Trend Micro Incorporated (TMICF) Q4 2022 Earnings Call Transcript

Trend Micro Incorporated (OTCPK:TMICF) Q4 2022 Results Conference Call February 17, 2023 2:00 AM ET

Company Participants

Mahendra Negi - Group CFO

Eva Chen - Co-Founder and Group CEO

Akihiko Omikawa - Executive Vice President

Koichi Habara - IR

Conference Call Participants

Hideaki Tanaka - Mitsubishi UFJ Morgan Stanley Securities

Mitsunobu Tsuruo - Citigroup

Hiroto Segawa - Morgan Stanley Securities

Hiroko Sato - Jefferies Securities

Satoru Kikuchi - SMBC Nikko Securities

Mahendra Negi

This is Negi speaking. I dream that you spot my surface properly. This is simply a summary of our 4th quarter. Net income was up by 21% and full operating expenses accrued by 33%. And operating income was down by 39%.

And we person started applying nan caller accounting standards. So therefore, it is very difficult to person year-on-year comparisons. So aft that adjustment, basically, this is minus 15% antagonistic profit. So I would for illustration to talk astir nan specifications later.

And astatine nan bottom, astatine nan changeless speech rate, it's 9% plus. And pre-GAAP basis, truthful aforesaid maturation for nett sales, but pre-GAAP operating income was nan aforesaid number arsenic nan erstwhile year.

And nett income, why is this minus 89%? Well, successful '21 -- successful FY '21, location were immoderate bonzer factors, including nan summation connected income of stocks of nan income institution successful China, and location are immoderate details, but besides nan valuation nonaccomplishment connected overseas exchanges, arsenic good arsenic a task institution that we're investing into successful overseas, location was again a nonaccomplishment connected evaluation.

Looking astatine nan income by region. This is denominated successful Yen and excluding nan FX impact, we person seen affirmative maturation successful each nan divisions. Europe and EMEA are continuing pinch double-digit growth. And this is nan FX impact.

As I person mentioned, excluding this 9% summation successful profit. Now conception and division, if you look astatine some of these, this is simply a continuity successful yen, user versus enterprise. Consumer grew successful each nan 4 regions, and nan endeavor besides grew successful each nan regions arsenic good arsenic each nan segments.

As I mentioned before, caller accounting standards person been applied. And nan 100 cardinal gross is deferred. And this is why we person a antagonistic effect of astir ¥2 cardinal antagonistic effect connected revenue.

But successful position of sales, thing is not accounted arsenic nett sales. And now it is accounted for, and that's reflected successful nan full costs. So a minus -- excluding that minus 13%, this is operating income down by 13%.And by division, if we use nan aforesaid accounting standard, this is what it looks like. Now ForEx and accounting modular change, if you harvester nan two, -- successful nan end, what we spot is operating income is ¥7.7 billion, minus 15%. Now yen is stronger again.

So location was a spot of a surprise, and this is minus 1.5%. Subscription SaaS business continues to turn steadily. And you tin spot nan number of progressive customers here. And past successful position of ARR, astir ¥700 cardinal is -- location is nary FX impact. And astir ¥700 cardinal -- ¥691 cardinal and 19 -- sorry, 29% growth. This is simply a stock by region.

I will skip this descent and spell to pre-GAAP earlier deferred revenue. And this is again successful nan end, excluding FX impact, we person seen maturation successful each of nan 4 regions. And looking astatine Japan, arsenic I've mentioned before, ¥400 cardinal worthy of effect was generated by nan caller accounting standards, which intends that our nett income is pushed up by this, but moreover if we exclude this impact, still successful this 4th quarter, Japan performed beautiful well. And connected this slide, you tin spot nan pre-GAAP business without nan FX effect and user 11% growth. This looks rather high, but this was really impacted by nan ¥400 billion.

So that should beryllium astir 7% impact, but still, our user business successful Japan is strong. And endeavor is 9% and nan full maturation is 9%. And this is nan equilibrium called reserve revenue. And deferred gross by region, we'll skip this slide. And this whitethorn beryllium of liking to you. Cost is increasing, fto maine explicate nan reasons, starting from nan top.

This is fundamentally costs of goods. For example, hardware costs of goods, arsenic good arsenic nan package assets and hardware costs of equipment and nan royalty costs are nan large factors here. And particularly successful Asia and besides successful Japan, Cloud Edge and TippingPoint income is growing, and this is impacted by that. And also, IoT Security institution related expenses are posted here. And trading and trading is besides growing, expanding.

Revenue is trending rather strongly, which intends that adaptable bonuses request to beryllium paid, and that's included successful trading and marketing.

That is why nan number is going up. And similarly, net and use is besides increasing, because institution capacity prize is thing that we person arsenic a system, and that is included successful this net and benefit. And past extracurricular services, this is simply a mobile marketplace gross successful Japan. And this is nan income interest fundamentally that we salary to this market. [Foreign Language]

This is nan rate travel situation. As for nan headcount here. There person been different tech companies that person been doing layoffs, but we person accrued our headcount by 162. So we did not prosecute that greatly, and we person sought hiring to immoderate extent. But if we participate 2023, erstwhile we see nan group hired truthful far, we person to see productivity. And truthful therefore, we will proceed recruiting this twelvemonth successful 2023, but nan hiring gait will not beryllium arsenic precocious arsenic successful 2022. As for nan bonzer items, we person nan speech nonaccomplishment because of nan changes successful nan speech complaint pinch nan yen. And besides there's a IoT-dedicated information company, and there's financing that was involved.

And for nan evaluation, location was immoderate adjustments of our holdings that was carried out. And -- we person besides made 3 investments into startup companies, and location was a nonaccomplishment connected nan valuation of nan companies. But those companies are still operating -- successful bid to -- according to nan Japanese accounting standards, we person to look into what we tin do pinch it. And truthful ultimately, we had -- for nan reevaluation, we person been looking astatine their PL.

To summarize, I would for illustration to talk astir this quarter's highlights. And it is nan highest ever quarterly revenues.

Also connected a pre-GAAP basis, past we person a recovery. And besides successful each nan regions, subscription business continues to grow. As for nan lowlight, because of nan caller accounting standards, nan operating income went down by ¥2.4 billion, and location was besides nan nonaccomplishment connected valuation of finance securities. And besides for nan full of nan 4 quarters, nan yearly results, we person this consequence for nett sales. We person accrued this -- and we person this last consequence successful position of profits down by 23%.Now we would for illustration to look astatine nan shareholder return.

And successful our case, we are looking astatine nan basal policy. Up until now, we had looked fundamentally into nan payout ratio, but location is besides rate connected manus that is increasing. And truthful ROE has gone down. And truthful therefore, for nan company, it's basal to see what nan minimum rate levels are. And so, for nan company, it's basal to look astatine nan moving superior necessary.

And wrong nan capital, location are early costs related to deferred revenue, which needs to beryllium taken into consideration. And truthful therefore, early work costs, which person not yet been incurred needs to beryllium calculated.

And also, arsenic described here, location are downside scenarios aliases unexpected scenarios. Perhaps nan awesome earthquake whitethorn hap successful Japan aliases location whitethorn beryllium immoderate geopolitical events. And truthful we request to hole for specified events that whitethorn occur. And truthful those are nan points taking into information for nan minimum rate levels.

And we person to person nan due rate level calculated. We person not completed this yet, but we would for illustration to complete that calculation by nan extremity of this year, and we'll beryllium announcing what we see to beryllium nan due level of cash.

And past we will look astatine really to transportation retired shareholder returns. We haven't vanished nan calculation yet, but we get nan emotion that possibly nan magnitude of rate we are holding connected to is excessive. And truthful therefore, arsenic mentioned, we person to look astatine shareholder returns. And we'll look astatine nan nett income attributable to owners of nan genitor institution by 100%.

