Secureworks’ Transformation Amid Evolving Cybersecurity Landscape

Secureworks, a leading global cybersecurity provider, has navigated a dynamic market landscape in recent quarters as it continues its strategic shift towards its innovative Taegis security platform. The company’s financial results for the three and nine months ended November 1, 2024 reflect both the progress made in this transformation as well as the challenges it faces.

Subscription Revenue Shift Towards Taegis

Secureworks’ revenue mix has undergone a significant shift, with subscription revenue now accounting for 86% of total revenue in the third quarter of fiscal 2025, up from 84% in the prior year period. This reflects the company’s strategic focus on growing its Taegis subscription solutions, which represented all of the subscription revenue in Q3 2025.

The Taegis subscription customer base stood at 1,900 as of November 1, 2024, down slightly from 2,000 a year earlier. However, the average subscription revenue per Taegis customer increased 10.7% year-over-year to $154,000, indicating that Secureworks is successfully expanding its footprint with existing customers.

In contrast, revenue from the company’s legacy Managed Security Services offerings declined significantly, dropping to zero in Q3 2025 as Secureworks completed the exit from this non-strategic business. This transition has impacted the total customer base, which decreased from 4,300 to 3,000 over the same period.

The shift towards Taegis has had a positive impact on Secureworks’ gross margins. Subscription gross margin increased 680 basis points to 72.2% in Q3 2025, reflecting the higher profitability of the Taegis solutions compared to the Managed Security Services. On a non-GAAP basis, subscription gross margin expanded by 390 basis points to 74.9%.

Investing in Innovation and Talent

Secureworks continues to invest heavily in research and development to drive innovation and maintain its technology leadership in the evolving cybersecurity landscape. R&D expenses decreased 7.6% in Q3 2025 and 16.4% in the first nine months of the fiscal year, as a percentage of revenue, as the company optimized its organizational structure.

The company is also focused on attracting and retaining top talent to support its security solutions. While sales and marketing expenses declined as a percentage of revenue, Secureworks has emphasized the importance of its people in delivering effective cybersecurity services to customers.

Profitability Improvement and Merger Announcement

Secureworks’ bottom-line performance has shown signs of improvement, with the company reporting non-GAAP net income of $0.2 million in Q3 2025, compared to a non-GAAP net loss of $7,000 in the prior year period. For the first nine months of fiscal 2025, non-GAAP net income was $4.1 million, a significant turnaround from the $25.8 million non-GAAP net loss in the same period of fiscal 2024.

This profitability improvement can be attributed to the company’s focus on its higher-margin Taegis solutions, as well as its ongoing cost optimization efforts. Adjusted EBITDA, a non-GAAP metric, also turned positive in the first nine months of fiscal 2025, reaching $8.1 million, compared to a loss of $31.7 million in the prior year period.

Notably, during the third quarter, Secureworks announced that it had entered into a definitive agreement to be acquired by Sophos Inc., an affiliate of investment funds managed by Thoma Bravo, L.P. The all-cash transaction, valued at $8.50 per share, is expected to close in early 2025, subject to regulatory approvals and other customary closing conditions.

Liquidity and Capital Resources

As of November 1, 2024, Secureworks had $53.1 million in cash and cash equivalents on its balance sheet. The company also maintains a $50 million revolving credit facility with Dell, which remained undrawn as of the end of the third quarter.

Cash used in operating activities decreased significantly to $0.5 million in the first nine months of fiscal 2025, compared to $69.9 million in the same period of the prior year. This improvement aligns with the company’s decreased operating loss during the period.

Investing activities, primarily related to the development of the Taegis platform, used $6.5 million in cash, up from $5.0 million in the prior year period. Financing activities, consisting mainly of employee tax withholding payments on restricted stock awards, used $7.3 million in cash.

Outlook and Risks

Secureworks’ transformation towards its Taegis security platform has been a key focus, and the company believes this strategic shift will drive long-term revenue growth and improved profitability. However, the company operates in a highly competitive and rapidly evolving cybersecurity market, which presents both opportunities and risks.

The company’s ability to continue innovating and introducing new security solutions, as well as its success in expanding its customer base and deepening relationships with existing customers, will be critical to its future performance. Secureworks also faces the challenge of attracting and retaining top talent in the highly competitive cybersecurity industry.

Additionally, the pending acquisition by Sophos Inc. introduces new risks, as the completion of the transaction is subject to various conditions and regulatory approvals. If the merger is delayed or not completed, Secureworks could face a range of potential challenges, including market price declines, business disruptions, and the need to pay a termination fee.

Conclusion

Secureworks’ financial results for the three and nine months ended November 1, 2024 demonstrate the progress it has made in its strategic transformation, with a focus on growing its higher-margin Taegis subscription solutions and improving profitability. However, the company continues to navigate a dynamic cybersecurity landscape and faces both opportunities and risks as it works to execute its long-term strategy.

The pending acquisition by Sophos Inc. adds an additional layer of uncertainty, and the successful completion of the transaction will be crucial for Secureworks’ future. As the company moves forward, its ability to innovate, expand its customer base, and attract top talent will be key drivers of its long-term success.