Withsecure Oyj

Very good afternoon from the very, very warm and sunny Helsinki and welcome to VidSecure. My name is Laura Viita. I am the investor relations director of VidSecure and happy to wish you welcome to this second quarter of 2025 results release. Today, we will first have our CEO Antti talk through the business highlights, especially the breakthroughs made in the proactive threat management with our new tools and other things, of course. After Antti, there's going to be the CFO Tom talking through the financials of the quarter. We will have questions and answers at the end. If you have questions, you can send them over the webcast all the time. I will take them up with the presenters at the end. So warmly welcome. And with this, I'm handing over to the president and CEO of WitSecure, Antti Koskela.

So thank you, Laura. So first, I would like to go through the strategy and then I go to the financials so that it has been a very busy quarter for us. And what has really happened during the second quarter is that digital sovereignty discussion accelerated in Europe. And this was quite a lot intensified by the removal of the email email from ICC judge by Microsoft and following the US administration decision. And a lot of discussion started on becoming more European ever since. It was not only us talking about it. So it's a theme that is in the market and it's clearly influencing already technology choices done by the partners. And we met many of our partners and customers in our Sphere event here in Finland in May. So we had around 400 customers and partners here, and majority of them were new ones, first time with us, and clearly signaling the increased trend for new partners coming to work with Secure. And we will have more smaller marketing sessions Sphere to use to the rest of 25. We actually have already had one in Germany and we will have one in Japan and France to the rest of the year. And what we launched in at Sphere event, so we launched extensions to our elements cloud and code security services as everything we do evolves around elements. We took exposure management to new level by expanding the scope to various cloud platforms and also identities. And then we extended coverage of our extended detection and response to cover well the Azure cloud environments. And then we packaged all our managed services and software into easily purchasable bundle Elements Infinite that we also launched to the market. But what Laura was suggesting in the beginning, this zero-day vulnerability detection, this is quite groundbreaking. So we are able to use telemetry from our EDR tools and the behavioral data and use that with AI models so we can detect vulnerabilities that nobody knows exist currently. This has usually been a work for security consultants and it takes a rigorous weeks and weeks of work. We have been able to do breakthroughs with the use of AI. gets to the new level of proactive threat management. And this technology will, of course, be integrated to our exposure management products as we move further. But the combination of exposure and the exterior and the whole element is here the key. That's why it's so powerful. We were also busy during the quarter, so we did two transactions. We closed two transactions during quarter two. So we closed consulting, which is now called Reversec. So that divestment was closed on 1st of June. And we also divested our Malaysian entity, And we transferred that to the buyer LS systems and who became the preferred distributor for with secure in the region. And the start has been quite quite rapid and we are we are looking positively towards the work with LS system in the region. And it's also very effective way for us to do marketing and sales in the region without having own feet in the ground. And then. Our key strategy is to work on these mid-market customers and the partners serving them, because most of our pipeline comes with the partner development, how we extend the scope with the partners. So we have extended our partnerships in Japan. So we are launching... elements MDR in Japan. We are extending many historical endpoint protection only partners to EDR to access the Japanese mid-market. In Netherlands we have a quite broad spectrum of managed service providers and we signed after Sphere actually I met the CEO at the event and had a handshake that they take with Secure as the number one supplier because they need a European solution. So that was done. And also in Finland, you may have seen that we launched partnership with DNA. And the DNA, it's going heavily to the IT part on the cyber security in collaboration with Secure and Google so that these form a combination. So a lot of groundwork is done and unfortunately not all the groundwork is in the numbers yet. But what we are doing with the partners creates a good path for the funnel for the second half. And that's where our confidence comes from, how we are talking here. We grew Elements Cloud and core security services 13%. And this growth is increasingly driven by the new products, exposure management, Elements MDR, partners going with the mid-market playbook with the wide portfolio. And of course, the deal sizes with the wider portfolio are higher than with just selling endpoint protection. And then the negative part. So unfortunately, like we said in the investor days, we had certain enterprise customers that form a revenue concentration. And as our focus is very much on the mid-market, there has been always a risk that some of these will churn. to more in-house security operation centers and the tools around them. And that has happened with one very large enterprise customer in the UK during Q2. And with the earlier managed service churn and this one, our managed services part declined 22. So this basically offsetted the good work in the element side and our ERR growth landed at 3%. And of course, that's the single topic driving the NRR number. Tom will talk about the net revenue retention on element software and managed services separately in his part. And then like we announced, we are in the process of reorganizing our partner and customer facing activities to accelerate our strategy of becoming European flagship. And what we are doing here essentially is that we are focusing our sales and marketing efforts to a very globally aligned model. where we have certain teams focusing on the mid-market expansion and certain teams focusing on revenue retention and consolidation of the more long tail channel partner environment. And so it's very important for our strategy and We could have done this earlier, but I think we have been quite busy with some of the other projects during the first half. So we thought this would be the right time that we did it right after this transaction from Malaysia and consulting. And we also align the cost structure in managed services to reflect the business reality so that we commented on that one when we announced the reorganization program. So Tom, correct me if I'm wrong, but these cost structure changes will have Q3 onwards impact so that they don't get impact Q2, just for everybody to notice. But despite investing in Sphere, despite this revenue churn from managed service being managed to do, I just did EBITDA positive, which is a material difference from the previous year at the same time, if you remember that. So maybe with this one, I invite Tom as well to talk about how we are progressing with cloud protection.

