Welcome. If I can ask you to mute your mics at this point. Beautiful. Valued shareholders, investors, customers and media, welcome to our investor call on SSH Communications Security Interim Report and Q2 2022 results. This meeting will be recorded, and the recording along with the presentation will be available on our webpage after this meeting. My name is Lauri Koponen, and I am the Communication Manager at SSH Communications Security. Results will be presented by our CEO, Teemu Tunkelo, and CFO Niklas Nordström. You can ask questions at the end of the event by asking to speak in the chat or asking your question there. Please keep your mics muted whenever you do not have the floor to speak. I'll check once more that everybody is in. Yes. Let's go forward and start from Niklas, CFO, financial results. Please, Niklas.
Thanks, Lauri.
The floor is yours.
Welcome also on my behalf, and thanks everyone for joining in the middle of July. Let's jump right in. Both our revenue as well as our EBITDA continued their positive development during Q2. We reported net sales of EUR 4.5 million, which equals to 34% growth versus the comparison period. The growth was mainly driven by our subscription business, which grew 79% versus the comparison period. Two noteworthy things to highlight regarding this particular growth performance were that Deltagon was almost entirely consolidated in the comparison period with just approximately three weeks of sales affecting comparability on a quarterly level. The large EUR 2.1 million frame order that we announced in June is not yet in the Q2 reported figures. We are very pleased with this performance.
Main growth driver on the product side was PrivX, the subscription revenue of which continued its three-digit growth rate at 179% versus the comparison period. We also recorded EUR 500,00+ EBITDA, making Q2 the fifth consecutive positive quarter. We are a challenger in the market, and we have invested heavily in R&D, but we are now seeing the return on investment from PrivX and NQX and will continue our investment as we start to scale. To this end, during the quarter, we made some successful recruitments, increasing our FTE numbers slightly. Finally, on the balance sheet side, you can see that our liquid assets were at EUR 4.4 million at the end of the reporting period.
If we look at the quarterly cash development in 2021, we can see that there is some cyclicality in the pattern as our large subscription and maintenance renewals are scheduled towards the end of the year. We expect our liquid assets to develop favorably during the second half of the year. One more thing I would like to mention is that our recurring revenues grew compared to the comparison period but also compared to Q1. Still, our ARR metrics didn't show growth. Now, why is that? We had a small revenue phasing correction that was recognized at the end of Q1. This was just a EUR 13,000 monthly subscription order that was recognized for March for the entire quarter. About EUR 40,000 in total for March.
The nature of the ARR metric is very aggressive for even small adjustments in the calculation month since the multiplier, as you know, is 12, and therefore Q1 and Q2 ARR KPIs are on similar level despite growth in the recurring revenue category. We do expect significant favorable development in the ARR metrics already in Q3 as we start deliveries of the EUR 2.1 million subscription order. Just wanted to point this out from the interim release for those who were perhaps wondering. Next, let's look at how our regions performed. Lauri, if you can skip to the next slide. All regions grew their revenues with strongest development in EMEA. We did get some additional help from the strengthening of the dollar, and in Q2 this was in the region of 7% on the group level for the quarter.
The year-to-date growth figures, this represents approximately 6% additional growth compared to growth with comparable exchange rates. Regions grew, driven by operations and boosted slightly by favorable FX rates. Next, I would like to give the mic to Teemu, who will tell you about operations during Q2. Teemu, please.
Thank you, Niklas, and welcome for everybody also from my side. I think we are very happy with the performance we did in the first half, and we see that our journey is on the right way. One of the key things for us is to expand our customer reach from point products to larger solutions and doing that with partnerships. We've done three major partnerships in the first half. The most important one is with ISSP, an Ukrainian cybersecurity company with 24/7 SOC operations, with training centers, and with a good touch on the cyber warfare as well. With CYE, which is an Israeli company, which is focused on understanding the cybersecurity threats.
We have entered a cooperation where we together, and also with ISSP, go to customers to help them understand their cyber journey. Last but not least is the Keto Software, which is providing solutions for improving the return on R&D investment, which is one of the biggest assets for Finnish technology companies. It fits well with our strategy with the PrivX OT Edition. Keto is including in their portfolio, Keto Software Zero Trust Edition, which will enable their customers to keep their secrets better at bay when they are developing products and when they are producing the products also in the Far East countries. That is another direction. All these three strategic partnerships have a different direction. ISSP is especially focused on Ukraine and the new geopolitical situation in Europe.
CYE is focused on the threat exposure, and Keto Software is focused on protecting customers' critical data. Let's move on. NQX has now been certified, and we are happy with that. That will change our actions related to NQX market expansion, because until now we were focusing on getting the certification done, getting the first installations done. Now we have gotten the first major order, and we have other customers that have been lining up waiting for the certification. NQX, I believe, will be following the PrivX route of significant growth moving forward now that we have the certification. What has happened during our journey? We announced the MSP, so managed service provider edition of the PrivX.
