Tiia Tikkanen: Hello, and welcome to F-Secure's Q3 result webcast. I am Tiia Tikkanen from F-Secure's investor relations, and I am joined here by our CEO, Timo Laaksonen, and CFO, Robin Pulkkinen. They will go through the key developments and financials over the past quarter. After their presentations, there will be plenty of time for your questions. You can post them anytime using the webcast tool. We have some live participants here at our office, so we will start by taking questions in the room and then address the webcast questions. But then it is time to start, and I will hand over to Timo, please.
Timo Laaksonen: Thank you, Tiia. Welcome everybody to our webcast. Welcome to the room over here in Helsinki. Good to have you with us. We will now go through our January, September results, and as the header says here, we have been accelerating our growth. So let us get to the presentation right away. Our currency-neutral revenue grew over 12% to EUR 40.5 million, and this is our record as far as our consumer security separate life from 2022. So this is our quarterly result record. I went slightly back, and since 2000, this is the biggest quarterly revenue growth that we have seen as a company. This is organic growth that I am talking about. Our adjusted EBITA increased to EUR 13.6 million, and our planned investments in embedded security and Tier 1 service delivery capabilities, we are taking that slightly down from last year as planned.
Timo Laaksonen: With regards to our result and our revenue growth, we were either above our plan or on the plan. We also came out with news on 1 October where we announced that we are going to be planning and negotiating a new operating model for F-Secure, and there are multiple reasons for that. One of them is that in a very, very fast-changing technology environment right now, we need to be also very, very fast. We need to have our product people, our sales and business development people, naturally, as well as our technology research and development very close, as close to customers and partners as possible. We are, in a way, moving as much of our firepower close to the market as ever possible by setting up business units. These business units are responsible for both the offering and the go-to market.
Timo Laaksonen: Second reason for that is that we see that a functional organization is not necessarily best suited, and in addition to increasing the speed, when you go from a functional organization to a business unit model, we believe that less handovers and clearer accountability will also make us a more efficient company, making sure that we can do more with less. Thirdly, continuing on that very same topic, we are also looking for increased, improved profitability going forward. We have been systematically communicating in the past two, three years that we are driving for growth as a company, and once we get that growth ongoing, we will start optimizing our profitability level. That is precisely what we have done. We are now in strong growth. In the consumer cybersecurity market, clearly beating the average growth rates in the market, and now we are starting to optimize for better profit.
Timo Laaksonen: We also refinanced our loan portfolio, so big thanks go to our CFO, Robin Pulkkinen, on that one, so that we have now better terms for our loan that we took back in 2023 when we acquired the consumer security business of Lookout. Finally, the quarter that was so good otherwise ended with not-so-good news by one of our Tier 1 partners indicating to us that they do not intend to continue their service agreement with us beyond 31 March, which is the end date of our current agreement. I will get back to this in a moment. That was naturally something that was bad news and very unfortunate, but I will get back to how we are going to be recovering from this.
Timo Laaksonen: Overall, in terms of what kind of progress we made with our Tier 1 partners, our business volumes and user volumes continued growing strongly with our US partners, actually faster than we had expected. We grew by roughly 86% in embedded security in Q3 2026 compared to Q3 2025. 86%. It is the growth driver for the company as we have worked towards and the strategy is working. Secondly, one of our longstanding Tier 1 partners in Japan now extended their offering with Sense. They had been serving their customers with Total in the past. Now they are also going for their broadband customers by integrating Sense. Thirdly, a European Tier 1 partner has now launched our services with Total in two countries.
Timo Laaksonen: They are planning to do a third one towards the end of the year, beginning of next year, and they are expanding their offering with our embedded security also in a fourth country. That rollout is going well. Finally, 25 December, we went out with a release where we mentioned that we have signed a new Tier 1 partner. Their go-to-market and their deployment project has been delayed by several quarters. Big changes in the company, big changes in their priorities, but right now it appears that we are finally finding the right kind of slot for them where they can dedicate resources to go out with the new services. We are looking forward to the H1 2027, potentially end of Q1, beginning of Q2, when we should be able to go live with those services.
