Trend Micro Inc S/Adr

This is a summary for Q2.

Net sales down by 3%.

And total OPEX down by 6%.

And 9% increase on operating income. To be honest, this is more or less in line with our expectation. There are two factors.

One, Kevin Simpson will talk about this later.

But uncertainty is still continuing in terms of macroeconomics. So the sales cycle is getting longer. So the expected sales was not achieved.

And also stronger yen.

Without FX impact, growth would have been plus 1%. But if the yen gets stronger, the denominated sales become smaller. And the minus 29% in ordinary income. Well, this is evaluation loss of FX. So FX assets evaluation based on stronger yen becomes weaker. So about 5 billion yen exchange evaluation loss was posted. And pre-gap was minus 6%.

This is a little bit lower than our expectation.

Now, for enterprise and consumer, on the right-hand side, you can see consumer, and we see a bigger decline in sales, but this was actually anticipated, as we explained in the first quarter. Overseas, online settlement company was bankrupt, and also, from three year between the difference between three year and one year contract there is a decline in the revenues and for enterprise this is minus one percent as I said before macroeconomic impact and the sales cycle lengthening is the biggest factor.

Pre-gap sales, net sales. In the fourth quarter last year, this was higher.

We saw flat transition. Multi-contracts existed, and in the fourth quarter, a lot of those were posted, and this is why the first quarter looks weaker.

ARR, both on pre-gap, post-gap, we believe that ARR is more accurate in terms of what is happening with the enterprise market.

In Q1 and Q2, you can see the numbers are flat. And number-wise, it looks flat. But if you look at the breakdown, one positive factor for us is that cloud-type subscriptions

is shifting to Vision 1.

So even though the total is the same, the quality of sales is improving, and I'm sure that this will be explained later. So although the numbers look flat, good things are happening.

Cash flow, nothing to comment on this slide.

Moving on to headcount.

This is flat.

There was a steady but small decline over time in the past, but AI-related technical or engineering hiring is going on. We are improving the productivity using AI as well. So this is basically impacting that. So in the second half, we believe that the trend will be the same. Cost-wise, in Q4, the sales was up and the variable remuneration was included. But after that, the numbers are flat. Stronger yen is contributed. About 200 million yen is supported by stronger yen. Cloud cost is dollar-denominated. So, of course, We are making efforts to efficientize the use of cloud internally, but those limited expenses tend to shrink because of strong buy-in. And also the yellow part, this is salaries and variable remuneration. Well, if the sales and profit target is not met, then the bonus will not be paid to the employees. So that is reflected for the first half of the year. And that's another reason why the cost is down. And the highlights for Japanese enterprise business, we have a strong growth. Omikawa-san will explain later, double-digit growth, 12% enterprise sales. And last year, sales was not very strong, but in this fiscal year, we are seeing a good recovery.

improvement over operating margin.

We thought that we could do a little bit better than this, but still, compared to 12 months ago, 18% turning to 20% in the second quarter.

We have forecast. In terms of environment, we have to think certain things.

And macroenvironment uncertainty for the second half is the biggest factor. And we don't necessarily know better than other experts. This may continue, and also effects will change. So based on that, we have a modified outlook for the year.

Now operating,

has effects valuation loss component, but otherwise we do not expect any big one of items. And these are the numbers. So 6% increase in itself was expected in the initial time, but now at 274 billion yen, this is going to stay flat. And the opening profit will only increase by 11%. And minus 15% ordinary losses. And most of the underperformance in the first half will be carried over. In the second half, excluding FX impact, we expect to achieve the plan. This forecast is based on that assumption. Without FX impact, a 1% growth compared to 6% growth plan previously.

That's all from me.

And we would like to respond to your questions later.

