F-Secure Corporation | Stock Exchange Release | April 26, 2024 at 08:00:00 EEST
F-Secure Interim Report 1 January-31 March 2024: Solid start to the year
Highlights of January-March 2024 (Q1)
- Revenue increased by 30.8% to EUR 36.4 million (EUR 27.8 million). Organic growth was 3.2%.
- Revenue from Partner Channel increased by 33.6% to EUR 29.4 million (EUR 22.0 million), organic growth was 4.7%.
- Revenue from Direct Channel increased by 20.3% to EUR 6.9 million (EUR 5.8 million), organic growth was -2.3%.
- Adjusted EBITA was EUR 12.7 million (EUR 10.2 million), 34.9% of revenue (36.7%).
- Purchase price allocation (PPA) amortizations were EUR -1.9 million.
- Earnings per share (EPS) was EUR 0.03 (EUR 0.04). Earnings per share excluding PPA amortization was EUR 0.04 (EUR 0.04)1).
- Cash flow from operating activities before financial items and taxes was EUR 11.8 million (EUR 9.3 million).
- Net debt amounted to EUR 179.6 million (-24.2) and leverage was 3.7x.2)
1) From the third quarter of 2023, F-Secure has reported also earnings per share excluding purchase price allocation amortization (PPA) due to amortization following the acquisition of Lookout Life.
2) Leverage (Net debt/Adjusted EBITDA) for the last 12 months includes Lookout consumer business unit EBITDA on an illustrative basis as if the acquisition had been made on the first day of the period in question.
Figures in brackets refer to the corresponding period in the previous year, unless otherwise stated. Percentages and figures presented herein may include rounding differences and therefore may not add up precisely to the totals presented. Figures in this interim report are unaudited.
As announced on 20 March 2024, F-Secure changed the calculation method for gross margin in its income statement. Some of the costs previously recorded in F-Secure income statement as Cost of revenue have been included in Research and development and Sales and marketing costs. F-Secure applies the new calculation method for gross margin as of 1 January 2024. Comparative figures are also revised.
Outlook for 2024 (unchanged)
Growth: F-Secure estimates that revenue for 2024 will be in the range of EUR 142-152 million.
Profitability: The group's adjusted EBITA is expected to be in the range of EUR 48-54 million.
Background for the outlook:
- F-Secure expects the consumer cyber security market to grow mid-single digit CAGR between 2024-2026*. The growth may be moderated due to uncertainties we see around consumer sentiment in certain markets resulting also Service Providers, especially Communication Service Providers being cautious in their investment priorities.
- Biggest organic growth driver is Total and Total conversion within the partner channel; within Direct Business focus will be on retention, and marketing investments for paid customer acquisition will be lower than previously.
- F-Secure continues investing (both OPEX and CAPEX) in Embedded Security capabilities including Tier 1 capabilities and - relationships, which are expected to boost growth in medium term.
- Lookout consumer BU is now included for the full year, compared to June to December (7 months) in 2023.
- Lookout consumer BU post-acquisition related deferred revenue is fair valued according to IFRS reporting and will be lower compared to revenue recognised by Lookout consumer BU for those advance payments. The negative revenue impact included in the outlook is estimated to be approximately EUR 1.5 million in 2024, and negative EBITA-level impact in the outlook approximately EUR 0.5 million, respectively.
* Industry analyst views such as Gartner and IDC, and F-Secure management estimates.
Financial targets
Medium term financial targets of F-Secure by 2026 are:
- Growth: Total revenue of more than EUR 200 million by 2026
- Profitability: After initial growth investments, adjusted EBITA margin of above 42%
- Dividend Yield: Around or above 50% of net profit on an annual basis
- Leverage: Net debt/adjusted EBITDA ratio below 2.5x, excluding temporary impact from acquisitions
F-Secure Corporation follows the Rule of 40 metric as internal performance measurement and guiding principle, according to which the combined revenue growth rate and profitability margin should be equal to or greater than 40%.
Financial performance
| EUR million | 1-3/2024 | 1-3/2023 | Change % | 1-12/2023 |
| Revenue | 36.4 | 27.8 | 30.8% | 130.4 |
| Gross Margin1) | 31.2 | 26.0 | 19.7% | 118.6 |
| % of revenue | 85.7% | 93.6% | 90.9% | |
| Adjusted EBITDA2) | 13.0 | 10.5 | 23.9% | 45.7 |
| % of revenue | 35.6% | 37.6% | 35.0% | |
| Adjusted EBITA2) | 12.7 | 10.2 | 24.2% | 44.6 |
| % of revenue | 34.9% | 36.7% | 34.2% | |
| Items affecting comparability (IAC)3) | 0.2 | -1.3 | -113.8% | -8.0 |
| PPA amortization | -1.9 | - | -4.7 | |
| EBIT | 10.0 | 8.3 | 19.7% | 29.5 |
| % of revenue | 27.4% | 30.0% | 22.6% | |
| Earnings per share (EUR)4) | 0.03 | 0.04 | -18.3% | 0.13 |
| Earnings per share, excluding PPA amortization (EUR)4) | 0.04 | 0.04 | 4.7% | 0.15 |
| Shareholders' equity per share, EUR | 0.16 | 0.11 | 0.19 | |
| Operating cash flow | 7.9 | 7.3 | 7.8% | 30.1 |
| Cash conversion % | 63.3% | 78.8% | 81.2% | |
| Deferred revenue | 27.9 | 21.2 | 31.8% | 25.6 |
| Net debt (+) / Net cash (-) | 179.6 | -24.2 | 177.4 | |
| Net debt/Adjusted EBITDA5) | 3.7 | -0.6 | 3.6 | |
| Gearing, % | 654.3% | -108.2% | 547.2% | |
| Equity ratio, % | 10.0% | 26.5% | 12.0% | |
| Personnel at the end of the period | 497 | 414 | 20.0% | 524 |
1) As announced on 20 March 2024, F-Secure changed the calculation method for gross margin in its income statement. Some of the costs previously recorded in F-Secure income statement as Cost of revenue have been included in Research and development and Sales and marketing costs. F-Secure applies the new calculation method for gross margin as of 1 January 2024. Comparative figures are also revised.
