Related Party Transactions

9 Months Ended

Oct. 29, 2021

RELATED PARTY TRANSACTIONS

Allocated Expenses

For the periods presented, Dell has provided various corporate services to Secureworks in the ordinary course of business. The costs of services provided to Secureworks by Dell are governed by a shared services agreement between Secureworks and Dell Inc. The total amounts of the charges under the shared services agreement with Dell were $1.0 million and $3.0 million for the three and nine months ended October 29, 2021, respectively, and $1.0 million and $3.0 million for the three and nine months ended October 30, 2020, respectively. Management believes that the basis on which the expenses have been allocated is a reasonable reflection of the utilization of services provided to or the benefit received by the Company during the periods presented.

Related Party Arrangements

For the periods presented, related party transactions and activities involving Dell Inc. and its wholly-owned subsidiaries were not always consummated on terms equivalent to those that would prevail in an arm's-length transaction where conditions of competitive, free-market dealing may exist.

The Company purchases computer equipment for internal use from Dell that is capitalized within property and equipment in the Condensed Consolidated Statements of Financial Position. These purchases were made at pricing that is intended to approximate arm's-length pricing. Purchases of computer equipment from Dell and EMC Corporation, a wholly-owned subsidiary of Dell ("EMC"), totaled $0.2 million and $0.5 million for the three and nine months ended October 29, 2021, respectively, and $0.1 million and $0.6 million for the three and nine months ended October 30, 2020, respectively.

EMC previously maintained a majority ownership interest in VMware, Inc. ("VMware"), a company that provides cloud and virtualization software and services. The Company's purchases of annual maintenance services, software licenses and hardware systems for internal use from Dell, EMC and VMware totaled $0.1 million and $1.2 million for the three and nine months ended October 29, 2021, respectively, and $0.4 million and $1.8 million for the three and nine months ended October 30, 2020, respectively. On November 1, 2021, Dell Technologies completed its spin-off of all shares of common stock of VMware that were beneficially owned by Dell Technologies and its subsidiaries, including EMC, to Dell Technologies’ stockholders. As a result of the spin-off transaction, the businesses of VMware were separated from the remaining businesses of Dell Technologies, though Michael Dell will remain as Chairman of the VMWare Board.

The Company recognized revenue related to solutions provided to VMware that totaled $0.1 million and $0.4 million for the three and nine months ended October 29, 2021, respectively and $0.1 million and $0.3 million for the three and nine months ended October 30, 2020, respectively. In October 2019, VMware acquired Carbon Black Inc., a security business with which the Company had an existing commercial relationship. For the three and nine months ended October 29, 2021 purchases by the Company of solutions from Carbon Black totaled $1.7 million and $4.3 million for the three and nine months ended October 29, 2021, respectively, and $1.3 million and $4.4 million for the three and nine months ended October 30, 2020, respectively.

The Company recognized no revenue related to security solutions provided to Boomi, Inc., a former subsidiary of Dell Technologies, for the three and nine months ended October 29, 2021 and October 30, 2020, respectively. There were no purchases by the Company from Boomi, Inc. for the three months ended October 29, 2021 and October 30, 2020, respectively, and purchases of $0.1 million for the nine months ended October 29, 2021 and October 30, 2020, respectively. Dell Technologies completed its sale of Boomi, Inc. during the three months ended October 29, 2021.

The Company also recognized revenue related to solutions provided to significant beneficial owners of Secureworks common stock, which include Michael S. Dell, Chairman and Chief Executive Officer of Dell Technologies, and affiliates of Mr. Dell. The revenues recognized by the Company from solutions provided to Mr. Dell, MSD Capital, L.P. (a firm founded for the purposes of managing investments of Mr. Dell and his family), DFI Resources LLC, an entity affiliated with Mr. Dell, and the Michael and Susan Dell Foundation totaled $41 thousand and $0.1 million for the three and nine months ended October 29, 2021, respectively, and $23 thousand and $0.2 million for the three and nine months ended October 30, 2020, respectively.

The Company provides solutions to certain customers whose contractual relationships have historically been with Dell rather than Secureworks, although the Company has the primary responsibility to provide the services. Effective August 1, 2015, in connection with the IPO, many of such customer contracts were transferred from Dell to the Company, forming a direct contractual relationship between the Company and the end customer. For customers whose contracts have not yet been transferred and for contracts subsequently originated through Dell under a reseller agreement, the Company recognized revenues of approximately $15.1 million and $45.3 million for the three and nine months ended October 29, 2021, respectively, and $14.2 million and $44.0 million for the three and nine months ended October 30, 2020, respectively. In addition, as of October 29, 2021, the Company had approximately $1.8 million of contingent obligations to Dell related to outstanding

performance bonds for certain customer contracts, which Dell issued on behalf of the Company. These contingent obligations are not recognized as liabilities the Company's financial statements.

As the Company's customer and on behalf of certain of its own customers, Dell also purchases solutions from the Company. Beginning in the third quarter of the fiscal year ended January 29, 2016, in connection with the effective date of the Company’s commercial agreements with Dell, the Company began charging Dell for these services at pricing that is intended to approximate arm’s-length pricing, in lieu of the prior cost recovery arrangement. Such revenues totaled approximately $2.7 million and $8.9 million for the three and nine months ended October 29, 2021, respectively, and $4.3 million and $14.9 million for the three and nine months ended October 30, 2020, respectively.

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 the following related party balances in the Condensed Consolidated Statements of Financial Position as of October 29, 2021 and January 29, 2021 (in thousands).


	October 29, 2021		January 29, 2021
Net intercompany payable (included in "Accrued and other current liabilities")	$	8,595	$	13,807

Accounts receivable from customers under reseller agreements with Dell (included in "Accounts receivable, net")	$	12,681	$	15,625

Net operating loss tax sharing receivable/(payable) under agreement with Dell (receivable included in "Other non-current assets" at October 29, 2021 and payable included in "Accrued and other current liabilities" at January 29, 2021)	$	8,973	$	(667)