Earnings Transcript for HUBCZ - Q2 Fiscal Year 2024

Operator: Good morning, and welcome to the HUB Cyber Security’s First Half 2024 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ben Shamsian with Lytham Partners. Please go ahead.

Ben Shamsian: Good morning, everyone and thank you for joining us for HUB Cyber Security's first half 2024 financial results conference call. Joining us on today's call is Noah Hershcoviz, CEO of HUB. At the conclusion of today's prepared remarks, we will address some questions that were sent to us by investors, as well as questions we believe are important to us. Today's event is being recorded and will be available for replay through the webcast information provided in the press release. Finally, I'd like to call your attention to the customary safe harbor disclosures regarding forward-looking information. The conference call today may contain certain forward-looking statements, including statements regarding the goals, strategies, beliefs, expectations, and future operating results of HUB Cyber Security. Although management believes these statements are reasonable based on reasonable estimates, assumptions and projections as of today, these statements are not guarantees of future performance, nor shall be taken as such. Time sensitive information may no longer be accurate at the time of any telephonic or webcast reply. Actual results may differ materially as a result of risks, uncertainties and other factors, including, but not limited to factors set out in the company's filings with the SEC. HUB is under no obligation to update or revise any of these forward-looking statements. With that said, I would like to now turn the call over to Noah Hershcoviz, Chief Executive Officer of HUB Cyber Security. Noah, please proceed.

Noah Hershcoviz: I'm pleased to be conducting our very first financial results conference call. I look forward to holding these calls going forward to update you on our progress. During today's call, I will highlight our recent accomplishments that demonstrate our continued execution in offering our clients unifying data fabric embedded in a military-grade security environment. In addition, we will speak about some of the operational efficiencies that new management team has achieved in our effort to turn around HUB and provide shareholders value. I will also discuss our plans to grow our top and bottom lines further, while managing our capital efficiency. Finally, we will discuss the financial results for the first half of 2024. But before that, with this being our first call, I wanted to provide a broad overview of HUB and opportunities that we believe will drive growth for the company going forward. HUB Security is an exciting story to share, not just as a pioneer in the Secure Data Fabric market, but as a company that has successfully navigated challenges and emerged stronger and determined. Over the past year, we've made bold decisions to streamline operations, focus on high-margin business and position ourselves for sustainable growth. At a high level, HUB operates two complementary business units

Ben Shamsian: Thank you, Noah. We have some questions that were sent to us by investors. First, I want to start with, can you talk about your competitors and the advantages that you have over them? You mentioned Palantir. Can you elaborate on your product versus theirs?

Noah Hershcoviz: Yes, Palantir is one of the competitors or one company that we see in the market. Our competition and our competitors often take years to implement, cost billions to deploy and maintain, and are highly vulnerable to cyberattacks. Once deployed, many require extensive involvement from data engineers to process manually and massage the data to achieve meaningful analytics outcome. HUB Secure Data Fabric can be implemented in just a few months. With deployment and maintenance costs that are relatively low, as we are pure software. It is powered by military-grade cybersecurity, ensuring robust protection. Once deployed, our AI platform enables near-real-time analytics generation, requiring minimal to no manual intervention, and leveraging advanced technology for maximum efficiency. We do not require our clients to replace any current solution, so no forklift is required. Rather, HUB Secure Data Fabric can be added as a layer above existing infrastructure, moving the need for large CapEx investments and lengthy replacing of existing tech infrastructure. We're making the system better by enhancing every aspect of it.

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

Noah Hershcoviz: Yes, sure. So HUB has undergone a strategic evolution. While hardware and services were historically a significant part of our business, we've transitioned to focus on high-margin software-driven solution that align with our long term growth objective. Our Secure Data Fabric powered by proprietary AI integrates advanced data analytics with our deep cyber security expertise to address both the security priorities of the CESL and broader operational needs of our clients. With a trusted advisor relationship cultivated across hundreds of clients, we are positioned to engage early and deliver solutions that drive resilience and business growth.

Ben Shamsian: Okay, thank you. Another question regarding margins. How do you see the long-term margin profile of the company and looking ahead which business unit, the Secure Data Fabric or the IT services you consider to be the main vertical for HUB?

Noah Hershcoviz: Great question. So our long-term margin profile reflects our commitment to disciplined management and operational efficiency. Historically, our IT services, or what we call the professional services business has delivered margins in the 50% to 20% range. Through deliberate efforts to streamline operation and exit lower-margin services, we've shifted focus to higher-value opportunities, achieving improved margins of between 30% to 40%. Although our Secure Data Fabric, on the other hand, is a software-centric business with margins in the 80% to 90% range, it's like pure SaaS in essence, aligning with our strategic direction. Looking ahead, the Data Fabric segment is poised to be the primary growth drive for HUB. You should expect to see this in the blend of revenues, significantly out-passing the professional services and percentage of the total revenue. This shift is already well underway. And as I mentioned, we anticipate a marked transformation in our business mix trials starting in 2025.

Ben Shamsian: Okay, thank you. We have another question. The theme of big data seems like a perfect storms for a HUB’s Data Fiber product. What are the main drivers behind the demand for HUB’s product and how does big data play into this?

Noah Hershcoviz: So demand for Data Fabric product is fueled by the explosion of AI-driven data, overwhelming traditional systems, rising regulatory pressures, requiring secure solutions -- secured solutions and high cost of maintaining legacy -- of maintaining the legacy systems, right? So dealing with data is expensive. Highly regulated sectors are spending billions on compliance and data management. They need efficient, scalable solution like ours to reduce the cost of ownership while meeting their demanding requirements of the regulator, right? By breaking down data silos and enabling real-time insights, we're addressing critical needs and delivering significant value to this industry.

Ben Shamsian: Okay, thank you. We have another question on your customer base. Can you elaborate on HUB's secure data customer base and what it's currently being used for?

Noah Hershcoviz: Yes, sure. HUB Secure Data Fabric is a platform that’s designed to address the critical challenges of managing and unifying massive volumes of fragmented data. While we are currently working with leading European banks on KYC processes and exploring expansion into other products like transaction monitoring and the like, we're supporting a top -- we're supporting top European asset manager with like data integration and analytics and it's just the beginning. Those are all just the beginning. Banks and financial sectors are just the low-hanging fruits for us and key focused in demonstrating our ability to quickly establish leadership in highly regulated markets. However, we are not limited to KYC or banking, the FinTech company in essence. Our pipeline includes industries like payments, tourism, ESG and healthcare, any sector technically that is grappling with large scale data and regulatory pressures. Looking ahead, my priority as CEO is to position HUB as a fully channel ready leader poised for scalable growth and market expansion by the close of 2025.

Ben Shamsian: Okay. It looks like we don't have any further questions. Thank you everyone for participating in today's call. We look forward to speaking to you all again.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.