6th September 2023
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 year ended 30th June 2023.
FY 2023 Financial Performance
$'000 |
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*See "Key Performance Indicators (KPIs)" below for the meanings of non-IFRS measures and other key performance indicators
FY 2023 highlights
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Operating Performance
|
FY 2023 |
FY 2022 |
|
ARR* at 30 June ($'000) |
628,444 |
484,880 |
29.6% |
Net ARR Added* ($'000) |
143,564 |
144,178 |
(0.4)% |
One-year ARR gross churn* at 30 June |
6.8% |
6.6% |
n/a |
Net ARR retention rate* at 30 June |
104.7% |
105.3% |
n/a |
Number of customers* at 30 June |
8,799 |
|
18.3% |
USD Remaining performance obligation (RPO) at 30 June* ($'000) |
1,258,350 |
1,003,932 |
25.3% |
*See "Key Performance Indicators (KPIs)" below for the meanings of non-IFRS measures and other key performance indicators
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(1) The Group's primary currency exposures are the British Pound and the Euro converting to its US Dollar reporting currency. For FY 2024, its constant currency rates are 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.
(2) 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:
($ million) |
30 Jun |
30 Sep |
31 Dec |
31 Mar |
30 Jun |
|
FY24 CC |
$491.9 |
$518.7 |
$564.5 |
$591.8 |
$637.3 |
|
FY23 CC |
$484.9 |
$511.5 |
$556.6 |
$583.6 |
$628.4 |
(3) Beginning in FY 2024, Adjusted EBITDA is the Group's earnings before interest, taxation, depreciation and amortisation, adjusted to include appliance depreciation attributed to cost of sales and amortisation of capitalised commissions, and adjusted to remove uncapitalised share-based payment charges and related employer tax charges, as well as certain one-off charges including the impairment of right-of-use assets.
(4) Darktrace's Adjusted EBITDA for FY 2021, FY 2022 and FY 2023, as well as FY 2024 guidance presented before and after changes to commissions plans (effective FY 2024 only) and the changes to the definition of Adjusted EBITDA (all periods):
($ million) |
FY 2021 |
FY 2022 |
FY 2023 |
FY 2024e* |
∆ FY 21-24e |
Adjusted EBITDA (pre-changes) |
$33.5 |
$91.4 |
$139.2 |
N/A |
|
Adjusted EBITDA margin % |
11.8% |
22.0% |
25.5% |
23.0% |
11.2 ppts |
Amortisation of capitalised commission |
$(14.1) |
$(21.8) |
$(32.5) |
N/A |
|
Adjusted EBITDA (post-changes) |
$19.4 |
$69.6 |
$106.7 |
N/A |
|
Adjusted EBITDA margin % |
6.8% |
16.8% |
19.6% |
18.0% |
11.2 ppts |
* Midpoint of Darktrace's FY 2024 Adjusted EBITDA guidance range
https://brrmedia.news/DARK_FY23
About Darktrace
Cautionary Statement
Enquiries
media@darktrace.com
CEO Statement
Strong Financial and Operational Performance
Watershed Moment for Artificial Intelligence
Continuing to Innovate
Delivering for our Customers
Strengthening our Management Team
Looking Ahead
Key Performance Indicators (KPIs)
$'000 |
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Definition and relevance
Performance
$'000 |
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Definition and relevance
Performance
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Definition and relevance
Performance
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Definition and relevance
Performance
$'000 |
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Definition and relevance
Performance
$'000 |
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Revenue |
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Net Profit |
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Operating profit (EBIT) |
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Operating profit margin (%) |
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EBITDA |
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Adjusted EBITDA |
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Adjusted EBITDA margin (%) |
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FY 2023 |
Adjustments to EBITDA |
FY 2023 |
FY 2022 |
Adjustments to EBITDA |
FY 2022 |
|
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
Revenue |
545,430 |
- |
545,430 |
415,482 |
- |
415,482 |
Cost of Sales (COS) |
(38,921) |
- |
(38,921) |
(30,259) |
- |
(30,259) |
COS-related depreciation and amortisation |
(16,721) |
- |
(16,721) |
(14,589) |
- |
(14,589) |
Total COS |
(55,642) |
- |
(55,642) |
(44,848) |
- |
(44,848) |
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Gross Profit |
489,788 |
- |
489,788 |
370,634 |
- |
370,634 |
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Sales and marketing (S&M) costs |
(228,204) |
- |
(228,204) |
(186,693) |
- |
(186,693) |
S&M related SBP charges |
(17,506) |
17,506 |
- |
(15,347) |
15,347 |
- |
S&M-related depreciation and amortisation |
(43,993) |
43,993 |
- |
(30,732) |
30,732 |
- |
Total S&M costs |
(289,703) |
61,499 |
(228,204) |
(232,772) |
46,079 |
(186,693) |
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Research and development (R&D) costs |
(31,307) |
- |
(31,307) |
(24,634) |
- |
(24,634) |
R&D related SBP charges |
(8,228) |
8,228 |
- |
(11,647) |
11,647 |
- |
R&D related D&A |
(8,359) |
8,359 |
- |
(7,981) |
7,981 |
- |
Total R&D costs |
(47,894) |
16,587 |
(31,307) |
(44,262) |
19,628 |
(24,634) |
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General and administrative (G&A) costs |
(91,653) |
- |
(91,653) |
(63,064) |
- |
(63,064) |
G&A related SBP charge |
(18,479) |
18,479 |
- |
(15,220) |
15,220 |
- |
G&A-related depreciation, amortisation and impairment |
(6,086) |
6,086 |
- |
(2,883) |
2,883 |
- |
Total G&A costs |
(116,218) |
24,564 |
(91,653) |
(81,167) |
18,103 |
(63,064) |
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Foreign exchange differences |
(2,127) |
- |
(2,127) |
(6,502) |
- |
(6,502) |
Other operating income |
2,666 |
- |
2,666 |
1,671 |
- |
1,671 |
Operating profit (EBIT) |
36,512 |
|
36,512 |
7,602 |
|
7,602 |
Operating profit margin |
|
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6.7% |
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|
1.8% |
Adjusted EBTIDA |
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139,163 |
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91,412 |
Adjusted EBTIDA margin |
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25.5% |
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|
22.0% |
$'000 |
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Definition and relevance
Performance
$'000 |
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Operating profit (EBIT) |
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Adjusted EBIT |
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Adjusted EBIT margin (%) |
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Definition and relevance
Performance
$ |
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Definition and relevance
Performance
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$'000 |
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Definition and relevance
· 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
$'000 |
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Total |
