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Secureworks Vows to Reduce Managed Security Services Churn

Secureworks, the Top 100 MSSP, delivered mixed quarterly financial results on Wednesday, and vowed to improve managed security services retention rates in the current fiscal year.

SecureWorks CEO Michael Cote

The latest revenue and profit figures follow recent rumors that parent Dell Technologies may attempt to sell Secureworks.

For its Q4 of fiscal 2019, Secureworks says:

  • GAAP revenue increased 8.1 percent to $130.7 million.
  • GAAP gross margin was 53.4 percent in the fourth quarter of 2019, compared with 50.2 percent in the same period last year.
  • GAAP net loss was $11.8 million, compared with GAAP net income of $22.5 million,
  • Adjusted EBITDA was $4.8 million, compared with an adjusted EBITDA loss of $5.7 million in the fourth quarter of fiscal 2018.
  • Monthly recurring revenue as of February 1, 2019 increased 2.5 percent to $36.2 million from $35.3 million as of February 2, 2018.

Overall, fourth quarter revenue was below Secureworks’ expectations primarily as a result of one customers’ delayed migration to a new solution, according to CFO Wayne Jackson. That customer is now substantially ramped under terms of the new contract, he added.

Secureworks’ stock fell about 8 percent on the earnings report. Jackson, meanwhile, plans to step down from the business. The company is seeking a successor CFO, and Jackson says he will stick around to assist the transition.

Managed Security Service Churn Concerns

Another key area of concern involves service retention rates. According to Jackson:

  • Revenue retention ending FY19 was 89% versus 96% at the end of FY18. Excluding the impact of one large customer, ending FY19 revenue retention was 93%.
  • The challenge involves service churn versus customer churn, company officials indicated. New offerings as well as improved account management processes implemented in the second half of FY19 will drive improved retention in FY20, the company asserts.

Among the new offerings Jackson pointed to:

  • Q1 of last year: A Detect and Prevent solution for the small to medium sized business market launches.
  • Q2 of last year: Managed Detection and Response solution.
  • Q3 of last year: Endpoint partner program.
  • Q4 of last year: Advanced endpoint threat detection with CrowdStrike and Carbon Black.
  • Q1 of this year: Orchestration and Automation and the Dell SafeGuard and Response, which has “got a strong pipeline building with the Dell sales organization,” he asserted.

Secureworks: Managed Security Services Reality Check

The earnings results provide a healthy reminder: Although the managed security services market is growing rapidly, succeeding in the market and driving double- or triple-digit percentage revenue growth figures isn’t easy.

Seeking to drive more growth, Secureworks has been beta testing a new threat protection and response app atop a new application framework since December 2018. The system has the ability to discover previously undetected threats, automate investigation and scale remediation, according to CEO Michael Cote.

During the company’s earnings call, a Wall Street analyst asked Secureworks to comment about rumors that Dell may want to sell the business. Secureworks did not directly answer the question, and instead focused on the ongoing working relationship between the two companies.

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