ExaWizards Inc. (4259) Earnings Call Transcript & Summary

Hello, everyone. This is the official English voiceover of financial results briefing for ExaWizards for the second quarter of the fiscal year ending March 2026. The original speaker is Representative Director and President, CEO, Makoto Haruta and English translations by [ Yukinira ] from Investor Relations team. Before we get into the presentation, I have a few announcements. Presentation slides and other materials are on our website, so please check them as you need it. If you have any questions regarding to the financial results, let us know by contact form on our website, too. Now let's move on to the presentation. Thank you very much for gathering here today. I am Haruta, the Representative Director and President and CEO. I would like to explain the financial results for the second quarter and the first half of the fiscal year ending March 2026 based on the presentation slides. As usual, I will start with summary and then move on to the more detailed breakdown. Let's move on to Page 4. Here, we have the executive summary for this quarter. For the second quarter, net sales were about JPY 2.7 billion, a 12.3% increase year-on-year. Operating profit was JPY 402 million, an 818.3% increase year-on-year. Both figures represent record high as a single quarter. As a result, cumulative operating profit for the first half was JPY 546 million, an increase of JPY 790 million year-on-year, and for first time since our founding, we achieved profitability for the entire first half. Based on these results, we have maintained our full year sales forecast, but have revised our operating profit forecast upward to JPY 1.35 billion. The main driver of these results was the AI Products business, with our generative AI product groups, including exaBase Generative AI, continuing to perform well. Sales exceed JPY 1.153 billion, a 51.6% increase year-on-year. Operating profit was JPY 487 million, a 166% increase year-on-year, continuing to grow at 1.5x the pace of the previous year. In addition, for the Solution Service (sic) [ AI Solution Service ] demand for the projects to build AI agents, mainly using exaBase Studio, has been increasing. Sales were about JPY 1.65 billion, a slight year-on-year decrease of 7.1%, but as we have continued to review projects, operating profit was JPY 471 million, a 27.3% increase year-on-year, ensuring solid profitability. Compared to the first quarter, this represents a 13.4% increase in sales, and I believe we are gradually building a foundation of renewed growth. Overall, the results are solid. The AI Product business posted strong growth. We reallocated resources to this higher growth, higher-margin business, and we are now seeing the returns. On the other hand, the AI Solutions Service business operating profit remained positive despite lower revenue, and we see opportunities to reaccelerate sales. I will address them later. The generative AI market continues to grow rapidly. The enterprise demand for AI agents development and deployment is accelerating. Inquiries are increasing rapidly. With inquiries rising and demand of generative AI and AI agents growing, we will expand beyond existing products and continue to launch new products and services. With additional investment, we will broaden our lineup across the enterprise and social domains. We are prioritizing area with large total addressable markets and strong fit with AI agents, such as AI cross RPA, sales and human resource. We plan to pursue in-house development and launch new offerings in these areas. We are also expanding exaBase Studio's capabilities as a service, so customers can build their own AI agents on site. Alongside these solutions, we will provide training to increase the number of people who can use the exaBase Studio to create their own agents. That is our current plan. Let me elaborate a bit more. This bar graph shows the business performance trends. As I mentioned earlier, sales for the second quarter were about JPY 2.7 billion, and operating profit was JPY 402 million. As you can see, profits have remained in the black on a quarterly basis since the second quarter of the previous fiscal year, and we believe we have entered a stable profitability phase. As a result, for the first half, sales have steadily increased and profits have improved significantly. EBITDA was JPY 740 million, and we are not reliably generating cash, so company is finally in position to generate profits and reinvest them. Based on these results, the second half of the year, we plan to proceed with sales and initially planned, while investing costs as originally intended. Since we are now reliably generating profits, we will allocate some of these profits to investment while also ensuring operating profit. We are now in a position to revise our guidance upward compared to our initial plan. Now let me explain by segments. On the left is the AI Products business and on the right is the AI Solutions Service business. Sales are still higher in the AI Solutions Service business at JPY 3.1 billion compared to JPY 2.2 billion for the AI product business. However, in terms of the bottom line, operating profit, the AI Solutions Service business is at JPY 780 million, while the AI Products business is at JPY 960 million, meaning the AI Products business is now generating more profit. As I mentioned earlier, the AI Products business has grown by about 1.5x (sic) [ 1.7x ] and gross profit is being made at a high level, resulting in a high level of operating profit as