Trend Micro Incorporated (4704) Earnings Call Transcript & Summary

[Interpreted] Thank you very much for coming to IR Day by Trend Micro. We have some participants online, so could you please use the microphone so that everyone online can hear your voices? So we'd like to make sure that we can be punctual so that we can have enough time for a Q&A session. So we'd like to start the agenda. Even right before this session, we had to change some presentations. So could you please use the link on OneDrive? We would like to give you the link using chat. So you can download Japanese and English version. And as for the final version, we'd like to give you the link for the video. And we'd like to put the videos and the links on our website. And the materials for the presentations will be posted from the evening today, but the videos are going to be posted next week. So first of all, on behalf of our company, the CEO and the President, Eva Chen, is going to make a presentation first.

[Interpreted] Good morning, everyone. Long time no see. Really glad to come here to do this Investor Day. Actually, it's the first time ever Trend Micro has done our Investor Day. And reflecting in the past few years, I really feel that we, this generation, is a tremendous generation, that we went through a lot of changes. If you look at the speed of technology evolution, from paper to printing and press, it took 75 generation. But from the last 0.5 generation, what advance we have from virtualization to cloud, to AI, all of this evolution, is actually not evolution, it's a revolution, in the IT industry, that we all been through together. And Trend Micro is in the midst of all this technology change. I am very proud as a founder. Trend Micro is a child of this hyper technology changing environment that grow through these 30 years of changes. Especially in the last 3 years, 4 years or so, not only the technology change that Trend Micro need to catch up to protect our customers in all these new connected world, but also facing this unprecedented pandemic, COVID. As a global company, Trend Micro has our customers in all 5 big continents all over the world. We have our employee in more than 38 different countries. And our revenue and our cost is all in different currencies. So during this transformation, we faced a lot of challenge, of the COVID lockdown, we cannot face-to-face communication, as a global company, very difficult. And we need to change in the new geographical situation, we need to change how we support our customer, how we develop our product. All of this change, we have taken care of it and doing it during these 3 years of lockdown periods. So I am very proud of raising this child of change and come to this stage that we can come here to present Trend Micro. Because Trend Micro not only overcome all those. During those 3 years, we actually was going through a major business transformation. That transformation, I think Trend Micro is the only company that transformed that way. What is that major transformation? Not only the technology, we transform to cloud. Most importantly, we are transforming from a software license company -- software package license company, plus partial subscription to a full SaaS subscription company. Why is that so difficult? If you are just pure on-prem and a perpetual license company, then your transformation is much easier to see. And if you are born in the cloud and is for the SaaS version, people understand your profit margin and those companies still doesn't make money until now. It's easier to explain. But for Trend Micro, it's very hard to explain because we have partial of our business is already in subscription. So let me use this chart, and just before I go into the explanation of that transition. I say, I'm very proud of today, at this time, we were able to show you the Q3 results. I think a lot of our investors are very happy to see this, finally, because during our transformation, I must say the reporting and our financial report was very difficult. And I must say [Foreign Language] for a lot of our long-term investors, you probably wonder, is Trend Micro suddenly changed to a shopaholic or something? Why is your profit margin dropping like that? What happened to your business model? Until last quarter, when we show Q3 result, you finally probably has a breathe and say, "Ha, it looks like Trend Micro is coming back." Why is that? Why is this tremendous increase of the profit margin? Yes, there was some cost control because after COVID shopping spree, we did want to boost up our productivity, our existing. So we did some cost control for 2022. And there is some of the exchange rate more smooth and everything else. But actually, this is the turning point of our business transformation. And why I say that's the turning point, let me use this chart to explain the transformation. First, Trend Micro as an antivirus company, we have our business model of perpetual license, the blue line. Perpetual license plus partial subscription, which we call renewal business. When customers pay, the first year $100, $70 is for the perpetual license, $30 is for the renewal, what we call the patent subscription business. So over those years, 30 years, we accumulated our perpetual renewal, those 30% of the revenue. We accumulate a lot of them and it becomes a major source of our revenue. 52% of our enterprise revenue come from this 30% every year renewal. This revenue is very good. Why? It's almost $0 cost, because it's 30% customers are very sticky. They don't switch, right? And providing the patent services is customer's infrastructure and is very simple. So it's almost $0 cost. That's why Trend Micro was very profitable, very profitable, because of that. But the drawback of this renewal business is it's hard to grow. Once they stick with the 30% payment, they don't want to go over that. And each of the product has their own patent services. They don't correlate and they don't have any connection. So it's hard to expand also. And that's why we switched to the cloud SaaS platform and for subscription. For subscription business means that, first year, if you pay $100, the second year, you pay another $100. It's the full price subscription. So it should be good. But the first year acquisition cost is very high. Why? Because, first, you need to set up the cloud infrastructure to provide them the SaaS assets. The setup cost when initially your customer base is not to be not too wide, then your setup cost per customer cost is very high. Second, you need to support them to transform their infrastructure onto the cloud, the support cost, the development cost. Everything is higher. And we pay higher commission for the SaaS transformation. So our selling cost is also higher. So actually, when you see this line, the red line is our SaaS for subscription business, percentage to the total enterprise business. And when they close to each other, when they're getting close to -- and closer, that means that we are trading the most profitable revenue to the most expensive revenue. And that's why it crashed our profit margin, when it becomes a larger portion of our business. But what's good about this is, when the for subscription come to the second year, re-subscription, the cost is already down because your setup cost is already set up. Even though you still have the cloud costs continuing, but the acquisition cost, everything is done. So the second year subscription, the profit margin will come back. And that was the time that we continue to tie up until Q3. As you can see, the green line -- the green line shows that now the for subscription, re-subscription revenue is 31% of our total enterprise business. It overtake the perpetual renewal and overtake the first year new. Those are the turning point. That's why we believe we're already turning the point, turning the corner for our platform transformation, and getting into a more stable scalability for our for subscription business model, and can turn into -- the old way Trend Micro was scalable growing, scalable growth method. So we don't need to spend a lot to grow the revenue. That's why we are confident today, sitting here and presenting our road to 2027, our strategy of the balanced growth. We can balance between sustainable growth and sustainable profit margin. I believe that's what old Trend Micro were and our investor was looking for. We believe this transformation is scalable, and therefore, we can improve our productivity and gaining a sustainable growth rate. Plus we believe, with our innovation together with our AI technology and all the other process innovation that is happening inside Trend Micro, we will be able to achieve this type of growth model. And later on, our team here will explain how this will be achieved by our innovation. But let me just briefly tell you why. First, why we need to transform to the platform? Everything starts with the customer. Solving the customer problem. Everybody would want to be a platform company, right? But the center of it is when customer needs a platform to solve their problem. That's the core. Why do customers need a platform first? Obviously, the attack surface has been expanding. It's very hard for customers to see where the attack will come from, from each place. Not to mention that, currently, customer, how they buy cybersecurity, how they budget for cybersecurity, is like a box. Take the box. I've done endpoint security, I've done network security, I've done cloud security. Each one is a box. And attackers don't think as a box. They think as a map. As a map. If I can come in from this endpoint and go to that data center and attack that database and go to your cloud, and in fact, all your customers. That's how they think. They don't confine themselves into Endpoint, network or e-mail. And that's why Trend Micro's Vision One is so powerful and our attack service risk management is so powerful. And overwhelmingly our enterprise customers say, "Wow, that's what we need. That's what we really see." Because they need to do, operationalize the zero trust. Zero trust. Microsoft talking about that. But you cannot say, "I never trust you," You never trust the CEO of the company that you cannot work. And also, you cannot say, "I trust -- once I trust, then I trust forever." It's impossible. You need to continuing monitoring. So you need to establish a continuing monitoring process and operationalize, so that the customers can see where the attacks come from or even predict who is, where is the highest risk, so that I can put my limited budget onto the most critical place, fluently change at real time. That's why Trend Micro, not only innovating our platform, but also have our platform go-to-market and our platform pricing model changed to something we call Vision One credit. You don't budget by endpoint, network. You just purchase the Vision One credits and then, whenever you need, you can deploy those agents, either on the network or the e-mail, on the Endpoint. That way customers can really operationalize zero trust and mitigate the risk so that they can achieve the best consequence of cybersecurity. That's what we say shifting from tool to platform. It's based on customer needs and solving customers' problems. Currently, Trend Micro has about 40% of our revenue from the consumer or from the SMB, which they don't need this sophisticated Vision One. And we will still have that business and that part of the business very stable. We will optimize it, but it will still continue. However, we focus on this 60% of the enterprise business, especially on the existing customer, new -- creating new business from our existing customers and existing customer renewal, re-subscription business. That's how we can grow without extensive acquisition cost. And that's what we saw, we organized our organization by we call it account base. We understand the customers, and rather than a functional organization, we organize through the customer focus, customer-centric organization. What is the result of that? The first test we have, we're seeing 3x the value that we created from our strategic customers. They already -- once they get on to our Vision One, they will continue, the lifetime value has 3x increased. And we see tremendous opportunity in the top tier, the most important, influential customer, the Fortune 500. This customer already, we see that once they get on to the Vision One, the ARR grow 1.6x. 1.6x growth of the ARR. And these are not small ARR, it's a multi-dollar ARR that we were growing. And we still have 70% of the G500 customer that is not on the Vision One yet, so we still have great opportunity to expand into this market. That's what customers need. And that's why we believe customers will get on our Vision One and we can serve our customers better with Vision One. How? Through our employees' innovation. There's a lot of innovation going on, and our Trenders are the engine of innovation. For instance, in the RD part, we already use ChatGPT and all this Copilot capability, and we improve dramatically our RD productivity and RD's coding quality. So that reduce our support cost also. And then we also have our business innovation together with our process innovation. Later on, Dhanya and Kevin will explain how this go-to-market process innovation will increase our sales hit rate to make them much more productive. And finally, we come to shareholders. That's why today I'm very proud to be standing here and tell you that Trend Micro, we are back to our profit margin growth, scalable growth and our hybrid growth strategy. I do want to bring your memory back to Trend Micro. For Trend Micro, we've been continuing to grow our top line every year. Every year, we grow our top line. Not only that. We have the record of 100 quarter consecutively profitable growth. Trend Micro never try to lose money to grow. We always keep the profit, sometimes thinner, sometimes bigger, but we always have profitable growth in our mind. And if you look at long term, we also try our best to return to our shareholders. So we already done this. Every year, we have high dividend payout. And this year, after all these examination, later on Mahendra will explain. And we already announced the special dividend. We believe our scalable growth can still produce the free cash flow, no problem at all. And therefore, we are very happy that we can distribute this special dividend. And in 2024, 2025, foreseeable future, we will maintain our high dividend policy and make sure that our shareholders can get your best return. So that's my first part of the presentation, and I will pass on to our team to explain how they are going to execute this hybrid growth strategy. Thank you.

