SSH COMMUNICATIONS SECURITY CORPORATION FINANCIAL STATEMENT RELEASE, JANUARY 1 – JUNE 30, 2015

Helsinki, 2015-07-23 08:00 CEST (GLOBE NEWSWIRE) -- SSH COMMUNICATIONS SECURITY CORPORATION FINANCIAL STATEMENT RELEASE, JANUARY 1 – JUNE 30, 2015

April–June 2015: 24.0 % net sales growth, losses due to high share of lower margin service business and investments to future growth. Cash flow negative, cash position remained strong.

• Net sales totaled EUR 4.2 million, up by 24.0 % year on year (EUR 3.4 million in 4–6/2014).
• Operating loss was EUR -1.8 million (EUR -0.6 million). Loss was EUR -1.6 million (EUR -0.6 million).
• Earnings per share EUR -0.05 (EUR -0.02).

January–June 2015: 75.2 % net sales growth, losses due to high share of lower margin service business and delays in closing software deals and investments to future growth. Cash flow from operations slightly negative and cash position strengthened strongly due to convertible capital securities.

• Net sales totaled EUR 11.0 million, up by 75.2 % year on year (EUR 6.3 million in 1–6/2014).
• Operating loss was EUR -2.1 million (EUR -1.5 million). Loss was EUR -2.0 million (EUR -1.5 million)
• Earnings per share EUR -0.08 (EUR -0.06).

Equity ratio remained good 64.5 % (68.8 %) and liquid assets increased to EUR 11.3 million (EUR 4.6 million).

In 2015, SSH Communications Security estimates its revenue to grow significantly from 2014. 

CEO'S REVIEW

Valued customers, partners, coworkers, and shareholders,

During the second quarter of 2015 we placed particular focus on further developing our technology partnerships in order to accelerate channel building for some of our key products. I will share a few milestones accomplished during the quarter:

• SSH is now one of the first companies offering cloud based Personal Access Management (PAM) as an Advanced Metering Infrastructure (AMI) on Amazon Web Services (AWS).
• McAfee certification against World Wide Web interface and Data Loss Prevention (DLP) enables customers to take preventive action against malware embedded into encrypted file transfers.
• RSA Certification against RSA Analytics permits customers to offload encrypted Secure Sockets Layer (SSL) and Secure Shell (SSH) sessions for further inspection and alerting.
• Through Virtual Computing Environment Company’s (VCE) Technical Alliance Program (TAP) SSH Communications Security is now in the process of certifying CryptoAuditor against Vblock. This will permit customers to audit, control and monitor encrypted Secure Shell (SSH), Remote Desktop Protocol (RDP) and Secure Sockets Layer (SSL) access to the Vblock layers (application, networking and storage).

The quarter also saw SSH closing several important contracts for CryptoAuditor with major customers in the Telco, Entertainment, Energy, Utilities, Education and Financial sector. We continued our deployment work at major financial institutions with our Universal Key Manager and closed important new contracts in that sector too. 

Our heightened emphasis on solidifying our immaterial rights portfolio management has led to several ongoing negotiations with key global players and we will continue to pursue this path during the rest of the year. Our government specific offering has gained further ground as well, broadening our view of the market and leading to several significant contacts and ongoing negotiations.

We have continued our intense investment into product development to better respond to the market’s needs and to take advantage of our customers’ continuously increasing demands on trusted access within their working environments. 

Increased investment into marketing, sales and product development, together with a non-optimal sales mix, elongated sales cycles, especially in the Key Management and Government segments, and the costs of establishing new sales and service channels led to unsatisfactory profitability in the first half of the year.

We are committed to reshaping our organization to better respond to the market and especially to broaden our focus into recognizing different customer segments and fulfilling their needs. 

Harri Koponen
CEO

NET SALES

Consolidated net sales for April–June totaled EUR 4.2 million (EUR 3.4 million), up by 24.0 %, year on year.

Consolidated net sales for January–June totaled EUR 11.0 million (EUR 6.3 million), up by 75.2 %, year on year. Net sales grew significantly in Americas and EMEA, and by all revenue types. Share of service business was exceptionally high.

