REG - Darktrace PLC - Half-Year Results
07/03/2024 07:00
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RNS Number : 9012F Darktrace PLC 07 March 2024
7 March 2024
Darktrace plc
Results for the Six Months Ended 31 December 2023
2(nd) quarter rebound following significant 1(st) quarter GTM changes delivers
strong 1H financial performance
27.4% year-over-year revenue growth
24.4% year-over-year ARR growth
Confirming FY 2024 ARR expectations; increasing FY 2024 revenue and margin
expectations
Darktrace plc (DARK.L) (together with its subsidiaries, "Darktrace" or "the
Group") a global leader in cyber security AI, today provides its results for
the six months ended 31 December 2023.
1H FY 2024 Highlights
Darktrace delivered continued high revenue and constant currency ARR growth in
the period, supporting growth across all its earnings measures. This growth
was achieved amidst a stabilised macro-economic environment, and reflects a
second quarter rebound from the temporary impacts of significant changes made
across Darktrace's Go-to-Market (GTM) organisation in the first quarter.
Darktrace's performance track in the first half of FY 2024 supports what it
believes is a change in trajectory following a period of transformation and
stabilisation, moving to Net constant currency ARR added growth in its second
half. Further, with sales performance for the first two months of 2H FY 2024
being as expected, Darktrace is reiterating the FY 2024 guidance for ARR and
Net ARR added provided in its 11 January 2024 1H FY 2024 trading update.
Darktrace is also increasing its expectations for Revenue and Adjusted EBITDA
margin, reflecting realised and expected improvements to its FY 2024 financial
and operating profile.
Financial Highlights
$000 Six-months ended Six-months ended % Change
31-Dec-23
31-Dec-22
Unaudited
Unaudited
Revenue 330,303 259,259 27.4%
Gross margin (%) 89.3% 89.7% n/a
Net profit 52,518 581 8,939.2%
Adjusted EBIT 70,977 32,430 118.9%
Adjusted EBITDA(1) 84,518 45,189 87.0%
Net cash inflow from operating activities 65,589 27,094 142.1%
See: "Key Performance Indicators (KPIs)" below for the meanings of non-IFRS
measures and other key performance indicators.
(1) At the start of FY 2024, Darktrace changed its definition of Adjusted
EBITDA to treat all amortisation of commissions as though they were cash
costs. On this basis, Adjusted EBITDA is the Group's earnings before interest,
taxation, depreciation and amortisation, adjusted to include appliance
depreciation attributed to cost of sales and amortisation of capitalised
commissions, and adjusted to remove uncapitalised share-based payment charges
and related employer tax charges, as well as certain one-off charges including
the impairment of right-of-use assets. Prior year comparatives have been
recast under this definition; see below for further details on definition and
reconciliation.
· Resilient business model, underpinned by multi-year contracts and a
flexible cost structure, supported continued revenue growth and improvements
in all earnings measures.
· Strong year-over-year revenue growth across all geographic markets
and customer sizes.
· Gross margin broadly stable on prior period reflecting consistent
contract economics.
· Adjusted EBIT margin improvement of 9.0 percentage points over the
prior period to 21.5%, reflecting continued scale efficiencies, ongoing
discretionary cost management and, year-over-year, a more favourable foreign
exchange environment.
· Adjusted EBITDA margin improvement of 8.2 percentage points over the
prior period to 25.6%, similarly reflecting scale efficiencies and ongoing
cost management, but also a decline, as a percent of revenue, in the adjusted
depreciation and amortisation added back.
· Period-over-period decreases in both S&M and G&A as a
percentage of revenue, though underlying trends partially distorted by certain
Customer Success Manager (CSM) and Channel Partner costs previously in G&A
now being attributed to S&M, reflecting changes to roles and
responsibilities at the start of FY 2024 (see Financial Review - Income
Statement Analysis section for details).
· 15.3% period-over-period increase in R&D cash employment costs,
largely offset by a decrease in share-based payments and related employer tax
charges to more normalised levels.
· Net cash inflows from operating activities increased by $38.5 million
from the prior period to $65.6 million. The movement in cash inflows was
primarily driven by the $51.9 million increase in period-over-period Net
profit, partially offset by a $16.8 million decline in net working capital,
reflecting in part the move to monthly commission payments for FY 2024
onwards, from quarterly commission payments in prior periods.
Operating Performance
$000 Six-months ended Six-months ended % Change
31-Dec-23
31-Dec-22
Unaudited
Unaudited
ARR* at 31 Dec ($000)(1) 702,079 564,461 24.4%
Net ARR added* ($000) 64,778 72,607 (10.8)%
One-year gross ARR churn* at 31 Dec 6.6% 6.5% n/a
Net ARR retention rate* at 31 Dec 105.0% 105.1% n/a
Number of customers at 31 Dec 9,232 8,178 12.9%
USD Remaining Performance Obligations (RPO) at 31 Dec ($000) 1,253,693 1,117,390 12.2%
See "Key Performance Indicators (KPIs)" below for the meanings of non-IFRS
measures and other key performance indicators.
*At constant currency rates established at the start of each year. For FY
2024, constant currency rates are 1.26818 and 1.09082 for the British Pound
and the Euro, respectively.
(1) At 31 December 2023, USD ARR (at exchange rates in effect at the reporting
date) for 1H FY 2024 is $705.8 million, representing year-over-year growth of
26.3%.
· 24.4% year-over-year growth in constant currency ARR, despite the
large but temporary impact of changes made across Darktrace's GTM organisation
in the first quarter.
· Net constant currency ARR added declined 10.8% year-over-year,
reflecting notable improvement in performance in the second quarter, which
declined 4.5% year-over-year.
· During the period, Darktrace drove an increased amount of new ARR
added from its existing customer base:
o Ending 1H FY 2024 with 9,232 customers, year-over-year growth in
Darktrace's customer base was 12.9%, having grown by 433 since 30 June 2023.
o A year-over-year increase in average contract ARR of 10.2% across
Darktrace's customer base was largely driven by an increase in average ARR of
existing customer contracts, which was up 12.4% year-over-year for contracts
aged one year or more.
· With a continued focus on customer engagement, gross and net
retention metrics have broadly returned to prior year levels, showing
improvement since June 2023:
o One-year gross constant currency ARR churn remains 0.1 percentage points
higher than December 2022 but decreased 0.2 percentage points since June 2023.
o Net constant currency ARR retention rate remains 0.1 percentage points
lower than December 2022 but has increased 0.4 percentage points since June
2023, reflecting increased upsell performance in the period.
· Remaining performance obligations (RPO), representing contracted
revenue backlog, expanded by 12.2%, or $136.3 million, year-over-year to
$1.254 billion through acquiring new, and expanding existing, multi-year
contracts. A substantial portion of Darktrace's revenue is contracted and in
RPO prior to the beginning of each period, providing significant revenue
visibility.
FY 2024 Outlook (Unaudited)
Darktrace raised certain expectations for the current financial year on 11
January 2024, in its 1H FY 2024 trading update. As results for January and
February were largely in line with these expectations, it is reiterating the
FY 2024 guidance and related commentary it provided for ARR and Net ARR added.
Darktrace is, however, now increasing its expectation for FY 2024 Revenue and
Adjusted EBITDA margin.
Darktrace now expects FY 2024 Revenue growth of between 23.5% and 25.0%
(previously 23.0% and 24.5%), reflecting continued strong ARR to revenue
conversion and a relatively stable exchange rate environment.
Further, as Darktrace continues to control its discretionary spending without
sacrificing planned investment, it is increasing its expectations for its FY
2024 Adjusted EBITDA margin to at least 21.0%, above its previous range of
between 18.0% and 20.0%. Darktrace also confirms its guidance for Free cash
flow (FCF) in the range of 50% to 60% of a now increased Adjusted EBITDA
expectation. This lower-than-typical conversion range reflects the temporary
impact to FCF from transitioning to new commission payout schedules at the
start of FY 2024, reflecting a period in which Darktrace pays out both all new
commissions earned and second half commission schedules from FY 2023. This
impact is expected to be largely confined to FY 2024 and early FY 2025. Beyond
this transitionary phase, Darktrace continues to expect its typical FCF
conversion to fall in the range of 100% of Adjusted EBITDA, plus or minus 20
percentage points.
Poppy Gustafsson, CEO, said:
"Following the impact in the first quarter of our significant Go-to-Market
changes, I was very pleased to see the team adapt quickly, delivering
significantly improved second quarter sales, which enabled our strong
financial performance in the first half of the year.
At the start of this financial year, we characterised our FY 2024 expectations
as first half stabilisation and second half re-acceleration, and performance
indeed stabilised in our second quarter. Now, it is the improvement in early
cycle operating measures that underpins our confidence in a return to net new
business growth in the second half. We see progress in longer cycle
initiatives such as large strategic, channel and government pipeline
development, and upsell momentum continues. In addition, ramped salesperson
tenure has lengthened, increasing by 28%, including a 31% increase in our key
North American markets. Our conversion rate also rose, again driven by
noticeable improvements in North America, as more tenured salespeople followed
a more disciplined process to pursue better targeted and qualified sales
prospects.
We continue to see the cyber-crime landscape evolve rapidly in a challenging
geopolitical environment and as the availability of generative AI tools lowers
the barrier to entry for hostile actors. Against this backdrop and in the
period ahead, we are preparing to roll out enhanced market and product
positioning to better demonstrate how our unique AI can help organisations to
address novel threats across their entire technology footprint."
Cybersecurity Landscape
The widespread availability of generative AI tools continues to impact
security operations across organisations. The immediate impact Darktrace has
seen is on phishing, the most common form of attack. In April last year,
Darktrace released research showing a 135% increase
(https://darktrace.com/news/darktrace-email-defends-organizations-against-evolving-cyber-threat-landscape)
in 'novel social engineering attacks' in the first two months of 2023,
corresponding with the widespread adoption of ChatGPT, suggesting generative
AI was providing an avenue for threat actors to craft sophisticated and
targeted attacks at speed and scale. Both the scale and the sophistication of
these types of attacks continues to grow. Darktrace customers received around
2.9 million phishing emails in December 2023 alone, a 14% increase on
September 2023(( 1 (#_ftn1) )). Between September and December 2023, phishing
attacks that use novel social engineering techniques grew by 35%(( 2 (#_ftn2)
)) on average across the Darktrace customer base.
Chief Information Security Officers (CISOs) believe these types of
AI-augmented threats will continue to grow. New research commissioned by
Darktrace3 shows that 89% of IT security teams polled globally believe
AI-augmented cyber threats will have a significant impact on their
organisation within the next two years, yet 60% believe they are currently
unprepared to defend against these attacks. Their concerns are led by
increased volume and sophistication of malware that targets known
vulnerabilities (rated 3.84 by respondents on a 1-5 scale of risk) alongside
increased exposure of sensitive or proprietary information from using
generative AI tools (also rated 3.84).
To ensure their continued security, organisations must pivot from a
reactionary posture - built on known attack data for threat detection and
response - to proactive cyber readiness by taking a preventative and automated
approach to visualising and correlating incidents across the entire IT
footprint of the business. Against this backdrop, and since the start of the
fiscal year, Darktrace has delivered on its promise of completing the
industry's first Cyber AI Loop with the introduction of Darktrace HEAL
(https://darktrace.com/news/darktrace-heal-to-transform-incident-response-readiness-and-recovery)
, which ensures readiness to recover from an active cyber-attack and to
rapidly restore the business to an operational state. In addition, it has
launched Darktrace/Cloud
(https://darktrace.com/news/darktrace-unveils-new-cloud-native-security-solution)
, which provides comprehensive visibility of cloud architectures, real-time
cloud-native threat detection and response, and prioritized recommendations
and actions to help security teams manage misconfigurations and strengthen
compliance.
Recent Developments
Darktrace has recently announced that its Federal business has received a High
Impact Level "In Process" designation from the Federal Risk and Authorization
Management Program (FedRAMP), a U.S. government-wide program that provides a
standardised approach to security assessment, authorisation, and continuous
monitoring for cloud products and services. Darktrace Federal's Cyber AI
Mission Defense™ and Cyber AI Email Protection™ products are now listed
(https://marketplace.fedramp.gov/products) in the FedRAMP Marketplace. This
designation marks a critical milestone for Darktrace Federal as it seeks to
deliver information technology (IT), operational technology (OT), Internet of
Things (IoT), and email security to the U.S. federal government via
cloud-native deployments, empowering agencies to combat threats ranging from
stealthy insiders to zero-day attacks and supply chain compromises.
Analyst and Investor Webcast
Management will hold an analyst and investor webcast to review its 1H FY2024
results on 7 March 2024 at 13:00 GMT / 08:00 ET. Please register at:
https://www.lsegissuerservices.com/spark/DARKTRACE/events/23b532ee-7e22-4b54-b834-4c4df0857102
(https://www.lsegissuerservices.com/spark/DARKTRACE/events/23b532ee-7e22-4b54-b834-4c4df0857102)
About Darktrace
Darktrace (DARK.L), a global leader in cyber security artificial intelligence,
is on a mission to free the world of cyber disruption. Breakthrough
innovations in the Darktrace Cyber AI Research Centre in Cambridge, UK have
resulted in over 165 patent applications filed and research published to
contribute to the cyber security community. Rather than study attacks,
Darktrace's technology continuously learns and updates its knowledge of 'you'
and applies that understanding to optimise your state of optimal cyber
security. Darktrace is delivering the first ever Cyber AI Loop, fuelling a
continuous end-to-end security capability that can autonomously spot and
respond to novel in-progress threats within seconds. Darktrace employs over
2,300 people around the world and protects over 9,200 customers globally from
advanced cyber threats. Darktrace was named one of TIME magazine's 'Most
Influential Companies' in 2021.
Cautionary Statement
This announcement contains certain forward-looking statements, including with
respect to the Group's current targets, expectations and projections about
future performance, anticipated events or trends and other matters that are
not historical facts. These forward‐looking statements, which sometimes use
words such as "aim", "anticipate", "believe", "intend", "plan", "estimate",
"expect" and words of similar meaning, include all matters that are not
historical facts and reflect the directors' beliefs and expectations, made in
good faith and based on the information available to them at the time of the
announcement. Such statements involve a number of risks, uncertainties and
assumptions that could cause actual results and performance to differ
materially from any expected future results or performance expressed or
implied by the forward‐looking statement and should be treated with caution.