Thank you, Eva. Thank you, everyone. My name is Kevin Simzer. And actually, Eva already covered a lot of the highlights and I'm going to go in and double-click on a number of the things that she mentioned, and provide a little bit more context. But first, I thought one thing I love about Trend is we're very fixated on the strength of our platform. And I flew in just the other day, I was in the U.S. and the big AWS conference was going on. AWS is a big partner of ours, a big, big partner of ours through the marketplace and through technology. And we had a number of major announcements, so we continue to invest really heavily. But the one in particular I wanted to highlight is that our new generative AI capability called Companion that's built into our platform is now generally available. So some really big excitement. Of course, it's not just us that say great things about Trend, It's also industry analysts, whether it's Forrester, Gartner or IDC. We have glowing remarks from all of them. And as Eva mentioned, we were really pleased with our Q3 performance, and hopefully more to come in terms of both our growth, finding this balance of growth and profitability. We have this proven track record of driving the growth. In this chart, it's in Japanese yen, it gives you an idea, over the last 10 years, our enterprise and our consumer business. And you can see that we do have this proven track record of driving growth over the years. And that is something, although we'll be talking quite a bit about costs, I want everybody to take away that it's a balance for us, and we do continue to plan on driving top line growth as well. One of the things that's going to help us with that top line growth is that our business is becoming increasingly recurring. By recurring, I'm thinking of, like Eva mentioned, the renewal business, the subscription business. We've been transforming this mix more and more towards recurring revenue stream. And now we're up to the point where 95% of our total business is actually recurring. We feel that's very resilient and gives us a lot of tailwind as we continue to build out and grow our business. So let's talk about this. How are we going to drive this sustainable recurring revenue? How are we going to increase those operating margins and ultimately provide more shareholder value? Well, let me pause on this one for a little bit because I think it requires some good explanation. One of the things that we've talked about, if you've checked in on our quarterly calls, we've implemented this year, in 2023, a zero-based budgeting. And that was our way of tapping the brakes, of slowing some of our investments down. And we kind of have the evidence that, going into Q3, that we feel really good with where things are at. And what we decided to do is we initiated a comprehensive, systematic analysis of everything on the expense side. That analysis was needed because, as Eva said, when we were -- when we started the transformation -- our platform transformation, we started it in January of 2020. In fact, we kicked it off in Yokohama in Japan at our sales kickoff. That's where we announced we were going to be transforming our platform. So it's great to be back here in Japan. So we announced that transformation initiative. And in doing so, we really needed to figure out how to get that flywheel moving. You know a flywheel? It takes -- when you're at a stop and you're trying to get things going, it takes a lot of effort, a lot of pushing in order to get that flywheel spinning. And that's what we were doing whenever we were in 2020, in 2021 and 2022, and we continue to talk about, hey, we're investing, hey, we're investing. We're trying to get that flywheel spinning. Now here we are going into 2024, and we felt like we're in a really, really good spot. The flywheel is spinning. We have $750 million in ARR on our platform. We have 9,100 customers running on our platform. We're really, really at a point where maybe we could go back and rethink some of the things that we put in place to get this flywheel spinning. I'll give you some examples around 2024 and us finding $50 million worth of efficiencies within the business, removing $50 million. One is, post-COVID. We're in a hybrid work mode. What we found is we have excess facilities. We just do not need as much real estate as what we had before. So we've taken a hard look at that and realized that actually we could rid ourselves of some of that excess facilities. We've got some appliance manufacturing that we do. Part of our business is a network security business and we manufacture appliances. Actually, it's a supplier of ours. We've switched suppliers. In January, that process will start, and we've realized substantial savings in our appliance manufacturing that will reduce our cost of goods sold. We see from a cloud perspective, as Eva alluded to, when the business is adding customers and we're starting to build up the platform, as it scales, we can see that our cost -- our cloud costs per customer are coming down. So as we're getting more and more customers running on our platform, we're seeing those cloud costs start to come down. Will we spend more money in 2024 in cloud? Yes, we will. But the cost per customer is starting to come down. We've got AI initiatives in every function, every function, where we're trying to do things more efficiently, more effectively. And we see that providing a lot of improvement. And with all of that, we feel like in -- going into 2024, it's very reasonable for us to be able to remove $50 million worth of operating expense. As we look out into the future, I'm thinking 2025 plus, we've already identified a few things that will take us a little bit longer for us to implement, but we've already identified additional savings that we can put in place in order to maximize our efficiencies, drive our efficiencies on the bottom line. And we do not believe any of these will impact our growth. In fact, whenever we look at it from a profitability trajectory perspective, you can see in 2023, we did, in fact, implement our zero-based budgeting. And yes, you saw that we're holding steady on our margins, our operating margins. But those savings were really instrumental because we, of course, have had some incredible headwind around currency. So it helped us along the way. We continue to see, as we build these $50 million worth of operating expenses, that, in turn, can improve our overall operating profit for 2024. And out to 2027; we don't see this stopping. So Eva already shared this chart, but I wanted to pause on a couple of things. One is I wanted to recognize the top line. We do believe that a sustainable growth in and around the 10% is something that's actually very achievable and reasonable for us. And that's definitely something that we have our sights set on. All the AI technology, everything that we are doing in order to continue to push our platform. And we're seeing with our platform, you're going to hear it from Dhanya, our ability to actually expand within an existing customer is far easier now that we have already landed within that account and our ability to add additional modules to that customer. So the expansion potential is very high. So we feel like, actually, in terms of road to 2027, we feel like this 10% range is actually a good range. On the bottom line -- you can see the different operating expenses. You can see from a COGS -- let me go through each one. From a COGS perspective, that's as a result of some of the things that I talked about around switching contract manufacturers for our appliances. It's getting more efficient from a customer support standpoint using AI, and I'm going to give you an example of that. On the sales and marketing side, it's removing some of the overlays that we had in place in order to get that flywheel spinning. From an R&D perspective, it's showing that the cloud costs can come down -- with an operating margin of 20%. Now that's our management target. And I want to be clear that this is not guidance for 2024. You know our regular rhythm of, in February, when we announce our 2023 results, we will give 2024 formal guidance at that time. But this will give you an idea from a management perspective of what we think the magnitude of the impact is as we go into 2024. Very, very healthy operating income. Okay. This is an example of AI kicking in. So from a support perspective, we're actually already implemented this. One of the things customers actually would prefer not to actually talk to us, they prefer to actually solve the problem themselves by going on our website. That's knowledge-based articles. How can we help them using AI to automatically generate these knowledge-based articles? In fact, we've even gotten to the point where we can actually solve customer problems before they even know they have a problem, because they're running on our SaaS platform. And we can make that fix available to everyone. Much more effective, much faster. This is the power of AI and making us more efficient. Okay. So we have these three different businesses. You heard it from Eva, myself, consumer, calling it small enterprise and large enterprise. Let me double-click on large enterprise for a second and give you some color around that, because this will be both our top line growth engine that we will be leaning in the most on. We already have a plan from an enterprise revenue perspective with 10% for 2023. So we know that we can do double-digit growth with the enterprise business. What's really exciting, I pulled this out from our friends at Morgan Stanley, this is a CIO, not a CISO, a CIO level report that talks about the top priorities for CIOs. And you can see that the top priorities are endpoint security, cloud security and network security. Well, that happens to be exactly what we are known for. That's our DNA. That's us. So we will be fixated on double-clicking on our 28,000 enterprise customers and trying to expand as much as possible into those customers with our platform. We have 11 modules today, and we see us being able to expand even more. But the first thing you have to do is you have to attach. So our go-to-market machine is absolutely obsessed with talking to every one of those 28,000 customers that does not have our XDR platform, Vision One, and getting it attached. Now you think how a 20,000 is a pretty big number. Dhanya is going to share with you how we can be much more clever using AI to identify the highest potential accounts and really get fixated. But when we attach, we know that the average selling price is 2.5x. So we know it pays off just to get attached. Our next step will be, once we're attached, how can we expand within the account? We call them modules, module adoption. And we know that when a customer has 1 module, 2 modules, 3 modules, 4 modules, we know that the retention rate increases customer retention. We know that the ARR increases. So what do you think we're fixated on? We're fixated on expanding that customer as much as possible. And ultimately, this helps stop threat actors. That's what we're there for. When I total all that up, our installed base only, it's USD 6.7 billion is the addressable market in our installed base accounts. I haven't talked about adding a new customer that's possible, but $6.7 billion in our existing customers. So there's lots of opportunity why we're going to be spending a lot of time on it. We have this customer success model where we drop all of our customers into these different segments: volume enterprise, commercial and strategic. So our goal is to try and expand those strategic customers and get them -- get those customers spending more, moving commercial customers up to strategic by getting them to spend more. That's the power of the platform. So with that, let me hand it over to my good friend, Mr. Dhanya Thakkar. So -- and let me introduce him real quick, so -- because I know a lot of questions end up coming up around the U.S. And one of the things, Dhanya and I, we've worked together for 25 years. Dhanya has led the growth engine in AMEA. You've seen those results and that performance. And Dhanya has some experience as well with the U.S. And one of the things we're going to be doing starting in -- well, it started now, but effective January 1, is Dhanya will be taking on the U.S. sales role as well. So that's exciting because we have a working formula of selling our platform in AMEA, and we're going to take that know-how and all of that energy and apply it to the U.S. So anybody that asks me, am I still serious about growing the U.S.? That's always a question. Absolutely, we are. Absolutely. Dhanya, over to you.

