SecureWorks
Annual Report 2018

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K (Mark One) þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended February 2, 2018oro TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934For the transition period from to Commission file number: 001-37748SecureWorks Corp.(Exact name of registrant as specified in its charter)Delaware 27-0463349(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)One Concourse Parkway NE Suite 500, Atlanta, Georgia 30328(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (404)327-6339Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredClass A Common Stock, par value $0.01 per share The NASDAQ Stock Market LLC(NASDAQ Global Select Market)Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No RIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No RIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. RIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. Seethe definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.Large accelerated filer ¨ Accelerated filer þNon-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨ Emerging growth company þIf an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. þIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þAs of August 4, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $104.2 million (based on the closing price of $10.70 per share of Class A common stock reported on the NASDAQ Global Select Market on that date).As of March 26, 2018, there were 81,772,505 shares of the registrant’s common stock outstanding, consisting of 11,772,505 outstanding shares of Class A common stock and70,000,000 outstanding shares of Class B common stock.DOCUMENTS INCORPORATED BY REFERENCEThe information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the registrant’s proxy statement relating to the annual meeting ofstockholders in 2018. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.TABLE OF CONTENTS PAGE PART I Item 1 Business 4 Item 1A Risk Factors 19 Item 1B Unresolved Staff Comments 40 Item 2 Properties 40 Item 3 Legal Proceedings 41 Item 4 Mine Safety Disclosures 41PART II Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 42 Item 6 Selected Financial Data 44 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 45 Item 7A Quantitative and Qualitative Disclosure About Market Risk 63 Item 8 Financial Statements and Supplementary Data 64 Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 96 Item 9A Controls and Procedures 96 Item 9B Other Information 97PART III Item 10 Directors, Executive Officers and Corporate Governance 98 Item 11 Executive Compensation 98 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 98 Item 13 Certain Relationships and Related Transactions, and Director Independence 99 Item 14 Principal Accounting Fees and Services 99PART IV Item 15 Exhibits, Financial Statement Schedules 100 Item 16 Form 10-K Summary 103SIGNATURES 104CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSThis report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the SecuritiesExchange Act of 1934. The words “may,” “will,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “aim,” “seek” and similar expressions as they relate tous or our management are intended to identify these forward-looking statements. All statements by us regarding our expected financial position, revenues,cash flows and other operating results, business strategy, legal proceedings, and similar matters are forward-looking statements. Our expectations expressed orimplied in these forward-looking statements may not turn out to be correct. Our results could be materially different from our expectations because of variousrisks, including the risks discussed in this report under “Part I – Item 1A – Risk Factors” and in our other periodic and current reports filed with the Securitiesand Exchange Commission. Any forward-looking statement speaks only as of the date as of which such statement is made, and, except as required by law, weundertake no obligation to update any forward-looking statement after the date as of which such statement was made, whether to reflect changes incircumstances or our expectations, the occurrence of unanticipated events, or otherwise.3Except where the context otherwise requires or where otherwise indicated, all references in this report to “Secureworks,” “we.” “us,” “our” and “ourcompany” refer to SecureWorks Corp. and our subsidiaries on a consolidated basis, and all references to “Dell” refer to Dell Inc. and its subsidiaries on aconsolidated basis.Our fiscal year is the 52- or 53-week period ending on the Friday nearest January 31. Our 2018 fiscal year ended on February 2, 2018, our 2017 fiscal yearended on February 3, 2017 and our 2016 fiscal year ended on January 29, 2016.Part IItem 1. BusinessOur MissionOur mission is to protect organizations in the digitally connected world.OverviewWe are a leading global cybersecurity company that protects organizations in the digitally connected world. We combine visibility from thousands of clients,machine learning and automation from our industry-leading SecureWorks Counter Threat PlatformTM, and actionable insights from our team of eliteresearchers, analysts and consultants to create a powerful network effect that provides increasingly strong protection for our clients. By aggregating andanalyzing data from various sources around the world, we prevent security breaches, detect malicious activity in real time, respond rapidly and predictemerging threats.Our mission is to unlock the value of our clients’ security investments by simplifying their complex security operations and amplifying their defenses.Through our vendor-neutral approach, we create integrated and comprehensive solutions by proactively managing the collection of “point” productsdeployed by our clients to address specific security issues and provide supplemental solutions where gaps exist in our clients’ defenses. We customize theright level of security for each client's unique situation, which evolves as the client's organization grows and changes.We have pioneered an integrated approach that delivers a broad portfolio of information security solutions to organizations of varying size and complexity.Our flexible and scalable solutions support the evolving needs of the largest, most sophisticated enterprises staffed with in-house security experts, as well assmall and medium-sized businesses and government agencies with limited in-house capabilities and resources.Our solutions enable organizations to:•prevent security breaches by fortifying their cyber defenses,•detect malicious activity,•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 overmore than 18 years. Key elements of our strategy include:•maintain and extend our technology leadership,•expand and diversify our client base,•deepen our existing client relationships, and•attract and retain top talent.As of February 2, 2018, we served approximately 4,400 clients across 59 countries. Our success in serving our clients has resulted in consistent recognition ofour company as a market leader in managed security services by leading industry research firms.4The fees we charge for our solutions vary based on a number of factors, including the solutions selected, the number of client devices covered by the selectedsolutions, and the level of management we provide for the solutions. Historically, approximately 80% of our revenue was derived from subscription-basedsolutions, provided under managed security services, while approximately 20% was derived from professional services engagements. As we respond to theevolving needs of our clients, the relative mix of subscription-based solutions and professional services we provide our clients may fluctuate.Corporate InformationWe are a holding company that conducts operations through our wholly-owned subsidiaries. The mailing address of our principal executive offices is OneConcourse Parkway NE, Suite 500, Atlanta, Georgia 30328. Our telephone number at that address is (404) 327-6339.The predecessor company of SecureWorks Corp. was originally formed as a limited liability company in Georgia in March 1999, and SecureWorks wasincorporated in Georgia in May 2009. In February 2011, SecureWorks was acquired by Dell Inc. In November 2015, our company reincorporated fromGeorgia to Delaware and, in connection with the reincorporation, changed its name from SecureWorks Holding Corporation to SecureWorks Corp. On April27, 2016, SecureWorks completed its initial public offering, or IPO. Upon the closing of the IPO, Dell Technologies Inc., the ultimate parent company of Dell,Inc., owned indirectly through Dell Inc. and Dell Inc.’s subsidiaries no shares of our outstanding Class A common stock and all shares of our outstandingClass B common stock, which as of February 2, 2018 represented approximately 86.3% of our total outstanding shares of common stock and approximately98.4% of the combined voting power of both classes of our outstanding common stock.We maintain a corporate Internet website at www.secureworks.com. We make available free of charge through our website our annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically filethe reports with, or furnish the reports to, the Securities and Exchange Commission. Information appearing on, or that can be accessed through, our website isnot a part of this report.Industry BackgroundIncreasing cybersecurity challenges have created a large and fragmented market for IT security products and services.We believe that many organizations that use the information technology, or IT, security products and services available in the market remain vulnerable tocyber attacks because they rely on a collection of uncoordinated “point” products that address specific security issues but fall short in identifying anddefending against next-generation cyber threats.Organizations of all sizes are using new information technologies to make their businesses more productive and effective.Modern IT infrastructures are growing in complexity and often include a combination of on-premises, cloud and hybrid environments. In addition, theadoption of mobile computing allows access to critical business information from various devices and locations. The widespread adoption of these advancedIT architectures, along with the rapid growth of connected devices and new ways of delivering IT services, enables organizations to benefit from businessapplications 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 theircritical business assets from cyber threats. New technologies heighten security risks by increasing the number of ways a threat actor can attack a target bygiving users greater access to important business networks and information and by facilitating the transfer of control of underlying applications andinfrastructure 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 adversariesintent on stealing information or causing financial and reputational damage.5The economic and reputational impact of attacks, coupled with growing regulatory requirements, makes cybersecurity defense increasingly a priority forsenior management and boards of directors.In the wake of numerous high-profile data breaches, organizations are increasingly aware of the financial and reputational risks associated with IT securityvulnerabilities. We believe that the cybersecurity programs of most organizations do not rival the persistence, tactical skill and technological prowess oftoday’s cyber adversaries. As a result, cyber attacks are successfully breaching organizations’ networks. Security breaches can be highly public and result inreputational damage and legal liability as well as large losses in productivity and revenue. Many organizations are particularly concerned about attacks thatattempt 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 andconfidentiality of information received 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 addresssecurity risks in a piecemeal fashion rather than in a proactive and coordinated manner. An effective cyber defense strategy requires the coordinateddeployment of multiple products and services tailored to an organization’s specific security needs. Point products, however, primarily address security issuesin a reactive manner by employing passive auditing or basic blocking techniques, and often lack the integration and intelligent monitoring capabilities andmanagement within a common framework necessary to provide effective information security throughout an organization.Identifying and hiring qualified security professionals are significant challenges for many organizations.The difficulty in providing effective information security is exacerbated by the highly competitive environment for identifying, hiring and retainingqualified information security professionals.As a result, organizations engage information security services vendors to integrate, monitor and manage their point products to enhance their defensesagainst cyber threats.Because many organizations cannot adequately protect their networks from cyber threats, they are augmenting their IT security strategies to includeinformation security services. By using these services, organizations seek to decrease their vulnerability to security breaches, increase the effectiveness oftheir 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, causing many of them to seek theadvantages of our solutions.Many organizations lack sufficient internal cybersecurity expertise to keep pace with the rapidly evolving threat landscape. As a result, these organizationsengage the support of information security services providers as part of their IT security strategy. However, traditional information security services offeredby telecommunications providers, security product vendors, large IT outsourcing firms and small regional providers often lack a broad perspective on thethreat landscape, are unable to scale their services to match organizations’ data processing requirements, fail to provide actionable security information, focusonly on a subset of organizations’ security needs or have limited deployment options.Our intelligence-driven information security solutions, as described below, offer an innovative approach to prevent, detect, respond to and predictcybersecurity breaches. We believe that our singular focus on providing a comprehensive portfolio of information security solutions makes us a trustedadvisor and an attractive partner for our clients. This focus enables us to pursue a go-to-market strategy that addresses the diverse needs of our clients aroundthe world. Our vendor-neutral approach enables our clients to enhance their evolving IT security infrastructure, appliances and best of breed technologieswith our solutions and capabilities, which together provide our clients with both a comprehensive and highly-effective security defense posture.6Our SolutionsOur Counter Threat PlatformTM constitutes the core of our intelligence-driven information security solutions and provides our clients with a powerfulintegrated perspective regarding their network environments and security threats. Our integrated suite of solutions includes:▪Managed security, through which we provide our clients global visibility and insight into malicious activity enabling them to detect and effectivelyremediate threats quickly ▪Threat intelligence, through which we deliver early warnings of vulnerabilities and threats, along with actionable information to help prevent anyadverse impact ▪Security and risk consulting, through which we advise our clients on a variety of security and risk-related matters, such as how to design and buildstrategic security programs, assess and test security capabilities and meet regulatory requirements▪Incident response, through which we help our clients minimize the impact and duration of security breaches through proactive client preparation,rapid containment and thorough event analysis followed by effective remediationAs part of our security and risk consulting solutions, we emphasize cloud security, through which we help clients deliver cloud-based services securely.Our clients may subscribe to our full suite of solutions or elect to subscribe to various combinations of our individual solutions. All of our solutions areenabled by our Counter Threat Platform and our large team of highly-skilled security experts.The key capabilities of our solutions currently include:Global Visibility. We have global visibility into the cyber threat landscape through our approximately 4,400 subscription-based clients across 59 countries.We are able to gain near real time insights that enable us to predict, detect and respond to threats quickly and effectively. We also are able to identify threatsoriginating within a particular geographic area or relating to a particular industry and proactively leverage this threat intelligence to protect other clientsagainst these threats.Scalable Platform with Powerful Network Effects. Our proprietary Counter Threat Platform features a multi-tenant, distributed architecture that enables oursoftware to scale and to provide faster performance while efficiently utilizing its underlying infrastructure. The platform collects, aggregates, correlates andanalyzes as many as 250 billion events daily from our extensive client base to provide near real time risk assessment and rapid response. As our client baseincreases, our platform is able to analyze more events, and the intelligence derived from these additional events makes the platform more effective. This inturn drives broader client adoption and enhances the value of the solutions to both new and existing clients.Contextual and Predictive Threat Intelligence. Our proprietary and purpose-built technology analyzes and correlates billions of events using advancedanalytical tools and sophisticated algorithms to generate threat intelligence. This intelligence is augmented by our Counter Threat UnitTM research team,which conducts research into threat actors, uncovers new attack techniques, analyzes emerging threats and evaluates the risks posed to our clients. Applyingthis intelligence across our solutions portfolio provides clients with deeper insights and enriched context regarding tactics, techniques and proceduresemployed 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 byintegrating a wide array of proprietary and third-party security products. This vendor-neutral approach allows us to aggregate events from a wide range ofsecurity and network devices, applications and endpoints to enhance our understanding of clients’ networks and increase the effectiveness of our monitoringsolutions.Flexible Solution and Delivery Options. Our intelligence-driven information security solutions are purpose-built to serve a broad array of evolving clientneeds, regardless of a client’s size or the complexity of its security infrastructure. Our clients may subscribe to any combination of our solutions and alsochoose how much control they will maintain over their IT security infrastructure by selecting among our fully managed, co-managed or monitored deliveryoptions. Our flexible approach enables clients to tailor our solutions to reduce large and risky investments and costly implementations and to ensure quickand easy deployment.7Our Competitive StrengthsWe believe that the following key competitive advantages will allow us to maintain and extend our leadership position in providing intelligence-driveninformation security solutions:A Leader in Intelligence-Driven Information Security Solutions. We are a global leader in providing intelligence-driven information security solutions andbelieve we have become a mission-critical vendor to many of the large enterprises, small and medium-sized businesses and U.S. state and local governmentagencies we serve. We believe our position as a technology and market leader enhances our brand and positions us as a comprehensive solution. During fiscal2018, we were once again positioned in the Leaders quadrant in Gartner’s most recent Magic Quadrant for Managed Security Services Providers (“MSSPs”),Worldwide1 making this the tenth time Secureworks has been recognized in this report.Purpose-Built, Proprietary Technology. At the core of our solutions is the Counter Threat Platform, a proprietary technology platform we have developedduring our 18 years of operations. This platform collects, correlates and analyzes billions of daily events and data points, and generates enriched securityintelligence 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 deliveringintelligence-driven information security solutions. We believe this continued focus reinforces our differentiation from other information security servicesvendors, including telecommunications and network providers, IT security product companies, and local and regional information security solutionsproviders.Strong Team Culture. At our company, the fight against sophisticated and malicious cybersecurity threats is a personal one, and we take great pride inhelping our clients protect their critical business data and processes. We dedicate significant resources to ensure that our culture and brand reflect our focuson protecting our clients.Seasoned Management Team and Extensive IT Security Expertise. We have a highly experienced and tenured management team with extensive IT securityexpertise and a record of developing successful new technologies and solutions to help protect our clients.Our Growth StrategyOur goal is to be the global leader of intelligence-driven information security solutions. To pursue our strategy, we seek to:Maintain and extend our technology leadership: We intend to enhance our leading intelligence-driven integrated suite of solutions by addingcomplementary solutions that strengthen the security posture of our clients, such as security solutions for cloud-based environments. We intend to meet thisgoal by continuing to invest in research and development, increasing our global threat research capabilities and hiring personnel with extensive IT securityexpertise.Expand and diversify our client base: We intend to continue to expand and diversify our client base, both domestically and internationally, by investing inour direct sales force, further developing our strategic and distribution relationships, pursuing opportunities across a broad range of industries and creatingnew cloud-based solutions. We also intend to continue increasing our geographic footprint to further enhance our deep insight into the global threatlandscape and our ability to deliver comprehensive threat intelligence to our clients.Deepen our existing client relationships: We intend to continue leveraging the strong client relationships and high client satisfaction from across our clientbase to sell additional solutions to existing clients. We will continue to invest in our account management, marketing initiatives and client support programsin seeking to achieve high client renewal rates, help clients realize greater value from their existing solutions and encourage them to expand their use of oursolutions over time.Attract and retain top talent: Our technology leadership, brand, exclusive focus on information security, client-first culture and robust training anddevelopment program have enabled us to attract and retain highly talented professionals with a passion for building a career in the information securityindustry. We will continue to invest in attracting and retaining top talent to support and enhance our information security offerings.1 Gartner Magic Quadrant for Managed Security Services, Worldwide, Toby Bussa, Kelly M. Kavanagh, Sid Deshpande, Pete Shoard, 27 February 2018.The Gartner Report described herein, (the “Gartner Reports”) represents research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. (“Gartner”), and are not representations of fact.Each Gartner Report speaks as of its original publication date (and not as of the date of this Form 10-K) and the opinions expressed in the Gartner Report are subject to change without notice.Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartnerresearch publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research,including any warranties of merchantability or fitness for a particular purpose.8Our ClientsAs of February 2, 2018, we had approximately 4,400 subscription-based clients across 59 countries. Our subscription-based clients included 39% of thecompanies in the Fortune 100 for both fiscal 2018 and fiscal 2017 and 29% of the companies in the Fortune 1000 for fiscal 2016. Historically, approximatelyhalf of our professional services clients have also subscribed to our managed security solutions. Our largest client, Bank of America, N.A., accounted forapproximately 6% of our revenue in fiscal 2018. We did not have any single client that represented 10% or more of our annual revenue in any of our lastthree fiscal years.We serve clients in a broad range of industries, including the financial, manufacturing, technology, retail, insurance, utility and healthcare sectors. In fiscal2018, financial services and manufacturing clients accounted for 30.0% and 17.4%, respectively, of our revenue. No other industries accounted for 10% ormore of our fiscal 2018 revenue.International revenue, which we define as revenue contracted through non-U.S. entities, represented approximately 16%, 13% and 12% of our total netrevenue in fiscal 2018, fiscal 2017 and fiscal 2016, respectively. For additional information about our non-U.S. revenues and assets, see “Notes toConsolidated Financial Statements—Note 9—Selected Financial Information” in our consolidated financial statements included in this report.Our Technology PlatformWe utilize the key components of our infrastructure described below to deliver our intelligence-driven information solutions to our clients.Counter Threat PlatformOur proprietary Counter Threat Platform was purpose-built to be the foundation of our information security solutions. It has a multi-tenant, distributedarchitecture that enables our software to run on a single platform while providing simultaneous access to multiple users. The platform collects, aggregates,correlates and analyzes billions of daily events (currently as many as 250 billion per day) from our extensive client base, and uses sophisticated algorithms todetect malicious activity and deliver security countermeasures, dynamic intelligence and valuable context regarding the intentions and actions of cyberadversaries. The timely analysis and routing of this security information enables our solutions to assess risk in near real time and allows us to report rapidly toour clients worldwide. The platform is highly flexible, permitting us to tailor our solutions to a client’s unique environment, and can be configured toidentify specific security events of interest to a particular client. Our platform was designed to be vendor-neutral. As a result, it can aggregate events from awide range of security and network devices, applications and endpoints.The platform leverages our intelligence gained over 18 years of processing and handling events to provide insight into how attacks are initiated and spreadacross our clients’ networks. The platform also applies security intelligence based on threat indicators continuously gathered by our Counter Threat Unitresearch team through in-depth analysis of the cyber threat environment. This team conducts research into emerging threat actors and new attack tactics, anddevelops countermeasures that we apply to the platform to enable our clients proactively to prevent and detect compromises of their security. Our ability tosee more security incidents along with the applied intelligence acts as an early warning system that enables our security analysts proactively to alert clients,apply protections and respond quickly with appropriate context. The more security events we see, the more accurate our protections are and the moreaccurately we can respond.The Counter Threat Platform is supported by the following proprietary technologies:•Counter Threat Appliance. Our Counter Threat Appliance performs several of the important functions of the Counter Threat Platform. The CounterThreat Appliance is a physical or virtual appliance deployed in a client’s data center, branch office or cloud environment, or our own data center.This technology supports a wide range of security and network devices, applications and endpoints to collect information on the clientenvironment, perform analytics and report to our counter threat operations centers. The Counter Threat Appliance establishes secure non-intrusivecommunications to transmit data back to our data centers, where the Counter Threat Platform enriches data with our intelligence based on ourintimate knowledge of threats and client specific intelligence to detect security incidents.•Foresee. Foresee, our behavioral and self-learning technology, identifies malicious events through the use of machine learning algorithms todetermine the probability and confidence that a particular event or a collection of events is malicious. Foresee learns which events are malicious ornon-malicious based on ongoing feedback from our certified security analysts and applies machine-learning analysis techniques for the discovery ofpreviously unknown threats. 9•Multi-Purpose Logic Engine. Our Multi-Purpose Logic Engine is an analytics engine that leverages our broad visibility into the global threatenvironment and applied intelligence from the Counter Threat Unit to identify security incidents of interest. The engine intelligently analyzesbillions of events into actionable information, providing valuable context to our security analysts to help inform their analysis of the securityincidents and shorten the client’s response time. •Very Large Database. Our Very Large Database efficiently and cost-effectively collects, correlates, analyzes and stores billions of structured andunstructured data elements, which help us to identify new security threats, provide valuable context to our security analysts and clients and enableCounter Threat Unit researchers to perform historical threat analysis. •Threat Intelligence Management System, or TIMS. We manage structured and unstructured data in TIMS. TIMS collects, correlates and analyzesbillions of data points to catalogue threat actors and generate threat indicators applied to the Counter Threat Platform and across our solutions. Thedata points are sourced from our managed security solutions, malware, social media, honeypots (or traps set to detect or counteract attempts atunauthorized use of information systems), open source intelligence, hunting and incident response engagements, strategic relationships and priorityresearch. •Catalog for Artifact and Signal Extraction, or CASE. CASE is a repository and a set of tools for the dynamic analysis of malware to catalogue itsbehaviors and generate threat indicators. CASE feeds into TIMS threat indicators identified from the analysis of malware. •Attacker Database. Our Counter Threat Unit research team maintains a patented process for generating a proprietary Attacker Database that containsmachine readable threat intelligence we apply to the Counter Threat Platform, iSensor, Red Cloak and third-party security controls. •Portal. Powered by integrated intelligence and analytics tools, the portal delivers near real time information to client executives, managers andsecurity professionals and provides insights that help clients make better security decisions. It also facilitates near real time communication betweenclients and our security analysts, measures the effectiveness of a client’s security profile using asset-based and risk-weighted analyses, supportsregulatory compliance requirements, links threat intelligence from our Counter Threat Unit and enables a visualization of point-in-time,comparative and historical security trends across multiple security metrics. Our portal is accessible via web and mobile applications as well as viaclient applications that leverage our application programming interfaces. Counter Threat Operations Center AutomationWe have developed several technologies integrated into the Counter Threat Platform to automate operations within our counter threat operations centers,where our security professionals identify, diagnose and respond to security information. •Threat Analysis Platform. We present threat information to our certified security analysts in a graphical user interface. This interface supports thedelivery of high-quality security analysis of threats targeting or occurring within a client’s environment. Visualization enables our security analyststo detect patterns and to determine in near real time relationships of security incidents within a client environment and across our entire client base.Our security analysts have access to all data collected from client environments and human readable threat intelligence from our Counter ThreatUnit to provide them with the context necessary to inform their analysis and to help them determine whether they should communicate informationabout a security incident to a client. •Ticket Management. Our ticket management system is based on Information Technology Infrastructure Library principles and delivers securitymonitoring and device management solutions to clients. A sophisticated and configurable workflow provides incident, change and problemmanagement in a leveraged-service delivery model to enable our counter threat operations centers to handle a higher volume of work with consistentquality. •Management and Monitoring Tools. To effectively manage and monitor our infrastructure at client sites and our data centers, we rely on a suite ofpurpose-built software applications to facilitate the full lifecycle management of all software and configuration deployments and updates, efficientmanagement and troubleshooting, and monitoring of the health and availability of devices.10Other Enabling Technologies•iSensor. Many of our clients use our proprietary network intrusion detection and prevention appliance, the iSensor. The iSensor eliminatesmalicious inbound and outbound traffic in near real time by performing in-line deep packet inspection (which is an examination of packet data asthe data pass through the device for signs of malware, intrusions or other threats) and by applying countermeasures from the Counter Threat Unit.•Red Cloak. Red Cloak, our endpoint threat detection software, allows us to apply our threat intelligence and advanced analytics to the endpoint toreduce the amount of time required to detect a compromise of security and reduce the effort required to respond. Red Cloak also allows us to developstrategic countermeasures that interdict tactics used by threat actors.•Third-Party Technologies. Our intelligence-driven information security solutions are designed to monitor alerts, logs and other messages acrossmultiple stages of the threat lifecycle. In addition to security monitoring, we offer device management for many leading security platforms. Indeploying these solutions, we integrate a wide array of proprietary and third-party security products. Our technology supports firewalls from market-leading vendors, including, but not limited to, Cisco Systems, Inc., Palo Alto Networks, Inc., Check Point Software Technologies Ltd., JuniperNetworks, Inc., Fortinet, Inc. and SonicWall. In addition, we also support intrusion prevention systems from vendors such as Intel Corp. (McAfee),and web application firewalls from vendors such as Imperva, Inc., F5 Networks, Inc. and Citrix Systems, Inc.Further, we maintain alliance partnerships with key technology providers who deliver capabilities we see as valuable in keeping our clients secure. Thesepartnerships involve technology licensing, joint technology development, integration, research cooperation, co-marketing and sell-through arrangements.Key technology partners include Qualys, Inc., Kenna Security, Inc., Cisco Systems, Inc. (Sourcefire), Lastline, Inc., TIBCO Software Inc. (LogLogic) andCarbon Black. The principal technologies we license from some of these providers provide us with the following capabilities we integrate into our solutions: •Qualys – vulnerability management•Kenna Security – vulnerability management •Cisco (Sourcefire) – network security •Lastline – malware detection and protection •TIBCO (LogLogic) – log management •Carbon Black – endpoint securityWe license the technologies under agreements that generally have terms ranging from one to five years, subject to renewal in most cases either upon notice ofrenewal or upon failure by us or the provider to give notice of termination to the other party. The provider generally may terminate any license upon advancenotice to us of between 90 and 270 days. The technology partner license agreements generally provide for post-termination support, transition and wind-down periods that are intended to limit any disruption to our business that could result from a license termination. We generally are required under theagreements to make licensing payments in the form of fees or royalties at a discount off the list price, although some agreements also include volume or tieredpricing.Our OfferingsWe offer an integrated suite of intelligence-driven information security solutions. Our clients may subscribe to our full suite of solutions or elect to subscribeto various combinations of our individual solutions. All of our solutions are enabled by our Counter Threat Platform and our large team of highly-skilledsecurity experts.11Managed SecurityWe offer a broad range of managed security solutions, including those highlighted below.Security Monitoring. Security appliances, systems and servers generate extensive logs, alerts and other messages every day. This raw information must becontinuously monitored, correlated and analyzed in order to identify security events of actual concern while generating a minimal number of falsely positiveresults. Our security monitoring solution collects, correlates and analyzes logs, alerts and other messages generated by most leading security technologiesand critical information assets, on a 24/7 basis, to identify anomalies and respond to threats in near real time. This solution functions either on a stand-alonebasis or in concert with client-owned security information and event management platforms.Advanced Malware Protection and Detection. Our advanced malware protection and detection solution, or AMPD, provides a layer of defense againstemerging zero-day threats for enterprise and medium-sized organizations, which are threats whose existence is unknown to the targeted organization or thoseresponsible for its security before the first exploitation occurs. AMPD uses next-generation sandboxing technology with full-system emulation to executeand analyze malware within a controlled environment, and draws on our threat intelligence data pool and our expert threat analysis teams. AMPD’scombination of deep intelligence capabilities developed by the Counter Threat Unit and advanced technology permits our clients to see, rapidly analyze andaccurately diagnose previously unknown malware, and to obtain focused guidance that expedites threat remediation.Advanced Endpoint Threat Detection. Advanced endpoint threat detection, or AETD, improves situational awareness and visibility through proprietaryendpoint intelligence developed by the Counter Threat Unit. AETD is a fully managed security solution that monitors the state of endpoints, which includeWindows servers, laptops and desktops, for threat indicators, investigates events to determine their severity, accuracy and context, and quickly escalatescritical events to the client’s attention indicating that an endpoint may be compromised.Firewall and Next-Generation Firewall Solutions. Firewalls provide critical information necessary to identify and evaluate security events. We provide anarray of firewall solutions ranging from the collection, organization and reporting of firewall information to the full management of a client’s firewall by oursecurity analysts, including rule-set changes and overall configuration of the device for optimal performance. Our experts hold certifications from leadingvendors and have significant experience with the relevant technologies, enabling us to provide solutions to support market-leading vendors in various typesof environments. Our firewall management solutions ease the adoption of next-generation firewall technology through policy-based control overapplications, users and content, device provisioning and deployment and enable clients to respond immediately to security events.Managed Web Application Firewall Solutions. Web application firewalls are designed specifically to protect applications that deliver critical services viaInternet web protocols. These firewalls block certain connections while permitting others based on the configuration of the firewall in order to ensure thatonly legitimate traffic reaches protected applications. Web application firewalls are increasingly utilized to address various compliance mandates, includingthe Payment Card Industry Data Security Standard, or PCI DSS. Our managed web application firewall solution assists clients with the end-to-endmanagement of these complex devices, from initial configuration and periodic policy changes to patching, updating and full-time monitoring of systemhealth and performance.Managed Network Intrusion Detection System, or IDS, and Intrusion Prevention System, or IPS, Solutions. IDS and IPS technologies can provide a highlyeffective layer of security. We provide a wide range of solutions to enable our clients to realize the benefits from these technologies, and effectively identifythreats faster. Our solutions include security monitoring, performance and availability management, device upgrades and patch management, policy andsignature management, integration of Counter Threat Unit intelligence and use of our proprietary iSensor device. We manage leading vendors’ IDS and IPSproducts as well as our iSensor.Vulnerability Management. Our Vulnerability Management solution, which is fully managed and maintained by a dedicated vulnerability management team,encompasses the two solutions described below.•Managed Vulnerability Scanning. A vulnerability scan is designed to alert an organization to potential exposures and vulnerabilities in its network.As part of our solution, we perform internal and external scan audits across network devices, servers, databases and other assets in on-premises andcloud environments.