Dell SecureWorks Files For IPO, Reveals Mounting Losses

After months of planning, Dell SecureWorks has finally made it official, filing Monday to launch its initial public offering.

SecureWorks, a wholly owned subsidiary of Dell and parent company Denali Holding, said in the Form S-1 filing that it expects an IPO price of $15.50 to $17.50 per share, an amount that would value the Atlanta-based cybersecurity services company at up to $1.42 billion. The company will offer 9 million shares of Class A common stock and 70 million shares of Class B common stock, the latter of which will remain owned by Denali.

SecureWorks, whose IPO filing is the first of the year, will trade on the Nasdaq exchange under the symbol SCWX.

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The S-1 filing said the proceeds from the IPO, which are expected to be around $134.3 million, will be put toward "working capital and other general corporate purposes," which the company said could include growth initiatives, new solutions and other investments. SecureWorks said it doesn't plan to transfer proceeds to Dell, which is looking to finance a proposed $67 billion blockbuster deal to purchase EMC.

Also revealed in the S-1 filing were mounting losses for the cybersecurity company, which offers managed security, threat intelligence, security and risk consulting, and incident response services to enterprises. Revenue for SecureWorks was $339.5 million in 2016, $262.1 million in 2015 and $205.8 million in 2014. However, as revenue grew, so did the company's losses, with a $44.5 million loss in 2014, a $38.5 million loss in 2015 and a $72.4 million loss in 2016. SecureWorks blamed mounting operating expenses for the growing losses.

SecureWorks said an aggressive growth strategy could threaten the company's ability to achieve profitability in the near future, especially if it gets hit by revenue declines because of increased competition, changing client demand or other factors. Those growth initiatives include investments in research and development of new technology, expanding the company's customer base of 4,200 clients, sales and marketing, and retaining top talent, the company said.

"Our strategic initiatives may be more costly than we expect, and we may not be able to increase our revenue to offset these increased operating expenses and the additional expenses we will incur as a public company. … If we are unable to meet these risks and challenges as we encounter them, our business, financial condition and results of operations may suffer," the filing said.

Partners said the IPO filing is a validation of the booming cybersecurity services market, as well as the SecureWorks business model. In the months leading up to the IPO, partners had praised the move to take SecureWorks public, saying customers would be more comfortable working with a security services company that is independent of a major vendor.

"I think public perception of any organization that is publicly traded is hold yourself to a higher scrutiny. As a security company of their caliber, it certainly helps them and brings some validation to who they are," said Michael Creen, president of Solutions Granted, a Woodbridge, Va.-based Dell partner.

However, other partners said they don't feel threatened to compete against the soon-to-be-public security services firm.

"I think that’s because by its nature, information security consulting is an incredibly high-trust engagement, so there remains a place at the table for modest-sized organizations," Mike Gavaghen, vice president of sales and marketing at Norwalk, Conn.-based SLPowers, said in an email to CRN. "It's not just that cybersecurity firms are fighting hard for market share. It's that smaller niche players continue to remain viable and to compete (and win) on their own terms."