Thank you very much and good afternoon from my part as well. So on the cloud protection for Salesforce, on a comparable note, we still are growing very strongly. So 54%, of course, compared to previous quarter, this was a slower quarter for us and very back and loaded in many ways. But if you look commenting a little bit behind the numbers, We still won quite a few customers, but then unfortunately we were also hit by a pretty large FX effect on CPSF because we have a fairly sizable operation in the US. So that had a negative impact on the ARR. And then there was some timings and so on. So net together, only a slight increase from the previous quarter, but still on track to do well during this year. And of course, from this also, then the NRR for CPSS was going a bit lower. So it was still a very good number, though, 122%. But compared to the first quarter, it was slightly down. So as I said, the big largest foreign exchange effect was from the dollars. Then we have quite a bit of Australian business as well and so on. So those would be impacted as well. Altogether our ARR negative was about 400k. But the numbers are, in terms of customers, are increasing quite well and so on as well. Of course, the big thing is that, as many of you who follow Salesforce know, they are pushing very hard the agent force and the AI tool applications on that. So we have also now part of that. We are in the forefront of protecting that activity, so agent force. will be also protected by a new app by Salesforce very soon. And we see that as, of course, a great expansion to the Salesforce opportunity itself. And at the same time, to remind you everybody that, as we have said, you know, CPSF, we continue to develop it, and then we will see in the future what strategic options we will look at that. But we have a very good track and phase at the moment going, and we have patience to continue to develop it. But then maybe going to the numbers a little bit. So here you can see the cloud ARR for the Elements company and the development of that. So Elements software and co-security growing 13%. So quite solid growth continues and good good traction there and so on. And of course, the NRR and so on are also on a quite good level for this part of the business. As Antti already mentioned, then on the managed services, we see a decline year over year in the over 20%. And this is because of the large enterprises going into their own on way forward and not based on the mid-market offering that we are providing. And this is particularly for the UK and has been there already for some quarters. Then another picture, so our cloud ARR grew 3% and the combined NRR, net revenue retention, was 99%. Of course, the software part was quite higher, but then the net was driven down by the managed services. The on-premise revenue declined, and this is very much as planned and expected. And we continue to see that this way as well, but for some time in the future. But this was no really big news for those who have been following us. From a profitability point of view, I said we did a positive result despite our, as always, our Q2 for the past years has been a big investment in marketing and the Sphere event. But despite that, then we were in a positive result in Q2. And here, again, the CPSF numbers, Cloud Protection of Salesforce numbers, strong ARR growth continues, some foreign exchange impact from that, and the NRR at 122%. And the revenue, of course, follows the ARR, so good progress on the revenue side as well, as expected when the ARR also goes well. From a profitability point of view, as we have said before and continue, we are not expecting this or we don't, want to do this to do profit at this stage, we want to invest everything we generate to further growth. So this business will be break even, approximately break even and has been so in the past as well. And we will continue to invest in growth as much as we can in terms of not though harming the overall or cash flow for the company. Then here is the combined numbers for us. So 3% revenue increase in the quarter and our OPEX continues to reduce. And this is of course part of our efficiency measures that we have done before. And we of course do this continuously. And we've done some investments in sales and marketing to new customers and partners though. And of course, in R&D, we continue to optimize our cloud environments and so on. And GNA, as we have also said, we expect that to scale with the business and we keep that under control. So we have a very diligent continuous efficiency measures in place and continue to watch our spend and try to improve on the efficiency. And then of course, as Antti mentioned in the beginning, the newly launched restructuring that will have also an impact on our cost structure in the future. So at the moment we are estimating that to reduce our structure annually about 6.5 five million in on an annual basis are our cost in the future and those will come gradually q3 q4 then into our numbers then on outlook no change to the outlook so we're going into to all of our businesses with a good pipeline for the second half and there's no need to change our our guidance and we expect the arr to grow for elements for 10 to 20 percent this year and then for the CPSF we are our outlook is to grow 20 to 35 percent and then on the profitability for Elements Company we expect EBITDA to be between three and seven percent of our revenue. With that I will invite back and this is just maybe to recap then we are determined to hold on to our medium term financial target and be a rule of third plus company in a couple of years time. But with that, now I invite back Laura and then we can go to the Q&A section.

