WithSecure Interim report 1 January – 30 September 2024: Elements software continues growth, profitability maintained despite challenges in services

WithSecure Corporation, Interim report 1 January – 30 September 2024, 23 October 2024 at 8.00 EEST

WithSecure Interim report 1 January – 30 September 2024: Elements software continues growth, profitability maintained despite challenges in services

Highlights of July – September 2024 ("third quarter”)

• Annual Recurring Revenue (ARR)¹ for Elements Cloud products and services² increased by 11% to EUR 81.8 million (EUR 73.8 million)
• Elements Cloud ARR decrease from previous quarter was 1%
• Net Revenue Retention for Elements Cloud was 104%
• Revenue for Elements Cloud increased by 9% to EUR 20.7 million (EUR 19.0 million)
• ARR for Cloud Protection for Salesforce increased by 38% to EUR 10.2 million (EUR 7.4 million)
• CPSF Revenue increased by 20% to EUR 2.4 million (EUR 2.0 million)
• Cyber security consulting revenue declined by 1% to EUR 7.5 million (EUR 7.7 million)
• Adjusted EBITDA for WithSecure was EUR 1.9 million (EUR -2.3 million)
• Items affecting comparability (IAC) of EBITDA were EUR -0.4 million (EUR -0.2 million).
• Consulting-related goodwill was impaired by EUR 15.5 million in the third quarter

1. Annual recurring revenue (ARR) of cloud 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 revenue
2. Elements Cloud includes Elements Cloud portfolio software and services as well as the managed services

Highlights of January – September 2024

• Revenue for Elements Cloud products and services increased by 10% to EUR 61.8 million (EUR 56.4 million)
• CPSF revenue increased by 5% to EUR 6.6 million (EUR 6.3 million)
• Cyber security consulting revenue increased by 2% to EUR 23.6 million (EUR 23.2 million)
• Adjusted EBITDA for WithSecure was EUR 0.7 million (EUR -16.3 million)
• Items affecting comparability (IAC) of EBITDA were EUR -0.9 million (EUR -3.4 million).

Outlook for 2024

Outlook for 2024 (updated on 11 October 2024)
Annual recurring revenue (ARR) for Elements Cloud products and services will grow by 6–14 % from the end of 2023. At the end of 2023, Elements Cloud ARR was EUR 78.4 million.

Revenue from Elements Cloud products and services will grow by 8–12 % from previous year. Previous year revenue from Elements Cloud was EUR 76.1 million.

Total revenue of the group will grow by 2– 5 % from previous year. Previous year revenue of the group was EUR 142.8 million.

Adjusted EBITDA of full year 2024 will be positive.

Outlook for 2024 (previous)
Annual recurring revenue (ARR) for Elements Cloud products and services will grow by 10–20 % from the end of 2023. At the end of 2023, Elements Cloud ARR was EUR 78.4 million.

Revenue from Elements Cloud products and services will grow by 10–16 % from previous year. Previous year revenue from Elements Cloud was EUR 76.1 million.

Total revenue of the group will grow by 6–12 % from previous year. Previous year revenue of the group was EUR 142.8 million.

Adjusted EBITDA of full year 2024 will be positive.

Figures in this report are unaudited. Figures in brackets refer to the corresponding period in the previous year, unless otherwise stated. Percentages and figures presented may include rounding differences and might therefore not add up precisely to the totals presented.

CEO Antti Koskela

In the third quarter of 2024, WithSecure ARR for Elements Cloud products and services grew by 11 % to EUR 81.8 million (EUR 73.8 million). Elements Cloud revenue grew by 9 % to EUR 20.7 million (EUR 19.0 million). Despite the slightly disappointing revenue growth, profitability of both Elements Company segment and WithSecure Group was positive at the Adjusted EBITDA level. Cloud Protection for Salesforce business returned to the growth track, with ARR growth of 38 %.

In the Elements Company, Elements software continued to perform with good year-on-year growth. In the DACH (Germany, Austria, Switzerland) region, the revenue growth slowed down slightly, mostly due to the weakness of the German economy. In other European regions and Japan, the revenue and ARR growth continued. In Managed services, some large customers churned during third quarter. This development was affected by our increasing focus on selling managed services to mid-market customers through the Elements platform. However, despite the increase in the number of customers, revenue did not fully compensate for the churned accounts. Of the geographic regions, mostly the UK and the US have been impacted by the Managed services development.

Exposure Management, introduced in SPHERE’24 reached General Availability during the third quarter. The customer demand for the newest module of Elements has remained high. Also, our AI assistant Luminen became available for all Elements customers in the third quarter.

Elements Company Adjusted EBITDA was EUR 2.0 million (EUR -0.5 million), as a result of the cost savings of 2023 and continuous efficiency measures.

In Cloud Protection for Salesforce (CPSF), focused efforts on improving sales efficiency resulted in breaking through the 10 million ARR threshold. ARR grew by 38 % to EUR 10.2 million (EUR 7.4 million). Revenue grew by 20 % to EUR 2.4 million (EUR 2.0 million). We continue to develop CPSF as an independent business in WithSecure. Profitability of the CPSF is moving towards break-even with the improving revenue.

