Darktrace shares pop 26% after EY concludes report into accounting allegations

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

The firm was the target of a short-selling campaign in February, with New York-based asset management firm Quintessential Capital Management accusing it of engaging in potentially fraudulent practices to artificially inflate its sales.

But in a press release Tuesday, Darktrace said EY had concluded its review into the company’s contracts and internal financial processes, and found a “small number of errors and inconsistencies” with some of the contracts — but nothing that would be “material” to its financial statements.

Shares of Darktrace closed provisionally up 26% at £3.72.

Darktrace said it has been benefiting from the rising interest in AI thanks to ChatGPT and tools like it.

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

The cybersecurity firm said its sales got a boost from client interest in generative artificial intelligence. The company uses AI itself in an effort to combat cyber threats, but also said that companies are turning to its tools to detect and prevent cyberattacks that are being deployed via generative AI systems.

EY conducted a “thorough review” of its policies, processes and controls, Darktrace said. The firm identified “a number of areas already known to Darktrace where systems, processes or controls could be improved,” and, when evaluating its channel processes, “reviewed a risk weighted sample of new channel contracts which identified a small number of errors and inconsistencies.”

“Management nor the Board consider these to be material to the financial statements and controls enhancements in this area are already underway,” Darktrace said.

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

Copies of the EY report are being voluntarily shared with the Financial Conduct Authority and the Financial Reporting Council, Darktrace said.

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

“We call upon Darktrace to fully unveil the details of the EY review and facilitate an open dialogue on its findings,” Quintessential said in a statement posted on Twitter.