Any forward-looking statements made in this announcement by or on behalf of
Darktrace speak only as of the date they are made. Except as required by
applicable law or regulation, Darktrace expressly disclaims any obligation or
undertaking to publish any updates or revisions to any forward-looking
statements contained in this announcement to reflect any changes in its
expectations with regard thereto or any changes in events, conditions or
circumstances on which any such statement is based.
Important Information
This announcement includes inside information as defined in Article 7 of the
Market Abuse Regulation (EU) No. 596/2014 (as it forms part of UK law pursuant
to the European Union (Withdrawal) Act 2018). Upon publication of this
announcement, this information is now considered in the public domain.
Enquiries
Luk Janssens - Head of Investor Relations, Darktrace
Direct: +44 7811 027918
luk.janssens@darktrace.com (mailto:luk.janssens@darktrace.com)
Headland (Public Relations adviser to Darktrace)
Henry Wallers
Direct +44 (0) 20 8786 562436
hwallers@headlandconsultancy.com (mailto:hwallers@headlandconsultancy.com)
Key performance indicators (KPIs)
KPIs are financial and non-financial measures used by Darktrace's Management,
its Board of Directors and its investors and other stakeholders, to assess
business performance, monitor principal risks and evaluate future
expectations. KPIs include the following Alternative Performance Measures
(APMs). APMs are not defined under IFRS and are not intended to be a
substitute for any IFRS measures of performance. Darktrace includes them in
its reporting as Management considers them to be important to investors'
understanding of its business, and alongside the comparable IFRS financial
measures, in assessing the performance and cash flows. APMs do not have
standardised definitions and therefore may not be comparable to similar
measures presented by other entities.
ARR, and related performance metrics are calculated on a constant currency
basis established at the start of the financial year. All comparative periods
have been recast using FY 2024 constant currency rates. The Group's primary
currency exposures are the British Pound and the Euro converting to its US
Dollar functional and reporting currency. For FY 2024, constant currency rates
are 1.26818 and 1.09082 for the British Pound and the Euro, respectively.
Annualised Recurring Revenue (ARR)
$000 31-Dec-23 31-Dec-22
Unaudited
Unaudited
ARR 702,079 564,461
Year-over-year growth 24.4% 36.6%
Definition and relevance
ARR is the sum of the annualised committed subscription value of every
contract for which Darktrace is entitled to recognise revenue, measured at the
period's constant currency rate. In a very small number of cases where a
customer has an opt-out within six months of commencing a contract, Darktrace
does not recognise ARR on that contract until after that opt-out period has
lapsed. Where a one-off sale of appliances is required for legal or regulatory
reasons, or where training or other services are provided on a one-off basis,
this non-recurring portion of the contract value is excluded from ARR.
ARR is a key indicator of future revenues. In conjunction with other KPIs and
IFRS measures, it allows the growth of the business to be tracked on a more
current basis than can be measured by revenue, the success of its Go-to-Market
strategy to be assessed more quickly, and performance to be compared between
periods.
Performance
As of 31 December 2023, Darktrace increased its ARR by 24.4% over the prior
period, driven primarily by a combination of a 12.9% year-over-year increase
in customers and a 10.2% increase in average contract ARR across Darktrace's
total customer base, supported by a continued focus on upsells and renewals
with a pricing uplift in the period. Darktrace has seen ARR growth across all
regions in which it operates.
As at 31 December 2023, 56.6% of total ARR came from customers with ARR over
$100,000, compared to 52.2% in the prior year. This shift reflects Darktrace's
focus on both selling to larger customers and driving product penetration
while continuing to support the addition of customers across the full range of
customer sizes and requirements.
At 31 December 2023, USD ARR (at exchange rates in effect at the reporting
date) for 1H FY 2024 is $705.8 million, representing year-over-year growth of
26.3%. Refer to the RPO disclosure for a reconciliation between USD ARR and
current RPO.
Net ARR added
$000 Six-months ended Six-months ended
31-Dec-23
31-Dec-22
Unaudited
Unaudited
Net ARR added 64,778 72,607
Period-over-period change (10.8)% 7.1%
Definition and relevance
Net ARR added is Darktrace's new customer ARR for a period, plus or minus the
net impact of upsell, downsell, and churn activity in the existing customer
base for that same period, measured in the current period's constant currency.
Net ARR added is a key indicator of Darktrace's ability to secure future
revenue and a current measure reflecting changes in its internal and external
operating tactics or environment. As with ARR, it allows the growth of the
business to be tracked on a more current basis than can be measured by revenue
growth, the success of its Go-to-Market strategy to be assessed more quickly,
and performance to be more readily compared between periods.
Performance
Net ARR added declined 10.8% between the periods, though second quarter
reflected a significant improvement over first quarter, declining 4.5%
year-over-year, compared to a 21.6% year-over-year first quarter decline. This
reflects a recovery from the temporary impacts of significant changes made
across Darktrace's Go-to-Market (GTM) organisation in the first quarter
against the backdrop of a stabilised macro-economic environment.
Darktrace drove an increased amount of net ARR additions from its existing
customer base during the first half after directing more of its sales focus
towards upsells in response to economic conditions that made it more difficult
to convince new prospects to trial software. Ending 1H FY 2024 with 9,232
customers, year-over-year growth in Darktrace's customer base was 12.9%, with
the customer base having grown by 433 since 30 June 2023. A year-over-year
increase in average contract ARR of 10.2% across Darktrace's customer base was
largely driven by an increase in average ARR of existing customer contracts,
which was up 12.4% year-over-year for contracts aged one year or more,
reflecting the continued focus on upsells and renewals with a pricing uplift
in the period.
Darktrace's performance track in the first half of FY 2024 supports what it
believes is a change in trajectory following a period of transformation and
stabilisation, moving to Net ARR added growth in its second half.
One-year gross ARR churn rate
% 31-Dec-23 30-Jun-23 31-Dec-22
Unaudited
Unaudited
Unaudited
One-year gross ARR churn rate 6.6% 6.8% 6.5%
Definition and relevance
One-year gross ARR churn rate is the constant currency ARR value of customers
lost from the existing customer cohort one year prior to the measurement date,
divided by the total ARR value of that existing customer cohort one year prior
to the current measurement date. This churn rate reflects only customer losses
and does not reflect customer expansions or contractions.
The one-year ARR gross churn rate is a key indicator of Darktrace's ability to
deliver value to its customers at commercially accepted terms. It is a major
factor that Management, the Board and other stakeholders consider when
assessing the ability to effectively capture market opportunity and continue
to drive the business on a growth trajectory.
Performance
At 31 December 2023, Darktrace's one-year gross ARR churn rate was 6.6%, a 0.1
percentage point increase on the prior year, with this slight deterioration
primarily due to the impact that the macro-economic environment had in
increasing bankruptcies and defaults across Darktrace's customer base in the
second half of FY 2023. Continued investments and focus on engagement have led
to a stabilisation of these trends in the first half of FY 2024, with one-year
gross ARR churn improving 0.2 percentage points from June 2023 levels.
Net ARR retention rate
% 31-Dec-23 30-Jun-23 31-Dec-22
Unaudited
Unaudited
Unaudited
Net ARR retention rate 105.0% 104.6% 105.1%
Definition and relevance
Net ARR retention rate is the current period constant currency ARR value for
all customers that were customers one year prior to the measurement date,
divided by their ARR, in the same constant currency, one year prior to the
measurement date. This retention rate reflects the ARR impact of customer
losses, expansions, and contractions.
Net ARR retention expands on the insight provided in Darktrace's measurement
of churn, by also reflecting the impact of product upsells and downsells, as
well as other price or coverage expansions or contractions. This provides
Management, the Board and other stakeholders with information they can use to
assess the net benefit or cost of activity in the existing customer base. This
assessment is valuable to assumptions about future growth potential and the
long-term costs associated with customer acquisition and retention.
Performance
At 31 December 2023 Darktrace's Net ARR retention rate was 105.0%, a 0.1
percentage point decrease on the prior year. This slight reduction is
consistent with the 0.1 percentage point year-over-year increase in one-year
gross ARR churn rate. Darktrace's Net ARR retention rate increased 0.4
percentage points on June 2023, reflecting in part the improvement in churn
trends since June, but also the impact of improving upsell momentum in the
first half of FY 2024, as demonstrated by the 12.4% year-over-year increase in
average ARR for contracts aged one year or more.
Adjusted EBITDA and margin
$000 Six-months Six-months % Change
ended ended
31-Dec-23
31-Dec-22
Unaudited
Unaudited
Adjusted EBITDA 84,518 45,189 87.0%
Adjusted EBITDA margin (%) 25.6% 17.4% n/a
Definition and relevance
At the start of FY 2024 Darktrace changed its definition of Adjusted EBITDA to
treat all amortisation of commissions as though they were cash costs. This
definitional update was made to reflect changes to GTM compensation structures
in July 2023, when Darktrace transitioned to paying 100% of all future
commissions upfront. Previously, approximately 50% of sales commissions were
paid at signing with the remaining 50% being paid upon the earlier of the full
contract value being paid, or, most frequently, after one year. As a result of
this change, Darktrace is now required, under IFRS 15, to capitalise
substantially all new sales commissions from FY 2024 onwards, unlike in prior
years where it largely capitalised the first 50% but expensed the second 50%,
typically over the first year.
To support comparability, 1H FY 2023 Adjusted EBITDA has been recast under
this definition and hence differs to the $59.7 million reported in Darktrace's
Results for the Six Months Ended 31 December 2022, with the difference
relating to the deduction of $14.5 million in amortisation of capitalised
commissions for the period.
On this updated basis, Adjusted EBITDA is the Group's earnings before
interest, taxation, depreciation and amortisation, adjusted to include
appliance depreciation attributed to Cost of sales and amortisation of
capitalised commissions, and adjusted to remove uncapitalised share-based
payment charges and related employer tax charges, as well as certain one-off
charges including the impairment of right-of-use assets.
Due to the unpredictable nature of these non-cash charges, and that
share-based payment (SBP) related employer tax charges (ETC) are driven by
movements in share price and are therefore outside of Darktrace's control,
these costs are excluded in the calculation of Adjusted EBITDA. Management
believes that this treatment improves the ability to make period-to-period
comparisons of core operating performance and is consistent with treatment
applied by listed European and US software peer companies.
For the calculation of this measure, Darktrace treats the appliance
depreciation reflected in Cost of sales as though it were a current period
cash cost. As Darktrace is unusual in supporting on-premise software
deployments with appliances that it owns, maintains and reuses over their
useful lives, this treatment provides better comparability to software
companies that sell hardware to support similar deployments and recognise
those direct cash costs.
Performance
Adjusted EBITDA increased by $39.3 million, or 87.0%, over the prior period,
to $84.5 million, resulting in an 8.2 percentage point increase in Adjusted
EBITDA margin to 25.6%. This margin expansion reflects continued scale
efficiencies and ongoing discretionary cost management during the period,
further information on which can be found in the Financial Review - Income
Statement Analysis section.
A reconciliation of Operating profit (EBIT) to Adjusted EBITDA is shown in the
table below. Note that for its calculation of Adjusted EBITDA, Darktrace does
not add back to EBIT appliance depreciation included in Cost of Sales or
amortisation of capitalised commissions, and instead considers these as cash
costs to support comparability with peers in the sector.
For 1H FY 2024, there was a $1.1 million, or 12.8%, period-over-period
increase in depreciation of appliances in Cost of sales, to $9.3 million.
Appliance depreciation grew more slowly than might be expected considering
Darktrace's revenue growth, as more customers chose to have products deployed
virtually, and as Darktrace sells more products that are only deployed
virtually.
For 1H FY 2024, there was a $6.1 million, or 42.2%, period-over-period
increase in amortisation of capitalised commission to $20.6 million. This
increase reflects the impact of underlying growth in sales commissions earned
that were eligible for capitalisation, but also the impact from the shift, at
the start of FY 2024, to capitalising substantially all new sales commissions,
compared to the prior period where approximately 50% of sales commissions were
capitalised and amortised over the life of the contract.
In calculating Adjusted EBITDA, Darktrace also adds back to EBIT uncapitalised
share-based payment and related employer tax charges. For 1H FY 2024 it added
back $24.7 million in SBP and related ETC, a decrease of $6.1 million, or
19.8%, on the prior period. This decrease was primarily due to 1H FY 2023
reflecting the impact of a one-time modification of IPO equity awards that
fully vested in FY 2023 and hence did not recur in 1H FY 2024.
Darktrace also added back to EBIT a right-of-use asset impairment charge of
$0.3 million, reflecting its current assessment of the cost it will incur to
exit a lease contract on a now unused office space.
Reconciliation of Net profit to Adjusted EBITDA
$000 Six-months ended Six-months ended % Change
31-Dec-23
31-Dec-22
Unaudited
Unaudited
Revenue 330,303 259,259 27.4%
Net profit 52,518 581 8,939.2%
Taxation (2,062) 1,354 n/a
Finance income (7,483) (3,091) 142.1%
Finance cost 3,015 1,733 74.0%
Operating profit (EBIT) 45,988 577 7,870.2%
Operating profit margin (%) 13.9% 0.2% n/a
Depreciation & amortisation 43,469 35,515 22.4%
EBITDA 89,457 36,092 147.9%
Appliance depreciation in Cost of sales (9,312) (8,254) 12.8%
Impairment of right-of-use asset 323 1,105 (70.8)%
Capitalised commission amortisation(1) (20,616) (14,502) 42.2%
SBP charges and related ETC 24,666 30,748 (19.8)%
Adjusted EBITDA 84,518 45,189 87.0%
Adjusted EBITDA margin (%) 25.6% 17.4% n/a
( )
(1) At the start of FY 2024, Darktrace changed its definition of Adjusted
EBITDA to treat all amortisation of commissions as though they were cash
costs. On this basis, Adjusted EBITDA is the Group's earnings before interest,
taxation, depreciation and amortisation, adjusted to include appliance
depreciation attributed to Cost of sales and amortisation of capitalised
commissions, and adjusted to remove uncapitalised share-based payment charges
and related employer tax charges, as well as certain one-off charges including
the impairment of right-of-use assets. Prior year comparatives have been
recast under this definition; see above for further details on definition and
reconciliation.
