F-Secure Corporation | Stock Exchange Release | October 24, 2024 at 08:00:00 EEST
F-Secure Interim Report 1 January-30 September 2024: Scam Protection takes off
Highlights of July-September (Q3 2024)
- Revenue increased by 3.5% to EUR 36.3 million (EUR 35.1 million). Organic growth was 1.9%.
- Revenue from Partner Channel increased by 3.0% to EUR 29.3 million (EUR 28.5 million), organic growth was 2.3%.
- Revenue from Direct Channel increased by 5.2% to EUR 7.0 million (EUR 6.7 million), organic growth was 0.5%.
- Adjusted EBITA was EUR 14.6 million (EUR 12.8 million), 40.3% of revenue (36.4%).
- Earnings per share (EPS) was EUR 0.04 (EUR 0.03). Earnings per share excluding PPA amortization was EUR 0.05 (EUR 0.04).(1
- Cash flow from operating activities before financial items and taxes was EUR 9.5 million (EUR 10.9 million).
Highlights of January-September 2024
- Revenue increased by 16.9% to EUR 109.2 million (EUR 93.5 million). Organic growth was 2.4%.
- Revenue from Partner Channel increased by 17.5% to EUR 88.2 million (EUR 75.1 million), organic growth was 3.1%.
- Revenue from Direct Channel increased by 14.2% to EUR 21.0 million (EUR 18.4 million), organic growth was -0.7%.
- Adjusted EBITA was EUR 40.5 million (EUR 32.9 million), 37.1% of revenue (35.2%).
- Earnings per share (EPS) was EUR 0.10 (EUR 0.11). Earnings per share excluding PPA amortization was EUR 0.13 (EUR 0.12).(1
- Cash flow from operating activities before financial items and taxes was EUR 42.0 million (EUR 20.1 million).
- Net debt amounted to EUR 165.4 million (187.7) and leverage was 3.1x.
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.
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 (specified)
Growth: F-Secure estimates that revenue for 2024 will be in the range of EUR 144-147 million (previously EUR 142-152 million).
Profitability: The group's adjusted EBITA is expected to be in the range of EUR 50-53 million (previously EUR 48-54 million).
Background for the outlook (specified):
- F-Secure expects the consumer cyber security market to grow mid-single digit CAGR between 2024-2026 (1. 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. However, in the fourth quarter, we capitalize a smaller portion of R&D costs compared to previous quarters, which negatively affects our profitability (comment edited).
- 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.
1) 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 | 7-9/2024 | 7-9/2023 | Change % | 1-9/2024 | 1-9/2023 | Change % | 1-12/2023 |
| Revenue | 36.3 | 35.1 | 3.5% | 109.2 | 93.5 | 16.9% | 130.4 |
| Gross Margin (1 | 31.4 | 31.4 | -0.1% | 93.9 | 85.5 | 9.8% | 118.6 |
| % of revenue | 86.4% | 89.4% | 86.0% | 91.5% | 90.9% | ||
| Adjusted EBITDA (2 | 14.9 | 13.1 | 14.4% | 41.4 | 33.7 | 22.8% | 45.7 |
| % of revenue | 41.1% | 37.2% | 37.9% | 36.0% | 35.0% | ||
| Adjusted EBITA (2 | 14.6 | 12.8 | 14.4% | 40.5 | 32.9 | 23.1% | 44.6 |
| % of revenue | 40.3% | 36.4% | 37.1% | 35.2% | 34.2% | ||
| Items affecting comparability (IAC) (3 | - | -0.2 | 0.2 | -6.1 | -103.9% | -8.0 | |
| PPA amortization | -2.0 | -2.0 | -5.9 | -2.7 | -4.7 | ||
| EBIT | 11.5 | 10.0 | 15.3% | 31.7 | 22.4 | 41.3% | 29.5 |
| % of revenue | 31.7% | 28.4% | 29.0% | 24.0% | 22.6% | ||
| Earnings per share (EUR) (4 | 0.04 | 0.03 | 24.0% | 0.10 | 0.11 | -7.8% | 0.13 |
| Earnings per share, adjusted for PPA amortization (EUR) (4 | 0.05 | 0.04 | 18.3% | 0.13 | 0.12 | 5.0% | 0.15 |
| Shareholder's equity per share | 0.22 | 0.19 | 0.19 | ||||
| Operating cash flow | 5.0 | 6.0 | -16.6% | 29.7 | 16.9 | 75.4% | 30.1 |
| Cash conversion % | 40.5% | 66.1% | 75.0% | 59.9% | 81.2% | ||
| Deferred revenue | 25.2 | 22.8 | 10.7% | 25.6 | |||
| Net debt (+) / Net cash (-) | 165.4 | 187.7 | -11.9% | 177.4 | |||
| Net debt/Adjusted EBITDA | 3.1 | 3.6 (5 | 3.5 (5 | ||||
| Gearing, % | 435.8% | 590.8% | 547.2% | ||||
| Equity ratio % | 14.4% | 11.7% | 12.0% | ||||
| Personnel at the end of the period | 530 | 516 | 2.7% | 524 |
- 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.
