F Secure Oyj

Good afternoon and welcome to F-Secure's Q2 2026 result webcast. I'm Tiia Tikkonen from F-Secure's Investor Relations and I'm joined here by our CEO Timo Laaksonen and CFO Robin Pulkkinen who will give you a presentation on the key highlights and financial development over the past quarter. After their presentation, there's time for you to ask questions and you can already post them in the webcast tool and you live here in Helsinki. If you have a question, just raise your hand and we'll bring you a microphone. But with that, without further ado, Timo, the stage is yours.

Welcome also on my behalf. Thanks for taking the time to join us on this beautiful Finnish summer's day, both here in the room as well as online, wherever you may be. So our header says the most important thing from our strategic point of view. We saw strong growth in the second quarter, thanks to our embedded business doing well. Let's get to the details. So our currency neutral growth was roughly 10% and that was driven by the good development in the embedded security business, especially within the tier one segment. I'll get to more details in a moment. Our reported revenue was 39.8 million. some headwinds there with US dollar and especially Japanese yen, unfortunately. We saw a moderate decline in security suite, but we are clearly seeing a possibility now to return to a more balanced resource allocation towards both embedded and security suite on commercial and product fronts than what we've had in the past couple of quarters. Our adjusted EBITDA was slightly lower than last year because of planned investments that we made during the quarter. Now, the result is precisely as we had planned. So this is not a surprise to us. And we are proceeding, as a matter of fact, up until the end of H1 precisely as planned. And as you know, our guidance is unchanged. With the Tier 1 expansion now well underway, we are focusing on driving our service adoption amongst all of our partners, Tier 1's major partners and commercial partners, and we are naturally driving revenue to what's better profitability. We don't see pressure anymore to increase our operating expenses, whereas our revenue is expected to continue growing at a good pace. Now, in the quarter, we had a couple of bigger events that we've already announced to the public. So we signed our deal with Verizon, which was a long time coming in early April. On the very same day when we signed the deal, it already went live. So that goes to show that we had been working on it in the background already for quite some time, since something like August, September last year. you know as we've indicated before our guaranteed minimum guaranteed revenue of that deal is 15 million dollars about 13 million euros for each full year of service and Naturally, the growth beyond this guaranteed level will be driven by the service uptake, which is looking good. So we are doing everything in our power to ensure that in the second half of the year, we could already see subscriber numbers and service take-up rates to exceed this minimum level. Also, we enhanced our partnership with NTT DoCoMo in Japan. Two new scam protection related services. So AI powered scam detection, which is typically SMS, online shopping and so forth, but also now deepfake protection. And that deepfake protection and detection service is now the first one we've launched anywhere in the world. So that's a completely new capability we now have in our portfolio in embedded security. So very exciting to see in the upcoming quarters how the uptake of that service develops. But that's something which is truly novel and market leading. You know, we have been working with Docomo since 2023 when we acquired Lookout Life and we now manage to deepen this relationship even further. That's always good news. announced in December that we have signed up another significant tier one communication service provider. Our expectation at that moment in time based on the information we got from this partner was that they would be aiming for a launch at the turn of quarter two and quarter three. We are seeing that launch being delayed. due to their internal resource prioritizations and project prioritization by anything between one to two quarters. That's naturally something that we were looking forward to getting online around now, but we continue working with the team. The project is ongoing, but there are certain resources on their side which have not yet been made available. You know, the logos that you can see there around our tier earth, that's the logos of the partners we're already serving in the tier one sector. I find that impressive. Now, we run consumer security survey all across the world every year. and that's about 10,000 consumers in 10 countries. And we came out with this report in May, 2026, and a few very interesting data points, not only here, but on the next slide. So more than half of consumers that were interviewed here or surveyed here are encountering scam attempts every single month. Those attempts are mostly fake invoices, investment scams, payment scams, and those are also in pretty much this order, the same ones that people fall for. However, there is one type of scam which is not as common, but people fall for it much more, and that's online shopping scams. Now, if you look at the second number, 52% of victims lose money, more than double the 2025 rate. The number of scam attempts has not increased at all from 25 to 26. However, the percentage of people who fall for them and lose money has doubled. So this, you know, I'm drawing the conclusion here, pure speculation that the scams are more devious and more cunning and people fall more easily for them. And I have to say that AI must have something to do with that. The final one on the slide on the right is that 51% of people are willing to pay for a dedicated scam protection service, which is slightly up. And as you may remember, our Halo project is precisely a dedicated scam protection application. So that is a relevant number from our perspective. And we've seen that scam protection has been a competitive differentiator as the header says for the digital service providers that we work with. They have clearly seen that there is demand for this service. Then here is the number I was referring to as I was going through the previous slide. So there is a clear trust inflection point in the market. You know, based on the same survey that I just referred to, 84% of people, pretty much five out of six, don't trust AI to tell what's real. So just to give an example, roughly people write about 1 billion prompts to chat GPT every single week. About 800 million on