Unaudited H1 2024 Interim Results

24 September 2024

Corero Network Security plc

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

Unaudited H1 2024 Interim Results

Strong contract momentum and channel partnerships underpin financial and operational growth

FY 2024 results expected to be in line with expectations

Corero (AIM: CNS) (OTCQB: DDOSF), the distributed denial of service ("DDoS") protection specialists, announces its unaudited results for the six months ended 30 June 2024 ("H1 2024" or the "Period").

Financial Highlights

·    Group revenue up 16% to $12.2 million (H1 2023: $10.5 million)

·    Order Intake¹, which reflects revenues to be recognised over the lifetime of each of the contracts, up 10% to $14.2 million (H1 2023: $13.0 million)

·    Annualised Recurring Revenues² ("ARR") up 12% to $17.2 million (H1 2023: $15.3 million)

·    EBITDA³ profit of $0.7 million (H1 2023: loss of $0.2 million)

·    Gross margins remained high and consistent at 91% (H1 2023: 91%)

·    Debt free with a net cash balance of $7.9 million (H1 2023: $6.2 million)

¹ Order intake is defined as orders received from customers in the period.

² ARR is defined as the normalised annualised recurring revenues and includes recurring revenues from contract values of annual support, software subscriptions including terms greater than one year, and from DDoS Protection-as-a-Service ("DDPaaS") contracts.

³ EBITDA is defined as earnings before interest, tax, depreciation, and amortisation.

Operational Highlights

·    Generated significant contract momentum across H1 2024 delivering robust incremental revenue growth in the Period

·    Secured new sales partnership agreements, broadening the Group's sales footprint in Latin America, Europe and the US

·    Launched new services, including SmartWall ONE^TM Service Portal and the Corero DDoS Intelligence Service, an automated, AI-assisted subscription service

·    Commenced trading on the OTCQB Venture Market, a regulated US stock exchange, to increase the Group's US investor reach

Outlook

·    Excellent trading performance across H1 2024, reflecting good progress in accelerating the Group's go-to-market strategy announced on 25 April 2024

·    Strong momentum expected to continue across the remainder of the current financial year

·    Management remains confident that the full year results will be in line with market expectations⁴ and believes Corero is well-placed for further growth

⁴ For the purpose of this announcement, the Group believes market consensus for FY24 to be revenue of £25.4m, and adjusted profit before tax of £0.5m.

Carl Herberger, Chief Executive Officer at Corero, commented:

"I am pleased with the operational and financial progress in the first half of the year and confident that our reinvigorated go-to-market strategy will deliver on the ambitious growth targets we have set. These results are testament to the outstanding commitment and skill set of the Corero team which continues to ensure our products and services are not only considered best in class by our customers but also industry experts.

Our ARR growth demonstrates the long-term value and trusted customer relationships we continue to develop, whilst our strong balance sheet provides us with the foundations to build on our current growth trajectory.

As DDoS attacks continue to surge and nascent trends emerge, we remain in prime position to grow our share of the DDoS protection market. We are focused on new business and channel partnership opportunities to ensure corporations are effectively safeguarded from these highly disruptive and harmful cyberattacks."

Enquiries:

About Corero Network Security

Corero Network Security is a leading provider of DDoS protection solutions, specialising in automatic detection and protection solutions with network visibility, analytics, and reporting tools. Corero's technology protects against external and internal DDoS threats in complex edge and subscriber environments, ensuring internet service availability. With operational centres in Marlborough, Massachusetts, US, and Edinburgh, UK, Corero is headquartered in London and listed on the London Stock Exchange's AIM market (ticker: CNS) and the US OTCQB market (OTCQB: DDOSF).

For more information, visit www.corero.com, and follow us on LinkedIn and X.

Chief Executive Officer's Review

Introduction

Corero has continued its 2023 positive trading momentum, maintaining strong levels of new business success across H1 2024 including competitive wins displacing incumbent solutions, contract renewals and strategic relationship expansions. Corero's go-to-market strategy is producing tangible results and new business traction, further elevating the Group's reputation and position within the fast-growing and innovation-driven DDoS security market.

This ongoing operational progress has resulted in the Group delivering a strong financial performance during the period, with revenues up 16% to $12.2 million (H1 2023: $10.5 million) and EBITDA growing to $0.7 million (H1 2023: loss of $0.2 million).

Corero generated ARR growth of 12% to $17.2 million (H1 2023: $15.3 million), which can be attributed to the Group's enhanced software subscription-based products, revamped pricing strategies and best in class DDPaaS offering, as well as increased upsell and cross sell momentum. ARR is a key performance indicator for Corero and the continued growth in this metric demonstrates the Group's strong customer retention track record whilst providing a solid base to support further customer acquisition and geographic expansion. Gross margins were consistent at 91% (H1 2023: 91%).

