WithSecure Interim report January - September 2022: Growth of cloud revenue continues, 33% growth year-on-year
WithSecure Corporation, Interim report January - September 2022, 27 October 2022 at 08:00 EEST
Interim report 1 January - 30 September 2022
Growth of cloud revenue continues, 33% growth year-on-year
WithSecure completed the separation of its Consumer security business into an independent company F-Secure through a partial demerger on 30 June 2022, according to the plan first announced on 17 February 2022 by the Board of Directors. In this interim report, WithSecure is presenting consumer security business until its demerger as Discontinued operations under IFRS 5. Previous income statements are restated accordingly.
Figures in this report are unaudited. Figures in brackets refer to the corresponding period in the previous year, unless otherwise stated. Comparative period figures related to income statement have been restated due to the application of IFRS 5. Percentages and figures presented herein may include rounding differences and therefore may not add up precisely to the totals presented.
Highlights of July - September 2022 (Q3)
Continuing operations
- Revenue of WithSecure increased by 4% to EUR 33.5 million (EUR 32.1 million)
- Revenue from cloud-native security products (1) increased by 33% to EUR 17.9 million (EUR 13.5 million)
- Revenue from on-premise security products decreased by 10% to EUR 6.7 million (EUR 7.4 million)
- Revenue from cyber security consulting decreased by 20% EUR to 8.9 million (EUR 11.2 million). On a comparable (2) basis, the revenue decreased by 6%
- On a comparable (2) basis, the revenue growth was 10%
- Annual recurring revenue (ARR) (3) of cloud-native security products grew by 29% to EUR 71.7 million (EUR 55.5 million). ARR growth from previous quarter was 6%
- Adjusted EBITDA (4) of WithSecure decreased to EUR -4.0 million (EUR -1.6 million)
- Items affecting comparability (IAC) for Adjusted EBITDA were EUR 1.0 million (EUR 0.0)
- EBITDA was EUR -3.0 million (EUR -3.1 million)
- Cash flow from operating activities before financial items and taxes was EUR -11.8 million (EUR 3.9 million). Cash flow for comparative period includes both continuing and discontinued operations.
Highlights of January – September 2022
Continuing operations
- Revenue of WithSecure increased by 3% to EUR 98.3 million (EUR 95.5 million)
- Revenue from cloud-native security products increased by 31% to EUR 50.0 million (EUR 38.1 million)
- Revenue from on-premise security products decreased by 9% to EUR 20.5 million (EUR 22.6 million)
- Revenue from cyber security consulting decreased by 20% to EUR 27.7 million (EUR 34.8 million). On a comparable (2) basis, the revenue decreased by 5%
- On a comparable (2) basis, the revenue growth was 9%
- Estimated comparable EBITDA (4) of WithSecure decreased to EUR -17.2 million (EUR -7.2 million)
- Items affecting comparability (IAC) for Adjusted EBITDA were EUR -4.3 million (EUR 0.0 million)
- Cash flow from operating activities before financial items and taxes was EUR -10.7 million (EUR 23.1 million). Cash flow for comparative period includes both continuing and discontinued operations.
(1) Corporate security products excluding on-premise (Business Suite). Cloud Portfolio includes Elements Cloud, Cloud Protection for Salesforce and Countercept.
(2) Comparability of revenue is impacted by the divestments of the UK public sector consulting in December 2021, as well as the divestment of the subsidiary in South Africa in February 2022
(3) Annual recurring revenue (ARR) of corporate security 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.
(4) Estimated comparable EBITDA used as comparison for previous year periods. For explanation of the Estimated comparable EBITDA, see paragraph in the end of Highlights section.
Discontinued operations
- Result of the discontinued operations includes the revenue and expenses directly derived from the Consumer security (F-Secure) business, demerged on 30 June 2022.
- In addition, a distribution gain of EUR 450.5 million for the fair value of the transferring business, net of transferred assets and liabilities at book values, has been recognized in the result of the discontinued operations. The recognition of the liability for the fair value of the transferring business offsets the impact in the company equity.
Starting from the first quarter of 2022, Consumer security (new F-Secure) financials are presented as Discontinued operations according to IFRS 5 standard. The operating expenses are split according to actual ownership of assets, liabilities and resources after the demerger. The resulting figures do not fully reflect the profitability of either business on a stand-alone basis. WithSecure (Continuing operations) expenses include the cost of resources allocated to supporting F-Secure during the transition period. WithSecure will receive compensation for such expenses under the Transitional Service Agreements (“TSA”). Estimated comparable EBITDA is presented as alternative performance measure (“APM”) for profitability to improve comparability between periods until second quarter of 2022. From third quarter of 2022, Adjusted EBITDA includes compensation of F-Secure transition period costs, and no additional adjustments are necessary. Estimated comparable EBITDA excludes activities related to research and development, and cost of facilities held by WithSecure. Comparative periods are adjusted accordingly. For a full bridge between the different performance measures, please refer to Note 5 Reconciliation of alternative performance measures.
| EUR million, | 7-9/2022 | 7-9/2021 | 1-9/2022 | 1-9/2021 | 1-12/2021 |
| Adjusted EBITDA (calculated on the basis of IFRS 5) | -4.0 | -3.1 | -20.6 | -11.8 | -17.2 |
| Research and development | 1.1 | 2.5 | 3.4 | 4.4 | |
| Facilities held by WithSecure | 0.4 | 0.8 | 1.2 | 1.6 | |
| Estimated comparable EBITDA | -4.0 | -1.6 | -17.2 | -7.2 | -11.3 |
Outlook (unchanged)
WithSecure’s financial outlook for 2022 was issued by the Board of Directors on 3 June 2022.
