Prospectus Summary
PROSPECTUS SUMMARY This summary highlights information presented in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider before deciding whether to purchase shares of our Class A common stock. You should read the entire prospectus carefully in making your investment decision. You should carefully consider, among other information, our combined financial statements and the related notes and the information under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. Some of the statements in this summary contain forward-looking statements, as discussed under “Special Note Regarding Forward-Looking Statements.”Our fiscal year is the 52- or 53-week period ending on the Friday nearest January 31. Our 2015 fiscal year ended on January 30, 2015, our 2014 fiscal year ended on January 31, 2014 and our 2013 fiscal year ended on February 1, 2013. Our 2016 fiscal year will end on January 29, 2016.
SECUREWORKS CORP.
Our Mission
Our mission is to secure our clients by providing exceptional intelligence-driven information security solutions.
Overview
We are a leading global provider of intelligence-driven information security solutions exclusively focused on protecting our clients from cyber attacks. We have pioneered an integrated approach that delivers a broad portfolio of information security solutions to organizations of varying size and complexity. Our solutions enable organizations to fortify their cyber defenses to prevent security breaches, detect malicious activity in real time, prioritize and respond rapidly to security breaches and predict emerging threats. The solutions leverage our proprietary technologies, processes and extensive expertise in the information security industry which we have developed over 16 years of operations. As of October 30, 2015, we served over 4,100 clients across 61 countries. Our success in serving our clients has resulted in consistent recognition of our company as a market leader by industry research firms such as International Data Corporation and Forrester Research, Inc. Gartner, Inc. has recognized us as a Leader in its “Magic Quadrant for Managed Security Services” from 2007 to 2014.
Organizations of all sizes rely on information technologies to make their businesses more productive and effective. These technologies are growing in complexity and often include a combination of on-premise, cloud and hybrid environments which are connected to multiple networks and are increasingly accessed via mobile devices. As a result, protecting information from cyber threats has become progressively more challenging, IT security budgets are growing and cybersecurity has become a critical priority for senior executives and boards of directors. At the same time, cyber attacks, which are growing in frequency and sophistication, are increasingly initiated by cyber criminals, nation states and other highly skilled adversaries intent on misappropriating information or inflicting financial and reputational damage. The challenge of information security is compounded by the proliferation of new regulations and industry-specific compliance requirements mandating that organizations maintain the integrity and confidentiality of their data.
These increasing cybersecurity challenges have created a large and fragmented market for IT security products and services. We believe that many organizations remain vulnerable to cyber attacks because they lack sufficient internal expertise in cybersecurity and rely on a collection of uncoordinated “point” products that address specific security issues but fall short in identifying and defending against next-generation cyber threats. As a result, these organizations engage information security services providers as part of their IT security strategy. Traditional security services providers, however, often lack a broad perspective on the threat landscape, are unable to scale their services to match the security needs of organizations, fail to provide actionable security information, focus only on a subset of the security needs of organizations or have limited deployment options.
Our intelligence-driven information security solutions offer an innovative approach to prevent, detect, respond to and predict cybersecurity breaches. Through our managed security offerings, we provide global visibility and insight into malicious activity, enabling our clients to detect and effectively remediate threats quickly. Threat intelligence, which is typically deployed as part of our managed security offerings, delivers early warnings of vulnerabilities and threats along with actionable information to help prevent any adverse impact. Through security and risk consulting, we advise clients on a broad range of security and risk-related matters. Incident response, which is typically deployed along with security and risk consulting, minimizes the impact and duration of security breaches through proactive client preparation, rapid containment and thorough event analysis followed by effective remediation.
