WithSecure Oyj : Earnings Report

Half-YearReport Q2 2024 | ARR growth developing favorably, consulting performance improving

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ARR growth developing favorably, consulting performance improving

Half-year Report 1 January - 30 June 2024

Highlights of April - June 2024 ("second quarter")

• Annual Recurring Revenue (ARR)1 for Elements Cloud2 increased by 13% to EUR 82.5 million (EUR 73.3 million)
• Elements Cloud ARR increase from previous quarter was 2%
• Net Revenue Retention for Elements Cloud was 103 %
• Revenue for Elements Cloud increased by 10% to EUR 20.5 million (EUR 18.7 million)
• ARR for Cloud Protection for Salesforce increased by 5% to EUR 9.1 million (EUR 8.6 million)
• Net Revenue Retention for CPSF was 88 %
• CPSF Revenue decreased by 2% to EUR 2.2 million (EUR 2.2 million)
• Cyber security consulting revenue increased by 12% to EUR 8.5 million (EUR 7.5 million)
• Adjusted EBITDA by segment was EUR -0.5 million (EUR -5.1 million) for Elements Company, EUR -0.4 million (EUR -1.4 million) for CPSF and EUR -0.3 million (EUR -1.4 million) for Cyber security consulting
• Adjusted EBITDA for WithSecure was EUR -1.1 million (EUR -7.9 million)
• Items affecting comparability (IAC) of EBITDA were EUR -0.5 million
  (EUR 1.4 million). Of this, approximately EUR -0.3 million relates to strategy projects, EUR -0.5 million to restructuring and EUR +0.3 million to valuation of earn-out from previously divested business.

Highlights of January - June 2024 ("first half")

• Revenue for Elements Cloud increased by 10% to EUR 41.1 million (EUR 37.4 million)
• CPSF revenue decreased by 1% to EUR 4.2 million (EUR 4.3 million)
• Cyber security consulting revenue increased by 4% to EUR 16.1 million (EUR 15.5 million)
• Adjusted EBITDA by segment was EUR 0.5 million (EUR -9.4 million) for Elements Company, EUR -0.8 million (EUR -2.6 million) for CPSF and EUR -0.8 million (EUR -2.1 million) for Cyber security consulting
• Adjusted EBITDA for WithSecure was EUR -1.1 million (EUR -14.1 million)
• Items affecting comparability (IAC) of EBITDA were EUR -0.5 million (EUR -3.2 million). Of this, approximately EUR -1.0 million relates to strategy projects, EUR +0.0 million to reversals of restructuring provisions and
  +0.6 million to valuation of earn-out from previously divested business.

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
2	non-recurring revenue
Elements Cloud includes Elements Cloud portfolio software and services as well as the managed services

Half-YearReport Q2 2024 | Outlook for 2024 (unchanged)

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Outlook for 2024 (unchanged)

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.

Half-Year Report Q2 2024 | CEO Antti Koskela

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CEO Antti Koskela

In the second quarter of 2024, WithSecure Elements Cloud ARR grew by 13% to EUR 82.5 million (EUR 73.3 million). Elements Cloud revenue grew by 10% to EUR 20.5 million (EUR 18.7 million).

The growth was driven by the Elements software products, while the Managed services revenue was slightly below previous year's level. According to the strategy, Managed Detection and Response (MDR) product Countercept is focusing its new sales on the

mid-market customers. However, the new customers did not yet fully compensate for the previously churned larger accounts.

Revenue growth continued in all other markets except Japan and UK, which both had lower revenue than in previous year. Japan revenue was impacted by the currency exchange rate, while UK has been impacted by the Countercept direct business churn. France and DACH (Germany, Austria, Switzerland) countries were the strongest performing markets in revenue growth.

WithSecure held its main marketing event for the year, SPHERE, for the third time. Several new additions to the product portfolio were launched, WithSecure Exposure Management being the most important one. First agreements with the customers were signed in June. WithSecure Exposure Management offers new possibilities of shifting from reactive to proactive cyber security to our partners and end-customers.

Elements Company Adjusted EBITDA was

EUR -0.5 million (EUR -5.1 million). Second quarter expenses exceeded the customary level, mostly due to the cost related to the SPHERE 24 event of EUR 1.2 million.