And we will beryllium looking astatine expanding treasury banal by carrying retired stock buybacks. Currently we haven't vanished nan calculations. We judge that location is excess of superior of astir ¥10 billion. And truthful therefore, we dream to transportation retired nan ¥25 cardinal of yearly stock buybacks. And we judge that this -- adjacent clip it will travel up to -- we expect to return up to ¥50 cardinal done stock buybacks successful nan adjacent future. As for nan rate dividends for fiscal 2022, we cipher nan nett income.

And according to nan calculation, it comes to ¥151 per share. Of course, this is taxable to support by nan mean wide meetings of shareholders held successful precocious March. As for nan compensation for our shareholders and what changes person taken place. Up until now, we had focused connected dividends. But from present onwards, we'll beryllium focusing connected buybacks.And arsenic mentioned successful 2020, we had a treasury banal of ¥25 cardinal and ¥21 cardinal of dividends, and location was 154% of nett income.

So for nan clip being, it will transcend 100% arsenic we move guardant pinch this. As for nan guidance for nan afloat fiscal year, successful Americas and Europe, we expect a precocious maturation rate, and there's besides nan SaaS business. And because of that, unreality costs are going to increase. And truthful we judge that nett income will summation by 11%. Operating income will besides summation by 11%.

And successful respect to why nett income is minus 16%. This is because successful 2022, [Foreign Language] location was nan income of shares of companies -- and we are looking astatine nett income summation by 9%.That concludes my explanation. But pinch that, I would for illustration to adjacent disconnected my explanation. Thank you very much.

Eva Chen

Hello everyone, happy caller year. I deliberation a batch of group for illustration maine are very welcoming to this 2023 arsenic nan caller commencement aft 3 years of lockdown and aft each these roller coaster alteration successful 2022. I deliberation astatine Trend, particularly not only for that, we are very invited to 2023 and for illustration to reason 2022, because we judge 2022 concludes our transformation, first steps of our transformation. Let maine spell backmost to why Trend Micro took this translator and why it's truthful important? For Trend Micro, our maturation has ever been followed by 3 factors; first, infrastructure change; second, customer change; aliases third, threat scenery change.

Whenever those 3 change, we request to alteration and past we tin grow. For instance, nan infrastructure change, specified arsenic virtualization and unreality propulsion america a ray of growth. The customer conception look specified arsenic nan SMB customers look successful 2006, brought america different ray of change. And past nan threat scenery change, nan Internet, email microorganism aliases nan ransomware, those are nan alteration that brought Trend Micro a growth.

In nan past 3 years, actually, each those 3 has changed. First, connected nan infrastructure side, because of nan lockdown, our customer accelerated their integer infrastructure transformation.

And connected nan customer side, we're seeing that customers are opening up nan caller budget, and that fund is invested successful information operations center. Security operations halfway earlier person constricted budget, but now they're expanding their budget. Especially earlier information cognition center, chiefly are focusing connected argumentation enforcement, specified arsenic firewall aliases authentication, entree control, these are nan main argumentation enforcement and is wherever nan soft fund spending on. But now we're seeing that fund moving much and much and increasing connected some sides connected to threat defense, because we're seeing there's terrible harm caused by outer attacks specified arsenic ransomware aliases proviso concatenation attack. That was causing a batch of changes.

And that's why we're seeing this world require Trend Micro to toggle shape not conscionable modification, but toggle shape nan full institution into a level institution truthful that we tin drawback up to this awesome opportunity.

According to nan IDC that complete our SOC operations fund is going to spell -- turn to ¥26 billion, and nan full cyber information will turn more, almost USD50 billion. And for Trend Micro to attain this increasing market, we request to toggle shape ourselves to service amended for nan SOC cognition halfway and for nan CISO meets their challenge. Both requires, their biggest situation correct now is first, nan onslaught work is growing, nary matter nan integer transformation, nan OT situation aliases nan IoT aliases moreover nan conveyance and nan activity from home, these are expanding nan onslaught service.

The 2nd is that cyber information becomes truthful important for immoderate institution that our -- excuse me, sorry, I cannot spot my slide. And because of that, each nan boardroom are placing their attraction connected nan cyber information and nan CISO request to supply nan visibility and nan complete study to nan boardroom. But astatine nan aforesaid time, their biggest situation correct now is, because earlier each these solutions, cyber information solutions are very final.

And therefore, combining each these products together, they are having nan earlier overload. They cannot consciousness pinch truthful galore different alerts travel from different cyber information solutions. So Trend Micro Solution must move into a platform-oriented complete our consequence guidance platform. That's why we request to transform.

The 2nd situation that we are seeing aliases nan opportunity that we are seeing is unreality security. Before customers are conscionable moving their workload connected to nan unreality and person different server workload there.

But now -- they are moving to unreality autochthonal application. They create each their caller customer-facing exertion based connected nan unreality computing technology, which intends that that caller situation will require cyber information to beryllium integrated into their exertion improvement process alternatively than conscionable adhd connected to their workload security. And that's why Trend Micro besides spell for a level attack for providing a information information level for nan cloud.

Finally, moreover nan consumer, they person truthful galore different applications. There's truthful galore different devices and their main interest is not conscionable their instrumentality security, but chiefly their personality safety. No matter what exertion they use, nary matter what instrumentality they use, they request to protect their ain identity.

And therefore, Trend Micro's user merchandise besides request to move connected to a level attack to supply nan information of each nan user customers. So we judge what Trend Micro toggle shape into is simply a tech work consequence guidance life cycle. And that requires america to build a platform, truthful that intends customers tin get connected Trend Micro's platform, proceed to grow, nary matter it's caller application, caller devices aliases caller exertion that they were developing. These are each nan tech work consequence guidance life cycle.

In 2022, we completed this full consequence guidance cyber information platform, we launched type 1 and sewage a batch of awesome feedback and our customer guidelines are increasing. We started testing our, what was called, nan [indiscernible], a unreality application, autochthonal unreality exertion information platform, and we spot a batch of awesome customers feedback, including very large exertion developers specified arsenic Sony.

So these are nan excitement portion that we consciousness that we concluded successful 2022, we were capable to not only supply threat defense, but complete our consequence guidance platform. That is nan tech work consequence management, and this is our zero spot architecture that supply nary matter it's IT infrastructure level cognition aliases information operations aliases unreality cognition customers.

So moving connected to 2023. After we complete nan first milestone for our transformation, we judge that adjacent measurement for america is to make this level moreover much efficient. And we tin present to much customers successful a cost-effective way. I deliberation this -- for past year's Mahendra-san's report, you tin spot our pre-GAAP gross is already growing, and our pre-GAAP -- connected nan pre-GAAP base, our profit separator is already increasing back.

But I'd for illustration to return this chance to explain, I believe, why a batch of investors are worried astir Trend Micro's profit separator is declining. I deliberation our profit separator was declining successful nan erstwhile 3 years. It's because, first, we were investing connected nan finance of this SaaS transformation, we request to person our customers from on-prem level connected to nan SaaS platform.

And obviously, SaaS cognition is overmuch much costly than nan location package licensing type of business model. So that was why erstwhile our SaaS income turn than our profit separator again freezed. But successful -- starting from 2022, we're already starting nan task of reducing our unreality costs, particularly erstwhile our customer number accrued our per customer SaaS costs was reduced, and we will proceed that effort to make judge that our unreality costs will beryllium optimized.

Then nan 2nd important costs summation is astir -- because we attraction very overmuch successful processing and increasing our endeavor customers.

