Summary
FY4/2027 marks the first fiscal year in which three structural changes decided during FY4/2026 — the conversion of VarioSecure into a wholly-owned subsidiary, the consolidation of AKM Consulting, and the divestment of Strategit — will simultaneously flow through the P&L. In 1Q (May 1, 2026 to July 31, 2026), both the start of AKM consolidation (May 1, 2026) and the effective date of the VarioSecure share exchange (June 30, 2026) fall within the quarter, meaning both the revenue mix and non-controlling interests will shift. Company guidance calls for revenue of JPY 6,800M (+5.8% YoY), operating income of JPY 800M (+52.9% YoY), and EBITDA of JPY 1,300M (+26.7% YoY). The key focus is whether the company can deliver top-line growth while absorbing the loss of Strategit's JPY 329M in revenue, alongside an expanding profit contribution from the AI Security business. In addition, with net income attributable to owners of parent guided at JPY 300M (-20.2% YoY) reflecting the absence of the JPY 311M gain on sale of affiliate shares booked last year, the quality of earnings at the quarterly stage is a central issue.
Key Points for Next Quarter
| Key Points & Focus | Implications |
|---|---|
Group RestructuringRelationship between quarterly net income attributable to non-controlling interests and profit attributable to owners of parent | Last fiscal year, net income attributable to non-controlling interests of JPY 244M was recorded, diverging from profit attributable to owners of parent of JPY 376M. The share exchange took effect on June 30, 2026, so we look for changes in non-controlling interests (JPY 800M at end-FY) during 1Q. |
AIX Business GrowthAIX segment revenue YoY | AIX segment revenue was JPY 3,581M last year, of which JPY 329M from Strategit falls away from this year. The key focus is whether underlying top-line growth is maintained excluding this. |
Contribution from New ConsolidationRevenue and profit contribution following AKM Consulting consolidation | Consolidated from May 1, 2026, so full contribution from 1Q. This will be a key swing factor for achieving guidance of JPY 6,800M in revenue (+5.8% YoY). |
Profitability / EBITDAOperating Income Margin and EBITDA progression | 1Q of last year saw revenue of JPY 1,514M and operating income of JPY 117M (OPM 7.8%, our estimate). Full-year guidance is JPY 800M operating income and JPY 1,300M EBITDA; we check the 1Q run-rate. |
Non-Operating / Extraordinary ItemsBreakdown of non-operating expenses and recurring profit progression | Last year, non-operating expenses totaled JPY 119M, including JPY 30M in crypto asset valuation losses and JPY 47M in shareholder benefit program costs. The 1Q achievement rate against full-year recurring profit guidance of JPY 700M is the benchmark (1Q last year was 23.0% of the JPY 408M full-year actual, our estimate). |
Key Issues from Previous Results (FY4/2026 Full-Year Results)
FY4/2026 delivered revenue of JPY 6,424M (+8.3% YoY), operating income of JPY 523M (+70.7% YoY), recurring profit of JPY 408M (+78.9% YoY), and net income attributable to owners of parent of JPY 376M (versus a loss of JPY 177M the prior year) — top-line growth and earnings recovery in tandem. At the same time, the company executed three portfolio moves — the decision to take VarioSecure fully in-house, the acquisition of AKM Consulting, and the divestment of Strategit — signaling a focus on two core domains: "AI Security" and "AI BPaaS (the HEROZ Cowork initiative)." 1Q FY4/2027 is the first quarter in which these moves begin to flow through to earnings and the capital structure.
1. VarioSecure Full Ownership and the Profit Contribution from AI Security
- Last Year: AI Security revenue of JPY 2,842M (JPY 2,667M prior year) and segment profit of JPY 929M (JPY 789M). Net income attributable to non-controlling interests was JPY 244M, with year-end non-controlling interests of JPY 800M.
- What to Check This Year: The share exchange took effect on June 30, 2026, falling within 1Q. The company has disclosed that no goodwill is expected to arise, as it is a transaction under common control. The deemed acquisition date appears to be the end of 1Q, so we look for a narrowing of income attributable to non-controlling interests and the degree of pass-through to profit attributable to owners of parent from 2Q onward.
- Metrics to Watch: AI Security segment revenue and segment profit YoY, quarterly net income attributable to non-controlling interests, and the quarter-end balance of non-controlling interests.
2. Underlying Growth in AIX and the Expansion of HEROZ ASK
- Last Year: AIX revenue of JPY 3,581M (JPY 3,262M prior year) and segment profit of JPY 696M (JPY 775M). "HEROZ ASK" surpassed JPY 100M in ARR in October 2025 and JPY 200M in ARR in April 2026.
- What to Check This Year: Strategit (JPY 329M in revenue, JPY 31M operating loss last year) will fall outside the reportable segments from this year, so we look for sustained growth on a post-divestment basis. Guidance of JPY 6,800M implies +11.6% growth (our estimate) against last year's revenue of JPY 6,094M excluding Strategit.
- Metrics to Watch: AIX segment revenue and segment profit YoY; HEROZ ASK ARR and customer count if disclosed quarterly.
3. Ramp-Up of the AI BPaaS Domain via AKM Consulting Consolidation
- Last Year: On April 20, 2026, the company resolved to acquire 70.0% of outstanding shares, at an acquisition cost of JPY 105M with acquisition-related expenses of JPY 35M (estimate). Consolidation took effect May 1, 2026, with no impact disclosed on last year's results.