Adjusted EBITDA reconciliation by function
$000 Six-months ended Adjustment to EBITDA Six-months ended Six-months ended Adjustment to EBITDA Six-months ended
31-Dec-23
31-Dec-23
31-Dec-22
31-Dec-22
Unaudited
Unaudited
Unaudited
Unaudited
Adjusted
Adjusted
Revenue 330,303 - 330,303 259,259 - 259,259
Cost of sales (CoS) (24,840) - (24,840) (18,376) - (18,376)
CoS related SBP charge and related ETC (1,270) 1,270 - - - -
CoS related Depreciation and amortisation (9,312) - (9,312) (8,254) - (8,254)
Total Cost of sales (35,422) 1,270 (34,152) (26,630) - (26,630)
Gross Profit 294,881 1,270 296,151 232,629 - 232,629
Sales and marketing (S&M) (135,022) - (135,022) (108,311) - (108,311)
costs
S&M related SBP charge and related ETC (13,964) 13,964 - (11,144) 11,144 -
Capitalised commission amortisation* (20,616) - (20,616) (14,502) - (14,502)
S&M related Depreciation and amortisation (6,982) 6,982 - (5,626) 5,626 -
Total S&M costs (176,584) 20,946 (155,638) (139,583) 16,770 (122,813)
Research and development (R&D) costs (16,471) - (16,471) (15,386) - (15,386)
R&D related SBP charge and related ETC (3,556) 3,556 - (5,629) 5,629 -
R&D related Depreciation and amortisation (3,772) 3,772 - (4,695) 4,695 -
Total R&D costs (23,799) 7,328 (16,471) (25,710) 10,324 (15,386)
General and administrative (G&A) costs (41,319) - (41,319) (46,349) - (46,349)
G&A related SBP charge and related ETC (5,876) 5,876 - (13,976) 13,976 -
G&A related Depreciation, amortisation and impairment (3,110) 3,110 - (3,542) 3,542 -
Total G&A costs (50,305) 8,986 (41,319) (63,867) 17,518 (46,349)
Foreign exchange differences (12) - (12) (3,618) - (3,618)
Other operating income 1,807 - 1,807 726 - 726
Operating profit (EBIT) 45,988 - 45,988 577 - 577
Operating profit margin (%) 13.9% 0.2%
Adjusted EBTIDA 84,518 45,189
Adjusted EBITDA margin (%) 25.6% 17.4%
(*)At the start of FY 2024, Darktrace changed its definition of Adjusted
EBITDA to treat all amortisation of commissions as though they were cash
costs. On this basis, Adjusted EBITDA is the Group's earnings before interest,
taxation, depreciation and amortisation, adjusted to include appliance
depreciation attributed to Cost of sales and amortisation of capitalised
commissions, and adjusted to remove uncapitalised share-based payment charges
and related employer tax charges, as well as certain one-off charges including
the impairment of right-of-use assets. Prior year comparatives have been
recast under this definition; see above for further details on definition and
reconciliation.
Adjusted EBIT and margin
$000 Six-months ended Six-months ended % Change
31-Dec-23
31-Dec-22
Unaudited
Unaudited
Adjusted EBIT 70,977 32,430 118.9%
Adjusted EBIT margin (%) 21.5% 12.5% n/a
Definition and relevance
Darktrace's Adjusted EBIT is its earnings before interest and taxes, adjusted
to remove uncapitalised share-based payment (SBP) charges and related employer
tax charges, as well as certain one-off charges including the impairment of
right-of-use assets. Adjusted EBIT as a percentage of revenue is the Adjusted
EBIT margin.
Adjusted EBIT considers both cash and non-cash charges incurred by Darktrace
in the period, demonstrating what underlying operating profit would have been
without the impact of certain charges that are both unpredictable and outside
of Darktrace's control. This includes SBP related employer tax charges which
are driven by movements in the share price. Management believes this treatment
aids period-to-period comparison of operating performance with Darktrace's
peers, and by excluding the impact of these unpredictable or uncontrollable
charges, further enhances management's ability to predict and communicate
Darktrace's longer-term expected 'Steady State' economic model.
Performance
Period-over-period, Adjusted EBIT increased by $38.5 million to $71.0 million,
resulting in a 9.0 percentage point increase in Adjusted EBIT margin to 21.5%.
As with Adjusted EBITDA, this margin expansion reflects continued scale
efficiencies and ongoing discretionary cost management during the period,
further information on which can be found in the Financial Review - Income
Statement Analysis section. That Darktrace's Adjusted EBIT margin has expanded
0.8 percentage points more than its Adjusted EBITDA margin reflects the 0.8
percentage point reduction in adjusted depreciation and amortisation as a
percentage of revenue in the period, which is added back to Adjusted EBITDA.
Reconciling Operating profit (EBIT) to Adjusted EBIT for 1H FY 2024, the Group
added back $24.7 million of SBP and related employer tax charges, a decrease
of $6.1 million in the period. This decrease was primarily driven by a
decrease in SBP relating to the FY 2022 modification of awards made pre-IPO.
This one-time modification led to a higher charge in the comparative period
and is not included in the current period due to the awards having fully
vested in FY 2023. Darktrace also added back a right-of-use asset impairment
charge of $0.3 million reflecting its current assessment of the cost it will
incur to exit a lease contract on now unused space.
Reconciliation of Operating profit (EBIT) to Adjusted EBIT
$000 Six-months Six-months ended % Change
31-Dec-22
ended
Unaudited
31-Dec-23
Unaudited
Operating profit (EBIT) 45,988 577 7,870.2%
Impairment of right-of-use asset 323 1,105 (70.8)%
SBP charges 22,697 27,670 (18.0)%
SBP related ETC 1,969 3,078 (36.0)%
Adjusted EBIT 70,977 32,430 118.9%
Adjusted EBIT margin (%) 21.5% 12.5% n/a
Number of customers
31-Dec-23 30-Jun-23 31-Dec-22
Unaudited
Unaudited
Unaudited
Number of customers 9,232 8,799 8,178
Definition and relevance
This is a count of total end-user entities that are generating ARR at the
measurement date.
Performance
Darktrace added 1,054 net new customers since 31 December 2022, a
year-over-year growth rate of 12.9%. New customer additions slowed across the
period, as a challenging macro-economic environment through the second half of
FY 2023, made prospects more reluctant to trial software they did not believe
they would have budget for and extended sales cycles for purchases. In the
first half of FY 2024, Darktrace added 433 net new customers, reflecting the
stabilising macro-economic environment, and also the temporary impacts of
significant changes made across Darktrace's GTM organisation in the first
quarter. While trends with respect to new prospects appear to have stabilised
in the second quarter of FY 2024, they have not yet materially improved, and
the 11.5 percentage point reduction in year-over-year growth of net new
customers was a key factor in the decline of Net ARR added to 10.8% below the
amount added in the prior period.
Average contract ARR
$ 31-Dec-23 31-Dec-22 % Change
Unaudited
Unaudited
Average contract ARR 76,048 69,022 10.2%
Definition and relevance
Average contract ARR is the total ARR at the measurement date, divided by the
number of customers at that measurement date. In combination with other
measures, including shifts in the value distribution of ARR, metrics such as
average contract ARR are key to assessing whether Go-to-Market strategies,
such as sales team segmentation and changing in pricing or packaging, are
being reflected in Darktrace's performance.
Performance
Average contract ARR at 31 December 2023 increased by 10.2% year-over-year to
$76,048. This primarily reflects upsells across Darktrace's existing customer
base, as demonstrated by the increase in average ARR of existing customer
contracts, which is up 12.4% year-over-year for contracts aged one year or
more.
In parallel to the year-over-year increase in average contract ARR, and the
underlying increase in existing contract ARR values, the distribution of
customer contracts above and below $100,000 in ARR also shifted towards larger
contract sizes. This shift reflects Darktrace's increased focus in its
Go-to-Market strategy on both selling to larger customers and driving product
penetration, while continuing to support the addition of customers across the
full range of customer sizes and requirements.
ARR distribution by customer size:
31-Dec-23 31-Dec-22
Unaudited
Unaudited
ARR from customers with ARR greater than $100,000 56.6% 52.2%
ARR from customers with ARR less than $100,000 43.4% 47.8%
The number of customers with ARR greater than $100,000 represent 19.5% of
total customers, a 2.8 percentage point increase from 16.7% at 31 December
2022.
Remaining Performance Obligation (RPO)
$000 31-Dec-23 30-Jun-23 31-Dec-22
Unaudited
Unaudited
Unaudited
RPO 1,253,693 1,258,350 1,117,390
Definition and relevance
RPO represents committed revenue backlog and is calculated by summing all
committed customer contract ARR values that have not yet been recognised as
revenue, valued at the exchange rates on the last day of the reporting period
rather than at constant currency (as for example with ARR). For clarity, any
contracted amounts that are subject to opt-out or other cancellation
provisions are not included in RPO.
RPO is a common KPI used by software and Software-as-a-Service ("SaaS")
companies to provide stakeholders with an indication of future recurring
revenue and baseline revenue growth. It includes only future recurring
contract value - more than 99% of Darktrace's contract value is
subscription-based - with all one-time future contract values excluded. RPO
reflects actual contract status so unrenewed contract values cease to be
reflected at their termination dates and future-dated contract values only
become included at their start dates.
RPO and the 'Future contracted revenue' amount reported in the financial
statements under the requirements of paragraph 120 of IFRS 15 are both
measures of future revenue and differ for various reasons including:
· the assumptions made about, and the application of, foreign
exchange rates differ between the two calculations;
· one-time revenue is included for the purpose of IFRS 15 reporting
but is not included in RPO; and
· future contracted revenue recognises future values rateably over
the term of the contracts, in line with Darktrace's revenue recognition
principles, whereas RPO, aligning with ARR, considers the status of the
contract on the last day of the reporting period.
Performance
Darktrace's multi-year contract strategy, and the resulting RPO, creates
significant revenue visibility. At 31 December 2023, RPO was 12.2% higher than
it was at 31 December 2022, driven primarily by the acquisition of new
customers, and the renewal of contracts with existing customers, for
multi-year terms. Note that year-over-year RPO growth in the current period is
less than would typically be expected. This is primarily because a large
cohort of contracts signed in the late-pandemic period are starting to come up
for renewal. As a result, the average contract life in RPO will be temporarily
shorter than typical, and the average value is lower, until this renewal cycle
is complete.
The difference between USD ARR of $705.8 million at 31 December 2023 ($637.3
million at 30 June 2023) and RPO within 12 months is that not all of the ARR
at 31 December 2023 will contribute to revenue for a full 12 months.
While USD ARR has increased 10.7% since 30 June 2023, RPO has reduced 0.4%
over the same period. This demonstrates that the average contract duration of
ARR at 31 December 2023 has decreased over the 1H FY 2024 period, reflecting
the impact of sales trends in the current period, but to a greater extent, the
impact of the large cohort of late pandemic contracts in current ARR. As these
are now coming up for renewal, they may not reflect a full year of future
revenue at 31 December 2023.
For the current period, movements in RPO since 30 June 2023 also reflect the
10.8% period-over-period decline in Net ARR additions signed in 1H FY 2024.
Further, Darktrace saw a reduction in average contract duration for contracts
signed in the period due in part to the higher-than-typical proportion of net
ARR additions in the period that came from upsell ARR, as upsell contracts are
typically of shorter duration than new contracts (generally because customers
seek to have upsell contracts be coterminous with their existing contracts).
$000 31-Dec-23 30-Jun-23 31-Dec-22
Unaudited
Unaudited
Unaudited
Within 12 months 619,590 574,184 500,328
Between 1 - 2 years 389,188 397,063 355,665
Between 2 - 3 years 201,782 214,018 193,085
Between 3 - 4 years 41,929 69,894 63,005
Over 4 years 1,204 3,191 5,307
Total 1,253,693 1,258,350 1,117,390
Financial Review - Income Statement Analysis
$000 Six-months ended Six-months ended % Change
31-Dec-23
31-Dec-22
Unaudited
Unaudited
Revenue 330,303 259,259 27.4%
Gross profit 294,881 232,629 26.8%
Gross margin (%) 89.3% 89.7% n/a
Operating profit (EBIT) 45,988 577 7,870.2%
Net profit 52,518 581 8,939.2%
Revenue
Revenue in the first half of FY 2024 increased by $71.0 million, or 27.4%, to
$330.3 million. This increase was primarily attributable to the 12.9% increase
in Darktrace customers since 31 December 2022 and a 10.2% year-over-year
increase in average contract ARR.
Over 99.2% of all revenue came from recurring subscription contracts with
customers, with customer contracts typically averaging approximately 36
months. These multi-year contracts result in significant contracted revenue
expected to convert to revenue in future years (see Note 4). Subscription
revenue is recognised in accordance with IFRS 15 on a straight-line basis over
the service period, from commencement date to termination date.
Cost of sales (CoS)
$000 Six-months Six-months % Change
ended ended
31-Dec-23 31-Dec-22
Unaudited Unaudited
Employment and other related costs (11,626) (8,459) 37.4%
Hosting costs (11,511) (8,165) 41.0%
Appliance depreciation (9,312) (8,254) 12.8%
Shipping & other direct costs (1,703) (1,752) (2.8)%
SBP and related ETC (1,270) - n/a
Total CoS (35,422) (26,630) 33.0%
Cost of sales includes all costs relating to the deployment of Darktrace's
software, whether through physical appliances or in the cloud, and for
providing both customer support and supplementary monitoring and response
capabilities.
