F-Secure Oyj — Earnings Release 2022

Feb 17, 2023

F-Secure Financial Statement Release 2022: Solid performance amid challenging environment

F-Secure Financial Statement Release 2022: Solid performance amid challenging environment

F-Secure Corporation, Financial Statement Release, 17 February 2023 at 08:30 EET

F-Secure Financial Statement Release 2022: Solid performance amid challenging environment

Highlights of October–December (Q4)

• Revenue increased by 4.3% to EUR 28.3 million (EUR 27.1 million).
  • Revenue from Partner Channel increased by 4.4% to EUR 22.5 million (EUR 21.6 million)
  • Revenue from Direct Channel increased by 3.7% to EUR 5.7 million (EUR 5.5 million)
• Adjusted EBITA was EUR 9.8 million (EUR 10.9 million), 34.6% of revenue (40.2%)
• Earnings per share (EPS) was EUR 0.04 (EUR 0.05)
• Cash flow from operating activities before financial items and taxes was EUR 10.7 million (EUR 13.6 million)

Highlights of January–December

• Revenue increased by 4.5% to EUR 111.0 million (EUR 106.3 million).
  • Revenue from Partner Channel increased by 4.6% to EUR 88.1 million (EUR 84.2 million)
  • Revenue from Direct Channel increased by 3.9% to EUR 23.0 million (EUR 22.1 million)
• Adjusted EBITA was EUR 43.9 million (EUR 47.2 million), 39.6% of revenue (44.4%)
• Items affecting comparability (IAC) for Adjusted EBITA were EUR -3.8 million (EUR -2.4 million).
• Earnings per share (EPS) was EUR 0.17 (EUR 0.20)
• Cash flow from operating activities before financial items and taxes was EUR 36.4 million (EUR 36.1 million)
• The Board of Directors proposes a dividend of EUR 0.07 per share (78% of the group July–December net profit)

F-Secure Corporation has formed a separate legal group as of June 30, 2022. The financial information presented in this report is based on actual figures as an independent group after the consummation of the partial demerger and carve-out figures prior to the consummation of the partial demerger. Figures in brackets refer to the corresponding period in the previous year, unless otherwise stated. Percentages and figures presented herein may include rounding differences and therefore may not add up precisely to the totals presented. Figures in this report are unaudited.

Outlook for 2023

F-Secure expects the global demand for cyber security solutions to grow while our operating environment has turned more challenging and consumer confidence remains unstable in the face of rising inflation, causing higher risk for weaker development on new business sales in the direct channel.

We have made a number of growth-related investments in 2022 and continue to do so in 2023. There is a level of uncertainty when these will have a concrete effect on our financial performance.

F-Secure expects revenue to grow by 4-8% year-on-year.

Adjusted EBITA for the full year 2023 is expected to be within 38-41%.

Financial targets (unchanged)

Mid-term financial targets until the end of 2025 are:

• Growth: High single digit organic revenue growth
• Profitability: After initial growth investments, adjusted EBITA margin of above 42%
• Dividend Yield: Around or above 50% of net profit on an annual basis.

F-Secure Corporation follows the Rule of 40 metric as internal performance measurement and guiding principle, according to which the combined revenue growth rate and profitability margin should be equal to or greater than 40%.