Thank you very much. I think the first half of 2025, the most significant marks is world uncertainty. The whole world because of the tariff war, because of the geopolitical conflicts. There's just so much uncertainty. We feel that many of our customers hesitated and were not eager to start new projects. As you can see from the financial report, Our first half of the year reflects a significant slowdown and deals being delayed. But in all of this uncertainty, there's one thing that is certain, very certain, that is the whole world is continuing investment in AI. IDC forecasts $623 billion spending in 2028 and 29% growth annually from 2024 to 2022,0008. It's all about AI. So within Trend, we also all focus on a project that I call it Trend AI Nice from our product or solution, our go-to market, our revenue. We all focus on how do we attach to AI project. So in our analysis, we focus on ARR and NRR. But most importantly, we are focusing on the V1 native and cyber service, which is both powered by AI and also made for AI security. So you can see in this four type of the ARR in Trend Micro, in Q-Tube, We grow to $1.6 billion, and these are all composed by four types of ARR. First, the blue line, non-V1, is perpetual license. The orange line, non-V1, is SaaS subscription. And then the pink line is consumer. The green line is where we focus our growth need to be, which is V1 native and cyber services. These are directly customer, are buying our vision, one native package. So this line, let me compose more of this. Why we so focus on this and why we believe this is the right move. I think if you look at the green lines, NRR is over 140. And that's why we need to move all our revenue onto the V1 native and cyber services. When I decompose this V1 attached, get rid of, just don't talk about consumer. We focus on the commercial part. There's two parts of the commercial revenue, which is large enterprise. On the large enterprise, about 500 seats. Large enterprise, you can see in quarter two, We actually, the ARR grow 94% year, year on year. And this is the first time the V1 native and cyber service growth pass all the other two type of direct ARR we have. And also we continue to see this NRR is strong and maintaining above 140. And also, just last quarter, we also announced the V1 for MSS, which is port for the MSP. And that is focused on the under 500 seats, smaller business. And that green line here, the V1 native, we think this a few, just two quarter, it grows 148%, and its NRR also grow above 120 already. So I think this is how we are transforming Trend Micro's revenue, and we focus on the NRR, ARR, for the Vision 1 native. Because of this, we also launched our project, which is we try to convert all our non-Vision One SaaS platform customer all onto the Vision One platform. And we launched this just starting last quarter. We do it in Europe as a test run. The first part, actually, the first part, stage zero, for the first half globally, we already stopped selling all the non-Vision 1 attached SAS SQ. But also in Europe, we're starting stage one, which is our SaaS console retirement, which means that we force our customer need to upgrade to the vision one. And our progress has been very good, showing very good. So we will continue this globally. And also, by the end of this year, we will move to a stage two, which means renew of the legacy. SAS SKU will be end of life, end of sales also. And next year, it will be stage three, legacy. SAS will end, end of life. So this will complete our whole transformation process. from non-Vision One SaaS platform all onto Vision One SaaS platform. That is much better business, much easier to expand, and getting much better customer satisfaction. So other than that, I think a very important thing is security in AI. How do we transform our solution to be proactive security and powered by AI, also made for AI? This part I'm very proud to. We are the whole, whole company preparing for this and we are launching a special package security for AI. This whole package is all made for AI because in the AI world, if you think about it, the data that's being processed is much huge, much, much faster, and much more new data will be generated and used by the enterprise. how to secure this massive amount of data transferred in, in the AI environment. It requires a totally new approach. All this computing needs to be GPU accelerated. Otherwise, you cannot catch up and you need to process a lot more alerts and consolidate all of those alerts correlate them so that we can provide the true AI security. And this is the package security for AI. We are launching on August, which is include agentic AI SIEM, zero trust secure access, container security, AI model security for all layer of security in one package. Why is this so important to the AI security? Because we believe we need to attach our security solution to the AI budget and the AI build-out process. And that's also why we, last quarter, we have signed a deal with Dell and NVIDIA's endorsement that we will provide the AI factory security for, for all the customers. So we will continue to do this and go to market momentum with the new AI factory ecosystem. Technically, this is a big, big project and we are very proud that Trend can do this. This is not just AI wash. Say I use some chat GPT to do it. Actually, it's the whole revamp of the Vision One platform from the data layer, intelligent layer, and finally on the agentic layer. The data layer part is the huge, very important thing because you need to be able to see all of this data in an intelligent way, understand each of the data, the cyber assets, the account, the ID, and what is the information content. that is flowing between all of this entity so that it can compose something we call galaxy view of your digital world. Sometimes we nickname it as the information flow digital twin. It shows how your company's information is flowing and how your company actually operate in the digital platform. By doing this, we can see the whole company's security in a brand new way. You can see the data flow view. You can see the system service view. You can see the geography view. And a very simple example of how this can be done and how it can accelerate security. For instance, the red team and blue team. People do pen tests, but usually this pen test can be done just pure logically and has been done in a certain control environment, not in the real operation environment. But with this galaxy view, with this, we call digital twin of your information view. Then you can run all this virtual attack and then showing how the blue team and red team should do. and enable the enterprise to do proactive cybersecurity. They can patch the important places they need to patch. They can now spend their resources at the most critical assets. That's how we do this digital twin implementation. Also, we are launching a GenX SIM. SIM is a big market. But if you think about SIM in handling today's environment, especially after AI, the alert will be humongous and there will be a lot more application that you need to watch out for all of this new data flow. And therefore, this agentic SIM need to be GPU accelerated, and it need to be able to handle all type of different security log. So Trend Micro's security agentic SIM, we will support 900 more data sources since August 1st, plus all the new security log sources. We guarantee within three days. When customers give us a security new log, we can have the adapter ready in three days. And very soon, it will actually shorten the time to three hours. We do this because we are now porting and having our alert correlation engine all on GPU accelerated platform. These are just very true and very different agentic SIM experience. Before, if you want to analyze a device, cases and just one sweep of all your alerts and all your security log before. If you use CPU, it takes two hours per sweep. But after we do this, we shorten the time to three seconds. Then finally, we can catch up with the speed of of all those hackers attack. So this is the agentic sim experience that we are launching. And we believe that will be an industry changing solution for the EIC. But not only our product, our revenue are doing all of this AI project. Most importantly, trend, the whole trend, we call it trend AI-nized. The whole trend micro operation are now all running with the AI. For instance, all our coding is accelerated. 55% of the fresh code is powered by AI using all these AI tools. And we have a lot of people worry about so-called technical debt. That trend micro over 35 years, we We have so much code, but now we transform all those 20 plus years of complex code into simple visual logic by AI. Much easier, much faster to resolve all those technical debt now. And also we can see we do this AI enhanced customer support in the consumer cases. more than 60% of the total case are deflected. And in the commercial case are more complicated, but still 43% of total case are deflected deflection that we can achieve. So that's the efficiency of our technical groups operation. Not only that, even our back office, I think AI actually not only change the company's operation, but it will need to change the company's culture, which is you need to break the data silo. You need to break the organization silo. And utilizing AI and the similar information flow technology that I was talking about, we are transforming our organization. into our organization, into a truly AI-enabled organization, where our showing the more collaboration, transparency, and we increase our technical contribution and more open feedback culture by utilizing the AI technology. So I think the first half of 2025, even though the world is uncertain, but we are very certain. Trend micro AI-nized. We are successfully marching into this AI era. And we will believe we will become the cybersecurity king in AI era. Thank you.

