Trend Micro Incorporated (4704) Earnings Call Transcript & Summary

[Interpreted] Thank you. This is Negi speaking. And I would like to start the earnings results summary for Q2, 13% growth in net sales, but cost actually grew by 29%. So operating income was minus 54%. At the bottom of the slide, we can see the numbers at a constant currency basis, net sales growing at 3% and ARR growing at 6%, which is an improvement. The biggest point is a decline in income. What has happened? Well, Eva Chen will be providing detailed explanation later on. But the biggest focus here is cloud-related expenses. Why has it increased so much? Well, rather than paying out a lot of dividends, investors have told me in the past many times that we should be investing into the future. And based on that, we have exactly done that, investing into the future. It's not simple CapEx. Our investment directly affects the P&L. This is one big factor behind this number, but Eva Chen will give you more explanation later on. ARR progression. This is an important point. Rather than net sales, we are using ARR to explain the future of the company. So ARR for the enterprise customers, this is improving from 4% from the previous quarter to 6%. In the second half, we expect further improvement in this number. ARR by region denominated in U.S. dollars and therefore, no currency impact. Americas stands out. It is struggling somewhat, but Europe and EMEA are growing quite well. Japan is growing only at 3%. And Kevin Simzer will be providing you more explanation. Considering the geopolitical situation, there are headwinds and tailwinds. And in North America, we have some headwinds. This is the cash flow. There is no comment. This is connected to the operating income. Number of employees headcount is basically flat. But in the background, we are requiring new types of skills. So there are some turnovers. But in total, the headcount is basically flat. And we believe the situation will be very similar to this in the second half as well. This is cost, and I'm sure this is something that you're more interested in. Cloud-related expenses stands out. And as I said before, this is investment for the future. Selling and marketing, the portion has also increased quite a lot. For TrendAI and Trend brand, we launched the 2 new brands. So we have related expenses and related events-related expenses. And headcount cost is increasing, one because of FX. And the other reason is we have internal bonus payments. And we are looking at both operating income and ARR growth. And operating income was negative, so there is no bonus reduced. But ARR, well, you may think that the 6% is not enough, but that actually achieved the internal target. So some bonuses have been paid based on ARR. And the Q2 highlights, highest ever quarterly net sales, and also, as I mentioned before, ARR growth continues to improve. Moving on to the full year guidance. At this level of minus income, what do we do? Well, sales is on track. So there's no change. But in terms of investment, we don't have any temporary items in the second half. So total cost will continue to be incurred in the second half as well. So we expect that at the same level. And the nonoperating, we don't expect anything major apart from what has already happened in the first half. FX is still volatile, but our plan is JPY 157 and the current rate is JPY 160, not that different. So we'll keep it the same as well. And the outlook for the full year, same for net sales basically, but for operating income and ordinary income and net income, we have revised them downwards based on the expenses that I've just explained. This is impacted by the investments that we are making, pushing down all these income lines. And that's all for me. But if you require further explanation, please ask me questions during the Q&A. Thank you.

