false--01-31Q220200001468666P1YP3Y0.506160000611800069000001390000000000.010.010.010.01250000000050000000025000000005000000001101600070000000112030007000000011016000700000001120300070000000P1Y416500000000210000001120000000000.010.0120000000020000000000P1YP1YP1YP1YP1YP1YP1YP1YP1YP3YP3YP3Y08190001257000 0001468666 2019-02-02 2019-08-02 0001468666 us-gaap:CommonClassBMember 2019-09-03 0001468666 us-gaap:CommonClassAMember 2019-09-03 0001468666 2019-02-01 0001468666 2019-08-02 0001468666 us-gaap:CommonClassAMember 2019-08-02 0001468666 us-gaap:CommonClassBMember 2019-02-01 0001468666 us-gaap:CommonClassBMember 2019-08-02 0001468666 us-gaap:CommonClassAMember 2019-02-01 0001468666 2019-05-04 2019-08-02 0001468666 2018-02-03 2018-08-03 0001468666 2018-05-05 2018-08-03 0001468666 2018-02-02 0001468666 2018-08-03 0001468666 us-gaap:CommonClassAMember us-gaap:CommonStockMember 2019-02-02 2019-08-02 0001468666 us-gaap:CommonClassAMember us-gaap:CommonStockMember 2019-08-02 0001468666 us-gaap:AdditionalPaidInCapitalMember 2019-02-02 2019-08-02 0001468666 us-gaap:AdditionalPaidInCapitalMember 2019-08-02 0001468666 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-02-01 0001468666 us-gaap:TreasuryStockCommonMember 2019-08-02 0001468666 us-gaap:AdditionalPaidInCapitalMember 2019-02-01 0001468666 us-gaap:RetainedEarningsMember 2019-02-01 0001468666 us-gaap:RetainedEarningsMember 2019-08-02 0001468666 us-gaap:CommonClassAMember us-gaap:CommonStockMember 2019-02-01 0001468666 us-gaap:TreasuryStockCommonMember 2019-02-01 0001468666 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2019-02-01 0001468666 us-gaap:TreasuryStockCommonMember 2019-02-02 2019-08-02 0001468666 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-08-02 0001468666 us-gaap:RetainedEarningsMember 2019-02-02 2019-08-02 0001468666 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2019-08-02 0001468666 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-02-02 2019-08-02 0001468666 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2018-05-04 0001468666 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2018-08-03 0001468666 us-gaap:CommonClassAMember us-gaap:CommonStockMember 2018-05-05 2018-08-03 0001468666 us-gaap:AdditionalPaidInCapitalMember 2018-08-03 0001468666 2018-05-04 0001468666 us-gaap:RetainedEarningsMember 2018-08-03 0001468666 us-gaap:AdditionalPaidInCapitalMember 2018-05-05 2018-08-03 0001468666 us-gaap:RetainedEarningsMember 2018-05-05 2018-08-03 0001468666 us-gaap:TreasuryStockCommonMember 2018-05-04 0001468666 us-gaap:CommonClassAMember us-gaap:CommonStockMember 2018-05-04 0001468666 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-08-03 0001468666 us-gaap:AdditionalPaidInCapitalMember 2018-05-04 0001468666 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-05-04 0001468666 us-gaap:TreasuryStockCommonMember 2018-08-03 0001468666 us-gaap:CommonClassAMember us-gaap:CommonStockMember 2018-08-03 0001468666 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-05-05 2018-08-03 0001468666 us-gaap:RetainedEarningsMember 2018-05-04 0001468666 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2018-02-02 0001468666 us-gaap:CommonClassAMember us-gaap:CommonStockMember 2018-02-02 0001468666 us-gaap:AdditionalPaidInCapitalMember 2018-02-03 2018-08-03 0001468666 us-gaap:CommonClassAMember us-gaap:CommonStockMember 2018-02-03 2018-08-03 0001468666 us-gaap:TreasuryStockCommonMember 2018-02-02 0001468666 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-02-02 0001468666 