13 September 2022

Corero Network Security plc (AIM: CNS)

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

Unaudited H1 2022 Interim Results

Record H1 performance underpinned by strong ARR and new business growth

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 unaudited interim results for the six months ended 30 June 2022 ("H1 2022").

Financial summary:

·      Record H1 2022 order intake¹, increasing by 22% to $10.9 million (H1 2021: $8.9 million)

·      Record H1 2022 Group revenue up 6% to $8.8 million (H1 2021: $8.3 million)

·      Record Annualised Recurring Revenues² ("ARR") up 21% to $13.6 million (H1 2021: $11.2 million)

·      Continued strong gross margin of 88% (H1 2021: 84%)

·      Record EBITDA³ of $0.9 million (H1 2021: EBITDA of $0.1 million)

·      Record Adjusted EBITDA⁴ of $0.3 million (H1 2021: Adjusted EBITDA of $0.0 million)

·      Net cash at 30 June 2022 of $5.8 million (30 June 2021: $5.1 million)

¹Defined as orders received from customers in the period.

² Defined as the normalised annualised recurring revenue and includes recurring revenue from contract values of annual support, software subscription and from DDoS Protection-as-a-Service contracts.

 ³ Defined as Earnings before Interest, Taxation, Depreciation and Amortisation.

⁴ 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.

Operational highlights:

·      Strong market traction including demand from direct customers, channel partners and strategic alliances; and from the Company's broader new business initiatives

·      21 new customer wins secured in the period (H1 2021: 20 new customer wins), eight of which originated through Corero's strategic partnership with Juniper Networks Inc. ("Juniper") (H1 2021: eight new Juniper customers)

·      Corero has deployed its unique solutions in 50 countries across six continents and continues to invest to further expand its global customer reach and technological innovation

·      Planned Sales and Marketing investment to drive revenue growth delivering tangible results:

o  Key hires include Chief Revenue Officer and VP Sales EMEA & APAC  

o  Additional reseller relationships in more geographies

o  Recent customer wins which broaden the Company's international footprint with the entry into a number of new verticals

·      Further strengthened the focus on the Group's Strategic Alliances & Channels activity (including Juniper and GTT):

o  Hired an experienced VP Strategic Alliances & Channels executive to manage and build our channel and alliance network

o  Teamed-up with first class and best of breed third parties to create content and awareness for channel business development

o  Implementing a number of business initiatives to grow business with GTT and Juniper

Outlook:

·      New business pipeline across H2 2022 remains strong with further momentum building beyond current financial year

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

·      The Board remains confident in Corero meeting expectations for FY 2022 revenue and EBITDA

Lionel Chmilewsky, Chief Executive Officer of Corero, commented:

"Corero has maintained its strong sales momentum in H1 2022, building on the record performance in the prior year. Having delivered progress across all our key performance indicators in the period, we are now showing clear signs that our enhanced and customer-centric strategy, alongside expanding our sales and marketing efforts, is delivering further tangible results.

"We will continue to invest in Sales & Marketing, and R&D and will further develop our strong go-to-market strategy to further drive sales momentum, and we look forward to delivering further progress in the current financial year and beyond."

This announcement contains inside information for the purposes of article 7 of the Market Abuse Regulation (EU) 596/2014 as amended by regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310. With the publication of this announcement, this 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 centres are located 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 

Chief Executive's Interim review

Introduction

Corero delivered another strong six months of trading in H1 2022, underpinned by our clearly defined growth strategy, our go-to-market actions and the ongoing protection our solutions provide to customers facing DDoS cyber attacks.

The Group's revenues in the first half of 2022 were $8.8 million (H1 2021: $8.3 million), an increase of 6%. Adjusting for the revenue backlog (comprising orders with H2 2022 customer delivery requests, as opposed to any supply fulfilment delays), the revenue increase would have been 11% on a like-for-like basis. This performance was further highlighted by a record 22% increase in order intake of $10.9 million in the period (H1 2021: $8.9 million).

Additionally, Corero continues to experience high levels of customer retention and renewals, and therefore very low levels of customer churn.  Annualised recurring revenues (ARR) as at 1 July 2021 increased to $13.6 million, an increase of 21% (H1 2021: $11.2 million), driven by growth in DDoS Protection-as-a-Service ("DDPaaS") and software subscription orders. ARR remains a key performance indicator for the Group, providing visibility over future revenue. 