Order intake, which reflects revenues to be recognised over the lifetime of each contract, increased 10% to $14.2 million (H1 2023: $13.0 million), demonstrating the effectiveness of the Group's investment in sales and marketing activities.

The Group reported a healthy net cash balance of $7.9 million (H1 2023: $6.2 million) and has no outstanding debt.

A key growth initiative across FY 2024 has been to expand the Group's geographical sales and customer footprint. Corero has secured contracts in eight countries across four continents, adding ten new direct customer wins in the period, in addition to new deals facilitated by strategic alliance partners with extensive networks across target regions. Five of the new direct customer wins in the period were replacements of a competitor as incumbent provider, building on the recently implemented strategy to strategically target competitor customer renewals.

During the period, Corero commenced trading on the OTCQB, a regulated US stock exchange. The listing enhances Corero's US market reach and investor engagement and is highly complementary to Corero's existing AIM listing.

The DDoS attack landscape continued to evolve during the period, with threat actors inflicting severe financial and reputational damage on companies operating across a vast array of sectors worldwide. As new technology and the proliferation of AI continue to fuel the rise in global DDoS offensives, demand for Corero's best in class DDoS protection and mitigation services is expected to remain strong for the foreseeable future.

Strategic Priorities

Corero is focused on executing the following key strategic priorities to accelerate both operational and financial progress in the near to medium term:

·    Further increase customer base and market reach organically

·    Leverage strategic alliances and partnerships to expand global footprint

·    Enhance monetisation of existing services and introduce new services

·    Expand demand generation marketing capabilities and refine thought leadership campaigns

·    Increase investment in technological innovation to remain at the forefront of the market

As highlighted below, Corero has made significant progress across all of its strategic priorities, with a particular focus on new business generation and extending the Group's sales reach globally.

Operational Review

A key feature of 2024 has been to both drive our new business efforts globally and to share these successes with the Group's key stakeholders. Since January 2024, the Group has secured a steady flow of contract renewals, expansions and new mandates, many of which are listed below:

·    Significant contract renewal and expansion with a leading US SaaS provider, valued at over $2 million over three years, enabling Corero to expand the customer's existing DDoS protection infrastructure to support its continued international growth

·    3-year, $1.8m partnership with TierPoint, a leading provider of secure, connected IT platform solutions, to provide the backbone for its next-generation DDoS defence infrastructure, replacing the incumbent solutions provider

·    3-year, $1 million plus contract with a top-10 US fiber provider, with Corero replacing the incumbent solutions provider in a number of the provider's US data centres

·    $1 million plus, 3-year contract extension with DigitalOcean, a leading US cloud computing provider, expanding the current range of services provided by Corero

Corero has continued to focus on securing channel partners to broaden the Group's routes to market and, more importantly, expand the Group's global reach. These include:

·    3-year partnership with leading global hosting services provider RoyaleHosting to integrate Corero's award-winning DDoS mitigation technology across its global network infrastructure.

·    New 3-year partnership with US-based A2 Hosting, an existing Corero customer and leading provider of high-performance hosting solutions.

·    New strategic partner agreements in Latin America with NovaRed, VGL, and GreyMatter post-period end.

The new partnerships complement the Group's established relationships with Juniper Networks, GTT Communications and Akamai Technologies ("Akamai"), broadening Corero's market reach.

Product Innovation

Corero continues to invest in, and evolve, its market-leading solutions through R&D investment. Insights gained from observing millions of DDoS attacks not only inform customers but also serve to provide unique data which underpins the development of the Group's technology roadmap, ensuring Corero remains at the forefront of the industry and well-positioned to respond to the latest DDoS cybercrime trends.

The Group launched the Corero DDoS Intelligence Service ("CDIS") in March 2024, an automated, AI-assisted service for Corero SmartWall ONE™ customers delivering pre-emptive attack mitigation before the first attack is even detected. In June 2024, the Group launched its SmartWall Service Portal, with new features including executive reports and tenant prospecting.

DDoS Addressable Market and Market Drivers

The global DDoS mitigation market continues to grow at pace and is expected to be worth an estimated $9.1 billion by 2030*. Corero operates within a significant segment of this overall market and estimates that the total addressable market for its SmartWall ONE solution exceeds $2.0 billion.

Latest trends, including the emergence of high-performance botnets** and the deployment of AI, has enabled threat actors to increase the scale and frequency of DDoS attacks whilst keeping costs and time expenditure low, meaning securing sophisticated DDoS protection services such as those Corero offers is becoming even more crucial for businesses dependent on online operations.

North America is estimated to account for 39% of the global DDoS protection and mitigation market growth in the period to 2027***. Corero's partnership with Akamai, together with investment in US sales and marketing initiatives and strategic North American recruitment, means the Group remains well placed to capitalise on new customer opportunities within the US market. Hactivism associated with Russia's invasion of Ukraine has also exacerbated the DDoS attack threat level in Europe whilst attacks are also prevalent in other key geographies where Corero is actively growing its influence.