In June, WithSecure signed an agreement of the divestment of a businesss combining software and services, out of scope of the current strategy, to an external party. Closing of the divestment, pending on regulatory approvals, is planned in the second half of 2024. We were delighted to find a new owner who will continue developing the product and the related team of 10 professionals who will transfer to the buyer at closing.

Cloud Protection for Salesforce (CPSF) ARR increased by 5% to EUR 9.1 million (EUR 8.6 million). CPSF revenue remained at previous year level of EUR 2.2 million (EUR 2.2 million). The pipeline for CPSF is currently developing well and we expect that to contribute positively on revenue in the future.

Cyber security consulting developed positively. The consulting revenue increased by 12% to

EUR 8.5 million (EUR 7.5 million). Consulting EBITDA was EUR -0.3 million (EUR -1.4 million).

The focus of both these businesses, subject to strategic review as announced in October 2023, has been on increasing their respective operative independence. WithSecure intends to provide further updates regarding both strategic reviews in the context of the third quarter 2024 interim report at the latest.

I was appointed as President and CEO of WithSecure with effect of 1 July 2024. I am both humbled and extremely excited of the new role. WithSecure is a company with world-class research and development, exceptional technological foundation, unique offering of products and services, as well as a talented

team of people to support our future growth. In our third SPHERE event in May, I also had an excellent opportunity to meet in person many of our partners, who are an integral part of the company's success.

Half-Year Report Q2 2024 | Financial performance

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Financial performance

(mEUR)	4-6/2024	4-6/2023	Change %	1-6/2024	1-6/2023	Change % 1-12/2023
Revenue	36.8	34.8	6%	73.1	70.1	4%	142.8
Gross Margin	26.5	24.0	10%	52.1	48.4	8%	100.2
% of revenue	71.9 %	68.9 %		71.4 %	69.1 %		70.2 %
Other	0.5	0.4	17%	0.9	0.8	9%	1.4
operating income1
Operating	-28.1	-32.0	12%	-54.2	-63.3	14%	-117.7
expenses1
Sales & Marketing	-15.8	-19.9	21%	-29.3	-37.3	21%	-68.1
Research	-8.9	-9.2	3%	-18.1	-20.9	14%	-36.3
& Development
Administration	-3.4	-2.9	-17%	-6.8	-5.1	34%	-13.3
Adjusted	-1.1	-7.9	86%	-1.1	-14.1	92%	-16.1
EBITDA2
% of revenue	-3.1 %	-22.6 %		-1.5 %	-20.1 %		-11.3 %
Items affecting
comparability
(IAC)
Other items	-0.3	-0.2	-116%	-1.0	-0.3	-239%	-1.4
Restructuring	-0.5	0.3	-285%	0.0	-4.3	99%	-8.9
Divestments	0.3	1.3	-80%	0.6	1.4	-60%	1.4
EBITDA	-1.7	-6.4	74%	-1.6	-17.2	91%	-25.1
% of revenue	-4.6 %	-18.5 %		-2.2 %	-24.6 %		-17.6 %
Depreciation &
amortization,	-2.4	-2.5	4%	-4.8	-5.1	5%	-10.2
excluding PPA3

(mEUR)	4-6/2024	4-6/2023	Change %	1-6/2024	1-6/2023	Change % 1-12/2023
Impairment							-6.2
PPA amortization	-0.6	-0.6	1%	-1.2	-1.2	2%	-2.4
EBIT	-4.7	-9.6	51%	-7.6	-23.5	68%	-43.9
% of revenue	-12.8 %	-27.5 %		-10.4 %	-33.6 %		-30.7 %
Adjusted EBIT2	-3.5	-10.4	66%	-5.9	-19.1	69%	-26.3
% of revenue	-9.6 %	-29.8 %		-8.1 %	-27.3 %		-18.4 %

• 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. 

• 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)

• Amortization of intangible assets from business combinations (PPA, purchase price allocation, related amortizations). 

Half-Year Report Q2 2024 | Financial performance

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(mEUR)	4-6/20244-6/2023 Change %	1-6/2024	1-6/2023 Change % 1-12/2023

Earnings per share, (EUR)1

Deferred revenue

Cash flow from operations before financial items and taxes

Cash and

cash equivalents

ROI, %

Equity ratio, %

Gearing, %

Personnel, end of period

-0.02	-0.04	47%	-0.03	-0.10	68%	-0.23
			69.3	69.2	0%	66.9
-2.6	-8.2	68%	-5.1	-13.5	62%	-19.9
			25.7	28.8	-11%	36.6
-14.2 %	-23.9 %	40%	-10.6 %	-29.7 %	64%	-30.5 %
			75.6 %	79.0 %	-4%	73.3 %
			-12.4 %	-28.1 %	56%	-22.2 %
			993	1,195	-17%	1,087

• Based on the weighted average number of outstanding shares during the period 175,955,491 (1-6/2024). Earnings per share has been recalculated for comparative periods using average weighted share amount after share issues.