Thank you for coming to our Q2 financial announcement. I think in my 38 years of IT industry, these few quarters are the most dynamic and the speed of change in the whole industry is the fastest. But as an AI-native cybersecurity company, our transformation is also speeding on, and we must. So let's first look at what is the major change happening in the whole IT industry right now. I think the most important thing, of course, is AI. And in the past 2 months, how many new frontier AI models have been released? There's so many of them. And the most interesting thing for the cybersecurity is every new frontier model whenever they release, they talk about, oh my God, our own model, we cannot control it. It was doing things out of our expectation. It was doing all these hackings into the other infrastructure. So cybersecurity is the center of these problems that's happening. But I think also hackers is already realizing that is really happening that AI-native ransomware already happened and is invading into consumer organizations that is using AI agent and the speed of how this ransomware customize itself into the specific attack is just fascinating 31 seconds. 31 seconds, it will change its way dynamics and attacks the customers. So with this type of speed of the threat changing, Trend Micro need to invest in how we transition into a real native AI operation to keep up with the speed of the transformation. But actually, about 2 months ago, even before all this frontier model started, we already thinking about this cybersecurity problem in the AI era. And I describe it as like this. The problem on the left-hand side is like if you have thousands, millions of thousands of questions and prompt into a big model, then it's like all the different colors all mixed together. I have a palette. So and all the color mix together, it becomes what color? Black. It means that all the prompt go into a black hole and it will be very difficult. No wonder all this frontier models themselves are saying that, oh, our model was out of our expectation, we don't know why you do this, how you do this all this attack because it's a black hole. And therefore, about 4 months ago, we Trend Micro already thinking about for security, for AI, the better architecture is actually smaller SLM, which is all tuned to expertise, different expertise, different customer segment to fit their own needs and it's like the color is separated and the control is controlling that color, but each of those models will be collaborating with each other. That's what we imagined 4 months ago. And also this is actually the chart that when I talk to NVIDIA, I sent to NVIDIA I said, we are going to invest in this type of new model, and we want to use your Nemotron to do all this customized solution for our cybersecurity needs and immediately, actually, Jensen Huang himself immediately reply and said, yes, that's the right direction. Let's go. So starting at that time, we accelerated our investment on all the open source and how to tune and perform this type of new architecture. That is the architecture that we draw out and we believe that 3 layers of AI security stack. Layer 1 is all on board on all the machine, or the server or the AI appliances. Layer 2 is to protect the AI usage. Those 2 need to rely on what we call edge AI model or local AI model because all is happening in the AI local model. And then the Layer 3 is the trust layer that would dynamically choose the right model to submit if there is a more complicated problem to be solved. Those are the 3 layers and Trend Micro are investing in this type of architecture. So as you can see, just last month, NVIDIA announced their open weight and open source project. TrendAI, which is our enterprise division is one of the inauguration partner in this initiative because we believe the future needs will need both closed and open frontier AI models. And that is why Trend Micro are investing so much into the future AI infrastructure. If we think about this whole information advantage to decision, before IT industry is mainly focused on information. [indiscernible] is the king. Information is the king, whoever can get more information is a winner. But now with AI, information is cheap. It's very easy. You can gather all of this information. But what makes the difference is your decision advantage because your decision is based on your own priority, your own environment, your own needs for the decision. So the difference is we need to switch to gathering more information to understand customers' problem better, understand customers' priority and help them solve their cybersecurity, make their better cybersecurity decision. That will be the cybersecurity companies most understand customer more. So if you look at the security debt, we call it, if you look at the red line, that's the vulnerability. That's the information. Nowadays, you can find whatever vulnerability very fast using the frontier model and those are very cheap. Now you can find, but it's piling up so much of that. However, the customers' decision is depends on the yellow line, which is the remediation capacity. Those vulnerability are there. But for your organization, do you need to patch it now? Where do you need to patch it? How do you want to apply your patches? Those are the real decision quality that will affect the cybersecurity. And that's why Trend Micro believe that we need to invest more, not in just collecting all those vulnerability, but understand that customers' environment. Same time, our customer, we're seeing that customers are realizing this. And they say, we cannot just rely on frontier model. Look, when U.S. government shut down Opus, everybody suddenly alert if my company's operation is relying on those big model, how am I going to operate my company? And therefore, more and more, they are investing in sovereign AI. They want to make sure that decision and those intelligence, they can own by themselves. So sovereign AI is the most important part. To enable sovereign AI, you must need sovereign cybersecurity, and that's why Trend Micro is investing on AI-native operation. That is our platform, our engineer software development life cycle process and our business operation all need to be AI ready and it's AI edge of the speed and implementation. That's why Trend Micro are doing all this investment, I'd say actually in 2025, when we were talking about our Road to 2028, we already indicated 2026 will be our transformation year, and we want to accelerate our AI solution. But in the last 4 months we actually accelerate our acceleration and invest more into the AI solution because we believe that is the future and that is what Trend Micro need to do to become the native AI cybersecurity leader. So what do we do and where do we spend all those money? I think this chart is the most telling. You can see we categorize all the spending into 3 big categories. So first one, internal AI transformation. In 2024, first half, we actually our cost I mean in that time, internal AI transformation, our cost is only $0.2 million. This internal transformation means that we need to invest for our employees to train and use AI is the internal transformation. If you remember, Trend Micro used to do our AI contest in 2018, we are already doing this internal AI contest. And every contest, we spend about $2 million or $4 million to make sure we have all the engineers that go in and learning about how to do AI. And in the past 6 months, with all this new frontier model and with all this agentic AI, we accelerate those investment in the training, and therefore, there's