HEROZ Targets JPY 12.8T Market with Dual-Pillar Strategy of ASK Cowork and AI Security; Underlying Operating Income +108% Growth Bridges to FY27 Operating Income Target of JPY 800M

Summary

FY26 full-year results landed above revised guidance, with revenue of JPY 6,424M (+8.3%) and operating income of JPY 523M (+70.7%). Underlying operating income, excluding M&A-related costs, doubled to JPY 637M (+108% YoY). Management outlined two growth drivers for FY27: HEROZ ASK Cowork (AI BPaaS, TAM of JPY 12.8T) and AI Security Cowork (AI-powered security BPO targeting mid-tier and SMEs) following the full acquisition of Variosecure. The company laid out an FY27 plan calling for revenue of JPY 6.8B and operating income of JPY 800M. Portfolio restructuring is now complete following the divestiture of Strategit and consolidation of the AKM Group, marking the company's entry into a structural transformation phase as it positions itself as a frontrunner in AI BPaaS.

Key Points (Earnings Highlights and Growth Actions)

• Business Strategy and Market Landscape
  • Over 70% of enterprises use generative AI at least once a week, yet only ~20% have achieved effective adoption—the remaining 80% represent Cowork's addressable market
  • AI-driven attack autonomy rates of 80-90% and 1 million companies lacking dedicated IT security staff create structural tailwinds for AI Security demand
  • The company has set Autonomous Enterprise (fully autonomous business operations) as its medium- to long-term vision within the AI BPaaS space
• Near-Term Business Progress and Drivers
  • HEROZ ASK: 4Q revenue +27.8% QoQ, ARR surpassed JPY 200M, ~430 customers, achieved single-month profitability on a contribution margin basis
  • BtoB Business: Full-year revenue +20.6%, 4Q active project count +39.0% YoY, improved utilization drove 4Q COGS ratio down 3.5pt
  • AI Security Business: Price revision effects lifted full-year revenue +9.7% with segment profit +6.8%, delivering top- and bottom-line growth
  • AI Sakura-san: Full-year revenue +37.3% YoY, 170 active personnel, selected for Japan's Service Innovation 2025 award
• Strategic Initiatives and Inflection Points
  • Portfolio restructuring completed via full acquisition of Variosecure (share exchange) and divestiture of Strategit
  • Acquisition of AKM Consulting (BAKUNAGE) adds back-office BPO capabilities spanning 500+ items across accounting, labor, and legal operations
  • MCP integration enables connectivity with Notion, Box, and Slack, enabling AI agents to autonomously invoke external tools
  • Pokémon Battle Scope adopted for the third consecutive year at PJCS 2026, sustaining a long-term partnership with a globally recognized IP

Outlook and Strategy

• FY27 full-year guidance: revenue of JPY 6,800M (+5.8%), operating income of JPY 800M (+52.9%), EBITDA of JPY 1,300M (+26.7%)
• Net income projected at JPY 300M, representing +82.2% YoY growth on a substantive basis excluding FY26 share sale gains
• HEROZ ASK Cowork will be deployed in two formats—a fully-outsourced model and a template-based model—with a self-evolving feedback loop aimed at establishing de facto standard status for AI back-office solutions
• AI Security Cowork comprises three domains: intrusion prevention, damage minimization, and managed operations; plans call for broad-based expansion into mid-tier and SME segments via ransomware countermeasure packages
• Growth investments in development and marketing will be maintained at FY26 levels
• AI agent evolution roadmap presented: Automatic Workflow → Agentic Workflow → Meta Agent (fully autonomous)

Positive Factors

• HEROZ ASK churn rate temporarily rose to 1.27% in 4Q but is projected to fall below 1% in 1Q, indicating improving retention
• AI Security quarterly churn rate at 0.81%, maintaining sub-1% levels for 28 consecutive quarters, underscoring a robust recurring revenue base
• 4Q EBITDA of JPY 306M marked a new all-time quarterly high
• Recurring revenue ratio rose to 68.9% (+3.3pt), with ARR reaching JPY 4,633M (+11.0%), reflecting an expanding share of stock-type revenue
• Shogi Wars cumulative matches exceeded 1.1 billion, with premium user count reaching an all-time high
• The Cyber Response Capability Enhancement Act, set for full implementation in FY2026, serves as a regulatory tailwind for the AI Security business

Concerns and Risks

• AIX segment profit declined 10.2% YoY due to upfront investment, putting the balance between growth spending and profitability in focus
• The BtoB business continues to exhibit a 4Q-heavy revenue skew, and sluggish 1H progress could become a source of market concern
• Goodwill balance of ~JPY 1.8B carries an ongoing annual amortization burden of ~JPY 170M
• Both HEROZ ASK Cowork and AI Security Cowork are in a category-creation phase, introducing uncertainty around market penetration
• Crypto asset valuation losses of JPY 30M booked as non-operating expenses
• FY27 net income will show an apparent decline of 20.2% YoY due to the non-recurrence of FY26 share sale gains

Performance Highlights

FY26 full-year consolidated revenue came in at JPY 6,424M (+8.3%) with operating income of JPY 523M (+70.7%), exceeding revised guidance. Underlying operating income, excluding JPY 114M in M&A-related costs, reached JPY 637M (+108% YoY). Net income of JPY 376M, including JPY 311M in gains from the Strategit share sale, marked a return to profitability.

Segment Performance

• ARR (Annual Recurring Revenue): JPY 4,633M (+11.0% YoY)
• Recurring Revenue Ratio: 68.9% (+3.3pt YoY)
• Recurring Churn Rate (AI Security): 0.8% (+0.1pt vs. prior year-end)
• Recurring Churn Rate (HEROZ ASK): 1.3% (-1.3pt vs. prior year-end)
• HEROZ ASK ARR: JPY 200M (as of end of April)
• HEROZ ASK Cumulative Contracted Customers: ~430 companies
• BtoB Cumulative Client Count Growth Rate: +30% (FY26)
• Shogi Wars Cumulative Matches: Over 1.1 billion
• AI Sakura-san Active Personnel: 170
• Variosecure Stock Revenue Ratio: 87.6%