NoticeThis document is an excerpt translation of the original Japanese document andis only for reference purposes. In the event of any discrepancy between thistranslated document and the original Japanese document, the latter shallprevail.

Presentation Material for
FY04/2019 Q1 Financial Results

September 11, 2018

HEROZ, Inc.（4382）
1

1. Business Overview
2. FY04/2019 Q1
Performance
3. Growth Strategy
4. Reference Materials

Our Vision

Creating the future throughartificial intelligence (AI)revolutions

3

Global Leader in Mind Game AI

Chess AIShogi AIGo AI

Deep Blue (’97)
defeated a humanbeing champion

AI developed by ourengineers defeated aprofessional shogi(Japanese Chess)player (’13)

Google acquired Deep Mind(’14)
AlphaGo, developed byDeep Mind, defeated aprofessional Go player(’16)

IBMGoogle4

B-to-B Services: Profit Model and High Switching Costs
Research/develop Shogi AI
Standardize AI technology accumulated
through shogi AI

Establish “HEROZ Kishin”=MLaaS（Machine Learning as a Service）

Client’s data sent
to HEROZ Kishin

Output after machinelearning throughdeep learning, etc.

Output applied inbusiness settings

Establish an infrastructure which allows
HEROZ to provide AI services efficiently
to solve various challenges in variousindustries just by changing input data
Provide comprehensive AI services withmassive servers

Results measured and used for further
machine learning

Output precision increases throughrepeated machine learning

Achieve stable, sustained earnings andhigh switching costs

Earning structure: initial setup fee
and ongoing fees5

B-to-B Services: Provide Services by Replacing
Shogi Game Records with Corporate Data

Shogi game records

Structural design data,
financial data, etc.

HEROZ Kishin
Deep learning and other machine learning:
MLaaS (Machine Learning as a Service)

Shogi AI

Construction AI, Finance AI, etc.

MLaaS： What is Machine Learning as a Service?
Business model which provides machine learning/deep learning as service, similar to
SaaS (Software as a Service) and IaaS (Infrastructure as a Service)6

B-to-B Services: Engines included in HEROZ Kishin
and Examples of Applications◼ Create AI products by combining engines and achieve an efficient operating structure

Know-how ondevelopment andservice operations

AI-related technology
and R&D capabilities(deep learning, etc.)(massive servers, etc.)
Construction

Mind gameengineGameprocessing
enginePlacement
Routeoptimization optimizationengineenginePredictionengineStructuraldesign supportHRQC

Matching
jobseekers withcorporations

HEROZ Kishin (Kishin)
Finance
Optimalsolution
searchengineClassificationengineAnomalydetectionengineTextprocessing
engineImage
recognitionengineInvestment
support /market forecast

Automated
testingEntertainment

Robot

Route search◼ In construction AI, which is one area of focus, we enteredinto a capital and business alliance with Takenaka
Corporation in 2017 and became a member of i-Construction,
aiming to create a new, productive and attractive
construction site using AI

Brain game AI,etc.

7B-to-C Services: Fees from Application Users
Charging fees for B-to-C content which user AI◼ Leveraging AI-related technology to provide brain games such as
shogi, chess, and backgammon worldwide◼ Also engaging in collaboration with IP characteristics

Shogi Wars

AnimalShogi Wars

Igo Wars

CHESS HEROZ(English)

BackgammonAce(English)Pokémon Comaster(Pokémon Duel）

Profit structure:
AI fee income from users, etc.
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1. Business Overview

2. FY04/2019 Q1
Performance
3. Growth Strategy
4. Reference Materials

Our Key Performance Indicator◼ We believe that EBITDA, as calculated below, is our key performance indicator

EBITDA = Operating Profit +Depreciation/AmortizationExpenses◼ In AI-related businesses, server investments, etc. are required to engage in advanced
machine learning, leading to various depreciation/amortization expenses. We aim tocontinuously enhance enterprise value/equity value via EBITDA growth, without being
concerned about fluctuations in one-time depreciation/amortization expenses.