Internal AI Transformation, it grew 6,000%, which is $12 million. But that is the preparation of the foundation. It's not going to continue to spend that much. It's just initial boost up and make sure all the employees need to get this AI-ready training. So those are $12.6 million spend in the first half of 2026 that compared with last year, of course, is a big huge increase. The second part of the cost, which is the largest part, Customer AI and Cloud Consumption. I'll go to save that part at the last because this is the most important and the biggest portion. So next one is Infrastructure Expansion and Transition Cost. What does that mean? Infrastructure expansion is that because customers are focusing on AI sovereignty and therefore, they will require all our data need to be located in their country. And that means our nationwide, for instance, our platform and collecting customer data, we need to be stored in the local country zone, even if it's in AWS in cloud, but there's certain zone country zone or area zone that we need to expand. So establish those zone is costly initially. But we need to establish those sovereignty zones so that we can expand our business for those countries. So this is the infrastructure expansion, $6.5 million from 0. Last year, there's no such expansion cost, but this year, that's where we spend. But it's -- once you set up, you set up, but it's just onetime cost for setting it up. The second one is Transition. Transition means that we actually are rewriting some of our core modules such as our XDR data lake. We are rewriting those code on to GPU code. Originally CPU, GPU is much more efficient and faster. However, during this quarter or this half year, we need to run it in dual site both in CPU and GPU so that we make sure the transition and transformation is complete. But that is the double cost of our data lake. However, those double costs, once we make sure that it is already stable, it will go away. So that's USD 7.2 million. Now the rest, the biggest portion that is Customers' AI and Cloud Consumption, which means customers are using our AI-driven technology or platform such as Vision One. That's why whenever our customers using more Vision One, of course, our cloud consumption and AI consumption will be higher. However, we carefully monitor this cost. We are not just blindly and means that Vision One is not making money. We are investing and cost consciously monitoring it. So the indicator we use to monitor it is we call it cost per SaaS money, which is the gray bar that you can see in there. For SaaS ARR money, how much do we need to spend on cloud or AI cost? In first half of 2024, that is USD 0.19. That's per $1 of ARR we spent $0.19 of it get on to the cloud and AI cost. But in the first half of 2025, we actually already consumed and we optimize it. So it reduced down to $0.13 per SaaS ARR money. So we control the cost. But this half year it slightly increased to $0.14 per cost per SaaS ARR. Why? Because we recently launched a lot of new services such as agentic AI or virtual red team or digital twin or IT security, all of these are new services that we initially need to set up the infrastructure ready, but our customer number is not that much yet. This great momentum going to increase, but currently in the first half because all of the new model -- new modules has less customer and therefore, per customer's ARR cost to ARR is not scaled out yet. But we believe in the future, it will be scaled out and then our cost per ARR money will come down. So these are some of the evidence that we are investing for the future, but not blindly. We carefully monitor what is the ROI of it. For instance, our internal training, internal deployment of all of this, we already see 2x employees using all this AI. We already get all our employees ready for AI. But most importantly, when they do this, we automated the customer therefore delivery in 50% less time. So customer can get all this. We can service our customers much faster. AI simulation also deliver become days versus months. Simulation is that we simulate customers' environment and very easy to get the tabletop cyber simulation for our customers. These are all getting much better customer services and support for our customers. And also our R&D are delivered more and faster with the software development life cycle AI. We already see 2x more [indiscernible] request and also all of this actually, for instance, agentic SIEM, it required to develop all those different connectors before AI, before this age, then it would take months, even year to develop those connections. That's why SIEM Trend Micro never entered SIEM market. But now we enter and we improve all of this, not only shorten the days, and now every 3 hours, we can develop any new connectors adapter within 2 hours -- just 3 hours. And threat hunting, which is most important for our customer, we shorten those from hours to seconds for customer and issue reporting and resolution is 5x faster than before. All of this is we are providing much better, faster security outcome for our customers. So that's that part. And infrastructure expansion, as you can see, no matter all these countries, Japan, India, UAE, Germany, Australia is already we set up all of this new zone they are focusing on, and we are already seeing the sign of all this sovereign AI security requirements coming, and we have deal that is processing now already. And there are new that we're just starting to set up in 2026 for Brazil, for South Africa, Indonesia, Canada, U.K., these are the new area that we are setting. But this is we investing in sovereign AI infrastructure to unlock the future monetization. So as you can see, our momentum is already there. Vision One ARR Y-o-Y growth, 49% continue seeing customers getting on to use more of those modules and the net retention revenue is 122%. Not only that, with our existing customers that have Vision One Attached grew to 35% and Trend ARR now already 45% come from Vision One ARR. That means that our business and revenue stream is on the new AI-driven model and is much more healthy than those big deal, multi-year deal is much more healthy than before. And that's why we believe all of this investment is really paying off. We already also see the pipeline. And if we continue for this investment, then our trajectory of the ARR growth will continue to grow. That's why we invest. So in conclusion, I want to say, yes, we are investing, but we are investing with management action in place to drive for economic outcome. We are not just saying, oh, we're investing in AI, we will lay off people. No. We're investing because we believe that's what customers need and we will grow our whole revenue stream. And that's why Internal AI Transformation, we believe we put in already they have full adoption. And now with governance and measurable productivity threshold, we can make sure that AI efficiency will be much better, and we have the operating leverage. Customer AI and Cloud Consumption, we will improve our unit economy. And then Infrastructure Expansion, as I say, once we scale out is set up, then it's unlocking the future monetization. And then Transition Costs, it will die down once we move on to the right computing [indiscernible] platform [indiscernible] GPU is much more efficient than before. So the transition cost will die down after this quarter. So that's Trend Micro, what we are doing, transforming into AI-native cybersecurity company. And I believe Trend Micro has the best opportunity and will be the leader in AI-native cybersecurity field. Thank you.