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$'000 |
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Definition and relevance
Performance
$'000 |
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Adjusted EBITDA |
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Net cash inflow from operating activities |
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Free Cash Flow (FCF) |
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FCF conversion (as % of Adjusted EBITDA) |
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CFO Statement
$'000 |
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Revenue
Cost of sales (COS)
$'000 |
FY 2023 |
FY 2022 |
% Change |
Employment and other related costs |
(18,593) |
(13,490) |
37.8% |
Hosting costs |
(16,887) |
(10,653) |
58.5% |
Appliance depreciation |
(16,721) |
(14,589) |
14.6% |
Shipping & other direct costs |
(3,441) |
(6,115) |
-43.7% |
Total COS |
(55,642) |
(44,848) |
24.1% |
Sales and marketing (S&M) costs
$'000 |
FY 2023 |
FY 2022 |
% Change |
Employment and other related costs |
(157,831) |
(119,102) |
32.5% |
Other operating costs |
(47,183) |
(50,856) |
-7.2% |
Facilities costs |
(16,071) |
(12,498) |
28.6% |
Travel and Entertainment |
(7,119) |
(4,165) |
70.9% |
Depreciation and amortisation |
(43,993) |
(30,804) |
42.8% |
Share-based payment (SBP) charges |
(16,525) |
(20,084) |
-17.7% |
SBP related employer tax charges |
(981) |
4,737 |
n/a |
Total S&M costs |
(289,703) |
(232,772) |
24.5% |
Research and Development (R&D) Costs
|
FY 2023 |
FY 2022 |
% Change |
Employment and other related costs |
(26,749) |
(21,454) |
24.7% |
Facilities costs |
(3,729) |
(2,799) |
33.2% |
Travel and Entertainment |
(829) |
(363) |
128.4% |
Depreciation and amortisation |
(8,359) |
(7,999) |
4.5% |
Share-based payment (SBP) charges |
(6,709) |
(6,522) |
2.9% |
SBP related employer tax charges |
(1,519) |
(5,125) |
-70.4% |
Total R&D costs |
(47,894) |
(44,262) |
8.2% |
General and administrative (G&A) costs
|
FY 2023 |
FY 2022 |
% Change |
Employment and other related costs |
(59,807) |
(44,224) |
35.2% |
Other operating costs |
(25,444) |
(12,365) |
105.8% |
Facilities costs |
(4,775) |
(3,812) |
25.3% |
Travel and Entertainment |
(3,412) |
(2,992) |
14.0% |
Depreciation and amortisation |
(4,305) |
(2,553) |
68.6% |
Share-based payment (SBP) charges |
(16,753) |
(17,412) |
-3.8% |
SBP related employer tax charges |
(1,722) |
2,192 |
n/a |
Total G&A costs |
(116,218) |
(81,166) |
43.2% |
Foreign exchange differences
|
FY 2023 |
FY 2022 |
% Change |
Foreign exchange differences |
(2,127) |
(6,502) |
-67.3% |
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Intangible assets
Right-of-use assets
Capitalised commission
Deferred tax asset
Trade and other receivables
Cash and cash equivalents
Deferred revenue
Equity
· A $94.3 million reduction in equity related to the EBT market purchase programme, for which 28,301,976 ordinary shares were purchased during the year to be used to satisfy existing, planned, and anticipated options and awards under Darktrace's employee share schemes, or as otherwise permissible under the terms of the EBT trust deed. These shares were acquired at an average price of £2.81 ($3.33) per share.
· A $50.9 million reduction in equity related to a Share Buyback Programme, which during the year purchased 15,440,726 shares on-market. The shares were acquired at an average price of £2.68 ($3.30) per share. The purpose of this Share Buyback Programme is to reduce Darktrace's issued share capital and the shares purchased pursuant to it will be cancelled. As of 30 June 2023, 13,280,100 ordinary shares had been repurchased and cancelled. Through this Share Buyback Programme, Darktrace returns value to shareholders, while still maintaining a strong cash position so it can fund continued investments in the business.
· A $37.1 million increase in equity as result of the share-based payments granted to employees in the year.
· A $1.7 million decrease in equity as result of the awards vested and options exercised in the year.
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Cash inflow from operating activities before working capital
Net cash inflow from operating activities
Cash outflow from investing activities
Cash outflow from financing activities
Going concern
· A high quality, fast-growth recurring revenue model with high levels of future revenues for which remaining obligations have been fulfilled;
· A variable cost structure which allows the Group to mitigate adverse financial conditions via the flexing of its major cost items; and
· The strong liquidity position of the Group arising from a highly cash-generative model.
· A growing business with a high quality, multi-year, recurring revenue model that results in significant amounts of committed future revenues;
· A highly variable cost structure that enables relatively rapid adjustments in material costs if necessary to mitigate adverse financial conditions; and
· A strong liquidity position arising from a highly cash-generative model.
Viability Scenario Frameworks
Macro-economic Environment
The principal risks and uncertainties faced by Darktrace and its approach to internal control and risk Management are set out on pages 65 to 71 of the FY 2023 Annual Report which will be available on the Group's website at www.ir.darktrace.com .
Inability to innovate Darktrace products
Customer service delivery failure
Inadequate channel sales and support
Cloud service providers downtime
Failure to retain and attract employees
Darktrace cyber incident
Intellectual property theft or exposure
Autonomy Related Matters
Brand & Reputation
Customer Service Delivery Failure
Principal Risk Downgrading
· Covid-19: As the world learned to deal with COVID-19 so did Darktrace. The impact of COVID-19 was assessed to no longer have a potential material financial impact on Darktrace. As such, a new Strategic Business Risk for Pandemics has been created to ensure there is resiliency for any potential future pandemics. The Audit & Risk Committee, with the advice of the Risk Steerco formally accepted the downgrading of the principal COVID-19 risk.
Market Product Saturation
AI & Cyber Regulatory uncertainty
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent;
· state whether applicable international accounting standards in conformity with the requirements of the Companies Act 2006, as amended have been followed, subject to any material departures disclosed and explained in the financial statements; and
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
· the Annual Report, taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess Darktrace plc and the Group's performance, business model and strategy;
· the Group financial statements, which have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards, which give a true and fair view of the assets, liabilities, financial position and profit of the Group and Darktrace plc; and
· the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of Darktrace plc and the Group, together with a description of the principal risks and uncertainties that they face.
