ExaWizards Inc. (4259) Earnings Call Transcript & Summary

Hello, everyone, and thank you for taking the time to join ExaWizards Full Year Financial Results Presentation for the fiscal year ended March 2026. Today, we will walk you through our financial results, our medium- to long-term strategy and our outlook for the fiscal year ended March 2027. First, please take a look at today's agenda. We will walk you through items 1 through 4, and we will not cover the appendix in today's presentation. If you would like to review it, please download the presentation materials from our website. Let us begin with the executive summary for the fiscal year ended March 2026. Here are the highlights of our consolidated results for the fiscal year. Revenue came to JPY 12.0 billion. Operating profit was JPY 1.6 billion, and our operating profit margin improved significantly to 13.3%. Both revenue and operating profit reached record quarterly highs, and our full year consolidated results also came in above our upwardly revised guidance. By segment, the AI Products Business continued to grow strongly with revenue of JPY 4.9 billion and operating profit of JPY 1.9 billion. The AI Solutions Services Business also delivered solid results, with revenue of JPY 7.2 billion and operating profit of JPY 2.2 billion. As a result, both segments achieved growth in both revenue and profit. As shown on the right side of the slide, the fourth quarter also brought meaningful progress on the business front, including the launch of Exa Frontier Edge and our capital and business alliance with Sumitomo Mitsui Financial Group. We will explain these strategic actions in more detail later in the presentation. Next, let me turn to our quarterly performance trend. In the fourth quarter, revenue reached JPY 3.6 billion, up 36.2% from a year earlier, and operating profit came to JPY 0.6 billion, up 116.1%. Both revenue and operating profit reached record quarterly highs. As you can see, throughout the fiscal year ended March 2026, both revenue and operating profit increased steadily quarter-by-quarter. We believe this clearly shows that our business model is now gaining real momentum. This slide shows our full year consolidated income statement and EBITDA. We have already covered revenue and operating profit, so let me focus on a few other key points. Gross profit margin improved significantly to 66.7%, up 8.9 percentage points from the previous year. This was driven by a higher sales mix of high-margin products. In addition to strong growth in the AI Products Business, the AI Solutions Services Business also returned to a renewed growth path, with both segments contributing to performance. We achieved profitability at every level of earnings and net profit after tax came to around JPY 1.5 billion, supported by the recognition of deferred tax assets. EBITDA also exceeded JPY 2.0 billion, showing that we now have a solid structure in place to generate cash. As I mentioned earlier, we view the fiscal year ended March 2026 as a year in which we delivered very strong and positive business growth. Now let's move to Section 2, an overview and progress report for each of our business segments. Our business is broadly divided into two segments: the AI Products Business and the AI Solutions Services Business. The AI Products Business delivered strong growth, with revenue of JPY 4.9 billion, up about 1.6x, and operating profit of JPY 1.9 billion, up more than 2.5x. Gross profit margin also remained at a very high level of 82.8%. The AI Solutions Services Business posted revenue of JPY 7.2 billion and operating profit of JPY 2.2 billion. The structural reforms we have been implementing began to deliver results with segment revenue returning to growth. In addition, the successful development of large projects and productivity gains through AI helped drive operating profit growth of about 1.6x. The key highlight of the fiscal year ended March 2026 is that both segments entered a positive cycle of growth, achieving higher revenue and higher profit. This slide shows the quarterly trend in our AI products business. In the fourth quarter, revenue reached JPY 1.5 billion, up 59% from a year earlier, while operating profit was JPY 0.5 billion, up 26.9%. As a result, the segment delivered growth in both revenue and profit. The main driver of revenue growth was exaBase Generative AI, and our shift toward AX Human Resource Development is also beginning to show positive results. On the profit side, we made temporary system investments to secure stable capacity for the growing use of generative AI. Even so, operating profit still reached a record high level. This slide breaks down the AI products business by product category. Our core generative AI product lineup led the way with revenue of JPY 3.2 billion, more than doubling from the previous year with growth of 112.4%. In the HR tech area, we continue to expand mainly through exaBase DX Assessment and Learning and our AX Human Resource Development Solutions, and we also newly launched a generative AI skills test. In the sales domain, we also launched Sales Tech as a new offering, and the number of users has now exceeded around 36,000. This is helping us steadily build a customer and user base for the next fiscal year. In Healthcare, revenue reached JPY 0.5 billion, representing strong growth of 32.9%. As you can see, one of the strengths of our business is that multiple product categories are growing at the same time. This slide shows the KPI trend for our flagship product, exaBase Generative AI. The number of customers reached 1,422 in the fourth quarter. Adoption continued to expand among regional companies, and the number of government and municipal organizations using our products has now exceeded 200. Our share among prefectural governments has also reached 53%. Quarterly revenue from our generative AI product lineup came to JPY 1.0 billion, doubling from the previous year. This is also the first time quarterly revenue has exceeded the JPY 1.0 billion mark. This strong growth has been supported by much broader real-world use of generative AI in day-to-day operations, which has also driven growth in usage-based revenue. Next, let me turn to Exa Human Resource Development. The cumulative number of