Thanks, Christian. Warm welcome also on my behalf. We can skip right on to the first slide, if you please. First of all, I'm pleased to be able to report solid double-digit growth rate for Q2. We grew 27% versus the comparison period, mainly driven by consolidation of the Deltagon figures. While the old SSH subscription revenue also grew by 55%, with PrivX showing its ability to scale, delivering a growth rate of 168%. The growth came from our scalable subscription business, where at the end of the reporting period, our rapidly growing revenues surpassed our maintenance revenue for the first time. Our EBITDA was back in black numbers in the quarter, and we turned the direction of our profitability development versus the two previous quarters, which were characterized by upfront growth investments. At the end of Q2, we had 123 employees in seven countries.
I'll summarize this slide with a sentence. Back in black, back on track. Next slide, please. Looking into the balance sheet side. During the quarter, we put our balance sheet into profitable use by closing the Deltagon acquisition. This puts some pressure on our liquidity level, but at the same time, the investment that we made generates a stable, recurring and positive cash flow, which we expect to start showing and be able to grow in the coming quarters. Our equity ratio remained good at 47%. Next, Teemu will tell you about some of our highlights during Q2. Teemu, please, next slide.
Christian, can you put on the next slide, please?
I can see it.
I cannot see.
Slide 4 is showing for Q2 highlights.
For some reason, I can't see it.
I guess you have to just trust that it's there. Teemu, did we lose you?
Let's try again. I'm very happy with the Q2 results. Could have done even better on the revenue, but we all in all were able to bring in our strategic target of getting more subscription revenue out of the business, which was helped a lot by the Deltagon acquisition. We also got a significant new order from a previous customer in the U.S., Fortune 500 technology company, after a long period of negotiations. We are seeing PrivX really taking on the track of accelerated growth during the second half of the year. We also were able to establish new editions of PrivX, one for the site to cloud OT technology solutions and the other one for outsourcing companies that provide managed services.
We've been able to sell the first deals on both of these editions. We see that the PrivX market that we can address is much bigger than it has been before. We also made first deliveries on products and services to the cryptographic contract we announced last year. We see that the business that we are building for our cryptographic solutions is really taking off now in multiple different directions. That refers to the next bullet point that we also got other demanding customers from public sector. We are looking into going to private sector with NQX as well. NQX is really taking off the ground in this year and next year.
We also expanded our zero trust principles that were built already with PrivX 2 years ago, 3 years ago, and we have now building zero trust versions of our products for Tectia, for UKM, for NQX. All our products will be following the zero trust design principles. We also further got some new support from market analysts that see us as the leaders in the industry. Next slide, please. The numbers almost look too good to be true, and we are delivering finally what we have been saying that we can do. Our subscription business has really taken off. PrivX continues to grow impressively. Tectia is also moving to subscription revenue. At the moment, we are at the stage that most of our revenue, 85%, is based on recurring revenue, which is a healthy base for a software company to be in. Next slide, please.
Okay. To give investors an idea of the baseline on which the next 12 months revenue will be built, we published a new alternative performance measure. This KPI is calculated by multiplying the last month's revenue from a given reporting period by 12, so effectively annualizing the monthly revenue. To put it very simply, this will give investors a snapshot of what the baseline annual subscription revenue will be if all things remain equal, and what the incremental sales will be needed to reach particular growth objectives. This KPI will also tell investors in concrete terms how the scalable subscription base develops. In June of this year, so the last month of Q2, the subscription ARR was close to EUR 7 million, which is up by EUR 6.2 million from the comparison period. You can find the KPI and its comparisons from the Q2 release key figures section.
The key driver for growth of this metric are Deltagon products, NQX and PrivX, for which we have released two new interesting editions, as Teemu mentioned, to meet customer demand. I'll let Teemu tell you more about that on the next slide, please.
We have been developing PrivX with our key customers, and over the last nine months, we have been working with the U.S. Fortune 500 company, and we have been successfully expanding the functionality of the product. We are using agile development, so we come in with new versions between 8-10 weeks. Working with the Fortune 500 company and also some European companies, we have defined new versions, which we call editions. MSP, which is provided for companies who host smaller companies' IT environments, and OT, which is from the site to the cloud. We have been able to secure first orders for both of these editions, and we believe that there will be a significant growth opportunity regarding the opportunities in the MSP and OT marketplaces. Next slide, please. Back to Niklas.
