Heroz, Inc. · TSE:4382
Heroz — Q2 FY04/2024 Earnings Presentation
68 slides from Heroz's earnings presentation, Dec 8, 2023
Slide 1: Presentation Material for FY04/2024 Q2 Financial Results
Presentation Material for FY04/2024 Q2 Financial Results December 8,2023 HEROZ, Inc. ｜4382｜ Notice This document is an excerpt translation of the original Japanese document and is only for reference purposes. In the event of any discrepancy between this translated document and the original Japanese
Slide 2: Contents
Contents 1. Financial Highlights 2. FY04/2024 Second Quarter Performance (Consolidated) 3. Acquisition of shares of A.I. Squared,Inc. 4. Initiatives in each business segment 5. Frequently Asked Questions and Answers 6. HEROZ Group Structure 7. Reference Materials © 2023 HEROZ Co., ltd. 2
Slide 3: Financial Highlights
01 Financial Highlights © 2023 HEROZ Co., ltd. 3
Slide 4: Financial Highlights
※ Consolidated financial statements are disclosed from the third quarter of the fiscal year ending April 30, 2023. Please note that YoY comparisons are based on consolidated figures for the current quarter and nonconsolidated Financial Highlights (non-consolidated) figures for the same period last y
Slide 5: FY04/2024 Second Quarter Performance (Consolidated)
02 FY04/2024 Second Quarter Performance (Consolidated) © 2023 HEROZ Co., ltd. 5
Slide 6: Our Key Performance Indicator: EBITDA
Our Key Performance Indicator ◼ We have set EBITDA, a measure of cash generation, as a key performance indicator and aim to sustainably increase corporate and share value through EBITDA growth. Performance Indicators for ◼ Formula: Operating profit + amortization and other non-cash expenses (amortiz
Slide 7: Performance Summary (May 2023-October 2023)
Performance Summary (May 2023-October 2023) HEROZ Group Consolidated (FY04/2024 Q2) Net Sales EBITDA Operating Profit 2,335 mil yen 449 mil yen 252 mil yen YoY ＋205.2% YoY ＋374.3% YoY ＋572.1% AI SaaS KPI AI Security ARR Recurring Revenue Ratio Recurring churn rate 2,958 mil yen 62.4% 0.6% YoY ＋375.9
Slide 8: Performance Overview (May 2023-October 2023)
Performance Overview (May 2023-October 2023) ◼ Net sales increased significantly due to the effect of M&A and growth in both BtoB and BtoC businesses. ◼ EBITDA and Operating Profit are on track to meet the full-year forecasts, at 56.2% and 63.0%, respectively. FY04/2023 FY04/2024 Earnings Forecast P
Slide 9: Key Performance KPIs (by Quarter)
Key Performance KPIs (by Quarter) Net Sales EBITDA (Units: JPY millions) (Units: JPY millions) 300 1,400 279 1,100 1,217 258 256 1,200 1,118 250 Mainly due to 1,114 increased sales in HEROZ's BtoB 1,000 ※ business, profit growth was achieved 200 while continuing to invest in the 170 800 business. 15
Slide 10: Recurring Revenue increased significantly
Recurring Revenue increased significantly ◼ Recurring sales continued to increase in the second quarter, although the ratio of recurring sales declined slightly due to the impact of a significant increase in solution-based sales. ◼ Expect to see a full-scale increase in recurring type sales as paid
Slide 11: ARR is 2,958 mil yen
ARR for the entire group was approximately 2.9 billion yen, the best earnings ever (Units: JPY millions) ARR ARR grows significantly 3,500 3,000 2,872 2,898 2,958 375.9% YoY growth + 2,827 ARR is 2,958 mil yen 2,500 ◼ Recurring Revenue is the sum of BtoC and BtoB subscription revenue and BtoB 2,000
Slide 12: Recurring revenues are expected to continue to increase with product launches
Recurring revenues are expected to continue to increase With product launches Recurring revenue breakdown (by quarter) Details of revenues Future Outlook (Units: JPY millions) BtoB Recurring Contracts Multiple products to be launched HEROZ's BtoB and StrategIT, Inc. recorded Expect growth through Sa
Slide 13: Performance by Segments (May 2023-October 2023)
Performance by Segments (May 2023-October 2023) ■ AI/DX services significant growth due to M&A and organic growth ,also, EBITDA margin at 37.6%, high profitability ◼ AI Security service is deployed by VarioSecure and maintains high profitability with an EBITDA margin of 42.9%. FY04/2023 FY04/2024 Yo
Slide 14: AI/DX Services Segment
AI/DX Services Segment ◼ This segment includes BtoC, mainly Shogi Wars, BtoB, which handles AI Solution for customers, and SaaS implementation and SaaS-linked development business, which is being developed by StrategIT. ◼ In the second quarter of this fiscal year, sales increased significantly as a
