Thank you. I'd like to use this PowerPoint to talk about the second quarter results.

This is the overall results. And if you look at the net sales, you can see it has grown 12% year-over-year basis.

And towards the bottom, you can see the increase for net sales 7%, if currency exchange rates used for 2020 is applied. And also pre-GAAP basis, it's plus 11%.

Compared to the overall annual guidelines, we see that we have seen a very steady growth in our net sales, but operating income is flat. Why is it that we have double-digit growth in net sales and yet operating income is flat?

This is because compared to last year, in the second quarter last year, we were completely in a lockdown situation. So there were a lot of savings that were possible for sales and marketing.

There was a lot of savings. But this year, gradually, things have opened up.

And so therefore, we are seeing more expenses. And also the net sales have grown and also the SaaS area, which we are emphasizing in our strategy heavily are areas where there has been much activity.

And so therefore, this has changed the situation. And there's also the exchange rate impact.

And so in that sense, there has been the overseas sales that has been impacted, and this is reflected in the numbers here. But we see an increase in the -- 28% increase in ordinary income because of the sales that has taken place.

And compared to the overall guideline, you can see that we see a steady progress. And when we look at the net sales growth by region, in North America, there have been some difficulties in the past, but we have been able to have a positive result.

And for North America, we are seeing recovery. In Japan, for the pre-GAAP basis, second quarter, there have been some difficulties, but the major reason for this is because of the state of emergency impact.

Over here, we have this impact of the exchange rates. And by segment, when we look at this, we can see that for the enterprise market, this is the numbers after the deferred revenues.

And you can see this, as already mentioned. On a pre-GAAP basis, you will see a different situation, but this is the kind of situation which we are seeing.

And from the first quarter, this is a new way of presenting the numbers, and you can see the subscription license. We have divided this into perpetual license, subscription license and subscription ARR.

And first, when it comes to the active customer count, you can see that we are seeing steady growth in the subscription customers. And you can see that in corporate policy in our strategy, we want to try to move forward to a subscription SaaS approach.

And so therefore, that is why you see this decline over here. And this is an important point.

This is in regard to SaaS, whether the customers are actually using SaaS or not, to what extent are the SaaS agents being used, and we see that it is plus 60% here. On the other hand, in regard to this usage, we believe that this is a positive factor for us.

And related to that, in regard to the subscription business, ARR, the annual or recurring revenue, this is 30%. And because of the low yen against the dollar, in the previous quarter, we had seen this already taking place, but we see further acceleration of this trend.

And there's a 12% growth here. Gradually in regard to ARR, the percentages will increase.

And this will approach the deferred revenues. This is the percentage share by region.

No particular big change here. And here, this is the pre-GAAP before adjusting for currency exchange rates.

And you can see that we have double-digit growth in the other regions, especially if you look at North America, it had been negative results up until now, but now we have this double-digit growth and also in Europe as well. So we continue to see these good numbers.

Meanwhile, it's minus 2% in Japan. And I've already touched upon this, but there is a state of emergency declaration.

And when it came to the larger retailers, there is an impact here. And also for the enterprise market as well, in regard to the orders that we have been anticipating, there were some postponements.

And later on, Mr. Omikawa will be explaining about that.

And when it comes to the enterprise corporate sales, if you look at this area, it looks like the deferred revenues are growing tremendously. But if you look at the pre-GAAP numbers, you can see that for the enterprise market, it's about 7%.

And our strategy aspects will be explained by Mr. we have the Cloud One and we have a SaaS service which we see considerable sales.

And this is the deferred revenues. I will skip this and looking at the cost structure.

As already mentioned, our sales are increasing, but why is it that the net income is flat. Compared to the first quarter, you can see the situation from the top.

There is the R&D. After that, we have selling and marketing, and we can see a growth compared to 1 year ago.

This is because for sales activities. We're seeing recovery in activity.

And so the numbers are growing here. So there's a lot for the cloud.

As already mentioned, for the SaaS agents, the numbers are increasing. Consequently, we see an increase here.

And we think this is a positive thing. It may not be used, but as this increases, we believe that this is going to lead to usage by the customer.

And this will eventually lead to sales. And also for the outsourcing, I'm sure that you're aware of the fact that we have the mobile phone shop channel, and there is a decrease in the overall sales, but there is also the mobile phones shop sales that are growing.

In terms of the salaries, there's variable compensation portion and also some impact by the exchange is the pre-GAAP status. Cash flow, JPY 14 billion.

This is quite solid. We have hired additional 50 people.

Last year, we didn't hire many people. But going forward, we may increase the headcount.

This is mostly related to our efforts to increase the sales. We want to have a stronger sales teams in different areas.

That's the biggest factor behind this. And these are nonoperating items.

the gain on sales of marketable securities of JPY 1 billion. And going to the highlights and lowlight this quarter.

Highlights include positive growth in North American region and also double-digit growth of a pre-GAAP in all areas, excluding Japan, and the stronger growth of subscription ARR. In terms of lowlights, in Japan, we had the impact of emergency declaration.

But once this is lifted, we expect the business to go back to the normal situation in Japan. There's also the salary cost and the cloud-related expenses that are expanding, but we believe this is a healthy sign.

Because as a company, we have strategic objectives that we want to achieve, and these are the variable costs related to that. And the cloud back-end usage is increasing, and that is why the cost is increasing.