•Managed Web Application Scanning. Applications that deliver services via the web are the lifeblood of business-to-business and business-to-consumer e-commerce. A vulnerability scan can alert an organization to potential exposures12and weaknesses in these web-based applications before a threat actor exploits those weaknesses. Our managed web application scanning solutionperforms deep and accurate scans of web applications that are hosted on client premises or in cloud environments. These scans search forvulnerabilities specific to the web protocols that are foundational to web applications. Our solution also supports the ability to log into webapplications and discover vulnerabilities that may lie behind the login page.Log Retention Solutions. We offer comprehensive log aggregation, retention, searching and reporting solutions. Log retention enables our clients to satisfyvarious compliance obligations, which require full log retention from critical IT systems to ensure the integrity of confidential data, and to conduct forensicinvestigations. Our log retention solutions provide support for a wide range of sources, allowing the capture and aggregation of millions of logs generatedevery day by critical information assets such as servers, routers, firewalls, databases, applications and other systems of the log retention appliance.Managed Policy Compliance. To assist clients in improving their security and compliance with regulatory mandates, our managed policy compliancesolution ensures that the configurations of clients’ critical systems are known and tracked and comply with pre-established security guidelines. Our solutionconsists of two key components, software that automatically retrieves the configurations of critical systems and compares them to pre-establishedconfiguration targets, and a library of security and compliance-driven configuration checks across three systems. Our solution helps clients establishconfiguration targets, set up the scans, monitor the output and report on the results.Delivery Options for Managed SecurityOur managed security clients can choose how much control they maintain over their IT security infrastructure by selecting among our fully managed, co-managed or monitored solution delivery options. Our solutions are designed to be flexible and scalable to complement the evolving security needs of ourclients. Our clients often migrate between the different delivery options in response to their changing needs as well as to the changing threat landscape.Fully Managed. With our fully managed delivery options, we assume control of a client’s security technology so the client can focus on running its businessrather than becoming a security administrator. Clients selecting fully managed delivery obtain all of the benefits of our monitored delivery option, includingaccess to our on-demand Counter Threat Platform. In addition, our team of security analysts will monitor and manage a client’s security technology orselected devices, proactively update that security infrastructure to protect against emerging threats, identify vulnerabilities, ensure that the devices areproperly configured with our latest countermeasures, and block or respond to immediate threats in accordance with the client’s escalation policies. Webelieve that our fully managed solutions provide clients with increased security protection based on our best practices and security expertise applied acrossour client base, as well as improved operational efficiency by removing the overhead costs associated with managing security technology.Co-Managed. Clients often deploy our managed solutions on a co-managed basis as an extension of their security personnel. The co-managed deliveryoption enables the client to retain control over its security infrastructure to the extent that it prefers to do so, and enables its security staff to work with ourexperts as a team while maintaining full access and visibility into the management process. This option is particularly suitable for organizations that alreadypossess in-house security expertise, but that seek to remove the burden of managing devices from their staff so they can focus on more strategic securityinitiatives.Monitored. Clients selecting our monitored solutions obtain access to our on-demand Counter Threat Platform through our web-based portal, plus near realtime monitoring and analysis by our security analysts of events collected from security and network devices and applications. Our monitored solutionsenhance our clients’ security position by providing them with a holistic view of their security activity, valuable context from our team of security analystsand comprehensive reporting to demonstrate regulatory compliance. Our ability to see more security incidents across our entire client base along with ourthreat intelligence acts as an early warning system, which benefits clients by proactively alerting them to potential threats, applying protections and helpingthem respond quickly. We believe that the more we see, the more accurate our protections are, and the more accurately we can respond. Through ourmonitored solutions, we leverage our on-demand Counter Threat Platform to correlate information from many devices and applications, providing securityanalysts with the context they need to significantly reduce falsely positive results and alert clients to actual threats against their organizations.In general, our managed delivery options require our security professionals to be directly involved with our client’s security technology, and as a result, thecost to service these delivery options is generally higher than the cost to service monitored delivery options. Over the last three fiscal years, we havegenerated the majority of our managed security solutions revenue from either fully managed or co-managed delivery options. Our future success depends onour ability to manage efficiently the costs of our security offerings and to price our security solutions in an effective manner.13Threat IntelligencePowered by our Counter Threat Unit research team, threat intelligence provides early warnings and actionable intelligence that enables rapid protectionagainst threats and vulnerabilities before they affect an organization. Threat intelligence is applied as part of our managed security offerings, but also may beoffered separately.Global Threat Intelligence. Our global threat intelligence solutions provide proactive, actionable intelligence tailored to an organization’s environment.This intelligence includes clear, concise threat and vulnerability analysis, detailed remediation information and recommendations, consultation with ourthreat experts, on-demand access to extensive threat and vulnerability databases, malware analysis upon request, intelligence feeds and integration with ourother solutions for correlation and unified reporting.Borderless Threat Monitoring. Our borderless threat monitoring solution delivers organizations with timely and actionable security intelligence thatprovides them with insight into threat activities that may exist beyond the edge of their network. This solution proactively informs organizations of networkthreat indicators that apply to their particular network environment and allows them to manage the threat in accordance with their escalation policies.Malware Code Analysis. Our malware code analysis solution focuses on reverse engineering malicious or unknown code identified in security events in orderto provide an organization with a better understanding of the code’s behavior and its impact on the organization’s systems and information. Using advancedcomputer forensic tools and techniques, our security experts dissect the code to determine its functionality, purpose, composition and source.Enterprise Brand Surveillance. Our enterprise brand surveillance solution offers near real time monitoring of a range of intelligence outlets to identifydeveloping threats from exposure of sensitive data, targeting by threat actors and risks to perception of the client’s brand. This solution provides our clientswith live notifications delivered upon discovery of actionable intelligence. It also provides clients with context regarding potential threats and helps them todevelop informed risk mitigation strategies.Security and Risk ConsultingOur consulting organization provides expertise and analysis to help clients improve their security posture by comprehensively assessing securitycapabilities, designing and building robust security programs, preparing employees against cyber attacks, facilitating regulatory compliance and helpingclients identify, prioritize and resolve the vulnerabilities that pose the greatest threat. We offer both project-based and long-term contracts, including retainercontracts sold together with our managed security solutions. For example, we may enter into a managed security contract bundled together with an incidentresponse retainer.Our team has extensive experience conducting security, compliance and risk engagements across many industries and geographic areas, and under recentregulations and industry standards that impose security mandates. Professional services offered by the team include the following:Technical Testing and Assessments. Our testing and assessment solutions provide clients with the knowledge, expertise and efficiency needed to conductthorough security and risk evaluations of their environments. We offer testing and assessments that address logical, physical, technical and non-technicalthreats in order to identify gaps that create risk, construct a stronger security posture and meet compliance mandates. Our testing and assessments solutionsinclude application security, network security and Red Team testing, which simulates cyber attacks using real-world tactics, techniques and procedures. Security and Governance Program Development. Our security and governance program development solutions provide our clients with security, risk andcompliance expertise to help them develop strategic security and governance programs based on industry and observed best practices. These solutionsinclude internal audit support and the development of corporate information security and computer security incident response security awareness programs.Targeted Threat Hunting. The Targeted Threat Hunting solution uses proprietary technology to search client networks to identify the presence of securitycompromises and entrenched threat actors operating in a client’s environment. The solution draws on our threat intelligence and extensive experiencecountering cyber adversaries.Cloud Security. We help clients to deliver cloud-based services securely and to satisfy their compliance requirements. Our cloud security solutions includecloud security strategic consulting, cloud risk assessment, assurance testing of cloud deployments, incident response in cloud environments and cloudsecurity architecture and design.14Security Design and Architecture Solutions. Our security design and architecture solutions help clients to clarify their information security priorities andidentify their most vulnerable assets that require security monitoring, as well as to obtain a prioritized roadmap of upgrades to help with budgeting anddetermining resource requirements. Our solutions include security health check solutions, security architecture assessment solutions and security architectureand design consulting.Security Residency Solutions. Our security residency solutions provide clients with security consultants who serve as extended members of their staff eitheron-site or remotely to extend and heighten an organization’s security expertise and capabilities. We offer several levels of resident security consultants,including executive, expert and technical consultants tailored to the security expertise and leadership our clients need. Residency solutions often arecombined with managed security solutions in complex enterprise environments to enhance the value clients obtain from our solutions. Consulting residentsalign our solutions with the clients’ internal processes, integrate our data feeds into client applications and dashboards, and produce customized analyticsand reporting. In addition, residents can assist clients with handling the security events identified by our managed security solutions.Incident ResponseIncident response typically is deployed along with security and risk consulting. The professionals who deliver incident response help clients rapidly analyze,contain and remediate security breaches to minimize their duration and impact.Incident Management Proactive Solutions. Through our incident management proactive solutions, our security consultants work with clients to prepare themto respond quickly and effectively to a security incident. In providing these solutions, we feature both incident management risk assessment and responseplan review and development solutions. Our incident management risk assessment solution evaluates a client’s ability to detect, resist and respond to atargeted or advanced threat and is designed to help our clients understand their exposure to these threats, including advanced persistent threats, or APTs, inorder to reduce their risk of compromise. Our response plan review and development solution supports our clients in developing an effective computersecurity incident response plan, or CSIRP, based on IT security best practices, incorporating the latest threat intelligence tailored to the client’s specificneeds. Incident Response Testing and Capability Analysis. Through real-world simulations, incident response testing and capability analysis tests and evaluates theeffectiveness of an organization’s CSIRP and attack response procedures. We employ tabletop exercises to subject IT teams to simulated threats, such ascyber-crime and APTs. The exercises demonstrate the ways a client’s systems and network can be breached and the critical actions required during a breach tocontain a threat. We also offer an incident response retainer, through which our security experts can provide emergency incident response solutions withinminutes of a reported breach.Emergency Incident Response Solutions. Through our comprehensive range of incident response and management solutions, we seek to ensure thatorganizations experience minimal economic loss and operational disruption when a security incident occurs. Our security consultants work to minimize theduration and impact of any breach through incident management, surveillance, digital forensic analysis, malware analysis and reverse engineering.Sales and MarketingOur sales and marketing organizations work together closely to drive revenue growth by enhancing market awareness of our solutions, building a strong salespipeline and cultivating client relationships. We offer managed security and threat intelligence on a subscription basis. We sell these solutions undercontracts with initial terms that typically range from one to three years and, as of February 2, 2018, averaged two years in duration. We provide security andrisk consulting primarily under fixed-price contracts, although we perform some engagements under variable-priced contracts on a time-and-materials basis.SalesWe sell primarily through our direct sales organization, supplemented by sales through our channel partners, including referral agents, regional value-addedresellers and trade associations. Approximately 93% of our revenue in fiscal 2018 was generated through our direct sales force, in some cases in collaborationwith members of Dell’s sales force, with the remaining portion generated through our channel partners. Our direct sales organization consists of insides sales and field sales personnel and solutions architects organized by core client segments and geography. Oursales strategy varies based on the size of the company and the target point-of-entry into an organization, which is primarily through chief informationsecurity officers or other IT leaders, including security executives, security specialists, compliance officers and IT generalists. Within North America, ourdirect sales organization has separate15teams focused on the large enterprises, small and medium-sized businesses, and U.S. state and local government agencies. We believe that continuedadditional investment in our sales staff will contribute to our long-term growth.We believe that our sales process differentiates us in the marketplace for information security solutions. The process typically begins by emphasizing theimportance of educating key IT decision makers within a client organization with respect to the organization’s information security needs. We deliver atechnical evaluation performed by a team that includes both highly trained sales personnel and security experts. This allows us to tailor the solution design,including the level of service and deployment options, to the organization’s specific security needs and to become its long-term advisor and partner. Atypical large enterprise sales team includes an inside sales team that is responsible for developing sales leads, a direct sales team that is responsible forobtaining new clients and some cross-sales, an enterprise account management team that is responsible for renewals and some cross-sales, and securityengineers who provide technical support to our sales personnel.Since our acquisition by Dell in February 2011, we have marketed our solutions through Dell’s channel partners as well as through our own and have enteredinto agreements with Dell to preserve, and potentially expand, our existing commercial arrangements with Dell.MarketingOur marketing efforts seek to enhance our brand, expand our market awareness, bring our solutions to market and build a strong sales pipeline. Our marketingteam consists primarily of solutions marketing, field marketing, demand generation and public and industry analyst relations functions. We actively manageour public relations efforts and communicate directly with IT professionals and the media in an effort to promote our information security solutions andcontribute to the business community’s ongoing examination and understanding of information security. We participate in industry trade shows andconferences, drive thought leadership in our industry, host webcasts, conduct online marketing activities and use various other marketing strategies to createawareness of our brand and offerings.Client Service, Training and SupportClient service, training and support are key elements of our commitment to provide superior client service. We have a comprehensive client service trainingand support program to communicate our commitment to client service and to enhance the value that our clients derive from our solutions. We provideextensive education, training and support on the functionality of our solutions, so that our clients are able to fully utilize their benefits. Our client servicetraining and support team provides dependable and timely resolution of client security concerns and technical inquiries, and our certified security analystsare continuously available to clients for consultation by telephone or e-mail and over the Internet through our portal. We regularly conduct client surveys tohelp us evaluate and develop our existing solutions and other solutions that we believe could enhance our client relationships.CompetitionThe market for information security services is very competitive, and we expect competition to continue to increase in the future. Changes in the threatlandscape and the broader IT infrastructure have led to quickly evolving client requirements for protection from security threats and adversaries.We compete primarily against the following four types of security services and product providers, some of which operate principally in the large enterprisemarket and others in the market for small and medium-sized businesses: ▪global telecommunications and network services providers such as AT&T Inc., BT Group PLC, Verizon Communications Inc. and NTTCommunications Corp.; ▪providers of specialized or niche IT security products and services such as FireEye, Inc., Palo Alto Networks, Inc. and Symantec Corporation; ▪diversified technology companies such as Cisco Systems, Inc., Hewlett Packard Enterprise Company, International Business Machines Corporationand Intel Corporation; and ▪regional information security services providers that compete in the small and medium-sized businesses market with some of the features present inour information security solutions.16We believe that the principal competitive factors in our market include: ▪global visibility into the threat landscape; ▪ability to generate actionable intelligence based on historical data and emerging threats;▪ability to apply threat intelligence from our Counter Threat Unit to our Counter Threat Platform and security controls; ▪scalability and overall performance of platform technologies; ▪ability to integrate with, monitor and manage a variety of third-party products; ▪ability to provide a flexible deployment option to cater to specific client needs; ▪ability to attract and retain high-quality professional staff with information security expertise; ▪brand awareness and reputation; ▪strength of sales and marketing efforts; ▪cost effectiveness; ▪client service and support; and ▪breadth and richness of threat intelligence, including history of data collection and diversity and geographic scope of clients. We believe that we generally compete favorably with our competitors on the basis of these factors as a result of the architecture, features and performance ofour Counter Threat Platform, the quality of our threat intelligence, the security expertise within our organization, and the ease of integration of our solutionsand platform with other technology infrastructures. However, many of our existing and potential competitors, particularly in the large enterprise market, haveadvantages over us because of their longer operating histories, greater brand name recognition, larger client bases, more extensive relationships within largecommercial enterprises, more mature intellectual property portfolios and greater financial and technical resources.Research and DevelopmentWe invest significant time and resources to maintain, enhance and add new functionality to our Counter Threat Platform and purpose-built technologies thatare critical enablers of our solutions. Our research and development organization is responsible for the design, development and testing of all aspects of oursuite of information security solutions. The members of the organization have deep security and software expertise and work closely with our productmanagement and client service training and support teams to gain insights into clients’ environments for use in threat research, product development andinnovations. The organization focuses its research on identifying next-generation threats and adversaries and developing countermeasures, which arecontinuously applied to our platform and used to respond to the rapidly evolving security threat landscape. The majority of our research and developmentteam is based in our offices in Atlanta, Georgia, Providence, Rhode Island, Pittsburgh, Pennsylvania, Edinburgh, Scotland, and Hyderabad, India.We believe that innovation and the timely development of new solutions are essential to meeting the needs of our clients and improving our competitiveposition. Several of the solutions we have released in the past year are the result of our internal processes within our company to identify and solve difficultsecurity issues and use the best ideas to develop new solutions. As our clients move their applications and data into third-party cloud environments, we willextend and integrate our solutions into these environments globally. In addition, point solutions we develop for clients during security and risk consultingengagements often are integrated into our portfolio of solutions and made available to our broader client base.Our research and development expenses were $80.2 million in fiscal 2018, $71.0 million in fiscal 2017 and $69.6 million in fiscal 2016. We plan to continueto commit significant resources to research and development.17Intellectual PropertyOur intellectual property is an essential element of our business. To protect our intellectual property rights, we rely on a combination of patent, trademark,copyright, trade secret and other intellectual property laws as well as confidentiality, employee non-disclosure and invention assignment agreements.Our employees and contractors involved in technology development are required to sign agreements acknowledging that all inventions, trade secrets, worksof authorship, developments, processes and other intellectual property rights conceived or reduced to practice by them on our behalf are our property, andassigning to us any ownership that they may claim in those intellectual property rights. We maintain internal policies regarding confidentiality anddisclosure. Our client and resale contracts prohibit reverse engineering, decompiling and other similar uses of our technologies and require that ourtechnologies be returned to us upon termination of the contract. We also require our vendors and other third parties who have access to our confidentialinformation or proprietary technology to enter into confidentiality agreements with us.Despite our precautions, it may be possible for third parties to obtain and use without our consent intellectual property that we own or otherwise have theright to use. Unauthorized use of our intellectual property by third parties, and the expenses we incur in protecting our intellectual property rights, mayadversely affect our business.Our industry is characterized by the existence of a large number of patents, which leads to frequent claims and related litigation regarding patent and otherintellectual property rights. In particular, large and established companies in the IT security industry have extensive patent portfolios and are regularlyinvolved in both offensive and defensive litigation. From time to time, third parties, including some of these large companies as well as non-practicingentities, may assert patent, copyright, trademark and other intellectual property rights against us, our channel partners or our end-clients, which we areobligated to indemnify against such claims under our standard license and other agreements. Successful claims of infringement by a third party, if any, couldprevent us from performing certain solutions, require us to expend time and money to develop non-infringing solutions, or force us to pay substantialdamages (including, in the United States, treble damages if we are found to have willfully infringed patents), royalties or other fees.Patents and Patent ApplicationsAs of February 2, 2018, we owned 22 issued patents and 26 pending patent applications in the United States and four issued patents and two pending patentapplications outside the United States. The issued patents are currently expected to expire between 2019 and 2033. Although we believe that our patents as awhole are important to our business, we are not substantially dependent on any single patent.We do not know whether any of our patent applications will result in the issuance of a patent or whether the examination process will require us to modify ornarrow our claims, as has happened in the past with respect to certain claims. Any patents that may be issued to us may not provide us with any meaningfulprotection or competitive advantages, or may be contested, circumvented, found unenforceable or invalid, and we may not be able to prevent third partiesfrom infringing them.Trademarks and CopyrightsThe U.S. Patent and Trademark Office has granted us federal registrations for some of our trademarks. Federal registration of trademarks is effective for as longas we continue to use the trademarks and renew our registrations. We also have obtained protection for some of our trademarks, and have pendingapplications for trademark protection, in the European Community and various countries. We may, however, be unable to obtain trademark protection for ourtechnologies and brands, and any trademarks that may be issued in the future may not distinguish our solutions from those of our competitors.We do not generally register any of our works of authorship, including software and source code, with the U.S. Copyright Office, but instead rely on theprotection afforded to such works by U.S. copyright laws, which provide protection to authors of original works whether published or unpublished andwhether registered or unregistered.We have entered into a trademark license agreement with Dell Inc. under which Dell Inc. has granted us a non-exclusive, royalty-free worldwide license to usethe trademark “DELL,” solely in the form of “SECUREWORKS-A DELL COMPANY,” in connection with our business and products, services andadvertising and marketing materials related to our business.18EmployeesAs of February 2, 2018, we employed 2,555 full-time employees in the United States and 22 other countries. None of our employees in the United States arerepresented by a labor organization or the subject of a collective-bargaining agreement. Employees of some of our foreign subsidiaries are represented onworkers' councils.Executive Officers of SecureworksThe following table sets forth information as of March 28, 2018 concerning our executive officers.Name Age Position Michael R. Cote 57 President and Chief Executive OfficerR. Wayne Jackson 60 Chief Financial OfficerEach executive officer is appointed by, and serves at the discretion of, our board of directors.Michael R. Cote has served as our President and Chief Executive Officer since May 2015. He served as our General Manager and as Vice President of Dellfrom our acquisition by Dell in February 2011 through the closing of our initial public offering in April 2016. Before our acquisition by Dell, Mr. Cote hadserved as our Chairman, President and Chief Executive Officer since February 2002.R. Wayne Jackson has served as our Chief Financial Officer since July 2015. Before joining us, Mr. Jackson was a partner at PricewaterhouseCoopers LLP, anindependent registered public accounting firm, since May 2003. At that firm, Mr. Jackson was the lead engagement partner for a number of the firm's largestclients.Item 1A. Risk FactorsOur business, operating results, financial condition and prospects are subject to a variety of significant risks, many of which are beyond our control. Thefollowing is a description of some of the important risk factors that may cause our actual results in future periods to differ substantially from those wecurrently expect or seek. The risks described below are not the only risks we face. There are additional risks and uncertainties not currently known to us orthat we currently deem to be immaterial that also may materially adversely affect our business, operating results, financial condition or prospects.Risks Related to Our Business and Our IndustryWe have a history of losses and may not achieve or maintain profitability.We incurred net losses of $28.1 million in fiscal 2018, $38.2 million in fiscal 2017 and $72.4 million in fiscal 2016. Any failure to increase our revenue as wegrow our business could prevent us from achieving or maintaining profitability on a consistent basis or at all. We expect our operating expenses to continueto increase as we implement our growth strategy to maintain and extend our technology leadership, expand and diversify our client base and attract andretain top talent. Our strategic initiatives may be costlier than we expect, and we may not be able to increase our revenue to offset these increased operatingexpenses. Our revenue growth may slow or revenue may decline for a number of reasons, including increased competition, reduced demand for our solutions,a decrease in the growth or size of the information security market or any failure by us to capitalize on growth opportunities. If we are unable to meet theserisks and challenges as we encounter them, our business, financial condition and results of operations may suffer.19We must continue to enhance our existing solutions and technologies and develop or acquire new solutions and technologies, or we will lose clients andour competitive position will suffer.Many of our clients operate in markets characterized by rapidly changing technologies, which require them to support a variety of hardware, softwareapplications, operating systems and networks. As their technologies grow more complex, we expect these clients to face new and increasingly sophisticatedmethods of cyber attack. To maintain or increase our market share, we must continue to adapt and improve our solutions in response to these changes withoutcompromising the high service levels demanded by our clients. If we fail to predict accurately or react in a timely manner to the changing needs of our clientsand emerging technological trends, we will lose clients, which will negatively affect our revenue, financial condition and results of operations. The forcesbehind changes in technology, which we do not control, include:▪the establishment by organizations of increasingly complex IT networks that often include a combination of on-premise, cloud and hybridenvironments;▪the rapid growth of smart phones, tablets and other mobile devices and the “bring your own device” trend in enterprises;▪action by hackers and other threat actors seeking to compromise secure systems;▪evolving computer hardware and software standards and capabilities;▪changing client requirements for information technology; and▪introductions of new products and services or enhancements to existing products and services by our competitors.Our future growth also depends on our ability to scale our Counter Threat Platform to analyze an ever increasing number of events. As of February 2, 2018,our platform analyzed as many as 250 billion events each day. If the number of events grows to a level that our platform is unable to process effectively, or ifour platform fails to handle automatically an increasing percentage of events or is unable to process a sudden, sharp increase in the number of events, wemight fail to identify network events as significant threat events, which could harm our clients and negatively affect our business and reputation.We operate in a rapidly evolving market, and if the new solutions and technologies we develop or acquire do not achieve sufficient market acceptance, ourgrowth rates will decline and our business, results of operations and competitive position will suffer.We spend substantial time and money researching and developing new information security solutions and technologies and enhancing the functionality ofour current solutions and technologies to meet the rapidly evolving demands of our clients for information security in our highly competitive industry. For usto realize the benefits from our significant investments in developing and bringing our solutions to market, our new or enhanced solutions must achieve highlevels of market acceptance, which may not occur for many reasons, including as a result of:▪delays in introducing new, enhanced or modified solutions that address and respond to innovations in computer technology and client requirements;▪defects, errors or failures in any of our solutions;▪any inability by us to integrate our solutions with the security and network technologies used by our current and prospective clients;▪any failure by us to anticipate, address and respond to new and increasingly sophisticated security threats or techniques used by hackers and otherthreat actors;▪negative publicity about the performance or effectiveness of our solutions; and▪disruptions or delays in the availability and delivery of our solutions.Even if the initial development and commercial introduction of any new solutions or enhancements to our existing solutions are successful, the new orenhanced solutions may not achieve widespread or sustained market acceptance. In such an event, our competitive position may be impaired and our revenueand profitability may be diminished. The negative effect of inadequate market acceptance on our results of operations may be particularly acute because ofthe significant research, development, marketing, sales and other expenses we will have incurred in connection with the new or enhanced solutions.We rely on personnel with extensive information security expertise, and the loss of, or our inability to attract and retain, qualified personnel in the highlycompetitive labor market for such expertise could harm our business. Our future success depends on our ability to identify, attract, retain and motivate qualified personnel. We depend on the continued contributions of MichaelR. Cote, our President and Chief Executive Officer, and our other senior executives, who20have extensive information security expertise. The loss of any of these executives could harm our business and distract from their operating responsibilitiesother senior managers engaged to search for their replacements.Our Counter Threat Unit and security analyst teams are staffed with experts in information security, software coding and advanced mathematics. Becausethere are a limited number of individuals with the education and training necessary to fill these roles, such individuals are in high demand. We face intensecompetition in hiring individuals with the requisite expertise, including from companies with greater resources than ours. As a result, we may be unable toattract and retain suitably qualified individuals who are capable of meeting our growing technical, operational and managerial requirements, or may berequired to pay increased compensation to satisfy our staffing needs. Further, if we hire personnel from competitors, we may be subject to allegations that thenew employees were improperly solicited or have divulged proprietary or other confidential information in breach of agreements with their former employers.Any inability by us to attract and retain the qualified personnel we need to succeed could adversely affect our competitive market position, revenue, financialcondition and results of operations.Our quarterly results of operations or other operating measures may fluctuate significantly based on a number of factors that could make our future resultsdifficult to predict.Our results of operations or other operating measures have fluctuated in the past from quarter to quarter. We expect that quarterly fluctuations will continue asa result of a number of factors, many of which are outside of our control and may be difficult to predict, including:▪ our ability to increase sales to existing clients and to renew contracts with our clients;▪ delays in deployment of solutions under our client contracts;▪ our ability to attract new clients;▪interruptions or service outages in our data centers and other technical infrastructure, other technical difficulties or security breaches;▪ client budgeting cycles, seasonal buying patterns and purchasing practices;▪ changes in our pricing policies or those of our competitors;▪fluctuations in the demand for our information security solutions and in the growth rate of the information security market generally;▪ the level of awareness of IT security threats and the market adoption of information security solutions;▪ the timing of the recognition of revenue and related expenses;▪ our ability to expand our direct sales force and our strategic and distribution relationships;▪our ability to develop in a timely manner new and enhanced information security solutions and technologies that meet client needs;▪our ability to retain, hire and train key personnel, including sales personnel, security analysts and members of our security research team;▪ fluctuations in available cash flow from prepayments for our solutions;▪changes in the competitive dynamics of our market, including the launch of new products and services by our competitors;▪ the effectiveness and efficiency of in-house information security solutions;▪ our ability to control costs, including our operating and capital expenses;▪ our ability to keep our proprietary technologies current;▪ any failure of or technical issues affecting a significant number of our appliances or software;▪ adverse litigation judgments, settlements or other litigation-related costs;▪costs related to the acquisition of businesses, talent, technologies or intellectual property, including potentially significant amortization costs andpossible write-downs;▪ stock-based compensation expense associated with attracting and retaining personnel; and▪ general economic conditions, geopolitical events and natural catastrophes.21The factors above, individually or in combination, may result in significant fluctuations in our financial and other results of operations from quarter toquarter. As a result of this variability and unpredictability, investors should not unduly rely on our historical results of operations as an indication of futureperformance.We face intense competition, including from larger companies, and may lack sufficient financial or other resources to maintain or improve our competitiveposition.The market for managed security and other information security services is highly competitive, and we expect competition to intensify in the future.Increased competition in our market could result in intensified pricing pressure, reduced profit margins, increased sales and marketing expenses and a failureto increase, or a loss of, market share. Our competitors vary in size and in the scope and breadth of the products and services they offer.Many of our existing and potential competitors, particularly in the large enterprise market, enjoy substantial competitive advantages because of their longeroperating histories, greater brand name recognition, larger client bases, more extensive client relationships within large commercial enterprises, more matureintellectual property portfolios and greater financial and technical resources. As a result, they may be able to adapt more quickly than we can to new oremerging technologies and changing opportunities, standards or client requirements. In addition, several of our competitors have made acquisitions orentered into partnerships or other strategic relationships with one another to offer more comprehensive cybersecurity solutions than each could offerindividually. Mergers, consolidations or alliances among competitors, or acquisitions of our competitors by large companies, may result in more formidablecompetition for us if their security products and services are bundled into sales packages with their widely utilized non-security-related products andservices. For example, large telecommunications companies may choose in the future to integrate managed security services aggressively as a complement totheir existing communications offerings. In addition, we expect pricing pressures within the information security market to intensify as a result of action byour larger competitors to reduce the prices of their security monitoring, detection and prevention products and managed security services. If we are unable tomaintain or improve our competitive position with respect to our current or future competitors, our failure to do so could adversely affect our revenue growthand financial condition. Further, if our competitors are able to successfully use artificial intelligence to enhance the ability of their solutions to prevent,detect, respond to or predict cybersecurity breaches and we are unable to develop or implement comparable technologies, our solutions could be viewed lessfavorably by potential clients and our revenues and competitive position could be negatively affected.If we are unable to attract new clients, retain existing clients or increase our annual contract values, our revenue growth will be adversely affected.To achieve revenue growth, we must expand our client base, retain existing clients and increase our annual contract values. In addition to attractingadditional large enterprise and small and medium-sized business clients, our strategy is to pursue non-U.S. clients, government entity clients and clients inother industry sectors in which our competitors may have a stronger position. The renewal rates of our existing clients may decline or fluctuate as a result of anumber of factors, including their satisfaction or dissatisfaction with our solutions, the price of our solutions, the prices or availability of competing solutionsand technologies or consolidation within our client base. If we fail to attract new clients, or our clients do not renew their contracts for our solutions or renewthem on less favorable terms, our revenue may cease to grow or may decline and our business may suffer.Some clients elect not to renew their contracts with us or renew them on less favorable terms, and we may not be able on a consistent basis to increase ourannual contract values by obtaining advantageous contract renewals. We offer managed security and threat intelligence on a subscription basis undercontracts with initial terms that typically range from one to three years and, as of February 2, 2018, averaged two years in duration. Our clients have noobligation to renew their contracts after the expiration of their terms, and we cannot be sure that client contracts will be renewed on terms favorable to us or atall. The fees we charge for our solutions vary based on a number of factors, including the solutions selected, the number of client devices covered by theselected solutions and the level of management we provide for the solutions. Our initial contracts with clients may include amounts for hardware, installationand professional services that may not recur. Further, if a client renews a contract for a term longer than the preceding term, it may pay us greater total feesthan it paid under the preceding contract, but still pay lower average annual fees, because we generally offer discounted rates in connection with longercontract terms. In any of these situations, we would need to sell additional solutions to maintain the same level of annual fees from the client, but may beunable to do so.22The loss of, or significant reduction in purchases by, our largest client could adversely affect our business and financial results.Our largest client, Bank of America, N.A., accounted for approximately 6% of our revenues in fiscal 2018. Our business, financial condition and results ofoperations could suffer if Bank of America were to terminate or significantly curtail its purchases of our solutions, if we were unable to sell our solutions toBank of America on terms substantially as favorable to us as the terms under our current agreement, or if we were to experience delays in collecting paymentsfrom Bank of America. We provide managed security solutions to Bank of America under supplements entered into from time to time under a master servicesagreement. Bank of America may terminate any supplement for convenience and without cause at any time. The master services agreement will terminateautomatically two years after the date on which there are no supplements outstanding under the agreement, and may be terminated by the parties for causeunder specified circumstances. Bank of America may choose not to continue purchasing solutions from us in the future. The continuation of our businessrelationship with Bank of America, and the amount and timing of Bank of America’s purchases and payments, might be adversely affected by generaleconomic conditions, significant changes within the financial services industry or in the regulation of that industry, competition from other providers ofmanaged security services, changes in Bank of America’s demand for our solutions and other factors beyond our control.We generate a significant portion of our revenue from clients in the financial services industry, and changes within that industry or an unfavorable reviewby the federal banking regulatory agencies could reduce demand for our solutions.We derived approximately 30% of our revenue in fiscal 2018 from financial services institutions and expect to continue to derive a substantial portion of ourrevenue from clients in the financial services industry. Any of a variety of changes in that industry could adversely affect our revenue, profitability andfinancial condition. Spending by financial services clients on technology generally has fluctuated, and may continue to fluctuate, based on changes ineconomic conditions and on other factors, such as decisions by clients to reduce or restructure their technology spending in an attempt to improveprofitability. Further, mergers or consolidations of financial institutions could reduce our current and potential client base, resulting in a smaller market forour solutions.Some of our solutions have been deemed to be mission-critical functions of our financial institution clients that are regulated by one or more memberagencies of the Federal Financial Institutions Examination Council, or the FFIEC. We therefore are subject to examination by the member agencies of theFFIEC. The agencies conduct periodic reviews of our operations to identify existing or potential risks associated with our operations that could adverselyaffect our financial institution clients, evaluate our risk management systems and controls, and determine our compliance with applicable laws that affect thesolutions we provide to financial institutions. Areas of examination include our management of technology, data integrity, information confidentiality,service availability and financial stability. A sufficiently unfavorable review could result in our financial institution clients not being allowed, or notchoosing, to continue using our solutions, which could adversely affect our revenue, financial condition and results of operationsIf we fail to manage our growth effectively, we may be unable to execute our business plan and maintain high levels of client service, and our operationsmay be disrupted.As our client base and solutions offerings continue to grow, we will be required to further expand our operations, which could place a strain on our resourcesand infrastructure and affect our ability to maintain the quality of our solutions, deploy our solutions, support our clients after deployment and foster ourclient-focused culture. If we are unable to manage our growth, expenses or business effectively, our financial condition, results of operations and profitabilitycould be adversely affected.As we grow, we must continue to manage efficiently our employees, operations, finances, research and development and capital investments. Ourproductivity, client-focused culture and the quality of our solutions may be negatively affected if we do not integrate and train our new employees,particularly our sales and account management personnel, quickly and effectively. In addition, we may need to make substantial investments in additional ITinfrastructure to support our growth and will need to maintain or improve our operational, financial and management controls and our reporting procedures,which will require substantial management effort and additional investments in our operations. Further, if we expand our offerings, we may compete moredirectly with security software and service providers that may be better established or have greater resources than we do, our relationships with our channeland strategic partners may be impaired and we may be required to comply with additional industry regulations.23Failure to maintain high-quality client service and support functions could adversely affect our reputation and growth prospects.Once our solutions are deployed within our clients’ networks, our clients depend on our technical and other support services to ensure the security of their ITsystems. If we fail to hire, train and retain qualified technical support and professional services employees, our ability to satisfy our clients’ requirementscould be adversely affected, particularly if the demand for our solutions expands more rapidly than our ability to implement our solutions and provide clientsupport. The potential for human error in connection with our client service and support functions or the internal systems and networks that underpin ourability to provide solutions to our clients, even if promptly discovered and remediated, could disrupt client operations, cause losses for clients or harm ourinternal operations, lead to regulatory fines or damage our reputation. In addition, if we do not effectively assist our clients to deploy our solutions, resolvepost-deployment issues or provide effective ongoing support, our ability to sell additional solutions or subscriptions to existing clients could suffer and ourreputation with potential clients could be damaged. If we fail to meet the requirements of our existing clients, particularly larger enterprises that may requirehigher levels of support, it may be more difficult to realize our strategy of selling higher-margin or different types of solutions to those clients.Our results of operations may be adversely affected by service level agreements with some of our clients that require us to provide them with credits forservice failures or inadequacies.We have agreements with some of our clients in which we have committed to provide them our solutions at specified levels. If we are unable to meet thecommitments, we may be obligated to extend service credits to those clients, or could face terminations of the service agreements. Damages for failure to meetthe service levels specified in our service level agreements generally are limited to the fees charged over the previous 12 months, but, if challenged, suchlimits on damages payable by us may not be upheld, and we may be required to pay damages greater than such fees. Repeated or significant service failures orinadequacies could adversely affect our reputation and results of operations.If we are unable to continue the expansion of our sales force, the growth of our business could be harmed.We are substantially dependent on our direct sales force to obtain new clients and increase sales to existing clients, and we believe that our growth will beconstrained if we are not successful in recruiting, training and retaining a sufficient number of qualified sales personnel. There is significant competition forsales personnel with the deep skills and technical knowledge required to sell our information security solutions. We may be unable to hire or retain sufficientnumbers of qualified individuals in the domestic and international markets in which we do business or plan to do business. Because we seek to grow rapidly,many members of our sales force may be new to our company at any time. Newly hired sales personnel require extensive training and experience in sellingactivity before they achieve full productivity. Sales force members that we have hired recently or plan to hire may not become productive as quickly as weexpect. If we are unable to hire and train a sufficient number of effective sales personnel, or the sales personnel we hire are not successful in obtaining newclients or increasing sales to our existing client base, our business, results of operations and growth prospects will be adversely affected.Our sales cycles are long and unpredictable, and our sales efforts require considerable time and expense, which could adversely affect our results ofoperations.Sales