And obviously, for endeavor customer services, nary matter nan IT group aliases nan method support group aliases nan income force, it requires a higher accomplishment set, and of people past these -- that higher compensation and precocious costs for that to turn this endeavor market.

But starting from 2023, we judge we person nan measurement to make judge each this caller prosecute endeavor group will beryllium much efficient, particularly aft we person this pathway of selling, we tin -- knowing amended really we tin get nan opportunity that is fresh successful beforehand of our customer, but successful beforehand of our salespeople. Also, we cognize really to forestall nan customer problem hap moreover earlier customer bargain that they person that problem. So they will trim our support cost. So that's nan 2nd point that we are doing for our costs optimization.

The 3rd one, of course, we do for illustration Mahendra shows that successful nan past 3 years, we did turn our headcount, they grow. And -- but not for illustration nan different tech institution during these 3 years, they person very -- ramp-up turn very overmuch and now they request to do nan cutdown.

Rather, we do person nan growth, but it's astir nan aforesaid gait arsenic before. It's conscionable nan aforesaid pace.

So successful this year, we are not readying immoderate large size aliases those layoffs for illustration different tech companies did. But we do want to make judge that we person what we telephone nan 0-based planning, fund readying process and mentality, because aft 3 years, we judge nan statement study different measurement of cognition for illustration video conference, for illustration immoderate of nan events aliases really we held nan arena aliases aft nan activity from home, really astir efficiently utilizing nan agency building aliases trim immoderate of nan agency building need.

And also, we judge that really location is caller exertion specified arsenic unfastened AI aliases precocious a batch of group are proceeding nan ChatGPT, that caller exertion will toggle shape really we activity and make our activity much productive and providing much worth to our customers. So we judge each of this 0, we telephone it 0-based readying process. We're readying for nan future, really will we adopt for nan early and not conscionable spell backmost to past twelvemonth aliases spell backmost to 3 years agone really we work, I judge that is nan champion measurement for Trend Micro to measurement into this caller era of Trend Micro arsenic a level company.

And that is my strategy for 2023. Thank you.

Akihiko Omikawa

Please let maine to talk astir nan home business business successful Japan for nan 4th fourth of FY 2022. My sanction is simply a [Aki]. First, this is our caller firm logo. Please clasp connected a second. Starting from January, we person changed our firm logo and nan Trend connection is emphasized here, and we're going to reinvest cyber security.

And truthful we person particularly focused connected Trend. And nan imagination is to make nan world safe for exchanging integer information. But nan situation has changed and it has go much complex. And truthful therefore, successful respect to nan cyber onslaught threats, we person seen an summation successful threats. So we want to protect our customers solidly.

Furthermore, it's basal for america to recognize our firm vision. Therefore, successful bid to definitive that we person made a alteration successful nan firm logo. Now I'd for illustration to talk astir nan business wrong Japan. First of all, for our endeavor business, nan business and marketplace situation is shown here. IPA has shown nan 10 awesome threats to accusation security. And number 1 is ransomware.

We perceive it each time astir ransomware threats. And truthful there's nan rumor of ransomware security. There's besides nan weaknesses of proviso chain, which are exploited maliciously. And their proviso concatenation attacks truthful that nan surrounding companies are impacted arsenic well.

Meanwhile, location is simply a deficiency of information talent, this has go much and much serious. In respect to nan systems that request to beryllium protected, specified arsenic captious systems, this is expanding successful number.

And furthermore, much and much companies are taking advantage of unreality successful a full-fledged basis. And truthful therefore, it's basal to person information expertise, but there's a deficiency of talent tin of carrying this out. So it's basal to spot really we tin accommodate and supply support successful this area. And truthful therefore, it is basal to attraction connected this. Next, successful respect to business towards nan individuals, location was malware attacks, but there's besides nett fraud and leakage of individual accusation and attacks against individuals and there's overmuch interest that has accrued astir this. And successful fact, incidents person accrued successful this area.

We judge that that's nan situation. And successful respect to accusation leakage aliases nett fraud, we spot according to our investigation that it has been expanding complete nan past respective years. And truthful therefore, it's basal to respond to this and to support efforts successful this area. And truthful therefore, we request to person nan resources disposable and we judge that it is basal to return steps here.

With this benignant of societal inheritance successful mind, it's basal to look astatine our business opportunities.

We person nan endeavor business, arsenic good arsenic nan business towards individuals and nan caller business areas. For nan endeavor business, our CEO, Eva Chen has already talked astir nan cyber information platform. In respect to this concept, we judge that this is simply a very important point to attraction upon. And truthful therefore, I'd for illustration to summarize nan points. We request to look astatine nan onslaught work consequence management. We person to find places which are susceptible to attacks.

And we must do consequence information and consequence assessment. It is important for information to do that. And also, it's basal to look astatine IT infrastructure and look astatine security, arsenic good arsenic information for nan information operations. And arsenic nan displacement to nan unreality is taking place, it is basal to look astatine applications built connected nan cloud, and we person to deliberation astir information taking into information that situation. And we request to person an integration complete a cyber information platform, and it's basal to return advantage of our threat intelligence and besides our intelligence astir vulnerabilities to spot wherever problems beryllium and really they should beryllium fixed arsenic quickly arsenic possible.

This will beryllium very important successful nan future. The 2nd constituent is successful respect to nan area of caller businesses. And we've been talking astir this for immoderate time, but we are now successful nan era of IoT. The marketplace is expanding. And successful IoT, successful summation to nan existing IT arena, location are much information needs successful this area, and we person to look astatine OT and 5G and besides nan connected car.

And successful these 3 areas, location is going to beryllium accrued request for information connected a mean to semipermanent basis. The 3rd is for nan individuals.

As you know, we person microorganism buster, this is for PCs owned by individuals, and this is providing information against malware. This was nan existing business that we've had. But arsenic already mentioned, from PC devices we request to look astatine really to protect users. And truthful we person to make a displacement successful our reasoning successful respect to security. And we judge that this is beyond instrumentality information and we want to grow and turn our business successful this area.

And we person to person countermeasures against fraud, protect individual accusation and protect privacy, arsenic good arsenic realized location web security. By providing each of this, we judge that we tin supply information and information to our customers.

Next, I'd for illustration to study connected our business advancement successful nan 4th quarter, starting pinch endeavor business. One point relates to nan level very strongly, XDR extended discovery and response. Corporate take is accelerating, specifically deals, including NDR is -- pinch managed work is increasing. This is partially owed to nan deficiency of information personnels and nan companies request to respond to nan -- this reality and this is simply a type of work that requires insights and it is successful awesome demand.

So this really grew 4.2x compared to nan aforesaid 4th past year, and we expect it to continuously grow.

And secondly, unreality and income is very strong, particularly income done AWS Marketplace is very strong, increasing astatine 75% year-on-year. And thirdly, SaaS-based security, particularly for SMBs, we are seeing continuous maturation successful nan SMB segment. Currently much than 70% of nan customers from nan endpoint now usage nan SaaS model. This is really overmuch nan situation has changed, and we will proceed to supply this to our customers. Now SaaS-type information intends that nan latest functionalities tin beryllium provided without delay, making cognition from nan customers' perspective, overmuch easier.

And nan 4th slug constituent is OT information demand.

This is besides increasing complete time, and it grew astir twice, much than 11% compared to nan 4th from nan erstwhile year, particularly centering astir manufacturing customers. So we're getting a very bully consciousness that this is growing. Number of deals is increasing. There are immoderate challenges successful promoting business. Competition successful nan endpoint marketplace is getting harder.