us-gaap:AdditionalPaidInCapitalMember 2018-02-02 0001468666 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-02-03 2018-08-03 0001468666 us-gaap:RetainedEarningsMember 2018-02-03 2018-08-03 0001468666 us-gaap:RetainedEarningsMember 2018-02-02 0001468666 us-gaap:CommonClassAMember us-gaap:CommonStockMember 2019-05-04 2019-08-02 0001468666 us-gaap:CommonClassAMember us-gaap:CommonStockMember 2019-05-03 0001468666 us-gaap:AdditionalPaidInCapitalMember 2019-05-04 2019-08-02 0001468666 2019-05-03 0001468666 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-05-04 2019-08-02 0001468666 us-gaap:AdditionalPaidInCapitalMember 2019-05-03 0001468666 us-gaap:TreasuryStockCommonMember 2019-05-03 0001468666 us-gaap:TreasuryStockCommonMember 2019-05-04 2019-08-02 0001468666 us-gaap:RetainedEarningsMember 2019-05-03 0001468666 us-gaap:CommonClassBMember us-gaap:CommonStockMember 2019-05-03 0001468666 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-05-03 0001468666 us-gaap:RetainedEarningsMember 2019-05-04 2019-08-02 0001468666 us-gaap:AccountingStandardsUpdate201602Member 2019-02-02 0001468666 scwx:DenaliMember us-gaap:IPOMember 2019-02-02 2019-08-02 0001468666 scwx:ActivePerformanceObligationMember 2021-07-31 2019-08-02 0001468666 2022-07-30 2019-08-02 0001468666 scwx:ActivePerformanceObligationMember 2022-07-30 2019-08-02 0001468666 scwx:BacklogPerformanceObligationMember 2021-07-31 2019-08-02 0001468666 2021-07-31 2019-08-02 0001468666 scwx:BacklogPerformanceObligationMember 2022-07-30 2019-08-02 0001468666 2019-08-03 2019-08-02 0001468666 scwx:BacklogPerformanceObligationMember 2019-08-03 2019-08-02 0001468666 scwx:ActivePerformanceObligationMember 2019-08-03 2019-08-02 0001468666 2019-08-02 0001468666 scwx:BacklogPerformanceObligationMember 2019-08-02 0001468666 2020-08-01 2019-08-02 0001468666 scwx:ActivePerformanceObligationMember 2019-08-02 0001468666 scwx:ActivePerformanceObligationMember 2020-08-01 2019-08-02 0001468666 scwx:BacklogPerformanceObligationMember 2020-08-01 2019-08-02 0001468666 scwx:DeferredCommissionsMember 2019-08-02 0001468666 scwx:DeferredCommissionsMember 2019-02-01 0001468666 scwx:DeferredCommissionsMember 2019-02-02 2019-08-02 0001468666 scwx:DeferredFulfillmentCostsMember 2019-08-02 0001468666 scwx:DeferredFulfillmentCostsMember 2019-02-01 0001468666 scwx:DeferredFulfillmentCostsMember 2019-02-02 2019-08-02 0001468666 scwx:DeferredFulfillmentCostsMember 2018-02-03 2018-08-03 0001468666 scwx:DeferredCommissionsMember 2018-02-03 2018-08-03 0001468666 scwx:DeferredFulfillmentCostsMember 2018-08-03 0001468666 scwx:DeferredCommissionsMember 2018-02-02 0001468666 scwx:DeferredCommissionsMember 2018-08-03 0001468666 scwx:DeferredFulfillmentCostsMember 2018-02-02 0001468666 scwx:ProfessionalServicesMember 2019-08-03 2019-08-02 0001468666 scwx:SubscriptionBasedSolutionsMember 2019-08-03 2019-08-02 0001468666 scwx:ProfessionalServicesMember 2019-05-04 2019-08-02 0001468666 scwx:SubscriptionBasedSolutionsMember 2018-05-05 2018-08-03 0001468666 scwx:SubscriptionBasedSolutionsMember 2018-02-03 2018-08-03 0001468666 scwx:SubscriptionBasedSolutionsMember 2019-02-02 2019-08-02 0001468666 scwx:SubscriptionBasedSolutionsMember 2019-05-04 2019-08-02 0001468666 scwx:ProfessionalServicesMember 2018-02-03 2018-08-03 0001468666 scwx:ProfessionalServicesMember 2018-05-05 2018-08-03 0001468666 scwx:ProfessionalServicesMember 2019-02-02 2019-08-02 0001468666 scwx:DeferredCommissionsMember 2018-05-05 2018-08-03 0001468666 scwx:DeferredCommissionsMember 