SecureWorks Corp - Annual Report: 2020 (Form 10-K)

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•	prevent security breaches by fortifying their cyber defenses,

•	detect malicious activity,

•	respond rapidly to security breaches, and

•	predict emerging threats.

•	maintain and extend our technology leadership,

•	expand and diversify our customer base,

•	deepen our existing customer relationships, and

•	attract and retain top talent.

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▪	Managed security, through which we provide our customers global visibility and insight into malicious activity enabling them to detect and effectively remediate threats quickly

▪	Threat intelligence, through which we deliver early warnings of vulnerabilities and threats, along with actionable information to help prevent any adverse impact

▪	Security and risk consulting, through which we advise our customers on a variety of security and risk-related matters, such as how to design and build strategic security programs, assess and test security capabilities and meet regulatory requirements

▪	Incident response, through which we help our customers minimize the impact and duration of security breaches through proactive customer preparation, rapid containment and thorough event analysis followed by effective remediation

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Counter Threat Appliance. Our Counter Threat Appliance performs several of the important functions of the Counter Threat Platform. The Counter Threat Appliance is a server that facilitates secure non-intrusive communications of security information used to provide managed security solutions, while our platform enriches data with our intimate knowledge of threats and customer specific intelligence to detect security incidents. A Counter Threat Appliance may be physical or virtual, which refers to the manner by which our technology is deployed to transmit information: “physical” being through the provisioning of a physical Company-owned server to a customer’s site, and “virtual” being through the use of the existing customer infrastructure and residing and operating in a customer’s virtual environment or platform. This technology supports a wide range of security and network devices, applications and endpoints to collect information on the customer environment, perform analytics and report to our counter threat operations centers.

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Foresee. Foresee, our behavioral and self-learning technology, identifies malicious events through the use of machine learning algorithms to determine the probability and confidence that a particular event or a collection of events is malicious. Foresee learns which events are malicious or non-malicious based on ongoing feedback from our certified security analysts and applies machine-learning analysis techniques for the discovery of previously unknown threats.

•	Multi-Purpose Logic Engine. Our Multi-Purpose Logic Engine is an analytics engine that leverages our broad visibility into the global threat environment and applied intelligence from the Counter Threat Unit to identify security incidents of interest. The engine intelligently analyzes billions of events into actionable information, providing

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•	Very Large Database. Our Very Large Database efficiently and cost-effectively collects, correlates, analyzes and stores billions of structured and unstructured data elements, which help us to identify new security threats, provide valuable context to our security analysts and customers and enable Counter Threat Unit researchers to perform historical threat analysis.

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Threat Intelligence Management System, or TIMS. We manage structured and unstructured data in TIMS. TIMS collects, correlates and analyzes billions of data points to catalogue threat actors and generate threat indicators applied to the Counter Threat Platform and across our solutions. The data points are sourced from our managed security solutions, malware, social media, honeypots (or traps set to detect or counteract attempts at unauthorized use of information systems), open source intelligence, hunting and incident response engagements, strategic relationships and priority research.

•	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 its behaviors 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 contains machine readable threat intelligence we apply to the Counter Threat Platform, iSensorTM, Red CloakTM Advanced Endpoint Threat Detection and third-party security controls.

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Portal. Powered by integrated intelligence and analytics tools, the portal delivers near real time information to customer executives, managers and security professionals and provides insights that help customers make better security decisions. It also facilitates near real time communication between customers and our security analysts, measures the effectiveness of a customer’s security profile using asset-based and risk-weighted analyses, supports regulatory 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 via customer applications that leverage our application programming interfaces.

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Threat Analysis Platform. We present threat information to our certified security analysts in a graphical user interface. This interface supports the delivery of high-quality security analysis of threats targeting or occurring within a customer’s environment. Visualization enables our security analysts to detect patterns and to determine in near real time relationships of security incidents within a customer environment and across our entire customer base. Our security analysts have access to all data collected from customer environments and human readable threat intelligence from our Counter Threat Unit to provide them with the context necessary to inform their analysis and to help them determine whether they should communicate information about a security incident to a customer.