Cost of sales increased by $8.8 million, or 33.0%, to $35.4 million in the
period. This increase was due to a $3.3 million increase in hosting fees in
the period to $11.5 million, driven by additional virtual deployments for new
and existing customers, which reflected a decrease in per unit hosting costs
from continued volume-based discount plans with providers. Correspondingly,
appliance depreciation attributed to Cost of sales grew $1.1 million to $9.3
million for the period; the lower growth in physical deployment costs is
offsetting higher growth in hosting costs as more customers chose to have
products deployed virtually, and as Darktrace offers more products that are
only deployed virtually.
Employment and other related costs are primarily labour costs associated with
deploying Darktrace's software to customers and providing ongoing services
such as customer support and supplementary monitoring and response
capabilities. In 1H FY 2024 Darktrace concluded that the share-based payment
expense together with the employer related tax charges should be
proportionately attributed to Cost of sales for those functions where an
attribution to Cost of sales is made for labour related costs. Darktrace
believes this change better represents the true cost of a sale to the
business, however it has not applied this change retrospectively due to the
impact of this reclassification being immaterial on the prior period ($1.8
million). Please refer to note 8 for further details on the prior period
quantum.
On a percentage of revenue basis, the first-time inclusion of SBP and related
employer tax charges has resulted in a 0.4 percentage point decline in gross
margin to 89.3% for the period. Without this change, Darktrace's 1H FY 2024
gross margin would have remained flat on the prior period.
Sales and marketing (S&M) costs
$000 Six-months ended Six-months ended % Change
31-Dec-23
31-Dec-22
Unaudited
Unaudited
Employment costs and other related costs (100,968) (72,839) 38.6%
Other operating costs (23,087) (23,521) (1.8)%
Facilities costs (6,778) (8,103) (16.4)%
Travel and entertainment (4,188) (3,525) 18.8%
Depreciation and amortisation (27,598) (20,451) 34.9%
SBP and related ETC (13,964) (11,144) 25.3%
Total S&M costs (176,583) (139,583) 26.5%
Sales and marketing (S&M) costs increased by $37.0 million, or 26.5%, to
$176.6 million for the period.
The period-over-period increase is the result of an underlying increase in
Sales and marketing costs, an increase in the apportionment of Customer
Success Manager (CSM) costs to S&M in the period, and the attribution of
Channel Partner costs to S&M for the first time. Prior to 1H FY 2024, CSM
headcount had been proportionately split between S&M and General and
administrative (G&A) on a full time equivalent (FTE) or pro rata basis,
reflecting the separate sales and operating roles and responsibilities of the
team at the time. Channel Partner costs had previously been attributed
entirely to G&A, as their roles were to provide operating support to sales
teams. This change in functional attribution of costs to S&M reflects
changes to Darktrace's Go-to-Market strategy at the start of FY 2024, with
both the CSM and Channel Partner teams now sitting entirely within the GTM
function, led by Darktrace's CRO and with newly-defined commercial roles,
responsibilities and related compensation structures that became effective in
July 2023.
Had these changes to the CSM and Channel Partner teams taken place at the
start of FY 2023, total 1H FY 2023 S&M costs (excluding SBP and related
ETC) would have been higher by 15.0%, moving from $141.5 million to $162.6
million. This clarifies that 38.1% of reported S&M cost growth (excluding
SBP and related ETC) came from role and responsibility changes that drove
changes to cost attribution, rather than from growth in underlying operating
costs.
Within S&M, employment and related costs increased 38.6% over the prior
period to $101.0 million. Had 1H FY 2024 role and related attribution changes
been in place in 1H 2023, employment and other related costs would have
increased 19.6%, from $84.5 million to $101.0 million. This underlying growth
reflects continued investments in our GTM teams to support Darktrace's growth
and retention strategy, and the impact of changes made to GTM compensation
structures, aligning these with industry practices, thereby better supporting
Darktrace's ability to hire and retain key experienced talent.
The largest component of other operating costs is direct marketing costs,
which increased by $0.9 million period-over-period to $18.7 million. As a
percentage of revenue, direct marketing costs declined 1.2 percentage points
on the prior period to 5.7% of revenue, as a result of efforts to increase the
efficiency and
effectiveness of Darktrace's direct marketing approach under its new CMO.
Depreciation and amortisation charges increased by $7.1 million to $27.6
million for the period, mostly driven by a $6.1 million increase in the
amortisation of capitalised commission.
Share-based payment and related tax charges increased by $2.8 million to $14.0
million for the period. This was driven by new AIP awards being granted to
employees, partly offset by costs associated with the one-time modification of
awards made at the time of IPO, which impacted 1H FY 2023 costs, but which are
no longer being incurred.
Research and development (R&D) costs
$000 Six-months ended Six-months ended % Change
31-Dec-23
31-Dec-22
Unaudited
Unaudited
Employment and other related costs (14,741) (12,973) 13.6%
Facilities costs (1,439) (1,901) (24.3)%
Travel and entertainment (291) (513) (43.3)%
Depreciation and amortisation (3,772) (4,695) (19.7)%
SBP and related ETC (3,556) (5,628) (36.8)%
Total R&D costs (23,799) (25,710) (7.4)%
Research and development (R&D) costs decreased by $1.9 million, or 7.4%,
to $23.8 million in the period. This decrease in R&D costs was primarily
the result of a $2.1 million period-over-period reduction in share-based
payment and related employer tax charges to $3.6 million, as 1H FY 2023
reflected the impact of a one-time modification of IPO equity awards that
fully vested in FY 2023 and hence did not recur in 1H FY 2024.
Excluding SBP and related ETC, R&D costs increased only 0.8%, or $0.2
million, in the period. This limited increase includes the timing impact of
accounting policies on capitalisable development costs, where in 1H FY 2024,
more costs were capitalised and less previously capitalised costs were
amortised, than in the 1H FY 2023 period. On a cash basis, R&D employment
costs increased 15.3% versus the prior period, driven by continued investment
in additional R&D headcount and an increase in average salaries for both
newly hired and existing senior roles to attract and retain employees in a
competitive job market.
The $0.9 million decrease in R&D depreciation and amortisation related
primarily to having previous development projects now fully amortised, with
new, as of yet unreleased products not yet eligible to amortisation.
General and administrative (G&A) costs
$000 Six-months ended Six-months ended % Change
31-Dec-23
31-Dec-22
Unaudited
Unaudited
Employment and other related costs (21,426) (30,546) (29.9)%
Other operating costs (17,302) (12,560) 37.8%
Facilities costs (1,397) (2,445) (42.9)%
Travel and entertainment (1,518) (2,225) (31.8)%
Depreciation and amortisation (2,786) (2,115) 31.7%
SBP and related ETC (5,876) (13,976) (58.0)%
Total G&A costs (50,305) (63,867) (21.2)%
General and administrative (G&A) costs decreased by $13.6 million, or
21.2%, to $50.3 million for the period. This overall decrease was entirely due
to the impact of Customer Success Managers (CSMs) and Channel Partner related
costs being fully attributed to S&M in 1H FY 2024, whereas in the prior
period an apportionment of CSM, and all Channel Partner costs, were allocated
to G&A.
Had the changes to the roles and responsibilities, and the related cost
attributions, for the CSM and Channel Partner teams been in place at the start
of FY 2023, total G&A costs (excluding SBP and related ETC) would have
been higher by 20.5%, moving from $36.9 million to $44.4 million. Including
the impact of SBP and related ETC, G&A costs on this underlying basis
would have increased 1.8%, or $0.9 million, on the prior period. This reflects
the impact of a $6.7 million period-over-period reduction in share-based
payment and related employer tax charges to $5.9 million, with 1H FY 2023
reflecting the impact of a one-time modification of IPO equity awards that
fully vested in FY 2023 and hence did not recur in 1H FY 2024.
Within G&A, reported employment and related costs decreased 29.9% over the
prior period to $21.4 million. Had 1H FY 2024 attributions been in place in 1H
2023, employment and other related costs would have increased 13.2%, from
$18.9 million to $21.4 million.
On an underlying cost basis, the largest contributor to an increase in G&A
costs (excluding SBP and related ETC) was other operating costs, which
increased 37.8%, or $4.7 million to $17.3 million. $2.2 million of this
increase was from increased bad debt expense in the period, driven by
macro-related increases in customer bankruptcies and non-payment. A further
$1.5 million was due to the 15.7% period-over-period growth in professional
and consulting fees, totalling $11.3 million, reflecting spend on system
integration and implementation advisory services for the roll outs of Workday
and Salesforce, as well as pricing and other advisory projects recently
completed or currently in progress.
Foreign exchange differences
$000 Six-months ended Six-months ended
31-Dec-23 Unaudited 31-Dec-22 Unaudited % Change
Exchange differences (12) (3,618) (99.7)%
For 1H FY 2024, there was a $3.6 million period-over-period decrease in the
foreign exchange charge relating to the translation of monetary assets and
liabilities denominated in currencies other than Darktrace's U.S. Dollar
reporting currency, most significantly, the British Pound and the Euro. This
reflects stability in Darktrace's foreign exchange rates relative to the prior
period.
Financial Review - Financial Position Analysis
$000 31-Dec-23 30-Jun-23 % Change 31-Dec-22
Unaudited
Audited
Unaudited
Total assets
Goodwill 38,164 38,164 0.0% 38,164
Intangible assets 11,654 12,571 (7.3)% 13,455
Property, plant and equipment 60,136 65,789 (8.6)% 63,743
Right-of-use assets 40,961 44,439 (7.8)% 53,738
Capitalised commission 84,992 76,653 10.9% 63,572
Deferred tax asset 23,978 19,849 20.8% 1,799
Deposits 6,317 8,234 (23.3)% 5,728
Inventory 93 100 (7.0)% -
Trade and other receivables 121,102 123,595 (2.0)% 98,373
Tax receivable 5,743 5,485 4.7% 1,757
Cash and cash equivalents 383,150 356,986 7.3% 374,915
Total liabilities
Trade and other payables (88,781) (109,342) (18.8)% (78,449)
Deferred revenue (317,299) (312,117) 1.7% (259,434)
Lease liabilities (60,151) (57,608) 4.4% (64,364)
Provisions (7,576) (8,668) (12.6)% (8,805)
Equity
Share capital 9,736 9,779 (0.4)% 10,030
Share premium 16,308 16,308 0.0% 16,117
Share capital redemption reserve 298 255 16.9% -
Merger reserve 305,789 305,789 0.0% 305,789
Foreign currency translation reserve (8,126) (8,126) 0.0% (8,126)
Stock compensation reserve 60,570 50,333 20.3% 43,829
Treasury shares (121,285) (104,946) 15.6% (40,139)
Retained earnings 39,193 (5,879) n/a (23,308)
Intangible assets
In the period, the Group capitalised $1.2 million of development costs, an
increase of $0.1 million compared to the previous period.
Capitalised development costs are amortised on a straight-line basis over a
three-year period and acquired third party software is amortised over a period
of five years, resulting in an amortisation charge in the period of $2.1
million, in line with the previous period. At 31 December 2023, the Group had
$11.7 million of intangible assets, a decrease of $0.9 million from $12.6
million at 30 June 2023.
Deferred tax asset
At 31 December 2023, the Group has significant tax losses in the UK available
for offset against future taxable profits. The latest management forecasts
have shown an uplift from those used to determine deferred tax recognition as
at the 30 June 2023 year-end and as such there has been a net increase to the
total deferred tax asset recognised at 31 December 2023 of $4.1 million to
$24.0 million. For further details, please refer to Note 17.
The Group has not recognised a deferred tax asset related to losses and
share-based payments for approximately $79.9 million (30 June 2023: $78.3
million) as there remains sufficient uncertainty beyond the 2-year forecast
period as to whether the losses will be utilised in the foreseeable future.
Capitalised commission
Up to 30 June 2023 the majority of sales commissions were paid in two
instalments, the first payment being at the point of contract signing and the
second upon the earlier of either the payment for the entire contract value or
one year from the date of sale. For the first instalment, the Group
capitalised sales commissions and the associated payroll taxes, as required
under IFRS 15, and amortised them over the related contract term. As there
were continued employment and customer service obligations required for the
employee to receive the second instalment, these commissions were not eligible
for capitalisation under IFRS 15 and were expensed over the one-year term up
until payment.
Of the changes made to Darktrace's commissions structures as part of the
changes to its GTM strategy at the start of FY 2024, the most financially
impactful was the decision to pay 100% of sales commissions up front. This
change was made to better align with market practice, better supporting
Darktrace's ability to hire and retain key experienced talent. From a cost
recognition perspective, Darktrace, under IFRS15, is required as result of
this change to capitalise substantially all sales commissions and recognise
them over the lives of the related contracts.
Capitalised commissions on the Group's Statement of Financial Position
increased by 10.9% to $85.0 million at 31 December 2023, from $76.7 million at
30 June 2023, as a result of continuing sales growth and implementation of the
new commission plan. This increase in capitalised commissions was driven by
additions of $30.6 million ($21.8 million in 1H FY 2023) offset by
amortisation and impairment of $22.3 million ($15.4 million in 1H FY 2023).
Cash and cash equivalents
The Group had cash and cash equivalents at 31 December 2023 of $383.2 million,
an increase of $26.2 million from 30 June 2023. For more details on the cash
flow see Financial review - Cash Flow Analysis below.
The balance includes deposits at call of $283.4 million ($224.6 million at 30
June 2023) presented as cash equivalents.
Deferred revenue
Total deferred revenue increased by 1.7% to $317.3 million at 31 December 2023
from $312.1 million at 30 June 2023, and increased by 22.3% from $259.4
million at 31 December 2022. This year-over-year growth was a result of the
increases in invoicing driven by growth in contracted revenues. In recent
years Darktrace has typically raised between 41 to 45% of its total invoicing
in the first half of the financial year, with a higher proportion of invoices
raised in the second half while new business continues to grow. The impact on
deferred revenue is that significantly more of the growth in deferred revenue
occurs in the second half of the financial year, and it is therefore more
representative to look at year-over-year growth to interpret underlying trends
in deferred revenue.
As the Group rarely invoices its multi-year contracts more than a year in
advance, growth in deferred revenue is typically driven by movements in
current deferred revenue, rather than non-current deferred revenue.