We came out after NQX also with Tectia, our largest product line, with Quantum-Safe and Zero Trust Editions, which both have gotten their first customers and very well received in the market, proving that Tectia is future-proof for the years to come. Keto I already mentioned. NQX I mentioned. With Cinia, we are having significant cooperation where Cinia is a backbone operator for many of the critical companies in Finland. We also see with Cinia opportunities with ISSP on things we can do for Ukraine, rebuilding of Ukraine. Cinia has the capabilities of professional services that is way beyond what we could ever do organically ourselves. CYE I also mentioned. Really there was a lot of things happening which follow this journey from point solution, point products to solutions together with upstream partners and also together with new downstream partners.
We are building an ecosystem around our proven and used technology that is also future-proof. Next slide. Our guidance remains, I would say positive. I think we are in a position that our funnel of opportunities is increasing. We feel very confident that we can keep our guidance for this year. The three themes that we are driving is Zero Trust, which is the closest to get results to turn into money. Zero Trust products are well received by the market. Our Quantum-Safe solutions get even more interest, maybe turn to revenue a little bit slower than Zero Trust. The last but not least is the operational technology.
Especially driven by the geopolitical situation in Europe, people are more and more understanding that your water supply, your electricity supply, your heating supply has to be secure and it has to be tolerant to resist quantum attack, to resist cyber attacks. From that point of view, our OT PrivX OT Edition has really been well received by the market. Customers are installing it in a very fast way and we see that being the third key cornerstone for us moving forward.
Okay. Thank you, Teemu, at this point. Let's maybe start the Q&A section because there is actually coming a lot of questions. Thank you for your activity. Let's start from the chat. You can ask by writing, and I will read them out loud, or you can raise a hand or ask just for permission to talk. First question is, "Does Finland joining NATO provide some additional potential for your products?" Teemu or Niklas can start.
Maybe I start. I think Niklas can expand on it. I see that NATO is a great opportunity for us. We are already having several discussions. What does it actually mean? What are the first steps? Certainly for our technology, we see there remains a market that is domestic, that is something that Finns want to do for the Finns. We have serious discussions with certain NATO countries already ongoing, where they show interest to our technology, both PrivX and NQX. Niklas, maybe you want to expand on this.
I think that sums it up pretty well.
Yes. Thank you, and let's move forward. Next question. I think this is more for Niklas. The NQX, EUR 2.1 million order received in late 2022 June is included in the 2022 June reported ARR according to accounting policies, correct?
Incorrect. When we recognize revenue, we have to follow the performance obligation according to IFRS standards. In this particular product, the performance obligation includes delivery of hardware. Only after we have fulfilled the performance obligation, meaning delivery of hardware, can we recognize it. These deliveries are scheduled to start in August.
Yes. Thank you. Next question, actually almost the same, so maybe Niklas.
Yeah.
Subscription ARR declined slightly from EUR 8.1 million reported in Q1 to EUR 7.9 million in Q2 despite favorable exchange rate development. You mentioned that this is partly caused by a mistake in the data, but can you elaborate a bit more on the flat development of ARR? Did you have any significant customer losses, or is the flat development caused by low numbers of customers going live in Q2?
We didn't have any significant customer losses in Q2. If I take my calculator. As I said, the ARR metric is a very aggressive metric because the multiplier is 12. How it is calculated is that we take the whole quarter and look at the last month of the reporting period. This was June, and in the previous quarter it was March. If there is an adjustment that we have to make in the last final month of the quarter, then that can distort the metric somewhat. In this case, it was EUR 13K subscription order that we had to recognize fully for March. If you multiply 13 by three months, you get EUR 39K. That was the size of the correction.
When you multiply 39 with 12, you get over EUR 400,000. This is what caused this metric to be flat. We actually had pretty decent development, and the majority of our subscription revenue is in euro denomination, so the currency rates doesn't even affect that at all.
Okay. Thank you. Next question. Can you say anything about SSH potential sales channels and schedule relating to HX project? Maybe Teemu can take this.
Yeah. Thank you. HX project is for us more a medium- to long-term thing because in the current world, the technology exchange or what was earlier called in Finland vastakauppa, that concept doesn't work in the way that it used to work, that we would have an opportunity to directly sell our products to the counterpart. We are more looking at medium- to long-term opportunities like with quantum-safe algorithms, other things where we can leverage Western technology or American technology in our products, and that exchange is not directly related to revenue generating business, but it will make our products more future-proof in longer- term. HX project as such will not impact our financial performance short- term, but medium- to long- term it provides us opportunities that we otherwise wouldn't be able to catch.
Yes. Thank you. Next we have on the line Forbes Goldman. Please, you can ask your question.
Yes, hello and good morning. I would like to ask you a question about the EUR 2.1 million deal. Well, to start off, could you go into some detail to say like what is it you will actually be delivering? What type of work is it? And also like how complex is this delivery? How many people at SSH are working to get this live?
Niklas, maybe you want to take this.
Yes. Yes. This particular contract was announced in December of 2020, if I'm not mistaken. Since then we have been working on making the arrangements for the supply chain, the delivery chain and service models and everything. Everything is ready and we are now in a certified position and we are able to start the deliveries. This is of course a major multi-year contract for delivery of encryption products and services. The emphasis being on products, software. Services are sort of consultancy that we provide to the customer or customers in conjunction with delivery of the software. Did that, Forbes, answer your question? Oh, yeah, and also you had a second part. How many people are working?
