Slide 1: Trend Micro FY2006 2Q / Semi Annual Results
Trend Micro FY2006. 2Q / Semi Annual Results Mahendra Negi COO / CFO , Representative Director August 10, 2006 TRENDMICRO AppletTrap eDoctor INTERSCAN VIRUSWALL Trend Virus Control System VSAPI eManager PC-cillin Interscan eManager MacroTrap ISVW TVCS InterScan On-Line Scan GateLock ISWM InterScanWe
Slide 2: Forward Looking Statements
Forward Looking Statements Certain Statements that we make in this presentation are forward-looking statements. These forward- looking statements are based upon management’s current assumptions and beliefs in light of the information currently available to it, but involve known and unknown risks and
Slide 3: Consolidated Results
Consolidated Results (unaudited) Three months (in million Yen) ended Jun 30, 2Q2005 2Q2006 YoY growth Net sales 17,189 20,079 17% Cost of sales 2,667 3,826 44% Operating expenses 9,052 10,881 20% Operating income (Margin) 5,470 (32%) 5,371 (27%) - 2% Income before taxes 5,765 5,534 - 4% Net Income 3
Slide 4: Accounting method of Deferred revenue recognition (1)
Accounting method of Deferred revenue recognition (1) Model : In case of “New contract & Cash-in” as 100 (Subject to deferred rate as 30%) Cash-in Breakdown of New contract A A : perpetual licenses of software products 70 100% B : virus pattern updates, B unspecified product version updates, telepho
Slide 5: Accounting method of Deferred revenue recognition (2)
Accounting method of Deferred revenue recognition (2) Model 1: In case of “New contract & Cash-in” as 100 in Jan. (Subject to deferred rate as 30%) 2.5 = 30 x 1month / 12 months A Total 1-year revenue as 100 70 B 2.5 B 2.5 B 2.5 B 2.5 Jan. Feb. Mar. ….…. Dec. Model 2: In case of “New contract & Cash
Slide 6: Impact of cash flows due to Deferred revenue recognition change
Impact of cash flows due to Deferred revenue recognition change Comparison of cash flows before and after Deferred revenue recognition change in 1H FY2006 (unaudited) Account Before change After change YoY growth Cash flows from operating activities 19,978M 19,978M 107% Cash flows from investing act
Slide 7: USD based Results (Non-GAAP)
USD based Results (Non-GAAP) (unaudited) Three months (in thousand USD) ended Jun 30, 2Q2005 2Q2006 YoY change Net sales 159,572 174,980 10% Cost of sales 24,756 33,343 35% Operating expenses 84,037 94,827 13% Operating income 50,778 46,810 - 8% Income before taxes 53,521 48,230 - 10% Net Income 36,
Slide 8: Net Sales Growth by Region
Net Sales Growth by Region (unaudited) (in million Yen) 9,000 + 14% 8,000 7,835 2Q2005 7,000 6,882 2Q2006 6,000 + 15% 5,191 + 18% 5,000 4,515 4,116 4,000 3,484 + 13% 3,000 2,270 2,017 2,000 129% 1,000 667 291 0 Japan US Europe Asia Pacific Latin America (In accordance with US GAAP) Copyright © 2006
Slide 9: Net Sales Growth by Region (constant currency)
Net Sales Growth by Region If currency exchange rates used for 2Q2005 were used for 2Q2006: (unaudited) (in million Yen) * ( ) : difference from GAAP base 9,000 + 14% 7,835 (0) 8,000 6,882 2Q2005 7,000 2Q2006 6,000 4,879 + 8% + 11% (-312) 5,000 (-252) 4,515 4,000 3,864 3,484 + 8% 3,000 (-101) 2,017
Slide 10: % share by region
% share by region 2Q2005 2Q2006 (unaudited) 17,189 million Yen 20,079 million Yen Latin America Latin Asia America Pacific 2% Asia 3% 12% Pacific 11% Japan Japan 40% Europe 39% Europe 26% 26% US US 21% 20% (In accordance with US GAAP) Copyright © 2006 Trend Micro Incorporated. All Rights Reserved. 1
Slide 11: Q2 Highlights
Q2 Highlights z Strong growth in US (If no impact of new deferral policy, US growth would be about 30%) z Deferred revenues continue to grow z Cisco alliance starts to deliver results Copyright © 2006 Trend Micro Incorporated. All Rights Reserved. 11
Slide 12: Q2 Lowlights
Q2 Lowlights z Costs still grew faster than revenues z EMEA and APAC growth still below expectations Copyright © 2006 Trend Micro Incorporated. All Rights Reserved. 12
Slide 13: Sales by Segment
Sales by Segment (unaudited) (in million Yen) 2Q2005 2Q2006 20,000 Large Enterprise 32% 29% 5,794 16,000 Small & Medium 47% 49% 5,427 12,000 Consumer 21% 22% 9,866 8,000 8,099 Total 100% 100% 4,000 4,419 * 2Q2005 shown above is just for reference purposes 3,663 to compare with this year. 0 2Q2005 2Q
Slide 14: Cost of sales & Operating expenses
Cost of sales & Operating expenses (excluding stock option expenses effects) (in million Yen) (unaudited) 16,000 Cost of sales (old) Amortization of capitalized software, and Material Maintenance Support 14,000 Sales, Marketing R&D ADM 903 12,000 768 893 920 610 564 712 322 640 1,861 10,000 1,735 41