- What to Check This Year: The revenue and profit contribution from full consolidation starting in 1Q, plus progress in AI back-office offerings under the "HEROZ Cowork initiative." Disclosure of goodwill recognized and the associated amortization burden is also an issue.
- Metrics to Watch: Consolidated revenue YoY (1Q last year: JPY 1,514M) and quarterly goodwill amortization (JPY 170M for full-year last year).
4. Cost Structure and Progress Against the EBITDA Plan
- Last Year: SG&A of JPY 2,398M (JPY 2,381M prior year) and cost of goods sold of JPY 3,503M (JPY 3,241M). The company attributed cost increases to stepped-up hiring, upfront investment in HEROZ ASK and related initiatives, and advisory fees for the share exchange plus AKM acquisition-related costs.
- What to Check This Year: The company positions EBITDA as a key performance indicator and guides to JPY 1,300M for FY4/2027 (+26.7% YoY). With one-off M&A-related costs rolling off but investment continuing, the question is where quarterly margins settle.
- Metrics to Watch: Quarterly operating income and Operating Income Margin (1Q last year: JPY 117M, 7.8%, our estimate) and quarterly EBITDA progression against the JPY 1,300M full-year plan.
5. Reading Non-Operating / Extraordinary Items and the Net Income Plan
- Last Year: Non-operating expenses of JPY 119M (crypto asset valuation losses of JPY 30M, shareholder benefit program costs of JPY 47M, interest expense of JPY 25M, etc.). Extraordinary income included a JPY 311M gain on sale of affiliate shares, with extraordinary losses of JPY 20M.
- What to Check This Year: Guidance calls for recurring profit of JPY 700M (+71.4% YoY) but net income attributable to owners of parent of JPY 300M (-20.2% YoY), premised on the absence of last year's extraordinary gain. In 1Q we look at the breakdown of non-operating expenses, extraordinary items, and income tax booking.
- Metrics to Watch: 1Q achievement rate against full-year recurring profit guidance of JPY 700M (1Q last year was 23.0% of the full-year actual, our estimate) and valuation gains/losses on crypto assets (JPY 70M balance at end-FY).
Key Timely Disclosures During the Current Fiscal Year
- 2026/08/26Launch of co-creation hands-on support (Business Embedded Model) to establish in-house AI capability and self-sufficiency at Nippon Life - A hands-on AI implementation support engagement for a major financial institution, consistent with the strategy of winning large BtoB deals. Revenue recognition is expected from 2Q FY4/2027 onward; in the 1Q results we look for qualitative commentary on order intake and pipeline trends. HEROZ Launches Co-Creation Hands-On Support (Business Embedded Model) to Establish In-House AI Capability and Self-Sufficiency at Nippon Life
- 2026/08/03Notice regarding business transfer at a subsidiary / Supplementary materials on the transfer of Extra's generative AI business - A business acquisition in the generative AI space that brings in the training and education domain, which serves as an entry point for AI adoption. P&L impact is expected from 2Q FY4/2027 onward; in the 1Q results we check the assumptions for goodwill and acquisition-related costs. Notice Regarding Business Transfer at a Subsidiary
- 2026/06/30Statutory post-transaction disclosure document (share exchange) (VarioSecure) - The share exchange took effect on June 30, 2026, making VarioSecure a wholly-owned subsidiary. As this occurred within 1Q, the change in non-controlling interests and the impact on profit attributable to owners of parent are the key items to verify in the 1Q results. Statutory Post-Transaction Disclosure Document (Share Exchange) (VarioSecure)
Previous Quarter Results (FY4/2026 Full-Year Actuals)
HEROZ operates two segments — "AIX" and "AI Security" — providing BtoB/BtoC services leveraging AI and SaaS technology combined with domain knowledge, as well as security BPO services through VarioSecure. In FY4/2026, under the banner of "HEROZ 3.0 = AI BPaaS," the company simultaneously advanced the implementation of AI agent functionality and the optimization of its group portfolio. Alongside top-line growth, extraordinary losses (which included impairment the prior year) narrowed, and with the JPY 311M gain on sale of affiliate shares, profit attributable to owners of parent swung to the black. The company positions EBITDA as a key performance indicator and guides to JPY 1,300M for FY4/2027.
| Item | Amount | YoY | vs. Guidance | Notes |
|---|---|---|---|---|
| Revenue | JPY 6,424M | +8.3% | - | AIX JPY 3,581M, AI Security JPY 2,842M (external customer revenue) |
| Operating Income | JPY 523M | +70.7% | - | Operating Income Margin 8.1% (5.2% prior year); EBITDA JPY 1,025M |
| Recurring Profit | JPY 408M | +78.9% | - | Non-operating expenses of JPY 119M (including JPY 30M crypto asset valuation losses) |
| Net Income Attributable to Owners of Parent Company | JPY 376M | - | - | Prior year: -JPY 177M. Gain on sale of affiliate shares JPY 311M; extraordinary losses JPY 20M |
| EPS | JPY 24.75 | - | - | Prior year -JPY 11.79; diluted JPY 24.71 |
(Note) Initial company guidance for FY4/2026 is not stated in this earnings release, so comparisons versus guidance — including for EPS — are shown as "-".
Achievement Rate Against Full-Year Guidance (Recurring Profit Basis): Not calculable as initial guidance is not stated in this earnings release (for reference: FY4/2027 recurring profit guidance is JPY 700M, +71.4% YoY)
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