Presentation Material for
FY04/2024 Q3 Financial Results
March 8,2024
HEROZ, Inc. ｜4382｜

NoticeThis document is an excerpt translation of the original Japanese document and is only
for reference purposes. In the event of any discrepancy between this translated
document and the original Japanese document, the latter shall prevail.

Contents
1. Financial Highlights
2. FY04/2024 Third Quarter Performance (Consolidated)
3. Revision of Full-Year Earnings Forecasts

4. Initiatives in each business segment
5. Frequently Asked Questions and Answers© 2023 HEROZ Co., ltd.

2

01
Financial Highlights© 2023 HEROZ Co., ltd.

3

※We disclose consolidated financial statements from the third quarter of the fiscal year ending in April 2023.
Therefore, please note that the year-on-year comparison (cumulative) is based on the figures that include the profit
and loss statement of the subsidiary for only three months.

Financial Highlights◼

◼

FY04/2024 Third Quarter
Performance Summary◼

◼

Toward a shift to abusiness model based on
AI SaaS◼

◼

Revision of Full-Year
Earnings Forecast◼
◼

Net sales were 3,631 million yen (+93%, YoY) ,and EBITDA was 730 million yen (+107%, YoY),
and Operating Profit was 402 million yen (+106% YoY) in three-quarter cumulative total.
Within the AI/DX business, the HEROZ BtoB business achieved approximately 20% YoY growth in
the first half of the year. In the current third quarter, the business continued to experience a
YoY revenue increase of 22.7%. The BtoC business also showed further growth, fueled by the shogiboom.
As for the AI Security business, the customer base has been consistently growing, and the net sales
have been steadily progressing.

On February 1st, our dedicated LLM unit released an early access (paid) version of HEROZ ASK forEnterprise, an AI assistant that uses generative AI to lead businesses. Based on feedback from trial
users of the closed beta version, significant improvements have been made to the user interface andsecurity aspects of the product.
On February 5th, StrategIT released a paid version of their SaaS integration app called "JOINT iPaaSfor SaaS," which is designed specifically for SaaS vendors. StrategIT, Inc. is also transitioning its
business model towards a stock-based revenue model.
In addition to the steady progress in performance, our company has announced a revision in the fullyear performance forecast due to the consolidation of A.I. Squared, Inc. as a subsidiary and therecognition of a one-time impairment loss on the shares of VarioSecure, Inc., along with thecorresponding lump-sum depreciation (special loss).
We aim for a net sales of 4.85 billion yen (up 1.0% from the initial forecast), EBITDA of 920
million yen (up 15.0% from the initial forecast), and operating profit of 450 million yen (up12.5% from the initial forecast).
Regarding A.I. Squared, Inc.'s profit and loss statement, it will include five months' worth of data for thefull year (three months in the third quarter and two months in the fourth quarter).

© 2024 HEROZ Co., ltd.

4

02
FY04/2024 Third Quarter Performance(Consolidated)© 2023 HEROZ Co., ltd.

5

Our Key Performance Indicator◼ We have set EBITDA, a measure of cash generation, as a key performance indicator and aim to sustainably

Performance Indicators for
Business Profitability

increase corporate and share value through EBITDA growth.
◼ Formula: Operating profit + amortization and other non-cash expenses (amortization of goodwill, security deposits,stock compensation expense, loss on revaluation of inventories, etc.)◼ Years of depreciation

EBITDAEBITDA・Investment in servers for machine learning: Mainly 5-year useful life and declining-balance method
・ Amortization period of goodwill (amount)
VarioSecure, Inc. 14 years（2,180 million yen）,StrategIT, Inc. 9 years（219 million yen）
A.I. Squared, Inc. 12 years (273 million yen)

◼ We intend to address more generic problem solving with AI SaaS as our group strategy.