Occasionally, customers will pay full contract values in advance but because
this has become increasingly infrequent and represents an increasingly small
proportion of the Group's total invoicing, growth in non-current deferred
revenue balances will lag those of current deferred revenue. At $24.5 million
at 31 December 2023, growth in non-current deferred revenue was therefore less
pronounced than current deferred revenue, decreasing by 13.7% from June 2023
and 19.4% from December 2022. Meanwhile, current deferred revenue was $292.8
million at 31 December 2023, an increase of 3.2% from 30 June 2023, and 27.8%
from $229.0 million at 31 December 2022. We can see this growth reflected in
the 27.4% growth in revenue for the period.
Equity
As a result of transactions with shareholders, the Group had a decrease in
equity of $13.6 million during 1H FY 2024 driven primarily by the cancellation
of shares performed as part of the share buyback programme completed on 31
October 2023. 18,349,541 shares were bought back on the open market and
16,367,676 have been subsequently cancelled. The remaining 1,981,865 shares
have been added to the shares held in treasury to cover future employee equity
grants.
For more details on the equity movements please refer to Note 7 of the
consolidated interim financial information below.
Financial review - Cash Flows Analysis
$000 Six-months ended Six-months ended % Change
31-Dec-23
31-Dec-22
Unaudited
Unaudited
Operating cash flows before movements in working capital 113,030 57,536 96.5%
Net cash inflow from operating activities 65,589 27,094 142.1%
Cash outflow from investing activities (540) (11,152) (95.2)%
Cash outflow from financing activities (39,279) (31,179) 26.0%
Net changes in cash and cash equivalents 25,770 (15,237) n/a
Cash and cash equivalents, beginning of period 356,986 390,623 (8.6)%
Unrealised exchange difference on cash and cash equivalents 394 (471) n/a
Cash and cash equivalents, end of period 383,150 374,915 2.2%
Cash inflow from operating activities before working capital
Cash generated from operating activities before working capital movements
increased by $55.5 million, or 96.5%, compared to the prior period. This was
primarily due to the $51.9 million increase in profit before tax, resulting
from Darktrace's continued revenue growth, maintenance of its invoicing
profiles and actions to control discretionary costs.
Net cash inflow from operating activities
The Group had a net cash inflow from operating activities of $65.6 million in
the period, a 142.1% increase from $27.1 million in 1H FY 2023. The $38.5
million increase in the net cash inflows from operating activities was
primarily due to the $51.9 million increase in profit before tax and reduced
by $16.8 million from working capital movements, primarily due to $17.8
million increase in the cash outflows relating to trade and other payables.
Cash outflow from investing activities
The Group had cash outflows from investing activities of $0.5 million, a
decrease of $10.6 million on the prior period. This decrease in cash outflows
was primarily a result of a $4.4 million increase in finance income owing to
increased interest receivable on the Group's cash deposits, and a $6.5 million
reduction in additions to property, plant and equipment (PPE) cash outflows.
The reduction in PPE was primarily due to lower capex on appliances, as more
customers chose to have products deployed virtually, and as Darktrace offers
more products that are only deployed virtually. Darktrace also incurred
office-related PPE in the period, having completed office fit outs for its new
offices in London, New York and Los Angeles in prior periods.
Cash outflow from financing activities
Cash outflows from financing activities increased $8.1 million on the prior
period owing to a $10.5 million increase in share buyback costs.
For more details please see consolidated interim statement of cash flows
below.
Going Concern
The Directors are of the view that the preparation of the consolidated interim
financial statements on a going concern basis continues to be appropriate.
Refer to the consolidated interim financial information reported below for
more details.
Principal and Emerging Risks
The principal risks and uncertainties faced by Darktrace and its approach to
internal control and risk management are set out on pages 66 to 73 of the 2023
Annual Report which is available on the Group's website at www.darktrace.com.
The principal risks and uncertainties, have been reassessed and the Directors
expect them to remain as those reported in the 2023 Annual Report during the
remaining six months of the financial year.
Risk Title Risk Description
Inability to innovate Darktrace products If the Group is unable to innovate, develop and enhance the AI Cyber Loop, to
adapt to the increasingly sophisticated and changing nature of cyber-attacks,
or fails to innovate against the market's current requirements, it could
negatively impact the Group's business, results of operations, financial
condition and prospects.
Customer service delivery failure The Group may fail to anticipate and understand customer needs appropriately
and in a timely manner, therefore risking failure to deliver value to the
customers.
Inadequate channel sales and support The Group relies on channel partners, including resellers and referral
partners, to generate a significant portion of its revenue. If the Group fails
to maintain successful relationships with its channel partners, or if its
channel partners fail to perform, its ability to market, sell and distribute
its solution will be limited, and its business, financial position and results
of operations will be harmed.
Cloud service providers downtime The Group relies on Cloud Service Providers, such as Amazon Web Services
("AWS"), and its own data servers to host and operate an increasing number of
deployments for the Darktrace product line, and any disruption of or
interference with its use of these facilities may negatively affect its
ability to maintain the performance and reliability of its Cyber AI Platform
which could cause its business to suffer.
Failure to retain and attract employees The Group relies on the performance of highly skilled personnel including the
senior management team. The Group's future success depends, in part, on its
ability to continue to identify, hire, develop, motivate, and retain highly
skilled personnel for all areas of the organisation, particularly technical
professionals.
Darktrace cyber incident Failure of its systems and the compromise of its data, through cyber-attack,
or failure to responsibly collect, process and store data, together with
ensuring an appropriate standard of cybersecurity, could have a negative
reputational, operational, and financial impact on the business.
Intellectual property theft, loss or exposure The Group may be unable to adequately protect its intellectual property
proprietary rights and prevent others from making unauthorised use of its
platform and technologies, which could harm the Group's financial results.
Autonomy related matters The Autonomy related litigation represents a potential risk for Darktrace from
both a reputational and a legal perspective.
Statement of Directors' Responsibility
The Directors confirm that these unaudited interim financial statements have
been prepared in accordance with UK adopted International Accounting Standard
34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct Authority and that
the interim management report includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8, namely:
· an indication of important events that have occurred during the
first six months and their impact on the condensed set of financial
statements, and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
· related-party transactions in the first six months and that have
materially affected the financial position or the performance of the Group
during that period and any changes in the related-party transactions described
in the last annual report that could have a material effect on the financial
position or performance of the Group in the first six months of the current
financial year.
The maintenance and integrity of the Darktrace plc website is the
responsibility of the Directors; the work carried out by the authors does not
involve consideration of these matters and, accordingly, the auditors accept
no responsibility for any changes that might have occurred to the interim
financial statements since they were initially presented on the website.
The Directors of Darktrace plc are listed in the Darktrace plc annual report
for 30 June 2023. From 7 December 2023, Mr Jacob is no longer on the Board. A
list of current Directors is maintained on the Darktrace plc website:
www.darktrace.com/en/board-of-directors
(http://www.darktrace.com/en/board-of-directors) .
On behalf of the Board
Catherine Graham
Chief Financial Officer
6 March 2024
Independent auditor's review report on Interim Financial Information to Darktrace plc
Conclusion
We have reviewed the condensed set of financial statements in the half-yearly
financial report of Darktrace plc (the 'Group') for the six months ended 31
December 2023 which comprises the consolidated interim statement of
comprehensive income, consolidated interim statement of financial position,
consolidated interim statement of changes in equity, consolidated interim
statement of cash flows, and related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 31 December 2023 is not prepared, in
all material respects, in accordance with UK-adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) (ISRE (UK)) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" (ISRE (UK) 2410). A review
of interim financial information consists of making inquiries, primarily of
persons responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially less in
scope than an audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain assurance that we
would become aware of all significant matters that might be identified in an
audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with UK-adopted IFRSs. The condensed set of financial
statements included in this half yearly financial report has been prepared in
accordance with UK-adopted International Accounting Standard 34, "Interim
Financial Reporting".
We have read the other information contained in the half-yearly financial
report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of
financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE UK, however future events or conditions may cause the entity to
cease to continue as a going concern.
In our evaluation of the directors' conclusions, we considered the inherent
risks associated with the group's business model including effects arising
from current macro-economic uncertainties, we assessed and challenged the
reasonableness of estimates made by the directors and the related disclosures
and analysed how those risks might affect the group's financial resources or
ability to continue operations over the going concern period.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the group
or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
Our responsibility is to express a conclusion to the group on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Our conclusion, including our conclusions relating to going concern, are based
on procedures that are less extensive than audit procedures, as described in
the Basis for conclusion paragraph of this report.
Use of our report
This report is made solely to the group, as a body, in accordance with ISRE
(UK) 2410. Our review work has been undertaken so that we might state to the
group those matters we are required to state to it in an independent review
report and for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the group as a body,
for our review work, for this report, or for the conclusion we have formed.
Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
6 March 2024
Consolidated Unaudited Interim Statement of Comprehensive Income
Six-months ended Six-months ended
31-Dec-23
31-Dec-22
Unaudited
Unaudited
Notes $000 $000
Revenue 4 330,303 259,259
Cost of sales (35,422) (26,630)
Gross profit 294,881 232,629
Sales and marketing costs (176,584) (139,583)
Research and development costs (23,799) (25,710)
General and administrative costs (50,305) (63,867)
Foreign exchange differences (12) (3,618)
Other operating income 1,807 726
Operating profit 45,988 577
Finance costs (3,015) (1,733)
Finance income 7,483 3,091
Profit before taxation 50,456 1,935
Taxation 2,062 (1,354)
Net profit attributable to shareholders of Darktrace plc 52,518 581
Items that are, or may be, subsequently reclassified to profit or loss:
Other comprehensive (loss)/income - -
Total comprehensive profit for the period 52,518 581
Earnings per share
Basic earnings per share 6 $0.08 $0.00
Diluted earnings per share 6 $0.08 $0.00
Consolidated Unaudited Interim Statement of Financial Position
31-Dec-23 30-Jun-23 31-Dec-22
Unaudited
Audited
Unaudited
Notes $000 $000 $000
Non-current assets
Goodwill 38,164 38,164 38,164
Intangible Assets 13 11,654 12,571 13,455
Property, plant and equipment 60,136 65,789 63,743
Right-of-use assets 40,961 44,439 53,738
Capitalised commission 41,827 42,182 35,601
Deferred tax 17 23,978 19,849 1,799
Deposits 6,317 8,234 5,728
223,037 231,228 212,228
Current assets
Inventory 93 100 -
Trade and other receivables 11 121,102 123,595 98,373
Capitalised commission 43,165 34,471 27,971
Tax receivable 5,743 5,485 1,757
Cash and cash equivalents 14 383,150 356,986 374,915
553,253 520,637 503,016
Total assets 776,290 751,865 715,244
Current liabilities
Trade and other payables (88,781) (109,959) (78,449)
Deferred revenue (292,770) (283,678) (229,005)
Lease liabilities (1,621) (4,873) (6,063)
Provisions 12 (6,410) (6,927) (7,604)
(389,582) (405,437) (321,121)
Non-current liabilities
Deferred revenue (24,529) (28,439) (30,429)
Lease liabilities (58,530) (52,735) (58,301)
Provisions 12 (1,166) (1,741) (1,201)
(84,225) (82,915) (89,931)
Total liabilities (473,807) (488,352) (411,052)
Net Assets 302,483 263,513 304,192
Equity
Share capital 7 9,736 9,779 10,030
Share premium 7 16,308 16,308 16,117
Share Capital redemption reserve 298 255 -
Merger reserve 305,789 305,789 305,789
Foreign currency translation reserve (8,126) (8,126) (8,126)
Stock compensation reserve 60,570 50,333 43,829
Treasury shares (121,285) (104,946) (40,139)
Retained earnings 39,193 (5,879) (23,308)
Total equity attributable to equity shareholders of Darktrace plc 302,483 263,513 304,192
These financial statements were approved by the Board of Directors and
authorised for issue on 6 March 2024. They were signed on its behalf by:
Catherine Graham
Chief Financial Officer
Company No. 13264637
Consolidated Unaudited Interim Statement of Changes in Equity
Share capital Share premium Share capital redemption reserve Merger reserve Foreign currency translation reserve Stock compensation reserve Treasury Shares Retained earnings Total equity
Note $000 $000 $000 $000 $000 $000 $000 $000 $000
1-Jul-22 9,812 16,117 - 305,789 (8,126) 74,883 (11,683) (72,104) 314,688
Audited
Profit for the period - - - - - - - 581 581
Other comprehensive (loss)/income - - - - - - - - -
Total comprehensive profit - - - - - - - 581 581
Options exercised 7 218 - - - - (57,019) 5,487 48,215 (3,099)
Shares buyback - - - - - - (33,943) - (33,943)
SBP* charge - - - - - 25,965 - - 25,965
Transactions with shareholders 218 - - - - (31,054) (28,456) 48,215 (11,077)
31-Dec-22 10,030 16,117 - 305,789 (8,126) 43,829 (40,139) (23,308) 304,192
Unaudited
Profit for the period - - - - - - - 58,377 58,377
Other comprehensive (loss)/income - - - - - - - - -
Total comprehensive loss - - - - - - - 58,377 58,377
Share cancellation 7 (255) - 255 - - - 43,665 (43,665) -
Shares buyback - - - - - - (111,271) (284) (111,555)
Options exercised/awards vested 7 4 191 - - - (4,572) 2,799 3,001 1,423
SBP* charge - - - - - 11,076 - - 11,076
Transactions with shareholders (251) 191 255 - - 6,504 (64,807) (40,948) (99,056)
30-Jun-23 9,779 16,308 255 305,789 (8,126) 50,333 (104,946) (5,879) 263,513
Audited
Profit for the period - - - - - - - 52,518 52,518
Other comprehensive (loss)/income - - - - - - - - -
Total comprehensive profit - - - - - - - 52,518 52,518
Share buyback (43) - 43 - - - (42,113) (2,308) (44,421)
Share cancellation - - - - - - 12,066 (12,066) -
Options exercised/awards vested - - - - - (11,484) 13,708 6,928 9,152
SBP* charge - - - - - 21,721 - - 21,721
Transactions with shareholders (43) - 43 - - 10,237 (16,339) (7,446) (13,548)
31-Dec-23 9,736 16,308 298 305,789 (8,126) 60,570 (121,285) 39,193 302,483
Unaudited
*SBP: share-based payment.
