Executive Summary / Key Takeaways

• HUB Cyber Security Ltd. is undergoing a profound strategic transformation, shifting from a legacy services and hardware model to a high-margin, software-centric business driven by its proprietary Secured Data Fabric platform.
• This strategic pivot has yielded significant financial improvements in 2024, including a substantial increase in gross margins to 25.6% in the second half and a 66% reduction in full-year operating loss, demonstrating enhanced operational efficiency.
• The company's core technological differentiator, the AI-powered Secured Data Fabric, offers military-grade encryption, rapid deployment (months versus years for competitors), and significantly lower costs, positioning it for 80-90% gross margins.
• Key growth catalysts for 2025 include a landmark €20 million contract with the Bank of San Marino, expected to more than double top-line revenue, and aggressive expansion into the lucrative U.S. market, targeting 5-10 new SaaS-based compliance clients.
• Despite a clear growth trajectory and technological advantages, HUB Cyber Security faces ongoing liquidity management challenges and intense competition from larger, more established cybersecurity players.

The Strategic Rebirth of HUB Cyber Security

HUB Cyber Security Ltd. (NASDAQ:HUBC), founded in 2017 by veterans of elite Israeli intelligence units, is in the midst of a significant strategic and financial overhaul. The company, headquartered in Tel Aviv, Israel, is repositioning itself from a traditional IT services and hardware provider to a focused leader in the secure data fabric market. This transformation is driven by the escalating demands of an industry grappling with exploding AI-driven data volumes, rising infrastructure costs, and increasingly stringent real-time regulatory compliance requirements. The company's overarching strategy is to capitalize on these market dynamics by leveraging its proprietary Secured Data Fabric platform, aiming for sustainable, high-margin growth.

The cybersecurity landscape is characterized by a "winter is coming moment" for financial institutions and enterprises, as fragmented systems and static reports fail to meet the need for real-time governance and AI-driven risk intelligence. This widening gap is precisely where HUB Cyber Security is concentrating its efforts, offering solutions that govern, secure, and operationalize data while adhering to aggressive regulatory standards. The company's historical foundation in professional services, which includes long-standing relationships with blue-chip clients like Visa (V) and Boeing (BA), now serves as a crucial platform for introducing its advanced software solutions into large, complex organizations.

The Technological Edge: Secured Data Fabric

At the heart of HUB Cyber Security's transformation is its Secured Data Fabric platform, a proprietary SaaS solution designed for financial institutions, enterprises, and regulated public sector environments. This innovative technology automatically consolidates data from diverse silos into a unified, scalable, and secure system. Its core differentiator is a confidential compute capability, which employs military-grade encryption to protect data across all states: in transit, at rest, and during processing. This level of protection significantly surpasses that offered by traditional data lake solutions.

The tangible benefits of HUB's Secured Data Fabric are compelling. It unifies compliance, AI analytics, and security within a single real-time platform, offering a stark contrast to competitors whose solutions often require years and billions of dollars to implement and maintain. HUB's platform can be implemented in just a few months, with deployment and maintenance costs that are notably lower, as it operates as pure software. Crucially, its "fusion approach" allows the platform to be added as an overlay above existing infrastructure, eliminating the need for large capital expenditures and lengthy replacements of current tech stacks. This not only reduces manpower and operational costs associated with data consolidation but also minimizes external security threats. The AI platform further enables near real-time analytics generation, requiring minimal to no manual intervention. This technological advantage is expected to drive the Secured Data Fabric segment's gross margins into the impressive 80% to 90% range, significantly higher than the 15% to 20% historically seen in its professional services business.

Competitive Arena: Outmaneuvering Giants

HUB Cyber Security operates in a highly competitive cybersecurity market, facing established players such as Palo Alto Networks (PANW), CrowdStrike (CRWD), Fortinet (FTNT), Check Point (CHKP), and Cisco's (CSCO) security division, as well as emerging AI-driven platforms and open-source alternatives. While these larger competitors offer broad ecosystems and extensive market reach, HUB carves out its niche through specialized technological advantages and a focused strategic approach.

HUB's Secured Data Fabric stands apart by unifying compliance, AI analytics, and security in one real-time platform at a fraction of the cost and implementation time of rivals. Competitors often take years and billions to deploy solutions that remain vulnerable to cyberattacks and require extensive manual data processing. In contrast, HUB's platform can be implemented in months, with relatively low deployment and maintenance costs, powered by military-grade cybersecurity. Its "fusion approach" eliminates the "forklift" replacement of existing infrastructure, a significant advantage over solutions that demand costly and disruptive overhauls.