Hi, everyone. My name is Kevin Simzer, and I'm the Chief Operating Officer for Trend Micro. I'm here to give you a Q2 2026 Business Update. If I could for a second, just take you back to December of 2025, we hosted our Annual Investor Conference at that time. And during that conference, we talked about what it would take in order to transform ourselves into an AI-native operations company. We felt like we needed to have clearer business units in place with clear demarcation. We felt like it was important for us to move fast, be agile, and have consistency across the globe. So global execution was really, really important. We felt like the time was ripe for us to invest for sustainable growth in the future. And we said that we would hold ourselves accountable using ARR as our measurement to track progress. Well, here we are in Q2, you've already heard from Mahendra, and overall top line performance is very strong. ARR is up 5% year-over-year. In Q1, we were 3%. So we've managed to increase it. TrendAI is up 6% year-over-year in ARR growth. In Q1, it was up 4%. So we've managed to increase it largely on the back of the success we're seeing with our unified cybersecurity platform called Vision One. TrendLife, up 4% year-over-year. In Q1, it was minus 1%. So a big swing for TrendLife positively, and that is with the success we're seeing around Digital Life Protection, ARR growth up 52%. And then in Incubation, the ARR is not material enough for us to actually really disclose it in any detail right now. However, we're seeing the early indicators of success in both of those business, and we'll talk more about that in a second. Overall, total company up $1.7 billion in ARR. That's up 5% year-over-year. And we achieved this growth with some investments that we started to make in 2025. Actually, we've been making investments in AI for many years, but really concertedly in 2025 as we rolled out AI to every one of our Trenders 2025 and 2026. So we're seeing more -- we're seeing the engineering team, of course, leveraging it heavily, but not just engineering. We're seeing functions across the globe adopt AI and really get some incredible productivity improvement. From an R&D perspective, we can measure it quite acutely because we can see the amount of innovation that we're doing has really increased, up 2x the number of updates that we're making into the source code control system. But it's not just about source code development. We're using it in our platform. We're leveraging it in all different functions. It is being used heavily across the company. That investment has come with some costs associated with it. And Eva already described this in quite a bit of detail, but I wanted to provide my own color along the way. If you look at the 4 categories that were laid out, internally, yes, we have rolled it out. But we feel like there are some improvements that we will be making as a result of us adopting this global governance policy that we have in place. We will be able to make sure that we're leveraging the right model for the right task at hand. And we see productivity improvements still being driven. However, some operating leverage and costs will also be improved. We also see from a customer standpoint that our platform definitely leverages AI heavily. And we see that we can do some things around optimizing the architecture over time. We've done this before. You saw it in our cloud costs as we've done -- as we've managed them closely in the past. And we feel like there's some optimizations that we can do. But there's also with respect to making sure that, that value is being appreciated by our customers, we think there's some pricing and credit economics that we can also drive where the customer actually helps us along the way. The last 2 are related to some infrastructure expansion that we've done, where we've actually deployed in it 5 additional points of presence. Each one of those points of presence across the globe has some fixed costs associated with it. But we did that quite consciously because we see sovereign private cloud is a big topic right now, and we want to be in a position where we can, in fact, be able to deliver on those use cases for customers. So we need to have a local presence. So we think that, that will end up translating into real business for us moving forward and the unit economics will improve. And then finally, from a transition cost standpoint, we are consolidating some workloads from 1 hyperscaler to another. And during that period of time, we actually have 2 instances running. So as we actually complete that transition, you'll see those costs roll off. So we see the cloud costs coming down over time. From an overall Trend Micro management P&L standpoint, you can see the top line, and it's well within the guidance that we set, and we're really pleased with the overall top line performance. Our COGS did increase, and we talked about from a cloud perspective, that's the area that it increased specifically. And we have some areas around cloud and AI where we do see that the unit economics will kick in over time, and we will see those gross margins start to improve. The other area was from a sales and marketing standpoint. As we created these global -- these clear demarcations between our businesses, we said we would invest in some branding. We said we would lean into those to get those established. So those 2 are temporary investments that we made. So we see those falling off over time. Our North Star remains in place. We think we can drive up to double-digit growth while maintaining incredibly healthy operating margins. Okay. Let's dive into each one of the businesses real quick. From a TrendAI perspective, it's all about Vision One and our 11 solutions that are built into that. We're doing a really nice job of growing it. Vision One, $615 million, up 49% year-over-year. So tremendous growth. And you can see the bottom red there, that's what we're driving towards. That represents a 45% attachment. NRR is solid, market-leading with 122% NRR. That is consistent with the number we produced in Q1. However, in GRR, we actually improved our overall GRR. In Q1, it was 85%. And in Q2, it's up to 87%. So we're starting to see the benefits of getting this platform and multiple solutions deployed. Actually, we had participation across the globe from all 4 regions in terms of growing our Vision One platform success. Really, really nice growth in each one of the regions. And the chart on the right, the box on the right shows it's ranked by order. The largest ARR is in the U.S., and that is up 39%. Actually, that's even higher than what it was in Q1, where it was up 38%. So not only is the number getting bigger, but we're actually finding ways to accelerate the growth in the U.S. specifically. And not surprisingly, Vision One adoption is big across our top 3 countries. In the Small Enterprise segment, we have around 6,600 MSP partners, and we continue to actually work through and methodically get them. We're up to 325 of them now that are transacting with Vision One. ARR growth is exceptional once they start doing that, and we're seeing the adoption grow dramatically. From a services standpoint, we don't talk too much about this, but one of the sales motions that the team has in place is once a customer gets a certain amount of adoption within the platform, then it's very logical for us to try to attach services, managed detection and response, incident response services. And we're seeing really nice success with this. We're up now over 2,200 customers now, $81 million. That's up 27%. But the cool thing about this is once services is deployed, we actually see the number of solutions increase by 50%. So they go from an average of 4 modules to an average of 6. So some really nice success. And you know this chart, you've seen it before. Once we get more solutions deployed, our ARR goes up, but so too does our retention rate. And that's why we're seeing the GRR start to improve. We're sitting at an average of 4.2 solutions per customer on Vision One right now. Not only that, we're seeing it in terms of all the marketing investments that we've been making and success with the platform. We're seeing our pipeline grow, so very healthy. And we can already see the leading indicators for the second half that our ARR will continue to accelerate beyond what we've typically seen. The dotted line on the bottom shows if we had not made the investments. So we're starting to see that pay off. And specifically, from a customer standpoint, we are seeing it in -- right across the globe. We're seeing about 41% of our deals are driven by consolidation. We're seeing the AI SOC, the agentic SIEM customers. We're replacing vulnerability -- legacy vulnerability management systems. So a lot of good success. In our traditional verticals, we do have a lot going on in terms of vertical marketing and specifically around health care, substantial increase with 94% year-over-year. So really good success leaning into those verticals. Next up is TrendLife. And like I said, a really powerful quarter, doing everything that we've said that they -- that we wanted them to do. So really nice growth in terms of overall, up plus 4% year-over-year in ARR. Also, it's coming from the area that we're looking for, which is this Digital Life Protection, and that's increasing our ARPU, up 2% year-over-year. So really doing a nice job. And then finally, rounding it out, from a VicOne perspective, that business is focused in on automotive, but also robotics, cybersecurity. And we're now up to 45 customers protecting a lot of real vehicles that are out there, and we're seeing that business start to grow as it starts to embrace robotics. And in Magna, that's the AI systems integration and consulting. We have 15 pilots underway. We've signed a number of MOUs and we actually have a deal that we're working on. So our first opportunity we're looking to close in the second half. So we've actually got some really, really good early indicators that we're on to something. So overall, I feel like we're in a really good spot. We've got our transformation into an AI-native operations company. We have our sort of 3 key areas with TrendAI, TrendLife, and Incubation, all focused in on their areas being best-in-class in what they do and winning and trying to accelerate that top line. We feel like over time, we will be able to drive and get the leverage out of these investments that we're making. Look forward to the questions. Thank you.

