SSH Communications Security’s Q1’24 sales were in line with our estimates. Sales came in at EUR5m, a y/y increase of 5.8% vs our estimate of EUR5.1m. Subscription sales came in at EUR2.9m, License Sales were EUR0.1m, and Maintenance sales EUR1.9m. Subscriptions were 5% better than our expectations and grew 14.5% in the quarter.

Subscription ARR was EUR12m (EUR10.3m), growing 16.3% y/y. Recurring revenue, ARR mounted to EUR19.7m (18.3m), growing 7.4% y/y.

EBITDA was EUR0.2m, corresponding to a 4.7% margin. This quarter was the 12th consecutive quarter with a positive EBITDA result. After adjusting for extraordinary costs after the CEO change, we expected an adj EBITDA of EUR0.3 m. According to the CEO, PrivX grew 44.5% compared to Q1 2023. Unfortunately, SSH does not consistently publish quarterly growth numbers for PrivX, so it is difficult to follow the growth path.

Trailing 12-month sales (TTM) came in at EUR20.7m, compared to EUR20.4m in Q4'23, a TTM growth of 5% y/y.

Subscription ARR was EUR11.9m, growing 16% y/y, and recurring revenue (ARR) mounted to EUR19.7m, growing 7% y/y. Recurring revenues (subscriptions and maintenance) accounted for 95.7% of total revenues, an increase from 94.6% a year ago.

Subscription sales came in at EUR2.9m, growing 14.7% y/y, slightly higher than our estimates of EUR2.8m. SSH clearly shows it manages to increase its subscription revenue model to be the primary type of its sale. Back in Q1'21, Subscriptions were 7.6% of revenue compared to 56% in this quarter.

In the current quarter, License sales amounted to EUR0.1mn as customers continue to migrate towards a subscription model. Over time, we believe the subscription model will be the golden standard.

Maintenance sales came in at EUR1.9m vs our estimate of EUR2m.

During the quarter, EMEA, which accounts for around 54% of SSH's revenues, was flat y/y, while the Americas experienced a 6% increase, while APAC grew 33%. During the quarter, SSH got an expansion order of PrivX to a Japanese system integrator, with an order value of EUR0.25m ARR. Management highlights the continuation of interest from Asian clients. In Japan, SSH works a lot with big system integrators serving a wide variety of businesses, and in Singapore, SSH customers are mostly within the financial sector.

PrivX grew 45% year over year as its the core product within SSH's product family. Priv-X will continue to benefit from the integration within a wide variety of its products and should grow steadily throughout the year.

PrivX is, for example, an important bolt-on product for Microsoft Entra as it seamlessly integrates with MS Entra ID, providing comprehensive access management to critical targets for privileged users. This solution prioritizes a seamless user experience with biometric authentication, single sign-on (SSO), and passwordless access. HERE is a short video presentation of how MS Entra and PrivX work together. Moreover, it received a major order for cryptographic solutions, and the demand for OT solutions looks to pick up.

Announced in November 2023, the Secure Collaboration 2024 is now offered to customers. The product is highly scalable, with a 95% gross margin. The question is how fast management will be able to ramp up sales going forward. Starting from a low base, we should see real progress in H2 2024.

The new organizational structure was announced on the 22nd of April. SSH will simplify the organization and move from the global process or functional leadership to three new business units that is fully responsible for commercialisation.

Moreover, three regional sales units will be responsible for each region. These changes will better define the various responsibilities for each business area.

We lower our sales expectations for Q2 2024 but increase our estimate for H2 2024 due to the expected positive momentum from ramping up new product launches. Additionally, the revenue recognition for the cryptographic solution order announced in February 2024 will occur in two parts. Half of the EUR 1.8m revenue will be recognized by the end of 2024, and the rest will be recognized by the following year.

Redeye expects net sales of EUR23 (EUR23m). We will make minor adjustments to R&D, impacting the EBITDA to EUR1.5m (EUR1.5m) for 2024. This translates into an EBITDA margin of 6% for 2024.

On the back of the report, we reiterate our Base Case of EUR1.8 (1.8) per share, with a Bear case of EUR 1 (1) and Bull Case of EUR3.4 (3.4).

SSH trades at 1.6x EV/S 2025E, in line with its Nordic peers. However, we argue that SSH Communications Security has the most stable and predictable revenue stream compared to its peers and, therefore, is the better choice.