HUB Cyber Security Ltd. Q2 FY2024 earnings call

• Restructuring and efficiency: Closed underperforming businesses, reduced headcount, and streamlined operations to focus on core strengths in higher-margin businesses.
• Financial strengthening: Significantly reduced liabilities, improved the balance sheet, and created flexibility for strategic investment in the Secure Data Fabric platform.
• Client retention/expansion: Maintained and strengthened relationships with blue-chip clients, leveraging long-term trust to drive growth of the Secure Data Fabric business.
• Team building: Recruited top-tier talent to drive the growth strategy, including industry experts who share the company's vision.

HUB Cyber Security operates two complementary business units. The first is the Secure Data Fabric platform, which serves as the primary growth engine. Revenue for the six months ended June 30, 2024 was $15.7 million, with the decline in revenues mainly driven by terminated and less profitable contracts in the legacy professional services and cyber consultancy business. The legacy professional services and cyber consultancy business, which provides a stable revenue stream with strong long-term relationships with blue chip clients like Visa and Boeing, contributed to the $15.7 million revenue. Historically, the professional services business had margins in the 50% to 20% range, but after streamlining operations, margins improved to between 30% to 40%. The Secure Data Fabric platform is a high-margin business with margins in the 80% to 90% range and is positioned to be the primary growth driver going forward, with a shift in the revenue mix expected starting in 2025.

• Operating expenses are expected to be around $18 million going forward.
• The Secure Data Fabric segment is poised to be the primary growth driver, with a significant shift in the revenue mix anticipated starting in 2025.

• Factors set out in the company's filings with the SEC, including risks related to execution of growth strategy, market competition, and regulatory changes.

Q: Can you talk about your competitors and the advantages that you have over them? You mentioned Palantir. Can you elaborate on your product versus theirs?

A: Yes, Palantir is a competitor. Our competitors often take years to implement, cost billions to deploy and maintain, and are highly vulnerable to cyberattacks. Once deployed, many require extensive manual intervention. HUB Secure Data Fabric can be implemented in just a few months, has relatively low deployment and maintenance costs as it's pure software, is powered by military-grade cybersecurity, enables near-real-time analytics generation with minimal manual intervention, and can be added as a layer above existing infrastructure without requiring large CapEx investments.

Q: HUB has historically been a services and hardware company, but it seems like HUB is moving towards a more software-centric company with AI driving the data fabric component. Can you explain the software versus hardware segment of the business?

A: Yes, HUB has undergone a strategic evolution. While hardware and services were historically significant, we've transitioned to focus on high-margin software-driven solutions. The Secure Data Fabric powered by proprietary AI integrates advanced data analytics with deep cyber security expertise to address security priorities and broader operational needs of clients.

Q: How do you see the long-term margin profile of the company and looking ahead which business unit, the Secure Data Fabric or the IT services you consider to be the main vertical for HUB?

A: Our long-term margin profile reflects disciplined management and operational efficiency. Historically, professional services had margins in 50%-20%, but shifted to 30%-40% after streamlining. The Secure Data Fabric has margins in 80%-90% and is poised to be the primary growth driver, with the revenue mix expected to significantly shift from professional services to the Secure Data Fabric starting in 2025.

Q: The theme of big data seems like a perfect storms for a HUB’s Data Fiber product. What are the main drivers behind the demand for HUB’s product and how does big data play into this?

A: Demand for the Data Fabric product is fueled by the explosion of AI-driven data overwhelming traditional systems, rising regulatory pressures requiring secure solutions, and the high cost of maintaining legacy systems. Highly regulated sectors are spending billions on compliance and data management and need efficient, scalable solutions like ours to reduce costs while meeting regulatory requirements. Big data plays into this by creating the need for efficient data management and consolidation solutions like HUB's.

Q: Can you elaborate on HUB's secure data customer base and what it's currently being used for?

A: HUB Secure Data Fabric is used by leading European banks for KYC processes, supports a top European asset manager with data integration and analytics, and has a pipeline including industries like payments, tourism, ESG, and healthcare. It addresses the challenge of managing and unifying massive volumes of fragmented data in highly regulated markets.