Timo Laaksonen: Let us talk about the Tier 1 partner who informed us that they will not plan to extend their agreement beyond March. Until then, we foresee that our revenue should continue generating as normal. There is no change to our 2026 outlook because of this. Secondly, why are they doing this? This is a slightly longer story, and the next slide is also about the same topic. They have had a multitude of different applications that they have provided to their customers for different services. I believe they have had three or four separate applications only to address different kinds of needs on security, safety, family, home, and so forth. They have decided that they need to simplify their consumer experience by integrating all the core values into their operator app. Here in Finland, that would be somebody like Oma Elisa, Oma DNA, Minun Telia.
Timo Laaksonen: The operator app will be the hub for these capabilities. There is limited footprint in an operator app. They cannot get too big, otherwise it consumes too much power and footprint on a mobile device, for instance. They have narrowed down their offering in anything security-related significantly. The service that we were providing them with was very rich in terms of capabilities and features. But now to begin with, they have started with the absolute minimum amount of capabilities that they have integrated into their app. We are now in talks with them about potentially expanding that application capability with some of our embedded security capabilities in the future, and these are naturally subject to negotiations. But we are in talks with them and seeing how we could now, as they continue to develop that application, integrate some of our capabilities to enrich the app.
Timo Laaksonen: But now that is what they are aiming for at the turn of March and April. We have been told that this is not a competitor who has gone and taken over the application that we used to serve them with. Naturally, the dialogue, as I said, is continuing for future services. If I compare this case to any of the other Tier 1 partners or embedded security partners that we have, this was the only one where we were even developing the app layer instead of only providing the embedded security modules. I have to say that our strategy is clearly to provide embedded security capabilities and not be in the business of custom app development. From that perspective, this partnership was not fully aligned with our strategy. It was the only one that functioned this way.
Timo Laaksonen: In terms of financial impact, in 2025, our revenue from this partner was about EUR 16 million. No impact into this year. We made an impairment of EUR 2.1 million, which is related to capitalized R&D work that we had allocated towards this partner. We made that impairment now in our Q3 result. In terms of 2027 revenue, it is naturally going to be weaker than what we were planning on earlier, unless, for whatever reason, this partner wants to extend the agreement. We make plans based on the fact that it will not be extended, but as big projects go, changes may happen, and maybe it will need to be extended to a certain degree. Time will tell. In terms of our 2027 profitability, we are looking positive development both in terms of euro profitability as well as relative profitability in percentage.
Timo Laaksonen: Now going a bit deeper into our embedded security business and what we are dealing with this partner. If we start from the bottom on this slide, our business in terms of deliverables components are the embedded security capabilities. As you can see on the slide here, device scan protection, identity protection, privacy protection, home protection. That is our core business. The way that we take that to market to these embedded security partners is that we provide them with developer support, UX guidance, and giving them sample journeys, how to build the consumer journey for the service, provide them with templates on pre-integrated experiences. We have a sample test app that they can work with. Finally, and very importantly, we provide a wide range of go-to-market support to our partners.
Timo Laaksonen: So we ensure that our partners, when they do take their application to market, the business will be a success. What we do not do is that we do not develop the application layer on top of these embedded security capabilities. That is not our business. That would not be scalable to be building custom applications partner by partner. We already have a double-digit number of embedded security partners. If we would be developing a custom application for all of them, we would certainly not be a scalable business. The case that we have talked about now, the partner who is not going to be extending our contract was an exception to what we see elsewhere. A question that many of you may have on your mind is that, okay, so this one partner decided to make a change in their strategy.
Timo Laaksonen: Can we expect similar kinds of moves by other partners? There is nothing whatsoever that indicates anything like that. It is absolutely the opposite of that. We have been winning partner by partner in the past 2 years and signing up new embedded security partners because we have entered cases where they have been looking for precisely the embedded security capability that they were missing while they have been responsible for building the application layer. So time and again, we have shown our competitive edge in entering into these kind of deals. We have also signed up a lot of deals in the past year and a half on this front, and they are 3, 4, even 5-year deals. So nothing in the short term that would even be, in a way, topical for us right now. We do not see that kind of behavior in the market.
