Trend Micro Incorporated (4704) Earnings Call Transcript & Summary

[Interpreted] Before we go into the numbers, I would like to talk about our disclosure changes, mostly about my presentation slides. Disclosure is being changed because of the change in the nature of the business. So what has really changed? This is something that's been continuing from last year. TrendAI and TrendLife, 2 brands have been established. So Enterprise business focus is now shifting to AI security and also for consumers, we have our digital life security market expanding. In order to cover those 2 aspects, we have established these 2 brands, and the strategy will be different, more different between the 2 going forward. And the nature of the business has shifted to subscription or more. So core sales and pre-GAAP sales, we have been discussing this type of information, but we believe that ARR would make more sense to our investors. And the second point, in the era of AI, many new business opportunities will arise. Therefore, to be able to actually invest into that, we want to do incubation business. And Kevin's slides will cover some of this in greater details. We are starting incubation business and we are investing for new markets. And this kind of upfront investment, of course, will impact the consolidated operating profit. Therefore, we need to provide an explanation to our investors. And also, pre-GAAP will be stopped and the explanation will be focused on ARR. Now incubation investment, what is the size of that impact? We want to show that at the management P&L level. This is non-GAAP numbers that we're talking about. So this means that I will be focusing mostly on Kevin's slides. Moving on to the Q1 results. Net sales up by 9% and operating income up by 4%. Well, higher sales and a lower profit was always the plan. You may think that this is slight improvement over that. First of all, we have the impact of FX, weaker yen. As you can see at the bottom of the slide, if we exclude the impact of FX, net sales increased by 3%. The other thing is, the share price has changed. Some of the costs that are related to share price are coming back to P&L. Considering that, this is a negative 4% in terms of operating income. What is happening recently? On the left-hand side, you can see 24% against the total annual sales. This is a progress. And operating income is at 28% of the total, which is higher than the prior year. As I said before, share price has declined, and it had impact of about JPY 1.2 billion. And combining that, operating profit was basically negative 4%. ARR. Up until last year, we were just disclosing information of ARR for Enterprise business, but now this is ARR for TrendAI. Basically, no difference. There are some footnotes here. 99% this is the same as what we showed before. So I don't think there is a problem comparing this to the prior year numbers. And we will continue to present the numbers in this way going forward. ARR growth. Well, it was about 3% at one point, but now it's recovering slowly. And leading up to the second half of the year, we expect this growth rate to go higher. And this is ARR by region. Excluding Americas, in all the regions, we see growth in ARR. And there are different factors for Americas. I'm sure that Kevin's presentation will cover this. But we are seeing some improvements compared to before, but still in the negative territory in this quarter. Cash flow. Growth rate looks high, but ARR collection in the fourth quarter -- well, in the fourth quarter, there was a big sale, so we are collecting ARR, as you can see. Now headcount. There was slight decline last year, but going forward it will be flat or it will slightly increase because we're hiring. We expect the headcount to increase somewhat. Moving on to the cost changes. Well, FX impact is announced. JPY 3.8 billion cost and about half of that is FX. The cloud cost is also increasing, as you can see. Impacted partly by FX, but cloud usage is increasing over time. This is not just negative factors, because we have Vision One platform that we provide and customers start to use more and more features related to AI, which means that this is how we can deliver value from Trend Micro, which is used by our customers. So that means that cloud cost will continue to increase, but this is in line with our user base expansion. And this is the evidence that our user base is using our cloud functions. So this is a positive factor, and this pushes up the net sales. This is a summary for the Q1 highlights. We had the highest ever quarterly net sales. And also if we look at just Q1, over time, this was the highest Q1 operating income and net income. Moving on to the full year forecast, this hasn't really changed. 9% growth in net sales and the -2% in operating income. That's all from me. Now I would like to ask Eva to take over because there's a very topical theme that should be covered. Back to you.