Gemini. so people are using AI actively but they don't trust the results or they don't trust what they are seeing there's a massive trust gap in there and that is what we want to fill with providing services that allow people to once again be confident online so Two capabilities that we're developing right now, we call the initiative F-Secure Trust. TrustPath, which is securing entire digital lifestyle flows, such as shopping, which is the first case that we're working on. And then TrustGuard, which is a protection layer around JetGPT or Gemini, which makes sure that you don't enter privately or private information for instance your social security number your bank account numbers and so forth into the prompts that you're writing it secures that the results you're getting from these chatbots are reliable and it is providing you the sources of data that the response that the AI assistant is giving to you what those sources have been so that you can be more confident about working with AI assistants so those are the two things we're working on We're expecting to be in beta phase in quarter four and production phase in quarter one. So these are maybe, if not the fastest, some of the very fastest initiatives F-Secure has ever worked on. The market moves at breakneck speed, so do we. And this development is supported by another partnership that we launched in May with Q2, which is a leading European AI lab. They are speeding up our own activities, especially in on-device AI and federated learning, which is very, very crucial in the TrustPath case. Naturally, on-device AI is also one way to mitigate your risks of driving higher AI costs as you provide the services. So local AI is a way to protect privacy of users' data and secondly, mitigate cost risks. Now, Halo is something we've talked about for the past year, roughly. mobile first scam protection, consumer first experience. Now, one small thing on this slide, which is different from before, is that we call it Project Halo. So we like the name Halo a lot in the company and we've also seen that it is a good name in the market however now that we're getting closer to the launch of the service we see that unfortunately it's not a defendable trademark and we are in the process of of re-baptizing this product and we'll most likely announce that name latest in September when we're going going live with it but that's just the name of it we have done clearly user-centric experience innovation. We're looking at the younger user cohort here. We see that in our consumer survey, worldwide consumer survey, and especially in the US, the 18 to 34 year olds are most likely to fall for a scam. Their activity level online is so much heavier than the next cohorts the older cohorts that you know they are exposed to more and their willingness to pay out of all age groups is the highest so this is completely let's say novel that the younger generations are now more likely to be paying for this kind of a service. So what we're doing here is that we're naturally taking that younger generation into account in how we design the service, how it talks to people and how we will present it to people and what kind of channels we will be using to find the consumers for this. We will start from the existing customer base we got in the US through the Lookout Life acquisition. So that's the first customer base that we will be going after with this new product. The public launch is planned at the end of quarter three, so in September. So when we get together next time for a quarterly results session in October, we can give you the first few weeks experiences of how the service has been trending. It's an AI-first development approach that we've been using. It's an AI-native team that is building all of this. We've gone through the alpha phase, and now we are just about to start the external beta. So we're far along the line, and as said, brand work is underway. Our objectives and key results are these that we use in F-Secure. Successfully serve, scale, and grow every strategic partner, unlock full growth potential in every partner, and data, AI, and new ways of working, driving innovation and growth. So what did we achieve in quarter two? We have significantly increased the number of subscribers that we're serving within the strategic partner sector and we've launched services both with Verizon and extension with entity Docomo as said and the service uptake of ATT's financial monitoring has continued on a positive trajectory. On the second one, we launched a new tier to our scam protection service. We call it Scam Protection Premium, which is going to be getting new capabilities for a separate monthly fee that users will be getting. We are now in the beta launch of what we call passwordless login for Total. So why does this matter? It matters because every single time you ask a user who is a new user to a service to set up a new account and especially a new password, that becomes a speed bump in the road. And now we are going to be in a position at the end of this year, especially in quarter four, to start rolling this capability out to our partners who are selling Total to help them drive up their customer adoption. and customer acquisition and we see that total subscriber count is back to growth we were having some headwinds in the first quarter but it's clearly back to growth now so our partner success playbooks and and the meticulous implementation of those is paying dividends in data, AI and new ways of working, we are expanding all the time the AI native nature of our development in technology. And every single quarter, we have one or two new teams who are moving into this new model. We now have a good number of them already in use, and we can clearly see that, you know, depending on how many people you have, Now we have maybe double, triple, quadruple number of resources because of agentic AI that they're leveraging. AI transformation across the company's core processes is ongoing. Finance, sales, support on all fronts. Legal has been there for quite some time. One example is the leadership team. Much of our strategy work, our planning work, is all done in a heavily AI-powered manner these days. And we have also started expanding our data visibility towards our partners. Our partners want to be able to perceive value towards or provide visible value to their customers of the security service that they're providing. Now we're giving them data so that they can communicate towards the consumers what the service is doing for them. That's all from me right now. And now for the first time in a quarterly results session, I'll hand over to our chief financial officer, Robin Pulkinen.

