REG - Darktrace PLC - Q4 FY 2023 Trading Update

DarktraceAnnouncement

18/07/2023 07:00

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RNS Number : 2956G  Darktrace PLC  18 July 2023

18th July 2023

 

Darktrace plc FY 2023 Trading Update

 

Preliminary results deliver against expectations for both Q4 and FY 2023;
increased margins expected on continued operating efficiency trends

 

Darktrace plc (DARK.L) (together with its subsidiaries, "Darktrace" or "the
Group") a global leader in cyber security AI, today provides a trading update
for its fourth quarter and full financial year ended 30th June 2023.

 

Highlights

 

·      FY 2023 year-over-year growth of at least:

o  31.0% in revenue;

o  29.2% in constant currency ARR;

·      18.3% year-over-year growth in number of customers;

·      Adjusted EBITDA margin of at least 22.0%;

·      Ernst & Young LLP review has been completed; and

·      FY 2024 guidance incorporates continuation of stabilising
year-over-year sales trends through 1H and expected benefits of improving
economic conditions and recent investments in 2H.

 

Operating and Financial Performance

 

Leveraging its multi-year contract model, Darktrace maintained strong
year-over-year constant currency Annualised Recurring Revenue (ARR) growth.
The Group currently expects, at its FY 2023 constant currency rates, ARR at
30th June 2023 of at least $626.5 million, for at least 29.2% year-over-year
growth. This implies net ARR added for the year of at least $141.6 million, at
most down (1.8)% from FY22 despite the impacts of a challenging macro-economic
environment.

 

The Group added 396 net new customers in the fourth quarter, for a total of
1,362 in the financial year, bringing its customer base at 30(th) June 2023 to
8,799, up 18.3% year-over-year.

 

At 30(th) June 2023, Darktrace expects its one-year gross ARR churn will have
increased by up to 0.3 percentage points year-over-year, to not more than
6.9%. This has been driven by a higher number of defaults and non-renewals
across the customer base, as might be expected in a difficult macro- economic
environment. This has contributed to the expectation that the Group's net ARR
retention rate at 30(th) June will have decreased by up to 0.7 percentage
points, to not less than 104.6%.

 

Darktrace expects revenue for FY 2023 of at least $544.3 million, reflecting
year-over-year growth of approximately 31%. It also expects that gross margin
for FY 2023 will have remained in the range of recent reported periods.

While work remains before Darktrace can finalise full year costs, its
preliminary view is that adjusted EBITDA margin for the year should be no less
than 22.0%, above previous guidance of at or around 19%.  While this
outperformance is after significant investments made in the second half of FY
2023 in its Go-To-Market strategy and wider organisation, the Group has
continued to drive offsetting efficiencies in its operations. Further, from
the preliminary financial information currently available, Darktrace does not
have any reason to believe that its free cash flow for FY 2023 should not be
at least within the previously communicated 50% to 55% of adjusted EBITDA
range.

(1)   The Group's primary currency exposures are the British Pound and the
Euro converting to its US Dollar reporting currency. For FY 2023, its constant
currency rates are 1.2146 and 1.0450 for the Pound and the Euro, respectively.

(2)   Darktrace's USD ARR at 30(th) June 2023 was at least $635.5 million,
for year-over-year growth of at least 31.1%.

 

FY 2024 Outlook

 

To enable a consistent basis for evaluating its performance, Darktrace reports
ARR in constant currency, established as the average rates on the last day of
the prior financial year(3). Applying FY 2024 rates to the Group's ARR balance
for 30th June 2023 and all prior comparison periods, results in a rebased ARR
balance of at least $635.5 million, implying net ARR added for FY 2023 of at
least $143.6 million. These amounts, when finalised, will become the new
amounts against which Darktrace will measure constant currency ARR and net ARR
added growth for FY 2024.

 

It remains clear that macro-economic uncertainty is continuing to affect new
customer acquisitions and some existing customer behaviour. However, with
early signs of recovery across the global economy, and with the opportunity to
benefit from the recent and ongoing investments in its Go-To-Market strategy
and wider organisation, Darktrace is framing its FY 2024 in terms of first
half stabilisation and second half re-acceleration.

