HEROZ,Inc. Q2 FY2026 earnings call

Financial Performance & Cost Control

• Achieved 9.6% YoY revenue growth (3.098 billion yen), 69.1% YoY EBITDA growth (492 million yen), and 191.2% YoY operating profit growth (258 million yen) for Q2 2026.
• ARR grew 17% YoY to 4.395 billion yen, and recurring revenue share increased 3.0 percentage points YoY; churn for HEROZ ASK is 0.64%, maintaining a low churn level.
• Cost of goods sold increased 10.1% YoY due to hiring growth for business and engineering roles, but cost of goods sold as a share of revenue fell 0.6 percentage points, improving gross margin; SGA decreased 7.7% YoY, and SGA as a share of revenue fell ~7 percentage points due to strict corporate cost control.
• 2025 April term saw ~300 million yen in upfront investment for new product launches, and investment results have begun to materialize this term, with further profit contribution expected from Q3 onward.

Strategic Direction

• The company's vision is to drive an AI revolution to create a society where people can focus on self-actualization, framing AI as a co-creative partner rather than just a tool.
• The company is evolving its business model to AI BPaaS (AI Business Process as a Service), which uses AI as a shared backbone to deliver end-to-end business outcomes, solving the problem of limited impact from standalone AI tool offerings.
• The company targets the fully autonomous "Meta Agent" (AI Agent 2.0), which can autonomously decompose problems, set goals, and execute solutions independent of user input capability, expanding the addressable market for AI.
• IDC Japan projects the AI system market will grow from 1.3 trillion yen in 2024 to 4.2 trillion yen by 2029, which HEROZ targets for long-term growth.

Recent Operational Updates

• BtoC AIX: Hosted the 3rd Master Shogi tournament, launched the new "Nickname" feature for Shogi Wars, and ran multiple in-app tournaments to grow the shogi player base.
• BtoB AIX: Provided its stock price prediction AI technology for Wills' new "Benefit Design Simulation" feature, which helps companies model shareholder benefit program outcomes. HEROZ ASK launched a new AI analytics dashboard feature that automates usage analysis and improvement suggestions, and added support for Claude Sonnet 4.5 and Claude Opus 4.5. AI Sakura-san continued growing contracted users, added new use cases in tourism and public administration, and added official SSO integration with HENNGE One for secure enterprise deployments.

HEROZ operates two core business segments: 1. AIX Segment: a) BtoC Sub-segment: Achieved 0.5% YoY revenue growth, with Q2 2026 revenue exceeding the prior year period. Shogi Wars has logged 3 consecutive quarters of over 30 million total games per quarter, with cumulative total games passing 1.1 billion as of December 2025; premium user count is at all-time high levels. b) BtoB Sub-segment: Achieved 23.1% YoY revenue growth in Q2, with cumulative H1 growth of 29% YoY. Approximately 68 million yen in scheduled Q2 revenue was deferred to Q3. HEROZ ASK hit 100 million yen ARR as of October 2025, with 55.1% quarter-over-quarter revenue growth and over 330 contracted corporate customers as of November 2025. JOINT achieved 19.9% quarter-over-quarter revenue growth. 2. AI Security Segment: Achieved 4.8% YoY revenue growth, logged 2 consecutive quarters of record-high quarterly revenue, with price hikes driving expected full-year profitability improvements. Core security BPO service has a churn rate of 0.71%, maintaining a very low churn level. Overall group total Q2 2026 revenue is 3.098 billion yen, with all segments delivering positive YoY growth.

• Full-year 2026 April term guidance was revised downward following performance downgrades from subsidiary Valiosecure, but the company maintained its plan for YoY revenue and profit growth.
• Revised full-year guidance: 6.4 billion yen revenue (7.9% YoY growth), 500 million yen operating profit (63.2% YoY growth), 420 million yen ordinary profit (84.0% YoY growth), 50 million yen net income attributable to parent shareholders, 1.0 billion yen EBITDA (26.0% YoY growth). Operating profit was revised down 300 million yen from the original forecast.
• The company expects AIX to contribute 186 million yen in full-year profit growth, AI Security to contribute 45 million yen in profit growth, with 37 million yen in negative consolidated adjustments leading to the 500 million yen full-year operating profit target.
• HEROZ ASK remains on track to achieve monthly profitability during the current full fiscal year.
• Q3 2026 BtoB AIX revenue is expected to grow 17.9% YoY, with recurring revenue for AI Sakura-san expected to return to growth in Q3 following Q2 impacts from Q1 customer churn.

• The BtoB AIX business has an inherent structural revenue concentration in the second half of the fiscal year, and recurring revenue recognition delays (68 million yen in Q2 2026, 65 million yen in Q1 2026) can create quarterly performance volatility relative to initial forecasts.
• Subsidiary Valiosecure cut its full-year profit plan due to 160 million yen in downward revenue revision and 150 million yen in new planned upfront investment for product development and sales hiring, driving the group's overall full-year guidance downgrade.
• New AI product growth depends on expanding enterprise adoption and use cases, and slower-than-expected customer adoption could delay profitability targets.

Q: What is the current outlook for HEROZ's BtoB business for the 2026 April term, after quarterly revenue shortfalls from recognition delays? / A: Q1 and Q2 saw 65 million yen and 68 million yen in revenue deferred to later quarters, respectively. While pipeline and headcount are growing in line with plan, structural revenue timing risks lead the company to lower its full-year BtoB growth forecast and adjust group guidance accordingly. HEROZ ASK has crossed 100 million yen in ARR, growing steadily with mid/small enterprise customers, and remains on track to hit monthly profitability within the current fiscal year.

Q: What drove Valiosecure's full-year performance downgrade? / A: Valiosecure hit its Q1-H1 operating profit target of 300 million yen, with solid near-term sales performance. The downgrade comes from a 160 million yen downward revision to the full-year sales forecast, plus a new 150 million yen planned upfront investment in product development and sales hiring for future growth. The underlying business remains on solid footing.

Q: What progress has been seen on the prior year's upfront investment in new SaaS products? / A: Investment results are starting to materialize as planned this term: HEROZ ASK grew revenue 55.1% quarter-over-quarter, while JOINT grew revenue 19.9% quarter-over-quarter. Both products continue to grow customer counts and revenue, and are expected to deliver increasing profit contribution starting in Q3 of this term.