Moving on to the 6 months, the first half, I would like to skip these slides because this is just a combination of second quarters. As far as the outlook is concerned, we have not changed anything.

You may think that this is a little bit still conservative at the end of the second quarter, but COVID-19 is still here. And also in Japan, every day, the situations are fluctuating.

There are many uncertainties still. So considering those uncertainties, we want to maintain the current outlook.

That's all for me. Thank you very much for

Thank you very much for joining us. And I think Mahendra has been revealing this new indicator and our measurement of our performance.

And I'd like to explain what is all the strategic and momentum behind this ARR. What is this ARR number?

It's not just a new revenue recognition but actually is a whole strategic movement of Trend Micro. In the past 6 months, Trend Micro has been transforming ourselves into a platform company, and that is including of this strategic transformation.

Completion of organization changes to already web organization where everyone connected and moved very fast in other area. Products transform into a platform.

The government transform from software development into a DevOps development style, and our on-premise offering has been transformed as you can see all those SaaS customer growth, more and more customers are onboarding to our SaaS-based offering and perpetual licensing model, business model revenue, has been transformed to subscription licensing model. Also, our high touch or every point, how we touch the customer.

Before it's usually the marketing, broadcasting message or is the sales direct contact marketing, but now we're transforming to digital and means that within our product, within our platform, we contact and communicate with our customers through all these new platforms and also traditional distribution also including now more and more our channel transform into the marketplace, such as AWS marketplace now play a very important role in our U.S. channel marketing.

And traditional -- before our customer support is like we're waiting for customers to call and make sure that we respond. Is that fast?

No, we're already transformed into a proactive customer support. So even before a customer call, we already know what's going on and in their environment and what is needed to be done to make them successful.

this pain area of strategic transformation, I think we -- the whole company are focusing on, and we were able to transform and complete this type of SaaS-based activity platform transformation. And that shows in how we increase of our new customers in both Cloud One and automate our Vision One 1 platform.

In this week, we are announcing a new service one, which is transforming our support, like I explained, to a proactive support, where we can actually proactively know the customer and say, hey, we see they look like trying to attack your network or your system, and you need to take a action to prevent the ransomware. And we actually do have several customers between and they we see this type of notice and save them preventing them from being by the hackers.

So last quarter -- actually, last 6 months, we're adding a lot of customers, new customers, trial customers onto our platform, around 8,800 new customers, enterprise customers for Apex of almost 2,000 new customers onto our network one and 8,000 customers on our trial platform. These are all the customers that they were going into our platform, and that means that from their home, they would travel with Trend Micro.

Means that Trend Micro will become their cybersecurity journey partners. And this partner is journey means, customer whey they board, they will have received all the constant support and services and new enhancements through our platform, Cloud One platform or Vision One platform.

While they are there, we were able to know what they mean in the -- before they encounter the cybersecurity attack. And also, we can do much more efficient communication to the customer.

For instance, we can do so-called contactual market. We see that there are a lot of attacks coming through the e-mail, and you haven't been able to prevent this e-mail attack.

That's why you reached to your endpoint. And we can contact the Now is time that you consider to add on your test Trend Micro's new product, test, which is on the e-mail So these are the new journey that we were able to bring our customers to this platform.

And also in the past 3 months, we've been focusing on connecting our Cloud One platform, with our Vision One platform, which means customers can enter our platform to our cloud customer -- through cloud and SaaS customer or our traditional customers that getting on to Vision One will connect to cloud. This type of connection will help Trend Micro to expand our customer base and expand the existing customer to use more Trend Micro's solution.

That's why we feel very exciting about our platform strategy and seeing this platform strategy starting to add and grow in our ARR, annual subscription-based revenue. So right now, customers are -- you already see that our enterprise ARR has been growing.

Actually, on the consumer side, Trend Micro has been using the ARR or subscription-based revenue calculation and combine the enterprise and consumer, our ARR recurring revenue has seen $1 billion. This is important because it means that Trend Micro, majority of our revenue are based on subscription and recurring revenue.

And that will enable the whole Trend Micro, who company or working for the same index, which is how do we expand our revenue through our customer onboarding process and expand to increase the existing customers' revenue share. And also, we will focus on how do we reduce the churn rate, make sure customers is, as said, we will be able to make sure our customers continue to go with Trend Micro.

And I think in the time of 6 months, we see the progress, and we were very happy that we complete our first transformation of this platform where we started to bring customers on to new customers, trial customer onto our Cloud One and Vision One platform. And in the next in 10 months or so, I think we will continue to expand all this platform and make sure that our customers to the platform and increase their usage of our Trend Micro product and services.

So that's our strategy. The cloud and strategy being #1 as the cybersecurity platform provided.

Thank you.

I would like to talk about the business situation of the second quarter. First, the Japanese market business strategy has not changed.

This continues to pursue the existing approaches for both the individual and the enterprise markets. And we are moving forward with new initiatives.

Here in Japan, though, for the releases, we have not been able to reflect what is taking place elsewhere here in Japan yet, but we intend to continue to increase this. And when it comes to the cybersecurity research institute, we have been moving forward with efforts, so that we can get a solid positioning in this area.

And when it comes to the cybersecurity Institute of Trend Micro, we refer to this as the Cybersecurity Innovation Institute. This is the Japanese name and the English name for this initiative, and the initiative's vision is the same.

