Kaizen Platform,Inc. Q4 FY2024 earnings call

Company and Market Overview

• Kaizen Platform is a DX acceleration partner focused on customer experience DX, targeting the "offensive DX" market (front-end customer-facing areas such as sales, marketing, and customer service). The overall DX market is 3.4 trillion yen, and offensive DX accounts for approximately 13% of this market.
• The core market bottleneck is that legacy core systems are tightly coupled with user interfaces, restricting UX changes and the adoption of new technologies such as generative AI. Kaizen Platform's unique advantage is that it can embed its technology into customers' existing interfaces via a simple tag implementation, enabling DX without modifying core systems, allowing business departments to lead DX projects and reducing lead time and costs.

Core Business and Competitive Advantages

• The group operates two segments: Growth (digital marketing customer experience improvement) and Transformation (DX consulting and IT development for cost transformation), with a group structure covering domestic business, US business, consolidated D zero and consolidated Highwell, providing end-to-end support from consulting upstream to implementation downstream.
• The business model uses a variable cost structure by forming project teams with external growth hackers on the platform, maintaining low fixed costs, enabling high profitability for cloud services, and delivering high cost performance to customers. Key competitive advantages are accumulated customer project data know-how, fast cloud-based delivery, and flexible team composition.
• The core growth strategy is to increase ARPU (average revenue per user) by demonstrating clear ROI for customers, driving cross-selling to increase per-customer spend. The company grew the number of accounts with annual revenue over 100 million yen from 4 to 7, and accounts over 50 million yen from 9 to 12, showing cross-selling success.
• Recurring revenue accounts for over 80% of total revenue (3.7 billion yen out of 4.523 billion yen total revenue), with one-off project revenue accounting for the remaining ~18%.

2024 Operational Highlights

• Updated the KAIZEN ENGINE UX development base, adding a pre-loading function that speeds up page display by 30% on average (up to 50% in some cases), which has been well received by customers.
• Launched a joint package with D zero to support globalized IR sites for the upcoming Tokyo Stock Exchange Prime Market English disclosure mandate, including AI-powered multilingual support, leveraging D zero's accessibility expertise.
• Established the KAIZEN AI STUDIO specialized generative AI team in January 2025, accelerating R&D for full product embedding of generative AI, targeting full commercial launch from spring 2025, prioritizing high-demand use cases: multilingual support and customer support productivity improvement.

2024 Full Year Financial Summary

• EBITDA: 229 million yen, down 4% YoY, missed the 250 million yen forecast. Operating profit: -28 million yen (net loss), worsening from a -25 million yen loss YoY. Ordinary profit: 6 million yen, down 44.4% YoY, but beat the full-year forecast. Net income: -171 million yen (net loss), a large deterioration from -21 million yen YoY, significantly missed forecast. The poor result was driven by two factors: 1) US business underperformance in Q4, with a 40 million yen operating loss including 20 million yen in allowance for delinquent receivables; 2) a UX project incident in domestic business that required free project extensions, leading to a 150 million yen special loss for software impairment and reversal of tax effects.

1. Growth Segment: Overall full-year transaction account count decreased 9% year-over-year, ARPU increased 10% year-over-year. Growth (Kaizen Platform standalone): Transaction account count decreased 19% YoY due to UX solution project incident-related contract renewal delays, revenue decreased 19% YoY, while ARPU remained flat at prior year levels. Growth (D zero consolidated): D zero business performed strongly, with transaction accounts growing YoY, ARPU up 1% YoY, overall consolidated growth segment revenue down 9% YoY (an improvement from the 19% decline of standalone Kaizen Platform). 2. Transformation Segment (Highwell consolidated): Full-year transaction account count decreased 6% YoY, driven by declining accounts at Highwell. ARPU increased 18% YoY overall, with ARPU up 14% YoY driven by strong growth in consulting revenue. Highwell achieved full-year net profit but saw a weakened customer base, so business restructuring has been initiated. Overall, total group revenue for 2024 full year was 4.523 billion yen, up 4.2% YoY, beating the full-year forecast of 4.5 billion yen.

• For the 2025 December full year, the company will focus on strengthening service quality and building out generative AI service capabilities.
• Full year revenue guidance is 4.55 billion yen, roughly flat with 2024 results. EBITDA guidance is 230 million yen, roughly flat with 2024.
• Ordinary profit guidance is 0 yen, and net income guidance is -30 million yen, maintaining a similar level to 2024's result after factoring in ongoing restructuring costs.
• The guidance assumes that the negative impact of the UX incident will continue through the first half of 2025, with all issues resolved by the end of H1 2025. Domestic business and D zero are expected to perform solidly overall.
• Highwell is undergoing full business restructuring, so its performance guidance is set conservatively. For the underperforming US business, the company is implementing cost control and receivable collection, and is conducting a full review of its strategic positioning; any strategic changes will be disclosed at an appropriate time if decided.
• The company will continue to make targeted investments in generative AI aligned with market demand, with the goal of shifting to a higher-margin revenue structure as generative AI cloud service revenue grows.

• Intensifying competition in the digital DX space, including competition for growth hacker talent on the company's platform, could materially negatively impact business performance.
• Generative AI is a rapidly innovating space, and failure to keep pace with technological changes through R&D investment, engineer hiring and training, and development infrastructure upgrades could harm the company's competitive position.
• Large-scale system outages or incidents could negatively impact group business and financial results. Currently, ongoing incidents are limited to a small number of individual projects, and the risk of a company-wide material risk is assessed as low, but the company is strengthening server infrastructure and internal governance to improve service stability.
• The ongoing UX project incident created prolonged negative impacts on 2024 performance, and delays in resolution could continue to pressure performance in the first half of 2025.

The full Q&A content is hosted externally at the provided link, and no Q&A content is included in the available transcript.