Thanks, Eva Mahendra. Hi, everyone. My name is Kevin Simser, and I'm the Chief Operating Officer for Trend, here to give you a Q2 2025 business performance update. If you've been following us in the media, you'll see that it's all things AI, basket of releases, telegraphing all the things that we've been doing to get broader and deeper with our partnership with Nvidia, but also burgeoning partnerships that we have with both Dell on their AI factory and Google GCP. This is us at Computex, one of the largest trade shows on the planet and has really transformed into an AI show. And this shows, you know, our presence alongside NVIDIA, just to emphasize the point of how serious we are taking all things AI. From a Q2 2025 business results standpoint, there's a lot of stuff going on around currency. You already heard that from Mahendra, and I felt like it was important to show the numbers in terms of a constant currency. Overall, the company up 1% year over year with the enterprise at plus 4% and consumer at minus 10%. Now, as Mahendra and Eva already talked about, we're definitely seeing some slowdown happen overall globally. In particular, on the enterprise side, we've definitely seen examples where either projects are being... uh postponed sales cycles are elongated uh we're definitely seeing examples in government where there's just a lot of uncertainty around where budgets are coming from for new projects for new projects in particular that said we did a really nice job of driving uh growth in around our vision one unified cyber security platform on the consumer side We really had a couple things going on. One is relaunching our credit card transacting engine with a new partner after the bankruptcy of Digital River. So we fully switched out that merchant of record and credit card transactions are now being processed. We still have some work to do and thought it would be done in Q2 around PayPal transactions. That was not done. We're working through it with PayPal and we expect that to be done in Q3. But overall, that second motion that we have of staying focused in on beyond device protection. Of course, we continue to do endpoint protection, but how can we actually help customers with this most recent pain point they have around anti-scam? We're getting some good, good traction in around that. Overall annual recurring revenue up over $1.6 billion plus 1% and large enterprise in particular at 1.1 billion up plus 3%. On the road to 2027, this is our North Star business model that we have in place. We did a really nice job on the expense side, improved the overall gross margins and keeping a watchful eye on all the operating expenses. The work we need to do is to get this net sales number growing faster, and that's definitely our priority. It starts with this unified cybersecurity platform. This is our flagship platform. It's where we emphasize how you can really get a lot more value out of a single platform. It's got 11 modules with lots of capabilities, and it really offers up a powerful platform suite of capabilities that enterprises love to leverage. It's not just us saying great things about our platform. It's also these world recognized industry analyst firms and two new things, one around from IDC around cloud native application protection. This is our Vision One cloud security recognized as a leader. And then from Omdia around vulnerability disclosure. This is our 20th year of our zero day initiative program and uh yeah it was nice to be recognized with 73 of all those zero days that yeah they were sourced and found by trend so that is what we do for a living Across the globe, if you look at it from a regional standpoint, this is net sales. Gives you an idea of the performance, 4% year over year. In EMEA and Japan, some good growth. Europe and America is less so. But starting to see that annual recurring revenue kick in. But really the story is around the pre-gap side. So what is going on here? And Mahendra and Eva both talked about it. And this is where we are seeing those macroeconomic uncertainties prevail. in the Americas, Europe, and EMEA. Super pleased with our performance of all the things that we've been working on in Japan to rebuild and refocus that team. And it was a fantastic win to be able to get double-digit growth In Japan, it's been a long time, and that came from both the small enterprise and the large enterprise segment. So really nice to see across the board in Japan enterprise, fantastic performance. We saw weakness in all three of the other geographies. The macroeconomics, which I spoke to, global government, that's one of our largest verticals, and we definitely saw some weakness in global government as those budgets for new projects remain somewhat uncertain and definitely longer sales cycles. From an enterprise recurring revenue standpoint, sitting at $1.3 billion plus 3% year-over-year growth and growth in both small and large enterprise. On a small enterprise standpoint, remember we've been saying that One of the things we're doing is we're introducing our flagship platform into those strategic managed service providers. And I was really happy to see that we're starting to see some growth and get some lift off with that strategy. Actually, from a gross sales perspective, I know we don't talk about gross sales, but from a gross sales perspective, the small enterprise actually grew 5% and it's on the back of this strategy of introducing Vision One into those MSPs. So doing a nice job of