F-Secure Corporation, Interim Report, 30 October 2019 at 09.00 EET
F-Secure Interim Report 1 January - 30 September 2019
Corporate security revenue grew 14% organically in third quarter
Highlights of July-September (Q3)
- Revenue increased by 7% to EUR 53.8 million (50.5m)
- Revenue from corporate security increased by 14% to EUR 30.3 million (26.7m)
- Revenue from consumer security decreased by 1% to EUR 23.4 million (23.8m)
- Deferred revenue increased by 2% to EUR 70.2 million (69.0m)
- Adjusted EBITDA was EUR 6.8 million (6.0m), 12.7% of revenue (11.9%)1)
- Earnings per share (EPS) was EUR 0.01 (EUR 0.01)
- Cash flow from operating activities before financial items and taxes was EUR 3.7 million (-1.0m)1)
Highlights of January-September
- Revenue increased by 18% to EUR 161.2 million (137.0m)
- Revenue from corporate security increased by 36% to EUR 89.8 million (66.1m)
- Revenue from consumer security increased by 1% to EUR 71.4 million (70.9m)
- Deferred revenue increased by 2% to EUR 70.2 million (69.0m)
- Adjusted EBITDA was EUR 16.6 million (12.6m), 10.3% of revenue (9.2%)1)
- Earnings per share (EPS) was EUR 0.02 (EUR 0.01)
- Cash flow from operating activities before financial items and taxes was EUR 10.3 million (3.3m)1)
- EBIT includes positive net impact of EUR 3.1 million related to MWR InfoSecurity acquisition valuation revision during second quarter
1) F-Secure has adopted the new Leases standard (IFRS 16) on 1 January 2019 using the modified approach. Comparative information has not been restated. The impact of IFRS 16 on adjusted EBITDA is EUR +1.7 million for the third quarter and EUR +5.0 million for January-September. Impact on operative cash flow is EUR +1.6 million for the third quarter and EUR 4.7 million for January-September. For the full year 2019, the impact on adjusted EBITDA is estimated to be around EUR +6.7 million.
Figures in this report are unaudited. Figures in brackets refer to the corresponding period in the previous year, unless otherwise stated.
Outlook
Outlook for 2019 unchanged
The company's outlook for 2019 is unchanged:
- Revenue from corporate security is expected to grow by over 30% compared to 2018
- Revenue from consumer security is expected to stay approximately at the same level as in 2018
- Adjusted EBITDA is expected to be above EUR 21 million including the impact of IFRS 16
Outlook for the strategy period 2018-2021 is unchanged
The demand for cyber security products and services is expected to continue in strong growth and F-Secure aims to grow faster than the market. Revenue from corporate security is expected to grow above 15% annually during our strategy period 2018-2021.
Driven by the anticipated revenue growth and scalable business model, profitability is expected to improve significantly in the long-term. The management continuously seeks to balance the growth investments and profitability to optimize long-term growth and value creation for the shareholders.
CEO SAMU KONTTINEN
F-Secure’s revenue growth continued in corporate products and consulting during the third quarter. The total revenue increased by 7% to EUR 53.8 million, with revenue from corporate security growing by 14%. Consumer revenue remained at previous year’s level. In terms of profitability, the quarter was in line with our expectations with adjusted EBITDA margin of 13%.
Managed Detection and Response (MDR) solutions had a strong quarter. In Q3 F-Secure Countercept won significant deals against many top competitors in the US and UK, highlighting competitiveness of our offering. Overall, F-Secure Countercept continued to win new clients globally within focus customer segments such as finance, critical infrastructure and versatile professional services industry. The MDR sales pipeline has developed well while we expect quarterly deal volumes and sizes to fluctuate also in the future.
F-Secure’s endpoint security business remains on stable growth track. Q3 was characterized by good renewal performance in Endpoint solution (EPP) and growing volumes of EDR (Endpoint Detection and Response) sold as integrated to EPP. This cloud based combination is a highly effective, pure play software solution that has been designed to enable our service partners to better support their customers. However, the revenue contribution of EDR is still small in our corporate security business mix while the solution is strategically very important.
