Strong Growth Continues, Improving Profitability
Espoo, Finland - November 9, 2000
For the 3rd quarter of 2000, F-Secure reported revenues of 10.9
million euros. This represents an increase of 85% from 5.9
million in the third quarter of 1999, and an increase of 11%
over the previous quarter. Revenues for the first nine months
of 2000 were 28.7 million, an increase of 86% from the
previous year.
As expected, revenues grew faster than costs leading to an
improved operating result compared to the previous quarter.
Operating loss was 0.8 million euros with the impact of stock
option related social costs (-3.7 million in the previous
quarter). Without the impact of the options the operating
result was 2.4 million negative (-3.4 million). For the first
nine months of 2000, operating result was -9.7 million euros
(-2.1m). In providing for the social security charges, the
option programs have been valued at the market price
prevailing on September 30th.
The Group continued building its leadership in wireless
security, extended its presence in the Managed Security
Services space through the formation of a new subsidiary,
continued strong growth in developing new customers and
partnerships, and received a positive ruling in its
arbitration process with SSH Communications Security.
Much of the resources for new business areas were moved
internally from other areas. Total fixed expenses - excluding
social expenses for stock options - grew by 1 % versus revenue
growth of 11% over the previous quarter.
In addition to the recognized revenues, the Group has 10.2
million euros of deferred revenues on its balance sheet. The
deferred revenues are a result of existing support contracts
where the actual support activity will take place in the
months ahead.
The geographical breakdown of revenues for the first nine
months of 2000 (compared to the first nine months of 1999) was
as follows: North America 44% (33%), Nordic Countries 27%
(36%), Rest of Europe 20% (20%), and Rest of the World 9 %
(11%). Anti-virus products represented 47% of the revenues,
encryption 46%, and other products 7%.
Key Events in Q3
New Customers and Partnerships
During the quarter, the Group continued to reinforce its
presence in its key markets and attain new customers. The
number of certified F-Secure Solution Provider partners rose
to 19 in key European countries (UK, France, Germany). Key
European customer deals included Shell, Fujitsu Siemens
Computers and the German insurance company AOK. In the US, the
Group signed major end customer contracts with among others
Akamai, IRS, PNC Bank and Intel. New announced Security as a
Service partnerships included 77 Degrees West and WebCentral
in the US, and MessageLabs in the UK. F-Secure Online
Solutions formed a two-way relationship with KPNQwest.
F-Secure Online Solutions
As a result of strong market demand for security services, the
Group announced the creation of a wholly owned subsidiary, F
Secure Online Solutions, to focus on managed global security
services sold to and through Service Providers. F-Secure
Online Solutions will help to fill the knowledge gap between
demanding customer environments and service providers,
enabling much faster rollout and time-to-market for new
security services.
Wireless Leadership
During Q3 the Group launched two new products for the wireless
platforms, F-Secure Anti-Virus for EPOC and F-Secure Anti-
Virus for Palm. Both products were the first anti-virus
products in the world on these mobile platforms of the future.
The SSH Arbitration
The Group received a positive ruling from the license dispute
with SSH Communications Security in September. The arbitrator
decreed that F-Secures interpretation of royalty payments had
been correct and that F-Secure will continue to have exclusive
sales and marketing rights for the product as originally
stated in the contract between the parties. The Arbitrator
required SSH Communications Security return EUR 0.3 million of
overpaid royalties to F-Secure. These returns are booked to Q3
profit and loss statement.
Personnel and Organization
The Groups personnel grew to 415 (from 405 at the end of Q2,
and 251 a year ago) of which the personnel of F-Secure Online
Solutions accounted for 5 employees
Financing
The Groups financial position remained strong during the
quarter. The Groups equity ratio on September 30, 2000, was
82 % (compared to 59 % at the end of Q3 1999 and 76% at the
end of 1999). Financial income for the first nine months
was 0.8 m euros (1.0). The liquid assets of the Group on
September 30, 2000 were 40.2m euros.
Investments
For the first nine months of 2000 the Groups investments were
2.5 m euros (2.0). The investments were mainly in IT hardware
and software.
