So good morning, everyone. Welcome to this investor call on SSH Communications Securities Q3 results. My name is Kristian Iverden. This call is being recorded and the recording along with the presentation slides will be uploaded to SSH website later today. To avoid any unnecessary disturbance, please keep your mics muted during the presentations.
The results will be presented by our CEO, Teemu Tunkelob and Niklas Nordstrom, the company CFO. There will be a Q and A session after the presentations. So without further ado, Teemu, the floor is yours.
Thank you, Christian. I'm Teemu Duncan, I'm the CEO, and I'm happy to present you The Q3 results, which are good and we are going to good direction. And I want to thank our team. I want to thank our customers for their commitment and trust on our products and solutions. So we are on a good road.
Let's go to the presentation.
At
least everybody knows, let's move forward. So We were able to achieve growth 54% compared to last year. Our annual recurring revenue reached 87% of the revenues at €14,500,000 We have So 36% of our revenues, we reinvested back to business by developing further our products. We also moved closer to customers and expanded our addressable market with PrivX Just in time and just enough access technologies. We did it for new customer segments for operational technology for Factories, harbors and airports and marine vessels and MSPs, so outsourcers, SaaS providers and we also are taking care of our installed base By embedding Privax to UKM and Tech Tier Solutions.
We were the first ones, I think, or one of the first ones at least to make a Post Quantum Secure product with AmQX PQC Edition where we are already working with the first customers And we integrate the Deltacom to the company and launched the SSH security communications suite that will be solved through the whole SSH network, also to markets outside the Nordic region. These are the key points that we have done during the Q3. And now I would like to hand over to Niklas to Give us some more detailed numbers.
Thank you, Teemu. Good morning and welcome also on my behalf. My name is Incla Nordstrom. I'm the CFO of SSH. Let's jump into the numbers.
During the Q3, we started seeing pickup in the cybersecurity market as well as demand for SSH services and Solutions. As Teemu mentioned, our revenue grew 54% compared to the comparison period, and we recorded a positive EBITDA as well as operative cash flow for the quarter. Our new license sales also increased. And at the same time, we were able to increase our share of recurring revenue to 87% of total, driven by solid performance of the secure communication suite as well as pre VEX. And this gives us a solid foundation for moving into the 4th and final quarter.
It's worth mentioning here that due to the Deltkorn acquisition and the related purchase price allocation, meaning the allocation of goodwill in our balance sheet, our depreciations have increased from Q2 by approximately €300,000 This is not a cost that would affect cash flow, but it's rather an IFRS type of cost in accounting. Therefore, in the future, I would say that EBITDA is an even more important measure of our operative performance. On the regional side, EMEA grew driven mostly by the secure communications suite performance but also as a result of good pull from PREVEX. U. S.
Returned to a growth path while APAC was down. We have intentionally put focus on our biggest markets, U. S. And EMEA, where we have also been successful. And as a result, we have been able to grow despite the decline of APAC.
We will put focus on reorganizing APAC operations during Q4. One more interesting point to mention here is that while we are now in the go to market deployment base of the e communication suite outside of the Nordics and into other SSH regions, We have already been able to improve SUI's performance under SSH management, reaching over 20% growth for the portfolio in Q3 compared to the comparison period when Deltagon was not yet a part of SSH. On the balance sheet side, I will keep it short but to the point. Our liquidity situation is improving and we ended the quarter with a cash balance of €4,200,000 Furthermore, invoicing in Q3 was higher than during the 2 previous quarter combined, giving us good visibility into a further improving trend. Okay.
Moving on to NQX. For NQX, we received the first More significant customer subscription orders during the quarter amounting to €300,000 These orders consist of mainly test lab environments, which will then be the path to production environment rollouts, which will start during Q4. Progress into deployment phase has been slower than anticipated, and that has had a negative reflection on our revenue generation this year. However, we see that the development is positive for next year. We see that PQC or post quantum cryptography is something that resonates especially well with the security critical customers not only in Finland but also internationally and the race is on here as Teemu briefly mentioned.
The next slide, you can see what NQX basically does. It effectively creates an encrypted and highly secured tunnel within a tunnel between endpoints and it does it in a way that is resistant to quantum computing or threats created by it. NQX doesn't care what goes through it So it can be used for encrypting any kind of traffic. I've previously described it as a stargate between 2 networks. So this kind of solution is very useful, for example, large multinational organizations and Security Critical Customers.
