SSH COMMUNICATIONS SECURITY CORPORATION INTERIM REPORT RELEASE, JANUARY 1 – SEPTEMBER 30, 2015

Helsinki, Finland, 2015-10-22 08:00 CEST (GLOBE NEWSWIRE) -- SSH COMMUNICATIONS SECURITY CORPORATION    INTERIM REPORT RELEASE    October 22, 2015 AT 9:00 A.M


SSH COMMUNICATIONS SECURITY CORPORATION INTERIM REPORT RELEASE, JANUARY 1 – SEPTEMBER 30, 2015


July–September 2015: +12.8 % net sales growth, losses due to delays in closing software deals and continued investments to future growth. Cash flow negative, cash position remained strong.
 

• Net sales totaled EUR 3.6 million, up by 12.8 % year on year (EUR 3.2 million in 7–9/2014).
• Operating loss was EUR -1.0 million (EUR -0.5 million in 7–9/2014). Loss was EUR -1.0 million (EUR -0.4 million).
• Earnings per share EUR -0.04 (EUR -0.02).

January–September 2015: +54.2 % net sales growth, losses due to high share of lower margin service business, delays in closing software deals and investments to future growth. Cash flow from operations negative but cash position strengthened strongly due to convertible capital securities.
 

• Net sales totaled EUR 14.6 million, up by 54.2 % year on year (EUR 9.5 million in 1–9/2014).
• Operating loss was EUR -3.1 million (EUR -2.0 million in 1–9/2014) including EUR 0.0 of non-recurring costs (EUR 0.0 million). Loss was EUR -3.0 million (EUR -2.0 million)
• Earnings per share EUR -0.12 (EUR -0.07).

Equity ratio remained good 67.4 % (65.9 %) and liquid assets increased to EUR 9.4 million (EUR 3.4 million).

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

CEO'S REVIEW

Valued customers, partners, coworkers and shareholders,

Although the financial results of Q3 2015 leave space for improvement, I see a clear indication of development and positive momentum in the actual events of the period. While our sales figures have not accelerated at the expected rate, the mechanics and metrics being adopted are making our work easier to forecast and evaluate. We are building a longer perspective on predictability and therefore better assessment and accountability for our operations. We will continue to invest and broaden our product portfolio.

The third quarter of 2015 was an important period in strengthening our strategic intent within the company and in the market. We have emphasized the growing importance of focusing on protecting your most critical information. Monitoring and controlling privileged access is at the center of this development and SSH Communications Security is well placed to provide solid solutions which have no adverse affect on the seamless flow of information and business in general. We have placed focus on our own personnel’s capabilities of serving customers’ needs in this area and the importance of each and every individual understanding and complementing the big picture through their own actions.

Q3 saw several major customers going live with our products as well as numerous proofs of concept in key industries in our major markets. Our long term commitment to raising awareness and improving vigilance regarding risks and compliance issues of SSH key management and privileged access in general has brought forth success.

We were also highly successful in consolidating the knowhow and capabilities within the company. Ed Jackowiak brought his wealth of experience and knowledge in the identity management space to assume control of our US sales operations.  In addition to his proficiency in sales and operations, during his tenure with several major cyber security organizations Ed has helped create strategic partnerships with industry leaders as well as pioneer work in the mobile and cloud applications space.

Ed is joined in our US office by Fouad Khalid, who has assumed responsibility for directing SSH Communications Security’s global footprint in compliance issues. Fouad’s focus is on raising our visibility and awareness within the compliance community as well as educating and providing training, tools and collateral for both our customers as well as our own personnel on the demands and opportunities compliance brings in its path.  We also strengthened our newly established presence in Japan by hiring Hajime Ishii, a twenty year veteran in general management, business development, sales and marketing within the Japanese IT-industry, to run our office in Tokyo.

The 3rd quarter brought along continued success in the financial institutions sector with both major license extensions as well as new implementations into production of our Universal SSH Key Manager. While our traditional market continues to flourish, our contract with Rally Health, a US based health services provider, was our first step in utilizing Amazon Web Services (AWS) as a sales channel for our products. The UKM deal also represents our first major venture into the health care sector.

Early results are vindicating our entry into the cloud/virtualization space with CryptoAuditor leading the charge. Certification of CryptoAuditor in partnership with VCE into the VBlock  system as well as a strong presence in the AWS Marketplace provide our products with a big footprint in the rising market.

We believe our continued commitment to gaining a leadership position in the growing privileged access management market within the cloud/virtualization field will pay increasing dividends in the near future. We are intensifying our initiative to serve companies in securing their migration to cloud based services. Cloud computation and virtualization open new opportunities in the privileged access domain and we believe we are in a unique position to take advantage of them. Our focus on monitoring and controlling the growing role of third party access will serve as a key catalyst in this future growth.

While our financial results reflect the emphasis on investment in our capabilities and development, the third quarter of 2015 has given us further confidence in our chosen roadmap and we are well placed for locating and taking advantage of opportunities as they arise.

