Slide 1: Financial Results Briefing Material FY2021
Financial Results Briefing Material FY2021 (ended Dec 31, 2021) Neural Pocket Inc. February 10, 2022 Copyright © Neural Pocket Inc. All Rights Reserved. 1
Slide 2: Agenda
• Business overview and FY2022 Q4 highlights • Business progress per service domain • Mid-term business growth strategy Copyright © Neural Pocket Inc. All Rights Reserved. 2
Slide 3: Company mission
Company mission “Update the world for a better tomorrow” Copyright © Neural Pocket Inc. All Rights Reserved. 3
Slide 4: Our management team
Our management team Name Career overview Former Partner at McKinsey, working in 11 countries including Japan, Germany, and the U.S as CEO leader in IoT and AI field. Founded Neural Pocket in January 2018 with the goal of realizing the Roi Shigematsu digitization of the real world through AI. He hold
Slide 5: History of Neural Pocket
History of Neural Pocket We have been developing our core technology and deploying unique AI services in rapid succession since inception. 1st term 2nd term 3rd term 4th term 5th term (FY2018 ended Dec.) (FY2019 ended Dec.) (FY2020 ended Dec.) (FY2021 ending Dec.) (FY2022) Service related milestones
Slide 6: AI Smart City Revolution
Applying proprietary AI libraries to enable smart cities Neural Pocket provides digital services for physical spaces to enhance real world experiences through introducing intelligent AI cameras “AI Smart City Revolution” Copyright © Neural Pocket Inc. All Rights Reserved. 6
Slide 7: Smart City-related AI service market expected to reach 1T USD
Smart City-related AI service market expected to reach 1T USD The industrial market related to AI in general is expected as 87 trillion yen in Japan (2030). In addition, the Smart City market, is expected to be worth 100 trillion yen worldwide, with massive investments into the space. Collective AI
Slide 8: We develop proprietary AI-enabled image recognition technology
We develop proprietary AI-enabled image recognition technology Through the development of proprietary detection logic and generation of original training data, the company has a large number of compact, high-quality proprietary AI libraries adequate for installation in edge devices. Marketing Securi
Slide 9: Edge AI can overcome many issues traditional Cloud AI faces
Edge AI can overcome many issues traditional Cloud AI faces We have focusing on the development of "edge AI" which has many advantages over traditional cloud AI, namely low cost, low latency, low power consumption, and enhanced privacy protection. Cloud AI Edge AI Conventional approach Our approach
Slide 10: Technological evolution of AI and positioning of Edge AI
Technological evolution of AI and the positioning of “Edge AI” While AI, which has been attracting attention since 2012, has settled down, "edge AI" is still in its infancy and is expected to undergo further technological innovation and mass adoption. AI technology evolution and the implications for
Slide 11: Rapid expansion of Edge is expected
Rapid expansion of Edge is expected The growth of the edge data is expected to significantly outpace the growth of the cloud, with an annual growth rate of 69%. Edge vs Cloud share forecast *1*2 Growth forecast Through 2018 to 2025 Through 2018 to 2025 2025年 Edge 175ZB*3 CAGR*4 2018年 69% 33ZB*3 Edge
Slide 12: FY2021 Q4 key highlights
FY2021 Q4 key highlights Revenue growth continues maintaining high profit margins. In addition, we continue to construct the business’s foundation to further scale our business, including the consummation of our first M&A. Revenue growth Profitability (Gross profit) Employees*1 Net sales 1,010M JPY
Slide 13: FY2021 ended Dec. performance trajectory
FY2021 ended Dec. performance trajectory Achieved +32% growth annually, as we transition from a fee-based revenue model to a unit-based model. +32% (million JPY) 1,010 Net sales Operating profit 762 311 170 60 20 -133 FY2018 FY2019 FY2020 FY2021 ended Dec. ended Dec. ended Dec. ended Dec. Copyright
Slide 14: FY2021 results and difference from forecast
FY2021 ended Dec. results and difference from forecast Invested progressively to achieve further growth in FY2022. To accelerated growth in FY2022, forewent a portion of fee-based sales in Q4 withing the range of remaining in the black. FY2020 FY2021 FY2021 ended Dec. ended Dec. ended Dec. Increase
Slide 15: FY2021 results and YoY comparison
FY2021 ended Dec. results and YoY comparison Achieved steady revenue growth with high gross profit margins, as we transition away from a fee- based revenue model to a unit-based model. FY2020 FY2021 ended ended Increase Increase (million JPY) Dec. Dec. Amount Percentage Net sales 762 1,010 +247 +32.