Timo Laaksonen: Now into something completely different. When we acquired Lookout Life, the consumer business of Lookout, in 2023, we also got a certain number of direct business customers, largely in the US. Since then, these customers have been working on that X Lookout product, and now we have come up with a completely new product that we have developed in the past year for direct business purposes. We call it Kiren. This is what we used to call Halo as a project name in the past. Kiren has now been at the end of September, been soft-launched to these customers who we already have. There is hundreds of thousands of customers, either free or paying. So it has been running on a freemium model. And now in a phased manner, towards the end of the year, we will address that whole user base that we have in the US.
Timo Laaksonen: Then beginning of next year, we will start, once again, funding paid customer acquisition for that very product in the US. The first phase is going for the existing customers that we have, and the second phase is then starting to also acquire new customers. The focus is heavily on the US. What we have done here technically is that we have used our embedded security capabilities to the full, and built a standard application layer on top of that we are fully in control of. So we are not in the building of custom apps. This is a standard application, the same for everybody. I already mentioned that this complements Total, that we are providing currently, for instance, here in Finland, Sweden, Germany, and other countries, mostly in Europe.
Timo Laaksonen: This is a complementary offer and time will tell for us, and we take the learnings to see if this would also be a relevant offering for Europe. This has been very knowingly built towards the requirements and expectations of US customers. As said, we have a free entry tier for the product and then a premium version. As a matter of fact, there will be soon two premium categories for this product. That is what we have done now with Kiren, which was launched precisely on the date as planned, 29 September. Then a few words about F-Secure Trust Initiative. We have a strong business in both standard application space, previously only Total, now also Kiren. We have our embedded security portfolio, which is acting as a strong growth driver now and also in the future for F-Secure.
Timo Laaksonen: Now we are building a completely new, in a way, product or capability family, which we call F-Secure Trust. The challenge is that as we are starting to see AI agents that start acting on behalf of consumers, they can be misled and manipulated precisely the same way as human beings. Naturally, there are also prompt injections, hidden instructions which go beyond just manipulating an agent. At the same time, less than one out of 5 consumers out there, according to our global survey, are ready to allow an agent to take action on their behalf. So there is a massive trust gap between what the industry is suggesting, wide scale taking into use of agents on behalf of consumers, and consumers' distrust of agentic AI and AI in general, actually.
Timo Laaksonen: Now, our answer is that we have TrustPath as one product, which is now moving to beta in November and to be launched in Q1 2027, where we are protecting a full digital shopping journey for a user. This shopping journey may be starting from a mobile device, it may continue in a tablet, it may be finished in a laptop, Windows or Mac. These are the kinds of journeys where people will be bumping into AI and agentic AI services. So we will be connecting the dots during a shopping journey and drawing on the full visibility of what happens at the different stages of a shopping journey to understand what is in the consumer's best interest and what is definitely not in their interest. So we are building trust into that shopping journey.
Timo Laaksonen: In terms of technology, we have announced two cases of technology partnership. One is with AMD Silo AI, where we are looking at model routing to optimize inference to the best possible source or an AI model. Then we have announced this Monday actually, a partnership with QuTwo, where we are looking at compression of large language models on small footprint devices such as mobile devices, also laptops. So we are looking at compression levels of as much as 90% to decrease power consumption and decrease the footprint required in terms of memory on a device. We are also looking at processing as much as ever possible on the device itself that a user has without the need to send everything back to the cloud. So that protects privacy and that decreases cloud and AI data center costs.
Timo Laaksonen: That is another partnership, and also that one is implemented now before the end of the year, so that when TrustPath hits the market in the beginning of the year, both of these capabilities will be harnessed. What is next? We are going to be implementing both the AMD Silo AI concept as well as the QuTwo compression by the end of the year. We are now entering the beta in just a few weeks, and as said, the launch is planned for Q1 2027. TrustGuard, which is a trust layer around what you do with your chatbots or AI assistants, ChatGPT, Gemini, and so forth. That is a case which we are developing at the same time and still making sure that the value proposition is as exciting and timely and topical as possible from a consumer's point of view. This is a very fast-moving area.