Thank you, Kevin, and good morning, everyone. Really excited. Kevin talked about the growth as well as the expense. And he talked about the balance. Well, he really expanded on the expense side, I'm going to give you the confidence on the growth part, and especially talk about the enterprise and the double-digit growth. And when we look at the growth, it really comes down to the go-to-market. In any enterprise, including Trend Micro, there's all these functions. There's the sales, marketing, channel, customer success, presales, post-sales. And if you look at Trend, previously, we've all these functions and they have their own sort of processes, especially aligned to product selling. And that's okay. There is a connection between these functions. But one of the major changes that we are looking at, and we are in the process, is doing the transformation where all these functions are working together towards a single customer-centric go-to-market model. And that's really big because, really, from a sales perspective, if you look at it, it's focusing on those 28,000 customers. And by the way, that customer count isn't really changing. It's 28,000. So it's a big number globally. And focusing on those customers really allows us to make sure everything has that same focus. Marketing is the same thing, having an account-based marketing strategy that is aligned globally. From a channel perspective, we launched a new channel program earlier this year. And it's all about not just transactional channel partners, but really about how can we have the channel that is focused on value-based platform, adding that value from a channel ecosystem. Customer success with any platform selling the go-to-market involves that customer success, which is all about adoption, onboarding and engagement of the customers. The more they use, the more, as Kevin said, the modules they will buy because they will see the value. So the customer success, really the core focus is in and around making sure that the customers are using more and they are engaging more with the platform. From a presales and post sales, again, a major transformation going on, especially in and around making sure that everyone is aligned to risk management. Everyone is aligned to SOC. We are looking at things proactively as opposed to issues as they come in and solving them after. And all of that transformation in and around the customer. Well, when you say customer and you say, jeez, there's 28,000 customers, so how do you really go about doing this? Well, you've already seen that you define the customers based on strategic commercial and volume. And this is our internal thing. 3,000 customers at strategic, 5,000 at commercial. But you have 20,000 customers in the volume enterprise. They're giving us 25,000 or less ARR. Huge and incredible opportunity. So how do you really go about it? Because this is just based on the ARR they gave us. Well, the first thing is, within each segment, if you were to look at it and you say, well, within each segment, you might have high potential or low potential customer. You might have a really big customer that's giving us less than 25,000, but it's in a volume enterprise. But the potential of the number of modules for them to buy and go all the way up to strategic is actually really high. So the first categorization -- and we've done this before, we call it the ABCD bottle. We've done this in AMEA, we are using this at a global level now, is aligning these segments or aligning those 28,000 customers in those 6 categories, that right away starts giving some segmentation. And as you can see that the top A's accounts are all the ones with the high potential. They might be giving us less money right now, but they are the high potential. And if you were to divide those 28,000 customers, this is how they end up. You have about 10,000 customers close to that in the top A's accounts, and you do have those accounts with the low potential. But again, even when you look at it, you say, Dhanya, this is great, but still, how do you go deeper? How do you, let's say, look at an E account and dive deeper into it? Or how do you look at a C account and say, what are the attributes and how can you help? So the first thing is you want to look at each of those segments from A, B, C, D, E, F, and we started looking at this in terms of various account attributes, where is the customer at in their journey of adoption, what are the activities that are going on, what are the third-party tools. And a ton of work we've been doing since the beginning of the year using AI to try and find those accounts in terms of where there is the highest propensity for them adding on additional module. Or it could be in terms of things that we should be doing that customer that will take them to another level. So all of that has led to this creation of this customer experience dashboard that, again, we launched earlier globally. And what this allows us to do is dive into every region, every country, every sales team, down to the seller level, down to the account level. And you can dive in and see exactly where that customer's journey looks like in terms of that Vision One platform adoption. You can see exactly what the risk score is. You can see what their network looks like. You can see in terms of how many times they are logging in, what does that adoption look like. You can see how much API integrations they've done. You can see each and everything, and that allows that entire go-to-market team from sales, customer success, marketing channel, to try and come up with the actions that will make that successful. So it's great. We have the visibility. We've taken 28,000 customers, we've divided into 6 quadrants. Within each quadrant, now you have a very detailed analysis, which is enriched by AI. What do you do? What do you do with that data? And there comes this playbook that we've created across multiple things. And it's a little complicated, so I'm going to try and just take a couple of minutes to explain. So you take an account, which is, let's say, in a C quadrant, which is high potential commercial account. The moment that customer has purchased, there's series of triggers and activities that are kicked off in terms of playbooks. Initially, the sales and presales and the channel partner might have been involved in the customer win. Right away it leads to loading of a playbook that says now we need to onboard this customer, customer success team, post-sales team, and again, the channel partner come into play. If after going through the playbook, you find that the customer still isn't using the platform, how much we expect them, another playbook gets kicked off, marketing gets involved, customer success again gets involved in terms of education, in terms of showing the value of the platform, and so on and so forth. So at every stage, these automated playbooks are created, keeping every single function, making sure that they need to do the actions they need to do. And that leads to that, as Eva said, that high success rate of that customer win and really making sure that we are successful in getting the double-digit growth that we know we will. Thank you.