Hello everybody. So like Timo said, I'm Robin Pulkkinen, the Group CFO for a couple, two and a half months now. So I started early May. Happy to be here today. So I'll go through a bit more detail, the numbers, what Timo partly also covered here. So finally now we're being able to move into growth phase as a company. So roughly 10% currency neutral growth for the second quarter. And for the first half, we're now roughly 6% growth. Our revenue guidance remains unchanged. So we're kind of guiding 7% to 12% growth this year, which basically converts to the expectation that the second half and the Q3, Q4 should be also growing quite nicely. When it comes to profitability, it's not really sustainable and kind of acceptable that even though the top line grows fast, the results or the profits have been going down. on the flip side of the coin is actually just like we expected it to go or happen so we have intentionally been investing in the embedded business and related service capabilities but kind of our midterm targets are still unchanged so once we reach roughly 200 million in revenue our adjusted EBITDA expected to be around 40% or approaching 40% and now now where we're at the second quarter roughly at 28 percent so if the second quarter is 40 million in sales so basically by the time we reach 50 million in shares or sales or kind of annually 40 million higher than the run rate currently that additional 40 million needs and will be coming in with a very high margin and that's something that the management and the leadership team is putting a lot of effort in and making sure that happens so This has been kind of the good news is that there's actually just like we planned more or less what the first hash has been delivering. On the cash flow, there was maybe a slight surprise that there's been some temporary collection issues with some of the related to certain organization changes in some of the major customers of ours. And that's kind of being handled and nothing permanently going to be missing, but it's just taking a bit longer than we expected. On the partner channel, you can see here also clearly that the embedded security has been growing significantly, almost 80% year over year in the second quarter, while the security suit, like Timo said, has been slightly down. But most of the efforts and focus has been, of course, in the embedded in the recent quarters, which also plays here and kind of going forward. We're looking to moving to a more balanced strategy when it comes to both of the main businesses. The FX has been playing against us a bit there, so the US dollar is 9% down on annual year-to-date average exchange rates, and Japanese yen down 14%, which also has an impact on the numbers. Something popped up on the screen. Okay. Direct channel revenue actually doing a lot better than we originally planned and anticipated. So there's been basically no paid customer acquisition investments done. And it's actually been interesting to see that out of the 4.5% currency neutral drop, it's all coming from the North American legacy product customers. And for these customers, we're planning to launch the new Halo later this year and hope to be able to change that trend then going forward. So we're kind of moving more investments also into the direct channel. But a lot of that bleeding can be cornered in the North American side of the business. What comes to the whole group, different geographies, basically North America here again, you can see strong growth driven by the embedded business. Rest of Europe, it's slightly down. There's one bigger customer in Germany that we still have some problems with. And if that was able to be kept flat, we would have been also more or less flat on the year-over-year change in the rest of Europe. Nordic's pretty stable and Japan also quite stable. The currency has had a big impact on the numbers. And then the expense side, which I've seen that the investment community, investor community has been talking about a bit. There has been these known investments into the embedded business and the R&D has been going up quite a bit. 2.8 million increase in the operating expenses. 75% of that is related to additional headcount and related salaries. So that's kind of the area where the cost increases have been coming. But like Timo said, we don't foresee any additional OPEX increases in the coming quarters or years. So we should be pretty good with the cost base we have. And then the longer historical trend. The good news on the gross margin is that it's the euro-wise the best quarter we've had as an independent company. So the percentage also went up slightly from Q1. The embedded business, like we're known, is slightly less lower gross margin than the security suit business, but kind of we have efforts ongoing to trying to improve that from the level even where we are today. And then the adjusted EBITDA trend, you can see, has been coming down. The third quarter, typically, if you look at the historical kind of graphs, the Q3 is slightly normally better because the vacation periods in the countries where the vacation accruals are released and kind of the OPEX basis is lower. So that kind of probably something we could expect for Q3 as well this year. And then for the whole first half summarizing kind of 6% currency neutral growth, Q1 was 2% growth. So we kind of went from two to six with the addition of Q2. And now also the embedded direct channel slightly down and then the partner channel up. And the EBITDA also down like we've seen in the earlier slides. Operating cash flow, especially the cash conversion and the cash flow was impacted quite a bit by the increased AR. So the working capital did not go very favorably from our point of view. So that's an area that we hope to fix during the next months and kind of don't foresee any bigger kind of challenges or risks when it comes to collection of the money. And then the main shareholders, Risto is still the main shareholder, no change in the ownership over the last year. But SEB has been increasing quite a bit. They've acquired more than 4 million shares over the last 12 months. And then you have Aktia and Proprius Partners and Sastropankki also adding shares over the last 12 months. Citibank of the top 10 is the only investor who has sold some shares during the year. And the guidance remains unchanged. We expect the revenue to grow 7 to 12% and the adjusted EBITDA to be between 44 and 50 million for the year.