What we want to do is to continue to answer to the requirements of security first. And there's 3 centers.

There's the transparency center, then the intelligence center and the third is the security knowledge and education center. This institute will take the initiative, so that we can deal with the various issues that Japanese enterprises face.

And we want to look at the economic security and so on and supply chain risks and security risks will be looked at. And in the transparency center, in the global development environment, what data governance should be like?

And in regard to risks and threats, how can the reliability be enhanced? And by improving reliability, there will be customers that will be making choices about procurements.

And so therefore, it's necessary to become a reliable and trustworthy partner. Through the transparency center, we want to prove this.

And in regard to the expertise that we offer for Japanese customers, we want to take advantage of this center to share our knowledge. In regard to the second, threat intelligence center, in regard to security, there is various types of intelligence that we have.

And what we want to do is to take a more proactive approach in sharing this. And in regard to this center, intelligence center, we will have a phishing site, and there will be various types of tools that we'll be using with joint efforts with JC3.

And we will be working in conduction with JC 3D, and we will be offering various warnings to customers. And there has been a letter of gratitude that we have received from the National Police Agency.

As for the third point, the security knowledge education center. In light to knowledge training, as we have declared in regard to security, we're not just trying to train professionals but also for digital transformation.

It's not just the experts that we need. There is geopolitical risk and supply chain risks and economic risk.

And you need a deep understanding of this. And furthermore, linked this to digital transformation.

So to train such people, we have to learn a great deal of different subjects in order to collaborate. And so therefore, for that purpose, we have been able to start our efforts in education in this area, and we have made an announcement about this.

And we had already made trials before the announcement, but now we have made the official announcement on this, and we have decided on the name for this. And from autumn, during this year.

And from the beginning of next year, they will be recruiting, and we'll be doing education for 200 individuals. This is a completely new type of training that we are offering.

We are the first company to offer this kind of education. And we have been working with the UN interpol for a great deal of for a long period of time, but now there is a new arrangement with the UN office of drugs and crime, for the ASEAN region in regard to cyberattack exercises.

We have been requested to offer our services, and this has started, and we'll continue to cooperate strongly with this effort. Now I'd like to talk about the actual business efforts, and this is the highlight of our enterprise efforts in regard to cloud security.

There are more and more demands coming to us. We have deep security, but we have changed this.

And the name is now workload security. We have been growing the business here, and we are increasing the number of customers.

But there are 6 separate functions that we have on the cloud, and we will be able to meet the needs with this. So for our existing customers as well as new customers, for cloud system integrators as well, we have been increasing the supply to them, and we're looking forward to the efforts in this area.

ARR was mentioned earlier. And for SMEs, it's going very well.

Cloud Edge and BBSS, you can see the numbers indicating how strongly they're growing. In order to show intelligence, we have something called initiative and 60.5% of the vulnerabilities newly discovered in 2020 were basically through our efforts.

So Trend Micro can provide this many highlights. And in terms of lowlights, As Negi-san mentioned, we did have some difficulties for commercial area.

Last year in Q2, Network Solutions, there were big orders from the local municipalities and the lack of that meant that network security suffered somewhat and Tipping Point. Of course, this is a shift to cloud as well, that IBM, McAfee and also Cisco hardware, if the customers have hardware pieces, they're still awaiting to migrate.

It will take probably several years, which means that the Tipping Point sales was not as high as we had expected. Moving on to consumers.

It is global and domestic perspectives. Starting with the highlights.

Sales at agencies, sales agencies of mobile phones has been quite strong. On a year-on-year basis, this is a 60% positive growth, which is quite dramatic.

And also DOCOMO shops. At the sales point, is in 35% of the mobile phones that are sold.

So if you buy a PC in a retail store, you would probably use about at 16%. So the attachment rate is more than double at mobile phone shops.

And these mobile phone shops are also trying to sell possible manager and free WiFi protector. So these are the different additional services that they can sell, which means that the role that the mobile phone shops play is becoming more important.

Social network, as you can see to the right, we have some QR codes, Note and also Instagram QR codes. We want people to know about our company and also, our customers tend to be a little bit older, but we are now targeting Note, which is seen by younger generations in their 30s or younger.

So we are trying to approach them this way. In the U.S., sales has improved, and the growth has also expanded.

This is one of the highlights. Moving on to the lowlight, regulation has been expanded and has been closed, which means that growth was not as strong as we had expected.

And you may be aware of the situation with line and how the privacy is going to be handled is still unclear, this is part of our services. But for the time being, we have suspended line services.

We are not able to provide a full set of services to the line, which is a challenge. Moving on to the last segment, which is IoT.

Our focus has not really changed. OT, IoT device, cybersecurity and the connected vehicles.

I would like to explain the progress starting from the next slide. OT security, we have something called H Series.

Within factories, these will be installed in the second quarter, Germany, Sweden, Spain, Taiwan and Japan. As you can see, large companies are introducing HIPS series or have introduced HIPS series.

To the right, you can see OTSecurity and the TXOne networks. So we have X Series and the various things that are developed by TXONE networks.

received 2 great awards. One is that OT security.

One really highlights the technical capabilities. So this company is attracting a lot of in this area.

Next one for solutions to develop these solutions. This one is called TXONE Protect.

This protects Windows-based systems and the Spanish large companies have started using this. We have many customers in Japan as well.

So the launch has been quite smooth. And moving to the right.