Performance Indicators for
AI SaaS Business

ARR*
ARR
リカーリング売上
Recurring
Revenue Ratio
Churn
rate
解約率

We will focus our management efforts on the following indicators that are important to our AI SaaS business model.
◼ ARR（Annual Recurring Revenue）

An important indicator essential for understanding the growth and profitability of SaaS businesses.
Estimated as 12 times the last month of the quarter.
◼ Recurring Revenue Ratio

Indicator of ongoing sales that can be booked on a regular monthly basis.
◼ Churn rate

The churn rate of existing customers is an important indicator of the stability of the above recurring sales.

© 2024 HEROZ Co., ltd.

6

Performance Summary (May 2023-January 2024)
HEROZ Group Consolidated(FY04/2024 Q3)Net Sales

3,631

mil yenYoY ＋93.2%

EBITDA730

mil yenYoY ＋107.0%

Operating Profit

402

mil yenYoY ＋105.6%

AI SaaS KPI

ARR

3,328

mil yenYoY ＋15.9%

Recurring Revenue Ratio

AI Security
Recurring churn rate

63.9%

0.6%

YoY ＋8.6%pt

YoY 0.0%pt* Recurring Revenue is the sum of HEROZ’s BtoB recurring sales and BtoC subscription sales, VarioSecure's managed security services sales, and StrategIT's subscription sales and maintenance sales.
** Recurring churn rate is the churn rate for managed security services in the AI Security service.
© 2024 HEROZ Co., ltd.

7

Performance Overview (May 2023-January 2024)◼ Thanks to the strengthening of our sales organization and the strong performance of Kishin Learning, both our organic BtoB and BtoC

businesses have continued to experience significant growth in net sales.
◼ As of the current third quarter, we have incorporated the financial performance of A.I. Squared, Inc. into our consolidated results.

FY04/2023
Q3 Results

FY04/2024
Q3 Actual(Consolidated)（Consolidated ）Net sales

1,879

EBITDA

Initial Forecast

Progress against
Initial Forecast

YoY(Announced onJune 9, 2023)

3,631+93.2%

4,800

75.7%

352

730

+107.0%

800

91.3%

Operating Profit

195

402

+105.6%400

100.7%

Ordinary Profit

161

343

+112.7%

385

89.3%

Net Income (loss)

-518

-921

-

30

-

(Units: JPY millions)

attributable toowners of the parent© 2024 HEROZ Co., ltd.

8

Key Performance KPIs (by Quarter)
EBITDANet Sales(Units: JPY millions)(Units: JPY millions)
1,400

1,296
1,100

1,200

1,114

300

1,217

279

281

2Q

3Q

258 256

1,118

250

※

1,000
200

170
800
150
600

400

100

389
354 374 371 381 375

78
50

200

53

47

41

40
22

0

0
1Q

2Q

3Q

FY04/20202

4Q

1Q

2Q

3Q

FY04/2023

4Q

1Q

2Q
FY04/2024

3Q

1Q

2Q

3Q

FY04/2022

4Q

1Q

2Q

3Q

FY04/2023

4Q

1Q

FY04/2024※ Various investments for growth (200-300 million yen per year)© 2024 HEROZ Co., ltd.

9

Recurring revenue shows a continuous increasing trend.
◼ In February, the paid versions of "HEROZ ASK" and "JOINT" were launched, and we expect a significant increase in recurring revenue in the

future.
◼ Recurring revenue continues to show an increasing trend.
(Units: JPY millions)

Net Sales

1,400

Recurring revenue

Raito of Recurring revenue

100.0%
90.0%

1,200

1,000

64.9%
64.1%

64.8%

80.0%

70.0%

60.2%

800

600

37.5%

38.5%

40.1%

39.3%

40.5%

39.9%

400

200

63.9%

1,114
714

374

354
133

381

371

144

149

713

1,118
725

1,217

152

60.0%
50.0%

732

828
40.0%

389

375
150

1,100

1,296

30.0%

155

0

20.0%

1Q

2Q

3Q

FY04/2022

4Q

1Q

2Q

3Q

FY04/2023

4Q

1Q

2Q

3Q

FY04/2024※ Recurring sales ratio in this slide is calculated and disclosed on a quarterly basis.
© 2024 HEROZ Co., ltd.