Shares, shareholders' equity, preferred capital note and
option programs
On April 12, the Annual General Meeting (AGM) accepted the
Board's proposal to authorize the Board for a period of one
year from the general meeting to decide on an increase of the
share capital by one or more new issues of shares or by
issuing one or more convertible bonds, option loans or option
rights. The share capital of the company may, as a result of
such share issues, option loans, option rights or convertible
bonds, be increased at most by 105,000 euros. New shares may
be issued up to maximum of 10,500,000. The authorization
remains totally unused.
During the first ten months of 2000, including October, a
total of 6,015,064 new F-Secure Corporation shares were
entered into the Trade Register. 2,903,599 of those were
subscribed with the warrants attached to the F-Secure Option
Programs, 2,404,000 by the conversion of the F-Secure
Corporation 1999 Preferred Capital Note and 707,465 were a
result of a direct issue to the selling shareholders of Modera
Point. The entire Preferred Capital Note has been converted to
the shares. The number of shares is now 140,039,439. The
number of shares fully diluted would be 163,507,265, including
all stock options programs.
Key Events in Early Q4
In early Q4 the Group signed a Security as a Service
partnership with the Swiss GSM operator diAx (for the
PersonalExpress solution) for daily anti-virus updates with an
innovative billing scheme to the customers of diAx. The Group
also started a Security as a Service partnership with Concert,
a joint venture between AT&T and British Telecom, to provide F-
Secures solutions as one part of the Concert IP Secure
concept.
A systems integration deal with Sprint Enterprise Network
Services (Sprint SENS) was announced to jointly deliver a
comprehensive solution to help their healthcare customers
comply with the US Health Insurance Portability and
Accountability Act (HIPAA).
A major new Anti-Virus deal was signed with Tesco in the UK,
and a large Anti-Virus upgrade with BASF in Germany.
In October, the Group announced its first partner to integrate
their software on the F-Secure Policy Manager platform. Finjan
Software Incorporated will integrate its SurfinShield
proactive behaviour blocking software on F-Secures leading
security management platform. Proactive, application-level
protection is becoming critical in fighting the increasingly
intelligent network worms and viruses of today.
Future Outlook
The Group expects to continue to grow faster than the security
software market and remains confident about its long-term
goals.
The near-term outlook is also promising and the Group expects
Q4 revenues to exceed Q3. While the quarter-on-quarter growth
of fixed costs was very low in Q3, the Group expects fixed
costs to grow faster in Q4. Finally it expects operating
result (not including option related social costs) to continue
to improve in Q4.
The management believes that the launching of F-Secure Online
Solutions will speed up Security as a Service revenue
generation starting in the first quarter 2001. Overall growth
in 2001 is expected to be above 80% year-on-year.
Financial Reporting in 2001
The full year 2000 financial results will be announced on
February 21st, 2001. The interim reports for 2001 will be
announced as follows: May 8th (Q1), August 7th (Q2) and
October 30th (Q3). On each of these days the Stock Exchange
bulletin will be sent at 9 am Finnish Time, a press and
analyst conference will be arranged at 11 am Finnish Time in
Helsinki, and an international conference call will be
arranged in the afternoon, details to be provided on the
Groups web site.
* Total operating expenses 1-9/2000 include social charges
amounting to 0.6 million euros relating to employees' realised
taxable income resulting from the Company's option program and
also reversal of the provision for the corresponding future
expenses of 0.8 million euros. Total net effect of social
charges relating to option programs is 0.2 million euros
positive for the period 1-9/2000. Effect for the period 7-
9/2000 is 1.6 million euros positive of which Sales and
marketing expenses account for 1.1 million euros, Research and
development 0.4 million euros and administration 0.1 million
euros of the total amount.
** The provision for the social security costs of U.S.
options, which are included this year for the first time, have
been recorded as an extraordinary item due to a change in
accounting principles.
x) Not given, as the effect of dilution would improve the
figure
* Includes the lease responsibility for the new facilities at
Helsinki High Tech Center
F-Secure Corporation
Risto Siilasmaa
Additional information:
President, CEO
F-Secure Corporation
Risto Siilasmaa, President and CEO tel.358 9 2520 5510
Jukka Kotovirta, Director tel.358 9 2520 5542