This also different surveys have been published, OT, threats and also smart factory challenges. Various white papers have been published.

And these are downloaded by the customers in big numbers, which indicates great interest. You may be familiar with very strong Middle East, OT fire and OTT device provider.

HireRPS, Pro, this whole set of products provided by Trend Micro, and they are basically recommended by and certify that in Japan and also the global level. This has already been announced.

And to the right, you may be also familiar with NVIDIA, and they have a called And they're very strong with image recognition. Various devices can be connected through this board.

And of course, they require security. We have started discussing this potential.

And Electronics is the #1 reseller for in Japan. And we have announced our collaboration with And this is the slide that shows NIH consortium event for EV platform.

A little bit too small for you to see, but this is the MIA partner funnel. And the Trend Micro is positioned right in the middle.

In the EV platform, as part of security, we are participating in this partner funnel as you can see. 5G security.

This was a seminar for 5G security. As you can see, POC has definitely started.

And once the whole series of PSC is completed, we will begin to see real business. And that concludes my presentation.

My name is Tanaka of JPMorgan Stanley. Can you hear me?

There are 3 questions that I'd like to ask. Let me go over them one by one first, in regard to the pre-GAAP results, in regard to the situation in Japan, you mentioned about the emergency state.

I believe that things were quite tough last year as well. So is that really true?

That's my question. Listening to your explanation, in regard to the number of people going out, there was the impact of the large stores closed.

And so I'd like to increase my understanding there and also about the situation in the enterprise business. And also in regard to North America, was there some major deal?

It's quite a strong result. And can you continue to maintain this?

Those are the 2 main points that I'd like to ask about.

First of all, let me answer about North America. Can you go to North America, it's not just because of one deal, rather there has been major growth in SaaS.

And we have seen the greatest growth in North America in regard to SaaS. And that does not just mean the United States, there are other countries as well.

And we have seen -- we believe that we'll continue to have positive growth. So it's not just one deal that made this result.

As for Japan, in regard to the consumer market, stores that were closed. And so therefore, we were lower than expectations in regard to the results at stores.

As for the commercial market, I talked about this. But for network security, there's deep discovery.

And last year, for local governments, for networks, there was business activity there, but this was not found in Q2 this year. So that was a negative impact, but that's not a negative thing overall.

There's a renewal of that business in that area. As for big deals, there has been some delay.

It hasn't disappeared. It just means that because of the state of emergency, there has been some restraint, and some efforts have been postponed.

As for Q1 and Q2 in the first half, there's no problem. But for Q3 and Q4, we don't believe that there are any major problems.

We believe that we'll see steady progression in this area. And also to add to that, last year, we just started this kind of workflow.

And so there were some increases. The demand was now -- we're seeing a decrease in the number of PC sales this year compared to the previous year.

And so those are the kind of factors that impacted things.

And I'd like to confirm with Mr. Omikawa about the network segregation and the local government.

There are various types of efforts to beef up security and there is activity there this year as well. What's the situation there?

We're working hard on this. And for the government area, including the digital agency, how procurement will be carried out -- There's various activity there.

And so we want to do a solid job looking at this from different angles. And as you say, as a government business, there's going to be a major investment made by the government, and we definitely want to get into that business to confirm.

Is this going to be posted as part of the enterprise results when you deal with public offices such as government offices?

Yes, it will be part of the enterprise business.

The second point that I'd like to ask about, I'd like to confirm. Now this was mentioned on Page 15 in revised subscription ARR in Mr.

Negi's presentation. Also, there was the subscription mentioned on the fourth slide shown by Eva.

And I understand about this, but there is also a major aspect of the consumers. And so I appreciate if you could summarize your thoughts on this.

In regard to the definition of subscription for the consumer market, so we have we're looking at all consumers for subscription basis. And likewise, for enterprises as well.

About 30% are represented by SaaS in the case of the enterprise market.

I see. I understand now.

The final question that the increase -- there has been increase in the wages -- in regard to the increase in the wages and also in regard to the variable compensation?

Variable compensation, well, in regard to what it is linked to, one is pre-GAAP results. If the pre-GAAP results increase, then that variable element increases.

And also previously, until 2, 3 years ago, this has been -- there had been a linkage to the maintenance, but now we have the SaaS, and there's linkage to compensation in regard to the SaaS business. So we're looking at the increase of ARR and agents, and we have linkage to those elements.

And so 60% growth for SaaS and for ARR, 30% increase. And so the compensation changes accordingly.

And so overall, you may be saying that this has not been looked at, but for the employees, we're looking at their strategic focus and to focus on priority areas. On a short-term basis, this may impact profits, but we believe that this is something that is an investment for the future.

So I thought that variable compensation refers to maintenance, but it's actually wage compensation.

Yes, Yes, it's looking at the pre-GAAP and the total cost, but you're making a shift to this.

In that sense, there are 3 components. There's profits that we cannot dore, but also the profits may not grow, but there's also the SaaS and there may be ARR growth.

And it's possible that, that compensation will be paid based on that as well.

I see. I understand...

Please let me add to that. In regard to the bonuses mentioned, this becomes available in Q3 and -- Q2 and Q4.

This is not issued in Q3, so this will go down.

Can you hear you?

Follow-up questions by Tanaka-san. Consumer pre-GAAP in Japan.