Timo Laaksonen: We have done quite a bit of consumer research in the past four or five months, and with regards to the kind of trust layer that you can build around chatbots is both technically changing and consumers' views on what they really appreciate, those are changing. So we are still taking our time to make sure that we get TrustGuard right. I would just say that watch this space. We will be coming up with even more propositions on this front in the very near future. Then about our transformation as a company. We are planning a new operating model, and here you can see the setup that we are looking for.
Timo Laaksonen: Three business units, one focusing on standardized partner products, one focusing on embedded security, third one focusing on direct business, and then a New Ventures unit, which is going to be driving faster, more ambitious, more research-led innovation into our offerings. Completely new kinds of value for the new kinds of opportunities out there in the market today. So our business unit structure means that you can see the names of the products that these units are planned to be responsible for, what kind of go-to-market partnerships or go-to-market model we intend to have for them. Then in terms of New Ventures, what we are doing is that we are researching, concepting, testing, validating different kinds of new technologies, solutions, products, and even earnings logics.
Timo Laaksonen: Once those are proven, we intend to move those into one of the three business units, or if it is something which is completely different, maybe even set up a new business unit. So three business unit and a New Venture unit. These business units will be supported by our common functions, technology, finance and legal, strategy, and people and culture. We are one F-Secure, and naturally, even though we have different business units having clear accountability and faster way and bigger resources to directly address the offering and the value proposition and the go-to-market, we still function as one company. One technology platform, one hosting platform, one security policy that we all work towards, one availability and in a way resilience that we all work against, one architecture base that we all work against.
Timo Laaksonen: These are just examples, and naturally, with regards to strategy, we want to make sure that everything fits together. Something that I see out there raised as a question is that, why don't we just focus on partner products or just focus on embedded security? They are closely intertwined. Everything we do in partner product is fully based on embedded security. Partner products, at the same time, have a higher profitability level because we provide a full solution. The combination of the two is very powerful. Finally, what we intend to achieve through our operational model change is better product market fit. That's something that we absolutely want to make certain of, and having the business units responsible both for the offering and the go-to-market, we believe that we will be much more agile in this sense going forward. Secondly, we are setting for growth.
Timo Laaksonen: We have set growth targets for every single business unit, including direct business. You may have seen that our direct business has started to plateau instead of the slight decrease that we've seen quarter on quarter. We are going to see that every single business unit goes for growth. Also the New Ventures unit will be looking for completely new kind of growth initiatives for F-Secure and growth potential. Overall, agility, innovation, and speed. Speed is absolutely of the essence in this kind of a market where technology, and the way you're working, and the opportunities in the market are changing, if not daily, then weekly and every single month.
Timo Laaksonen: We also need to be very agile, innovative, and fast, and that's how we're building our operational model and adopting AI in the way we work, not only as tools, but in the way we work, what kind of skills and competencies we put into our teams, what kind of team structures we have, how many resources are needed to develop new initiatives. AI is giving us a lot of powerful capabilities that we can use to reinvent our processes, the way we work, and naturally make us much more productive and efficient. What we're looking for is EUR 13 million in gross annual cost savings, and this consists of different things: our hosting and cloud costs, our royalty costs, our naturally people costs. There's a whole host of different areas.
Timo Laaksonen: What we're looking for here is that slightly less than half of this saving will go back to driving growth, and slightly over half will be leveraged in better profitability. We have slightly less than 600 people in F-Secure right now, and there are up to 145 roles which are affected, either a major role change or potential redundancy. There are a good number of new roles that we are also opening up during the process and right after the process, so that we see that there are also a lot of new opportunities for our current fellows in new roles. We're planning to go live with this on 1 January, so beginning of next year. I believe that's all for me, and now I will hand over to Robin Pulkkinen to go over the financials. Thank you.
