26 April 2022

Corero Network Security plc (AIM: CNS)

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

Full year results

Record performance, strong customer traction and maiden profit

Corero Network Security plc (AIM: CNS), a leading provider of real-time high-performance, automatic Distributed Denial of Service ("DDoS") cyber defense solutions, announces its audited results for the year ended 31 December 2021.

Financial Highlights:

·    Strong revenue growth in the period:

o  Revenues increased 24% to $20.9 million (2020: $16.9 million)

o  Annualised Recurring Revenues¹ ("ARR") up 31% to $12.8 million as at 1 January 2022 (1 January 2021: $9.8 million)

o  Revenue from DDoS Protection-as-a Service (DDPaaS) contracts increased to $4.0 million (2020: $2.9 million)

·    Gross margins of 85% (2020: 77%)

·    EBITDA² of $4.0 million (2020: EBITDA loss of $1.4 million) - a transformation of $5.4 million

·    Adjusted EBITDA³ of $4.1 million (2020: loss of $0.6 million)

·    Profit before taxation of $1.4 million (2020: loss before taxation of $4.0 million)

·    Earnings and diluted earnings per share of 0.3 cents (2020: loss per share of 0.8 cents)

·    Net cash⁴ at 31 December 2021 of $8.4 million (2020: $7.6 million)

Operational Highlights:

·    Significant financial and operational progress, leveraging sales and marketing initiatives alongside established Strategic Alliances and Channel Partners

·    Secured 44 new customers in the period (2020: 42 customers), adding six new countries - Corero now active with customers across 47 countries worldwide

o  18 new customers added through Corero's strategic partnership with Juniper Networks (2020: 17 new customers)

·    Strong growth supported by an expanding DDoS mitigation marketplace, which continues to be fueled by the acceleration of digitisation and the ongoing need for business continuity

·    ARR increased to $12.8 million, underpinning future earnings growth and reinforcing the importance of Corero's solutions for our customers

·    The Group continues to prioritise its market coverage, and remains committed to ongoing investment across its technology platform and teams' expansion to strengthen its market-leading position

Outlook

·    Demand for DDoS mitigation continues to drive record level of activity and pipeline and ongoing new-business momentum, as reflected in both profit and ARR growth

·    Corero has enhanced its growth pillars to deliver sustainable growth, namely market reach, operations, technology and financial performance

·    The Group has very limited exposure to Russia and Ukraine both operationally and from a revenue generation perspective, and therefore expects the conflict to have little direct impact on Corero

·    The Board is therefore confident in Corero's medium- to long-term growth prospects

Lionel Chmilewsky, Chief Executive Officer of Corero, commented: 

"I am delighted to be presenting an outstanding set of financial results including new financial and customers traction. This is testament to our customers appreciation of our solutions and services, our talented people and know-how and our market-leading solutions.

We have secured 44 new customers in 2021 and have, in parallel, significantly strengthened the relationship and level of activity with our strategic alliances and channel partners.

The expansion of our portfolio with the addition of our Edge Threat Defense solution has also increased our addressable market.

We have exited 2021 with a strong new international business pipeline, and we continue to significantly invest in our Sales and Marketing resources and capabilities to strengthen our market reach and penetration.

I feel confident that our strategy and recent achievements will allow us to deliver sustainable growth for our business in the mid and long term.  

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 (including DDPaaS assets' depreciation which is charged to cost of sales) and Amortisation, before share-based payments, and less unrealised foreign exchange differences on an intercompany loan, and PPPL forgiveness - Fully adjusted basis. 

⁴ 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:

About Corero Network Security

Corero Network Security plc is a global leader in real-time, high-performance, automatic DDoS cyber defense solutions. Both Service and Hosting providers, alongside digital enterprises across the globe rely on Corero's award winning cybersecurity technology to eliminate the threat of Distributed Denial of Service (DDoS) to their digital environment through automatic attack detection and mitigation, coupled with network visibility, analytics and reporting. Corero's industry leading SmartWall and SecureWatch technology provides scalable protection capabilities against external DDoS attackers and internal DDoS botnets in the most complex edge and subscriber environments, while enabling a more cost-effective economic model than previously available. Corero's key operational centers located in Marlborough, Massachusetts, USA and Edinburgh, UK, with the Company's headquartered in Amersham, UK. The Company is also listed on the London Stock Exchange's AIM market under the ticker CNS. For more information, visit www.corero.com.