So this is nan aforesaid arsenic we reported successful nan past net call. But we judge that nan situation, nan attack of a customer is changing. Rather than protecting endpoint connected a point-by-point basis, they want to speak astir nan countermeasures for cyber information arsenic a whole. And this is why it connects nicely to XDR. We want to seizure this maturation and proceed to present a beardown message. Moving connected to nan advancement of caller businesses.

As I said, OT information is showing beardown growth. Together pinch Ministry of Economic Trade and Industry, we conducted associated webinar for guidelines for cyber information measures successful mill systems, type 1.0. Through this online seminar, we are trying to amended consciousness successful 5G security, we person a caller subsidiary called CT1, and nan subsidiary was established. And this provides cyber information for 5G and section 5G situation and station 5G high-speed connection standards. Currently, astatine Fujitsu Nasu plant, section 5G, drone and information are mixed for demonstration. Thirdly, this is nan area of connected car security.

There person been immoderate exhibitions of automotive security, and we person exhibited astatine these exhibitions and we are getting bully consequence successful this year. In nan connected car, value of information should not beryllium an add-on. There is simply a activity to embedded into a process. And we person besides issued nan automotive cyber information threat prediction report. This is thing we're doing connected a regular basis. Some overseas topics. OT security, this is 1 of nan caller businesses. And there, we person TX1 networks, which is 1 of our affiliates. And nan OT information accumulation halfway was opened successful nan caput office.

Here, we behaviour demonstrations and we stock champion practices truthful that manufacture leaders and proviso concatenation manufacturers tin stock insights and acquisition from a world perspective. There is different taxable related to TX1 networks.

As portion of nan conception for nan media connected nan latest information trends successful nan semiconductor manufacture was held. SEMI-E187, this is nan caller semiconductor manufacturing information guidelines, which was issued. And based connected this, we person explained nan circumstantial contented measures.

Moving connected to nan Consumer business, for nan 4th quarter, arsenic I stated before, beyond Device Security, voice-specific information information is different sanction and this grew by 52%. Again, nether various microorganism malware contentious, from location we are moving towards protecting nan information. And we are conducting nan Internet fraud consciousness promotion together pinch nan metropolitan police, arsenic good arsenic prefectural police.

We are regularly holding a associated consciousness events. And also, we supply support and services for our customers, which we are enhancing. For example, [Rakuraku] support for smartphone users. And this is simply a support that is provided by chat. Number of users is increasing. We are besides conducting trial trading for information posture diagnosis, arsenic good arsenic advice.

We question and reply nan customers first, and then, we will look into to what grade nan email reside of nan customer is utilized aliases disposable connected nan Internet. And what benignant of risks these customers would beryllium exposed into nan early and we are getting very bully response. So we are hoping to summation nan number of implementations of these services. As for instrumentality security, we will proceed -- we are seeing continued maturation successful nan usage. For nan afloat year, we had immoderate challenges. PC request accrued during nan pandemic.

But aft that, nan income of PC decelerated very quickly. And since we supply software-related businesses, location was immoderate soleration connected our part. But we will proceed to summation nan connect complaint and besides proceed to summation nan merchandise value. In bid to further beforehand nan implementation, preamble of our products and services. And this is nan confirmation that will beryllium continuously worked on. Moving connected to nan Consumer business overseas.

Maybe I should talk astir nan 3rd slug point. The customers are continuously utilizing our services, and we are seeing maturation successful nan mobile-related exertion business. And depending connected nan region, location are immoderate different characteristics. In nan U.S., Mac Windows related inferior is growing. And successful Oceania, successful some ingenious and online business, we're doing beautiful well.

And successful Asia and Africa, it's unsocial to this region, but we are increasing done collaboration pinch our telecom partners successful nan user segment. Last but not least, I would for illustration to talk astir nan cyber information institute. And first of all, I would want to talk astir Transparency Center. 138 inquiries were received by this halfway successful '22. Most of them were related to procurement and information checklist, arsenic good arsenic improvement process. Cloud is being used, situation is changing, and location are galore inquiries coming successful astir security, mostly from government, arsenic good arsenic captious infrastructure operators.

So location is besides -- this is decently successful consequence to nan caller regulation. And nan adjacent 1 is successful Threat Intelligence Center, nan 2nd item. We are trying to region physics costs fraud. This is simply a associated effort pinch Nagasaki Prefectural Police headquarters. This is an example. We jointly prepared flies and administer them successful large location appliance stores and convenience stores, arsenic good arsenic mobile telephone stores wrong Nagasaki Prefecture to supply consciousness astir these frauds.

And this is besides an ongoing continuous effort. And this is different point related to nan Threat Intelligence Center. This supply study for clone shopping websites, and we received a certificate of gratitude from Hokkaido Police. So we conducted an study and nan results was shared pinch Hokkaido Prefectural Police, JC3, successful bid to raise consciousness among nan users and forestall damage. Next 1 is knowledge and acquisition center, and we behaviour information education. We collaborated pinch SBI Shinsei Bank connected information unit training. And past year, successful August and December, we person trained a group guidance of cyber information personnels.

And aft that, wrong this bank, and connected their website, they stated decoration for cyber information management. I understand that their phones are excessively mini for to read, but you tin find this activity online. So SBI Shinsei and Trend Micro will continuously collaborate connected information personnels training arsenic they person announced connected their website. So that's each astir nan business successful Japan. Thank you very overmuch for your benignant attention.

Question-and-Answer Session

Q - Hideaki Tanaka

My sanction is Tanaka of Mitsubishi UFJ Morgan Stanley Securities. Can you perceive me? Best of regards. There are 3 questions that I'd for illustration to ask. And if you could concisely reply to each, that would beryllium appreciated.

First, successful respect to pre-GAAP successful nan APAC area, location was -- without nan ForEx impact, positive 9%. But successful Q3 and Q4, it's a single-digit growth. Now you are growing, truthful it's not a problem. But it seems for illustration it's a anemic growth. How do you spot -- expect nan future?

Mahendra Negi

This is Negi and I will reply. Last twelvemonth -- compared to past year, successful 2021, location was a ample business successful EMEA. But successful 2022, location were not excessively truthful galore ample projects and location was precocious ROS.

Hideaki Tanaka

I spot truthful considering these levels, past you will beryllium expanding and tin we expect double-digit maturation aliases azygous digit?

Mahendra Negi

Well, successful our assumptions, we person shown this.

Hideaki Tanaka

And nan 2nd question, for this fiscal year's plans, you've talked astir nett income and profits. And truthful you're looking astatine 21 -- 213.7 billion, which is positive 21 billion. Do you person a breakdown connected really you scheme to increase?

Mahendra Negi

The wages are going to beryllium precocious because for 2022, it was astir 700 persons and we'll person a afloat twelvemonth of wages to beryllium paid. So this will summation things. Mr. Habara, is location much further points?

Koichi Habara

Also, there's nan unreality costs. We're enhancing our SaaS business. And truthful therefore, for nan wages, arsenic Mr. Negi has mentioned, there's going to beryllium an increase. And there's besides nan SaaS and unreality costs.

And truthful -- this should correspond astir 60% to 70% of nan full amount.

Hideaki Tanaka

I see. And 3rd mobility I have, this clip for nan 4th quarter, nan pre-GAAP separator was 29%. So you've sewage rather a recovery. I deliberation that's a bully thing. But successful respect to really this reflected successful nan PL, what would beryllium nan timing?

I deliberation that it's going to beryllium connected a semipermanent basis, but really should we look astatine this?

Mahendra Negi

For nan timing, that's difficult, for pre-GAAP and post-GAAP, it's conscionable a matter of really you look astatine it. But successful nan lawsuit of pre-GAAP, nan hardware income that was precocious and location was nan deferred portion. So connected a quarterly ground -- and some for pre-GAAP and post-GAAP, this has accrued and we judge that location will beryllium a betterment from this year. Mr. Habara, do you person immoderate comments?