The Americas, the Europe, Middle East and Africa (EMEA) market area and the Asia Pacific region accounted for 64.1 % (55.8 %), 28.8 % (30.5 %) and 7.1 % (13.7 %) of reported net sales, respectively.

The majority of company´s invoicing is U.S. dollar based. With comparable exchange rates, net sales growth would have been 57.3 % compared with 2014 corresponding period.

RESULTS AND EXPENSES

Operating loss for April–June was EUR -1.8 million (EUR -0.6 million), with loss totaling EUR -1.6 million (EUR -0.6 million).

Operating loss for January–June was -2.1 million (EUR -1.5 million), with loss totaling EUR -2.0 million (EUR -1.5 million). Profitability was influenced by high share of service sales, delays in software license deals and continued investments to sales, marketing and product development.

Sales, marketing and customer support expenses for the April–June reporting period amounted EUR -2.3 million (EUR -2.0 million), while research and development expenses totaled EUR -1.5 million (EUR -1.1 million) and administrative expenses EUR -0.4 million (EUR -0.2 million). 

Sales, marketing and customer support expenses for the January–June reporting period amounted EUR -4.4 million (EUR -3.7 million), while research and development expenses totaled EUR -2.8 million (EUR -2.0 million) and administrative expenses EUR -0.8 million (EUR -0.7 million).  
 

BALANCE SHEET AND FINANCIAL POSITION

The financial position of SSH Communications Security remained in good level during the reporting period. The consolidated balance sheet total on June 30, 2015 stood at EUR 24.2 million (June 30, 2014 EUR 12.0 million; December 31, 2014 EUR 17.5 million), of which liquid assets accounted for EUR 11.3 million (June 30, 2014 EUR 4.6 million; December 31, 2014 EUR 6.1 million), or 46.8 % of the balance sheet total. On June 30, 2015, gearing, or the ratio of net liabilities to shareholders’ equity, was -86.2 % (June 30, 2014 -77.4 %; December 31, 2014 -77.3 %) and the equity ratio stood at 64.5 % (June 30, 2013 68.8 %; December 31, 2014 63.3 %). The capital securities of EUR 4 million issued in December 2012 and interests were paid in April. During March, convertible capital securities of EUR 12.0 million were issued.

The reported gross capital expenditure for the period totalled EUR 1.2 million (EUR 0.9 million). The reported financial income and expenses consisted mainly of interest on deposits and exchange rate gains or losses. Financial income and expenses totalled EUR 0.2 million (EUR 0.0 million).

During January–June, SSH Communications Security reported a negative cash flow of EUR -0.2 million (EUR -0.4 million) from business operations, and investments showed a negative cash flow of EUR -1.2 million (EUR -0.9 million). Cash flow from financing totaled EUR 6.9 million (EUR -0.0 million). Total cash flow from operations, investments and financing was positive EUR 5.5 million (EUR -1.3 million).

Fair value of short term investment is determined from quoted prices available from markets. Financial investment belongs to level 1 according to IFRS 7. Market value of financial investment was EUR 0.0 million (EUR 2.0 million) and nominal value EUR 0.0 million (EUR 2.0 million).
 

RESEARCH AND DEVELOPMENT

Research and development expenses for April–June totaled EUR -1.5 million (EUR -1.1 million), the equivalent of 36.5 percent of net sales (32.1 percent). During April–June, the company has capitalized R&D costs EUR 0.6 million (EUR 0.4 million).

Research and development expenses for January–June totaled EUR -2.8 million (EUR -2.0 million), the equivalent of 25.3 percent of net sales (31.7 percent). In the reporting period, R&D cost capitalizations amounted to EUR 1.0 million (EUR 0.8 million).
 

HUMAN RESOURCES AND ORGANIZATION

At the end of June, the Group had 111 employees on its payroll. The amount of employees increased by 12 persons from the previous year (+12 %) and by 16 persons from the previous quarter. 

At the end of the period, 37.8 % of the employees worked in sales, marketing and customer services, 50.5 % in R&D, and 11.7 % in corporate administration.
 