Robin Pulkkinen: Thank you, Timo. Timo slightly covered how the key numbers for the quarter went. Just to recap, the top line growing 12.2%, 12.4% currency neutral. For the full year to date, we are now at 6% growth, currency neutral 8.1%. Again, notice from the reports that the analysts all noted that we also changed the guidance slightly. The growth guidance went from 7% to 12% to 8% to 11%. Now looking at Q4, basically we are 8% growth. Now the guidance lower end is 8%. Basically what we are saying is that we are looking at least 8% growth also for the Q4. We also narrowed the guidance range for the profitability, the adjusted EBITA. Now it went from EUR 44 million to EUR 46 million, the lower end.
Robin Pulkkinen: If you look at the year-to-date number, we are EUR 36 million, so basically saying that at least EUR 10 million also expected in Q4. Gross margin improving. We have done a lot of work on improving the efficiency of, for example, the hosting costs. There has been really good development there, and we see that also continuing, also hopefully further continuing next year to help with the margins. Basically, the adjusted EBIT up in euros, but relatively slightly down.
Robin Pulkkinen: If you look at the difference between adjusted EBIT and EBIT, there you can see also the write-down of the Tier 1 partner capitalizations that we had in the balance sheet of EUR 2.1 million. Looking at the whole year number or year-to-date number, there are also some one-off costs from the earlier of the year which have an impact there. The business grew very nicely, especially the embedded. The embedded security 87% year over year.
Robin Pulkkinen: We can see also here that we have really been putting a lot of effort on growing and then developing the capabilities for the embedded security at the cost of security suite slightly. Going forward, we do expect to change, move all, like Timo said earlier, change the trend here. Next year we could be growing in all the major businesses we are in. Of course, over the past couple of years, it has been most focused on the embedded side, which is also visible in the growth numbers. The direct business doing really well. If you look at the kind of rounded numbers, it is EUR 6.4 million now for a couple of quarters in a row. It is still slightly down year over year at 2.9%.
Robin Pulkkinen: But when you take into account or just carve out the Lookout Life base direct customers that we have, which have been now addressed at the end of the quarter with the Kiren product launch, it is actually already Q3 was growing when you take those out of the equation. So it is really at a turning point, and then hopefully next year we can turn the whole business into growth as well. By geography, we are quite stable on the Nordic countries. Rest of Europe also turned around. It was actually going down in the H1 of the year. North America doing really well, 38% growth. Rest of the world, which is mostly Japan, we have had some challenges with the currency. But then the comparison period, we also had some one-offs, which made it as a difficult comparison point for us.
Robin Pulkkinen: But for the whole year, the rest of the world is also growing. Operating expenses, this is a result of the known investment into the embedded business. Of course, the cost is growing faster than the top line. It is not sustainable like we know in the longer run. Timo described clearly and well earlier, we are taking efforts into a more balanced cost structure also in the future and improving the EUR and relative profitability going into next year. This will, of course, we have done big investments in the embedded business portfolio and the serviceability. Those are being also for a big part, capitalized.
Robin Pulkkinen: Going forward, we do see that the capitalization rates are as a result of changed focus areas are going to be going down, which is going to, in a longer run, also result in the better quality of earnings as we move forward. Gross margin development, a bit of a history trend here. We have been now improving a couple quarters, and it is a clear result and the biggest impact there is the focus that we have put on the hosting costs, for example, for serving the customers. This is an area where we still see opportunities and ways of improving it even further. The EBITDA margin, euro-wise, slightly up, but you can see the percentage down. If you increase, of course, the costs increasing a lot faster than top line, the relative profitability has come down. This is something that we are working now on.
Robin Pulkkinen: For the year-to-date numbers, you can see the direct channel is still quite a bit down. Most of that, 80% to 90% at least, is related to the Lookout Life base, which we are now addressing with the Kiren product. The partner channel has been growing over 11% currency neutral. Geographic-wise, you can see the Nordic countries quite stable. Here in the rest of Europe for the year to date is still negative. If you remember from the earlier slide, it was +3.3%. We have seen the turnaround now in Q3. The rest of the world also here, like I mentioned, reported negative, but the currency has been playing a big role, so currency neutral 2.5% growth. North America growing really fast.