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Consolidated Statement of Financial Position
|
30 June 2023 |
30 June 2022 |
|
$'000 |
$'000 |
Non-current assets |
|
|
Goodwill |
38,164 |
38,164 |
Intangible assets |
12,571 |
15,649 |
Property, plant and equipment |
65,789 |
61,001 |
Right-of-use assets |
44,439 |
58,160 |
Capitalised commission |
42,182 |
32,519 |
Deferred tax asset |
19,849 |
1,041 |
Deposits |
8,234 |
9,260 |
|
231,228 |
215,794 |
Current assets |
|
|
Inventory |
100 |
- |
Trade and other receivables |
123,595 |
95,481 |
Capitalised commission |
34,471 |
24,635 |
Tax receivable |
5,485 |
2,828 |
Cash and cash equivalents |
356,986 |
390,623 |
|
520,637 |
513,567 |
Total assets |
751,865 |
729,361 |
|
|
|
Current liabilities |
|
|
Trade and other payables |
(109,959) |
(81,690) |
Deferred revenue |
(283,678) |
(222,419) |
Lease liabilities |
(4,873) |
(3,710) |
Provisions |
(6,927) |
(15,954) |
|
(405,437) |
(323,773) |
Non-current liabilities |
|
|
Deferred revenue |
(28,439) |
(29,432) |
Lease liabilities |
(52,735) |
(60,130) |
Provisions |
(1,741) |
(1,338) |
|
(82,915) |
(90,900) |
Total liabilities |
(488,352) |
(414,673) |
|
|
|
Net assets |
263,513 |
314,688 |
|
|
|
Equity |
|
|
Share capital |
9,779 |
9,812 |
Share premium |
16,308 |
16,117 |
Share capital redemption reserve |
255 |
- |
Merger reserve |
305,789 |
305,789 |
Foreign currency translation reserve |
(8,126) |
(8,126) |
Stock compensation reserve |
50,333 |
74,883 |
Treasury shares |
(104,946) |
(11,683) |
Retained earnings |
(5,879) |
(72,104) |
Total equity attributable to equity shareholders of Darktrace plc |
263,513 |
314,688 |
|
Share capital |
Share premium |
Share capital redemption reserve |
Merger reserve |
Foreign currency translation reserve |
Stock compensation reserve |
Treasury Shares |
Retained earnings |
Total equity |
|
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
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|
1 July 2021 |
9,756 |
224,782 |
- |
305,789 |
(4,398) |
35,723 |
(761) |
(308,873) |
262,018 |
Profit for the year |
- |
- |
- |
- |
- |
- |
- |
1,457 |
1,457 |
Other comprehensive loss |
- |
- |
- |
- |
(3,728) |
- |
- |
- |
(3,728) |
Total comprehensive loss |
- |
- |
- |
- |
(3,728) |
- |
- |
1,457 |
(2,271) |
Share issued for acquisition |
34 |
15,782 |
- |
- |
- |
- |
- |
- |
15,816 |
Share premium cancellation |
- |
(224,782) |
- |
- |
- |
- |
- |
224,782 |
- |
Share buyback |
- |
- |
- |
- |
- |
- |
(13,525) |
(89) |
(13,614) |
Options exercised |
22 |
335 |
- |
- |
- |
(6,609) |
2,603 |
10,619 |
6,970 |
Share-based payment charge |
- |
- |
- |
- |
- |
45,769 |
- |
- |
45,769 |
Transactions with shareholders |
56 |
(208,665) |
- |
- |
- |
39,160 |
(10,922) |
235,312 |
54,941 |
|
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|
|
|
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|
|
30 June 2022 |
9,812 |
16,117 |
- |
305,789 |
(8,126) |
74,883 |
(11,683) |
(72,104) |
314,688 |
Profit for the year |
- |
- |
- |
- |
- |
- |
- |
58,958 |
58,958 |
Other comprehensive loss |
- |
- |
- |
- |
- |
- |
- |
- |
- |
Total comprehensive profit |
- |
- |
- |
- |
- |
- |
- |
58,958 |
58,958 |
Share cancellation |
(255) |
- |
255 |
- |
- |
- |
43,665 |
(43,665) |
- |
Share buyback |
- |
- |
- |
- |
- |
- |
(145,214) |
(284) |
(145,498) |
Options exercised/awards vested |
222 |
191 |
- |
- |
- |
(61,591) |
8,286 |
51,216 |
(1,676) |
Share-based payment charge |
- |
- |
- |
- |
- |
37,041 |
- |
- |
37,041 |
Transactions with shareholders |
(33) |
191 |
255 |
- |
- |
(24,550) |
(93,263) |
7,267 |
(110,133) |
30 June 2023 |
9,779 |
16,308 |
255 |
305,789 |
(8,126) |
50,333 |
(104,946) |
(5,879) |
263,513 |
|
FY 2023 |
FY 2022 |
|
$'000 |
$'000 |
Cash generated from operations |
|
|
Profit for the year after tax |
58,958 |
1,457 |
Depreciation of PPE* and Right of Use Assets |
35,310 |
28,295 |
Amortisation of intangible assets |
5,597 |
6,073 |
Amortisation of capitalised commission |
32,471 |
21,817 |
Impairment of capitalised commission and Right-of-use assets |
3,336 |
996 |
Loss on disposal of PPE |
1,406 |
2,121 |
Unrealised foreign exchange differences |
(3,001) |
9,467 |
Credit loss charge |
2,049 |
145 |
Share based payment charge |
39,989 |
43,740 |
Net settled share-based payment |
(9,696) |
- |
Finance costs |
3,493 |
2,807 |
Finance income |
(8,016) |
(518) |
Other operating income |
(2,666) |
(1,671) |
Taxation |
(17,923) |
3,856 |
Operating cash flows before movements in working capital |
141,307 |
118,585 |
Increase in trade and other receivables |
(30,577) |
(19,601) |
Increase in capitalised commission |
(53,525) |
(40,952) |
Increase in trade and other payables |
26,177 |
27,129 |
Decrease in provisions |
(8,625) |
(5,653) |
Increase in deferred revenue |
60,266 |
65,575 |
Increase in inventory |
(100) |
- |
Net cash flow from operating activities before tax |
134,923 |
145,083 |
Tax paid |
(876) |
(4,839) |
Net cash inflow from operating activities |
134,047 |
140,244 |
Investing activities |
|
|
Cybersprint acquisition |
- |
(35,728) |
Development costs capitalised |
(1,813) |
(1,292) |
Purchase of PPE* |
(24,306) |
(31,863) |
Finance income |
8,016 |
518 |
Cash outflow from investing activities |
(18,103) |
(68,365) |
Financing activities |
|
|
Proceeds from share issues and exercises |
8,014 |
7,020 |
Share buyback |
(145,498) |
(13,614) |
Repayment of borrowings |
- |
(1,347) |
Repayment of lease liabilities |
(10,682) |
(4,837) |
Payment of interest on lease liabilities |
(3,493) |
(2,735) |
Cash outflow from financing activities |
(151,658) |
(15,513) |
Net changes in cash and cash equivalents |
(35,714) |
56,365 |
Cash and cash equivalents, beginning of year |
390,623 |
342,358 |
Unrealised exchange difference on cash and cash equivalents |
2,077 |
(8,100) |
Cash and cash equivalents, end of year |
356,986 |
390,623 |
* Property, plant and equipment
1 General information
Company Information
Darktrace plc 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.
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
These consolidated financial statements are for the year ended 30 June 2023.
The consolidated financial statements of the Group have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.
They have been prepared under the historical cost convention except for certain financial instruments which are measured at fair value.
The policies set out below have been applied consistently throughout all periods presented.
All amounts in the consolidated financial statements and notes have been rounded off to the nearest thousand USD, unless otherwise stated.
New Standards, Amendments, IFRIC Interpretations and new Relevant Disclosure Requirements Adopted by the Group
There are no amendments to accounting standards, or IFRIC interpretations that are effective for the period ended 30 June 2023 that have a material impact on Darktrace's financial statements.