Slide 16: Applying edge AI technology to 3 domains
Applying edge AI technology to 3 domains to create unique value We are enabling a more convenient society through applying our core edge AI technology to three service domains 3 service domains AI x Signage Media AI x Social Infrastructure DigiPark DigiFlow Digi- AI Media Solution + Services Core Se
Slide 17: Introduced divisionalized organization from Jan 2022
Introduced divisionalized organization effective from Jan 2022 Introduced org change starting Jan 2022 to allow for each of our three services, “AI media services” “Digi- solution services” “Lifestyle services” to pursue scale independently. We have also appointed 4 new executive officers as we intr
Slide 18: Revenue trajectory per service domain
Revenue trajectory per service domain Since inception, the company has achieved steady sales growth whilst promoting the development of various seed technology that constitute our 3 service domains. Through FY2021 we have selectively promoted activities to evolve these seed technologies into scalabl
Slide 19: Quarterly trajectory of gross profit and EBITDA
Quarterly trajectory of gross profit and EBITDA Promoting revenue growth whilst maintaining high gross profit margin and EBITDA margin. Going forward, we plan to prioritize sales growth while maintaining overall gross profit and EBITDA margins. Gross Profit EBITDA*1 (million JPY) (million JPY) Gross
Slide 20: Quarterly costs (COGS and SG&A)
Quarterly costs (COGS and SG&A) Approximately half of total costs are allocated to technology development and service development (personnel and R&D costs). 356 COGS One-time M&A costs Depreciation and amortization Others 235 Rent Subcontract fees 202 197 R&D 177 Labor 138 137 140 114 112 115 104 Q1
Slide 21: Public appearances at many public organization sponsored events
Public appearances at many public organization sponsored events Participation in events to promote our visibility and presence in the field of AI-enabled urban development. AI technology ▪ HONGO AI 2021 Judge ▪ Soft Bank World 2021 Presenter ▪ Japan Council of Shopping Centers Business conference ▪
Slide 22: List of member organizations
List of member organizations Leading AI smart city activities as an active member of various industry associations. Smart City related Ministry of Land, Infrastructure, Transport and Tourism Smart City Public-Private Partnership Platform Kamakura City Smart City Public Private Sector Research Associ
Slide 23: Trajectory of employee count
Trajectory of employee count*1: Continue to strengthen personnel to ensure sustainable growth Since inception, the organization has been steadily expanding with a focus on engineers. The ratio of engineers among the total workforce is around 70%, where we attract excellent AI talent globally. 31engi
Slide 24: Company group structure
Company group structure In Oct. we established a subsidiary, Neural Engineering Inc., and in Nov. we acquired 100% of the shares of Focus Channel Inc. to make it a wholly owned subsidiary, transforming Neural Pocket from a non-consolidated company to a group company. Consolidation of financial resul
Slide 25: Patent acquisition status
Patent acquisition status Strategically acquiring patents regarding core technologies to increase service defensibility. Also applied for international patents for particularly important technologies, in foreseeing overseas business development. Domestic Granted Domestic Pending Have been granted In
Slide 26: Agenda
• Business overview and FY2022 Q4 highlights • Business progress per service domain • AI Media Services • Digi-Solution Services • Lifestyle Services • Mid-term business growth strategy Copyright © Neural Pocket Inc. All Rights Reserved. 27
Slide 27: Progress for AI Media Services
Progress for AI Media Services After steadily growing the installation base for "AI Media Platform“ the business recently greatly progressed through the acquisition of Focus Channel Inc. in Nov. 2021. We are currently installing signages, aiming to become one of the largest digital signage media com
Slide 28: Market environment: Digital signage expects significant growth
Market environment: Digital signage expects significant growth Outdoor advertising (OOH advertising) is the third largest market after TV advertising, and within that, digital signage is a very attractive market, especially with significant growth expected in the future. Domestic advertising market
Slide 29: Huge existing potential for digital signage installation
Market environment: Huge existing potential for digital signage installation across various urban locations There is an inexhaustible list of potential locations for digital signages to be installed across the city. Growth is expected both through increase in share among existing OOH advertising*1 a
Slide 30: Characteristics of Neural Pocket's AI signage
Characteristics of Neural Pocket’s AI signage We developed AI signage equipped with (1) remote control and management functions for advertising and (2) effectiveness measurement functions that solve current issues in the outdoor advertising market. EdgeAICamera Large LCD Facility info display & ads