In the last few years, I think the biggest driver behind the performance was Japanese consumer in terms of profit. And the pre-GAAP number is negative this time around.

So I would like to ask some questions about this. emergency means that the GMS sales, large store sales is declining.

And I don't know why the closure of the shops have such a big impact. And also the mobile phone stores are growing very fast.

So I'm wondering if there is any special factor? I think for Japan and for consumer market, usually, there is some special factor actually factor.

So I just wanted to know. And from the second quarter, Japanese consumer business is growing very fast.

Do you think that the growth is decelerating or flattening?

Thank you for your questions. As to the Consumer business, as I mentioned, before the duration of closure of the stores and also the shortening of the operating hours was more severe than we had expected.

So face-to-face opportunities were reduced. And also the PC shipment volume compared to the Q2 of last year, this is minus 30% according to this data.

There was a U.S. Windows 7 last year, which meant a lot of replacement.

But in the second quarter for this year, it didn't happen. So simultaneous purchase or shipment with a PC did not really happen as much.

But in the mobile segment, we are making up for that difference. Number of users have not really declined.

We also have more of a comprehensive service contract, which is being prepared, and we have already started trials for this. Also comprehensive service means that we can include the customers, and we are getting ready for this initiative.

In the second half, we are not pessimistic at all in Japan. We expect things going according to plan, and we should be able to provide more service values and the revenue per customer should increase.

At the group level, as I mentioned before, well, we are trying new things for the U.S. consumers, and we're beginning to see the benefit of that.

We also see an increase in the number of new users. So I think this is a positive trend for the U.S.

market as well.

I see. So the user base is not shrinking.

And in terms of cost cap, deceleration should not happen in the second half and where you should be able to achieve the plan. Is that the right interpretation?

Yes. Thank you.

My second question is about the pre-GAAP increase in North America. I believe that this is a very positive thing for you.

I just wanted to understand how this happened. Do you think this is the benefit of the cloud?

Is it because the negative number coming from tipping point shrunk? Post-GAAP revenue, when can we expect to see a growth in that particular area?

Can you please share some information?

Negative impact of Tipping Point. Other than that, growth in business has contributed much more -- So within -- It's not just 1 quarter.

We believe that the growth will continue quarter-by-quarter.

May I add a little bit to that? Actually, I would say the Americans growth is the previous 2 quarter is they were suffering because they are most aggressive in transforming the revenue to subscription base.

As you can see, the subscription base, there's no big deal or big portion get booked. When you do the subscription, it's just the -- so the overall revenue chunk is smaller.

And this quarter is the quarter that we finally overcome this transformation, where the subscription has exceeded the big deal or the perpetual license type of revenue. That's why in U.S., we finally get to this is not a onetime.

It's several quarters tiding up with all this subscription ARR. Finally this I call it the best intersection where we finally closed it, and that's why we are confident that U.S.

will continue to grow because of this subscription base.

Post-GAAP sales, excluding exchange impact, the growth in revenue is not that high, but you expect the growth to accelerate. Maybe not in the third quarter, but over long term, you expect that to accelerate.

Is that the right interpretation?

Well, in the end, there's going to be link. So pre-GAAP sales may increase and then post-GAAP revenue will also increase.

This is a technical question, but the gain on sales of marketable securities. China-related companies disposal is related or not related?

And also gain on sales of this China-related matter, do you expect that gain to come in within this fiscal year? I think this is going to be a big impact.

And there's going to be a discussion about how to provide dividends from this.

There is no gain on sales of this China business because this was investment made into the U.S., and this is a venture fund related profit. And therefore, it's not a direct transaction by us.

And the China JV equity divestiture. I cannot really say until the money actually comes in.

We want things to go according to plan. We expect that, but we are not disclosing any information, but because there are risks.

So we have not really included that in our P&L yet. We want this to take place before the end of the fiscal year, but we cannot be 100% confident yet.

My name is Kikuchi of SMBC Nikko Securities.

My name is Hori of Mizuho Securities. There are 2 questions I'd like to ask.

First, in regard to pre-GAAP, you explained about North America and Japan. But for Europe and for APAC and Mid East, the numbers are strong.

So how should we perceive this? For EU and APAC, there were large deals, that was the impression I had.

But for the second quarter, what are the factors for the strong results? And what about continuity of such results?

Could you give us the background for the pre-GAAP numbers?

In regard to why Europe, it's almost like this, the change there was the positive element of North America and the negative element of Japan that we focus upon. But we didn't ignore we have very good results for you, but it's not just one country.

And there's, for example, good results in Germany or weak results in Spain. There are individual details.

But overall, we have the platform approach, and we have Cloud One, Vision One and ApexOne approach, and we have been able to have good growth in sales there.

I see. Then it's not a major big deal, but rather...

Yes. That's right, as we explained.

The second question. I'd like to ask about the increase in headcount.

You haven't increased that much in the second quarter. It seems like the increase has stabilized.

And you mentioned about the wish to increase by 400, the headcount, at the beginning of the fiscal year, but it seems to be a slow pace on this. And what's going to be the situation there?

Is it difficult to recruit people? Or is it difficult to find qualified people?

Or are there other factors that work for the increase in headcount? Although you haven't been able to achieve the recruitment plans, there's an increase.

So in regard to recruitment plans, were there issues? Have you been reviewing what you should do about headcount increases?

So is it a natural result? Or is it a controlled result that we see headcount?

