A warm welcome to everybody to F-Secure's half-year financial results session. Good to have you with us, both on the stream as well as in the room. The header for this time's release is that we made a major step forward by completing the acquisition of Lookout Life consumer security business within the quarter. The market conditions remained tough. That's the header. Let's have a look at the details. The main topics that we'd like to raise right now are that we grew in terms of revenue, also, thanks to Lookout consumer business being integrated into our numbers from the beginning of June. Our organic growth remained at a relatively low level at 2.2%. The partner business showed improvement from the Q1 , whereas direct business was seeing headwind and negative numbers.
The acquisition was completed on the June 1, and that naturally allowed us to have a much, much bigger footprint in the U.S. market and increase the number of communication service provider partners that we serve across the world, and especially Tier 1s. These are all big, in a way, leaps that we took forward as a company. The consumer security sentiment was affected by high inflation rates, high energy prices, in a way, the lack of trust amongst consumers towards their own economy, and this had an effect on consumer security demand. We think that this is a temporary, if you could call it, a glitch in the market, not a, not a sustained trend.
What we're also mentioning in our half-year results, CEO letter, is that the demand or consumer security uptake is growing at a steady rate, so we don't see downswings or upswings in that consumer security growth right now. In, in June, right after closing of the acquisition, we updated our financial targets and outlook. Those will be shared later with you by our CFO, Sari Somerkallio. Finally, we announced changes in our leadership team. We now have a slightly smaller leadership team, where we consolidated all of our product businesses under one single person, that being TL Viswanathan, who had joined us in November, earlier, like 8 months ago or so. He used to run our Embedded Security product business unit.
He's responsible as a Chief Product Business Officer for all of our product businesses, product management, product marketing. On the commercial front, running our partner business and our direct business, the ex-president of Lookout Life, the consumer security business unit of Lookout, Firas Azmeh, is now our Chief Commercial Officer. Those are the main events in the Q2 . Let's have a look at a few more of the details. This is something that we've shared before. This, in a way, is our shorter-term strategic steps that we are taking. The first one of them being that we want to drive our ARPU. Secondly, we want to naturally develop our offering and including new products and existing products.
Thirdly, we are wanting to expand into new channels in addition to the communication service provider channel. The progress we've made in the Q2 , we signed up 3 totally new partners for Total. We signed up 5 existing partners to upgrade to Total, our unified application covering all the needs. By the way, when we say that we sign up somebody for Total, which has many components, we are referring to the fact that they are not only taking the endpoint protection, but also other modules, so a wider portfolio of services. We made 12 new launches, which I believe is a new record of Total, with partners, either existing or new, but that was short of our expectation of roughly 20, as we communicated in our previous quarterly release.
This was caused by certain delays with some launches, I can only say that this is quite typical, that there are delays. Our partners oftentimes have changing schedules and resource availabilities to run through with the launches, and this time around, unfortunately, that hit us, that we were not able to launch all the services in time. That, however, results in a very heavy launch schedule now in July. We launched Total, our single app for all the consumer security needs, in February, but unfortunately, in our direct business, our expectations in new sales were higher than what they have been. In terms of product development and providing new value to customers, I finished my sentence by saying new value to customers. Something that is not visible necessarily to our consumer customers or our partners, is that the demerger we did roughly a year ago from WithSecure, has come along with a lot of technology platforms that we have had to either take onto ourselves or to a certain extent, modify. This work has gone in a very successful manner, during the Q2 , we made lots of progress on this front. I would say that the lion's share of the work is now done, but there are still a couple of essential programs that need to be finished by the end of the year. The work has gone well. Also, we've announced in previous quarters that we have signed up two of our first embedded security partners, and now we have actually delivered on those.
These were firsts that are not necessarily seen in the consumer offering out there, but the way that we have now documented, productized, and delivered SDKs and cloud APIs to partners is something that is new for us. That was a good achievement. We've signed up a new CSP, a communication service provider in Asia for SENSE, and we have three new router partners. We launched our SENSE partner program in September, I believe, last year. We've been out there with the program for roughly nine months, and we now have, I believe, eight partners that we have signed up onto that program. We have eight SENSE communication service provider partners, and we have eight router partners.