that. On the large enterprise, we're definitely focused in on our install base, but also trying to get some new logos going. From an install base perspective, we know that that's important because we know that the addressable market is really big in our install base. It actually got bigger now that we've introduced a module in our platform in order to be able to deliver So we now have that capability. So really, really big opportunity in our installed base. And where that all leads is why we're so fixated on driving customers to our Vision One platform. You can see the orange at the bottom, 377 million. That's plus 94% year over year. That is where we are fixated on upgrading our installed base set of accounts to onto our Vision One platform. If we look at it, we're doing a nice job overall. We're at 44% attachment of our installed base set of accounts. That's 11,000 plus enterprises now running our Vision One platform. 1,100 new ones in the last 12 months. We do that because we know that as we get that platform deployed, we have these modules that we can then get the show case to the customer and they can consume them. That improves the overall retention rate and it improves the ARR impact that customer has to us. Module growth is sitting nicely at 4.9 average modules now deployed and purchased within our customer base. So that's really, really nice. And we figured out that one of these modules called the cyber risk exposure management module. This one in particular is so important for us to start with. So this is the on-ramp for our Vision One platform. When we run this and vacuum up that attack surface, and figure out where threat actors will ultimately target using our AI predictive attack path technology. This allows CIOs, CISOs to prioritize where to introduce compensating controls. When a customer gets this module deployed, We always find stuff and this drives compensating controls or more modules to be consumed. So we're up at 6.4 average modules when this module is deployed. So this is a priority. All of this to say, once we get Vision One deployed, we know that our net revenue retention is substantially higher. 143% on our Vision One platform in terms of NRR. So we're going to continue to stay focused in on attaching and expanding with Vision One. Here's four examples to give you an idea. We use this nomenclature of land and expand in the U.S. construction company, not surprising, a small security operation center. It was a new logo. They were running Microsoft today. They were not happy with the support that they were getting from Microsoft. We ended up running a POC with Vision One. We actually found ransomware in their environment during that POC. They ended up going with us and a really nice small win, landing a really nice new logo here in the US. An event management company in Europe expanded with us. They were looking for EDR capabilities. They were using EDR from Microsoft, not happy with them. We ended up winning the expansion opportunity because of our broader visibility and the way we could generate our reports. In EMEA, this is landing a new logo, and it was a really nice one. So they were using Microsoft from an email security standpoint, and they had been noticing that Microsoft was missing a number of inbound threats. They test drove our Vision One platform with email security module. We ended up being able to detect the ones that they were missing, so they were really happy with that. It was a bake off against us and Proofpoint, and we ended up winning. So a really nice landing of a new logo on Vision One using email security, and now we can expand to additional modules. And then finally in Japan, an air cargo company, they felt like they lacked the visibility that they ultimately desired because they had a bunch of siloed tools. So their SOC analysts would have to log out of one tool and into another, and they were not able to leverage common data like a common platform. They were also missing seven by 24 support. And this is a fourth example of where we replaced Microsoft. So a good example where the strength of our platform, plus the fact that we actually can stand by our customers and support them, including some cyber services, gave us the leg up and we won this deal in Japan. On the consumer side, already talked about the minus 10% year over year and the fact that we did a really Herculean effort in order to migrate from one merchant of record over to a new one. And that is now working with our credit card transactions. We still have some work to do around PayPal, but that wasn't the only thing that we accomplished within the quarter. I've been staying so focused in on driving growth in this beyond device protection. We are still doing device protection, but how can we actually get out in front of some of these new pain points that consumers are feeling? And the number one that they're feeling right now is all things anti-scam. So some really nice growth, up 55% year over year for the quarter in terms of gross sales. So that's a nice example of how we're trying to figure out how to get some expansion in the overall consumer business. So once we get... all of this merchant of record behind us we really feel like we're on the right path for our consumer business we're staying fixated on our north star business model uh that's not changing and 1.7 billion in arr is the goal for enterprise 400 million in arr in consumer with a 30 operating margin i look forward to your questions thanks so much