If you could comment on that, that would be appreciated.

Well, we believe that we have seen steady progression. There are people, who have left, and we recruit to replace them.

It's a very hard market right now. It's not easy to recruit people.

So in that sense, we have the situation on wages. And if we're successful, people target and our churn rate was low last year because of the environment.

Since this year, the churn rate has increased. And so to have a net increase, we have to make even more efforts.

Open jobs of 400 or more, and it's not easy to find people qualified for those posts. So we want to increase the headcount, especially to strengthen sales efforts.

And as Eva's presentation mentioned, it's not the conventional methods, but the new methods that we're pursuing. And So we'd like to recruit such people to refresh our efforts.

I see. Then there is some headhunting by other companies.

But when it comes to new recruits, it's not a sudden decrease in the recruiting efforts?

Not at all. There's also the situation of demand -- supply and demand in the market.

And the kind of people we want to recruit is not that easy to find. You mentioned about the strength in pre-GAAP, and this seems to be likely to continue.

But if you continue to recruit, then you'll be able to post quite a large profit next fiscal year. But at any rate, you want to increase the head count if you can find the qualified people.

May I use this chart to answer this question, which is -- you can see -- I think we were kind of celebrating because over the my year in Trend Micro, 33 years, this is the #1 market share in endpoint -- corporate endpoint market share, we finally achieved that. We overcome all this competitor.

And now we are #1 corporate in market share. And -- but as you can see, our competitors change.

From McAfee, Symantec to to and the other new companies. And their valuation, I must say, is just going out of roof, but it's just impossible.

And I must admit when you say the recruitment is hard, when it's against such valuation of those start-ups, it is hard for us to offer the stock option to recruit people. So I guess that's one of the problems that, frankly, we are facing.

Our competitors are changing, and we are very glad that now we are #1 in this endpoint security market. But that actually make our employee being targeted by all those up companies and trying to recruit from Trend Micro.

[indiscernible] Can you hear my words?

You responded to Mr. Tanaka's questions earlier.

I want some clarification about the salary increase, pre-GAAP and also now we're shifting to south. Every quarter, you explained this in the past about pre-GAAP.

So Q2 and Q4 yes, there's compensation and not in other quarters. I hear this for the first time.

Is this the same for pre-GAAP and SaaS? Or for SaaS, it's every 6 months?

And which one had a big impact for this increase this time? In the first quarter, if you want to allocate this, maybe some of the amounts should be allocated to the first quarter, but it all bunch up in the second quarter.

Is that why the number is very high? I have another related question.

If you look at operating income, I think 7% growth is seen in Europe on a top line basis, which is very positive. But Japan and Europe sales increased but reduced profit.

And the situation is different in the U.S. So I won't ask about Europe and Japan.

In Japan, the business is quite big. So the decline in profit looks bigger.

But can you explain these geographical differences because all the comments that I have provided to us so far should be the same for every region. Why are there such big differences between different regions?

With regards to the first question, precap linked items are 2. One, commission for sales.

This is paid every quarter, and this is pre-GAAP. And basically, gross sales, very close to pre-GAAP.

Depending on the quarter, pre-GAAP net growth, but post-GAAP gap may not grow. In this case, we have a higher sales commission.

And then we have a bonus for employees every 6 months. And the bonus payment is based on, well, pre-GAAP operating income increase was used as any mix before.

But now we believe that employees should be focused on SaaS. So SaaS agent and ARR growth.

Now we use these indices as well. And this is paid every 6 months.

Does this answer your first question?

Yes, that's very clear. Can you talk about the breakdown?

Is it possible? The breakdown is not very clear.

If you combine the two, You can explain most of the variable portion. In the second quarter, profit was down.

And on the top line level, it was very strong even with the exchange impact. So I don't think you're making an adjustment accounting-wise, but maybe you can comment about this.

Maybe can do the follow-up on the other day, but I hope that we can get some more information. It doesn't have to be today.

This is a long story, so let me just share that with you. Accounting-wise, we cannot really even it out across the quarter.

So the measurement is first half versus the second half. And we cannot really provide allowance for something that we may or may not pay.

So we cannot reflect an out or even out the payment although we want to. So the bonus is paid for the first half and second half and then pre-GAAP based profit and also the ARR performance and SaaS performance.

Looks at more than pre-GAAP, SaaS growth, explains more of the bonus payment this time around.

I see. So yearly basis, if you look at every 6 months, it's more or less even?

That's correct.

And the second question, maybe can answer part of this. But tax-wise, how do we post profit?

In the past, all the IP was owned by Japan. So it all came to Japan and the profitability looked very high in Japan.

But several years ago, the situation was different. All the 4 regions was split.

Depending on where the profit was incurred, we pay the taxes. So because of this impact, sometimes the numbers fluctuate.

So which ones are receiving more dividends than others?

These are just numbers that they don't really tell you the actual situation of all the regions. can you add?

Yes, that's right. And segment profitability last year versus this year, the possibility has not really changed very much.

In terms of the absolute amount, maybe there's a difference and that's why asking the question. But the profitability has not really changed, which means that nothing abnormal is happening.

So I feel confident. Now business in each region, they're not really stand-alone businesses, as Negi-san has explained.

Development is taking place in Taiwan, support is provided by Philippines, for example. And these are internal trading, so internal trading within the organization.

