F Secure Oyj

A warm welcome, everybody, to F-Secure's quarter one interim results session, both here in the room as well as everybody else who are attending the session online. Straight into a summary of the quarter. So our revenue grew by 2%. Still during quarter one, the US dollar exchange rate was clearly favorable. Towards the end of March that started changing and naturally we've seen in April that it's been quite different from what we've been experiencing in the past couple of years as dollar has been weakening. But with regards to quarter one, it was still favorable to us as we're a very heavily Euro focused company. Profitability exceeded our expectations. That was good. We forged new partnerships. One partnership in the Nordics, which is completely new. And then in Central Europe, Orange, that I'll talk a bit more about later. And then we had a small number of partners who enhanced their Contracts, typically our contracts are in the range of three to five years and those came up for renewal and they renewed and not only renewed, they expanded the scope with F-Secure. In terms of quarter one and embedded, clear developments once again on AI-powered scam detection specifically, more about that a bit later. Our new organization is now in place. At the end of 24, we ran change negotiations to go for a more customer-centric operational model and an organizational structure. That's now in place. and fully operational. And then I would say that with regards to AI, we've gone forward in leaps and bounds in quarter one, all across the company in every single function, in practically everything we do. Like many companies, we are still in the early phase of thorough AI native solutions and processes across the company, but we have really made excellent strides in the first quarter. So that's just a quick snapshot. I'll then dig into a bit more detail. So these are the main themes that we are focusing on with regards to our strategy in 2025. First of all, we want to continue to transform as a company to accelerate our growth. Secondly, we definitely want to claim a leadership position in scam protection. And thirdly, we are driving innovation and also productivity and quality gains through use of data and AI. If I start from the left, there's a whole number of big names there. Some of them we serve today, many of them we don't yet serve, but that's in a way our hit list of who we are after in terms of transformative growth. So these are the primary targets that we're going for. And we see that every single one of them, as we've mentioned before, should have the potential of generating 8 million euros per year or more once fully operational, which may take a few years from launch or which may come faster in case they migrate existing user bases to F-Secure protection solutions. But that's crucial. Secondly, you know, I joined F-Secure 12 years ago. And at that time, and already before that for some 10 years or so, the big thing in consumer cybersecurity was all about antivirus. Since then, we've had some pockets of the consumer security market that have been growing, like VPN solutions, password management solutions, router security, and so forth. But now we see that with scam protection, For the first time, we're seeing a massive new development that is presenting itself as a market opportunity to all of the players. Top of mind for consumers, something that people are experiencing practically every day. So the awareness of the need for something like scam protection is now much more pronounced than it was before. Also, in terms of the threat landscape out there, this technological landscape, the criminal activity and the protections needed for scam protection are also evolving at a fast pace. So when you want to go after growth, a new, let's say, potentially significant space is a good one to be in. That's why we're aiming for number one position over there. And finally, AI and data powered F-Secure, that's what we are envisioning. I'll talk a bit more about that later, but I can only say that, you know, I've been in technology business for quite some time, and I have never seen anything develop at the same pace as I'm seeing AI develop right now. The fundamental technologies, their capabilities, their scalability, the kind of, in a way, how far you can go in terms of AI power, you know, just in six months, it's going forward at a breakneck speed. And we intend to lead with AI, not adapt to AI. So first of all, about transforming to accelerate our growth. So during this quarter, as you can see on the left there, we had three partners going fully commercially live with our services. SoftBank, with a service where identity protection from F-Secure forms part of the solution. AT&T went out with Active Armor 2.0, which is the next generation version of their Active Armor application that we developed for them. And then thirdly, Anonymous partner, who has gone out with an identity protection service now in quarter one. These two services, AT&T Active Armor and the identity protection service launch, They haven't been yet as actively promoted by our service provider partners as we would want to see, but we are working actively with them to make sure that they also put their body behind these new services. On the new partnership front, we signed up as we sent out a release five days ago. We signed up Orange Group and They have roughly, or precisely, three different geographies that they serve. Orange Europe, France, and Middle East and Africa. And for the first, the European operating companies, seven or eight of them, are very keen to start rolling out F-Secure services. And in this case, it is a strategic partner who's working with Total not with embedded security at this point in time. Embedded security is something which may be an expansion in the future. One has to keep in mind that if you want to provide holistic solution to consumers, Total secures laptops and mobile devices, whereas embedded serves only mobile devices. So Orange has decided to go for the most holistic solution to begin with, and potentially complement that with embedded in the future remains to be seen. But massive group, absolutely one of the top ones in Europe. And this is the first group-wide contract that we now have with a strategic partner or tier one partner. Big step for us. Around end of quarter three is when we expect the first country or countries from Orange Group to go live with Total. Then the second area of our focus areas in 2025 is scam protection. So beginning of the year, we launched something we call Scam Kill Chain, which is a framework which has been used in enterprise security already for quite some time to analyze the criminal behavior and the steps they take in their attacks. We have now transposed this methodology to cover how criminals are attacking consumers. How do they go about the kill chain? What kind of steps do they go through to create trust and to get people to fall for scams? And how does the scam then become a reality? How are they going after typically your money? So we have now created a methodical framework for understanding how these attacks happen so that we can then come up with the industry's best detection and protection capabilities to stop scams. Secondly, we won the coveted AV Test Award once again, which is naturally proof to the fact that our product does what it says on the tin. it does protect and it does so very effectively. Then with regards to our SMS scam protection, in quarter one, roughly 450,000 messaging scams were prevented with over 10,000 in some of the peak days of messages that were blocked. So this is a real threat happening out there and this is a real protection against those threats. Then with regards to the enterprise security world, the holy book of enterprise security in terms of data breaches and what's going on in terms of criminal activity in the cyberspace is the Verizon Data Breach Investigations Report. And our research for the first time contributed to this very prestigious report. And finally, in terms of embedded security, we have developed new capabilities, especially to stop crypto mining activities. So we can both identify and block malicious crypto jacking activities, which are very common now in North America, comparatively with other regions, but not only there. So especially in North America, where we are actually working naturally actively to expand our footprint, this has been very much in demand. So that's just one example of what we've added now in quarter one. So here's the award for AV test, best protection. And then here is the data breach report coming from Verizon. With regards to utilizing data and AI, so over 25% of our workforce are already using Claude, which is our choice over JetGPT as the standard tool. Over 25% of our workforce are already using it daily in their work. And at a staggering 20 to 25% growth weekly, we are seeing the usage growing from its current level. We are building in every single new protection capability that we're coming out with. There is an AI engine underneath, and that's going to be not only the case for protecting our customers, but we're also seeing in our engineering and technology that we are using AI now to enhance the entire software lifecycle, speeding up deployment, improving quality. For example, one of our new deliverables that we created during the first quarter, the whole quality process was run end-to-end using AI tools, faster and reliably. So this is definitely something that not only has to do with protection, but also our capability to run a more agile and nimble organization. And then overall operational efficiency, we are busy re-imagining our customer care function powered by AI. And also with regards to our people and culture, we already have tools that we have been developing for career planning, and hiring which are fully AI powered. So many of our functions, our legal has been running AI services for a long time already. Our marketing is generating deliverables, videos, content, campaigns based on AI already today since the end of last year. So boosting efficiency, service quality, innovation, and naturally also eliminating some mundane tasks that we all have in our work. So this is taking on, I would say, like a wildfire right now. That's all from me. I will now hand over to Sari Sommerkallio, our Chief Financial Officer.