Cyber security consulting revenue was slightly below previous year’s level and was EUR 7.5 million (EUR 7.7 million). In some key accounts, we saw financial constraints in the third quarter. In the long term, we continue to see solid demand for cyber security consulting service. As announced on 31 October 2023, the Cyber security consulting business is under strategic review. We are in active discussions regarding divestment of the business, but no decision has been taken so far.

Due to the gaps between actual and expected revenue, we lowered the financial outlook for 2024. For the changes in consulting revenue estimates and increased equity market risk, we recorded an impairment of the consulting-related goodwill of EUR 15.5 million in the third quarter.

At the end of September, WithSecure’s headquarters moved to the new premises in Wood City, Helsinki. This is part of our plan of creating dynamic and collaborative workplaces, to welcome our employees and visitors and to foster well-being and creativity.

Financial performance

(mEUR)	7-9/2024	7-9/2023	Change %	1-9/2024	1-9/2023	Change %	1-12/2023
Revenue	36.1	34.8	4%	109.2	104.8	4%	142.8
Gross Margin	26.2	24.2	9%	78.4	72.6	8%	100.2
% of revenue	72.6 %	69.5 %		71.8 %	69.3 %		70.2 %
Other operating income1	0.7	0.2	227%	1.6	1.0	53%	1.4
Operating expenses1	-25.0	-26.6	6%	-79.2	-90.0	12%	-117.7
Sales & Marketing	-13.7	-15.2	10%	-42.9	-52.4	18%	-68.1
Research & Development	-8.4	-8.2	3%	-26.5	-27.6	4%	-36.3
Administration	-3.0	-3.3	10%	-9.8	-10.0	2%	-13.3
Adjusted EBITDA2	1.9	-2.3	182%	0.7	-16.3	-104%	-16.1
% of revenue	5.2 %	-6.5 %		0.7 %	-15.6 %		-11.3 %
Items affecting comparability (IAC)
Other items	-0.6	-0.1	-468%	-1.6	-0.4	-301%	-1.4
Restructuring	-0.4	-0.1	-303%	-0.4	-4.4	90%	-8.9
Divestments	0.6			1.2	1.4	-15%	1.4
EBITDA	1.5	-2.5	-160%	-0.1	-19.7	99%	-25.1
% of revenue	4.1 %	-7.1 %		-0.1 %	-18.8 %		-17.6 %
Depreciation & amortization, excluding PPA3	-2.6	-2.5	-5%	-7.4	-7.6	2%	-10.2
Impairment	-15.5	-6.2	-150%	-15.5	-6.2	-150%	-6.2
PPA amortization	-0.5	-0.6	15%	-1.7	-1.8	4%	-2.4
EBIT	-17.2	-11.8	46%	-24.8	-35.3	30%	-43.9
% of revenue	-47.5 %	-33.8 %		-22.7 %	-33.7 %		-30.7 %
Adjusted EBIT2	-0.8	-4.8	84%	-6.7	-23.9	72%	-26.3
% of revenue	-2.1 %	-13.7 %		-6.1 %	-22.8 %		-18.4 %

1. Excluding Items Affecting Comparability (IAC) and depreciation and amortization. In 2023 excludes also costs of services provided to F-Secure under TSA and equivalent income charged for TSA services.?
2. Adjustments are material items outside the normal course of business associated with acquisitions, integration, restructuring, gains or losses from sales of businesses and other items affecting comparability. For reconciliation and a breakdown of adjusted costs, see Note 6 (Reconciliation of alternative performance measures)
3. Amortization of intangible assets from business combinations (PPA, purchase price allocation, related amortizations).?

(mEUR)	7-9/2024	7-9/2023	Change %	1-9/2024	1-9/2023	Change %	1-12/2023
Earnings per share, (EUR)1	-0.10	-0.06	-69%	-0.13	-0.16	18%	-0.23
Deferred revenue				65.7	65.7	0%	66.9
Cash flow from operations before financial items and taxes	-0.6	-9.0	94%	-5.7	-22.5	75%	-19.9
Cash and cash equivalents				21.6	30.0	-28%	36.6
ROI, %	-60.8 %	-33.3 %	-82%	-27.1 %	-30.9 %	12%	-30.5 %
Equity ratio, %				66.6 %	79.1 %	-16%	73.3 %
Gearing, %				4.0 %	-18.3 %	-122%	-22.2 %
Personnel, end of period				983	1,147	-14%	1,087

1. Based on the weighted average number of outstanding shares during the period 175,976,169 (1-9/2024). Earnings per share has been recalculated for comparative periods using average weighted share amount after share issues.

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 2024. 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 Antti Koskela and CFO Tom Jansson will present the results in a webcast on 23 October starting at 14.00 EEST. The webcast will be held in English and can be accessed at

https://withsecure.videosync.fi/q3-2024

Questions in written format are requested in the webcast portal. Presentation material and the webcast recording will be available on the company website

Materials | Investor Relations | WithSecure™

Financial calendar
WithSecure will publish its financial information dates of 2025 later in the fourth quarter of 2024. WithSecure observes at least a three-week (21 days) silent period prior to publication of financial reports, during which it refrains from engaging in discussions with capital market representatives or the media regarding WithSecure’s financial position or the factors affecting it.

Contact information


Tom Jansson, CFO
WithSecure Corporation

Laura Viita, VP, Controlling, investor relations and sustainability
WithSecure Corporation
+358 50 487 1044
investor-relations@withsecure.com

Attachment

• Interim Report 1 January - 30 September 2024_vF