10Performance Overview (May-July 2018)◼ We made steady progress towards achievement of fiscal year forecasts in the firstquarter, driven by an increase in new and ongoing AI (B-to-B) projects and steady
performance of Shogi Wars in AI (B-to-C) services(Units: JPY millions)

FY04/2019 Q1

FY04/2019
Forecast% Progress(Reference)
FY04/2018
Results

Net Sales

296

1,300

22.8%

1,155

EBITDA*

108

450

24.0%

357

EBITDA Margin

36.5%

34.6%

Operating Profit

104400Operating Margin

35.1%

30.8%

Ordinary Profit

104

400

26.0%

338

Net Income71280

25.4%

247

30.9%
354

26.0%

30.6%

* EBITDA = Operating Profit + Depreciation Expenses + Amortization of Lease Deposits
11Performance Trends◼ We forecast that revenues from AI (B-to-B) services, which is the core pillar of ourgrowth strategy, will more than double on a year-on-year basis in FY04/2019◼ On the other hand, we expect revenues from AI (B-to-C) services to decrease on a yearon-year basis as full year revenue contributions will not be recorded from several
unprofitable services terminated during the last fiscal year. We expect a slight increase in(Units: JPY millions)revenues from Shogi Wars, etc.
36.5%

1,155

30.9%

878

357

10.7%

296
108

94

FY04/2017

FY04/2018
Net Sales

EBITDA

FY04/2019 Q1
EBITDA margin

12Balance Sheet (as of July 31, 2018)◼ We expect to continue to invest cash and deposits in efforts to achieve the medium-tolong-term growth strategy (computing servers, R&D, etc.)◼ Tangible fixed assets increased in the first quarter due to the purchase of computing
servers for about 50 million yen (of which 25 million yen was recorded underconstruction in progress as of the end of the previous fiscal year)
Units: JPY millions

Current Assets

As of 7/31/2018

As of 4/30/2018

1,705

1,684

1,552

1,55592

63

Property, plant and equipment

5130

Intangible assets

00

Investments and other assets

40

32

1,797

1,748

113

243--

1,684

1,504

Cash and deposits
Fixed Assets

Total Assets
Current Liabilities
Fixed Liabilities
Net Assets

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1. Business Overview
2. FY04/2019 Q1
Performance

3. Growth Strategy
4. Reference Materials

Medium-to-long-term Growth Strategy
・Net Sales
・EBITDA

B-to-B
Provide AI services
to businesses

AI B-to-B(Growthmarket)

Growth area
→core operation forthe medium-to-longterm￥

B-to-C

Shogi AI,
other brain games AIIPO

Profit contributions(cash cow)→stable growth• Focus on partnership strategy, IPstrategy, and recruiting• Enhance competitiveness throughinvestments in servers, etc.
• Aggressive development in coretechnology areas: construction,
finance, etc.

￥• Develop/operate world-leading Smartphone shogi application
Shogi Wars (over 4.5 million members)• Leverage AI-related technology to deliver other brain games
such as chess and backgammon

AI B-to-C(Stable CF)

時間
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Initiatives Aimed at Achieving the Growth Strategy (1)◼ Member of the Japan Deep Learning Association (JDLA) since July 19, 2018
◼ Contributing to JDLA’s activities (advice to governmental organizations and corporations, humanresource development, international coordination, dialogues with society, etc.) based on its deeplearning and other machine learning know-how accumulated through shogi AI, etc.
◼ Contributing to the promotion of business applications for deep learnings as a full JDLA member◼ AI (B-to-B) services◼ Forecasting that set sales will more than double in the current fiscal year through a focus on thefollowing 3 areas◼ Construction◼ Establish structural design model through reinforced learning to support designers, etc.
◼ Finance◼ Create financial market forecast models◼ Create FX trading model and provide investor trading simulation and evaluation services◼ Entertainment◼ Create high-quality NPCs (non-player characters), adjust game balance, etc.
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Initiatives Aimed at Achieving the Growth Strategy (2)◼ Completed investment of about 50 million yen in proprietary computing server
for machine learning in the first quarter (planning total investment of about
200 million yen during the fiscal year)◼ Allows for R&D efforts using larger, more complicated data (e.g. CAD data)◼ Can shorten time required for initial setup in the AI (B-to-B) services◼ Server depreciation costs, etc. will increase but the focus will be placed oncontinued EBITDA growth
Global-IP
RouterInfiniBand
GbE