BOARD AND AUDITORS

At the Annual General Meeting, March 25, 2015, Jukka Manner was elected and Päivi Hautamäki, Timo Syrjälä and Tatu Ylönen were re-elected to directors of the company. Timo Syrjälä was elected as the Chairman of the Board of Directors in the board´s organizing meeting.

The Authorized Public Accountants KPMG Oy Ab was re-elected as the auditor of the company with Kirsi Jantunen, KHT, as the accountant with the main responsibility.  
 

SHARES, SHAREHOLDING AND CHANGES IN GROUP STRUCTURE 

The reported trading volume of SSH Communications Security shares totaled 5,507,889 shares (valued at EUR 27,450,402). The highest quotation was EUR 6.32 and the lowest EUR 2.52. The trade-weighted average share price for the period was EUR 4.98 and the share closed at EUR 4.07 (June 30, 2015). 

Company’s principal owner Tatu Ylönen holds directly and through his company, Clausal Computing Oy, 56.9 % of the company's shares, Juha Mikkonen holds directly and through his company under his control, Assetman Oy, 10.0 % and Timo Syrjälä holds directly or through his companies 5.0%. More information about the shareholding can be obtained from the company´s web site.

No dividend or return of capital has been distributed during the reporting period.

SHARE CAPITAL AND BOARD AUTHORIZATIONS

The company’s registered share capital on June 30, 2015 was EUR 929,469.99, consisting of 30,982,333 shares. 

The Annual General Meeting approved the Board of Directors’ proposal to authorize the Board of Directors to decide upon the issuing of a maximum of 4,000,000 shares as a share issue against payment or by giving stock options or other special rights entitling to shares, in accordance with Chapter 10 Section 1 of the Finnish Limited Liability Companies Act, either according to the shareholders’ pre-emptive right to share subscription or deviating from this right, in one or more tranches. Based on the authorization, it can be either issuing of new shares or transfer of own shares which the company possibly has in its possession. Based on the authorization, the Board of Directors shall have the same rights as the Annual General Meeting to decide upon the issuing of shares against payment and special rights (including stock options) in accordance with

Chapter 10 Section 1 of the Finnish Limited Liability Companies Act. Thereby, the authorization to be given to the Board of Directors includes, inter alia, the right to deviate from the shareholders’ pre-emptive rights with directed issues providing that the company has a weighty financial reason for the deviation in respect of the share issue against payment. 

Furthermore, the authorization includes the Board of Directors’ right to decide upon who are entitled to the shares and/or stock options or special rights in accordance with Chapter 10 Section 1 of the Finnish Limited Liability Companies Act as well as upon the related compensation, subscription and payment periods and upon the registering of the subscription price into the share capital or invested non-restricted equity fund within the limits of the Finnish Limited Liability Companies Act. 

The authorization will be valid until the next Annual General Meeting, but will however expire at the latest on June 30th 2016.

The Annual General Meeting approved the Board of Directors’ proposal to authorize the Board of Directors to decide upon the acquiring of a maximum of 2,000,000 own shares of the company with assets belonging to the company’s non-restricted equity. This amount corresponds approximately to 6.5 % of all the shares of the company. The shares can also be acquired otherwise than in proportion to the holdings of the existing shareholders (targeted repurchase). The maximum compensation to be paid for the acquired shares shall be the market price at the time of purchase, which is determined in the public trading. 

The authorization for the acquiring of the company’s own shares will be used, inter alia, to strengthen the company's capital structure, to finance and realize corporate acquisitions and other arrangements, to realize the share-based incentive programs of the company or otherwise to be kept by the company, to be transferred for other purposes or to be cancelled. The acquisition of shares reduces the company’s distributable non-restricted equity.

Decision concerning the acquiring of own shares cannot be made so that the combined amount of the own shares which are in the possession of, or held as pledges by, the company or its subsidiaries exceeds one-tenth of all shares. The Board of Directors shall decide upon all other matters related to the acquisition of shares. 

The authorization will be valid until the next Annual General Meeting, but will however expire at the latest on June 30th 2016.

RISKS AND UNCERTAINTIES

Largest risks that might impact the profitability of the company have remained by and large the same than in previous reporting period and are listed below. Other risks, which are currently either unknown or considered immaterial to SSH Communications Security may, however, become material in the future. 