Slide 15: AI/DX Services Segment: BtoB business significant increase in sales
AI/DX Services Segment BtoB business of HEROZ (non-consolidated) achieved a significant increase in sales HEROZ's BtoB business saw a significant increase in revenue due to an increase in the number of projects and inquiries as well as the acquisition of large-scale projects in response to increased
Slide 16: BtoC continues to grow around 10%
AI/DX Services Segment BtoC continues to grow around 10%, surpassing initial forecasts. BtoC business grew steadily due to the effects of increased attention to Shogi following Sota Fujii's first ever 8 championships victory, collaboration with the popular Shogi manga "Ban'ou ", and the release of "
Slide 17: AI Security service Segment
AI Security service Segment ◼ This segment is developing the business of implementing the HEROZ Group's AI into the security business developed by VarioSecure. FY04/2024 Recurring sales ratio is high at 87.2%. Q2 Actual （Units: JPY millions） Recurring Revenue Ratio ◼ Net sales generally progressed a
Slide 18: Steady progress in mainstay Managed Security services
AI Security Service Segment Steady progress in mainstay Managed Security services AI Security Service Segment ・ Sales of the mainstay Managed security Net sales (by Quarter) services grew steadily as the number of end- users increased. ・ Managed Security Service is an integrated Internet Security se
Slide 19: Managed Security Services steadily increased end-user numbers with low churn rates
AI Security Service Segment Managed Security Services steadily increased end-user numbers with low churn rates Managed Security Service Managed Security Service Churn Raito (by Quarter) Number of end users（by Quarter） 1.1% ・Steady increase 1.0% in the number of 0.9% users 0.9% 0.9% 0.8% ・Contributio
Slide 20: Balance Sheet (as of October 31, 2023)
Balance Sheet (as of October 31, 2023) ◼ The cash and deposits currently held by the Company will be gradually appropriated for investments to realize the Company's mid- to long- term growth strategy. ◼ With the grouping of VarioSecure Inc. and StrategIT Inc, there is a goodwill balance of 2.2 billi
Slide 21: Acquisition of shares of A.I. Squared, Inc.
03 Acquisition of shares of A.I. Squared,Inc. © 2023 HEROZ Co., ltd. 21
Slide 22: About A.I. Squared, Inc.
About A.I. Squared, Inc. Company name A.I. Squared, Inc. Developed December, 2015 Capital stock 90 million yen Number of Employees 21 Provides AI solutions in the contact center domain, Performance Net Sales:90 million yen including automatic response systems, automatic （FY06/2024 Operating Profit:-
Slide 23: Overview of A.I. Squared Inc.'s Services
Overview of A.I. Squared Inc.’s Services Developing business automation solutions in the contact center domain, including automatic response systems and automatic summarization and classification systems, by applying machine learning and deep running to natural language processing. Voice Recognition
Slide 24: Main Customers
Main Customers Contributing to improving the productivity of contact center operations for various customers through its main services, the “Quick QA” automated response system and the “Quick Summary” automated summarization and classification system. © 2023 HEROZ Co., ltd. 24
Slide 25: A.I. Squared, Inc.'s Performance Trends
A.I. Squared, Inc.’s Performance Trends While we have continued to invest in growth, we plan to return to profitability this fiscal year by returning to a growth path and controlling costs. Recurring revenue account for more than 80% of total sales. A.I. Squared, Inc.’s Performance Trends Sales are
Slide 26: Our aim in acquiring the shares in Company A
Our aim in acquiring the shares in Company A ◼ Strengthening our position as a total AI solution partner ◼ Aiming to capture the contact center market, a promising market for the introduction of generative AI Social Implementation of AI Domain Knowledge for Introduction Know-how Contact Center Const
Slide 27: Our understanding of the contact center market
Our understanding of the contact center market ◼ BPO market is expected to maintain growth at a CAGR of 5%, but high turnover and recruitment difficulties remain major challenges ◼ Fundamental reform through technology is inevitable Trends in Contact Center Market Size （Units :JPY trillions） Challen
