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W007, I think there are two separate matters - the Employee Benefit Scheme (EBS) and the shares DT bough back recently and held in treasury.

The EBS is a trust run by independent trustees and is, as such, not under direct DT management control. At last count it controlled 54 866 298 shares or 7.87%. I don't know the precise Terms of Reference but it was established for the benefit of past and present employees and some family members and to manage the pre IPO, not current, outstanding options granted under the legacy option scheme (involving 52MM share if I recall correctly)

The recent buy back of 2 479 678 shares by DT are, in contrast, under direct management control and held in treasury. If I remember correctly, the purpose was to satisfy, in part, DT's current obligations arising from its share incentive programme.

Has anyone scrutinised DT’s accounts for “snake oil” following the outcome of the ML civil court case?

I have again had a cursory look at the accounts but cannot see anything untoward - but if auditors can’t pick up on any wrongdoing what hope have we. The only thing I did pay more attention to was the capitalisation of some commission -allowable evidently - that would otherwise have been an expense in the Income Statement. Had it been expensed it would have reduced the ca$3MM positive EBITDA to something like $15-20MM negative and further increased the operating and net losses. A bit like putting off until later what you could be paying today as I guess it will be amortised in future years.

Any professional accountants on this BB, any thoughts?

Another observation is just how much resource is being used to incentivise management and staff. Many pages in the FY21 repost are dedicated to this matter. Not problem if they continue to produce the goods and focus, too, on creating shareholder value for us.

Apart from all that, tthe bit that concerns me more now that the extent of the deemed fraud is clearer is the liability issue regarding money laundering. From the prospectus:
Quote
Having analysed and considered the relevant circumstances the Directors believe: (a) there is a low risk to the Group of successful prosecution for UK money laundering offences or similar offences in the U.S.; and (b) that the Shares being sold in the Offering are not capable of being criminal property for the purposes of the Proceeds of Crime Act 2002, nor that persons purchasing Shares in the Offering would, by doing so, commit any offence under the Proceeds of Crime Act 2002

However, the consequences of liability under the Proceeds of Crime Act 2002 or similar U.S. laws could be significant for the Group and could include: financial penalties, forfeiture, management time and expense dealing with an investigation and defence, a criminal conviction and future debarment from public procurement. If any of the foregoing occurs, it could result in a material adverse effect on the Group’s business, financial condition, results of operations and prospects.
unquote

CR888 - indeed how to value DARK? What is the value or fair value of a share whose value depends 100% on future earnings?

To me the Price/Sales ratio is only a small part of the overall equation as it does not take into account costs, and is only of any relevance - IMHO - if comparing like with like. Microsoft currently generates free cash, DARK doesn’t.

To me value depends on how much money a company will make for me now and in the future and this depends basically on the Free Cash Flow and the company’s robustness as reflected in the Balance Sheet. FCF is after all the cash left over after all operating, financial and tax expenses are taken into account. So it is the cash available to pay dividends, pay for share buy backs or plough back into the business to make it grow more. For DARK this value is wholly dependent on the future earnings, so DCF analysis is the only way I know of to get any sort of handle on what value or fair value is. And of course there is huge uncertainty associated with this. The question though, is whether one’s own view of the future cash flows is credible or not based on one’s current view of possibilities for the company - and no one else’s. And for DARK these possibilities are looking very good and robust to me.

It is the only way I know, but I am sure that many on this BB will see it differently. Each to their own as we all place our bets depending on our interpretations and that is the “fun” of investing in speculative stocks whose intrinsic value depends mostly or totally upon future earnings.

N99 - Thanks - just read and a very complicated case. One take away is that the definition of Cost of Sales is more important than I thought and something that Getagrip rightly raised. Another is that caveat emptor is not a good defence. I hope DT’s management and BoD take good notice of the judgement and are not tempted to pull the wool over our eyes to the same extent as they are of the same school. Quite frightening that this can go on and not be picked up by auditors in IMHO.

