ELEMENTS,Inc. Q3 FY2025 earnings call

• Capital Raising and Capital Allocation

  • Completed an overseas public offering of 240 million new shares (9.5% of outstanding shares) in October 2025, raising approximately 1.7 billion yen
  • Allocates up to 390 million yen to the LIQUID Series personal authentication business for R&D and operating expenses, and up to 1.3 billion yen to ELEMENTS CLOUD for operating and capital expenditures for data center construction
  • Post-offering estimated equity ratio is expected to improve to ~40%, returning to near pre-M&A levels

• Personal Authentication Solution Business Updates

  • Cumulative contracted customers grew by 32 companies from the previous quarter to 624 total, with strong growth in new customers from web services (especially employment matching and recruitment platforms) and healthy upselling from existing customers
  • Existing customers including KDDI, NTT Docomo, and LINE Securities have rolled out IC chip reading identity verification services, and migration from photo-based eKYC to IC chip reading is progressing on schedule, aligned with the 2027 legal mandate for financial institutions
  • Launched a full multi-factor authentication solution suite combining LIQUID eKYC (onboarding identity verification), LIQUID Auth (passwordless passkey/FIDO authentication), and LIQUID Auth Face (facial verification for initial smartphone binding). The solution addresses critical vulnerabilities in common one-time passcode and emoji-based authentication, and eliminates initial setup hijacking risks via in-house facial recognition technology, with zero reported spoofing incidents at adopting clients
  • A major online securities firm has already adopted the solution, scheduled for launch in fall 2025, with multiple additional financial institutions and online banks confirmed for adoption and strong inbound inquiry volume

• Polarify Post-Merger Integration (PMI)

  • Achieved 50% cost reduction in communication costs versus pre-acquisition levels, ahead of original schedule
  • Headcount optimization is also progressing faster than planned, with further cost improvements expected
  • Polarify previously relied on high-cost third-party facial recognition engines; the company is transitioning all usage to its in-house engine (which requires no licensing fees) on schedule as contracts expire, driving significant future cost reductions

• ELEMENTS CLOUD Business Updates

  • Subsidiary ELEMENTS CLOUD Shikoku was selected as one of 8 implementing operators for Japan's Ministry of Internal Affairs and Communications Digital Infrastructure Development Fund Subsidy Program
  • Will build a GPU-centric AI computing infrastructure in Takamatsu, Kagawa Prefecture, offering managed GPU cloud services leveraging the company's in-house AI and cost efficiency expertise
  • Strategic goals include: supporting domestic economic security by enabling Japanese companies to run AI training on closed sensitive data with domestic infrastructure, driving regional revitalization in rural areas, and leveraging existing cost optimization know-how to deliver efficient, secure AI computing resources to external clients
  • Any required capital beyond the 1.3 billion yen allocation and government subsidy will be raised via independent external financing for the data center project, including outside investors, partners, financial institutions, and additional regional government grants

The company operates two core segments: Personal Authentication Solutions (LIQUID Series) and ELEMENTS CLOUD GPU cloud business. For the third quarter, consolidated total revenue hit a record 1.03 billion yen, a 59% increase year-over-year driven by the consolidation of Polarify and growing demand for personal authentication. Cumulative nine-month revenue is 2.721 billion yen, up 47% year-over-year. Gross profit for the quarter is 754 million yen, up 39% year-over-year; consolidated gross margin is 73.2%, down 10 percentage points from the pre-consolidation level due to Polarify's inclusion, while the standalone gross margin for ELEMENTS' original personal authentication business is 86.2%, up from 83.5% year-over-year, maintaining a high profit margin level. Selling, general and administrative (SG&A) expenses for the quarter are 907 million yen, up 57% year-over-year; excluding Polarify and M&A-related one-time costs, SG&A is 639 million yen, a slight year-over-year decrease, showing well-controlled core expenses. Consolidated EBITDA is a negative 20 million yen, and operating loss is 153 million yen; excluding Polarify M&A-related costs, EBITDA is positive 5 million yen (maintaining a small black ink), and operating loss narrows to 100 million yen. Cumulative nine-month EBITDA is 219 million yen, with a total operating loss of 136 million yen and a net loss attributable to parent shareholders of 622 million yen.

• The company reaffirms its full-year 2025 revised earnings guidance issued in July 2025, with no upward or downward revision
  • Year-to-date revenue and gross profit are at ~70% of the full-year target, which is consistent with historical seasonality where Q4 typically delivers 10-20% higher authentication volume than Q3, so full-year results are expected to meet guidance
  • Full-year EBITDA and operating income are tracking in line with plan; cumulative YTD EBITDA is 219 million yen, which falls within the revised guidance range, and the operating loss is already tracking better (narrower) than the original forecasted deficit

• The recent large-scale impersonation fraud incident in the Japanese securities industry (estimated 50-60 billion yen in total industry losses) highlights the ongoing systemic risk of identity theft and account hijacking across financial and web services, which creates both market demand for the company's solutions but also increases regulatory and reputational pressure on the entire authentication industry
  • The ELEMENTS CLOUD data center project requires additional external financing beyond the company's existing capital allocation, which carries financing risk related to securing external funding on acceptable terms
  • Polarify's consolidation created temporary downward pressure on consolidated gross margins and near-term one-time M&A costs that led to quarterly consolidated operating losses, though these effects are expected to fade as cost cutting and integration progress

No question and answer section was included in the provided earnings call transcript.