^* MarketsandMarkets - DDoS Protection and Mitigation Security Market Report, https://shorturl.at/gsCKX.

^** A botnet is a network of interconnected computers or devices that are infected with malicious software, allowing a remote attacker to control them without the users' knowledge or consent.

^*** Technavio - DDoS Protection Mitigation Market by Component, Application, and Geography - Forecast and Analysis 2023-2027, https://www.technavio.com/report/ddos-protection-mitigation-market-analysis.

Senior Management and Board Changes

Chris Goulden was appointed Corero's Chief Financial Officer in May 2024, replacing Phil Richards.  Chris has over 15 years' experience in finance and operational roles across international B2B service environment and spent 13 years at CBRE Global Workplace Solutions, a US-listed global facilities management and property services provider, in a number of senior finance roles.

Robert Scott was appointed Non-Executive Director in April 2024, bringing to Corero over 30 years of network and cybersecurity experience. Mr Scott is currently Chief Strategy Officer of Silversky, Inc., a provider of cybersecurity managed services, Chairman of AssetPass, a disruptive fintech startup, and is also on the Customer Advisory Board of Fortinet, a global leader in cybersecurity.

Peter George, who had previously announced his intentions to step down as a Non-Executive Director, informed the Board that he wished to remain a Corero director. The Board unanimously agreed that Mr George continues in this role.

Outlook

Corero delivered a strong trading performance across H1 2024, reflecting good progress in accelerating the Group's go-to-market strategy. This momentum, underpinned by new and existing channel partnerships, alongside new customer wins, is expected to continue across the remainder of the current financial year.

With this positive trend, coupled with the continued strong global demand for DDoS mitigation solutions, management remains confident that FY 2024 results will be in line with market expectations and that Corero is well-placed for further growth.

Carl Herberger

Chief Executive Officer

23 September 2024

Chief Financial Officer's Review

The Group reported revenues of $12.2 million in the six months ended 30 June 2024 (H1 2023: $10.5 million). Gross margin remained high during H1 2024 at 91% (H1 2023: 91%).

Total operating expenses before depreciation and amortisation were $10.4 million (H1 2023: $9.7million). When adjusting for realised and unrealised FX movements on trading and intercompany balances, operating expenses for H1 2024 amounted to $10.4 million (H1 2023: $8.9 million). The underlying $1.5 million increase in operating expenses year-on-year is primarily attributable to additional investment across the Group to support future growth, notably sales and marketing activities.

Depreciation and amortisation of intangible assets amounted to $1.0 million (H1 2023: $0.9 million), with capitalised R&D costs of $1.1 million (H1 2023: $0.9 million). 

EBITDA for H1 2024 was a profit of $0.7 million (H1 2023: loss of $0.2 million). Adjusted EBITDA, adjusted for unrealised FX losses of $nil (H1 2023: losses of $0.4 million), was a profit of $0.7 million (H1 2023: $0.2 million).   

Loss before taxation was $0.2 million (H1 2023: loss of $1.2 million) and loss after taxation was $0.3 million (H1 2023: $1.2 million). The reported loss per share was 0.1 cents (H1 2023: loss per share 0.2 cents).

Cash and cash equivalents for H1 2024 was $7.9 million (H1 2023: $6.2 million; FY 2023: $5.2 million), an increase of $2.7 million in the six month period (H1 2023: increase of $0.7 million). There was no outstanding debt at 30 June 2024.

Chris Goulden

Chief Financial Officer

23 September 2024

Condensed Consolidated Income Statement

for the six months ended 30 June 2024

¹ See note 6 for definitions and reconciliation.

Condensed Consolidated Statement of Total Comprehensive Income

for the six months ended 30 June 2024

Condensed Consolidated Statement of Financial Position

as at 30 June 2024

Condensed Consolidated Statement of Cash Flows

for the six month period ended 30 June 2024

Condensed Consolidated Statement of Changes in Equity

for the six month period ended 30 June 2024

Notes to the Condensed Consolidated 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 2024 comprise the Company and its subsidiaries (together referred to as the "Group").

1.1 Basis of Preparation

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 2023 ("2023 Annual Report and Accounts"). Estimates and judgements that can have a significant impact on the Group's interim  consolidated financial statements are the same as that of the prior year annual financial statements. The financial information for the half years ended 30 June 2024 and 30 June 2023 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 2023 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2023 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Accounts for 2023 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 23 September 2024 and approved for issue on 24 September 2024.

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

1.2 Going Concern

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 31 September 2025 ('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 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 deferral of capital expenditure, reduction in marketing and other variable expenditure alongside a hiring freeze.

The Directors are also not aware of any significant matters in the remainder of calendar 2025 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 the Middle East, 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.

2. Material 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 2023 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 is no separable 'other segmental information' not otherwise shown 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.

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.

6. Key performance measures

EBITDA and 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 adjustment for all three periods presented: