Slide 1: Presentation Material for FY04/2021 Full Year Financial Results
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 document, the latter shall prevail. Presentation Material for FY04/2021 Full Year Financial
Slide 2: 1. Executive Summary
1. Executive Summary 2. Business Overview 3. FY04/2021 Full Year Performance 4. FY04/2022 Forecast 5. Growth Strategy
Slide 3: Executive Summary of FY04/2021
Executive Summary of FY04/2021 ◼ Net sales were ¥1,556 million (+0.8% year-on-year), consisting of ◼ AI (B-to-B) services: net sales of ¥683 million (△16.3% year-on-year) ◼ AI (B-to-C) services: net sales of ¥872 million yen (+20.0％ year-on-year) ◼ In AI (B-to-B) services, revenues declined due to r
Slide 4: FY04/2021 Actual vs Our Assumptions related to COVID-19
FY04/2021 Actual vs Our Assumptions related to COVID-19 ◼ Actual situation was different from our assumptions regarding the new coronavirus infection to estimate earnings forecast for FY04/2021, which was the main reason for the deviation from the forecast Our assumptions to FY04/2021 estimate earni
Slide 5: FY04/2021 Risk Factors related to COVID-19
FY04/2021 Risk Factors related to COVID-19 ◼ The following table analyzes the impact related to COVID19 on the financial results for FY04/2021 Risks for FY04/2021 AI (B-to-B) Services AI (B-to-C) Services • Delays in documentation (contracts, receipts, etc.) and decreased opportunities for sales dis
Slide 6: 2. Business Overview
1. Executive Summary 2. Business Overview 3. FY04/2021 Full Year Performance 4. FY04/2022 Forecast 5. Growth Strategy
Slide 7: Company Overview
Company Overview 2019 Listed on the First Section of Tokyo Stock Exchange (TSE) Name HEROZ, Inc. 2018 Listed on Tokyo Stock Exchange (TSE) Mothers Location PMO Tamachi 2F, 5-31-17 Shiba, Minato-ku, Capital and business alliance with Netmarble Games Corporation Tokyo 2017 Established April 2009 Capit
Slide 8: Our Vision
Our Vision Creating the future through artificial intelligence (AI) revolutions 8
Slide 9: Global Leader in Mind Game AI
Global Leader in Mind Game AI Chess AI Shogi AI Go AI Deep Blue (’97) AI developed by our Google acquired Deep Mind defeated a engineers defeated a (’14) professional Chess professional Shogi AlphaGo, developed by player (Japanese Chess) Deep Mind, defeated a player (’13) professional Go player (’16
Slide 10: B-to-B Services: Machine Learning by Replacing Shogi Game Records with Other Data
B-to-B Services: Machine Learning by Replacing Shogi Game Records with Other Data Structural design data, Shogi game records financial data, etc. HEROZ Kishin Deep learning and other machine learning: MLaaS (Machine Learning as a Service) Shogi AI Construction AI, Finance AI, etc. MLaaS： What is Mac
Slide 11: B-to-B Services: Profit Model and High Switching Costs
B-to-B Services: Profit Model and High Switching Costs Research/develop Shogi AI Standardize AI technology accumulated through shogi AI Establish “HEROZ Kishin”=MLaaS （Machine Learning as a Service） Establish an infrastructure which allows HEROZ to provide AI services efficiently Client’s data sent
Slide 12: B-to-B Services: Engines included in HEROZ Kishin and Examples of Applications
B-to-B Services: Engines included in HEROZ Kishin and Examples of Applications ◼ Create AI products by combining engines and achieve an efficient operating structure Know-how on AI-related technology development and and R&D capabilities service operations (deep learning, etc.) (massive servers, etc.
