WithSecure Corporation interim report January-March 2023: Cloud revenue growth 31%, consulting impacted by uncertainty of the financial sector

WithSecure Corporation, Interim report January-March 2023, 20 April 2023 at 8:00 EEST

Interim Report 1 January – 31 March 2023 (“1^st quarter” or “Q1 2023”)

WithSecure Corporation interim report January-March 2023: Cloud revenue growth 31%, consulting impacted by uncertainty of the financial sector

Highlights of January – March 2023

• Annual Recurring Revenue (ARR)¹ for cloud products² increased by 27% to EUR 81.5 million (EUR 64.1 million)
• ARR growth from previous quarter was 2 %
• Net Revenue Retention for cloud products was 110%
• Revenue from cloud products increased by 31% to EUR 19.9 million (EUR 15.2 million)
• Revenue from on-premise products decreased by 11% to EUR 6.4 million (EUR 7.1 million)
• Revenue from cyber security consulting decreased by 10% to EUR 8.9 million (EUR 10.0 million)
• Adjusted EBITDA was EUR -6.2 million (EUR -5.2 million – Estimated comparable EBITDA³)
• Items affecting comparability (IAC) of EBITDA were EUR 4.6 million (EUR 4.4 million). Of this, EUR 4.5 million related to restructuring activities announced in February 2023

¹ Annual recurring revenue (ARR) of cloud products is calculated by multiplying monthly recurring revenue of last month of quarter by twelve. Monthly recurring revenue includes recognized revenue within the month excluding non-recurring revenues

² Cloud products are Elements, Cloud Protection for Salesforce and Managed Services
³ Estimated comparable EBITDA is used for previous periods to ensure comparability. For explanation, see Note 6 (Reconciliation of alternative performance measures)

WithSecure completed the separation of its Consumer security business into an independent company F-Secure through a partial demerger on 30 June 2022. In this report, WithSecure is presenting consumer security business until its demerger in 2022 as Discontinued operations under IFRS 5. Previous income statements are restated accordingly. For full disclosure of demerger-related presentation, please refer to Note 7 (Discontinued operations).

Figures in this report are unaudited. Figures in brackets refer to the corresponding period in the previous year, unless otherwise stated. Percentages and figures presented may include rounding differences and might therefore not add up precisely to the totals presented.

  
Outlook for 2023 (unchanged)

Annual recurring revenue (ARR) for cloud products will grow by 28 – 34% from the end of 2022. At the end of 2022, cloud ARR was EUR 80.2 million.

Revenue from cloud products will grow by 28 – 34% from previous year. Previous year revenue from cloud products was EUR 68.7 million.

Total revenue of the group will grow by 12 – 20% from previous year. Previous year revenue was EUR 134.7 million.

Adjusted EBITDA will improve from previous year. Previous year’s Adjusted EBITDA (Estimated comparable EBITDA for two first quarters) was EUR -23.2 million. Adjusted EBITDA of fourth quarter of 2023 will be positive.

Medium-term financial targets (unchanged)

WithSecure medium-term financial targets:

• Growth Target: To double revenue organically by the end of 2025 (from year 2021 comparable revenue of EUR 122.8 million)
• Profitability Target: Adjusted EBITDA break-even by the end of 2023 and adjusted EBITDA margin of some 20% by 2025

CEO Juhani Hintikka

WithSecure started the year 2023 with good performance of its cloud portfolio. Cyber security consulting revenue was impacted by the economic uncertainty in the banking sector, but we expect the situation to improve in the next quarters.

Cloud ARR grew by 27%. Cloud revenue grew by 31% to EUR 19.9 million (EUR 15.2 million). The largest growth driver was the rapidly increasing implementation of WithSecure EDR (Endpoint Detection and Response) by our end customers, but also other modules of Elements platform, as well as acquisition of new customers contributed to the growth. We are very pleased with the development of our partner channel. A record number of WithSecure certifications has been obtained by our partners in the first quarter of the year, indicating strong interest in our products among our channel partners.

Managed services revenue grew from the previous year. Main growth markets for the Countercept MDR were UK, Finland, DACH and Benelux. Managed Detection and Response (MDR) market remains highly competitive and winning new customers requires well-focused sales efforts.

Cloud protection for Salesforce revenue continued to grow, especially through customer acquisition in the Asia-Pacific region.

Consulting revenue decreased by 10% to EUR 8.9 million (EUR 10.0 million). The decrease was primarily caused by the uncertainties that impacted on the economy, particularly the financial sector, in the first quarter. Some of the large customers significantly reduced or fully deferred their spending for the quarter, to control their expenses during this unpredictable time. We consider this as a temporary decline in the demand for cyber security services.

We are closely following the European Union regulatory measures on expanding requirements for cyber security governance of digital services, as well as on increasing cyber resilience of high-risk artificial intelligence systems. Compliance with the upcoming legislation will require significant efforts from all market participants involved in the supply of digital and AI services. WithSecure can offer a combination of tools and expertise to assist its customers in improving their cyber resilience and alignment with the new requirements.

WithSecure Adjusted EBITDA was EUR -6.2 million (EUR -5.2 million – Estimated comparable EBITDA in Q1 2022). Improving profitability according to our medium-term targets is an important priority. We expect to reach our goal of positive Adjusted EBITDA in the last quarter of the year.

