Final Results

Corero Network Security PLC

25 April 2023

 

25 April 2023

Corero Network Security plc (AIM: CNS)

("Corero," the "Company" or the "Group")

Audited results for the year-ended 31 December 2022

Corero Network Security plc (AIM: CNS), a leading provider of Distributed Denial of Service (DDoS) protection solutions, announces its audited results for the year ended 31 December 2022 ("FY 2022").

Financial Highlights:

·    Revenues of $20.1 million (2021: $20.9 million)

·    Annualised Recurring Revenues¹ ("ARR") up 13% to $14.4 million (2022: $12.8 million)

·    Order intake up 13% year-on-year to $23.9 million (2021: $21.2 million)

·    Gross margins of 87% (2021: 85%)

·    EBITDA² profit of $2.6 million (2021: profit of $4.0 million)

·    Profit before taxation of $0.4 million (2021: profit before taxation of $1.4 million)

·    Earnings and diluted earnings per share of 0.1 cents (2021: earnings per share of 0.3 cents)

·    Net cash³ at 31 December 2022 of $4.4 million (2021: $8.4 million)

Operational Highlights:

Corero delivered solid operational progress across 2022 underpinned by both product development and, sales and marketing activities supported by a renewed customer centric approach.

·    Added 32 new customers during the year

·    Exceptional customer support contract renewal rate of 98%

·    Extended the Juniper Networks partnership to include the PTX router product line

·    Expanded reach and business with GTT Communications

Outlook

The demand for DDoS protection is expected to remain strong through 2023, with attacks becoming increasingly sophisticated while at the same time the DDoS attack surface is expanding. With the number of recorded attacks on the rise and shifts in attackers' motives and goals, organisations will need to ensure they have robust DDoS defences in place.

The key focus for Corero in 2023 is to grow our sales pipeline and revenue. The Board is confident that with the operational management team in place, our market-leading SmartWall® solutions and SecureWatch® services, the investment in 2022 in sales and marketing initiatives to build a stronger go-to-market organisation and demand generation targeted to our defined Ideal Customer Profile ("ICP"), the Company is now well placed to expand its market coverage and increase sales of SmartWall solutions to new customers. As announced by the Company on 13 April 2023, Q1 2023 has already seen significant orders from both new and existing customers.

The Board remains encouraged by the 2022 increase in new order intake, existing customer expansion and increase in ARR, all achieved against a challenging macro-economic backdrop in the second half of 2022.

Jens Montanana, Executive Chairman of Corero, commented:

"The Company delivered a credible performance across FY 2022. Our industry was impacted by multiple macro-economic factors and supply chain constraints during 2022. The Company delivered growth in order intake and ARR, and reported another year of EBITDA profit with similar revenues to 2021.

"We are focussing on more specific areas of our addressable market and targeting our sales and marketing initiatives accordingly to drive revenue growth in 2023 and beyond."

¹ Defined as the normalised annualised recurring revenue and includes recurring revenues from contract values of annual support, software subscription and from DDoS Protection-as-a-Service contracts

 ² Defined as Earnings before Interest, Taxation, Depreciation and Amortisation

³ Defined as cash at bank less debt 

The information contained within this announcement was deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014, as amended by regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310, prior to release of this announcement. Upon the publication of this announcement, this inside information is now considered to be in the public domain. 

Enquiries:

Corero Network Security plc
Jens Montanana, Executive Chairman Phil Richards, Chief Financial Officer	Tel: [phone]
Canaccord Genuity Limited  (Nominated Adviser and Broker) Simon Bridges / Andrew Potts / Harry Rees	Tel: [phone]
Vigo Consulting	Tel: [phone]
Jeremy Garcia / Kendall Hill [e-mail]

About Corero Network Security

Corero Network Security is a leading provider of Distributed Denial of Service (DDoS) protection solutions.  We are specialists in automatic detection and mitigation solutions, that include network visibility, analytics, and reporting tools. Corero's technology provides scalable protection capabilities against both external DDoS attackers and internal DDoS threats, in even the most complex edge and subscriber environments, ensuring internet service availability and uptime. Corero's key operational centers are in Marlborough, Massachusetts, USA, and Edinburgh, UK, with the Company's headquarters in London, UK. The Company is listed on the London Stock Exchange's AIM market under the ticker CNS. For more information, visit www.corero.com.