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Ticket Management. Our ticket management system is based on Information Technology Infrastructure Library principles and delivers security monitoring and device management solutions to customers. A sophisticated and configurable workflow provides incident, change and problem management in a leveraged-service delivery model to enable our counter threat operations centers t    o handle a higher volume of work with consistent quality.

•	Management and Monitoring Tools. To effectively manage and monitor our infrastructure at customer sites and our data centers, we rely on a suite of purpose-built software applications to facilitate the full lifecycle management of all software and configuration deployments and updates, efficient management and troubleshooting, and monitoring of the health and availability of devices.

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iSensor. Many of our customers use our proprietary network intrusion detection and prevention appliance, the iSensor. The iSensor eliminates malicious inbound and outbound traffic in near real time by performing in-line deep packet inspection (which is an examination of packet data as the data passes through the device for signs of malware, intrusions or other threats) and by applying countermeasures from the Counter Threat Unit.

•	Red Cloak. Advanced Endpoint Threat Detection software, allows us to apply our threat intelligence and advanced analytics to the endpoint to reduce the amount of time required to detect a compromise of security and reduce the

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Third-Party Technologies. Our technology-driven information security solutions are designed to monitor alerts, logs and other messages across multiple stages of the threat lifecycle. In addition to security monitoring, we offer device management for many leading security platforms. In deploying 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., Juniper Networks, Inc., Fortinet, Inc. and SonicWall, Inc. In addition, we also support intrusion prevention systems from vendors such as Intel Corporation (McAfee), and web application firewalls from vendors such as Imperva, Inc., F5 Networks, Inc. and Citrix Systems, Inc.

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Red Cloak TDR analyzes activity from endpoint, network and cloud while reducing the number of false positives security professionals face. It detects advanced threats by correlating information from a variety of sources and threat intelligence feeds, integrating Secureworks’ knowledge of threat actor behaviors, and applying machine learning to provide much-needed context about the threat. Red Cloak TDR builds trust in security alerts and frees security teams to focus on threats that matter.

•	Designed around Secureworks’ defense in concert methodology, Red Cloak TDR unifies security environments and analyzes all relevant signals in one place. Users gain additional context so they can quickly and accurately judge the implications of each event.

•	By seamlessly working on investigations together, teams can quickly reach conclusions with confidence. The built-in chat feature can be used right from the user interface during an investigation to get expert help based upon years of experience hunting, analyzing and defending against threats.

•	The application allows for a quick, accurate, software-driven response that gives users the ability to automate the right action.

•	Because Red Cloak TDR is a cloud-based SaaS application, companies would not have the burden of installing on-premises hardware or maintaining software version upgrades. Updates, backups and tuning are provided through the broader solution.

•	Red Cloak TDR does not charge by data consumption, so subscribers are free to process the security-relevant data they need to keep their organization safe.

•	Onboarding is quick and easy because the application is designed to easily integrate into an organization’s current control framework.

•	Cisco (Sourcefire) – network security

•	CrowdStrike – endpoint security

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•	Lastline – malware detection and protection

•	Microsoft Defender – spyware and malware protection

•	Qualys – vulnerability management

•	TIBCO (LogLogic) – log management

•	VMware Carbon Black – endpoint security

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•	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 and cloud environments.

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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 exposures and weaknesses in these web-based applications before a threat actor exploits those weaknesses. Our managed web application scanning solution performs deep and accurate scans of web applications that are hosted on customer premises or in cloud environments. These scans search for vulnerabilities specific to the web protocols that are foundational to web applications. Our solution also supports the ability to log into web applications and discover vulnerabilities that may lie behind the login page.

