H126 performance reflects key strategic initiatives
Corero’s H126 results provide clear evidence that the growth and operational leverage
we highlighted in our recent research are now coming through. These initiatives include a much broader product portfolio,
which dramatically increases the addressable market opportunity, as well as the more
recent sales channel optimisation.
The H126 revenue increase of 42% y-o-y to $15.5m represents the fastest rate of growth
the business has seen in recent years and reflects Corero’s much expanded addressable
market, thanks to new product introductions. The investments over the last two years
include the Corero Observability & Resiliency Ecosystem (CORE), the next-generation
400G platform, Zero Trust Admission Control solutions and the WAAP product.
We have noted in previous research that these products serve a materially expanded
total addressable market (TAM) of $77bn, of which Corero has a current tiny market
share. As management highlighted on the H126 conference call, 50% of all new business
leads include some element of demand for the newer solutions, which changes both the
likely conversion rate on proposal requests and also raises the potential size of
new contracts. Moreover, the newer solutions are marketed on their individual merit
to new and existing customers and gaining traction. Corero continues to receive industry
accolades and in March was named 'Most Innovative DDoS Protection Solution' by Cyber
Defence Magazine at the RSA Conference. More recently, Corero has retained its position
as a leader and as the 'Emerging Innovator' in the 2026 SPARK Matrix for DDoS mitigation.
Gross margins were a little stronger than expected in H126 at 93.4%, due to the better-than-expected
revenues from one-off licence sales. In contrast to other providers, Corero has always
noted that it would offer customers the choice between licence and subscription purchasing
options, and in H1 several of the larger telecom customers chose the licence purchase
or capex option. This sustained high gross margin together with a very modest operating
cost increase of just 5% delivered adjusted EBITDA of $2.7m, compared to a loss of
$1.3m in H125.
Order intake increased 14% to $14.3m (H125: $12.5m) and annualised recurring revenue
(ARR) increased by 12% to $24.1m (H125: $21.6m). We note that the sequential increase
in ARR was modest compared with the December 2025 figure of $23.9m, which was due
to several factors. We have noted already the higher than anticipated demand for licence
transactions in the period. We also note the timing of several substantial orders
that fell early in H226 such as a $1.4m, 3-year contract and a $3.4m, 5-year contract,
both with Tier 1 Telecoms companies. Management noted on the call that the historical
strong ARR progression is expected to be restored by the end of the year.
The initiatives implemented by the new president of channel sales (Michelle Ragusa-McBain)
include a refreshed channel partner programme and go-to-market strategy. While these
initiatives will have certainly contributed to the H126 performance, we believe the
positive impact and improvements will be ongoing.
The net cash balance at the end of the H126 was $2.1m, down from $4.0m in December
2025. This was mainly the result of a working capital cash outflow of $2.6m, including
a $2.4m impact from the trade receivables increase as the business continues to adjust
to the broader trend for subscription services and the slightly less favourable cash
flow profile. Management has noted that it expects a partial reversal of the working
capital outflow over H226 and expects the business to be free cash positive for 2026
and beyond. We expect year-end net cash to show a small increase on last year at $4.3m.
Forecast revisions
We have made significant revisions to our forecasts, which are summarised below. Our
forecasts allow for a normalisation of the gross margin over H226 and also for generous
operating expenditure to support the growth initiatives, such as investment in the
channel strategy changes. Nevertheless, we are raising our FY26 adjusted EBITDA forecast
by 62% with a comparable increase made in 2027. These revisions reflect our core thesis
for the company, expressed in our recent Outlook report, that 2026 is a year in which Corero will step up a gear and begin to demonstrate
the revenue growth and operational leverage that will result from the last two years
of strategic investments.