EBITDA profit for the six months ended 30 June 2022 was $0.9 million (H1 2021: $0.1 million), further highlighting the financial progress the Group has made over the last 24 months.

With the day-to-day impact of the Covid-19 pandemic having now broadly dissipated, the Company, and indeed the cybersecurity market, continues to adjust to a new global norm, with individuals and corporations adopting flexible remote working practices. Throughout this period and in the new normal, we have observed an increase in DDoS attacks, and we continue to support our customers with one of the broadest and diverse DDoS defence on-prem and hybrid solution portfolios in the market.

Strategic update

The Group's six core strategic drivers remain ever-present and have been at the heart of the Group's recent operational and financial performance. 

Key progress in the period includes:

·      Increasing our international presence: recent customer wins in H1 2022 included three new countries (Norway, Sweden and Latvia) to reach a total of 50 countries.

·      Leveraging existing and adding new strategic partnerships: The Group is working to implement more business and product initiatives, including with Juniper and GTT. These new initiatives are focused on increasing sales and marketing collaboration alongside a widening of our product solution reach. Additional investment has been made to focus on the management of existing and development of new strategic partners with the hire of an experienced VP Strategic Alliances & Channels executive.

·      Intensifying our global, tier one, and major accounts relationships: customer wins have included significant global enterprises across a number of verticals such as fibre broadband service providers, utilities and research and educational networks. In 2022, existing customers have also continued to expand their use of Corero DDoS solutions to protect their growing business and infrastructure and their own customer bases.    

·      Augmenting our services portfolio: we continue to explore and provide service initiatives that enhance the protection and network security visibility for our customers. 

·      Amplifying our demand generation programmes: we have created targeted content at each stage of the buying cycle, and within the key segments we serve. This includes increasing advertising, targeted and sector-specific email campaigns, customer database intelligence and expansion, and virtual speaking engagements with partners, amongst many other initiatives.   

·      Continuing to increase our technological innovation leadership: we have further strengthened our portfolio of SmartWall products with major software releases, including improved protection against emerging DDoS threats such as so-called carpet bomb attacks and enhanced analytics for DDoS Protection-as-a-Service customers. 

Total addressable market and market drivers

Cybersecurity is a high-growth market and the segment for DDoS protection and mitigation is forecast by MarketsandMarkets to grow from $3.4 billion in 2021 to $6.8 billion in 2026 (a compound annual growth rate ("CAGR") of 15.1% over the forecast period). The drivers of this growth include a rise in multi-vector attacks, availability of DDoS-for-hire services, the impact of growth in IoT devices, the roll-out of 5G services, and growing demand for hybrid DDoS protection and mitigation services and solutions.

In terms of market dynamics, the competition between large Cloud-based DDoS Protection providers is increasing whilst the landscape for on-premises DDoS solution providers is relatively stable. In general, the two solutions remain complementary.

The key market drivers positively impacting Corero include:

·      Continued increase in the level of malicious DDoS activity worldwide; the H1 2022 post-pandemic attack levels are reported as consistently higher than both pre-pandemic and in-pandemic statistics.  In H1 2022 Corero mitigated DDoS 339,000 attacks, an increase of 18% versus H1 2021.

·      The adoption of 100G connectivity is accelerating, with many providers, including existing customers and prospects, increasing the roll out 100G and 400G networking which drives demand for increased DDoS protection capacity.    

Increasing competitive advantage

As DDoS attacks continue to grow in size, frequency and sophistication, they reinforce the need for scalable, accurate and automated DDoS mitigation solutions. Our mission to protect the increasing importance of our customers' internet-facing networks and services drives our product roadmap. Newer network topologies, including Cloud and Edge, offer greenfield opportunities for innovative DDoS protection techniques. Corero has established itself as a pioneer in bringing real-time DDoS detection and mitigation into the Terabit era.  Insights gained from observing millions of DDoS attacks via our SecureWatch service platform not only inform our customers but also serve to provide unique insights into what Corero should build next, to stay at the forefront of our industry.    

Supporting multiple deployment topologies, SmartWall utilises an always-on DDoS mitigation architecture to automatically, and surgically, remove just the DDoS attack traffic.  Corero continues to invest in its market leading solutions through its research and development efforts, and its engineering and customer service teams.