All right, so we will start with the questions from the room, please.

Hi, Felix Henriksson from Nordea. I have a few questions. Starting off with managed services, was the decline and the magnitude of the decline in Q2 sort of in line with what you had budgeted into your guidance? And should we expect the pace of the decline to remain broadly similar for the second half of the year as well? Good

As we mentioned before, we were always aware of potential large customer enterprise risks in here. So we have taken that into account. And as I said, we are holding our guidance for the rest of the year.

And the growth model really happens through the mid-market and the partners. And that's where I think we have a belief on the partner momentum. So we have been signaling that also to you in this call and previous calls. And I think we have a very healthy funnel for Elements Company also. Also that, of course, we need to do a lot of work to, of course, get everything over the finish line. But I think pipeline is there.

Got it, because I guess what I'm trying to get to is that do you expect the sort of headwind from the managed services decline to diminish or intensify in the second half of the year, because that also impacts how much you need to close the software side.

That is correct. Fully understood. Fully understood.

it and and regarding the sort of software and co-security part of your elements cloud business can you sort of describe the pipeline a bit more in detail is this mainly related to the new partners that you've signed sort of what gives you the confidence to to to get to the guidance and and could you just describe your visibility a bit more

I think the key topic is that there's a wide understanding is that you don't do modern cybersecurity with endpoint protection only. So that we see increasing trend that existing partners and customers are upgrading to other modules. But I think the more interesting partners are the partners, for instance, Reliance in Netherlands and who basically sell as a managed service security by themselves and we are white labeling and they sell it at the same time to their entire fleet so that we don't sell to individual end customers one by one, but we also able to package it to the partner and upgrade the entire fleet as well so that those give confidence that this opportunity can be turned.

Got it. Then lastly, you mentioned the six and a half million savings target related to the new change negotiations. Is that a net savings number or do you expect to invest part of that, reinvest part of that into the business?

is net saving.

Yeah that's a net saving.

Got it.

And we have underneath the number we have of course your investment but the key thing is here is that we are departing from a quite independent regional sales structure into globally aligned one where we have team focus on the mid market and teams focus on the on the small to medium sized, smaller part, smaller customers and partners serving them. They require different mode of operation and this is what we have in the plans because we have not finalized consultation in every country.