Going Concern
In adopting the going concern basis for preparing the financial statements, the Directors have considered Darktrace's principal risks and uncertainties in the current operating environment and assessed these risks via a series of scenario analyses designed to evaluate the capacity of Darktrace to withstand a prolonged period of adverse financial conditions. The Directors have further reviewed liquidity and covenant forecasts for the period to 30 September 2024 as part of their assessment of going concern.
The Directors have considered how a change in circumstances might impact the Group's expected financial performance for the period. Specifically, testing has been performed on the base case forecast for the period and a number of adverse scenarios have been modelled, including but not limited to:
· Annual Recurring Revenue (ARR)/revenue scenarios: The impact of material reputational damage on new customer acquisition and existing customer churn arising as a result of a data breach or cyber incident, combined with significant operational disruption and declines in salesforce productivity, as a result of a service provision downtime or a lack of future product innovation. Each of the scenarios would materially reduce Darktrace's ARR and revenue, and it was assumed, for example that there would be zero new logo ARR across the entire period along with a material deterioration in net ARR retention trends. No active cost saving measures were implemented during the period.
· Cost scenarios: Either as a result of increased industry competition and/or reputational damage, the impact of a material and prolonged failure in Darktrace's ability to attract and retain employees was considered, leading to significant increases in employee churn and hiring and compensation related costs. For example, expected employee churn rates for the entire salesforce and the remaining wider workforce were increased by 25% and 20% respectively. Meanwhile hiring and compensation costs were materially increased, particularly for technical and sales-related personnel, and extended general cost inflation was considered, with material increases to key unit costs (such as appliance and hosting costs). No active cost saving measures were implemented during the period.
· Balance sheet scenarios: Either as a result of a significant macro-economic event with recessionary impact and/or inadequate channel partner management and support, the impact of changes to direct and indirect customer payment terms and increased customer insolvencies was considered. For example, forecast collection rates were modelled to drop lower than at any point during the worst of the COVID-19 uncertainty and corresponding payment delays. Meanwhile estimated bad debt expense for the period was increased fivefold vs. the base case forecast, and the Group's base case forecast invoicing profile was amended to include a material shift towards quarterly and monthly invoicing.
· Combined, 'worst case' scenario: This scenario sought to present an extreme and unreasonable 'worst case' outcome by combining the three aforementioned scenarios. No active cost saving measures were enacted during the period and the Group remained viable and in compliance with its covenants within the period.
In each variation and combination of the adverse scenarios, Darktrace is forecast to have sufficient resources to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements, and for each scenario, active cost saving actions were not instigated as part of the analysis. In the event that any of these adverse scenarios were to occur, controllable mitigating actions are available to the Directors should they be required.
As an additional provision, the Directors also reviewed the results of reverse stress testing performed to provide an illustration of the level of churn and deterioration in new customer acquisition and customer payment terms which would be required to trigger a breach in Darktrace's covenants or exhaust cash down to minimum working capital requirements. The conditions necessary to approach either of these parameters are extreme and would ultimately require no active cost saving actions to be enacted at any point. As such, the Directors consider their likelihood as highly remote given the resilient nature of the business model, as demonstrated by the growth in revenues, customer numbers and employees in recent reporting periods. The robust consolidated statement of financial position, with $357.0 million of cash available and continued strong receivables collection rate of the Group demonstrated during the COVID-19 pandemic and the macro-economic uncertainties through FY 2023 gives further support to the resilience of Darktrace's business-model.
The results of these assessments have enabled the Directors to assert a reasonable expectation that Darktrace has adequate resources to continue as a going concern for a period of at least 12 months from the date of approval of the financial statements. Accordingly, the Directors are of the view that the preparation of the consolidated financial statements on a going concern basis continues to be appropriate and in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006.
Foreign Currency Translation
Functional and Presentation Currency
Group Companies
Items included in these consolidated financial statements are measured using the functional currency for Darktrace plc. The functional currency of Darktrace plc is also the functional currency of all subsidiaries.
In the previous year, goodwill and fair value adjustments arising on the acquisition of a foreign operation were treated as assets and liabilities of the foreign operation and translated at the closing rate, since 1 July 2022 the functional currency of that foreign operation has changed to USD.
In the previous year, the results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
· assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;
· income and expenses for each statement of profit or loss and statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
· all resulting exchange differences are recognised in other comprehensive income.
Transactions and Balances
Basis of Consolidation
These financial statements present the results of Darktrace plc and its subsidiaries as the Group. Intercompany transactions and balances between Darktrace and its subsidiaries are therefore eliminated in full.
Subsidiaries are entities over which Darktrace plc is exposed or has rights to variable returns from its involvement with the subsidiary, and it can affect those returns through its power over the subsidiary. Darktrace plc can direct decisions through its ownership and, if applicable, voting rights. Except for Darktrace Netherland BV, all Company's subsidiaries have been created by, rather than acquired by, Darktrace plc, and no subsidiaries have been closed or otherwise disposed of. Where subsidiaries are acquired, the profit or loss attributable to shareholders includes the profit or loss of the subsidiary from the date of acquisition. Were subsidiaries to be disposed of during the year, the profit or loss attributable to shareholders would include the profit or loss of the subsidiary to the date of disposal.
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. Equiniti Trust (Jersey) Limited is the trustee of the EBT. It is a controlled entity of Darktrace plc, because Darktrace plc is exposed to, and has right to, variable returns from this entity and is able to use its power over the entity to affect those returns, therefore EBT Trust has been consolidated.
Impairment of Non-Financial Assets
Assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets that are not subject to amortisation because they are not yet in use are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. Reversals of impairment losses are limited such that the value of the asset cannot exceed the carrying amount it would have had no impairment been recognised.
· Significant judgement in revenue recognition in determining one performance obligation exists - see note 4
· Significant judgement in assessment of control of appliances - see note 18
· Significant estimate in deferred tax asset recognised on losses carried forward - see note 25; and
· Significant estimate in share price used to calculate the provision for share option related employer tax changes - see note 15.
Performance of the Group
3 Operating segment
Segment Reporting policy
The Group has concluded that it operates in one business segment as defined by IFRS 8: Operating Segments, being the development and sale of cyber-threat defence technology. The Chief Operating Decision Makers (the "CODMs"), which have been identified as the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), make operating decisions for a single operating unit and operating performance is assessed as a single operating segment. The information used by the CODMs is consistent with, and prepared on the same basis as, that presented in these financial statements. Further there are no separately identifiable assets attributable to any separate business activity or business unit.
The information used by the Group's CODMs to make decisions about the allocation of resources and to assess performance is presented on a consolidated Group basis.
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.
|
30 June 2023 |
30 June 2022 |
Non-current assets by geographical market |
$'000 |
$'000 |
USA |
62,827 |
63,408 |
United Kingdom |
76,743 |
83,223 |
Europe |
36,355 |
34,357 |
Rest of world |
27,220 |
24,505 |
|
203,145 |
205,493 |
The information used by the Group's CODMs to make decisions about the allocation of resources and to assess performance is presented on a consolidated Group basis.