Consolidated Unaudited Interim Statement of Cash Flows
Six-months ended Six-months ended
31-Dec-23
31-Dec-22
Unaudited
Unaudited
Note $000 $000
Cash generated from operations
Profit for the period after tax 52,518 581
Depreciation of PPE* and Right of Use Assets 5 20,721 17,676
Amortisation of intangible assets 13 2,134 3,336
Amortisation of capitalised commission 20,616 14,502
Impairment of capitalised commission and Right of Use Assets 1,989 1,983
Loss on disposal of PPE* 432 616
Unrealised foreign exchange differences (3,328) 197
Credit loss charge 3,588 1,401
Share-based payment charge 8 22,697 27,670
Net settled share-based payments - (9,696)
Finance costs 3,015 1,733
Finance income (7,483) (3,091)
Other operating income (1,807) (726)
Taxation (2,062) 1,354
Operating cash flows before movements in working capital 113,030 57,536
Decrease/(increase) in trade and other receivables 2,422 (2,406)
Increase in capitalised commission (30,620) (21,798)
Decrease in trade and other payables (22,822) (5,019)
Decrease in provisions from payments (1,092) (8,487)
Increase in deferred revenue 5,182 7,583
Decrease in inventory 7 -
Net cash flow from operating activities before tax 66,107 27,409
Tax paid (518) (315)
Net cash inflow from operating activities 65,589 27,094
Investing activities
Development costs capitalised (1,020) (691)
Purchase of property, plant and equipment (7,003) (13,552)
Finance income 7,483 3,091
Cash outflow from investing activities (540) (11,152)
Financing activities
Proceeds from share issues and exercises 9,152 6,596
Shares buyback (44,421) (33,943)
Repayment of lease liabilities (2,527) (2,099)
Payment of interest on lease liabilities (1,483) (1,733)
Cash outflow from financing activities (39,279) (31,179)
Net changes in cash and cash equivalents 25,770 (15,237)
Cash and cash equivalents, beginning of period 356,986 390,623
Unrealised exchange difference on cash and cash equivalents 394 (471)
Cash and cash equivalents, end of period 383,150 374,915
*Property, plant and equipment.
Notes to the Consolidated Unaudited Interim Financial Statements
1 General information
These unaudited interim financial statements were approved for issue on 6
March 2024. These interim financial statements do not comprise statutory
accounts within the meaning of section 434 of the Companies Act 2006.
Statutory accounts for the year ended 30 June 2023 were approved by the Board
of Directors on 5 September 2023 and delivered to the Registrar of Companies.
The independent audit report on those accounts was unqualified, did not
contain an emphasis of matter paragraph and did not contain any statement
under section 498 of the Companies Act 2006. The interim results for the six
months ended 31 December 2023 and the comparatives are unaudited, yet have
been reviewed by the independent auditor.
Company information
Darktrace plc (the Company) is a company incorporated in England and Wales
under company number 13264637. The principal place of business is Maurice
Wilkes Building, St John's Innovation Park, Cowley Road, Cambridge, CB4 0DS.
Its shares are listed on the London Stock Exchange.
The Company and Group information
The parent company, Darktrace plc has been defined as 'the Company' and
Darktrace plc group as 'the Group' or 'Darktrace'.
Basis of preparation
This consolidated interim financial report for the half-year reporting period
ended 31 December 2023 has been prepared in accordance with the UK-adopted
International Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
The interim report does not include all of the notes of the type normally
included in an annual financial report. Accordingly, this report is to be read
in conjunction with the annual report for the year ended 30 June 2023, which
has been prepared in accordance with both UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006, and any public
announcements made by Darktrace plc during the interim reporting period.
The accounting policies adopted are consistent with those of the previous
financial year and corresponding interim reporting period.
New standards, amendments, IFRIC interpretations and new relevant disclosure
requirements adopted by the Group
A number of new or amended standards became applicable for the current
reporting period. The Group did not have to change its accounting policies or
make retrospective adjustments as a result of adopting these standards.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that
are not mandatory for 31 December 2023 reporting periods and have not been
early adopted by the Group. These standards, amendments or interpretations are
not expected to have a material impact on the Group in the current or future
reporting periods an on foreseeable future transactions.
Going concern assessment
At the end of the reporting period the Group had $383.2 million of cash and
cash equivalents. After considering the first half FY 2024 performance, the
Group's principal risks and uncertainties in the current operating
environment, and the continued relevance of the scenario analyses designed, as
part of the FY 2023 year-end audit, to evaluate the capacity of the Group to
withstand a prolonged period of adverse financial conditions, the Directors
are satisfied that the Group has adequate resources to continue in operational
existence for at least 12 months from the date of approval of the interim
financial statements. Accordingly, the Directors are of the view that the
preparation of the consolidated interim financial statements on a going
concern basis continues to be appropriate.
2 Key judgements and estimates
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results might differ from these estimates.
In preparing these interim financial statements, the significant judgements
made by management in applying the Group's accounting policies and the key
sources of estimation uncertainty were the same as those that applied to the
consolidated financial statements for the year ended 30 June 2023.
Performance of the Group
3 Operating segment
The Group has concluded that it operates only one operating segment as defined
by IFRS 8 Operating Segments being the development and sale of cyber-threat
defence technology. The information used by the Group's Chief Operating
Decision Makers (CODMs) to make decisions about the allocation of resources
and to assess performance is presented on a consolidated Group basis.
Accordingly, no segment analysis is presented. Refer to note 4 for
disaggregated analysis on revenue from contracts with customers. The
non-current assets presented below exclude any deferred tax assets and
deposits.
31-Dec-23 30-Jun-23 31-Dec-22
Unaudited Audited Unaudited
Non-current assets by geographical market $000 $000 $000
USA 63,598 62,827 63,855
United Kingdom 69,157 76,743 79,670
Europe 34,068 36,355 34,097
Rest of World 25,920 27,220 27,079
192,743 203,145 204,701
4 Revenue from contracts with customers
Disaggregation of revenue
Revenue recognised at a point in time is not significant to the reported
results in any period. This includes revenue generated by separate contracts
for training and sale of appliances. For the period this revenue amounted to
$0.4 million (1H FY 2023 $0.2 million).
Six-months ended Six-months ended
31-Dec-23 31-Dec-22 Unaudited
Unaudited
$000 % of revenue $000 % of revenue
USA 115,157 34.9% 89,354 34.5%
United Kingdom 46,193 14.0% 40,874 15.8%
Europe 86,885 26.3% 63,845 24.6%
Rest of World 82,068 24.8% 65,186 25.1%
330,303 100.0% 259,259 100.0%
Revenue from customers has been attributed to the geographic market based on
contractual location. No single customer accounted for more than 10% of
revenue in the periods presented.
Contract assets and liabilities related to contracts with customers
The following table provides information on accrued income and deferred
revenue from contracts with customers.
31-Dec-23 30-Jun-23 31-Dec-22
Unaudited Audited Unaudited
$000 $000 $000
Accrued income 4,362 3,445 4,692
Total accrued income 4,362 3,445 4,692
Current deferred revenue 292,770 283,678 229,005
Non-current deferred revenue 24,529 28,439 30,429
Total deferred revenue 317,299 312,117 259,434
Deferred revenue has continued to increase as the number of customers has
grown, resulting in additional revenue combined with an ongoing shift towards
annual invoicing.
Contracts are invoiced between one month and more than three years in advance,
with the majority of contracts being invoiced annually in advance. Deferred
revenue reflects the difference between invoicing and associated payment
terms, and fulfilment of the performance obligation.
Revenue recognised in relation to deferred revenues (Contract Liabilities)
The following table shows how much revenue recognised in each reporting period
related to brought-forward contract liabilities:
Six-months ended Six-months ended
31-Dec-23 31-Dec-22
Unaudited Unaudited
Restated
$000 $000
Revenue recognised that was included in the contract liability balance at the 211,304 161,662
beginning of the period
% of revenue 64.0% 62.4%
The prior period revenue recognised that was included in the contract
liability balance at the beginning of the period was incorrectly disclosed as
the full amount of current deferred revenue balance at 30 June 2022 equal to
$222.4 million. The prior period disclosure has been updated to reflect only
the deferred revenue recognised in the first six months ended 31 December
2022.
Future contracted revenue (formerly revenue expected to be recognised)
Prior period adjustment to the disclosure
As described in the annual report for the year ended 30 June 2023, subsequent
to the publication of its FY 2022 Annual Report, Darktrace identified that
''Revenue expected to be recognised'' i.e. future contracted revenue
mistakenly included expected revenue after the opt-out date, inconsistent with
IFRS 15 paragraph 11. This error accounts for $20.3 million mistakenly
disclosed in the expected future revenue to be recognised as at 31 December
2022. Darktrace has corrected the error in its disclosure of the FY 2023
Annual Report and in the comparative period ended 31 December 2022 to these
financial statements. This did not affect any reported numbers in the primary
financial statements and the error was limited to this disclosure only.
31-Dec-22 31-Dec-22
Unaudited Restatement Unaudited
Reported Restated
$000 $000 $000
Due within 12 months 518,009 (17,567) 500,442
Due within 1-2 years 359,063 (1,646) 357,417
Due within 2-3 years 195,872 (737) 195,135
Due within 3-4 years 65,014 (330) 64,684
Due over 4 years 5,626 (54) 5,572
1,143,584 (20,334) 1,123,250
31-Dec-23 30-Jun-23 31-Dec-22
Unaudited Audited Unaudited
Restated
$000 $000 $000
Due within 12 months 620,967 576,326 500,442
Due within 1-2 years 389,682 397,783 357,417
Due within 2-3 years 204,147 216,513 195,135
Due within 3-4 years 43,768 72,263 64,684
Due over 4 years 1,395 3,552 5,572
1,259,959 1,266,437 1,123,250
5 Material profit and loss items
The Group has identified a number of items which are material due to the
significance of their nature and/or amount. These are listed separately here
to provide a better understanding of the financial performance of the Group.
The profit for the period for the Group is stated after charging/(crediting):
Six-months ended Six-months ended
31-Dec-23 31-Dec-22
Unaudited Unaudited
$000 $000
Hosting fees 13,834 10,581
Legal and professional fees 8,216 6,966
Software implementation costs 1,302 1,471
Accounting advice costs 1,776 1,322
Hosting fees related to customer contracts are classified within Cost of sales
for an amount of $11.5 million (1H FY 2023 $8.2 million) and those related to
POV (Proof of Value) are classified to sales and marketing costs for an amount
of $2.3 million (1H FY 2023 $2.4 million). Professional and legal fees
increased as a result of costs spent on new commission and pricing projects as
well as continued spending related to corporate activities and some legal
litigation cost.
Commission plans impact to the income statement:
Six-months ended Six-months ended
31-Dec-23 31-Dec-22
Unaudited Unaudited
$000 $000
Commission expense 49,208 36,837
Commission amortisation and impairment 22,281 15,380
Capitalised commission (30,588) (21,799)
With effective date 1 July 2023, Darktrace introduced updated commission plans
for all members of the GTM team. The new commission plans vary depending on
the individual and commission can be calculated on several metrics, however
sales commissions are now paid fully upfront once the target is met. This
change in commission plans has resulted in an increase in commission that can
be capitalised and therefore an increase in related amortisation.
The depreciation and amortisation charges for Right-of use assets and
Property, plant and equipment, have been made in the consolidated unaudited
interim statement of comprehensive income within the following functional
areas:
Six-months ended Six-months ended
31-Dec-23 31-Dec-22
Unaudited Unaudited
$000 $000
Property, plant and equipment
Cost of sales 9,312 8,254
Sales and marketing 2,296 2,490
Research and development 682 659
General and administrative 1,787 1,072
14,077 12,475
Right-of-use assets
Sales and marketing 4,687 3,135
Research and development 993 793
General and administrative 964 1,273
6,644 5,201
6 Earnings per share ("EPS")
Basic earnings per share
The calculation of basic EPS has been based on the following profit
attributable to ordinary shareholders and weighted-average number of ordinary
and preference shares outstanding. Preference shares have been included in
EPS as they rank pari-passu with ordinary shares in respect of dividend and
voting rights.
Six-months Six-months
ended ended
31-Dec-23 31-Dec-22
Unaudited Unaudited
$000 $000
Profit attributable to ordinary shareholders 52,518 581
Weighted-average number of ordinary shares 704,359,305 715,550,399
Effect of treasury shares (63,305,900) (46,885,424)
Weighted-average number of shares for calculating basic earnings per share at 641,053,405 668,664,975
period end
Add dilutive effect of share-based payment plans 11,004,585 24,613,273
Weighted-average number of shares for calculating diluted earnings per share 652,057,990 693,278,248
at period end
Basic earnings per share $0.08 $0.00
Diluted earnings per share $0.08 $0.00
Debt and equity
7 Share capital and share premium
Number of ordinary shares of £0.01 each Number of preference shares of £1 each Number of deferred shares of £0.01 each Total number of shares Share capital $000 Share premium $000 Share capital redemption reserve
$000
At 1-Jul-22 - Audited 701,785,353 50,000 120,063 701,955,416 9,812 16,117 -
Shares issued in the period 17,920,294 - - 17,920,294 218 - -
At 31-Dec-22 - Unaudited 719,705,647 50,000 120,063 719,875,710 10,030 16,117 -
Share issued in the year 329,945 - - 329,945 4 191 -
Preference and deferred shares cancellation - (50,000) (120,063) (170,063) (71) - 71
Ordinary shares cancellation (13,280,100) - - (13,280,100) (184) - 184
At 30-Jun-23 - Audited 706,755,492 - - 706,755,492 9,779 16,308 255
Ordinary shares cancellation (3,087,576) - - (3,087,576) (43) - 43
At 31-Dec-23 - Unaudited 703,667,916 - - 703,667,916 9,736 16,308 298
Shares issued
During the periods certain employees have exercised their options (see Note 8
for details on share-based payment transactions). These have been satisfied
through either the issuance of new shares or following the share buyback
programme from newly held Treasury shares. This is only where the Darktrace
Employee Benefit Trust (see below) could not satisfy the request for legal
reasons.