As the numbers keep on growing, it's going to be an easier and easier adoption process for potential CSP partners to take on our SENSE services because the integration is already there and supported. We also signed a first with network security, meaning DNS capabilities underneath. Within our network security, we've had SENSE solutions as well as DNS solutions. The DNS technology is something that we are technology partnering with, but we signed quite a significant deal on that front with a European communication service provider, and it's going live in the next week, roughly. That's a very quick deployment. Finally, in new channels, we've signed up a good number of new vertical partnerships. For instance, in insurance, payment broker, and banking sectors. Now, we launched 3 new partners.
We didn't sign up new ones, but we actually went live with 2 in 2 banks and 1 insurance company, and the initial uptake has been delighting us. It's been good. These are the kinds of progress we've made in the Q2 versus our focus areas. If we then just do a very quick recap of the acquisition of Lookout's Consumer Security Business. First of all, the enterprise value that we paid for the business was $223 million, approximately EUR 202 million, and we financed the deal with debt. Our presence in the U.S. consumer security market significantly increased, roughly threefold. Highly complementary product portfolios, whereas we've been very strong in fixed broadband side of the business, complemented with mobile.
Lookout Life, or the consumer security business of Lookout, has been very focused on mobile only. These are mostly complementary with minimum overlap. Like I mentioned earlier, we are now gaining some very strong Tier 1 CSP partnerships that we did not have before. We are looking onto benefits and synergies. I will come back to those on a separate slide. We consolidated the businesses from June 1, and the organizations and the finances are now reported as one from June 1, 2023. We got 65 new employees into F-Secure as part of this transaction. What are the kinds of value drivers that we see in this transaction? We've split internally these into 2 different sections as we have split our business.
There's the partner-centric business, and there is the direct-to-consumer business. On the partner-centric business, just to add some or in a way, give color, we have our desktop applications, so Mac and Windows apps, and we have our SENSE, which are clear value adds to the partners who have been working with Lookout consumer security business in the past. These are good value-added capabilities that we have. There are Tier 1 partners that Lookout Life has been serving or Lookout consumer business, and those partnerships now can expand with the wider offering that we have as two different companies, or, sorry, as one company coming together from two different businesses. There are also certain markets that we're serving in partner business, which are very mobile first.
F-Secure's traditional, relatively broadband, fixed broadband, focused offering has not necessarily been, you know, as good a product market fit as we now have with the extension of the mobile-first type of offering coming from Lookout Consumer Business. On the direct business side, many similarities with the partner business. For instance, desktop and VPN apps are something that we can now bring into the pot towards the direct business in Lookout Consumer. We can convert Lookout's free users into paid users by providing more value. We can now accelerate our joint vision of moving towards more engaging consumer security experiences.
This is something that is, in a way, pronounced and even more important in the direct business because, you know, in the partner business, our partners have a big say in how they offer the service to end customers. Whereas on the direct business side, we naturally want that excellent consumer experience to be something that drives our uptake. On that front, a little bit of good news towards the end of this year once again. Also in our direct business, we can now go for certain mobile-first markets that we haven't necessarily served before, so we can expand the scope of our direct business in terms of geographical coverage. These are some of the examples of the kind of synergies that we are working on inside F-Secure.
If we look at cost synergies, like we communicated in April and in June, our primary motivation for this acquisition has not been about cost savings, but naturally, we want to get cost savings if those are available for us. One of the areas is clearly that Lookout Consumer Business and F-Secure have had similar service providers or suppliers of technology or feeds, which we can now consolidate and come up with better terms. That's something that we're naturally going for. Secondly, we both have been using hosting services and security cloud services, which we're looking to consolidate, once again, optimizing the costs on that front. Finally, we have both had our plans to ramp up R&D hires, which were necessary to deliver on the F-Secure long-term plan and on the Lookout Consumer long-term plan.
Now, as we can join forces, not all of these hires will be necessary anymore going forward. We hope that we can do more with our combined forces as is, without a large amount of additional hires. In 2027, we're looking to add on EUR 12 million of new revenue in terms of synergies, and EUR 10 million of EBITDA. This is the additional value on top of the revenue and EBITDA that we can get by just joining forces. There are synergy areas that we've listed here on the left, such as technology, partner business growth, direct business growth, Embedded Security acceleration, and royalty payments. Some of these are bigger.
If you look at the top of the list, they are going to be having a bigger impact in terms of money, and they're going to be making also a bigger impact by 2026, whereas the lower you go, it's slightly later. I already mentioned some of these, so lowered recruitment requirements in R&D, capability to upsell into existing bases of Lookout Consumer Business and F-Secure business, upselling to completely new customer bases, for instance, in direct business, and to a certain extent, expand and expedite our plans in Embedded Security. It's off to a good start on both sides, in Lookout Consumer and F-Secure, naturally, we want to be faster. In terms of royalty payments and hosting, we're looking at optimizing our cost of revenue.
That's a little bit of an update on how we are dissecting the synergy benefits that we're looking forward to and what we're working on. Now, this is something that we've also communicated before, the way that we look in a way, theme-based, how do we see the years? Last year was about independence. This year is very much about driving Total, our single app, to drive the average revenue per user, replacing standalone products with a wider portfolio of services. Naturally, on that front, I already mentioned that we've made good progress, not quite as much as we expected or were targeting for, but we made very good progress, record progress in new launches of 12 new rollouts of Total. That included new vertical partnerships, such as banks and insurance companies.
We have a very busy schedule to make up for the lost ground in quarter 2. By the end of July, we're hopefully where we wanted to be at the end of June. Next year is very much about driving innovation together with Lookout consumer fellows who have joined us. The first three bullets are something that we've already communicated before. Thanks to the acquisition that we completed in June, we actually increased the number of served customers already now by 70%. We've made a lot of progress on that front already, now ahead of 2024. In 2025, we are aiming to be the undisputed leader in security experience out there.
Once again, the 3 first bullets are what we have communicated before, but the last one covers the fact that we're seeing that the new version of the Lookout consumer app, which is coming out at the end of this year, will actually be the next security experience leap that we will take forward as a company. It's going to be, once again, becoming more, in a way, engaging, talkative, and guiding towards users instead of just doing something magical underneath the hood. More about that when we get there at the end of this year. That's something that is a good step on our roadmap towards being that number 1 security experience company. Some short-term performance drivers, something that we see in the next quarters here, 1, 2, 3 next quarters from now.
Driving growth, I've mentioned this several times already, F-Secure Total remains absolutely crucial, even though revenue growth was slightly lower in quarter two against our own expectations, naturally, the many cross-selling opportunities that we have. We have a solid pipeline of growth opportunities, as a new element there in the prospect list, not only are we adding the bigger cases that Lookout consumer BU has been working on, but also there is an increasing amount of network or, DNS security-based solutions that broadband operators out there are interested in. We signed our first deal in quarter two, we look on to sign more in the second half. Asia Pacific region, looking very good.
Our growth figures are, I would say, impressive, so that's a good growth driver. Still, today, it's relatively small, but at this growth rate, it's going to turn into a meaningful region this year and even more so next year. The weakened consumer demand on the direct business side or sentiment is not helping us in the short term. We don't see that changing in the next quarters, but we do see that our capability to optimize our own e-commerce shop, you know, the traffic, the conversion rates, the value per visit, and so forth, we can drive those, and that will help us work on turning the tide. That's work that we did in the Q2 , and we will continue in the Q3 .
What we mentioned in our results report is that we saw good signs of improvement towards the end of the quarter, in quarter two already in direct business, but we will stay steady and calm, and we want to see a bit longer before we say that, "Yep, we've turned the tide." The jury is still out there for now. Other drivers, I mean, in short, we have the demerger still ongoing, especially on the technology side, and then there is the acquisition plan that we have now partially put in place and will be putting fully in place during the Q3 , that we're driving, and these will drive our costs up, especially on a temporary basis in the next quarters.
The TSAs that we have in place with WithSecure are planned to be terminated at the end of this year, and then the Lookout TSAs, depending a little bit on which TSAs we're looking at, they will be taking up to, let's say, two years or so, roughly. These are the kinds of drivers that are impacting our business now in the short term. Finally, in May, we ran our global partner event we call SPHERE. This time around, it was in Amsterdam. We had a record number of attendants from a record number of countries, representing a record amount of revenue out of our business. We even had one of our partners from the Lookout consumer business attending, even though we hadn't even completed the transaction at that time yet.
As always, we had several interesting partner cases presented about the best practices of how to take security services out to market successfully. We had over 100 meetings in 3 days. Our partners were super happy and energized leaving the event, giving us a 100% satisfaction score at the end. We were very happy with the result. That's also something that we have mentioned in our quarterly results, that our Net Promoter Score among our partners remains at and, I believe, Bain & Company calls it amazing level. That's all from me. Now I would like to hand over to our CFO, Sari Somerkallio, to go through our financials. Thank you.