of our information security solutions usually require lengthy sales cycles, which are typically three to nine months, but can exceed 12 months for largerclients. Sales to our clients can be complex and require us to educate our clients about our technical capabilities and the use and benefits of our solutions.Clients typically undertake a significant evaluation and acceptance process, and their subscription decisions frequently are influenced by budgetaryconstraints, technology evaluations, multiple approvals and unplanned administrative, processing and other delays. We spend substantial time, effort andmoney in our sales efforts without any assurance that our efforts will generate long-term contracts. If we do not realize the sales we expect from potentialclients, our revenue and results of operations could be adversely affected.As we continue to expand sales of our information security solutions to clients located outside the United States, our business increasingly will besusceptible to risks associated with international sales and operations.We have limited experience operating in international jurisdictions compared to our experience operating in the United States. We expect to increase ourpresence internationally through additional relationships with local and regional strategic and distribution partners and potentially through acquisitions ofother companies. International revenue, which we define as revenue contracted through non-U.S. entities, contributed approximately 16% of our totalrevenue in fiscal 2018. Our lack of experience in operating our business outside the United States increases the risk that any international expansion effortswill not24be successful. In addition, operating in international markets requires significant management attention and financial resources. The investment andadditional resources required to establish operations and manage growth in other countries may not produce the expected levels of revenue or earnings.Conducting international operations subjects us to risks that include:•the time, resources and expense required for localization of our solutions, including translation of our Internet-based portal interface into otherlanguages, provision of client support in other languages and creation of localized agreements;•the burdens of complying with a wide variety of international laws, regulations and legal standards, including local data privacy laws, local consumerprotection laws that could regulate permitted pricing and promotion practices, and restrictions on the use, import or export of encryption technologies;•longer accounts receivable payment cycles and difficulties in collecting accounts receivable;•fluctuations in currency exchange rates;•tariffs and trade barriers and other regulatory or contractual limitations on our ability to sell or develop our solutions in some international markets;•difficulties in managing and staffing international operations;•compliance with U.S. laws that apply to operations outside of the United States, including the Foreign Corrupt Practices Act, or FCPA, the Tradingwith the Enemy Act and regulations of the Office of Foreign Assets Control;•potentially adverse tax consequences and compliance costs resulting from the complexities of international tax systems and overlap of different taxregimes;•reduced or varied protection of intellectual property rights in some countries that could expose us to increased risk of infringement of our patents andother intellectual property; and•political, social and economic instability, terrorist attacks and security concerns in general.The occurrence of any of these risks could negatively affect our international business and, consequently, our overall business, results of operations andfinancial condition.An inability to expand our key distribution relationships would constrain the growth of our business.We intend to expand our distribution relationships to increase domestic and international sales. Approximately 7% of our revenue in fiscal 2018 wasgenerated through our channel partners, which include referral agents, regional value-added resellers and trade associations. Our strategy is to increase thepercentage of our revenue that we derive from sales through our channel partners. Our inability to maintain or further develop relationships with our currentand prospective distribution partners could reduce sales of our information security solutions and adversely affect our revenue growth and financialcondition.Our agreements with our partners generally are non-exclusive, and our partners may have more established relationships with one or more of our competitors.If our partners do not effectively market and sell our solutions, if they choose to place greater emphasis on their own products or services or those offered byour competitors or if they fail to meet our clients’ needs, our ability to expand our business and sell our solutions may be adversely affected. Our businessalso may suffer from the loss of a substantial number of our partners, the failure to recruit additional partners, any reduction or delay in the sales of oursolutions by our partners, or conflicts between sales by our partners and our direct sales and marketing activities. The gross margins to us from sales by ourpartners generally are lower than gross margins to us from direct sales. In addition, sales by our partners are more likely than direct sales to involvecollectability concerns and may contribute to periodic fluctuations in our results of operations.25Our technology alliance partnerships expose us to a range of business risks and uncertainties that could prevent us from realizing the benefits we seek fromthese partnerships.We have entered, and intend to continue to enter, into technology alliance partnerships with third parties to support our future growth plans. Suchrelationships include technology licensing, joint technology development and integration, research cooperation, co-marketing and sell-througharrangements. We face a number of risks relating to our technology alliance partnerships that could prevent us from realizing the benefits we seek from thesepartnerships on a timely basis or at all. Technology alliance partnerships can require significant coordination between the partners and a significantcommitment of time and resources by their technical staffs. In cases where we wish to integrate a partner’s products or services into our solutions, theintegration process may be more difficult than we anticipate, and the risk of integration difficulties, incompatibility and undetected programming errors ordefects may be higher than the risks normally associated with the introduction of new products or services. In addition, we have no assurance that anyparticular relationship will continue for any specific period of time. If we lose a significant technology alliance partner, we could lose the benefit of ourinvestment of time, money and resources in the relationship. Moreover, we could be required to incur significant expenses to develop a new strategic allianceor to formulate and implement an alternative plan to pursue the opportunity that we targeted with the former partner.Real or perceived defects, errors or vulnerabilities in our solutions or the failure of our solutions to prevent a security breach could disrupt our business,harm our reputation, cause us to lose clients and expose us to costly litigation.Our solutions are complex and may contain defects or errors that are not detected until after their adoption by our clients. As a result of such defects, ourclients may be vulnerable to cyber attacks, and hackers or other threat actors may misappropriate our clients’ data or other assets or otherwise compromisetheir IT systems. In addition, because the techniques used to access or sabotage IT systems and networks change frequently and generally are not recognizeduntil launched against a target, an advanced attack could emerge that our solutions are unable to detect or prevent. Further, as a well-known informationsecurity solutions provider, we are a high-profile target, and our websites, networks, information systems, solutions and technologies may be selected forsabotage, disruption or misappropriation by attacks specifically designed to interrupt our business and harm our reputation. Our solutions frequently involvethe collection, filtering and logging of our clients’ information, and our enterprise operations involve the collection, processing, storage and disposition ofour own human resources, intellectual property and other information. A security breach of proprietary information could result in significant legal andfinancial exposure, damage to our reputation and a loss of confidence in the security of our solutions that could have an adverse effect on our business.If any of our clients experiences an IT security breach after adopting our solutions, even if our solutions have blocked the theft of any data or provided someform of remediation, the client could be disappointed with our solutions and could look to our competitors for alternatives to our solutions. Further, if anyenterprise or government entity publicly known to use our solutions is the subject of a publicized cyber attack, some of our other current clients could seek toreplace our solutions with those provided by our competitors. Any real or perceived defects, errors or vulnerabilities in our solutions, or any other failure ofour solutions to detect an advanced threat, could result in:•expenditure of significant financial and development resources in efforts to analyze, correct, eliminate or work around the cause of any relatedvulnerabilities;•loss of existing or potential clients or channel partners;•delayed or lost revenue;•extension of service credits to affected clients, which would reduce our revenue;•failure to attain or retain market acceptance of our solutions; and•litigation, regulatory inquiries or investigations that may be costly and harm our reputation.26Any person that circumvents our security measures could misappropriate the confidential information or other valuable property of our clients or disrupt theiroperations. If such an event occurs, affected clients or others may sue us. Defending a lawsuit, regardless of its merit, could be time-consuming and costly.Because our solutions provide and monitor information security and may protect valuable information, we could face liability claims or claims for breach ofservice level agreements. Provisions in our service agreements that limit our exposure to liability claims may not be enforceable in some circumstances ormay not protect us fully against such claims and related costs. Alleviating any of these problems could require significant expenditures by us and result ininterruptions to and delays in the delivery of our solutions, which could cause us to lose existing or potential clients and damage our business and prospects.If our solutions do not interoperate with our clients’ IT infrastructure, our solutions may become less competitive and our results of operations may beharmed.Our solutions must effectively interoperate with each client’s existing or future IT infrastructure, which often has different specifications, utilizes multipleprotocol standards, deploys products and services from multiple vendors and contains multiple generations of products and services that have been addedover time. As a result, when problems occur in a network, it may be difficult to identify the sources of these problems and avoid disruptions when we providesoftware updates or patches to defend against particular vulnerabilities. Ineffective interoperation could increase the risk of a successful cyber attack andviolations of our service level agreements, which would require us to provide service credits that would reduce our revenue.In addition, government entities and other clients may require our solutions to comply with security or other certifications and standards. If our solutions arelate in achieving or fail to achieve compliance with these certifications and standards, or our competitors achieve compliance with these certifications andstandards before we do, we may be disqualified from selling our solutions to such clients or otherwise may be placed at a competitive disadvantage.Loss of our right or ability to use various third-party technologies could result in short-term disruptions to our business.We incorporate some third-party technologies into our solutions and may seek to incorporate additional third-party technologies in the future. Any loss ofour right to use third-party or other technologies could result in delays in producing or delivering our solutions until we identify and integrate equivalenttechnologies. If any of the technologies we license or purchase from others, or functional equivalents of these technologies, are no longer available to us orare no longer offered to us on commercially reasonable terms, we would be required either to redesign our solutions and devices to function withtechnologies available from other parties or to develop these components ourselves, which could result in increased costs or delays in the delivery of oursolutions and in the release of new offerings. We also might have to limit the features available in our current or future solutions. If we fail to maintain orrenegotiate some of our technology agreements with third parties, we could face significant delays and diversion of resources in attempting to license andintegrate other technologies with equivalent functions. Any errors or defects in third-party technologies, any inability to utilize third-party technologies ascontemplated, or any inability to procure and implement suitable replacement technologies could adversely affect our business and results of operations byimpeding delivery of our solutions.Evolving information security and data privacy laws and regulations may result in increased compliance costs, impediments to the development orperformance of our offerings, and monetary or other penalties.Because our solutions process client data that may contain personal data or other potentially sensitive information, we are or may become subject to federal,state and foreign laws and regulations regarding the privacy and protection of such client data. These laws and regulations address a range of issues,including data privacy, cybersecurity and restrictions or technological requirements regarding the collection, use, storage, protection, retention or transfer ofdata. The regulatory framework for data privacy and cybersecurity issues worldwide can vary substantially from jurisdiction to jurisdiction, is rapidlyevolving and is likely to remain uncertain for the foreseeable future. Foreign privacy and data protection laws and regulations can be more restrictive thanthose in the United States. Internationally, most of the jurisdictions in which we operate have established their own data security and privacy legalframeworks with which we or our clients must comply, including the Data Protection Directive established in the European Union. In addition, the EuropeanCouncil and European Parliament have adopted a data protection regulation, known as the General Data Protection Regulation, or GDPR, which will becomeeffective in May 2018. The GDPR will replace the current Data Protection Directive and related country-specific legislation. The GDPR will includeoperational and governance requirements for companies that collect or process personal data of residents of the European Union that differ from or expandupon those currently in place in the European Union. The GDPR also provides for significant penalties for non-compliance. The costs of compliance with,and other burdens imposed by, these laws and regulations may become substantial and may limit the use and adoption of our offerings, require us to changeour business practices, impede the performance and development of our solutions, or lead to significant fines, penalties or liabilities for noncompliance withsuch laws or regulations.27If we are not able to maintain and enhance our brand, our revenue and profitability could be adversely affected.We believe that maintaining and enhancing the Secureworks brand is critical to our relationships with our existing and potential clients, channel partners andemployees and to our revenue growth and profitability. Our brand promotion activities, however, may not be successful. Any successful promotion of ourbrand will depend on our marketing and public relations efforts, our ability to continue to offer high-quality information security solutions and our ability todifferentiate successfully our solutions from the services offered by our competitors.We believe our association with Dell has helped us to build relationships with many of our clients because of Dell’s globally recognized brand and favorablemarket perception of the quality of its products. We have entered into a trademark license agreement with Dell Inc. under which Dell Inc. has granted us anon-exclusive, royalty-free worldwide license to use the trademark “DELL,” solely in the form of “SECUREWORKS-A DELL COMPANY,” in connectionwith our business and products, services and advertising and marketing materials related to our business. Under the agreement, our use of the Dell trademarkin connection with any product, service or otherwise is subject to Dell Inc.’s prior review and written approval, which may be revoked at any time. We mustimmediately cease use of the licensed trademark generally or in connection with any product, services or materials upon Dell Inc.’s written request. Theagreement is terminable at will by either party, and we must cease all use of the Dell trademark upon any such termination. If we discontinue our associationwith Dell in the future, our ability to attract new clients may suffer.Extending our brand to new solutions that differ from our current offerings may dilute our brand, particularly if we fail to maintain our quality standards inproviding the new solutions. Moreover, it may be difficult to maintain and enhance our brand in connection with sales through channel partners. Thepromotion of our brand will require us to make substantial expenditures, and we anticipate that the expenditures will increase as the information securitymarket becomes more competitive and as we continue to increase our geographic footprint. Even if our promotional activities yield increased revenue, theincreased revenue may not offset the additional expenses we incur.We may expand through acquisitions of other companies, which could divert our management’s attention from our current business and could result inunforeseen operating difficulties, increased costs and dilution to our stockholders.We may make strategic acquisitions of other companies to supplement our internal growth. We could experience unforeseen operating difficulties inassimilating or integrating the businesses, technologies, services, products, personnel or operations of acquired companies, especially if the key personnel ofany acquired company choose not to work for us. Further, future acquisitions may:•involve our entry into geographic or business markets in which we have little or no experience;•create difficulties in retaining the clients of any acquired business;•result in a delay or reduction of client sales for both us and the company we acquire because of client uncertainty about the continuity and effectivenessof solutions offered by either company; and•disrupt our existing business by diverting resources and significant management attention that otherwise would be focused on developing our existingbusiness.To complete an acquisition, we may be required to use a substantial amount of our cash, sell or use equity or incur debt to secure additional funds. If we raiseadditional funds through issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equitysecurities we issue could have rights, preferences and privileges senior to those of our Class A common stock. Any debt financing obtained by us in the futurecould involve restrictive covenants that will limit our capital-raising activities and operating flexibility. In addition, we may not be able to obtain additionalfinancing on terms favorable to us or at all, which could limit our ability to engage in acquisitions. We may not realize the anticipated benefits of anyacquisition we are able to complete. An acquisition also may negativelyaffect our results of operations because it may:•expose us to unexpected liabilities;•require us to incur charges and substantial indebtedness or liabilities;•have adverse tax consequences;28•result in acquired in-process research and development expenses, or in the future require the amortization, write-down or impairment of amounts relatedto deferred compensation, goodwill and other intangible assets; or•fail to generate a financial return sufficient to offset acquisition costs.Because we recognize revenue ratably over the terms of our managed security and threat intelligence contracts, decreases in sales of these solutions maynot immediately be reflected in our results of operations.Historically, approximately 80% of our revenue was derived from subscription-based solutions, attributable to managed security contracts, whileapproximately 20% was derived from professional services engagements. Our subscription contracts typically range from one to three years in duration and,as of February 2, 2018, averaged two years in duration. Revenue related to these contracts generally is recognized ratably over the contract term. As a result,we derive most of our quarterly revenue from contracts we entered into during previous fiscal quarters. A decline in new or renewed contracts and anyrenewals at reduced annual dollar amounts in a particular quarter may not be reflected in any significant manner in our revenue for that quarter, but wouldnegatively affect revenue in future quarters. Accordingly, the effect of significant downturns in contracts may not be fully reflected in our results ofoperations until future periods. As of February 2, 2018, we billed approximately 53% of our recurring revenue in advance. We may not be able to adjust ouroutflows of cash to match any decreases in cash received from prepayments if sales decline. In addition, we may be unable to adjust our cost structure toreflect reduced revenue, which would have a negative effect on our earnings in future periods. Our subscription model also makes it difficult for us to increaseour revenue rapidly through additional sales in any period, as revenue from new clients must be recognized over the applicable contract term. Accordingly,the effect of significant downturns in sales and market acceptance of our solutions may not be fully reflected in our results of operations in the current period,making it more difficult for investors to evaluate our financial performance.Because we typically expense sales commissions paid to our strategic and distribution partners upon entering contracts for the solutions sold andrecognize the revenue associated with such sales over the terms of the contracts, our operating income in any period may not be indicative of our futureperformance.In connection with sales facilitated by our strategic and distribution partners, which accounted for approximately 7% of our revenue for fiscal 2018, wetypically expense the associated commissions paid to such partners, which totaled $0.4 million for fiscal 2018, at the time we enter into the client contract forour solutions. In contrast, we recognize the revenue associated with the sales of our subscription-based solutions ratably over the term of a client contract,which, as of February 2, 2018, had an average duration of two years. The commissions associated with increased sales from our strategic and distributionpartners could reduce our operating income. In addition, the number of sales through our strategic and distribution partners may fluctuate within a period.Therefore, our operating income during any one quarter may not be a reliable indicator of our future financial performance.If the estimates or judgments relating to our critical accounting policies prove to be incorrect, our reported results of operations may be adversely affected.The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America, or GAAP, requires ourmanagement to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. We base our estimateson historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Our reported results of operations maybe adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions. Significant assumptions and estimates used inpreparing our financial statements include those related to revenue recognition, stock-based compensation and estimates of the amount of loss contingencies.In addition, GAAP is subject to interpretation by the Securities and Exchange Commission, or the SEC, and various other bodies. A change in GAAP orinterpretations of GAAP could have a significant effect on our reported results and may affect our reporting of transactions completed before a change isannounced. Changes to those rules or the interpretation of our current practices may adversely affect our reported financial results or the way in which weconduct our business.29We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.Our revenue and expenses denominated in foreign currencies are subject to fluctuations due to changes in foreign currency exchange rates. As we expandinternationally in accordance with our growth strategy, we will enter into more sales contracts denominated in foreign currencies and incur incrementaloperating expenses outside the United States. Further, a strengthening of the U.S. dollar could increase the real cost of our solutions and subscriptions to ourclients outside the United States, which could adversely affect our non-U.S. sales and results of operations. We do not currently hedge against the risksassociated with currency fluctuations, but, as our international operations grow, we may begin to use foreign exchange forward contracts to partially mitigatethe impact of fluctuations in net monetary assets denominated in foreign currencies. Anysuch hedges may be ineffective to protect us fully against foreign currency risk.Governmental export or import controls could subject us to liability or limit our ability to compete in foreign markets.Our information security solutions and technologies incorporate encryption technology and may be exported outside the United States only if we obtain anexport license or qualify for an export license exception. Compliance with applicable regulatory requirements regarding the export of our solutions andtechnologies may create delays in the introduction of our solutions and technologies in international markets, prevent our clients with internationaloperations from utilizing our solutions and technologies throughout their global systems or prevent the export of our solutions and technologies to somecountries altogether. In addition, various countries regulate the import of our appliance-based technologies and have enacted laws that could limit our abilityto distribute, and our clients’ ability to implement, our technologies in those countries. Any new export or import restrictions, new legislation or shiftingapproaches in the enforcement or scope of existing regulations, or in the countries, persons or technologies targeted by such regulations, could result indecreased use of our solutions and technologies by existing clients with international operations, loss of sales to potential clients with internationaloperations and decreased revenue. If we fail to comply with export and import regulations, we may be denied export privileges, be subjected to fines or otherpenalties or fail to obtain entry for our technologies into other countries.Failure to comply with the Foreign Corrupt Practices Act, and similar laws associated with our current and future international activities, could subject usto penalties and other adverse consequences.In some countries where we currently operate or expect to conduct business in the future, it is common to engage in business practices that are prohibited byU.S. laws and regulations, including the FCPA, regardless of where such behavior occurs. Such laws prohibit improper payments or offers of payments toforeign governments and their officials and political parties by U.S. and other business entities for the purpose of obtaining or retaining business. Althoughwe have implemented policies and procedures to discourage such practices, some of our employees, consultants, sales agents or channel partners, includingthose that may be based in or from countries where practices that violate U.S. laws may be customary, may take actions in violation of our procedures and forwhich we ultimately may be responsible. Violations of the FCPA may result in severe criminal or civil sanctions, including suspension or debarment fromcontracting with government entities in the United States, and could subject us to other liabilities, which could negatively affect our business and financialcondition.Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, or Exchange Act, and are required to maintain effectivedisclosure controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to bedisclosed by us in reports we file or furnish to the SEC under the Exchange Act is accumulated and communicated to management and is recorded, processed,summarized and reported within the periods specified in SEC rules and forms. Because of the inherent limitations in our control system, however,misstatements due to error or fraud may occur and not be detected. These inherent limitations include the realities that judgments in decision-making can befaulty and that breakdowns can occur because of simple error. In addition, controls can be circumvented by the individual acts of some persons, by collusionof two or more people or by an unauthorized override of the controls.30Earthquakes, fires, power outages, floods, terrorist attacks and other catastrophic events could disrupt our business and ability to serve our clients.A significant natural disaster, such as an earthquake, a fire, a flood or a significant power outage, could have a material adverse effect on our business, resultsof operations or financial condition. Although our four counter threat operations centers are designed to be redundant and to offer seamless backup support inan emergency, we rely on two primary data centers to sustain our operations. While each of these data centers is capable of sustaining our operationsindividually, a simultaneous failure of the centers could disrupt our ability to serve our clients. In addition, our ability to deliver our solutions as agreed withour clients depends on the ability of our supply chain, manufacturing vendors or logistics providers to deliver products or perform services we have procuredfrom them. If any natural disaster impairs the ability of our vendors or service providers to support us on a timely basis, our ability to perform our clientengagements may suffer. Acts of terrorism or other geopolitical unrest also could cause disruptions in our business or the business of our supply chain,manufacturing vendors or logistics providers. The adverse impacts of these risks may increase if the disaster recovery plans for us and our suppliers prove tobe inadequate.Risks Related to Intellectual PropertyWe rely in part on patents to protect our intellectual property rights, and if our patents are ineffective in doing so, third parties may be able to use aspectsof our proprietary technology without compensating us.As of February 2, 2018, we owned 22 issued patents and 26 pending patent applications in the United States and four issued patents and two pending patentapplications outside the United States. Obtaining, maintaining and enforcing our patent rights is costly and time-consuming. Moreover, any failure of ourpatents and patent strategy to protect our intellectual property rights adequately could harm our competitive position. We do not know whether any of ourpending patent applications will result in the issuance of patents or whether the examination process will require us to modify or narrow our claims, and evenif any of our pending patent applications issues, such patents may not provide us with meaningful protection or competitive advantages, and may becircumvented by third parties. Changes in patent laws, implementing regulations or the interpretation of patent laws may diminish the value of our rights. Ourcompetitors may design around technologies we have patented, licensed or developed. In addition, the issuance of a patent does not give us the right topractice the patented invention. Third parties may have blocking patents that could prevent us from marketing our solutions or practicing our own patentedtechnology.Third parties may challenge any patent that we own or license, through adversarial proceedings in the issuing offices or in court proceedings, including as aresponse to any assertion of our patents against them. In any of these proceedings, a court or agency with jurisdiction may find our patents invalid orunenforceable or, even if valid and enforceable, insufficient to provide adequate protection against competing solutions. The standards by which the UnitedStates Patent and Trademark Office and its foreign counterparts grant technology-related patents are not always applied predictably or uniformly. The legalsystems of some countries do not favor the aggressive enforcement of patents, and the laws of other countries may not allow us to protect our inventions withpatents to the same extent as U.S. laws. If any of our patents is challenged, invalidated or circumvented by third parties, and if we do not own or haveexclusive rights to other enforceable patents protecting our solutions or other technologies, competitors and other third parties could market products orservices and use processes that incorporate aspects of our proprietary technology without compensating us, which may have an adverse effect on ourbusiness.If we are unable to protect, maintain or enforce our non-patented intellectual property rights and proprietary information, our competitive position couldbe harmed and we could be required to incur significant expenses to enforce our rights.Our business relies in part on non-patented intellectual property rights and proprietary information, such as trade secrets, confidential information and know-how, all of which offer only limited protection to our technology. The legal standards relating to the validity, enforceability and scope of protection ofintellectual property rights in the information technology industry are highly uncertain and evolving. Although we regularly enter into non-disclosure andconfidentiality agreements with employees, vendors, clients and other third parties, these agreements may be breached or otherwise fail to prevent disclosureof proprietary or confidential information effectively or to provide an adequate remedy in the event of such unauthorized disclosure. In addition, theexistence of our own trade secrets, confidential information and know-how affords no protection against independent discovery or development of suchintellectual property by other persons. If our employees, consultants or contractors use technology or know-how owned by third parties in their work for us,disputes may arise between us and those third parties as to the rights in related inventions. Our ability to police that misappropriation or infringement isuncertain, particularly in other countries. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietaryrights, and failure to maintain trade secret protection could adversely affect our competitive business position.31Claims by others that we infringe their proprietary technology could harm our business and financial condition.Third parties could claim that our technologies and the processes underlying our solutions infringe or otherwise violate their proprietary rights. The softwareand technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation,including by non-practicing entities, based on allegations of infringement or other violations of intellectual property rights, and we expect that such claimsmay increase as competition in the information security market continues to intensify, as we introduce new solutions (including in geographic areas where wecurrently do not operate) and as business-model or product or service overlaps between our competitors and us continue to occur. For example, in fiscal 2016,we settled litigation in which a third party alleged that aspects of our business and solutions infringed and induced the infringement of two of its U.S. patentsrelating to network intrusion and event monitoring technology.To the extent that we achieve greater prominence and market exposure as a public company, we may face a higher risk of being the target of intellectualproperty infringement claims. From time to time, we may receive notices alleging that we have infringed, misappropriated or misused other parties’intellectual property rights. There may be third-party intellectual property rights, including patents and pending patent applications, that cover significantaspects of our technologies, processes or business methods. Any claims of infringement by a third party, even claims without merit, could cause us to incursubstantial defense costs and could distract our management and technical personnel from our business, and there can be no assurance that our technologiesand processes will be able to withstand such claims. Competitors may have the capability to dedicate substantially greater resources to enforce theirintellectual property rights and to defend claims that may be brought against them than we do. Further, a party making such a claim, if successful, couldsecure a judgment that requires us to pay substantial damages, which potentially could include treble damages if we are found to have willfully infringedpatents. A judgment also could include an injunction or other court order that could prevent us from offering our solutions. In addition, we might be requiredto seek a license or enter into royalty arrangements for the use of the infringed intellectual property, which may not be available on commercially reasonableterms or at all. The failure to obtain a license or the costs associated with any license could materially and adversely affect our business, financial conditionand results of operations. If a third party does not offer us a license to its technology or other intellectual property on reasonable terms, we could be precludedfrom continuing to use such intellectual property. Parties with which we currently have license agreements, or with which we may enter into licenseagreements in the future, including Dell, may have the right to terminate such agreements for our material breach or for convenience at any time, which couldaffect our ability to make use of material intellectual property rights. Alternatively, we might be required to develop non-infringing technology, which couldrequire significant effort and expense and ultimately might not be successful.Third parties also may assert infringement claims against our clients relating to our devices or technology. Any of these claims might require us to initiate ordefend potentially protracted and costly litigation on their behalf, regardless of the merits of these claims, because under specified conditions we agree toindemnify our clients from claims of infringement of proprietary rights of third parties. If any of these claims were to succeed, we might be forced to paydamages on behalf of our clients, which could adversely affect our profitability and harm our reputation in the industry.Our use of open source technology could require us in some circumstances to make available source code of our modifications to that technology, whichcould include source code of our proprietary technologies, and also may restrict our ability to commercialize our solutions.Some of our solutions and technologies incorporate software licensed by its authors or other third parties under open source licenses. To the extent that weuse open source software, we face risks arising from the scope and requirements of common open source software licenses. Some of these licenses containrequirements that we make available source code for modifications or derivative works we create based on the open source software, and that we license suchmodifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. If wecombine our proprietary technology with open source software in a certain manner, we may face claims from time to time from third parties claimingownership of, or demanding release of, the open source software or derivative works that we developed using such software, which could include ourproprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. For example, the GNU General Public License couldsubject certain portions of our proprietary technologies to the requirements of that license, and these, or similar requirements, may have adverse effects on oursale of solutions incorporating such open source software.32Our ability to commercialize solutions or technologies incorporating open source software may be restricted because, among other reasons, open sourcelicense terms may be ambiguous and may result in unanticipated or uncertain obligations regarding our solutions, litigation or loss of the right to use thissoftware. The terms of many open source licenses to which we are subject have not been interpreted by courts in the United States or other countries.Therefore, there is a risk that the terms of these licenses will be construed in a manner that imposes unanticipated conditions or restrictions on our ability tocommercialize our solutions, and we could be required to seek licenses from third parties to continue offering our solutions, to re-engineer our technology orto discontinue offering our solutions if re-engineering cannot be accomplished in a commercially reasonable manner. In addition, use of open source softwarecan lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin ofthe software, and it may be difficult for us to identify accurately the developers of the open source code and determine whether the open source softwareinfringes third-party intellectual property rights. We would be subject to similar risks with respect to software or technologies we acquire that include opensource components. Our need to comply with unanticipated license conditions and restrictions, the need to seek licenses from third parties or any judgmentsrequiring us to provide remedies typically covered by third-party product warranties – each as a result of our use of open source software – could adverselyaffect our business, results of operations and financial condition.Risks Related to Our Relationship with Dell and Dell TechnologiesAs long as Dell Technologies Inc. controls us, the ability of our other stockholders to influence matters requiring stockholder approval will be limited.We became an indirect wholly-owned subsidiary of Dell Inc. and Dell Inc.’s subsidiaries when we were acquired by Dell on February 8, 2011. On October 29,2013, Dell Inc. was acquired in a going-private transaction by Denali Holding Inc., a holding company that changed its name to Dell Technologies Inc., orDell Technologies, in August 2016. Upon the completion of the going-private transaction, we became an indirect wholly-owned subsidiary of DellTechnologies. As of February 2, 2018, the principal beneficial owners of Dell Technologies’ outstanding voting securities were Michael S. Dell, theChairman, Chief Executive Officer and founder of Dell, and investment funds affiliated with Silver Lake Partners, a global private equity firm.As of February 2, 2018, Dell Technologies owned, indirectly through Dell Inc. and Dell Inc.’s subsidiaries, no shares of our outstanding Class A commonstock and all 70,000,000 outstanding shares of our Class B common stock, which represented approximately 86.3% of our total outstanding shares ofcommon stock and approximately 98.4% of the combined voting power of both classes of our outstanding common stock.Our other stockholders will not be able to affect the outcome of any stockholder vote while Dell Technologies controls the majority of the voting power ofour outstanding common stock. Dell Technologies is able to control, directly or indirectly and subject to applicable law, significant matters affecting us,including:•the election and removal of our directors;•amendments to our certificate of incorporation;•determinations with respect to mergers, business combinations, dispositions of assets or other extraordinary corporate transactions; and•agreements that may adversely affect us.If Dell Technologies does not provide any requisite affirmative vote on matters requiring stockholder approval allowing us to take particular corporateactions when requested, we will not be able to take such actions, and, as a result, our business and our results of operations may be adversely affected.Dell Technologies could have interests that differ from, or conflict with, the interests of our other stockholders, and could cause us to take corporate actionseven if the actions are not in the interest of our company or our other stockholders, or are opposed by our other stockholders. For example, DellTechnologies’ voting control could discourage or prevent a change in control of our company even if some of our other stockholders might favor such atransaction. Even if Dell Technologies were to control less than a majority of the voting power of our outstanding common stock, it may be able to influencethe outcome of significant corporate actions by us for as long as it owns a significant portion of the voting power. If Dell Technologies is acquired orotherwise experiences a change in control, any acquiror or successor will be entitled to exercise Dell Technologies’ voting control with respect to us, andmight do so in a manner that could vary significantly from the manner in which Dell Technologies would have exercised such rights.33Our inability to resolve in a manner favorable to us any potential conflicts or disputes that arise between us and Dell or Dell Technologies with respect toour past and ongoing relationships may adversely affect our business and prospects.Potential conflicts or disputes may arise between Dell or Dell Technologies and us in a number of areas relating to our past or ongoing relationships,including:•actual or anticipated variations in our quarterly or annual results of operations;•tax, employee benefit, indemnification and other matters arising from our relationship with Dell;•employee retention and recruiting;•business combinations involving us;•our ability to engage in activities with certain channel, technology or other marketing partners;•sales or dispositions by Dell Technologies of all or any portion of its beneficial ownership interest in us;•the nature, quality and pricing of services Dell has agreed to provide us;•business opportunities that may be attractive to both Dell and us;•Dell’s ability to use and sublicense patents that we have licensed to Dell under a patent license agreement; and•product or technology development or marketing activities that may require consent of Dell or Dell Technologies.The resolution of any potential conflicts or disputes between us and Dell or Dell Technologies over these or other matters may be less favorable to us than theresolution we might achieve if we were dealing with an unaffiliated party.In April 2016, in connection with our initial public offering, or IPO, we entered into a shared services agreement, an employee matters agreement, a taxmatters agreement, intellectual property agreements, real estate-related agreements and commercial agreements with Dell or Dell Technologies, which are ofvarying durations and may be amended upon agreement of the parties. The terms of these agreements were primarily determined by Dell and DellTechnologies, and therefore may not be representative of the terms we could obtain on a stand-alone basis or in negotiations with an unaffiliated third party.For so long as we are controlled by Dell Technologies, we may not be able to negotiate renewals or amendments to these agreements, if required, on terms asfavorable to us as those we would be able to negotiate with an unaffiliated third party.If Dell Technologies, Dell or Dell Technologies’ other affiliates or Silver Lake Partners or its affiliates engage in the same type of business we conduct ortake advantage of business opportunities that might be attractive to us, our ability to operate successfully and expand our business may be hampered.Our certificate of incorporation, or charter, provides that, except as otherwise agreed in writing between us and Dell Technologies, Dell or Dell Technologies’other affiliates (other than us or our controlled affiliates), referred to as the Dell