Record profit marks a "second founding." After the Zero Field divestiture, design AI for the Toyota supply chain and AI Lab will drive faster profit growth.

Summary

FY8/26 was the company's first year under IFRS. Revenue and operating income both hit full-year records, a sharp V-shaped recovery from the prior-year loss. Management stressed that the record was achieved after absorbing new-graduate hiring costs, year-end bonuses, valuation losses and provisions in full. In its view, this shows the improved earnings structure is not a one-off. The company did not issue consolidated FY8/27 guidance because the sale of Zero Field is still in progress. It instead provided reference figures for continuing operations. Over the medium term, it aims to move to a growth model not constrained by headcount by converting its automotive design AI products into subscriptions.

Key Points (Earnings Takeaways and Growth Initiatives)

• Management Strategy and Market View
  • Management believes the full-year results show the company has moved from expanding revenue through M&A to generating profit. It has positioned FY8/26 as the start of a "second founding."
  • The sale of all shares in Zero Field is a proactive decision to build a business base insulated from external conditions. Management is confident that focusing on the core business will deliver stronger profit growth than before.
  • Sales teams see AI adoption advancing in automotive styling design, while engineering design work remains largely untapped. Few companies understand both design engineering and AI, which management sees as a winning opportunity.
  • More sophisticated generative AI-driven cyberattacks and the spread of shadow AI have made balancing AI adoption with data protection an urgent priority for corporates. Management sees renewed demand for edge and security solutions as companies reassess their cloud strategies.
• Current Business Progress and Drivers
  • With the fiscal year starting in September, the company has long struggled with a seasonal earnings dip in the March–August second half. In FY8/26, however, 3Q and 4Q delivered both revenue growth and margin improvement.
  • The group hired a record 39 new graduates in the spring and absorbed the related personnel and training costs in the second half. It still secured a record profit after booking a JPY 33M year-end bonus for employees in 4Q.
  • Engineering revenue recovered from 80% of the prior-year level in 1Q to around 90%. Headcount attrition has fully stabilized.
  • In AI Products, the large deals flagged as prospects in 3Q closed in 4Q. The company received formal orders from a major pharmaceutical company and a car dealer.
• Key Strategic Initiatives and Changes
  • Hitoshi Sato became Representative Director of Zero Field on September 7. Management describes the appointment as a move to improve execution of the sale. The plan to divest all shares remains unchanged.
  • Two executive officers with enterprise sales backgrounds have joined, strengthening the company's push into large corporate accounts.
  • Technical Advisor Yamamoto, former Vice President of Toyota Boshoku, has been appointed as Technical Advisor. Secondments from Triple Eyes to BEX have also begun. Orders have been secured through Toyota's commercial channels.
  • In automotive, the company is advancing a three-product pipeline: a Copilot agent, drawing-generation AI integrated with CAD, and image-recognition AI for visual inspection.

Outlook and Strategy

• The company did not disclose consolidated FY8/27 guidance because the timing and price of the share transfer have not been finalized. It plans to disclose guidance promptly once terms are fixed.
• Reference figures for continuing operations are revenue of JPY 5,030M and operating income of JPY 190M (+19.5% YoY). These figures include year-end bonuses, sales force expansion and investment in automotive design AI. Management described them as readily achievable.
• Profit growth will come from three initiatives to build gross profit. The plan calls for AI Integration gross profit to rise from JPY 755M to JPY 909M and Engineering gross profit from JPY 425M to JPY 521M.
• For automotive design AI products, the company plans to complete prototypes and PoCs at major Tier 1 suppliers during FY8/28. It will then launch them at full scale as subscription-based SaaS.
• The company has set a KPI to develop 100 AI-driven development leaders by 2028. Using AT20 as the foundation, it will transition engineers into FDEs (engineers who work on-site with clients through to problem resolution).

Positive Factors

• AI Lab/Consulting revenue grew for a fourth consecutive quarter. A repeatable model is now in place, with clients moving from PoC to full development and then to the next phase.
• Improved commercial channels have lifted AI Integration productivity and the business partner gross margin. Management sees further room in SI for price increases and a shift toward prime contracts.
• Active IDs for Aruroku for LINE WORKS surged on the back of effective online advertising. API integrations with Money Forward, Kinjiro and CROSS CAT are also working as order channels.
• The company has opened supplier accounts with Toyota itself and major Tier 1 suppliers. Through secondments and on-site placements at BEX, it has already won two AI development projects in the Tokai region.
• BEX's drawing data and patent expertise, built up over more than 40 years, can serve as AI training data. Management sees this as a differentiator that competitors will find hard to replicate.
• The GPU Server business cut SG&A from JPY 835M to JPY 590M. Operating income for 3Q–4Q was JPY 63M even after inventory write-downs, raising the business's value ahead of the sale.