Thank you, Robin. Lots of hands. So we have hands up over here in the room.

Felix Henriksson from Nordea. A few questions from me. I think in the report you wrote that a stronger focus on embedded security over the recent quarters contributed to a moderate decline in security suite revenues. How should we think about this going forward? Is there sort of, in a way, a revenue stream cannibalization when you focus more on embedded as opposed to security suite? Or can both of those revenue streams grow at the same time?

Okay, so the short answer is absolutely not. So Embedded Security and Security Suite do not cannibalize each other at all in terms of our business. Embedded is a new business area for us, and these are customers who would not take Total or Security Suite products. So from that perspective, they do not cannibalize. They compete for the same internal resources when we're working, for instance, on the requirements to develop our platforms and backend services. So that's what we're referring to. So we've been focusing quite a bit of the back end development efforts towards service maturity, service level, resilience, cybersecurity and so forth in the past quarters. And now that we're starting to be in a really good position in that front, we're able to release more of those capabilities to develop further the security suite offering.

Got it. And then on the cost side of things, you mentioned that there aren't any large incremental OPEX investment needs. Is this true even if you continue signing new, you know, top tier one CSB partners so that you can replicate the existing sort of stack that you have to serve those companies?

Yeah, so one of our key results under the first objective, which is to drive the strategic partner growth, is that we have an extremely high reusability of the code and the services that we have developed. And so far, that's precisely how it's going. So we don't see necessary OPEX increases if we win new partners nor extensions to existing partners.

It's good to hear. Then finally on the gross margin front, Robin, you mentioned that you also have initiatives ongoing to improve that side of things, even though the embedded security gross margins are a bit lower from a structural standpoint. Can you elaborate a bit on those actions?

Yeah, we're working with our engineering team, for example, optimizing the hosting for the for kind of for R&D side and the production side. And we've been seeing actually early results there. And we're quite quite optimistic on how that's going to continue to develop, for example, in the future. And of course, we have pretty big costs on the third-party R&D or kind of feeds or the royalties so we're looking at those contracts also quite in detail we have a separate process ongoing for that so with those we're pretty optimistic that we can have a good impact on the percentage and how it's going to kind of develop going forward sounds good thanks that's all for me Hi it's Matt Riikonen D&B Carnegie couple of questions also related to the costs

Now you have increased fixed cost this year to basically launch the new services and keep the service levels at the good level. But what happens in 2027? Is there anything unusual or kind of extra in those 2026 costs that will be not there in 2027? Or is this just that you have established a new cost level to provide the services and the cost level as such will remain the same pretty much in 2027? of course if you add more customers then of course you gain more revenue and cost probably don't increase but if we assume that the current customer level is what it is and and the costs are have now risen and you have probably hired more people Are they the same in 27 or is there a chance that the costs would decline? I'm talking about fixed costs now.