well. Although sales in the AI solution service business have slightly decreased, gross profit and operating profit margins have improved significantly. So we are now able to generate solid profit. We are currently exploring ways to achieve renewed growth in this segment. The AI Products business continued to grow revenue and deliver strong profits. Profit growth has been especially strong, driven by usage-based pricing for exaBase Generative AI as usage has increased. As usage rises, revenue grow, but when spending exceeds initial budget, some customers may hold back on usage. To address this, we recently revised our pricing to include discounts that encourage usage and given customer more flexibility. Even so, profitability remains high. In order to raise awareness and some similar objectives, we have decided to engage in promotional activities. In this quarter, we ran pilot advertising and PR in the Tokai region, Japan, which addressed cost. As a result, our operating profit margin dipped slightly from the first quarter, but remains above 40%. To summarize the AI Products business, in addition to our generative AI-related product groups, we have four main areas: human resource or HR tech, sales tech and health care. The generative AI products group is showing significant growth with the upcoming release of more AI agents such as the Agent Collections and exaBase Automate for Anyone, a new service, which is RPA cross AI for easy automation. We aim to further build up these numbers going forward. As a result, what started as stand-alone SaaS product, exaBase Generative AI has now been complemented by various surrounding service, making a comprehensive generative AI solutions. We evaluate this as a significant development and plan to continue expanding it further. Within this, we are also developing specialized products for HR and sales, believing that tailored solution will be more interesting and user-friendly for our customers. In HR tech, we have begun rolling out exaBase Empower to make performance evaluation easier. Our existing product exaBase DX Assessment & Learning or DIA, had solid sales, especially for digital transformation use cases. As the market shift from DX to AX or AI transformation, we have started preparing a new suite of products. We acknowledge we are slower to move here than planned. Clients have not abandoned DX, but the increasing need to develop AI-literate talent. We will deliver offering that meet those needs, and we are moving quickly to make up for lost time. Regarding sales tech, we previously offered products such as exaBase Role-Playing and exaBase Meeting Summary. We have now rebranded exaBase Meeting Summary as exaBase Sales Agents and are working to expand our product and service lineup. Customer adoption is progressing smoothly. And while sales are not yet large, we expect significant growth in the future. We are committed to further improving usability for our customers. In the health care field, sales have reached JPY 200 million, and adoption, especially in care facilities is progressing smoothly. The number of installations has exceeded 1,500 and many customers have participated in our conference, giving us certain scales. We aim to further expand and contribute to society by deploying our products and service in the care sector. Regarding exaBase Generative AI, as shown here, the number of clients and companies continue to grow and now exceed 1000 and sales have surpassed JPY 750 million. Beyond enterprises, municipal adoption is expanding; we are now support over 40% of perpetual governments. We also provide tailored support as needed. Some of our generative AI offerings, such as exaBase IR Assistant and AI exaBase Recruiting Assistance are not priced on a per user basis, which makes it difficult to aggregate users across the generative AI portfolio. Accordingly, starting with this earnings release, we have redefined our business KPIs. We will continue to review the best approach to KPI disclosure. That said, adoption remains solid and sales continue to grow. So please refer to the figures shown here. As noted earlier on the talent development, the number of companies adopting our service continues to grow, but sales this quarter are slightly below than last quarter level. This does not indicate a lack of project. As a focus shift from DX to AX, we have begun rolling out new products and refreshing proposal to customers. These efforts ramped up from late in the second quarter through the third, so we expect an impact towards the end of the fiscal year and aim to make it meaningful. To drive AI adoption, employees need to raise their AI literacy and broaden day-to-day use. This will support the growth of our service and improve customer productivity. We view this essential and are committed to delivering it. On the other hand, in the AI Solution Service business, sales are slightly down. That said, product is developed and operate AI agents on exaBase Studio are increasing. Needs that have been fragmented are now clear, and inquiries for second half projects are up significantly. Given this, we expect sales to return growth. We will not expand in a way that edore (sic) [ erode ] the productivity gains we have made, but we now see a path to further growth in the AI Solution Service business. We will strengthen our organization to deliver on this. We have been advancing internal restructuring, including transforming personnel from the AI Solution Service to AI Products business. Now in line with customer needs, we see opportunities to scale this