2019-05-04 2019-08-02 0001468666 us-gaap:TechnologyBasedIntangibleAssetsMember 2019-02-01 0001468666 us-gaap:TradeNamesMember 2019-02-01 0001468666 us-gaap:CustomerRelationshipsMember 2019-08-02 0001468666 us-gaap:TradeNamesMember 2019-08-02 0001468666 us-gaap:CustomerRelationshipsMember 2019-02-01 0001468666 us-gaap:TechnologyBasedIntangibleAssetsMember 2019-08-02 0001468666 us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2015-11-02 0001468666 us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-02-02 2019-08-02 0001468666 us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2015-11-02 2015-11-02 0001468666 us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2019-08-02 0001468666 us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2019-02-01 0001468666 srt:MaximumMember 2019-02-02 2019-08-02 0001468666 srt:MinimumMember 2019-02-02 2019-08-02 0001468666 scwx:LeasedEquipmentMember 2019-05-04 2019-08-02 0001468666 scwx:LeasedFacilitiesMember 2019-02-02 2019-08-02 0001468666 srt:MaximumMember 2019-08-02 0001468666 scwx:LeasedFacilitiesMember 2019-05-04 2019-08-02 0001468666 scwx:LeasedEquipmentMember 2019-02-02 2019-08-02 0001468666 srt:MinimumMember 2019-08-02 0001468666 2018-09-26 0001468666 2019-03-26 0001468666 scwx:RestrictedStockAndRestrictedStockUnitsMember 2019-02-02 2019-08-02 0001468666 us-gaap:RestrictedStockUnitsRSUMember 2018-05-05 2018-08-03 0001468666 us-gaap:RestrictedStockUnitsRSUMember 2019-02-02 2019-08-02 0001468666 scwx:PerformanceCashAwardsMember 2019-02-02 2019-08-02 0001468666 scwx:PerformanceCashAwardsMember 2018-02-03 2018-08-03 0001468666 scwx:PerformanceCashAwardsMember 2018-05-05 2018-08-03 0001468666 us-gaap:RestrictedStockMember 2019-02-02 2019-08-02 0001468666 scwx:PerformanceCashAwardsMember 2019-05-04 2019-08-02 0001468666 us-gaap:RestrictedStockMember 2018-02-03 2018-08-03 0001468666 us-gaap:RestrictedStockMember 2019-05-04 2019-08-02 0001468666 us-gaap:RestrictedStockUnitsRSUMember 2018-02-03 2018-08-03 0001468666 us-gaap:RestrictedStockUnitsRSUMember 2019-05-04 2019-08-02 0001468666 scwx:LongTermIncentivePlan2016Member 2018-02-03 2019-02-01 0001468666 us-gaap:RestrictedStockMember 2018-05-05 2018-08-03 0001468666 scwx:RestrictedStockAndRestrictedStockUnitsMember 2018-02-03 2019-02-01 0001468666 srt:ProFormaMember 2019-02-02 2019-08-02 0001468666 scwx:DellInc.Member us-gaap:PrincipalOwnerMember 2019-02-01 0001468666 scwx:DellInc.Member us-gaap:PrincipalOwnerMember 2019-08-02 0001468666 scwx:DellInc.Member scwx:SolutionsPurchasesMember us-gaap:PrincipalOwnerMember 2019-02-02 2019-08-02 0001468666 scwx:DellInc.Member scwx:ContractsNotYetTransferredMember us-gaap:PrincipalOwnerMember 2019-05-04 2019-08-02 0001468666 scwx:DellInc.Member scwx:ContractsNotYetTransferredMember us-gaap:PrincipalOwnerMember 2018-02-03 2018-08-03 0001468666 scwx:DellInc.Member scwx:ContractsNotYetTransferredMember us-gaap:PrincipalOwnerMember 2019-02-02 2019-08-02 0001468666 scwx:EMCandVMwareMember us-gaap:SubsidiaryOfCommonParentMember 2018-05-05 2018-08-03 0001468666 scwx:DellInc.Member srt:ChiefExecutiveOfficerMember 2018-05-05 2018-08-03 0001468666 scwx:DellInc.Member us-gaap:PrincipalOwnerMember 2018-02-03 2018-08-03 0001468666 scwx:RSASecurityLLCAndPivotalSoftwareInc.Member us-gaap:SubsidiaryOfCommonParentMember 2019-02-02 2019-08-02 0001468666 scwx:DellInc.Member us-gaap:PrincipalOwnerMember 2019-05-04 2019-08-02 0001468666 scwx:DellInc.Member srt:ChiefExecutiveOfficerMember 2019-05-04 2019-08-02 0001468666 