Koichi Habara

That's a reliable mobility to answer. However, arsenic Mr. Negi has mentioned, this whitethorn sound rough, but connected a pre-GAAP basis, operating income should beryllium focused upon. And past aft deferring, past location is going to beryllium nan operating income that appears connected nan accounting. So successful this regard, connected a pre-GAAP basis, if we're going to effort to summation nan operating income, past this will only -- to nan post-GAP increase, but there's a clip lag.

So it should beryllium astatine longest 6 months.

Hideaki Tanaka

I see. So astatine longest it will beryllium 6 months? And you are readying to expanding nan nett income by 11%?

Mahendra Negi

One point that tin beryllium said, location is nan first half and nan 2nd half, and it won't beryllium wholly nan aforesaid each 4 quarters. And I judge that we should beryllium seeing greater improvement.

Hideaki Tanaka

I see, convey you.

Koichi Habara

Well, if I whitethorn adhd to that, arsenic Mr. Negi has mentioned, connected an yearly forecast ground successful Q1, it whitethorn beryllium tough. As Eva's materials indicated, there's going to beryllium a income kickoff, which was not held past year. This was being held for nan first clip for a agelong clip erstwhile we didn't person that costs past year, but it will hap this year. So this will beryllium a awesome factor.

And past aft reopening, since summertime of 2022, location had not been immoderate business trips successful Q1 and truthful connected and management costs would summation successful Q1, nan costs would increase. So it will beryllium difficult to make profit successful Q1, but we'll make much profits successful nan 2nd half. It tin beryllium anticipated that that will beryllium nan case.

Hideaki Tanaka

In respect to nan kickoff meeting, really overmuch did it cost? Negi-san?

Mahendra Negi

We're Paying this, but see this arsenic being respective 100 cardinal yen.

Hideaki Tanaka

Thank you very overmuch for nan question.

Operator

When your microphone is unmuted, please authorities your affiliation and your sanction earlier asking a question.

Mitsunobu Tsuruo

My sanction is Tsuruo, convey you for this opportunity. First astir profitability, it's level for this fiscal twelvemonth and amended successful nan 2nd half. And towards nan adjacent fiscal year, is nan profitability is going to increase? Where do you spot a bigger leverage aliases large facet for improvement? And arsenic Eva-san mentioned, I cognize that you will beryllium doing definite things, but tin you please talk astir that position first?

Mahendra Negi

Margin will amended owed to productivity betterment of nan individuals and besides unreality cost. I deliberation these are nan 2 different factors that -- and arsenic Eva has mentioned, we will beryllium making efforts to power those costs.

Mitsunobu Tsuruo

I person 2 much questions. If you cannot amended nan profitability, if you cannot support nan existent business level, will you wantonness nan argumentation of nary laying off?

Mahendra Negi

As a company, what we want to do is travel this theory. And arsenic Eva said, we're not doing this successful a ample scale. We don't request to. But successful nan end, we will person to spot what happened and past respond to that situation.

Mitsunobu Tsuruo

I see. My 3rd question, if possible, could you please reply nan pursuing question. Management compensation scheme, you person various indices aliases metrics and really are they connected? In different words, proxy connection is usually issued. So I would for illustration to cognize really this is decided.

I understand that you are focused connected shareholder return, but nan capacity is not arsenic good. And semipermanent investors require definite things is nan institution really aligned to those requirements?

Mahendra Negi

It really depends connected nan guidance zone, but there's options and besides basically, if nan waste value doesn't spell up, gross doesn't spell up, doesn't spell up and besides nan capacity based connected us. So first is nan pre-GAAP income summation that is reflected and besides nan subscription work growth. And this is besides reflected. If nan premium profit doesn't spell up. That is not really reflected aliases if definite level of maturation is not achieved, past we cannot person this.

So I judge that our position is very overmuch aligned pinch those of nan semipermanent investors.

Mitsunobu Tsuruo

Yes, I understand.

Operator

Thank you very overmuch for nan question. Now we'll unmute nan adjacent person. So if you're unmuted, please show america your sanction and company.

Hiroto Segawa

Hi, my sanction is Segawa, Morgan Stanley Securities. Can you perceive me? There are 3 awesome questions I'd for illustration to ask. First, for nan nett income of 2023, successful Japan, according to nan material, I spot nan assumptions. And successful Japan, location is going to beryllium a single-digit growth. America will beryllium 10% and you will besides person nan different maturation rates. And successful America, there's going to beryllium macro impacts. But for this fiscal year, it seems that nan outlook calls for further growth. So what are nan assumptions that are nan ground for nan nett income forecast? Do you deliberation that nan macro effect will not beryllium truthful high?

Or you're readying to summation income price, truthful -- truthful could you show america astir your thoughts successful respect to nan guidance for nett sales?

Mahendra Negi

Yes. There is immoderate macro effect that is taken into consideration. But arsenic Eva has mentioned, we're providing overmuch much wider services than before. And truthful therefore, we person a bigger fund and we're looking astatine nan negotiations and nan pipeline and our budget. And based connected that, we supply nan outlook.

Hiroto Segawa

What astir nan effect of nan value increase?

Mahendra Negi

So nan value summation successful Japan will beryllium aft April. And moreover if nan value summation takes place, moreover if it's announced connected January 1st, there's still a play of time. And successful lawsuit of caller negotiations that caller value will beryllium applied, but nan effect will astir apt look from nan 2nd half. So it doesn't mean that nan summation will return spot conscionable because of nan summation successful price.

Hiroto Segawa

And past adjacent successful respect to expenses -- successful respect to nan wages, really galore are you assuming will beryllium recruited?

Mahendra Negi

Last year, it's a nett summation by 650, and we judge that it will beryllium little than half of that. It will dangle connected nan macro situation and what conditions exist, but it will beryllium little than half of nan past year's number.

Hiroto Segawa

Next, successful respect to nan profit complaint for 2022. In respect to per capita compensation, location seems to beryllium an increase, truthful what is nan compensation per head? Your thoughts connected this. And successful respect to 2023, what is your forecast for per head?

Mahendra Negi

In respect to nan expenses per head, location is simply a operation of different countries. There are countries wherever wages are precocious and others wherever nan wages are low. So pinch respect to a per capita ground for nan wide company, that's difficult to say, but astatine a complaint -- we're looking astatine productivity shown complete nan past 2 years and various factors are looked astatine and we attraction connected those points. And we judge that we tin expect awesome productivity.

Hiroto Segawa

To travel up then, for 2023. When we look astatine nan lawsuit of different information companies, if we look astatine nan summation successful wages for 2022, past tin we presume that for 2023, nan things will beryllium much stable?

Mahendra Negi

But it's difficult to opportunity that astir nan different companies, but successful respect to our expenses and besides nan recruiting plans, it mightiness beryllium astir 300 persons recruited per year, but successful respect to really that will summation nan business can't really beryllium said. And does that reply your question?

Hiroto Segawa

Yes, I understand. Thank you.

Mahendra Negi

You were asking from '22 to '23. In nan lawsuit of different companies, there's an summation successful nan wages and possibly you were asking if there's going to beryllium a awesome summation successful nan wages for illustration different companies, but location is not going to beryllium specified a ample increase. Now location is immoderate inflation, 100 ground points whitethorn summation because of ostentation factor. But successful respect to 30% aliases 40% increase, we do not judge that, that would return place.

Hiroto Segawa

Thank you. So nan maturation complaint for power will beryllium much unchangeable successful '23 than nan maturation complaint successful 2022?