Now that we have established the delivery chains and the necessary structures such as support and this, if we, you know, exclude all the peripheral employees working on this such as support personnel, the delivery and implementation process is fairly straightforward from our perspective, so it doesn't tie more than, you know, people that you can count with one hand's fingers.
Okay. Thank you very much. If I understand it correctly, you will receive EUR 2.1 million in subscription revenues over the next three years.
Yes.
Is that correct?
That's correct.
Could you help me understand then what will be the effect on ARR? Is this anything you could talk about then?
Of course. Let's plug in the numbers. That would equal about 60k in monthly subscription. As soon as we're able to deliver the whole order, that gets recognized, and we are talking about EUR 700,000 boost on the ARR metric.
That would be at the end of the period then when you've delivered?
Exactly.
Yeah.
We expect to start the deliveries in August. Hopefully, this has to do with not so much with our capability to deliver as it has to do with the global situation for availability of hardware components. We are sort of positive that we will be able to deliver the whole order during Q3, but it might and a part of the delivery might slip to beginning of Q4.
All right. Very interesting. A final question on this is.
Mm-hmm
Well, I understand this is a major order, but would you say this type of deal is something that comes around once every few years? Or would you say that there are multiple similar procurements on the market that you are in contention to win, like in the coming one or two years?
I would say the latter, definitely.
Okay. I will ask you a final question about the go-to-market strategy, as you have announced so many partnerships. I guess it's still quite early, but is there any of them that has gotten off to a particularly good start, or at least anyone where you have seen sales in Q2 or perhaps in the beginning of Q3?
Not any significant sales yet, but we have discussions and offers going on with all of the partners. I would hope that by the end of the year we can report concrete results that are meaningful for our overall numbers. At the moment it's still too early.
Okay. Thank you. That will be all for now. Thanks.
Yes. Thank you. We have a couple more questions in the chat. Thank you for your activity. Next will be maybe for Niklas. NQX, what would catalyze additional order of that EUR 20 million frame agreement? What are your expectation about this?
This particular first order will be used to implement this kind of core network upon which other networks will then be built. This is the sort of starting gun for the project, size of which is estimated to be EUR 20 million. The catalyst is, I would hope that we would be able to catalyze this process somehow, but it has to do more with the customers and how they are able to deploy the core network to start.
Yes. Thank you. Actually second question is also to Niklas.
Yeah.
Can you open up how much sales of the EUR 20 million deal has been confirmed? I'm a bit confused with the numbers EUR 500K + EUR 600K + EUR 2.1 million. Is this correct calculation? Confused if EUR 600K pending is included or not in the EUR 2.1 million deal.
About 2.5 million is currently confirmed. You know, we have a purchase order in-house. As I pointed out, EUR 20 million is the entire deal size. Approximately just over 10% has been now confirmed. The other figures that I stated, you have to remember that this is a subscription order, the EUR 2.1 million. That gets phased over three years, which is the subscription period. The ARR impact for a given month is EUR 700,000. That was what Forbes was asking. How is the order going to impact the ARR? That's in the region of EUR 700,000 once fully delivered.
Yeah. Maybe if I can expand on that a little bit. The two growth products that we have had in our portfolio, in our major R&D investments are PrivX and NQX. NQX was delayed, but now the boat has left the harbor. We see that it is the first step that we are getting now, and it, things look positive. The growth percentages for NQX might be even bigger than PrivX. Of course PrivX is a little bit ahead of the game because it has been already in market for three years. The two major R&D bets that we have done are now bearing fruit. That we can see from the first half year numbers.
Yes. Thank you. Let's move forward. We have actually new question, and it's related to Deltagon. Can you open Deltagon product line Q2 2022 performance and future outlook in the Nordics and opportunity and development outside the Nordics?
Well, Niklas, you might want to expand on it as well. I think we have a lot of homework to do with Deltagon on the technology side. We are developing major upgrades for the product and we have started marketing activities in the other regions. We have had some issues with the Norwegian market. Swedish market is okay. The Finnish market is still good. We believe that during the second half of the year, we can see how can we get the product better acceptable for the new markets, especially for Asia-Pacific.
Yeah. I think, yeah, one important thing to mention is that the product line is growing. We are getting bang for the buck from Deltagon. It's growing, but we, as Teemu said, still need to do a little bit of homework to get it into international, globally scalable product.
Okay. Thank you. At this point, do anybody else have questions? You can still raise a hand or write your question in the chat. Okay. I think at this point we don't have any more questions. Firstly, I thank Teemu and Niklas. Thank you for your presentation. Thank you, dear guests, for participating in our call. Materials of this call will be available on our website later this day. Hopefully, everybody has a nice summer going. My name is Lauri Koponen, and I work as a Communication Manager here in SSH. We have a lot of different content, webinars, events, and workshops coming out this autumn. Follow our LinkedIn and Twitter channels and our webpage, and join the discussion about the future of defensive cybersecurity. At the end, I mention Q3 2022 results will be published on October 27th, 2022. See you then.