HEROZ,Inc. Q3 FY2026 earnings call

Core Financial Performance

• 9-month cumulative consolidated revenue reached 4.687 billion yen, up 7.8% YoY. Cumulative EBITDA reached 719 million yen (0.719 billion yen), up 46.1% YoY. Cumulative operating profit reached 358 million yen (0.358 billion yen), up 126.4% YoY. Q3 standalone revenue was 1.588 billion yen, up 4.5% YoY, with Q3 standalone EBITDA of 227 million yen (0.227 billion yen), up 12.8% YoY.
• Key KPIs showed steady improvement: ARR reached 4.569 billion yen, up 11.3% YoY. Recurring revenue share increased 4.7ppt YoY to 70.2%. All core recurring services maintain very low churn: AI Security churn is 0.7%, HEROZ ASK churn is 0.4%, both at stable low levels.
• Cost structure improvement: Cost of goods sold increased 7.8% YoY due to growth-related hiring of development engineers, but the ratio of cost of goods sold to revenue only increased 1.6ppt YoY. Selling, general and administrative (SG&A) expenses decreased 4.2% YoY cumulative, and the SG&A to revenue ratio fell 4ppt YoY, showing steady progress in cost compression.

Strategic Initiatives

• Long-term AI strategy: HEROZ aims to drive an AI revolution focused on automating and supporting daily work, enabling people to focus on self-actualization. The company is evolving from providing AI tools to an AI BPaaS model that takes on end-to-end client business processes, leveraging AI as a shared backbone to deliver efficient, high-quality services. HEROZ is developing fully autonomous next-generation AI agents (branded Meta Agent, or AI Agent 2.0) that can autonomously decompose problems, set goals, and execute solutions, expanding the addressable market for AI services. The company targets the growing AI system market, projected to grow from 1.3 trillion yen in 2024 to 4.2 trillion yen by 2029 per IDC Japan.
• AIX BtoC new developments: Launched Kishin Chat, a new natural language commentary service for professional shogi matches, in partnership with Asahi Shimbun. The service uses existing Kishin Analytics AI analysis to explain match position changes, key moves, and projected outcomes in accessible language for new fans. HEROZ continues to host a range of events (including the 6th World Shogi AI Denryu-sen, where HEROZ's engine Huisui won back-to-back championships, and multiple collaborative tournaments) that have driven premium user numbers to all-time high levels, with the goal of growing the overall shogi audience.
• Product updates for HEROZ ASK: Launched Box integration to lower barriers to internal data access, enabling direct file attachment and automatic file management from the chat interface to boost utilization and retention. Added onboarding training services for new customers, and transitioned to an unlimited-use pricing model from per-user-ID billing to drive company-wide adoption, increase ARPA (average revenue per account) and grow the customer base. HEROZ ASK is on track to hit monthly break-even during the current fiscal year.
• New business and partnership: HEROZ entered into a business and capital alliance with JPYC, the issuer and operator of the Japanese yen stablecoin JPYC. HEROZ will contribute AI implementation expertise to develop the new "stablecoin × AI" business area, and has taken a less than 10% stake in JPYC via subscription to JPYC's Series B1 preferred shares, aiming to build a new business foundation and create long-term synergies to boost corporate value for both firms.
• Investment payback: Prior year upfront investments in new products HEROZ ASK and JOINT are now beginning to deliver measurable financial results, with expected increasing profit contribution from 4Q onward.

HEROZ operates two core segments: AIX and AI Security. For the 9-month cumulative period (first three quarters of the fiscal year):

1. AIX Segment: Total net sales grew 2.5% YoY, with Q3 standalone sales reaching 891 million yen (0.891 billion yen). The segment is split into two sub-segments:
   • AIX BtoC: Achieved 3 consecutive quarters of YoY growth, with Q3 sales up 1.2% YoY. Quarterly game matches have exceeded 30 million for 4 consecutive quarters, and cumulative total matches surpassed 1.1 billion matches as of December 2025. The segment remains on a steady growth trajectory.
   • AIX BtoB: 9-month cumulative sales grew 12.1% YoY, with full-year growth projected at 15.0% YoY. The segment retains a 4Q-heavy revenue structure, but current active project pipeline exceeds prior year levels. Key products within this sub-segment: HEROZ ASK reached ~150 million yen (0.15 billion yen) ARR as of end-February, with Q3 sales up 37.9% quarter-over-quarter, and cumulative contracted customers reached ~350 companies. JOINT saw Q3 sales grow 53.3% quarter-over-quarter. AI Sakura-san continues to see steady growth in cumulative contracted users, with recurring revenue building steadily.
2. AI Security Segment: Net sales grew 5.5% YoY cumulative, and 7.0% YoY in Q3 standalone. Segment profit grew 26.2% YoY, driven by full-year benefits from prior price adjustments that improved profitability. The segment maintains a very low recurring churn rate of 0.65%, with stable low customer attrition. AI Security accounts for over half of HEROZ's total recurring revenue.

• Management revised down the full-year 2026 April period consolidated guidance following a profit revision from consolidated subsidiary Vario Secure. The revised full-year guidance sets consolidated revenue at 6.4 billion yen and operating profit at 500 million yen (0.5 billion yen). Despite the downward revision, HEROZ maintains its plan for YoY growth in both revenue and profit for the full year.
• Through the first three quarters, the company has reached 73.2% of the revised full-year revenue target and 71.7% of the revised full-year operating profit target. Given the company's historical 4Q-heavy revenue structure, management confirms performance is on track to meet the revised full-year plan.
• For AIX BtoB, full-year revenue growth of 15.6% YoY is projected, even after accounting for timing-related revenue shifts, with 4Q-weighted revenue structure remaining intact.
• HEROZ ASK is projected to achieve monthly break-even during the current 2026 April fiscal year, and is expected to become a core growth driver for company-wide profit growth starting from the next fiscal year.
• AI Sakura-san recurring revenue is expected to continue growing through 4Q and beyond, with further expansion expected in new vertical use cases.

The provided transcript does not contain explicit discussion of material operational risks, risk factors, or operational failures. All performance is reported as progressing in line with or exceeding revised plans.

Q: What is the current business progress of HEROZ ASK, including revenue growth, pricing changes, and profitability timelines?

A: HEROZ ASK is progressing smoothly toward expanding MRR, increasing average unit pricing via the new price structure, and achieving monthly break-even within the current fiscal year. As of the latest reporting, net new MRR is growing at a pace of approximately 1 million yen per month, and ARR has expanded to just over 130 million yen (0.13 billion yen). In January 2025, the company transitioned from the original per-user-ID billing model to a new usage-based pricing model with a minimum guarantee. This change removes the customer psychological barrier of limiting user count to control costs, enabling the company to simultaneously drive expansion in the number of client companies and increase ARPA by encouraging a shift from department-level to company-wide adoption. The plan remains to achieve monthly break-even for HEROZ ASK during the current fiscal year, and the business is on track to become a core pillar driving overall company profit growth starting from the next fiscal year.