So this is a second quarter 2025 Japan region's business update. So first, this page is showing what we are going to do in the enterprise segment in 2025. So this just gives a highlight of the focus points, and then I will be going into the details. So the first one, the enterprise business. So let me give you the highlight. As we have been hearing many things, but here in Japan, the enterprise business has grown by 12% year-on-year. And the major reason is that we have seen an increasing number of multi-year comprehensive contracts.

in place.

But by having a commitment in a multi-year down the road, there is a mention about NRA, but we will be introducing the new functions down the road and be able to add on. So This is a kind of a commitment from the customer that they will be accepting such kind of add-on functions. And the second point is a trend vision one. This is growing very nicely as well, especially so-called credit. The usage fee kind of thing has been penetrating in the Japanese market, and the customer has become familiar with this, which led to the growth in this business. And another one is a CREM.

Here in Japan, due to the virus environment, at last, Japanese customers have started to realize that they need to do this preventive protection.

So that's the reason why we are seeing the surge in this CREM business. And Trend Vision 1 customer number has been growing fast, which has grown by 33% year-on-year. But in low light, as Kevin mentioned, the Vision 1 attach rate is relatively low comparing with the peers in the other parts of the world. But we do have a basis in Japan. So the existing customers that we currently have, the Vision 1 service and AI... enhanced services. Let the customer know about these functions and how we can move the customers over to the Vision 1 business fast. That's the key. And this is a small business, enterprise business. This too has seen the growth of 12% year-on-year. And the major reason is the big surge in UTM business, especially in this quarter too. And the number of customers, well, it has been growing constantly.

And similarly, for the small businesses, so how we can grow this spend per customer, that's what we are working on with our partners. And partners, too,