Technologies Entities, have no duty to refrain from:•engaging in the same or similar activities or lines of business as those in which we are engaged;•doing business with any of our clients, customers or vendors; or•employing, or otherwise engaging or soliciting for such purpose, any of our officers, directors or employees.In addition, under our charter, Silver Lake Partners and its affiliates, referred to as the Silver Lake Entities, have no duty to refrain from any of the foregoingactivities except as otherwise agreed in writing between us and a Silver Lake Entity.Provisions of our charter could result in the Dell Technologies Entities and the Silver Lake Entities having rights to corporate opportunities in which both weand the Dell Technologies Entities or the Silver Lake Entities have an interest. Our charter addresses potential conflicts of interest between our company, onthe one hand, and the Dell Technologies Entities or the Silver Lake Entities and their respective officers and directors who are officers or directors of ourcompany, on the other hand. If any34Dell Technologies Entity or Silver Lake Entity is offered, or acquires knowledge of, a potential corporate opportunity suitable for both it and us, we will haveno interest in that opportunity. Our charter also provides that if any of our directors or officers who is also a director or officer of any Dell Technologies Entityor Silver Lake Entity is offered, or acquires knowledge of, a potential corporate opportunity suitable for both the Dell Technologies Entity or the Silver LakeEntity and us, we will have no interest in that opportunity unless the opportunity is expressly offered to that person in writing solely in such person’scapacity as our director or officer.Our historical financial information as a subsidiary of Dell before our initial public offering may not be representative of our results as an independentpublic company.The historical financial statements and the related financial information presented in this annual report on Form 10-K for periods before our initial publicoffering do not purport to reflect what our results of operations, financial position, equity or cash flows would have been if we had operated as a stand-alonepublic company during those periods. Such financial statements include allocations for various corporate services Dell has provided to us in the ordinarycourse of our business, including finance, tax, human resources, legal, insurance, IT, procurement and facilities-related services. As a result, those historicalfinancial statements may not be comparable to our financial statements as a stand-alone public company.To preserve Dell Technologies ability to conduct a tax-free distribution of the shares of our Class B common stock that it beneficially owns and its abilityto consolidate with us for tax purposes, we may be prevented from pursuing opportunities to raise capital, acquire other companies or undertake othertransactions, which could hurt our ability to grow.To preserve its ability to effect a future tax-free spin-off of our company, or certain other tax-free transactions involving us, Dell Technologies is required tomaintain “control” of us within the meaning of Section 368(c) of the Internal Revenue Code, which is defined as 80% of the total voting power and 80% ofeach class of nonvoting stock. In addition, to preserve its ability to consolidate with us for tax purposes, Dell Technologies generally is required to maintain80% of the voting power and 80% of the value of our outstanding stock. We have entered into a tax matters agreement with Dell Technologies, whichrestricts our ability to issue any stock, issue any instrument that is convertible, exercisable or exchangeable into any of our stock or which may be deemed tobe equity for tax purposes, or take any other action that would be reasonably expected to cause Dell Technologies to beneficially own stock in us that, on afully diluted basis, does not constitute “control” within the meaning of Section 368(c) of the Internal Revenue Code or to cause a deconsolidation of us fortax purposes with respect to the Dell Technologies consolidated group. We also have agreed to indemnify Dell Technologies for any breach by us of the taxmatters agreement. As a result, we may be prevented from raising equity capital or pursuing acquisitions or other growth initiatives that involve issuingequity securities as consideration.Our ability to operate our business effectively may suffer if we are unable to establish in a cost-effective manner our own administrative and other supportfunctions in order to operate as a stand-alone company after the expiration of our shared services and other agreements with Dell.As a subsidiary of Dell, we have relied on administrative and other resources of Dell to operate our business. In connection with our IPO, we entered intovarious agreements to retain the ability for varying periods to use these Dell resources. These services may not be sufficient to meet our needs, and if ouragreements with Dell are not renewed by the parties after their initial terms, we may not be able to replace the services at all or obtain them at prices and onterms as favorable as those under our current arrangements with Dell. In such a case, we may need to create our own administrative and other support systemsor contract with third parties to replace Dell’s systems. In addition, we have received informal support from Dell that may not be available under our newagreements, and the level of this informal support may diminish as we become a more independent company. Any significant performance failures affectingour own administrative systems or Dell’s administrative systems on which we rely could result in unexpected costs, adversely affect our results and prevent usfrom paying our suppliers or employees and performing other administrative services on a timely basis.In connection with our IPO, we entered into agreements with Dell that formalize the process and terms pursuant to which Dell purchases information securitysolutions from us, together with related hardware, and pursuant to which we procure hardware and software from Dell from time to time. These agreementsmay not be renewed after their expiration or, if they are renewed, Dell may not agree to renew them on the existing terms. The expiration or termination ofthese agreements, or their renewal on less favorable terms to us, could result in a loss of business or require us to procure comparable hardware and softwarefrom alternative sources, which could have a material adverse effect on our business, results of operations and financial condition.35Risks Related to Ownership of Our Class A Common StockThe price of our Class A common stock may be volatile.The trading prices of the securities of technology companies historically have experienced high levels of volatility, and the trading price of our Class Acommon stock has fluctuated since our IPO and may fluctuate substantially in future periods. The trading price of our Class A common stock could fluctuateas a result of the following factors, among others:•announcements of new products, services or technologies, commercial relationships, acquisitions or other events by us or our competitors;•changes in how customers perceive the effectiveness of our solutions in protecting against advanced cyber attacks;•actual or anticipated variations in our quarterly or annual results of operations;•changes in our financial guidance or estimates by securities analysts;•price and volume fluctuations in the overall stock market from time to time;•significant volatility in the market price and trading volume of technology companies in general and of companies in the information securityindustry in particular;•actual or anticipated changes in the expectations of investors or securities analysts;•fluctuations in the trading volume of our shares or the size of the trading market for our shares held by non-affiliates;•litigation involving us, our industry, or both, including disputes or other developments relating to our ability to patent our processes and technologiesand protect our other proprietary rights;•regulatory developments in the United States and other jurisdictions in which we operate;•general economic and political factors, including market conditions in our industry or the industries of our clients;•major catastrophic events;•sales of large blocks of our Class A common stock; and•additions or departures of key employees.If the market for technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of our Class A common stockcould decline for reasons unrelated to our business, results of operations or financial condition. The market price of our Class A common stock also mightdecline in reaction to events that affect other companies in our industry, even if these events do not directly affect us.In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against thatcompany. If our stock price is volatile, we may become the target of securities litigation, which could cause us to incur substantial costs and divert ourmanagement’s attention and resources from our business.If securities or industry analysts do not publish research or reports about our business, or publish inaccurate or unfavorable research reports about ourbusiness or prospects, the market price of our Class A common stock and trading volume could decline.The trading market for our Class A common stock depends in part on the research and reports that securities or industry analysts publish about us, ourbusiness or our prospects. We do not have any control over these analysts. If one or more of the analysts covering us should downgrade our shares or express achange of opinion regarding our shares, the market price of our Class A common stock could decline. If one or more of these analysts should cease coverageof our company or fail to publish reports on us on a regular basis, we could lose following in the financial markets, which could cause the market price ortrading volume of our Class A common stock to decline.36As a “controlled company” under the marketplace rules of the NASDAQ Stock Market, we may rely on exemptions from certain corporate governancerequirements that provide protection to stockholders of companies that are subject to such requirements.As of February 2, 2018, Dell Technologies beneficially owns more than 50% of the combined voting power of both classes of our outstanding shares ofcommon stock. As a result, we are a “controlled company” under the marketplace rules of the NASDAQ Stock Market, or NASDAQ, and eligible to rely onexemptions from NASDAQ corporate governance requirements generally obligating listed companies to maintain:•a board of directors having a majority of independent directors;•a compensation committee composed entirely of independent directors that approves the compensation payable to the company’s chief executiveofficer and other executive officers; and•a nominating committee composed entirely of independent directors that nominates candidates for election to the board of directors, or thatrecommends such candidates for nomination by the board of directors (or obligating the listed company to cause a majority of the board’s independentdirectors to exercise this oversight of director nominations).Although we do not currently rely on the foregoing exemptions from NASDAQ’s corporate governance requirements, we may decide to avail ourselves of oneor more of these exemptions in the future. During any period in which we do so, investors may not have the same protections afforded to stockholders ofcompanies that must comply with all of NASDAQ’s corporate governance requirements. Our status as a controlled company could make our Class A commonstock less attractive to some investors or otherwise adversely affect its trading price.Future sales, or the perception of future sales, of a substantial amount of shares of our Class A common stock could depress the trading price of ourClass A common stock.Sales of a substantial number of shares of our Class A common stock in the public market, or the perception that these sales may occur, could adversely affectthe market price of the Class A common stock at such time, which could make it more difficult for investors to sell their shares of our Class A common stockat a time and price that they consider appropriate, and could impair our ability to raise equity capital or use our Class A common stock as consideration foracquisitions of other businesses, investments or other corporate purposes.As of March 26, 2018, we have outstanding 11,772,505 shares of our Class A common stock and 70,000,000 shares of our Class B common stock. Of theseshares, the 8,000,000 shares of Class A common stock that were sold in our IPO are freely tradeable without restriction or further registration under theSecurities Act of 1933, or Securities Act, unless these shares are held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act, or Rule144. As of February 2, 2018, Dell Technologies owned, indirectly through its subsidiary Dell Inc. and through Dell Inc.’s subsidiaries, no shares of ourClass A common stock and all 70,000,000 outstanding shares of our Class B common stock. The shares of our Class A common stock eligible for resale byour affiliates under Rule 144, subject to the volume limitations and other requirements of Rule 144, include the 70,000,000 shares of Class A common stockissuable upon conversion of the same number of shares of our Class B common stock that are outstanding.We have entered into a registration rights agreement with Dell Marketing L.P. (the record holder of our Class B common stock), Michael S. Dell, the SusanLieberman Dell Separate Property Trust, MSDC Denali Investors, L.P., MSDC Denali EIV, LLC and the Silver Lake Partners investment funds that own DellTechnologies common stock in which we have granted them and their respective permitted transferees demand and piggyback registration rights with respectto the shares of our Class A common stock and Class B common stock held by them from time to time. In addition, we have entered into a registration rightsagreement with the holders of shares of Class A common stock issued upon conversion of our convertible notes at the closing of our IPO in which we havegranted such holders and their permitted transferees shelf and piggyback registration rights with respect to such shares. Registration of those shares under theSecurities Act would permit the stockholders under each registration rights agreement to sell their shares into the public market.37Our issuance of additional capital stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise will dilute allother stockholders.Our charter authorizes us to issue up to 2,500,000,000 shares of Class A common stock, up to 500,000,000 shares of Class B common stock and up to200,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors. Subject to compliance with applicablelaw, we may issue our shares of Class A common stock or securities convertible into our Class A common stock from time to time in connection with afinancing, acquisition, investment, our stock incentive plans or otherwise. We may issue additional shares of Class A common stock from time to time at adiscount to the market price of our Class A common stock at the time of issuance. Any issuance of Class A common stock could result in substantial dilutionto our existing stockholders and cause the market price of our Class A common stock to decline.Provisions in our charter and bylaws and in Delaware law could discourage takeover attempts even if our stockholders might benefit from a change incontrol of our company.Provisions in our charter and bylaws and in Delaware law may discourage, delay or prevent a merger, acquisition or other change in control of our companythat stockholders may favor, including transactions in which stockholders might receive a premium for their shares of Class A common stock. Theseprovisions also could make it more difficult for investors in our Class A common stock to elect directors of their choosing and to cause us to take othercorporate actions they support, including removing or replacing our current management. The charter and bylaw provisions:•provide that our Class B common stock is entitled to ten votes per share, while our Class A common stock is entitled to one vote per share, enablingDell Technologies, as the beneficial owner of all outstanding shares of our Class B common stock, to control the outcome of all matters submitted to avote of our stockholders, including the election of directors;•provide for the classification of the board of directors into three classes, with approximately one-third of the directors to be elected each year;•limit the number of directors constituting the entire board of directors to a maximum of 15 directors, subject to the rights of the holders of anyoutstanding series of preferred stock, and provide that the authorized number of directors at any time will be fixed exclusively by a resolution adoptedby the affirmative vote of the authorized number of directors (without regard to vacancies);•provide that, at such time (if any) as the Dell Technologies Entities beneficially own capital stock representing less than 40% in voting power of thecapital stock entitled to vote generally on the election of directors, any newly-created directorship and any vacancy on the board of directors may befilled only by the affirmative vote of a majority of the remaining directors then in office;•provide that, at such time (if any) as the Dell Technologies Entities beneficially own capital stock representing less than 50% in voting power of thecapital stock entitled to vote generally on the election of directors, directors may be removed only for cause and only by the affirmative vote of theholders of at least a majority in voting power of all outstanding shares of capital stock, voting together as a single class;•provide that a special meeting of stockholders may be called only by our chairman of the board, a majority of the directors then in office or, so long asDell Technologies Entities beneficially own capital stock representing at least 40% in voting power of the capital stock entitled to vote generally onthe election of directors, Dell Technologies;•provide that, at such time (if any) as the Dell Technologies Entities beneficially own capital stock representing less than 50% in voting power of thecapital stock entitled to vote generally on the election of directors, any action required or permitted to be taken by our stockholders at any annual orspecial meeting may not be effected by a written consent in lieu of a meeting unless such action and the taking of such action by written consent havebeen approved in advance by our board of directors;•establish advance notice procedures for stockholders to make nominations of candidates for election as directors or to present any other business forconsideration at any annual or special stockholder meeting; and•provide authority for the board of directors without stockholder approval to authorize the issuance of up to 200,000,000 shares of preferred stock, inone or more series, with terms and conditions, and having rights, privileges and preferences, to be determined by the board of directors.In addition, we will become subject to Section 203 of the Delaware General Corporation Law at such time (if any) as the Dell Technologies Entities cease toown beneficially capital stock representing at least 10% in voting power of the capital stock entitled to vote generally on the election of directors. Withspecified exceptions, this statute prohibits a Delaware corporation listed on a national securities exchange from engaging in a business combination (asdefined in Section 203) with an interested stockholder (generally a person who, together with its affiliates and associates, owns 15% or more of thecorporation’s voting38stock) for a period of three years after the date of the transaction in which the person became an interested stockholder (unless the corporation’s board ofdirectors approved in advance the transaction in which such person became an interested stockholder).Our charter designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings thatmay be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or with ourdirectors, our officers or other employees, or our majority stockholder.Our charter provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be theexclusive forum for:•any derivative action or proceeding brought on our behalf;•any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any of our directors, officers or other employees, orstockholders to us or our stockholders;•any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or as to which the Delaware GeneralCorporation Law confers jurisdiction on the Court of Chancery of the State of Delaware; and•any action asserting a claim governed by the internal affairs doctrine.Any person purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have received notice of and consented to the foregoingprovisions. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds more favorable for disputes withus or with our directors, our officers or other employees, or our other stockholders, including our majority stockholder, which may discourage such lawsuitsagainst us and such other persons. Alternatively, if a court were to find this choice of forum provision inapplicable to, or unenforceable in respect of, one ormore of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which couldadversely affect our business, results of operations and financial condition.We do not expect to pay any dividends on our Class A common stock for the foreseeable future.We intend to retain any earnings to finance the operation and expansion of our business, and do not expect to pay any cash dividends on our Class Acommon stock for the foreseeable future. Accordingly, investors must rely on sales of our Class A common stock after price appreciation, which may neveroccur, as the only way to realize any future gains on their investment.We are an “emerging growth company,” and our election to comply with the reduced disclosure requirements as a public company may make our Class Acommon stock less attractive to investors.We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. For so long as we remain anemerging growth company, we are permitted and currently intend to rely on the following provisions of the JOBS Act that contain exceptions from disclosureand other requirements that otherwise are applicable to companies that file periodic reports with the SEC. The JOBS Act provisions:•provide an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting under the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;•permit us to include reduced disclosure regarding executive compensation in our SEC filings; and•provide an exemption from the requirement to hold a non-binding advisory vote on executive compensation and stockholder approval of any goldenparachute arrangements not previously approved.We will remain an emerging growth company until: (a) the first to occur of the last day of the fiscal year (1) which follows the fifth anniversary of thecompletion of our IPO, (2) in which we have total annual gross revenue of at least $1 billion or (3) in which the market value of our capital stock held by non-affiliates was $700 million or more as of the last business day of the preceding second fiscal quarter; or (b) if it occurs before any of the foregoing dates, thedate on which we have issued more than $1 billion in non-convertible debt over a three-year period.Some investors may find our Class A common stock less attractive if we rely on these exemptions, which could result in a less active trading market for ourClass A common stock and higher volatility in our stock price.39We incur increased costs as a result of operating as a public company, and our management is required to devote substantial time to compliance with ourpublic company responsibilities and corporate governance practices.As a public company, and particularly after we are no longer an emerging growth company, we will continue to incur significant legal, accounting and otherexpenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listingrequirements of the NASDAQ Global Select Market and other applicable rules and regulations under the Securities Exchange Act of 1934, or Exchange Act,impose various requirements on public companies. Our management and other personnel must devote a substantial amount of time to compliance with theserequirements. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming andcostly.We are obligated to develop and maintain proper and effective internal control over financial reporting and any failure to maintain the adequacy of ourinternal controls may adversely affect investor confidence in our company and, as a result, the value of our Class A common stock.We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, to furnish a report by our management on, among other matters, theeffectiveness of our internal control over financial reporting. Our independent registered public accounting firm will not be required to attest to theeffectiveness of our internal control over financial reporting until our first annual report required to be filed with the SEC following the date we are no longeran emerging growth company. We are required to disclose significant changes made in our internal control procedures on a quarterly basis. Our compliancewith Section 404 requires that we incur substantial accounting expense and expend significant management efforts.During the evaluation and testing process of our internal controls, if we identify one or more material weaknesses in our internal control over financialreporting, we will be unable to assert that our internal control over financial reporting is effective. We may experience material weaknesses or significantdeficiencies in our internal control over financial reporting. Any failure to maintain internal control over financial reporting could severely inhibit our abilityto report accurately our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective,or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, we could loseinvestor confidence in the accuracy and completeness of our financial reports, the market price of our Class A common stock could decline, and we could besubject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control overfinancial reporting, or to implement or maintain other effective control systems required of public companies, also could restrict our future access to thecapital markets.Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesAs of February 2, 2018, our facilities consisted of our corporate headquarters, four counter threat operations centers, two primary data centers, and variousother Dell facilities housing our research and development, marketing and sales functions, and administrative and IT operations support. We either leasethese facilities or have the right to use them pursuant to service agreements, either with Dell or with other third parties. As of February 2, 2018, we did notown any facilities. Our corporate headquarters, as well as one of our counter threat operations centers and one of our data centers, is located in Atlanta, Georgia, where we leasefacilities of approximately 141,229 square feet. As of February 2, 2018, we leased or licensed facilities for our other counter threat operations centers in thefollowing locations: Chicago, Illinois; Providence, Rhode Island; and Edinburgh, Scotland. Our employees also operate out of a number of Dell facilitiesaround the globe pursuant to arrangements with Dell. For information about our facility leases, see “Notes to Consolidated Financial Statements—Note 6—Commitments and Contingencies—Purchase Obligations and Lease Commitments” in our consolidated financial statements included in this report.As we expand, we intend to lease or license additional sites, either from Dell or other third parties, for counter threat operations centers, sales offices and otherfunctions. We believe that suitable additional facilities will be available on commercially reasonable terms to accommodate the foreseeable expansion of ouroperations.40Table of ContentsItem 3. Legal ProceedingsFrom time to time, we are a party to or otherwise subject to legal proceedings that arise in the ordinary course of our business. As of February 2, 2018, we werenot subject to any material pending legal proceedings.Item 4. Mine Safety DisclosuresNot applicable.41Table of ContentsPart IIItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket for Class A Common StockOur Class A common stock is listed on the NASDAQ Global Select Market under the symbol “SCWX.” The following table sets forth information regardingthe high and low sales prices of shares of our Class A common stock in fiscal 2018 and in the portion of fiscal 2017 from April 22, 2016, the date on whichour Class A common stock began trading on the NASDAQ Global Select Market, through February 2, 2018.Fiscal Year High Low2018 First Quarter $12.11 $8.25 Second Quarter 11.75 8.76 Third Quarter 12.99 9.53 Fourth Quarter 10.47 8.10 2017 First Quarter (from April 22, 2016) $14.60 $13.10 Second Quarter 16.23 11.96 Third Quarter 15.80 11.04 Fourth Quarter 12.82 10.15 There is no public market for our Class B common stock.HoldersAs of March 26, 2018, there were nine holders of record of our Class A common stock and one holder of record of our Class B common stock, which is anindirect wholly-owned subsidiary of Dell Technologies. The number of record holders does not include individuals or entities that beneficially own shares ofClass A common stock, but whose shares are held of record by a broker, bank or other nominee.DividendsSubsequent to the listing of our Class A common stock on the NASDAQ Global Select Market, we have not declared or paid dividends on our common stock.We do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all available fundsand any future earnings to support our operations and finance the growth and development of our business. Any future determination related to our dividendpolicy will be made at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition,capital requirements, contractual restrictions, business prospects and other factors our board of directors may deem relevant.Use of Proceeds from Initial Public Offering of Class A Common StockAs of February 2, 2018, we have expended approximately $40.6 million of the net proceeds of our IPO for general corporate purposes and have investedapproximately $59.0 million of such proceeds in money market funds pending their use in our business.42Stock Performance GraphThe following graph compares the cumulative total return on the Class A common stock for the period from April 22, 2016, the date on which the Class Acommon stock began trading on the NASDAQ Global Select Market, through February 2, 2018 with the total return over the same period on the NasdaqComposite Index and the PureFunds ISE Cyber Security ETF Index. The graph assumes that $100 was invested on April 22, 2016 in the Class A commonstock and in each of the foregoing indices and assumes reinvestment of dividends, if any. The comparisons in the graph are based on historical data and arenot necessarily indicative of the future price performance of the Class A common stock. April 22, 2016 February 3,2017 February 2, 2018Secureworks $100.00 $75.64 $67.43NASDAQ Composite 100.00 115.50 147.59PureFunds ISE Cyber Security ETF 100.00 121.21 137.94This performance graph shall not be deemed to be incorporated by reference by means of any general statement incorporating by reference this annual reporton Form 10 K into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Secureworks specificallyincorporates such information by reference, and shall not otherwise be deemed filed under such Acts.43Item 6. Selected Financial Data The following table presents our selected financial data as derived from audited financial statements included in this report. The selected financial datapresented below should be read in conjunction with our audited financial statements and accompanying notes and with “Management’s Discussion andAnalysis of Financial Condition and Results of Operations.” Our financial information may not be indicative of our future performance and does notnecessarily reflect what our financial position and results of operations would have been if we had operated as a stand-alone public company during theperiods presented. Fiscal Year Ended February 2, 2018 February 3, 2017 January 29, 2016 (in thousands, except per share data)Results of Operations: Net revenue $467,904 $429,502 $339,522Gross margin $241,186 $216,903 $155,713Operating expenses $324,231 $282,856 $261,721Operating loss $(83,045) $(65,953) $(106,008)Net loss $(28,077) $(38,213) $(72,381)Share and Per Share Data Net loss per share - basic and diluted $(0.35) $(0.49) $(1.03)Weighted average shares outstanding - basic and diluted 80,280 77,635 70,000 February 2, 2018 February 3, 2017 January 30, 2016 (in thousands)Balance Sheet: Cash and cash equivalents $101,539 $116,595 $33,422Accounts receivable $157,764 $113,546 $116,357Total assets $991,301 $995,103 $917,785Short-term deferred revenue $139,632 $119,909 $109,467Short-term convertible notes $— $— $27,993Long-term deferred revenue $14,948 $14,752 $18,352Total stockholder's equity $679,149 $691,424 $588,45644Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsThis management’s discussion and analysis is based upon the financial statements of Secureworks which have been prepared in accordance withaccounting principles generally accepted in the United States, or GAAP, and should be read in conjunction with our consolidated financial statements andrelated notes included in this report. In addition to historical financial information, the following discussion contains forward-looking statements thatreflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed or implied in our forward-looking statements. Factorsthat could cause or contribute to these differences include those discussed in “Risk Factors.”Our fiscal year is the 52- or 53-week period ending on the Friday nearest January 31. We refer to our fiscal years ending February 2, 2018, February 3,2017, and January 29, 2016 as fiscal 2018, fiscal 2017 and fiscal 2016, respectively. Fiscal 2018 and fiscal 2016 each included 52 weeks, while fiscal 2017included 53 weeks, with the extra week included in the fourth quarter. All percentage amounts and ratios presented in this management’s discussion andanalysis were calculated using the underlying data in thousands. Unless otherwise indicated, all changes identified for the current-period results representcomparisons to results for the prior corresponding fiscal periods.Except where the context otherwise requires or where otherwise indicated, all references to “Secureworks” “we,” “us,” “our” and “our company” in thismanagement’s discussion and analysis refer to SecureWorks Corp. and our subsidiaries on a consolidated basis, all references to “Dell” refer to Dell Inc.and its subsidiaries on a consolidated basis and all references to “Dell Technologies” refer to Dell Technologies Inc., the ultimate parent company of DellInc.OverviewWe are a leading global cybersecurity company that protects organizations in the digitally connected world. We combine visibility from thousands of clients,machine learning and automation from our industry-leading SecureWorks Counter Threat PlatformTM, and actionable insights from our team of eliteresearchers, analysts and consultants to create a powerful network effect that provides increasingly strong protection for our clients. By aggregating andanalyzing data from various sources around the world, we prevent security breaches, detect malicious activity in real time, respond rapidly and predictemerging threats.Our mission is to unlock the value of our clients’ security investments by simplifying their complex security operations and amplifying their defenses.Through our vendor-neutral approach, we create integrated and comprehensive solutions by proactively managing the collection of “point” productsdeployed by our clients to address specific security issues and provide supplemental solutions where gaps exist in our clients’ defenses. We customize theright level of security for each client's unique situation, which evolves as the client's organization grows and changes.We have pioneered an integrated approach that delivers a broad portfolio of information security solutions to organizations of varying size and complexity.Our flexible and scalable solutions support the evolving needs of the largest, most sophisticated enterprises staffed with in-house security experts, as well assmall and medium-sized businesses and government agencies with limited in-house capabilities and resources.Our solutions enable organizations to:•prevent security breaches by fortifying their cyber defenses,•detect malicious activity,•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 overmore than 18 years. Key elements of our strategy include:•maintain and extend our technology leadership,•expand and diversify our client base,•deepen our existing client relationships, and•attract and retain top talent.45We opened our first counter threat operations center in Atlanta, Georgia in 1999 to support our managed security business. We began providing security andrisk consulting offerings to our clients in 2005. In 2006, we acquired LURHQ Corporation, a leading provider of security information and event monitoringsolutions to enterprises. In addition, we launched our information security offerings. Shortly thereafter, we focused our growth strategy on expanding intonew market segments and geographic regions. In 2008, we launched our log management solution, among other new solutions. We began offering ourmanaged web application firewall solutions in 2009, shortly before we acquired Verisign, Inc.’s managed security business. In the same year, we alsoexpanded internationally through the acquisition of dns Limited, a managed security and consulting organization, which operated in London, England andin Edinburgh, Scotland. From 2009 to 2012, we capitalized on all of our investments, both organic and acquired, and integrated these technologies into theCounter Threat Platform in order to provide our clients with a comprehensive view of their network environments and security threats, while adapting to aconstantly evolving threat landscape. Over the last several years, we have continued to expand our offerings, including through the launch of our advancedendpoint threat detection solution and our advanced malware protection and detection solution. We continuously evaluate potential investments andacquisitions of businesses, services and technologies to expand our offerings and supplement our organic growth.From April 2009 to February 2, 2018, the number of events processed by our technology platform increased from five billion to as many as 250 billion eventsper day. Further, our client base has grown to approximately 4,400 subscription-based clients as of February 2, 2018. This significant growth has requiredcontinual investment in our business, resulting in net losses. We believe these investments are critical to our success, although they may continue to impactour near-term profitability.Key Factors Affecting Our PerformanceWe believe that our future success will depend on many factors, including the adoption of our solutions by organizations, continued investment in ourCounter Threat Platform and threat intelligence research, our introduction of new solutions, our ability to increase sales of our solutions to new and existingclients and our ability to attract and retain top talent. Although these areas present significant opportunities, they also present risks that we must manage toensure our future success. For additional information about these risks, refer to “Risk Factors” in this report. We operate in a highly competitive industry andface, among other competitive challenges, pricing pressures within the information security market as a result of action by our larger competitors to reducethe prices of their security monitoring, detection and prevention products, as well as their managed security services. We must continue to efficiently manageour investments and effectively execute our strategy to succeed. If we are unable to address these challenges, our business could be adversely affected.Adoption of Intelligence-Driven Solution Strategy. The evolving landscape of applications, modes of communication and IT architectures makes itincreasingly challenging for organizations of all sizes to protect their critical business assets, including proprietary information, from cyber threats. Newtechnologies heighten security risks by increasing the number of ways a threat actor can attack a target, by giving users greater access to important businessnetworks and information and by facilitating the transfer of control of underlying applications and infrastructure to third-party vendors. An effective cyberdefense strategy requires the coordinated deployment of multiple products and services tailored to an organization’s specific security needs. Our integratedsuite of solutions is designed to facilitate the successful implementation of such a strategy, but continuous investment in, and adaptation of, our technologywill be required as the threat landscape continues to evolve rapidly. The degree to which prospective and current clients recognize the mission-critical natureof our intelligence-driven information security solutions, and subsequently allocate budget dollars to our solutions, will affect our future financial results.Investment in Our Platform and Threat Intelligence Research. Our Counter Threat Platform constitutes the core of our intelligence-driven informationsecurity solutions. It provides our clients with an integrated perspective and intelligence regarding their network environments and security threats. Theplatform is augmented by our Counter Threat Unit research team, which conducts exclusive research into threat actors, uncovers new attack techniques,analyzes emerging threats and evaluates the risks posed to our clients. Our performance is significantly dependent on the investments we make in ourresearch and development efforts, and on our ability to be at the forefront of threat intelligence research, and to adapt our platform to new technologies aswell as to changes in existing technologies. This is an area in which we will continue to invest, while leveraging a flexible staffing model to align withsolutions development. We believe that investment in our platform will contribute to long-term revenue growth, but it may continue to adversely affect ournear-term profitability.Introduction of New Information Security Solutions. Our performance is significantly dependent on our ability to continue to innovate and introduce newinformation security solutions that protect our clients from an expanding array of cybersecurity threats. We continue to invest in solutions innovation andleadership, including hiring top technical talent and focusing on core technology innovation. In addition, we will continue to evaluate and utilize third-partyproprietary technologies, where appropriate, for the continuous development of complementary offerings. We cannot be certain that we will realize increased46revenue from our solutions development initiatives. We believe that our investment in solutions development will contribute to long-term revenue growth,but it may continue to adversely affect our near-term profitability.Investments in Expanding Our Client Base and Deepening Our Client Relationships. To support future sales, we will need to continue to devote resources tothe development of our global sales force. We have made and plan to continue to make significant investments in expanding our sales teams and distributionprograms with our channel partners and increasing awareness of our brand. Any investments we make in our sales and marketing operations will occur beforewe realize any benefits from such investments. Therefore, it may be difficult for us to determine if we are efficiently allocating our resources in this area. Theinvestments we have made, or intend to make, to strengthen our sales and marketing efforts may not result in an increase in revenue or an improvement in ourresults of operations. Although we believe our investment in sales and marketing will help us improve our results of operations in the long term, the resultingincrease in operating expenses attributable to these sales and marketing functions may continue to adversely affect our profitability in the near term. Thecontinued growth of our business also depends in part on our ability to sell additional solutions to our existing clients. As our clients realize the benefits ofthe solutions they previously purchased, our portfolio of solutions provides us with a significant opportunity to expand these relationships.Investment in Our People. The difficulty in providing effective information security is exacerbated by the highly competitive environment for identifying,hiring and retaining qualified information security professionals. Our technology leadership, brand, exclusive focus on information security, client-firstculture, and robust training and development program have enabled us to attract and retain highly-talented professionals with a passion for building a careerin the information security industry. These professionals are led by a highly experienced and tenured management team with extensive IT security expertiseand a record of developing successful new technologies and solutions to help protect our clients. We will continue to invest in attracting and retaining toptalent to support and enhance our information security offerings.Key Operating MetricsIn recent years, we have experienced broad growth across our portfolio of intelligence-driven information security solutions being provided to all sizes ofclients. We have achieved much of this growth by providing solutions to large enterprise clients, which generate substantially more average revenue than oursmall and medium-sized business, or SMB, clients, and by continually expanding the volume and breadth of the security solutions that we provide to allclients. This has resulted in steady growth in our average revenue per client. This growth has required continuous investment in our business, resulting in netlosses. We believe these investments are critical to our success, although they may continue to impact our profitability.We believe the operating metrics described below provide further insight into the long-term value of our subscription agreements and our ability to maintainand grow our client relationships. Relevant key operating metrics are presented below as of the dates indicated and for the quarterly periods then ended: February 2, 2018 February 3, 2017 January 29, 2016Client base4,400 4,400 4,200Monthly recurring revenue (in millions)$35.3 $31.6 $28.6Average revenue per client (in thousands)$95.6 $86.4 $81.0Revenue retention rate96% 98% 108%Client Base. We define our client base as the number of clients who subscribe to our managed security solutions as of a particular date. We believe thatgrowing our existing client base and our ability to grow our average revenue per client represent significant future revenue opportunities for us. The increasesin our client base and average revenue per client are primarily related to the persistence of cyber threats and the results of our sales and marketing efforts toincrease the awareness of our solutions. Additionally, our client composition of both enterprise and SMB companies provides us with an opportunity toexpand our professional services revenue. As of February 2, 2018, February 3, 2017, and January 29, 2016, approximately 44%, 49%, and 48%, respectively,of our professional services clients subscribed to our managed security solutions.Monthly Recurring Revenue. We define monthly recurring revenue as the monthly value of our subscription contracts as of a particular date. Because we usemonthly recurring revenue as a leading indicator of future revenue, we include operational backlog. We define operational backlog as the monthly recurringrevenue associated with pending contracts, which are contracts that have been sold but for which the service period has not yet commenced. Our increase inmonthly recurring revenue has been driven primarily by our continuing ability to expand our offerings and sell additional solutions to existing47clients, as well as by growth in our client base. Overall, we expect monthly recurring revenue to continue to grow as we retain and expand our client base, andas our clients extend the use of our solutions over time.Revenue Retention Rate. Our revenue retention rate is an important measure of our success in retaining and growing revenue from our subscription-basedclients. To calculate our revenue retention rate for any period, we compare the monthly recurring revenue excluding operational backlog of our subscription-based client base at the beginning of the fiscal year, which we call our base recurring revenue, to the monthly recurring revenue excluding operationalbacklog from that same cohort of clients at the end of the period, which we call our retained recurring revenue. By dividing the retained recurring revenue bythe base recurring revenue, we measure our success in retaining and growing installed revenue from the specific cohort of clients we served at the beginningof the period. Our calculation includes the positive revenue impacts of selling and installing additional solutions to this cohort of clients and the negativerevenue impacts of client or service attrition during the period. However, the calculation does not include the positive impact on revenue from sales ofsolutions to any clients acquired during the period. Our revenue retention rates may decline or increase from period to period as a result of several factors,including timing of the installation of solutions contracted in prior periods, client satisfaction with our solutions, the price of our solutions, the prices oravailability of competing solutions and changing technologies, and consolidation within our client base.Non-GAAP Financial MeasuresWe use supplemental measures of our performance, which are derived from our financial information, but which are not presented in our financial statementsprepared in accordance with generally accepted accounting principles in the United States of America, referred to as GAAP. Non-GAAP financial measurespresented in this management's discussion and analysis include non-GAAP revenue, non-GAAP gross margin, non-GAAP research and developmentexpenses, non-GAAP sales and marketing expenses, non-GAAP general and administrative expenses, non-GAAP operating loss, non-GAAP net loss, non-GAAP net loss per share and adjusted EBITDA. We use non-GAAP financial measures to supplement financial information presented on a GAAP basis. Webelieve these non-GAAP financial measures provide useful information to help evaluate our operating results by facilitating an enhanced understanding ofour operating performance and enabling more meaningful period-to-period comparisons.In particular, we have excluded the impact of certain purchase accounting adjustments related to a change in the basis of deferred revenue for the acquisitionof Dell by Dell Technologies in fiscal 2014. We believe it is useful to exclude such purchase accounting adjustments related to the foregoing transactions asthis deferred revenue generally results from multi-year service contracts under which deferred revenue is established upon sale and revenue is recognized overthe term of the contract. Pursuant to the fair value provisions applicable to the accounting for business combinations, GAAP requires this deferred revenue tobe recorded at its fair value, which is typically less than the book value. In presenting non-GAAP earnings, we add back the reduction in revenue that resultsfrom this revaluation on the expectation that a significant majority of these service contracts will be renewed in the future and therefore the revaluation is nothelpful in predicting our ongoing revenue trends. We believe that this non-GAAP financial adjustment is useful to investors because it allows investors to (1)evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making, and (2) compare pastand future reports of financial results of our company as the revenue reduction related to acquired deferred revenue will not recur when related servicecontracts are renewed in future periods.There are limitations to the use of the non-GAAP financial measures presented in this management’s discussion and analysis. Our non-GAAP financialmeasures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.Non-GAAP revenue, non-GAAP gross margin, non-GAAP research and development expenses, non-GAAP sales and marketing expenses, non-GAAP generaland administrative expenses, non-GAAP operating loss, non-GAAP net loss and non-GAAP net loss per share, as defined by us, exclude the items described inthe reconciliation below. As the excluded items can have a material impact on earnings, our management compensates for this limitation by relying primarilyon GAAP results and using non-GAAP financial measures supplementally. The non-GAAP financial measures are not meant to be considered as indicators ofperformance in isolation from or as a substitute for revenue, gross margin, research and development expenses, sales and marketing expenses, general andadministrative expenses, operating loss or net loss prepared in accordance with GAAP, and should be read only in conjunction with financial informationpresented on a GAAP basis.48Reconciliation of Non-GAAP Financial MeasuresThe table below presents a reconciliation of each non-GAAP financial measure to its most directly comparable GAAP financial measure. We encourage you toreview the reconciliations in conjunction with the presentation of the non-GAAP financial measures for each of the periods presented. In future fiscal periods,we may exclude such items and may incur income and expenses similar to these excluded items. Accordingly, the exclusion of these items and other similaritems in our non-GAAP presentation should not be interpreted as implying that these items are non-recurring, infrequent or unusual.The following is a summary of the items excluded from the most comparable GAAP financial measures to calculate our non-GAAP financial measures:•Impact of Purchase Accounting. The impact of purchase accounting consists primarily of purchase accounting adjustments related to a change in thebasis of deferred revenue related to the acquisition of Dell by Dell Technologies in fiscal 2014.