Concerns and Risks

• With no consolidated guidance, full-year visibility is limited. Net income remains undetermined pending the transfer price.
• The counterparty, timing and price of the Zero Field sale are all still undecided. Progress in negotiations with multiple candidates needs to be monitored.
• The AI Solutions business posted a 4Q standalone operating loss of JPY -12M. The seasonal burden of new-graduate costs and bonuses in the second half remains an issue.
• Outside AI Products, the businesses are labor-intensive, so headcount caps growth. Generative AI is reducing development man-hours and undermining the assumptions behind man-month and SES models. Success in hiring and reskilling engineers is critical.
• The company booked a JPY 38M allowance for doubtful accounts in finance costs for uncollected receivables tied to defective inventory purchased from a Taiwanese company. It also recorded crypto-asset impairments and inventory write-downs during the year.
• Cash and deposits fell to JPY 1,474M at year-end from JPY 1,914M at the prior year-end. Management says liquidity remains ample, but goodwill impairment risk related to BEX persists.

Performance Highlights

Revenue and operating income both set new full-year records. Operating income swung to a profit from JPY -522M in the prior year. Net income was JPY 100M (prior year: JPY -467M). In 4Q, the company recorded a JPY 21M deferred tax benefit after reassessing the recoverability of deferred tax assets. The prior-year operating loss in the GPU Server business includes a JPY 319M inventory write-down. Under J-GAAP this was an extraordinary loss, but it was reclassified under IFRS.

Segment Results

• AI Integration Average Monthly Revenue per Employee (4Q): JPY 1,641K (+11.0% YoY, our estimate)
• Business Partner Gross Margin (4Q): 18.5% (+3.2pt YoY)
• AI Lab/Consulting Revenue (4Q): JPY 86M (+120.5% YoY, our estimate)
• AI Products ARR: JPY 142M (FY8/27 expected at JPY 161M, +13%)
• Aruroku for LINE WORKS Active IDs: +501% over the past year
• GPU Server Business Gross Profit Margin: 62.7% (+12.5pt YoY)
• Consolidated Gross Profit per Employee: JPY 4,347K (+12.7% YoY, our estimate)
• Consolidated Headcount: 437 (-2.7% YoY, our estimate)

Q&A List

• Q

  What is the status of the Zero Field share transfer, and when do you expect it to close?

  A

  We are steadily advancing the sale process with multiple candidate counterparties, including negotiations on terms. Due to NDAs, we cannot disclose the counterparties or details of the transfer price, but negotiations are progressing positively. As noted earlier, we will make a timely disclosure as soon as terms are agreed.

• Q

  How will the transition to new leadership affect the sale?

  A

  Mr. Sato's appointment as Representative Director on September 7 is intended to make the sale process more effective. By putting a professional manager with experience at a major trading house and listed companies at the top, we fully executed the business restructuring. That transformed the earnings structure to the point where the business now generates operating income of JPY 63M. This is a proactive move to hand the business over to the best partner after maximizing its value in the second half. Our plan to divest all shares is unchanged.

• Q

  Why did you withhold consolidated FY8/27 guidance, and when will you formally disclose it?

  A

  As explained, the timing of the Zero Field transfer is currently unclear. We judged that issuing formal guidance at this stage could mislead investors. We will promptly disclose formal guidance once the transfer terms are finalized and a reasonable forecast is possible.

• Q

  How confident are you in achieving the reference figures?

  A

  The reference figures are meant to give investors a sense of growth in our core AI Solutions business. They do not rely on cost cuts. They fully include growth investments such as year-end bonuses, sales investment and development spending on automotive design AI products. Given current inquiries for generative AI and AI and the improvement in our commercial channels, we view these figures as readily achievable.

• Q

  In AI Solutions, what explains the plan for operating income to grow +19.5%, well ahead of revenue growth?

  A

  The main driver is the three near-term initiatives to build gross profit shown in the presentation. First, in AI Integration, there is still untapped potential in SI. We will steadily shift from subcontracted work to prime contracts, push for price increases and win AI development projects. This will be a very significant driver. In addition, in the platform business, we aim to move from conventional system development toward high-value, cutting-edge projects aligned with market demand, such as generative AI, security requirements and edge-based facial recognition, to improve profitability.

• Q

  What are the two AI development projects already won in automotive?

  A

  We won these projects because our team members were seconded to and stationed at BEX, embedding themselves in the operations of automakers and suppliers in the Tokai region. Due to NDAs, we cannot disclose company names or specifications. The projects involve implementing agents that streamline workflows unique to automotive shop floors, local generative AI and physical AI. They are already contributing to earnings on a realized basis.

• Q

  What is the commercialization timeline for new AI products over the medium term?

  A

  Our new drawing-generation and CAD product, a key medium-term pillar, will draw heavily on the drawing data and design patent expertise BEX has built over 40 years. What data you feed an AI directly determines how capable it is today. We see this as know-how competitors cannot obtain, and we will move quickly with joint R&D. We plan to complete prototypes and PoCs at major Tier 1 suppliers during FY8/28, then launch the product at full scale as subscription-based SaaS from FY8/28 onward.