Hi, Valtteri Rossi from Danske Bank. About the planned cost cuts, how much would you say it's coming from a structural change in your business model, switching from the large customers in the mid-market? In other words, is it more of a response to the lower demand in large customers or a proactive shift in line with your strategy?

This is 100% aligned with our strategy and there's so much as a leadership team we can do at the same time. So you might have noticed that we have been busy with consulting transaction and the Malaysian transaction. So we finalized those end of May. And then we could start getting to our plan, which we announced in June. So we took 30 days. I think that's pretty decent for that one. But this has been always the plan. If you remember for Invest Today, the key thing is that we focus on the partners serving the meat market to manage service providers. kind of IT managed service providers, and that's the scaling effect. They have access to the mid market. Then we have a lot of channel partners with Secure History. Those we are consolidating largely under distributors like we have done with the likes of F9 in Finland, Ingram Micro and InfiniGate. And we continue to do so. I guess the efficiencies come two ways. So that partly is adjusting the cost structure to the managed services business reality. But big part comes from that actually us resourcing for the strategy. And then there are synergies consequently from that one.

All right. Thank you. Then also about the MDR. decline. You mentioned that there was one large customer that partially churned. Can you specify what that means and do you expect the same client still to continue churning?

There is of course also some part that potentially churns in the future, but then that has been taken into account in our forecasts.

And this was a significant part significant part from a single customer that happened in Q2.

All right. Thank you. Then still a few questions. You also say that the FX impact was a big reason why the cloud protection for Salesforce growth was quite slow in Q2. Can you give at least a ballpark number on what the FX neutral growth was this quarter in in that segment?

Did we announce the number there?

So you said 400,000?

400,000, so that's about the FX effect that we were here.

Of ARR.

Of ARR, yes. Without that, of course, it would have been higher, that amount.

So just explain once more 400k.

ARR reduced to 400k compared to Q1 because of FX.

All right. All right. Thank you. Got it. Then you also say that the discussion around the digital sovereignty accelerated in Europe this quarter. Do you expect this to actually materialize in increased demand still this year?

We already see increased demand from the partners and that's why companies like DNA in Finland are launching with us. You saw the release 12th of June. So we are launching with DNA to bring a European and Finnish alternative to the Finnish market from the telco. I think that's a big step forward. And I think we have been doing quite groundbreaking work in Netherlands. You have heard activity in our Invest Today. We have a big client talking publicly, Reliance. Reliance is a family office that has acquired seven managed service providers into the group.

they are standardizing on with secure and upgrading that to the entire fleet and we see more partners like this coming so that this gives me the confidence all right thank you one last one related to the cost savings you said that from Q3 onwards it will benefit your margins gradually but how much will it actually benefit this year's results

As we said, it will be six and a half million net saving on annual basis. I would say that a large portion of that probably, depending on how now the process goes, of course, will start to come into play from at some point in Q4 and onwards.

All right. Thank you.

It's from Inderes, maybe first now about the change negotiations. Do you have any estimate how much non-recurring items is going to come from those in Q3?

We will launch, we will tell when we are done with the processes.

And then still about the ARR guidance. Now you seem like you have confidence that the ARR growth will pick up in the H2, but should we already see some improvement in Q3? Do we already have the pipeline that now in Q3 there's going to be improvement?

Absolutely. We need to increase the tempo in Q3 and definitely in Q4, but I expect this to be quite back-end loaded any which way, like our business usually is.

So it's again Q4 when we're going to see what's going to happen. Maybe still about that it's if it calculates you have to like get in like seven roughly like seven million ARR to get it like in the lower end of your guidance. So and if there's still going to be some churn from the managed services. So it sounds like a lot compared to your history. So what gives the confidence?

I guess it's important to understand this that when there's a reason why I mentioned this Reliance example is that when you sell into a partner that is managed service provider you are not they are not actually selling the technology to their end customers because they are providing a service they switch on the technology and we get the full benefit quite quickly And I think that gives me the confidence on that one. But there's a lot to do. I think it's that Funnel supports it and there's no reason to be pessimistic about it. So that would be guesswork.

