Cyber Security Cloud,Inc. Q4 FY2024 earnings call

• Financial Performance and Profitability
  • Operating margin exceeded 20%, reaching the highest level since listing, meeting the company's long-standing target profit margin
  • Q4 2024 operating costs increased due to rising payroll from headcount growth and special performance bonuses, pre-investment in office expansion for workforce expansion, and higher advertising expenses from participation in AWS re:Invent 2024
  • Headcount grew by 26 people year-over-year in Q4, driven by the establishment of Generative Technology Inc. after a business acquisition, with the second batch of new graduate hires joining in April 2025
• Product and Business Milestones
  • CloudFastener launched large-scale digital marketing campaigns starting February 2025, targeted at security professionals facing alert fatigue
  • Secured first US distribution partnership with CStream, resulting in first global CloudFastener customer, US IT firm FinMed; joint lead generation activities are already underway
  • Exhibited at AWS re:Invent 2024 in Las Vegas for the second consecutive year, with more than double the booth visitors compared to 2023, and the company's engineering team placed 2nd globally in the AWS GameDay competition
  • A large South American fintech customer acquired at a 2024 US security show has expanded its WafCharm usage from initial partial deployment to full deployment across all systems, with spending doubling since Q3 2024 and already reaching 7x the average WafCharm customer spend
• M&A and Acquisitions
  • Completed 100% acquisition of DataSign, a SaaS provider specializing in data privacy governance solutions, which has high strategic synergy with Cyber Security Cloud's core security business; combined security and privacy offerings are rare globally, and the acquisition builds unique competitive advantage
  • Prior acquisitions: Softec acquired in 2020 (now merged, with its vulnerability scanning product SIDfm contributing strongly to revenue), and Generative Technology established in October 2024 to meet demand for security-focused development resources, which is already outperforming initial growth expectations
  • The company will continue to actively pursue M&A opportunities focused on the cloud + cybersecurity space
• Shareholder Return
  • Shifted growth strategy to implement dividends alongside ongoing growth investment, announcing an inaugural dividend of 3.0 yen per share for fiscal 2024, with a target 5.0 yen per share dividend for fiscal 2025
  • Will continue to pursue dividend increases, and will also consider additional shareholder return options including share buybacks
• 2025 Strategic Priorities
  • 1: Strengthen value delivery to large enterprise clients: Expand alliances with system integrators and resellers to reach more large clients, and strengthen internal sales team training and organization to better serve large accounts
  • 2: Accelerate global expansion within the AWS ecosystem: Invest in brand building, obtain AWS competency certifications, and leverage AWS Marketplace to make products easily accessible to global customers
  • 3: Continue expanding the company's product and service portfolio to address a wider range of customer needs

The full-year 2024 total revenue is 3.857 billion yen, up 26% year-over-year, exceeding the revised November 2024 guidance. Operating profit is 0.773 billion yen, up 40.7% year-over-year, and net profit is 0.575 billion yen. Annualized Recurring Revenue (ARR) grew 24.6% year-over-year, exceeding 4 billion yen for the first time, driven by Q4 2024 record new orders, WafCharm price adjustments for existing customers, and strong new transaction growth for new product CloudFastener. Q4 2024 quarterly revenue exceeded 1 billion yen for the first time, with full-year 2024 US dollar-denominated revenue reaching ~$3.82 million, which contributed to overall revenue growth via yen depreciation effects. Churn for core products 攻撃遮断くん and WafCharm remains stable at low levels. CloudFastener, the new growth product, has delivered much faster growth than 攻撃遮断くん and WafCharm in their first year post-launch, with most early customers coming from Cyber Security Cloud's existing user base, and strong ongoing demand from existing clients. No explicit revenue contribution percentages are disclosed for individual segments.

• For 2025 (fiscal year ending December 2025), the final year of the current mid-term management plan, management maintains its original financial targets of 5 billion yen in total revenue and 1 billion yen in operating profit, representing a 30% revenue increase from 2024, with operating margin staying at ~20%
  • The 1 billion yen operating profit target was originally set in 2021, and the company already hit the 20% operating margin target in 2024, putting the plan on track
• The company targets an overseas revenue share of more than 10% for the combined WafCharm, Managed Rules, and CloudFastener product lines by 2025
• Mid-to-long term, management will focus growth on the cloud + cybersecurity intersection, a large and growing global market. Growth will come from expanding from core threat defense to security operations, vulnerability management, and secure development, expanding self-serve digital onboarding for global customers, building customer communities, and pursuing non-organic growth via M&A
• The company expects to deliver faster revenue growth in the mid-to-long term than it achieved from 2020 to 2025, with a formal updated long-term strategy expected to be released during fiscal 2025

The transcript does not disclose any material operational risks, risk factors, or operational failures in the provided content. The only note is that large-scale growth investments may lead to temporary profit declines in future periods, but management will only pursue such investments when they have clear expected long-term growth returns and will communicate transparently with investors if such investments are approved.

Q: What is driving CloudFastener's strong growth, and what is the outlook for 2025? / A: Management states CloudFastener's growth comes from unmet market demand for specialized cloud cybersecurity. Keeping up with cloud platform evolution and changing security threats requires specialized skills that most in-house teams struggle to maintain, and the product fills this gap. Most current customers are existing 攻撃遮断くん and WafCharm users, and the product has received very positive customer feedback. For 2025, management sees major remaining growth opportunities, and plans to expand growth via additional partnerships with sales channel partners, building on the product's early momentum.

Q: What is the 2025 ARR target for CloudFastener, and when will it become a core product? / A: Management does not disclose a standalone ARR target for CloudFastener, but expects very strong growth for the product. Currently, 攻撃遮断くん is the largest revenue contributor, followed by WafCharm, Managed Rules, and SIDfm. Management expects CloudFastener to quickly grow to match the size of these core products, and has ambitions for it to become an even larger business over time.

Q: Will 2025 operating margin stay flat even with strong revenue growth, and can margin improve further from 20%? / A: The 2025 guidance for flat 20% operating margin reflects planned growth investments for future expansion, not a lack of upside potential. When the 2025 plan was set in 2021, the core goal was to build a business structure that can sustain 20% operating margin, which the company has already achieved. Management sees further upside to profit over time, but is prioritizing strategic investment to drive larger long-term growth in 2025.

Q: What is the company's approach to future M&A? / A: Management views M&A as a critical tool to drive faster mid-to-long term growth. The company has completed 3 acquisitions to date, and 2 of those have already delivered strong growth above initial expectations, with solid due diligence driving positive results. The company will continue to actively pursue acquisition opportunities within its core cloud + cybersecurity focus area.

Q: What is the current CAC for CloudFastener, and what is the expected LTV? / A: Management does not disclose a specific CAC number, but notes most CloudFastener customers are acquired from the company's existing user base, so customer acquisition costs have been very low to date. While long-term LTV is still being validated because the product is new, the product is designed as a long-term core security solution that customers will not churn from unless there are major issues, so management expects LTV to be very high for the product.