Withsecure Oyj

Very good afternoon from Helsinki, Finland, and welcome to VidSecure. My name is Laura Viita. I am the investor relations director of VidSecure. I'm very happy to wish you all welcome to this third quarter 2024 results release. It has been a very eventful quarter with great news and some news not so great. So we are here to answer all the questions and open up what happened during the quarter. We have today our CEO Antti Koskela talking about the business, customers, market during the quarter, and then our CFO Tom Jansson talking through the numbers of the third quarter. If you're watching us on the webcast, you can log in questions at any time. We will have a Q&A session at the end after the presentations. So with this, I'm handing over to President and CEO of WithSecure, Antti Koskela.

So thank you, Laura. And hey, welcome everybody from my part, everybody here in the room and everybody over there in the line. So this was my first quarter as the appointed CEO of the company. And apart from focusing on the operational management during the quarter, we also did a strategy update for the elements company. And we will talk about that one in our upcoming investor day in November 22nd in Wood City. But with that one, we could move on. So before going deeper here, so you know that on 11th October, we updated our guidance for the business in many parts. And so today we would like to shed some light on the underlying performance in Q3 that is behind that one, and also giving you the trajectory based on the past, how you can then look at our business. So one thing we have been following carefully is this Elements Cloud product and services ARR. That number includes our Elements Cloud software, co-security services, our managed services, counter set, the whole topic. So we grew 11% year on year. year-on-year, and then we grew revenue for the Elements Cloud 9% year-on-year. And maybe contradictorily, I think you know that you have managed services decline here compared to the last year level due to the churn of larger customers, the net revenue retention is going up in the quarter, so 104% now. So what it means that the underlying performance of the Elements Cloud software is growing and the managed services is slightly below previous year level due to the turn of the larger customers. And we see very much larger customers opting for a large company playbook, building their own security operation centers. But the ones which are preferring managed services, of course, are with us. In the DACH region, which is Germany, Switzerland, Austria, The region has been strong year on year, and there were some slowdown during Q3. It was still growing, and it's because of the German economy. So we have a strong value proposition with a European alternative. There's a strong mid-market kind of customer base in Germany, both for our managed services and Elements Cloud. Our revenue growth was 4% year-on-year, and this, of course, includes the on-premise part of the software as well in the elements company and some other revenue streams. And there is a decline in the on-premise, and there is a growth in the cloud side. And what we were happy about, we have done a lot of cost saving measures in the past and we have continued to optimize our performance, whether it's about the cross margin quality or whether it's about our cost position. So we landed in the adjusted EBITDA of two million for the third quarter. And there were some notable general availabilities. This we launched at Sphere, so we have now exposure management at the general availability. We have activated Luminen, our generative AI assistant for all the Elements customers. And what we are really proud in this quarter is that we improved significantly in the Gartner Magic Quadrant. So both in our ability to execute and in the completeness of the vision and The downside comment for us was that we are focusing in Europe. We happily take that. And I think that's where we are. And we have, of course, started marketing activities based on this one. And it's looking quite positive on that. But maybe one thing on the business that you as analysts, you really need to know. You all know what GDPR is. And you need to know similarly what NIST 2 is. So NIST 2 is an updated directive in the European Union that came in force 17th of October. This EU-wide legislation aimed at enhancing cybersecurity across the Union. So for boards and management, there are criminal consequences for noncompliance, and there are similar consequences percentage of revenue penalties imposed in case of non-compliance. So we talk a lot about this minimum effective security for mid-market, so that if it has been an option, it's not an option for most of the companies. So essential and critical organizations, which are over 10 million revenue or 50 employees, need to comply. So most companies need to comply. And even smaller companies, if they are part of the critical supply chains. So what they need? They need information security management system that gives them protection, detection, and response. And they need a systematic, proactive approach to risk. And what we have been building at WithSecure with our Elements Cloud, it's right on the money here. So we have extended detection and response and exposure management together with the services forming the mid-market playbook. So we believe that's a good thing for us. And so we are uniquely positioned to meet these needs of the small to mid-sized companies. And it's quite deliberate that we are focusing on these customers together with our partners. So maybe with this one, we continue now to cloud protection for Salesforce. This was a bright spot. I think we have been guiding you previously on this one is that we see good opportunities, good pipeline. And we also told last time that the underlying net revenue retention is suffering from a few large turn cases in the past. So what this tells me is that the land and expand strategy here is working. So we are not only winning new logos, but we also expanding on the existing logos. And it, in a way, got the business to 20% revenue growth, and that drove it close to the EBITDA break-even point. So I'm happy with this performance here. On consulting, the revenue, this was a disappointment for us. So revenue was below previous year quarter. And we witnessed some financial constraints in key accounts. And there was more thoughtful spending in the cyber with our key accounts. We expect long-term demand to be solid. And despite even this declining revenue, so you can take a comparison from our Q1, so we were able to be a bit of a break even. So we have been doing a lot of performance improvements in the consulting business throughout the year, even beyond what we did last year. When we look at the Q3 and we look at what revenues we were landing, but we also looked quite carefully what's the equity market risk here. So, you know, the risk premium in the OMX HEX and here in Helsinki is quite high already. So, we in a way increased our... increased our discounting factors and we changed the revenue factors and we impaired the goodwill with 15.5 million for the value in use. And we also wanted to signal to the market in the Q3 that we are in active discussions regarding the divestment, but no decisions have been taken so far. I'm sure there will be tons of questions of that, but I will answer with this line, as you can probably understand, due to the nature of these processes. And maybe with this one, over to Tom.