From the risk section of the prospectus and they go into great detail on the matter:
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• The Group may face reputational risk arising out of unlawful, and allegedly unlawful, activities in connection with the sale of Autonomy Corporation plc and related matters.
• The Group may face potential liability arising out of its historic funding by Invoke.
• The Group may face potential liability arising out of unlawful, and allegedly unlawful, activities in connection with the sale of Autonomy and related matters.
Unquote

Thanks Berylfu - a worthy successor to JayneC keeping us updated on things that matter to the future success of DT.

DT’s definition of the Cost of Sales below- Most sales and marketing costs are not part of the Cost of Sales For FY21, COS = $28mm., S&M =. $189mm in addition.

“ Cost of sales scaled largely in line with revenue growth, resulting in gross margins of 89.9% and 91.2% for FY 2021 and FY 2020, respectively. Cost of sales include all costs relating to the deployment of Darktrace's software, whether through physical appliances or in the cloud, and of providing both customer support and supplementary monitoring and response capabilities.”

CR888 - Reasoning fully understood and I support your stance keeping things focussed on DT and impersonal.

Getagrip - I spent 10 years of my life responsible for project evaluation in a very large company in the oil/mineral business and DCF is the only process we used and is the bread and butter approach for most business project evaluations. If that is the definition of a beginner in DCF so be it. I recognise that evaluating high growth companies is more uncertain because of greater clarity in how things will turn out. So any picture painted of the future will be somewhat diffuse but it is also the method used by most brokers and great investors like Buffett. I will continue to use it for my own purposes as it is the only way I know to get a deeper understanding of how a company will add value to me as a investing and non-trading shareholder.

To me the value of this BB is to share information and debate different approaches. Good luck to all in any way you like to invest and trade.

Getafgrip - I respectfully disagree with your interpretation of DCF analysis. If you understand compound interest the concept is very very simple to understand as it is just the reverse. To usefully use it of course one does require a very good and deep understanding of the business and the competing environment and especially on a view as to the growth expected in revenue and in margin starting with the current situation. These numbers are not plucked up from the air but a rational interpretation of future possibilities. It should not be based on a single evaluation but are based upon central assumptions sensitised to give a series of “ what ifs” which would allow a judgement to be made of on the intrinsic value of the business and hence SP. There is no better way to get a handle on the value of a business - but of course any evaluation of future events is always going to be uncertain, but without it one’s understanding is meagre. Relying solely on what Mr Market decides the SP should be and relying on the shape of past movements of the SP graphs to determine the intrinsic value of a business - you are then basing your understanding on what others think and as we know it is mostly irrational.. But each to their own.

Carliol. I am no expert but I though the after trades in the LSE automated Trading System (SETS) are all tagged UT. Are there different ECNs being used in the UK? The trades you listed are all “O” trades which indicate to me that they are though Market Makers. Also I thought if tagged “ unknown” it means that they are either at the midpoint between buy and sell or that they are delayed trades which I thought could be reported by up to 3 days late. So were these trades actually conducted some time ago - it could explain the pricing being outside the buy sell spread.

I always wonder what it means If O or A trades dominate during a trading day as PI almost only use MMs while IIs use both on occasion. So if MM trades dominate, does this mean the trades are largely by PI? Food for thought.

With all this volatility of DTs shares, I thought it worthwhile to see how the actual progress and DT’s growth outlook for Revenue and EBITDA Margin would look if extrapolated to FY23. Revenue growth and EBITDA margin growth is being projected to be about 5% points and 1% points respectively quarter-upon-quarter.

So for FY21 (actual) ; FY22 (outlook); FY23 (outlook)
The gives a year-upon-year grow the rates of (%): 41; 53; 73
Which translates into Revenues of (MM$): 281; 430; 745
And EBITDA Margins of (%) of: 1; 6.5; 10.5
That gives EBITDA of (MM$): 2.8; 28.0; 78.8

The actual EBITDA figures for FY21 already include some special items for this year: - 28.3mm$ for share gifts and taxes (also expected for FY22): -15mm$ for IPO costs and: +18.2mm for lower travel. So the corrected EBITDA are better and the figures for future years should be even higher.

