Summary of the Conference Call for Qimingxingchen (启明星辰) Company Overview - **Company**: Qimingxingchen (启明星辰) - **Industry**: Cybersecurity and AI Solutions Key Points Industry and Market Dynamics - In 2025, the industry faces significant challenges, with many mid-sized companies struggling financially, some unable to continue operations [9] - The overall market demand and customer budgets did not show significant improvement in Q4 2025, with government clients focusing more on IT infrastructure rather than security needs [3] - Specific sectors like military and defense maintain stable security investments, while others like power generation present limited opportunities [3] Strategic Adjustments - Qimingxingchen proactively reduced DICT integrated projects to optimize gross margins, leading to a significant decrease in transactions with China Mobile [2][4] - The company aims to strengthen collaboration with China Mobile in personal, family, and enterprise markets while emphasizing independent innovation [4] - The company is adapting to new application scenarios through product atomization and integration with cloud services [7] Financial and Operational Efficiency - Approximately 700 personnel were optimized in H1 2025, with total adjustments expected to not exceed 1,000 for the year, aimed at improving input-output ratios [2][5] - Continuous cost control measures are in place to maintain a trend of expense reduction in response to market challenges [2][5] AI Developments - Qimingxingchen has made significant advancements in AI for Security, enhancing all products and services with AI technology, resulting in increased operational efficiency and cost savings for clients [8] - Sales in the AI for Security segment have reached hundreds of millions of RMB, with a notable increase in event detection accuracy and daily analysis capacity [8] - In the Security for AI segment, new product orders reached 10 million RMB in H1 2025, but demand growth slowed in Q3 due to mixed user feedback on large model applications [8] Future Outlook - Despite financial data potentially being at the lowest point since the company went public, there is confidence in a recovery in 2026, with a clear strategic direction for future development [3][9] - The company is actively seeking new market opportunities to reflect security value and expand its scale [9] Additional Insights - The focus on IT infrastructure security has not received adequate attention, with most cybersecurity firms primarily offering consulting, construction, and solution services [3] - The new chairman, Yuan Jie, is expected to lead the company in formulating short, medium, and long-term plans, including adjustments in technical capabilities and product offerings [4]

Financial Data and Key Metrics Changes - Total ARR grew 23% year-over-year, with net new ARR of $54 million in Q3, exceeding expectations [27] - Revenue increased 23% year-over-year to $259 million, with international markets growing 34% and representing 40% of total revenue [27] - Operating margin reached 7%, improving by nearly 1,200 basis points year-over-year, marking sustained quarterly operating profitability [28] - Gross margin maintained at 79%, reflecting healthy platform unit economics [28] - Free cash flow margin achieved 6% in Q3, on track for positive free cash flow for the second consecutive year [29] Business Line Data and Key Metrics Changes - Non-endpoint solutions accounted for approximately half of quarterly bookings, indicating strong growth and diversification [9] - Purple AI's attach rate surpassed 40% of licenses sold in Q3, driven by strong adoption from both new and existing customers [9] - Data solutions bookings growth accelerated to triple digits year-over-year, reflecting high demand for AI SIEM solutions [10] - Cloud security bookings marked the strongest growth in the last 12 months, driven by rising demand for comprehensive offerings [11] Market Data and Key Metrics Changes - Customers with ARR of $100,000 or more grew 20% to 1,572, highlighting broader platform adoption [27] - The company is gaining market share across its platform solutions, particularly in AI, data, and cloud [27] - The federal sector showed strong engagement, with significant expansions in existing contracts [87] Company Strategy and Development Direction - The company is focused on sustainable profitability and has made significant progress towards this goal [22] - Strategic acquisitions, including Observo AI, are aimed at enhancing competitive positioning and customer value [30] - The company is expanding its partner ecosystem and deepening collaborations with major cloud providers [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to execute against Q4 guidance despite macroeconomic uncertainties [86] - The demand for cybersecurity solutions remains strong across industries, reflecting the importance of the Singularity Platform [31] - Management emphasized the importance of maintaining a balance between growth opportunities and a strong financial profile [34] Other Important Information - Barbara Larson, CFO, will step down to pursue an opportunity outside the cybersecurity industry, with Barry Paget serving as interim CFO [23] - The company is committed to delivering positive free cash flow for the full year, expecting it to be higher than operating margin [33] Q&A Session Summary Question: What products outside of Endpoint are becoming