•Amortization of Intangible Assets. Amortization of intangible assets consists of amortization of customer relationships and acquired technology. Inconnection with the acquisition of Dell by Dell Technologies in fiscal 2014, all of our tangible and intangible assets and liabilities were accountedfor and recognized at fair value on the transaction date. Accordingly, amortization of intangible assets consists of amortization associated withintangible assets recognized in connection with this transaction.•Stock-based Compensation Expense. Non-cash stock-based compensation expense relates to both the Dell Technologies and Secureworks equityplans. We exclude such expense when assessing the effectiveness of our operating performance since stock-based compensation does not necessarilycorrelate with the underlying operating performance of the business.•Other. Other includes professional fees incurred by us in connection with our IPO and amounts expensed in the settlement of a legal matter. We areexcluding these expenses for the purpose of calculating the non-GAAP financial measures presented below because we believe these items areoutside our ordinary course of business and do not contribute to a meaningful evaluation of our current operating performance or comparisons to ourpast operating performance.•Aggregate Adjustment for Income Taxes. The aggregate adjustment for income taxes is the estimated combined income tax effect for the adjustmentsmentioned above. The tax effects are determined based on the tax jurisdictions where the above items were incurred.•Impact of Tax Cuts and Jobs Act. The impact of the Tax Cuts and Jobs Act relates to a provisional tax benefit of $27.0 million recorded in the fourthquarter of fiscal 2018 as a result of U.S. tax reform that was enacted in December 2017. For additional information, see “Notes to ConsolidatedFinancial Statements—Note 8—Income and Other Taxes” in our consolidated financial statements included in this report. Fiscal Year Ended February 2,2018 February 3,2017 January 29,2016 GAAP revenue$467,904 $429,502 $339,522Impact of purchase accounting584 884 2,769Non-GAAP revenue$468,488 $430,386 $342,291 GAAP gross margin$241,186 $216,903 $155,713Amortization of intangibles13,642 13,642 13,640Impact of purchase accounting624 1,160 2,932Stock-based compensation expense891 462 —Other— — 4,868Non-GAAP gross margin$256,343 $232,167 $177,153 49GAAP research and development expenses$80,164 $71,030 $69,598Stock-based compensation expense(3,261) (2,033) (277)Non-GAAP research and development expenses$76,903 $68,997 $69,321 GAAP sales and marketing expenses$151,341 $124,950 $111,978Stock-based compensation expense(735) (1,068) —Non-GAAP sales and marketing expenses$150,606 $123,882 $111,978 GAAP general and administrative expenses$92,726 $86,876 $80,145Amortization of intangibles(14,095) (14,094) (14,660)Impact of purchase accounting(1,025) (886) (916)Stock-based compensation expense(8,903) (5,320) (564)Other— (1,164) (8,917)Non-GAAP general and administrative expenses$68,703 $65,412 $55,088 GAAP operating loss$(83,045) $(65,953) $(106,008)Amortization of intangibles27,737 27,736 28,299Impact of purchase accounting1,649 2,046 3,848Stock-based compensation expense13,789 8,883 841Other— 1,164 13,786Non-GAAP operating loss$(39,870) $(26,124) $(59,234) GAAP net loss$(28,077) $(38,213) $(72,381)Amortization of intangibles27,737 27,736 28,299Impact of purchase accounting1,649 2,046 3,848Stock-based compensation expense13,789 8,883 841Impact of Tax Cuts and Jobs Act(26,994) — —Other— 1,164 13,786Aggregate adjustment for income taxes(15,129) (16,113) (17,508)Non-GAAP net loss$(27,025) $(14,497) $(43,115) GAAP net loss per share$(0.35) $(0.49) $(1.03)Amortization of intangibles0.34 0.36 0.40Impact of purchase accounting0.02 0.03 0.05Stock-based compensation expense0.17 0.11 0.01Impact of Tax Cuts and Jobs Act(0.34) — —Other— 0.01 0.20Aggregate adjustment for income taxes(0.19) (0.21) (0.25)Non-GAAP net loss per share *$(0.34) $(0.19) $(0.62)* Sum of reconciling items may differ from total due to rounding of individual components GAAP net loss$(28,077) $(38,213) $(72,381)Interest and other, net2,735 (2,476) 6,569Income tax benefit(57,703) (25,264) (40,196)Depreciation and amortization42,171 39,425 40,638Stock-based compensation expense13,789 8,883 841Impact of purchase accounting584 884 2,769Other— 1,164 13,786Adjusted EBITDA$(26,502) $(15,597) $(47,974)50Our Relationship with Dell and Dell TechnologiesOn February 8, 2011, we were acquired by Dell Inc. On October 29, 2013, Dell was acquired by Dell Technologies Inc. (formerly known as Denali HoldingInc.), a parent holding corporation. For the purposes of the accompanying financial statements, we elected to utilize pushdown accounting for the acquisitionof Dell by Dell Technologies. On April 27, 2016, we completed our IPO, as further described below. Upon the closing of our IPO, Dell Technologies owned,indirectly through Dell Inc. and Dell Inc.’s subsidiaries, no shares of our outstanding Class A common stock and all shares of our outstanding Class Bcommon stock, which as of February 2, 2018 represented approximately 86.3% of our total outstanding shares of common stock and approximately 98.4% ofthe combined voting power of both classes of our outstanding common stock. Since acquiring us in 2011, Dell has provided us with various corporate services in the ordinary course of business, including finance, tax, human resources,legal, insurance, IT, procurement and facilities-related services. Dell also has provided us with the services of a number of its executives and employees.Through the first two quarters of fiscal 2016, the costs of such services were allocated to us based on the most relevant allocation method to the serviceprovided, primarily based on relative percentage of total net sales, relative percentage of headcount, or specific identification. We believe the basis on whichthe expenses were allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by us during the periods presented.Beginning in the third quarter of fiscal 2016, the costs of these services have been charged in accordance with a shared services agreement that went intoeffect on August 1, 2015, the effective date of our carve-out from Dell. For more information regarding the allocated costs and related party transactions, see“Notes to Consolidated Financial Statements—Note 10—Related Party Transactions” in our consolidated financial statements included elsewhere in thisreport. During the periods presented in the financial statements, Secureworks did not file separate federal tax returns, as Secureworks was generally included in thetax grouping of other Dell entities within the respective entity’s tax jurisdiction. The income tax benefit has been calculated using the separate returnmethod, modified to apply the benefits for loss approach. Under the benefits for loss approach, net operating losses or other tax attributes are characterized asrealized or as realizable by Secureworks when those attributes are utilized or expected to be utilized by other members of the Dell consolidated group. Formore information, see “Notes to Consolidated Financial Statements—Note 8—Income and Other Taxes” in our consolidated financial statements included inthis report.As a subsidiary of Dell, we have participated in various commercial arrangements with Dell, under which, for example, we provide information securitysolutions to third-party clients with which Dell has contracted to provide our solutions, procure hardware, software and services from Dell, and sell oursolutions through Dell in the United States and some international jurisdictions. In connection with our IPO, effective August 1, 2015, we entered intoagreements with Dell that govern these commercial arrangements. The commercial agreements set the terms and conditions for transactions between Dell andus, while our shared services agreement with Dell sets the terms and conditions for certain administrative functions that continue to be provided by Dell.These agreements generally are effective for up to one to three years and include extension and cancellation options. To the extent that we choose to or arerequired to transition away from the corporate services currently provided by Dell, we may incur additional non-recurring transition costs to establish ourown stand-alone corporate functions. As of February 2, 2018, we have established a substantial portion of our stand-alone corporate functions.Since our IPO, we have instituted compensation policies and programs as a public company, such as an independent share-based compensation program, theexpense for which differs from compensation expensed in periods prior to our IPO. In addition, we have become subject to the reporting requirements of theExchange Act and the Sarbanes-Oxley Act. Accordingly, we have incurred additional costs relating to internal audit, investor relations and stockadministration, as well as other regulatory compliance costs.As a result of the matters discussed above, our historical financial statements and the related financial information presented in this management’s discussionand analysis do not purport to reflect what our results of operations, financial position or cash flows would have been if we had operated as a stand-alonepublic company during all of the periods presented. For periods prior to August 1, 2015, the carve-out date, our financial information was derived from theaccounting records of Dell and us, and required the use of estimates and assumptions. Effective August 1, 2015, assets and liabilities supporting our businesswere contributed by Dell to us where necessary. For a description of the basis of presentation and an understanding of the limitations of the financialstatements, see “Notes to Consolidated Financial Statements—Note 1—Description of the Business and Basis of Presentation” in our consolidated financialstatements included in this report.51Initial Public OfferingOn April 27, 2016, we completed our IPO in which we issued and sold 8,000,000 shares of Class A common stock at a price to the public of $14.00 per share.We received net proceeds of $99.6 million from the sale of shares of Class A common stock after deducting $12.4 million of underwriting discounts andcommissions and unpaid offering expenses payable by us.Components of Results of OperationsRevenueWe sell managed security solutions and threat intelligence solutions on a subscription basis and various professional services, including security and riskconsulting and incident response solutions. Our managed security subscription contracts typically range from one to three years and, as of February 2, 2018,averaged approximately two years in duration. Our initial contracts with clients may include amounts for hardware, installation and professional services thatmay not recur. Revenue related to these contracts is recognized ratably over the terms of the contracts. Professional services clients typically purchasesolutions pursuant to customized contracts that are shorter in duration. In general, these contracts have terms of less than one year. Revenue related toprofessional services is recognized as services are performed.The fees we charge for our solutions vary based on a number of factors, including the solutions selected, the number of client devices covered by the selectedsolutions, and the level of management we provide for the solutions. In fiscal 2018, approximately 78% of our revenue is derived from subscription-basedsolutions, provided under managed security services, while approximately 22% is derived from professional services engagements. As we respond to theevolving needs of our clients, the relative mix of subscription-based solutions and professional services we provide our clients may fluctuate. Internationalrevenue, which we define as revenue contracted through non-U.S. entities, represented approximately 16%, 13% and 12% of our total net revenue in fiscal2018, fiscal 2017, and fiscal 2016, respectively. Although our international clients are located primarily in Europe, Asia Pacific and Canada, we providedmanaged security services to clients across 59 countries as of February 2, 2018.Over all of the periods presented in this report, our pricing strategy for our various offerings was relatively consistent, and accordingly did not significantlyaffect our revenue growth. Because we operate in a competitive environment, however, we may adjust our pricing to support our strategic initiatives.Gross MarginWe operate in a challenging business environment, where the complexity as well as the number of cyber attacks are constantly increasing. Accordingly,initiatives to drive the efficiency of our Counter Threat Platform and the continued training and development of our employees are critical to our long-termsuccess. Gross margin has been and will continue to be affected by these factors as well as others, including the mix of solutions sold, the mix between largeand small clients, timing of revenue recognition and the extent to which we expand our counter threat operations centers.Cost of revenue consists primarily of personnel expenses, including salaries, benefits and performance-based compensation for employees who maintain ourCounter Threat Platform and provide solutions to our clients, as well as perform other critical functions. Also included in cost of revenue are amortization ofequipment and costs associated with hardware provided to clients as part of their subscription services, amortization of technology licensing fees, fees paid tocontractors who supplement or support our solutions, maintenance fees and overhead allocations. As our business grows, the cost of revenue associated withour solutions may fluctuate.We operate in a high-growth industry and have experienced significant revenue growth since our inception. Accordingly, we expect our gross margin toincrease in absolute dollars. We continue to invest in initiatives to drive the efficiency of our business to increase gross margin as a percentage of totalrevenue. However, as we balance revenue growth and efficiency initiatives, gross margin as a percentage of total revenue may fluctuate from period to period.52Operating Costs and ExpensesOur operating costs and expenses consist of research and development expenses, sales and marketing expenses and general and administrative expenses.▪Research and Development, or R&D, Expenses. Research and development expenses include compensation and related expenses for the continueddevelopment of our solutions offerings, including a portion of expenses related to our threat research team, which focuses on the identification ofsystem vulnerabilities, data forensics and malware analysis, and product management. R&D expenses also encompass expenses related to thedevelopment of prototypes of new solutions offerings and allocated overhead. Our solutions offerings have generally been developed internally. Weoperate in a competitive and highly technical industry. Therefore, to maintain and extend our technology leadership, we intend to continue to investin our R&D efforts by hiring more personnel to enhance our existing security solutions and to add complementary solutions.•Sales and Marketing, or S&M, Expenses. Sales and marketing expenses include salaries, sales commissions and performance-based compensationbenefits and related expenses for our S&M personnel, travel and entertainment, marketing and advertising programs (including lead generation), clientadvocacy events, and other brand-building expenses, as well as allocated overhead.▪General and Administrative, or G&A, Expenses. General and administrative expenses include primarily the costs of human resources and recruiting,finance and accounting, legal support, information management and information security systems, facilities management, corporate development andother administrative functions, and are partially offset by allocations of information technology and facilities costs to other functions.As we continue to grow our business, both domestically and internationally, we will invest in our sales capability, which will increase our sales andmarketing expenses in absolute dollars. In addition, we expect to incur additional costs as we increase our G&A functions to further support stand-alonepublic company requirements.Interest and Other, NetInterest and other, net consists primarily of the effect of exchange rates on our foreign currency-denominated asset and liability balances and interest incomeearned on our cash and cash equivalents. All foreign currency transaction adjustments are recorded as foreign currency gains (losses) in the ConsolidatedStatements of Operations. To date, we have had minimal interest income.Income Tax Expense (Benefit)Our effective tax rate was a benefit of 67.3%, 39.8% and 35.7% for the fiscal years ended February 2, 2018, February 3, 2017, and January 29, 2016,respectively. The change in effective tax rate from fiscal 2017 to fiscal 2018 was primarily attributable to the impact of the Tax Cuts and Jobs Act of 2017 onthe blended federal statutory rate and the required adjustment of our deferred tax assets and liabilities for the new lower federal rate as of the end of fiscal2018. The change in effective tax rate from fiscal 2016 to fiscal 2017 was primarily attributable to the recognition of tax benefits relating to research anddevelopment tax credits during fiscal 2017.We calculate a provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifyingthe temporary differences arising from the different treatment of items for tax and accounting purposes. We provide valuation allowances for deferred taxassets, where appropriate. We file U.S. federal returns on a consolidated basis with Dell and we expect to continue doing so until such time (if any) as we aredeconsolidated for tax purposes with respect to the Dell consolidated group. According to the terms of the tax matters agreement between Dell Technologiesand us that went into effect on August 1, 2015, Dell Technologies will reimburse us for any amounts by which our tax assets reduce the amount of taxliability owed by the Dell group on an unconsolidated basis. For a further discussion of income tax matters, see “Notes to Consolidated Financial Statements—Note 8—Income and Other Taxes" in our consolidated financial statements included in this report.53Results of OperationsFiscal 2018 Compared to Fiscal 2017The following table summarizes our key performance indicators for the fiscal years ended February 2, 2018 and February 3, 2017. Fiscal Year Ended February 2, 2018February 3, 2017 $% ofRevenue%Change$ % ofRevenue (in thousands, except percentages)Net revenue $467,904100.0 %8.9 %$429,502 100.0 %Cost of revenue $226,71848.5 %6.6 %$212,599 49.5 %Total gross margin $241,18651.5 %11.2 %$216,903 50.5 %Operating expenses $324,23169.3 %14.6 %$282,856 65.9 %Operating loss $(83,045)(17.7)%25.9 %$(65,953) (15.4)%Net loss $(28,077)(6.0)%(26.5)%$(38,213) (8.9)% Other Financial Information (1) Non-GAAP revenue $468,488 100.0 % 8.9 % $430,386 100.0 %Non-GAAP gross margin $256,343 54.7 % 10.4 % $232,167 53.9 %Non-GAAP operating expenses $296,213 63.2 % 14.7 % $258,291 60.0 %Non-GAAP operating loss $(39,870) (8.5)% 52.6 % $(26,124) (6.1)%Non-GAAP net loss $(27,025) (5.8)% 86.4 % $(14,497) (3.4)%Adjusted EBITDA $(26,502) (5.7)% 69.9 % $(15,597) (3.6)%_____________________(1) See "Non-GAAP Financial Measures" and "Reconciliation of Non-GAAP Financial Measures" for more information about these non-GAAP financial measures, including ourreasons for including the measures, material limitations with respect to the usefulness of the measures, and a reconciliation of each non-GAAP financial measure to the most directlycomparable GAAP financial measure. Non-GAAP financial measures as a percentage of revenue are calculated based on non-GAAP revenue.RevenueNet revenue, which we refer to as revenue, increased $38.4 million, or 8.9%, for fiscal 2018, which has 52 weeks, compared to fiscal 2017, which had 53weeks. Adjusting for the additional week in fiscal 2017, revenue would have been $420.5 million, resulting in an increase of $47.4 million, or 11.3%. On anon-GAAP basis, revenue increased $38.1 million, or 8.9%, for fiscal 2018. Adjusting for the additional week in fiscal 2017, non-GAAP revenue would havebeen $421.4 million, resulting in an increase of approximately $47.0 million, or 11.2%.This revenue increase resulted primarily from revenue generated by subscription-based solutions, which represented approximately 78% of revenue for fiscal2018. The number of clients subscribing to such solutions was approximately the same as in fiscal 2017, while existing clients continued to increase theirpurchases of our solutions. Average recurring revenue per client increased 10.7% for fiscal 2018. Professional services revenue increased to 22% of totalrevenue for fiscal 2018 from 20% of total revenue for fiscal 2017.We primarily generate revenue from sales in the United States. However, international revenue, which we define as revenue contracted through non-U.S.entities, increased to $76.8 million, for fiscal 2018, from $55.2 million for fiscal 2017. Currently, our international clients are primarily located in Europe,Asia/Pacific, and Canada. We are focused on continuing to grow our international client base in future periods.54Gross MarginOur total gross margin increased $24.3 million, or 11.2%, for fiscal 2018. Adjusting for the additional week in fiscal 2017, gross margin increased $29.6million, or 14.0%. This increase was mainly due to the increase in revenue for fiscal 2018. The gross margin percentage increased 100 basis points to 51.5%for fiscal 2018. The increase in gross margin percentage was mainly driven by efficiencies as we continue to leverage our global service delivery model,partially offset by the impact of the growth in professional services revenue.Gross margin on a GAAP basis includes amortization of intangible assets and purchase accounting adjustments. On a non-GAAP basis, excluding theseadjustments, gross margin increased $24.2 million, or 10.4%, for fiscal 2018.Operating ExpensesThe following table presents information regarding our operating expenses during the fiscal years ended February 2, 2018 and February 3, 2017. Fiscal Years Ended February 2, 2018 February 3, 2017 Dollars % ofRevenue %Change Dollars % ofRevenue (in thousands, except percentages)Operating expenses: Research and development$80,164 17.1% 12.9% $71,030 16.5%Sales and marketing151,341 32.3% 21.1% 124,950 29.1%General and administrative92,726 19.8% 6.7% 86,876 20.2%Total operating expenses$324,231 69.3% 14.6% $282,856 65.9% Other Financial Information Non-GAAP research and development$76,903 16.4% 11.5% $68,997 16.0%Non-GAAP sales and marketing150,606 32.1% 21.6% 123,882 28.8%Non-GAAP general and administrative68,703 14.7% 5.0% 65,412 15.2%Non-GAAP operating expenses (1)$296,213 63.2% 14.7% $258,291 60.0% (1)See “"Non-GAAP Financial Measures" and "Reconciliation of Non-GAAP Financial Measures” for a reconciliation of each non-GAAP financial measure to the most directlycomparable GAAP financial measure.Research and Development Expenses. R&D expenses increased $9.1 million, or 12.9%, for fiscal 2018, primarily due to an increase in expenses forengineering resources. As a percentage of revenue, R&D expenses increased 60 basis points to 17.1% for fiscal 2018 as a result of incremental investment inorchestration and automation of threat playbooks in support of our growing Managed Detection and Response, or MDR, subscription solutions. On a non-GAAP basis, R&D expenses as a percentage of revenue increased 40 basis points to 16.4% for fiscal 2018.Sales and Marketing Expenses. S&M expenses increased $26.4 million, or 21.1%, for fiscal 2018. As a percentage of revenue, S&M expenses increased 320basis points to 32.3% for fiscal 2018. The increase for the current fiscal year was primarily attributable to an increase in compensation-related expense relatedto our investment in additional quota bearing sales resources, solution engineers and other support personnel. On a non-GAAP basis, S&M expenses as apercentage of revenue increased 330 basis points to 32.1% for fiscal 2018.General and Administrative Expenses. G&A expenses increased $5.9 million, or 6.7%, for fiscal 2018. The increase was primarily attributable to higher third-party consulting costs and increased amortization expense associated with our implementation of new financial systems in the third quarter of fiscal 2018. Asa percentage of revenue, G&A expenses decreased 40 basis points to 19.8% for fiscal 2018 as a result of operating efficiencies and economies of scale. On anon-GAAP basis, G&A expenses as a percentage of revenue decreased 50 basis points to 14.7% for fiscal 2018.55Operating LossOur GAAP operating loss increased to $83 million for fiscal 2018 from $66 million in fiscal 2017. As a percentage of revenue, our operating loss increased to17.7% for fiscal 2018. Operating loss on a GAAP basis includes amortization of intangible assets purchase accounting adjustments and stock-basedcompensation expense. On a non-GAAP basis, excluding these charges, our operating loss as a percentage of revenue increased to 8.5% for fiscal 2018. Theincreases in both GAAP and non-GAAP operating loss on a dollar basis and as a percentage of revenue were driven by investments in research anddevelopment and the sales function to support continued growth. These investments more than offset improved gross margins and lower G&A expenses as apercentage of revenue.Interest and Other, NetInterest and other was $2.7 million of expense for fiscal 2018 compared with $2.5 million of income for fiscal 2017. The change in interest and otherprimarily reflects the effects of foreign currency translation related to our European operations.Net LossOur net loss of $28.1 million decreased $10.1 million, or 26.5%, for fiscal 2018. The decrease in net loss was due to the significant increase in the income taxbenefit in fiscal 2018 related to the Tax Cut and Jobs Act, partially offset by the increase in operating loss discussed above. Net loss on a non-GAAP basiswas $27.0 million, an increase of $12.5 million, or 86.4%, from fiscal 2017. Overall, this reduction in net loss was due to the increase in operating lossdiscussed above.Fiscal 2017 Compared to Fiscal 2016The following table summarizes our key performance indicators for the fiscal years ended February 3, 2017 and January 29, 2016. Fiscal Year Ended February 3, 2017 January 29, 2016 $ % ofRevenue %Change $ % ofRevenue (in thousands, except percentages)Net revenue $429,502 100.0 % 26.5 % $339,522 100.0 %Cost of revenue $212,599 49.5 % 15.7 % $183,809 54.1 %Total gross margin $216,903 50.5 % 39.3 % $155,713 45.9 %Operating expenses $282,856 65.9 % 8.1 % $261,721 77.1 %Operating loss $(65,953) (15.4)% (37.8)% $(106,008) (31.2)%Net loss $(38,213) (8.9)% (47.2)% $(72,381) (21.3)% Other Financial Information (1) Non-GAAP revenue $430,386 100.0 % 25.7 % $342,291 100.0 %Non-GAAP gross margin $232,167 53.9 % 31.1 % $177,153 51.8 %Non-GAAP operating expenses $258,291 60.0 % 9.3 % $236,387 69.1 %Non-GAAP operating loss $(26,124) (6.1)% (55.9)% $(59,234) (17.3)%Non-GAAP net loss $(14,497) (3.4)% (66.4)% $(43,115) (12.6)%Adjusted EBITDA $(15,597) (3.6)% (67.5)% $(47,974) (14.0)%_____________________(1) See "Non-GAAP Financial Measures" and "Reconciliation of Non-GAAP Financial Measures" for reconciliation of each non-GAAP financial measure to the most directlycomparable GAAP financial measure. Non-GAAP financial measures as a percentage of revenue are calculated based on non-GAAP revenue.56RevenueRevenue increased $90.0 million, or 26.5%, for fiscal 2017, which has 53 weeks, compared to fiscal 2016, which had 52 weeks. Adjusting for the additionalweek in fiscal 2017, revenue increased $81.0 million, or 23.9%. On a non-GAAP basis, revenue increased $88.1 million, or 25.7%, for fiscal 2017. Adjustingfor the additional week in fiscal 2017, non-GAAP revenue increased approximately $79.2 million, or 23.1%.This revenue increase resulted primarily from an increase in revenue generated by subscription-based solutions, which represented approximately 80% of netrevenue for the fiscal 2017. The number of clients subscribing to such solutions grew approximately 5% over fiscal 2016, while existing clients continued toincrease their purchases of our solutions. In addition, beginning in the third quarter of fiscal 2016, after the effective date of our commercial agreements withDell, we began recognizing revenues for certain services provided to or on behalf of Dell in lieu of the prior cost recovery arrangement. Such services totaledapproximately $22.0 million and $7.5 million for fiscal 2017 and fiscal 2016, respectively. For more information regarding the commercial agreements, see"Notes to Consolidated Financial Statements—Note 10—Related Party Transactions" in our consolidated financial statements included elsewhere in thisreport.We primarily generate revenue from sales in the United States. However, during fiscal 2017, international revenue, which we define as revenue contractedthrough non-U.S. entities, increased to $54.1 million.Gross MarginOur total gross margin increased $61.2 million, or 39.3%, for fiscal 2017. Adjusting for the additional week in fiscal 2017, gross margin increased $55.9million, or 35.9%. This increase was mainly due to the increase in revenue for fiscal 2017. The gross margin percentage increased 460 basis points to 50.5%for fiscal 2017. The increase in gross margin percentage was mainly driven by efficiencies as we continue to leverage our global service delivery model.Gross margin on a GAAP basis includes amortization of intangible assets and purchase accounting adjustments. On a non-GAAP basis, excluding theseadjustments, gross margin increased $55.0 million, or 31.1%, for fiscal 2017.Operating ExpensesThe following table presents information regarding our operating expenses during the fiscal years ended February 3, 2017 and January 29, 2016. Fiscal Years Ended February 3, 2017 January 29, 2016 Dollars % ofRevenue %Change Dollars % ofRevenue (in thousands, except percentages)Operating expenses: Research and development$71,030 16.5% 2.1 % $69,598 20.5%Sales and marketing124,950 29.1% 11.6 % 111,978 33.0%General and administrative86,876 20.2% 8.4 % 80,145 23.6%Total operating expenses$282,856 65.9% 8.1 % $261,721 77.1% Other Financial Information Non-GAAP research and development$68,997 16.0% (0.5)% $69,321 20.3%Non-GAAP sales and marketing123,882 28.8% 10.6 % 111,978 32.7%Non-GAAP general and administrative65,412 15.2% 18.7 % 55,088 16.1%Non-GAAP operating expenses (1)$258,291 60.0% 9.3 % $236,387 69.1% (1)See “"Non-GAAP Financial Measures" and "Reconciliation of Non-GAAP Financial Measures” for a reconciliation of each non-GAAP financial measure to the most directlycomparable GAAP financial measure.57Research and Development Expenses. R&D expenses increased $1.4 million, or 2.1%, for fiscal 2017, primarily due to the extra week in that fiscal year. Theconsistency of R&D expenses over the two fiscal years reflected our greater utilization of more cost-effective off-shore development resources. As apercentage of revenue, R&D expenses decreased 400 basis points to 16.5% for fiscal 2017. On a non-GAAP basis, R&D expenses as a percentage of revenuedecreased 430 basis points to 16.0% for fiscal 2017.Sales and Marketing Expenses. S&M expenses increased $13.0 million, or 11.6%, for fiscal 2017. The increase for the current fiscal year was primarilyattributable to an increase in compensation-related expense related to our investment in additional sales and support personnel. As a percentage of revenue,S&M expenses decreased 390 basis points to 29.1% for fiscal 2017. On a non-GAAP basis, S&M expenses as a percentage of revenue decreased 390 basispoints to 28.8% for fiscal 2017.General and Administrative Expenses. G&A expenses increased $6.7 million, or 8.4%, for fiscal 2017. The increase primarily reflected the costs of an increasein administrative functions to operate on a stand-alone basis and as a publicly-traded company. As a percentage of revenue, G&A expenses decreased 340basis points to 20.2% for fiscal 2017. This decrease resulted from the increase in revenue for fiscal 2017, the effect of which was partially offset by investmentin personnel. On a non-GAAP basis, G&A expenses as a percentage of revenue decreased 90 basis points to 15.2% for fiscal 2017.Operating LossOur GAAP operating loss decreased $40.1 million, or 37.8%, for fiscal 2017. As a percentage of revenue, our operating loss decreased to 15.4% for fiscal2017. Operating loss on a GAAP basis includes amortization of intangible assets purchase accounting adjustments and stock-based compensation expense.On a non-GAAP basis, excluding these charges, our operating loss as a percentage of revenue decreased to 6.1% for fiscal 2017. Overall, decreases in bothGAAP and non-GAAP operating loss on a dollar basis and as a percentage of revenue were driven by increased revenue and gross margin, which grew at afaster rate than the increase in operating expenses due to increasing economies of scale.Interest and Other, netOur interest and other reflected income of $2.5 million for fiscal 2017 compared to $6.6 million of expense for fiscal 2016. During fiscal 2016, we issuedconvertible notes that were accounted for at fair value. Changes to fair value of the convertible notes were recognized through earnings, and totaledapproximately $5.5 million of expense during fiscal 2016 and $0.1 million in fiscal 2017. In fiscal 2017, the convertible notes were converted into shares ofour Class A common stock at the closing of our IPO. The change in interest and other also reflected the effects of foreign currency translation, which resultedin $2.4 million of income for fiscal 2017 compared to $0.3 million of expense for fiscal 2016.Net LossOur net loss decreased $34.2 million, or 47.2%, for fiscal 2017. Net loss on a non-GAAP basis decreased $28.6 million, or 66.4%, for fiscal 2017. Overall, thereduction in net loss was due to the decreases in operating loss discussed above.Liquidity, Capital Commitments and Contractual Cash ObligationsOverviewWe believe that our cash on hand, which includes the net proceeds from our IPO not yet invested in our business, and our accounts receivable will provide uswith sufficient liquidity to fund our business and meet our obligations for at least 12 months. Our future capital requirements will depend on many factors,including our rate of revenue growth, the rate of expansion of our workforce, the timing and extent of our expansion into new markets, the timing ofintroductions of new functionality and enhancements to our solutions, potential acquisitions of complementary businesses and technologies, continuingmarket acceptance of our solutions, as well as general economic and market conditions. We may need to raise additional capital or incur indebtedness tocontinue to fund our operations in the future or to fund our needs for less predictable strategic initiatives, such as acquisitions. In addition to our $30 millionrevolving credit facility from Dell, sources of financing may include arrangements with unaffiliated third parties, depending on the availability of capital, thecost of funds and lender collateral requirements. 58Selected Measures of Liquidity and Capital ResourcesCertain relevant measures of our liquidity and capital resources are as follows: February 2, 2018 February 3, 2017 (in thousands) Cash and cash equivalents$101,539 $116,595Accounts receivable, net$157,764 $113,546At February 2, 2018, our principal sources of liquidity consisted of cash and cash equivalents of $101.5 million and accounts receivable of $157.8 million.Our cash and cash equivalents balance at February 2, 2018 included $59.0 million of net proceeds from our IPO.We invoice our clients based on a variety of billing schedules. During fiscal 2018, on average, 53% of our recurring revenue was billed in advance andapproximately 47% was billed on either a monthly or a quarterly basis. Invoiced accounts receivable are usually collected over a period of 30 to 120 days. Asof February 2, 2018, our accounts receivable, net increased compared to February 3, 2017. This increase resulted primarily from an increase in the amount ofannual billing for clients in the fourth quarter of fiscal 2018 compared with the same period in fiscal 2017 and the impact of higher revenue on accountsreceivable. We regularly monitor our accounts receivable for collectability, particularly in markets where economic conditions remain uncertain andcontinue to take actions to reduce our exposure to credit losses. As of February 2, 2018 and February 3, 2017, the allowance for doubtful accounts was $8.2million and $6.1 million, respectively. The increase in the allowance for doubtful accounts was due to growth in revenue and the impact of certain longer-aged receivables. Based on our assessment, we believe we are adequately reserved for expected credit losses.Revolving Credit FacilitySecureWorks, Inc., our wholly-owned subsidiary, has entered into a revolving credit agreement with a wholly-owned subsidiary of Dell Inc. under which wehave obtained a $30 million senior unsecured revolving credit facility. Under the facility, up to $30 million principal amount of borrowings may beoutstanding at any time. The maximum amount of borrowings may be increased by up to an additional $30 million by mutual agreement of the lender andborrower. The proceeds from loans made under the facility may be used for general corporate purposes. The facility is not guaranteed by us or oursubsidiaries. There was no outstanding balance under the facility as of February 2, 2018. Effective as of March 27, 2018, the facility agreement was amendedand restated to extend the maturity date to March 27, 2019 and to modify the annual rate at which interest accrues.Each loan made under the revolving credit facility will accrue interest at an annual rate equal to the applicable London interbank offered rate plus 1.15%.Amounts under the facility may be borrowed, repaid and reborrowed from time to time during the term of the facility. The borrower will be required to repayin full all of the loans outstanding, including all accrued interest, and the facility will terminate upon a change of control of us or following a transaction inwhich SecureWorks, Inc. ceases to be a direct or indirect wholly-owned subsidiary of our company. The credit agreement contains customary representations,warranties, covenants and events of default. The unused portion of the facility is subject to a commitment fee of 0.35%, which is due upon expiration of thefacility.Cash FlowsOur consolidated statements of cash flows for the three fiscal years ended February 2, 2018 include periods prior to August 1, 2015, the effective date of ourcarve-out from Dell. For periods prior to the carve-out on August 1, 2015, certain financial information is derived from the accounting records of Dell and ourcompany. During the pre-carve-out periods, Dell funded our operating and investing activities as needed and transferred our excess cash at its discretion.These cash transfers are reflected as a component of stockholders' equity within our consolidated statements of financial position, and, accordingly, areclassified as a change in cash from financing activities in our consolidated statements of cash flows.Because we did not manage working capital independently from Dell prior to the carve-out, the summary of our statements of cash flows that include periodsprior to the carve-out date does not purport to reflect what our cash flows would have been if we had operated as a stand-alone company for the entire period.59 Fiscal Years Ended February 2, 2018 February 3, 2017 (in thousands)Net change in cash from: Operating activities $787 $(6,838)Investing activities (13,819) (19,361)Financing activities (2,024) 109,372Change in cash and cash equivalents $(15,056) $83,173•Operating Activities — Cash flows from operating activities was a source of cash of $0.8 million in fiscal 2018 and a use of cash of $6.8 million in fiscal2017. Operating cash flows benefited from a lower net loss and a greater source of cash from working capital in fiscal 2018 as increases in liabilities andsettlement of transactions with Dell, including an income tax receivable, more than offset increases in accounts receivable. We expect that our futuretransactions with Dell will be a source of cash over time as we anticipate that our charges to Dell will continue to exceed Dell’s charges to us, althoughthe timing of charges and settlements may vary period to period.•Investing Activities — Cash used in investing activities totaled $13.8 million and $19.4 million for fiscal 2018 and fiscal 2017, respectively. For theperiods presented, investing activities consisted of capital expenditures for property and equipment to support our data center and facility infrastructure.Investing activities in fiscal 2017 also included investments in network upgrades, development of our software defined data center and implementationof new and upgraded back office systems and platforms to facilitate our expected growth.•Financing Activities — Cash flows from financing activities was a use of cash of $2.0 million in fiscal 2018 and a source of cash of $109.4 million infiscal 2017. Financing activities in fiscal 2018 consisted of $1.2 million of withholding tax payments associated with the vesting of stock compensationgrants and $0.8 million of repayment of a transaction with Dell Financial Services. Financing activities for fiscal 2017 included $99.6 million in net cashproceeds from our IPO and a $10.0 million capital contribution by Dell in March 2016. Fiscal Years Ended February 3, 2017 January 29, 2016 (in thousands)Net change in cash from: Operating activities $(6,838) $(9,843)Investing activities (19,361) (9,023)Financing activities 109,372 45,619Change in cash and cash equivalents $83,173 $26,753•Operating Activities — Cash used by operating activities totaled $6.8 million and $9.8 million for fiscal 2017 and 2016, respectively. Operating cashflows benefited from a lower net loss and an increase in stock-based compensation, but were offset to a large extent by the effect of operating as a stand-alone company and the settlement of our net payable to Dell existing at the beginning of the year as discussed below.We began the year with a net payable to Dell of $21.7 million, which primarily represented amounts directly paid by Dell on our behalf to our vendorsfor payables and purchase orders that were outstanding as of August 1, 2015, the effective date of our agreements with Dell governing the commercialarrangements between our two companies. In addition, on a continuing basis, we incur liabilities to Dell for charges under the various commercialagreements in place as discussed above, and for costs Dell continues to pay directly on our behalf, such as the cost of Secureworks employee benefitsprovided for under the Dell benefit plans. Offsetting these liabilities, we charge to, or through, Dell for sales to our clients that we make through Delllegal entities or for services we provide directly to Dell. During the third quarter of fiscal 2017, we began settling in cash our related party balances with Dell and will continue doing so on a quarterly basis. Asa result, the amount due to Dell declined to approximately $10.2 million as of February 3, 2017.60•Investing Activities — Cash used in investing activities totaled $19.4 million and $9.0 million for fiscal 2017 and fiscal 2016, respectively. For theperiods presented, investing activities consisted of capital expenditures for property and equipment to support our data center and facility infrastructure.