business as well. We will ensure we have the resource to capture the growth. As an example, Seven Bank is using exaBase Studio to handle internal analysis report tasks with agents. I will touch on this later, but the key point is that customer can do this themselves, and our exaBase Studio service is increasing, being recognized as a valuable in this area. Now given this, let me move to business update. Multiple source shows that domestic AI system market will keep expanding with adoption of generative AI and AI agent accelerating. We see this as the first real year of the AI agents. Pilots are spreading, but workplace deployment is just beginning. Demand, especially from management to deploy agents and improve operational efficiency is strong. Ultimately, the focus of investment, until now on hiring to address labor shortage, shift to AI. At the same time, building AI-literate talent is urgent. As generative AI adoption expands, infrastructure and security will return to the forefront. We need to revisit policies and controls and ensure robust operations. We will provide strong support in this area as well. Regarding the current state of AI agents, our business domains so far have been divided into universal and business-specific solutions within the enterprise sector. In the universal category, we are rolling out exaBase Studio and are already seeing customers use exaBase Generative AI. We also offer exaBase DX Assessment & Learning or DIA for DX talent development. On the business side, we provide exaBase Role-Playing and exaBase Meeting Summary. In human resource, exaBase Recruiting Assistance and then investor relationship, exaBase IR Assistant. exaBase IR Assistant is now used by about 130 clients, mainly large enterprise and adoption continues to rise. As more agents are introduced, we expect the service to expand in new and adjacent business areas. In the universal areas, we believe we can pioneer new areas of the AI agent business. In RPA cross AI, we expect new service and have launched initiatives under the automation for everyone concept. In talent development, we're moving from DX to AX and have begun offering AX talent development solutions. In business-specific areas such as sales and human resource, we have service in market and are expanding concept now in development. We are evaluating several new products and plan to roll out over time. As a result, with these new offerings, our policy illustrated by A, B, C on the right, is to expand service that let anyone use AI and generative AI in their work and to support the particular operations by AI agents. We are also proactively deploy completed service in high-affinity domains. This is not just aspirational, as an AI company, we practice AI-driven management and are introducing AI across our own operations. This allows us to validate what truly work and continuously propose proven solutions to customers, creating an internal and external feedback group. In this way, we aim to expand into areas with significant TAM potential. In the social sector, as noted earlier, we have launched AI service for cognitive and gait-function measurement. We are now entering certifications and will move forward as planned. We're also rolling out DX task management tool for nursing care facilities and preparing CareWiz Oshigoto, a job matching app to support hiring in these facilities. Some of these services are already in use, and we plan to expand them. Briefly on specific A, B, C to support practical operations of AI agents, as shown here, the left side is the Agent Collection, and the right side is AI cross RPA. They serve different needs. The left focus on task-level agents that assist individuals by day-to-day work. The right combines AI cross RPA to support and redesign end-to-end business process. In short, the left makes individual task simpler and faster, while the right address whole process, not just task. This distinction determines where agents fits in daily operations. Beyond RPA-led areas, we expect exaBase Studio to be used when companies want to redesign business process with AI or have agent perform tasks. exaBase Studio connects core system, business data and AI models, manage data for AI use and provides an environment where anyone can build AI agents. Our goal is to make immediately usable when teams want to improve operations on their own. In practice, each company have its own system and data, core platform, business data sets and various SaaS. Creating the right agent requires connecting them. Instead of heavy engineering, exaBase Studio's Process Hub lets connect to core system and business data, manage the extracted data in pool, and then use Agent Factory to build new AI models and agents on the top of it. As agent proliferate and start to interoperate, we plan to adopt MCP as the standard for agent-to-agent connections and incorporate those capabilities into Process Hub. Some customers also build agents with tools like Dify or n8n. The transition from pilot production is often the hardest step. exaBase Studio strength is complementing these tools. You can build the agent in Dify and use exaBase Studio's Process hub to pull business data and run into production. We will continue to support this side-by-side model and as the agent use growth, help upskill customers teams. Accordingly, even in solution area we have served to date, we will shift and expand toward exaBase Studio-centered model. Today, we are focusing on connect, manage and build to improve usability and integration. Next, we will go beyond creation to