10

ARR achieved a growth of approximately 3.3 billion yen.
(Units: JPY millions)

ARR grows significantly

ARR
3,400

3,328

+15.9％
YoY growth
3,200

2,958

3,000

◼ Recurring revenue includes subscription

2,898

2,872

15.9%
ARR is 3,328 mil yen
YoY growth +sales in the BtoC and BtoB segments of the
AI/DX business, ongoing sales in the BtoB
segment, ongoing sales from AI Square, andsales from management security services in
the AI Security business.

2,827
2,800

2,600

◼ The growth factors include not only the sales

2,400

contribution resulting from AI Square's
inclusion in the consolidated group but also
the strong performance of HEROZ's BtoC
services such as "Shogi Wars" and "Kishin
Learning."

2,200

2,000
3Q

4Q
FY04/2023

1Q

2Q

3Q

FY04/2024© 2024 HEROZ Co., ltd.

11

Recurring revenues are expected to continue to increase
With product launches
Recurring revenue breakdown (by quarter)

Details of revenues

Future Outlook

AI Squared package revenue.

Expanding sales for call centers.

AI Squared recorded package sales for contact centers

By coordinating the sales structure
within the group, we are accelerating
our approach to new customers.

(Units: JPY millions)

YoY+15.6%
900

800

700

600

74

56

50

50

52

99

101

105

110

50

BtoB Recurring Contracts

Launch several new SaaS
products

119
HEROZ's BtoB and StrategIT, Inc. recorded ongoing
maintenance and operation sales.

Expect growth through SaaS monetization, suchas the release of the "HEROZ ASK" "JOINT", etc.

500

400

Subscription of Shogi Wars, etc

300

558

562

569

569

581

Shogi Wars paid subscriber growth was maintained at
9.3% YoY.

200

100

57

55

94

99

1Q

2Q

AI Security
Managed Security Service

0
3Q

4Q

FY04/2023

AI Security
Managed Security Service

Subscription of
Shogi Wars, etc

1Q

2Q

3Q

FY04/2024

B to B
Recurring Contracts

A.I. Squared
Package revenue

No. 1 share of the domestic market for firewall-typesecurity services for small and medium-sizedenterprises
Churn rate remains low at less than 1%.

Establishing the
Shogi Wars Economic Zone
Released new Shogi-related content such as"Kishin Analytics" and "Kishin Learning," andexpect further growth.

Entering thegrowing security industry
Expanding areas of support for existing services.
Developing services that expand the scope of
MSS to enter the zero-trust security domain.

© 2024 HEROZ Co., ltd.

12

Breakdown of SG&A expenses (Consolidated)■ Policy to control SG&A expenses through cost control.
■ Increase in personnel and other expenses, mainly due to introduction of stock-based compensation plan.
■ Corporate human resources have increased slightly.
(Units: JPY millions)600

YoY+12.3%

Third Quarter
Results

Actively invest in humanresources

500

109

45
32

45
22

100

129

131

135

300

200

137

140

400

4

16

43
20

4

50

45

3

31

27

3

32

45
16

18

3

30

⚫ On the other hand, total SG&A
expenses remained almost at thesame level as in Q3, controlling costs

30

11

203

196

3Q

4Q

3

⚫ A stock-based compensation system
was introduced, and total personnel
costs increased from last year. The
number of people involved incorporate functions increased slightly.

249

227

222

222

1Q

2Q

Without A. I. Squared⚫ Recruitment costs are achieved byutilizing direct recruiting to achieveboth recruitment and cost reduction.

0
FY04/2023
Labor costs

Recruting and training costs

FY04/2024
Depreciation and amortization

FY04/2024 3Q
advertising expenses

Amortization of goodwill

Other Expenses© 2024 HEROZ Co., ltd.