Compared to a broad network security provider like Palo Alto Networks, HUB's hardware-driven security and dedicated enclaves for data workflows may offer greater efficiency in protecting critical systems. Against endpoint specialists like CrowdStrike, HUB's integrated approach to security and reliability analysis, coupled with hardware-enhanced resilience, provides a unique selling proposition, particularly in high-stakes environments. While Fortinet and Check Point offer unified security platforms and threat prevention, HUB's targeted simulation capabilities (e.g., D.Storm for DDoS) and advisory services provide a deeper, customized risk assessment. Cisco, with its extensive global reach, offers integrated network security, but HUB's specialized tools may provide faster processing for targeted applications.

HUB's competitive strategy focuses on highly regulated sectors like financial institutions, public infrastructure, and transportation, where its specialized, hardware-backed, and compliance-focused solution provides a strong differentiator. The company leverages its professional services arm, staffed by over 270 skilled professionals, to build trusted advisor relationships that provide privileged access and a platform for cross-selling its Secured Data Fabric. This allows HUB to engage early and deliver solutions that drive resilience and business growth. While HUB's smaller scale and potentially lower brand recognition compared to industry giants present challenges, its differentiated technology and targeted market approach aim to capture significant value in critical, high-demand segments.

Operational Transformation and Financial Re-engineering

The period spanning late 2023 and throughout 2024 marked a pivotal strategic and financial reset for HUB Cyber Security. Under the leadership of CEO Noah Hershcoviz, who assumed the role in December 2023, the company undertook extensive restructuring. This involved exiting underperforming segments, reducing headcount, streamlining operations, and renegotiating contracts that offered volume without sufficient value. These decisive actions have resulted in a leaner, more agile organization focused on profitability.

Financially, this transformation is evident in the 2024 results. While total revenue for the full year 2024 declined to $39.6 million from $42.7 million in 2023, this was a deliberate strategic pivot to optimize the business mix. The impact on profitability has been significant. Gross margin improved dramatically to 25.6% in the second half of 2024, representing a 15.4% increase compared to the second half of 2023 and an improvement of over 1000 basis points year-over-year. For the full year 2024, the gross margin reached 17.1%, up 1.8% from 2023. This shift from "volume with value" is expected to accelerate in 2025 as more business transitions to platform software.

Operational efficiencies also led to a sharp reduction in expenses. Total operating expenses for the second half of 2024 decreased by 29% to $14.7 million from $20.9 million in the prior year period. The full-year 2024 operating expenses declined approximately 60% year-over-year, partly due to expense rationalization and the absence of IPO-related costs from the first half of 2023. Consequently, the operating loss in the second half of 2024 improved by 38% to $11.1 million, and the full-year operating loss dropped significantly by over 66% from $77 million in 2022 to $26 million in 2024. These figures underscore management's disciplined approach to cost control and the positive impact of a more efficient organizational structure.

Strengthening the Foundation: Liquidity and Capital Management

To support its strategic initiatives and strengthen its financial position, HUB Cyber Security has actively engaged in various financing activities and debt restructuring in 2025. On August 27, 2025, the company entered into a securities purchase agreement for up to $20.00 million in subordinated convertible notes, with an initial closing on August 29, 2025, raising $7.72 million in cash and exchanging $2.19 million in previously issued notes. The aggregate cash proceeds from July and August 2025 note issuances totaled $4.62 million. These proceeds are earmarked for general corporate purposes, operating expenses, and debt repayment, specifically targeting loans from Julestar LLC and a portion of Agile Lending LLC.

The August 2025 Notes, maturing on August 28, 2027, bear 4% annual interest and are convertible into ordinary shares at an initial price of $2.88 per share. Concurrently, HUB restructured $11.00 million in senior secured convertible notes, extending their maturity to February 16, 2026, in exchange for an accredited investor's undertaking to purchase these notes for $14.05 million. Further bolstering its capital, HUB secured $1.50 million through subscription agreements arranged by Claymore Capital in July and August 2025, and amended a loan agreement with J.J. Astor Co. in May 2025 for an additional $1.56 million loan, yielding approximately $1.48 million in net proceeds. An April 2025 Business Loan and Security Agreement with Agile Capital Funding, LLC provided a $2.00 million term loan, with net proceeds of $1.80 million.

