Executive Summary

Q3 FY25 delivered resilient core Taegis growth and margin expansion, with total revenue of $82.733M and Taegis revenue of $71.407M; GAAP gross margin rose to 67.8% and non-GAAP gross margin to 70.6% .
Company withdrew Q4 and FY25 guidance due to the pending Sophos acquisition and did not host a Q3 earnings call; guidance suspension and deal timeline became primary stock catalysts near term .
Against Q2 guidance, Q3 results were solid: revenue topped the $80–$82M target, adjusted EBITDA landed within the $0–$2M range, and non-GAAP EPS was within the guided -$0.01 to $0.01 band .
Strategic shift is complete: legacy MSS wind-down ended earlier in FY25; multi-quarter commentary attributes gross margin gains to automation, AI, and cloud scaling in Taegis, supporting structural profitability improvements despite headline GAAP losses (Q3 GAAP net loss: -$27.5M) .
Post-quarter, the merger closed on Feb 3, 2025 at $8.50 per share (all-cash), delisting SCWX; near-term performance and stock reaction hinged on deal spread and closing certainty .

What Went Well and What Went Wrong

What Went Well
- Taegis momentum and mix: Taegis revenue grew YoY to $71.4M; Taegis GAAP gross margin expanded to 72.2%, non-GAAP to 74.9% .
- Margin expansion: Company-level GAAP gross margin rose to 67.8% and non-GAAP to 70.6% in Q3, reflecting efficiency gains and completed legacy wind-down .
- Management execution on profitability levers: Prior quarters highlighted automation/AI and cloud architecture as key drivers of rising Taegis and overall non-GAAP gross margins, supporting EBITDA improvement cadence .
What Went Wrong
- Top-line still below prior year: Total revenue declined YoY to $82.7M (from $89.4M), with subscription earlier affected by legacy business sunset; Q3 YoY GAAP net loss widened to -$27.5M from -$14.4M .
- Merger-related costs weighed on GAAP results: Q3 incurred $6.487M in merger expenses, contributing to negative GAAP EPS (-$0.31) despite breakeven non-GAAP EPS .
- ARR softness vs Q2: ARR stepped down modestly to $288.8M from $290M in Q2, reflecting normalization and transition dynamics .

Financial Results

Revenue, EPS, margins, EBITDA, cash (USD unless noted). Columns oldest → newest.

Metric	Q1 FY25	Q2 FY25	Q3 FY25
Total Revenue ($M)	$85.652	$82.182	$82.733
Subscription Revenue ($M)	$72.221	$71.292	$71.407
Professional Services Revenue ($M)	$13.431	$10.890	$11.326
GAAP Gross Margin %	67.5%	66.6%	67.8%
Non‑GAAP Gross Margin %	69.9%	69.2%	70.6%
GAAP Diluted EPS	-$0.41	-$0.17	-$0.31
Non‑GAAP EPS	$0.05	$0.00	$0.00
Adjusted EBITDA ($M)	$5.645	$0.988	$1.431
Adjusted EBITDA Margin %	6.6%	1.2%	1.7%
Cash & Cash Equivalents ($M)	$47.024	$47.628	$53.088

Segment revenue breakdown

Segment Revenue ($M)	Q1 FY25	Q2 FY25	Q3 FY25
Taegis Subscription Solutions	$69.075	$71.199	$71.407
Managed Security Services (MSS)	$3.146	$0.093	$0.000
Professional Services	$13.431	$10.890	$11.326

KPIs

KPI	Q1 FY25	Q2 FY25	Q3 FY25
Total ARR ($M)	$287.0	$290.0	$288.8
Taegis GAAP Gross Margin %	71.9%	71.8%	72.2%
Taegis non‑GAAP Gross Margin %	74.3%	74.3%	74.9%
Taegis Revenue ($M)	$69.1	$71.2	$71.4
Taegis Customers (count)	~2,000	~1,900	N/A (no disclosure)
Taegis ARPC ($K)	$145	$150	N/A (no disclosure)
Endpoint Count (YoY)	+11%	+9%	N/A (no disclosure)

Notes and drivers:

Q3 YoY revenue down due to prior strategic wind-down of legacy MSS, completed at end of Q1; subscription now almost entirely Taegis .
Multi-quarter margin gains attributed to automation/AI and cloud architecture scale (management commentary) .

Guidance Changes

Metric	Period	Previous Guidance (as of Q2 FY25, Sept 5, 2024)	Current Guidance (Dec 4, 2024)	Change
Total Revenue	FY25	$328M – $335M	Suspended	Withdrawn
Non‑GAAP Net Income	FY25	$3M – $8M	Suspended	Withdrawn
Adjusted EBITDA	FY25	$6M – $12M	Suspended	Withdrawn
Cash from Operations	FY25	($2M) – $8M	Suspended	Withdrawn
Total ARR	FY25	$300M or Greater	Suspended	Withdrawn
Q3 Revenue	Q3 FY25	$80M – $82M	N/A (Q3 actuals reported)	N/A