Treasury shares
FY 2023 Share Buyback Programme and Cancellation
On 1 February 2023, Darktrace commenced a share buyback programme of up to 35
million of its ordinary shares to be completed no later than 31 October 2023.
The maximum amount allocated to the Programme was £75.0 million.
The purpose of the Programme was to reduce Darktrace's issued share capital
and the majority of purchased shares have subsequently been cancelled. As at
31 December 2023 18,349,541 shares have been bought back and 16,367,676 have
been cancelled. At cancellation a capital redemption reserve equal to the
nominal amount of ordinary shares cancelled is created. The shares were
acquired at an average price of £3.27 ($4.12) per share, with prices ranging
from £2.84 ($3.61) to £3.50 ($4.27). The total cost of $2.3 million,
including transaction costs, was deducted from equity. The shares not
cancelled were held in treasury to satisfy future employee equity grants.
At 31 December 2023 the company holds 3,405,136 shares in treasury (30 June
2023: 3,621,634; 31 December 2022: 1,490,066).
The Directors have determined that they control a company called Darktrace
Employee Benefit Trust ('EBT'), even though Darktrace plc owns 0% of the
issued capital of this entity. Darktrace Employee Benefit Trust holds shares
of Darktrace plc for the purpose of fulfilling the grants made under stock
option plans in place prior to the IPO. Those shares are treated as treasury
shares in the consolidated financial statements.
EBT Market Purchase Programme
During the period Equiniti Trust (Jersey) Limited, as Trustee of the Darktrace
Employee Benefit Trust ('EBT'), completed market purchases of ordinary shares
of £0.01 each in the Company. The November 2023 EBT Market Purchase Programme
completed on 20 December 2023 with the purchase of 6,977,239 shares for a
total aggregate consideration of £25.0 million. Shares purchased under the
November 2023 EBT Market Programme will be used to satisfy existing, planned
and anticipated options and awards under Darktrace's employee share schemes,
or as otherwise permissible within the terms of the EBT trust deed. The shares
were acquired at an average price of £3.56 ($4.32) per share, with prices
ranging from £3.42 ($4.15) to £3.73 ($4.72).
At 31 December 2023 the EBT holds 60,979,791 shares (30 June 2023: 63,121,031;
31 December 2022: 45,694,709).
8 Share-based payments
Share-based payment (SBP) charges have been made in the consolidated unaudited
interim statement of comprehensive income within the following functional
areas.
Six-months ended Six-months ended
31-Dec-23 31-Dec-22
Unaudited Unaudited
$000 $000
Cost of sales 1,363 -
Sales and marketing 12,943 10,404
Research and development 3,084 4,650
General and administrative 5,307 12,616
Total share-based payment expense 22,697 27,670
In 1H FY 2024 Darktrace concluded that the share-based payment expense
together with the employer related tax charges should be proportionately
attributed to Cost of sales for those functions where an attributed to Cost of
sales is made for labour related costs. Darktrace believes this change better
represents the true cost of a sale to the business, however it has not applied
this change retrospectively due to the impact of this reclassification being
immaterial on the prior period ($1.8 million).
G&A SBP expense includes $1.2 million (31 December 22: $3.2 million)
related to shares granted in connection with the acquisition of Cybersprint,
treated as remuneration under IFRS 2 - Share-based payments. During the period
$0.2 million (31 December 22: $0.4 million) of the SBP expense has been
capitalised as intangible assets.
SBP are calculated in accordance with IFRS 2 - Share-based payments. The
Company has used a Black-Scholes valuation model to value the options granted
up to the IPO and a Monte Carlo Model for the awards granted at and after IPO.
Where an option scheme has no market-based performance conditions attached to
the award, a Black-Scholes model is typically appropriate.
Option schemes in place before IPO
Movements in the number of share options outstanding and their related
weighted average exercise prices ("WAEP") are as follows:
WAEP Six-months WAEP Six-months
ended ended
31-Dec-23 31-Dec-22
Options Options
$ Number $ Number
Outstanding at 1 July - Audited 2.23 28,641,281 1.94 38,886,044
Lapsed 0.01 (1,000) 4.95 (104,948)
Exercised 1.27 (7,043,952) 0.95 (7,916,311)
Outstanding at 31 Dec - Unaudited 2.54 21,596,329 2.16 30,864,785
Exercisable at 31 Dec - Unaudited 3.20 20,660,913 2.15 27,543,951
The table below presents the weighted average remaining contractual life
('WACL') and the price range for the options outstanding at each period end:
Range of exercise prices WACL 31-Dec-23 WACL 30-Jun-23 WACL 31-Dec-22
Unaudited Audited Options number Unaudited
Options number Options number
$0.00 - $0.23 (£0.00 - £0.18) 1.13 4,909,103 1.40 7,577,970 1.90 8,503,556
$0.41 - $0.67 (£0.32 - £0.53) 2.68 1,310,561 3.19 2,647,949 3.68 2,995,449
$1.37- $1.45 (£1.07 - £1.13) 3.94 1,468,985 4.45 1,703,785 4.94 1,993,785
$2.09 - $2.21 (£1.61 - £1.70) 4.39 1,292,210 4.89 2,059,364 5.39 2,111,031
$2.76 - $2.87 (£2.06 - £2.14) 5.47 6,972,214 5.98 8,818,333 6.47 9,373,958
$5.20 (£3.73) 7.21 5,643,256 7.72 5,833,880 8.21 5,887,006
5.29 21,596,329 5.72 28,641,281 6.22 30,864,785
Share awards outstanding
Six-months Six-months
ended ended
31-Dec-23 31-Dec-22
Awards Awards
number number
Outstanding at 1 July - Audited 16,954,694 23,903,647
Granted 13,850,736 7,506,525
Lapsed (729,257) (720,110)
Exercised (1,424,873) (19,033,298)
Outstanding at 31 December - Unaudited 28,651,300 11,656,764
Exercisable at 31 December - Unaudited 196,402 258,534
Awards granted during the period
The fair value of share-based payments has been calculated using the Monte
Carlo option pricing model. Monte Carlo models are used to simulate a
distribution of TSRs/share prices. The model utilises random number generation
with the distribution determined by volatility, risk free rate and expected
life.
The Performance Awards carry market-based vesting criteria which must be
incorporated into the valuation. Vesting is dependent upon the Company's TSR
performance ranked against the constituents of the FTSE 350 (ex. investment
trusts) ('FTSE Index'). TSR is defined as the change in Net Return Index for a
company over a relevant period. The Net Return Index is equal to the index
that reflects movements in share price over a period, plus dividends which are
assumed to be reinvested on a net basis in shares on the ex-dividend date.
TSR is calculated over the 'Performance Period' using the following formula:
(TSR2-TSR1)/TSR1.
· TSR1 is the Net Return Index at admission date.
· TSR 2 is the average Net Return Index over each weekday during
the three months period ending on the last day of the TSR performance period.
Up to 80% of the Awards will vest in accordance with the conditions of the TSR
Tranche and up to 20% in accordance with the conditions of the ARR Tranche.
The Company's Annualised recurring revenue (ARR) growth is measured between
the basis year (year ended 30 June rolling) and the year ending on the
performance period end date.
A correlation coefficient is included to model the way in which the price of a
listed company's stock tends to move in relation to the stock of other listed
companies. Expected volatility was determined based on the historic volatility
of comparable companies. The expected life is the expected period from grant
to exercise based on Management's best estimate.
The following assumptions were used in the valuation of the awards issued in
the current period:
Six-months ended Six-months ended
31-Dec-23 31-Dec-22
Unaudited Unaudited
Time based awards Performance Time based awards Performance
awards
awards
Grant dates 19/07/23 - 09/11/23 19/07/23 - 09/11/23 21/09/22 - 21/12/22 21/09/22 - 21/12/22
Share price at grant date £3.53 ($4.28) - £3.94 ($5.00) £3.53 ($4.28) - £3.94 ($5.00) £2.71 ($3.28) - £3.69 ($4.25) £2.71 ($3.28) - £3.69 ($4.25)
Exercise price - - - -
Fair value per option £3.53 ($4.28) - £3.94 ($5.00) £2.30 ($2.79) - £3.94 ($5.00) £2.71 ($3.28) - £3.69 ($4.25) £2.71 ($3.28) - £3.69 ($4.25)
Expected life in years N/A 2.73 - 3.03 N/A 1.78 - 3.00
Expected volatility N/A 55% N/A 50%
Risk free interest rate N/A 4.30% - 4.56% N/A 3.07% - 3.94%
Cancellation rate N/A 10% N/A 10%
Dividend yield N/A 0% N/A 0%
Correlation N/A 20% N/A 25%
Number of awards 9,867,980 3,982,756 4,063,215 3,443,310
Time-based awards vest according to time only. There is no strike price, no
market-based vesting criteria and no expectation of dividends. The fair value
of the time-based awards will simply be the value of the underlying equity at
the time they were granted.
9 Capital management policies and procedures
The Group's objectives when managing capital are to:
• safeguard the ability to continue as a going concern, to provide
adequate returns for shareholders, and
• maintain an optimal capital structure to reduce the cost of
capital.
In order to maintain or adjust the capital structure, the Group may issue new
shares or sell assets to reduce debt. The Group monitors capital based on the
carrying amount of the equity less cash and cash equivalents as presented on
the face of the statement of financial position.
31-Dec-23 30-Jun-23 31-Dec-22
Unaudited Audited Unaudited
$000 $000 $000
Capital
Total equity 302,483 263,513 304,192
Less cash and cash equivalents (383,150) (356,986) (374,915)
Total (80,667) (93,473) (70,723)
Overall financing
Total equity 302,483 263,513 304,192
Plus leasing liabilities, borrowings and other financing liabilities (60,151) (57,608) (64,364)
Total 242,332 205,905 239,828
Working capital
10 Capitalised commission
Commission costs are all recognised as S&M costs. The Group pays
commissions to sales staff and to referral partners. IFRS 15 requires that
certain costs incurred in both obtaining and fulfilling customer contracts be
deferred on the statement of financial position where recoverable and
amortised over the period that an entity expects to benefit from the customer
relationship. The only significant cost falling within the remit of IFRS 15 is
the portion of commission costs classified as a cost of contract acquisition.
Prior to 1 July 2023, depending on their role, sales staff were eligible to
receive either the first 50% or 100% of commission at the point of contract
signing, which was deemed to meet the criteria of being incurred solely to
acquire the contract. These transaction related commission costs, including
related social security and similar contributions, were therefore capitalised
and amortised over the customer contract term, with the amortisation being
recognised as S&M costs. For the majority of sales staff, 50% of
commission was eligible for payment at the point of contract signing, with the
remaining 50% of commission eligible for payment on either the earlier of the
full contract value being paid, or, most frequently, after one year, as these
commissions had additional service and performance requirements. Therefore,
this portion of the commission was not eligible to be capitalised under IFRS
15. Instead, the commission and associated social security costs accrue based
on the expected period between the sale and payment. The accrual is released
when the commission is paid or earlier if commission is recouped due to the
customer defaulting on payments, or salesperson ceases to be employed prior to
the commission becoming payable. Commissions paid to referral partners were
fully capitalised and amortised to S&M costs over the life of the related
contracts.
On 1 July 2023, as part of changes to its GTM compensation structures,
Darktrace transitioned to paying 100% of all future sales commissions upfront.
This change was made to align Darktrace's compensation structures to market
practice, better supporting Darktrace's ability to hire and retain key
experienced talent. As noted above, prior to FY 2024, approximately 50% of
sales commissions were paid at signing with the remaining 50% being paid upon
the earlier of the full contract value being paid, or, most frequently, after
one year. As a result of the change in July 2023, Darktrace is required, under
IFRS 15, to capitalise substantially all new sales commissions for FY 2024
onwards, with substantially all commissions deemed to meet the criteria of
being incurred solely to acquire the contract. Together with related social
security and similar contributions, commissions are therefore capitalised and
amortised over the customer contract term, with the amortisation being
recognised as a S&M cost. Sales staff commission is therefore no longer
accrued based on the expected service period between the sale and the payment
going forward.
31-Dec-23 30-June-23 31-Dec-22
Unaudited Audited Unaudited
By Geographic market $000 $000 $000
USA 27,673 23,303 9,621
United Kingdom 10,688 10,933 18,852
Europe 25,496 23,742 18,616
Rest of World 21,135 18,675 16,483
84,992 76,653 63,572
Current 43,165 34,471 27,971
Non-current 41,827 42,182 35,601
84,992 76,653 63,572
Amortisation in the period 20,616 32,471 14,502
Impairment in the period 1,665 1,555 878
11 Trade and other receivables
31-Dec-23 30-Jun-23 31-Dec-22
Unaudited
Audited
Unaudited
$000 $000 $000
Trade receivables 95,557 93,744 69,287
Prepayments 17,751 22,961 19,046
Accrued income 4,362 3,445 4,692
Deposits 1,455 1,961 5,064
Other receivables 1,977 1,484 284
Total trade and other receivables 121,102 123,595 98,373
Trade receivables are presented net of the expected credit loss provision of
$4.1 million (30 June 2023: $5.2 million, 31 December 2022: $3.6 million).
Deposits primarily relate to cash deposits in connection to leases for the
Group's offices.
The decrease in prepayments is due primarily to the unwinding of the
equity-based bonus pre-payment arising from the Cybersprint purchase.
12 Provisions
31-Dec-23 30-Jun-23 31-Dec-22
Unaudited Audited Unaudited
SBP tax Other Total provision SBP tax Other Total provision SBP tax Other Total provision
$000 $000 $000 $000 $000 $000 $000 $000 $000
Opening provision 6,156 2,512 8,668 15,192 2,100 17,292 15,192 2,100 17,292
Accrual for the period 1,980 - 1,980 4,315 (316) 3,999 3,145 1,859 5,004
Reclassification from lease liability - - - - 1,528 1,528 - - -
Utilisation (2,117) (955) (3,072) (13,351) (800) (14,151) (12,831) (660) (13,491)
Closing provision 6,019 1,557 7,576 6,156 2,512 8,668 5,506 3,299 8,805
Current 5,425 985 6,410 5,943 984 6,927 4,305 3,299 7,604
Non-current 594 572 1,166 213 1,528 1,741 1,201 - 1,201
Total provision 6,019 1,557 7,576 6,156 2,512 8,668 5,506 3,299 8,505
The Group accounts for a provision on tax payments when the employer has
primary liability to pay for social security-type contribution on share-based
payments at the time of exercise.