Slide 15: Headcount
Headcount - 2006 Jun - 2006 2,992 3,061 ADM, ADM, Business Process Business Process Sales, Sales, 495 Marketing 481 Marketing 847 + 69 884 (+ 2%) Technical Technical Support Support Research, Research, 835 Development 859 Development 815 837 Copyright © 2006 Trend Micro Incorporated. All Rights Rese
Slide 16: Non-operating Items
Non-operating Items (unaudited) Interest expense Exchange loss Interest income Loss on sales of marketable securities 4M 16 M Other expense 351 M 33 M 134 M Income before taxes Operating income 5,534M 5,371 M (In accordance with US GAAP) Copyright © 2006 Trend Micro Incorporated. All Rights Reserved
Slide 17: Deferred Revenue
Deferred Revenue (unaudited) (in million Yen) 40,000 39,706 35,000 37,912 35,381 30,000 31,250 29,666 25,000 20,000 15,000 10,000 5,000 0 Jun-'05 Sep-'05 Dec-'05 Mar-'06 Jun-'06 * Total of current and long term (In accordance with US GAAP) Copyright © 2006 Trend Micro Incorporated. All Rights Reserv
Slide 18: Deferred Revenue by Region
Deferred Revenue by Region (unaudited) (in million Yen) 18,000 + 4% * Total of current and long term 16,000 15,12515,680 14,000 Mar-06 Jun-06 12,000 + 9% + 3% 10,055 9,613 10,000 9,267 9,377 8,000 6,000 + 9% 4,000 2,819 3,063 - 2% 2,000 1,324 1,295 0 Japan US Europe Asia Pacific Latin America (In ac
Slide 19: Deferred Revenue by Region (constant currency)
Deferred Revenue by Region If currency exchange rates used as of the end of 1Q2006 were used as of the end of 2Q2006: (unaudited) (in million Yen) * ( ) : difference from GAAP base 18,000 + 4% 16,000 15,680 (0) * Total of current and long term 15,125 14,000 Mar-06 12,000 + 11% + 0% Jun-06 10,250 (+1
Slide 20: Balance Sheet
Balance Sheet (unaudited) (in million Yen) Mar-2006 change Jun-2006 Assets Cash & cash equivalents 62,240 + 8,878 71,118 Account receivable (less allowance for doubtful accounts 17,641 - 1,814 15,827 and sales returns) Marketable securities & Securities investments 35,714 - 678 35,036 Liabilities De
Slide 21: Consolidated Results (Six months)
Consolidated Results (unaudited) Six months (in million Yen) ended Jun 30, 1H2005 1H2006 YoY growth Net sales 34,490 40,673 18% Cost of sales 5,076 7,505 48% Operating expenses 16,642 19,451 17% Operating income (Margin) 12,771 (37%) 13,717 (34%) 7% Income before taxes 13,316 14,229 7% Net Income 8,
Slide 22: Net Sales Growth by Region
Net Sales Growth by Region (unaudited) (in million Yen) 18,000 + 13% 16,000 16,073 1H2005 14,248 1H2006 14,000 12,000 + 14% + 28% 10,021 10,000 8,836 8,829 8,000 6,885 + 18% 6,000 4,436 4,000 3,766 71% 2,000 1,308 763 0 Japan US Europe Asia Pacific Latin America (In accordance with US GAAP) Copyrigh
Slide 23: Net Sales Growth by Region (constant currency)
Net Sales Growth by Region If currency exchange rates used for 1H2005 were used for 1H2006: (unaudited) (in million Yen) * ( ) : difference from GAAP base 18,000 + 13% 16,073 (0) 16,000 1H2005 14,248 14,000 1H2006 12,000 + 18% + 9% (-745) 9,588 (-433) 10,000 8,091 8,829 8,000 6,885 6,000 + 10% 3,766
Slide 24: Asset
Asset Asset composition (unaudited) 100% 45% 49% 75% 50% 50% Cash 50% 26% 24% 23% 25% Securities+Time Deposits 25% Accounts receivable 12% 14% 11% (less allowance for doubtful 14% accounts and sales returns) 12% 15% 14% 16% Other assets 0% Dec 04 Jun 05 Dec 05 Jun 06 (In accordance with US GAAP) Cop
Slide 25: Q3 forecast assumptions
Q3 forecast assumptions z US growth higher than company average growth rate, Japan in line, EMEA somewhat lower z Higher level of expenses will continue due to investment in services infrastructure (on-line delivery and channel training etc.) z Stock option expenses will be about 1.24Bn yen z Estima
Slide 26: Projection for 3Q2006
Projection for 3Q2006 (unaudited) For 3Q2006 Expected (in million Yen) Jul - Sep, 2006 YoY growth Net Sales 20,500 14% Operating Income 6,000 - 13% Net Income 3,300 - 25% •Including stock option expense about 1,244M Yen (In accordance with US GAAP) If stock option expenses are not included Net Sales
Slide 27: Thank you!
Thank you! Copyright © 2006 Trend Micro Incorporated. All Rights Reserved. 27
Slide 28: Appendix: Quarterly Chart
Appendix Quarterly Chart (in million Yen) FY2005 FY2006 (unaudited) 1Q 2Q 3Q 4Q 1Q 2Q s ale s 17,301 17,189 17,975 20,565 20,594 20,079 Cos t of s ale s 2,410 2,667 2,739 3,312 3,679 3,826 Ope rating e xpe ns e s 7,590 9,052 8,374 9,314 8,569 10,881 Ope rating incom e 7,301 5,470 6,862 7,939 8,346 5