4 Revenue from contracts with customers
Revenue Recognition policy
The Group does not recognise any revenue until there is a legally binding contract in place direct with a customer or with a reseller partner acting on behalf of a customer (i.e. end-user), the commencement date of that agreement has passed, and the obligations to fulfil that contract have been met. It applies the IFRS 15: Revenue from Contracts with Customers, principles-based, five step model to all contracts as follows:
· Identify the contract with the customer;
· Identify the distinct performance obligations in the contract;
· Determine the transaction price;
· Allocate the transaction price to the performance obligations in the contracts, on a relative stand-alone selling price basis; and
· Recognise revenue when the entity satisfies its performance obligations.
The Group has only a single performance obligation for most contracts, giving access to the Group's Cyber AI Platform and ancillary services to its customers as such the transaction price is the total amount charged to the customer over the service period.
Most of the Group's revenue is derived from multi-period subscription or licence contracts that allow access to the Cyber AI Platform. This revenue is recognised on a straight-line basis over the subscription or licence period as the customer simultaneously receives and consumes the benefits from the products it purchased within the Group's Cyber AI Platform as throughout the life of the contract. The Group's efforts are expended evenly throughout the subscription period and therefore using the input method under IFRS 15, it is appropriate to recognise revenue on a straight-line basis. The Group does not have any variable consideration as defined under IFRS 15.
In a very small number of cases, the Group sells supplementary training or extra appliances separately from its software product deployments, but always to customers who have software product deployments. The revenue from these contracts is recognised at the point in time when the training or appliance is delivered.
Contracts where terms are subsequently modified (for upsells, license expansions, etc) are assessed in accordance with IFRS 15 and are treated either as a separate contract with revenue recognition commencing from the modification date or as a cumulative catch-up adjustment to revenue recognised at the point of modification based on the new contractual terms.
Contracts where it is not probable that the entity will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer and for which a suspension notice has been applied and the performance obligations relating to future services is considered curtailed, are considered ceased and therefore related deferred revenue balance derecognised and any receivable balance fully provided or written off. In this case, Management accounts for the remainder of the contract as if the criteria to be a contract had not been met (IFRS 15).
The Group deploys a significant portion of its software on appliances that it delivers to the customer. These appliances are encrypted devices that can only be used to run the Group's software. They cannot be used for any other purpose and have no separate value to the customer, and as the Group retrieves its appliances at the end of deployments, each appliance may be redeployed multiple times, in multiple situations over its useful life. The Group considers that the appliances it deploys are an integral part of the delivery mechanism for the service to the customer and are not normally sold to the customer unless required for legal or regulatory reasons.
Customers are generally billed in advance, with credit terms of typically 30-60 days, in line with market practice. In instances where payment for the subscription is within 12 months or less of the service being provided Darktrace has taken the practical expedient under the standard of not adjusting for any financing component. In some instances, the Group bills in advance for periods of greater than one year. In these instances no financing component is deemed to be present as this arrangement is customer driven.
Principal vs agent assessment
Darktrace sells its products and services either directly to end users or through channel partners. The business operates two types of partner relationships, one where the contract is with the reseller partner and another where it is with the end user but the partner receives a referral fee.
Most partner deals involve a reseller partner who takes Darktrace to the end-users. In these instances, Darktrace sells to the reseller partner, who is the contracting entity, and therefore different from the end-user that will be provided with the services. Darktrace will only invoice the partner and it is the partner who controls pricing with the end-user, and bears the credit and foreign currency risk.
When revenues are generated through a reseller partner, Darktrace requires that every partner contract be related to a specific end-user (Darktrace has a direct operating relationship with the end-user as most partner contracts are co-sold and Darktrace employees carry out the vast majority of pre-sale product scoping directly with the end-user). Darktrace only recognises revenue for the contract value between Darktrace and the partner, it does not recognise any benefit from any mark-up that the partner adds to determine its price to the end-user. Once the Darktrace/partner and partner/end-user contracts have been finalised and the end-user is able to deploy the purchased products and services, Darktrace will recognise revenue as required under IFRS 15.
An intermediary partner is the principal in an arrangement with the end-user, and therefore, Darktrace's customer, if it controls the offering before it is transferred to the end-user. As Darktrace controls all aspects of the products and services it sells, including setting the price to the reseller partner (but not the end-user), and bears the credit and foreign exchange risk in its contract with the reseller partner, it has concluded that Darktrace is a principal in its contracts with reseller partners. Darktrace has also considered the role of the reseller partner in their contract with the end-user, and based on all information available, primarily considering the control of pricing and the assumption of credit and foreign exchange risk, has concluded that the reseller is principal in their contract with the end-user. While Darktrace has responsibility under its Master Service Agreement for fulfilment of the products and services provided to the end-user, the reseller partner has responsibility for the pricing of Darktrace products to the end-user, and any invoicing and credit concerns.
There is a smaller cohort of referral partners who Darktrace works with who will initiate the customer contact, but who do not take on the contractual risk. In these cases, Darktrace enters into a direct contract with the end user and is therefore the principal in these transactions. The partner will earn usually a commission or a fee which is classified as cost of sales.
Significant Judgement in Revenue Recognition in Determining one Performance Obligation Exists
Group revenue is from subscription contracts and is recognised over the term of the contract.
Management considers that these contracts consist of a single performance obligation, which is the ongoing access to the portions of the Cyber AI platform purchased by the customer. The Cyber AI platform is a single combined solution, with customers able to choose the appropriate product mix based on their own needs. The key contractual elements considered by Management included the deployment of the software (on appliances or virtually), the core software products and subsequent updates. Appliance deployments typically take an hour or less once the appliance is received by the customer, and virtual deployments can be enabled immediately, so deployment is in line with the start of the subscription contract that has, on average, a three-year life. Subsequent updates to the platform ensure that the latest software is available with the latest capabilities but do not materially change the functionality of the platform. The products and to a lesser extent, services are significantly integrated to provide a combined output and services which are highly interdependent with (and are not separately available from) the subscription to product within the Cyber AI platform. Some customers may purchase ancillary services or training, but these are immaterial to the total contract value and are not deemed to impact the assessment of there being only a single performance obligation.
Disaggregation of revenue
Revenue recognised at a point in time is not significant to the reported results in any year. This includes revenue generated by separate contracts for training and sale of appliances. In the year ended 30 June 2023, this revenue amounted to $0.3 million (year ended 30 June 2022 $1.5 million).
Management has assessed that the single performance obligation that it is providing to customers is access to products, primarily software, within the Darktrace Cyber AI platform to protect customers' digital estates from the impact of cyber threats.
|
FY 2023 $'000 |
% of revenue |
FY 2022 $'000 |
% of revenue |
|
188,808 |
34.6% |
142,697 |
34.3% |
|
82,841 |
15.2% |
69,228 |
16.7% |
|
135,667 |
24.9% |
100,244 |
24.1% |
|
138,114 |
25.3% |
103,313 |
24.9% |
|
545,430 |
100% |
415,482 |
100% |
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 FY 2023 or FY 2022.
Contract assets and liabilities related to contracts with customers
The following table provides information on accrued income and deferred revenue from contracts with customers.
|
30 June 2023 |
30 June 2022 |
|
$'000 |
$'000 |
|
3,445 |
4,152 |
|
3,445 |
4,152 |
|
|
|
|
283,678 |
222,419 |
|
28,439 |
29,432 |
|
312,117 |
251,851 |
Accrued income has decreased year over year due to timing in raising invoices and remains a reasonably small value relative to revenue recognised.
Contracts are typically 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 and has increased year-over-year as expected with the continued growth in revenue.
Details of costs to obtain contracts with customers are shown in note 12.
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:
|
|
FY 2023 |
FY 2022 |
|
|
$'000 |
$'000 |
|
|
222,419 |
154,505 |
|
|
40.8% |
37.2% |
Future contracted revenue (formerly revenue expected to be recognised)
Prior year adjustment to the disclosure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 Material profit and loss items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auditors' remuneration
|
FY 2023 |
FY 2022 |
|
$'000 |
$'000 |
Audit of the Group and parent company accounts |
1,167 |
700 |
Audit of the accounts of the Company's subsidiaries by the Group auditors and its associates |
735 |
623 |
Total audit fees |
1,902 |
1,323 |
Audit-related assurance services |
124 |
75 |
Other non-audit services |
16 |
- |
Total non-audit fees |
140 |
75 |
7 Earnings per share ("EPS")
Basic Earnings per Share
Diluted Earnings per Share
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares |
714,928,452 |
698,145,263 |
||
Effect of treasury shares |
(54,608,143) |
(54,866,296) |
||
Weighted-average number of ordinary shares at period end |
660,320,309 |
643,278,967 |
||
Add dilutive effect of share-based payment plans |
17,590,707 |
52,302,067 |
||
Weighted-average number of shares for calculating diluted earnings per share at period end
|
677,911,016 |
695,581,034 |
||
|
|
|
||
|
|
|
||
|
|
|
||
9 Share capital and share premium
·
·
·
·
·
·
·
Share capital |
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 |
1 July 2021 |
697,630,127 |
50,000 |
120,063 |
697,800,190 |
9,756 |
224,782 |
- |
Share cancellation |
- |
- |
- |
- |
- |
(224,782) |
- |
Shares issued |
1,581,578 |
- |
- |
1,581,578 |
22 |
335 |
- |
Shares issued for acquisition |
2,573,648 |
- |
- |
2,573,648 |
34 |
15,782 |
- |
30 June 2022 |
701,785,353 |
50,000 |
120,063 |
701,955,416 |
9,812 |
16,117 |
- |
Shares issued in the year |
18,250,239 |
- |
- |
18,250,239 |
222 |
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 |
30 June 2023 |
706,755,492 |
- |
- |
706,755,492 |
9,779 |
16,308 |
255 |
FY 2022 Share premium cancellation
The share-premium cancellation received shareholder approval prior to the IPO on 29 April 2021. The share premium was cancelled on 28 September 2021 following the registration of the order of the High Court of Justice (Chancery Division) by the Registrar of Companies. The total amount of share premium at the time of cancellation has been reclassified to retained earnings.
FY 2022 Shares issued
During prior year certain employees have exercised their options (see note 10 for details on share-based payment transactions). These have been satisfied through the issuance of new shares before the share buyback happened or if the Darktrace Employee Benefit Trust (see below) could not satisfy the request as a result of its legal and regulatory framework.
FY 2022 Shares issued for acquisition
2,573,648 shares in Darktrace plc were issued as part of the business combination (see note 2).
FY 2023 Preference and deferred shares cancellation
On 15 May 2023 50,000 redeemable preference shares were cancelled. On 23 May 2023 120,063 deferred shares were redeemed for a consideration of £1 and cancelled.
Treasury Reserve
FY 2022 Company Shares buyback
During December 2021 the company purchased 2,460,678 shares on-market to satisfy, in part, Darktrace's pre-existing obligations arising from its share incentive programmes. The shares were acquired at an average price of £4.11 ($5.47) per share, with prices ranging from £3.90 ($5.19) to £4.31 ($5.74). The total cost of $13.6 million, including transaction costs, was deducted from equity.
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 is £75.0 million and Darktrace is making and will continue to make appropriate disclosures during the Buyback Period of the number of Shares it has repurchased.
The purpose of the Programme is to reduce Darktrace's issued share capital and the purchased shares will be cancelled. As at 30 June 2023 15,440,726 shares have been bought back and 13,280,100 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 £2.68 ($3.72) per share, with prices ranging from £2.20 ($3.5) to £3.40 ($4.72). The total cost of $0.3 million, including transaction costs, was deducted from equity.
At 30 June 2023 the company holds 3,621,634 shares in treasury (30 June 2022: 2,038,774).
2023 EBT Market Purchase Programme
During the year 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 January EBT Market Purchase Programme completed on 18 April 2023 with the purchase of 28,301,976 shares for a total aggregate consideration of £80.0 million ($94.3 million inclusive of brokerage and dealing charges) which has been deducted from equity. Shares purchased under the January EBT Market Purchase Programme are 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 £2.83 ($3.33) per share, with prices ranging from £2.09 ($2.53) to £3.98 ($4.58). At 30 June 2023 the EBT holds 63,121,031 shares (30 June 2022: 43,900,170).
10 Share-based payments
Share Based Payments
The Group operates equity settled share-based payment schemes. The equity settled share-based payments are measured at fair value at the date of grant. Having a graded vesting schedule, the fair value determined is expensed on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. The charge for the period is allocated to the relevant statement of comprehensive income categories where the employment costs of the employee who is granted the equity options are charged.
The fair value of options and awards granted is recognised as an employee benefits expense, with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the options granted:
· including any market performance conditions (e.g. the entity's share price);
· excluding the impact of any service and non-market performance vesting conditions (e.g. profitability, sales growth targets and remaining an employee of the entity over a specified time period); and
· including the impact of any non-vesting conditions (e.g. the requirement for employees to save or hold shares for a specific period of time).
The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each period, the entity revises its estimates of the number of options and awards that are expected to vest based on the non-market vesting and service conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. When the options or awards are exercised, the appropriate number of shares are issued to the employee. The proceeds received from exercised options, net of any directly attributable transaction costs, are credited directly to equity.
Modification of share-based payments
Where the effect of the modification is to increase the value of the award to an employee, the incremental fair value is recognised as a cost. The incremental fair value is the difference between the fair value of the original award and that of the modified award, both measured at the date of modification.