I think for any company now, the most important question to ask is what is your AI strategy in this new AI era. So I'd like to take a few minutes to explain how Trend are dealing with AI attack and also how we utilize AI to defense against the new threats. Next page, please. So last month, when Anthropic announced that they have this Mythos very powerful model and can find a lot of zero-day vulnerability, it send a stone across all the cybersecurity industry. And people are asking how I'm going to deal with this AI-powered security and also what is the cybersecurity companies want to protect our own business. So I like to say actually finding vulnerability, of course, is a very important part, but defense against all this vulnerability is not stop at just finding it. The more important thing is how to help customers mitigate against all of this vulnerability against the hackers, the bad guys attacking it. And as you can see in this chart, the red line is the total vulnerability, all the vulnerability that has been found. But the most alerting part is the yellow line down below there. That is the capability of customer to deploy the patch and mitigate against all this vulnerability. This gap between the red line and the yellow line is where cybersecurity company need to do. It's not just finding the vulnerability, the process in between finding vulnerability, creating protection before customer can deploy their patch is the most important process in cybersecurity. Next page, please. So this is between customers, we disclose and they know there's vulnerability and the vendors issue the patches and customers can really apply all these patches onto their environment to defense against these attacks that actually take a long time. Next, please. Even I think 2 years ago, we talked about this vulnerability called Log4j, but until now, Log4j, and there's patches several times, but until now there's still millions of servers that cannot be patched because there's so many application develop of how much and so many compatibility problem that cannot be patched. So this time line show you between the customer applied patch and the real protection is already in place to protect against all these possible attack, there is a need for providing what we call virtual patch. Virtual patch means that cybersecurity company, we analyze all the vulnerability and then we simulate what is the possible attacker will do and then using virtual patch in front of those vulnerable system to protect against all those actual attack. That is what cybersecurity company needs to do. And that is also why, after Mythos, Anthropic immediately come to cybersecurity company like Trend Micro and work with Trend Micro to focus on how do we apply all this process of announcing the vulnerability to the software vendor and develop the simulated exploits, develop the virtual patch and deploy those virtual patch onto the cybersecurity products such as Trend Micro's tipping point or our deep security product, our Vision One endpoint protection or need this virtual patch to defense against the possible attack on the vulnerability. And in order to do this, you need 2 type of core competence, which first one, understand and develop the possible exploit that rely on the threat knowledge that cybersecurity company especially have. Of course, we are using AI to accelerate all of this development, but the special knowledge is needed to develop this type of virtual patch. And next page, the second important thing is understand customers' environment because the initial attack usually is attached on the human and organization vulnerability. This table shows that in the past few years, the top 10 most important -- most impactful security incidents happened in the world and none of them, the initial exploit come from the zero-day vulnerability. It comes from all the organization and human error configuration error. So all of this vulnerability organization and human vulnerability require the understand of each of the customer environment and where and how they can apply all of this virtual patch or protection engines into their environment. That's what Trend Micro and other cybersecurity company are working on and has all of the capability to help customers really protect their environment. So one domain knowledge about the threat, how attackers will attack and domain knowledge about specific each of the customers' environment, what is the best way to apply the protection against all this attack path. Those are the 2 important modes of cybersecurity company. And next page, I think Trend Micro has been in cybersecurity for 38 years, and we have been investing in utilizing AI to protect against all the different threats. Next page, please. So you can see that Trend Micro in the past few years already invest a lot by utilizing AI to develop, accelerate our virtual patch deployment and helping our customer defense against all of this human and organization vulnerability. That's why we believe the question that customer and investors to ask is not how AI will replace cybersecurity. But ask if cybersecurity company has been using AI to defend against all of this new AI-driven attack. And Trend Micro has been investing here for our digital twin Vision One platform are all very advanced in utilizing AI to defense all of this attack. You can see this event is a TrendAI smart event. And on the stage is Trend Micro's TrendAI Chief Business Officer, Rachel with Anthropic, NVIDIA and AWS. We are on the stage together explaining how this in the AI ecosystem, how cybersecurity should act and work with AI infrastructure vendor to help their customer safely, securely deploy their AI application in their organization. So AI security is an essential part of AI ecosystem, and we are very confident that Trend Micro, TrendAI, Trend Live already in the forefront of developing all of this AI-driven cybersecurity to protect customers in the generic AI era. So that's my AI strategy for Trend Micro is utilizing AI and will help customers safely, we call it like a bridge over trouble water, bridge customer moving from the own infrastructure on to the AI infrastructure. That's our AI strategy. Thank you. So next, I think we will pass to Kevin's video to explain how we execute in Q1.