working with us in this managed service provider, and we are seeing the robust growth in the XDR services. And the revenue coming from the one single customer, we are trying to move this up, and that is happening. But the low light, the small amount of businesses, for the last few years, We are slightly weak in the partnership with the local partners. So to this end, Tokyo, Osaka, as well as Sendai, Nagoya, Fukuoka, we are trying to find those partners who can do this kind of businesses. we are trying to rebuild the ecosystem to connect these dots. And for the regional small and medium businesses, just like what we had experienced in the past, we are trying to grow this, and this is something that we have started working on. And next is consumer business. So this is the guideline for the 2025. For example, to increase the beyond device security, and increase the unified security. And to this end, in the second quarter, what we have achieved is that the beyond device security, as you can see on the graph on the right-hand side, it is growing nicely with the growth of 33%, especially the anti-fraud solution. The number of the customers taking up this solution has been increasing. And also, there is a unified security. So if you go to the PC shop on top of the virus booster, you have this function on top of it, but its sales ratio has grown to 27%. So including the anti-fraud measures, the non-virus demand is growing because this fraud has become the big issue. And Windows 10 support will be ended in 4th of October. So the PC shipment is growing and the attachment rate is increasing as well. And the third one is the security enlightenment activities. And there is a global event, the Global Anti-Scam Alliance was held in collaboration with Google. And JC3, National Police Agencies, and the Ministry of Internal Affairs, many different people were invited to discuss about what we can do with this anti-scam. for all the measures in Japan. And in this context, the 10-micro presence was recognized as very significant. And for the national policy agencies, we currently have a relationship with 43 prefectural governments. And local governments and corporates alliance, well, this week I went over to the Fukuoka city, and it has become 10. And a low light for Buster's number of downloads. It is growing yet that online download switching over to the fee business, that conversion rate is still low. So how we can further push it up is the issue that we need to tackle. And this ends my update. Thank you.

Please. Yes. This is JP Morgan, Anderson. I have two questions. My first question is, you mentioned macro environment and CrowdStrike Central 1, Checkpoint 1.

I have seen the earnings announcements of those companies, and it seems that the performance of mid-sized companies that demand environment is now pressured because of the macroeconomics, especially checkpoint, for example. Pressure on the demand and pressure on the margins. That's what I see. And the crowd strike was not affected that much. That's my impression. And I want to understand the macro environment. Large enterprises versus mid-size. Who is being squeezed more? And also, What is the competitive landscape in terms of pricing? Is it getting harsher? So can you please talk about the recent environment?

Kevin, you can deal with that. Yeah, I can start and others can chime in. So two good questions. One is your comment around the different segments. And from a trend perspective, we have 500,000, over 500,000 enterprise customers globally. of which 25,000 of those are considered large enterprise. So those are sort of broad categories. But I think we would share Checkpoint's view that as a result of the uncertainty around tariffs and what's going on there, that we've seen those midsize enterprises, so the midsize enterprises in particular, feel the squeeze and the uncertainty. So we've definitely seen that. in the mid-sized enterprise. That said, and I commented on it in my video, government is one of our largest verticals. Central government is one of our largest verticals. And we saw it as a result of many governments having You know, these programs that are really scrutinizing the expenses that governments are putting in place and creating some uncertainty. We saw it in U.S. government. We see it in Canadian government. We have a deal that we have been told that we won in Europe, as an example, one of the central governments there. We were told in Q1 that we won it, but they still don't have budgets lined up because they're waiting for all of the NATO commitments to be put in place. So government is the other area that we're definitely seeing. We are seeing signs in the U.S. now that the U.S., Policy and bill has been passed. We are seeing signs that money will start to flow. We've got some early indications in Q3 that U.S. government money projects are starting to be awarded. So, you know, we feel like it's not a question of if cybersecurity is still needed. It's just a question of when this uncertainty lifts, and we're starting to see signs of that. The second question around pricing pressures. One of the things that we track is our win rates. And win rates, you have to factor in a lot of different components. And that's related to how your platform is differentiated against the competition, et cetera, et cetera. But also pricing. And in Europe, for example, we're actually seeing our win rates improve. We're actually getting better at winning deals in Europe overall over the last couple of quarters. In the Americas, in the U.S. in particular, as you might expect, it is quite a competitive market. Every cybersecurity company is here, and we definitely see competition is quite heavy, but also pricing pressure is quite severe.

Thank you very much. There was no mention about the buyback at the early school.

So my understanding is that because of this instability in the macro environment, you do have some concern over the pressure on the earnings result. So there might be a possibility that you may do the buyback when that happens. But based on this earnings result, why did you not announce any buyback plan? Thank you very much. Let me answer this question. As you have pointed out,

Our company considers dividend.

We're not going to do the retained earnings, so the remaining surplus will be returned to the shareholders. This policy hasn't changed, but it's a matter of the timing. We do have four months to go, so even if we did not announce today, we might announce and execute the share buyback down the road.

Thank you.

So the second half of our forecast is based on the currency. So it all depends upon how much of a surplus that we can get. So we do not have any plan of announcing it. So in terms of possibility, the one that did not do the previous year, Do you have any plan of doing the share buyback for the two years' worth?

