HEROZ Q1 FY2027 Earnings Analysis: BtoB Business Doubles, Operating Profit Surges 52.8%, and AI BPaaS Strategy Gains Momentum

Introduction: Overview of Financial Performance and Key Topics

HEROZ, Inc. (Securities Code: 4382) has announced its consolidated financial results for the first quarter of the fiscal year ending April 2027 (May–July 2026). During this quarter, the company achieved significant growth in both revenue and profit , driven by a rapid expansion in the BtoB segment of its core AI Transformation (AIX) business, the steady growth of "HEROZ ASK," and stable recurring revenue from its security business.

This report provides a comprehensive analysis of performance trends, shifts in revenue structure, and future business strategies, focusing on 10 key topics derived from the investor disclosure materials.

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1. Q1 FY2027 Consolidated Financial Highlights

Consolidated net sales for the quarter reached 1,643 million yen (+8.5% YoY; +14.5% YoY on an organic basis, excluding the impact of deconsolidating Strategit, Inc.) . Regarding profitability, the company achieved EBITDA of 287 million yen (+25.4% YoY) , operating profit before amortization of goodwill of 223 million yen (+40.8% YoY) , operating profit of 180 million yen (+52.8% YoY) , and net income attributable to owners of the parent of 32 million yen (a turnaround from a 11 million yen loss in the same period last year) .

Progress against the full-year earnings forecast (net sales of 6,800 million yen, operating profit of 800 million yen) stands at 24.2% for net sales, 22.5% for operating profit, and 23.3% for operating profit before amortization of goodwill, indicating steady progress in line with expectations.

The slide below provides a detailed breakdown of the consolidated financial figures for the quarter compared to the same period last year and the full-year forecast.

The most notable takeaway from this performance slide is that while sales expanded, cost of sales was contained at 822 million yen (down 2.9% YoY), leading to a significant improvement in gross margin . Although SG&A expenses increased to 641 million yen (+16.7% YoY), this was primarily due to M&A-related costs (29 million yen) associated with the consolidation of AKM Consulting and marketing investments such as trade shows. The strengthening of core business profitability has directly contributed to the robust 52.8% growth in operating profit.

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2. Sustainable Growth in Recurring Revenue and ARR

Recurring revenue, the cornerstone of HEROZ's business model, continues to follow a strong growth trajectory.

• ARR (Annual Recurring Revenue): 4,969 million yen (+17.6% YoY)
• Recurring Revenue Ratio: 72.2% (+1.2pt YoY)
• Quarterly Recurring Revenue: 1,186 million yen (AI Security: 658 million yen + AIX: 528 million yen)

Recurring revenue in the AIX business grew by 14.8% YoY, while the AI Security business grew by 7.2% YoY, demonstrating balanced expansion. Furthermore, churn rates remained at extremely low levels, below 1%: 0.84% for the AI Security business and 0.96% for HEROZ ASK (an improvement of 0.31pt QoQ) , proving the high stickiness of the customer base.

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3. Segment Trends: AIX Business Accelerates as the Primary Driver

By segment, the AIX business is powerfully driving overall performance.

(1) AIX Business (Net Sales: 937 million yen; Segment Profit: 234 million yen)

Excluding Strategit, the organic sales growth rate surged 28.2% YoY , with segment profit jumping 56.3% YoY . This growth was spearheaded by HEROZ's standalone BtoB solution business and the LLM platform "HEROZ ASK."

As shown in the slide above, HEROZ BtoB business sales achieved explosive growth of 101.3% YoY (approximately double) . The number of active projects increased by 26.8% YoY , validating the shift toward a "Co-creative Business Engineering Management (BEM)" model, which addresses the fundamental transformation needs of client operations. By transitioning from a "contracted AI algorithm development model" to a "hands-on model that integrates into the client's organization from upstream planning to implementation and operation," the company has successfully increased project longevity and unit prices, with a high growth rate of 64.8% YoY expected for the first half.

(2) Progress of HEROZ ASK

HEROZ ASK, an AI assistant for corporations utilizing generative AI/LLMs, saw its Q1 sales increase by 25.9% QoQ . As of the end of July, ARR exceeded 230 million yen , with a cumulative total of approximately 470 client companies . The implementation of automatic PII (Personally Identifiable Information) masking has accelerated penetration into the enterprise market. Additionally, the company is enhancing utilization and LTV by releasing a preview version of "Slide AI" for document creation, integrating with the latest models (Claude Opus 5, GPT-5.6 Sol, etc.), and connecting with external tools (Notion, Box, Slack, freee, etc.).

