8th Mar 2023 10:48
(Alliance News) - Darktrace PLC on Wednesday left its annual earnings outlook unchanged but lowered cash flow guidance due to the accounting treatment of matters related to director share awards.
The cybersecurity company said revenue in the six months to December 31 surged 36% to USD259.3 million from USD190.9 million a year earlier.
However, pretax profit declined by 65% to USD1.9 million from USD5.6 million. Sales and marketing costs were 29% higher at USD139.6 million, research and development costs surged 64% to USD25.7 million, and general and administrative expenses rose 63% to USD63.9 million.
"Darktrace delivered continued high revenue and constant currency [annual recurring revenue] growth in the period, underpinned by its multi-year contract model. This growth was achieved despite a noticeable second quarter slowdown in new customer additions resulting from the current macro-economic environment," the company said.
Darktrace said trading in January and February, the first two months of its second half, were in line with expectations.
It backed financial 2023 guidance of constant currency annual recurring revenue growth of between 29% and 32%. This had been lowered from 31% to 34% in January. It expects an adjusted earnings before interest, tax, depreciation and amortisation margin between 16% and 18.5%. This had been lifted from a 15% to 18% range in January.
Darktrace on Wednesday, however, lowered free cash flow guidance. This is due to the accounting treatment of tax obligations to settle initial public offering-related share awards for two executive directors.
"As a part of the group's [first half] financial review, it determined that the taxes paid on behalf of these directors should be classed as an operating cash outflow in the period, not the financing cash outflow that would have arisen had these executives executed open market "sell to cover" transactions," Darktrace explained.
It now expects full-year free cash flow to be between 50% and 55% of its adjusted Ebitda. It had previously guided for a range between 60% and 65%.
Recently, Darktrace has gone on the defence in the face of a short-seller attack. In February, it turned to Ernst & Young LLP to probe its accounting practices.
The Cambridge, England-based firm received scrutiny from short-seller Quintessential Capital Management. In a 69-page report, Quintessential criticised Darktrace's management and said it is "sceptical" about its growth figures.
Quintessential said it found "numerous transactions" in the run-up to Darktrace's initial public offering that involved simulated or anticipated sales to phantom end-users, meaning ones that do not actually exist.
Darktrace on Wednesday said E&Y has begun its probe. Findings will be published once complete.
Also getting a mention in the company's half-year results statement was artificial intelligence, namely the conversation that the launch of chatbot ChatGPT has "ignited". ChatGPT is a product of US company OpenAI LLC.
"Darktrace does not believe that ChatGPT has yet lowered barriers to entry for threat actors significantly, but it does believe that it may have helped increase the sophistication of phishing emails, enabling adversaries to create more targeted, personalised, and ultimately, successful attacks. Darktrace has found that while the number of email attacks across its own customer base remained steady since ChatGPT's release, those that rely on tricking victims into clicking malicious links have declined, while linguistic complexity, including text volume, punctuation, and sentence length among others, have increased," the company said.
"This indicates that cyber-criminals may be redirecting their focus to crafting more sophisticated social engineering scams that exploit user trust. Against this evolving backdrop, Darktrace continues to advance its product portfolio."
Darktrace shares were 1.5% higher at 267.80 pence each in London on Wednesday morning.
By Eric Cunha, Alliance News news editor
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