Well, we do pay the dividends.

So how much are there left, we calculate that, and then what will be the size of the share buyback that we can do. And we do have a plan of executing that down the road sometime. Thank you. That's all from me. Thank you.

Thank you. I will unmute the next person to ask the question. SMBC Niko Securities, this is Kikuchi speaking. I also have two questions. The first question is about continued uncertainty. There are some signs of recovery, as you have explained. Well, the third quarter of this fiscal year, if we look at the pipeline and also the current environment, it seems that we cannot really have high expectation. Is that the correct understanding? But you have not really changed the plan for the second half. So maybe you think that there is an opportunity for improvement or recovery. So I don't understand which way you're looking at the third quarter. So pre-gap-wise, what will it look like and how does it impact ARR?

Kevin, maybe you can take this one. Sure. And then, Mahendra, you can jump in, please. You know, actually, internally... So you know, from a plan perspective, actually we have maintained our internal plan. So what we were always targeting. So that continues to be the objectives that the entire company is striving towards. you know, we continue to work that. We made the decision to adjust the guidance based on our first half performance, but we're continuing to actually drive the business based on what we had already designed at the start of the year. So we do see, like I mentioned earlier, you know, signs that Some of this uncertainty, some of the tariff uncertainty in particular, is starting to get more clear as to what the real impact is and how people can start managing their businesses again. So we are starting to see that and hope that that will happen. help with some of this uncertainty. So, you know, that's what we're driving towards. We do plan, we absolutely are fixated on driving more net sales growth. The other one that I would point out is, you know, we feel like like both Oma Kalasan and I alluded to, we did a lot of work to actually migrate our merchant of record in the consumer business. And we now have the majority of our business is credit card transactions, and that is now fully functional. We feel pretty good that the PayPal portion of our electronic commerce business will be resolved in Q3. And we're going to start to see the evidence that the consumer business can get back to growing again, because we are doing a really nice job in this beyond device. On the enterprise side, it's all about vision one and continuing to focus in on that. But we definitely see plans in our future where we will drive ARR growth higher.

Thank you very much. So this is a follow-up to the first question.

So I understand this is a kind of retention and persistence rate, but the fact that it is improving

Without seeing the growth in the pre-gap, because this continuation rate improves, if that's the case, and NRR will improve as well. So this positive impact, can we expect ourselves to see that to be shown in a quarter three and a quarter four results? or structurally that should be happening. However, you are not certain that that will appear in the numbers in a quarter three and a quarter four. Can I have your insight on that?

Yeah. So it's a very insightful question and it is quite complicated because there's a number of different things in place or in play. Number one is that you have the multi-year deal effect. We've been doing a substantially higher number of multi-year deals. So our goal was to cement ourselves further in terms of multi-year deals. So obviously, it's only the first year of that multi-year deal, which has an impact on the ARR and the NRR. But multi-year deals definitely affect the overall performance. So you might see it in pre-gap numbers, but not necessarily see the full effect in the ARR just yet. So that's one dynamic. The second dynamic is... And Eva talked about it. She actually laid out the plan that we already started at the beginning of this year. And that plan is for us to end of sale a number of our legacy SaaS products. We've already started that, and we've been gradually peeling that, removing those. And we have a lot of customer success initiatives inside the company. to work with our customers to upgrade them onto Vision One. And that's going to continue right until December 31st. As we do that, we will see strong NRR growth because that share shift is driving net revenue retention. It's driving some of the net revenue retention. In fact, probably 20 points of that net revenue retention. that share shift is in fact moving that number in that direction.

Thank you very much. Second question.

Focusing on margin, this attitude will remain, is that the correct understanding? The environment is uncertain, unclear, and the government budget is maybe facing some problems. But if you increase the sales cost, I don't think that will push up then its sales so much. So profitability, improvement, approach the policy. I think will be maintained. But in the past, when top line was weak, trend micro tended to increase the marketing cost. That's what you used to do. But what about now? What is your current approach about margin maintenance?

I would like to answer the first half, and then Kevin can answer.

Productivity improvement for the company. If we introduce AI, maybe marketing cost effectiveness will be higher. So this is something that we consider. In order to increase the sales, we also will execute necessary investments. So why we do that and why is the profit declining? Of course, we will explain that. And for the second half, as Kevin said, we keep the initial plan. We're keeping the initial plan for now.

