HUB Cyber Security’s Strategic Pivot Yields Margin Gains Amid Revenue Dip

HUB Cyber Security Ltd. (NASDAQ: HUBC) has undergone a dramatic transformation in 2024, prioritizing profitability over revenue growth through a sharp strategic pivot. The cybersecurity firm’s second-half 2024 financial results reveal a company shedding lower-margin businesses to focus on its crown jewel: the Secured Data Fabric (SDF) platform. While revenue declined, gross margins surged, and losses narrowed—signaling a potential turning point for this once-struggling firm.

The Trade-Off: Less Revenue, Better Margins

HUB’s H2 2024 revenue dropped to $13.8 million, down from $17.6 million in the same period last year. This was no accident: the company deliberately exited low-margin segments of its IT services and cybersecurity consulting divisions. The move paid off. Gross margins jumped to 25.6% from 15.4% in H2 2023, as HUB leaned into its higher-margin SDF platform, which unifies fragmented data silos into a secure, encrypted system.

The operational overhaul also slashed costs. Operating expenses fell 29% to $14.7 million, reducing the operating loss to $11.1 million, a 38% improvement year-over-year. CEO Noah Hershcoviz framed this as a “reaffirmation of execution capability,” moving HUB from a turnaround story to one of disciplined growth.

The SDF Play: Why It Matters

The SDF platform is HUB’s crown jewel—and its future. Designed to meet the stringent data governance needs of regulated industries like banking, healthcare, and finance, the system has already landed major contracts. A €20 million deal with the San Marino-based Cassa di Risparmio bank to modernize its digital infrastructure highlights its appeal in compliance-driven markets. Another win: a European bank managing €900 billion in assets deployed SDF to unify its Know-Your-Customer (KYC) and Anti-Money Laundering (AML) systems, now operational with invoicing underway in 2025.

HUB’s Premier Professional Services division, staffed by over 270 experts, serves as a critical growth lever. Decades-old client relationships in regulated sectors—some dating to the 1990s—give HUB privileged access to introduce SDF into legacy systems. This “trust capital” is unmatched in a cybersecurity landscape where compliance complexity is soaring.

Risks and Roadblocks

HUB isn’t out of the woods yet. The company still faces a $39.76 million annual net loss for 2024 and acknowledges liquidity risks. Geopolitical tensions, like the Israel-Hamas conflict, could disrupt operations in its 30-country footprint. To mitigate this, HUB resolved $17 million in legacy liabilities and secured new financing, while a reverse stock split in late 2024 ensured Nasdaq compliance.

The Bull Case: A Niche Leader in Compliance Tech

HUB’s strategy hinges on its ability to capitalize on regulatory tailwinds. As banks, healthcare providers, and payment firms grapple with stricter data laws (GDPR, CCPA, etc.), the demand for secure data unification tools is surging. HUB’s SDF is uniquely positioned to address this, with a backlog of RFPs and contracts growing rapidly.

The company’s North American expansion, led by new President John Rogers, aims to tap into U.S. markets where regulatory scrutiny is even stricter than in Europe. If HUB can convert its pipeline into revenue, the path to profitability—and, eventually, profit growth—becomes clearer.

The Bear Case: Execution Risks and a Thin Margin

While margins improved, HUB still operates in the red. A single misstep in deploying its platform—say, a high-profile client breach or delayed contract—could derail progress. Competitors like Palantir (PLTR) or Snowflake (SNOW) also loom, though HUB’s focus on niche regulated sectors may offer a defensible moat.

Final Analysis: A Buy for Patient Investors

HUB’s H2 results paint a company in transition. The revenue decline was a calculated trade-off, and the margin gains and strategic wins suggest a viable path forward. For investors willing to bet on HUB’s niche leadership in regulated data security, the stock could reward patience. Key catalysts include:
- 2025 invoicing from the €20M San Marino contract and the €900B asset bank deal.
- Pipeline execution in North America and healthcare sectors.
- Margin stabilization as cost cuts and higher-margin revenue offset losses.

While risks remain, HUB’s focus on profitability over volume—and its unique product-market fit—make it a compelling story in an otherwise crowded cybersecurity space.

Conclusion: HUB Cyber Security’s strategic pivot has set the stage for a potential comeback. By narrowing its focus to high-margin regulated industries and leveraging its trusted relationships, the company could emerge as a niche leader. Investors should watch closely for 2025 execution, but the groundwork suggests HUB is moving in the right direction—albeit with caution still warranted.