Robin Pulkkinen: The adjusted EBITA, it was now the Q1 of the year, where we actually made euro-wise more profit than in the prior year. Operating cash flow. We mentioned in the last reporting Q2 that we had some temporary delays in collecting some of the overdue invoices from some larger customers. Those have been now cleared, where actually our accounts receivable is in the best condition it has been ever since the independent company. We do not really have any overdue over 30-day invoices, some very small ones only. Of course, the growing revenue also compared to year-over-year, is resulting in a higher trade receivables. Overall, I think the working capital is in a good management. There are, of course, certain terms with the larger customers are a bit different that we are maybe used to seeing with smaller customers, but that is something that we will be working on.
Robin Pulkkinen: Cash conversion, 72%, equity ratio up 5%, overall EUR 9 million in the bank at the end of the quarter. Main shareholders, there are no major changes during the quarter. SEB and Citibank probably made some sort of block trade. There was a little bit of shares moving between those two, more or less the same amount. Other than that, it is pretty much the same.
Robin Pulkkinen: Foreign ownership a little bit above 11%, and this is something that we also will be addressing with Timo Laaksonen also in the future, potentially seeing more international investors and road shows, so seeing if there is appetite also outside Finland. Here is also the guidance recap. Like I mentioned earlier, narrowing the top-line growth from both ends by 1% to 8% to 11%, and then on the adjusted EBITA, increasing the lower end of the bracket from EUR 44 to EUR 46 to EUR 50 million.
Robin Pulkkinen: Then a reminder, we have the AI and the Investor Deep Dive end of November, 24 November. It is going to be a really interesting event and opportunity to understand what is up and what is coming from us also in the coming years. Thank you.
Timo Laaksonen: Okay. Ready to go for a Q&A. I believe, Tiia Tikkanen, that we start with the room. Okay.
Waltteri Rossi: Hi. Waltteri Rossi from Danske Bank. Few questions. First, about the planned EUR 13 million savings. You mentioned that, was it slightly less than half of that will be reinvested? Could you maybe say where?
Timo Laaksonen: New product initiatives, completely new unit called New Ventures. Marketing to promote Kiren in the US. These are some of the areas. Naturally, everything that has to do with the AI-related and Trust-related new product portfolio, that is going to be an area for investment.
Waltteri Rossi: All right.
Timo Laaksonen: I will just add one more thing. In the past years, we have invested a lot of funds into capabilities which are not necessarily visible to end customers. Now we are developing things that people will see in their own services, in their devices and in the services that they use. So focus is going from, in a way, the engine room to something that people will more concretely see.
Waltteri Rossi: Got it. About the net savings, will those be fully realized next year?
Robin Pulkkinen: Yes, during next year, definitely. Also, the important note that I tried to make there was that the capitalization level is changing as a result of moving from very heavy investments in the embedded capabilities which have been capitalized. It plays around different lines in the P&L, of course, like you understand. The capitalization rates we expect to be going down in the coming year, which is going to eat on our EBITDA line, so part of that saving.
Timo Laaksonen: Significantly less capitalization.
Robin Pulkkinen: The quality of earnings is improving.
Waltteri Rossi: Got it. My second question is kind of a hypothetical. If we assume around the current EUR 150 million and EUR 160 million revenues, what could be your sustainable EBITDA margin, assuming no major growth investments? Do you actually need the EUR 200 million top line for the 40%?
Robin Pulkkinen: Well, what we could do, it was your question, how much could it be if we didn't invest anything?
Waltteri Rossi: Yes.
Robin Pulkkinen: Okay.
Waltteri Rossi: With no major growth investments.
Robin Pulkkinen: Okay. It would be definitely closer to the 40 if we didn't invest anything. If we skimmed everything down and tried to maximize profit, we would definitely be able to make 40% adjusted EBITA. But we won't be doing that.
Timo Laaksonen: No. We got our growth on a good trajectory right now, so we absolutely want to give it more oxygen and crank up growth from its current numbers.
Robin Pulkkinen: Yeah. We do see that we can get there also before EUR 200 million revenue. But it requires some continued improvements in, for example, the hosting and cloud usage and areas like the compressions.
Timo Laaksonen: But the difference to our growth focus is that we will, at the same time, improve profitability all the time.
