ELEMENTS,Inc. Q2 FY2025 earnings call

Core Financial Performance

• Q2 consolidated revenue reached a record 974 million yen (excluding Polarify revenue, which will be consolidated starting from Q3), up 26% year-over-year. Cumulative H1 revenue grew 40% year-over-year (excluding Polarify), and achieved operating profit of 17 million yen, maintaining a half-year operating surplus.
• Q2 EBITDA was 148 million yen surplus, operating profit was 31 million yen surplus. The net loss attributable to parent company shareholders was 399 million yen due to the Admedika impairment charge.
• Excluding 73 million yen in one-time Polarify post-acquisition integration (PMI) costs, adjusted EBITDA was 221 million yen (up 15 million yen year-over-year), adjusted operating profit was over 100 million yen, and adjusted selling, general and administrative (SG&A) expenses were flat quarter-over-quarter at 646 million yen.

Personal Authentication Business Growth

• Core KPI performance: Combined quarterly authentication volume for LIQUID eKYC and Polarify eKYC exceeded 10 million times, cumulative contracted customers reached 592 companies, an increase of 24 from the previous quarter.
• Usage and customer expansion: The company's authentication services have expanded from legal-mandated use cases to non-legal use cases, from online to offline scenarios. Customer base has expanded beyond initial financial, telecom and secondhand dealer segments to include EC, C2C matching/sharing services, age verification, construction, manufacturing, healthcare and local governments, with non-legal customer adoption growing 7.5x over 3.5 years, outpacing growth of legal-mandated customers.
• High-value service expansion: LIQUID Auth, the company's continuous authentication service, has seen its authentication volume grow 26x over 18 months. Growth is accelerating due to rising industry demand for robust authentication following recent large-scale securities account impersonation fraud incidents. The company's combined solution (LIQUID eKYC for initial binding + passkey/FIDO-based LIQUID Auth for ongoing authentication) eliminates common attack vectors (password phishing, server-side credential theft, binding hijacking) and has received strong new inquiries from major financial institutions.

1. Personal Authentication Solutions Segment: Q2 revenue was 974 million yen (accounting for 100% of consolidated revenue, as Polarify revenue will not be consolidated until Q3), representing a 26% year-over-year increase. Cumulative H1 revenue increased 40% year-over-year excluding Polarify revenue. The segment hit a new all-time high for quarterly revenue driven by strong performance of LIQUID eKYC and revenue contribution from the digital ID wallet project for local governments. Q2 EBITDA for the segment (excluding Polarify PMI costs) was 221 million yen, 15 million yen higher year-over-year, with an EBITDA margin of 22.7% approaching the company's 25% long-term target. Operating profit (excluding PMI costs) exceeded 100 million yen at 103 million yen, marking a return to positive operating profit after four quarters of losses.
2. Admedika (Healthcare Segment): The company wrote down a total of 659 million yen of goodwill and customer-related assets for Admedika, as the previously expected future revenue and synergies in the healthcare sector are no longer achievable. This segment is being de-prioritized following the company's strategic shift.

• Full-year revenue guidance was revised upward from the prior range of 3.815 billion yen to 4.0 billion yen, up from the previous range of 3.73 billion yen to 3.9 billion yen, reflecting stronger-than-expected near-term business performance.
• Full-year EBITDA is guided in a range of 150 million yen to 275 million yen, with continued profitability expected as in the prior year. A full-year operating loss is still expected as initially guided, due to Polarify PMI costs and the timing of Polarify revenue consolidation.
• Polarify's profit improvement is progressing faster than initially expected three months after acquisition, which management views as a positive development.
• The company reaffirmed its unchanged medium-term financial target for the 2027 November fiscal period: revenue of 6.0 billion yen to 6.5 billion yen, EBITDA margin of 25%, and operating profit margin of 15%. Management stated that the strategic shift to focus on personal authentication actually increases the probability of hitting these targets, with no negative impact from the Admedika impairment.

• The company recorded a 659 million yen total impairment charge on Admedika's goodwill and customer-related intangible assets, after concluding that previously expected future revenue and synergies in the healthcare sector are no longer achievable, leading to a large increase in the expected full-year net loss.
• While the impairment charge has a one-time negative impact on current period net income, it has no impact on the company's medium-term financial targets.

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