Other provision includes:
· $1.0 million (30 June 2023: $1.0 million, 31 December 2022: $2.3
million) estimated of corporate tax charge and expected interests and
penalties related to permanent establishments in countries where Darktrace plc
does not currently have a subsidiary and is the result of the assessment of
the potential historical impact arising as a consequence of Darktrace's
continuous international expansion into new jurisdictions.
· $0.6m provision for dilapidations.
Long term assets
13 Intangible assets
Software consists of capitalised development costs, being internally generated
intangible assets of $2.3 million (30 June 2023: $2.2 million; 31 December 22:
$3.6 million), and acquired software from acquisition of $5.9 million (30 June
23: $6.6 million; 31 December 22: $7.5 million) with a remaining useful life
of 3.2 years. The Group has not identified any impairments to the intangibles.
Customer relationships Software Software under development Total
$000 $000 $000 $000
Cost
1-Jul-22 Audited 869 25,535 1,517 27,921
Additions - - 1,142 1,142
Reclassification - 1,034 (1,034) -
31-Dec-22 Unaudited 869 26,569 1,625 29,063
Amortisation
1-Jul-22 Audited (26) (12,246) - (12,272)
Charge for the period (36) (3,300) - (3,336)
31-Dec-22 Unaudited (62) (15,546) - (15,608)
NBV* at 31-Dec-22 Unaudited 807 11,023 1,625 13,455
Cost
1-Jan-23 Unaudited 869 26,569 1,625 29,063
Additions - - 1,377 1,377
Reclassification - 48 (48) -
30-Jun-23 Audited 869 26,617 2,954 30,440
Amortisation
1-Jan-23 Unaudited (62) (15,546) - (15,608)
Charge for the period (36) (2,225) - (2,261)
30-Jun-23 Audited (98) (17,771) - (17,869)
NBV* at 30-Jun-23 Audited 771 8,846 2,954 12,571
Cost
1-Jul-23 Audited 869 26,617 2,954 30,440
Additions - - 1,217 1,217
Reclassification - 1,472 (1,472) -
31-Dec-23 Unaudited 869 28,089 2,699 31,657
Amortisation
1-Jul-23 Audited (98) (17,771) - (17,869)
Charge for the period (36) (2,098) - (2,134)
31-Dec-23 Unaudited (134) (19,869) - (20,003)
NBV* at 31-Dec-23 Unaudited 735 8,220 2,699 11,654
*Net book value
All amortisation of intangible assets is charged to the consolidated unaudited
interim statement of comprehensive income and is included within research and
development costs.
Financial risk management
14 Cash and cash equivalents
31-Dec-23 30-Jun-23 31-Dec-22
Unaudited Audited Unaudited
$000 $000 $000
Cash at bank and in hand 99,724 132,396 204,230
Deposits at call 283,426 224,590 170,685
Cash and cash equivalents 383,150 356,986 374,915
Deposits at call are presented as cash equivalents if they have a maturity of
three months or less from the date of acquisition and are repayable with 24
hours' notice with no loss of interest.
15 Risk management objectives and policies
The Group's financial risk management is controlled by a central treasury
department ("Group treasury") under policies approved by the Board of
Directors. Group treasury identifies and evaluates financial risks in close
co-operation with the Group's CFO and other Executive Directors and Senior
Managers. The Board authorises written principles for overall risk management,
as well as policies covering specific areas, such as foreign exchange risk,
interest rate risk, credit risk, use of derivative and non-derivative
financial instruments, and investment of excess liquidity.
Market risk
Foreign exchange risk
The table below details the Group's exposure to foreign currency risk, in
currencies different from the Group's functional currency, for periods in
which the functional currency was USD:
AUD CAD EUR GBP JPY Other currencies Total
$000 $000 $000 $000 $000 $000 $000
Trade receivable 1,967 4,849 24,157 15,525 313 1,431 48,242
Deposits 152 161 301 5,166 59 245 6,084
Cash and cash equivalents 3,957 3,469 11,868 24,561 1,166 8,326 53,347
Trade payables (60) (42) (341) (3,394) (13) (186) (4,036)
31-Dec-23 - Unaudited 6,016 8,437 35,985 41,858 1,525 9,816 103,637
Trade receivable 1,840 2,756 18,211 11,614 17 962 35,400
Deposits 257 134 245 6,377 63 622 7,698
Cash and cash equivalents 1,226 1,584 6,483 40,471 164 1,698 51,626
Trade payables (204) (87) (579) (2,313) (119) (241) (3,543)
31-Dec-22 - Unaudited 3,119 4,387 24,360 56,149 125 3,041 91,181
Aggregate net foreign exchange losses recognised in the periods:
Six-months ended Six-months ended
31-Dec-23 31-Dec-22
Unaudited Unaudited
$000 $000
Net foreign exchange loss (12) (3,618)
As shown in the table above, the Group is primarily exposed to changes in
USD/GBP and USD/EUR exchange rates. The sensitivity of profit or loss to
changes in the exchange rates arises mainly from USD or GBP denominated
financial assets and liabilities.
Six-months ended Six-months ended
31-Dec-23 31-Dec-22
Unaudited Unaudited
$000 $000
USD/EUR exchange +/- 10% (3,271) / 3,998 (2,215) / 2,707
USD/GBP exchange +/- 10% (3,805) / 4,651 (5,110) / 6,246
The Group operates a natural hedging strategy where possible to mitigate its
foreign exchange risk.
Price risk
The Group has no significant exposure to equity securities price risk.
Credit risk
Credit risk arises from cash and cash equivalents, contractual cash flows of
debt investments carried at amortised cost deposits with banks and financial
institutions, as well as credit exposures to customers, including outstanding
receivables.
Credit risk is managed on a Group basis. Partners, through which Darktrace
sells to end users, are independently rated through credit agencies, if there
is no independent rating an internal review is carried out. The Credit manager
assesses the credit quality of the partner, taking into account its financial
position, as well as experience for customers and partners in the same region.
There are no significant concentrations of credit risk, whether through
exposure to individual customers or partners, specific industry sectors or
regions.
The Group's main financial assets that are subject to the expected credit loss
model are trade receivables from the sale of software products and, to a
lesser extent, related services. While cash and cash equivalents are also
subject to the impairment requirements of IFRS 9, the identified impairment
loss was immaterial.
The Board approved the Treasury policy that governs the credit limits for
deposits with banks and financial institutions. Credit ratings and limits are
reviewed on monthly basis by Group Treasury.
Trade receivables are fully provided where there is no reasonable expectation
of recovery. Indicators that there is no reasonable expectation of recovery
include, amongst others, the failure of a debtor to engage in a repayment plan
with the Group, and a failure to make contractual payments for a period of
greater than six months past due. The general credit loss provision will begin
to be provided from thirty days past due based on the historic default rates
adjusted for regional performance. Impairment losses on trade receivables are
presented as net impairment losses within operating profit. Subsequent
recoveries of amounts previously written off are credited against the same
line item.
Liquidity risk
Prudent liquidity risk management involves maintaining sufficient cash and
marketable securities, and the availability of funding through an adequate
amount of committed credit facilities, to meet obligations when due and to
close out market positions. Due to the dynamic nature of the underlying
businesses, Group treasury maintains flexibility in funding by maintaining
both liquid cash and availability under committed credit lines.
Maturity of financial liabilities
The table below presents the Group's financial liabilities by relevant
maturity grouping, based on their contractual maturities. The amounts
disclosed in the table are the contractual undiscounted cash flows. Balances
due within 12 months equal their carrying balances as the impact of
discounting is not significant.
Less than 12 months Between 1 - 2 years Between 2 - 5 years Over 5 years Carrying amount liabilities
$000 $000 $000 $000 $000
Trade payables 7,910 - - - 7,910
Accruals 11,426 - - - 11,426
Lease liabilities 14,431 13,176 29,399 14,957 71,963
31-Dec-23 Unaudited 33,767 13,176 29,399 14,957 91,299
Trade payables 14,965 - - - 14,965
Accruals 21,203 - - - 21,203
Lease liabilities 7,951 13,852 33,019 15,004 69,826
30-Jun-23 44,119 13,852 33,019 15,004 105,994
Audited
Trade payables 9,670 - - - 9,670
Accruals 15,089 - - - 15,089
Lease liabilities 9,354 13,422 35,127 18,687 76,590
31-Dec-22 Unaudited 34,113 13,422 35,127 18,687 101,349
16 Summary of financial assets and liabilities by category
The carrying amounts of the assets and liabilities as recognised at the
statement of financial position date of the years under review may also be
categorised as follows:
31-Dec-23 30-Jun-23 31-Dec-22
Unaudited Audited Unaudited
$000 $000 $000
Financial assets at amortised cost
Deposits 7,772 10,195 5,728
Trade and other receivables 99,919 97,189 73,979
Cash and cash equivalents 383,150 356,986 374,915
Total financial assets at amortised cost 490,841 464,370 454,622
Financial liabilities at amortised cost
Trade payables (7,910) (14,953) (9,670)
Accruals (11,426) (21,203) (15,089)
Lease liabilities (60,151) (57,608) (64,364)
Total financial liabilities at amortised cost (79,487) (93,764) (89,123)
The Group entered a new unsecured multicurrency revolving credit facility
agreement ("RCF") of $80.0 million on 12 December 2023. The RCF has an
uncommitted accordion feature allowing it to be increased in size by a further
$50.0 million. The new RCF is for an initial three-year term, with an option
to extend the term by two further one-year periods, subject to lender consent.
The new RCF is supported by Citibank (N.A. London Branch), HSBC UK Bank PLC
and Barclays Bank Plc and replaces Darktrace's previous $25.0 million secured
multicurrency revolving credit facility. No drawdowns have been made as of 31
December 2023.
Under the terms of the new RCF the Group must report the following financial
covenants.
· Interest Cover (ratio of Adjusted Consolidated EBITDA to
Consolidated Net Finance Charges) in respect of any Relevant Period shall not
be less than 4.00:1.
· Debt Cover (ratio of Consolidated Total Net Debt to Adjusted
Consolidated EBITDA) in respect of any Relevant Period shall not exceed
3.00:1.
The Group met both financial covenants as at 31 December 2023.
Other notes
17 Tax expense and deferred tax assets
Tax charged within the six-months ended 31 December 2023 has been calculated
by applying the effective rates of tax which are expected to apply to the
Group for the year ending 30 June 2024 using rates substantively enacted by 31
December 2023 as required by IAS 34 'Interim Financial Reporting'. Where
appropriate, the Group has estimated and applied separate annual effective
income tax rates for each jurisdiction and category of income. This results
in a consolidated tax credit of $2.1 million representing an expected ETR of
25.5% once adjusted for loss utilisation and ad hoc items.
At 31 December 2023, the Group has significant tax losses in the UK available
for offset against future taxable profits. The latest Management forecasts
have shown an uplift from those used to determine deferred tax recognition as
at the 30 June 2023 year-end and as such there has been a net increase to the
total deferred tax asset recognised at 31 December 2023 of $4.1 million to
$24.0 million.
31-Dec-23 30-Jun-23 31-Dec-22
Unaudited Audited Unaudited
$000 $000 $000
Opening 19,849 1,799 1,041
(Charged)/credited through the income statement:
Deferred tax asset movement
Movement of deferred tax asset previously recognised (7,588) 2,317 523
Recognition of previously unrecognised deferred tax asset 12,734 16,437 -
Deferred tax liability movement
Movement in deferred tax liability previously recognised (1,017) 2,270 235
Recognition of previously unrecognised deferred tax liability - (2,974) -
Closing 23,978 19,849 1,799
The Group has not recognised a deferred tax asset related to losses and
share-based payments for approximately $79.9 million (30 June 2023: $78.3
million) as there remains sufficient uncertainty beyond the 2-year forecast
period as to whether the losses will be utilised in the foreseeable future.
The tax rate applied for the recognised and unrecognised deferred tax assets,
considers 25.0% for UK, 25.8% for Netherlands and 27.4% for US as these are
the tax rates expected to be applicable by the time the loss or temporary
difference will be unwound.
18 Related Parties
Other than as described elsewhere in these financial statements, there are no
material related party transactions requiring disclosure under IAS 24 'Related
Party Disclosures' except for compensation of key management personnel, which
will be disclosed in the Groups' Annual Report for the year ended 30 June
2024.
19 Capital commitments
The Group had no capital commitments at 31 December 2023, 30 June 2023 or 31
December 2022.
20 Subsidiaries
Darktrace New Zealand Limited was incorporated on 16 November 2023 and has its
registered office at Turner Hopkins, Floor 1, 1 The Strand, Takapuna,
Auckland, 0622, New Zealand. The subsidiary is 100% owned through Darktrace
Holdings Limited.
21 Post balance sheet events
Darktrace has appointed Jill Popelka and Paula Hansen as independent
Non-Executive Directors with effect from 1 January 2024.
1 Average calculated across Darktrace customers from 31 August to
21 December 2023.
2 Average calculated across Darktrace customers from 31 August to
21 December 2023. Novel social engineering attacks use linguistic techniques
that are different to techniques used in the past, as measured by a
combination of semantics, phrasing, text volume, punctuation, and sentence
length.
(3 ) The survey was undertaken by AimPoint Group (https://aimpointgroup.com/)
& Dynata (https://www.dynata.com/) on behalf Darktrace between December
2023 & January 2024. The research polled 1,773 security professionals in
positions across the security team from junior roles to CISOs, across 14
countries - Australia, Brazil, France, Germany, Italy, Japan, Mexico,
Netherlands, Singapore, Spain, Sweden, UAE, UK, and USA.
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