Our proprietary Counter Threat Platform constitutes the core of our intelligence-driven information security solutions. This platform is purpose-built to provide us with global visibility into the threat landscape and a powerful perspective on our clients’ network environments. Each day, from our clients across the globe, it aggregates as many as 150 billion “network events,” which are events that possibly indicate anomalous activity or trends on a client’s network. Our platform analyzes these events with sophisticated algorithms to discover malicious activity and deliver security countermeasures, dynamic intelligence and valuable context regarding the intentions and actions of cyber adversaries. The platform leverages our intelligence gained over 16 years of processing and handling network events, the exclusive research on emerging threats and attack techniques conducted by our Counter Threat Unit research team and the extensive experience and deep understanding of the nature of cyber threats of our highly trained security analysts. We incorporate this intelligence into the platform on a real-time basis to provide additional context regarding “security events” or “threat events,” which represent malicious activity potentially compromising the security of a network, and to enhance the quality of the actionable security information we provide. The improved intelligence augments the value and drives broader adoption of our solutions, which in turn enables us to analyze yet more security information generated by a larger client base and increase the effectiveness of our protective and incident response measures.
We believe that our singular focus on providing a comprehensive portfolio of information security solutions makes us a trusted advisor and an attractive partner for our clients. Our flexible deployment model allows us to support the evolving needs of the largest, most sophisticated enterprises staffed with in-house security experts, as well as small and medium-sized businesses and government agencies with limited in-house capabilities and resources. Our vendor-neutral approach enables our clients to enhance their evolving IT security infrastructure, appliances and “best of breed” technologies with our solutions and capabilities, which provide our clients with both a comprehensive and highly effective security defense posture.
We have experienced significant growth since our inception. We generate revenue from our managed security and threat intelligence solutions through subscription-based arrangements, which provide us with a highly visible and recurring revenue stream, as well as revenue from our security and risk consulting engagements through fixed-price or retainer-based contracts. Our total revenue was $262.1 million in fiscal 2015, $205.8 million in fiscal 2014 and $172.8 million in fiscal 2013, for annual growth of 27% and 19%, respectively. For the first nine months of fiscal 2016 and fiscal 2015, our total revenue was $245.4 million and $190.7 million, respectively, representing a 29% growth rate. Our subscription revenue was $207.2 million in fiscal 2015, $170.2 million in fiscal 2014 and $145.1 million in fiscal 2013, for annual growth of 22% and 17%, respectively. For the first nine months of fiscal 2016 and fiscal 2015, our subscription revenue totaled $195.6 million and $149.9 million, respectively, representing a 31% growth rate. We incurred net losses of $38.5 million in fiscal 2015, $44.5 million in fiscal 2014 and $41.5 million in fiscal 2013. For the first nine months of fiscal 2016 and fiscal 2015, we incurred net losses of $57.5 million and $29.5 million, respectively.
Industry Background
Organizations of all sizes are using new information technologies to make their businesses more productive and effective.
Organizations of all sizes rely on information technologies to make their businesses more productive and effective. Modern IT infrastructures are growing in complexity and often include a combination of on-premise, cloud and hybrid environments. In addition, the adoption of mobile computing allows access to critical business information from various devices and locations. The widespread adoption of these advanced IT architectures, along with the rapid growth of connected devices and new ways of delivering IT services, enables organizations to benefit from business applications that are more powerful and easier to deploy, use and maintain.
This rapidly evolving IT environment is increasingly vulnerable to frequent and sophisticated cyber attacks.
The evolving landscape of applications, modes of communication and IT architectures makes it increasingly challenging for businesses to protect their critical business assets from cyber threats. New technologies heighten security risks by increasing the number of ways a threat actor can attack a target by giving users greater access to important business networks and information and by facilitating the transfer of control of underlying applications and infrastructure to third-party vendors. Cyber attacks have evolved from computer viruses written by amateur hackers into highly complex and targeted attacks led by highly skilled adversaries intent on stealing information or causing financial and reputational damage.
The severe economic and reputational impact of attacks, coupled with growing regulatory burdens, makes cybersecurity defense increasingly a priority for senior management and boards of directors.