EXECUTIVE CHAIRMAN'S STRATEGIC UPDATE, FINANCIAL AND OPERATIONAL REVIEW

Introduction

The Company delivered a credible performance across FY 2022.  The financial performance was adversely impacted by broader macro-economic factors and as a consequence, the Company saw sales cycles across the business lengthen in the second half of the year which impacted revenues.  Nevertheless, the Company delivered growth in order intake, and ARR and reported another year of EBITDA profit.

The underlying health of the business remains robust with order intake, which reflects revenues recognised over the lifetime of each of the contracts, up 13% year-on-year to $23.9 million (2021: $21.2 million). Encouragingly, new customer order intake increased 38% over the prior year. This, coupled with an exceptional customer support contract renewal rate of 98% (2021: 96%), demonstrates the strength and quality of Corero's market-leading solutions, supported by continued investment in product development.

Annualised Recurring Revenues¹ ("ARR") increased 13% to $14.4 million as at 1 January 2023 (ARR at 1 January 2022: $12.8 million), driven by strong demand for Corero's subscription-based and DDoS Protection as-a-service ("DDPaaS") products, which increase revenue visibility for the Company going forward.

During the final quarter of the year, Corero secured several important customer wins for its SmartWall® DDoS protection solutions including additional purchases from existing customers and a significant multi-year support renewal for an existing customer. These wins will benefit revenues across FY 2023 and subsequent years.

The Board of Directors believes that Corero has a built a strong operational team and platform, alongside a sales and marketing strategy capable of generating sustainable growth in the medium term, underpinned by:

·    Large and high growth addressable market;

·    Market leading proprietary technology with global customer service capability;

·    Better alignment of the product offering to the Ideal Customer Profile ("ICP");

·    Continued investment in sales and channel resources;

·    Scalable and recurring revenue model with strong gross margins; and

·    Strong base of existing customers and strategic partnerships.

Strategic progress

The Company made operational advances in 2022 with product development and, sales and marketing activities driven by a customer centric approach. We continued to make strategic progress in key areas including:

•     Increasing our customer base: during 2022 we added 32 new customers.

•     Growing strategic alliances: extended the Juniper partnership to include the PTX router product line and expanded our reach and business with GTT.

•     Better monetising our existing services and introducing new services: we continue to enhance the protection and network security visibility for our customers.

•     Amplifying our demand generation programmes: increased on-line advertising and marketing campaigns including webinars and thought leadership speaking opportunities.

•     Continuing to increase our technological innovation leadership: we have invested $35 million over 10 years in our market leading SmartWall solutions enabling our customers to have the most advanced DDoS protection, including $1.7 million in 2022 to continue to enhance our product and competitiveness.

Financial summary

The Group generated revenues of $20.1 million in 2022 (2021: $20.9 million), with total operating expenses before share-based payments of $16.5 million (2021: $16.1 million) with continued investment in sales, marketing and R&D.

•     Operating expenses net of capitalised R&D costs and before depreciation and amortisation of intangible assets and before share-based payments were $14.5 million (2021: $13.9 million). Capitalised R&D costs were $1.7 million (2021: $1.8 million).

•     Operating expenses include a foreign exchange gain of $1.4 million (2021: foreign exchange gain of $0.2 million).

•     Depreciation and amortisation of intangible assets decreased during the year to $1.9 million (2021: $2.2 million).

The Company delivered a second successive EBITDA² profit of $2.6 million (2021: profit $4.0 million), and Adjusted EBITDA³ profit of $1.7 million (2021: profit $3.3 million).

In addition, Corero achieved profit before taxation of $0.4 million (2021: profit before taxation of $1.4 million) including amortisation of capitalised R&D costs of $1.7 million (2021: $1.9 million). Profit after taxation was $0.6 million (2021: profit after taxation of $1.5 million), following a UK R&D tax credit of $0.2 million (2021: $0.1 million). The reported earnings per share was therefore 0.1 cents (2021: earnings per share 0.3 cents).

Corero held net cash⁴ of $4.4 million at 31 December 2022 (31 December 2021: $8.4 million), comprising:

•     Cash at bank of $5.6 million as at 31 December 2022 (2021: $11.2 million); and

•     Debt of $1.2 million (2021: $2.8 million).