Financial performance

EUR million	10−12/2022	10−12/2021	Change %	1−12/2022	1−12/2021	Change %
Revenue	28.3	27.1	4.3%	111.0	106.3	4.5%
Partner channel	22.5	21.6	4.4%	88.1	84.2	4.6%
Direct channel	5.7	5.5	3.7%	23.0	22.1	3.9%
Cost of revenue	-2.4	-2.5	-4.4%	-9.3	-8.8	6.1%
Gross Margin	25.9	24.6	5.1%	101.7	97.4	4.3%
% of revenue	91.6%	90.8%		91.6%	91.7%
Other operating income	0.3	0.2	71.3%	1.1	0.5	105.7%
Operating expenses 1)	-16.1	-13.5	19.7%	-58.3	-50.6	15.2%
Sales & Marketing	-6.9	-7.6	-9.4%	-29.3	-28.5	2.5%
R&D	-3.5	-4.2	-16.0%	-15.1	-15.6	-3.2%
Administration	-5.7	-1.7	240.3%	-13.9	-6.5	115.8%
Adjusted EBITDA 1)	10.0	11.3	-11.2%	44.5	47.4	-6.1%
% of revenue	35.5%	41.7%		40.1%	44.6%
Adjusted EBITA 1)	9.8	10.9	-10.4%	43.9	47.2	-6.9%
% of revenue	34.6%	40.2%		39.6%	44.4%
Items affecting comparability (IAC) 2)				-3.8	-2.4	58.3%
Depreciation & amortization	-0.6	-0.4	56.8%	-2.0	-1.5	29.7%
EBIT	9.4	10.9	-13.7%	38.8	43.5	-10.9%
% of revenue	33.3%	40.2%		34.9%	40.9%
Adjusted EBIT 1)	9.4	10.9	-13.7%	42.5	45.9	-7.3%
% of revenue	33.3%	40.2%		38.3%	43.2%
Earnings per share (EUR) 3)	0.04	0.05	-18.5%	0.17	0.20	-12.4%
Shareholders' equity per share, EUR				0.14
Operating cash flow	10.7	13.6	-21.3%	36.4	36.1	0.7%
Cash conversion %	108.1%	94.7%		96.2%	95.6%
Deferred revenue	20.9	19.7	6.5%	20.9	19.7	6.5%
Net debt (+) / Net cash (-) 4)				-19.3	0.2
Gearing, %				-63.0%
Equity ratio, %				39.6%	24.5%
Personnel at the end of the period 5)				376	248	51.6%

The key figures and other financial information are presented on an actual basis for the income statement Jul–Dec/2022 and financial position as at 31 December 2022, and on a carve-out basis for all other financial information for the other periods presented. Refer to Note 1, Basis of Preparation

1) Excluding Items Affecting Comparability (IAC) and depreciation and amortization.

2) A reconciliation of items affecting compaability is presented at the end of this report.

3) Based on the average number of shares for July-December 2022 and on the number of shares upon formation of F-Secure on 30 June 2022 for all other periods.

4) Prior to the demerger on 30 June 2022, no cash or certain lease liabilities, such as lease liabilities related to business premises or machinery and equipment, were allocated to F-Secure. From 30 June 2022 onwards, the figure includes F-Secure's interest-bearing liabilities, less interest-bearing receivables and cash and cash equivalents.

5) Prior to the demerger on 30 June 2022, the figure consisted of personnel directly employed by the consumer security business and did not include the share of personnel in shared group functions. At the end of Q4 2022, the figure comprises all personnel employed by F-Secure.

Timo Laaksonen, CEO

2022 was a year of change for F-Secure, and we are happy to deliver further revenue growth and continued solid profitability while continuing to face a more challenging operating environment. We witnessed dropped consumer confidence amid high inflation.

Fourth quarter revenue increased by 4.3% amounting to EUR 28.3 million. This is a solid achievement, which demonstrates the strength of our offering and the stable demand for security and privacy solutions. Already in the third quarter we experienced some softening of consumer sentiment resulting in lower activity in the new business sales in the direct channel. This same development continued also in the fourth quarter. The adjusted EBITA was EUR 9.8 (10.9) million for the quarter, with EBITA margin 34.6% (40.2%). Revenue in January–December amounted to EUR 111.0 million, growing by 4.5% year-on-year, with good development especially in the partner channel.

During the fourth quarter our strong focus on the roll-out of F-Secure Total continued with important new vertical partnerships, for example with a large European bank. We signed up another 10 partners for F-Secure Total. This supports our growth strategy to increase average revenue per user (ARPU) and to convert existing customer base from standalone products to our all-in-one security suite. In line with our expectations, we see a significant ARPU increase for users who have upgraded to the Total service. During the quarter, we launched F-Secure Sense with an operator in Finland, our 4th production deployment, and we are working with a few more operators who will follow during 2023. We have strategically chosen to focus on the long-term industrialization and maturity of the Sense product, including further improvements in product quality and delivery speed. We have signed three new partnerships with major router manufacturers, allowing these partners to offer Sense directly to their operator customers. This simplifies our go to market model and speeds up the process of delivering Sense on new routers.