(3) AI Security Business (Net Sales: 709 million yen; Segment Profit: 272 million yen)

Led by Vario Secure, the security business absorbed 29 million yen in M&A-related costs while achieving a 0.3% YoY increase in sales and a 16.5% YoY increase in segment profit . It has maintained a churn rate of less than 1% for 29 consecutive quarters, fully serving its role as the group's stable cash cow.

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4. Cost Structure Reform and Profit Margin Improvement

Regarding the revenue structure, the following cost controls are progressing:

1. Improvement in Cost of Sales Ratio : The organic cost of sales ratio improved significantly by 4.1pt, from 54.2% in the same period last year to 50.1% . While labor costs remained flat at 252 million yen, the improved utilization rate of the BtoB business directly boosted gross profit. The completion of amortization for existing software assets also contributed to cost containment.
2. Optimization of SG&A Expenses : The SG&A-to-sales ratio remained at 37.0% (compared to 36.8% in the same period last year). With personnel and goodwill amortization costs remaining flat, cost synergies —such as the reduction of listing maintenance costs following the full acquisition of Vario Secure—are expected to materialize from the second quarter onward, further lowering the overall level of SG&A expenses.

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5. Mid-to-Long-Term Growth Strategy: Evolution into "AI BPaaS" via AI Agents

HEROZ is rapidly evolving from the "AI SaaS (tool provision)" stage to "AI BPaaS (Business Process as a Service) / AI Agents," which autonomously perform and execute business processes.

As the roadmap above illustrates, HEROZ is building an "Learn → Use → Delegate" AI utilization platform that integrates three key components:

• "Learn" (Expanding the Entry Point) : Through Extra, Inc. (an AI training business acquired in August 2026 with 450+ content items and an OEM base of ~100 companies), the company accesses corporate training budgets to acquire a large volume of new customers (Phase 1).
• "Use" (Practical Foundation) : Introduce "HEROZ ASK" to customers who have overcome security concerns through training, driving higher unit prices and retention via bundled educational materials (Phase 2).
• "Delegate" (Business Substitution) : Collaborate with AKM Consulting (acquired in May 2026, featuring BAKUNAGE, an AI BPO covering 500+ accounting, HR, and legal tasks) and VOIQ (sales support) to have autonomous AI agents handle back-office and specific tasks based on accumulated business knowledge (Phase 3).

Through this ecosystem, the company aims to provide high-value solutions that directly solve labor shortages, rather than merely providing tools, thereby targeting non-linear growth in ARPU (Average Revenue Per User) and MRR.

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6. Other Key Topics and Future Outlook

• Resilience of BtoC Business (Shogi Wars, etc.) : Quarterly matches remain at approximately 30 million, with cumulative matches approaching 1.2 billion . The company maintains a solid foundation through initiatives like opening "Tsume-Bato" to free members and hosting the "Shogi Wars JT Cup."
• Challenging Advanced Technology : Co-hosted the "Pokémon Trading Card Game AI Battle Challenge" on Kaggle with The Pokémon Company and the Matsuo Institute. By developing AI agents for imperfect information games where hands are hidden, the company demonstrates and promotes its world-class AI technical capabilities.
• Expansion of "AI Sakura-san" : "AI Sakura-san," operated by Tiffany.com, saw sales increase by 9.2% YoY. Adoption is accelerating in new areas facing severe labor shortages, such as elderly monitoring services and municipal government offices (Hitachi City National Health Insurance Division) and tourism guidance (Seki City), with further installations and new contracts expected in the second half.
• M&A Policy and Investment Discipline : As noted in the Q&A (P29), the company will strictly limit future M&A targets to three areas: "BPO x AI," "AI SaaS," and "AI Security." It will continue to execute with discipline, maintaining the prerequisite that targets must have "recurring revenue and be profitable."

Summary

HEROZ's Q1 FY2027 results confirm a significant improvement in profitability, supported by the doubling of BtoB business through co-creative hands-on support , the high growth of HEROZ ASK , and a high recurring revenue ratio (72.2%) . Key points to watch moving forward include how the synergies of the "AI BPaaS platform" created by the integration of Extra and AKM Consulting, as well as the cost-reduction effects from the full acquisition of Vario Secure, will contribute to future performance.