13

Cost of Sales Breakdown (Consolidated)■ Aggressive hiring continues, especially for engineering and business positions, to achieve sales growth■ Achieve substantial growth for the group as a whole, while appropriately controlling outsourcing costs.

(Units: JPY millions)

YoY+12.1%

800

Third Quarter
Results

700

Continued planned
investments

27

35

27
50

150

143

71

65

600
101
500

21

49

40

65

145

123

153

131

400

65
70

300

200

100

⚫ aggressive investment in
human resources to achieveearnings growth and a policy of
increasing labor costs in thecost of sales for the entire group

63
48

58

74

35

50

70

67

58
34

38

71
71

36

38

37

39

39

165

154

170

173

186

3Q

4Q

1Q

2Q

Without
A. I. Squared

37

216

0

FY04/2023

FY04/2024

FY04/2024

labor costServer costs, etc.

Depreciation and amortization

Billing and settlement fees

VarioSecure equipment and materials costs

Outsourcing expenses

OthersVarioSecure Inventory write-downs

39⚫ On the other hand, outsourcing
costs (subcontracting costs) arestable and appropriately
controlled.
⚫ VarioSecure recorded a onetime charge for the write-downof inventories.

3Q© 2024 HEROZ Co., ltd.

14Performance by Segments (May 2023-January 2023)■ AI/DX business continued to increase revenue through M&A and organic growth. EBITDA margin was also high at 38.1%.
■ AI Security business similarly maintained high profitability with an EBITDA margin of 43.2%.

FY04/2023
Q3 Results

FY04/2024
Q3 Actual(Consolidated)（Consolidated ）Net Sales

1,232

Segment Profit
EBITDA

YoY

YoY（Consolidated ）（Performance of HEROZ
on a standalone basis）

1,668+35.4%+14.8%

370

526+42.1%+53.5%

466

636+36.5%+27.2%

37.8%

38.1%

+0.3%pt-

Net Sales

647

1,974

+204.9%-Segment Profit

221

634

+186.3%-

EBITDA

282

852+201.3%-

EBITDA Margin

43.7%

43.2%

-0.5%pt-

Segment Profit adjustment Segment Profit

-396

-758

-

-

（Units: JPY millions）

AI/DX
services

EBITDA Margin

AI Security
Services ※※Segment information is disclosed from 3Q FY4/2023.Figures for AI/DX business for FY4/2023 are the sum of HEROZ's cumulative results for 1-3Q and Strategit's cumulative results for
3Q, and figures for AI Security business for FY4/2023 are for VarioSecure's cumulative results for 3Q only,The segment income adjustment of -758 million yen represents corporate
expenses that are not allocated to each segment.
© 2024 HEROZ Co., ltd.

15

AI/DX Services Segment◼ This segment includes BtoC centered on Shogi Wars, BtoB for providing AI solutions to customers, SaaS implementation and SaaS-linked

development business developed by Strategit, and services in the contact center area developed by A.I. Squared.

Both BtoC and BtoB sales
increased significantly YoY

FY04/2024
Q3 Actual（Units: JPY millions）

Recurring Revenue Ratio
Net Sales

1,668

33.9％
Operating Margin

Operating
Profit526

31.5％◼ Shogi Wars-related sales grew substantially in Q1-Q2, and have

now moved up further.HEROZ's BtoB business has seen an
increase in the number of projects since the second quarter, andthis quarter also saw a significant increase in sales compared tothe same period of the previous year.
◼ “HEROZ ASK" is now available as a paid version, and the company

will continue to capture recurring sales.
◼ A.I. Squared is expected to be profitable in the current fiscal year.

EBITDA Margin
EBITDA636

38.1％© 2024 HEROZ Co., ltd.

16

AI/DX Services Segment
HEROZ's BtoB business continued to grow sales by more than 20% in the 1st half of the year

HEROZ BtoB Business
Net Sales
・In the first half of the current fiscal year, thecompany achieved YOY growth of +19.4%.
・In the third quarter, growth of 22.7% YOY, andexpects to achieve a 25% YOY increase in sales
in the second half of the year as a whole.