Nicely done. We do have a break coming up. Just a couple of more minutes, okay? So bear with me. Everything that we just went through, that we double-clicked on, was about the enterprise business. And the cool thing is where I laid out, we also have a small enterprise, we can do the exact same thing in terms of zeroing in. Except in that case, it's about an MSP partner and focusing in on the MSP partner. I want to round things out with consumer. Consumer is 22% of our overall number. It's a big business in particular in Japan. But we have this goal to continue to drive sustainable, maintain our steady top line growth, but really try to improve our overall profitability. And ultimately, we're going to do that by increasing our AOV. If we look at the consumer business, it's divided up across 3 major geos for us. We don't really have anything per se in Japan. Japan is the largest -- sorry, we don't have anything in Europe. Japan is the largest, Americas, and then AMEA in terms of size. We have around 17 million plus paying customers across our consumer portfolio. And the strategy in order to drive growth and profitability is to increase the amount that we're getting from those 17 million customers, increase the AOV. We already did that actually in -- between 2022 and 2023, which really proud of the team to be able to do that. Yes, that was a price increase, but that's also because we are able to actually start to expand what we're selling that end-consumer buyer. We call it beyond device security. So rather than only focusing in on protecting the device itself, the computer, the laptop, the desktop, but also it's around VPN, it's around password manager, their identity protection. There's other capabilities that we can add in order to increase that AOV. And we're already seeing evidence that that's working. So that's going to be our focused strategy around consumer. With that, I think a break? Yes, I could see them dying for a break. So thank you, everybody. This is a quick intermission and then we're going to come back with some really exciting product platform, and then Mahendra will bring everything home for us. So thank you, everybody.

Oh, don't go away. We still have a very important platform update, Japan market update, and finally, our financial update.

[Interpreted] Now thank you very much. Now we're on time. So until 11:00, we would like to take a break. From 11:00, platform innovation presentation is going to be made. [Break]

[Interpreted] So it's 11:00. We would like to start the presentation, the latter half of this event, from 11:00, platform transformation. Chief Platform Officer, Frank Kuo; and Vice President, Portfolio Management, Rachel Jin, are going to make presentations.

Good morning, everyone. My name is Frank Kuo. I'm the Chief Platform Officer based in Dallas, USA. So I think I'll just focus my session today on why we adopt risk-based approach in our Vision One platform. And why having this cyber risk conversation is so important for Trend Micro, because I see this as a tremendous opportunity for us to elevate our conversation, our value proposition with our customers that never before. But let me go back to what Eva was talking about the rising attack surface and give you a little bit of data points here in terms of the threat landscape. So this is the FBI data. As you can see, more and more cyber attacks every year. And the ransomware and the BEC attacks continue to impact enterprise organization. But I want to flip to the business side. So any -- to any business leaders or CEOs, it's either the business opportunity or the business risks that will impact their company growth so if you look at the PwC's report, cyber risks now are not just the top concern to CEO or to the company growth, but also the top risk in the 2023 Allianz report, the top business risk. So you might be wondering why there's a company already invested a lot of money in cybersecurity, but why they still have this concern, worry about the cyber risk. And for that, we've actually done a lot of research and customer interviews. We have identified that there is a gap in between the security team, which is down there, the security team. They're dealing with the cyber threats every day, and their business team on the top, they worry about the business risk. So the gap is between these two teams. So what happens is that the security teams that normally are overwhelmed and preoccupied patching vulnerable systems or dealing with the daily detection and breaches every day. The security team. Right. And they normally don't have the business context to understand what specific cyber risk, if they were occur, okay, would have the most impact to the business operation. So we want to solve this problem. That's why we adopt this risk-based approach into our platform. And so by using cyber risk as a communication tool, we think we can bridge the conversation between the security team and the business leader. So we can enable the security team to better understand their business risks, the overall business risk, and shift their focus on the most critical business activities, so that they can better prioritize their efforts and to not just reactively dealing with the daily detections, but also proactively reducing the cyber risk. Okay. I'm very, very, very excited to share with you some of the early success ever since we introduced this approach. You see Panasonic, you see the Copenhagen Airport. Honestly, in the past, we never have this opportunity to talk to their C level. But ever since we raised up our conversation to have this risk-centric approach, our conversation turned out to be so valuable, they're inviting us into their environment or they're flying over to our Dallas EBC, our executive briefing. We never had that experience before. So we're very, very excited to share with you the early success here. So we believe by taking this proactive risk-based approach, we not only facilitate a conversation between the security team and business leader, but we're also elevating our own conversations with our value propositions to our customers, which, most of the time, this C-level executive, they are the critical decision-maker in choosing cybersecurity vendors. Okay? So with that, I'd like to pass over to Rachel to give you another level of detail. Rachel?