So we have to really think about the business structure that puts the right thing in the right place. And we have to look at the legal entity.

And Japan, U.S. and Europe, we are looking at profitability at a different entity level.

Consumer enterprise may be different, but I don't think there's a big difference between different regions. So consolidated operating income is something that we look at.

And the profitability at the region level is not really very meaningful for us to look at.

Tanaka, Goldman Sachs Securities. Can you hear me?

There are 2 quick questions that I'd like to ask. First, this is in regard to the Japanese market and the pre-GAAP situation, I'd like to ask Mr.

Omikawa. You mentioned that pre-GAAP results were weak is mainly due to the consumer market.

But for the enterprise market, for the market other than the local governments, for the large enterprise and the SMEs, what is happening in regard to investments? Looking at the materials, it says that investments in cloud are going well in the SME.

So this seems to be different from the pre-GAAP results. What's the weakness of the results in the enterprise market due to?

And also after the second quarter for the third quarter onwards, is there going to be an early recovery from this situation? That's the first question I'd like to ask.

Thank you for the question. First, to the commercial corporate market, There was the matter of the local government as well as the central government, major deals compared to last year were not possible to get.

So in the central government group, they were not able to achieve the goals. But, it doesn't mean that the deals disappear.

We believe that we can recover the situation. As for the very large enterprise area, in regard to large deals that we had anticipated, there has been some postponement of plans.

So in Q2, we were not able to achieve results that we wanted. And for the SMB market, we have been able to achieve our goals.

And there's also a blind spot between the SMB and the large enterprises, there's a middle segment. And frankly speaking, there are more that we should have achieved there.

We're approaching this market more, but then there's a lack of people in charge and also the SAP partners are not able to cover this area. So in the middle segment, we believe that we should do more.

And we are trying to approach this market, but we have not been able to generate results yet. Those are the main points for the enterprise market.

And for the second half onwards, we'll do a solid job on the central government to watch what the situation is. So we don't believe there are any problems there.

And for the large enterprises where we have high touch sales for the budgets and so on, we're looking at the various drivers, and we believe that we can continue well there. As for the SMBs, we have the partner model, and we are seeing steady growth there.

And we're looking with the NTT West and NTT East and Recall. And also, there's the middle segment.

And there's also the new customers that we have not been able to be in contact yet. And we want migration from Symantec or McAfee users.

And in certain areas, we've started the replacement. So for the commercial market, we want to get the market from Symantec or McAfee and there's also the middle segment, where we have not been able to penetrate fully.

We'll -- we have started a new approach, and we want to recover there. We want to cover the market with such efforts.

One point I'd like to confirm then, for this quarter's weak results, relatively speaking, this is because of the postponement of the large deals on the enterprise market. And also there was the impact of COVID-19, But for the large deals for large corporations in the second half, you should be able to get the business from the salespeople, that's the report we've been getting.

I see. So the second question.

Mr. Negi, in regard to North America, I'd like to follow up on the previous question to this.

For this quarter, you mentioned about the 11% growth, and it's mainly in the subscription. But if you divide this between software and hardware, what is the situation that you see?

In other words, there was the hardware element that was a negative factor, but have you been able to and be able to do a better job here? Or is it mainly due to the software area?

So if you could divide between the software and the hardware? Could you tell us about your prospects for the future?

For the hardware, as you mentioned, it was a Tipping Point, and there was changes taking place. And we're seeing flat results in the hardware.

Then for the future, do you believe that this trend will continue?

For this year, it will continue. For the case of Tipping Point, there is going to be a refresh cycle that will come up somewhere.

But for 2021 and 2022, this may not come. But this is related to the previous presentation, but in regard to TippingPoint, it's not a mature market, but rather to for there are cases that hardware will be coming into the picture in that area.

I see. A follow-up on the American business strategy.

You've seen an improvement in North America and also the overseas companies are -- we're seeing very good results. And there seems to be overall growth in the market from various corporations in North America, so perhaps things have not peaked out.

So looking at the future, when it comes to a subscription model, could you talk about the North America business strategy from here on?

The strategy, it's not just for North America, but for the entire world, we're moving forward with new methods of sales. And we're looking at the new procurement trends.

And we have a large result in the United States. But for the strategy, it's going to be the same for all regions, as Eva has mentioned.

Would you like to talk about the U.S. strategy, Eva?

Eva, the question is that do we -- is there anything new that we are doing in the U.S.? My answer was that it's the same as in other regions, except that it's happening in the U.S.

before. But if you want to add anything more to that?

I think U.S. is where we want to have more aggressive hiring because we need to have bigger as to.

We see the big opportunity. But as I explained, in U.S., we encounter all the new start of aggressive hiring, using their crazy valuation, which is hard for us to compete.

That's the different situation. Our strategy overall is all the same, transforming to a cybersecurity platform company, and we see it successful in Europe, in APAC and Japan just started.

Japan SaaS movement is slower than the other region. And I would like to explain a little bit like Omikawa-san mentioned.

Last year, we do have a very big deal from the central government, which is discovery, which is applies business. That shows what is the revenue up and down when you are resigning on that type of appliances, how will be deal sales.

And in U.S., we went through that with both TippingPoint and now our subscription already overcome that type of TippingPoint is deal type of fluctuation. So I think there's no difference with just the whole company to focus on the subscription business.

And I will say Japan is the next step we need to go through this transformation.