In the wake of numerous recent high-profile data breaches, organizations are increasingly aware of the financial and reputational risks associated with IT security vulnerabilities. We believe that the cybersecurity programs at many organizations do not rival the persistence, tactical skill and technological prowess of today’s cyber adversaries. Security breaches can be highly public and result in reputational damage and legal liability as well as large losses in productivity and revenue. Many organizations are particularly concerned about attacks that attempt to misappropriate sensitive and valuable business information. Adding to the urgency of the IT security challenge, new regulations and industry-specific compliance requirements direct organizations to design, implement, document and demonstrate controls and processes to maintain the integrity and confidentiality of information transmitted and stored on their systems.
The traditional cybersecurity approach of using numerous “point” products often fails to detect threats and block attacks.
Information systems at many organizations are vulnerable to breach because they rely on a collection of uncoordinated “point” security products that address security risks in a piecemeal fashion rather than in a proactive and coordinated manner. An effective cyber defense strategy requires the coordinated deployment of multiple products and services tailored to an organization’s specific security needs. Point products, however, primarily address security issues in a reactive manner, employing passive auditing or basic blocking techniques, and often lack integration and intelligent monitoring capabilities and management within a common framework necessary to provide effective information security throughout an organization.
Identifying and hiring qualified security professionals is a significant challenge for many organizations.
The difficulty in providing effective information security is exacerbated by the highly competitive environment for identifying, hiring and retaining qualified information security professionals.
As a result, organizations engage information security services vendors to integrate, monitor and manage their point products to enhance their defense against cyber threats.
Because many organizations cannot adequately protect their networks from cyber threats, they are augmenting their IT security strategies to include information security services. By using these services, organizations seek to decrease their vulnerability to security breaches, increase the effectiveness of their existing investments in security products and free their own IT staff to focus on other responsibilities.
Traditional information security services vendors, however, often fail to satisfy the IT security needs of organizations, many of which seek the advantages of our solutions.
Gartner, Inc. estimates that the size of the combined Enterprise Security Services IT Outsourcing and consulting services markets was $25.0 billion in 2013 and expects it to grow at a compound annual growth rate of 11% to $47.4 billion in 2019. Frost & Sullivan estimates that sales of managed security services were $6.9 billion globally and $1.8 billion in North America in 2013, and expects sales to grow to $12.8 billion globally and $3.3 billion in North America in 2018, representing a compound annual growth rate of 13% and 12%, respectively. Recognizing the weaknesses of many traditional information security services vendors, organizations of all sizes are engaging us to help improve their defensive posture and manage their day-to-day exposure to cyber threats.
Our Solutions
Our Counter Threat Platform constitutes the core of our intelligence-driven information security solutions and provides our clients with a powerful integrated perspective and intelligence regarding their network environments and security threats. Our integrated suite of solutions includes:
The key capabilities of our solutions include:
Global Visibility. We have global visibility into the cyber threat landscape through our work for over 4,100 clients across 61 countries as of October 30, 2015. We are able to gain real-time insights that enable us to predict, detect and respond to threats quickly and effectively. We also are able to identify threats originating within a particular geographic area or relating to a particular industry and proactively leverage this threat intelligence to protect other clients against these threats.
Scalable Platform with Powerful Network Effects. Our proprietary Counter Threat Platform features a multi-tenant and distributed architecture that enables our software to scale and to provide faster performance while efficiently utilizing its underlying infrastructure. The platform analyzes as many as 150 billion daily network events from across our global client base to provide real-time risk assessment and rapid response. It is highly automated and processes an increasing percentage of events—over 99% as of October 30, 2015—without the need for human intervention. As our client base increases, our platform is able to analyze more events, and the intelligence derived from the additional events makes the platform more effective, which in turn drives broader client adoption and enhances the value of our solutions to both new and existing clients.
Contextual and Predictive Threat Intelligence. Our proprietary and purpose-built technology analyzes and correlates billions of network events using advanced analytical tools and sophisticated algorithms to generate threat intelligence. This intelligence is augmented by our Counter Threat Unit research team, which conducts research into threat actors, uncovers new attack techniques, analyzes emerging threats and evaluates the risks posed to our clients. Applying this intelligence across our solutions portfolio provides clients with deeper insights and enriched context regarding tactics, techniques and procedures employed by those threat actors.