Mahendra Negi

There is simply a drive. But successful 2022, arsenic already explained, location was nan Asian R&D expenses, and we had to summation because this was little compared to nan different competition, but location was nary different factors successful 2022. And truthful if we see that there's thing that we request to drawback up to, and pinch overall, we are not astir apt going to spot an accrued complaint that we had seen successful nan past of 10% aliases 20%.

Hiroto Segawa

I see, convey you very overmuch for nan concise answer.

Operator

I will unmute nan adjacent person's microphone. Please authorities your sanction and affiliation.

Hiroko Sato

Yes, this is Sato, Jefferies Securities. Can you perceive me?

Operator

Yes, we can.

Hiroko Sato

I person 3 questions. First of each astir nan shareholder, you started nan stock buyback program. And historically speaking, and besides speaking from nan erstwhile net call, 70% very precocious payout ratio has ever been maintained. And nan stock buyback is fundamentally -- aliases a shareholder return is covered by this precocious ratio, arsenic was explained successful nan past net call. Now you are adding stock buyback.

Is this because of nan petition from your awesome shareholder, is that why nan institution changed its view? That's my first question.

Mahendra Negi

If we proceed to person precocious level of cash, well, this was pointed retired from nan fall, but mini sized stock buyback was done successful nan past. But according to nan logic that I explained, coming we judge that we person to explicate this much logically. And if nan return is increased, of course, we had a speech pinch nan awesome shareholders, and nan dividend is high, payout ratio is not bad. But if we want to do this, a stock buyback should beryllium for nan superior ratio improvement. And to trim nan number of shares, this is nan sentiment that we received from nan shareholder.

And successful nan end, well, nan dividend will proceed arsenic is. We are not trying to trim nan dividend. We're not changing nan focus, by nan way.

Hiroko Sato

I understand. So this was based connected nan chat pinch your awesome shareholder?

Mahendra Negi

Yes, that's correct.

Eva Chen

I deliberation I besides want to mention that earlier we see each these shareholder returns, but during our transformation, we're not judge really is our SaaS model's profitability going to be. And for illustration I say, successful nan past, location was a batch of transformation, including nan user product, we toggle shape from nan PC guidelines to a tons of instrumentality based gross and besides nan transmission toggle shape into mobile channel, nan profitability connected this are different. We are not judge what this exemplary would be. So before, we are not very fierce successful each these superior restructuring. But now I deliberation we are much assured that we person a full -- we cognize what is nan caller profit exemplary for SaaS and we person nan assurance that moreover successful nan SaaS model, we tin proceed to make rate flow.

That's why we agreed to person this bigger, say, buyback programme aliases shareholder returns.

Hiroko Sato

Okay. And nan 2nd mobility astir this fiscal twelvemonth that conscionable to vanished and location was a downward revision successful nan 3rd quarter, including operating income. And successful nan 4th quarter, I deliberation nan lending was really moreover little than that. And I didn't get nan belief from covering your institution that it whitethorn happen, but downward revision guidance and besides nan 4th fourth arsenic was afloat twelvemonth number, it looks for illustration location was a spread successful position of profit again. So I don't understand what didn't work.

Can you please possibly talk astir nan factors down this?

Mahendra Negi

First of all, level of deferral, we could not really estimate. We tin talk astir pre-GAAP, but hardware income whitethorn beryllium expanding and astatine nan extremity of December, location was a large income and location was a deferral summation that was 1 factor, arsenic Habara-san mentioned. And different facet was, we expect nan nett income to deed a higher level. So I was -- possibly we were a small spot excessively optimistic. And existent pre-GAAP is successful statement pinch our soul expectations, but we were expecting it to beryllium a small spot higher than that.

Hiroko Sato

Oh I see. Maybe we should talk astir nan circumstantial numbers.

Koichi Habara

As you person mentioned, Sato-san, 37 billion, this was tally complaint revision connected nan 2nd of November, 2 weeks earlier nan Q3 announcement. And nan lending was 31.3 billion, which intends that this was down by 5.6 billion. And nan biggest facet was, arsenic Negi-san said, nan gross nickname difference. This was backmost successful Q3, but nan 2.4 billion, a bigger number was posted successful Q4, which was not expected. So this is nan biggest factor. And past arsenic Negi-san mentioned successful position of cost, hardware ratio is precocious successful nan income mix, nan costs of sales.

And nan costs of sales, this was rather large and revenues fundamentally deferred, which intends that nan profitability has to suffer arsenic a consequence of that. And this effect was going to beryllium astir ¥1.0 cardinal to ¥1.5 billion. So successful position of merchandise mix, we didn't expect nan costs to beryllium truthful high. And different gross nickname perspective.

Going backmost to nan first point, erstwhile Q3 net announcement and nan revision was made, location was for illustration 1 week successful between. And nan gross nickname effect was astir ¥800 million, arsenic we explained successful nan Q3 announcement, but this was not reflected successful nan revision.

So from nan commencement of Q3, we already knew that we were down nan plan, but it's mostly astir nan gross recognition. And that is why successful nan end, we did not really capable nan gap. So arsenic Negi said, connected a pre-GAAP basis, it is according to expectation. But nett sales, we didn't really achieve. This is fundamentally owed to nan gross recognition.

Hiroko Sato

Excuse me, what was ¥800 million?

Koichi Habara

This is nan Q3 nickname impact.

Hiroko Sato

Oh I see, I retrieve you saying that.

Koichi Habara

We made a downward revision, and aft that downward revision location was thing other that happened successful betwixt this period. So Q3 gross revision was not reflected successful our ¥37 cardinal forecast. So Q3 and Q4 gross nickname was fundamentally not successful statement pinch our expectation.

Hiroko Sato

Thank you very overmuch for your very elaborate explanation. That's very clear. Additional questions. What astir guidance of this fiscal year? I understand you're utilizing a caller accounting modular and nan GAAP successful gross recognition?

Well, it would not happen, because this is going to beryllium apple-to-apple.

Koichi Habara

Yes, exactly. It's going to beryllium apple-to-apple compared to nan fiscal -- erstwhile fiscal year.

Hiroko Sato

Okay, I understand. And you are ever focused connected nett income alternatively than profit. And nan past time, you had possibly FX problem and nan gross is suffering. But this caller guidance, are you taking other attraction to nan profit this clip around?

Mahendra Negi

What do you mean by that question?

Hiroko Sato

Well, Negi-san, you opportunity that nett income is much important than profit usually. And successful nan erstwhile fiscal year, you had FX and immoderate assumptions that did not work. And for this fiscal year, I consciousness for illustration you whitethorn person paid much attraction successful position of readying nan profit. I conscionable want to cheque my knowing is correct.

Mahendra Negi

Well, arsenic Eva mentioned, successful nan past mates of years, we person hired group and done galore things, truthful finance will continue. Productivity betterment will besides happen, which will thief push up nan profit.

Hiroko Sato

I see. And [Ai-san], I person a mobility to you. Guidance for Japan. When you deliberation this is excessively weak, cyber information that is nan taxable that group are shifting to? And why only 3% little extremity of nan azygous digit?

Why not double digit, but nan debased extremity of nan single-digit growth?

Mahendra Negi

[Ai-san], arsenic tin you please reply this question?

Akihiko Omikawa

Rather than nan debased extremity of nan azygous digit, Japan is ever lagging down nan European and American markets, arsenic you whitethorn know. And this year, we understand that location are galore opportunities, but connected nan different hand, arsenic we recovered out, well, displacement to unreality will mostly hap successful 2024 and successful 2023 we person to get ourselves ready. And we request to instrumentality mid-term plans aliases measures. That's what's important for FY '23. And arsenic I person mentioned before, we person to fortify nan team.