scwx:RSASecurityLLCAndPivotalSoftwareInc.Member us-gaap:SubsidiaryOfCommonParentMember 2018-05-05 2018-08-03 0001468666 scwx:DellInc.Member scwx:SolutionsPurchasesMember us-gaap:PrincipalOwnerMember 2018-05-05 2018-08-03 0001468666 scwx:RSASecurityLLCAndPivotalSoftwareInc.Member us-gaap:SubsidiaryOfCommonParentMember 2019-05-04 2019-08-02 0001468666 scwx:DellInc.Member us-gaap:PrincipalOwnerMember 2019-02-02 2019-08-02 0001468666 scwx:DellInc.Member 2019-08-02 0001468666 scwx:DellInc.Member scwx:SolutionsPurchasesMember us-gaap:PrincipalOwnerMember 2018-02-03 2018-08-03 0001468666 scwx:EMCandVMwareMember us-gaap:SubsidiaryOfCommonParentMember 2018-02-03 2018-08-03 0001468666 scwx:DellInc.Member scwx:ContractsNotYetTransferredMember us-gaap:PrincipalOwnerMember 2018-05-05 2018-08-03 0001468666 scwx:RSASecurityLLCAndPivotalSoftwareInc.Member us-gaap:SubsidiaryOfCommonParentMember 2018-02-03 2018-08-03 0001468666 scwx:DellAndEMCMember us-gaap:PrincipalOwnerMember 2019-05-04 2019-08-02 0001468666 scwx:DellAndEMCMember us-gaap:PrincipalOwnerMember 2018-02-03 2018-08-03 0001468666 scwx:EMCandVMwareMember us-gaap:SubsidiaryOfCommonParentMember 2019-05-04 2019-08-02 0001468666 scwx:DellInc.Member us-gaap:PrincipalOwnerMember 2018-05-05 2018-08-03 0001468666 scwx:DellInc.Member scwx:SolutionsPurchasesMember us-gaap:PrincipalOwnerMember 2019-05-04 2019-08-02 0001468666 scwx:EMCandVMwareMember us-gaap:SubsidiaryOfCommonParentMember 2019-02-02 2019-08-02 0001468666 scwx:DellInc.Member srt:ChiefExecutiveOfficerMember 2018-02-03 2018-08-03 0001468666 scwx:DellAndEMCMember us-gaap:PrincipalOwnerMember 2018-05-05 2018-08-03 0001468666 scwx:DellInc.Member srt:ChiefExecutiveOfficerMember 2019-02-02 2019-08-02 0001468666 scwx:DellAndEMCMember us-gaap:PrincipalOwnerMember 2019-02-02 2019-08-02 0001468666 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-08-02 0001468666 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-02-01 scwx:performance_obligation iso4217:USD xbrli:shares scwx:segment iso4217:USD xbrli:shares xbrli:pure
As of September 3, 2019, there were 81,202,365 shares of the registrant's common stock outstanding, consisting of 11,202,365 outstanding shares of Class A common stock and 70,000,000 outstanding shares of Class B common stock.
Condensed Consolidated Statements of Financial Position as of August 2, 2019 and February 1, 2019 (unaudited)
Condensed Consolidated Statements of Operations for the three months ended August 2, 2019 and August 3, 2018 (unaudited)
Condensed Consolidated Statements of Comprehensive Loss for the three months ended August 2, 2019 and August 3, 2018 (unaudited)
Condensed Consolidated Statements of Cash Flows for the three months ended August 2, 2019 and August 3, 2018 (unaudited)
Condensed Consolidated Statement of Stockholders' Equity for the three months ended August 2, 2019 and August 3, 2018 (unaudited)
Accounts receivable, net of allowances of $6,118 and $6,160, respectively
Common stock - Class A of $0.01 par value: 2,500,000 shares authorized; 11,203 and 11,016 issued and outstanding, respectively.
Common stock - Class B of $0.01 par value: 500,000 shares authorized; 70,000 shares issued and outstanding
Treasury stock, at cost - 1,257 and 819 shares, respectively
SecureWorks Corp. (individually and collectively with its consolidated subsidiaries, "Secureworks" or the "Company") is a leading global provider of technology-driven information security solutions singularly focused on protecting the Company's customers from cyber attacks.