Kevin, do you want to add anything to that?

Yeah, I would just emphasize the point that Mahendra made around you know, our plan is to drive growth as well as operating margins so that nothing has changed in our strategy there. But it really is a productivity. It really is about productivity. And, you know, you can see in terms of the hiring that we're doing, we are in fact hiring a lot of people, but we're hiring in certain areas, for example, in quota carrying salespeople. We've been hiring a lot of quota carrying salespeople, but we have actually felt like we've got some productivity improvements in other areas of the business. So you're not seeing our total headcount increase, but the mix of employees and the roles that we have is definitely changing. And that's as a result of AI and productivity and some of the other things that we've done inside the company to drive that.

Yeah, I'd like to chime in for this productivity. In my presentation, I showed that AI nights actually help us increase our productivity, both in the product development side and the customer support side. We are getting a lot of productivity. And use those, we can invest more on the sales side, trying to improve our go-to-market and revenue generation machines.

Thank you very much.

I would like to add, so with this revision, you just talked about margin, and the original guidance was 21%, and against that we have corrected this, and still the outlook is 20% margin, so It's lower by 100 basis points, but it is more or less maintained at that same level. So it means that we are paying close attention to margin, and that remains unchanged. You can see that from this revised number. Also, I know that the SoftBank Group earnings call is beginning, so many of you are leaving this call soon. But Eva didn't actually mention. Eva's presentation was actually done by AI. She was speaking in Japanese, but it was actually Eva's avatar that was speaking. She didn't talk about that, so I just wanted to tell you this secret. I was, yes, I was aware of that as I was listening. Because it was so fluent, so smooth, and there were no... So the quality, well, the voice, texture of the voice is also very close to Eva's, so we were surprised to listen to that as well. So thank you.

Yeah, I just want to use that. use that video to showing the example and the possibility of AI nice. See, I cannot speak in that as a global company, communication is a very important part for Trend Micro, but utilizing AI, it enable our whole global communication much faster. For instance, our marketing material before, we written in English and when we translate into English, Japanese, it took months to produce all those local language marketing material. Now, at the same time, our white paper, our video conferencing, Expanding Nation, all those are a language at the same time launched. So I think that shows the productivity and the efficiency that can be done utilizing AI.

Thank you.

Thank you very much.

Any other questions? I do not see any hands up. Sorry. Hold on a second.

This is Henderson once again. I have an additional question changes from the first quarter.

In the first quarter, I believe that you won some of the government business, but in the second quarter, did you won any government? Because the U.S. Doge is about to resolve, so do we not have to worry about any reduction in the existing project that you have won?

That's for you. So, yes, we did win. In Q2, we did win U.S. government business. What I was trying to emphasize is the U.S. government and actually many governments, what they were really carefully evaluating was new projects, new projects. They had pressed... the pause button on new projects, but renewal of existing projects were generally flowing through the system. So yes, we did win business in Q2. And like I said, in the U.S. in particular, with the bill now passing, we're starting to see money free up. So we're feeling more confident about the second half.

Thank you. I have another question.

This is AI related products strength that you have. You explained about that briefly, but I believe that the other peers too are implementing the AI functions just like your company. But comparing with your peers, any competitive advantage that you have in your products? Or is there any challenges that you are having? For example, the cybersecurity companies that are partnering with NVIDIA seems like you're not the only one. So can you elaborate on that as well?

Thinking AI age, everything is about speed. You need to execute your plan and deliver your solution and go to market with the speed. And that's what I think everybody is competing. I cannot stop my competitor not to use AI. So I can only compete that I use AI better and faster than my competitor. So I think that is just the example of... our determination and our focus on delivering the security for AI, it shows that Trend Micro is ahead because we are the first one to announce all this type of solution. It's a gigantic AI platform that we can provide to our customers.

I would just add, only because I'm in Las Vegas right now at the Cybersecurity Black Hat Conference, which is the largest cybersecurity conference in the world. And yeah, another couple of firsts is our Cybersecurity LLM that Eva talked about. But the second observation is that Several of our competitors have announced acquisitions in the AI space of small startups. And what that tells me is that they did not start as aggressively and quickly, to Eva's point, as we did. We really have been quite aggressive at moving in this direction. They are having to supplement it with acquisitions, very pricey acquisitions. We're not. We're doing it organically. Thank you.