Thank you. Thank you, Frank. Hello, everyone. My name is Rachel Jin. I am VP Platform Management from Trend Micro. I'm based in Dallas, Texas, U.S. And I'm going to share platform strategy and growth opportunities coming from our all innovations. So we have gone through a major transformation in the past year. And previously, we have siloed security tools, created a siloed security data. And now we are shifting from siloed security to a cybersecurity platform. That is our Trend Vision One platform. So Trend Vision One is the cybersecurity platform, connecting proactive cyber risk management with natively integrating threat detection response in a single platform. So with removing all the data silo and also correlating all the data in one platform, the organizations can access stronger security and business outcomes through the increased visibility and also correlation. And we are also shifting from reactive to a more proactive approach so we can mitigate risk before they become a real attack, and we are thrilled with the feedback we are hearing from our customers. And all of this feedback about the transformation is amazing, and we use the feedback for future innovations as well. And this is the picture of what kind of features we really delivered with our Vision One platform. So you can see that we have endpoint, cloud, e-mail, network protection solutions to protect customers' hybrid IT environment. And we have XDR correlating the data coming from different sensors and data sources, so we can deliver high-quality threat detection outcome. And our proactive attack service risk management also drive rapid growth since July when we launched this year. And so we really have a very good coverage in the platform to drive our platform expansion. As customers adopt and consume more services within the platform and then the cyber resilience and the efficiency will be improved. And because of this platform, the same console, same workflow, same foundational services, so expansion is so easy for our customers. There is no additional purchasing process or there is not additional configuration process you need to deal with. So adding more value is very easy with the platform. And we hear from a lot of strategic customers who have large organizations, and they have very strong need about privacy, sovereignty and compliance. So this is also a huge market, and to address this, and we created 2 purpose-built cybersecurity platform forms. One is the private cloud version and the other is government version, and we already see strong pipeline coming from here. So many customers come to our platform or our solution because of Trend Micro's Threat Intelligence. We have 16 threat research centers in the globe, and we are serious in this area. And we hear from our customers, they want to utilize more value from our Threat Intelligence. So 2024, we plan to productize and monetize the Threat Intelligence for different regions or different countries and different vertical industries. And also, AI -- generative AI has made a huge impact on the world this year, and it also drives advancements for security innovation and threat landscape. And we are also using AI to drive our more innovations. And we, our platform is fully AI driven. And at the same time, we really -- customer data, customer privacy is always the #1 top consideration that we have when we design our platform. So we build our AI model in our private Trend tenet. And this year, we got endpoint security leadership again. And the most exciting part is we are recognized as the vendor who has the best endpoint security strategy in the market. And also this year, we are the only platform vendor who got NDR network visibility and analysis area leadership. And so we are the only security vendor who has EDR and NDR leadership. That's why we have the leadership in the XDR. Our vulnerability capability is very strong. And like I said, we are going to monetize that part, and we have the #1 market share for the cloud workload security today, and we will continue the momentum for the workload security and also extend to contain our security just to follow our customers' infrastructure change. Customers trust us, and look at where Trend sit, and our satisfaction rating is #1. And also, like Kevin mentioned, we also announced a lot of innovations related to cloud security this week. We showcased our thought leadership in the cloud security again. So this is my last page, why Trend's platform is unique? And we have several strategies we will continue investing, supporting hybrid. A lot of other security vendors, when they join the security world, they're actually very focused on cloud and cloud only. But majority of the customers, they have cloud, they also have hybrid, they have on-prem, and we are highly committed to support and protect customers who have hybrid environment. And also, Trend Micro, our platform has breadth and depth and which we have the #1 sensor coverage across endpoint, e-mail, network, OT, cloud and identity. And also, we have the leadership in the EDR and NDR, we are the XDR leader. And our Threat Intelligence is always our core. All of these, our platform investment, our platform uniqueness is all based on AI driven. We are AI-driven platform company. Also, our platform is also fully AI-driven. And thank you so much. This is my presentation and hand it over to Omikawa-san.

[Interpreted] My name is Omikawa. I'd like to make a presentation in Japanese. So this is Japan. In the IT industry in Japan, we're kind of lagging behind by years. There was the progress in Japan so far. And right now, it's the same as was mentioned before. The top management's awareness compared to the Western countries, the awareness about cybersecurity in Japan is lagging behind. So overall, in Trend Micro business, Japan is lagging behind in terms of something new like our products. That was our observation. So once again, I would like to talk about the trend of the Japanese market and how Trend Micro is going to grow in Japan. This is by Gartner Japan. This is a domestic survey targeting Japanese CISOs and also security leaders. And in May this year, they conducted this survey and this is the latest result. So that means there are so many challenges. We have geopolitical issues and also economic security. We have a lot of challenges. Those are responses by the top management in Japan. However, because of the understanding that is not very advanced, they are not really comprehensively addressing this problems, but they are just talking to IT department to address this issue. So for example, looking at all the data to try to solve issues, so many of them are burned out. 70% of the CISO are really tired. There are more and more connected devices, that means we have more and more challenges and they are tired of addressing each individual issue, and they don't know how to address these issues, but their responsibility is getting bigger and bigger. That is what they are thinking about. So EDR and NDR, we have some predecessors in the market, and we were partially optimizing the systems. However, comprehensive approach was missing. We have to be comprehensive. For example, you have a solution by Company A, and you are using EDR by this Company A. For networking, you are using Company B solution but you need to look at the whole supply chain as a whole, as a group. So there is a collection of many different systems, but you have to interpret the data from all of them, and you have to analyze all of them to identify threat. The other day, I went to customers, and every day, they are facing some kind of incident in their factories and offices. But it's very difficult for them to identify if each individual event is a threat or not because they are looking at the whole data. So this is not comprehensive optimization. Risk management and prioritization are more important and how to make it efficiently is very, very important right now. 75%, according to Gartner's event, the survey from the 26th to 28th of July, according to this survey, 75% of the users are saying that they need to have easier vendor consolidation. And to some extent, they have to concentrate on certain vendors. For example, for network, Cisco maybe, Active Directory, maybe Microsoft security, Trend Micro, so to some extent, you have to focus on certain vendors. Otherwise, it's very complex in this market. So that's the direction the industry is right now heading for. Well, we were lagging behind, but Japanese users at last started to realize the direction. So this is our approach. In 2022, according to Fuji Chimera Research Institute, there was a forecast from 2021 to 2023 to 2027. So we used to focus more on the blue part, protection-type products. And the competition of our revenue of Trend Micro was focused on this part as well. But right now, consulting and security operation, the orange part, started to be bigger and also some products for identifications, alerts, risk management, and they are getting bigger as well. So Trend Micro, as I mentioned before, have new platform strategies to address these new areas. We do have enough solutions to go into these areas. And actually, in the western part of this world, we are entering those parts. So what about Japan? Last month, at last, the Japanese government started to say that they have identified 240 companies in each government agencies. They listed up the 240 companies, and it's hard to read the document, but the number and the names of the companies and what they have to be worried about. They have compiled this document. And each government agency is going to create a guideline for regulations. So what we are offering, including OT infrastructure, we are an infrastructure company and cybersecurity as well. We will at last have a guideline about what we have to do, and we have Tier 1, Tier 2 companies on the list. And they are going to know what they have to do. So we are behind, but we are now at this period. So NIST cybersecurity framework and NIST 2 in Europe are one of the examples. We have a lot of demand and we have a lot of users, and the Ministry of Defense in Japan as well. For the defense equipment. SP800, for example, of NIST 53 should be the standard to select a vendor to be included in the supply chain. This is for the defense equipment at that regulation. And also for semiconductors, we have a lot of equipment vendors, and they have to implement security. And you cannot purchase semiconductor equipment unless they have security attached. So as such, we have more and more regulations at last. So based on AI, we have data-driven and customer-centric organizations, and the team in Japan is learning from the western countries to include everything. And we are going to shift the organizations. So we were talking about many things before, and we are going to use the same things for more efficiency and we are going to start more efficient sales activities as well. We do have a lot of customer base and EPP e-mail. We do have the #1 share, so we do have a lot of existing customers. So with more efficiency, we can increase the volume with the customers. And from 2020, in Japan, Cybersecurity Institute of Research was opened. So in terms of geopolitical situation and also transparency of R&D, government and BLE and everything included, they are researching and the trust in this industry is getting higher, and intelligence teams have Japanese intelligence teams here, and they are in collaboration. And also, we are dispatching people to governments as well. And we do have an education center. And we have to transform the mindset of top management. So we have cybersecurity education and we create content for the education for top management. And also, for security personnel, now we have trainings and we created content for education as well. We have been doing so many things. This kind of research center is very important in Japan to gain trust. We use AI for systematic approach and sales activities. So altogether, since the demand is getting very high in Japan, we have to capture this demand in the market. So in the end, Mahendra Negi is going to talk about the finance.