Corero has delivered major software releases in the period which have improved our competitive positioning including:

·      New DDoS mitigation techniques to combat the increasing use of "carpet bomb" attacks, and

·      New DDoS protection service enhancements for self-serve client visibility, analytics and reporting.

In H1 2022, 98% of DDoS attacks were mitigated automatically, without further intervention, by Corero. 

Financial summary

The Group reported revenues of $8.8 million in the six months ended 30 June 2022 (H1 2021: $8.3 million), with improved gross margins of 88% in H1 2022 due to mix effects (H1 2021: 84%). 

Total operating expenses were $7.7 million (H1 2021: $8.4 million), with the following components:

·      Adjusted operating expenses, being those excluding depreciation and amortisation of intangible assets, decreased to $6.7 million (H1 2021: $7.2 million), including the benefits of foreign exchange gains of $1.4 million given the Pound Sterling falling in value against the US dollar in H1 2022, comprising $0.5 million realised (trading) and $0.9 million unrealised (intercompany loan) exchange gains (H1 2021: total exchange loss of $0.2 million).  These exchange gains were offset by the $1.1 million planned investment in the scaling of the Group, particularly in Sales and Marketing ($0.7 million), 

·      Depreciation and amortisation of intangible assets of $1.0 million (H1 2021: $1.1 million), and

·      Capitalised R&D costs of $0.8 million (H1 2021: $0.9 million). 

In relation to other income statement movements, there was no repeat of the one-off benefit in the comparative H1 2021 period of the $0.6 million credit from the forgiveness of the PPP loan recognised to other income. 

EBITDA for H1 2022 was $0.9 million (H1 2021: $0.1 million) and Adjusted EBITDA, adjusted for items as set out in Note 6, was $0.3 million (H1 2021: $0.0 million).   

Loss before and after taxation was further reduced to $0.3 million (H1 2021: loss of $1.2 million). The reported loss per share was 0.01 cents (H1 2021: loss per share 0.3 cents).

Gross cash at bank as at 30 June 2022 was $7.5 million (30 June 2021: $8.8 million; 31 Dec 2021: $11.2 million) and, following scheduled repayment of debt, borrowings were $1.7 million (30 June 2021: $3.7 million; 31 Dec 2021: $2.8 million). Net cash at 30 June 2022 was $5.8 million (30 June 2021: $5.1 million; 31 Dec 2021: $8.4 million).

Net cash from operating activities before working capital in the first six months was a net improvement of $1.3 million (H1 2021: net reduction of $0.1 million).  There was a decrease in working capital in H1 2022 of $2.5 million (H1 2021: working capital decrease of $1.8 million), following an increase in trade and other receivables flow and a reduced trade and other payables movement.  The trade and other receivables movement was driven by foreign exchange, and the trade and other payables movement reflected a reduction of deferred income (due to seasonality of invoicing) and foreign exchange.  Net cash used in investing activities included similar sustained investment in R&D of $0.8 million (H1 2021: $0.7 million spend), with capex investment also of a similar magnitude at $0.3 million (H1 2021: $0.2 million).  

H1 2021 included $1.9 million of net proceeds from borrowings, whereas H1 2022 included repayments of borrowings of $0.9 million.   

Overall, and largely attributable to the changes in cash flows from financing activities, cash and cash equivalents for H1 2022 decreased by $3.3 million (H1 2021: decrease of $1.3 million). 

Corero's enhanced sales and go-to-market strategy

In H1 2022 Corero made significant planned investment in the sales execution and enhancing the go-to-market strategy as part of the continued strategy to scale the business in order to deliver strong growth in H2 2022 and beyond. 

·      Hired an experienced Chief Revenue Officer and a VP Sales EMEA & APAC.

·      Under the leadership of the Chief Revenue Officer, the sales team has expanded by a third since 2021 augmenting the existing team with new talent.

·      Hired an experienced VP Strategic Alliances & Channels executive to strengthen relationships with partners and expand the channel and alliance network.  

Corero is already seeing returns from this investment which we are confident will position the business to deliver strong growth in H2 2022 and the future.

In H1 2022 we have:

·      Added 21 new customers (H1 2021: 20 new customers), including eight through our global resale partnership with Juniper (H1 2021: eight new Juniper customers).  Corero was particularly successful in the fibre broadband sector with the addition of several major service providers as new customers in Europe and in the US. 