Despite these efforts, the company's cash and cash equivalents stood at $3.1 million at the end of 2024, with liabilities rising to $108 million, partly due to warrant liabilities. The company is actively managing its working capital deficit through restructuring and aggressive debt pay-down strategies, including converting a significant portion of outstanding convertible debt into equity to deleverage and reduce interest burden. This ongoing capital management is critical for positioning HUB to secure larger public and financial sector contracts, where financial stability is paramount.

Outlook and Growth Trajectory: A Clear Path Forward

HUB Cyber Security's management has articulated a clear and ambitious outlook for the coming quarters, driven by the accelerating shift towards its Secured Data Fabric platform. A significant catalyst for 2025 is the landmark €20 million engagement with the Bank of San Marino, awarded in March 2025, to modernize its entire digital banking infrastructure. This contract is expected to be delivered in full by the end of 2025 and could "more than double our top line revenue," reinforcing both profitability and market share expansion.

The Secured Data Fabric segment is poised to be the primary growth driver, significantly outpacing the professional services business as a percentage of total revenue, with a "marked transformation in our business mix starting already in 2025." Management is targeting a minimum of five to ten new clients in the SaaS-based compliance category alone, with annual contract values ranging from $500,000 to $1 million. The professional services business is also expected to contribute with a steady 15% to 20% year-over-year growth, driven by long-standing client relationships.

Geographic expansion, particularly into the U.S. market, is a key strategic initiative. HUB has established a new office in New York City and made key leadership appointments, including John Rogers as President of the Americas region and Paul Parisi as Global Chief Revenue Officer, to support this growth. The initial focus for U.S. expansion will be the transportation sector, with plans to broaden into financial sectors, leveraging the demand observed in Europe. Management anticipates signing its first U.S. contract in 2025. Operating expenses are projected to stabilize at around $18 million going forward, reflecting continued cost discipline. CEO Noah Hershcoviz's priority is to position HUB as a "fully channel ready leader poised for scalable growth and market expansion by the close of 2025," anticipating "multiple deployments on the scale, same scale of the San Marino engagement, over the coming quarter."

Navigating the Horizon: Key Risks and Challenges

Despite its promising outlook, HUB Cyber Security faces several pertinent risks and challenges that warrant investor attention. A primary concern is the significant uncertainty regarding the adequacy of the company's liquidity and capital resources, as well as its ability to repay obligations as they become due. The various financing agreements, including the August 2025 Notes, come with restrictive covenants that limit future financial flexibility, such as restrictions on dividends, incurring additional indebtedness, and asset sales. Events of default, including registration statement failures or material breaches, could trigger mandatory redemptions at a premium, posing a substantial financial burden.

Furthermore, the ongoing war between Israel and Hamas may harm Israel's economy and, consequently, HUB's business operations. The outcome of any legal or regulatory proceedings against HUB, particularly in connection with past internal investigations, also presents a potential risk. The company must also maintain compliance with Nasdaq listing standards. Operationally, while the strategic pivot is promising, successful execution in a highly competitive market, retaining key management and employees, and managing rapid growth are critical. The Agile Loan, for instance, contains negative covenants restricting the disposal of business property and changes in key management personnel, highlighting the sensitivity of its financial arrangements.

Conclusion

HUB Cyber Security Ltd. is a company in the midst of a profound transformation, strategically pivoting from a legacy services model to an AI-powered, software-centric future. Its core investment thesis is firmly rooted in the differentiated capabilities of its Secured Data Fabric platform, which offers military-grade cybersecurity, rapid deployment, and cost efficiencies that set it apart in a market hungry for advanced data protection and compliance solutions. The significant improvements in gross margins and operating loss in 2024 underscore the early successes of this strategic realignment and operational discipline.

Looking ahead, the €20 million San Marino contract and aggressive U.S. market expansion initiatives provide concrete catalysts for substantial revenue growth and market penetration in 2025. While the company's technological leadership and strategic focus position it for long-term success, investors must remain cognizant of the ongoing liquidity management requirements and the inherent competitive pressures within the cybersecurity industry. HUB's ability to continue strengthening its balance sheet, execute its growth strategy, and effectively leverage its technological advantages will be paramount in realizing its potential as a leader in secure data transformation.