[Interpreted] So this is the last presentation. It's a very important session, I think, because this is an Investor Day. So from the perspective of investors, the attractiveness of Trend Micro is as follows. So today, we already heard that we are in the transformation and perpetual license to source. So the expenses increases, profitability goes down. But during those -- that change from the shareholder perspective, compared to 3 years ago, still, there was a good value generated. So that's the first point that I wanted to share with you. The second part is that the earnings per share in terms of growth needs to be improved. As Kevin mentioned, it's something that we would improve further. But for the shareholder return, started with this year, JPY 25 billion buyback, and also the special dividend, JPY 100 billion. And next year, JPY 40 billion buyback is being planned. And also, in addition, all the profits will be used for the shareholder return. So high dividend will continue. And when you look at the capital allocation strategy, the investors had pointed out that we -- what do we do with the cash on hand. So this time, for the dividend policy, we already mentioned that, to the limit, we will do this. And then after that, M&A or using the cash on hand, we will be using that and a 70% yearly dividend will be continued. And this is another important point, the profit and growth, which is more important for us. Depending on the companies, for example, cloud is growing, but it's still in red and Check Point, for example, they are profitable, but the growth rate is not so high. So in the case of Trend Micro, we are in the middle. And it is not just by accident, but this is our policy. Profit and the growth, we have to have a good balance. Maybe looks conservative, but our point of view is that, that would lead to the sustainability. In the past 30 years, we have taken the balanced approach. And thanks to that, as an independent security company, we have built a good track record. And having the high cash on hand and 40% is cash, that was one of the things that were pointed out. So we will be improving the balance and the share buyback and the dividend. What would happen after that? In comparison to other peers, in terms of the total assets, what is, how much is cash and also the monthly sales, what is the percentage of the cash? I think we can say that we are about average or lower, so efficiency can improve from now on. And also ROE perspective, once again, 40% [indiscernible] capital. In our case, about 30%. So we want to use the capital more efficiently, and we would do that. And this is my last slide. So once again, this is the summary of what we talked about. First is the strength of the company. We are a hybrid position. And when we say hybrid, as Eva mentioned, we have on-premise and we have cloud and cloud network and endpoint. We have all of them and from consumer to large enterprise. And also, the profit and the growth, we have a good balance between the 2. And the shareholder value increase is something that we are very much focused on. So those are the main points for the Investor Day. So please bring this back with you. Thank you for your attention.

[Interpreted] Thank you very much. So now we'd like to go into a Q&A session. Those of you who are here, and those of you who are online, we would like to receive questions. Could you please raise your hand? If you have any, okay. There is one here on the floor.

In your explanation, you said this is not an official forecast, but 20% of GOP margin in 2024. And Q3, well before that from -- before that, it was 14%. So it became 18%. So there is a great increase. And as in Q3, the revenue increased, but absolutely, SG&A declined in Q3. And do you think the same trend continues for the next year, especially HR strategy is really depending on the top management so we can't imagine? So next fiscal year. Revenue increase and SG&A decline, is that the trend for next year?

That's definitely our intention, and that show in how we can do it because of the hybrid also is between AI and human being, and we believe we can increase the productivity of our current employee, and that's why we can reduce the S&A. And also, Kevin has other tricks to do that.

I think, yes, you're understanding the model correctly. And I was trying to clarify that we will be publishing our guidance in February. But this will give you a strong indication of where we believe we're headed with the operating model. We do have a plan to remove the $50 million in expense, so that will have an impact in 2024 on the SG&A, like you're thinking about it. So that's correct. But we have other areas as well. On the cost of goods sold side. We think that there's some improvements there that we can do, and it's a balance between everything from facilities, now that we're in a hybrid work environment. So excess facilities, cleaning that up through to some of the overlay teams that we ended up building to get the flywheel going. We think that actually we can operate quite confidently without that, the need for that.

[Interpreted] So JPY 50 million reduction of the operating expenses, when you reduce the marketing cost, I think that the speed of customer acquisition goes down. But during the presentation, when the customer introduces a solution, how they are using the solution, and based on that, you can improve your approach to the customers. I think you mentioned that in your strategy. So in individual salespeople, what kind of actions should they take? So the database or how to do the sales, for example, recommendation in the case of Amazon? Is that something that you provide to the salespeople?

Great question. Let me start and then perhaps Dhanya can jump in. From a -- as we move towards selling a platform, we actually have already seen our seller, our sales executive productivity improve. So we've seen that go up, the productivity. And we feel like with some of the advancements that we're proposing that we do for 2024, we can make that improvement even go further. We will be very, very fixated on our installed base accounts. Like I said, we can calculate, it's just math, that there's USD 6.7 billion in market opportunity in our installed base. And the platform that we've built, this go-to-market platform -- actually, internally, we call it pot of gold, pot of gold. And we do think that, that pot of gold, that console, that capability will be able to point our sellers at -- and not just our sellers, actually our entire company. We're moving more and more people to the front of the boat. So we can point more people at the most effective thing that we can be doing for customers. It could be a health check. It could be an upgrade. It could be a trial or a demo of something because we see something going on. So there's lots of things that we have lined up. But Dhanya, maybe you can add.