CHIEF EXECUTIVE'S STRATEGIC UPDATE AND OPERATIONAL REVIEW

Introduction

2021 was an extremely productive year for Corero, culminating in the Group reporting a maiden profit before tax for the year ended 31 December 2021 of $1.4 million (2020: loss of $4.0 million). The strong performance reflects the successful implementation of our growth strategy, with the Group delivering continued sales momentum across our operational footprint. We improved against all financial KPIs in the year, achieving positive EBITDA ahead of market expectations at $4.0 million (2020: negative EBITDA of $1.4 million).

In addition, and reflecting the ongoing demand for our products, the Company increased revenues by 24% to $20.9 million in 2021 (2020: $16.9 million). 

Corero also increased Annualised Recurring Revenues ("ARR") during the year to $12.8 million as at 1 January 2022 (ARR at 1 January 2021: $9.8 million), which is a strategically important KPI as it provides visibility and an underpin for future earnings.

This record performance, driven by our highly talented and dedicated workforce, was achieved despite the ongoing backdrop of the Covid-19 pandemic as well as the well documented global supply chain challenges, which are also creating both opportunities and challenges across our business.

The Board of Directors believes that Corero now has the financial and operational platform from which to generate future sustainable growth, with the Company's:

·    access to large and high growth end markets;

·    strong performance of its market-leading technology and global customer service;

·    proprietary intellectual property that underpins its solutions;

·    highly scalable revenue model alongside its relatively short time to market for development; and

·    strong base of existing customers and strategic partnerships.

Strategic Progress

We made significant operational and financial progress in 2021, placing our customers at the heart of everything that we do, as well as leveraging our routes to market to ultimately grow market share.

Key strategic progress included:

·    Increasing our international presence: during 2021, we secured 44 new customers, adding customers in six new countries, with customers in fifteen new countries added over the last two years. Our solutions are now deployed with customers across 47 countries worldwide and across the continents.

·    Leveraging our existing strategic partnerships and developing new ones: 18 customers were added through our partnership with Juniper in the year and we continue to grow our business with GTT.  Furthermore, we made progress in 2021 towards the addition of new and complementary alliances.

·    Intensifying our relationships with global, major and tier one accounts: expanding with large existing customers and adding new ones, with significant traction continued to be achieved in the Hosting Providers, Service Providers and SaaS Enterprise segments.

·    Better monetising our existing services and introducing new services: we continue to explore and provide service initiatives that enhance the protection and network security visibility for our customers.

·    Amplifying our demand generation programmes: increased advertising and marketing efforts have included thought leadership pieces, webinar and other speaking opportunities and segment targeted campaigns.

·    Continuing to increase our technological innovation leadership: since the start of 2013 we have invested over $33 million to-date in R&D, and in 2021 we introduced 100G adoption enablement, multi-tbps provider edge and flow detect and redirect to deliver the widest portfolio of on-premises, and indeed other solutions for our customers; an offering unrivalled by our competitors.

DDoS Market Dynamics

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

The global DDoS protection market was worth c.$3.4 billion in 2021 and is expected to reach $6.8 billion by 2026 at a CAGR of 15.1%. Within this, c.$1.5 billion is the total addressable market for Corero's SmartWall solution, with c.$715 million representing our serviceable addressable market. To quantify this, there were nearly 30,000 daily DDoS attacks recorded in the first half of 2021, a doubling in 24 months.

The DDoS mitigation marketplace continues to grow apace as a result of the global acceleration of digitalisation and the growing need for enterprises to ensure business continuity. This is set to continue with the ongoing proliferation of IoT devices and the roll-out of 5G networks and the increase in cloud services creating a large expansion opportunity for Corero. 

Financial Summary

The Group delivered a profit primarily due to increased revenues coupled with ongoing margin improvement and maintained operating expenses.

The Group generated revenues of $20.9 million in 2021 (2020: $16.9 million), with total operating expenses at a similar level before share-based payments of $16.1 million (2020: $16.4 million) while continuing to invest in sales and marketing expansion and R&D efforts.

·    Operating expenses net of capitalised R&D costs and before depreciation and amortisation of intangible assets and before share-based payments were $13.9 million (2020: $14.1 million). Capitalised R&D costs were $1.8 million (2020: $1.4 million)

·    Operating expenses include a foreign exchange gain of $0.2 million (2020: foreign exchange loss of $0.3 million)

·    Depreciation and amortisation of intangible assets was slightly lower at $2.2 million (2020: $2.3 million)

·    The Company received a $0.6 million credit from the forgiveness of the PPP loan previously received by its US trading subsidiary in 2020 under the US CARES Act (2020: no credit received).  