Robin Pulkkinen: Yeah.
Timo Laaksonen: We will not do this at the cost of profitability, rather the opposite. We want to improve profitability year on year, quarter on quarter.
Waltteri Rossi: Got it. My final question is about growth. Looking into next year and onwards, where do you expect the growth to come from? I know you are going to say basically from everywhere, but what will be the spearhead of the growth? Is it still going to be the Tier 1s in the embedded?
Timo Laaksonen: The fastest growth, you heard 86% growth in embedded security year-on-year. It will definitely be the primary driver in the future. You responded yourself, every single business will contribute to growth, but embedded security will be the biggest area. I do see that the Tier 1s, there is massive growth potential in there. Just massive growth potential. I will just open up a bit more. What we see is that embedded security opportunities started emerging two, three years ago, starting from North America and Japan pretty much at the same time. We have been waiting for European big players to join. They are doing it right now. There is massive activity in Europe right now by the biggest players to go for embedded security types of propositions. Naturally, we are active everywhere. Time will tell how much success we will have.
Timo Laaksonen: That will have some effect on 2027, but especially 2028 and 2029 will be looking different because of new Tier 1 opportunities. If we look at the ones we already have, there is lots and lots of growth potential in every single one of them.
Waltteri Rossi: Got it. Thank you.
Atte Riikola: Hi, it is Atte Riikola from Inderes. Maybe first about the Tier 1 growth. We know that lots of your embedded growth came from the Verizon deal. If we exclude that, how were other Tier 1s developing in the quarter?
Timo Laaksonen: Now, this is speculation by Atte Riikola where it came from. We saw growth everywhere. Verizon is a partner that we launched together in April. There has been strong growth. There was customer conversion also in there from previous service. There has been good growth, but that was by no means the only one. There was growth also elsewhere in the US, in Japan, and now we are starting to see growth even in Europe as we are going live with one of our Tier 1s here with embedded.
Atte Riikola: If you look at the other smaller Tier 1s at the moment, are you seeing they are ramping up at the moment, and can we expect that those are contributing to your growth more in the next year?
Timo Laaksonen: Very difficult to say how much. We are seeing that, for instance, if we compare the US players to Japan or Europe, Japanese and European players are starting with more modest expectations in their growth, whereas in the US, it is, let us say, more ambitious what they are going for. But time will tell. The numbers of Tier 1 partners, I would assume, has to sign several more in the next quarters.
Atte Riikola: All right. Maybe then still about the organizational change and the cost savings. The planned headcount can be quite high compared to your overall headcount at the moment. Can you give any examples from which areas in your organization you see major benefits with the new model and getting those efficiencies?
Timo Laaksonen: I would say that the number is big, but there are good number of roles which are changed more than 50%. Those are not redundancies. They are seriously changed. The ones that are changing are, for instance, within the business units, where we will have services people, partner success, sales, software engineering, user experience design, data scientists coming together in teams, and that is a different kind of a setup than we have had before. These people have been in separate functions working on joint projects, and we believe that having them in the very same team, very same unit, with no handovers between them, hopefully very little need for meetings, that they will huddle together faster and generate value faster than what we have done before. It is the whole design, engineering, deploying, selling, servicing. That whole process should be clearly more efficient. It touches all of us.
Timo Laaksonen: When we went into the change negotiations, it covers the whole staff. All functions are affected in some way.
Atte Riikola: All right. Then about the security suite. It has been declining now 5 quarters in a row. How fast do you expect it to turn back to growth, and what are the key action points there?
Timo Laaksonen: I would say that the heavy focus we have had on developing the embedded security portfolio and the service capabilities has taken some of our bandwidth away from working on the security suite part. Now there is going to be a dedicated business unit precisely for that, and I believe that we will be speeding up significantly on that front. One thing is that we need to naturally develop the proposition further. Then secondly, we have clear growth projections and we see that our partner success playbook has worked very well with our top 20 partners in the beginning of the year up until the end of September. If I compare the success rate and adoption rate of services in the Q1 versus now, there is clear improvement.