Slide 13: B-to-B Services: Areas of Focus and Examples of Services Provided
B-to-B Services: Areas of Focus and Examples of Services Provided ◼ Focusing on construction, finance, and entertainment for the foreseeable future ◼ Earning structure is initial setup fee and ongoing fees *Examples of clients served Construc Fi- Enter- -tion nance tainment Creation of high-quality
Slide 14: B-to-B Services: horizontal x vertical expansion across industries
B-to-B Services: horizontal x vertical expansion across industries ◼ We aim to create industry-standard AI through horizontal and vertical expansion, applying into various industries ◼ After creating the industry-standard AI, we plan to form an ecosystem based on it Other industries Entertainment AI
Slide 15: B-to-C Services: Fees from Application Users
B-to-C Services: Fees from Application Users Charging fees for B-to-C content which user AI ◼ Leveraging AI-related technology to provide mind games such as shogi, chess, and backgammon worldwide ◼ Shogi Wars has remained cash cow backed by increase of paid users on a YoY basis ◼ The governmental re
Slide 16: 3. FY04/2021 Full Year Performance
1. Executive Summary 2. Business Overview 3. FY04/2021 Full Year Performance 4. FY04/2022 Forecast 5. Growth Strategy
Slide 17: Our Key Performance Indicator
Our Key Performance Indicator ◼ We believe that EBITDA, as calculated below, is our key performance indicator EBITDA = Operating Profit + Depreciation/Amortization Expenses ◼ In AI-related businesses, investments in compute servers, etc. are required to engage in advanced machine learning, leading t
Slide 18: FY04/2021 Full Year Financial Performance
FY04/2021 Full Year Financial Performance ◼ While revenues from AI (B-to-B) services were negatively impacted by decreased opportunities for sales talks and the termination of gaming services in our entertainment AI, revenues from AI (B-to-C) services increased by stay-at-home demand. As a result, o
Slide 19: Net sales and EBITDA Trends
Net sales and EBITDA Trends ◼ While revenues from AI (B-to-B) services were negatively impacted by decreased opportunities for sales talks, etc., revenues from AI (B-to-C) services were positively affected by increased stay-at-home demand. As a result, total revenues in FY04/2021 increased year-on-y
Slide 20: COGS and SG&A Trends
COGS and SG&A Trends ◼ Labor cost has increased on a year-on-year basis and is expected to keep growing next fiscal year as well to increase our engineering capacity, which will lead to our medium- to-long term growth ◼ In addition, there were an increase in app commission fees by growth of AI (B-to
Slide 21: Balance Sheet (as of April 30, 2021)
Balance Sheet (as of April 30, 2021) ◼ B/S remains strong backed by cash and deposits increased via public offering in 2019 ◼ We plan to invest them in efforts to achieve the medium-to-long term growth strategy (e.g. hiring for AI engineers, in-house compute servers and external cloud compute servic
Slide 22: 4. FY04/2022 Forecast
1. Executive Overview 2. Business Overview 3. FY04/2021 Full Year Performance 4. FY04/2022 Forecast 5. Growth Strategy
Slide 23: FY04/2022 Financial Forecast
FY04/2022 Financial Forecast ◼ We keep investing proceeds from public offering in 2019, in hiring for AI engineers, compute servers, etc. until 2022. While earnings will decrease for the foreseeable future as a result, we expect earnings recovery after those investments. The difference between EBITD
Slide 24: 4. Growth Strategy
1. Business Overview 2. FY04/2021 Full Year Performance 3. FY04/2022 Forecast 4. Growth Strategy
Slide 25: Medium-to-long term Growth Strategy
Medium-to-long term Growth Strategy ・EBITDA ◼ We plan to expand AI (B-to-B) services by what we have cultivated in our AI (B-to-C) services. We aim to create industry-standard AI, to form an ecosystem based on it, and to expand across industries B-to-B AI B-to-B ongoing fee Provide AI services （prof
Slide 26: Initiatives Aimed at Achieving the Growth Strategy ①
Initiatives Aimed at Achieving the Growth Strategy ① ◼ On June 11, 2021, we concluded a business alliance agreement with Toyo Engineering Corporation (TOYO) ◼ HEROZ has concluded a business alliance agreement with TOYO for the utilization of AI technology and joint development of AI systems for plan
Slide 27: Initiatives Aimed at Achieving the Growth Strategy ②
Initiatives Aimed at Achieving the Growth Strategy ② ◼ In April 2021, we enhanced in-house compute servers for machine learning to operate a 61 PFLOPS computation environment for AI development ◼ We have added nine new NVIDIA DGX A100, the world's first 5 PFLOPS AI system with high computational den
Slide 28: Initiatives Aimed at Achieving the Growth Strategy ③
Initiatives Aimed at Achieving the Growth Strategy ③ ◼ "HEROZ Kishin Eye" to start on April 1, 2021 ◼ HEROZ has taken over the "Ricoh Shogi AI Game Record System" developed jointly by Ricoh Company, Ltd. and the Japan Shogi Association, which automatically generates game records by using AI technolo
Slide 29: Potential AI Demand in Our Areas of Focus
Potential AI Demand in Our Areas of Focus ◼ We believe there is also significant potential demand for enhancing operational efficiency through AI in the construction industry, which is one of our areas of focus ◼ There will be a shortage of 110,000 construction technicians by 2025 (source: Human Tou
Slide 30: Japan: Potential AI Demand is Among the Largest Worldwide
Japan: Potential AI Demand is Among the Largest Worldwide ◼ Potential AI demand in Japan can be expected to be among the largest worldwide, as the working population is expected to decrease significantly going forward Projection of Population Age 15-64 (Median Prediction Interval, 2020=100) ◼ When d
Slide 31: Use of Our AI in DX
Use of Our AI in DX ◼ Domestic DX (digital transformation) is expected to accelerate due to the future decrease in the working population as well as the impact of the COVID-19 pandemic ◼ AI allows for DX of a wide variety of operations including those involving decision- making, which were previousl
Slide 32: Disclaimer
Disclaimer The contents set out in this material are prepared based on generally acknowledged economic, social and other conditions, and on certain assumptions deemed rational by HEROZ, Inc. and may therefore be subject to change without prior notice due to changes in the managerial environment or f