Darktrace shares pop 26% after EY concludes accounting review

LONDON — Shares in British cybersecurity firm Darktrace surged 26% on Tuesday after it said auditor EY had concluded a review of the company’s financial processes and controls.

The company was the target of a short sale in February, with New York-based asset manager Quintessential Capital Management accusing it of engaging in a potential fraud that artificially inflated its sales.

But in a press release on Tuesday, Darktrace said EY had completed a review of the company’s contracts and internal financial processes and found “a small number of errors and inconsistencies” in some contracts, but nothing that had a “significant” impact on it. Financial Statements.

Darktrace shares temporarily rose 26 percent to £3.72.

Darktrace says the company has benefited from growing interest in artificial intelligence, thanks to ChatGPT and similar tools.

Darktrace said it expects annual recurring revenue of at least $626.5 million for the full fiscal year ending June 30, up at least 29% year-over-year. The company also said it added 396 net new customers in the June quarter and 1,362 net new customers for the fiscal year, bringing its total customer base to 8,799.

The cybersecurity company said its sales were driven by client interest in generative artificial intelligence. The company uses artificial intelligence itself to combat cyber threats, but also said companies are using its tools to detect and prevent cyberattacks deployed through AI-generating systems.

Darktrace said EY conducted a “thorough review” of its policies, processes and controls. The company identified “a number of areas known to Darktrace where systems, processes, or controls could be improved,” and in assessing its channel processes, “reviewed a risk-weighted sample of new channel contracts and found a small number of errors and inconsistencies”” .

“Both management and the board agree that these are material to the financial statements, and control enhancements in this area are already underway,” Darktrace said.

EY declined to comment when asked by CNBC about its findings.

A copy of the EY report is being voluntarily shared with the Financial Conduct Authority and the Financial Reporting Council, Darktrace said.

Quintessential said the findings “only confirmed our initial concerns”.

“We call on Darktrace to fully disclose the details of EY’s review and foster a public dialogue about its findings,” Quintessential said in a statement posted on Twitter.