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|
|
|
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|
|
Total share-based payment expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.94 |
38,886,044 |
|
|
|
5.02 |
(158,074) |
|
|
|
0.98 |
(10,086,689) |
|
|
Outstanding at 30 June |
2.23 |
28,641,281 |
|
|
Exercisable at 30 June |
2.39 |
26,605,865 |
|
|
|
|
|
|
|
Range of exercise prices |
|
|
|
|
|
1.40 |
7,577,970 |
2.40 |
12,712,035 |
|
3.19 |
2,647,949 |
4.19 |
4,032,118 |
|
4.45 |
1,703,785 |
5.45 |
2,564,592 |
|
4.89 |
2,059,364 |
5.89 |
2,270,226 |
|
5.98 |
8,818,333 |
6.98 |
11,218,529 |
|
7.72 |
5,833,880 |
8.72 |
6,088,544 |
|
5.72 |
28,641,281 |
6.72 |
38,886,044 |
Performance Based Conditional Award (the 'Performance Awards')
Executive Director Conditional Awards ('Executive Awards')
Top-Up Awards and modification
Time-based Awards
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Valuation
· 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.
|
Performance awards |
Time based awards |
Top up Awards Modifications |
Grant dates |
23/08/2021 - 28/06/2022 |
05/11/2021 - 26/05/2022 |
14/04/2022 - 17/06/2022 |
Share price at grant date |
£3.29 ($4.04) - £5.78 ($7.87) |
£3.63 ($4.55) - £5.78 ($7.84) |
£3.24 ($3.97) - £4.11 ($5.35) |
Exercise price |
- |
- |
- |
Fair value per award (range) |
£2.04 ($2.57) - £5.19 ($7.07) |
£3.63 ($4.56) - £5.78 ($7.84) |
£1.04 ($1.26) - £1.48 ($1.94) |
Expected life in years (range) |
1.01 - 3.00 |
N/A |
0.03 - 0.04 |
Expected volatility (range) |
40% - 50% |
N/A |
70% |
Risk free interest rate (range) |
0.34% -2.19% |
N/A |
0.26% - 0.42% |
Cancellation rate |
10% |
N/A |
10% |
Dividend yield |
0% |
N/A |
0% |
Correlation (range) |
15% - 20% |
N/A |
0% |
Number of awards |
840,013 |
2,471,734 |
18,586,362 |
|
Time based awards |
Performance awards |
Grant dates |
21/09/2022 - 22/05/2023 |
21/09/2022 -17/05/2023 |
Share price at grant date |
£2.62 ($3.23) - £3.69 ($4.25) |
£2.62 ($3.23) - £3.69 ($4.25) |
Exercise price |
- |
- |
Fair value per award (range) |
£2.62 ($3.23) - £3.69 ($4.25) |
£0.95 ($1.17) - £3.69 ($4.25) |
Expected life in years (range) |
N/A |
1.78 - 3.00 |
Expected volatility (range) |
N/A |
50% |
Risk free interest rate (range) |
N/A |
3.07% - 3.94% |
Cancellation rate |
N/A |
10% |
Dividend yield |
N/A |
0% |
Correlation (range) |
N/A |
20 - 25% |
Number of awards |
7,179,220 |
6,994,611 |
12 Capitalised commission
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By Geographic market |
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15 Provisions
Dilapidation provision
Darktrace is required to restore the leased premises of its offices to their original condition at the end of the respective lease terms. A provision has been recognised for the present value of the estimated expenditure required to remove any leasehold improvements. These costs have been capitalised as part of the right-of-use asset and are amortised over the term of the lease.
Provision for share-based payment tax
The Group accounts for a provision on tax payments when the employer has the primary liability to pay for social security-type contributions on share-based payments. In some jurisdictions, the employer rather than the employee has the legal obligation to pay taxes on employee awards. Darktrace recognises the cost and liability in relation to those countries where this type of payment is required. Management calculates the liability arising from the obligation to pay taxes as a provision in accordance with IAS 37 using the market value of the total options at each reporting date to estimate the provision to be accrued over the vesting period. Also, provisions are recognised where a legal or constructive obligation exists at the balance sheet date, as a result of a past event, where the amount of the obligation can be reliably estimated and where the outflow of economic benefit is probable.
Significant Estimate in the Share Price Used to Calculate the Provision for Share-Option Related Employer Tax Charges
The provision represents the best estimate of the amount payable by the Group at year end if all options were exercised at that date. The key input for the calculations is the percentage applicable for each country and the share price at each period end. The key element subject to change in future periods is the share price, and for this reason the Group has prepared the following sensitivity analysis:
|
FY 2023
|
FY 2022
|
|
$'000 |
$'000 |
+/- 10% share price value - change in value of provision for the year ($'000 absolute value) |
933 |
3,852 |
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Opening provision |
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Closing provision |
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Total provision |
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|
The Group accounts for a provision on tax payments when the employer has the primary liability to pay for social security-type contributions on share-based payments at the time of exercise.
In the UK, an award of shares or options to an employee gives rise to a personal tax liability for the employee, related to the fair value of the award when it vests.
In most other countries where social security-type obligations arise on share awards, the obligation to accrue applies irrespective of whether the shares are RCAs or not. Calculation of social security-type contributions can be complex as they involve changing or tiered cost ceilings and differing percentages applied depending on the salary level of the employees.
Other provision includes an estimate of tax charges related to new permanent establishments in countries where Darktrace plc does not currently have a subsidiary.
Long term assets
17 Intangible assets
Intangible Assets
Software
Software acquired in a business combination is recognised at fair value at the acquisition date. It has an estimated useful economic life of 5 years and is subsequently carried at cost less accumulated amortisation and impairment losses.
The Group capitalises allowable costs related to the development of new products and related significant functional enhancements to its Cyber AI platform. The directly attributable costs capitalised are employee costs including the appropriate portion of relevant compensation-related overheads. Costs are only capitalised when the following criteria are met:
· it is technically feasible to complete the software so that it will be available for use;
· Management intends to complete the software so that it will be available for use;
· There is an ability to use or sell the software;
· it can be demonstrated how the software will generate probable future economic benefits;
· adequate technical, financial and other resources to complete the development and to use or sell the software are available; and
· the expenditure attributable to the software during its development can be reliably measured.
These capitalised development costs are recorded as intangible assets and amortised from the point at which the developed assets are released for use, typically as a part of major version or product releases.
Capitalised development costs are amortised on a straight-line basis over a three-year period unless the related software is removed from service prior to that date, in which case the remaining amortisation related to the software removed from use would be accelerated. Amortisation is classified as Research and development costs.
Costs associated with maintaining software programmes are recognised as an expense as incurred.
Customer relationship
Customer relationships acquired in a business combination are recognised at fair value at the acquisition date. It has an estimated useful economic life of 12 years and is subsequently carried at cost less accumulated amortisation and impairment losses.
Software consists of capitalised development costs being internally generated intangible asset of $2.2 million (30 June 2022 $4.9 million) and acquired software from acquisition of $ 6.6 million (30 June 2022 $8.6 million) with a remaining useful life of 3.7 years. The Group has not identified any impairments to the intangibles.
All amortisation of intangible assets is charged to the consolidated statement of comprehensive income and is included within research and development costs.