NQX is also a very important test lab for SSH as it's the first platform that we have architected post quantum readiness into. And this work will pave the way for doing the same to other SSH solutions as well, Tektia being the first product to receive this feature, this treatment. Next, I'll give the floor back to Teinu to tell you more about our other recent developments. Teinu, please.
Thank you. One of our key pillars on moving forward for sustainable profitable growth has been the move towards annual recurring revenue. And the present number is maybe, at least for me, So Pete, that's difficult to understand. It's driven by 3 different things where largest one is the Products we received with the DeltaCon acquisition, also Privex with Stellar Development MQX also with huge percent number on growth, but of course, the base number for MQX is so low But all in all, all our future proof products that are still on the significant growth rate By the subscription revenue, which I believe is the right way for a software company to move forward. The other PMIER now strategy has been to become a trusted adviser to our key customers, of which we have about 120 customers that pay us more than €50,000 per year.
And with them, we have started actively to promote professional services as part of our service, Which we used to do in the past, maybe in the last 2 years, less, but it's important for a software To work with the customers and help them to use the products, we will not ever become a professional services business, But our professional services helps our customers to use our products in the best possible way. And that has happened with NQX and PrivX. It already has been happening with the security communications suite Before, so all our products are supported by a meaningful Service portfolio that helps customers to learn, to use and optimize the use of our partners. Brevex is a 0 Trust Privileged access management solution for administrators, power users, 3rd party developers and maintainers. So they will come through a general identity and access management.
And when they need System level access, they will go through PREVEX, which enables them us or the customer actually to audit Who does what when. And the great thing with Prevex is that it takes the cyber safety to the next level. There are no static passwords that people can use. It's like in a hotel, you don't have You have a digital card, which can be nullified when the customer is not anymore Allow to access the room. We have the same logic.
So no static passwords, no static password for users or applications. We also have implemented, based on the customer need, The way to manage who gets to do what, not by person individually, but based on the role they have at the moment in company. And this is really critical for our key customers. 1 of the top customers has 8,000 people, Admins, power users and third party people who come to the system, it would be very difficult to manage them 1 by 1. And that's why the role based automation for managing the system level access is absolutely a key differentiator for Brevex.
And the third point is that since you have it digitally, you can do the access verification, Monitoring who does what in real time to prevent misuse and also to make a log who did what when So that you can do postmortem analysis what happened. If you go to the right side of the picture, you can see that PrivX doesn't only do traditional servers. We help from servers to cloud. We help also to access the applications and especially with the OT environment Devices being automation systems, being routers, All these, you can control the access without the privileged user Having known the password or even doesn't know the password to get access to the device and that can be in real time controlled and cut it if needed. So the preVX is really the gatekeeper For all these different kind of IT systems in your landscape.
What we have done with Brevex, if you go a level deeper, It's the just in time and just enough access technologies done with Hyper scalable architecture, native in cloud, Easy to use. And the pricing model we have implemented is that we enable our customers to start Small and expand, we call it the land and expand sales approach, which Maybe makes our growth slower, but it makes our customers happy, and I think that's a good combination Looking at the growth we have been able to achieve, the OT and MSP initiatives have been accepted very well by our customers, and we are really expanding the Privaxis addressable market with these additions. We also have extended our way to deploy prefects so you can use it In your data room or in an outsourced data room, you can use it in a cloud, you can run it in a container, Like, hybrid Kubernetes environment, you can do it. SaaS deployment means that You can let your customers to use applications like you buy electricity from a wall plug. You just use what you need.
We have been able to break out to Finland because prebacs used to be Earlier, very much Finland centric. We have proven our case here. We have gotten right names. And now we have gotten Several significant new customers in all of our regions. So Trivex is getting global, And I'm really proud of that.
It's a great achievement from the team. We are also bringing in the 0 Trust Technologies 2 other PREVEX products, UKM and TechTier being the first ones. And if we look at the quarter past, It went fast. And I'm really grateful for the team. I think we've done a lot of changes in The team is on board and committed.