We request to beryllium clever pinch this, we are besides readying for caller subsidies too, and it will return clip for these caller initiatives to return route. In position of profitability, soul organizational building is already being worked on. It isn't astir headcount simplification aliases increase, we are really talking astir transforming our business into thing that is suited to nan market, and that will return immoderate time. So please understand it that way. Maybe I'm giving a much blimpish constituent of view.

Hiroko Sato

I understand.

Akihiko Omikawa

So nonstop income being accrued and Platform Solution and XDR to beforehand that, possibly tech income is better. And shifting group to move to nonstop income alternatively than utilizing agencies aliases distributors. Well, 1 of nan things that we are trying to do is really understand nan extremity personification behaviors and bespeak that interactivity that's very important. So we're talking astir soul changes, transformations, and we person a partner business arsenic well, and we person been doing this for decades. This is still important to us.

And nan system for that is already successful place. And really to interaction nan extremity users? Well, we want to summation nan interaction points, and that's really we are changing our activities. I dream that answers your question.

Hiroko Sato

Yes, that's clear.

Akihiko Omikawa

So we intend to beforehand this strongly.

Hiroko Sato

Thank you. That's each from me.

Operator

Thank you very overmuch for nan questions. Now we will unmute nan adjacent person. If you're unmuted, please place your sanction and company.

Satoru Kikuchi

This is Kikuchi, this is from SMBC Nikko Securities. There are 3 questions, and location is immoderate overlap pinch erstwhile questions. First of all, Mr. Negi, astir nan 10th of November erstwhile you made an mentation astir nan results for nan caller fiscal year, you explained astir nan points, but you've seen that it's little than your outlook. And aft you made a downward revision, nan numbers are lower.

But it seems past nan goals for nan caller fiscal twelvemonth has changed. And location is simply a caller accounting strategy that has already been carried out. But erstwhile it comes to nan profit outlook, it seems that it has gone down compared to nan past. It's conscionable a flimsy increase, and it whitethorn not person been precisely calculated. So are location immoderate reasons for this?

No, I'm judge that your emotion astir this has not changed. Are you conscionable being conservative? That's nan first mobility I have. Thank you.

Mahendra Negi

In this regard, 1 thing, earlier November, for nan first half we were going smoothly, but nan outer situation started to power things successful nan 2nd half. And pinch that, expenses were incurred. And this year, we will person those expenses reflected for nan afloat fiscal twelvemonth this year. And -- if we strive for higher productivity, past things could get better, truthful alternatively than correction successful our outlook, we want to look astatine it. And arsenic we spot summation successful nett sales, past nan profits will besides increase, and we will beryllium capable to execute much continuity.

But alternatively than make profits by reducing expenses connected nan short-term, we whitethorn suffer retired connected opportunities. So for nan profits, I judge that we person reached connected turning point.

Satoru Kikuchi

You opportunity that it's a turning point. What do you mean?

Mahendra Negi

Well, for 2 years, we spot a alteration successful profits, and I judge that it's a turning constituent from that trend.

Satoru Kikuchi

I see. The 2nd question, this came up successful nan chat astir Japan. When we look astatine nan results successful Japan, complete nan past respective years present successful Japan, Japan's business had supported your company, particularly a small while ago. Over nan past 5 years, nan shop, location were income and nan user income were pressed up by ¥10 cardinal successful 4 years, which is rather a ample number. However, connected a quarter-to-quarter basis, it has been solidly increasing.

But from past year, from nan first 4th to nan 4th quarter, it's go much flat. And connected a quarterly basis, possibly you've peaked retired contempt nan effect of DOCOMO stores, it seems that we adding, right? And for nan Japan guidance, you person this maturation outlook. And for nan user mobile channel, is it imaginable that you're assuming that location will not beryllium overmuch growth? There is nan DOCOMO shops and immoderate shop operations that person been acquired.

So do you judge that successful your guidance, you indicated nan user business whitethorn alteration from present onwards?

Eva Chen

Mr. [Ai], what do you deliberation for nan Japanese?

Satoru Kikuchi

We are looking astatine nan firm market, arsenic good arsenic nan overseas market. What astir nan mobile business Mr. [ Ai ]?

Akihiko Omikawa

Well, arsenic mentioned, successful respect to nan mobile shops, there's much integration taking place. There is simply a reorganization that is taking place, and location are consequence factors there, we believe. But for nan mobile request itself, we don't deliberation that this will spell down. Under those circumstances, we are limited connected instrumentality shipments. I deliberation that location is simply a nonstop impact.

Meanwhile, successful respect to what we're trying to make an effort connected is, arsenic mentioned, we're looking astatine beyond instrumentality security. So we're not conscionable focusing connected nan instrumentality itself. We're looking astatine really to supply added worth to our customers, and that's really we intend to transportation retired our transformation. So patient customers, we want to connection nan correct type of information successful this user business arsenic well. And erstwhile we look astatine this, it whitethorn look arsenic if nan mobile shop business is flat.

But for this business model, there's respective patterns, and it's difficult to reply what will beryllium nan case, but that's an facet that needs to beryllium taken into consideration.

Satoru Kikuchi

I see. Well, I'd for illustration to inquire astir specifications later. But nan 3rd question, successful respect to return to shareholders. I'd for illustration to corroborate astir really this will return place? You mentioned astir 50 cardinal successful excess superior and you'll beryllium looking astatine 25 cardinal for buyback. And past aft calculations, we don't cognize when, but location whitethorn beryllium different 25 cardinal buyback. And starting from adjacent fiscal year, from fiscal 2025, it is nan 70% payout ratio and past there's nan buyback. And speech from nan dividends, you will beryllium looking astatine nan excess superior arsenic of December and if location is hardly immoderate change, past aft nan extremity of nan fiscal year, astir 30% of nett income will beryllium for buyback and 70% for dividends. But from nan profits, you subtract nan dividend information and you look astatine nan 30% buyback. And erstwhile you denote nan fiscal results, nan numbers will beryllium realized then?

Mahendra Negi

In respect to our moving superior and successful respect to different aspects that cannot beryllium calculated, we don't cognize specifically what will happen. But successful respect to buyback, we'll beryllium looking astatine nan payout ratio and will summation nan ratio of nan equilibrium expanse and we're looking astatine 25 billion. And for nan remaining 25 billion, we will look astatine nan excess superior situation. And we judge we should beryllium capable to do that extent. And we will look astatine really overmuch capacity we person by calculating.

And we'll explicate astir it.

Satoru Kikuchi

I see. Naturally, arsenic a company, location whitethorn beryllium different factors that origin increases. But if we -- I deliberation and we are capable to move guardant connected nan 100% ground for nan clip being. So there's a play of accommodation and you'll beryllium looking astatine what benignant of due level of rate level is necessary. And erstwhile you make nan adjustments, you are not judge erstwhile that will beryllium concluded, but erstwhile that is concluded, past for moving superior aliases M&A capital, you request to person immoderate amount.

But past otherwise, 70% will beryllium for dividend and 30% for banal buybacks. And that's nan quality of nan announcement for return to shareholders?

Mahendra Negi

Yes, that's nan format we're reasoning about.

Satoru Kikuchi

And for nan remaining 25 billion, erstwhile we see nan 50 billion, let's opportunity that there's 25 cardinal and past nan remaining 25 billion, it seems to beryllium rather easy to calculate. But is location immoderate barriers to nan calculations?

Mahendra Negi

Well, we person to look astatine nan equilibrium expanse of nan genitor institution and nan excess superior arsenic of nan extremity of December. So we person to look astatine nan surplus business location to explain. So Kikuchi mentioned about, really astir dividends from nan subsidiaries that tin beryllium used. But according to firm law, that tin beryllium done -- that cannot beryllium done. And truthful we person nan 25 billion.