Slide 31: Remote content distribution and signage terminal management
Remote content distribution and signage terminal management Our in-house content management system (CMS) enables remote control of all signage terminals at once, ensuring smooth content distribution and stable operation. IoT signage operation at the world's highest level is achieved. Proprietary con
Slide 32: Measuring effectiveness of OOH advertising with AI cameras
Measuring the effectiveness of OOH advertising with AI cameras Edge processing makes it possible to analyze and measure the effectiveness of outdoor advertising while respecting privacy, and will enable marketing analysis at the level of Internet advertising. Visualization of AI viewing analysis adv
Slide 33: Digital signage units installed to date
Digital signage units installed to date In addition to the official service-in of existing digital signage operations starting Nov 2021, the consolidation of Focus Channel Inc. (FC) has led to an increase in instated units. 301 286 Newly installed 20 post service-in Installed by Focus Channel Inc. C
Slide 34: Full-scale entry into digital signage via Focus Channel acquisition
Full-scale entry into the digital signage business through the acquisition of Focus Channel Inc. Expanded signage installation to high-grade apartments in addition to previously installed commercial facilities and office buildings. Characteristics of apartment signages Total of 200+ buildings, resid
Slide 35: Creating significant business synergies within the group
Creating significant business synergies within the Neural Pocket group By combining the strengths of both Neural Pocket and Focus Channel, there are significant opportunities to create business synergies within the signage media domain, starting with high grade apartment signages. One and only in hi
Slide 36: Business scheme for mansion advertisement signages
Business scheme for mansion advertisement signages Today, being the media owner, we can take a more proactive role in managing the media, collaborating with advertising agencies, and expanding the business at an accelerated speed. Media side Advertiser side management companies associations, residen
Slide 37: One and only media. Accessing private high-end living spaces.
Medial Concept One and only media. Accessing private high-end living spaces. Copyright © FOCUS CHANNEL Inc. All Rights Reserved. 38
Slide 38: Media overview
Media overview Delivering content to residents of high-end urban apartments. Operating in 250+ high-end apartments in the Locations Household reach Population reach greater Tokyo area. 250 53,000 130K+ buildings households ※As of Feb 2022 Impression Outstanding reach regardless of current pandemic F
Slide 39: Media characteristics
Media characteristics Impression Frequency Targeting Stable audience Repeated appeal to all Placement of ads in high- reach regardless of residents by being located in grade buildings that don’t current pandemic the line of daily activities permit postings Measurable Reasonable Easy ad effectiveness
Slide 40: Location (Apartment list)
Location (Apartment list) The Tokyo Towers (Mid Tower) Urban Flats Shibaura (Esty Maison Shibaura) Esty Maison Oshima The Park Habio Shinagawa-Togoshi Royal Parks Hanakoganei The Tokyo Towers (Sea Tower) Esty Maison Azabu Nagasaka Comforia Toyosu Residia Higashi Shinagawa Price Hill Kachidoki The To
Slide 41: Audience demographics
Audience demographics Repeatedly reach out to fashion-conscious and highly motivated consumers who are active in business. Household incom 70% of residents with annual household income 2000万円以上〜 800万円未満 exceeding 10 million JPY. 7% 9% Since most of the condominiums are for families, 1500〜2000万円 20%
Slide 42: Media contents
Media contents In order to increase residents' viewing intentions, announcements from the apartment-side and content tailored to resident lifestyles are broadcasted alongside advertisements. Copyright © FOCUS CHANNEL Inc. All Rights Reserved. 43
Slide 43: Advertisement impact
Advertisement impact High brand lift effect, contributing to improved recognition and understanding of products and services Understanding of characteristics of services Cognitive change regarding advertising and products （％） （％） approx. 2.8 X approx. 3.7 X Total 64% Total 62% 17% 32% Total 23% Tota
Slide 44: Customer voice
Customer voice The targeting effect is significant and leads to much better results than via other advertising. We were able to deliver advertising that directly appealed to the target audience, and succeeded in developing our business. We have seen the effect of signage in attracting customers. We
Slide 45: Revenue drivers
Revenue drivers Revenues are based on advertising revenue, which can be broken down into revenue per signage, multiplied by the total number of signages installed for KPI management. AI Media Number Revenue Platform of per Biz Total signages signage Revenue installed • Main source of revenue • Numbe
Slide 46: Per signage annualized unit economics
Per signage annualized unit economics As for revenue per unit (= digital signage), there is an opportunity to increase sales. On the other hand, costs are relatively fixed, the profit ratio is expected to improve as sales per unit grows. Improvement in profitability at the unit level already achieve