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|
FY 2023 |
|
|
|
FY2022 |
||||||
|
Customer Relationship |
Software |
Software under development |
Total |
Customer Relationship |
Software |
Software under development |
Total |
|
|||||
|
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
|
|||||
Cost |
|
|
|
|
|
|
|
|
|
|||||
As at 1 July |
869 |
25,535 |
1,517 |
27,921 |
- |
13,286 |
- |
13,286 |
|
|||||
Additions |
- |
- |
2,519 |
2,519 |
- |
2,391 |
2,368 |
4,759 |
|
|||||
Business combination (no |
- |
- |
- |
- |
930 |
9,647 |
- |
10,577 |
|
|||||
Reclassification |
- |
1,082 |
(1,082) |
- |
-
|
851 |
(851) |
- |
|
|||||
Foreign exchange difference |
|
- |
- |
- |
(61)
|
(640) |
- |
(701) |
|
|||||
As at 30 June |
869 |
26,617 |
2,954 |
30,440 |
869 |
25,535 |
1,517 |
27,921 |
|
|||||
Amortisation |
|
|
|
|
|
|
|
|
||||||
As at 1 July |
(26) |
(12,246) |
- |
(12,272) |
- |
(6,199) |
- |
(6,199) |
||||||
Charge for the year |
(72) |
(5,525) |
- |
(5,597) |
(26) |
(6,047) |
- |
(6,073) |
||||||
As at 30 June |
(98) |
(17,771) |
- |
(17,869) |
(26) |
(12,246) |
- |
(12,272) |
||||||
Net book value as 30 June |
771 843 |
8,846 |
2,954 |
12,571 |
843 - |
13,289 |
1,517 |
15,649 |
||||||
Significant Judgement in Assessment of Control of Appliances
|
|
|
|
FY 2023 |
|
|
|
FY 2022 |
|
Leasehold Improvements |
Equipment |
Appliances |
Total |
Leasehold Improvements |
Equipment |
Appliances |
Total |
|
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
Cost |
|
|
|
|
|
|
|
|
As at 1 July |
2,327 |
16,583 |
112,301 |
131,211 |
- |
12,161 |
92,606 |
104,767 |
Additions |
11,622 |
1,199 |
18,409 |
31,230 |
2,327 |
4,951 |
24,585 |
31,863 |
Business combination (note 4) |
- |
- |
- |
- |
- |
108 |
- |
108 |
Foreign exchange difference |
- |
- |
- |
- |
- |
(7) |
- |
(7) |
Disposals |
- |
(685) |
(5,141) |
(5,826) |
- |
(630) |
(4,890) |
(5,520) |
As at 30 June |
13,949 |
17,097 |
125,569 |
156,615 |
2,327 |
16,583 |
112,301 |
131,211 |
Depreciation |
|
|
|
|
|
|
|
|
As at 1 July |
- |
9,621 |
60,589 |
70,210 |
- |
6,634 |
45,237 |
51,871 |
Charge for the period |
935 |
4,185 |
19,864 |
24,984 |
- |
3,391 |
18,355 |
21,746 |
Impairment loss |
- |
- |
52 |
52 |
- |
- |
- |
- |
Disposals |
- |
(510) |
(3,910) |
(4,420) |
- |
(404) |
(3,003) |
(3,407) |
As at 30 June |
935 |
13,296 |
76,695 |
90,826 |
- |
9,621 |
60,589 |
70,210 |
Net book value as at 30 June |
13,014 |
3,801 |
48,974 |
65,789 |
2,327 |
6,962 |
51,712 |
61,001 |
|
FY 2023 |
FY 2022 |
|
$'000 |
$'000 |
Depreciation |
|
|
Cost of sales |
16,721 |
14,589 |
Sales and marketing |
4,599 |
4,945 |
Research and development |
1,262 |
1,018 |
Other administrative |
2,402 |
1,194 |
|
24,984 |
21,746 |
|
FY 2023 |
FY 2022 |
|
$'000 |
$'000 |
Inventory |
100 |
- |
20 Cash and Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
Other notes
25 Income tax
Income Tax
Significant judgement
Significant estimate
|
|
FY 2022 |
|
|
$'000 |
Current tax (credit)/expense: |
|
|
Current period |
|
|
Foreign taxation
|
|
|
Adjustments for prior period |
|
|
Total current tax expense |
|
|
|
|
|
Origination and reversal of temporary differences |
|
|
Deferred tax recognised |
|
|
Adjustments in respect of prior periods |
|
|
Total tax (credit)/ charge |
|
|
|
FY 2023 |
FY 2022 |
|
$'000 |
$'000 |
Profit for year before taxation |
|
5,313 |
Tax rate |
|
19% |
Tax on profit on ordinary activities at standard CT rate 20.5% FY 2022 - 19%) |
|
1,010 |
Effects of: |
|
|
Effect of tax rates in foreign jurisdictions |
|
831 |
Fixed Asset Differences - Super deduction net of Ineligible depreciation |
|
(1,740) |
Non-deductible expenses |
|
6,955 |
Overseas taxes deducted at source |
607 |
817 |
Tax cost on research and development tax credit |
560 |
186 |
(Over)/under provided in prior years |
(877) |
1,403 |
Deferred tax recognised |
|
- |
Current year utilisation of deferred tax not previously recognised |
(17,817) |
(5,606) |
Total tax (credit)/charge for the year |
|
|
Deferred Tax Assets and Liabilities
|
30 June 2023 |
30 June 2022 |
||
|
Gross amounts |
Unrecognised DTA* |
Gross amounts |
Unrecognised DTA* |
|
$'000 |
$'000 |
$'000 |
$'000 |
Fixed Asset timing differences |
- |
- |
(2,151) |
(538) |
Short term temporary differences |
3,401 |
850 |
17,222 |
4,306 |
Losses carried forward |
|
|
206,498 |
51,665 |
Share based payments |
101,669 |
26,687 |
147,293 |
37,775 |
Total |
|
|
368,862 |
93,208 |
Given the uncertainty of the tax deduction in excess of the IFRS2 charge recognised for share-based payments, demonstrated by the high volatility of Darktrace share price since IPO, the related deferred tax asset has not been recognised at 30 June 2023 and in prior year.
Recognised deferred tax asset and deferred tax liabilities
|
30 June 2023 |
30 June 2022 |
|
$'000 |
$'000 |
Fixed asset timing differences |
|
(76) |
Short term temporary differences |
|
1,573 |
|
|
|
Losses carried forward |
|
2,032 |
Intangible assets arising on business combination |
|
(2,488) |
Total |
|
1,041 |
|
|
|
|
FY 2023 |
FY 2022 |
Recognised deferred tax |
$'000 |
$'000 |
Opening |
|
544 |
(Charged)/Credited through the income statement: |
|
|
Deferred tax asset recognised on acquisition |
|
1,950 |
Deferred tax liability recognised on acquisition
|
|
(2,655) |
|
|
|
Deferred tax asset movement |
|
1,034 |
Deferred tax liability movement |
|
168 |
Closing |
|
1,041 |
29 Post balance sheet events
Assignment of previous London office lease
RCF Extension