ELEMENTS,Inc. Q4 FY2025 earnings call

• Business Acquisition & Post-Merger Integration (PMI) Progress

  • Completed the acquisition of Daon's equity stake in Polarify and reached a business partnership to integrate Daon's passkey solution into ELEMENTS' LIQUID Auth service, which was launched in 2025 fiscal year.
  • PMI progress is ahead of schedule: communication costs have already been reduced by 50% compared to the pre-acquisition average, with further cuts expected after switching the face authentication engine. The company achieved Polarify's first monthly operating profit surplus since its founding in October 2025.
  • Switching Polarify eKYC's face authentication engine from Daon to ELEMENTS' own LIQUID eKYC will be completed after the Daon license expires in September 2026, which is expected to significantly reduce costs and improve gross profit margin.
  • LIQUID Auth passkey service has received strong market demand following industry-wide promotion of passkey adoption after large-scale impersonation fraud in the Japanese securities industry, with contract negotiations and implementations progressing steadily.

• New Product Investment & Development

  • LIQUID Auth: Continued investment in passkey-related product development, and the product is now in the early revenue collection stage.
  • AiQ Permission: An AI-powered automated refueling authorization solution for self-service gas stations. The expected ministerial ordinance amendment to allow automated authorization was confirmed in December 2025, and product development is progressing steadily, with revenue generation expected to start in 2026 fiscal year.
  • ELEMENTS CLOUD: Continued product investment in GPU-accelerated cloud data center business, leveraging the company's accumulated AI and GPU efficiency expertise.
  • Human resource investment: Full-time headcount increased by 14 compared to the end of the previous period, supporting further revenue growth.

• Strategic Partnership

  • Launched a joint project with the National Institute of Advanced Industrial Science and Technology (AIST), a subsidiary of Japan's Ministry of Economy, Trade and Industry, to develop benchmark sets for efficient GPU utilization across different AI use cases including generative AI.
  • Project results will be publicly released to benefit the broader Japanese industry, and accumulated know-how will be fed back to improve the profitability and differentiation of ELEMENTS' own authentication business and ELEMENTS CLOUD.

• Corporate Restructuring

  • Decided to dissolve and liquidate Adomedica based on a "focus and selection" strategy, driven by Adomedica's deteriorating business environment and the need to reallocate resources to the fast-growing personal authentication business.
  • The dissolution resulted in a net positive impact of 46 million yen on shareholders' equity after offsetting a 152 million yen special loss from asset impairment and a 116 million yen special gain from acquisition price adjustment.

• Financial Performance Overview

  • Q4 2025: Revenue reached 1.173 billion yen, up 70% year-over-year, a new record high quarterly revenue. Gross margin was 74.9% (down due to Polarify consolidation; 86.4% excluding Polarify consolidation impact, which represents a slight year-over-year improvement). Selling, general and administrative (SG&A) expense was 958 million yen. EBITDA was 51 million yen (positive); operating loss was 78 million yen. Net loss attributable to parent company shareholders was 79 million yen due to Adomedica dissolution impact.
  • Full year 2025: Total revenue reached 3.895 billion yen, up 53% year-over-year, far exceeding the medium-term target CAGR of 30%. Gross margin was 77.5% (down due to Polarify consolidation; 83.9% excluding Polarify consolidation impact, flat year-over-year). SG&A expense was 3.233 billion yen, up 1.1 billion yen year-over-year, while SG&A to revenue ratio remained stable at 83.0%, almost flat with the previous year's 83.5%. EBITDA was 270 million yen; operating loss was 215 million yen. Excluding special factors such as Polarify M&A-related costs, one-time expenses and increased share-based compensation, operating profit was 34 million yen (positive), flat year-over-year. Net loss attributable to parent company shareholders was 700 million yen due to special losses related to Adomedica. The balance sheet remains healthy: shareholders' equity is approximately 3.201 billion yen, net assets are 3.585 billion yen, and equity ratio is 44.2%.

1. Personal Authentication Solution: Full year revenue is 3.853 billion yen, accounting for 98.9% of total full-year company revenue, with a 46% CAGR growth achieved. Combined cumulative authentication volume from Liquid and Polarify exceeded 150 million times, and cumulative contracted companies increased by 31 from the previous quarter to 655 companies. 2. Other business: The remaining 1.1% of full-year revenue comes from new business initiatives including AiQ Permission and ELEMENTS CLOUD, which are still in the investment and growth stage.

• Positioning of 2026 November fiscal year: It remains a run-up period to maximize medium and long-term profit growth, with two core strategic goals: expanding high-value-added solutions in the LIQUID series and completing Polarify PMI.
• Full year 2026 fiscal year financial guidance:
  • Total company revenue: 5.1 billion yen to 5.3 billion yen, representing 30% to 36% year-over-year growth
  • Personal authentication solution revenue: 5.075 billion yen to 5.275 billion yen
  • EBITDA: 800 million yen to 1 billion yen, representing approximately 200% year-over-year growth
  • Operating profit: Targeting a full year break-even or better, with a guidance range of 0 to 200 million yen (full year profit is guaranteed to be positive even including all special factors such as goodwill amortization, one-time expenses and share-based compensation)
  • SG&A expense growth is targeted to be controlled below 20% year-over-year
• Quarterly operating profit profile expectation:
  • Q1 2026: Expected to improve compared to the previous quarter, despite small revenue scale due to seasonality, driven by Polarify profit improvement and the reduction of one-time expenses
  • Q2 and Q3 2026: Expected to see temporary profit deterioration due to planned active investment
  • Q4 2026: Expected to see significant profit improvement after investment activities are completed, combined with seasonality and revenue growth
  • Full year result is expected to land within the 0 to 200 million yen operating profit range, with the outcome more likely to be close to the upper bound of the range
• Medium-term target for 2027 November fiscal year is maintained at: revenue of 6.0 billion yen to 6.5 billion yen, operating margin of 15%, EBITDA margin of 25%, and 30%+ average annual revenue growth over the 5 years after listing. The company is currently on track to hit this medium-term target.

The provided transcript does not contain explicit discussion of additional operational or financial risks beyond the temporary profit impact from the Polarify acquisition and PMI process that has already been disclosed. The company has achieved the key milestone of monthly profit at Polarify ahead of schedule, with cost reduction and business integration progressing as expected.

The provided transcript does not include a question and answer section.