Slide 28: Expectations for Generative AI in Contact Centers
Expectations for Generative AI in Contact Centers ◼ Contact centers are one of the most promising markets for the adoption of ChatGPT and other generative AI ◼ We are also promoting PoC with our partners Use of Generative AI in Call Centers HEROZ’s Initiative すでに活用している Already in use 活用を検討中 Consider
Slide 29: Overall picture of contact center operations and the tasks covered by the product
Overall picture of contact center operations and the tasks covered by the product ◼ The combined use of our company and AI-Square's products will expand the scope of business covered and enable a wider range of support. Operation Management Received Customer Information Problem Record Create Ongoing
Slide 30: A Case Study of Advanced Customer Success Operations for Shogi Wars
A Case Study of Advanced Customer Success Operations for Shogi Wars ◼ As an example, in the area of FAQ creation and CS operations, the company has a track record of improving the efficiency and sophistication of Shogi Wars' inquiry response. Issue Effect ✓ Numerous inquiries requiring expertise wer
Slide 31: Post-merger synergy creation plan
Post-merger synergy creation plan ◼ Aiming to create and expand the market for contact center products by leveraging the strengths of both companies, starting from the expansion of sales opportunities through sales collaboration. Step 1 Step 2 Step 3 Step 4… ◼ Expanding the scope of ◼ As a solution
Slide 32: Initiatives in each business segment
04 Initiatives in each business segment © 2023 HEROZ Co., ltd. 32
Slide 33: Group Business Structure
Group Business Structure ◼ We have two businesses: AI/DX business and AI Security business. ※1 MAU：Monthly Active User ※2 MPU：Monthly Paid User ◼ A.I. Squared, Inc. will be classified as an AI/DX business ※3 ARPPU：Average Revenue Per Paid User AI/DX Services AI Security Segment BtoC BtoB Services Bu
Slide 34: Initiatives in AI/DX Services
Initiatives in AI/DX Services ◼ Our dedicated LLM group is now offering a beta version of “HEROZ ASK” to enterprise companies, which announced its rebranding in September. Continuing to adjust the service with a view to making it a paid service after the first of the year. ◼ “Shogi Wars" has seen a
Slide 35: From Digital Transformation (DX) to AI Transformation (AIX)
From Digital Transformation (DX) to AI Transformation（AIX） We have been helping companies DX in their core operations, but the asymptotic process of digitization was inevitable Going forward, we will support discontinuous change by maximizing the power of the Large Language Model (LLM). AI Transform
Slide 36: LLM Product HEROZ ASK β version Release and Future Roadmap
LLM Product “HEROZ ASK” β version Release and Future Roadmap ◼ Our LLM Gr is currently promoting research activities for product development and future commercialization using generative AI. ◼ The β version of "HEROZ ASK for Enterprise" is now available for enterprise companies, and approximately 20
Slide 37: Classification of LLM services and our positioning
The classification of LLM services as seen by HEROZ and our positioning. The mainstream service in the current market is the construction service using Azure OpenAI. We looking ahead to future trends, offers customization to meet the individual needs of each company at a realistic cost using LLM. •
Slide 38: HEROZ ASK Service Overview
“HEROZ ASK" Service Overview ◼ Now offering a closed β version of "AI Assistant" SaaS service for enterprises. ◼ Scheduled to be paid from the beginning of the year. ※「ASK = Always Seek Knowledge」 Features of “HEROZ ASK” Capable of loading in-house data Flexible access control High security level Us
Slide 39: Case Study: Regulatory Search in the Construction Industry
Case Study: Regulatory Search in the Construction Industry By customizing GPT, we were able to provide more concise and accurate responses, and our answers to home building exam questions improved to a passing level. Currently, we plan to continue customization and bring it up to the level of passin
Slide 40: Launched Kishin Learning, a Shogi learning service
Launched "Kishin Learning," a Shogi learning service. ◼ On October 11, 2023, we started providing the "Kishin Learning" service as a learning content within "Shogi Wars". ◼ Kishin Learning" is an e-learning service for Shogi beginners to kyu-kyu ranks, aiming for promotion to Shodan. You can enjoy t