While these extrapolations are far from certain, they are based upon recent progress and are my best guesstimate at the current time. So with DA (Depreciation and Amortization) being about 33mm$, EBIT (profit) figures, derived from the above, would suggest DT reaching profitability within FY23 and hopefully silence some sceptics.

I still sleep easy.

Good point on “worth” W007. For most things, value in money terms - “worth” - is what someone is prepared to pay for something. But for money generating assets - bonds, interest paying deposits, shares …- it is to me only how much money they will make. In other words the present value of future cash flows or intrinsic value. And this of course is dependent on one’s vision as to what those cash flows may be. So what the worth of a share to me is, could be quite different from Mr Market or anyone else so that creates the possible opportunity. I know of no other way as a LTH. Certainly I see more worth in DT than Mr Market at present but I invested close to IPO and my allocation to my speculative pot is spent, so I maintain my discipline and sit on my hands and wait.

VH. Agree about changing your mind when facts/circumstances change (something like that is a quotable quote from John Maynard Keynes). What exactly has fundamentally changed in your view?

Ndn71,
The results are indeed a little better than I extrapolated for FY 2022 in my calculations but not exceptionally so. I don’t think it would add much value to update my IV calculations at this stage as there are still too many uncertainties in future years. The calculations were not meant as a prediction but to try and get a feel as to what the intrinsic value of DT could be as any value now ( present value) depends wholly on future earnings as it is currently unprofitable. Therefore on our vision for the future - your leverage I think.
The updated revenue figures are of course good and the upward trend continues . A further uptick in the positive EBITDA is also encouraging as it means revenues are outstripping costs. The outlook of having a positive free cash flow - to me is more important than EBIT (I.e.profit that includes non cash items) - within the next year or so looks increasingly possible. We remain on track.

GF - good appraisal on the situation regarding ML’s network and committee work in private and public arenas And indeed I should have remembered his continuing role on the S&T committee. Thanks for your important clarification and insight.

So Berrylfu you have a good reason to be concerned if, for any reason, he cannot keep playing a major role in the technical interests of DT and indeed UK INC.

GF - interesting take on IPOs . B Graham came to the same conclusion 60 years ago arguing that they should he regarded with a great deal of suspicion and caution. A commentator on BG’s book felt IPO is also shorthand for: It’s Probably Overpriced or Insiders’ Private Opportunity. (compare Summit’s liquidity Event) Having said that I think we would all have been happy paying 250 for DT had we had the opportunity to do that - while recognising that we would have been buying into a vision rather than a currently viable business.

Berylfu - ML was the inspiration behind DT, and while he still may make suggestions behind the scenes, he no longer has any formal influence o over the company other than as a ordinary shareholder with 15.5% (combined) of the voting rights. My perception is that the MT and the BoD are now well placed to carry on the batten without him.

W007 a good summary. DT, though, have no obligation other than to report the current share holding of Major Shareholders (above 10%?) so the last reported holding is the current shareholding and will eventually be recorded on sites like Market Screener. It is for us, I’m afraid, to keep taps on those share holdings.

What is going to be interesting is when any how the 30% combined holdings of Summit, KKR Vitruvian are going to be offloaded as their liquidity event - the IPO- is done and dusted and they will want to use the proceeds to fish in a different pond. That is what they do. Will the disposals be through secondary placements, a private deal with another player or by feeding the market at an appropriate time? An appropriate time could be on the release of good results - as AB may have done - or what about when the TA charts suggest a screaming buy. That would put the cat amongst the pigeons.

For those few of us who are long term In the games being played we can watch with interest but otherwise complete indifference as it has little effect to the fundamentals of the company.

Definitely a sale by AB, ML’s wife
Had 80.7m shares (11.5%)
Now 76.1m (10.924%)
Sold 4.6m shares (0.6%)

The results were as good as I had hoped - so all good on the fundamental front.