Thanks. Good afternoon, everybody. Now let's go into the financials, and we start with revenue as usual. Maybe before going into the actual numbers, you see here reported numbers, you see organic growth and organic currency-neutral growth. Maybe a few words about our plan on this. Of course, here in the reported numbers, we have Lookout Life for one month only. We thought it's helpful to tell also about the F-Secure without Lookout Life numbers. That's the organic growth. I'm sure you would also like to have Lookout Life organic growth numbers. There we don't have so accurate monthly numbers, I think it's you do your deductions and we tell the F-Secure numbers.
I can tell that for June, Lookout Life was similar ballpark level as we had within F-Secure, just a tiny bit higher, ballpark is the same as our 2.6 being the organic growth, which is currency neutral. Still about the plan for the future. As long as we don't have significant cross-selling, we will continue reporting the organic growth numbers, but that's now for maximum then one year, and then we will have fully comparable numbers. This is an interim solution as long as the numbers are such that it's useful. That's the plan.
If we look at the numbers, 11% was reported growth, and as you see there, even if the Lookout impact is only 1 month, it's already significant in the Americas numbers. If we look at this currency-neutral organic growth, like Timo said, rest of world, which is mainly Asia Pacific, grows really nicely, above 40%. There's Japan and Hong Kong are the key drivers there. Really nice development. Also, North America continues to grow well and sort of according to the expectations, being close to 6%. Europe is a mixed bag.
Nordics, +0.5%, that's a region where we have also most of the direct business, which has been challenging, so the organic growth was -1.4 for the direct business, and that's mainly in the Nordic numbers having an impact on that. In rest of Europe, we have really good development in Netherlands and DACH region, and then UK and Poland are challenging markets. Poland, we have talked about earlier as well. For UK, this is not new.
We just decided now that we talk more about the countries than we've done previously, just for the transparency and to show that we have the good things and the challenging ones, and resulting in this sort of average result. Organic growth in partner channel, 3.1%, so clearly better than the direct channel, but something that we are a bit disappointed with. Like Timo said, there were some deliveries of Total slipping to next quarter, and they would always deliver growth. Here you see the Lookout impact to the partner and direct channels. I'd like to talk maybe a little bit more about the deferred revenue, which is, of course, about the future revenue.
Traditionally, this has been for the direct channel and the retail channel, which is part of the partner channel, but now you see that actually, partner side has doubled, so really significant. The Lookout Life impact is one. They have more of these contracts where you don't pay on a monthly basis. Then also we have on our F-Secure side, there are some new deals where they are paying in advance for actually several years. Really not the normal way of working, because most of our partner business is monthly invoicing. That's a big change into the, like, traditional pattern. In operating expenses, a few sort of notes here. Of course, Lookout Life has now added cost for 1 month, so still a limited impact.
That addition is in mainly in sales and technology organizations, and maybe some added IT cost in terms of, like, licenses and things like that, mainly, yeah, on business side. In admin, you see that it, like you've seen in the previous quarters, it seems to grow a lot, but it's partly this last bullet on the page that it's not comparable to the ways how we did accounting during WithSecure side. We have ramped up our admin organization for the independence, but not as much as is visible here. On the R&D organization, again, not comparable numbers, and we've had a little bit more CapEx there than previously, but in reality, R&D has increased the underlying development.
Happily, next month, we'll have comparable path, this will become a little bit easier in terms of accounting, of course, Lookout will mess up some of this comparability. About the TSAs, we have reported on these details for the past quarters, now it's becoming even more messy because we add also Lookout Life here. If I go through some of the key details here: If we look at the WithSecure TSAs, in cost of revenue, you see this quarter EUR 0.9, is half of what we had during second half of last year, continues with the same pace. This is an area whereas we are at the same time, also having cost on our own side.
Here, hosting costs are really increasing. It's higher traffic and maybe a little bit slower transition than we hoped for. On the operating expenses from WithSecure, now, next quarter, the admin number should be smaller. We are going to reduce the last tiny bits from finance during this quarter. In IT, at the end of Q2, we terminated most of the TSA, so that admin number will get smaller. On Lookout side, in admin, finance, HR, legal, the TSA was just like two months, so that will almost disappear. Some numbers in Q3, but very little, and the rest will continue going forward. The longest time is in cost of revenue for the Lookout TSAs.
