SecureWorks Corp. (NASDAQ:SCWX) Q2 2020 Earnings Conference Call Transcript

Sep 05, 2019 • 08:00 am ET

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SecureWorks Corp. (NASDAQ:SCWX) Q2 2020 Earnings Conference Call Transcript

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Presentation
Executive
Michael R. Cote

transition and bringing our vision of more effective and efficient security operations to life.

I will now turn it over to Wayne to talk about our second quarter performance in more detail. Wayne?

Executive
Wayne Jackson

Thanks, Mike, and good morning, everyone. Our second quarter results were positive and we continue to maintain our strong financial position as we invest in our new software driven security solutions and our go-to market efforts. In the second quarter of FY '20, revenue was $136.6 million, a 6.1% increase over Q2 FY '19 and a 2.8% increase sequentially. Second quarter revenue exceeded our guidance range. EBITDA was $1.3 million ahead of our expectations driven by higher gross margins and we generated $16.3 million of cash from operations in the quarter, primarily on improved DSO.

Our average annual subscription revenue per customer was $106,000 this quarter, growing 5.5% over last year. We close nine deals with total contract value greater than $1 million in the second quarter. We exited the quarter with annual recurring revenue of $437.6 million, consulting revenue grew 11.5% year-over-year and comprise 24.8% of total revenue for the quarter.

We anticipate our subscription to consulting revenue mix will continue around the 75% level next quarter. As the incident response and other consulting services continue to be an important component of a comprehensive security solution for our customers. Finally, revenue outside the U.S. represented 26% of total revenue in the second quarter, up from 22% of total revenue in Q2 last year on consistently strong growth in the UK, Middle East and Japan. Gross margin totaled $77 million in the second quarter of FY '20 or 56.3% of revenue, a 200 basis point increase from the prior year. Second quarter operating expenses total $79.3 million, compared with $72.2 million last year, a 201 basis point increase as a percentage of revenue.

Research and development expenses totaled 17.5% of revenue in the quarter, compared with 16.7% for Q2 FY '19, an 80 basis point year-over-year increase driven by incremental investments in our software app in platform development activities. Sales and marketing expense were approximately 27.2% of revenue in the second quarter, compared with 27% for prior year Q2.

General and administrative expenses totaled 13.4% of revenue in the second quarter, compared with 12.4% for the same quarter last year. Current G&A costs include a charge for the consolidation of some real estate leases, which is the primary driver for the increase in costs as a percentage of revenue. Adjusted EBITDA in Q2 was $1.3 million, compared with $1 million last year. Non-GAAP net loss was $700,000 compared with a net loss of $900,000 in Q2 last year, and non-GAAP loss per share was $0.01 in both current and prior year.

Regarding cash flow and balance sheet items, as I mentioned, cash flow provided by operating activities was $16.3 million in the second quarter and $13.2 million year-to-date, compared with $10.9 million of cash provided by operation -- operating activities in the first half of last year.