Customers are revitalized with the dialogue with us. So we I'm really, really happy with the Q3. And I can see the trend even improving for the End of the year. So for the full year, I see very good outlook, which is in line with the guidance we have earlier given. So our net sales will be increasing this year significantly, And our EBITDA and cash flow from operations will be positive despite the investments We do to the R and D and to the go to market.
So I feel really, really Excited about what we have been able to do and what we will be able to do in the future with follow the same Positive trend, most likely even better than what you have seen this year. So with these words, I would like to open the floor for questions and comments.
Any questions, Albert?
You can also put the questions on the chat.
Hi, it's Atte from Inderes. Could you open up that how much of your growth in Q3 was organic and how much was from the Delticon acquisition?
You can take it in different ways. The Teltecon acquisition was that we used the cash at hand we had at the company. And like ex Prime Minister Tsipila said, let's put the capital in better use. So most of the growth, of course, comes from the acquisition because Deltagon is now our 2nd biggest Product line, 2nd most profitable product line. So it is a huge change for the company, but also All the SSH made good progress.
As you could see, our focus regions, U. S. And Europe did very well. We can discuss where we failed Maybe not being able to have the focus on APAC, which like Nicolas said, we are going to go back with it. So if you look at by product line and region, I think we did very well with the old SSH despite The decline in APAC.
Miklas, would you like to begin?
I can summarize by saying that we grew both organically as well as inorganic.
Okay. And can you open up a little bit more about that big NQX deal that was deliveries were a little bit slow in Q3? You sounded like really optimistic in Q2 about the deliveries and what is taking so long.
I guess big projects take a lot of time. The good thing with MQX is that we have gotten several customers. And the largeframe contract has been slower For reasons behind our control and we are in a good dialogue with the customer, I think We have better visibility, but I think Nicklas should answer this question.
Yeah. So the prospect of that particular agreement has not changed. It's a huge IT project and these kind of projects tend to be difficult to estimate. And that has happened. And now we have the further pain of the global Semiconductor situation and we are fighting for our piece of the puzzle.
But we have been quite successful so far in getting those equipment that we need. And you have to remember that we in this particular product in case we are no longer a software provider, Software you can send over the Internet. But here, we have also a hardware component. So we are a total system for solution provider and this makes it that much more complex. But we are Confident that we will be able to get the supply that we need.
And also, if you look at the outlook for it, I think even that this project has been delayed, the traditional SSH has been growing And the growth percent for M2X for next year will Most likely exceed the current growth percent of preVex. So both of our traditional growth engines And investments in the future, NQX and Prevex, are going to contribute to the growth in 2022.
Okay. And one last question from me. You said that you have signed many new significant pre VEX clients. Can you say anything about Of deal sizes and all basis.
Yes. So, we are focused we have signed A large deal, which I can't say a lot about, but we have had several deals which Represent ARR of 200,000, 250,000. And I'd like to talk about whale salmons and sardines As the size of the fish we want to catch because I'm a fisherman. So we don't want to go for whales because The way we have is a lot of work. So our sweet spot are pre tax deals that are 200,000 €50,000 per year plus professional services, which initially is about the same size as the original deal.
And Our average private deal size has been growing constantly over the last 18 months. So Our I would say that minimum pre tax deal we want to take is €15,000 per year. And the optimal deal size is NOK 200,000 to NOK 250,000 per year.
Okay. Thank you.
There's a question in the chat. Q1 to Q3 operating cash flow was negative €1,500,000 and we still expect whole year operating cash flow to be positive. Could you elaborate what the main drivers for very positive operating cash flow in Q4?
When we do subscription deals, the typical deal model is that the customer pays The full year at the signing of the order and then we will recognize that as a revenue by month. So that means that assuming we would get significant deals during the end of the year, being either new subscription or being renewables, The cash will come and the revenue will be recognized later, and that's based on our business model. But maybe Niklas can Splendid, Peter?
Yes. I mentioned already in my part that our Q3 invoicing was better than the 2 previous quarters combined. So and that invoicing is heavily weighted towards the end of the quarter. So There is that. That gives us a good visibility into Q4, strong cash flow.
Also Our bigger renewals tend to be phased towards the end of the year. So that's another driver For that and then we'll, of course, have the pipeline that makes us confident that we will have a strong Q, Q4?
I actually like to talk now internally that we are on a super quarter now.