On April 27, 2016, the Company completed its initial public offering ("IPO"). Upon the closing of the IPO, Dell Technologies Inc. ("Dell Technologies"), a parent holding corporation, owned, indirectly through Dell Inc. (individually and collectively with its consolidated subsidiaries, "Dell") and Dell Inc.'s subsidiaries, no shares of the Company's outstanding Class A common stock and all outstanding shares of the Company's outstanding Class B common stock, which as of August 2, 2019 represented approximately 86.2% of the Company's total outstanding shares of common stock and approximately 98.4% of the combined voting power of both classes of the Company's outstanding common stock.
The Company has one primary business activity, which is to provide customers with software-driven information security solutions. The Company's chief operating decision maker, who is the President and Chief Executive Officer, makes operating decisions, assesses performance, and allocates resources on a consolidated basis. There are no segment managers who are held accountable for operations and operating results below the consolidated unit level. Accordingly, Secureworks operates its business as a single reportable segment.
For the periods presented, Dell has provided various corporate services to the Company in the ordinary course of business, including finance, tax, human resources, legal, insurance, IT, procurement and facilities-related services. The costs of these services are charged in accordance with a shared services agreement that went into effect on August 1, 2015. For more information regarding the charges for these services and related party transactions, see "Note 11—Related Party Transactions."
During the periods presented in the financial statements, Secureworks did not file separate federal tax returns, as the Company is generally included in the tax grouping of other Dell entities within the respective 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 expected to be utilized by other members of the Dell consolidated group. See "Note 10—Income and Other Taxes" for more information.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the requirements of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statement presentation. The year-end condensed consolidated 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 statement have been included. All inter-company accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended February 1, 2019 included in Part II, Item 8 of the Company's Annual Report on Form 10-K filed with the SEC on March 28, 2019 (the "Annual Report").
The Company’s fiscal year is the 52- or 53-week period ending on the Friday closest to January 31. The Company refers to the fiscal year ending January 31, 2020 and the fiscal year ended February 1, 2019 as fiscal 2020 and fiscal 2019, respectively. Both fiscal 2020 and fiscal 2019 have 52 weeks, and each quarter has 13 weeks.
Leases—The Company adopted Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)," effective February 2, 2019. Accounting Standards Codification ("ASC") 842 "Leases" requires lessees to recognize operating lease right-of-use ("ROU") assets, representing their right to use the underlying asset for the lease term, and lease liabilities on the balance sheet for all leases with lease terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases. The Company adopted ASU 2016-02 using the modified retrospective method and utilized the optional transition method under which the Company will continue to apply the legacy guidance in ASC 840, including its disclosure requirements, in the comparative period presented. In addition, Secureworks elected the package of practical expedients permitted under the transition guidance which permits the following: a) carry forward the historical lease classification, b) not separate lease components from non-lease components within the Company's facility lease contracts, c) not present comparative periods but rather record a cumulative catch-up during fiscal 2020, and d) allow the Company to elect, by asset class, not to record on the balance sheet a lease whose term is twelve months or less including reasonably certain renewal options. As a result of the adoption for the fiscal year beginning February 2, 2019, the Company recorded initial operating lease ROU assets and operating lease liabilities, all related to real estate, of $28.0 million and $31.8 million, respectively.
Except for the accounting policies for leases, updated as a result of adopting ASC 842, there have been no significant changes to the Company’s significant accounting policies as of and for the three months ended August 2, 2019, as compared to the significant accounting policies described in the Annual Report.
Leases—The Company determines if any arrangement is, or contains, a lease at inception based on whether or not the Company has the right to control the asset during the contract period and other facts and circumstances. Secureworks is the lessee in a lease contract when the Company obtains the right to control the asset. Operating leases are included in the line items operating lease right-of-use assets, net; accrued and other; and operating lease liabilities, non-current in the condensed consolidated statements of financial position. Leases with a lease term of 12 months or less at inception are not recorded in the condensed consolidated statements of financial position and are expensed on a straight-line basis over the lease term in the condensed consolidated statements of operations. The Company determines the lease term by assuming the exercise of renewal options that are reasonably certain. As most of the Company's leases do not provide an implicit interest rate, Secureworks uses the Company's incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. When the Company's contracts contain lease and nonlease components, the Company accounts for both components as a single lease component. Refer to "Note 7 —Leases" for further discussion.
