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CONTRACT BALANCES AND CONTRACT COSTS
 9 Months Ended
Nov. 01, 2024
Revenue from Contract with Customer [Abstract]  
CONTRACT BALANCES AND CONTRACT COSTS CONTRACT BALANCES AND CONTRACT COSTS
The Company derives revenue primarily from subscriptions and professional services. Subscription revenue is derived from (i) Taegis software-as-a-service, or SaaS, security platform and supplemental Managed Detection and Response, or MDR, services, and (ii) Managed Security Services. Taegis’ core offerings are the security platform, Taegis Extended Detection and Response, or XDR, and the supplemental MDR service, ManagedXDR. Managed Security Services are subscription-based arrangements that typically include a suite of security services utilizing the Company’s legacy platform. During the three months ended November 1, 2024, the Company did not derive any subscription revenue from Managed Security Services. Professional services typically include incident response, adversarial testing services, and other security consulting arrangements.
The following table presents revenue by service type (in thousands):
Three Months EndedNine Months Ended
November 1,
2024		November 3,
2023		November 1,
2024		November 3,
2023
Net revenue:
Taegis Subscription Solutions$71,407 $67,346 $211,681 $196,368 
Managed Security Services— 7,866 3,239 32,928 
Total Subscription revenue$71,407 $75,212 $214,920 $229,296 
Professional Services11,326 14,152 35,647 47,429 
Total net revenue$82,733 $89,364 $250,567 $276,725 
Promises to provide the Company’s subscription-based SaaS solutions are accounted for as separate performance obligations and managed security services are accounted for as a single performance obligation. Our subscription contracts typically range from one to three years. Performance obligations related to the Company’s professional services contracts are separate obligations associated with each service. Although the Company has multi-year customer relationships for various professional service solutions, the arrangement is typically structured as a separate performance obligation over the contract period and recognized over a duration of less than one year.
The deferred revenue balance does not represent the total contract value of annual or multi-year, non-cancelable subscription agreements. The Company invoices its customers based on a variety of billing schedules. During the nine months ended November 1, 2024, on average, approximately 66% of the Company’s recurring revenue was billed annually in advance and approximately 34% was billed on either a monthly or quarterly basis in advance. In addition, many of the Company’s professional services engagements are billed in advance of service commencement. The deferred revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals, billing frequency, and invoice timing.
Changes to the Company’s deferred revenue during the nine months ended November 1, 2024 and November 3, 2023 are as follows (in thousands):
As of February 2, 2024
Upfront payments received and billings during the nine months ended November 1, 2024
Revenue recognized during the nine months ended November 1, 2024
As of November 1, 2024
Deferred revenue$136,951 $159,528 $(160,264)$136,215 
As of February 3, 2023
Upfront payments received and billings during the nine months ended November 3, 2023
Revenue recognized during the nine months ended November 3, 2023
As of November 3, 2023
Deferred revenue$156,332 $150,135 $(173,281)$133,186 
Remaining Performance Obligation
The remaining performance obligation represents the transaction price allocated to contracted revenue that has not yet been recognized, which includes deferred revenue and non-cancellable contracts that are expected to be invoiced and recognized as revenue in future periods. The remaining performance obligation consists of two elements: (i) the value of remaining services to be provided through the contract term for customers whose services have been activated, or active; and (ii) the value of subscription-based solutions contracted with customers that have not yet been provisioned, or backlog. Backlog is not recorded in revenue, deferred revenue or elsewhere in the consolidated financial statements until the Company establishes a contractual right to invoice, at which point backlog is recorded as revenue or deferred revenue, as appropriate. The Company applies the practical expedient in Accounting Standards Codification paragraph 606-10-50-14(a) and does not disclose information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less.
The Company expects that the amount of backlog relative to the total value of its contracts will change from year to year due to several factors, including the amount invoiced at the beginning of the contract term, the timing and duration of the Company’s customer agreements, varying invoicing cycles of agreements and changes in customer financial circumstances. Accordingly, fluctuations in backlog are not always a reliable indicator of future revenues.
As of November 1, 2024, the Company expects to recognize remaining performance obligations as follows (in thousands):
TotalExpected to be recognized in the next 12 monthsExpected to be recognized in 12-24 monthsExpected to be recognized in 24-36 monthsExpected to be recognized thereafter
Performance obligation - active$175,011 $108,018 $45,622 $17,253 $4,118 
Performance obligation - backlog5,284 1,876 1,525 1,303 580 
Total remaining performance obligations$180,295 $109,894 $47,147 $18,556 $4,698 
Deferred Commissions and Fulfillment Costs
The Company capitalizes a significant portion of its commission expense and related fringe benefits earned by its sales personnel and recognizes these deferred commissions on a straight-line basis over the life of the customer relationship (estimated to be six years). Historically, the Company capitalized 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 deferred fulfillment costs were amortized on a systematic basis consistent with the transfer to the customer of the goods or services to which the assets relate.
Changes in the balance of total deferred commission and total deferred fulfillment costs during the nine months ended November 1, 2024 and November 3, 2023 are as follows (in thousands):
As of February 2, 2024
Amount capitalizedAmount recognized
As of November 1, 2024
Deferred commissions$41,815 $4,906 $(11,069)$35,652 
Deferred fulfillment costs— — — — 
As of February 3, 2023
Amount capitalizedAmount recognized
As of November 3, 2023
Deferred commissions$49,565 $6,155 $(12,964)$42,756 
Deferred fulfillment costs3,232 — (2,562)670 
During the fourth quarter of fiscal 2022, Secureworks announced the end-of-sale for a number of managed security service offerings effective the first day of fiscal 2023. In addition, renewals associated with many of these existing other managed security subscription services were not extended beyond the end of fiscal 2023. These deferred fulfillment costs were fully amortized as of the end of fiscal 2024, and the Company no longer has new deferred fulfillment costs related to these offerings that meet the criteria for capitalization in accordance with ASC 340.