Looking at the profitability gross margin, now you see a much lower number, 88.4%. There are several factors. First of all, the IFRS treatment of deferred revenue results in a lower gross margin for the Lookout Life business. Also traditionally, Lookout Life has had lower gross margin than F-Secure. We have this double cost with the WithSecure TSAs that I just mentioned, so we are paying for the TSA, but at the same time, we have already ramped up quite a lot on our own side. There is also the product mix. We have now more SENSE, and we are, through the new Total, using more VPN than earlier, so it's heavier traffic, and those have a little bit lower profitability, so several factors in the gross margin.
This is also something we are paying attention to because, of course, this is a real cost, and we see that there is something that we can improve on, and first step is to get rid of the WithSecure TSA on that side so that we are it's fully on our side. The adjusted EBITDA, EUR 9.9 million and 32.4%, so of course it is clearly lower number than last year in this quarter. Not fully comparable, we had not ramped up all the capabilities on our side yet, and now with this lower gross margin and all the focus on integration and building the future, so this is the result.
Of course, with higher growth, it would look nicer, so growth is really what we will work on for the rest of the year. Then, a very technical slide, but I think very useful for analysts about the purchase price allocation. We have allocated to technology and to customers, both on partner side, direct side. Of course, direct side, customer lifetime is much shorter than on the partner side. So partner side and technology, 15 years long periods, we think that the average lifetime of this is, of course, this doesn't mean that everything would remain after 15 years, but it's a linear amortization. From here, this is what we've done.
0.7 is the amortization for June. Basically for the five years to come, you can use that as the monthly rate. This is how simple it is. Then goodwill, EUR 88 million remains in the balance sheet. Otherwise, not going to walk through the balance sheet, but it totally looks different. We added some more than EUR 200 million compared to the previous quarter. As you see on left-hand side, there's the intangible assets coming from the previous slide and the goodwill that come from the acquisition. On the right-hand side, there is then the bank loan, which is financing that. Quite a big change to all both cash flow and balance sheet-related KPIs. Then, yeah, here are the first half numbers.
Of course, just some of the quarters, again, highlighting on the right-hand side here. We had very high profitability in Q1 2022, and there we had not at all ramped up our own organization yet, so that's not comparable. That was just sort of a business unit within another company and not an independently working company. Of course, that's a level of profitability where we want to be in the future. About our outlook, guidance is for growth and profitability is exactly the same as previous, as we announced in early June. Revenue to exceed EUR 100 million, and profitability to exceed EUR 45 million. In the background, if you read carefully, there is one change.
We said that earlier that we expect the Lookout Consumer Business to grow above 10%. Now, we've softened that to around 10%, like corresponding to the softness that we have seen also in our own business, no bigger drama about that. The guidance remains the same as previously, we fully believe in that. Mid-term targets are also, as said, in late April, going for the EUR 200 million in 2026, nice if it's even higher and getting to that 42% level EBITA. That's the story this time, now Timo and me, we are happy to answer questions.
Hello, it's Atte Riikola from Inderes. Maybe we could first start with your guidance. If you look at the growth, I think the guidance means that you are thinking that your growth rate will little bit increase in H2, do you have a good visibility on that, or is there some risk that you will not meet your revenue guidance this year?
Yeah.
Our forecast is showing that we can make these numbers, and we can meet the guidance. The answer is yes.
I assume that the most of the growth will be from the partner channel and the direct business is. We saw some softness on the H1.
That's a correct conclusion.
Yeah, pretty soft. Yeah.
Yeah.
Maybe then about the Lookout integration in general, so have you seen any surprises with the process, and what's been, like, the initial reaction with the Lookout's customers and employees?
Integration overall, I'll start.
Yeah
Sari can complete. Overall, the integration planning has gone precisely as scheduled and planned in our program management office, so it's gone as expected. In terms of integrating the new fellows, as we call our employees in F-Secure, has gone well. I have to say that there have been glitches in IT, which we would have liked to avoid, but that, you know, that's something that oftentimes happens, something that is temporary, and we're busy fixing. Otherwise, I think that the feedback that we've got, the sentiment that we've got from our new fellows from Lookout consumer business, I would say very positive overall, and zero leavers since the June 1, I think is a good, in a way, measure of that.
