Release Date: July 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- WithSecure Corp (STU:DTV0, Financial) reported a 13% growth in Elements Cloud ARR, marking the fourth consecutive quarter of ARR growth.
- The company successfully launched several new products, including Exposure Management, Identity Security, and Managed Detection and Response for Elements.
- Positive feedback and strong interest were received at the SPHERE event, with over 800 attendees and nonstop queues at demo booths.
- The integration of Luminen, a generative AI assistant, into the Elements Cloud platform is expected to enhance customer retention and workflow efficiency.
- Strong performance in the DACH region and France, with significant contributions from the Nordics financial sector and large US accounts in consulting.
Negative Points
- Managed services revenue, including Countercept, remained flat compared to the previous year, indicating challenges in this segment.
- The UK and Japan markets underperformed, with the UK facing partner channel rebuilding and Japan impacted by unfavorable currency exchange rates.
- The company's cash flow was significantly negative in Q2 2024, raising concerns about liquidity and sustainability.
- Adjusted EBITDA for the Elements Company was slightly negative, partly due to high costs associated with the SPHERE event.
- There was churn in large corporate segment customers for Countercept, impacting ARR numbers despite new wins in the midmarket segment.
Q & A Highlights
Q: First about your outlook. If you look at the overall growth 4% for the first half and so you're expecting 6% to 12% growth for the full year. So I'm just trying to figure out what are your planning assumptions behind it? Are you expecting growth to improve in every area on the H2?
A: So it was 6% year-on-year growth on the company level and 4% for the Elements Company segment. And after SPHERE, we have a positive vibe on the ARR development and the sales development and that's what we are planning to do. (Antti Koskela, President and CEO)
Q: You mentioned that you have been doing pretty well in sales in France and DACH region. So is there any particular reason behind that?
A: I think we have strong teams. We have good partners over there that we work well with them and that is exactly what we are sort of rebuilding in the UK, similar things and also in all the other regions that we work. So for us, it's quite important to have partners that grow with us and so that's what we are continuously developing in the market. (Antti Koskela, President and CEO)
Q: What kind of feedback have you received about Exposure Management? We know that it's very early, but like the initial feedback from your partners or customers.
A: So we did earlier launches of the concept back in November, we had the collaterals already in February. And we actually launched this together with four partners on stage so that there were four partners launching it together with us and then we had close to 30 partners developing it together with us. So there's an absolute need what you have in the market. So we have a good pipeline of opportunities now both from the partner side and from end customer side that we are now working on and it's up to us to accelerate that growth. So positive is quite feedback. It is a problem that needs to be solved. (Antti Koskela, President and CEO)
Q: You haven't opened up yet at least the pricing of Exposure Management or other new products. So can you say anything about the upsell opportunity for example for like a classical EPP EDR customer if they take also the Exposure Managements and other new models?
A: So we are pricing exposure based on the kind of subscription pricing and also based on the cloud accounts you would connect and what identities would you connect to the exposure. And in general, we look Elements Cloud as a kind of almost like a total package so that all the pricing models need to be consistent with each other. So it's in subscription-based pricing within the Elements. (Antti Koskela, President and CEO)
Q: And then you mentioned the MDR revenue was a little bit down due -- because of those lost big clients. But when do you expect those mid -- new sales in midmarket to like pick up the growth again?
A: Actually, the midmarket growth is picking up because it -- so that the fact that it stays quite -- there's a slight decline, but it's relatively flattish. But if you have a churn, then of course it needs to come from somewhere. So we are winning new in the midmarket with Countercept. (Antti Koskela, President and CEO)
Q: If you think about your new -- this Luminen AI assistant and from cost wise if you think about most of your customers start to utilize it, will it have like some kind of impact on your costs there?
A: So that's where the beauty of it is that. So we are not -- we have not retrained a large language model. That's what many analysts should be worried about. So we don't -- so we are using generative AI models that are available. We are using technology called AWS Bedrock. It's a cutting-edge technology for software organizations. So we are basically, we are able to securely run our data set against available alternative algorithms and we are embedding the prompt in our code. So we work slightly differently, bit technical answer. But we don't retrain our own LLMs, but we use generative AI for the purpose of getting end customer results. And it's working for us because we are in control on the prompt. (Antti Koskela, President and CEO)
Q: WithSecure's cash flow was negative significantly in Q2 '24. Do you expect the cash flow to be positive in Q3 '24?
A: Okay. So of course, we knew always that our first half is quite cash burning part of the year because we the -- in Q1, we have a lot of the year -- previous year payouts and then in Q2 we have SPHERE and a lot of activities. But this is of course an item that we continuously work on, and we expect that to improve in the future over time. (Tom Jansson, Chief Financial Officer)
Q: EBITDA result is still negative. Which quarter can we expect WithSecure to reach positive EBITDA figures?
A: I would refer to our guidance that we expect our full year to be positive EBITDA. (Tom Jansson, Chief Financial Officer)
Q: What would you say is the most significant risk for WithSecure's business during the rest of the year 2024?
A: That's a good question. I'm more looking at the point of view that we have opportunity now enhanced with the new portfolio and working with a partner. So that's a positive side. In a SaaS business if you don't have a customer-centric where you're working and work relentlessly with the customer success, that can cause surprises. So that I would see as a risk, but I think we are proactively working on that, that we are improving our customer partner success. (Antti Koskela, President and CEO)
Q: Would you consider doing M&A transactions during the rest of the year 2024? If so, what kind of targets?
A: So we have one thing what we have in the pipeline obviously, we are looking at the strategic reviews and we actually did one small divestment, so that's also an M&A transaction. So we did that now in Q2. And then we are continuing the strategic review of both of the businesses. But M&A on the buying to WithSecure, that's always an option. But I think we have quite a bit of work to do now in getting our offering to the market and focusing on that. (Antti Koskela, President and CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