- Excluding Items Affecting Comparability (IAC) and depreciation and amortization.
- A reconciliation and breakdown of items affecting comparability is presented at the end of this report.
- Based on the average number of shares for the reporting period.
- 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
In the third quarter, we put strong emphasis on product and service development. As planned, we launched a new version of Total incorporating the best of F-Secure and Lookout Life product propositions. We made a significant enhancement into our service monitoring and partner care operations. We finalized a significant extension to our Embedded Security portfolio which performed well in a partner beta launch. Revenue growth was supported by good performance in the Direct Business while Partner Business continued to develop at a similar pace as in the previous quarter. Direct Business growth was driven by positive billings performance during the past year. Profitability in the third quarter was strong, benefiting from the typically lower cost levels associated with this period.
We are consistently enhancing our product offering and service capabilities to meet the most demanding partner requirements. I am happy to see that this effort is bearing fruit in the form of new high-profile partnerships. In September we signed up a strategic partnership with one of the largest and most respected mobile service providers in Asia. The announced partnership demonstrates the efficacy of F-Secure's Embedded Security offering and Tier 1 strategy. The existing Tier 1 pipeline is robust, and we are actively developing new opportunities on several fronts. To fully seize this opportunity, we have decided to further increase our investment in Tier 1 sales and capabilities. This is expected to drive stronger growth and higher profitability in the long term, but it will also have a temporary negative impact on our profitability. As we have mentioned previously, sales, contract and delivery processes of Embedded Security solutions with Tier 1 CSPs require a lengthier time than what is typical in our Total partnerships.
The latest version of Total with an upgraded user experience and the new Scam Protection module has received overwhelmingly positive feedback in the market. F-Secure Total Net Promoter score for January-September period is at 49, while September score has climbed to 55. Scam Protection is already available for Direct Business customers while partner deliveries will be kicking off in the fourth quarter of 2024.
In mid-October, we announced that we will initiate a transformation process reflecting the increased focus on serving specific partner segment needs and establishing carrier grade product and service operations, in alignment with the company's strategy. The related change negotiations may lead to a maximum of 60 redundancies in Finland and in other countries while we plan to open approximately 45 new roles if the planned changes are implemented. The planned changes are estimated to generate annual cost savings of around EUR 4 million, and these will be reinvested back into the company to support growth and improve sales and service maturity. The results of the negotiations are expected to be disclosed by the end of November.
During the fall, there were several changes in the F-Secure Leadership Team. Nina Lehto joined the company as Senior Vice President, Services, Kaisa Tikka-Mustonen as Chief People Officer, and in the beginning of October, Bruno Rodriguez started as Chief Revenue Officer. Their combined expertise, experience and vision are invaluable assets as we drive the transformation, growth and operational excellence at F-Secure.
Significant events after the review period
Change negotiations
On 17 October 2024, F-Secure announced that F-Secure Corporation and its subsidiaries will start change negotiations on possible redundancies in Finland and in other countries. The negotiations concern approximately 360 F-Secure employees globally. If the planned changes are carried out, they may lead to maximum of 60 redundancies, of which maximum of 37 are expected to be in Finland. In addition, approximately 45 new roles will become available if the planned changes are implemented.
The planned changes are estimated to generate annual cost savings of around EUR 4 million, and these will be reinvested back into the company to support growth and improve sales and service maturity. One-off costs related to the planned changes are expected to be recorded as items affecting comparability (IAC), and more information about these will be disclosed once the negotiations are concluded. In Finland, the change negotiations started on 22 October 2024 and will last approximately six weeks. All applicable processes will be conducted in accordance with local legislations in each country. More information can be found in the stock exchange release published on 17 October 2024.
Additional information
This is a summary of F-Secure Corporation's Interim Report 1 January-30 September 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 organize a webcast today at 14:00. In the webcast, F-Secure's 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/q3-2024.
Analysts following F-Secure are invited to the presentation at the company headquarters, Tammasaarenkatu 7, Helsinki, Finland.
Financial calendar in 2025
In 2025, F-Secure Corporation will publish financial information as follows:
- Financial Statements Release 2024 on Thursday, 6 February 2025
- Annual Report 2024 on Thursday, 27 February 2025
- Interim Report for January-March 2025 on Tuesday, 29 April 2025
- Half-year Financial Report for January-June 2025 on Friday, 18 July 2025
- Interim Report for January-September 2025 on Tuesday, 28 October 2025
The Annual General Meeting 2025 is scheduled for Tuesday, 1 April 2025. The Board of Directors will convene the meeting separately on a later date.
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.