As Teemu mentioned, we are progressing here and we have started now the multi-year agreement deliveries by delivering the first cryptographic products and services. We also received new orders and made deliveries to new security-critical customers in non-certified environments. This is positive, as it's an indication of the product's competitiveness also in commercially competitive use cases. We expect that the second half of the year will bring positive developments for our encryption business. Now, next, Teemu will tell you a little bit about zero trust and what, for example, Joe Biden thinks about that concept. Next slide, please. Teemu, please go ahead.
Sorry, I was still on mute. Yeah, I'm happy to refer to Joe Biden, the President of the United States, because we were three years ahead of him. He has now in May announced that zero trust is the future. We did that already three years ago. The whole concept of PrivX is zero trust, which is kind of a difficult concept to understand. It means that you grant the trust all the time, every five minutes. You don't just give a password out. You grant the trust as you go. That is where United States government is going. That's where we have been going for the last three years. We have done significant investments in PrivX, which is all based on zero trust.
Now with the expansion of the zero trust editions of all our products, we believe that there is a great growth opportunity which will already convert to meaningful growth for us in the second half of the year. I am even more convinced than before that the opportunity is there. We have the right architecture. We have proven our case. Now not only in Europe, we have proven it with Western Union, we have proven it with the new Fortune 500 company. PrivX can do zero trust better than anybody else. That's the opportunity we want to drive on. Next slide, please. On that note, we want to reiterate our guidance. We believe that the second half of the year will be good for us. It will be good for the top line.
It will be good for our EBITDA and our cash flow from operations. We feel very confident that the second half of the year will deliver the results that we have been promising. Now I would like to open the floor for questions.
Hi, it's Atte from Inderes. Could you still open up a little bit that what were the key points why that big Fortune 500 customer chose PrivX over the other big competitors?
I think biggest part was our engineering capability, our flexibility that we were able to adapt to their expectations on what they call the best of breed. They wanted to have the best solution. I think the more established players had less room to operate on providing solutions fast enough for the customer's requirements. That I think was the biggest single reason that our product is microservices-based. It is based on capabilities that you can integrate to any environment very easily. That's where I believe we are well ahead of our competition.
Can you say anything about that? Do you have any other that kind of big contracts in your sales pipeline?
Well, we have other whales still waiting. Before the fat lady sings, nothing is final.
About your license sales, do you still expect them to pick up in the coming quarters despite the fact that you're still focusing on the subscription sales?
Well, we still are driving license sales. Unfortunately, we're not able to close some key license sales at the end of last quarter. We see that they will be a significant part of license sales and professional services that will impact the second half growth. Yes, we will continue license sales and we will see also professional services picking up. Those are the growth drivers that we believe will impact the second half. Maybe Niklas, you might want to expand on the NQX business because that is purely subscription-based business. Even if we can proceed as we plan, the conversion to revenue on the second half of the year will be very difficult if we wouldn't focus also on the license sales and professional services. Niklas, how do you see the NQX business picking up this year, and how much does that convert to revenue?
As a subscription business, even if we get a big delivery order at the end of the year, it doesn't convert the revenue due to the fact that the revenue is phased over the period of the order. You have to remember that this multi-year agreement is for cryptographic products and services. There is a service component, and this, I think, is front-weighted in terms of delivery. We expect professional services to pick up also during H2.
All right. Thank you.
Any other questions?
Hello, this is Forbes from Redeye. Can you hear me fine?
Yes.
Good.
Hello, Forbes.
Hi. Thank you for the presentation and nice work with the quarterly report. I have a few questions on Deltagon. These figures are consolidated now for the first time. Firstly, is it possible to disclose some more information on Deltagon's contribution in the quarter, like sales and operating profit?
