Trend Micro Inc S/Adr

Thanks Mahendra. Hi everyone, my name is Kevin Simser and I'm the Chief Operating Officer for Trend Micro. I'm here to give you a Q3 2025 business update. If you've been following us all in the media, you will have seen a lot of things around us building momentum in and around AI. Whether it's in the enterprise business with us announcing this new, fundamentally innovative capability to create a digital twin environment of your IT infrastructure. We'll be showcasing that in Q4 with Trend Micro as the patient zero, as the first customer running on that. We announced... An expansion to our addressable market into the SIM space with our agentic SIM capabilities. Super excited already. Won some very impressive wins with that. Or whether it's in our consumer business where we've taken AI technology and really attacked this issue around deepfakes. And we partnered recently with a UK consortium in order to combat identity fraud online. Or perhaps it's in our physical security business unit called VIC-1, which specializes in all things security around the automotive industry and robotics, where we partnered with a very big company. OEM partner that will be incorporating our technology and making that available into smart vehicles. So lots of stuff in and around AI, and that's been our theme. From a Q3 performance standpoint, the enterprise business grew at four percent year over year on the back of some very nice growth with customers adopting our vision one platform which has been our strategy in the consumer business for q3 we declined at minus nine percent year over year we've telegraphed this that this has been something that we're working our way through and uh As of Q3, we have worked our way through this issue that we had with our e-commerce vendor Digital River that went bankrupt and we needed to switch over to a new merchant of record and we've now done that. We finished up the final piece of work in Q3 with now our PayPal transactions are now flowing through this new merchant of record. So we should have this issue behind us. But really the star of the show has been our continued focus in and around making sure that we're driving our operating margin up and really nice to see it up at 23% year over year. Yes, we did get some tailwind as a result of our share price, but fundamentally we've been doing a really, really nice job of keeping track of those operating expenses. From a recurring revenue standpoint, the largest chunk of our recurring revenue exists in large enterprise, and that grew by 3% year over year. In small enterprise, we're starting to get some lift off from the strategy of getting msp partners to adopt our vision one platform so that's really nice to see and then consumer not surprisingly declined by five percent as a result of this working our way through the digital river bankruptcy issues from a road to 2027 standpoint i just wanted to highlight if you look at you know from a gross margin perspective we're doing a nice job of keeping our cogs in line Our operating expenses are performing better than 2024 in terms of how much we spend. And the operating margin being plus 3% year over year, year to date. with an increase of 13% operating income year to date. So it's sort of demonstrating that we are really doing a nice job of managing the bottom line as we transform the business. We're transforming the business all around our Vision One platform. This is our big priority to get as many of our customers as possible running on this unified cybersecurity platform with AI built in. It's not just us saying great things about us. It's actually world-leading industry analysts. Gartner recently recognized us for the 20th year in a row as a leader in endpoint protection. Forrester recently published a network analysis and visibility wave. And this was the first time and we appeared in it in the leaders quadrant. Attack surface management from Forrester. Also new is from an IDC perspective, extended detection and response. The fact that we were in the leaders quadrant from a cloud security standpoint leader and definitely what we're really known for is our threat detection capability. So the fact that Omdia recognized us as the number one ranked company around vulnerability disclosures at 73%, that's up from the 60%. So we are the dominant force in terms of companies that are finding these zero-day vulnerabilities. From a regional standpoint, this is net sales. in a common currency across the regions. And you can see it was kind of, and you'll see it in the pre-gap numbers as well, it's kind of an east and west dynamic going on. Japan and the AMIA region continue to perform very well, and we face some headwind in the West around Americas and Europe. You can see it even more acutely in the pre-gap numbers where Japan as a result of our uh restructuring that we did in japan at the start of the year we're really seeing this as a couple of quarters in a row of high single digit and double digit growth so japan we seem to have really righted things and in a good spot amia has been a strong double digit grower for many quarters in a row and it continues to perform well and in the americas in europe In particular, our largest vertical is government, and we continue to see slowdowns and slow procurements happening in and around governments. We are not seeing losses. We are seeing just governments trying to figure out how to make procurements happen. We also sell a lot to midsize enterprise, and in the Americas in particular, we were seeing some slowdown in midsize enterprises. So you see that the Americas and Europe uh declining from a pre-gap perspective from an enterprise recurring revenue standpoint large enterprise at 1.1 billion up three percent and small enterprise at 227 million up one percent year over year in the small enterprise i alluded to this earlier and we are really fixated on we have around 6200 msp partners today We've identified the most strategic of those MSP partners and we're fixated on getting them to migrate from the current offering that they're running over to our Vision One platform, which now supports MSPs. We have over 140 of them now running and that's really nice because we know