Cyber security consulting continued to grow strongly. In September F-Secure finalized the MWR integration in consulting and combined all units into one globally operating multi-disciplinary organization. F-Secure provides cyber security consulting from 11 different locations across four continents and is well positioned to serve the most demanding and internationally operating customers.
Revenue from consumer security remained at previous year’s level. Key performance indicators, device activations and renewal rates, remained solid. Interest in the upcoming Identity Protection combined with F-Secure SENSE router security is a promising sign of our portfolio appeal. From strategic perspective operator partners are very important for us as they hold significant market power and customer reach. Nevertheless, deploying new solutions in this channel often takes time, thus, revenue impact from new solutions is expected to be small in short term.
In October F-Secure started restructuring in order to capture synergies from the MWR InfoSecurity acquisition and reorganize operations for better focusing on different customer segments. Growth remains in the core of our strategy while healthy profitability and benefits from growing scale are to be attained also in the future.
Financial performance
| EUR m | 7-9/2019 | 7-9/2018 | Change % | 1-9/2019 | 1-9/2018 | Change % | 1-12/2018 |
| Revenue | 53.8 | 50.5 | 7 % | 161.2 | 137.0 | 18 % | 190.7 |
| Consumer security | 23.4 | 23.8 | -1 % | 71.4 | 70.9 | 1 % | 94.9 |
| Corporate security | 30.3 | 26.7 | 14 % | 89.8 | 66.1 | 36 % | 95.9 |
| Products | 18.4 | 16.6 | 11 % | 54.2 | 46.4 | 17 % | 63.8 |
| Consulting | 11.9 | 10.1 | 18 % | 35.6 | 19.7 | 81 % | 32.0 |
| Cost of revenue | -12.6 | -11.7 | 7 % | -37.7 | -26.9 | 40 % | -39.4 |
| Gross Margin | 41.2 | 38.7 | 6 % | 123.6 | 110.1 | 12 % | 151.4 |
| Other operating income 1) | 0.4 | 0.3 | 21 % | 1.1 | 1.7 | -35 % | 2.3 |
| Operating expenses 1) | -34.8 | -33.1 | 5 % | -108.0 | -99.3 | 9 % | -136.2 |
| Sales & Marketing | -23.3 | -22.4 | 4 % | -73.9 | -65.5 | 13 % | -90.7 |
| Research & Development | -8.1 | -7.8 | 4 % | -24.6 | -24.9 | -1 % | -33.5 |
| Administration | -3.3 | -2.8 | 19 % | -9.5 | -8.8 | 8 % | -11.9 |
| Adjusted EBITDA 2) | 6.84) | 6.0 | 15 % | 16.64) | 12.6 | 32 % | 17.4 |
| of revenue, % | 12.7 % | 11.9 % | 10.3 % | 9.2 % | 9.1 % | ||
| Adjustment to operating income | 9.1 | ||||||
| M&A expenses | -2.7 | -3.3 | -3.6 | ||||
| EBITDA | 6.84) | 3.3 | 109 % | 25.74) | 9.3 | 177 % | 13.8 |
| of revenue, % | 12.7 % | 6.5 % | 16.0 % | 6.8 % | 7.2 % | ||
| Depreciation & amortization | -3.54) | -1.8 | 92 % | -10.14) | -4.7 | -6.8 | |
| Impairment | -6.0 | ||||||
| PPA amortization | -0.9 | -1.1 | -24 % | -3.2 | -1.4 | -2.5 | |
| EBIT | 2.54) | 0.4 | 6.44) | 3.1 | 104 % | 4.6 | |
| of revenue, % | 4.7 % | 0.8 % | 4.0 % | 2.3 % | 2.4 % | ||
| Adjusted EBIT 2) | 3.44) | 4.2 | -20 % | 6.54) | 7.8 | -17 % | 10.6 |
| of revenue, % | 6.3 % | 8.3 % | 4.0 % | 5.7 % | 5.6 % | ||
| Earnings per share, (EUR) 3) | 0.01 | 0.01 | 7% | 0.02 | 0.01 | 136% | 0.01 |
| Deferred revenue | 70.2 | 69.0 | 2% | 72.9 | |||
| Cash flow from operations before financial items and taxes | 3.7 4) | - 1.0 | 10.3 4) | 3.3 | 13.8 | ||
| Cash and financial assets at fair value through P&L | 24.9 | 21.5 | 15 % | 27.9 | |||
| ROI, % | 6.8% | 7.7% | -11 % | 5.3% | 8.1% | -35 % | 7.9% |
| Equity ratio, % | 45.9% | 43.7% | 5% | 42.7% | |||
| Gearing, % | 28.3% | 23.4% | 21% | 13.9% | |||
| Personnel, end of period | 1,727 | 1,636 | 6% | 1,666 |
- Excluding items affecting comparability (IAC) as defined in note 7 of the Table Section of attached Interim report.