Harri Koponen
CEO


NET SALES

Consolidated net sales for July–September totaled EUR 3.6 million (EUR 3.2 million), up by 12.8 %, year on year.

Consolidated net sales for January–September totaled EUR 14.6 million (EUR 9.5 million), up by 54.2 %, 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, Europe, Middle East and Africa market area and the Asia Pacific region accounted for 65.6 % (59.0 %), 25.3 % (27.6 %) and 9.1 % (13.4 %) of reported net sales, respectively.
 

The majority of SSH Communications Security’s invoicing is U.S. dollar based. With comparable exchange rates, net sales growth would have been 37.3 % compared with 2014 corresponding period.


RESULTS AND EXPENSES

Operating loss for July–September amounted to EUR -1.0 million (loss EUR -0.5 million), with net loss totaling EUR -1.0 million (EUR -0.4 million).

Operating loss for January–September amounted to EUR -3.1 million (EUR -2.0 million), with net loss totaling EUR -3.0 million (EUR -2.0 million). Profitability was influenced by higher share of service sales in addition to investments to sales and product development and delays of closing sizeable deals.

Sales, marketing and customer support expenses for the July–September reporting period amounted to EUR -2.3 million (EUR -1.8 million), while research and development expenses totaled EUR -1.3 million (EUR -1.1 million) and administrative expenses EUR -0.2 million (EUR -0.3 million).

Sales, marketing and customer support expenses for the January–September reporting period amounted EUR -6.7 million (EUR -5.5 million), while research and development expenses totaled EUR -4.1 million (EUR -3.1 million) and administrative expenses EUR -1.0 million (EUR -1.0 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 September 30, 2015 stood at EUR 22.5 million (September 30, 2014 EUR 12.3 million; December 31, 2014 EUR 17.5 million), of which liquid assets accounted for EUR 9.4 million (September 30, 2014 EUR 3.4 million; December 31, 2014 EUR 6.1 million), or 41.7 % of the balance sheet total. On September 30, 2015, gearing, or the ratio of net liabilities to shareholders’ equity, was -77.8 % (September 30, 2014 -60.5 %; December 31, 2014 -77.3 %) and the equity ratio stood at 67.4 % (September 30, 2014 65.9 %; 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 million were issued.

The reported gross capital expenditure for the period totaled EUR 1.7 million (EUR 1.3 million). The reported financial income and expenses consisted mainly of interest on deposits and exchange rate gains or losses. Financial income and expenses totaled EUR 0.2 million (EUR 0.1 million).

During January–September, SSH Communications Security reported a negative cash flow of EUR -2.1 million (EUR 1-2 million) from business operations, and investments showed a negative cash flow of EUR -1.7 million (EUR -1.3 million). Cash flow from financing totaled EUR 7.1 million (EUR 0.1 million). Total cash flow from operations, investments and financing was positive EUR 3.3 million (EUR -2.4 million).

There were no short term investment by end of reporting period. By end of comparison period market value of financial investment was EUR 1.0 million and nominal value EUR 1.0 million. Financial investment belonged to level 1 according to IFRS 7.


RESEARCH AND DEVELOPMENT

Research and development expenses for July–September totaled EUR -1.3 million (EUR -1.1 million), the equivalent of 36.4 % of net sales (33.3 %). During July–September, the company has capitalized R&D costs EUR 0.5 million (EUR 0.4 million).

Research and development expenses for January–September totaled EUR -4.1 million (EUR -3.1 million), the equivalent of 27.9 % of net sales (32.3 %). In reporting period, R&D cost capitalizations amounted to EUR 1.4 million (EUR 1.1 million). Depreciation from R&D capitalization assets was EUR -0.8 million (EUR -0.6 million).


HUMAN RESOURCES AND ORGANIZATION

At the end of September, the Group had 109 employees on its payroll, up by 13 persons from the previous year, an increase of +14 %. Compared with previous quarter, personnel decreased by 2.

At the end of the period, 42.2 % of the employees worked in sales, marketing and customer services, 45.9 % in R&D, and 11.9 % 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 Corporation shares totaled 6,341,834 (valued at EUR 30,711,631). The highest quotation was EUR 6.32 and the lowest EUR 2.52. The trade-weighted average share price for the period was EUR 4.84 and the share closed at EUR 3.24 (September 30, 2015).

The company’s principal owner Tatu Ylönen holds directly and through his company, Clausal Computing Oy, 55.7 % of the company's shares, Juha Mikkonen holds directly and through his company under his control, Assetman Oy, 9.7 % 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 September 30, 2015 was EUR 933,683.49, consisting of 31,122,783 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 0.3 million during January–September 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

SSH Communications Security management is not aware of any significant transactions 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 Corporation ("SSH") 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 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, please contact your financial adviser for further details and information. Past performance of SSH shares is not indicative of future results. EXCEPT AS PROVIDED BY APPLICABLE COMPULSORY LAW SSH 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 Corporation will release its annual report for 2015 in February 9^th 2016.

Helsinki, October 22^nd 2015

SSH COMMUNICATIONS SECURITY CORPORATION

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