In February, we announced company-wide change negotiations, to improve the profitability and competitiveness of WithSecure. The negotiations were mostly conducted in the first quarter and led to the termination of 84 positions. In addition, several employments ending for other reasons were not replaced.

In March, we were happy to welcome our shareholders again to attend the Annual General Meeting in person. In addition to the physical meeting, we pioneered full virtual attendance and voting possibility. We hope that the new technology will provide more opportunities for the international shareholders to attend the company decision-making.

Financial performance

mEUR	1–3/2023	1–3/2022	Change %		1–12/2022
Revenue	35.2	32.4	9 %	134.7
Cloud-based security products	19.9	15.2	31 %	68.7
On-premise security products	6.4	7.1	-11 %	27.2
Cyber security consulting	8.9	10.0	-10 %	38.8
Cost of revenue	-10.8	-11.1	-2 %	-47.0
Gross Margin	24.4	21.3	15 %	87.7
of revenue, %	69.3 %	65.8 %		65.1 %
Other operating income 1)	0.4	0.5	-7 %	2.3
Operating expenses 1)	-31.0	-28.7	8 %	-116.7
Sales & Marketing	-17.4	-18.8	-5 %	-79.1
Research & Development	-10.1	-7.6	18 %	-28.4
Administration	-3.6	-2.3	81 %	-9.2
Adjusted EBITDA 2)	-6.2	-6.9	-11 %	-26.7
of revenue, %	-17.6 %	-21.4 %		-19.8 %
Items affecting comparability (IAC)
Restructuring	-4.5
Other items	-0.1
Divestments		-3.1		-1.5
Demerger		-1.3		-1.8
EBITDA	-10.8	-11.4	-5 %	-29.9
of revenue, %	-30.6 %	-35.1 %		-22.2 %
Depreciation & amortization, excluding PPA 3)	-2.6	-2.6	-1 %	-10.1
PPA amortization	-0.6	-0.7	-11 %	-2.5
EBIT	-13.9	-14.6	-4 %	-42.6
of revenue, %	-39.6 %	-45.0 %		-31.6 %
Estimated comparable EBITDA	-6.2	-5.2	19 %	-23.2
of revenue, %	-17.6 %	-16.1 %		-17.3 %
Adjusted EBIT 2)	-8.7	-9.4	-7 %	-36.8
of revenue, %	-24.8 %	-29.2 %		-27.3 %
Result for the period (Discontinued operations)		9.4	n/a	468.5

mEUR	1–3/2023	1–3/2022	Change %	1–12/2022
Performance indicators 5)
Earnings per share, (EUR) (continuing operations) 4)	-0.06	-0.08	-24 %	-0.22
Deferred revenue (continuing operations)	70.3	67.9	3 %	68.6
Cash flow from operations before financial items and taxes	-5.3	1.1	-562 %	-14.1
Cash and cash equivalents	34.5	111.3	-69 %	55.1
ROI, %	-35.5 %	-6.2 %		-30.5 %
Equity ratio, %	78.3 %	73.4 %		79.0 %
Gearing, %	-36.0 %	-53.7 %		-39.9 %
Personnel, end of period	1,245	1,589	-22 %	1,295

¹⁾Excluding Items Affecting Comparability (IAC) and depreciation and amortization. Q3 2022 onwards excludes also costs of services provided to F-Secure under TSA and equivalent income charged for TSA services. 

²⁾Adjustments are material items outside normal course of business associated with acquisitions, integration, restructuring, gains or losses from sales of businesses and other items affecting comparability. For reconciliation and a breakdown of adjusted costs, see Note 6 (Reconciliation of alternative performance measures)

³⁾Amortization of intangible assets from business combinations (PPA, purchase price allocation, related amortizations). 

⁴⁾Based on the weighted average number of outstanding shares during the period 178,179,457 (1-3/2023). Earnings per share has been recalculated for comparative periods using average weighted share amount after share issues.

⁵⁾ Unless otherwise indicated, the comparative period of Q1 2022 includes both continuing operations (WithSecure) and discontinued operations (F-Secure).

Events after period-end

No material changes regarding the company’s business or financial position have taken place after the end of the quarter.

Additional information

This is a summary of WithSecure’s interim report 1 January – 31 March 2023. The full report is a PDF file attached to this stock exchange release. Full report is also available on the company website.

Webcast

WithSecure’s CEO Juhani Hintikka and CFO Tom Jansson will present the results in a webcast starting at 14.00 EEST. The webcast will be held in English and can be accessed at

https://withsecure.videosync.fi/2023-04-20-wsq1ir

Questions in written format are requested in the webcast portal. Presentation material and the webcast recording will be available on the company’s website

Materials | Investor Relations | WithSecure™

Financial calendar

WithSecure will publish its financial information in 2023 as follows:

• 14 July 2023: Half-Year Financial Report for January–June 2023
• 18 October 2023: Interim Report for January–September 2023

WithSecure observes at least a three-week (21 days) silent period prior to publication of financial reports, during which it refrains from engaging in discussions with capital market representatives or the media regarding WithSecure’s financial position or the factors affecting it.

Contact information

Tom Jansson, CFO

Laura Viita, Director, investor relations and sustainability

WithSecure Corporation
+358 50 487 1044
[email protected]

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Attachment

• Interim Report Q1 2023_EN_vF