Revenue from cloud-native products will grow by approximately 30% from previous year, accelerating in the second half of 2022. Previous year revenue from cloud-native products was EUR 51.8 million.
Comparable revenue of the group will grow at a low double-digit rate from previous year. Previous year’s comparable revenue, adjusted for divested consulting businesses, was EUR 122.8 million.
Estimated comparable EBITDA will decrease from previous year. The decrease is mainly due to increased investments in new product areas, as well as sales and marketing efforts including brand renewal related to company demerger. The Estimated comparable EBITDA will improve in second half of 2022 compared to the first half.
Medium term financial targets (unchanged)
Medium term financial targets for WithSecure:
- 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’s third quarter of 2022, first one after the demerger of the consumer business, was marked by continued stable growth of the cloud-native revenue. We also made progress on our profitability that improved, as planned, from the second quarter.
Annual recurring revenue (ARR) for the cloud-native security products grew by 29% to EUR 71.7 million (EUR 55.5 million). Revenue for the cloud-native products grew by 33% from the previous year to EUR 17.9 million (EUR 13.5 million) in the third quarter.
WithSecure’s profitability (measured as Adjusted EBITDA) was EUR -4.0 million (EUR -1.6 million).
Our sales pipeline continued to develop favorably across our portfolio; however, the third quarter was from a business cycle point of view heavily back-end loaded. This had some adverse impact on the third quarter ARR.
The Elements portfolio continued on a stable growth path with Endpoint detection and response (EDR) generating the biggest growth. Revenue from the on-premise security products remained at the previous quarter level of EUR 6.7 million. This is a decline of 10% from the previous year (EUR 7.4 million).
Cloud Protection for Salesforce delivered a strong growth on year-on-year basis. We will continue driving this business as a separate unit within our organization to ensure that we maximize scaling of the opportunity.
During Q3 we launched the Europe only Countercept service delivery mode, where the data collected by the service is, in addition to being stored, also accessed only inside Europe. Going forward, we expect this to contribute significantly to our Countercept growth. In September, WithSecure was recognized as one of the top 12 MDR solution providers in a CSO Online study.
Revenue from our cyber security consulting decreased from previous year and was EUR 8.9 million (EUR 11.2 million). On a comparable basis, the reduction of revenue was approximately 6 % from previous year (EUR 9.5 million excluding divested operations). Comparability is impacted by the divestments of the UK public sector consulting in December 2021, as well as the divestment of our subsidiary in South Africa in February 2022. During third quarter, we increased our delivery capabilities through hiring and training consultants. We did not yet see the full financial impacts of this but expect to see improvements of performance over the next quarters, supported by the high demand of consulting services.
Operative cash flow for third quarter was EUR -11.8 million. In addition to operative result, this was caused by the payment of significant demerger related costs in the third quarter, as well as delaying some large payments to third quarter as part of the demerger related arrangements.
In October, we announced plans to introduce a new operating model for the company starting from 1.1.2023. In order for us to further develop our operating model and our strategy execution capability, the proposed model will combine our sales teams to one unified sales organization, making us even more customer-centric than before and enabling us to unlock the opportunities of cross-selling and up-selling our portfolio. We are also combining our R&D teams into one, unified product organization to maximize our product development capabilities.
In September, WithSecure won the Forrester Program of the Year award for creating and launching our new B2B brand. The brand was achieved by using a crowd-sourced approach of engaging a large group of employees, customers, partners and other stakeholders.
In a recent study published by WithSecure, we polled over 3,000 IT decision makers, IT influencers, and top management from organizations in 12 different countries about a variety of business and cyber security topics, including their top priorities and challenges in the near future. Preventing data breaches was by far the most common security priority brought up by the respondents. Safeguarding the remote/hybrid workforce was the most sought security outcome of the survey audience.
We believe that our new customer-centric operating model fully supports our strategy execution and will help to deliver even better security outcomes to our customers.