The purpose of F-Secure is to make every digital moment more secure, for everyone. Consumers today encounter digital moments at home, on the move, on multiple devices and through numerous applications. For a comprehensive coverage and seamless security of these digital moments, we have created a new product business cell, called ‘Embedded Security’. This new offering complements our existing portfolio and allows our partners to embed F-Secure capabilities and experience natively through their own applications. We have signed up the first partner for Embedded Security, a major European operator group. Our partner will integrate endpoint and identity protection capabilities into their existing customer application, thus making it easier for customers to adopt security services within an app they already have and use. Embedded Security enhances our offering in the service provider segment and provides a new point of entry into new vertical partnerships.

Our long-term focus is on creating value by providing brilliantly simple security experiences. That focus will enable us to increase average revenue per user, drive the development of current offering and new products, and our expansion into new channels. Throughout the review period, we have witnessed that this focus has delivered results. We have made great progress with our strategic priorities, and it has been a pleasure to see how the demand for comprehensive cyber security solutions is growing and the customer feedback is very positive. Cyber security is a growing concern for people around the world as the number and complexity of cyber threats continue to increase, and the growing demand for cyber security solutions will accelerate our growth.

As part of the new era as an independent company we have designed a new brand identity. It will form part of our new generation F-Secure Total product launch starting in February 2023.

The year of 2022 was unusual by all standards. During the year I have witnessed the exceptional commitment and spirit of all of us, building the future success of the company, and I would like to warmly thank all our fellows, customers and partners for the cooperation during the year.

Board of Directors’ proposal for the distribution of profit

According to the company’s dividend policy F-Secure aims to pay around or above 50% of net profit as dividend on an annual basis. F-Secure Corporation has formed a separate legal group as of June 30, 2022, and therefore only half year's dividend will be distributed for the year. On December 31, 2022 distributable funds of F-Secure Corporation were EUR 14.9 million. The Board of Directors will propose to the Annual General Meeting that a dividend of EUR 0.07 per share be paid. Earnings per share (EPS) for the period 7-12/2022 was EUR 0.09 and the proposed dividend is 78% of the group July–December net profit. No material changes have occurred in the company's financial position since the end of the financial year.

Additional information

This is a summary of F-Secure Corporation’s Financial Statement Release January 1–December 31 2022. The full report is a PDF file attached to this stock exchange release. Full report is also available on the company website at www.investors.f-secure.com.

Webcast

F-Secure will organize a webcast today, February 17 at 14:00. In the webcast, F-Secure president and CEO Timo Laaksonen and CFO Sari Somerkallio will present the results and after the presentation there will be time for questions. The event can be followed at: https://fsecure.videosync.fi/q4-2022-result.

Analysts following F-Secure are invited to the presentation at the company headquarters, Tammasaarenkatu 7, Helsinki, Finland.

Financial calendar

In 2023, F-Secure will publish financial information as follows:

• Interim Report for January-March 2023, Wednesday, April 26, 2023
• Half-Year Financial Report for January-June 2023, Thursday, July 20, 2023
• Interim Report for January-September 2023, Wednesday, October 25, 2023

The Annual General Meeting of F-Secure Corporation is planned to be held on March 23, 2023.

For further information, please contact:

Sari Somerkallio, Chief Financial Officer

tel. +358 40 3569251

investor.relations@f-secure.com

F-Secure in brief

F-Secure is Finland headquartered and globally operating consumer cyber security company. F-Secure offers award-winning security and privacy products and services that make every digital moment more secure, for everyone. F-Secure operates in over 100 countries, has ~180 Service Provider partners and is the global leader providing security through Communication Service Providers. F-Secure Corporation is listed on Nasdaq Helsinki Ltd. Read more: www.f-secure.com.

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