The Company delivered its maiden positive EBITDA performance of $4.0 million (2020: negative EBITDA of $1.4 million), a transformation of $5.4 million, and Adjusted EBITDA of positive $4.1 million (2020: negative EBITDA of $0.6 million).

In addition, Corero has achieved its maiden profit before taxation of $1.4 million (2020: loss before taxation of $4.0 million) including amortisation of capitalised R&D costs of $1.9 million (2020: $1.9 million).  Profit after taxation was $1.5 million (2020: loss after taxation of $3.8 million), following a UK R&D tax credit of $0.1 million (2020: two years' equivalent of R&D tax credits of $0.2 million). The reported earnings per share was therefore 0.3 cents (2020: loss per share 0.8 cents).

In terms of overall position, Corero held net cash of $8.4 million at 31 December 2021 (31 December 2020: $5.4 million; H1 2020 $3.3 million), comprising:

·    Cash at bank of $11.2 million as at 31 December 2021 (2020: $10.1 million); and,

·    Debt of $2.8 million (2020: $2.5 million)

In April 2021, the Company  entered into a new banking facility for up to £3.0 million (c.$4.1 million), the net proceeds of which are being used for working capital purposes and our on-going investment programme to support our growth strategy ahead.  

Outlook

The demand for DDoS mitigation solutions continues to remain strong in all our key territories and markets. The global acceleration of hybrid working and internet usage due to the Covid-19 pandemic, and now with the uncertainty created as a result of current situation in Ukraine with consequent increased DDoS attack activity, continues to accelerate these trends and the need for Corero's solutions.

The Group has minimal exposure to Russia and Ukraine both operationally and from a revenue generation perspective and therefore we expect the conflict to have little direct impact on our business. We also continue to monitor the semiconductor supply chain shortage closely, and encouragingly there are signs that this is beginning to abate globally.

2021 was a milestone year for Corero as we achieved our first profit, supported by strong revenue growth and heightened demand for our products. The Board of Directors believe that there is significant scope to build on this success, leveraging our technologically superior solutions and enhanced customer-centric sales strategy, which is already yielding results. To this end, Corero will continue to invest in people, marketing and its solutions in the current financial year to provide an even wider and stronger platform for growth for the future. 

In summary, Corero has been building and enhancing its operational and financial platform to deliver sustainable growth given the market opportunities available to our business. This gives us confidence in Corero's medium to long-term growth prospects.

Lionel Chmilewsky

Chief Executive Officer

25 April 2022

Consolidated Income Statement

for the year ended 31 December 2021

¹ See note 2 for reconciliation. 

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2021

Consolidated Statement of Financial Position

as at 31 December 2021

Consolidated Statement of Cash Flows

for the year ended 31 December 2021

Consolidated Statement of Changes in Equity

for the year ended 31 December 2021

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 rate, used for the conversion of the Consolidated Income Statement for the 12 months ended 31 December 2021 was 1.38 (2020: 1.28). The closing $-GBP exchange rate used for the conversion of the Group's assets and liabilities at 31 December 2021 was 1.35 (2020: 1.37).

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 2023 ("going concern assessment period"). The cash flow projections have been subjected to sensitivity analysis at the revenue, cost and combined revenue and cost levels under three different scenarios. The cash flow projections show that the Group and Company will maintain a positive cash balance through the going concern assessment period under the base case and all three sensitivity scenarios. In addition, the projections and sensitivity analyses 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 2023 that occur outside the going concern period that could reasonably possibly impact the going concern conclusion.

The Directors continue to carefully monitor the impact of the COVID-19 pandemic, and its impact on the macroeconomic environment, on the operations of the Group and have a range of possible mitigating actions, which could be implemented in the event of a downturn of the business. However, with COVID-19 driving an increased requirement for workforces to shift to home working and heightened concerns relating to digital security and privacy the Group has benefited from favourable market tailwind.

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 2021. The Annual Report and Accounts for 2020 have been delivered to the Registrar of Companies and those for 2021 will be delivered shortly. The auditor's report for the Company's 2021 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 2021 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 25 April 2022. 

2.    Key performance measures

EBITDA and Adjusted EBITDA

Earnings before interest, tax, depreciation, and amortisation ("EBITDA") is defined as earnings from operations before interest, tax, depreciation, and amortisation charges. The following is a reconciliation of EBITDA and Adjusted EDITDA for the periods presented:

3.    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:

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:

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