Slide 41: Initiatives in AI Security Services
Initiatives in AI Security Services ◼ Provides services to make corporate Internet use safe and comfortable. Boasts the top share of the firewall/UTM operation and monitoring service market in Japan for small- and medium-sized businesses, with a churn rate that remains low at less than 1%. Main Achi
Slide 42: Topics① Launched vulnerability assessment service
Topics① Launched vulnerability assessment service ◼ Strengthened one-stop corporate security support services with the launch of vulnerability assessment services. Diagnose and report on vulnerabilities in customer networks and applications. Flexible support for security enhancements based on vulner
Slide 43: Topics② AI SOC Project
Topics ② AI SOC Project ◼ Promoting a project to streamline network security operation and management tasks using HEROZ's AI technology. “AI SOC“ project • Automation of operational tasks and systemization of highly technical tasks with AI. • Expected benefits include reduced costs and improved serv
Slide 44: Topics③ Strengthen new sales structure
Topics③ Strengthen new sales structure different from existing sales network ◼ Promoting the establishment of a strong direct sales structure based on the medium-term management plan policy. Various KPIs are showing significant improvement. Initiatives and effects of each sales measure ◼ Marketing M
Slide 45: Strategic Policy: Future IDaaS Business - Zero-Trust
Strategic Policy: Future IDaaS Business - Zero-Trust Development for Small and Mid-Size Companies ◼ From cloud computing to office environments, we will continue to provide security services suited to the scale of small and midsize companies. Ensure security and reduce operation and maintenance labo
Slide 46: Frequently Asked Questions and Answers
05 Frequently Asked Questions and Answers © 2023 HEROZ Co., ltd. 46
Slide 47: Frequently Asked Questions and Answers
Frequently Asked Questions and Answers ◼ Some of the frequently asked questions and answers we receive in relation to our most recent financial results announcement. Q1. Evaluation of HEROZ’s BtoB growth and future prospects ⇒With regard to BtoB sales as of the 1st quarter of the current fiscal year
Slide 48: HEROZ Group Structure
06 HEROZ Group Structure © 2023 HEROZ Co., ltd. 48
Slide 49: Company Overview
Company Overview Name HEROZ, Inc. ▍Director and Officer PMO Tamachi , 5-31-17 Shiba, Minato -k u, Location Tok yo Representative Director CEO Takahiro Hayashi Established April 2009 Graduated from Waseda University Joined NEC as a technology engineer Representatives Tak ahiro Hayashi/Tomohiro Tak ah
Slide 50: Global Leader in Mind Game AI
Global Leader in Mind Game AI Chess AI Shogi AI Go AI Deep Blue (’97) defeated a AI developed by our engineers who Google acquired Deep Mind (’14) professional Chess player was member of HEROZ at that time AlphaGo, developed by Deep Mind, defeated a professional Shogi defeated a professional Go play
Slide 51: Our Vision
Our Vision Creating the future through artificial intelligence (AI) revolutions © 2023 HEROZ Co., ltd. 51
Slide 52: The AI revolution we started in the chess world
The AI revolution we started in the chess world Shogi Wars, our core business, is not just a Shogi application, but a Gaming Platform that has contributed greatly to the revolution of the Shogi world itself through cutting-edge AI technology. ➢7 mil users ➢500 thousands MAU ➢Played a total of over 8
Slide 53: The Importance of the AI Revolution we have caused in the Shogi World
The Importance of the "AI Revolution" we have caused in the Shogi World To advance society by properly implementing innovative technologies in the world. A Revolution in A Revolution in A Revolution in Learning sense of values entertainment value ➢ Shogi is taught steadily by a ➢ Shogi is warfare. B
Slide 54: Group Structure
Group Structure ◼ With the consolidation of VarioSecure Inc. and StrategIT Inc. as consolidated subsidiaries, we have shifted to the group management structure. ◼ Owns approximately 43% of the company ◼ Owns approximately 91% of the company ◼ Appoints majority of directors ◼ Dispatches 2 directors ◼
Slide 55: Reference Materials
07 Reference Materials © 2023 HEROZ Co., ltd. 55
Slide 56: HEROZ Group Strategy