WithSecure Group

April - June 2024

Revenue

Revenue of WithSecure Group increased by 6% to EUR 36.8 million (EUR 34.8). Further analysis on revenue is disclosed in the segments section of this report.

Operating expenses

Operating expenses (excluding depreciation, amortization and impairment and items impacting comparability) were EUR -28.1 million (EUR -32.0 million). Second quarter operating expenses exceeded the customary levels. Main reason were the expenses related to the SPHERE 24 event, approximately EUR 1.2 million. In addition, some cumulative adjustments of personnel expenses of EUR 0.3 million were recognized in the expenses of the second quarter. The reduction of expenses results from cost savings and other efficiency measures carried out during 2023 by WithSecure. Depreciation and amortization were EUR -2.4 million (EUR -2.5 million) and amortization of PPA was EUR -0.6 million (EUR -0.6 million).

Profitability

Adjusted EBITDA of the group was EUR -1.1 million (EUR -7.9 million). Items affecting comparability (IAC) of EBITDA were EUR -0.5 million (EUR 1.4 million). Of this, approximately EUR -0.3 million relates to strategy projects, EUR -0.5 million to restructuring and +0.3 million to valuation of earn-out from previously divested business.

Cash flow

Cash flow from operating activities before financial items and taxes was

EUR -2.6 million (EUR -8.2 million). Cash flow was driven by negative operative result which was affected by SHPERE 24 event related costs and some cumulative adjustments of personnel expenses recognized in the second quarter. Cash flow from operating activities was -3.3 million (EUR -5.5 million).

Cash flow from investments EUR -1.3 million (EUR 4.8 million) is related to investments in intangible and tangible assets, mostly related to new office premises

Half-Year Report Q2 2024 | WithSecure Group

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in several locations and ongoing IT projects. Comparison period includes also returned investments in corporate commercial papers and short-term deposits.

January - June 2024

Revenue

Revenue of WithSecure Group increased by 4% to EUR 73.1 million

(EUR 70.1 million). Further analysis on revenue is disclosed in the segments section of this report.

Operating expenses

Operating expenses (excluding depreciation, amortization and impairment and items impacting comparability) were EUR -54.2 million (EUR -63.3 million). The reduction of expenses results from cost savings and other efficiency measures carried out by WithSecure. Depreciation and amortization were EUR -4.8 million (EUR-5.1 million) and amortization of PPA was EUR -1.2 million (EUR -1.2 million)

Profitability

Adjusted EBITDA of the group was EUR -1.1 million (EUR -14.1 million). Items affecting comparability (IAC) of EBITDA were EUR -0.5 million (EUR -3.2 million). Of this, approximately EUR -1.0 million relates to strategy projects, EUR +0.0 million to restructuring and +0.6 million to valuation of earn-out from previously divested business.

Cash flow

Cash flow from operating activities before financial items and taxes was

EUR -5.1 million (EUR -13.5 million). Cash flow was driven by negative operative result, affected by SHPERE 24 event related costs and some cumulative adjustments of personnel expenses recognized in the second quarter, and by restructuring related payments of EUR 2.9 million. Cash flow from operating activities was -5.5 million (EUR -15.1 million).

Half-Year Report Q2 2024 | WithSecure Group

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Cash flow from investments EUR -1.9 million (EUR -7.6 million) is related to investments in intangible and tangible assets, mostly related to new office premises in several locations and ongoing IT projects. Comparison period includes also investments in corporate commercial papers and short-term deposits.