Thanks, Mahendra (sic) [ Eva ]. Hi, everyone. My name is Kevin Simzer. I'm the Chief Operating Officer for Trend Micro. I'm here to give you an update on our Q1 2026 business performance. If you happen to have been able to attend or watch the recording of our December Investor Relations strategy meeting that we had last year, we already announced this, but I'm pleased to announce further here that we have fully instantiated all of this. So the overall Trend Micro business structure is in place. We have 5 very focused businesses that are really, really leaning into a very specific area of pain points relative to the market that they're going after. For TrendAI, it's all about Enterprise security, and that's the largest business unit we have inside Trend. TrendLife, the second largest business unit that we have inside Trend. That's all about digital life protection, specifically for consumers. We recently instantiated an AI security and systems integration company called Magna AI. It's majority owned by us, but we -- it is a joint venture with large AI company called Wistron. The next one up is VicOne. That's all around focusing in on automotive and robotic security. We own the majority of that. And then finally, TXOne, an entity that we've incubated and spun off and we've been involved with for a while. That's in the OT security space, and they're really fixated on supplying an AI cybersecurity platform for those semiconductor manufacturers and other manufacturers that need to think about their overall OT environment. Trend AI was formally launched at the RSA Conference in March of this year. So that was nice to get that out and start the branding initiative. We followed it up shortly thereafter with a strategic alliance with one of the largest large language models on the planet and biggest in the Enterprise space, and that's Anthropic. Really pleased that we got that partnership extended. We're going to be working with them on responsible vulnerabilities disclosure and other things. We also further cemented our relationship with NVIDIA. We announced that we've support for their just recently announced OpenShell, open source runtime capability that allows for autonomous AI agents. We want to make sure that cybersecurity is thought of when enterprises are adopting that. TrendLife, I know I'm cheating a little bit because it was formally announced in April, but we did all the work in Q1, so I included it in here. But TrendLife is formally instantiated as well. We also signed an agreement with Anthropic as a strategic partner because we need to be leveraging lots and lots of AI capabilities in order to make sure that we can protect this next-generation set of threats that are coming in to the consumer landscape. Endpoint protection is one thing, but we need to think more broadly. And right now, it's around sort of the entire digital life protection and family AI safety that we're seeing as a threat to consumers. Finally, we were really flattered to be recognized for our ScamCheck capability, winning an award by one of the leading cybersecurity publications. So yes, a really nice set of announcements for TrendLife recently. Finally, on the incubation side, lots going on in the physical AI security with VicOne. We're really focused in on automotive and all of that, what it involves, plus we've recently expanded into robotics. We've done a nice job of cementing some OEM relationships in the automotive arena, and now we're working at doing that on the robotics side. They tend to have really long product life cycles. So getting the announcements out early and getting the relationships in place early is really important. With Magna, you may have seen a number of press releases that we've done. We've announced 5 MOUs of various AI projects that we're involved with. We're focused in on the Middle East and Asia because they represent the second, third, fourth and fifth largest AI market on the planet. And that's important because they tend to think about data sovereignty, and that's an area of specialty that we're bringing to the table. So that's the reason why we're focused in on that part of the market, and we had some announcements to reflect that. If we look at the overall Q1 2026 results, you already heard from Mahendra. Net sales up 9% year-over-year, so that was good. Operating margin at 21% was better than what we had planned. So we significantly beat our internal plan that we had set out for ourselves. TrendAI, the largest business, again, net sales up 11% year-over-year, all fueled by our Vision One AI security platform, ARR up 50% year-over-year. TrendLife net sales up 5% with the ARR up 49% and that's on the back of very, very impressive growth with Digital Life Protection. So Digital Life Protection ARR growing 49% year-over-year. So that's a testament to sort of this expanded opportunity that we see in the consumer landscape. In incubation, it's not about net sales. The net sales are really immaterial, so we'll see a bump up and down from a growth perspective. It's about making the investments in planting the seeds so that we can harvest those down the road. Q1 investments in incubation were JPY 817 million. It's about a $30 million investment for the year. So it just shows you how serious we're taking these 2 areas in terms of helping us to drive sustainable superior performance going forward. Speaking of sustainable, superior performance, this is the way we think of any company if you want to have longevity. And you need to be thinking of things in terms of what's delivering today, and that's our 2 boxes on the top. That's our high-growth area around TrendAI and our medium growth area, TrendLife, but you need to be making investments in new areas as well. And you also need to be thoughtful and plan out exits. And as we're moving away from product and more towards platform, it made sense for us to exit some of these legacy SaaS offerings. You're going to see us talk more and more about recurring revenue, we talked about this in December of last year. We feel like as our business has moved from perpetual license to subscription, as our business has moved from product level sales to platform level sales, this notion of thinking about things in terms of gross sales and pre-GAAP doesn't really make sense. It's not a good indicator of the success of the business and how we're tracking. We believe annual recurring revenue is that metric. So you're going to see us move more and more towards this. We've already made the changes internally to make sure that MBOs and KPIs and sales compensation plans include ARR as the metric. So that's what we're going to be driving the business towards going forward. Sitting at the end of Q1, $1.7 billion, up 3% year-over-year. So we're starting to see some momentum building around the ARR. And we think it sets us up nicely for our road to 2028. This is our North Star. This is our 3-year plan that gives you an idea of what we're thinking in terms of where we're headed. We do plan on high single to double-digit growth. That's certainly in our plan. We also plan to try and do that as efficiently as possible by increasing our margin over time. I added in the Q1 actuals column, and you can see relative to what we did in 2025 and how we're shaping up for 2026, 9% on the top line is right within our plan and the guidance that we have. The operating margin at 21%, quite honestly, is a little bit higher than what we anticipated. We are anticipating that in the first half of this year, we will be making some more investments in order to make sure that our TrendAI and TrendLife businesses, in particular, get off the ground in a big way. But it was nice in Q1 to see us finish at 21%. In fact, if you were to back out our incubation, actually, it would have been a 22% operating margin. So it really is indicative of how serious we are taking that incubation that it has a 1% impact on the operating margin. But the only real issue around the expenses, and it's not even a big issue, it's sort of understood, and that is that our COGS increased ever so slightly, running at 21%. That's as a result of our AI-related cloud costs. So we are investing pretty substantially in cloud and AI right now, in particular with our relationship with Anthropic. Let's dive into each of the businesses now and just give a panoramic view. From a trend AI perspective, this is our flagship platform. This is the one that we are fixated on landing and expanding with customers. It contains 11 solutions. It contains a lot of capability, and it's really helping us to actually provide more value to those end customers. When we provide more value, when they end up not only giving us more money for it, but it ends up really helping with our customer retention and it helps with our moat, our ability to expand and stick with a customer for a while. From a TrendAI Q1 2026 ARR perspective, $1.3 billion, that's up 4% year-over-year. So this is for TrendAI specifically. Net sales was up plus 11%, if you want to put that into context. And yes, really a nice quarter overall. We were really fixated on stabilizing everything as we pivoted towards setting all these ARR objectives and getting the team, the large