Slide 47: Signage installation progress
Signage installation progress We aim to expand the business by installing 2,000 units in high-end apartments and office buildings, mainly in the Tokyo and Kansai area by the end of this year. In doing so, we will be creating one of the largest outdoor advertising media in Japan. 253 units 234 units
Slide 48: Agenda
• Business overview and FY2022 Q4 highlights • Business progress per service domain • AI Media Services • Digi-Solution Services • Lifestyle Services • Mid-term business growth strategy Copyright © Neural Pocket Inc. All Rights Reserved. 49
Slide 49: Progress for Digi-Solution Services
Progress for Digi-Solution Services “AI Digi Solutions” is expanding actual implementation in both the private and public sectors. We have also established a subsidiary, Neural Engineering Inc., to accelerate efforts for nationwide installation. 3 service domains AI x Signage Media AI x Social Infra
Slide 50: Overview of Digi-Solution key services
Overview of Digi-Solution 2 key services We offer a variety of AI detection functions under two product lines, DigiPark and DigiFlow. Setup is designed according to the site’s needs and provides solutions with stable quality. AI detection menu AI device offering (partial list) DigiPark Occupancy AI
Slide 51: Huge market for Digi-Solution Services across urban spaces
Market environment: There is a huge market for Digi-Solution Services to be adopted across urban spaces A huge market is identified for Digi-Solution Services across various location types, where the potential number of locations for further installation is enormous. Number of potential installation
Slide 52: Features of Digi Solution Services
Features of Digi Solution Services By taking advantage of the features of edge AI, it is possible to achieve high recognition accuracy at a low running cost while protecting privacy. AI recognition Privacy protection Running costs accuracy Analyzed camera images Only send data after AI On-the-fly pr
Slide 53: Parking management solution: DigiPark
Parking management solution: DigiPark With Digipark, customers can freely set up the parking spaces they want to detect with simple and intuitive operations on their side, and can monitor the usage of parking spaces in real time without complicated construction or operations. Real-time visualization
Slide 54: DigiPark use case at SMARK Isesaki
DigiPark :Use case at at “SMARK Isesaki (commercial facility)”, operated by Tokyo Tatemono In the use case at SMARK Isesaki, the results of the AI camera monitoring of full-occupancy are (1) freely viewable on the facility's website, and (2) smoothly guided by outdoor signage and full-occupancy ligh
Slide 55: DigiPark use case at Logicross Ebina
DigiPark : Use case at “Logicross Ebina (logistics facility)”, operated by Mitsubishi Estate In the use case of this system at Logicross Ebina, the status of truck berth usage and reception was visualized using security camera images, leading to smooth guidance and work instructions, which is useful
Slide 56: People Flow Analysis solution: DigiFlow
People Flow Analysis solution: DigiFlow With Digiflow, customers can freely set the area and content they want to be detected by simply operating the system intuitively and easily, and can use various functions such as human movement and intrusion detection in the designated area without complicated
Slide 57: DigiFlow case study in Kashiwanoha Smart City
DigiFlow :Case study of implementation in "Kashiwanoha Smart City" in collaboration with Mitsui Fudosan In the case of the installation in the Kashiwanoha Campus Station area, approximately 30 AI cameras have been installed in the district to provide services for monitoring and safety in the town, a
Slide 58: Utilizing Neural Engineering Inc. to accelerate installation
Business scheme: Utilizing Neural Engineering Inc. to accelerate installation and expansion Digi Solution Services often involve installation of equipment. We plan to expand the number of sites/ installation through utilizing our subsidiary, Neural Engineering Inc., and through collaboration with ou
Slide 59: Progress of cumulatively installed units
Progress of cumulatively installed units Digipark/Digiflow are both steadily increasing the number of units installed making progress towards our target of 150 units by the end of FY2022 Q1. 105 units 90 units 24 units 16 units FY2021 Q1 FY2021 Q2 FY2021 Q3 FY2021 Q4 Copyright © Neural Pocket Inc. A
Slide 60: Digi-Solution Services installed across many sites
Digi-Solution Services are being installed across many sites The introduction of AI solutions for both private and public sectors are progressing in many areas, and the use of AI solutions is expanding in actual facility management and urban development nationwide. New locations (14 new sites) Muror
Slide 61: RemoDesk supports a safe remote working environment
RemoDesk supports a safe and secure remote working environment Telecommuting solutions are still in high demand. Our solution is slowly picking up adoption at large corporations. Input camera option A Remote monitoring to ensure governance Examples of detectable events Internal camera Absence Spoofi
