F-Secure Corporation | Stock Exchange Release | July 18, 2024 at 08:00:00 EEST
F-Secure Half Year Financial Report 1 January-30 June 2024: Taking strides in product, service and technology development
Highlights of April-June (Q2 2024)
- Revenue increased by 19.6% to EUR 36.5 million (EUR 30.5 million). Organic growth was 1.9%.
- Revenue from Partner Channel increased by 19.8% to EUR 29.4 million (EUR 24.5 million), organic growth was 2.4%.
- Revenue from Direct Channel increased by 18.4% to EUR 7.1 million (EUR 6.0 million), organic growth was -0.1%.
- Adjusted EBITA was EUR 13.2 million (EUR 9.9 million), 36.1% of revenue (32.4%).
- 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 20.7 million (EUR -0.1 million).
Highlights of January-June (H1 2024)
- Revenue increased by 24.9% to EUR 72.9 million (EUR 58.3 million). Organic growth was 2.6%.
- Revenue from Partner Channel increased by 26.3% to EUR 58.8 million (EUR 46.6 million), organic growth was 3.5%.
- Revenue from Direct Channel increased by 19.3% to EUR 14.0 million (EUR 11.8 million), organic growth was -1.2%.
- Adjusted EBITA was EUR 25.8 million (EUR 20.1 million), 35.5% of revenue (34.4%).
- Earnings per share (EPS) was EUR 0.06 (EUR 0.08). Earnings per share excluding PPA amortization was EUR 0.08 (EUR 0.08).1)
- Cash flow from operating activities before financial items and taxes was EUR 32.4 million (EUR 9.3 million).
- Net debt amounted to EUR 166.6 million (191.3) and leverage was 3.2x.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 half-year financial 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 | 4-6/2024 | 4-6/2023 | Change % | 1-6/2024 | 1-6/2023 | Change % | 2023 |
| Revenue | 36.5 | 30.5 | 19.6% | 72.9 | 58.3 | 24.9% | 130.4 |
| Gross Margin 1) | 31.4 | 28.1 | 11.7% | 62.5 | 54.1 | 15.5% | 118.6 |
| % of revenue | 85.9% | 92.0% | 85.8% | 92.8% | 90.9% | ||
| Adjusted EBITDA 2) | 13.5 | 10.2 | 32.6% | 26.4 | 20.6 | 28.2% | 45.7 |
| % of revenue | 36.9% | 33.3% | 36.3% | 35.4% | 35.0% | ||
| Adjusted EBITA 2) | 13.2 | 9.9 | 33.1% | 25.8 | 20.1 | 28.6% | 44.6 |
| % of revenue | 36.1% | 32.4% | 35.5% | 34.4% | 34.2% | ||
| Items affecting comparability (IAC) 3) | 0.1 | -4.6 | 0.2 | -5.9 | -104.0% | -8.0 | |
| PPA amortization | -1.9 | -0.7 | -3.9 | -0.7 | -4.7 | ||
| EBIT | 10.2 | 4.1 | 148.6% | 20.2 | 12.4 | 62.2% | 29.5 |
| % of revenue | 28.0% | 13.4% | 27.7% | 21.3% | 22.6% | ||
| Earnings per share (EUR) 4) | 0.03 | 0.04 | -22.3% | 0.06 | 0.08 | -20.3% | 0.13 |
| Earnings per share, excluding PPA amortization (EUR) 4) | 0.04 | 0.04 | -0.1% | 0.08 | 0.08 | -1.5% | 0.15 |
| Shareholders' equity per share, EUR | 0.20 | 0.14 | 0.19 | ||||
| Operating cash flow | 16.8 | 3.6 | 364.8% | 24.7 | 10.9 | 125.9% | 30.1 |
| Cash conversion, % | 124.5% | 32.5% | 94.5% | 56.0% | 81.2% | ||
| Deferred revenue | 25.9 | 23.4 | 10.7% | 25.6 | |||
| Net debt (+) / Net cash (-) | 166.6 | 191.3 | -12.9% | 177.4 | |||
| Net debt/Adjusted EBITDA 5) | 3.2 | 3.5 | 3.5 | ||||
| Gearing, % | 494% | 774% | 547% | ||||
| Equity ratio, % | 12.6% | 9.3% | 12.0% | ||||
| Personnel at the end of the period | 519 | 511 | 1.6% | 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
The second quarter of 2024 was still characterized by Lookout Life acquisition driven revenue growth. Profitability for the quarter was on a high level. However, organic growth remained modest. Operationally, our performance improved in many areas and we made substantial progress on core technology platform and product development front.
In the Partner Channel, partner satisfaction and multi-module Total subscriber numbers have exceeded our own expectations throughout the first half of 2024 contributing positively to Partner Business revenue development. In addition, the average revenue per user (ARPU) increase within multi-module Total partners was above our expectations. However, revenue of a handful of long-time F-Secure partners is declining. These partners have not yet upgraded their security offering to multi-module Total while mainly addressing challenges in their core business. Helping these partners defend their consumer security business continues to be a high priority for us. We continue to develop our capabilities and operations to serve Tier1 partners. We have taken major steps forward with our production operations, solution offering, partner care and overall service maturity to meet even the most demanding partner expectations. This prepares us for revenue growth from 2025 onwards in Tier1 segment.
Direct Business billings developed positively thanks to the Lookout Life acquisition and organic growth, which was driven by strong renewal performance and ARPU. However, organic revenue development remained flat.
At the end of June, we announced a new Total release that is now available for partners and consumers. This is a major milestone in terms of design, feature improvements and launch of entirely new features focused on scam protection. Highlights include, to name just a few, native Chrome Protection for Android, Shopping Protection for iOS and Android, new Device Protection features (integrated from Lookout Life) and multiple UX design improvements. As a result, Total is now more attractive than ever for 'mobile first' users.
Since the acquisition of Lookout Life consumer business in 2023, significant effort has gone into achieving technological independence from Lookout. This independence was fully achieved at the end of May. We now manage all technology backend services on our own platforms and production environments after the demerger from WithSecure in 2022 and the acquisition of Lookout Life in 2023.
Several leadership team changes were announced during the second quarter. Over the last year F-Secure has transformed in multiple ways to align fully with our strategic targets as well as drive efficiencies and streamline our organizational set-up. As we continue to pursue our future vision and strategy for F-Secure we appreciate the new capabilities and competencies we will gain in the Leadership Team to drive successful execution of the same.
The main focus for all of us at F-Secure is to deliver on our vision to become the #1 security experience company in the world, both from end user and partner point of view. In the second quarter we made substantial progress on the product and technology front in this respect, and as confirmed by SPECIES feedback, our global partner event held in Rome in April, we are successfully providing a truly unique experience to our partners. We look forward to launching a host of further deliverables on both of these fronts in the second half of 2024.
Additional information
This is a summary of F-Secure Corporation's Half Year Financial Report 1 January-30 June 2024. The full report is a PDF file attached to this stock exchange release. Full report is also available on the company website https://www.investors.f-secure.com/.
Financial calendar in 2024
In 2024, F-Secure Corporation will publish financial information as follows:
- Interim Report for January-September 2024 on Thursday 24 October 2024
Webcast
F-Secure will organize a webcast today at 14:00 EEST. In the webcast, F-Secure President and CEO Timo Laaksonen and CFO Sari Somerkallio will present the results and after the presentation there will be time for questions. The event can be followed at: https://fsecure.videosync.fi/q2-2024.
Analysts following F-Secure are invited to the presentation 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.