go-to-market team that we have fixated on driving healthy ARR growth. And we have that in place. It's been rolled out, and that's what we're running towards. If we look across the globe, this chart shows the total ARR within TrendAI by region. But it also shows, I think, the more important thing, which is all the growth we're getting around Vision One. And this is really because we are so focused in on driving the success of that platform with our existing customers. We're so focused in on landing new logos with that platform. You can see all 4 regions grew nicely in their Vision One ARR. And we're going to see that continue. So because it's such a focus that we have right now, we're going to see that ARR continue to grow. On the right-hand side, that table, that represents a sorted list by country of our top countries with Vision One ARR. And you can see not surprising, our 3 biggest countries, U.S., Japan and Germany in our business, they drive the majority of the Vision One ARR. And you can see the type of growth that we're getting across all top 10, really, really high, healthy double-digit growth, also triple digits. So we are fixated on growing our business across the globe with Vision One in TrendAI. From a go-to-market standpoint, no real big change here other than maybe just taking it a lot more seriously. Managed service partners continue to be a big priority. They're the face to many customers. So getting them to adopt Vision One is important. Value-added channel partners are important because they tend to be the ones that many customers trust and look for an opinion on. But we're really fixated on working with a set of strategic ones that we can go very deep and invest a lot of time and effort and money with in order to drive business. And then finally, marketplaces, a very big deal for us, having AWS, Azure and Google marketplace support, we continue to drive that in very healthy double-digit growth. So transacting business through those marketplaces is a very important sales motion for us. From a managed services traction perspective, if you wanted to actually see it in terms of numbers, we're up to over 290 managed services partners that have adopted Vision One and are serving that up to their customers. That's really nice. We're seeing those emphasize the cyber risk exposure management solution. So that's really important because that really gives complete visibility as to the risk posture that the customer is facing. And then we're seeing those partners actually end up with an 8x average ARR increase. So that's the reason why they really want to talk to us because they see the value in the overall platform. From an Enterprise Vision One ARR perspective, we're up at $547 million now across that platform. That's a 50% year-over-year growth in that ARR number. And I think that is a testament to how well we're doing at landing with existing customers and expanding with those existing customers, but also getting new logos adopted with that platform. We're sitting at 13,600 Vision One customers. That represents a 48% attachment rate of our total Enterprise set of customers. Once we get the platform landed, because it's so comprehensive with its 11 solutions, we can really do a nice job of expanding, and that's what we're fixated on is expansion with those existing customers. 123% NRR. It's above industry benchmarks. So we're doing a nice job of expanding. And we're not losing as many. So we're above industry benchmarks with respect to our GRR as well, so at 86%. And that's because when we get that platform deployed, it just becomes much stickier. We see it here quite acutely. As customers adopt more of our solutions on the platform, the retention rate increases, look at that up to 94%. Of course, the ARR also impact increases, but we are really fixated on expansion in that existing installed base. If you're curious, the top 2 expansion solutions that we have, cyber risk exposure management, so giving that visibility and then also visibility and response is the AI SOC. So that SIEM and SOAR capability that we have that we recently introduced and really disrupting that whole addressable market. We're seeing some nice wins replacing some incumbent legacy SIEM vendors. We have 4 customer wins to help sync home what we've been up to in TrendAI. Remember, we use this nomenclature of land and expand. And the first one, the first column, America's land. That's in the U.S. It's a large school district, 50,000 students, almost 10,000 employees, 60 campuses. So a really large school district, we ended up replacing an incumbent cybersecurity provider, a couple of different tools. They wanted a more streamlined, comprehensive cybersecurity platform. So it was a really nice win for us. $248,000 deal in Europe in transportation. It's actually a parcel service, very large parcel service company. And they have a lot of old systems, and they really needed a broad set of platforms to be supported. They needed next-generation SIEM and SOC capabilities. They wanted that complete visibility. We won that. And in particular, they transacted it with our new TrendAI Flex credits capability. So that allows them the flexibility to move around and try out different solutions. In EMEA, a large government organization selected us, and it was a really nice win like many government organizations, we see this time again, limited budget, shortage of talent. So they were looking to streamline and come up with a better way of doing things. They selected our platform to do that. And then finally, in Japan, in the environmental vertical, so a really nice win. They were looking to be much more responsive because they were facing sort of an increased threat risk, and they were looking for positioning themselves with a platform that would allow them to be much more proactive in their overall cybersecurity risk posture. So 4 nice wins and gives you an idea of the type of deal we do in TrendAI. Let's switch gears now to TrendLife. So from a TrendLife ARR perspective, $372 million, so sort of a minus 1% year-over-year growth with net sales up 5%. This is officially the last quarter that we have to worry about that merchant of record that we had last year that went bankrupt, and we had to switch over to a new vendor and all the challenges we had with billing current customers. That is all now completely behind us after the end of Q1. So we will start to see the ARR start to grow again as we continue to expand, specifically with this Digital Life Protection. We're seeing more and more customers see the need to be able to expand into -- they're worried about scam. So endpoint protection is one thing, but they would really like to make sure that they're also protected from the being inundated from these scams that are happening. They're also increasingly adopting AI. So they really want to get a sense for what we can do to protect the entire digital life from an AI standpoint. Digital Life Protection, up 49% year-over-year. So that's now sitting at $129 million. So really nice ARR growth on a big number. Overall, the ARPU increased plus 2%. That represents a change from last year as we were working our way through the merchant of record bankruptcy. Now we're starting to see that ARPU increase. We're also starting to see the churn rate recover. So the churn rate is going down, which is a good thing. We've also identified that SoHo, that small -- micro small businesses also represent an opportunity here. So we've actually moved our cloud edge offering, our small appliance offering into TrendLife. So you can see that showing up here, and we'll be talking about that more going forward. Finally, to round it out, really not much from a net sales perspective to talk about just yet, but investing in the areas that really matter. So physical security is a big addressable market. Magna AI focused in on AI consulting and systems integration. Outside the U.S., we're really fixated on the Middle East right now and Asia. Data sovereignty is a big deal for many customers as they're thinking about AI, and we bring a unique skill set to the table to help them with that. We, of course, bring a skill set of cybersecurity. We can make sure cybersecurity is built in, and we have a bunch of AI know-how. So we really think we're going to be able to help out with AI projects specifically that hit our sweet spot. So we've signed 5 MOUs, and now we're working at converting those into small bite-sized purchase orders. So overall, we feel like we're positioned well for growth. We have TrendAI, the broadest cybersecurity platform on the planet. great industry partnerships, new go-to-market investments and really driving more and more accelerated adoption of that platform. In TrendLife, focusing in on this Digital Life Protection going beyond what we've traditionally done. And that's important as families are increasingly worried from an AI perspective, how we can actually help them out. And then finally, in incubation, 2 bets, 2 important investments that we're making, one around physical security and one around AI and systems integration and consulting. I look forward to your questions, and I appreciate you taking the time. Thank you so much.