customers for exaBase DX Assessment and Learning has reached 2,534 and the cumulative number of users has grown steadily to 420,000. Revenue was slightly lower than the same month last year, but this was temporary and reflected changes in the service package. As the sales mix improved, the business returned to a growth trend on a quarter-on-quarter basis. In addition, we recently launched our generative AI skills test. This product is designed to assess how effectively people can use generative AI in actual business settings, and we expect it to become a new growth driver within our Exa Human Resource Development offering. Next, let me walk you through the quarterly trend in our AI Solutions Services Business. In the fourth quarter, revenue reached JPY 2.2 billion and operating profit was JPY 0.7 billion, both increased from the previous year and reached record quarterly levels. Revenue continued to benefit from the steady development of large projects, following the strong momentum we saw in the third quarter. Operating profit also increased significantly from the same period last year. The operating margin remained at a very high level of 32.5%. As this is our full year results presentation, I would also like to highlight the KPIs for our AI platform business, which is the core of this segment. The average price among our top 10 customers reached JPY 0.25 billion, showing that our relationships with major customers are becoming even deeper. In addition, the share of project delivery using our proprietary exaBase Studio reached 32.6%, reflecting steady progress in implementation at customer sites. Sales productivity per employee also improved by 1.34x from the previous year. In short, our structural reforms are steadily creating a model that allows us to deliver more projects at higher value without relying on a proportional increase in headcount. This gives us even greater confidence in our growth for the current fiscal year. Moving on to Section 3, our medium- to long-term strategy. First, let me touch on the business environment surrounding our company. In Japan, AI is now clearly positioned as a source of national competitiveness, and substantial budgets are being allocated to it. Among private sector companies as well, AI agents have become a key area of focus at the CEO level. Against this backdrop, nearly 70% of companies say they plan to promote the adoption of AI agents, showing that interest in this area remains very high. At the same time, there is still a significant gap at the customer level. Please look at the chart on the left. In Japan, only 11% of companies are already using AI agents for both internal and external applications, which shows that the market still lags behind global levels. The reason is shown on the right side of the slide, the six barriers. Major challenges emerge before companies can move from AX planning to actual operation, and these barriers are holding back AX adoption across Japanese companies. One of ExaWizards' key strengths is our ability to provide solutions that help customers overcome these six barriers. From here, I would like to introduce our group synergy strategy, which we call 3P crossover Frontier. The 3P stand for people, platform, and product. This is our core strategy, combining the talent needed to drive AX, the platform for AI use and operations, and industry and function-specific products and delivering them as an integrated offering. Frontier is the other key element of this strategy. We use this term for our agile industry-focused strategic subsidiaries. Through this approach, we aim to be more than just an AI development company. We are a company that implements AI to help drive real business transformation for our customers. Starting on the next slide, I will explain this in more detail. Let me start with our 3P strategy. A key feature of this strategy is that we strengthen customer value not only on our own, but also through close collaboration with partners. Through people, we build deep relationships with customers, often starting with project-based engagements and then gradually increasing the number of AI applications running on exaBase Studio. When we identify customer challenges that are broadly applicable, we turn them into products and expand them across the market. Partners are also essential. By working with delivery partners and co-creation partners, we can support customers across the full scope of their needs, from issue identification to design, implementation, and operation. We can also recommend the most suitable AI technologies for each customer, not just our own products. Through this model, we help spread best practices from leading AI initiatives and support customers in building the ability to drive AI on their own. This is how collaboration with partners continues to increase the value we provide to customers. Let me now share one customer example. As I mentioned earlier, our capital and business alliance with Sumitomo Mitsui Financial Group is a clear example of this strategy in action. This is a co-creation partnership. We have formed a dedicated team of around 50 people and are moving forward on several initiatives at the same time, including AI-driven development platforms, talent development, and new AI solutions. The partnership focuses on business transformation within the SMBC Group while also advancing AI talent development and new business creation. We plan to share updates on this progress over time. With that, let me now explain the role of the platform in a little more detail. We have long positioned exaBase Studio as a key strategic initiative. This slide shows a simplified view of companies. In the past, defining business processes, including industry-specific knowledge, was typically handled by consulting firms, while core systems and other required infrastructure were developed by separate system vendors. That tradition of division of roles is now beginning to change as AI evolves rapidly. With AI driven development becoming more common, exaBase Studio is making it possible to build and operate everything, from business process design to AI system development in an integrated way. We believe this gives ExaWizards a unique position in the market. As a result, the market we can address