	146			221			438			663
Other	—			—			—			1,164
Adjusted EBITDA	$	(4,151	)	$	(1,772	)	$	(15,089	)	$	(16,426	)