I can take that, Teemu, if that's all right. We don't report the sale of individual products or businesses, but as a whole, as I mentioned, I'm very pleased that we were able to report a healthy double-digit growth rate for Q2, which was achieved for the main part due to Deltagon. It was also supported by excellent PrivX performance. Out of the regions, Americas was our biggest challenge. In Americas, we started the transition to subscription-based business later than in Europe, and this shows in the numbers. We are getting subscription-based deals, but they haven't fully replaced all licensing revenue quite yet. To make a conclusion, despite the healthy top-line growth for the quarter, we're not still satisfied with the growth rate, and we are working to make Q3 or H2 even better across all of our regions.
If I can add on that, I think we are in a very good phase with Europe. We are very well-positioned in Finland. We have challenges, as Niklas mentioned, in the U.S., and I think we also have growth opportunity in APAC. At least me personally, I'm focusing on getting APAC back to the winning mode and getting U.S. back to where it used to be. These will be two key elements on getting the second half growth supported by the already well-working Europe and Finland.
Perfect. Thank you. I'll ask one more question. Deltagon, you have a lot of customers there, 2,000 and more, I think. Apart from adding new ones, do you see an opportunity to grow the average revenue per customer there? That's the first question. Secondly, are you happy with the consolidation process so far?
Niklas, I guess this is for you.
Yeah. We are very happy with the consolidation process so far. Everything is going according to plan. Summer holidays have unfortunately sort of come in the middle of everything, but we expect to be able to close everything by September, including renovating new spaces and every Deltagon, as they like to call themselves, are moving here in the same office. As for the shared customer base, we have previously mentioned that we see a lot of synergies there. We see a lot of cross-selling opportunities, as well as opportunities to grow the share of wallet within the existing customers. Previously, Deltagon hasn't really had this kind of account management, and as a part of the strategy process that is now ongoing with Deltagon, this has been identified as one of the key places where we can grab some low-hanging fruits. Yeah, go ahead.
Maybe Niklas, could you say some words about June for Deltagon?
June was excellent.
Good. Thank you.
That was few words.
Yeah.
Of course, June was supported also by an excellent April and an excellent Q1, so it's looking good.
Great. That is all for now. Thank you.
Maybe Niklas, since we are lacking a little bit of questions, maybe you could expand your view on the outlook of NQX for the rest of the year?
It's in an interesting phase right now. We have a number of open positions, new customers. We are seeing a lot of demand for certified connections. This is important. Also, we are seeing demand in non-certified environments for an encryption device, which is separated from a firewall. What we are seeing, for example, in the public sector is that firewalls are taken out from the line encryption functionality. As you remember, NQX is a line encryption device. This decision was also made years ago, so we have a good eight ball that we shake here to see how things develop in the future.
We got the question on the chat about the sales organization in the U.S.A. As maybe some of you might remember, we moved the U.S. headquarters from Boston to New York, which ended up us changing the whole sales organization. Now we have just got the second salesperson starting in the U.S. last month. We are looking for a third one, and we are revitalizing the partner network in the U.S. We also have two new people on the marketing side, digital phase and general marketing. Yes, it's early steps and that's maybe one of the reasons why our U.S. sales didn't perform last quarter. We are very confident that we can get U.S. up and running with the sales and marketing with the new people in New York closer to customer than we have had in the last nine months. Niklas, there's another question.
I can take that. As I mentioned, NQX is a line encryption device. We are competing in technology and functionality against large enterprises. If I name a few, secunet, Thales, Tutus, in the encryption device realm. There are the next generation firewall providers such as Check Point, Forcepoint, Palo Alto, Fortinet or SD-WAN providers such as Juniper, VMware or Cisco. We are in the encryption device market and even though the benefits of NQX are efficiency, very cost efficient, its scalability, safety, and post-quantum endurance. The go-to market strategy in the first phase is going to be in Finland. That's where we are focusing on. In Finland, the major advantage that we have is domestic and certified status. This is something that makes the entry barrier for foreign operators extremely high in Finland.
On the next question about Walmart, we don't quote anything about single customers. I think we are dealing well with Walmart. We are dealing well with all our key customers. We have about 120 significant customers that impact our business performance. Walmart is one of them, but we will not quote any comments on any single customer. On the NQX side, Niklas, this is back to you. We have just reviewed the strategy for NQX and can you tell something about the geographical focus of NQX moving forward?