Um, then about-
Maybe I can comment a little bit on the technicalities. Timo mentioned that some challenges on the IT side, that's maybe we are a cybersecurity company, and so is Lookout, there have been some access issues that how to get their computers working and so on. Something that I'm very proud about is that we have our ERP covering also Lookout from June, we didn't have any sort of ERP transactional type of TSA, but took that over in one go. Of course, when we look at our suppliers and customers getting all the sort of invoicing going correctly, there is always some delays before all know-your-customer type of things we have gone through, but everything going pretty smoothly.
I realized I didn't respond to your question about the partner, how they have been commenting and what's been their reaction. Only things I've heard are all positive, so it's going well.
That's good to hear. Maybe about the cross margins now, we see the little bit downwards on those, so are you expecting for the next couple of quarters that what we saw on Q2 is the level, or do you already see some improvement there?
I think most of the facts we have, the Lookout level, and this deferred revenue impact, and the double cost, and the increased traffic, they are all there. We are, of course, working to improve the efficiency, but not likely to have some, like, really fast reaction. I think this is more accurate than the previous level, than what the decimals are, so that remains to be seen, but this is something that we take very seriously because we have these DNS, VPN, since we want to sell these, so we need to ensure that they are profitable. Of course, when they are growing, we also hope that we find a learning curve that improves that.
You are guiding for the over EUR 3 million extra OpEx for this year due to the integration. How much was of that already on Q2 numbers?
Yeah, I don't have a number for that. Some of it, if you would put it smoothly to 7 months, so probably less than the 1-month portion, because of course it takes some time to ramp up. Some.
Yeah. Last question about the DNS security? This like, is this like complete new business to you, or what's?
So, um-
What's the business model there and?
We've been developing opportunities and partnerships in this area for over a year, and it's taken us a little bit of time to get, you know, accustomed and knowledgeable in the area. Also, the interest on the market side is growing. Communication service providers are seeing that the application-focused consumer security covers the threats very, very well and holistically that consumers are facing. Not everybody takes an app. For that purpose, to provide like a thin blanket of security to everybody in a very easy manner, without the need for an app, has started gaining ground. It's a complementary offer to what we're doing, and therefore, we're very interested in addressing also that kind of market.
It's something that hasn't necessarily been at the top of CSP's mind in the past, but now, you know, security is a very talked about theme and topic, so they want to address more of it than they've done before, and that's one way to do it.
maybe last question, about the integration on the technology side. you have said that you're gonna somewhat unify the product portfolio in the coming years. is the timeline now more clear that you have had time to look into the deal a little bit more than before?
It's somewhat clearer. Our aspiration is clear, but the actual work that precisely has to take place and, you know, make that quarter-by-quarter releases or six-week releases and so forth, that work continues in quarter 3. When we get to our quarter 3 results session, I'm sure that we can talk a whole lot more about that, but we're looking to use 2024 already to start bringing the offerings much more together, so that we don't have to wait for years to see that kind of benefit.
Mm.
Next year is already seeing, you know, converged offerings.
Yeah. There are some, like, hopefully, easy decisions. We have, like, ID Protection and password management in two places, so we need to choose or take the best of both worlds and ensure that we have only one product, so that we are not developing two, and these are part of these synergy sources.
All right. Thank you.
Maybe I could actually say about the integration and reporting before somebody asks. I said that we are going to report this organic growth for as long as it seems relevant. Regarding the rest of the PNL, we are integrating totally. Already now, admin functions, there is no admin for Lookout or old F-Secure. Also sales, it will be one sales organization. We are combining the product portfolios. In technology, we aim at integrating the platforms as soon as possible. There will be no Lookout and old F-Secure costs, but it will be all integrated, there will be no PNL and no separate reporting on Lookout.
Of course, in revenue, we know which customers came from where and in the same way with the product portfolio. Yep.
Hi, Waltteri Rossi from Danske Bank. My questions were partly answered, but a few complementary points. On the gross margin, you said that, 88%-Ish level now-
Mm
... is more accurate compared to.
Mm
... for the rest of this year.
Mm.
How about, going forward, like, next few years.
Yeah
where do you see it?