Can you say anything about what kind of numbers we are talking about if that kind of MSSP partner takes your technology and takes it to all of its clients?

Better not to comment, I think you said. But I think we have said, have we shared in the Investor Day about the opportunity that how the, if you move from EPP to wider, did we share that one?

Yeah, I mean, if you, yes.

So it, of course, multiple X. It's like 12X endpoint protection easily per seat.

And you already mentioned that there is like growing interest towards European cybersecurity vendors. But is it now only seen from the partner perspective? Because now, of course, the ARR growth wasn't that fast in Q2.

I think it's true because our business model is about we sell into the partners, then we get the multiplication effect. we are not selling into the end user, we are selling into the partner. And together with partners, we then sell into the customer. So that's why this progress in setting up the partnerships, that's the foundational work that is so critical.

And if you look at the competitive landscape in Europe, has there been any changes this year?

This has been the biggest change, this digital sovereignty. I think I have seen RFQs where only European vendors are eligible. And so that we have three main contenders in this mess, ESET, Bitdefender, and with Secure in Europe. But we start to see those kind of trends. Denmark has taken very drastic actions to remove US-based technologies. I think they are removing Office 365 and moving to open source systems and they are doing systematic actions so that this is a big undercurrent and it will not happen overnight but it's a big undercurrent of and it's a part of the of part of the european defense as well so if you look at this nato spending five percent this 1.5 cyber is part of the 1.5 and that's on the sovereignty part there all right thank you

All right. One more question from the room.

Yeah, just a couple of housekeeping items. Just on working capital, there was quite a meaningful release in the quarter. So could you explain that a bit? Was that something structural or is that something that will reverse in the back half of the year?

That is probably mostly related to when we did the consulting divestment and so on. So that had a big impact on the numbers as well.

Okay, and then just another one related to Sphere. I think you disclosed last year that the cost related to the event was roughly 1.2 million. Can you disclose how much it was this year?

750,000. It was in Tom's slide, so that we had a significantly lower spend on that one. We had a very focused session for the right audience, customers and partners, less of an industry event.

Thank you.

All right, thank you. I'm moving to the questions from the chat. Jaakko, our analyst, is online today and asks, given the talk around digital sovereignty in Europe, are you seeing especially good opportunities in the European public sector?

You touched on it already, but maybe let's... I think that's definitely an upside for us, is the public sector. And there are increasingly items on that one. Of course, there's a whole notion how we as a nation support Ukraine. I think that's a big part of the opportunity and so forth.

Right. Then again from Jaakko, after the churn of the large client in managed services in Q2, could you comment the remaining at risk customers in the managed services portfolio?

Of course, unfortunately, when these churn things happen, the risk reduces somewhat. And as Antti said, there is also a part of managed services actually, which is growing. It just doesn't come true when large customers are... The number of end customers in managed services is higher in this quarter than it was in this quarter. I guess the answer is that once the churn happens, the risk reduces.

Absolutely.

All right. Then there's Jaakko and a member of the audience who both ask about the cloud ARR guidance. We talked about it already, but let's talk about it once more. So the guidance implies rather steep acceleration in the second quarter. What gives you the confidence for such a change in the trading?

So the work we have done with the partners in the first half and the quality of the partnerships. And of course, having access to our sales funnel. And I think sales funnel is the basis of our ARR guidance.

All right. And actually looks like people are on their holiday because there's no more questions in the chat. Yeah.

But if I still comment, I think this ARR topic is that it is really about that we have a good funnel, we have good partners. I think now it's us to prove and execute on that one. I think that's what we need to do. And that's why we put the focused operational model as well in place for sales, that we are able to capture these opportunities.

Thank you, Antti, for recapping. Any questions in the room? No, none in the chat either. So I think we are ready to wrap up and go back to the sunny city. So thanks for being with us today and have a nice summer. And thanks for following us in the future as well. Bye bye.

And thank you and happy holidays from my part.

Thank you very much.