that once they start running the Vision One platform, They get a lot more value and they can offer a lot more value to their end customers, including cyber risk exposure management. And that drives the ARR per partner and per customer up substantially. So we're really fixated on that. And that's something where we will continue to see our small enterprise business get traction and grow. The largest chunk of our enterprise business is large enterprise, and that's these 25,000 large enterprise customers that we have. We're going out to each one of those 25,000 and identifying them as are they ripe and ready for an attachment of our Vision One platform and its 11 modules and how we can get it attached. The reason why we're fixated on it is whenever we calculate the addressable market, it's sitting at $7.3 billion of addressable market inside our own existing accounts today. That's up fairly significantly now that we've added the SIEM cybersecurity addressable market into our portfolio. So that actually makes even more opportunity addressable inside our installed base set of accounts. From a large enterprise recurring revenue standpoint, one of the dynamics that we've been working our way through quite nicely, but it's been a journey that we've been on, is to move many of our customers away from these perpetual licenses and onto subscription. And moving them off of some of our legacy offerings and onto our flagship Vision One platform. That is the bright red at the bottom. $412 million up 74% year over year. That's the primary financial motivation that we have is to drive customers to adopt Vision One. We're sitting at around 11,200 Vision One customers right now. So of the 25,000, Large enterprise customers that we have today, we have 11,200 that are running Vision One. That's a 46% attachment rate. We're actually running even better than the KPIs that we had set for ourselves. So we're doing a nice job of attaching and we're attaching for the right reasons. We deliver more value. More value means the customers are willing to adopt even more and more of our platform. When they adopt more of our platform, they consume more of our modules and we know that the retention rate increases and the ARR also increases. We're sitting at 4.9 average modules deployed on all those Vision One customers that we have, so we're doing a nice job of just gradually increasing the average number of modules that customers are consuming. We've identified one module in particular which is really exciting, and that's this Cyber Risk Exposure Management module. This module is unique in that it contains a lot of our incredible AI technology. We vacuum up the entire attack surface. We sprinkle over top of it our threat intelligence. We run our AI attack path prediction technology, and we serve up for customers what are the assets that they should care about the most and what compensating controls should you put in place. And when this module is deployed, we know that we actually drive more consumption of the platform. In fact, up from 4.9 average modules to 6.4. So we're very fixated on attaching Vision One and getting this module in particular adopted. All that nets out to an NRR, a net revenue retention of 136%. That's why we are so fixated on getting Vision One adopted and that's been our mission and continues to be our mission and we continue to find more aggressive ways of getting customers to realize how incredible our Vision One platform is. Here's four quick examples in the Americas. A really nice win where we replaced Sumo Logic. This is a SIM win, so we replaced a SIM. They realized the power of our platform and how we can offer incredible value, so we ended up winning that. In the second one, it's a European win and a landing of a brand new logo. This was one that was currently being serviced by SecureWorks and Sophos. We ended up winning that because the MSSP, MSSP SecureWorks wanted them to deploy Sophos and the customer said, no, they want Trend. So we ended up winning the business. This next one is in the AMIR region. It's an expansion and a really nice win. We replaced Microsoft and typical of what we end up seeing where it's a consolidation story and a lot of need for automation and compliance and making sure that we're responsive to a very small team of professionals in the technology vertical. And then finally in Japan, in food services, a really nice win. Palo Alto Networks had a very big issue with their cloud security offering. The customer was very upset. They ended up evaluating alternatives and we ended up winning that cloud security offering. So, you know, several examples of us landing and expanding. In the consumer business, like I said, you can't judge a book by the cover. We have been working our way through the Digital River bankruptcy, and we've done that now. In Q2, we migrated the credit card transactions. In Q3, we finished up with the PayPal transactions. But we have not been distracted. We've been focused in on this beyond device protection. Yes, we have. we do endpoint protection of consumer devices. But we've been looking more and more about this increasing threat that consumers are facing in and around scams and deepfakes and what we can do to help them. And you can see that we've been growing that dramatically, up 38% year over year. to 32 million dollars so we've been really expanding our addressable market outside the more traditional cyber security budgets and really addressing a pain point that customers have today it's not just us saying great things about it it's idc This is actually recently published. So this is like hot off the press. Trend Micro recognized as a leader in the entire consumer digital life protection. This is evidence that we are doing good things beyond traditional endpoint protection. Finally, I want to use this as an opportunity as a public service announcement. We've got our investor day coming up. We will be talking at length about our strategy for 2026 and beyond and giving you an update on where we're headed relative to our road to 2028 and beyond. So I just put this out there and please make sure you get an opportunity to get this on your calendar so that you can attend. Thank you, everyone.