ExaWizards Inc. (4259) Q3 FY2026 Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining ExaWizards Financial Results briefing for the third quarter of the fiscal year ending March 2026. In this briefing, I will explain the quarterly performance driven by AI and our future growth strategies, followed by a presentation from our Representative Director and President, CEO, Makoto Haruta. Here's today's agenda. First, I will cover the Q3 financial summary and consolidated results, followed by details on the status of each segment. Finally, I will share business updates focusing on AI agents, which we are currently emphasizing. I will not explain the appendix, so please download the presentation material from our website for your reference. Let's start with Section 1, the executive summary of the third quarter of fiscal year ending March 2026. Net sales for Q3 were JPY 3.116 billion. Operating profit was JPY 481 million. By segment, the AI Products business generated JPY 1.229 billion in sales and JPY 371 million in operating profit. This business continues to grow strongly, led by exaBase Generative AI, which has captured the top market share. The AI Solutions Services Business also returned to a growth trajectory with sales of JPY 1.922 billion, an increase over the previous year and an operating profit of JPY 717 million or 106% year-on-year due to contributions from large-scale projects. Section 2 provides a detailed summary of our consolidated financial results. As shown here, both net sales and operating profit reached record highs on a quarterly basis. Net sales grew steadily to over JPY 3.1 billion and the operating profit improved dramatically, reaching JPY 481 million compared to just JPY 6 million in the same period last year. We achieved record highs for both net sales and operating profit for a single quarter. This clearly reflects our successful shift to a highly profitable business structure. Our 9-month performance highlights show strong growth. Net sales reached JPY 8.354 billion, up 17.1% year-on-year. We achieved a significant operating profit of JPY 1.027 billion. We have maintained profitability at all levels below operating profit since the second quarter. Additionally, EBITDA, which indicates cash generation capability, stood at JPY 1.349 billion, marking an extremely high growth rate of 333.9% year-on-year. Regarding the full year forecast, progress is extremely steady at over 70% for both sales and profit. We maintain our revised forecast to sustain aggressive investment in the fourth quarter, focusing on user acquisition and new product development like exaBase Corp. IT agent. Now Section 3, an overview and progress of our business segments. The AI Products business grew rapidly with net sales increasing approximately 1.6x year-on-year to JPY 3.436 billion and operating profit nearly quadrupling to JPY 1.333 billion. Meanwhile, the AI Solutions Services Business sales have recovered and returned to a growth trajectory with a significant profit increase with operating profit up 55.2% to JPY 1.5 billion. Looking at the AI Products Business quarterly trend, net sales were JPY 1.299 billion, a 47.4% increase year-over-year. In addition to the continued strong performance of our core product, exaBase Generative AI, revenue from our self-hosted conference also contributed to these results. On the other hand, operating profit decreased temporarily compared to the previous quarter due to increased advertising costs related to the event and structural reforms in the HR development service. By product category, growth was primarily driven by generative AI products, which surged 126.7% year-over-year. We are also making steady progress in the sales support and health care domains. In particular, we completed the submission of a clinical trial notification to the PMDA for our AI-powered cognitive function support app and we are successfully nurturing next-generation products to become future revenue pillars. Key KPIs for products related to exaBase Generative AI are very strong. The number of customers grew 64% year-over-year, exceeding 1,200 organizations. Our AI Innovators Forum 2025 was also a great success with approximately 5,000 participants. Net sales maintained a high growth rate, approximately doubling year-over-year to JPY 837 million with accelerated utilization in the enterprise sector and local governments. Here are the KPIs for the HR Tech business. Due to prioritizing structural reforms shifting from DX to AX talent development, net sales were negative year-over-year, continuing the trend from the second quarter, but we expect a recovery in the fourth quarter. Additionally, we will transfer the HR Tech business to a group company in April 2026. By establishing a structure that provides everything from generative AI implementation to developing the talent to master it, we will maximize synergies and powerfully lead corporate transformation. The AI Solutions Services Business saw multiple large deals close with net sales growing to JPY 1.922 billion, up 7% year-over-year. Operating profit more than doubled to JPY 717 million due to a shift to high-value projects and improved productivity through AI. Next, Section 4, our business update. The business environment for generative AI is expanding steadily. Market size is forecast to reach JPY 4.2 trillion by 2029. Our internal survey shows that nearly half of the companies we spoke with are now using generative AI on a daily basis. AI agents have become a top management agenda. 72% of CEOs recognize themselves as primary decision-makers for AI. We see a clear trend where investment is doubling as the phase shifts to practical expansion and real-world implementation. In response to this momentum, we will proceed according to 4 strategies, including the collaboration with Dirbato announced the other day. Eventually, we believe the era will shift from using AI in business to entrusting business to AI agents. Currently, attention is on using AI tools, but the demand to master them is beginning to rise. In the future beyond that, we envision a world where we give roles to AI agents, entrust them with work and humans hold judgment and responsibility working collaboratively. While strengthening the expansion of AI products demanded right now and AX talent development solutions for mastering them, we will work toward a world of collaboration with AI agents. Here, I will introduce specific examples of our initiatives.First is a case of practical support for AI Agents. We are providing comprehensive support to Kansai Transmission and Distribution, Inc., involving everyone from management to the front lines. With top-level commitment, we are supporting their evolution into an energy platformer through "DX Boot Camps" to foster a culture of promoting DX, implementing exaBase DX Assessment & Learning for all employees. A first for a domestic transmission and distribution company and building on-site AI Agents using exaBase Studio. While usage of AI and SaaS is essential for this AX transformation, many companies lack policies and governance rules, often creating them as they go, making security checks a management issue. To address the burden of checking constantly updated regulations and maintaining internal rules, we developed a new product, exaBase Corp IT Agent and will start trials this spring. exaBase Corp IT Agent focuses on the security check domain as a first step, covering everything from initial policy formulation to daily review operations. The AI drafts responses for security reviews and provides supporting clauses to ensure accuracy, significantly reducing the burden of document screening that can run into the hundreds. Furthermore, it periodically reevaluates based on regulatory changes, allowing for constant grasp of the latest risk status. Going forward, we plan to expand functions beyond security checks, serving as a control tower for system management of infrastructure tools, AI agents, and SaaS. In our Med Tech segment, our group company has submitted a clinical trial notification to the PMDA for our AI-powered cognitive function diagnosis support app which was designated as a priority review item by the MHLW in 2025. This app is a Software as a Medical Device that analyzes cognitive function from one minute of free conversation. We have minimized the trial process by narrowing down inspection items and reducing the number of trials to one, aiming to complete the trial in a short period. We are aiming for early approval and social implementation within FY 2026 as a top priority to timely launch in response to the expanding market needs for dementia screening. In summary, our investment thesis rests on four points. First, in this AI Agent era, we will provide a wide range of products and an environment where clients can build their own AI Agents using exaBase Studio, along with support for that process. On top of that, we consider our AX talent development solutions training employees to master AI to be a solution that will grow in the future. By providing these and promoting AI-driven management we will continue to create various products and improve the lineup and value we offer to customers. We do not think we can complete all of this alone, so we will proceed by borrowing strength from outside considering new partnerships in addition to current partner companies. Finally, overseas SaaS companies are being reevaluated. Amid various evaluations, we will strive to expand our business as a challenger, creating new products and services. We appreciate your continued attention and interest. This concludes the financial results briefing for the third quarter of the fiscal year ending March 2026. Thank you very much for your attention today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]