- Adjustments are material items outside normal course of business associated with acquisitions, integration, gains or losses from sales of businesses and other items affecting comparability. Reconciliation and a breakdown of adjusted costs is in note 7 of the Table Section of attached Interim report.
- Based on the weighted average number of outstanding shares during the period 157,696,495 (1-9/2019).
- IFRS 16 increased Adjusted EBITDA and EBITDA by EUR 1.7 million during Q3 and EUR 5.0 million during January-September. Impact on adjusted EBIT and EBIT was EUR 0.1 million during Q3 and EUR 0.2 million during January-September. Depreciation and amortization increased by EUR 1.6 million during Q3 and by EUR 4.8 million during January-September. Positive impact on cash flow from operations before financial items and taxes was EUR 1.6 million during third quarter and EUR 4.7 million during January-September.
Events after period-end
On the 7th of October 2019 F-Secure began restructuring of operations and initiated co-operation negotiations.
The restructuring enables F-Secure to capture synergies from acquisition of MWR InfoSecurity, reallocate resources for further growth and streamline common functions. The restructuring is estimated to result in annual cost savings of more than EUR 5 million to be achieved by the end of 2020. The planned personnel reductions are estimated to be maximum 90 employees globally, out of 1,700 in total. The co-operation negotiations may lead to reduction of up to 50 employees in Finland. Research and development personnel, cyber security consultants and consumer business unit remain unaffected by the planned personnel reductions.
As part of restructuring F-Secure started organizational changes as of Monday 7 October 2019. Corporate Security’s functional organization is under restructuring into a format that better addresses the different characteristics of Endpoint Security, Cyber Security Consulting and Managed Detection and Response businesses. New Leadership team is as follows:
Samu Konttinen (CEO), Antti Hovila (Strategy, Brand & Communications), Kristian Järnefelt (Consumer Cyber Security), Juha Kivikoski (Business Cyber Security), Ian Shaw (Cyber Security Consulting), Tim Orchard (Managed Detection & Response) Jari Still (Information & Business Services), Jyrki Tulokas (Security Research & Technologies), Eriikka Söderström (CFO), and Eva Tuominen (People Operations & Culture).
Webcast
A webcast for investors and analysts will be held in English at 14.00 EET.
- To participate in the online meeting, please click on the link: https://meet.f-secure.com/henri.kiili/VWYYMBNW
- To participate via phone, please dial in to +358975110100 (FI). The conference ID is 1656738
The material will be available at the company's website before the call begins: www.f-secure.com/investors
Additional information
This is a summary of F-Secure’s Interim Report January – September 2019. The full report is attached to this stock exchange release and it is also available on the company's website: www.f-secure.com/investors
Financial calendar
F-Secure Corporation will publish its financial calendar for 2020 later this year.
Contact information
Eriikka Söderström, CFO, F-Secure
+358 44 3734693
Henri Kiili, Investor Relations Manager, F-Secure
+358 40 8405450
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