I understand. Very well.

And also for the growth in the market share, America is the biggest market. And so therefore, we have to do more there?

I would like to do our best there.

I'm Ueno with Daiwa Securities. Can you hear my voice?

I know there's not enough time, so I'll keep it simple. Incentive and bonus, it's very difficult for us to estimate.

For the third and fourth quarter, 20% increase in profit in the third quarter. In the fourth quarter, maybe flat or weak increase in profit.

Can we expect that in a similar way how it happened in the first and second quarters?

I think this is a question addressed to I'm sorry, I could not really analyze everything, but Q3 hurdle should be quite low. I can say that.

So Q3, a profit increase trend. I think that can be expected, yes.

But as far as Q4 is concerned, I think we have provided a explanation that we can from the management team. But the -- in terms of one-off factors, well, we did not have many of those in the second quarter.

In other words, we now have a real good strong performance in the U.S. and in Europe, which does not depend on one-off factors.

So we don't expect sudden growth in Q2 and then following decline, we expect continuous growth. I know that my answer is very abstract, but that's my way of thinking.

I'm sorry, I probably more front. We need to be aggressive in hiring.

We need to be aggressive in acquiring new customers, including the SaaS trial customer. One of our incentive for the employee is the increase of SaaS deployment deployment incidents, which improves the trial, customer trying our product.

That's the new way of sales. So if we are aggressive in those new customer acquisition, we will increase our cash SaaS cost.

And also we will increase our commission. But that is all our strategy of gaining the strength in the cloud, in the SaaS platform strategy.

So please understand that we are competing with a bunch of start-ups that don't even have any profit and the valuation is like 100x of Trend Micro's. And to the Trend Micro to grow, which is our intention, we think the opportunity is too good to miss, and we need to be aggressive in growth.

And therefore, I might say, profit might be a sacrifice if we see aggressive growth is a better route for our strategy.

My last question. So the PER for the start-ups is maybe 100x more subscriber number and also ARPU and churn rate.

Maybe the -- well, sometimes investors, analysts requests for this company information, but we cannot really see that. Maybe we can refer to Page 13 and 15.

So subscription and customer count, and then we -- if we divide this by ARR on the Page 15, would that be like an annual ARPU. If we can represent -- if we can show this to the West Coast investor, they can look at your stock price from a branding perspective.

Is it possible to disclose such information?

As you mentioned, you can calculate that from the numbers disclosed. So I don't think we need to add another disclosure from our side.

But ARPU is from the mobile market. And we are assuming that the size of the customer is basically the same, but in our case, it's very different.

We have big customers, big deals and also consumer subscription, small companies with only 5 employees. So what is the point of having the average number.

And that is why we're disclosing ARR because you can see the growth in ARR and also SaaS agent growth, you can see that. Now we can look at many different perspectives.

If you combine everything into one number, maybe it will push up the share price for the short term, but it will lead to misunderstanding. So we are providing multiple perspectives.

Analysts and investors, they communicate in the end. So we are hoping, as Eva said, and also I communicate with many investors, and we have to compete against these companies like we mentioned, but we don't want to bring down the dividends.

But we cannot be sustainable, maybe, I don't know. So we -- I'm saying today and also I've said this before, in the SaaS market, customer acquisition is important.

And also ARR was not disclosed before, but now we're disclosing ARR to explain the business status. But we are not planning to disclose everything that other companies do because we doubt that these numbers are actually reliable.

I would like to add, I know that I'm not the part of the management. Maybe this is not my place to say.

But so if PER is 100x or EBITDA is much higher than us, in order for us to achieve that level, we need to do certain disclosures. But we believe that ARR is a number that explains the current status of Trend Micro.

We're not doing this in order to push up the share price. That is not the purpose.

So in the current situation, we use this KPI, but if we find another KPI, that explain residual data, of course, we will disclose that. But we're not really thinking to please the investors and to increase the valuation.

That's not the sequence. That's the right sequence of thinking.

That's very clear. I really understand that.

I think it's very difficult to separate ARPU and the account. But OBC and Free, they have, for example, difference in the customer base, but still they have been asked to disclose these numbers.

So I just wanted to understand your way of thinking about the KPIs.

Thank you. Are there any other questions?

This is Hiroko from Jefferies Securities. Now I want to ask about where you are being focused upon and for selling and marketing and round cut the admin costs and wages and stock options and so on, and we'll see increases on a year-over-year basis rather than talk about the margins, SaaS and ARR or the growth in net sales and so on is going to be focused on.

So should we focus on increasing net sales from here onwards?

Yes, at first, we want to have the customers use products. We are providing it in various ways, and we want to have utilization even if it's a free trial.

And then after that, once it is deployed, then we'll be able to tie this to sales. So it's important.

Next, the important thing is to link this to net sales. And then next to link this to profits.

But as already mentioned, for SaaS, it's not because it's cool that we're pursuing this. Rather, we'll be able to get a better picture of the customers' environment.

And so therefore, we want to deliver the value to the customer as long as we were paid for it. And we want to have further utilization.

And once it is used, and we want to make it easier for them to order more. So we're making adjustments over the past year.

And although profit rates are going down, it may be interpreted that you're not actively carrying out sales. So we should look at the KPIs, but we are focusing on the disclosure of KPIs that will give you a better picture of what is happening.

That’s the point that I want to understand. Thank you.