Intangibles - Goodwill and Other—In January 2017, the FASB issued ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." ASU 2017-04 eliminates Step 2 of the goodwill impairment test,
which required the Company to determine the implied fair value of goodwill by allocating the reporting unit's fair value to each of its assets and liabilities as if the reporting unit was acquired in a business acquisition. Instead, the updated guidance requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit to its carrying value, and recognizing a non-cash impairment charge for the amount by which the carrying value exceeds the reporting unit's fair value, with the loss not exceeding the total amount of goodwill allocated to that reporting unit. The updated guidance is effective for the Company for annual and interim periods beginning in the Company's 2021 fiscal year, with early adoption permitted, and will be applied on a prospective basis. The Company does not expect that the adoption of this standard will have a material impact on its consolidated financial statements.
Loss per share is calculated by dividing net loss for the periods presented by the respective weighted-average number of common shares outstanding, and excludes any share-based awards that may be anti-dilutive. Diluted loss per common share is computed by giving effect to all potentially dilutive common shares, including common stock issuable upon the exercise of stock options and unvested restricted common stock and restricted stock units. The Company applies the two-class method to calculate earnings per share. Because the Class A common stock and the Class B common stock share the same rights in dividends and earnings, earnings per share (basic and diluted) are the same for both classes. Since losses were incurred in all periods presented, all potential common shares were determined to be anti-dilutive.
The following table sets forth the computation of loss per common share (in thousands, except per share amounts):
Promises to provide services related to the Company's managed security subscription-based solutions are accounted for as a single performance obligation over an average period of two years. Performance obligations related to the Company's security and risk consulting professional service contracts are separate obligations associated with each service. Although the Company has many multi-year customer relationships for its various professional services, the arrangement is typically structured as separate performance obligations over the contract period and recognized over a duration of less than one year.
Managed Security Solutions revenue
Deferred revenue represents the aggregate amount of billing in advance of service delivery. Therefore, the Company invoices its customers based on a variety of billing schedules. The deferred revenue balance does not represent the total contract value of annual or multi-year, non-cancelable subscription agreements. During the six months ended August 2, 2019, on average, 57% of the Company's recurring revenue was billed in advance and approximately 43% was billed on either a monthly or a quarterly basis. In addition, many of the Company's professional services engagements are billed in advance of service commencement. The deferred revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration and invoice timing.
Changes to the Company's deferred revenue during the six months ended August 2, 2019 and August 3, 2018 are as follows (in thousands):
Upfront payments received and billings during the six months ended August 2, 2019
Revenue recognized during the six months ended August 2, 2019
The remaining performance obligation represents the transaction price allocated to contracted revenue that has not yet been recognized, which includes deferred revenue and non-cancellable contracts that will be invoiced and recognized as revenue in future periods. The remaining performance obligation consists of two elements: (i) the value of remaining services to be provided through the contract term for customers whose services have been activated ("active"); and (ii) the value of services contracted with customers that have not yet been installed ("backlog"). Backlog is not recorded in revenue, deferred revenue or elsewhere in the condensed consolidated financial statements until the Company establishes a contractual right to invoice, at which point it is recorded as revenue or deferred revenue, as appropriate. The Company applies the practical expedient in ASC paragraph 606-10-50-14(a) and does not disclose information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less.
The Company expects that the amount of backlog relative to the total value of its contracts will change from year to year due to several factors, including the amount invoiced at the beginning of the contract term, the timing and duration of the Company's customer agreements, varying invoicing cycles of agreements and changes in customer financial circumstances. Accordingly, fluctuations in backlog are not always a reliable indicator of future revenues.
As of August 2, 2019, the Company expects to recognize remaining performance obligations as follows (in thousands):
Changes in the balance of total deferred commission and total deferred fulfillment costs during the six months ended August 2, 2019 and August 3, 2018 are as follows (in thousands):
The Company did not record any impairment losses on the deferred commissions or deferred fulfillment costs during the three and six months ended August 2, 2019 and August 3, 2018.
Goodwill relates to the acquisition of Dell by Dell Technologies and represents the excess of the purchase price attributable to Secureworks over the fair value of the assets acquired and liabilities assumed. There were no additions, adjustments or impairments to goodwill during the periods presented. Accordingly, goodwill totaled $416.5 million as of August 2, 2019 and February 1, 2019.