Yes, absolutely. Very good question, certainly on the growth side. So the first thing, previously, when you have individual products, where you have multiple sales team, marketing teams really trying to sell those individual products versus one platform, it changes a lot. As you've seen in both Asia, Middle East business as well as the Europe business that we have been seeing that very strong double-digit growth over the last couple of years. And a lot of that has been coming in as we are transforming to a platform-focused company. What we want to do is leverage a lot of that experience we have applied to U.S. And we also see in Japan as the adoption of XDR increases that we will have this high attachment of modules to the existing customers. We believe that with that, plus all of the AI, the single go-to-market focus in a global way, I think we will get those productivity increase, which we have been seeing over the last several quarters. So the model is very, very straightforward in terms of where we see that growth coming from.

[Interpreted] Understood very well. Especially individual products, shifted to a platform and higher touch rate can be achievable. You can sell more and more. I understood it very well. So attachment rate going forward and also additional solutions, well, are you going to think about any disclosure of more KPIs?

[Interpreted] Yes, thank you very much. One more person.

Hiroko Sato from Jefferies. Thank you very much for this IR day, I think it was super informative. I hope you do this again next year. I have 3 questions. I'm piggybacking same questions from [indiscernible]. Can I just confirm that you kind of crossed the chasm and op and profit margin wise? And Q3 this fiscal year is the bottom? I know you're going to be paying lots of bonuses in the fourth quarter. So I know there's going to be a lot more cost in fourth quarter, but the margin outlook is going to step up because of this, first, your initial capturing customers, where the front-end cost is going to be pretty much toward the end, you're starting to see recurring revenue. So can we imagine next fiscal year, as Kevin indicated in your one of your presentations, we're going to see a step-up in op and profit margin next fiscal year and beyond? Is that correct?

Well said, yes, that's correct. Q4, as you have so well said it, that we have -- seasonally, it's our largest quarter of the year. So we will have additional expenses that roll into that. And we will have some charges related to the potential write-offs that we'll be doing around facilities and whatnot for the following year. But your understanding is correct. Going into 2024, our operating model will have increased profitability.

Okay. That's good to know. Can I ask you about U.S. market? You didn't really mention it this time around. But with all this, the platform business, XDR, Vision One, sounds exciting, but still, we're not really seeing growth coming out of the United States. Is -- the basic understanding is that you have lots of competition in U.S. But yet, I think this product that you mentioned today, I think U.S. clients is -- U.S. and European clients are probably first takers and first adopters. What should we expect in 2024 as you also target 2027? Are we ever going to see U.S. growth? Or is this something that the best we can expect even with your product line up is flattish growth? How should we look at this?

Absolutely, we will expect growth in U.S. The reason is, finally, the U.S. market is realizing that EDR is no longer valuable, and companies like CrowdStrike, which are focused on EDR, I think people are realizing that XDR and beyond is the future. So if you look at the Trend Micro platform, which is not just XDR, but really looking at risk, and as Rachel talked about, it's not about stopping breaches, it is about not getting into the position that you are breached or you are in a position to be breached in the first place. And that's really the transformation that the U.S. customers are beginning to see. And so we feel, and I feel pretty confident, that we are going to see that pivoting happening in terms of that XDR, the platform. It's also -- it's not about acquiring companies and gluing things together. I think if you look at Trend Micro, where we've been natively building a lot of those modules as opposed to plugging it in with other vendors. If you see a lot of the analysts and what they are seeing is that, that is really the future because it's not just about integration with others. You do need a lot of native modules in your platform, and Trend has been investing in building those native modules. So you're going to see that impact coming in. So I think, with those, and then the third thing, as I mentioned, in terms of how we are transforming the go-to-market, which is really difficult. And especially if you have multi-company acquisition strategy, trying to align not just the sales, marketing and other things, different cultures and different things, I think we are in a lot better position now in terms of transforming that go-to-market. So I really feel very confident that you will start seeing some changes in the U.S. market.

Okay. looking forward to actually seeing the data next year. And my final question is churn rate. So obviously, you have the second, third customers who's in the second, third stage of giving you a recurring revenue. How is the churn rate of those customers? Second year, probably pretty sticky. But how about third year clients, are you seeing more increase in churn rate?

Actually, it's not about the second or the third year. The churn typically comes in. A lot of companies would have a strategy, especially when you look at a platform that every few years, they might want to change the vendor. And that might be just the policy in terms of how they might see it. So there's always going to be churn in the industry. And as I mentioned, in terms of our 28,000 customers, it's actually -- we are not losing the customers, right, over every year. So of course, we acquired the new customers as well because there's, again, as the companies will have similar policies and as we position the XDR platform, we are acquiring those new customers as well, right? So overall, I think it balances it out. But with 20,000 customers in that volume enterprise, our focus will be on those 20,000 customers to build them up. But that doesn't mean that we are not acquiring new customers coming into that 28,000.

Let me change the question. Do you see the acceleration of clients canceling a contract? I would assume, with the module strategy, you're probably going to get more stickier customers. So I would assume that the churn rate is declining. Is that the right way of looking at it, especially in U.S.?

Yes. Absolutely, the churn rate is declining.

And I would just point out, I had one chart in there. I know I was going rather fast. But the one chart talked about as we expand and add more modules to a customer, you can see that the retention rate churn, retention rate improves. So we're really, really fixated on adding more modules. Customer spends more money with us, the churn rate reduces. So that's definitely something that we're fixated on.

And more modules means higher margins, I would assume because the second, the third module you add, you become a little bit more efficient at that point.

It goes back to that scalability, yes.

But this initial cost is not there. Okay.

Yes.

[Interpreted] Any other questions? Yes. Thank you very much. We have a question.

This is Tsuruo Citigroup Japan. Thank you very much for this great opportunity to understand the company. I'm very happy to see integrated mid-term financial outlook probably for the first time. So I have a question starting with that one. The first question is revenue expectation. So you're expecting a midpoint of 9% CAGR for the revenue. Would you be able to break down how much of that is expected to come for the SaaS business? And furthermore, if you can decompose between the user count growth and ARPU growth, that will be very helpful. And this is the first question.

I'm sorry, could you repeat the question? There was one part that I didn't pick up. Which part of the business were you looking for specifics on?

I'm talking about the total company, there was a chart for the mid-term growth. You are expecting 9% revenue growth, correct? And the margin is going to go back to the 30%. So my question is, out of that 9%, how much do you expect from the SaaS business. And then if you can decompose between the ARPU increase and the user count increase, that would be helpful.

Yes. So out to 2027, we've modeled it completely, and you're understanding it correctly in terms of the growth rate that we're looking for. By far, the majority of the growth is going to continue to come from our Vision One platform, the SaaS platform. So the majority of the growth we will see. But what's interesting about our platform is it actually has a connection to our on-premise products as well. And where we feel like there's potential upside is that we will be able to improve our overall renewal rates with some of our on-premise customers as well because they actually get to benefit from the power of our XDR attack surface risk management platform. So we do feel both areas, but by far, the majority of the growth will come from Vision One, specifically, SaaS.

And the part of the question was if you can break down between the user account growth and ARPU growth. Would you be able to comment on that, too?

Actually, right now, what we've built into the model, we're very, very fixated on the 28,000 enterprise customers that we have today. So that will continue to be what we are zeroing in on. Of course, there will be some new customers that get added because we have various partners, and they will contributing to the growth, but we're very fixated on our installed base accounts. We feel like that represents the biggest opportunity for us. We don't have to worry about the cost of customer acquisition. We can do the math and see that the business is there. We're getting all of the wood behind this arrow to go after that installed base. That will be our priority. And we see that our ARPU for our enterprise customers has been increasing as we've -- as the platform is getting adopted, and we can still see it increasing even more Remember, we have 11 modules today, today, commercially available. Well, how many are we going to have in a year from now? So there's a lot more capability that we can continue to add to our existing customers.