•Financing Activities — Cash flows from financing activities totaled $109.4 million and $45.6 million for fiscal 2017 and fiscal 2016, respectively.Financing activities for fiscal 2017 included $99.6 million in net cash proceeds from our IPO and a $10.0 million capital contribution by Dell in March2016. Financing activities for fiscal 2016 consisted of cash transfers from Dell of approximately $24.4 million and $22.5 million in cash proceeds fromour sale of convertible notes.Contractual Cash ObligationsContractual cash obligations are summarized in the following table: Payments Due by Fiscal Year(in thousands) Less than 1 year1-3 years3-5 yearsThereafterTotalOperating leases $5,231$8,371$9,925$16,117$39,644Purchase obligations 3,4462,008——5,454Credit facilities and other(1) 2,7461,000——3,746Total $11,423$11,379$9,925$16,117$48,844(1) Other reflects purchase obligations of annual maintenance services for hardware systems for internal use financed from a related party. See also “Notes to ConsolidatedFinancial Statements—Note 10—Related Party Transactions” in our consolidated financial statements included in this report.For information about operating leases and purchase obligations, see “Notes to Consolidated Financial Statements—Note 6—Commitments andContingencies” in our consolidated financial statements included in this report.Off-Balance Sheet ArrangementsAs of February 2, 2018, we were not subject to any obligations pursuant to any off-balance sheet arrangements that have or are reasonably likely to have amaterial effect on our financial condition, results of operations or liquidity.Critical Accounting PoliciesWe prepare our financial statements in conformity with GAAP, which requires certain estimates, assumptions and judgments to be made that may affect ourconsolidated financial statements. Accounting policies that have a significant impact on our results are described in “Notes to Consolidated FinancialStatements—Note 2—Significant Accounting Policies” in our consolidated financial statements included in this report. The accounting policies discussed inthis section are those that we consider to be the most critical. We consider an accounting policy to be critical if the policy is subject to a material level ofjudgment and if changes in those judgments are reasonably likely to materially impact our results.Revenue Recognition. We derive revenue primarily from two sources: (1) subscription revenue related to managed security and threat intelligence solutions;and (2) professional services, including security and risk consulting and incident response solutions.Revenue is considered realized and earned when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the feeto our client is fixed and determinable and collection of the resulting receivable is reasonably assured. 61Multiple-Element Arrangements. Our professional services contracts are typically sold separately from our subscription-based solutions. For subscriptionofferings, revenue arrangements typically include subscription security solutions, hardware that is essential to the delivery of the solutions, and maintenanceagreements. The nature and terms of these multiple deliverable arrangements will vary based on the customized needs of our clients. A multiple-elementarrangement is separated into more than one unit of accounting if both of the following criteria are met: ▪the item has value to the client on a stand-alone basis; and▪if the arrangement includes a general right of return relative to the delivered item and delivery or performance of the undelivered item is consideredprobable and substantially in our control.If these criteria are not met, the arrangement is accounted for as a single unit of accounting, which would result in revenue being recognized ratably over thecontract term or being deferred until the earlier of the date such criteria are met or the date the last undelivered element is delivered. If these criteria are metfor each element, consideration is allocated to each deliverable based on its relative selling price. Subscription-Based Solutions. Subscription-based solutions arrangements typically include security solutions, the associated hardware appliance, up-frontinstallation fees and maintenance agreements, which are all typically deferred and recognized over the life of the related agreement. The hardware appliancecontains software components that do not provide customers with the right to take possession of software licenses supporting the solutions. Therefore,software is considered essential to the functionality of the associated hardware, and, accordingly, is excluded from the accounting guidance that is specific tothe software industry. We have determined that the hardware appliance included in the subscription-based solutions arrangements does not have stand-alonevalue to the client and is required to access our Counter Threat Platform. The related maintenance agreements support the associated hardware and similarlydo not have stand-alone value to the client. Therefore, we recognize revenue for these arrangements as a single unit of accounting. The revenue and anyrelated costs for these deliverables is recognized ratably over the contract term, beginning on the date on which the solution is made available to clients.Amounts that have been invoiced, but for which the above revenue recognition criteria have not been met, are included in deferred revenue.We have determined that we are the primary obligor in any arrangements that include third-party hardware sold in connection with our solutions, and,accordingly, we recognize this revenue on a gross basis.Professional Services. Our professional services consist primarily of fixed-fee and retainer based contracts. Revenue from these engagements is recognizedunder the proportional performance method of accounting. Revenue from time- and materials-based contracts is recognized as costs are incurred at amountsrepresented by the agreed-upon billing amounts.Intangible Assets Including Goodwill. Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives.Finite-lived intangible assets are reviewed for impairment on a quarterly basis. Goodwill and indefinite-lived intangible assets are tested for impairment on anannual basis in the third fiscal quarter, or sooner if an indicator of impairment occurs. To determine whether goodwill and indefinite-lived intangible assetsare impaired, we first assess certain qualitative factors. Based on this assessment, if it is determined that the fair value of the goodwill or indefinite-livedintangible asset is less than its carrying amount, we perform the quantitative analysis of the impairment test. We have determined that we have a singlegoodwill reporting unit, and, accordingly, for the quantitative analysis, we compare the fair value of this goodwill reporting unit to its carrying values. Basedon the results of the annual impairment test, the fair value of our reporting unit exceeded its carrying value and no impairment of goodwill or indefinite-livedintangible assets existed at our test date of November 3, 2017. Subsequently, no events occurred through our February 2, 2018 year end that would indicatean impairment exists.Stock-Based Compensation. Our compensation programs include grants under the SecureWorks Corp. 2016 Long-Term Incentive Plan and, prior to the IPOdate, grants under share-based payment plans of Dell Technologies Inc., or Dell Technologies. Under the plans, we and, prior to the IPO date, DellTechnologies have granted stock options, restricted stock awards and restricted stock units. Compensation expense related to stock-based transactions ismeasured and recognized in the financial statements based on fair value. Fair value for restricted stock awards and restricted stock units under our plan isbased on the closing price of our Class A common stock as reported on the NASDAQ Global Select Market on the day of the grant. The fair value of eachoption award is estimated on the grant date using the Black-Scholes option-pricing model and a single option award approach. This model requires that at thedate of grant we determine the fair value of the underlying common stock, the expected term of the award, the expected volatility, risk-free interest rates andexpected dividend yield. The restricted stock and restricted stock units issued during the fiscal year ended February 2, 2018 vest over an average serviceperiod of three years and approximately 50% of such awards are subject to performance conditions. Stock-based compensation expense, net of forfeitures andadjustments for attainment of performance criteria, is recognized using a straight-line basis over the62requisite service periods of the awards, which is generally three to four years. We estimate a forfeiture rate, based on an analysis of actual historical forfeitures,to calculate stock-based compensation expense.Loss Contingencies. We are subject to the possibility of various losses arising in the ordinary course of business. We consider the likelihood of loss orimpairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss, in determining loss contingencies. Anestimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss canreasonably be estimated. We regularly evaluate current information available to us to determine whether such accruals should be adjusted and whether newaccruals are required.Recently Issued Accounting PronouncementsInformation about recently issued accounting pronouncements is presented in “Notes to Consolidated Financial Statements— Note 1—Description of theBusiness and Basis of Presentation” in our consolidated financial statements included in this report.Item 7A. Quantitative and Qualitative Disclosures About Market RiskOur results of operations and cash flows have been and will continue to be subject to fluctuations because of changes in foreign currency exchange rates,particularly changes in exchange rates between the U.S. dollar and the Euro, the British Pound, the Romanian Leu and the Canadian Dollar, the currencies ofcountries where we currently have our most significant international operations. Our expenses in international locations are generally denominated in thecurrencies of the countries in which our operations are located.As our international operations grow, we may begin to use foreign exchange forward contracts to partially mitigate the impact of fluctuations in net monetaryassets denominated in foreign currencies.63Item 8. Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTSAudited Consolidated Financial Statements of SecureWorks Corp. Page Report of Independent Registered Public Accounting Firm 65 Consolidated Statements of Financial Position as of February 2, 2018 and February 3, 2017 66 Consolidated Statements of Operations for the fiscal years ended February 2, 2018, February 3, 2017, and January 29, 2016 67 Consolidated Statements of Comprehensive Loss for the fiscal years ended February 2, 2018, February 3, 2017, and January 29, 2016 68 Consolidated Statements of Cash Flows for the fiscal years ended February 2, 2018, February 3, 2017, and January 29, 2016 69 Consolidated Statements of Stockholders' Equity for the fiscal years ended February 2, 2018, February 3, 2017, and January 29, 2016 70 Notes to Consolidated Financial Statements 71 Schedule II - Valuation and Qualifying Accounts for the fiscal years ended February 2, 2018, February 3, 2017, and January 29, 2016 9564Report of Independent Registered Public Accounting FirmTo the Board of Directors andStockholders of SecureWorks Corp.Opinion on the Financial StatementsWe have audited the accompanying consolidated statements of financial position of SecureWorks Corp. and its subsidiaries (the “Company”) as of February2, 2018 and February 3, 2017, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of thethree years in the period ended February 2, 2018, including the related notes and financial statement schedule listed in the accompanying index (collectivelyreferred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, thefinancial position of the Company as of February 2, 2018 and February 3, 2017, and the results of its operations and its cash flows for each of the three yearsin the period ended February 2, 2018 in conformity with accounting principles generally accepted in the United States of America. Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sconsolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error orfraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits weare required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness ofthe Company's internal control over financial reporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresin the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ PricewaterhouseCoopers LLPAtlanta, GeorgiaMarch 28, 2018We have served as the Company's auditor since 2014.65SECUREWORKS CORP.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(in thousands) February 2, 2018 February 3, 2017 ASSETSCurrent assets: Cash and cash equivalents$101,539 $116,595Accounts receivable, net157,764 113,546Inventories1,030 1,947Other current assets42,163 47,750Total current assets302,496 279,838Property and equipment, net33,457 31,153Goodwill416,487 416,487Purchased intangible assets, net234,184 261,921Other non-current assets4,677 5,704Total assets$991,301 $995,103 LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable$23,266 $19,922Accrued and other81,625 59,704Deferred revenue139,632 119,909Total current liabilities244,523 199,535Long-term deferred revenue14,948 14,752Other non-current liabilities52,681 89,392Total liabilities312,152 303,679Commitments and contingencies (Note 6) Stockholders' equity: Preferred stock - $0.01 par value: 200,000 shares authorized; 0 shares issued— —Common stock - Class A of $.01 par value: 2,500,000 shares authorized; 11,085 issued and outstanding111 107Common stock - Class B of $.01 par value: 500,000 shares authorized; 70,000 shares issued and outstanding700 700Additional paid in capital867,411 854,907Accumulated deficit(188,936) (160,859)Accumulated other comprehensive loss(137) (3,431)Total stockholders' equity679,149 691,424Total liabilities and stockholders' equity$991,301 $995,103 The accompanying notes are an integral part of these consolidated financial statements.66SECUREWORKS CORP.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data) Fiscal Years Ended February 2, 2018 February 3, 2017 January 29, 2016 Net revenue$467,904 $429,502 $339,522Cost of revenue226,718 212,599 183,809Gross margin241,186 216,903 155,713Research and development80,164 71,030 69,598Sales and marketing151,341 124,950 111,978General and administrative92,726 86,876 80,145Total operating expenses324,231 282,856 261,721Operating loss(83,045) (65,953) (106,008)Interest and other, net(2,735) 2,476 (6,569)Loss before income taxes(85,780) (63,477) (112,577)Income tax benefit(57,703) (25,264) (40,196)Net loss(28,077) (38,213) (72,381) Net loss per common share (basic and diluted)$(0.35) $(0.49) $(1.03)Weighted-average common shares outstanding (basic and diluted)80,280 77,635 70,000 The accompanying notes are an integral part of these consolidated financial statements.67SECUREWORKS CORP.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(in thousands) Fiscal Years Ended February 2,2018 February 3,2017 January 29, 2016Net loss$(28,077) $(38,213) $(72,381)Foreign currency translation adjustments, net of tax3,294 (1,910) (1,496)Comprehensive loss$(24,783) $(40,123) $(73,877)The accompanying notes are an integral part of these consolidated financial statements.68SECUREWORKS CORP.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Fiscal Years Ended February 2,2018 February 3,2017 January 29,2016Cash flows from operating activities: Net loss$(28,077) $(38,213) (72,381)Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization42,171 39,425 40,638Change in fair value of convertible notes— 132 5,493Stock-based compensation expense13,790 8,883 841Effects of exchange rate changes on monetary assets and liabilities denominated in foreigncurrencies3,256 (2,239) 836Income tax benefit(57,703) (25,264) (40,196)Other non cash impacts— — 4,792Excess tax benefit from share-based payment— (221) —Provision for doubtful accounts3,947 2,613 4,661Changes in assets and liabilities: Accounts receivable(48,540) 956 (52,443)Net transactions with parent11,024 (15,582) 21,691Inventories917 1,610 (1,179)Other assets27,699 (1,724) (7,453)Accounts payable3,302 3,626 (301)Deferred revenue19,585 7,185 34,591Accrued and other liabilities9,416 11,975 50,567Net cash provided by (used in) operating activities787 (6,838) (9,843)Cash flows from investing activities: Capital expenditures(13,819) (19,361) (9,023)Net cash used in investing activities(13,819) (19,361) (9,023)Cash flows from financing activities: Principal payments on financing arrangement with Dell Financial Services(800) — —Taxes paid on vested restricted shares(1,224) — —Proceeds from initial public offering, net— 99,604 —Capital contribution from parent, net— 9,547 —Excess tax benefit from share-based payment— 221 —Net transactions with parent, net— — 24,383Payment of deferred offering costs— — (1,264) Issuance of convertible notes— — 22,500Net cash (used in) provided by financing activities(2,024) 109,372 45,619Net (decrease) increase in cash and cash equivalents(15,056) 83,173 26,753Cash and cash equivalents at beginning of the period116,595 33,422 6,669Cash and cash equivalents at end of the period$101,539 $116,595 $33,422 Supplemental Disclosures of Non-Cash Investing and Financing Activities: Conversion of convertible notes to common stock$— $28,125 $—Financed capital expenditures$1,390 $800 $—Income taxes paid$1,152 $910 $—The accompanying notes are an integral part of these consolidated financial statements.69SECUREWORKS CORP.CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(in thousands, except per share data) Common Stock - Class A Common Stock - Class B OutstandingShares Amount OutstandingShares Amount AdditionalPaid in Capital AccumulatedDeficit Accumulated OtherComprehensive(Loss) Income TotalStockholders'EquityBalances, January 31, 2015— $— 70,000 $700 $656,516 $(50,265) $(25) $606,926Net loss— — — — — (72,381) — (72,381)Other comprehensive (loss) income— — — — — — (1,496) (1,496)Capital contribution from parent, net— — — — 54,566 — — 54,566Stock-based compensation— — — — 841 — — 841Balances, January 29, 2016— $— 70,000 $700 $711,923 $(122,646) $(1,521) $588,456Net loss— — — — — (38,213) — (38,213)Other comprehensive (loss) income— — — — — — (1,910) (1,910)Issuance of common stock in connection withinitial public offering, net of offering costs8,000 80 — — 96,246 — ——96,326Conversion of convertible notes to commonstock in connection with initial public offering2,009 20 — — 28,105 — — 28,125Grant of restricted stock awards557 7 — — (18) $— $— (11)Capital contribution from parent, net 9,547 9,547Stock-based compensation— — — — 8,883 — — 8,883Excess tax benefit from share-based payment— — — — 221 — — 221Balances, February 3, 201710,566 $107 70,000 $700 $854,907 $(160,859) $(3,431) $691,424Net loss— — — — — (28,077) $— (28,077)Other comprehensive (loss) income— — — — — — 3,294 3,294Vesting of restricted stock units384 4 — — (4) — — —Grant of restricted stock awards284 2 — — (2) — —Common stock withheld as payment forwithholding taxes upon the vesting of restrictedshares(149) (2) — — (1,280) — — (1,282)Stock-based compensation— — — — 13,790 — — 13,790Balances, February 2, 201811,085 $111 70,000 $700 $867,411 $(188,936) $(137) $679,149The accompanying notes are an integral part of these consolidated financial statements.70SECUREWORKS CORP.Notes to Consolidated Financial Statements NOTE 1 - DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATIONDescription of the BusinessSecureWorks Corp. (individually and collectively with its consolidated subsidiaries, “Secureworks” or the “Company”) is a leading global provider ofintelligence-driven information security solutions singularly focused on protecting the Company's clients from cyber attacks. The Company's solutionsenable organizations of varying size and complexity to fortify their cyber defenses to prevent security breaches, detect malicious activity in near real time,prioritize and respond rapidly to security incidents and predict emerging threats.The Company has one primary business activity, which is to provide clients with intelligence-driven information security solutions. The Company’s chiefoperating decision maker, who is the President and Chief Executive Officer, makes operating decisions, assesses performance, and allocates resources on aconsolidated basis. Accordingly, Secureworks operates its business as a single reportable segment.On February 8, 2011, the Company was acquired by Dell Inc. (individually and collectively with its consolidated subsidiaries, “Dell” or “Parent”). OnOctober 29, 2013, Dell was acquired by Dell Technologies Inc., formerly known as Denali Holding Inc. (“Dell Technologies”), a parent holding corporation.For the purposes of the accompanying financial statements, the Company elected to utilize pushdown accounting for the acquisition of Dell by DellTechnologies. On April 27, 2016, the Company completed its initial public offering (“IPO”), as further described below. Upon the closing of the IPO, DellTechnologies owned, indirectly through Dell Inc. and Dell Inc.’s subsidiaries, no shares of the Company's outstanding Class A common stock and all sharesof the Company's outstanding Class B common stock, which as of February 2, 2018 represented approximately 86.3% of the Company's total outstandingshares of common stock and approximately 98.4% of the combined voting power of both classes of the Company's outstanding common stock. Corporate HistoryThe Company was incorporated in Georgia in May 2009. On November 24, 2015, the Company reincorporated from Georgia to Delaware and, in connectionwith the reincorporation, changed its name from SecureWorks Holding Corporation to SecureWorks Corp. and its authorized capital from 1,000 shares ofcommon stock, par value $0.01 per share, to 1,000 shares of Class A common stock and 1,000 shares of Class B common stock, each with a par value of $0.01per share. There are no differences in dividend and liquidation rights between the Class A common stock and the Class B common stock. Each share of ClassA common stock is entitled to one vote and each share of Class B common stock is entitled to ten votes. Upon the reincorporation, the 1,000 issued andoutstanding shares of common stock of the Georgia corporation were reclassified into and became 1,000 issued and outstanding shares of Class B commonstock of SecureWorks Corp., the Delaware corporation.In January 2016, the Company’s board of directors and stockholder approved a 70,000-for-1 stock split of the Company’s Class B common stock. TheCompany filed an amendment to its certificate of incorporation effecting the stock split on April 8, 2016. The amendment to the certificate of incorporationalso increased the number of shares of Class A common stock authorized for issuance from 1,000 to 2,500,000,000 shares and increased the number of sharesof Class B common stock authorized for issuance from 1,000 to 500,000,000 shares.In April 2016, the Company’s board of directors and stockholder approved a restated certificate of incorporation further amending and restating theprovisions of the certificate of incorporation. The restated certificate of incorporation, which was filed on April 22, 2016, authorized for issuance200,000,000 shares of preferred stock, par value $0.01 per share.Initial Public OfferingOn April 27, 2016, the Company completed its IPO in which it issued and sold 8,000,000 shares of Class A common stock at a price to the public of $14.00per share. The Company received net proceeds of $99.6 million from the sale of shares of Class A common stock, after deducting underwriting discounts andcommissions and unpaid offering expenses payable by the Company of $12.4 million.Upon the closing of the IPO, all of the Company's convertible notes automatically converted into 2,008,924 shares of the Class A common stock. For moreinformation regarding the convertible notes see “Note 5—Debt.”71Table of ContentsSECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) Basis of Presentation and ConsolidationThe Company’s consolidated financial statements have been prepared on a stand-alone basis in accordance with accounting principles generally accepted inthe United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates andassumptions that affect the amounts reported in the Company’s financial statements. The consolidated financial statements include assets, liabilities, revenueand expenses of all majority-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation.For the periods presented, Dell has provided various corporate services to the Company in the ordinary course of business, including finance, tax, humanresources, legal, insurance, IT, procurement and facilities-related services. Dell also has provided the Company with the services of a number of its executivesand employees. Through the first two quarters of the fiscal year ended January 29, 2016, the costs of such services were allocated to the Company based onthe most relevant allocation method to the service provided, primarily based on relative percentage of total net sales, relative percentage of headcount, orspecific identification. Management believes the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of servicesprovided to or the benefit received by the Company during the periods presented. Beginning in the third quarter of the fiscal year ended January 29, 2016,the costs of these services were charged in accordance with the shared services agreement that went into effect on August 1, 2015. For more informationregarding the allocated costs and related party transactions, see “Note 10—Related Party Transactions.”During the periods presented in the financial statements, Secureworks did not file separate federal tax returns, as the Company was generally included in thetax grouping of other Dell entities within the respective entity’s tax jurisdiction. The income tax benefit has been calculated using the separate returnmethod, modified to apply the benefits for loss approach. Under the benefits for loss approach, net operating losses or other tax attributes are characterized asrealized 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 8—Income and Other Taxes” for more information.Fiscal YearThe 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 years ended February 2,2018, February 3, 2017, and January 29, 2016 as fiscal 2018, fiscal 2017, and fiscal 2016, respectively. Fiscal 2018 and fiscal 2016 included 52 weeks, whilefiscal 2017 included 53 weeks, with the extra week included in the fourth quarter.Use of EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts ofassets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue andexpenses during the reporting periods. Estimates are revised as additional information becomes available. In the Consolidated Statements of Operations,estimates are used when accounting for revenue arrangements, determining cost of revenue, allocating cost in the form of depreciation and amortization andestimating the impact of contingencies. In the Statements of Financial Position, estimates are used in determining the valuation and recoverability of assets,such as accounts receivable, inventories, fixed assets, goodwill and other identifiable intangible assets, and estimates are used in determining the reportedamounts of liabilities, such as taxes payable and the impact of contingencies, all of which also impact the Consolidated Statements of Operations. Actualresults could differ from these estimates.Revision of Previously Issued Financial StatementsDuring the fiscal year ended February 2, 2018, the Company revised its balance sheet as of and for the period ended February 3, 2017 as a result of thecorrection of an error related to prepaid expenses for which the Company had been invoiced, but for which cash had not been remitted. This error resulted inan overstatement of other current assets and accounts payable balances in the Statements of Financial Position and had a corresponding impact to thechanges in the balances in the Company’s Statements of Cash Flows, with no impact on the cash used in operating activities, for the periods ended February3, 2017 and January 29, 2016, respectively. The error had no impact on the Company’s Statements of Operations. Management has concluded that the impactof the misstatement was not material to the previously issued financial statements.72Table of ContentsSECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) The following tables summarize the impacts of the error. As of February 3, 2017 As of February 3, 2017Statements of Financial Position (in thousands)(as reported) Adjustments (as revised)Other current assets$51,947 $(4,197) $47,750Total current assets$284,035 $(4,197) $279,838 Accounts payable$24,119 $(4,197) $19,922Total current liabilities$203,732 $(4,197) $199,535 Fiscal Year EndedFebruary 3, 2017 Fiscal Year EndedFebruary 3, 2017Statements of Cash Flows (in thousands)(as reported) Adjustments (as revised)Changes in assets and liabilities: Other assets$(139) $(1,585) $(1,724)Accounts payables2,041 1,585 3,626Net cash provided by (used in) operating activities$(6,838) $— $(6,838) Fiscal Year Ended January29, 2016 Fiscal Year Ended January29, 2016 (as reported) Adjustments (as revised)Changes in assets and liabilities: Other assets$(10,065) $2,612 $(7,453)Accounts payables2,311 (2,612) (301)Net cash provided by (used in) operating activities$(9,843) $— $(9,843) Fiscal Year EndedFebruary 3, 2017 Fiscal Year EndedFebruary 3, 2017Note 9—Selected Financial Data (in thousands)(as reported) Adjustments (as revised)Other current assets Income tax receivable$25,091 $— $25,091Prepaid maintenance and support agreements16,107 (4,197) 11,910Prepaid other10,749 — 10,749Total$51,947 $(4,197) $47,750NOTE 2 — SIGNIFICANT ACCOUNTING POLICIESCash and Cash Equivalents. As of February 2, 2018 and February 3, 2017, cash and cash equivalents is comprised of cash held in bank accounts and moneymarket funds. The cash and cash equivalents are reported at their current carrying value, which approximates fair value due to the short-term nature of theseinstruments. The money market instruments are valued using quoted market prices and are included as Level 1 inputs.Accounts Receivable. Trade accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. Accounts receivable arecharged against the allowance for doubtful accounts when deemed uncollectible. Management regularly reviews the adequacy of the allowance for doubtfulaccounts by considering the age of each outstanding invoice, each customer’s expected ability to pay, and the collection history with each customer, whenapplicable, to determine whether a specific allowance is appropriate. As of February 2, 2018 and February 3, 2017, the allowance for doubtful accounts was$8.2 million and $6.1 million, respectively.73SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) Unbilled accounts receivable included in accounts receivable, totaling $18.1 million and $9.4 million as of February 2, 2018 and February 3, 2017,respectively, relate to work that has been performed, though invoicing has not yet occurred. All of the unbilled receivables are expected to be billed andcollected within the upcoming year.Allowance for Doubtful Accounts. The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probablelosses, net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, aswell as an assessment of specific identifiable customer accounts considered at risk or uncollectible. The expense associated with the allowance for doubtfulaccounts is recognized in general and administrative expenses.Fair Value Measurements. The carrying amounts of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payableand accrued expenses, approximate their respective fair values due to their short-term nature.Inventories. Inventories consist of finished goods, which include hardware devices such as servers, log retention devices and appliances that are sold inconnection with the Company’s solutions offerings. Inventories are stated at lower of cost or net realizable value, with cost being determined on a first-in,first-out (FIFO) basis.Prepaid Maintenance and Support Agreements. Prepaid maintenance and support agreements represent amounts paid to third-party service providers formaintenance, support and software license agreements in connection with the Company’s obligations to provide maintenance and support services. Theprepaid maintenance and support agreement balance is amortized on a straight-line basis over the contract term and is primarily recognized as a componentof cost of revenue. Amounts that are expected to be amortized within one year are recorded in other current assets and the remaining balance is recorded inother non-current assets.Property and Equipment. Property and equipment are carried at depreciated cost. Depreciation is calculated using the straight-line method over the estimatedeconomic lives of the assets, which range from two to five years. Leasehold improvements are amortized over the shorter of five years or the lease term. Forthe fiscal years ended February 2, 2018, February 3, 2017, and January 29, 2016, depreciation expense was $14.4 million, $11.7 million and $12.3 million,respectively. Gains or losses related to retirements or disposition of fixed assets are recognized in the period incurred.Intangible Assets Including Goodwill. Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives.Finite-lived intangible assets are reviewed for triggering events on a quarterly basis. Goodwill and indefinite-lived intangible assets are tested for impairmenton an annual basis in the third fiscal quarter, or sooner if an indicator of impairment occurs. To determine whether goodwill and indefinite-lived intangibleassets are impaired, the Company first assesses certain qualitative factors. Based on this assessment, if it is determined that the fair value of the goodwill orindefinite-lived intangible asset is less than its carrying amount, the Company performs the quantitative analysis of the impairment test.The goodwill impairment test consists of a two-step process, if necessary. The first step is to compare the fair value of the reporting unit to its carrying value,including goodwill. The Company typically uses a discounted cash flow model to determine the fair value of the reporting unit. The assumptions used in themodel are consistent with those which the Company believes hypothetical marketplace participants would use. If the fair value of the reporting unit is lessthan its carrying value, the second step of the impairment test must be performed in order to determine the amount of the impairment loss, if any. The secondstep compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’sgoodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess. The loss recognized cannot exceed thecarrying amount of goodwill. The Company has determined that it has a single goodwill reporting unit, and, accordingly, for the quantitative analysis, itcompares the fair value of this goodwill reporting unit to its carrying value. For indefinite-lived assets, other than goodwill, if the carrying amountdetermined through the quantitative analysis exceeds the fair value, an impairment charge is recognized in an amount equal to that excess.Foreign Currency Translation. During the periods presented, Secureworks primarily operated in the United States. For the majority of the Company’sinternational businesses, the Company has determined that the functional currency of those subsidiaries is the local currency. Accordingly, assets andliabilities for these entities are translated at current rates of exchange in effect at the balance sheet date. Revenue and expenses from these internationalsubsidiaries are translated using the monthly average exchange rates in effect for the period in which the items occur. Foreign currency translationadjustments are included as a component of accumulated other comprehensive loss, while foreign currency transaction gains and losses are recognized in theStatements of Operations within interest and other, net. These transaction (losses) gains totaled $(3.3) million, $2.2 million and $(0.8) million in the fiscalyears ended February 2, 2018, February 3, 2017, and January 29, 2016, respectively.74SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) Revenue Recognition. Secureworks derives revenue primarily from two sources: (1) subscription revenue related to managed security and threat intelligencesolutions; and (2) professional services, including security and risk consulting and incident response solutions.Revenue is considered realized and earned when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the feeto its customer is fixed or determinable and collection of the resulting receivable is reasonably assured.Multiple-Element ArrangementsProfessional services contracts are typically sold separately from subscription-based solutions. For subscription offerings, revenue arrangements typicallyinclude subscription security solutions, hardware that is essential to the delivery of the service, and maintenance agreements. The nature and terms of thesemultiple deliverable arrangements will vary based on the customized needs of clients. A multiple-element arrangement is separated into more than one unit ofaccounting if both of the following criteria are met: ▪the item has value to the client on a stand-alone basis; and ▪if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item is consideredprobable and substantially in the Company’s control.If these criteria are not met, the arrangement is accounted for as a single unit of accounting, which would result in revenue being recognized ratably over thecontract term or being deferred until the earlier of when such criteria are met or when the last undelivered element is delivered. If these criteria are met foreach element, consideration is allocated to the deliverables based on its relative selling price.Subscription-Based SolutionsSubscription-based arrangements typically include security solutions, the associated hardware appliance, up-front installation fees and maintenanceagreements, which are all typically recognized over the life of the related agreement. The hardware appliance contains software components that do notprovide customers with the right to take possession of software licenses supporting the solutions. Therefore, software is considered essential to thefunctionality of the associated hardware, and, accordingly, is excluded from the accounting guidance that is specific to the software industry. The Companyhas determined that the hardware appliance included in the subscription-based solutions arrangements does not have stand-alone value to the customer and isrequired to access the Company’s Counter Threat Platform. The related maintenance agreements support the associated hardware and similarly do not havestand-alone value to the customer. The related installations fees are non-refundable and also do not have stand-alone value to the customer. Therefore,Secureworks recognizes revenue for these arrangements as a single unit of accounting. The revenue and any related costs for these deliverables are recognizedratably over the contract term, beginning on the date on which service is made available to clients. Amounts that have been invoiced, but for which the aboverevenue recognition criteria have not been met, are included in deferred revenue. The Company has determined that it is the primary obligor in any arrangements that include third-party hardware sold in connection with its solutions, and,accordingly, the Company recognizes this revenue on a gross basis.Professional ServicesProfessional services consist primarily of fixed-fee and retainer-based contracts. Revenue from these engagements is recognized under the proportionalperformance method of accounting. Revenue from time-and materials-based contracts is recognized as costs are incurred at amounts represented by theagreed-upon billing rates.The Company reports revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrently with specificrevenue-producing transactions.Deferred Revenue. Deferred revenue represents amounts contractually billed to customers or payments received from customers for which revenue has not yetbeen recognized. Deferred revenue that is expected to be recognized as revenue within one year is recorded as short-term deferred revenue and the remainingportion is recorded as long-term deferred revenue.75SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) Cost of Revenue. Cost of revenue consists primarily of compensation and related expenses, including salaries, benefits and performance-based compensationfor employees who maintain the Counter Threat Platform and provide support services to clients, as well as perform other critical functions. Other expensesinclude depreciation of equipment and costs associated with maintenance agreements for hardware provided to clients as part of their subscription-basedsolutions. In addition, cost of revenue includes amortization of technology licensing fees, fees paid to contractors who supplement or support solutionsofferings, maintenance fees and overhead allocations.Research and Development Costs. Research and development costs are expensed as incurred. Research and development expenses include compensation andrelated expenses for the continued development of solutions offerings, including a portion of expenses related to the threat research team, which focuses onthe identification of system vulnerabilities, data forensics and malware analysis and product management. In addition, expenses related to the developmentand prototype of new solutions offerings also are included in research and development costs, as well as allocated overhead. The Company’s solutionsofferings have generally been developed internally.Sales and Marketing. Sales and marketing expense includes compensation and related expenses, including salaries, benefits, and performance-basedcompensation, including sales commissions and related expenses for sales and marketing personnel, marketing and advertising programs, including leadgeneration, client advocacy events, other brand-building expenses, and allocated overhead. Advertising costs are expensed as incurred and were $14.7million, $12.8 million and $13.0 million for the fiscal years ended February 2, 2018, February 3, 2017, and January 29, 2016, respectively.General, and Administrative. General and administrative expense primarily includes the costs of human resources and recruiting, finance and accounting,legal support, management information systems and information security systems, facilities management and other administrative functions, offset byallocations of information technology and facilities costs to other functions.Software Development Costs. Qualifying software costs developed for internal use are capitalized when application development begins, it is probable thatthe project will be completed, and the software will be used as intended. In order to expedite delivery of the Company’s security solutions, the applicationstage typically commences before the preliminary development stage is completed. Accordingly, no significant software development costs have beencapitalized during any period presented.Income Taxes. Current income tax expense is the amount of income taxes expected to be payable for the current year. Deferred tax assets and liabilities arerecorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in whichthe differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations inthe period that includes the enactment date. The Company calculates a provision for income taxes using the asset and liability method, under which deferredtax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes.The Company provides valuation allowances for deferred tax assets, where appropriate. In assessing the need for a valuation allowance, Secureworksconsiders all available evidence for each jurisdiction, including past operating results, estimates of future taxable income, and the feasibility of ongoing taxplanning strategies. In the event Secureworks determines all or part of the net deferred tax assets are not realizable in the future, it will make an adjustment tothe valuation allowance that would be charged to earnings in the period such determination is made.The accounting guidance for uncertainties in income tax prescribes a comprehensive model for the financial statement recognition, measurement,presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The Company recognizes a tax benefit from anuncertain tax position in the financial statements only when it is more likely than not that the position will be sustained upon examination, includingresolution of any related appeals or litigation processes, based on the technical merits and a consideration of the relevant taxing authority’s administrativepractices and precedents.During the periods presented in the financial statements, the Company did not file separate federal tax returns, as the Company was generally included in thetax grouping of other Dell entities within the respective entity’s tax jurisdiction. The income tax benefit has been calculated using the separate returnmethod, modified to apply the benefits for loss approach. Under the benefits for loss approach, net operating losses or other tax attributes are characterized asrealized or as realizable by the Company when those attributes are utilized or expected to be utilized by other members of the Dell consolidated group.76SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) Sales Commissions and Incentives. The Company recognizes commission expense in the period earned by the employee or when the Company’s rights torecover awards in the event of a customer cancellation have lapsed. During the fiscal years ended February 3, 2017 and January 29, 2016, when clients paidfor one or more years of service in advance, sales commissions were paid 50% in the month subsequent to the execution of the service contract and theremaining 50% over the following 12 months. For these commission plans, the Company recognized the sales commission expense related to the entirecontract ratably over the first year of the service contract. During the fiscal years ended February 3, 2017 and January 29, 2016, the Company recognized$29.4 million and $29.5 million, respectively, in commission expense. All sales commission amounts were recoverable by the Company throughout the firstyear of a service contract. Therefore, the portion of any sales commissions paid upon the signing of a contract, for which the related sales commission expensehad not yet been recognized, was recorded as a prepaid asset and amortized to expense during the first 12 months of the contract. As of February 3, 2017 andJanuary 29, 2016, the Company had a prepaid commission balance, included in other current assets, of $1.6 million and $1.9 million, respectively.During the fiscal year ended February 2, 2018, the Company revised the design of many of its sales commission plans. Sales incentives were earned based onan individual’s performance relative to the individual’s annual sales goal or quota. Quarterly advances were paid throughout the year based on proportionalperformance. As a result of these new incentive plans, which no longer provide the Company with the ability to recover the commission from the employee inthe event the customer contract is canceled, the Company recognized commission expense in the month it was earned. During the fiscal year endedFebruary 2, 2018, the Company recognized $42.1 million in commission expense, which included the ratable recognition of the remaining fiscal 2017commissions earned under the former plans, which had been deferred.The Company typically expenses sales commissions paid to strategic and distribution partners upon entering contracts for the solutions sold and recognizesthe revenue associated with such sales over the terms of the contracts.Stock-Based Compensation. The Company’s compensation programs include grants under the SecureWorks Corp. 2016 Long-Term Incentive Plan and, priorto the IPO date, grants under share-based payment plans of Dell Technologies. Under the plans, the Company, and prior to the IPO, Dell Technologies havegranted stock options, restricted stock awards and restricted stock units. Compensation expense related to stock-based transactions is measured andrecognized in the financial statements based on fair value. Fair value for restricted stock awards and restricted stock units under the Company’s plan is basedon the closing price of the Company’s Class A common stock as reported on the NASDAQ Global Select Market on the day of the grant. The fair value ofeach option award is estimated on the grant date using the Black-Scholes option-pricing model and a single option award approach. This model requires thatat the date of grant we determine the fair value of the underlying common stock, the expected term of the award, the expected volatility, risk-free interest ratesand expected dividend yield. The restricted stock and restricted stock units issued during the fiscal year ended February 2, 2018 vest over an average serviceperiod of three years and approximately 50% of such awards are subject to performance conditions. Stock-based compensation expense, net of forfeitures andadjustments for attainment of performance criteria, is recognized using a straight-line basis over the requisite service periods of the awards, which is generallythree to four years. The Company estimates a forfeiture rate, based on an analysis of actual historical forfeitures, to calculate stock-based compensationexpense.Loss Contingencies. Secureworks is subject to the possibility of various losses arising in the ordinary course of business. An estimated loss contingency isaccrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. The Companyregularly evaluates current information available to determine whether such accruals should be adjusted and whether new accruals are required. See “Note 6–Commitments and Contingencies” for more information about these loss contingencies.Recently Adopted Accounting PronouncementsCompensation - Stock Compensation. In March 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Accounting.” The update simplifies the income taxaccounting and cash flow presentation related to share-based compensation by requiring the recognition of all excess tax benefits and deficiencies directlyon the income statement and classification as cash flows from operating activities on the statement of cash flows. This update also makes several changes tothe accounting for forfeitures and employee tax withholding on share-based compensation. The Company adopted this guidance during the fiscal year endedFebruary 2, 2018 with no material impact on its consolidated financial statements.77SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) Recently Issued Accounting PronouncementsCompensation - Stock Compensation. In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718): Scope ofModification Accounting.” The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment awardrequire an entity to apply modification accounting under Topic 718. The amendments are effective for the Company beginning with the Company’s 2019fiscal year, although early adoption is permitted. The Company does not expect these amendments to have a material impact on its consolidated financialstatements.Intangibles - Goodwill and Other. In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): “Simplifying the Test forGoodwill Impairment.” ASU 2017-04 eliminates Step 2 of the goodwill impairment test, which required the Company to determine the implied fair value ofgoodwill 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 itscarrying 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 lossnot exceeding the total amount of goodwill allocated to that reporting unit. The updated guidance is effective for the Company beginning January 1, 2020,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 amaterial impact on its consolidated financial statements.Statement of Cash Flows. In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receiptsand Cash Payments - A consensus of the FASB Emerging Issues Task Force.” The update was issued with the objective of reducing the existing diversity inpractice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230 and other topics. Theupdate is effective for the Company for fiscal years beginning with the Company’s 2019 fiscal year, including interim periods within those fiscal years. TheCompany does not expect that the adoption of this standard will have a material impact on its Consolidated Statements of Cash Flows.Financial Instruments - Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement ofCredit Losses on Financial Instruments.” The amendments in this update replace the incurred loss impairment methodology in current GAAP with amethodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit lossestimates. The update is effective for the Company for fiscal years beginning with the Company’s 2021 fiscal year, including interim periods within thosefiscal years. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.Leases — In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires lessees to recognize most lease liabilities on theirbalance sheets but recognize the expenses on their income statements in a manner similar to current practice. The update states that a lessee would recognizea lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The update iseffective for the Company for annual and interim periods beginning with the Company’s 2020 fiscal year, and early adoption is permitted. Although theCompany is currently evaluating the impact of this guidance on its consolidated financial statements and related disclosures, the Company expects that mostof its operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption.Revenue from Contracts with Customers. In May 2014, the FASB issued amended guidance on the recognition of revenue from contracts with customers. Theobjective of the new standard is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customersand will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The new standard requires entities to recognizerevenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled inexchange for those goods or services. The new standard also provides guidance on the accounting for costs to fulfill or obtain a customer contract. Further,the new standard requires additional disclosures to help enable users of the financial statements to better understand the nature, amount, timing, risks andjudgments related to revenue recognition and related cash flows from contracts with customers.78SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) Public entities are required to adopt the new standard for fiscal years, and interim periods within those years, beginning after December 15, 2017. The newrevenue standard may be applied retrospectively to each prior period presented (full retrospective method) or retrospectively with the cumulative effect ofinitially applying the standard recognized at the date of initial application in retained earnings (modified retrospective method). The Company will adoptthis standard and its amendments retrospectively to each period presented for the Company’s 2019 fiscal year, including interim periods.The adoption of this standard will have a material impact on the Company’s consolidated financial statements and related disclosures, primarily related to theCompany’s accounting for costs to obtain a contract. These costs are defined as those that an entity incurs to obtain a contract with a customer that it wouldnot have incurred if the contract had not been obtained. Under the new standard, these costs to obtain a contract will now be capitalized and amortized on asystematic basis that is consistent with the transfer to the customer of the goods or services to which the assets relate. A significant portion of the Company’ssales commission cost related to the acquisition of sales contracts will be deferred and recognized over the average life of the arrangement, which isapproximately 7 years. Additionally, the Company incurs certain costs to install and activate hardware and software used in its Managed Security Services,primarily related to a portion of the compensation for the personnel who perform the installation activities. These fulfillment costs will be deferred andrecognized over the economic life of the services, or approximately 4 years. Based on the Company’s historical experience, customers may change thesecurity services and associated hardware and software that they purchase from the Company over the span of the overall relationship. Therefore, the averageeconomic life of the services is shorter than the overall average life of the arrangement.In addition, and with minimal impact starting in the fiscal year ended February 2, 2018, the Company’s adoption of the standard will result in the Companyaccelerating the recognition of revenue from its premium installation services, the impact of which will be partially offset by the deferral of revenue related tothird-party appliances that will be accounted for as part of a single performance obligation upon adoption of the new standard.Based on the Company’s assessment and best estimates to date, the Company expects a cumulative adjustment to decrease its January 30, 2016 openingaccumulated deficit by approximately $43 million. The Company expects to record non-current contract cost assets related to the deferral of certain salescommission and fulfillment costs of approximately $63 million and $51 million as of February 2, 2018 and February 3, 2017, respectively.Select consolidated statement of operations line items, which reflect the Company’s best estimate of the impact of the adoption of the standard, are as follows(in thousands): Fiscal Year Ended Fiscal Year Ended February 2, 2018 February 3, 2017 As ReportedASC 605 ASC 606Adjustment(Estimated) ASC 606(Estimated) As ReportedASC 605 ASC 606Adjustment(Estimated) ASC 606(Estimated)Net Revenue $467,904 $— $467,904 $429,502 $3,200 $432,702Cost of revenue 226,718 (1,600) 225,118 212,599 (110) 212,489Gross margin 241,186 1,600 242,786 216,903 3,310 220,213 Research and development 80,164 — 80,164 71,030 — 71,030Sales and marketing 151,341 (10,700) 140,641 124,950 (6,400) 118,550General and administrative 92,726 — 92,726 86,876 — 86,876Total operating expenses 324,231 (10,700) 313,531 282,856 (6,400) 276,456Operating loss $(83,045) $12,300 $(70,745) $(65,953) $9,710 $(56,243)These amounts include estimates and will remain subject to change as the Company completes its evaluation of the new standard and final calculations of theimpact of adoption.79SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) NOTE 3 — NET LOSS PER SHARE Net loss per share is calculated by dividing net loss for the periods presented by the respective weighted-average number of common shares outstanding, andexcludes any dilutive effects of share-based awards, as they would be anti-dilutive. Diluted net loss per common share is computed by giving effect to allpotentially dilutive common shares, including common stock issuable upon the exercise of stock options and unvested restricted common stock andrestricted stock units. The Company applies the two-class method to calculate earnings per share. Because both classes share the same rights in dividends andearnings, earnings per share (basic and diluted) are the same for both classes. Since losses were incurred in all periods presented, all potential common shareswere determined to be anti-dilutive.The following table sets forth the computation of net loss per common share (in thousands, except per share amounts): Fiscal Years Ended February 2, 2018 February 3, 2017 January 29, 2016Numerator: Net loss $(28,077) $(38,213) $(72,381)Denominator: Weighted-average number of shares outstanding: Basic and Diluted 80,280 77,635 70,000Loss per common share: Basic and Diluted $(0.35) $(0.49) $(1.03) Weighted-average anti-dilutive stock options, non-vested restricted stockand restricted stock units 5,096 3.806 —NOTE 4 — GOODWILL AND INTANGIBLE ASSETSGoodwill relates to the acquisition of Dell by Dell Technologies and represents the excess of the purchase price attributable to Secureworks over the fairvalue 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 February 2, 2018 and February 3, 2017.Goodwill and indefinite-lived intangible assets are tested for impairment on an annual basis during the third fiscal quarter, or sooner if an indicator ofimpairment occurs. The Company completed its annual impairment test by performing a qualitative assessment of goodwill at its sole reporting unit level. Inperforming this qualitative assessment, the Company evaluated events and circumstances since the date of the last quantitative impairment test, including theresults of that test, macroeconomic conditions, industry and market conditions, key financial metrics and overall financial performance of the Company. Afterassessing the totality of the events and circumstances, the Company determined that it was not more likely than not that the fair value of the Secureworksreporting unit was less than its carrying amount and, therefore, the first and second steps of the quantitative goodwill impairment test were deemedunnecessary. Further, no triggering events have subsequently occurred that would indicate a potential impairment as of February 2, 2018.80SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) Intangible AssetsThe Company's intangible assets at February 2, 2018 and February 3, 2017 were as follows: February 2, 2018 February 3, 2017 Gross AccumulatedAmortization Net Gross AccumulatedAmortization Net (in thousands)Customer relationships $189,518 $(63,058) $126,460 $189,518 $(48,963) $140,555Technology 135,584 (57,978) 77,606 135,584 (44,336) 91,248Finite-lived intangible assets 325,102 (121,036) 204,066 325,102 (93,299) 231,803Trade name 30,118 — 30,118 30,118 — 30,118Total intangible assets $355,220 $(121,036) $234,184 $355,220 $(93,299) $261,921Amortization expense related to finite-lived intangible assets was approximately $27.7 million, $27.7 million and $28.3 million for the fiscal years endedFebruary 2, 2018, February 3, 2017, and January 29, 2016, respectively. Amortization expense is included within cost of revenue and general andadministrative expenses in the Consolidated Statement of Operations. There were no impairment charges related to intangible assets during the fiscal yearsended February 2, 2018, February 3, 2017 and January 29, 2016.Estimated future pre-tax amortization expense of finite-lived intangible assets as of February 2, 2018 over the next five years and thereafter is as follows:Fiscal Years(in thousands)2019$27,736202027,736202127,736202227,736202327,736Thereafter65,386 Total$204,066NOTE 5 — DEBTConvertible DebtOn June 30, 2015, the Company entered into an agreement with investors to sell up to $25.0 million in aggregate principal amount of its convertible notes.These investors included members of the Company’s board of directors who were director nominees prior to the date of the IPO. The initial sale of convertiblenotes was completed on August 3, 2015 in the aggregate principal amount of $22.0 million. On September 14, 2015, the Company sold an additionalconvertible note in the principal amount of $0.5 million, resulting in an aggregate principal amount of convertible notes outstanding of $22.5 million. As ofJanuary 29, 2016, the fair value of the convertible notes was $28.0 million and the Company recorded a $5.5 million change in fair value during the fiscalyear ended January 29, 2016. The convertible notes were valued using Level 3 inputs. This change in fair value was included in interest and other, net in theStatements of Operations. These notes remained outstanding until the completion of the IPO, on which date, according to their terms, the convertible notesautomatically converted into 2,008,924 shares of the Class A common stock, with a total settlement of $28.1 million and a $0.1 million change in fair valuebeing recorded in the fiscal year ended February 3, 2017 for the period prior to settlement. The converted shares equaled the $22.5 million face value of theconvertible notes divided by the conversion price of $11.20 per share, which was equal to 80% of the IPO price of $14.00 per share.81SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) Revolving Credit FacilityOn November 2, 2015, SecureWorks, Inc., a wholly-owned subsidiary of SecureWorks Corp., entered into a revolving credit agreement with a wholly-ownedsubsidiary of Dell Inc. under which the Company obtained a $30 million senior unsecured revolving credit facility. This facility was initially available for aone-year term ending on April 21, 2017. Effective as of March 28, 2017, the term of the facility was extended on the same terms for an additional one-yearterm ending on April 21, 2018. Under the facility, up to $30 million principal amount of borrowings may be outstanding at any time. The maximum amountof borrowings may be increased by up to an additional $30 million by mutual agreement of the lender and borrower. The proceeds from loans made under thefacility may be used for general corporate purposes. The facility is not guaranteed by SecureWorks Corp. or its subsidiaries. There was no outstandingbalance under the credit facility as of February 2, 2018.Each loan made under the revolving credit facility will accrue interest at an annual rate equal to the applicable London interbank offered rate plus 1.60%.Amounts under the facility may be borrowed, repaid and reborrowed from time to time during the term of the facility. The borrower will be required to repayin full all of the loans outstanding, including all accrued interest, and the facility will terminate, upon a change of control of SecureWorks Corp. or followinga transaction in which SecureWorks, Inc. ceases to be a direct or indirect wholly-owned subsidiary of SecureWorks Corp. The credit agreement containscustomary representations, warranties, covenants and events of default. The unused portion of the facility is subject to a commitment fee of 0.35%, which isdue upon expiration of the facility. As of February 2, 2018, the Company had accrued $0.2 million for commitment fees due under the facility.NOTE 6 — COMMITMENTS AND CONTINGENCIESPurchase Obligations and Lease Commitments—The Company had various purchase obligations at February 2, 2018 over a period of approximately fouryears with vendors or contractors, subject to the Company’s operational needs. The Company also leases land, office buildings and equipment under variousoperating lease agreements. As of February 2, 2018, the purchase obligations and future minimum payments under the Company's operating leases (inthousands) are as follows: Payments Due For Operating Purchase Credit Facilities Fiscal Years Ending Leases Obligations and Other (1) Total2019 $5,231 $3,446 $2,746 $11,4232020 4,727 1,397 500 6,6242021 3,644 611 500 4,7552022 5,349 — — 5,3492023 4,576 — — 4,5762024 and beyond 16,117 — — 16,117Total $39,644 $5,454 $3,746 $48,844(1) Reflects purchase obligations of annual maintenance services for hardware systems for internal use from a related party. See also “Note 10—Related PartyTransactions.”Rent expense under all leases totaled $4.7 million, $3.9 million, and $3.0 million during the fiscal years ended February 2, 2018, February 3, 2017, andJanuary 29, 2016, respectively.Legal Contingencies — From time to time, the Company is involved in claims and legal proceedings that arise in the ordinary course of business. TheCompany 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 theloss. The Company reviews the status of legal cases 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 willdepend on a number of factors, including the nature, timing and amount of any associated expenses, amounts paid in settlement, damages or other remediesor consequences. To the extent new information is obtained and the Company’s views on the probable outcomes of claims, suits, assessments, investigationsor legal proceedings change, changes in accrued liabilities would be recorded in the period in which such determination is made. As of February 2, 2018, theCompany does not believe82SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) that there were any such matters that, individually or in the aggregate, could have a material adverse effect on its business, financial condition, results ofoperations or cash flows.Client-based Taxation Contingencies—Various government entities (“taxing authorities”) require the Company to bill its clients for the taxes they owebased on the services they purchase from the Company. The application of the rules of each taxing authority concerning which services are subject to eachtax and how those services should be taxed involves the application of judgment. Taxing authorities periodically perform audits to verify compliance andinclude all periods that remain open under applicable statutes, which generally range from three to four years. These audits could result in significantassessments 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 questionthe Company's application of its rules in a manner that, if the Company were not successful in substantiating its position, could result in a significantfinancial impact to the Company. In the course of preparing its financial statements and disclosures, the Company considers whether information exists thatwould 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 clients fromcertain losses incurred by the client as to third-party claims relating to the services performed on behalf of the Company or for certain losses incurred by theclient as to third-party claims arising from certain events as defined within the particular contract. Such indemnification obligations may not be subject tomaximum loss clauses. Historically, payments related to these indemnifications have been immaterial. Concentrations — The Company sells solutions to clients of all sizes primarily through its direct sales organization, supplemented by sales through channelpartners. During the fiscal years ended February 2, 2018, February 3, 2017, and January 29, 2016, the Company did not have any single client thatrepresented 10% or more of its revenue during the fiscal period.NOTE 7 — STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANIn connection with the IPO, the Company's board of directors adopted the SecureWorks Corp. 2016 Long-Term Incentive Plan (the “2016 Plan”). The 2016Plan became effective on April 18, 2016, and will expire on the tenth anniversary of the effective date unless the 2016 Plan is terminated earlier by the boardof directors or in connection with a change in control of SecureWorks Corp. The Company has reserved 8,500,000 shares of Class A common stock forissuance pursuant to awards under the 2016 Plan. The 2016 Plan provides for the grant of options, stock appreciation rights, restricted stock, restricted stockunits, deferred stock units, unrestricted stock, dividend equivalent rights, other equity-based awards and cash bonus awards. Awards may be granted under the2016 Plan to individuals who are employees, officers or non-employee directors of the Company or any of its affiliates, consultants and advisors who performservices 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 theCompany by the compensation committee of the board of directors. The Company utilizes both authorized and unissued shares to satisfy all shares issuedunder the 2016 Plan.Stock OptionsUnder the 2016 Plan, the exercise price of each option will be determined by the compensation committee, except that the exercise price may not be less than100% (or, for incentive stock options to any 10% stockholder, 110%) of the fair market value of a share of Class A common stock on the date on which theoption is granted. The term of an option may not exceed ten years (or, for incentive stock options to any 10% stockholder, five years) from the date of grant.The compensation committee will determine the time or times at which each option may be exercised and the period of time, if any, after retirement, death,disability or termination of employment during which options may be exercised. Options may be made exercisable in installments, and the exercisability ofoptions may be accelerated by the compensation committee.During the fiscal year ended February 2, 2018, no stock options were granted to employees or directors. During the fiscal year ended February 3, 2017,2,669,788 stock options were granted to employees and 240,715 stock options were granted to directors, in all cases at an exercise price of $14.00. The stockoptions will vest over an average service period of four years. In addition, during fiscal 2017, 49,916 stock options were granted to a director upon hisappointment to the board of directors at an exercise price of $13.99 per share. The stock options subject to this award will vest over a period of three years inequal annual installments.The Company recognized $3.7 million and $2.9 million in compensation expense for the fiscal years ended February 2, 2018 and February 3, 2017,respectively.83SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) The fair value of stock options are estimated as of the date of the grant using the Black-Scholes option pricing model. This model requires the input ofsubjective assumptions that will usually have a significant impact on the fair value estimate. The expected term was estimated using the SEC simplifiedmethod. The risk-free interest rate is the continuously compounded, term-matching, zero-coupon rate from the valuation date. The volatility is the leverage-adjusted, term-matching, historical volatility of peer firms. The dividend yield assumption is consistent with management expectations of dividenddistributions based upon the Company’s business plan at the date of grant.The assumptions utilized for valuation of options under this model as well as the weighted-average grant date fair value of stock options granted during thefiscal year ended February 3, 2017 are summarized below. Fiscal Year Ended February 3, 2017 Expected life 6.3 yearsRisk-free interest rate 1.68%Volatility 44.74%Dividend yield —%Weighted-average grant-date fair value $6.15The following table summarizes stock option activity and options outstanding and exercisable for the fiscal year ended, and as of, February 2, 2018: NumberofOptions Weighted-AverageExercise PricePer Share Weighted-AverageContractualLife (years) Weighted-Average Grantdate Fair ValuePer Share Aggregate IntrinsicValue (in thousands)Balance, January 29, 2016— $— Granted2,960,419 $14.00 Exercised— $— Canceled, expired or forfeited(382,252) $14.00 Balance, February 3, 20172,578,167 $14.00 Granted— $— Exercised— $— Canceled, expired or forfeited(53,065) $14.00 Balance, February 2, 20182,525,102 $14.00 8.20 $6.11 $— Options expected to vest, February 2, 20181,827,574 $14.00 8.23 $6.10 $— Options exercisable, February 2, 2018614,383 $14.00 8.10 $6.13 $—At February 2, 2018, unrecognized stock-based compensation expense related to stock options was $8.3 million, net of estimated forfeitures, which isexpected to be recognized over the weighted-average remaining requisite period of 2.56 years.In connection with the acquisition of Dell by Dell Technologies in 2013, the Company’s compensation programs included grants under the Denali HoldingInc. 2013 Stock Incentive Plan (the "2013 Plan"). Under the 2013 Plan, time-based and performance-based options to purchase shares of the Series C commonstock of Dell Technologies were awarded to two of the Company's executive officers. Upon the closing of the Company’s IPO, all unvested time-based awardswere forfeited and 32,000 vested time-based stock options remained outstanding and 400,001 performance-based options remained unvested andoutstanding subject to award terms. During the fiscal year ended February 2, 2018, there was no vesting or exercise activity on these awards.84SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) As of February 2, 2018, 32,000 time-based and 400,001 performance-based stock options remained outstanding, with 400,001 options unvested. TheCompany recognized compensation expense related to these awards of $0.3 million, $0.5 million and $0.8 million for the fiscal years ended February 2,2018, February 3, 2017, and January 29, 2016, respectively.Restricted Stock and Restricted Stock UnitsUnder the 2016 Plan, a restricted stock award is an award of shares of Class A common stock that may be subject to restrictions on transferability and otherrestrictions as the compensation committee determines in its sole discretion on the date of grant. The restrictions, if any, may lapse over a specified period oftime or through the satisfaction of conditions, in installments or otherwise as the compensation committee may determine. Unless otherwise provided in anaward agreement, a grantee who receives restricted stock will have all of the rights of a stockholder as to those shares, including, without limitation, the rightto vote and the right to receive dividends or distributions on the shares of Class A common stock, except that the compensation committee may require anydividends to be withheld and accumulated contingent on vesting of the underlying shares or reinvested in shares of restricted stock.Under the 2016 Plan, a restricted stock unit represents the grantee’s right to receive a compensation amount, based on the value of the shares of Class Acommon stock, if vesting criteria or other terms and conditions established by the compensation committee are met. If the vesting criteria or other terms andconditions are met, the Company may settle, subject to the terms and conditions of the applicable award agreement, restricted stock units in cash, shares ofClass A common stock or a combination of the two. All award agreements currently outstanding require settlement in shares of Class A common stock.In connection with the IPO, the Company granted shares of restricted stock and restricted stock units to employees and directors. The fair value of therestricted stock and restricted stock units was $14.00 per share and all will vest over an average service period of four years. During the fiscal years endedFebruary 2, 2018 and February 3, 2017, the Company issued additional restricted stock units to employees at weighted-average fair values per share of$10.40 and $10.90, respectively. Additionally, during the fiscal year ended February 3, 2017, restricted stock units were granted to a director upon hisappointment to the board of directors at a fair value of $13.99 per share. The restricted stock and restricted stock units issued during the fiscal year endedFebruary 2, 2018 vest over an average service period of three years and approximately 50% of such awards are subject to performance conditions. Of the 2.3million restricted stock and restricted stock units outstanding on February 2, 2018, approximately 0.4 million were performance-based awards and 1.9 millionwere service-based awards. For the fiscal year ended February 2, 2018, approximately 59,000 shares were canceled for the performance-based awards that weretied to fiscal year 2018 results. The Company recognized compensation expense related to all outstanding restricted stock awards of $9.6 million and $5.4 million for the fiscal years endedFebruary 2, 2018 and February 3, 2017, respectively. At February 2, 2018, unrecognized stock-based compensation expense related to restricted stock awardsand restricted stock units was $18.4 million, which is expected to be recognized over the weighted-average remaining requisite period of 2.43 years.85SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) The following table summarizes activity for restricted stock and restricted stock units for the fiscal year ended, and as of, February 2, 2018. NumberofShares Weighted-AverageGrant DateFair Value PerShare Weighted-AverageContractualLife (years) Aggregate IntrinsicValue (in thousands)Balance, January 29, 2016— $— Granted2,460,594 $13.28 Vested(2,143) $14.00 Forfeited(215,965) $14.00 Balance, February 3, 20172,242,486 $13.21 Granted1,134,966 $10.40 Vested(507,196) $13.62 Forfeited(550,697) $11.46 Balance, February 2, 20182,319,559 $12.16 1.31 $21,897 Restricted stock and restricted stock units expected to vest, February 2,20182,118,854 $12.21 1.43 $20,002 As of February 2, 2018, restricted stock and restricted stock units representing 2.3 million shares of Secureworks’ Class A common stock were outstanding,with an aggregate intrinsic value of $21.9 million based on Secureworks’ closing stock price as of February 2, 2018. The total fair value of Secureworks'restricted stock and restricted stock units that vested during year-ended February 2, 2018 was $6.9 million and the intrinsic value was $4.6 million.Stock-based Compensation ExpenseThe following table summarizes the classification of stock-based compensation expense related to stock options, restricted stock and restricted stock units forthe fiscal years ended February 2, 2018, February 3, 2017 and January 29, 2016. Stock-based compensation expense for the periods prior to the fiscal yearended February 3, 2017 related solely to grants under the Denali Holding Inc. 2013 Stock Incentive Plan awarded to two of the Company’s executive officers. Fiscal Years Ended February 2, 2018 February 3, 2017 January 29, 2016 (in thousands)Cost of revenue $891 $462 $—Research and development 3,261 2,033 277Sales and marketing 735 1,068 —General and administrative 8,903 5,320 564Total stock-based compensation expense $13,790 $8,883 $841The tax benefit related to stock-based compensation expense was $3.3 million, $3.4 million, and $0.3 million for the fiscal years ended February 2, 2018,February 3, 2017, and January 29, 2016 respectively.Long-term Performance Cash AwardsIn March 2017, the Company began granting long-term performance cash awards to certain employees. The employees who receive the performance cashawards do not receive equity awards as part of the long-term incentive program. The long-term performance cash awards are subject to various performanceconditions and vest in equal annual installments over a three-year period. During the fiscal year ended February 2, 2018, the Company grantedapproximately $11.6 million of these awards and recognized $2.9 million of related compensation expense.86SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) Employee Benefit PlanSubstantially all employees are eligible to participate in a defined contribution plan that complies with Section 401(k) of the Internal Revenue Code(“401(k) Plan”). The Company matches 100% of each participant’s voluntary contributions, subject to a maximum contribution of 5% of the participant’scompensation, and participants vest immediately in all contributions to the 401(k) Plan. For the fiscal years ended February 2, 2018, February 3, 2017, andJanuary 29, 2016, total expense under this plan was $10.7 million, $9.4 million, and $6.7 million, respectively.NOTE 8 — INCOME AND OTHER TAXESThe Company’s effective income tax rate for the fiscal years ended February 2, 2018, February 3, 2017, and January 29, 2016 was as follows: Fiscal Years Ended February 2, 2018 February 3, 2017 January 29, 2016 Loss before income taxes $(85,780) $(63,477) $(112,577)Income tax benefit $(57,703) $(25,264) $(40,196)Effective tax rate 67.3% 39.8% 35.7%The change in the Company's effective income tax rate for the fiscal year ended February 2, 2018 over the effective income tax rate for the fiscal year endedFebruary 3, 2017 was primarily driven by the one-time provisional impacts from the U.S. Tax Cuts and Jobs Act (“U.S. Tax Reform” or the “Act”) that wasenacted in December 2017. Among other provisions, U.S. Tax Reform lowers the U.S. corporate income tax rate to 21% from 35%. GAAP requires the effect ofa change in tax laws to be recognized in the period that includes the enactment date. Due to the complexities involved in accounting for the enactment ofU.S. Tax Reform, SEC Staff Accounting Bulletin No. 118 (“SAB 118”) allows companies to record provisional amounts in earnings for the first yearfollowing the Act's enactment, with those provisional amounts required to be finalized by the end of that year. In accordance with GAAP, and SAB 118, theCompany recognized a provisional tax benefit in the fourth quarter of the fiscal year ended February 2, 2018 of $27.0 million related to U.S. Tax Reform,primarily attributable to the remeasurement of deferred tax assets and liabilities. The Company’s provisional amounts are based on its initial analysis usingavailable information and estimates, and may be adjusted in accordance with SAB 118. The change in the Company's effective income tax rate for the fiscalyear ended February 3, 2017 over the effective income tax rate for the fiscal year ended January 29, 2016 was primarily attributable to the recognition of taxbenefits relating to research and development tax credits during the fiscal year ended February 3, 2017. During the periods presented in the accompanying Consolidated Financial Statements, Secureworks did not file separate federal tax returns, as the Companygenerally was included in the tax grouping of other Dell entities within the respective entity’s tax jurisdiction. The income tax benefit has been calculatedusing the separate return method modified to apply the benefits-for-loss approach. Under the benefits-for-loss approach, net operating losses or other taxattributes are characterized as realized by Secureworks when those attributes are utilized by other members of the Dell consolidated group.87SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) A reconciliation of the Company's income tax provision to the statutory U.S. federal tax rate is as follows: Fiscal Year Ended February 2, 2018 February 3, 2017 January 29, 2016 U.S. federal statutory rate33.7 % 35.0 % 35.0 %Foreign income taxed at different rates0.4 (0.3) (0.9)State income taxes, net of federal tax benefit2.2 3.2 1.9Research and development credits1.8 3.1 0.5Nondeductible/nontaxable items(1.8) (1.2) (0.8)U.S. Tax Reform31.5 — —Stock-based compensation(0.5) — —Total67.3 % 39.8 % 35.7 %The benefit for income taxes consists of the following: Fiscal Years Ended February 2, 2018 February 3, 2017 January 29, 2016 (in thousands)Current: Federal$(20,288) $(22,470) $(12,519)State/Local(886) 657 (1,517)Foreign80 1,379 (1,366)Current(21,094) (20,434) (15,402)Deferred: Federal(37,191) (3,620) (24,472)State/Local(141) (471) 330Foreign723 (739) (652)Deferred(36,609) (4,830) (24,794)Income tax benefit$(57,703) $(25,264) $(40,196)Loss before provision for income taxes consists of the following: Fiscal Years Ended February 2, 2018 February 3, 2017 January 29, 2016 (in thousands)Domestic$(88,546) $(64,542) $(103,061)Foreign2,766 1,065 (9,516)Loss before income taxes$(85,780) $(63,477) $(112,577)88SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) The components of the Company's net deferred tax balances are as follows: February 2, 2018 February 3, 2017 (in thousands)Deferred tax assets: Deferred revenue$3,441 $6,232Provision for doubtful accounts1,883 2,377Loss carryforwards3,966 2,806Stock-based and deferred compensation5,701 9,568Other2,803 —Deferred tax assets17,794 20,983Valuation allowance(3,966) (2,806)Deferred tax assets, net of valuation allowance13,828 18,177Deferred tax liabilities: Property and equipment(1,347) (1,367)Purchased intangible assets(56,590) (97,836)Operating and compensation related accruals(3,777) (3,933)Other(14) (29)Deferred tax liabilities(61,728) (103,165)Net deferred tax liabilities$(47,900) $(84,988)Net deferred tax balances are included in other non-current assets and other non-current liabilities in the Consolidated Statements of Financial Position.As of February 2, 2018 and February 3, 2017, Secureworks had $4.0 million and $2.8 million of deferred tax assets, respectively, related to net operating losscarryforwards for state tax returns that are not included with those of other Dell entities. These net operating loss carryforwards began expiring in the fiscalyear ended February 2, 2018. Due to the uncertainty surrounding the realization of these net operating loss carryforwards, the Company has providedvaluation allowances for the full amount as of February 2, 2018 and February 3, 2017. Because the Company is included in the tax filings of certain otherDell entities, management has determined that it will be able to realize the remainder of its deferred tax assets. If the Company’s tax provision had beenprepared using the separate return method, the unaudited pro forma pre-tax loss, tax benefit and net loss for the fiscal year ended February 2, 2018 wouldhave been $85.8 million, $42.4 million and $43.4 million, respectively, as a result of the recognition of a valuation allowance that would be recorded oncertain deferred tax assets.As of February 2, 2018, the Company has cumulative undistributed foreign earnings that would incur some amount of local withholding and state taxes if theearnings are distributed back to the United States. U.S. Tax Reform fundamentally changes the U.S. approach to taxation of foreign earnings and theCompany is currently still evaluating its intentions with respect to the indefinite reinvestment of its foreign earnings. The Company had $0.8 million ofunrecognized tax benefits as of February 2, 2018 and $0.6 million unrecognized tax benefits as of February 3, 2017. The Company is no longer subject to taxexaminations for years prior to fiscal 2012.89SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) NOTE 9 — SELECTED FINANCIAL INFORMATIONThe following table provides information on amounts included in accounts receivable, net, other current assets, property and equipment, net, accrued andother current liabilities, and other non-current liabilities as of February 2, 2018 and February 3, 2017. Consolidated February 2, 2018 February 3, 2017 (in thousands)Accounts receivable, net: Gross accounts receivable $166,010 $119,678 Allowance for doubtful accounts (8,246) (6,132) Total $157,764 $113,546Other current assets: Income tax receivable 21,380 25,091 Prepaid maintenance and support agreements 11,826 11,910 Prepaid other 8,957 10,749 Total $42,163 $47,750Property and equipment, net Computer equipment $59,754 $47,407 Leasehold improvements 19,634 16,986 Other equipment 2,079 1,358 Total property and equipment 81,467 65,751 Accumulated depreciation and amortization $(48,010) $(34,598) Total $33,457 $31,153Other noncurrent assets Prepaid maintenance agreements 956 2,304 Deferred tax asset 832 1,503 Other 2,889 1,897 Total $4,677 $5,704Accrued and other current liabilities Compensation $46,046 $36,803 Intercompany payable, net 19,580 9,052 Other 15,999 13,849 Total $81,625 $59,704Other non-current liabilities Deferred tax liabilities $48,732 $86,491 Intercompany payable, net — 1,100 Other 3,949 1,801 Total $52,681 $89,392The allocation between domestic and foreign net revenue is based on the location of the Company’s clients. Net revenue and long-lived assets from anysingle foreign country did not constitute 10% or more of the Company’s net revenue or long-lived assets, respectively, during any of the periods presented.90SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) The following tables present net revenue and property, plant and equipment allocated between the United States and foreign countries: Fiscal Year Ended February 2, 2018 February 3, 2017 January 29, 2016Net revenue United States $391,133 $374,254 $298,984 Foreign Countries 76,771 55,248 40,538 Total $467,904 $429,502 $339,522 February 2, 2018 February 3, 2017Property and equipment, net United States $28,587 $26,916 Foreign Countries 4,870 4,237 Total $33,457 $31,153NOTE 10 — RELATED PARTY TRANSACTIONSAllocated ExpensesFor the periods presented, Dell has provided various corporate services to Secureworks in the ordinary course of business, including finance, tax, humanresources, legal, insurance, IT, procurement and facilities-related services. Dell also has provided Secureworks with the services of a number of its executivesand employees. For the first two quarters of the fiscal year ended January 29, 2016, the costs of such services were allocated of total net sales, relativepercentage of headcount or specific identification. Beginning in the third quarter of the fiscal year ended January 29, 2016, the costs of services provided toSecureworks by Dell were governed by a shared services agreement between Secureworks and Dell Inc. or its wholly-owned subsidiaries. The total amount ofthe charges under the shared services agreement with Dell was $4.9 million and $4.4 million for the fiscal years ended February 2, 2018 and February 3, 2017,respectively. The total amount of the allocations from Dell and charges under the shared services agreement was $5.5 million and $3.0 million, respectively,in the fiscal year ended January 29, 2016. The amount for fiscal 2016 included $2.2 million of fees for professional services directly related to a prior legalproceeding that was settled during that fiscal year. These cost allocations are reflected primarily within general and administrative expenses in theConsolidated Statements of Operations. Management believes that the basis on which the expenses have been allocated to be a reasonable reflection of theutilization of services provided to or the benefit received by the Company during the periods presented.The Company's historical financial statements do not purport to reflect what the Company's results of operations, financial position, equity or cash flowswould have been if the Company had operated as a stand-alone public company during the periods presented.Related Party ArrangementsFor the periods presented, related party transactions and activities involving Dell Inc. and its wholly-owned subsidiaries were not always consummated onterms equivalent to those that would prevail in an arm’s-length transaction where conditions of competitive, free-market dealing may exist.The Company purchases certain enterprise hardware systems from Dell Inc. and its wholly-owned subsidiaries in order to provide security solutions to theCompany’s clients. For the first two quarters of the fiscal year ended January 29, 2016, the expenses associated with these transactions reflect Dell’s costs andare included in cost of revenue in the Consolidated Statements of Operations. Beginning in the third quarter of the fiscal year ended January 29, 2016,expenses associated with these transactions are intended to approximate arm’s-length pricing pursuant to the Company’s amended and restated mastercommercial customer agreement with a subsidiary of Dell Inc. that went into effect on August 1, 2015. The Company did not make any direct purchases ofsystems from Dell for the fiscal year ended February 2, 2018. Purchases of systems from Dell totaled $3.0 million and $11.6 million for the fiscal years endedFebruary 3, 2017 and January 29, 2016, respectively. 91SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) The Company also purchases computer equipment for internal use from Dell that was capitalized within property and equipment in the ConsolidatedStatements of Financial Position. For the first two quarters of the fiscal year ended January 29, 2016, these purchases were made at Dell’s cost. Beginning inthe third quarter of the fiscal year ended January 29, 2016, these purchases were made at pricing that is intended to approximate arm’s-length pricing.Purchases of computer equipment from Dell totaled $2.6 million, $3.6 million, and $3.7 million for the fiscal years ended February 2, 2018, February 3, 2017,and January 29, 2016, respectively.On September 7, 2016, EMC Corporation (“EMC”), a company that provides enterprise software and storage, became a wholly-owned subsidiary of DellTechnologies. EMC maintains a majority ownership interest in a subsidiary, VMware, Inc. (“VMware”), a company that provides cloud and virtualizationsoftware and services. The Company's purchases of annual maintenance services, software licenses and hardware systems for internal use from EMC andVMware totaled $0.9 million for the fiscal year ended February 2, 2018 and $4.4 million for the fiscal year ended February 3, 2017. Approximately $3.0million of these purchases from VMware was financed through Dell Financial Services and are included in intercompany liabilities as of February 3, 2017.The Company recognized revenue related to security solutions provided to other subsidiaries of Dell Technologies, consisting of RSA Security LLC andPivotal Software, Inc. The revenue recognized by the Company for security solutions provided to these entities totaled $0.2 million for the fiscal year endedFebruary 2, 2018. The Company had no related party revenue from solutions provided to these entities for the fiscal years ended February 3, 2017 andJanuary 29, 2016. Purchases by the Company from these other subsidiaries totaled $0.1 million during the fiscal year ended February 2, 2018. The Companyhad no purchases from these related parties during the fiscal years ended February 3, 2017 and January 29, 2016.The Company recognized revenue related to solutions provided to principal stockholders of Dell Technologies consisting of Michael S. Dell, Chairman andChief Executive Officer of Dell Technologies and Dell Inc., the Susan Lieberman Dell Separate Property Trust (a separate property trust for the benefit of Mr.Dell’s wife) and MSD Capital, L.P. (a firm founded for the purposes of managing investments of Mr. Dell and his family). The revenues recognized by theCompany from solutions provided to Mr. Dell, the Susan Lieberman Dell Separate Property Trust and MSD Capital totaled $0.1 million, $0.1 million, and$0.3 million for the fiscal years ended February 2, 2018, February 3, 2017 and January 29, 2016, respectively.The Company provides solutions to certain clients whose legal contractual relationship has historically been with Dell rather than Secureworks, although theCompany is the primary obligor and carries credit and inventory risk in these arrangements. Effective on August 1, 2015, upon the creation of newsubsidiaries to segregate some of the Company’s operations from Dell’s operations, as described in “Note 1—Description of the Business and Basis ofPresentation,” many of such client contracts were transferred from Dell to the Company, forming a direct legal contractual relationship between the Companyand the end client. For clients whose contracts have not yet been transferred, the Company recognized revenues of approximately $44.7 million and $39.0million for the fiscal years ended February 2, 2018 and February 3, 2017, respectively. The Company recognized revenue of approximately $16.7 million forthe period from August 1, 2015 to January 29, 2016 for clients whose contracts have not yet transferred from Dell to the Company.As the Company’s client and on behalf of certain of its own clients, Dell also purchases solutions from the Company. Beginning in the third quarter of thefiscal year ended January 29, 2016, in connection with the effective date of the Company’s commercial agreements with Dell, the Company began chargingDell for these services at pricing that is intended to approximate arm’s-length pricing, in lieu of the prior cost recovery arrangement. Such revenues totaledapproximately $21.1 million, $22.0 million and $7.5 million for the fiscal years ended February 2, 2018, February 3, 2017, and January 29, 2016respectively. As a result of the foregoing related party arrangements beginning in the third quarter of the fiscal year ended January 29, 2016, the Company has recorded thefollowing related party balances in the Consolidated Statement of Financial Position as of February 2, 2018 and February 3, 2017. During the third quarter ofthe fiscal year ended February 3, 2017, the Company began settling in cash its related party balances with Dell, which resulted in a net intercompanypayable.92SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) February 2, 2018February 3, 2017 (in thousands)Intercompany receivable $—$1,680Intercompany payable (19,580)(11,832)Net intercompany payable (in accrued and other) $(19,580)$(10,152) Accounts receivable from clients under reseller agreements with Dell (in accounts receivable, net) $25,229$16,658 Net operating loss tax sharing receivable under agreement with Dell (in other current assets atFebruary 2, 2018 and other non-current liabilities at February 3, 2017) $21,380$25,091Cash ManagementDell utilizes a centralized approach to cash management and financing of its operations. For the period presented prior to August 1, 2015, Dell funded theCompany’s operating and investing activities as needed and transferred the Company’s excess cash at its discretion. This arrangement is not reflective of themanner in which the Company would have been able to finance the Company’s operations had the Company been a stand-alone business separate from Dellprior to August 1, 2015. Cash transfers to and from Dell’s cash management accounts prior to August 1, 2015 are reflected within additional paid in capital inthe Consolidated Statements of Financial Position and the Consolidated Statements of Cash Flows as a financing activity.NOTE 11 — UNAUDITED QUARTERLY RESULTS OF OPERATIONSThe following table presents selected unaudited Statements of Operations for each quarter of fiscal 2018 and fiscal 2017: Fiscal Year 2018 First Second Third Fourth Quarter Quarter Quarter Quarter Net revenue $113,593 $116,123 $117,534 $120,654Gross margin $59,651 $59,798 $61,808 $59,929Net (loss) income $(14,236) $(12,118) $(11,601) $9,878Net (loss) income per common share (basic and diluted) (1) $(0.18) $(0.15) $(0.14) $0.12Weighted-average common shares outstanding (basic) 80,056 80,353 80,355 80,357Weighted-average common shares outstanding (diluted) N/A N/A N/A 80,528(1) Basic and diluted net loss per common share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly basic and diluted net loss percommon share amounts may not equal the annual basic and diluted net loss per common share amounts. Fiscal Year 2017 First Second Third Fourth Quarter Quarter Quarter Quarter Net revenue $99,793 $103,653 $107,108 $118,948Gross margin $49,944 $50,746 $53,471 $62,742Net loss $(11,627) $(12,051) $(7,718) $(6,817)Net loss per common share (basic and diluted) (1) $(0.17) $(0.15) $(0.10) $(0.09)Weighted-average common shares outstanding (basic and diluted) 70,330 80,009 80,009 80,009(1) Basic and diluted net loss per common share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly basic and diluted net loss percommon share amounts may not equal the annual basic and diluted net loss per common share amounts.93SECUREWORKS CORP.Notes to Consolidated Financial Statements (Continued) NOTE 12 — SUBSEQUENT EVENTSEffective as of March 28, 2017, SecureWorks, Inc., our wholly-owned subsidiary, extended a revolving credit agreement with a wholly-owned subsidiary ofDell Inc. under which we have a $30 million senior unsecured revolving credit facility. This facility was set to expire on April 21, 2018. Effective as of March27, 2018, subsequent to the end of fiscal 2018, the revolving credit agreement was amended and restated to extend the maturity date to March 27, 2019 andto reduce the annual rate at which interest accrues from the applicable London interbank offered rate plus 1.60% to such rate plus 1.15%. The amended andrestated revolving credit agreement otherwise has terms substantially similar to those of the facility before the amendment and restatement.94SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTSValuation and Qualifying Accounts Balance at Charged to Balance at Beginning Income Charged to End ofFiscal Year Description of Period Statement Allowance Period Trade Receivables: 2018 Allowance for doubtful accounts $6,132 $3,947 $(1,833) $8,2462017 Allowance for doubtful accounts $4,484 $2,613 $(965) $6,1322016 Allowance for doubtful accounts $1,059 $4,661 $(1,236) $4,48495Item 9. Changes in and Disagreements With Accountants on Accounting and Financial DisclosureNoneItem 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresDisclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required tobe disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SECrules and forms and that such information is accumulated and communicated to management, including the chief executive officer and the chief financialofficer, to allow timely decisions regarding required disclosures.In connection with the preparation of this report, our management, under the supervision and with the participation of our Chief Executive Officer and ChiefFinancial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of February 2, 2018.Based on that evaluation, our management has concluded that our disclosure controls and procedures were effective as of February 2, 2018.Management's Report on Internal Control Over Financial ReportingManagement, under the supervision of the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequateinternal control over financial reporting. Internal control over financial reporting (as defined in Rules 13a-15(f) and 15d(f) under the Exchange Act) is aprocess designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures which(a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets, (b) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally acceptedaccounting principles, (c) provide reasonable assurance that receipts and expenditures are being made only in accordance with appropriate authorization ofmanagement and the board of directors, and (d) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, ordisposition of assets that could have a material effect on the financial statements.In connection with the preparation of this report, our management, under the supervision and with the participation of our Chief Executive Officer and ChiefFinancial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of February 2, 2018, based on the criteriaestablished in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As aresult of that evaluation, management has concluded that our internal control over financial reporting was effective as of February 2, 2018.Changes in Internal Control Over Financial ReportingDuring fiscal 2018, we completed the migration of our accounting and financial reporting systems to a new enterprise resource planning (or “ERP”)system. The ERP system implementation impacts various internal processes and controls for business activities within accounting and also impacts ourfinancial reporting. While we believe that this new system and the related changes to internal controls ultimately will strengthen our internal control overfinancial reporting, there are inherent risks in implementing any ERP system.Except for our implementation of the ERP system as described above, there were no changes in our internal control over financial reporting identified inconnection with the evaluation required by Rules 13a 15(e) and 15d 15(e) under the Exchange Act that occurred during the quarter ended February 2, 2018that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have modified and will continueto modify our internal controls relating to our business and financial processes throughout the entire ERP system implementation period.96Table of ContentsItem 9B. Other InformationEffective as of March 28, 2017, SecureWorks, Inc., our wholly-owned subsidiary, extended a revolving credit agreement with a wholly-owned subsidiary ofDell Inc. under which we have a $30 million senior unsecured revolving credit facility. This facility was set to expire on April 21, 2018. Effective as of March27, 2018, subsequent to the end of fiscal 2018, the revolving credit agreement was amended and restated to extend the maturity date to March 27, 2019 andto reduce the annual rate at which interest accrues from the applicable London interbank offered rate plus 1.60% to such rate plus 1.15%. The amended andrestated revolving credit agreement otherwise has terms substantially similar to those of the facility before the amendment and restatement. The credit facilityand the recent amendment and restatement to the credit facility to extend the term are described under “Notes to Consolidated Financial Statements—Note 5—Debt” and “Notes to Consolidated Financial Statements—Note 12—Subsequent Event” in our consolidated financial statements included in this annualreport on Form 10-K.97Table of ContentsPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceWe have adopted a code of ethics applicable to our principal executive officer and other senior financial officers. The code of ethics, which we refer to as ourCode of Ethics for Senior Financial Officers, is available on the Investors page of our website at www.secureworks.com. To the extent required by SEC rules,we intend to disclose any amendments to this code and any waiver of a provision of the code for the benefit of any senior financial officer on our websitewithin any period that may be required under SEC rules from time to time.See “Part I — Item 1 — Business — Executive Officers of Secureworks” for information about our executive officers, which is incorporated by reference inthis Item 10. Other information required by this Item 10 is incorporated herein by reference to our definitive proxy statement for our 2018 annual meeting ofstockholders, referred to as the “2018 proxy statement,” which we will file with the SEC on or before 120 days after our 2018 fiscal year end, and which willappear in the 2018 proxy statement under the captions “Proposal 1 — Election of Directors” and “Additional Information — Section 16(a) BeneficialOwnership Reporting Compliance.”The following lists the members of our board of directors and the principal occupation of each director as of the date of this report.Michael R. CotePresident and Chief Executive OfficerSecureWorks Corp.Mark J. HawkinsPresident and Chief Financial OfficerSalesforce.com, Inc.Michael S. DellChairman and Chief Executive OfficerDell Technologies Inc.William R. McDermottChief Executive OfficerSAP SEEgon DurbanManaging PartnerSilver Lake PartnersYagyensh C. (Buno) PatiPartnerCenterview Capital TechnologyPamela DaleyRetired Senior Vice President andSenior Advisor to the Chairmanof General Electric CompanyJames M. WhitehurstPresident and Chief Executive OfficerRed Hat, Inc.Item 11. Executive CompensationInformation required by this Item 11 is incorporated herein by reference to the 2018 proxy statement, including the information in the 2018 proxy statementappearing under the captions “Proposal 1 — Election of Directors — Director Compensation” and “Executive Compensation.”Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersInformation required by this Item 12 is incorporated herein by reference to the 2018 proxy statement, including the information in the 2018 proxy statementappearing under the captions “Stock Ownership” and “Executive Compensation — Equity Compensation Plans.”98Table of ContentsItem 13. Certain Relationships and Related Transactions, and Director IndependenceInformation required by this Item 13 is incorporated herein by reference to the 2018 proxy statement, including the information in the 2018 proxy statementappearing under the captions “Proposal 1—Election of Directors” and “Additional Information— Certain Relationships and Related Transactions.”Item 14. Principal Accounting Fees and ServicesInformation required by this Item 14 is incorporated herein by reference to the 2018 proxy statement, including the information in the 2018 proxy statementappearing under the caption “Proposal 3 — Ratification of Appointment of Independent Registered Public Accounting Firm.”99Part IVItem 15. Exhibits, Financial SchedulesThe following documents are filed as a part of this annual report on Form 10-K:(1)Financial Statements: The following financial statements are filed as a part of this report under “Part II — Item 8 Financial Statements andSupplementary Data”:Report of Independent Registered Public Accounting Firm Consolidated Statements of Financial Position as of February 2, 2018 and February 3, 2017 Consolidated Statements of Operations for the fiscal years ended February 2, 2018, February 3, 2017, and January29, 2016 Consolidated Statements of Comprehensive Loss for the fiscal years ended February 2, 2018, February 3, 2017,and January 29, 2016 Consolidated Statements of Cash Flows for the fiscal years ended February 2, 2018, February 3, 2017, and January29, 2016 Consolidated Statements of Stockholder's Equity for the fiscal years ended February 2, 2018, February 3, 2017,and January 29, 2016 Notes to Consolidated Financial Statements Schedule II - Valuation and Qualifying Accounts (2)Financial Statement Schedules: The following financial statement schedule is included following the Notes to the Consolidated FinancialStatements under “Part II — Item 8 — Financial Statements and Supplementary Data”:Schedule II — Valuation and Qualifying Accounts(3)Exhibits: EXHIBIT INDEXExhibit No. Description3.1 Restated Certificate of Incorporation of SecureWorks Corp. (the "Company") (incorporated by reference to Exhibit 4.1 to the Company'sRegistration Statement on Form S-8 filed with the Securities and Exchange Commission (the "Commission") on April 22, 2016 (the "FormS-8")) (Registration No. 333-210866).3.2 Amended and Restated Bylaws of SecureWorks Corp. (incorporated by reference to Exhibit 4.2 to the Form S-8) (Registration No. 333-210866).4.1 Specimen Certificate of Class A Common Stock, $0.01 par value per share, of the Company (incorporated by reference to Exhibit 4.1 tothe Company's Registration Statement on Form S-1 filed with the Commission on December 17, 2015 (the "Form S-1")) (Registration No.333-208596).10.1 Shared Services Agreement, effective as of August 1, 2015, between Dell Inc., for itself and its subsidiaries, and the Company (formerlyknown as SecureWorks Holding Corporation), for itself and its subsidiaries (incorporated by reference to Exhibit 10.1 to the Form S-1)(Registration No. 333-208596).10.1.1 Amendment #1 to Shared Services Agreement, dated December 8, 2015, between Dell Inc., for itself and its subsidiaries, and theCompany, for itself and its subsidiaries (incorporated by reference to Exhibit 10.1.1 to the Form S-1) (Registration No. 333-208596).10.1.2†† Amendment #2 to Shared Services Agreement, dated November 8, 2017, between Dell Inc., for itself and its subsidiaries, and theCompany, for itself and its subsidiaries.10.2 Intellectual Property Contribution Agreement, effective as of August 1, 2015, among Dell Inc., the Company and other subsidiaries ofDell Inc. party thereto (incorporated by reference to Exhibit 10.2 to the Form S-1) (Registration No. 333-208596).10.3 Patent License Agreement, effective as of August 1, 2015, between Dell Inc., for itself and its subsidiaries, and the Company, for itself andits subsidiaries (incorporated by reference to Exhibit 10.3 to the Form S-1) (Registration No. 333-208596).10.4 License Agreement, dated as of September 9, 2015, between Dell Inc. and the Company (incorporated by reference to Exhibit 10.4 to theForm S-1) (Registration No. 333-208596).100EXHIBIT INDEX - ContinuedExhibit No. Description10.5 Tax Matters Agreement, effective as of August 1, 2015, between the Company, for itself and its subsidiaries, and Dell Technologies Inc.(formerly known as Denali Holding Inc.), for itself and its subsidiaries other than the Company (incorporated by reference to Exhibit 10.5to the Form S-1) (Registration No. 333-208596).10.5.1 Amendment #1 to Tax Matters Agreement, dated December 8, 2015, between the Company, for itself and its subsidiaries, and DellTechnologies Inc., for itself and its subsidiaries other than the Company (incorporated by reference to Exhibit 10.5.1 to the Form S-1)(Registration No. 333-208596).10.6 Amended and Restated Employee Matters Agreement, effective as of August 1, 2015, among Dell Technologies Inc., Dell Inc. and theCompany (incorporated by reference to Exhibit 10.6 to the Form S-1) (Registration No. 333-208596).10.7† Security Services Customer Master Services Agreement, effective as of August 1, 2015, between SecureWorks, Inc. and Dell USA L.P., onbehalf of itself, Dell Inc., and Dell Inc.'s subsidiaries (incorporated by reference to Exhibit 10.7 to the Form S-1) (Registration No. 333-208596).10.8 Letter Agreement to Security Services Customer Master Services Agreement and Reseller Agreement, effective as of August 1, 2015,between Dell Inc. and SecureWorks, Inc. (incorporated by reference to Exhibit 10.8 to the Form S-1) (Registration No. 333-208596).10.8.1††+ First Amendment to Security Services Customer Master Services Agreement, effective as of November 3, 2017, between Dell USA L.P. andSecureWorks, Inc.10.9† Amended and Restated Master Commercial Customer Agreement, effective as of August 1, 2015, between Dell Marketing L.P. andSecureWorks, Inc. (incorporated by reference to Exhibit 10.9 to the Form S-1) (Registration No. 333-208596).10.10† Amended and Restated Reseller Agreement, effective as of August 1, 2015, between SecureWorks, Inc., for itself and its subsidiaries, andDell Inc., for itself and its subsidiaries other than the Company (incorporated by reference to Exhibit 10.10 to the Form S-1) (RegistrationNo. 333-208596).10.11 Registration Rights Agreement, dated as of August 3, 2015, among the Company and the Holders party thereto (incorporated by referenceto Exhibit 10.22 to the Form S-1) (Registration No. 333-208596).10.12 Registration Rights Agreement, dated as of April 27, 2016, among the Company, Dell Marketing L.P., Michael S. Dell, the SusanLieberman Dell Separate Property Trust, MSDC Denali Investors, L.P., MSDC Denali EIV, LLC, Silver Lake Partners III, L.P., Silver LakeTechnology Investors III, L.P., Silver Lake Partners IV, L.P., Silver Lake Technology Investors IV, L.P. and SLP Denali Co-Invest, L.P.(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on April 27, 2016)(Commission File No. 001-37748).10.13.1 Revolving Credit Agreement, dated as of November 2, 2015, between SecureWorks, Inc. and Dell USA L.P. (incorporated by reference toExhibit 10.25 to the Form S-1) (Registration No. 333-208596).10.13.2 First Amendment to Revolving Credit Agreement, dated as of March 28, 2017, between SecureWorks, Inc. and Dell USA L.P.(incorporated by reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2017)(Commission File No. 001-37748).10.14 Note Purchase Agreement, dated as of June 30, 2015 and amended on July 31, 2015, among the Company, Dell Technologies Inc. and theInvestors party thereto (incorporated by reference to Exhibit 10.21 to the Form S-1) (Registration No. 333-208596).10.15 Office Lease between Teachers Concourse, LLC and SecureWorks, Inc., dated as of April 20, 2012, as amended (incorporated by referenceto Exhibit 10.23 to the Form S-1) (Registration No. 333-208596).10.16 Unconditional Guaranty of Payment and Performance, entered into on April 20, 2012, by Dell Inc. in favor of Teachers Concourse, LLC(incorporated by reference to Exhibit 10.24 to the Form S-1) (Registration No. 333-208596).10.17 Sublease Agreement between Dell International Services SRL and SecureWorks Europe SRL, dated as of June 22, 2015, as amended(incorporated by reference to Exhibit 10.26 to the Form S-1) (Registration No. 333-208596).10.18 Lease Deed between Dell International Services India Private Limited and SecureWorks India Private Limited, dated as of August 8, 2015(incorporated by reference to Exhibit 10.27 to the Form S-1) (Registration No. 333-208596).10.19* Dell Technologies Inc. 2013 Stock Incentive Plan (incorporated by reference to Exhibit 10.10 to Dell Technologies Inc.'s Current Reporton Form 8-K filed with the Commission on September 9, 2016) (Commission File No. 001-37867).10.20* Dell Inc. 2012 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of Dell Inc.'s Current Report on Form 8-K filed withthe Commission on July 19, 2012) (Commission File No. 000-17017).101EXHIBIT INDEX - ContinuedExhibit No. Description10.21* Form of Indemnification Agreement between the Company and each director and executive officer of the Company (incorporated byreference to Exhibit 10.20 to the Form S-1) (Registration No. 333-208596).10.22* SecureWorks Corp. 2016 Long-Term Incentive Plan (incorporated by reference to Exhibit 4.4 to the Form S-8) (Registration No. 333-210866).10.23* Form of Nonqualified Stock Option Agreement for Executives under SecureWorks Corp. 2016 Long-Term Incentive Plan (incorporatedby reference to Exhibit 10.13 to the Form S-1) (Registration No. 333-208596).10.24* Form of Nonqualified Stock Option Agreement for Directors under SecureWorks Corp. 2016 Long-Term Incentive Plan (incorporated byreference to Exhibit 10.13.1 to Amendment No. 1 to the Form S-1 filed with the Commission on March 22, 2016) (Registration No. 333-208596).10.25* Form of Restricted Stock Unit Agreement for Executives under SecureWorks Corp. 2016 Long-Term Incentive Plan (incorporated byreference to Exhibit 10.14 to the Form S-1) (Registration No. 333-208596).10.26* Form of Restricted Stock Unit Agreement for Directors under SecureWorks Corp. 2016 Long-Term Incentive Plan (incorporated byreference to Exhibit 10.14.1 to Amendment No. 1 to the Form S-1 filed with the Commission on March 22, 2016) (Registration No. 333-208596).10.27* Form of Restricted Stock Agreement for Executives under SecureWorks Corp. 2016 Long-Term Incentive Plan (incorporated by referenceto Exhibit 10.15 to the Form S-1) (Registration No. 333-208596).10.28* SecureWorks Corp. Amended and Restated Severance Pay Plan for Executive Employees (incorporated by reference to Exhibit 10.1 to theCompany's Current Report on Form 8-K filed with the Commission on September 6, 2016) (Commission File No. 001-37748).10.29* Form of Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.20.1 to Amendment No. 1 to the Form S-1filed with the Commission on March 22, 2016) (Registration No. 333-208596).10.30* SecureWorks Corp. Form of Protection of Sensitive Information, Noncompetition and Nonsolicitation Agreement (incorporated byreference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on December 7, 2016) (CommissionFile No. 001-37748).10.31* Form of Performance-Based Restricted Stock Agreement for Executives under the SecureWorks Corp. 2016 Long-Term Incentive Plan(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on March 10, 2017)(Commission File No. 001-37748).10.32* Form of Performance Stock Unit Agreement for Executives under the SecureWorks Corp. 2016 Long-Term Incentive Plan (incorporatedby reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Commission on March 10, 2017) (CommissionFile No. 001-37748).10.33* Amended and Restated SecureWorks Corp. Incentive Bonus Plan (incorporated by reference to Exhibit 10.33 to the Company's AnnualReport on Form 10-K for the fiscal year ended February 3, 2017) (Commission File No. 001-37748).21.1†† Subsidiaries of SecureWorks Corp.23.1†† Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm of SecureWorks Corp.31.1†† Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Actof 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2†† Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Actof 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1††† Certifications of Chief Executive Officer and Chief Financial Officer of the Company pursuant to Rule 13a-14(b) or Rule 15d-14(b) underthe Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.101 .INS†† XBRL Instance Document.101 .SCH†† XBRL Taxonomy Extension Schema Document.101 .CAL†† XBRL Taxonomy Extension Calculation Linkbase Document.101 .DEF†† XBRL Taxonomy Extension Definition Linkbase Document.101 .LAB†† XBRL Taxonomy Extension Label Linkbase Document.101 .PRE†† XBRL Taxonomy Extension Presentation Linkbase Document. † Certain portions of this exhibit have been omitted pursuant to a confidential treatment order. Omitted information has been filedseparately with the SEC.102EXHIBIT INDEX - ContinuedExhibit No. Description+ Certain portions of this exhibit have been omitted pursuant to a confidential treatment request. Omitted information has been filedseparately with the SEC.†† Filed with this report.††† Furnished with this report.* Management contracts or compensation plans or arrangements in which directors or executive officers participate.Item 16. Form 10-K SummaryNone.103SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. SecureWorks Corp. By: /s/ Michael R. Cote Michael R. Cote President and Chief Executive Officer (Duly Authorized Officer)Date: March 28, 2018Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Michael R. Cote President, Chief Executive Officer and Director March 28, 2018 Michael R. Cote (Principal Executive Officer) /s/ R. Wayne Jackson Chief Financial Officer March 28, 2018 R. Wayne Jackson (Principal Financial Officer) /s/ Teri Miller Vice President, Chief Accounting Officer March 28, 2018 Teri Miller (Principal Accounting Officer) /s/ Michael S. Dell Chairman of the Board of Directors March 28, 2018 Michael S. Dell /s/ Egon Durban Director March 28, 2018 Egon Durban /s/ Pamela Daley Director March 28, 2018 Pamela Daley /s/ Yagyensh C. Pati Director March 28, 2018 Yagyensh C. Pati /s/ Mark J. Hawkins Director March 28, 2018 Mark J. Hawkins /s/ William R. McDermott Director March 28, 2018 William R. McDermott /s/ James M. Whitehurst Director March 28, 2018 James M. Whitehurst 104Exhibit 10.1.2Amendment #2 toSHARED SERVICES AGREEMENTTHIS AMENDMENT #2 TO SHARED SERVICES AGREEMENT (this “Amendment”), dated November 8, 2017, is made byand between Dell Inc., for itself and its Subsidiaries (“Dell”), and SecureWorks Corp. (f/k/a SecureWorks Holding Corporation), foritself and its Subsidiaries (“SCWX”) (each a “Party” and collectively, the “Parties”) and amends the Shared Services Agreement, datedJuly 20, 2015, that was entered into by and between the Parties (as amended, the “Agreement”). Capitalized terms used herein, but notdefined herein, shall have the meanings given to such terms in the Agreement.RECITALSWHEREAS, pursuant to the Agreement, Dell is providing to SCWX certain Services set forth on Service Schedules inaccordance with the terms and subject to the conditions set forth in the Agreement; andWHEREAS, the Parties desire to amend Schedule F of the Agreement.NOW, THEREFORE, in consideration of the mutual agreements, provisions, and covenants contained in this Amendment, theParties, intending to be legally bound, hereby agree as follows:a.Schedule F. Schedule F of the Agreement shall be deleted in its entirety and replaced with the Schedule F to thisAmendment.b.Miscellaneous. Except as amended by the terms of this Amendment, the terms and conditions of the Agreement shallremain in full force and effect. In the event of a conflict between the terms of the Agreement and the terms of this Amendment, theterms of this Amendment shall govern and control. This Amendment and the Agreement constitute the sole and entire understanding ofthe Parties with respect to the matters contemplated hereby and supersede and render null and void all prior negotiations,representations, agreements, and understandings (oral and written) between the Parties with respect to such matters. This Amendmentshall inure to the benefit of and be binding upon the Parties and their respective successors and assigns. This Amendment may beexecuted in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement.[Signature Page Follows]Dell - Restricted - ConfidentialIN WITNESS WHEREOF, the Parties have executed this Amendment as of the date first set forth above. DELL INC.By: /s/ Janet Bawcom Name: Janet BawcomTitle: Senior Vice President & Assistant Secretary SECUREWORKS CORP.By: /s/ George B. Hanna Name: George B. HannaTitle: Chief Legal Officer & Corporate Secretary Signature Page to Amendment 2Schedule FFacilities/SecuritySummary Description of ServicesService DescriptionService PeriodCostsAMERICAS REGIONFacilities:Dell Round Rock/Austin Campus1. 2401 Greenlawn Blvd Bldg 7/8 Round Rock, TX 786822. 501 Dell Way Round Rock Bldg 2/2E Round Rock, TX 786823. 701 E. Parmer Lane Bldg 3, Austin, TX 78753• Services. Dell shall provide Spyglass full and unfettered access to alloffice and lab space necessary to carry out business operations as such businessoperations existed as of the Effective Date.• Approximate seating capacity: 13• Facilities Management Services. Dell shall provide the followingServices for the facilities identified above for Spyglass to carry out businessoperations as such business operations existed as of the Effective Date:(a) Performance of all maintenance and repair services;(b) Required Insurance to be in compliance with local laws;(c) Provision of all utilities, including HVAC, electricity and water;(d) Provision of janitorial services;(e) Provision of shared office equipment, including photocopiers,and mailservice;(f) Provision of office furniture to perform duties;(g) Provision of physical security to the facility premises; and(h) Use of parking on the facility premises per the applicablebuilding rules.Until such time (tobe reviewed eachtwelve (12)months) asSpyglass hasrelocated itsemployees.Spyglass shall pay a base rental fee for theannual term in the amount of $38,778.The base rental fee is based on actualoperating costs as calculated on a per seatbasis for the region multiplied by thenumber of seats occupied by Spyglass asof the Effective Date and will remainstatic through the term of the fiscal yearof such Effective Date. Annual reviewswill be conducted and amounts adjustedbased on actual forecasted expenses andheadcount fluctuations.Pricing Methodology:$2,983/HC/Year-or-$249/HC/MonthDell - Restricted - ConfidentialService DescriptionService PeriodCostsAPJ REGION1. Facilities (other than Japan):a. 14 Aquatic Drive, Unit 3 Sydney Australiab. Plot P27, Bayan Lepas Industrial Zone, Malaysia• Services. Dell shall provide Spyglass full and unfettered access to alloffice and lab space necessary to carry out business operations as such businessoperations existed as of the Effective Date.• Approximate seating capacity: 12 (Sydney), 1 (Bayan Lepas)• Facilities Management Services. Dell shall provide the followingServices for the facilities identified above for Spyglass to carry out businessoperations as such business operations existed as of the Effective Date:(a) Performance of all maintenance and repair services;(b) Required Insurance to be in compliance with local laws;(c) Provision of all utilities, including HVAC, electricity and water;(d) Provision of janitorial services;(e) Provision of shared office equipment, including photocopiers,and mailservice;(f) Provision of office furniture to perform duties;(g) Provision of physical security to the facility premises; and(h) Use of parking on the facility premises per the applicablebuilding rules.Until such time (tobe reviewed eachtwelve (12)months) asSpyglass hasrelocated itsemployees.Spyglass shall pay a base rental fee for theannual term in the amount of $56,017.The base rental fee is based on actualoperating costs as calculated on a per seatbasis for the region multiplied by thenumber of seats occupied by Spyglass asof the Effective Date and will remainstatic through the term of the fiscal yearof such Effective Date. Annual reviewswill be conducted and amounts adjustedbased on actual forecasted expenses andheadcount fluctuations.Pricing Methodology:$4,608/HC/Year (Sydney);$721/HC/Year (Bayan Lepas)-or-$384/HC/Month (Sydney);$61/HC/Month (Bayan Lepas)Dell - Restricted - ConfidentialService DescriptionService PeriodCosts2. Japan Facilities:Solid Square East Tower 23F Kawasaki JP• Services. Dell shall provide Spyglass full and unfettered access to alloffice and lab space necessary to carry out business operations as such businessoperations existed as of the Effective Date.• Location: Spyglass shall occupy that portion of the Dell premisesconsisting of an approximately 627.5 square meters comprised of 2 parts,296.1 and 331.4 square meters each, as shown in red on the floor plan setforth on Schedule F-1 attached hereto and made a part hereof.• Facilities Management Services. Dell shall provide the followingServices for the facilities identified above for Spyglass to carry out businessoperations as such business operations existed as of the Effective Date:(i) Performance of all maintenance and repair services;(j) Required Insurance to be in compliance with local laws;(k) Provision of all utilities, including HVAC, electricity and water;(l) Provision of janitorial services;(m) Provision of shared office equipment, including photocopiers,and mailservice;(n) Provision of office furniture to perform duties;(o) Provision of physical security to the facility premises; and(p) Use of parking on the facility premises per the applicablebuilding rules.The service periodshall end onemonth prior to theexpiration of theDell lease on 02-28-2019 (the“ExpirationDate”).Commencing on September 1, 2017,Spyglass agrees to pay an annual rent ofJPY 43,620,492 per annum in equalmonthly installments of JPY 3,635,041 onthe first (1st) day of each month. If theterm commences on any day other thanthe first day of a month or ends on anyday other than the last day of a month,rent for such fraction of a month shall beadjusted on a per diem basis, based upon aperiod of 365 days. Rent comprises baserent under the Dell lease applicable tothese premises, as well as Spyglass’ shareof any and all additional rent under theDell lease or otherwise incurred by Dell,whether such additional rent is toreimburse Dell’s lessor or Dell for taxes,operating expenses, common areamaintenance charges, parking charges,utilities or any other expenses incurred bythe Dell’s lessor in connection with thethese premises. Notwithstanding anythingto the contrary in this Agreement,Spyglass hereby agrees and commits topay for the occupancy of the Dell spacethrough the Expiration Date, regardless ofwhether or not Spyglass is using oroccupying all of the space.Dell - Restricted - ConfidentialService DescriptionService PeriodCostsINDIA REGIONFacilities:Plot No. 42, Hitec City Layout Hyderabad IN – Lease• Services. Dell shall provide Spyglass full and unfettered access to alloffice and lab space necessary to carry out business operations as such businessoperations existed as of the Effective Date. Additional terms and conditionsare addressed in the India lease deed.• Approximate seating capacity: N/A - Specific premises is outlined inthe India lease deed.• Facilities Management Services. Dell shall provide the followingServices for the facilities identified above for Spyglass to carry out businessoperations as such business operations existed as of the Effective Date:(a) Performance of all maintenance and repair services;(b) Required Insurance to be in compliance with local laws;(c) Provision of all utilities, including HVAC, electricity and water;(d) Provision of janitorial services;(e) Provision of shared office equipment, including photocopiers,and mailservice;(f) Provision of office furniture to perform duties;(g) Provision of physical security to the facility premises; and(h) Use of parking on the facility premises per the applicablebuilding rules.Until such time(to be reviewedeach twelve (12)months) asSpyglass hasrelocated itsemployees.Spyglass shall pay a base rental fee for theannual term in the amount of$130,582.42*. The base rental fee isbased on actual operating costs ascalculated on a per seat basis for theregion multiplied by the number of seatsoccupied by Spyglass as of the EffectiveDate and will remain static through theterm of the fiscal year of such EffectiveDate. Annual reviews will be conductedand amounts adjusted based on actualforecasted expenses and headcountfluctuations.Pricing Methodology:* Lease deed specifies lease premises andassociated rent.Dell - Restricted - ConfidentialService DescriptionService PeriodCostsEMEA REGIONFacilities:1. River Quest 80 quai Voltaire, France – Hosting Agreement (nocharge)2. UK House, 180 Oxford London, United Kingdom3. Office 301-317 Building 15, Dubai Internet City, United ArabEmirates• Services. Dell shall provide Spyglass full and unfettered access to alloffice and lab space necessary to carry out business operations as such businessoperations existed as of the Effective Date. The Hosting Agreement in Franceis for registered address purposes only.• Approximate seating capacity: 14 (London), 2 (Dubai)• Facilities Management Services. Dell shall provide the followingServices for the facilities identified above for Spyglass to carry out businessoperations as such business operations existed as of the Effective Date:(a) Performance of all maintenance and repair services;(b) Required Insurance to be in compliance with local laws;(c) Provision of all utilities, including HVAC, electricity and water;(d) Provision of janitorial services;(e) Provision of shared office equipment, including photocopiers,and mailservice;(f) Provision of office furniture to perform duties;(g) Provision of physical security to the facility premises; and(h) Use of parking on the facility premises per the applicablebuilding rules.Until such time (tobe reviewed eachtwelve (12)months) asSpyglass hasrelocated itsemployees.Spyglass shall pay a base rental fee for theannual term in the amount of $267,425*.The base rental fee is based on actualoperating costs as calculated on a per seatbasis for the region multiplied by thenumber of seats occupied by Spyglass asof the Effective Date and will remainstatic through the term of the fiscal yearof such Effective Date. Annual reviewswill be conducted and amounts adjustedbased on actual forecasted expenses andheadcount fluctuations.Pricing Methodology:$18,344/HC/Year (London);$5,307/HC/Year (Dubai)-or-$1,529/HC/Month (London);$442/HC/Month (Dubai)*HC pricing methodology is strictlyapplied to London and Dubai. TheHosting Agreement for France specifiesspecific terms.Dell - Restricted - ConfidentialService DescriptionService PeriodCostsGLOBAL SERVICESFacilities:Applies to any location within the Dell global portfolio• Services. Upon request, Dell shall provide Spyglass real estateconsulting and access to Dell’s corporate Facilities Software instance ofTririga to manage employee space records for Spyglass’s real estate portfolioneeds both current and future. This shall include such consulting astransactions, project management, strategy, Environmental, Health & Safety(EHS) and other miscellaneous support which may be needed from time totime. From time to time, additional resources may be required to assist in suchconsulting, and at such time, the scope and pricing will be mutually agreed byboth parties. Should consulting require travel, all costs should be incurred bySpyglass.Twelve (12)months) whichshall be renewablein equal periods aslong as both partiesmutually consent.Spyglass shall pay a base consulting feefor the annual term in the amount of$5,000.00. Terms and Conditions Specifically Applicable to Facilities/Security Services: • Dell Service Coordinator:o Becky EwyPhone: 512-724-7011Email: becky_ewy@dell.com • Spyglass Service Coordinator:o Matt DiamondPhone: 404-486-4440Email: mdiamond@secureworks.com Dell - Restricted - ConfidentialSchedule F-1Kawasaki, Japan Floor Plan[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment hasbeen requested with respect to the omitted portions.Exhibit 10.8.1FIRST AMENDMENTTOSECURITY SERVICES CUSTOMER MASTER SERVICES AGREEMENTThis First Amendment (“Amendment”) is entered into to be effective on November 3, 2017 (the “Amendment Effective Date”) andamends the Security Services Customer Master Services Agreement between Dell USA L.P. (“Dell”), and SecureWorks, Inc.(“SecureWorks”) dated as of July 7, 2015 (the “MSA”), as amended by that certain letter agreement between Dell and SecureWorksdated July 20, 2015 (the “Letter Agreement”) (the MSA and Letter Agreement are referred to together as the “Agreement”). Definedterms used in this Amendment have the same meanings as those in the Agreement unless otherwise defined herein. Except as expresslyamended hereby, the provisions of the Agreement are and shall remain in full force and effect.WHEREAS, SecureWorks agreed under the Agreement to provide certain managed security services and security risk consultingservices to Dell at a specified discount off list price; andWHEREAS, solely with respect to services purchased by Dell for resale to certain customers of NTT DATA Services, LLC andcertain affiliates, the parties have agreed to amend the discounted pricing.NOW THEREFORE, in consideration of the mutual promises and covenants contained in this Amendment, and of other good andvalid consideration, the receipt and sufficiency of which are hereby acknowledged, Dell and SecureWorks hereby agree to amend theAgreement as follows:1.The first paragraph of “Section 2.1 Fees” to the MSA is deleted and replaced in its entirety with the following:2.1 Fees. MSS Services will be sold and/or licensed, as applicable, at the discount off the list price specified on Exhibit B. For eachService Order, the MSS Services will commence (the “MSS Service Commencement Date”) on the first day in which Spyglass: (a) has establishedcommunication with the Equipment (as defined in Section 5); and (b) has verified availability of Customer Data (as defined in Section 6.1) on theSpyglass customer online portal (details and login details of which shall be provided by Spyglass to the Customer) (“Portal”). Spyglass may invoiceCustomer for such MSS Services provided on or after the MSS Service Commencement Date. Standard-sku Consulting Services will be sold at a[***]% discount off the list price. Pricing for non-standard and customized Consulting Services will be determined by the parties on a case by casebasis.2.The following exhibit, “Exhibit B”, is hereby inserted at the end of the MSA.EXHIBIT BMSS SERVICES PRICINGFor the Existing Commitment Customers listed below, MSS Services will be sold and/or licensed, as applicable, at a [***]%discount off the list price; provided, that such pricing will only apply to contractual obligations or binding offers orcommitments as of November 2, 2016.Other MSS Services will be sold and/or licensed, as applicable, at a [***]% discount off the list price.“Existing Commitment Customers” include the following: [***][***][***][***][***][***][***][***][***]The parties acknowledge and agree that the above list of Existing Commitment Customers may be further modified by mutualagreement of the parties to the extent such list is not complete and accurate with respect to existing commitments as of November 2,2016.IN WITNESS WHEREOF, the Parties agree to the terms and conditions set forth in this Amendment.Signed for and on behalf of Dell:Signature: /s/ Janet M. BawcomName: Janet M. BawcomTitle: Senior Vice President and Assistant SecretaryDate: (undated) Signed for and on behalf of SecureWorks:Signature: /s/ George B. HannaName: George B. HannaTitle: Chief Legal Officer & Corporate SecretaryDate: November 28, 2017 [***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment hasbeen requested with respect to the omitted portions. Exhibit 21.1 Jurisdiction of IncorporationName of Subsidiary or OrganizationSecureWorks, Inc. GeorgiaSecureWorks Australia Pty. Ltd. AustraliaSecureWorks Europe Limited United KingdomSecureWorks Europe S.R.L. RomaniaSecureWorks India Private Limited IndiaSecureWorks Japan K.K. JapanSecureWorks SAS France Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statement on Form S‑8 (No. 333-210866) of SecureWorks Corp. of our report datedMarch 28, 2018 relating to the financial statements and financial statement schedule, which appears in this Form 10‑K./s/ PricewaterhouseCoopers LLPAtlanta, GAMarch 28, 2018EXHIBIT 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICEROF THE COMPANY PURSUANT TO RULE 13a-14(a)OR RULE 15d-14(a) UNDER THE SECURITIES EXCHANGEACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002I, Michael R. Cote, certify that:1.I have reviewed this Annual Report on Form 10-K of SecureWorks Corp.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.March 28, 2018 /s/ Michael R. Cote Michael R. Cote President and Chief Executive OfficerEXHIBIT 31.2CERTIFICATION OF CHIEF FINANCIAL OFFICEROF THE COMPANY PURSUANT TO RULE 13a-14(a)OR RULE 15d-14(a) UNDER THE SECURITIES EXCHANGEACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002I, R. Wayne Jackson, certify that:1.I have reviewed this Annual Report on Form 10-K of SecureWorks Corp.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.March 28, 2018 /s/ R. Wayne Jackson R. Wayne Jackson Chief Financial OfficerEXHIBIT 32.1 CERTIFICATIONS OF CHIEF EXECUTIVE OFFICERAND CHIEF FINANCIAL OFFICER OF THE COMPANYPURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b)UNDER THE SECURITIES EXCHANGE ACT OF 1934AND 18 U.S.C. SECTION 1350, AS ADOPTEDPURSUANT TO SECTION 906 OFTHE SARBANES-OXLEY ACT OF 2002Each of the undersigned hereby certifies, in his capacity as an officer of SecureWorks Corp. (the “Company”), for purposes of 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:1.The annual report on Form 10-K of the Company for the fiscal year ended February 2, 2018 fully complies with the requirements of Section 13(a) or15(d) of the Securities Exchange Act of 1934; and2.The information contained in such annual report on Form 10-K fairly presents, in all material respects, the financial condition and results ofoperations of the Company.Date:March 28, 2018 /s/ Michael R. Cote Michael R. Cote President and Chief Executive OfficerDate:March 28, 2018 /s/ R. Wayne Jackson R. Wayne Jackson Chief Financial Officer

Continue reading text version or see original annual report in PDF format above