BtoB Business: Number ofOccupancies in the Fourth Half of theYear

BtoB Quarterly staffing averages

・The number of active projects continued toincrease steadily from the first half of the year,
and the average number of active projects per
half year is on an upward trend.

・In the current fiscal year, we have actively
increased the number of employees, mainly inbusiness and engineering positions, in parallelwith an increase in the occupancy rate.

・ We are working on measures to increaseawareness of the company in parallel withregular sales

2Q
4Q

2Q

2Q

4Q

2Q

4Q

4Q
2Q

2Q

3Q

3Q
1Q

3Q

1Q

3Q

1Q

FY04/2022 FY04/2022 FY04/2023 FY04/2023 FY04/2024 FY04/2024
1st half 2nd half 1st half 2nd half 1st half 2nd half

1Q

3Q

1Q

3Q

1Q

FY04/2022 FY04/2022 FY04/2023 FY04/2023 FY04/2024 FY04/2024
1st half 2nd half 1st half 2nd half 1st half 2nd half

1Q average

Calculate the average number of active projects per quarter for each month.

2Q average

3Q average

FY04/2024© 2024 HEROZ Co., ltd.

17

AI/DX Services Segment
BtoC business increased sales due to strong Kishin Learning and various events.
BtoC business grew steadily (YoY growth of 11.4%) due to the effects of increased attention to Shogi following the first-ever eight championships won
by Ryuoh Sota Fujii and Meijin, collaboration with the popular Shogi manga "Ban'ou", and the release of "Kishin Learning", an e-learning service.
HEROZ BtoB Business
Net Sales

YoY+11.4%

1Q

2Q

3Q

FY04/2022

4Q

1Q

2Q

3Q

FY04/2023

4Q

1Q

2Q

3Q

FY04/2024

Kishin Learning Number of Paying
Members

Various measures implemented

・On October 11, Kishin launched "Kishin
Learning," a learning tool for improving one's
Shogi skills. The initial number of paying
subscribers has exceeded expectations.
・Continuous enhancement of content will reduce
churn and ensure a steady increase in thenumber of customers.

・Several events were held in "Shogi Wars" during theyear-end and New Year's holidays, such as the"Furigoma" event.
・CEO Hayashi and Shogi Wars producer Ishii
participated in an online webinar on Kishin Analytics.
・”Kishin Learning" was also featured in several media
including NHK's "Shogi no Jikan".

10月11日

11月11日
12月11日
1月11日
Paid memberships
Paid memberships(Actual)(Initial Forecast)

Courtesy ofMainichi Newspapers© 2024 HEROZ Co., ltd.

18

AI Security service Segment◼ This segment is developing the business of implementing the HEROZ Group's AI into the security business developed by VarioSecure.

Recurring sales ratio is high at 87.1%.

FY04/2024
Q3 Actual（Units: JPY millions）

Recurring Revenue Ratio
Net Sales

1,974

87.1 ％
Operating Margin

Operating
Profit634

32.1 ％◼ Net sales generally progressed as planned.

◼ Operating Profit is expected to decrease due to growth investments

based on the medium-term management policy, mainly in hiring
personnel for service planning, engineering, and operation support,
as well as in advertising expenses to strengthen marketing.
◼ As for the progress of expenses, lower recruiting costs due to thestart of direct recruiting and lower personnel expenses due to thedelay in the start of employment contributed to theoverachievement of profits.

EBITDA Margin
EBITDA852

43.2 ％◼ Started streamlining operations at SOC (Security Operation Center)using HEROZ's AI.

© 2024 HEROZ Co., ltd.

19

AI Security Service Segment
Managed Security Services steadily increased end -user numbers with low churn rates

Managed Security Service
Churn Raito (by Quarter)

Managed Security Service
Number of end users （by Quarter）

Churn rate remains stable at below 1%.