[Interpreted] Matthew Henderson from JPMorgan. I have two questions. One is, Mythos. Big topic and also a big theme. I understand that you have a strategic relationship with Anthropic, but you're not a founding partner of Glasswing. From that perspective, founding partner of the project, for example, CrowdStrike -- compared to CrowdStrike, I see maybe a competitive gap where you're behind them. Is that true? Or because you have strategic partnership, there is no gap? And what about middle-sized players, or do you have advantage over some other players because you have a relationship with Anthropic? Can you please talk about the competitive environment?

Maybe I will take the question. On Mythos, of course, I don't know what they were doing in the founding member part, but after we joined and worked with Anthropic, we've been working with them on our ZDI organization, talking about finding the vulnerability and how to handle all this software vulnerability process. I think that is a very important part. Like I say, Mythos, when they were developing this model and very powerful in analyzing all the code, and one of the functionality in Mythos is finding the vulnerability or the bugs in the code, which is what Glasswing's founding member was focusing on. I don't think that is a technical gap for Trend Micro to catch up, because what customers really care about is that security gap. That by finding the vulnerability and mitigate the vulnerability, that is the part that customers really need and Trend Micro is leading on providing that type of virtual patch and working with Anthropic to starting from finding vulnerability and then writing a virtual patch. That is the most important part for our business and our customers. So that's what my answer about Mythos. I don't think that is a technical gap that inhibits our Trend Micro's cybersecurity solution to be ahead. So that's the first answer. And the second question, I'm sorry.