Commentary: On Dec 4, 2024, the company suspended Q4 and full‑year FY25 guidance due to the pending Sophos transaction and did not hold a Q3 earnings call . Earlier Q2 guidance for Q3 revenue/EBITDA/EPS was effectively met or exceeded by reported Q3 results .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2)	Current Period (Q3)	Trend
AI & Automation driving margins	Management repeatedly cited automation, AI, and cloud scaling as key drivers of Taegis and total non‑GAAP gross margin expansion .	Press release reaffirmed margin expansion; no call commentary .	Improving efficiency tailwind
Partner‑first GTM & channel momentum	Q2: ~80% of new Taegis logos via partners; highest partner win rate since program launch .	No call; business highlights reiterate partner expansion in prior quarter .	Positive, sustained
SIEM displacement & vendor consolidation	Management emphasized XDR replacing legacy SIEMs and broader consolidation opportunity, with ROI and fewer false positives .	No call; narrative consistent with platform positioning .	Structural tailwind
Product innovation (NDR, IDR, VDR)	Q1 launched NDR; Q2 launched Identity Threat Detection & Response (IDR) and ManagedXDR Plus .	Q3 reiterated Taegis innovation; highlighted ransomware landscape via State of Threat report .	Broadening platform
ARR/ARPC/Endpoints trajectory	Q1: ARR $287M; ARPC $145k; Endpoints +11% YoY . Q2: ARR $290M; ARPC $150k; Endpoints +9% .	Q3 ARR $288.8M; no ARPC/endpoint disclosed .	Stable to slightly softer ARR
M&A (Sophos)	N/A	Q3: Suspended guidance; no call; merger closed Feb 3, 2025 at $8.50/share cash .	Deal closure catalyst

Management Commentary

CEO (Q3 release): “We continued to innovate and expand the Taegis platform... We look forward to closing the transaction with Sophos in early 2025 and coming together to deliver exceptional security solutions...” .
CFO (Q2 call): “Non‑GAAP Taegis subscription gross margin... improvement driven by automation, continued cloud architecture scaling and by leveraging our AI and machine learning capabilities” .
Strategy: Ongoing focus on partner ecosystem, consolidation replacement cycles (SIEM→XDR), and expanding native controls (EDR/NDR/VDR/ITDR) to increase ROI and share of wallet .

Q&A Highlights

Macro and demand: Sales cycles stable to slightly better; cybersecurity spend prioritization intact; partner‑first GTM viewed as more efficient in driving productivity .
Linearity and deal timing: Q2 benefited from earlier‑in‑quarter deal closings; deemed an anomaly, not a trend .
Legacy MSS transition: Redundant costs concluded; enables full focus on go‑forward Taegis business and sustained profitability .
ARR vs ARPC dynamics: Higher ARPC new adds offset lower-ARPC churn; partner motion helps align lower‑ARPC demand and improve fit .
Consolidation thesis: Customers accelerating SIEM displacement and vendor consolidation; Taegis positioned as the integrated control and detection hub .

Estimates Context

S&P Global consensus estimates: Not available. We attempted to retrieve Q3 FY25 EPS and revenue consensus but could not due to missing company mapping; therefore, beat/miss vs Wall Street consensus cannot be determined. The company did not host a Q3 call and suspended Q4/FY25 guidance at the time of Q3 results .
However, versus prior Q2 guidance for Q3: revenue exceeded the $80–$82M range at $82.733M; adjusted EBITDA of $1.431M fell within the $0–$2M target; non‑GAAP EPS of $0.00 met the guided -$0.01 to $0.01 .

Key Takeaways for Investors

Core engine healthy: Taegis continues to expand margins (GAAP 72.2% / non‑GAAP 74.9% in Q3), supporting a path to durable profitability even as total revenue normalizes post‑MSS wind‑down .
Execution vs plan: Q3 results met or exceeded the company’s Q2‑issued Q3 guidance across revenue, non‑GAAP EPS, and adjusted EBITDA—indicative of operational control .
Merger supersedes near‑term fundamentals: Guidance withdrawal and no Q3 call reflect M&A execution focus; subsequent closing at $8.50/share removes public equity optionality and shifts value to deal economics .
Structural tailwinds intact: SIEM displacement/vendor consolidation, partner‑first GTM, and expanding native controls underpin medium‑term growth drivers for the combined franchise post‑deal .
Watch the mix: ARR edged down from Q2 to $288.8M; sustaining ARR growth alongside ARPC and endpoint expansion remains a key proof point for momentum durability .
Non‑GAAP/GAAP gap: Q3 GAAP loss reflects $6.5M merger costs and other non‑cash/adjustment items; non‑GAAP profitability signals underlying unit economics improving with scale .
For trading: With fundamentals steady and deal closed, prior stock reaction centered on deal spread and closing certainty; post‑close, equity is delisted and public trading catalysts are moot .

Appendix: Additional Q3 Detail

Non‑GAAP reconciliation highlights for Q3: Merger‑related costs $6.487M; amortization of intangibles $4.968M; stock‑based compensation $11.451M; adjusted EBITDA $1.431M (1.7% margin) .
Balance sheet: Cash and cash equivalents ended Q3 at $53.1M; no borrowings on the credit facility .
Threat environment context: Secureworks’ 2024 State of the Threat Report cited a 30% YoY increase in active ransomware groups—supportive of sustained demand for MDR/XDR capabilities .

Sources: Q3 FY25 press release and 8‑K (Dec 4, 2024) ; Q2 FY25 press release, 8‑K, and call (Sept 5, 2024) ; Q1 FY25 press release, 8‑K, and call (June 6, 2024) ; Guidance suspension notice (Q3 release) ; Deal closing 8‑K (Feb 3, 2025) ; State of the Threat (Oct 8, 2024) .

SecureWorks Corp (SCWX)·Q3 2025 Earnings Summary