Elements Company

(mEUR)	4-6/2024	4-6/2023	Change %	1-6/2024	1-6/2023	Change % 1-12/2023
Revenue	26.2	25.1	4%	52.8	50.3	5%	101.1
Elements Cloud	20.5	18.7	10%	41.1	37.4	10%	76.1
On-premise	5.4	6.2	-13%	11.2	12.5	-11%	24.4
Other	0.3	0.2	30%	0.5	0.3	47%	0.7
Gross margin	20.9	19.5	7%	42.0	39.3	7%	79.6
% of revenue	79.6%	77.8%	2%	79.5%	78.1%	2%	78.7%
Adjusted EBITDA	-0.5	-5.1	91%	0.5	-9.4	105%	-10.9
% of revenue	-1.8%	-20.3%	91%	0.9%	-18.6%	105%	-10.8%
Annual Recurring	82.5	73.3	13%	82.5	73.3	13%	78.4
Revenue (ARR)

Elements Company segment includes Elements Cloud products and services, managed services (including Countercept Managed Detection and Response, MDR), on-premise products, and Other products.

Elements is a modular platform, with modules that the customer can select according to their needs. The largest driver of growth is the Endpoint Detection and Response (EDR) module that is typically acquired by the customer to complement the Endpoint Protection (EPP) product. Other modules are Vulnerability Management, Collaboration protection for Microsoft 365 and Cloud Security Posture Management (CSPM). WithSecure Exposure Management was launched in May 2024. It is a continuous proactive solution to predict and prevent breaches against the company's assets and business operations.

On-premise products revenue includes WithSecure Business Suite endpoint protection software, as well as some other legacy products.

Other products revenue includes minor products combining software and service work, as well as speaker fees and other occasional revenue streams.

Half-Year Report Q2 2024 | Elements Company

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April - June 2024

Revenue and ARR

Elements Company revenue increased by 4% to EUR 26.2 million

(EUR 25.1 million). The change is a result of growing Elements Cloud revenue and declining On-premise revenue.

Elements Cloud revenue increased by 10% to EUR 20.5 million (EUR 18.7 million).

Elements Cloud NRR was 103%.

Growth of revenue was driven by the Elements software products. Managed services revenue was slightly below previous year's level. According to the WithSecure strategy, Countercept MDR is focusing its new sales on the mid-market customers. However, the new customers did not yet fully compensate for the previously churned larger accounts. Revenue grew in all main markets except Japan and UK, which both had lower revenue than in previous year. Japan revenue was impacted by the negative currency exchange rate, while UK has been impacted by the churn of the larger Countercept customers. France and DACH (Germany, Austria, Switzerland) countries were the strongest performing markets in revenue growth.

Elements Cloud Annual Recurring Revenue (ARR) increased by 13% to EUR 82.5 million (EUR 73.3 million).

On-premise revenue decreased by 13% to EUR 5.4 million (EUR 6.2 million). Decrease of on-premise revenue is part of WithSecure's strategic transition to cloud-based environments. The customers are increasingly switching to cloud- based products, leading to a decline in the on-premise revenue over time.

Other revenue was EUR 0.3 million (EUR 0.2 million). In June 2024, WithSecure signed an agreement of the divestment of a business combining software and services, out of scope of the current strategy, to an external party. Closing of the divestment, pending on regulatory approvals, is planned in the second half of 2024. Revenue for the product to be divested is included in the Other group of Elements Company. Impact of the divestment on revenue and profitability of WithSecure is not significant.

Half-Year Report Q2 2024 | Elements Company

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Profitability

Elements Company gross margin was 79.6% (77.8%) of revenue. The improvement in gross margin is driven by increasing share of software, as well as continuous optimization of data processing expenses. Other variants, such as fluctuation of currencies, can cause variations of gross margin.

Elements Company adjusted EBITDA was EUR -0.5 million (EUR -5.1 million). The improvement from previous year is largely resulting from cost savings and other efficiency measures carried out during 2023 by WithSecure.

January - June 2024

Revenue

Elements Company revenue increased by 5% to EUR 52.8 million (EUR 50.3 million). The change is a result of growing Elements Cloud revenue and declining On-premise revenue.

Elements Cloud revenue increased by 10% to EUR 41.1 million (EUR 37.4 million).

On-premise revenue decreased by 11% to EUR 11.2 million (EUR 12.5 million).

Profitability

Elements Company gross margin was 79.5% (78.1%) of revenue. The improvement in gross margin is driven by increasing share of software, as well as continuous optimization of data processing expenses. Other variants, such as fluctuation of currencies, can cause variations of gross margin.

Elements Company adjusted EBITDA was EUR 0.5 million (EUR -9.4 million). The improvement from previous year is largely resulting from cost savings and other efficiency measures carried out during 2023 by WithSecure.