Trend Micro (4704) Q3 2024 earnings summary

Executive summary

• Net sales rose 6% year-over-year in Q3 2024 to ¥68,124 million, with operating income up 30% to ¥14,801 million and net income surging 797% to ¥8,523 million; for the nine months, net sales increased 10.3% to ¥202,658 million, driven by strong growth in Europe and Asia Pacific.

• Achieved record quarterly operating profit and margin improvement, with Q3 operating margin at 22% and margin excluding stock price impact at 24%.

• Enterprise recurring revenue and platform expansion drove performance, with over 10,000 Vision One customers and robust growth in large enterprise ARR.

• Strategic focus on shifting from perpetual licenses to subscription-based ARR, with recurring revenue up 4% to $1.6 billion and enterprise ARR at $1.26 billion (+6% YoY).

• All regions reported sales growth, with Asia Pacific leading at 23% and Europe at 18.2% year-over-year.

Financial highlights

• Q3 2024 net sales: ¥68,124 million (+6% YoY); operating income: ¥14,801 million (+30% YoY, 22% margin); net income: ¥8,523 million (+797% YoY); 9-month net sales: ¥202,658 million (+10% YoY); operating income: ¥39,237 million (+33% YoY); net income: ¥26,418 million (+106% YoY).

• Operating expenses increased only 1% year-over-year, despite higher stock option-related costs due to share price appreciation; excluding stock option cost increases, operating income grew 42% YoY.

• Cash and cash equivalents at Q3-end: ¥149,333 million; operating cash flow down 48% YoY to ¥6,771 million, mainly due to a one-time income tax payment.

• Gross profit for the nine months was ¥154,183 million, up from ¥138,289 million year-over-year.

• Total assets declined to ¥354,153 million, and net assets fell to ¥105,945 million, reflecting large shareholder returns and increased treasury stock.

Outlook and guidance

• Full-year FY2024 guidance maintained: net sales ¥271,000 million (+9% YoY), operating income ¥52,900 million (+62% YoY), net income attributable to owners of the parent ¥34,600 million (+222% YoY), EPS ¥255.05.

• Q4 is expected to meet guidance, with large-scale deals anticipated and annual expectations reaffirmed.

• Management targets 8%-10% net sales growth by 2027, with 2025 expected to improve over 2024.

• Main assumed exchange rates for FY2024: 1 USD = ¥147, 1 EUR = ¥157.