HEROZ Group Strategy ◼ Based on the knowledge gained from our experience in solving individual customer issues, we will aim for SaaS-type business management driven by intelligence such as our data utilization and AI in the future.（HEROZ 2.0） HEROZ 1.0 HEROZ 2.0 Individual issue resolution More vers
Slide 57: Overall Group Strategy: AI SaaS
Overall Group Strategy ：AI SaaS ◼ We will evolve the products of our company and group companies into more intelligent data-driven software by making the most of our accumulated expertise in advanced AI implementation and our strength as an engineering group. Pillars of Business AI SaaS Products Cus
Slide 58: Aspect of the SaaS market and our views of the major trends
Aspect of the SaaS market and our views of the major trends ◼ While the SaaS market in Japan is expected to grow steadily, there is still room for further penetration. ◼ To reach the approximately 10 trillions yen potential market, it is necessary to grasp the trends in the Japanese SaaS market. Our
Slide 59: Issue hypothesis
Our perception of the challenges of implementing SaaS By resolving trends that could be barriers to SaaS adoption through technology, we aim to materialize a latent market. Diversification of needs Integration with legacy systems Need for integrated management ◼ Rapid changes in the business environ
Slide 60: What we think AI SaaS should be like
What we think AI SaaS should be like We will support the provision of the ideal SaaS usage environment required by our clients by making full use of our accumulated know-how and technology. 顧客 HEROZ GROUP Automated and optimized CRM HR SaaS-to-SaaS collaboration Automated operations SaaS Big Data ac
Slide 61: Social implementation of AI with real-world capabilities to promote AIX
Social implementation of AI with "real-world capabilities" to promote AIX Accelerate your company's AI Transformation (AIX) by enhancing core operations with AI. Takenaka Toyo Engineering Corporation Corporation IRIS OHYAMA Inc.～ ～Spave Control System～ ~EPC Toughening System ~ Sales Forecast ～ AI to
Slide 62: Overview of VarioSecure Inc.
Overview of VarioSecure Inc. Name VarioSecure Inc. Established June 2001 capital 749 million yen Employees 84 Performance Sales revenue: 2,634 million yen (FY02/2023)(IFRS) Operating profit: 581 million yen Net income: 383 million yen Osaka Office Head Office Sumitomo Corporation Nishiki-cho Buildin
Slide 63: Toward the Realization of an AI Security Company
Toward the Realization of an AI Security Company Provide customers with new safety and security in the age of zero-trust through the power of AI by utilizing a variety of corporate data. Supporting Digital Transformation by supporting corporate safety and security from the ground up Automation of on
Slide 64: Providing services that make Internet use safe and comfortable
(Reference) Providing services that make Internet use safe and comfortable Service Category Managed Security Services Integration Services Installation support, operation and maintenance Service Form 24 hours/365 days, nationwide in Japan Equipment sales and construction Revenue Model Recurring type
Slide 65: VarioSecure's business model
(Reference) VarioSecure's business model ◼ Provided mainly as an adjunct to the Internet connection Collective offer Proposal and Sales agency agreement (OEM/Distributor) Sales Support Internet connection ＋ Security Security Services Sales Services Agent Cutomers (Japanese Companies) ￥ ￥ Usage fees
Slide 66: Overview of StrategIT Inc.
Overview of StrategIT Inc. Name StrategIT Inc. Establish July,2019 Capital 124 million yen Employees 25(excludes outsourcing) Location PMO Tamachi 7F, 5-31-17 Shiba, Minato-ku, Tokyo Our vision is to contribute to management improvement by integrating "Strategy" and "IT“ Buisiness SaaS Solution Impl
Slide 67: StrategIT's Business Overview
StrategIT’s Business Overview Develop various APIs (linked systems) for SaaS vendors to improve the convenience of SaaS, utilizing know-how gained through SaaS introduction consulting for BtoB. Business model to sell developed APIs to general companies through our SaaStainer (app store) １）Existing S
Slide 68: Notes
Notes ◼ The forward-looking statements contained in this material are based on information currently available to the Company, but are not guarantees of future performance and are subject to various risks and uncertainties. Actual results may differ from the forward-looking statements contained or d