Well, we haven't really, we'll probably get that back to that in more detail when we give the guidance for next year. But kind of when you think about if we're at 160 million run rate now, 27% EBITDA, adjusted EBITDA. when you add 40 million more we should be able to increase the EBITDA percent by 13% more or less so clearly there's very little if any room for any cost additions over the longer period of time so we're kind of bit limited to be able to comment exactly how next year OPEX is going to be out.

You know, it goes without saying that we're very, very actively planning all kinds of actions to take OPEX down in many different ways. But how that will end up and what kind of guidance we will go for next year and what kind of plan we build for ourselves You know, we're getting our growth going now. So we absolutely want to keep that momentum for as many quarters as we want to count forward. But yes, we are looking at different ways to manage operating expenses. But more about that later, like Robin says.

All right, thank you. Then the second one is related to gross margin and of course the materials and services cost which is also slightly higher. So should we expect that Q2 materials cost and services and materials is representative for other quarters in this year as well? It is now what it is, or does it also increase if the number of customers using those services increases?

Yes, of course, they will go up if the usage for those services or feeds goes up. But we do have quite a few initiatives ongoing where we're kind of also trying to cut other areas of the cost of sales. So in a way... probably comes with the guidance again but we don't see any massive shift from the gross margin at least downwards anymore so and it's probably not going to be 90 either next year so we're kind of working around that and don't have an exact answer for you but we have a number of initiatives ongoing that that's going to help us manage that all right and those initiatives are actually showing pretty good results initially that Robin referred to on the cost of sales

All right. And then thirdly, just could you remind us how does the minimum revenue levels work so when you start or launch a service is there a kind of does it include a volume range so when you ramp from zero to something is that something included before you actually start to get more revenue from more subscribers

Yeah, so we've talked about this at a few events before and the way that it works is that it is not a rule that we have guaranteed minimum fees in our deals. That's not a rule, but there are many where we do have them in major partners and even strategic partners. Typically, I would say more commonly, they ramp up as the usage goes up. and you know what you typically have is that when the usage is for instance between one to so from zero to one million subs the price for a service is at this level and then it may slightly go down as the usage goes up that's typically how it goes and for instance in Docomo's case the defect detection and scam protection services

depends on the number of users that they are able to to sign up for the service all right thank you yeah I was mainly thinking that when you launch a new service how quickly you would end up in a territory where where you end up booking more revenue not just the minimum guaranteed revenue in those contracts where that there is one yeah so

contract in mind is Verizon. And we see that there is a real opportunity for us to work together with them to drive the service uptake and exceed those minimums.

All right. Thank you. That's all from me.

Hi, it's Atte Riikola from Inderes. First about the revenue growth in H2. Are you expecting meaningful revenue growth from other tier ones than Verizon in the rest of the year?

Verizon is the primary driver, no doubt about it. But we are clearly expecting growth also from others. You know, for instance, the names that I mentioned earlier, AT&T is doing fine with financial monitoring. Docomo is on the up and up with their new services. SoftBank numbers are developing positively. SoftBank and Docomo are number-wise clearly smaller than our US partners, though. so that needs to be kept in mind but in major partners we're also seeing moderate growth so that but that consists of a large large number of players some are up some may be down so the final result is always a matter of you know how things balance out

And can you remind us about that unnamed tier one that is now the service launch has been delayed so what kind of deal you have with that was it some or have you said anything about the size of that deal already?

We haven't said anything about the size of the deal there is a non-recurring engineering fee that we are charging from the partner the project is ongoing but unfortunately their launch schedule and some of the resources have not been allocated so we are recognizing the NRE the non-recurring engineering fee already that was booked in December other than that nothing right now when the service is launched is it going to start from zero with the subscribers or yes based on what we know today

and then still about that security-sealed business you mentioned that more balanced commercial and product efforts so what does it mean in practice?