material for new business? - Management highlighted data solutions and Purple AI as key contributors to growth, with Flex enabling broader consumption of the platform [39][41] Question: Guidance appears lighter than expected; any insights? - Management clarified that Q4 revenue outlook reflects steady momentum but is influenced by deal timing and macroeconomic conditions [44][46] Question: Can you discuss gross margin expectations? - Management expects to sustain gross margins in the high 70s, with strategic investments impacting Q4 guidance [50][51] Question: Is there a need for further functionality through M&A? - Management believes the platform is complete but remains opportunistic for strategic acquisitions [53][55] Question: How is the adoption of AI security solutions progressing? - Management noted strong traction with Prompt Security, addressing the urgent need for safe AI tool adoption [74][76] Question: What actions are being taken to accelerate net new ARR performance? - Management emphasized the importance of Flex in driving efficiency and customer expansions [78][80] Question: How did deal timing and macro sales cycles impact Q3? - Management acknowledged unpredictability in the environment but expressed confidence in executing Q4 guidance [86][87]

Financial Data and Key Metrics Changes - The company reported a 23% year-over-year growth in total Annual Recurring Revenue (ARR), reaching a new record with net new ARR of $54 million in Q3 [24][25] - Revenue for Q3 grew 23% year-over-year to $259 million, with international markets growing 34% and representing 40% of total revenue [24][25] - The gross margin maintained an industry-leading level of 79%, with an operating margin of 7%, reflecting a significant improvement of nearly 1,200 basis points year-over-year [25][26] - The net income margin increased to 10% in Q3, up from break-even in the prior year quarter, marking a significant milestone for the company [26] Business Line Data and Key Metrics Changes - Non-endpoint solutions accounted for approximately half of quarterly bookings, indicating strong growth and diversification of the platform [8][10] - Purple AI achieved a record attach rate of over 40% of licenses sold in Q3, driven by strong adoption from both new and existing customers [8][9] - Data solutions saw triple-digit year-over-year bookings growth, reflecting increasing demand for the AI SIEM solution [9][10] Market Data and Key Metrics Changes - The company is expanding its market share in cybersecurity, particularly in AI-driven solutions, as organizations increasingly adopt digital transformations [6][10] - The federal sector showed strong engagement, with a major U.S. federal agency broadening its deployment across the Singularity Platform [12][55] Company Strategy and Development Direction - The company is focused on sustainable profitability and has achieved sustained quarterly operating profitability, marking a significant milestone [25][26] - The acquisition of Observo AI is expected to enhance the company's data solutions and competitive position, allowing for a more integrated and efficient data pipeline [15][28] - The company aims to lead in both AI for security and security for AI, helping organizations innovate securely [14][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to execute against its Q4 guidance, despite a dynamic macro environment [29][54] - The company anticipates continued strong demand for its Singularity Platform, supported by a healthy pipeline and growing contributions from emerging products [29][30] - Management emphasized the importance of maintaining a strong financial profile while pursuing long-term growth opportunities [31] Other Important Information - The company announced a leadership transition, with Barbara Larson stepping down as CFO, and Barry Paget serving as interim CFO [22][23] - The company reaffirmed its commitment to delivering positive free cash flow for the full year, expecting it to be a few points higher than operating margin [30] Q&A Session Summary Question: What products outside of Endpoint are becoming material from a new business perspective? - Management highlighted data solutions and Purple AI as key contributors to growth, with Flex enabling broader consumption of the platform [35] Question: Can you comment on the guidance for Q4 and the factors influencing it? - Management noted that Q4 revenue outlook reflects steady momentum, but deal timing and linearity can influence quarterly revenue [38] Question: What are the drivers of the expected sequential gross margin compression? - Management explained that the Q4 guide includes strategic investments in cloud infrastructure and capacity expansion, reflecting growing global scale [40] Question: How is the company positioned in terms of M&A and platform functionality? - Management stated that the platform is competitive and complete, with no immediate plans for further acquisitions, focusing instead on in-house innovation [41][42] Question: What actions are being taken to accelerate net new ARR performance? - Management indicated that the Flex model is driving efficiency and larger deals, while also integrating acquired assets to enhance platform capabilities [52] Question: How did deal timing and macro sales cycles play out in Q3? - Management acknowledged that the macro environment is unpredictable, but expressed confidence in executing against Q4 guidance [54][55]