¹ Defined as the normalised annualised recurring revenue and includes recurring revenues from contract values of annual support, software subscription and from DDoS Protection-as-a-Service contracts

 ² Defined as Earnings before Interest, Taxation, Depreciation and Amortisation

³ Defined as Earnings before Interest, Taxation, Depreciation and Amortisation excluding unrealised gains/(losses) on an intercompany loan and PPPL forgiveness

⁴ Defined as cash at bank less debt 

DDoS market dynamics

DDoS attacks continue to be prevalent as a means of cyber-attack, as camouflage for ransomware attacks and even with Ransom driven attacks.

The global DDoS protection market was worth $3.9 billion in 2022 and is expected to reach $7.3 billion by 2027 at a CAGR of 13.2%. Corero operates within a significant segment of this overall market and estimates that the total addressable market exceeds $1.5bn for its SmartWall solutions.

The DDoS mitigation marketplace continues to grow apace as a result of the global acceleration of digitisation and the growing need for Service Providers to deliver uncompromised network access for enterprises to ensure business continuity. This is set to continue with the ongoing proliferation of IoT devices, the roll-out of 5G networks and the increase in cloud services.

Board changes

Subsequent to the year-end, Lionel Chmilewsky resigned from the Board on 28 February 2023. Jens Montanana assumed the role of Executive Chairman with effect from 15 February 2023, and Andrew Miller was appointed Interim Chief Operating Officer with effect from 1 March 2023.

The Board is currently reviewing the process and timeframe for appointing a new Chief Executive Officer.

Outlook

The demand for DDoS protection is expected to remain strong through 2023, with attacks becoming increasingly sophisticated while at the same time the DDoS attack surface is expanding. With the number of recorded attacks on the rise and shifts in attackers' motives and goals,  organisations will need to ensure they have robust DDoS defences in place.

The key focus for Corero across 2023 is to grow our sales pipeline and revenue. The Board is confident that with the operational management team in place, our market-leading SmartWall® solutions and SecureWatch® services, the investment in 2022 in sales and marketing initiatives to build a stronger go-to-market organisation and demand generation targeted to our defined ICP, the Company is now well placed to expand its market coverage and increase sales of SmartWall solutions to new customers. As announced by the Company on 13 April 2023, Q1 2023 has already seen significant orders from both new and existing customers.

The Board remains encouraged by the 2022 increase in new order intake, existing customer expansion and ARR, all achieved against a challenging macro-economic backdrop in the second half of 2022.

Jens Montanana

Executive Chairman

25 April 2023

Consolidated Income Statement

for the year ended 31 December 2022

	Year ended 31 December	Year ended 31 December
	2022	2021
Continuing operations	$'000	$'000
Revenue	20,121	20,895
Cost of sales	(2,576)	(3,112)
Gross profit	17,545	17,783
Operating expenses	(16,869)	(16,642)
Consisting of:
Operating expenses before depreciation and amortisation	(14,926)	(14,450)
Depreciation and amortisation of intangible assets	(1,943)	(2,192)
Operating profit	676	1,141
Other income	-	637
Finance income	7	1
Finance costs	(279)	(406)
Profit before taxation	404	1,373
Taxation credit	150	149
Profit after taxation	554	1,522
Profit after taxation attributable to equity owners of the parent	554	1,522
Basic and diluted earnings per share
	Cents	Cents
Basic earnings per share	0.1	0.3
Diluted earnings per share	0.1	0.3

EBITDA	2,619	3,970
Adjusted EBITDA - for unrealised foreign exchange differences on intercompany loan and PPPL forgiveness in 2021	1,658	3,246

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2022

	Year ended 31 December	Year ended 31 December
	2022	2021
	$'000	$'000
Profit for the year	554	1,522
Other comprehensive (expense)/income:
Items reclassified subsequently to profit or loss upon derecognition:
Foreign exchange differences	(1,087)	(122)
Other comprehensive expense for the period net of taxation attributable to the equity owners of the parent	(1,087)	(122)
Total comprehensive (expense)/income for the year attributable to the equity owners of the parent	(533)	1,400