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•	Press and industry analyst relations to build third-party validation and generate positive coverage for our company and our solutions;

•	Events, trade shows and industry events, to create customer and prospect awareness;

•	Leveraging our proprietary research through content marketing and engagement on social channels like Twitter, LinkedIn and Facebook and on our own blogs;

•	Search engine marketing and advertising to drive traffic to our website;

•	Website development to engage and educate prospects and generate interest through product information and demonstrations, case studies, white papers, blog posts and marketing collateral;

•	Multi-channel marketing campaigns;

•	Customer testimonials and references; and

•	Sales tools and field marketing events to enable our sales organization to more effectively convert leads into customers.

▪	global telecommunications and network services providers such as AT&T Inc., BT Group plc, Verizon Communications Inc. and NTT Communications Corp.;

▪	providers of specialized or niche IT security products and services such as FireEye, Inc., and Palo Alto Networks, Inc.;

▪	diversified technology companies such as Cisco Systems, Inc., Hewlett Packard Enterprise Company, International Business Machines Corporation and Intel Corporation; and

▪	regional information security services providers that compete in the small and medium-sized businesses market with some of the features present in our information security solutions.

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▪	global visibility into the threat landscape;

▪	ability to generate actionable intelligence based on historical data and emerging threats;

▪	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 customer 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;

▪	customer service and support; and

▪	breadth and richness of threat intelligence, including history of data collection and diversity and geographic scope of customers.

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•	the establishment by organizations of increasingly complex IT networks that often include a combination of on-premise, cloud and hybrid environments;

•	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 customer requirements for information technology; and

•	introductions of new products and services or enhancements to existing products and services by our competitors.

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•	delays in our introduction of new, enhanced or modified solutions that address and respond to innovations in computer technology and customer requirements;

•	defects, errors or failures in any of our solutions or delivery of our solutions;

•	any inability by us to integrate our solutions with the security and network technologies used by our current and prospective customers;

•	any failure by us to anticipate, address and respond to new and increasingly sophisticated security threats or techniques used by hackers and other threat actors;

•	negative publicity about the performance or effectiveness of our solutions; and

•	disruptions or delays in the availability and delivery of our solutions.

•	our ability to increase sales to existing customers and to renew contracts with our customers;

•	delays in deployment of solutions under our customer contracts;

•	our ability to attract new customers;

•	interruptions or service outages in our data centers, cloud providers and other technical infrastructure, other technical difficulties or security breaches;

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•	customer 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 customer needs;

•	our ability to retain, hire and train key personnel, including sales personnel, security analysts, security consultants 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 and possible write-downs;

•	stock-based compensation expense associated with attracting and retaining personnel; and

•	general economic conditions, geopolitical events and natural catastrophes and public health issues, including the novel strain of coronavirus, COVID-19, which began spreading globally in early 2020.

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•	the time, resources and expense required for localization of our solutions, including translation of our Internet-based portal interface into other languages, provision of customer 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 consumer protection 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 Trading with 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 tax regimes;

•	reduced or varied protection of intellectual property rights in some countries that could expose us to increased risk of infringement of our patents and other intellectual property;

•	global disruptions in custom spending patterns or our ability to provide service to our customers as a result of any widespread public health issues, including a pandemic such as COVID-19; and

•	political, social and economic instability, terrorist attacks and security concerns in general.

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•	expenditure of significant financial and development resources in efforts to analyze, correct, eliminate or work around the cause of any related vulnerabilities;

•	loss of existing or potential customers or channel partners;

•	delayed or lost revenue;

•	extension of service credits to affected customers, 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.

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•	involve our entry into geographic or business markets in which we have little or no experience;

•	create difficulties in retaining the customers of any acquired business;

•	result in a delay or reduction of customer sales for both us and the company we acquire because of customer uncertainty about the continuity and effectiveness of 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 existing business.

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•	expose us to unexpected liabilities;

•	require us to incur charges and substantial indebtedness or liabilities;

•	have adverse tax consequences;

•	result in acquired in-process research and development expenses, or in the future require the amortization, write-down or impairment of amounts related to deferred compensation, goodwill and other intangible assets; or

•	fail to generate a financial return sufficient to offset acquisition costs.

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•	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.

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•	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.