Yeah. The central theme of our strategy period for NQX, which as SSH's strategy extends to the end of 2020, is going to be very tight focus. Avoid doing everything. Just focus on the key security critical whales that exist in the Finnish market. We need to be able to establish our foothold in this market first, establish the required process organizations to support these kind of big and demanding customers before we can start conquering the world. The regional scope, the regional focus during the strategy period is in Finland. We don't have to go fish, how do you say it in English? How do you say that?
Across the ocean.
Yeah, we don't need to go to fish across the ocean to be able to generate significant revenue for this product. You would be surprised how many officials, agencies, municipalities there are just in Finland, a nation of just over 5 million people.
Hi, this is Forbes again. I remember from your capital market day last year, you said that the typical range for your PrivX customers are EUR 50,000-EUR 150,000 in ARR. Would you say that this latest customer fits within this range as well?
No. I think we have also generally seen that our average deal size is increasing. Again, we cannot quote on any single customer, but our sweet spot for PrivX is EUR 20,000 per month or quarter of a million a year euros. We can see that there are more and more customers where we end up in this range. The average deal size that we have been able to achieve over the last 18 months has been growing from what you mentioned to typically the interesting deals we have are now above EUR 200,000 ARR.
We are really happy, and that's one of the reasons that what we can see with the success of PrivX is that we have less customers, but we are showing significant growth over 150% with less customers than before. We are really focusing on the vital few. As I said, we might as a company have 5,000 customers all in all. We have 120 meaningful customers that really make or break our day. Did I answer your question?
Yes, certainly. Following on that as well, you write in the press release that this customer could potentially scale 10 times the number of hosts initially assigned. You could see your ARR increase significantly here as well, I assume.
Yeah. Let's see. Niklas is very nasty to me on how he recognizes the revenue. But y es, I think we are really getting to a solid growth base by growing the share of the wallet of the customers we have been able to acquire. That also applies to the Fortune 500 customer we were saying, as mentioned in the press release, the potential just to grow inside that customer is tenfold. We can see that with many other PrivX customers, it takes time for them to be able to roll it out, and it just takes time, but I think we're on the right track.
Okay. Thank you.
There's a question in the chat about company cash flow. I can maybe comment on that. Our balance sheet is now in much more efficient use than before. Our cash position is smaller than historically, but it's sufficient to drive the execution of our strategy. We still employ a gated approach to spending, and we have also negotiated the loan facility with our banks and pension companies. We are in a pretty good position regarding cash currently.
From an operational point of view, we can operate. There is still the topic of the hybrid loan that we have, which is not anymore hybrid in the sense it's not convertible. We are also looking at alternatives to strengthen our own balance sheet. This is very early to say anything about that at the moment. We felt that it was important for us to move ahead as a company and put the capital in better use. I think Deltagon acquisition has been recognized as a good move, and it was a logical step for us, especially to establish ourselves stronger in the home market. Traditionally we have been mainly exporting software. Now we have almost one third of our business in Finland.
We have a lot of synergies between our other products and Deltagon, and that's the primary reason we saw it is a good step moving ahead. Deltagon found a good home in Kyberleijona, which is our joint venture with the Finnish government. It was an essential step for us to be strong in Finland. We also have, with Deltagon, a strong starting position in Sweden. We have initial steps in Norway. Maybe Niklas, you might want to say some words about the Nordic potential we have with Deltagon.
Yeah. We have recognized Sweden and Norway as the primary places to grow, and we are currently strengthening the organization in that region to get those low-hanging fruits. For example, in Sweden, the largest customer, I think the second largest customer, is now in the municipal sector, where we see a lot of potential also in other municipalities there. Norway and Sweden are pretty similar markets and they share the same language, so we can really take advantage of that when we design our go-to-market strategy there.
There was another question, Niklas, for you on the chat on the line encryption devices market. Would you like to answer that?
We are talking about in two years from now, we are talking about several millions of euros per annual turnover. NQX and the encryption services are going to be a significant growth driver for SSH in terms of percentage as well as in terms of absolute growth.