Financial performance
| EUR million | 7-9/2022 | 7-9/2021 | Change % | 1-9/2022 | 1-9/2021 | Change % | 1-12/2021 |
| WithSecure (Continuing operations) | |||||||
| Revenue | 33.5 | 32.1 | 4 % | 98.3 | 95.5 | 3 % | 130.0 |
| Cloud-native security products | 17.9 | 13.5 | 33 % | 50.0 | 38.1 | 31 % | 52.7 |
| On-premise security products | 6.7 | 7.4 | -10 % | 20.5 | 22.6 | -9 % | 30.0 |
| Cyber security consulting | 8.9 | 11.2 | -20 % | 27.7 | 34.8 | -20 % | 47.2 |
| Cost of revenue | -11.6 | -10.1 | 15 % | -34.4 | -30.4 | 13 % | -41.5 |
| Gross Margin | 21.9 | 22.0 | -1 % | 63.9 | 65.1 | -2 % | 88.5 |
| of revenue, % | 65.3 % | 68.5 % | 65.0 % | 68.2 % | 68.1 % | ||
| Other operating income 1) | 0.9 | 0.3 | 1.8 | 1.2 | 2.0 | ||
| Operating expenses 1) | -26.8 | -25.4 | 5 % | -86.4 | -77.9 | 11 % | -107.6 |
| Sales & Marketing | -18.6 | -16.2 | 15 % | -57.9 | -49.7 | 17 % | -68.0 |
| Research & Development | -5.9 | -6.9 | -14 % | -21.8 | -20.4 | 7 % | -28.5 |
| Administration | -2.3 | -2.2 | 0 % | -6.6 | -7.9 | -16 % | -11.1 |
| Adjusted EBITDA 2) | -4.0 | -3.1 | 30 % | -20.6 | -11.8 | 75 % | -17.2 |
| of revenue, % | -12.0 % | -9.6 % | -21.0 % | -12.3 % | -13.3 % | ||
| Items affecting comparability (IAC) | |||||||
| Divestments | 0.4 | -2.8 | 0.5 | ||||
| Demerger | 0.7 | -1.5 | |||||
| EBITDA | -3.0 | -3.1 | -3 % | -24.9 | -11.8 | 111 % | -16.7 |
| of revenue, % | -8.9 % | -9.6 % | -25.3 % | -12.3 % | -12.8 % | ||
| Depreciation & amortization, excluding PPA 3) | -2.5 | -2.3 | 8 % | -7.4 | -7.0 | 6 % | -9.6 |
| Impairment | -1.0 | ||||||
| PPA amortization | -0.6 | -0.7 | -8 % | -1.9 | -2.1 | -11 % | -2.8 |
| EBIT | -6.1 | -6.1 | 0 % | -34.2 | -20.9 | 63 % | -30.1 |
| of revenue, % | -18.2 % | -18.9 % | -34.8 % | -21.9 % | -23.2 % | ||
| Estimated combarable EBITDA | -4.0 | -1.6 | 151 % | -17.2 | -7.2 | 141 % | -11.3 |
| of revenue, % | -12.0 % | -5.0 % | -17.5 % | -7.5 % | -8.7 % | ||
| Adjusted EBIT 2) | -6.5 | -5.4 | 21 % | -28.1 | -18.8 | 50 % | -26.8 |
| of revenue, % | -19.4 % | -16.8 % | -28.6 % | -19.7 % | -20.6 % |
| Result for the period (Discontinued operations) | 10.6 | -100 % | 468.5 | 29.4 | n/a | 38.2 |
| Performance indicators 5) | |||||||
| Earnings per share, (EUR) (continuing operations) 4) | -0.03 | -0.03 | -2 % | -0.18 | -0.10 | 73 % | -0.15 |
| Deferred revenue (continuing operations) | 66.0 | 62.5 | 6 % | 66.4 | |||
| Cash flow from operations before financial items and taxes | -11.8 | 3.9 | -407 % | -10.7 | 23.1 | -146 % | 38.7 |
| Cash and cash equivalents | 75.1 | 43.6 | 72 % | 52.9 | |||
| ROI, % | -15.5 % | 24.2 % | -164 % | -31.3 % | 17.9 % | -275 % | 15.6 % |
| Equity ratio, % | 79.4 % | 61.2 % | 30 % | 59.5 % | |||
| Gearing, % | -41.9 % | -13.8 % | 204 % | -25.8 % | |||
| Personnel, end of period | 1280 | 1689 | -24 % | 1656 |
- Excluding Items Affecting Comparability (IAC) and depreciation and amortization. From third quarter onwards excludes also costs of services provided to F-Secure under TSA and equivalent income charged for TSA services.
- 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. Reconciliation and a breakdown of adjusted costs is in note 5 of the Table Section of this report.
- Amortization of intangible assets from business combinations (PPA, purchase price allocation, related amortizations).
- Based on the weighted average number of outstanding shares during the period 170,202,808 (1-9/2022). Earnings per share has been recalculated for comparative periods using average weighted share amount after share issue in first quarter of 2022.
- Unless otherwise indicated, the comparative periods include 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 – 30 September 2022. 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/2022-10-27-wsq3ir
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 calendar for 2023 later in the year 2022.
Contact information
Tom Jansson, CFO, WithSecure Corporation
Laura Viita, Investor Relations Director, WithSecure Corporation
+358 50 487 1044
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