So it seems like they've been overstating emite contracted ARR by 15-30%. A few things:

• It shouldn't read as a benign "Changes to...", it's really "Restatement of Errors..."
• Another reminder that you need to put a significant discount on unaudited figures
• While I don't think there's anything nefarious going on, it is at best clumsy (and some less generous adjectives come to mind). Just because it's unaudited doesn't give them a leave pass. It's a key metric and they're not so big that it's a huge job to scan the list by customer and work out what shouldn't be there.
• Understandably the SP is down over 20% at time of writing, though my thesis is based less on the absolute ARR numbers and more on the direction and rate of change, combined with their ability to generate cash ahead of earnings. An opportunity? Maybe, but I think I'll wait to see H1 results - I've been wanting to see higher Snare ARR (not impacted by this announcement) convert to revenue.
• Management has a job to win back trust. As part of that it might have been helpful to bring forward a broader YTD update, which they usually do at their AGM anyway.
• It's worth noting Prophecy are using contracted ARR rather than ARR. This is well explained by Nick Maxwell here.

[Held]

Prophecy has delivered a substantial turn around in cashflow in Q3, with a $3.0m increase in its cash position since the end of 2022. That compares to a $3.2m outflow in the first half. Larger subscriptions were flagged as being weighted to H2 and management had indicated that cashflow would be positive for the full year. This was evidenced by invoicing, which was almost as high in Q3 as it was for all of 1H.

Annual Recurring Revenue continues to grind higher, up $0.7m to $21.3 since they last reported, although government agencies are continuing to opt for perpetual licenses. The combined sales pipeline for eMite and Snare is roughly equivalent to their last report. Management expect cashflow to remain positive for the remainder of FY23.

At an EV of about $28 million the valuation doesn't look stretched for a company that is growing at the rate it is and can pay it's own way. However the market reaction has been 'meh'. Like many of the companies I own the buy/sell spread is daunting.

[Holding]

First half highlights for Prophecy were released today and they were ok-ish, provided you stood back from the screen, squinted really hard and didn't compare them too closely to your modelled results.

Revenue was $9m, up 18% on pcp (which is good) but only up 2% HoH (which is not so good).

ARR stood at $20.6m as at 31 December, which is up 33% YoY (which is good) and 12% in the past 6 months (not awful).

They won some solid new contracts, including the Dept of Defense, which is a great reference site for a company with a cyber security offering.

The bit that's worrying me is cash. The closing cash balance was around $10 million, which suggests they've burnt through about $3 million this half. That's a little concerning when your thesis relies on them utilising their negative working capital model to bring in the cabbage. They are in that awkward position companies go through when they're trying to transition from perpetual to annual recurring license sales and it's difficult to make too many conclusions without a full set of accounts. However, it is something that I'll be keen to look at when they do release their results after 21 February.

[Bought a small amount IRL recently as I thought they were oversold and might get a boost at the half year - less convinced of that now]