.1.1

GbE
L2 switch.1.101～104

g01
g01
g01
g01～g04.1.11.1.105～108

g01
g01
g01
g05～08.2.101～104

SX6012

10GbE x 2: .1.201
1000BaseT x 4: .1.202

NAS.2.105～108.2.1217

1. Business Overview
2. FY04/2019 Q1
Performance
3. Growth Strategy

4. Reference Materials

Company Overview
2018
NameHEROZ, Inc.

Location

PMO Tamachi 2F, 5-31-17 Shiba, Minato-ku,
Tokyo

Established

April 2009

Paid-in Capital
Representatives
Business
Description

259 million yen (as of 7/31/2018)
Takahiro Hayashi/Tomohiro Takahashi

AI (B-to-B) services: HEROZ Kishin
AI (B-to-C) services: Shogi Wars, etc.

Listed on Tokyo Stock Exchange (TSE) Mothers
Capital and business alliance with Netmarble Games Corporation

2017
Capital and business alliances with Takenaka Corporation, HeartsUnited Group, and Koei Tecmo Games2016
Awarded the JVA2016 Small and Medium Enterprise Agency
Commissioner Award
Capital and business alliance with Bandai Namco Entertainment

2013
Shogi AI, developed by HEROZ engineers, defeated a shogi
professional

Representative Director and CEO

Takahiro Hayashi

Graduated from Waseda University
Joined NEC as a technology engineer
Experience at IT strategy division, businessplanning division
Founded HEROZ

Shogi Track Record
Amateur 6th dan (highest rank after becoming
national amateur champion)
7th dan, Shogi Wars
Amateur Kisen Champion (7-time title defender as nationalchampion)
Played against Yoshiharu Habu (permanent 7 title holder)

Representative Director and COO

Director and CFO, Business Planning Manager

Tomohiro Takahashi

Daisuke Asahara

Graduated from Waseda University
Joined NEC as a technology engineer
Experience at Business Planning Division, BIGLOBE

Graduated from Kyoto University Graduate School
MBO from Wharton School, University of Pennsylvania(delivered graduation speech as student body representative)
Investment Banking Division, Goldman Sachs

Founded HEROZ

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HEROZ’s Competitive Advantages

BackgroundsofManagement
Team and Key
Members

CompetitiveAdvantageKeyBusinessShogiAIBusinessExperience

Defeated active shogi
professional (shogi AI
talent backed by realworld “battles”)

AI technology suitedfor real-world “battles”(AI technology with astrong track record inshogi, etc.)

Ability to establish
business alliances
Big data from business
partners

B-to-C

B-to-B

Shogi AI,
Other brain games AI

Provide AI services
to businesses

Profit Contribution/
Stable Growth

Growth Area

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Disclaimer
The contents set out in this material are prepared based on generally acknowledged
economic, social and other conditions, and on certain assumptions deemed rational byHEROZ, Inc. and may therefore be subject to change without prior notice due tochanges in the managerial environment or for other reasons.
The forward-looking statements set out in this material including performance outlooks
are based on information currently available to HEROZ, Inc. and on certain
assumptions deemed rational, and may therefore differ materially from actual results
due to uncertainties in judgements or assumptions, or for other reasons.
Such factors of uncertainty and change include both general, domestic and international
economic conditions, such as general industry and market conditions, interest rates,
and foreign exchange fluctuations. HEROZ, Inc. shall not undertake any obligations toupdate or revise any forward-looking information set out in this material even in theevent that new information becomes available or certain events occur hereafter.

This material is an excerpt translation of the original Japanese material and is only forreference purposes. In the event of any discrepancy between this translated material
and the original Japanese material, the latter shall prevail.
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