・Steady increase in
the number of users
・Contribution tostable revenue base

Advances in Server Threat Protection Solutions

解約率は安定的に1％を下回る水準で推移
・Increased sales of
products effective
against malware andransomware© 2024 HEROZ Co., ltd.

20

Balance Sheet (as of January 31, 2024)◼ The cash and deposits currently held by the Company will be gradually appropriated for investments to realize the Company's mid- to long-term
growth strategy.
◼ With the grouping of VarioSecure Inc. and StrategIT Inc, A.I. Squared Inc. ,there is a goodwill balance of 1.5 billion yen in intangible fixed assets.

Units: JPY millions
Current Assets
Cash anddeposits

As of 4/30/2023(Consolidated)(A)

As of 1/31/2024(Consolidated)
(B)
4,963

Increase and decrease
(B-A)
4,504

-459
Decrease mainly due to

3,798

3,192

-606 M&A investments

3,709

3,130

-578

Property, plantand equipment

273

245

8

Intangible assets

2,640

2,060

-529

Investments andother assets

831

824

-23

8,673

7,634

-1,038Current Liabilities

994

960

-33

Fixed Liabilities

1,598

1,357

-240

Net Assets

6,080

5,316

-763

Fixed Assets

Total Assets

Decrease due to one-time
amortization of a portion of
goodwill of VarioSecure andincrease due to the goodwill
generated by the
consolidation of A.I. Squared
as a consolidated subsidiary© 2024 HEROZ Co., ltd.

21

03
Revision of Full-Year Earnings Forecasts© 2023 HEROZ Co., ltd.

22

Revision of the Financial Forecast for the Fiscal Year Ending April 30, 2024
■ Partial upward revision of the full-year forecast for this fiscal year, based on the organic growth of the BtoB business and the fact that A.I. Squared will be made a consolidated subsidiaryand its PL (for 5 months) will be reflected in the full-year consolidated results for this fiscal year.

■ On the other hand, the forecast for net income attributable to shareholders of the parent company has been revised downward due to the write-down of VarioSecure's shares in the
Company's non-consolidated financial statements as a result of the decline in VarioSecure's share price.

(Units: JPY millions)

Initial forecast for the
FY04/2024
announced in June
2023(A)

Revised forecast for the
FY04/2024
announced today(B)(B)-(A)(B)/(A)Net sales

4,800

4,850

50

+1.0%

EBITDA

800

920

120

+15.0%

Operating Profit

400

450

50

+12.5%

Ordinary Profit

385

410

25

+6.5%

Net Income (loss)

30

△930

△960

-

attributable toowners of the parent© 2024 HEROZ Co., ltd.

23

04
Initiatives in each business segment© 2023 HEROZ Co., ltd.

24

Group Business Structure◼ We have two businesses: AI/DX business and AI Security business.
◼ A.I. Squared, Inc. will be classified as an AI/DX business

AI/DX Services

Segment

BtoC

Business
Contents

Shogi SaaS business forindividuals, including "Shogi
Wars," utilizing AI and othertechnological capabilities that
won the World Computer
Shogi Championship.

Main KPI※1 MAU：Monthly Active User
※2 MPU：Monthly Paid User
※3 ARPPU：Average Revenue Per Paid User

Recurring Revenue⚫ MAU※1⚫ Billing rate
⚫ MPU※2⚫ ARPPU※3

AI Security
Services

BtoB

Provide solutions to customer
issues through data analysis
and AI development.
Provide AI Solution that can beutilized in practical operations
for a wide variety of customers.

Support for SaaS
implementation anddevelopment of systems that
integrate APIs between SaaS.
Selling API applications on theapp market

Developing businessautomation solutions in thecontact center domain,
including automatic answeringsystems and automatic
summarization andclassification systems

Managed security andintegration services for secureInternet use, primarily for small
and medium-sized businesses.