[Interpreted] SMBC Nikko Securities. My name is Kikuchi. I have 2 questions. First question about [indiscernible] investment was going to increase, and this is bigger than we expected. But I understand that there's going to be return on this investment later on. I understand the direction. But unit economics, so the revenue as it increases, the investment will be absorbed. I understand that as well. But when will this happen? When will the net sales start to increase? ARR growth in the U.S. is still weak. So my question is when can we see the net sales increase enough to absorb this investment? Should we expect that next year? I would guess so, but is that the beginning of the year or the latter half of the year? So when do you think net sales will start to increase? And also what will be the breakdown in terms of types of products and also region? That's my first question.

Maybe you can answer.

Sure. I can start and Mahendra or Eva can also jump in. The way we think about it is that our net sales, a leading indicator for the net sales is going to be ARR. And those 2 numbers are going to get closer and closer together over time. And one of the things that we described in both Eva's presentation and mine and Mahendra's is that we're really fixated on growing Vision One. So our Vision One platform is now half of our, approximately half of our, pretty close to half of our ARR in total on TrendAI. And that's really the focus is to continue to grow Vision One in the Americas and in the U.S., in particular, that's why I highlighted the fact that the U.S. is doing so well at growing Vision One, and that is the priority. And over time, in Q3, we see the ARR increasing. In Q4, we'll see the ARR increasing. So as the ARR increases, we will see that translate into some net sales improvement over time.

[Interpreted] I would like to add Kikuchi-san. Legacy SaaS is slowing us down. That is a type of cloud security that sold a lot several years ago, but it will start to disappear. And then Vision One sales will increase or accelerate the pace of return on investment.