The second question is that you are expecting significant efficiency in S&M, sales and marketing expenses. The ratio comes down drastically, to achieve the OPM. Could you -- I know that you addressed a few in your presentation, but could you elaborate more how you achieve this much of a significant decrease of S&M?

I also want to mention that, please, that percentage is not an absolute amount. It's the percentage to the gross sales, right? So as our sales grow, our sales marketing actually still grow. It's just the compound interest rate concept. If your growth rate is higher, then -- higher than your growth rate of your sales and marketing, so it's not like we are just cutting everything and sacrifice our growth opportunity. It's just we make it more efficient of our sales and marketing. So I just want to clarify that.

Yes, I understand that.

Yes. And I'll just add a number so that you can digest it. From 2025 until 2027, actually, we've dialed in operating expense increases to the, in about 12%. So it's not, it might look -- to Eva's point, it might look like it's constant cutting, but that's not the case. Actually, we will be increasing our operating expenses just much more balanced as we drive balanced growth and profitability, okay?

Fair enough.

Just ask, you said you have 11 modules today. What is the average number of modules that your clients are using right now? Is it 2 modules, 3 modules?

There's a chart. Sorry, this will be my public service announcement. I know I went rather fast. But one of the charts in my deck has modules. And I show there that 51% or 53% of our customers have 1 module.

And those modules are mainly in United States and Europe, one modules?

No. A module is a piece of our platform. It's a capability within the platform. And it's across the globe. We're -- we have Vision One attachment happening in Japan, happening in Europe. Ironically, the strongest attachment that we have is in the U.S., so you'd be happy to know, so it is in the U.S., but we're getting attachment everywhere.

So half of your clients has one module, they're just starting. So the now you're going to be looking at doing the cross-sells of the module going forward.

Exactly. Exactly. Yes.

And the remainder...

Only the -- more module, but also the same module, more deployment, a lot of our clients have the module, but they deploy, not overall and they expanded.

So 49% of your clients already have 2 modules, more than 1 module.

Yes.

[Interpreted] Another person with a question.

Thank you very much, another person with a question, so the preliminary guidance for next year 2024 of 53 to 58 in OP. Doe that have the same accounting basis as guidance for this year of 35 billion in OP. So you're suggesting that it would be 35 billion in OP going to 53 to 58 with the same accounting basis.

Yes. Thanks, A.J. And I want to remind everybody because you're using some words that I don't want to get ourselves in trouble on. But it's the management model that we have in place, and we will be providing formal guidance in the February time frame. But yes, it is the same comparison. That's how we're showing the 14% to the 20% is the current operating guidance that we have operating profit guidance to 2024.

And I guess, how confident are you that I'm in sales once, we get like to February that the OP guidance will be within that range?

I would be remiss if I didn't. I'm in sales, right? So I would be remiss if I didn't say, like a lot of other companies are saying, we're seeing protracted sales cycles. We are seeing more approvals that need to be put in place. We're seeing some budget constraints. But I feel very good on the operating expense actually because we have not been fixated on this, and we have the flywheel moving. I feel very good that we're -- we have clear line of sight. We've taken such a methodical approach and looked across all the functions to identify the $50 million in savings. So I feel very, very good about finding those savings with no impact on the top line. There's still -- we closed 2/3 of our business, if you care. 2/3 of our Q4 business actually closes in the month of December. So we still have a lot of business to close in this month, and we'll get that wrapped up, and we'll have more details in the February time frame.

[Interpreted] Any other questions? Yes, once again please.

Can I ask the CFO, just to verify, is 53 billion operating profit comment, is that realistic because sales always like inflates their targets?

You can hardly expect us to start fighting here. So our job. and I repeat what Kevin said that we still have to close Q4 and 2/3 of our revenues have for Q4 happen in the month of December. So I think for us to have the real number will be February next year. But Kevin has those assumptions there and we go by those assumptions, yes.

[Interpreted] Any other questions?

Code name for this whole operating margin is a tie up here from Germany, what was the name of that [indiscernible]?

Ozempic.

Ozempic. If you can. And for your information, the suit I wear is the first Investor Meeting I did, the same suit. That's how determined I am.

[Interpreted] So anyone from online participants? Any questions? Please raise your hand if you have any question. Any questions from the online listeners, participants? We have 6 minutes remaining minutes in the Q&A. Okay, we have one question on site.

So just one more follow-up question, please. So you're expecting $50 million cost reduction next year. You're confident that it's going to come down to the bottom line profit. And if so, my question surrounding that is your customer acquisition, you provide net adds and the ARPU numbers for each quarter. It's slowing in terms of the customer acquisitions. In order to grow, I think you have to grow that user accounts. Isn't there any risk that, that cost actually need to be used for the S&M into the next year? Any color or concern risk level, it will be very helpful to understand the confidence level into the next year.

Well, I would reiterate, our model is to stay very focused in on our installed base accounts. We've calculated it in their $6.7 billion of business that's in our installed base accounts. So that expensive sales and marketing that's needed for maybe a lot of customer acquisition, we don't feel we need to do that. We will do some, but we don't feel we need to do that. We have enough runway in our installed base. So that will be our plan. Actually, honestly, the $50 million, we spent $1.4 billion in SG&A and operating expenses. So $50 million is -- it's material, but it's not, right? We were able to methodically and systematically go through and identify where we're at. And at this point, I don't feel we're in a spot where we're going to be hurting on the sales and marketing side with what we're doing.

Yes. Look, I think if you look at the 20,000 customers, and we focusing in on that, and we've seen this in Asia, Middle East and Africa, we don't put in a lot of effort in the new customer acquisition, yet the new customer acquisition is actually very, very strong. And the reason for that is, especially with platform, before in the product for every product you have to go and have the new customer acquisition strategy, here now as you market to those 20,000 customers, let's say, in terms of doing a guided demo, doing an event where prospects will show up and things like that, I think there is really an excitement in and around the platform and the XDR leadership. Having the only vendor with EDR and NDR in place, I think that is a really big thing that we see that the customer acquisition will be healthy without adding that extra S&M expense that otherwise you might have to do if you were looking at individual products.

I think one of the things that I'm feeling very proud is in Rachel's presentation shows that customer satisfaction for the cybersecurity company, Trend Micro is the #1, and we're relying on those customers' word of mouth to get us the new customers. That's the most effective way to do.

[Interpreted] Any other questions? No more question. Okay. If there is no more questions, with this, thank you very much for giving our senior management your very precious time. This is a great communication. Thank you very much. Now we'd like to ask you to fill out the questionnaire. We have Japanese and English versions. We would really appreciate your feedback, and we'd like to utilize them for our future IR activities. Thank you very much for taking your time. Thank you. Thank you very much for your future business with Trend Micro as well.

Can I take a chance to introduce actual members that's sitting on that desk. They are the one that prepared our sales marketing -- sales op, CA and [ Babu ] who was creating the CX platform, Rachel Jin that was doing all the presentation were illustrated. And you're familiar, Habara-san, that was hosting this whole IR event. Thank you. Thank you.

[Interpreted] Thank you very much. That concludes the Trend Micro IR Day. Now we are adjourning this session. Thank you very much indeed for your participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]