Thank you and good afternoon to everybody. Let's look into the numbers and start with the new slide, happy to show you something that we have not had before. So starting with the partner channel revenue, we have now split the revenue into embedded and security suite. In our strategy, we talk about these, we refer even to the profitability of these and earlier we have not quantified the size of the business. What we have here in embedded, I think from our references, you know, AT&T and Docomo have embedded services and sense businesses in there, and then a number of smaller partners. But just to get the picture of what we have in there. If we start with the security suite growth of 2.9%, this is like an okay number. Considering that we still have this in Germany, there is a customer who is clearly showing negative numbers and which is in hundreds of thousands the size in this one quarter only. So the trend continues that we've seen already in the past. But there are many positives in security suite. Total conversion continues to develop nicely and thus the ARPU is increasing in that channel. Poland, which has been negative for years. All this time that I've worked in the company, we have talked about challenges there. So now this was the first quarter that it was clearly positive after a couple of flattish quarters. And Switzerland was positive in this month and in the Nordics, especially Sweden, continues a very nice development. Then on embedded side, we have mentioned in several places in the report, this 300k one-off correcting an earlier revenue recognition mistake. So on the group level, annual level, 300k is not a lot, but in the one quarter embedded numbers and in the Japan numbers, it is a significant one. So that's why we have highlighted it. So even if now embedded is minus 0.3%, so without this mistake it would be positive 5.4%. And of course it's important for us that this continues to grow and also in Japan where we have said that we have historically had a good performance, so that underlying good performance continues even though due to this mistake it's not visible. Then if we look at the direct channel revenue, so slightly positive, which is good considering that we have continued this strategy of not doing any paid customer acquisition. And the positive development is mainly thanks to previous better quarters. In general, we can say that ARPU is growing. Renewal rates are high, so there is good development. But with this strategy, so new customer acquisition. So even if we have assumed that it's not going to be great, so that's the area where we hope that we can still improve. But considering the strategy, an OK result. And then looking at the full revenue, so we have the 2% growth, like Timo said, so helped by FX underlying is plus 0.5%. And again, considering that it would have been better with this without the 300k correction. And in the geographies, like mentioned, so Nordic countries is already on this mid-single-digit range. rate which is the target for us this year and Sweden is a driver there. And rest of Europe is burdened by this development in Germany and others are then much more positive. And North America supported by dollar in this quarter and if world continues like it is today so it will turn the other way around in the following quarters. And rest of the world again burdened by the correction. Otherwise continuing on good track. Looking at the cost side, so OPEX is slightly lower than corresponding quarter last year. And this is thanks to the change negotiations we got savings in this area. overall during the change negotiations we said that there will not be savings because we are reinvesting but there is a slight timing difference so we've been filling the new positions during the quarter so not like full load yet in the first quarter. And the capex level was a little bit lower in this quarter than last year at the same time but overall our guidance remains that similar levels of capex on full year level can be expected even if the Q1 level was similar. In terms of profitability gross margin similar ballpark as last year during this time no big changes as there has not been any major changes in the business mix of what kind of products we've been selling. And the overall profitability then in terms of adjusted EBITDA, it is higher than last year, thanks to the lower OPEX level. So we can say that in terms of profitability, this was a good quarter. In terms of cash flow, similar cash flow, flow cash conversion as last year slightly better also a little bit better cash flow as the capex was lower in this quarter but I think no drama here equity ratio continues to improve of course it was still very low last year at this same time and our guidance for this year remains the same so We see that this is the lowest growth quarter and it should accelerate to get to this mid single digit for the full year. And otherwise, no changes here. So thank you. And we are happy to answer any questions with Timo here.

Hi, Walter Ross from Danske Bank. What's your currency? exchange rate assumptions behind the guidance given earlier this year. And what I'm trying to get at is what the headwind is going to look like for the rest of the year.