make routine analysis easy to schedule and enable frontline staff to run specific analysis on demand. In short, exaBase Studio will evolve from the environment step-up tool to a platform customer can operate themselves. We will expand our service to support the evolution. Regarding the business-specialized side, various services are currently being prepared in areas such as sales and human resource. In particular, for the sales agents on the left, it is already being used by customers under the name exaBase Meeting Summary. With the intention of further expanding this, we have also changed the name to exaBase Sales Agent. We are currently preparing to add more agent-based service, not only during meetings, but also before and after meetings. When we are able to discuss these areas and models more details, I would like to share more information with you. As for the service, we are currently experimenting and testing various things internally to see how we can make them more user-friendly. Under the concept of AI-driven management, we are thoroughly transforming our own business operations, while at the same time, improving the service used in those operations to provide even better offerings to our customers. On the management side, while formulating strategies for AI agents, the Business Transformation Office has been at the center of efforts to roll these out internally. As we move forward with using agents, we also established the Agent Service Department. By launching such a department, we are able to better understand the challenges, issues and workload involved in introducing agents internally. In the past, we might have tried to address these issues with human effort, but now we are increasingly seeing ways to cover them with AI. We hope to be able to offer these solutions to our customers as well. On the business and operations side, we are advancing initiatives to change the way our employees work by automating time-consuming tasks with AI, both in sales-related service to increase revenue, in various ways on the cost side. In addition, we are not only using our own service, but also those of other companies. So we are increasingly able to advise customers on how to use the service effectively. Rather than trying to do everything by ourselves, we want to focus on how to improve productivity by using a variety of service, including those from other companies. To summarize, here is how we are -- we see our company and our strength. First, we have a portfolio built for the AI agent era and a broad product lineup. Second, we can embed agents in business process for not only product but also system like exaBase Studio, plus teams who provide hands-on implementation. Third, we enable customers through support and training so they can use the solutions themselves. Even though many companies are still in trial and error with AI agents, this combination of product, system and people let us address a wide range of needs, and we will keep expanding it. We practice AI-driven management and use our own operation as tested. By redesigning our process with agents, we are raising efficiency and reducing costs, and we bring them those proven results to customers. We have entered a capital and business alliance with NTT DOCOMO Business. Joint sales are already expanding, including introduction of solutions to all 6,000 employees of the Shiga Prefectural Government, and projects are progressing across multiple fields. We will continue to broaden the partnership. The market we operate in, the AI system market and the DX market are large. With AI advancing rapidly, AI is eating software, which is AI will replace or extend existing software, which alone is a huge opportunity. Beyond that, vast area remains under digitalized, work still done manually. As AI automate these areas, the potential is giving even greater. In this context, the implicative is to deliver products and service people actually use and want. Many of these markets are still being formed. Our goal is to be a leading forces that helps shape them. As for our business performance, we have made upward revision this time with profit of about JPY 540 million in the first half, and considering the growth in the third and fourth quarters, we expect further growth. Moreover, as I mentioned earlier, regarding AI Solution Service business, we plan to further expand our sales and development structures and to continue developing new products. Even taking into account such upfront investment, we are considering rising our original profit plan from JPY 1 billion to JPY 1.35 billion. As shown here, for the fiscal year ended March 2024, we recorded a loss of JPY 300 million, but last fiscal year, we delivered our first full year profit of JPY 23 million. With this revision, we now expect profit of JPY 1.35 billion, a significant increase. That said, as noted earlier, we believe the market is only now entering a rapid expansion phase. We will continue to grow existing products and launch new ones. In the solution business that has supported to use to date, we also expect business model shift as agents -- AI agents take hold. Accordingly, on both the product and service side, field deployment of AI is still just beginning. We will do everything we can and continue to invest proactively. We appreciate your continued support in the next fiscal year and beyond. That concludes with our financial result presentation. Thank you very much. We have received no questions from the audience during the FAQ. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]