 

Darktrace currently expects a year-over-year increase in its constant currency
ARR (against a rebased 30(th) June 2023 constant currency balance and at FY
2024 constant currency rates) of between 21% and 23%. This implies
year-over-year growth in net ARR added of between (7)% and 2%, or in FY 2024
constant currency, net ARR additions between $133.4 million and $146.2
million. Darktrace is anticipating FY 2024 to be a "tale of two halves" and
currently expects approximately 45% of FY 2024 net ARR added to be added in
the first half and approximately 55% to be added in the second half.

Expecting sales, and therefore ARR growth, to be weighted towards the second
half of the financial year has an impact on year-over-year revenue growth, as
a larger number of contracts are likely to be generating revenue for a smaller
portion of the year. The Group currently expects year-over-year revenue growth
of between 22.0% and 23.5%.

 

Darktrace is currently predicting that it will hold its margins in the range
of FY 2022 and expected FY 2023 levels, and so expects an adjusted EBITDA
margin for FY 2024 of at or around 22%.

 

(3)  The Group's primary currency exposures are the British Pound and the
Euro converting to its US Dollar reporting currency. For FY 2024, it is using
constant currency rates of 1.2682 and 1.0908 for the Pound and the Euro,
respectively. For FY 2023, constant currency rates were 1.2146 and 1.0450 for
the Pound and the Euro, respectively. For reference, ARR at the end of the
most recent five quarters, at FY 2024 and FY 2023 constant currency rates,
rebase to the following amounts:

 

 (in $millions)  30 Jun  30 Sept  31 Dec  31 Mar  30 Jun

                 2022    2022     2022    2023    2023
 FY'24 CC        $491.9  $518.7   $564.5  $591.8  At least

 Rates                                            $635.5
 FY'23 CC        $484.9  $511.5   $556.6  $583.6  At least

 Rates                                            $626.5

 

 

Recent Developments

 

Conclusion of Ernst & Young LLP Review

 

Concurrent with this Trading Update, Darktrace announced that Ernst &
Young LLP (EY) has concluded the independent third-party review of the
policies, processes and controls related to the areas of scope referenced in
Darktrace's 20 February statement commissioned by Darktrace's Audit and Risk
Committee in February, 2023. Management and the Board do not believe that EY's
report has any impact on Darktrace's previously filed public company financial
statements nor does it change their belief that those financial statements
fairly represent Darktrace's financial position and results. In addition,
Grant Thornton's audit opinions for prior years remain unchanged and the audit
for FY 2023 is in progress.

 

Poppy Gustafsson, CEO of Darktrace, said:

 

"The release of ChatGPT late last year created a significant shift impacting
consumers and, perhaps more importantly, enterprises. The risks of IP loss,
data protection breaches and evergreen novel attacks at scale are now much
higher. AI is increasingly fighting against AI so building a bigger database
of known attack data is not enough. Deploying Darktrace's enterprise cyber-AI
allows organisations to respond at machine speed to attacks that have never
been seen before, making our technology core to cyber-defence in this
evolving ChatGPT era.

 

Despite the macro-economic backdrop, Darktrace remains one of the
fastest-growing companies listed on the London Stock Exchange, underpinned by
our subscription-based business model, strength of our balance sheet, and
product innovation.  During the past year, we have launched new products like
Prevent and upgraded Email Detect and Respond and invested significantly in
our Go-To-Market organisation, including hiring experienced new leaders.
We look forward to these investments paying off in a re-acceleration of sales
in the second half of FY 2024 as we continue to protect our growing customer
base against these fast-evolving cyber threats."

 

Reporting Full Year Results

 

Darktrace intends to report its FY 2023 results on 6(th) September 2023.
Conference call and other details will be made available in due course.

 

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 our Cyber AI Research Centre in Cambridge, UK have resulted in
over 145 patents 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 2,200 people around
the world and protects approximately 8,800 customers globally from advanced
cyber threats. Darktrace was named one of TIME magazine's 'Most Influential
Companies' in 2021. To learn more, visit http://www.darktrace.com
(http://www.darktrace.com/) . (http://www.darktrace.com/)

Cautionary Statement

This announcement contains certain forward-looking statements, including with
respect to the Company'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 - Investor Relations Darktrace

Direct: +44 7811 027918

Luk.janssens@darktrace.com (mailto:Luk.janssens@darktrace.com)

 

Powerscourt (Public Relations adviser to Darktrace) Victoria Palmer-Moore/Elly
Williamson

Direct +44 (0) 20 3328 9386

darktrace@powerscourt-group.com (mailto:darktrace@powerscourt-group.com)

 

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