2) Excluding Items Affecting Comparability (IAC) and depreciation and amortization.
3) A reconciliation of items affecting comparability is presented at the end of this report.
4) Based on the average number of shares during the reporting period.
5) Net debt/Adjusted EBITDA for the last 12 months includes Lookout consumer business unit EBITDA on an illustrative basis as if the acquisition had been made on the first day of the period in question.
Timo Laaksonen, President and CEO
Revenue development in the first quarter of 2024 was positively supported by organic growth in Partner Business, as well as strong renewal performance and increased ARPU in Direct Business. Profitability grew in absolute numbers but declined slightly in relative terms. First quarter gross margin was burdened by some additional costs related to lost synergies post-TSA period. Measures, such as signing of a new cloud hosting contract, have been taken to mitigate this. As we make progress in consolidating our production operations, we expect synergies to increase again. The year 2024 started in line with the trend seen in the previous quarter - cautiously recovering market activity with gradually improving customer demand.
Throughout the first quarter, we continued to execute on our growth strategy with primary focus on Partner Business. We strengthened our capabilities to win and serve Tier 1 partners. In March we announced a major deal with one of the world's leading Communication Service Providers (CSP). In the collaboration, we work closely with the CSP enabling them to develop completely new cybersecurity services powered by our expanding suite of embedded security products and services. The announced partnership is an important milestone for F-Secure, as it underscores our commitment to delivering innovative security solutions and the underlying logic of the Lookout Life acquisition. We continue our initiatives to develop our product offering and services to fit even the most demanding partner requirements. Alongside with Tier 1 partners, we remain focused on winning new vertical partnerships and that work has proceeded according to plan.
In the first quarter we saw significant growth in Total, with quarterly billings almost tripling from the first quarter of 2023. F-Secure Trusted Shopping - a solution that shows the trustworthiness rating for online stores - has been well received by the market.
The steps taken in the Direct Business already during the fourth quarter of 2023 to boost profitability, such as price adjustments, launch of free tools to drive traffic, and content driven activities across non-paid channels have borne fruit. Improved renewal performance was supported by high customer satisfaction scores and subscription experience improvements implemented already during the previous quarters. Positive ARPU development was powered by pricing measures and upsell to Total full feature offering. This year's focus in the Direct Business will continue to be on consumer experience, retention and upsell.
We started the year 2024 with a new organization set-up after the change negotiations that took place in the fourth quarter of 2023. The new organization is now fully up and running. We started a new chapter in March with the launch of our renewed corporate culture. It builds on the best of F-Secure and Lookout Life uniting all of our fellows, guiding us in everything we do. After a couple of years of big changes as a company, a common cultural ground is more relevant than ever before.
With the first quarter of 2024 behind us, we remain well positioned to deliver increased value to our customers and partners and accelerate our business growth to become the number one security experience company in the world.
Significant events after the review period
As announced on 15 April 2024, the Board of Directors of F-Secure decided on commencement of a new three-year performance period of the company's share-based long-term incentive plans, including a Performance Share Plan ("PSP") as the main plan and Restricted Share Plan ("RSP") as a complementary share-based incentive plan for individually selected key employees in specific situations. More detailed information can be found in the published stock exchange release.
Financial calendar in 2024
In 2024, F-Secure Corporation will publish financial information as follows:
- Half-year Financial Report for January-June 2024 on Thursday 18 July 2024
- Interim Report for January-September 2024 on Thursday 24 October 2024
Additional information
This is a summary of F-Secure Corporation's Interim Report January 1-March 31, 2024. The full report is a PDF file attached to this stock exchange release. Full report is also available on the company website at www.investors.f-secure.com.
Webcast
F-Secure will host a first quarter 2024 results webcast today at 14:00 am EEST. The event can be followed at: https://fsecure.videosync.fi/q1-2024/register.
Media representatives and analysts covering F-Secure are invited to the event at the company headquarters, Tammasaarenkatu 7, Helsinki, Finland.
For further information, please contact:
Sari Somerkallio, Chief Financial Officer
tel. +358 40 3569251
investor.relations@f-secure.com
F-Secure in brief
F-Secure is Finland headquartered and globally operating consumer cyber security company. F-Secure offers award-winning security and privacy products and services that make every digital moment more secure, for everyone. F-Secure operates in over 100 countries, has ~200 Service Provider partners and is the global leader providing security through Communication Service Providers. F-Secure Corporation is listed on Nasdaq Helsinki Ltd. Read more: www.f-secure.com.