•	engaging in the same or similar activities or lines of business as those in which we are engaged;

•	doing business with any of our customers, customers or vendors; or

•	employing, or otherwise engaging or soliciting for such purpose, any of our officers, directors or employees.

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•	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 security industry 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 technologies and 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 customers;

•	major catastrophic events;

•	sales of large blocks of our Class A common stock; and

•	additions or departures of key employees.

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•	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 executive officer and other executive officers; and

•	a nominating committee composed entirely of independent directors that nominates candidates for election to the board of directors, or that recommends such candidates for nomination by the board of directors (or obligating the listed company to cause a majority of the board’s independent directors to exercise this oversight of director nominations).

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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, enabling Dell Technologies, as the beneficial owner of all outstanding shares of our Class B common stock, to control the outcome of all matters submitted to a vote of our stockholders, including the election of directors, in which holders of the Class B common stock are entitled to vote;

•	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 any outstanding series of preferred stock, and provide that the authorized number of directors at any time will be fixed exclusively by a resolution adopted by 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 the capital stock entitled to vote generally on the election of directors, any newly-created directorship and any vacancy on the board of directors may be filled only by the affirmative vote of a majority of the remaining directors then in office;

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provide that, at such time (if any) as the Dell Technologies Entities beneficially own capital stock representing less than 50% in voting power of the capital stock entitled to vote generally on the election of directors, directors may be removed only for cause and only by the affirmative vote of the holders 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 as Dell Technologies Entities beneficially own capital stock representing at least 40% in voting power of the capital stock entitled to vote generally on the election of directors, Dell Technologies;

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provide that, at such time (if any) as the Dell Technologies Entities beneficially own capital stock representing less than 50% in voting power of the capital stock entitled to vote generally on the election of directors, any action required or permitted to be taken by our stockholders at any annual or special 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 have been 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 for consideration at any annual or special stockholder meeting; and

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•	provide authority for the board of directors without stockholder approval to authorize the issuance of up to 200,000,000 shares of preferred stock, in one or more series, with terms and conditions, and having rights, privileges and preferences, to be determined by the board of directors.

•	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, or stockholders 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 General Corporation 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.

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•	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 golden parachute arrangements not previously approved.

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•	prevent security breaches by fortifying their cyber defenses,

•	detect malicious activity,

•	respond rapidly to security breaches, and

•	predict emerging threats.

•	maintain and extend our technology leadership,

•	expand and diversify our customer base,

•	deepen our existing customer relationships, and

•	attract and retain top talent.

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•	Impact of Purchase Accounting. The impact of purchase accounting consists primarily of purchase accounting adjustments related to a change in the basis 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. In connection with the acquisition of Dell by Dell Technologies in fiscal 2014, all of our tangible and intangible assets and liabilities were accounted for and recognized at fair value on the transaction date.

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•	Stock-based Compensation Expense. Non-cash stock-based compensation expense relates to both the Dell Technologies and Secureworks equity plans. We exclude such expense when assessing the effectiveness of our operating performance since stock-based compensation does not necessarily correlate with the underlying operating performance of the business.

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Impact of Tax Cuts and Jobs Act. The impact of the Tax Cuts and Jobs Act relates to final tax provision impacts of complying with the U.S. tax reform that was enacted in December 2017, as recorded in fiscal 2020 and fiscal 2019, as well as the provisional tax benefit of $27.0 million that was recorded in the fourth quarter of fiscal 2018. For additional information, see “Notes to Consolidated Financial Statements—Note 11—Income and Other Taxes” in our consolidated financial statements included in this report.

•	Aggregate Adjustment for Income Taxes. The aggregate adjustment for income taxes is the estimated combined income tax effect for the adjustments mentioned above. The tax effects are determined based on the tax jurisdictions where the above items were incurred.