Of course, remains to be seen, and also here in this, we had Lookout only for one month, so actually, that can have an impact also when it's full three months. I think remains to be seen. It's something that we look into, and we are working on it, but currently, clearly pressure compared to the previous levels that we've had.
It also depends a little bit on the kind of demand we see in the market. You know, if VPN starts selling more, if DNS security starts selling more or other capabilities which have a production cost, then naturally, the gross margin is slightly lower, but they're all on a very healthy level. That, that mix may change with consumer demand. The application offering that we have forms the absolute core of both the Lookout consumer and F-Secure business. From that point of view, that's a very, very high-margin business as a, as a baseline.
All right, thanks. All clear. Another question, on the Lookout. You mentioned that the acquisition or the integration has gone, according to plan, but the portfolio management takes more time. Can you open up that point a little bit? Is it about forming the new offering together, like what to choose from each company, or?
This is the work that needs to be done. Our product teams are getting together and seeing what is the short-term joint product that we want to have, and what is the midterm product we want to have? We leave the long term for later, but in the midterm, we already want to have one unified proposition, naturally. That's the kind of work that requires still some more time, but not necessarily a lot of months. We're talking, like, during quarter 3, we want to have already a crisp view on how that will develop.
Of course, within our sales teams, we are already now training them on both portfolios so that they have a sort of double portfolio to go to their customers with, as there are things that they didn't have on either side.
The same CRM that both teams work with.
Mm.
All right, thanks. Look forward to hearing more on that later. No further questions from me.
Let's take some questions from the line. First, Felix Henriksson. How is the visibility into the second half of the year? Are you seeing any signs of growth accelerating towards mid-single digit levels you have recorded over the past few years?
Sorry, what was the? That if we have seen growth indicators that.
Are you seeing any signs of growth accelerating towards the mid-single digit levels you have recorded over the past few years?
Yes.
That is the question.
Is the short answer, yes.
Yes.
Yeah.
Second one from Felix: Do you still expect your new Embedded Security offering to generate revenue in the second half of the year?
Yes.
Easy questions.
Felix also asks, "Could you please describe the business model and monetization logic behind the business, embedded business?
Okay. That varies depending on the partner. It is either a monthly fee per subscriber that has been provisioned with the service, or it can be a revenue share. We may see something else emerge in the future, but, you know, revenue share and a very similar kind of business model as we now have with, in our partner business: monthly fees per provisioned customers.
Yeah. Maybe a couple of words about the growth for the rest of the year. Of course, now direct business was declining. We know that the challenging times with our direct business started around mid-summer last year, so we know that we are facing a little bit easier comparison numbers, even if we don't believe in, like, full turnaround of the business. On the partner side, as we mentioned, there were some of these delayed deliveries, and the total ramp-up continues, so there are known things.
Some couple of questions about Lookout. This first one is also from Felix. When do you expect Lookout's partners to be selling your products, and which products do you expect to be adopted first?
Desktop clients and SENSE. Windows clients, Mac clients for endpoint security, and other functions, and then SENSE. Those are the ones I would expect first.
Okay, thank you. Then two last questions. These are from Jaakko Tyrväinen. "Lookout is in the numbers with just one month. Should we expect Lookout to grow faster than the rest of the group in 2023?
Yeah. We said that we believe Lookout to grow around 10%. That was what they were in their, like, pro forma numbers, so maybe that tells about the Lookout growth.
The final question: When do you think first cross-selling synergies can be achieved? How long it will take before you have sales process and product offering ready for active cross-selling?
The sales process has been started now, so trainings have been taking place. I would say that from sales perspective, quarter three is clearly the Q1 when cross-selling can take place. Naturally.
I think we have made an offer already.
We have made an offer already for cross-sales, oftentimes, you know, if we go for new partners, the sales cycle is relatively long, can be anything between 3 to 18 months. You know, if we're talking about existing partners, we can go much faster, and the example that Sari referred to is precisely an existing partner who would like to extend. That can happen quickly. Then in the portfolio side, you know, seeing something that converges, Lookout consumer products and our products during 2024.
Thank you, and thank you for all the good questions. I think that was the Q&A session for today.
Okay.
Thank you, everybody.
Thanks, everybody, for attending, and if we don't happen to acquire further companies in the meantime, we'll see you in October in the quarter 3 release session.
Yeah. Wishing everybody a nice summer.
Bye now.