Integrated, Vendor-Neutral Approach. Our solutions are designed to monitor alerts, logs and other messages across multiple stages of the threat lifecycle by integrating a wide array of proprietary and third-party security products. This vendor-neutral approach allows us to aggregate events from a wide range of security and network devices, applications and endpoints to enhance our understanding of clients’ networks and increase the effectiveness of our monitoring solutions.
Flexible Solution and Delivery Options. Our intelligence-driven information security solutions are purpose-built to serve a broad array of evolving client needs regardless of a client’s size or the complexity of its security infrastructure. Our clients may subscribe to any combination of our solutions and also choose how much control they will maintain over their IT security infrastructure by selecting among our fully-managed, co-managed or monitored solution delivery options. Our flexible approach enables clients to tailor our solutions to reduce large and risky investments and costly implementations and to ensure quick and easy deployment.
Our Competitive Strengths
We believe that the following key competitive advantages will allow us to maintain and extend our leadership position in providing intelligence-driven information security solutions:
A Leader in Intelligence-Driven Information Security Solutions. We are a global leader in providing intelligence-driven information security solutions and believe that we have become a mission-critical vendor to many of the large enterprises, small and medium-sized businesses and U.S. state and local government agencies we serve. Our position as a technology and market leader enhances our brand and enables us to influence organizations’ purchasing decisions as they look for a comprehensive solution.
Purpose-Built, Proprietary Technology. At the core of our solutions is the Counter Threat Platform, a proprietary technology platform we have developed during our 16 years of operations. This platform collects, correlates and analyzes billions of daily network events and data points, and generates enriched security intelligence on threat actor groups and global threat indicators.
Specialist Focus and Expertise. We have built our company, technology and culture with a singular focus on protecting our clients by delivering intelligence-driven information security solutions. We believe this continued focus reinforces our differentiation from other information security services vendors, including telecommunications and network providers, IT security product companies and local and regional information security services providers.
Strong Team Culture. At our company, the fight against sophisticated and malicious cybersecurity threats is a personal one, and we take great pride in helping our clients protect their critical business data and processes. We dedicate significant resources to ensure that our culture and brand reflect our exclusive focus on protecting our clients.
Seasoned Management Team and Extensive IT Security Expertise. We have a highly experienced and tenured management team with extensive IT security expertise and a record of developing successful new technologies and solutions to help protect our clients.
Our Growth Strategy
Our goal is to be the global leader of intelligence-driven information security solutions. To pursue our growth strategy, we seek to:
Maintain and extend our technology leadership: We intend to enhance our leading intelligence-driven integrated suite of solutions by adding complementary solutions that strengthen the security posture of our clients, such as security solutions for cloud-based environments. We intend to meet this goal by investing in research and development, increasing our global threat research capabilities and hiring personnel with extensive IT security expertise.
Expand and diversify our client base: We intend to continue to grow our client base, both domestically and internationally, by investing in our direct sales force, further developing our strategic and distribution relationships, pursuing opportunities across a broad range of industries and creating new cloud-based solutions. We also intend to continue increasing our geographic footprint to further enhance our deep insight into the global threat landscape and our ability to deliver comprehensive threat intelligence to our clients.
Deepen our existing client relationships: We intend to leverage the strong client relationships and high client satisfaction from across our client base to sell additional solutions to existing clients. We will continue to invest in our account management, marketing initiatives and client support programs in seeking to achieve high client renewal rates, help clients realize greater value from their existing solutions and encourage them to expand their use of our solutions over time.
Attract and retain top talent: Our technology leadership, brand, exclusive focus on information security, client-first culture and robust training and development program have enabled us to attract and retain highly talented professionals with a passion for building a career in the information security industry. We will continue to invest in attracting and retaining top talent to support and enhance our information security offerings.
Risks Associated with Our Business
Our business is subject to numerous risks, including those discussed under “Risk Factors” beginning on page 13 immediately following this prospectus summary. These risks could materially and adversely affect our business, financial condition, operating results and prospects, which could cause the trading price of our Class A common stock to decline and could result in a partial or total loss of your investment.