So these are the main drivers.
Any other questions? While you think about those questions, there's another one here in the chat. Can you elaborate a bit on SSH competitive landscape
and what challenges we expect when expanding internationally? Well, I think the good thing for us is that the Competition is consolidating. Tagotik and Centrify are in the middle of integration With competing products, customers are worried about which product will win, how are they going to do it. CyberArk is strong with their installed base, but they have old products Which are difficult to implement. So we are easy to implement.
We are land and expand. We are easy to use. And compared to what we can offer, especially with PrivX and NQX, both being a little bit of Products that nobody has ever done before for an existing use case but done with the new technology in an innovative way. I think we are a typical Nordic engineering company. Our products are the best.
Our challenge is how to get them to the market. And that's a big part of the investment we have done On top of the R and D investment that we want to take the product to the market, so creating a product costs 1 and taking it to market costs 5 to 10 times more. And prefects, we have been breaking out of Finland successfully over the last year. In QX, we have been focusing on Finland and we will be breaking out the market as well. And why we win is because We are nice guys and the product is good.
It's a new technology. It's future proof and it's coming from a stable company who knows what we are doing. Maybe, Niklas, you could say some words about NQX expanding internationally.
Well, right now the focus is 100% domestic market. So we need to establish our ground here. And after that, we will be able to then Use those learnings. We will then have the infrastructure set up, support all kinds of logistics, Everything like this. And only after that, when we are successfully running the solution and the service in Finland, then we can Look abroad.
But as I mentioned, the PQC, the technology is very interesting. It's resonating Not only in Finland, but in a number of other discussions that we have ongoing also internationally.
And the PQC will come to SSH other products as well. So that's kind of where we leverage the investment In the Enco X environment, the post quantum proven products will be also Starting with Tecktia and then other following. Maybe the other question on breaking out of Finland is Delta Group.
Teleta, one more thing that I would like to mention regarding NQXO. So right now, the customer base is security critical customers. They need high security certified products, you know. And Certification means that you certify the software together with the hardware.
But
in the end, NQX So it's hardware agnostic. It doesn't care what hardware it runs on. So if we're talking about international Going abroad, in the end, it's a software that can be installed on a number of different devices. But as I said, the focus is now on
the domestic market. And on Deltakan, In Sweden and Finland, we have a good base. Nordic is growing. How do you see Deltagon breaking out of Nordic,
so right now, we have been very much focused on building the infrastructure that is necessary for that product to be able to expand to other SSH regions. And it sounds like Why don't you just sell it to U. S? But to be able to sell it to U. S, you need to have the support infrastructure, you need to have on-site sort of support capabilities 20 fourseven.
You need to have information customized to that country in you. So this all takes time. Now we are in a good phase. We have done the groundwork, the legwork that is necessary. We have combined our support teams.
We have 20 fourseven capabilities. And now we are actually during Q4, we are in a position where we are finally able to start contacting SSH existing customers, so large banks, insurance companies, All of these kind of operators and we are able to sell the product.
And I think there are 2 elements that are key. One is the resources that are there, people are trained. We need also new people. The other one is systems. So we are merging we acquired Deltacom half a year ago, roughly.
And now we are merging the support customer facing systems, support systems CRM systems. And in order to really drive the expansion, we first have to have the people ready, we have to have the systems ready. So those are the elements that will help us to grow in 2022. And the things we've already done, They will help us to make the super quarter Q4.
Any other questions from the audience?
Hi, this is Forbes from Redeye. Do you hear me fine?
Yes, go ahead.
Great. Thank you. Yes, so I noticed we launched the availability of the Commercial NQX edition. Would you say that how does that product Compared to the large NQX Lighthouse agreement you have, would you say it is a lot more standardized than That product and yes. And how do you expect to go to market with it?
Well, the what Niklas already said, The large contract we have is hardware and software certified as combined. The PQC addition is software only. So the go to market is more traditional NQX. It's also important from a point of view that the B2C algorithms are developing. And We will sell the P2C version first to customers who want to test it.
So it also will go first to lab environments. It also is a key component for the large freight contract as an upgrade opportunity When they might later want to go and upgrade their solution with the PQC version. So It has two dimensions to grow, maybe Nicholas? Yeah. I mean,
the ability to merge or Transition towards PQC capable software during The term of the agreement has been a very important topic in this particular contract negotiation as well. So It by no means is just a conceptual thing to in relation to this contract as well.
