Darktrace has said a review by auditor EY found no evidence of accounting fraud after a short seller questioned the validity of the British cybersecurity company’s financial statements.
Shares in Darktrace rose by as much as 26% on Tuesday. However, the report found areas known to Darktrace where “systems, processes or controls could be improved”.
In February, a report from US asset manager Quintessential Capital Management said it was “deeply sceptical about the validity of Darktrace’s financial statements” and accused it of potentially fraudulent practices to artificially inflate sales.
This sent Darktrace shares to their lowest value since its IPO in April 2021.
Darktrace commissioned the independent review from EY in February in response to the short seller’s allegations.
Darktrace said it gave EY “unrestricted access to all information, employees, partners and customers” necessary for its review.
An analyst note from Jefferies said: “The EY report has cast a shadow of uncertainty over the shares, but we think this statement clears the decks in all respects.”
The EY review highlighted “a small number of errors and inconsistencies” in a sample of new channel contracts.
Jefferies analysts added: “We would be surprised if a forensic audit found none, and these are not material.”
Darktrace is not publishing the EY report, citing its commercially sensitive contents, but said it is voluntarily providing copies to the Financial Conduct Authority and the Financial Reporting Council.
Quintessential called for Darktrace to publish the EY report, adding: “Darktrace’s announcement of EY’s findings does little to mollify our concerns.”
Cathy Graham, CFO of Darktrace, said: “We have developments already underway, on our roadmap or under consideration across relevant areas of the business, including those covered in EY’s review.
“EY provided some valuable recommendations for how we could implement these planned improvements as we move through this journey.”
Darktrace shared the result of the EY investigation alongside its full-year results, which showed year-over-year revenue growth of at least 31%.
The company said it expects full-year 2023 revenue of at least $544.3m.
Founded in 2013 by mathematicians and cybersecurity experts, Cambridge-headquartered Darktrace provides AI tools to monitor for and prevent cyber threats.