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Research and Development, or R&D, Expenses. Research and development expenses include compensation and related expenses for the continued development of our solutions offerings, including a portion of expenses related to our threat research team, which focuses on the identification of system vulnerabilities, data forensics and malware analysis. R&D expenses also encompass expenses related to the development of prototypes of new solutions offerings and allocated overhead. Our customer solutions have generally been developed internally. We operate in a competitive and highly technical industry. Therefore, to maintain and extend our technology leadership, we intend to continue to invest in our R&D efforts by hiring more personnel to enhance our existing security solutions and to add complementary solutions.

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Sales and Marketing, or S&M, Expenses. Sales and marketing expenses include salaries, sales commissions and performance-based compensation benefits and related expenses for our S&M personnel, travel and entertainment, marketing and advertising programs (including lead generation), customer advocacy events, and other brand-building expenses, as well as allocated overhead. As we continue to grow our business, both domestically and internationally, we will invest in our sales capability, which will increase our sales and marketing expenses in absolute dollars.

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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 and other administrative functions, and are partially offset by allocations of information technology and facilities costs to other functions.

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(1)

See "Non-GAAP Financial Measures" and "Reconciliation of Non-GAAP Financial Measures" for more information about these non-GAAP financial measures, including our reasons 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 directly comparable GAAP financial measure. Non-GAAP financial measures as a percentage of revenue are calculated based on non-GAAP revenue.

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(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 directly comparable GAAP financial measure.

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Operating Activities — Cash provided by operating activities was $78.8 million and $57.2 million in fiscal 2020 and fiscal 2019, respectively. The improvement in our operating cash flows was primarily driven by the decrease in our net accounts receivable due to improved collection rates, partially offset by our net transactions with Dell. We expect that our future transactions 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, although the timing of charges and settlements may vary period to period.

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Investing Activities — Cash used in investing activities totaled $12.6 million and $10.2 million in fiscal 2020 and fiscal 2019, respectively. For the periods presented, investing activities consisted primarily of capital expenditures for property and equipment to support our data center and facility infrastructure, as well as certain capitalized costs related to the development of our new security software application.

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Financing Activities — Cash used in financing activities was $14.0 million and $18.9 million in fiscal 2020 and fiscal 2019, respectively. The usage in fiscal 2020 reflected employee tax withholding payments of $8.5 million associated with the vesting of stock compensation grants and our repurchase of $6.4 million of our Class A common stock pursuant to our stock repurchase program re-authorized during fiscal 2020 and payment of a long-term financing arrangement of $0.5 million, which was partially offset by proceeds of $1.3 million from stock options exercised during fiscal 2020. The usage in fiscal 2019 reflected our repurchase of $13.5 million of our Class A common stock pursuant to our stock repurchase program authorized during fiscal 2019, payments of long-term financing arrangements of $3.2 million, including related

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(1)	Other reflects purchase obligations of annual maintenance services for hardware systems for internal use financed from a related party. See also “Notes to Consolidated Financial Statements—Note 13—Related Party Transactions” in our consolidated financial statements included in this report.

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Identification of the contract, or contracts, with a customer—A contract with a customer exists when (i) we enter into an enforceable contract with a customer, (ii) the contract has commercial substance and the parties are committed to perform, and (iii) payment terms can be identified and collection of substantially all consideration to which we will be entitled in exchange for goods or services that will be transferred is deemed probable based on the customer's intent and ability to pay. Contracts entered into for professional services and subscription-based solutions near or at the same time are generally not combined as a single contract for accounting purposes, since neither the pricing nor the services are interrelated.

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Identification of the performance obligations in the contract—Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both (i) capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from us, and (ii) distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. When promised goods or services are incapable of being distinct, we account for them as a combined performance obligation. With regard to a typical contract for subscription-based solutions, the performance obligation represents a series of distinct services that will be accounted for as a single performance obligation. In a typical professional services contract, Secureworks has a separate performance obligation associated with each service. We are generally acting as a principal in each subscription-based and professional services arrangement and, thus, recognize revenue on a gross basis.

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Determination of the transaction price—The total transaction price is primarily fixed in nature as the consideration is tied to the specific services purchased by the customer, which constitutes a series for delivery of the solutions over the duration of the contract. For professional services contracts, variable consideration exists in the form of rescheduling penalties and expense reimbursements; no estimation is required at contract inception, since variable consideration is allocated to the applicable period.

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Allocation of the transaction price to the performance obligations in the contract—We allocate the transaction price to each performance obligation based on the performance obligation's standalone selling price. Standalone selling price is determined by considering all information available to us, such as historical selling prices of the performance obligation, geographic location, overall strategic pricing objective, market conditions and internally approved pricing guidelines related to the performance obligations.

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Recognition of revenue when, or as, the Company satisfies performance obligation—We recognize revenue over time using a time-elapsed output method to measure progress (i.e., ratable recognition) for the subscription-based performance obligation over the contract term. For any upgraded installation services, which we have determined represent a performance obligation separate from its subscription-based arrangements, revenue is recognized over time using hours elapsed over the service term as an appropriate method to measure progress. For the performance obligation pertaining to professional services arrangements, we recognize revenue over time using an input method based on time (hours or days) incurred to measure progress over the contract term.

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Identification of the contract, or contracts, with a customer—A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer, (ii) the contract has commercial substance and the parties are committed to perform, and (iii) payment terms can be identified and collection of substantially all consideration to which the Company will be entitled in exchange for goods or services that will be transferred is deemed probable based on the customer's intent and ability to pay. Contracts entered into for professional services and subscription-based solutions near or at the same time are generally not combined as a single contract for accounting purposes, since neither the pricing nor the services are interrelated.

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Identification of the performance obligations in the contract—Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both (i) capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from the Company, and (ii) distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. When promised goods or services are incapable of being distinct, the Company accounts for them as a combined performance obligation. With regard to a typical contract for subscription-based solutions, the performance obligation represents a series of distinct services that will be accounted for as a single performance obligation. In a typical professional services contract, the Company has a separate performance obligation associated with each service. The Company is generally acting as a principal in each subscription-based and professional services arrangement and, thus, recognizes revenue on a gross basis.

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Determination of the transaction price—The total transaction price is primarily fixed in nature as the consideration is tied to the specific services purchased by the customer, which constitutes a series for delivery of the solutions over the duration of the contract. For professional services contracts, variable consideration exists in the form of rescheduling penalties and expense reimbursements; no estimation is required at contract inception, since variable consideration is allocated to the applicable period.

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Allocation of the transaction price to the performance obligations in the contract—The Company allocates the transaction price to each performance obligation based on the performance obligation's standalone selling price. Standalone selling price is determined by considering all information available to the Company, such as historical selling prices of the performance obligation, geographic location, overall strategic pricing objective, market conditions and internally approved pricing guidelines related to the performance obligations.

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Recognition of revenue when, or as, the Company satisfies performance obligation—The Company recognizes revenue over time using a time-elapsed output method to measure progress (i.e., ratable recognition) for the subscription-based performance obligation over the contract term. For any upgraded installation services, which the Company has determined represent a performance obligation separate from its subscription-based arrangements, revenue is recognized over time using hours elapsed over the service term as an appropriate method to measure progress. For the performance obligation pertaining to professional services arrangements, the Company recognizes revenue over time using an input method based on time (hours or days) incurred to measure progress over the contract term.

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(1)	Reflects purchase obligations of annual maintenance services for hardware systems for internal use from a related party. See also “Note 13—Related Party Transactions.”

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(1)	The aggregate intrinsic values represent the total pre-tax intrinsic values based on the Company's closing share price of $15.73 as reported on the Nasdaq Global Select Market on January 31, 2020, that would have been received by the option holders had all in-the-money options been exercised as of that date.

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(1)	Financial Statements: The following financial statements are filed as a part of this report under “Part II — Item 8 Financial Statements and Supplementary Data”:

(2)	Financial Statement Schedules: The following financial statement schedule is included following the Notes to the Consolidated Financial Statements under “Part II — Item 8 — Financial Statements and Supplementary Data”:

(3)	Exhibits:

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