Timo Laaksonen: It sounds very mundane, but it is actually something you need to work hard on that partner success and convince the partner to work together with us, and that has worked well. I would say that is another one. At the same time, consumer sentiment is not at its best again. It was already better during the summer. Consumer sentiment, for instance, here in Finland, is somewhat decreasing again. That does not necessarily help when our partners may be under cost pressure. That is something that works the other way for us.
Atte Riikola: All right. Last question from me. It seems like if you look at your product development now with the AI capabilities, you are really speeding up on that front. Are you seeing from your competitors that they are also moving faster, or is there any emerging players?
Timo Laaksonen: Yeah. I do not necessarily see completely new players, but I see that all of our competitors are active on this front. It would be very odd if they were not. Everybody understands that agentic AI is going to cause changes into the needs and threats out there. Everybody is working from their own angle, and we believe that there are certain angles in our approach that are unique. For instance, looking at full journeys and securing those and building trust, for instance, shopping. Secondly, I think that our heavy focus on building value propositions that are counting on local AI, so edge computing instead of data center computing, that is rather unique. Then also us being under the EU regulation, GDPR, Cyber Resilience Act, and so on and so forth.
Timo Laaksonen: For us, the heavy angle on stronger privacy in what we do in AI will hopefully differentiate us also in a very attractive way from our competitors.
Atte Riikola: Thank you.
Tiia Tikkanen: Yes. Okay. Then we have a couple of questions from the webcast on the possible contract non-renewal of the Tier 1 partner. How much costs have been allocated to this Tier 1 partner?
Robin Pulkkinen: We do not open that level of details unfortunately.
Timo Laaksonen: I can only say that because we have built a custom application for this partner that has been a dedicated effort, but naturally that has gone towards this partner. We will not open up how many people or what kind of a team and certain backend capabilities have also been tied to this partner specifically. But we will not go into further detail on that. Hopefully, that helps.
Tiia Tikkanen: Will there be additional write-downs should the large Tier 1 client end the agreement?
Robin Pulkkinen: No. The balance sheet is now clean from those.
Tiia Tikkanen: Then, Timo, you touched this topic already, but there was still a question about are you seeing a risk of other CSPs following the move by this large player, for example, by combining the apps into one?
Timo Laaksonen: No, we are not in the know of anything like this. Naturally, who knows? Like I mentioned, we have a good number of deals that we have signed in the past, let's say 12 to 18 months, and those are longer deals. So from that perspective, that is naturally a protection for us, but we are not here to play defense. Naturally, our work is to show to these partners that the services that we have built together and worked on together in terms of partner success, are actually great business and they want to expand it. This is what I mostly see. I see either expansion talks taking place or I see completely new partnerships. We submit proposals for those, or we are on a short list for some of these.
Tiia Tikkanen: Then on the change negotiations. You mentioned some new roles will be created while 145 would be affected by the change in the group structure. Is it possible to assess at this stage by how much the net headcount position will have changed in a year from now?
Timo Laaksonen: No, that is not possible. We are in a change negotiation process right now, and the result will be communicated at the end of these negotiations around mid-November.
Tiia Tikkanen: Then there was a question about the planned launch timeline for the unnamed Tier 1 vendor. Could you elaborate more on that?
Timo Laaksonen: We are looking at the H1 of next year. We are hoping for March. It may be April, potentially even May, but the H1 of the year. We are working on everything so that the launch could happen already in March.
Tiia Tikkanen: Okay. Thank you. That was all from the chat. Did we have some questions still in the room or no?
Timo Laaksonen: Okay. No more questions. I believe we have covered everything we were planning to cover.
Robin Pulkkinen: Yeah.
Timo Laaksonen: If you have any questions with regards to our future direction, then you can naturally reach out to Tiia in our investor relations, Robin or myself. Also, I hope that you can, as we showed in the beginning, I hope that you can join our AI-focused Investor Deep Dive, which is taking place, I believe, on 24 November. Tiia is nodding here, so hopefully you can join us then in about four weeks. But thanks for joining, and see you in the Investor Day. If not there, then in our Q4 release session. Have a great day.
Robin Pulkkinen: Thank you.
