| 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. 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 Ended Six Months Ended August 2, August 4, August 2, August 4, Net revenue: Taegis Subscription Solutions $ 71,199 $ 66,426 $ 140,274 $ 129,022 Managed Security Services 93 10,399 3,239 25,062 Total Subscription revenue $ 71,292 $ 76,825 $ 143,513 $ 154,084 Professional Services 10,890 16,141 24,321 33,277 Total net revenue $ 82,182 $ 92,966 $ 167,834 $ 187,361 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 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 six months ended August 2, 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 six months ended August 2, 2024 and August 4, 2023 are as follows (in thousands): As of February 2, 2024 Upfront payments received and billings during the six months ended August 2, 2024 Revenue recognized during the six months ended August 2, 2024 As of August 2, 2024 Deferred revenue $ 136,951 $ 115,022 $ (118,706) $ 133,267 As of February 3, 2023 Upfront payments received and billings during the six months ended August 4, 2023 Revenue recognized during the six months ended August 4, 2023 As of August 4, 2023 Deferred revenue $ 156,332 $ 114,112 $ (128,074) $ 142,370 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 August 2, 2024, the Company expects to recognize remaining performance obligations as follows (in thousands): Total Expected to be recognized in the next 12 months Expected to be recognized in 12-24 months Expected to be recognized in 24-36 months Expected to be recognized thereafter Performance obligation - active $ 176,474 $ 111,315 $ 46,648 $ 13,980 $ 4,531 Performance obligation - backlog 4,611 2,037 1,394 1,180 — Total remaining performance obligations $ 181,085 $ 113,352 $ 48,042 $ 15,160 $ 4,531 Deferred Commissions and Fulfillment Costs The Company capitalizes a significant portion of its commission expense and related fringe benefits earned by its sales personnel. 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 costs were amortized on a systematic basis that is 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 six months ended August 2, 2024 and August 4, 2023 are as follows (in thousands): As of February 2, 2024 Amount capitalized Amount recognized As of August 2, 2024 Deferred commissions $ 41,815 $ 3,218 $ (7,559) $ 37,474 Deferred fulfillment costs — — — — As of February 3, 2023 Amount capitalized Amount recognized As of August 4, 2023 Deferred commissions $ 49,565 $ 4,225 $ (8,820) $ 44,970 Deferred fulfillment costs 3,232 — (1,805) 1,427 |