There was also a question about PrivX three years from now. I guess that's a crystal ball that nobody can have. I would say that, as said, we have been able to increase the average size of the customer. We have been able to increase the number of customers. PrivX being already in a global market, we see that is the highest potential for growth, but I don't think we are in a position to make any commitments on what is our belief on the market. At least we are not market limited. We have the opportunity, we have the brand, and we need to go after the business, and only time will tell what we can reach with PrivX. The question on the how much should we invest in go-to-market.
I have been quoted in the company by saying that making a product costs EUR 1 and taking it to market costs EUR 5 or EUR 10. I don't think we are investing enough into our go-to-market at the moment, but that's because of our balance sheet limitations. We are not a U.S. stock-listed company that has EUR 100 million on the bank account. We are living out of our operational cash flow, and that's where Niklas is absolutely critical for us because he keeps me honest.
I can't hire people left, right and center. I think where we are impressively good is to keep our costs predictable and under control. Yes, I would like to invest more on the go-to-market, and I believe there would be more potential, but we are not in a position to do it at the moment. Niklas, can you help me out here a little bit?
I think you said it well. We need to have visibility into the development of the business before we invest out-of-pocket money, and this is what we call gated approach.
As a company, we have done major investments in NQX that is starting to pay back, PrivX that is starting to pay back, but these products both are still in investment mode. We can see the potential, but it doesn't convert to cash on the bank account yet. We see there is potential, and we are limited by our capability to invest in sales and marketing.
Teemu, there is a question about the possibility of PrivX market being EUR tens of millions per annum sales in a few years' time. I'll just make a short comment on what we mentioned in one of the headers of the slides. PrivX expands beyond PAM. I think this is a significant thing, the new two editions, as it sort of opens up a whole new market of controlling access to operational technology. Maybe, Teemu, you would like to mention a couple of interesting use cases that were the drivers behind the edition.
Yeah. For me, where we are even more advanced is the MSP side, so managed service providers, because we have been always bad at middle-sized companies. We have been good at small companies and huge companies. Companies between EUR 500 million to EUR 5 billion have been limited. With the outsourcing trend, there are a lot of companies that are providing managed services to host customers' cloud environments and the on-premise environments. Companies like Tieto, Fujitsu, CGI, Tata Consulting. These companies provide us an access to the medium to large-size companies that don't have their own IT environment. That's the MSP edition where I think we are in a good way. The OT, the operational technologies, which is basically connecting the sites to the cloud, is something that is very close to my own heart, and I can see that customers are moving there.
We have the first customers that are already committed to us to make their operational sites to be connected to their clouds or to their MSP providers. Yeah, the sites can be factories, they can be harbors, they can be anything where actual real work is being done, and that work is connected more and more to the cloud, where the digital data processing, artificial intelligence is being done. I think we are in a good way also on the OT side. We have significant global companies working with us, and they can see that protecting their data, their operational data that they need to analyze their business, protecting it on the way from the site to the cloud is key. These two, the MSP and the OT, they are also connected because a lot of these OT companies actually outsource their IT.
That is also the reason why we saw that expanding the focus from the traditional IT PAM to OT and MSP brings us a competitive edge, which we don't believe our competition has. We can do managed service providers, we can do from site to cloud with the basically same technology that we use traditional IT PAM. That is the big promise for me why I believe that PrivX can be multiplied by a big factor moving forward.
Yeah. Also these applications can be in, for example, harbors, train-sites, elevators, anything that require connection to the cloud. I think one further point worth mentioning is that this enables customers to meet their critical IEC and ISO certification goals. Very often, regulation is a driver for big changes. This cannot be overlooked.
The last question on the chat. It is impossible for us to give any estimates how big PrivX can be. In a quantified way, I can see the PrivX potential is huge. I think we have done, over the last three years, significant investment in PrivX, and it is bearing fruit now. It might sound a long time for three years to expect a return, but I do believe that PrivX has grown to the phase that we can really scale it. Numbers I cannot give. We are coming to the end of the time. Are there still some questions that people would like to ask?
If not, Christian will put this presentation as well as the recording on our investor site for people to review it.