[Interpreted] That was my first question. I haven't asked my second question yet. So I would like to start the second question, if that's okay? My impression is that the company performance was pretty good. But if you look at Japan, the domestic business, cybersecurity is very exciting right now, but Enterprise business growth in Japan, according to J-GAAP, is actually minus 9%, according to my understanding. Is this the impact of a segment change, or do you have to be concerned about your lack of competitiveness in this environment? Omikawa-san, can you please respond to this question?

May I?

Yes, please.

Yes, there is a big gap because Japan is our biggest market for Cloud Edge, which will move the Cloud Edge from Enterprise business onto the TrendLife, the consumer business, small business. So I think there is a gap between that because of that move. It only impacts Japan because Cloud Edge is only selling in Japan.

[Interpreted] Understood. So excluding that segment change, Enterprise business in Japan is actually growing positively. Is that the correct understanding?

Habara-san, this number is adjusted, correct?

[Interpreted] Yes. Cloud Edge was retrospective adjusted, so this is an apple-to-apple comparison. Yes. Another big factor is that this is an internal view, but there are larger deals and we are expecting them to materialize in the first quarter, but they didn't, so we're expecting that to happen in the second quarter. That's another factor.

[Interpreted] Understand clearly. This is a retrospective adjustment. I understand.

[Interpreted] Let's move on to the next question.

[Interpreted] Sato speaking. Can you hear me? I have 1 question there are various data by region. I'm not so clear what was the good news and bad news. So new TrendAI ARR, and when you look at the ARR of other new business...

[Interpreted] Sato-san, excuse me, your sound is not very clear. I cannot hear you very clearly.

[Interpreted] Can you hear me?

[Interpreted] Could you repeat your question?

[Interpreted] So how to read some of those information by region. If you can comment on each region. So for example, U.S., is it recovering or better than expected? And European numbers seem strong, but in the previous earnings call it was not so good. I think it was still weak. So is it improving in Europe? And also I think Middle East is also included, but the number seems quite strong. So by region if you can explain the macroeconomic conditions and your business environment. If you can give me the update, that would be very much appreciated.