Recurring Revenue andSolution revenue

Recurring Revenue andSolution revenue

Recurring Revenue

Recurring Revenue⚫ Recurring Revenue Ratio⚫ number of customers⚫ Recurring Revenue Ratio⚫ Recurring Revenue Ratio⚫ number of customers⚫ churned⚫ number of customers⚫ number of customers⚫ churned⚫ revenue per customer⚫ number of employees⚫ number of employees⚫ revenue per customer⚫ utilization rate/unit cost

⚫ utilization rate/unit cost

⚫ revenue per employee⚫ revenue per employee⚫ Number of projects in⚫ number of apps

operationacquired/churned⚫ ARPPU※3© 2024 HEROZ Co., ltd.

25

From Digital Transformation (DX) to AI Transformation（AIX）
We have been helping companies DX in their core operations, but the asymptotic process of digitization was inevitable
Going forward, we will support discontinuous change by maximizing the power of the Large Language Model (LLM).

AI Transformation
Can be directed and interacted with in natural language, eliminating
the need for an asymptotic process for digitization.

✓ Automation of crossorganizational/whole businessand manufacturing processes
achieved with fewer resources

Realizing of LEAP FROG

Continuous process is inevitable

Digitalization✓ Digitization of
analog and physical data

DigitalTransformation

Digitalization✓ Digitalization of businessprocesses across theorganization✓ Digitization of individual
business andmanufacturing processes✓ Changing business model
for customer-driven value
creation✓ Reform business model for"superior customer-driven
value creation

Possible with more generic AI.

Specialized AI is assumed.

※ Based on the definition in the DX Report by the Ministry of Economy, Trade and Industry© 2024 HEROZ Co., ltd.

26

The classification of LLM services as seen by HEROZ and our positioning.
The mainstream service in the current market is the construction service using Azure OpenAI.
We looking ahead to future trends, offers customization to meet the individual needs of each company at a realistic cost using LLM.

• The currently mainstream ChatGPT
service in the market.

Original LLM• In the future, as Bing Chat Enterpriseand ChatGPT Enterprise become thefirst choice for customer companies,
similar services will be phased out.

Cost

This approach could have thegreatest effect if successful,
but it is overwhelmingly
expensive.

Fine Tuning
Construction
service using
Azure OpenAI

ChatGPT

In-context
Learning

The approach that will
become a trend in the
future.

The mainstream approachbased on Vector Store andPrompting.

low

high
Degree of customization ≒ Added value© 2024 HEROZ Co., ltd.

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“HEROZ ASK" Early Access version (paid version) is released.
◼ HEROZ ASK, an enterprise-oriented "AI Assistant" SaaS that utilizes generative AI, will be released in early access on February 1.
◼ The service is now available in a more advanced form as an Early Access version, with many features updated from the closed beta version.

About
HEROZ ASK
開発の背景
• An AI assistant service that utilizes
generative AI to assist in various tasks bysearching, summarizing, and translating
various data that exists within the company,
as well as converting voice into language.
• HEROZ ASK was developed as a productthat can be used in business settings withthe following features• Thorough security measures• Access authority setting function foreach group• Ability to read and learn from internaland external proprietary data.
• Affordable price (from 900
yen/month/person)© 2024 HEROZ Co., ltd.

28

HEROZ ASK is a product specialized in supporting actual business operations.
◼

HEROZ ASK is a service that addresses the challenges of using generated AI such as ChatGPT in business situations so that it can be used in actual business
operations.

◼

The closed beta version of the service has been well received by users, and many major customers are considering continuing the service for a fee.

Developed functions specifically for use inbusiness situations

Halcination (*)is a
challenge, and ChatGPT's
answers are cannot be fully
trusted.

・Capable of reading a variety of internal and external data,
greatly improving the accuracy of information needed forbusiness operations.
・Unique functionality to display the source of information, ameasure that reduces halcination(*) Phenomenon in which AI generates information that is not based on facts or"plausible lies" that do not actually exist.

・The latest security measures for secure data use.

Concerns about
information leakage bothinternally and externally・Access privileges can be set for each group as afunction for internal information control.