Goodwill and indefinite-lived intangible assets are tested for impairment on an annual basis during the third fiscal quarter of each fiscal year, or earlier if an indicator of impairment occurs. The Company completed the most recent annual impairment test in the third quarter of fiscal 2019 by performing a quantitative assessment of goodwill at the reporting unit level. In performing this quantitative assessment, the Company, using a combination of discounted cash flows and market approach (comparable market prices) to determine fair value of the reporting unit, compared the fair value to its carrying value. The assumptions used in the valuation are consistent with those which the Company believes hypothetical market participants would use. On a quarterly basis, between each annual impairment test, the Company assesses various quantitative and qualitative factors that may be indicative of an impairment. Based on the Company's most recent evaluation, there were no indications of a potential impairment as of August 2, 2019.
The Company's intangible assets as of August 2, 2019 and February 1, 2019 were as follows:
Amortization expense related to finite-lived intangible assets was approximately $6.9 million and $13.9 million for each of the three and six months ended August 2, 2019 and August 3, 2018, respectively. Amortization expense is included within cost of revenue and general and administrative in the Condensed Consolidated Statements of Operations. There were no impairment charges related to intangible assets during the three and six months ended August 2, 2019 or August 3, 2018.
On November 2, 2015, SecureWorks, Inc., a wholly-owned subsidiary of SecureWorks Corp., entered into a revolving credit agreement with a wholly-owned subsidiary of Dell Inc. under which the Company obtained a $30 million senior unsecured revolving credit facility. This facility was initially available for a one-year term beginning on April 21, 2016 and was extended on the same terms for successive one-year terms ending on March 27, 2019. During the three months ended May 3, 2019, the facility was amended and restated to extend the maturity date to March 26, 2020 and to increase the annual rate at which interest accrues to the applicable London Interbank Offered Rate plus 1.50%. All other terms remained substantially the same.
The maximum amount of borrowings may be increased by up to an additional $30 million by mutual agreement of the lender and borrower. 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 SecureWorks Corp. or following a transaction in which SecureWorks, Inc. ceases to be a direct or indirect wholly-owned subsidiary of SecureWorks Corp. The facility is not guaranteed by SecureWorks Corp. or its subsidiaries. There was no outstanding balance under the credit facility as of August 2, 2019 or February 1, 2019.
Legal Contingencies—From time to time, the Company is involved in claims and legal proceedings that arise in the ordinary course of business. The Company accrues a liability when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. The Company reviews the status of such matters at least quarterly and adjusts its liabilities as necessary to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. Whether the outcome of any claim, suit, assessment, investigation or legal proceeding, individually or collectively, could have a material adverse effect on the Company's business, financial condition, results of operations or cash flows will depend on a number of factors, including the nature, timing and amount of any associated expenses, amounts paid in settlement, damages or other remedies or consequences. To the extent new information is obtained and the Company's views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in accrued liabilities would be recorded in the period in which such a determination is made. As of August 2, 2019, the Company does not believe that there were any such matters that, individually or in the aggregate, would have a material adverse effect on its business, financial condition, results of operations or cash flows.
Customer-based Taxation Contingencies—Various government entities ("taxing authorities") require the Company to bill its customers for the taxes they owe based on the services they purchase from the Company. The application of the rules of each taxing authority concerning which services are subject to each tax and how those services should be taxed involves the application of judgment. Taxing authorities periodically perform audits to verify compliance and include all periods that remain open under applicable statutes, which generally range from three to four years. These audits could result in significant assessments of past taxes, fines and interest if the Company were found to be non-compliant. During the course of an audit, a taxing authority may question the Company's application of its rules in a manner that, if the Company were not successful in substantiating its position, could result in a significant financial impact to the Company. In the course of preparing its financial statements and disclosures, the Company considers whether information exists that would warrant disclosure or an accrual with respect to such a contingency.
Indemnifications—In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to indemnify its customers from certain losses incurred by the customer as to third-party claims relating to the services performed on behalf of the Company or for certain losses incurred by the customer as to third-party claims arising from certain events as defined within the particular contract. Such indemnification obligations may not be subject to maximum loss clauses. Historically, payments related to these indemnifications have been immaterial.
Concentrations—The Company sells solutions to customers of all sizes primarily through its direct sales organization, supplemented by sales through channel partners. The Company had no customer that represented 10% or more of its net revenue for the three and six months ended August 2, 2019 or August 3, 2018.