I'll refer back to Felix's question here so we've been prioritizing heavily especially in the platform and cloud capabilities the kinds of things that have been necessary for the tier one segment because the growth is pretty massive on that front and now that we are out with Verizon and other services are proceeding well we can now you know allocate more of resources on the technology and services side to work on the security suite related opportunities that's what it means we go back to normal let's put it that way

Because in the history, I think you have always talked about security suite business, that it's still like a growth business. Are you still expecting it to be a growth business or is it now more on a stable phase?

We absolutely want it to grow every single year. Absolutely.

And then the typical question about Germany, how's the situation? Is it still getting worse or is there any signs of?

It's in a way chugging along in those negative numbers, which are getting smaller negative numbers over time as the customer base has been decreasing. Other than that, nothing new really. So the risk over time is getting smaller.

And about the F-Secure Trust, if you think about the competitive landscape, has any of your competitors launched already similar kind of services? I think at least Norton had something related to AI.

I would say that any self-respecting consumer cybersecurity company has some initiatives on the AI side, but the way that we are solving or aiming to solve certain trust gaps and the kind of shape that our products are taking, those are unique. Now it remains to be seen whose approach is the one that gets most traction in the market. But I would say that we are in a very developed stage with our concepts that we're going after. At least they have resonated in an excellent manner amongst our partners when we launched it at the end of May at our global partner event.

Alright, the last question to Robin. The capex level dropped in Q2 compared to Q1, so how do you see it developing in H2?

It's probably not going to go back to the higher levels like last year anymore. So I think we are now probably at a level that we could maybe something similar or slightly higher maybe at the end of the year. But no massive change now on that levels from where we are today. But we're not going to see anything starting with a four like we had at some quarters.

All right. Thank you.

one question still about the secure suite and the revenue decline if there has now been issues with resources competence internally and you have seen that revenue has come down due to some special specific cases, how long a lead time do you think that it will take before you can return to the growth? I mean typically these trend changes take some time but what is your estimate of the lead time before it can grow again?

So I think I referred in passing to the fact that we have grown our security suite subscriber numbers now in the first half. At the end of quarter one, we were in a minus. Now we're clearly in a positive number in quarter two, but revenue is trailing. Also, as Robin mentioned earlier, the product that we've been serving the direct business customers in the US has seen a lot of churn. it's a product from three years ago roughly and now we're going into a new product so once that is out we will see in the following months I would say during the fourth quarter if we can actually plug that hole so that that churn would end that's what we're looking for and naturally to turn it to growth so that's the biggest single one All right, thank you. We've actually referred earlier that we've had some headwinds even in Finland and in Poland. In the market, we're seeing those getting better now, back to growth.

All right, thank you.

Do we have any questions online?

Yes, on the Verizon deal, it has a minimum quarantine for the next 18 months. What about after that? Are there any quarantines?

It's guaranteed from now on out. So as long as we have the agreement in place with Verizon, those $15 million for a full year revenue, that's guaranteed, that stays. And naturally, we're working extremely hard to take it way beyond that.

Then on the F-Secure Trust, is it more about defending your market share rather than gaining growth? What's the expected revenue impact in 2027?

It's not at all about defending our market share. It is all about going for a new market, which is related to, you know, super fast spreading use of AI assistance and AI powered or AI agents. agentic activities that consumers will be facing. So this is a growth opportunity for us. How much growth we will be expecting from this? I'm looking forward to giving more information on that front towards the end of this year, early next year, once we have our products in a more mature state than where they are now. So we don't provide that kind of predictions at this moment in time.

Then on the profitability side, what can you do to improve profitability in the short term with less than 200 million revenue?

Well, profitability won't jump the day we hit the top line, so we have to start today. And there's a number of actions which is not really public information what we're planning to do. So we'll maybe talk more about that towards the end of the year. But we're starting today. We're not waiting that we're over 190 and starting then. It's a gradual road.

I would say that just on higher level, naturally, revenue growth is a very substantial matter in all of this. So higher revenue level with constant OPEX or smaller OPEX is naturally giving us better profitability. And we are working on cost of sales all the time to drive that down in relative terms. So those are the kinds of actions that we are taking without delving into further detail.

Okay, that was it for the online questions.

Very good. If no further questions from the room, then I thank everybody for joining the session today. And we will see latest again towards the end of October when we will be releasing our quarter three results. Thank you, Robin and Tia. Thanks, everybody online. Thanks, everybody here in the room. Have a wonderful summer.

Thank you.