And it's an upsell opportunity for us.
Yes. So, on the being an upsell opportunity, do you see that your Sustained customers, some of your larger financial institutions, for instance, would benefit from having this Security product in their portfolio.
Absolutely. And not only NQX as a product, but the post Quantum migration that you can take your existing Tech Tier product and upgrade it to be future proof It's a thing that really excites our customers and it sounds good. Actually, Niklas was talking to one of our Key customers not too long ago. And he was asking from them that if the Aviscount quantum computers, are they a risk for you? Klusz, can you expand what they said?
Every customer that would speak to, they say the same thing. They don't know when it's Coming, if it's coming, if the technology will ever be a relevant Threat to current cryptographic. But every customer, especially the big ones, are already preparing and they need to do that well in
advance. And because the challenge is that the threat Actors can already today record your encrypted messages. And if that data Has the value years from now, they can crack it later.
We know that, for example, NSA, American, what is it?
Security authority.
Yes, security authority is constantly recording Internet traffic and key exchange events And storing it into their data centers. And one day, they will have a computer that is strong enough, powerful enough and they will be able to read Every secret that's transmitted over the Internet. And as to the relevance of the PQC and And customers preparing, we have actually sold the first options to update the PQC. And this was in Asia, wasn't
Yes, it was mentioned. And it is really something the P2C program that we are working with Business Finland And other actors, VTT and other actors, it is getting a lot of positive attention and people are coming to us and Talking about it, so we see that that's one of the reasons why also TechTeac can Defense its position against open SSH because it's going to be passwordless with 0 Trust is going to be quantum proof. So all in all, Tech T has a future proof for another 20 years.
Great. And a final question then. Yeah. You might have said this already, but I noticed that license sales are still on Historically low levels, similar to that in the pandemic. And you had quite a positive outlook after The Q2 report and commentary.
So we expect to improve on this In the nearest home, do you think?
Well, I think the License sales will remain to be important part of the portfolio. It is still overall Boeing, it's a lot based on UKM and TechTeer and Asia. So in Asia, people still buy perpetual licensees rather than subscription. So I believe that license sales will be a significant part of our portfolio In the future as well, but the main growth will come from the subscription business.
All right. Well, thank you and well done on a solid quarter.
Thanks, folks.
There's one question that I kind of missed, sorry, in the chat. The first question actually, I'm very sorry about that. And this is for Niklas, I would say. How much corrected ARR was in the Q2 situation.
Right. So going back to that, so When we made the acquisition, we entered into a transitional service agreement where accounting was done outside of SSH and we just received these transfer files. And during the integration process when we were starting to take over this function, we discovered that there was Revenue recognized for P6, so June, which belonged to earlier periods. And as you know, the ARR KPIs are a result of a multiplication of the last month's revenue of the period multiplied by 12. So even a small increase in the monthly revenue distorts the annualized figure to the next end.
We don't have The detailed information. We know that the revenue for year to date is correct. So we are not missing any revenue or anything like that. But the monthly revenue that was recognized was somewhat overstated causing the subscription ARR figure to be too high. But the fact of the matter is that POS subscription revenue has grown from June.
And therefore, The number that we reported in P9 is correct. So therefore, the number that we reported in P6 should be lower than that.
Any other questions? Chat is now empty.
So if there are no further Questions or comments? I would like to reiterate that we are really proud of the 3rd quarter. We're proud of the team. I think the team is in place. We are in very good terms With existing projects that we are running moving forward, so we really see that We've done, in our opinion, well.
Like Inrush said in its deep dive, turnaround is coming. It took some time. I think this is now the first concrete evidence that the turnaround is turning. And we expect the positive development to accelerate, and we are working hard with it with our customers and partners to make it happen. And we hope for your trust and support as well Because we are going to make it happen.
So, Christoph, would you like to Cloud's decision?
Sure. Thank you. Thank you, presenters, Niklas Termel, and thank you to the audience. The recording and the presentation will be uploaded to our website later today. So if you want to revisit that, it
will be down there later.
Thank you very much for your participation and looking forward to our next call. Have a very good day. Thank you. Bye bye.