Cyber Security Cloud,Inc. Q2 FY2025 earnings call

• Aggregate Financial Performance

  • 2nd quarter cumulative total revenue: 2.418 billion yen, +31.2% year-over-year. Cumulative operating profit: 476 million yen, -2.6% year-over-year. The year-over-year profit decline is due to a large one-off project in the prior year first quarter; standalone Q2 operating profit grew +35.4% year-over-year. Revenue achievement against full-year guidance is 48.4%, and operating profit achievement is 47.7%, indicating on-track progress. Total ARR exceeds 4.5 billion yen, +30.8% year-over-year.
  • Higher operating costs are driven by increased payroll from new graduate hires in April 2025 and the addition of DataSign's employee costs, with no other unexpected expense increases. Total headcount has grown steadily with 10 new graduate hires in 2025.

• Product and Go-To-Market Highlights

  • CloudFastener adoption is progressing faster than expected: launched 2 years ago originally targeting cloud-native companies, it now sees strong demand from listed enterprises migrating legacy on-premise infrastructure to cloud, as these firms lack in-house cloud security expertise, which CloudFastener addresses effectively.
  • The company exhibited at AWS Summit Japan 2025, generating a record high number of sales leads, which is expected to drive future order growth. A company engineer was selected for Japan AWS Top Engineers for the first time, marking a key step in building technical brand recognition.
  • Cross-selling initiative: The firm is strengthening systematic cross-selling across its expanding product portfolio to increase average customer lifetime value. It currently has ~7,000 global users and over 200 sales partners. A recent large, historically recognizable Japanese global enterprise placed a record-sized initial order for both WafCharm and CloudFastener, representing a positive milestone for cross-selling efforts.
  • The February 2025 acquisition of DataSign added webtru to the company's product portfolio, continuing the firm's expansion beyond its original WAF core business.

1. WafCharm & CloudFastener: Cloud-related security services achieved record high quarterly new order value, with strong continued growth. 64% of CloudFastener clients use additional Cyber Security Cloud services, and 70% of CloudFastener's adopting companies are listed enterprises. 2. Managed Rules: Globally sold in USD, it appears to decline in yen terms due to foreign exchange impacts, but continues to grow on a USD basis. 3. Kōgeki Shadan-kun (Attack Blocker): ARR saw a slight decrease, driven by a small rise in churn as long-term high-value clients migrate from on-premise to cloud infrastructure. This is viewed as a temporary trend, as some of these clients switch to WafCharm. 4. webtru: February 2025 acquisition of DataSign added webtru's recurring stock revenue, which is included in the current period results. 5. Other Revenue: Primarily consists of vulnerability scanning services and ad-hoc/PoC projects responding to CloudFastener client requests, and makes up a small share of total revenue. Recent Other Revenue largely represents development experimentation for future product growth.

• The company maintains its full-year 2025 guidance, with first half results progressing in line with the full-year target at 48.4% revenue achievement and 47.7% operating profit achievement.
• The current medium-term plan ends in 2025; a new medium-term plan is targeted for announcement in February 2026 alongside full-year 2025 results, with exact timing still to be confirmed.
• The new medium-term plan will prioritize growth via increased cross-selling (multiple products per customer) rather than incremental single-product sales, with a target structural operating profit margin above 20%, building on the current plan's goal of reaching 20% margin.
• The company's prior 10% overseas revenue share target has effectively been achieved; the firm will continue growing overseas sales and may update disclosure of global sales results in the future.

• Kōgeki Shadan-kun has seen a slight increase in churn, driven by ongoing client migration from on-premise to cloud infrastructure; while this is partially offset by client switching to WafCharm, sustained higher churn could negatively impact ARR for the legacy product line.
• The company's relative lack of current exposure to government cyber defense budget growth (compared to some peer firms) has resulted in its stock underperforming peer valuations amid the current cyber defense policy trend.
• While the company is pursuing M&A growth with increased capital available, successful integration and target selection carry execution risk, and no deals have been finalized at present.
• Foreign exchange fluctuations impact the yen-denominated reported value of the global Managed Rules business, creating volatility in reported results despite steady USD-denominated growth.

Q: Amid rising global cyber defense budget expansion, peers FFRI Security and Amiya have seen large share price gains, but Cyber Security Cloud has lagged. Is your service unrelated to cyber defense? / A: Management acknowledges the share price underperformance relative to cyber defense-focused peers. It notes the company already collaborates with Japanese government ministries on cyber security contributions, but peers are positioned earlier in the defense budget procurement cycle, while the company focuses on the private sector web security market. Management believes growing demand for web security from critical infrastructure firms under Japan's new cyber defense rules will benefit the company, and will step up IR efforts to better communicate this position to the market. (324 words)

Q: What are your search criteria for M&A targets after your recent 5 billion yen+ capital raise? / A: The company has more than doubled the number of M&A targets it evaluates year-over-year, with a primary goal of expanding product offerings to strengthen cross-selling. The priority is acquiring companies with complementary solutions that can be cross-sold to the company's existing CloudFastener-focused cloud security client base, with both domestic and international targets under active consideration. (178 words)

Q: When will the new medium-term plan be released, and what growth and margin targets are you targeting? / A: The new plan is planned for release alongside full-year 2025 results in February 2026, with no exact date set. The core focus will be accelerating growth via cross-selling rather than incremental single-product sales, to deliver larger revenue growth. The plan will retain the focus on achieving a structural operating profit margin above 20%, a goal from the current plan, with details to be released closer to announcement. (172 words)

Q: Will you consider share buybacks, given the perception that the stock is undervalued? / A: Management agrees the stock appears undervalued, and share buybacks are on the table as a future capital policy option. No buyback has been approved at this stage, as the company is currently focused on deploying newly raised capital for growth initiatives including M&A, and will evaluate which capital allocation strategy delivers the most value to shareholders going forward. (148 words)