Consolidated Statement of Financial Position

as at 31 December 2022

	As at 31 December	As at 31 December
	2022	2021
	$'000	$'000
Assets
Non-current assets
Goodwill	8,991	8,991
Acquired intangible assets	2	4
Capitalised development expenditure	4,500	4,528
Property, plant and equipment - owned assets	604	796
Leased right of use assets	62	145
Trade and other receivables	1,571	859
	15,730	15,323
Current assets
Inventories	164	57
Trade and other receivables	5,294	3,206
Cash and cash equivalents	5,646	11,201
	11,104	14,464
Total assets	26,834	29,787
Liabilities
Current Liabilities
Trade and other payables	(3,956)	(4,068)
Lease liabilities	(78)	(94)
Deferred income	(3,323)	(4,677)
Borrowings	(971)	(1,421)
	(8,328)	(10,260)
Net current assets	2,776	4,204
Non-current liabilities
Trade and other payables	(100)	(143)
Lease liabilities	-	(78)
Deferred income	(2,285)	(2,147)
Borrowings	(237)	(1,356)
	(2,622)	(3,724)
Net assets	15,884	15,803
Capital and reserves attributable to the equity owners of the parent
Share capital	6,980	6,914
Share premium	82,284	82,122
Capital redemption reserve	7,051	7,051
Share options reserve	1,777	1,490
Foreign exchange translation reserve	(2,593)	(1,506)
Accumulated profit and loss reserve	(79,615)	(80,268)
Total shareholders' equity	15,884	15,803

Consolidated Statement of Cash Flows

for the year ended 31 December 2022

	Year ended 31 December	Year ended 31 December
	2022	2021
Operating activities	$'000	$'000
Profit before taxation for the year	404	1,373
Adjustments for movements:
Amortisation of acquired intangible assets	2	5
Amortisation of capitalised development expenditure	1,732	1,872
Depreciation - owned assets	497	604
Depreciation - leased assets	82	93
Finance income	(7)	(1)
Finance expense	268	388
Finance lease interest costs	11	18
Share based payments expense	386	522
Paycheck Protection Program Loan forgiveness	-	(637)
Cash generated from/(used) in operating activities before movement in working capital	3,375	4,237
Movement in working capital:
(Increase)/decrease in inventories and sales evaluation assets	(26)	175
(Increase)/decrease in trade and other receivables	(3,867)	223
Decrease in trade and other payables	(1,361)	(1,999)
Net movement in working capital	(5,254)	(1,601)
Cash (used in)/generated from operating activities	(1,879)	2,636
Taxation received	150	149
Net cash (used in)/generated from operating activities	(1,729)	2,785
Cash flows from investing activities
Investment in development expenditure	(1,704)	(1,754)
Purchase of property, plant and equipment	(420)	(421)
Net cash used in investing activities	(2,124)	(2,175)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital	228	-
Proceeds from borrowings	-	2,683
Finance income	7	1
Finance expense	(158)	(238)
Repayments of borrowings	(1,364)	(1,738)
Lease liability payments	(104)	(103)
Net cash (used in)/generated from financing activities	(1,391)	605
(Decrease)/increase in cash and cash equivalents	(5,244)	1,215
Effects of exchange rates on cash and cash equivalents	(311)	(154)
Cash and cash equivalents at 1 January	11,201	10,140
Cash and cash equivalents at 31 December	5,646	11,201

Consolidated Statement of Changes in Equity

for the year ended 31 December 2022

	Share capital	Share premium	Capital redemption reserve	Share options reserve	Foreign exchange translation reserve	Accumulated profit and loss reserve	Total attributable to equity owners of the parent
	$'000	$'000	$'000	$'000	$'000	$'000	$'000
1 January 2021	6,914	82,122	7,051	968	(1,384)	(81,790)	13,881
Profit for the year	-	-	-	-	-	1,522	1,522
Other comprehensive income	-	-	-	-	(122)	-	(122)
Total comprehensive expense for the year	-	-	-	-	(122)	1,522	1,400
Contributions by and distributions to owners
Share based payments	-	-	-	522	-	-	522
Total contributions by and distributions to owners	-	-	-	522	-	-	522
31 December 2021 and 1 January 2022	6,914	82,122	7,051	1,490	(1,506)	(80,268)	15,803
Profit for the year	-	-	-	-	-	554	554
Other comprehensive expense	-	-	-	-	(1,087)	-	(1,087)
Total comprehensive income for the year	-	-	-	-	(1,087)	554	(533)
Contributions by and distributions to owners
Issue of share capital - exercise of options	66	162	-	-	-	-	228
Fully exercised share options	-	-	-	(99)	-	99	-
Share based payments	-	-	-	386	-	-	386
Total contributions by and distributions to owners	66	162	-	287	-	99	614
31 December 2022	6,980	82,284	7,051	1,777	(2,593)	(79,615)	15,884

