ELEMENTS,Inc. Q4 FY2024 earnings call

• Core Business Performance Achievements • Full-year 2024 November period total revenue hit 2.545 billion yen, 31% YoY growth, exceeding the company's 30% medium-term growth target. Revenue landed near the midpoint of the guided range. EBITDA reached 343 million yen, above the upper end of the guided range of 275 million yen. Operating profit was 57 million yen, the first full-year operating profit in company history, also beating guidance. Net loss attributable to the parent company was 132 million yen, narrower than the projected maximum loss of 150 million yen. • Q4 2024 total revenue was 688 million yen (10% YoY growth), with gross margin improving to 84.9% after the removal of one-time costs. Selling, general and administrative (SG&A) expenses were 637 million yen (62% YoY growth), driven by Admedica consolidation, headcount increases, and 18 million yen in one-time Polarify M&A-related costs. Q4 EBITDA was 45 million yen, with an operating loss of 52 million yen and net loss attributable to parent of 94 million yen. • Gross margin for the full year improved 8.5 percentage points to 85.8% due to lower learning costs from accumulated training data and optimized algorithms that reduced overall costs. SG&A totaled 2.125 billion yen (330 million yen YoY increase), with SG&A as a percentage of revenue falling 9 percentage points to 84%.

• New Product Launches and Second Growth Pillar Development • Launched two new products: SugeKae, a generative AI-powered image generation solution for apparel brands, and GPASS, a solution for foreign workers that confirms residency status, prevents forged residence cards, and enables attendance management with fraud prevention. • Expanded Digital ID Wallet PASS to multiple new local governments including Katsurao Village, Fukushima Prefecture, following the initial launch in Kaga City, Ishikawa Prefecture. Pilot testing for self-service gas station authentication is progressing positively, pending regulatory legal amendments.

• Polarify Subsidiarization (M&A) • ELEMENTS agreed to acquire 95.01% of Polarify, a leading eKYC provider that was a joint venture of Sumitomo Mitsui Financial Group, Daon, and NTT Data, with closing scheduled for March 27, 2025. SMFG will retain a 4.99% stake post-acquisition. • Combined group revenue is expected to reach approximately 4.1 billion yen (a 1.6x increase from ELEMENTS' standalone current revenue), combining ELEMENTS' 2.545 billion yen and Polarify's 1.56 billion yen annual revenue. Polarify will contribute two quarters of revenue to FY2025, with full-year contribution starting from FY2026. • Combined group will have over 550 client companies and 120 million cumulative verification cases, covering major Japanese banks, 6 of the top 10 credit card issuers, all three major mobile carriers, and leading securities and crypto asset exchanges. • Post-closing integration (PMI) will prioritize uninterrupted service for Polarify's existing clients, with Polarify remaining as a subsidiary continuing to offer Polarify eKYC. Management expects 1 billion yen in incremental revenue and 250 million to 500 million yen in incremental profit from cross-selling over two years. Cost optimization including switching Polarify's third-party facial recognition engine to ELEMENTS' in-house LIQUID eKYC engine is expected to deliver total profit improvement of 750 million to 1 billion yen over two years.

• Operational Updates • Full-year headcount increased by 17 full-time employees, hitting the planned hiring target after missing the target in the prior year. The balance sheet improved, with shareholders' equity reaching 2.1 billion yen, net assets at 2.61 billion yen, and equity ratio improving to 42.7%. • The company updated its corporate mission to "BEYOND SCIENCE FICTION", reflecting its goal of building new essential social infrastructure for digital identity that does not yet exist today, centered on authentication technology.

1. Personal Authentication Solutions (core segment): Q4 FY2024 revenue grew 29% YoY, full-year revenue reached 2.509 billion yen, representing 98.6% of total full-year company revenue of 2.545 billion yen. The segment achieved a 43% CAGR, with 278 client companies (35% YoY growth) and 60 million cumulative verification cases as of January 2025. Gross profit for the segment was 2.183 billion yen (46% YoY growth), with a gross margin of 85.8%, an 8.5 percentage point improvement YoY. No other separate product segments are disclosed with individual financial performance in the transcript.

• For FY2025 (November 2025 period), management expects an operating loss due to the Polarify acquisition, but commits to returning to full-year operating profitability one year after acquisition (FY2026) and achieving record profit within two years post-acquisition.
• Full consolidated guidance including Polarify's contribution is currently under review and will be disclosed at a later date.
• Management expects cumulative verification cases for ELEMENTS' core eKYC business to accelerate further and grow rapidly by July 2025, following reaching the 60 million milestone in January 2025.

• The pilot project for self-service gas station authentication is dependent on pending Japanese legal amendments, which creates timing uncertainty for commercial launch.
• Integration of Polarify carries execution risk, though management expresses confidence in delivering the targeted profit improvements based on its past track record and due diligence findings.
• Growing fraud threats including deepfake document and identity forgery, passkey linking vulnerabilities, and modern fraud schemes like SNS-based loan scams require ongoing investment in new anti-fraud solutions, though the company has developed patent-protected solutions to address these risks.

No Q&A section is included in the provided transcript.