[Interpreted] What about the specific timing though? Are we talking about next year? According to the situation right now, I cannot really see the ARR growing that fast. But do you think you will hopefully breakeven in next year, but when do you think it will happen? I want to know the timing.

I think...

[Interpreted] And the second question, sorry, yes, please respond to the question first, if that's okay.

Sorry. I think you already see that we're showing the momentum of the second half, and we expect that Q3, Q4, our revenue continue to grow and our investment will be slowing down or say, already starting to pay off starting the second half. But how much is enough to absorb the whole or how much improvement of the unit cost economy is very hard to say. All I can tell you is that starting second half, we definitely will be seeing improvement on those unit cost economy already.

[Interpreted] My second question is also about cost. Customers use your Vision One and that increases the cost. And I understand that the cost will continue to increase in line with the net sales growth. But there are also other costs that are increasing. And I believe that those other costs are controllable. And if that is true, Kevin, you showed a 2028 target and AI cost, controllable costs, I'm sure will be controlled by the company. Is that the correct assumption? That's the question. Well, 2028 is 2 years down the line, but it's going to come very quickly, I'm sure. And do you still have the same target in terms of performance target? And is it actually possible to continue to reduce the AI costs that are controllable.

[Interpreted] I would like to explain first, and I'm sure that Kevin has some additional comments. As Eva's slide showed today, so when the customer uses something, then it pushes up the AI cost and cloud cost. But for SaaS, $1, it's $0.14 or $0.13, which means that we are still making a lot of profit from there. And the reason that income is declining is, for example, there's duplication and also internal education. And those costs can be flat or can be reduced over time, so that can be effective. And we don't think the headcount cost will increase that much either. That's what I wanted to say. The other thing. We do have a 3-year plan. And at the end of today's event, I will talk about the, people talk about the IR Day event. And in the IR Day event, we will provide more explanation about our future outlook. Right. So Kevin, can I ask you about the target, 2028 target? What is the current status of progress against the target in 2028? Kevin?

Yes. Like we've been talking about through Eva's presentation, Mahendra and mine, we don't see any change to the Road to 2028. That continues to be our North Star business model that we were moving towards. There were 2 areas, our cost of goods sold and our sales and marketing expense, both did increase. And we've talked about both of those in terms of we see that as temporary and that those will gradually become more aligned with what we expect from a Road to 2028. The only thing I would add in addition to what Mahendra said around the unit economics. I like that calculation a lot. And one of the things I don't know if everyone picked up on it, but our Vision One platform grew 49%, and our cloud costs grew substantially less. So while we will make improvements in our overall cloud utilization, and we will get leverage from some of these investments, but the top line growth of the platform is much greater than the cost increase.

So I would like to move on to the next person.

[Interpreted] This is Sato from Jefferies. Can you hear me?

Yes, we are hearing you.

[Interpreted] I have one question. This is just to check once again. This fiscal year, ARR 15% -- 15% ARR, I believe that, that is your full year guidance. So can I confirm that there's no change to that target?

[Interpreted] So our full year ARR target, what we are saying is that we would like to aim for double digit. But our expectation we are just give -- saying that we are planning to increase ARR, but we cannot say whether it's going to be 15% or not. So 15% is the number that Kevin has mentioned when we announced our quarter 4 results. Kevin?

So yes, formally, we do not guide on ARR. We guide on our net sales and our net income. So formally, that's, and that comes from Mahendra. I tried to give you an idea of what our objectives are and from an internal standpoint and where the business is headed. And yes, we are targeting to continue to increase as this ARR momentum continues to build, we see it over time that it will hit double digits. So that's what we are moving towards.

[Interpreted] Then so it has improved to 5%, about 6% at the moment. So your second half scenario is that there will be some gradual increase towards the end of the year. So there's no change to that thought process. I'm not sure whether it is going to be 10% or 15%, but can I understand that this growth is going to be [indiscernible]?

[Interpreted] Yes, exactly. So 10%, 15%. So those numbers, we don't give you officially. However, going forward, our idea is to aiming for the growth.

Yes, double digit?