The Company recorded operating lease cost for facilities of approximately $2.5 million and $3.9 million for the three and six months ended August 2, 2019, respectively, which included expenses of $1.2 million incurred in connection with the consolidation of certain facilities. The Company incurred additional variable lease costs of $0.3 million and $0.6 million for the three and six months ended August 2, 2019, respectively, which primarily consisted of utilities and common area charges.
The Company recorded operating lease cost of approximately $0.3 million and $0.7 million for the three and six months ended August 2, 2019, respectively, for equipment leases. Lease expense for equipment was included in cost of revenues. The Company also incurred costs for short-term equipment leases $0.3 million and $0.7 million for the three and six months ended August 2, 2019, respectively.
Cash paid for amounts included in the measurement of operating lease liabilities was $1.7 million and $3.4 million during the three and six months ended August 2, 2019.
Weighted-average information associated with the measurement of the Company’s remaining operating lease obligations is as follows:
The following table summarizes the maturity of the Company's operating lease liabilities as of August 2, 2019 (in thousands):
The Company's leases have remaining lease terms of 1 year to 8 years, inclusive of renewal or termination options that the Company is reasonably certain to exercise.
As of February 1, 2019, the Company had the following future minimum lease payments under non-cancelable leases prior to the adoption of the new lease standard:
On September 26, 2018, the Company's board of directors authorized a stock repurchase program, under which the Company is authorized to repurchase up to $15 million of the Company's Class A common stock through September 30, 2019. On March 26, 2019, the board of directors expanded the repurchase program to authorize the repurchase up to an additional $15 million of the Company's Class A common stock through May 1, 2020. Repurchases may be made from time to time through open market purchases, in privately negotiated transactions, or in other types of transactions. The timing and amount of any repurchases under the program will be determined by management based upon market conditions and other factors. During the six months ended August 2, 2019, the Company repurchased 438,380 shares of Class A common stock at an average price of $14.55, for an aggregate cost of $6.4 million. As of August 2, 2019, $10.1 million remained available for further purchases under the stock repurchase program.
NOTE 9 — STOCK-BASED COMPENSATION AND OTHER LONG-TERM PERFORMANCE INCENTIVES
The Company's board of directors adopted the SecureWorks Corp. 2016 Long-Term Incentive Plan (the "2016 Plan") effective April 18, 2016. The 2016 Plan provides for the grant of options, stock appreciation rights, restricted stock, restricted stock units, deferred stock units, unrestricted stock, dividend equivalent rights, other equity-based awards, and cash bonus awards. Awards may be granted under the 2016 Plan to individuals who are employees, officers, or non-employee directors of the Company or any of its affiliates, consultants and advisors who perform services for the Company or any of its affiliates, and any other individual whose participation in the 2016 Plan is determined to be in the best interests of the Company by the compensation committee of the board of directors. During Fiscal 2019, the 2016 Plan was amended to increase the total shares of Class A common stock available for issuance by an additional 4,000,000 shares.
Under the 2016 Plan, the Company granted 114,728 and 1,273,004 restricted stock units during the three and six months ended August 2, 2019, respectively, and 115,455 and 1,718,408 restricted stock units during the three and six months ended August 3, 2018, respectively. The Company granted no restricted stock awards for the three months ended August 2, 2019 and August 3, 2018, and 175,000 and 405,000 restricted stock awards during the six months ended August 2, 2019 and August 3, 2018, respectively. The annual restricted stock unit and restricted stock awards granted during fiscal 2020 and fiscal 2019 vest over a three-year period and approximately 50% of such awards are subject to performance conditions.
In March 2017, the Company began granting long-term performance cash awards to certain employees under the 2016 Plan. The employees who receive these performance cash awards do not receive equity awards as part of the long-term incentive program. The long-term performance cash awards are subject to various performance conditions and vest in equal annual installments over a three-year period. During the three and six months ended August 2, 2019, the Company granted long-term performance cash awards of $0.1 million and $6.7 million, respectively. The Company made no grants for the three months ended August 3, 2018 and granted $15.7 million for the six months ended August 3, 2018. The Company recognized $1.8 million and $3.5 million of related compensation expense for the three and six months ended August 2, 2019, respectively, and related compensation expense of $2.0 million and $3.5 million for the three and six months ended August 3, 2018, respectively.
NOTE 10 — INCOME AND OTHER TAXES
The Company's effective income tax rate for the three and six months ended August 2, 2019 and August 3, 2018 was as follows (in thousands, except percentages):