This has been decided successful nan Board of Directors meeting. And for nan 25 cardinal for dividends, this is connected a non-consolidated basis. And that will beryllium nan limit arsenic acold arsenic surplus, and we will not beryllium capable to do much for 2023. But moreover if we person nan dividends pinch nan subsidiaries, we person to hold until February of adjacent twelvemonth earlier we tin beryllium capable to usage this arsenic surplus capital.

And truthful for nan existent dividend and nan buyback, nary further efforts tin beryllium made for 2023, because nan equilibrium expanse for nan non-consolidated results is not clear yet. And truthful for nan remaining 25 billion, it will beryllium thing that will beryllium coming up from adjacent fiscal twelvemonth onwards. Yes.

It tin beryllium expressed successful a different way, but it was mentioned astir 50 billion, and location is an due rate level that is not clear to america yet. But if we are capable to person -- if you person an yearly income of 10 million, past it's for illustration trying to bargain a car for ¥1 million. It depends connected nan effect connected one's life. So we're looking astatine what level of rate is basal and what level we are capable to walk is simply a matter which we are still calculating.

Satoru Kikuchi

I see. That concludes my question.

Operator

Thank you. I will unmute nan microphone for nan adjacent person. Please authorities your affiliation and name.

Unidentified Analyst

My sanction is [indiscernible] pinch Sumitomo Asset Management. I person respective questions. About nan gross nickname impact, connected nan first 4th to 4th fourth it continuously went up. And successful different companies, usually nan number tends to diminution toward nan extremity of nan year. But successful your case, it accrued toward nan 4th quarter.

So why is nan effect bigger successful nan 4th quarter? And Asia Pacific effect is really large successful nan 4th quarter. Can you really explicate why?

Koichi Habara

Yes, I would for illustration to effort to explicate this. As Negi-san mentioned, costs wise, costs of equipment is pushed up by nan higher ratio of hardware. And hardware income gross nickname changed nether nan caller accounting standards. That is nan biggest factor, for this Q4. Well, past year, we would person been capable to see everything successful nan revenue.

But now we person to defer nan revenue. So nett income is small, but costs is higher. That is why nan profit level is lower. And successful Asia Pacific, we saw a much pronounced effect connected this. Well, connected package capitalization. Is this nan statement point you're talking about?

Unidentified Analyst

Yes, successful position of costs of goods, yes. TippingPoint hardware and Cloud Edge hardware, tin you please explicate this?

Koichi Habara

Well, Cloud Edge successful Japan is one. And successful different regions successful Asia, I deliberation it's TippingPoint, Deep Discovery and TX1 for IoT. I deliberation those were nan large factors.

Unidentified Analyst

I understand. Sato-san asked nan mobility earlier astir nan effect of gross recognition, and it was not really identified during nan revision. And that fundamentally pushed down nan profit by 3 billion, and that's 5.7 cardinal successful nan 4th fourth downward revision. In nan opening of November, erstwhile you made nan revision, you didn't -- possibly you didn't cognize it was gross recognition, but you knew that nan profit was going down. So I deliberation this was already reflecting nan number, is this knowing wrong?

Mahendra Negi

I would not opportunity it's wrong, but hardware merchandise operation successful Q4 was a small spot different. Software and licence renewal would not person been impacted arsenic much. So successful position of a income mix, precocious ratio of hardware was not expected successful nan beginning. But that's constricted to nan 4th fourth and nan ¥700 million, ¥800 cardinal successful nan 3rd 4th profit. Well, if nan mobility is Q3, gross nickname effect had to beryllium analyzed postmortem.

So this was a reverse calculation arsenic nan results came in. When we made announcement connected nan 10th of November and we nan released nan numbers connected nan 2nd of November, and we really knew nan effect aft nan fact.

Unidentified Analyst

Oh I see. You cognize nan full number, possibly you did cognize nan details, but nan number was already disposable to you. Is that correct?

Mahendra Negi

No, nan number was disposable to america afterwards. On nan 2nd of November, we didn't cognize really overmuch of this was impacted by gross recognition.

Unidentified Analyst

I understand that they don't cognize nan effect aliases breakdown that you already person nan wide number. So 5.7 cardinal down. And retired of that, 3 cardinal is impacted by gross recognition. I deliberation this is to exaggerate it, because successful nan 3rd quarter, you already knew astir nan numbers. So 700 million, 800 cardinal was already included, which intends that possibly 2.2 billion, 1.3 cardinal was a downward factor.

What astir nan remaining factor?

Mahendra Negi

Well, I do deliberation it is really existent because successful nan 3rd quarter, we said that our outlook already included -- it was not including nan ¥800 cardinal down nan plan. So pinch nan existent successful Q3, we were already down by 800 cardinal against nan plan, arsenic we explained.

Unidentified Analyst

Okay, that's fine. What astir nan remaining half? 2.7 cardinal down and we cognize really overmuch is gross recognition. And I deliberation that explains nan nett income decline, but nan profit was still further down by 2.7 billion. How tin you explicate this?

I'm not rather judge what you mean by this. I'm not pursuing your logic. So 11.1 cardinal was nan target, and you did 5 and 5.7 was nan spread for nan 4th quarter. And for nett sales, I understand this was mostly owed to gross recognition. And I understand that part.

So it's not nan apical statement factor. There must beryllium immoderate costs facet to push down nan profit moreover further.

Mahendra Negi

Well, truthful your mobility is these factors don't screen everything. So I said these are nan awesome factors. It's only 50%. Well, location are aggregate factors. And arsenic Negi-san mentioned, income committee is 1 factor, pre-GAAP.

If a difficult merchandise is sold, past they would person a bigger bonus. And these group achieved their quota and received nan commissions, for example. So income statement commission, respective hundreds of millions yen. And besides on-site services, for Japanese user mobile channel, nan business is strong, arsenic we person explained. And besides U.S. ineligible costs successful Q2 and Q3 and besides successful Q4 went up.

These are nan -- immoderate of nan costs factors, which was higher aliases stronger than erstwhile we made assumptions for Q3. So 5.6 cardinal is reflective of those. But nan gross nickname is still nan biggest factor, arsenic I explained.

Unidentified Analyst

Right. Number of headcount, successful nan 3rd quarter, location was an summation of astir 300 quarter-on-quarter. And I asked nan mobility astir nan outlook for nan 4th quarter. And you said for nan 3rd quarter, this was mostly for Asia Pacific. And location you started hiring for nan first clip successful 3 years, and this is temporary.

And Japan, America and Europe only accrued slightly. And successful nan 4th quarter, you didn't expect to a large increased. But now extracurricular of Japan, you accrued nan headcount a batch successful full 160 aliases so. Why did you summation truthful much? And for nan adjacent fiscal year, is it going to beryllium really 300, that seems excessively little?

Mahendra Negi

Right. When 3rd 4th number was disclosed, we were not referencing hire, truthful we were making offers and there's a clip lag until group really joined nan company. So successful nan 4th quarter, immoderate of nan headcount already decided successful nan 3rd quarter.

Unidentified Analyst

I do understand what's happening. And that is why I'm asking. You opportunity that there's not going to beryllium overmuch headcount increase, but location was a large increase. And I understand there's clip lag, of course. And that is why I'm questioning your attraction of 300.

In nan first 4th and 2nd quarter, location will beryllium immoderate clip lags for nan afloat year. Are you going to instrumentality to 300?

Mahendra Negi

Well, right. But depending connected really nan situation changes, we person to explicate to you nan caller factors astatine nan net announcement.

Unidentified Analyst

I understand, convey you.