Okay, I can start and others can jump in. So overall, the backdrop is that what I was trying to explain in my video recording is that we've made a fairly dramatic change in our business going forward in 2026, and that is moving away from this focus on pre-GAAP gross sales to an ARR model. Historically, we have done a lot of multiyear transactions, and in fact, in some of the regions it was up substantially, the number of multiyear transactions. And now we're much, much more focused in on -- go-to-market teams are fixated on growing ARR, so growing that annual recurring revenue stream. If we go across the globe, I'll just start at the top. You already mentioned it. In our Asia Pacific, Middle East and Africa business, AMEA, it was up double digits, and it has been historically up double digits. So we continue to drive really, really healthy ARR growth in the Middle East and Southeast Asia, excluding Japan. In Europe, we were a little bit higher growth than previous quarters. So Europe continued to perform well. In Japan, you already saw the numbers that we were talking about relative to Japan. So even doing the apples-to-apples comparison in the Enterprise business, we did actually do good growth and getting the growth in the area that we want, which is for Japan to start really much more aggressively getting our Vision One platform adopted. So that was up. And then in the Americas, that did decline. And specifically, we did see a small decline in the U.S., if you're asking about the U.S. However, we're still declaring it quite a victory. We did grow ever so slightly quarter-over-quarter in the U.S. So that was nice to see from Q4 to Q1. And that's the first time that we've been able to actually stabilize the ARR within the U.S. We were really, really focused in on customer retention. We were really focused in on growing the Vision One base. If you go back and look at that one chart, the Vision One ARR within the U.S., it's the highest of all top 10 countries. So it's substantial and it's growing at 35% plus. So we are really doing a nice job of growing in the right area in the U.S., and that's what we're focused in on and will continue to be focused in on.

[Interpreted] Thank you.

[Interpreted] SMBC Nikko Securities, my name is Kikuchi, and I have a similar question to the ones that have been asked. 2 questions. First of all, Americas ARR, Enterprise TrendAI ARR. Year-over-year, when do you think it will turn positive? When will we start to see the positive growth? That's my first question.

Kevin?

So from an Americas standpoint, I think we've done a really good job in Q1 of getting things stabilized. It's probably another quarter in order to continue the stabilization effort, but by the second half, we are going to see growth for sure in the Americas and the U.S. in particular.

[Interpreted] And what are the factors behind that? In the second half, you said that Americas will improve. So what factors will drive that in each segment and in each specific business?

So there's a couple different things that we invested in at the start of this year in TrendAI overall, but in particular in the U.S. The one is our strategy is to be very vertically focused. So we have the team structured to go to market in a very vertically oriented way now. That aligns well with the channel partners that we do most of our business with. So that was an important step, and we've made that step in January. The second thing that we've done is we've invested substantially in the channel. That had been an area that we had been historically under-investing in, and we've identified the strategic channel partners that we feel are going to have the biggest impact on our business in the U.S. And we've increased our headcount and discretionary spend for those channel partners. We've started to do that in Q1. So the reason why I say the second half is because we need time for those investments to start to work. That said, I do want to highlight the Vision One growth that we're getting in the U.S. is substantial. And as that continues to build, we know that the Vision One platform offers a better and easier way for us to expand and add more value and solve more customer pain points. We also know that the retention rate is higher. So that's why we're really fixated on growing Vision One even more in the U.S., and that will eventually start to give us positive results. We may see it in Q2, but I feel like the second half is when we will start to see total U.S. ARR growth kick in.

I think one of the important factor in Kevin's presentation, it shows that the total ARR in all the countries, actually U.S. is number one. Vision One ARR is number one, and that is a base. As we can see, once they get onto Vision One, then the expansion rate, retention rate is much better. So based on that capability, the first one you can see, that's why we believe this year U.S. will turn positive in ARR growth because of the base of Vision One ARR is expanding.

[Interpreted] My second question. Kevin, you said that in 2028, I think you are aiming for operating margin target of over 25% to 27%. So in 2027, based on the current level of investment, I know that you're investing quite a lot right now, so in 2027, margin will be higher than 2026. Is that the correct understanding? In order to achieve the target in 2028, the margin will have to go up in '27. Is that the correct understanding?

Yes, your understanding is correct. It's our plan to invest more in the first half of this year in particular. So we will see some softening in the overall operating margin this year, and that's our 19% guidance. Of course, we will provide 2027 guidance at the end of this year. But yes, it is our intention to gradually increase the operating margin over time. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]