is expanding. In the past, our opportunity was largely limited to AI and system development. But with exaBase Studio and hearing AI agents, we can expand into areas such as the BPR market. And as AI agents take on a wider range of business tasks, we believe our opportunity can extend further into the BPO market as well. We have long seen this potential and even secured a trademark related to AI agent dispatch. We believe this year will be a turning point, when AI agents begin to take on work that has traditionally been handled by people. Against a market opportunity that could reach into the tens of trillions of yen, our current revenue is still just under JPY 12 billion. In other words, we believe the room for future growth remains very substantial. Next, let me turn to Frontier, our other key strategic pillar alongside 3P. At ExaWizards, we are establishing agile strategic subsidiaries while making full use of our group assets. For example, Exa Frontier Edge provides AI-driven software development and development platforms with the goal of reshaping the systems integration market beyond the traditional headcount-based model. ExaMD has integrated our health care and nursing care products and has begun operating as a health care-focused subsidiary, serving the medical and nursing care sectors. Looking ahead, we plan to continue establishing new companies for specific purposes, including strategic carve-outs of new product businesses, regional hubs and research organizations. Based on everything I have covered so far, let me summarize four points that we believe investors should focus on as the ExaWizards Group moves into its next phase of growth. First is our business portfolio, which is well positioned for the age of AI agents. As I have explained, we will continue to provide businesses suited to the AI era to customers across a wide range of industries. Second is transformation through AI-driven management and the improvement of service quality. By using our own company as a proving ground, we will continue to launch AI products that enable AI native business processes. Third is strong partnerships. Through collaboration with capital and business alliance partners such as NTT DOCOMO Business and SMFG, as well as stronger coordination with delivery partners, we will continue to maximize the value we provide to customers. And fourth is the market opportunity, which continues to expand year-by-year. In the midst of this major shift, we will keep taking on new challenges and developing new business models. By fully capturing this potential, we will continue to drive business growth in the years ahead, and we hope you will look forward to what comes next. Finally, let's look at our forecast for the fiscal year ending March 2027. Our basic policy for the fiscal year ending March 2027 consists of three priorities. First, we will strengthen strategic investments and M&A in order to keep pace with the rapid changes taking place in the AI industry. Second, we are committed to growth. Even as we continue to invest, we will remain firmly committed to growing both revenue and operating profit. Third, we will enhance shareholder returns. This includes preparations for a move to the Prime Market, and I will explain the specific measures in more detail later in the presentation. Let me start with the details of our strategic investments. We will invest aggressively across each area of our 3P crossover frontier strategy. In people-related areas, we will focus on hiring sales and delivery resources as well as pursuing business alliances and M&A. On the platform side, we will strengthen exaBase Studio through functional enhancements and system investments. In products, we plan to allocate budget to advertising and promotion to expand the user base, along with system investments in R&D, including the development of new products. We also plan to steadily move forward with the establishment of strategic subsidiaries and the expansion of regional bases. Through these investments, we remain fully committed to business growth. Next, let me turn to our earnings outlook for the fiscal year ending March 2027. We will continue to invest for growth, but we will stay disciplined on both revenue growth and profitability. Given the strong demand we are seeing for AI development, we expect revenue of JPY 15.6 billion, up 30% year-over-year, and operating profit of JPY 2.3 billion. We also expect operating margin to improve from the previous year, even as we continue investing. By helping customers drive business transformation through AI agents, we aim to deliver strong growth in both revenue and profit. Our goal is sustainable and steady growth. Finally, let me touch on shareholder returns. Until now, we have prioritized growth investment and, therefore, have not paid dividends. However, with this full year result, free cash flow has turned positive, and we now have a solid foundation for generating cash on a consistent basis. Based on this, while continuing to prioritize growth investment, we believe we have entered a phase where we can begin returning profits to shareholders. We, therefore, plan to start paying dividends from the next fiscal year with the aim of broadening our investor base and encouraging long-term shareholding. We plan to start with a year-end dividend of JPY 5 per share and aim to provide stable and continuous shareholder returns going forward. In addition, we have formally begun preparations for a move to the Prime Market of the Tokyo Stock Exchange, which is the market segment for companies with higher standards of governance, liquidity, and investor engagement. We will share updates on this progress with you at the appropriate time. To summarize today's presentation, in the fiscal year ended March 2026, we achieved record highs in both revenue and operating profit, and both of our segments delivered growth in both revenue and profit. For the fiscal year ending March 2027, we aim to capture the market opportunity in the age of AI agents, target 30% revenue growth, and begin paying dividends. Thank you very much for your attention today. A message from our Representative Director and President and CEO, Haruta, will also be posted on our website at a later date, and we invite you to take a look.