Slide 62: Agenda
• Business overview and FY2022 Q4 highlights • Business progress per service domain • AI Media Services • Digi-Solution Services • Lifestyle Services • Mid-term business growth strategy Copyright © Neural Pocket Inc. All Rights Reserved. 63
Slide 63: Progress for Lifestyle Services
Progress for Lifestyle Services Business has been steady for our fashion services. We will continue to refine each solution and work towards expanding customer adoption. 3 service domains AI x Signage Media AI x Social Infrastructure DigiPark DigiFlow Digi- AI Media Solution + Services Core Services
Slide 64: Developing DX services for apparel companies around AIMD
Developing DX related services for apparel companies around AIMD Starting with our fashion trend analysis service “AIMD”, and combining our e-commerce recommendation engine along with our in-store AI digital signages, we are enabling a new O2O*1 experience. Quantitatively visualizing Digital market
Slide 65: Agenda
• Business overview and FY2022 Q4 highlights • Business progress per service domain • Mid-term business growth strategy Copyright © Neural Pocket Inc. All Rights Reserved. 66
Slide 66: Our vision for business growth
Our vision for business growth We have pursued our business growth vision since being publicly listed. We are aiming to achieve accelerated scaling of business starting from this fiscal year Self-propelling sales • Packaging of AI services for business scaling growth in beyond FY2022 collaboration w
Slide 67: Revisiting management policy from FY2021
Revisiting management policy from FY2021 For FY2021, business is being promoted with focus on prioritizing the deepening of the business model and the completion of services versus short-term sales growth. As a result we are establishing a system aimed towards the expansion of sales for generalized
Slide 68: Evolution of our business model
Evolution of our business model Promoted a strong shift away from fee-based revenues to unit-based revenues through FY2021. Accelerating the provision of improved AI services through direct contact with customers' needs as unit-based services grow. Business model based on revenue Business model base
Slide 69: Trajectory of fee-based vs unit-based sales
Trajectory of fee-based vs unit-based sales Since the completion of AI services in 2021, unit-based sales growth (+138% annually) has surpassed fee-based sales growth (+53% annually). In light of the establishment of a accelerated growth planned for 2022 and beyond, some fee-based projects for Q4 ha
Slide 70: Direction of business growth leveraging business characteristics
Direction of business growth leveraging business characteristics Characteristics of AI companies that originate from the technology axis, is that they can readily expand services and execute M&As across industries, to then become comprehensive AI service providers. In addition to organic growth, we
Slide 71: 3-year business growth target
3-year business growth target We aim to achieve growth by leveraging our core edge AI technologies and services, and acquiring related services in Japan and overseas in an orderly manner. On Nov. 1, 2021, we consummated our first M&A through the acquisition of Focus Channel Inc. In addition to organ
Slide 72: Aiming to become a comprehensive AI service provider
Aiming to become a comprehensive AI service provider Through applying our diverse edge AI technologies across multiple domains, we aim to become a comprehensive AI service provider Advertisement, Real Estate, Media Social infra- structure Application Transpor- Retail/ tation, Apparel Logistics Publi
Slide 73: Aiming for sales growth: Plan for FY2022
Aiming for sales growth: Plan for FY2022 In FY2022, we aim to quadruple the size of our business. In addition to organic growth, we plan to enlarge existing operations through rolling up similar, related competing companies through M&As. (million JPY) 4,000 AI media Target Digi-solution Lifestyle Ot
Slide 74: FY2022 ending Dec. financial forecast
FY2022 ending Dec. financial forecast Forecasting +78% organic growth mainly through unit-based sales growth FY2021 FY2022 ended Dec. ending Dec. Increase Increase (million JPY) results forecast Amount YoY Percentage YoY Net sales 1,010 1,800 789 +78.2% Operating profit 20 20 -0 -0.9% % of net sales
Slide 75: FY2021 Q4 ended Dec. balance sheet
FY2021 Q4 ended Dec. balance sheet Existing need to strengthen the company’s financial base over the medium term to allow for further progressive investment in company growth, including M&As. (million JPY) 2,419 2,419 Current liabilities 989 Cash and cash deposits 現金及び預金 1,425 1,449 Fixed liabilitie
Slide 76: Disclaimer
Disclaimer Handling of the material This document contains forward-looking statements. These statements are based solely on the information available at the time the statements were made. Furthermore, such statements are not guarantees of future results and are subject to risks and uncertainties. Ac
Slide 77: Copyright © Neural Pocket Inc. All Rights Reserved.
Copyright © Neural Pocket Inc. All Rights Reserved. 78