1.    General Information

This results announcement is presented in US Dollars ("$") rounded to the nearest $'000 unless otherwise stated which represents the presentation currency of the Group. The average $-GBP sterling ("GBP") exchange rates used for the conversion of the Consolidated Income Statement for the year ended 31 December 2022 were between 1.20-1.36 (2021: 1.33-1.41). The closing $-GBP exchange rate used for the conversion of the Group's assets and liabilities at 31 December 2022 was 1.21 (2021: 1.35).

This results announcement has been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The "requirements of the Companies Act 2006" here means accounts being prepared in accordance with "international accounting standards" as defined in section 474(1) of that Act, as it applied immediately before Implementation Period (IP) completion day (end of transition period), including where the Company also makes use of standards which have been adopted for use within the United Kingdom in accordance with regulation 1(5) of the International Accounting Standards and European Public Limited Liability Company (Amendment etc.) (EU Exit) Regulations 2019. The consolidated financial statements have been prepared under the historical cost convention.

The financial statements have been prepared on a going concern basis.

The Directors have prepared detailed income statement, balance sheet and cash flow projections for the period to 30 April 2024 ("going concern assessment period"). The cash flow projections have been subjected to sensitivity analysis of the revenue, cost and combined revenue and cost levels which demonstrate that the Group and Company will maintain a positive cash balance through the going concern assessment period. As part of the sensitivity analysis, the Directors have noted that should the forecasted revenues not be achieved, mitigating actions can be taken to address any cash flow concerns. These actions include the utilisation of the undrawn revolving credit facility of £1 million, deferral of capital expenditure, reduction in marketing and other variable expenditure alongside a hiring freeze. In addition, the projections confirm that the bank loan covenants will be met during the going concern assessment period.

The Directors are also not aware of any significant matters in the remainder of calendar 2024 that occur outside the going concern period that could reasonably possibly impact the going concern conclusion.

The Directors have also considered the geo-political environment, including rising inflation in some of our key markets and the conflict in Ukraine, and whilst the impact on the Group is currently deemed minimal, the Directors remain vigilant and ready to implement mitigation action in the event of a downturn in demand or an impact on operations.

On this basis, the Directors have therefore concluded that it is appropriate to prepare the financial statements on a going concern basis. 

The financial information set out above does not constitute the Company's Annual Report and Accounts for the year ended 31 December 2022. The Annual Report and Accounts for 2021 have been delivered to the Registrar of Companies and those for 2022 will be delivered shortly. The auditor's report for the Company's 2022 Annual Report and Accounts was unqualified and did not contain an emphasis of matter paragraph nor any statement under Section 498 of the Companies Act 2006.

Whilst the financial information included in this results announcement has been prepared in accordance with UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006, this announcement does not itself contain sufficient information to comply with UK adopted international accounting standards.

The Annual Report and Accounts for the year ended 31 December 2022 are available on the Company's website www.corero.com/who-we-are/investor-relations.

The information in this results announcement was approved by the Board on 24 April 2023. 

2.    Segment reporting and revenue

The Group is managed according to one business unit, Corero Network Security, which makes up the Group's reportable operating segment. This business unit forms the basis on which the Group reports its primary segment information to the Board, which management consider to be the Chief Operating Decision maker for the purposes of IFRS 8 Operating Segments.

The Group's revenues from external customers are divided into the following geographies:

	2022	2021
	$'000	$'000
The Americas	14,695	16,042
EMEA	4,388	2,778
APAC	1,038	2,075
Total	20,121	20,895

Revenues from external customers are identified by invoicing systems and adjusted to take into account the difference between invoiced amounts and deferred revenue adjustments as required by IFRS accounting standards.

The revenue is analysed for each revenue category as:

	2022	2021
	$'000	$'000
Software licence and appliance revenue	8,107	10,337
DDoS Protection-as-a-Service revenue	4,854	4,025
Maintenance and support services revenue	7,160	6,533
Total	20,121	20,895

The revenue is analysed by timing of delivery of goods or services as:

	2022	2021
	$'000	$'000
Point-in-time delivery	8,107	10,337
Over time	12,014	10,558
Total	20,121	20,895

 

END