·      Continued to grow with our customers as they grow their networks and capabilities.  For example, since the half year, Corero has secured incremental orders of over $1.9 million from a global market-leading SaaS provider.

·      Implemented a number of new initiatives designed to further deepen our strategic partnerships.

·      Invested in new demand generation programmes and marketing initiatives.

Corero enters H2 2022 with growth in ARR, a revenue backlog of $0.6 million (H1 2021: $0.2 million) and a strong and growing pipeline.

Outlook

The global DDoS mitigation market remains strong, which coupled with Corero's technological superiority, cost-effectiveness, and efficacy, continues to underpin customer traction.  Our expectation is that the strong cybersecurity market dynamics and demand for Corero's solutions will remain robust despite wider economic conditions and cycles given the critical nature of the products and services to protecting businesses. 

Our focus on sales and marketing and defined go-to-market strategy, as well as the further development of sales channel partners, will further support our strategic ambitions to grow our customer base.

We expect that H2 2022 will, consistent with seasonality patterns of business in previous years, display characteristic significant greater weighting of business activity towards the end of the year. 

Based on our record H1 2022 performance, growth in ARR and order intake and new business pipeline, we remain confident that trading for the FY 2022 to be in-line with market expectations and believe Corero is well-placed for further growth in the medium and long term.

Lionel Chmilewsky

Chief Executive Officer

12 September 2022

Condensed Consolidated Income Statement

for the six months ended 30 June 2022

     ¹ See note 6 for definitions and reconciliation. 

Condensed Consolidated Statement of Total Comprehensive Income

for the six months ended 30 June 2022

Condensed Consolidated Statement of Financial Position

as at 30 June 2022

Consolidated Interim Statement of Cash Flows

for the six month period ended 30 June 2022

Consolidated Interim Statement of Changes in Equity

for the six month period ended 30 June 2022

Notes to the interim financial statements

1. General information and basis of preparation

Corero Network Security plc (the "Company") is a company domiciled in England. The condensed consolidated interim financial statements of the Company for the six months ended 30 June 2022 comprise the Company and its subsidiaries (together referred to as the "Group"). 

These condensed interim consolidated financial statements have been prepared in accordance with UK-adopted IAS 34,"Interim Financial Reporting". They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the Annual Report and Accounts for the year ended 31 December 2021 ("2021 Annual Report and Accounts"). The financial information for the half years ended 30 June 2022 and 30 June 2021 do not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act 2006 and have neither been audited nor reviewed by the Group Auditor.

The annual financial statements of Corero Network Security plc are prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The comparative financial information for the year ended 31 December 2021 included within this report does not constitute the full statutory accounts for that period.  The statutory Annual Report and Financial Statements for 2021 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Accounts for 2021 was unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

There have been no related party transactions or changes in related party transactions described in the latest Annual Report and Accounts that could have a material effect on the financial position or performance of the Group in the first six months of the financial year. 

These consolidated interim financial statements were approved by the Board on 12 September 2022 and approved for issue on 13 September 2022.

A copy of this Interim Report can be viewed on the company's website: www.corero.com. 

2. Significant accounting policies

The basis of preparation and accounting policies used in preparation of these interim financial statements have been prepared in accordance with the same accounting policies set out in the 2021 Annual Report and Accounts. 

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.  Consequently, there are no separable 'other segmental information' not otherwise showed in these Condensed Consolidated Financial statements. 

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:

4. Taxation

Due to the utilisation of past tax losses, the Group does not recognise a material taxation income tax expense or credit. The tax receipt(s) in the prior annual period relates to research and development expenditure tax credit(s). 

5. Earnings per share

Earnings/(loss) per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period.  The effects of anti-dilutive ordinary shares resulting from the exercise of share options are excluded from the calculation of loss per share. 

Diluted loss per share

Diluted earnings per share

6.  Key performance measures

EBITDA and Fully Adjusted EBITDA

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

7. Analysis of changes in net cash (cash and cash equivalents, and borrowings) 

The movement in the period is a combination of the actual flow (from operating, financing and investing activities) and the exchange rate movement. 

Paycheck Protection Program Loan

For the comparative period, notification of the PPP loan forgiveness in full was received from Pacific Western Bank on 28th January 2021. The forgiveness of the PPP loan was a non-cash movement.