So welcome. Thank you very much and good afternoon for my part as well. So maybe a short recap still on the numbers and we do it by segment. So first we do the Elements company. As Antti mentioned, Elements Cloud ARR grew 11%. Our software part of that was doing quite well while the managed services then we continued to have some of the enterprise customer churning and this specifically was in the UK and US partially. Then, as also discussed, our DA region is still growing quite nicely, but we could see some weakness in the growth in Q3. But despite that, I want to emphasize that it's still growing and that's what we expect also in the future. The net revenue retention was 104%, so we are doing quite well in terms of selling additional elements module to existing customers. The on-premise revenue declined. That has been as expected. We do expect to transition most of our customers over time to the cloud side. and then we had some other minor revenue streams. The adjusted EBITDA was 2 million for the Elements company, so our previous cost structure actions are being seen now also in our profitability levels throughout the company. Then, as mentioned, cloud protection for Salesforce, we are very happy with the quarter. And we had a large churn last year in September. That, of course, is now over. We have had a few other ones during late last year, but not many, but some a bit bigger. and it has taken a little bit of time to kind of recover from them but the team has been doing an excellent job focusing on growing the business and now we can also see the results and we exceeded the 10 million ARR mark that is kind of a internally at least one milestone for us in terms of of achievement. And of course, as the churn customers drop off of the comparison, we can see that the true NRR is actually quite good and we expect that also to be good in the future as we are progressing the land and expand strategy as also Antti mentioned. And the adjusted EBITDA. Of course, this unit was also affected last year about some of our actions and as the growth comes, then we are now also coming closer to a break-even point for this segment. Then on the consulting side, as mentioned, Q3 was not as we had hoped for or expected. We did see some customer As I said, cautiousness and budget constraints. We do see that the cybersecurity consulting will have a solid demand also in the future. And we are not from that perspective worried, but of course, temporary in Q3. This was a disappointment for us. On the other hand, we have done multiple initiatives in terms of improving our profitability during the year and therefore some of that can also be seen that we managed to get to a break-even point even though our revenue was lower than maybe what we originally had been expecting. And then we did a goodwill impairment that Antti already touched on and the reasons for that. Then the overall profitability, so revenue grew 4% and EBITDA for the quarter was 1.9 million. And you can see that all the actions taken last year has been taking a good turn on our profitability. As you can see here today, last year we were minus 16.3 and now we are 700k profitable. And so it's been a lot of work from the team, but some of the results can be seen in our profitability development at the moment. But this has been coming through throughout the P&L from all lines, so to say. Then if you look at our new outlook that we launched some weeks ago, so our new outlook, we are saying that the ARR will grow 6 to 14% this year. The revenue for elements cloud products and services will grow by 8 to 12%. The total group will grow 2 to 5% from previous years and then we continue to guide that we will have an EBITDA positive year for this year. And then we want to say that, put this in the calendar, everybody who's interested, we will have an investor day on the 22nd of November in the morning at our new headquarters. And that will of course be also live webcasted to everybody interested. With this, I think I would invite Laura back on the stage and then we start going with the Q&A.