Largest risks:

- continuing uncertainty of the macroeconomic environment
- delays on product development and closing new business
- competitiveness of the product portfolio including intellectual property (IPR)
- litigation, especially in U.S. market
- competitive dynamics in the industry
- ability of the organization to scale up operations with the growth
- large portion of the company revenue is invoiced in USD currency so possible large fluctuation in USD currency rates during 2015 could have unpredictable effects for profitability that are at the time difficult to estimate. Currently USD currency position is not hedged, and company decides hedging of USD based contracts case by case.

Utilization of the company´s patent portfolio may have significant positive and/or negative impacts.

Principles and organization of risk management of SSH Communications Security can be read from company´s webpage: www.ssh.com.

FUTURE OUTLOOK

In 2015, SSH Communications Security estimates its revenue to grow significantly from 2014.

RELATED PARTY TRANSACTIONS

Clausal Computing Oy, a fully owned company of SSH Communications Security’s Chief Innovation Officer Tatu Ylönen, has delivered the company mainly R&D services valued in total EUR 0.2 million during January–June 2015. Tatu Ylönen subscribed EUR 0.5 million of the hybrid capital securities issued by the company on March 30th. The interests and capital securities of EUR 4 million issued in December 2012 and subscribed by Tatu Ylönen, were paid in April. During the reporting period, there have not been any other significant transactions with related parties.
 

EVENTS AFTER THE BALANCE SHEET DATE

As announced on July 9, 2015, a major global technology company has selected SSH Communications Security’s Universal SSH Key Manager for centralized key management and access control for its business critical infrastructure.   As announced on July 22, 2015, SSH Communications Security has established its presence in Tokyo for Japanese markets. The SSH Communications Security´s management is not aware of any other transactions that happened after the reporting period.
 

REPORTING

This financial statement release is prepared according to IAS 34. Financial statement release follows the same principles and standards as the previous financial statement release.  Additionally the effective changes in IAS/IFRS standards during the reporting period have been adopted. These changes have no material impact on the interim report. The information presented in this interim report has not been audited.

SSH Communications has redefined sales reporting by operations. New reporting is Software (previous license sales excluding monthly subscription fees), Professional services & other (previous consulting & other) and Recurring revenue (previous maintenance and monthly subscription fees).  The impact for comparison figures of 2014 and first quarter 2015 interim report is insignificant.

SSH Communications Security has changed the operational mode into global operational mode and ceased to report regional segments during 2015.

TABLES

* cash at period end/start does not include investments other than mutual funds of short term interest, thus investment of 2.0 million EUR is excluded from cash at period end in corresponding reporting period.

Calculation for key figures and ratios are presented in 2014 financial statement and annual report. There have not been changes in calculation rules after that.

* earnings per share is impacted by unpaid interest of hybrid capital securities

DISCLAIMER

The content in this report is provided by SSH Communications Security  and its third party content providers for your personal information only. And does not constitute an offer or invitation to purchase any securities. Nor does it provide any form of advice (investment. tax. legal) amounting to investment advice. Or make any recommendations regarding particular investments or products. SSH Communications Security does not provide investment advice or recommendations to buy or sell its shares or the shares of others. If you are interested in investing in SSH Communications Security, please contact your financial adviser for further details and information. Past performance of SSH Communications Security  shares is not indicative of future results. EXCEPT AS PROVIDED BY APPLICABLE COMPULSORY LAW SSH COMMUNICATIONS SECURITY EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESSED OR IMPLIED. AS TO THE AVAILABILITY, ACCURACY OR RELIABILITY OF ANY OF THE CONTENT PROVIDED, OR AS TO THE FITNESS OF THE INFORMATION FOR ANY PURPOSE. 

SSH Communications Security will release its next interim report for the period January 1 – September 30, 2015 on October 22nd, 2015.

Helsinki, July 23th, 2015

SSH COMMUNICATIONS SECURITY 

Board of Directors

Harri Koponen
CEO

For further information, please contact:
Harri Koponen, CEO, tel. +358 20 500 7000
Jyrki Lalla, CFO, tel. +358 45 340 4641

Distribution:
NASDAQ OMX Helsinki Ltd.
Major media
www.SSH.com