Status of Customer Acquisition• The closed beta version of HEROZ ASK,
released in November, has been used by acumulative total of about 30 companies,
mainly major customers such as ToyoEngineering Corporation and Kandenko Co.
• Among the users of the beta version, several
companies that started with the first version
have already moved to the early accessversion, and many companies using the beta
version have also received positive feedback,and are expected to continue using it with thepaid version.

・Highly confidential information can be used only by
specific users within the company.

© 2024 HEROZ Co., ltd.

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StrategIT releases "JOINT iPaaS for SaaS".
◼ StrategIT released "JOINT iPaaS for SaaS," a new product for SaaS vendors that enables API integration with no code, on February 5.
◼ The product has been available as a beta version since November 2023, and has been improved through feedback from users and continuous development, and is
now released as an official version.

Image of the utilization of” JOINT iPaaS for SaaS “

Features of JOINT• SaaS vendors can easily and efficiently
integrate with other SaaS vendors by using
this product.

• The platform that enables comprehensive
system integration and data integrationfrom the end-user's perspective, so thatmultiple integrated services can be used
"as if using only one SaaS.
• The platform that enables not only thedevelopment of collaboration, but also theconstruction of peripheral functions, suchas building APIs and providing connector
functions.

© 2024 HEROZ Co., ltd.

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Game production AI specialized for Pokémon battles
has been developed in collaboration with The Pokémon Company.
◼

HEROZ has co-developed "Pokémon Battle Scope," a game production AI specialized for Pokémon battles, with The Pokémon Company.

◼

Pokémon Ryuoh Tournament 2024" held on February 25, 2024, and introduced for the first time on the live streaming screen.

Image of the "Pokémon Battle Scope" distribution screen

Development

開発の背景
Background⚫ Real-time Pokémon battle match evaluation.

⚫ The system displays the battle's status and potential next
moves, making it easy for novice Pokémon battle spectators
to watch the battle.

• Pokémon Battle Scope" is a game direction AI
specialized for Pokémon battles, and its
development started with the aim of making
Pokémon battles enjoyable for a wide range of
people.
• HEROZ has developed features that allow
anyone to enjoy watching Pokémon games byleveraging its technological strengths
cultivated through the development of AIpowered games such as "Shogi Wars" andgame analysis AI.

© 2024 HEROZ Co., ltd.

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Participate in various organizations and participate in trade shows to raise theprofile of our initiatives within the industry◼ From this fiscal year, we will communicate our BtoB initiatives more widely than ever through participation in various industry associations.
◼ Exhibit at the Construction DX Exhibition in December 2023 to introduce use cases of LLM in the construction industry, etc.

Participation in various organizations“GPT for Construction Regulations" is exhibited at theConstruction DX Exhibition.

• We have joined the Engineering National Association of Japan(ENNA) this term. We will further promote AIX through aggressive
sales activities and strengthening of alliances.

•“HEROZ ASK" was exhibited as a businessassistant for construction-related regulations,"Construction GPT", etc.

• Most recently, we joined Generative AI Japan (GenAI), a generalincorporated association established with the aim of linking AI
technologies, especially generative AI, to the creation of various
values in society. We will increase our presence in thecompetition related to generative AI and further accelerate AIX in
various companies and industries.

•

In addition to the numerous inquiries we
received via the Construction DX Exhibition,
our exhibit was covered by media outlets suchas Nikkei Crosstech, resulting in a significant
increase in inquiries from construction-relatedcompanies.

•

We will continue to conduct sales activities
from a variety of approaches to raise the profile
of our technology and initiatives.

© 2024 HEROZ Co., ltd.

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Initiatives in AI Security Services

Main Achievements in the
3rd Quarter of FY04/2024◼ Provides services that make corporate Internet use safer and more comfortable. The company
boasts the top share of the firewall/UTM operation and monitoring service market in Japan forsmall- and medium-sized enterprises, and the number of end-user companies continued toincrease in the third quarter. Churn rate remains low at less than 1%.
◼ AI SOC" project, which utilizes HEROZ's AI technology to streamline operations andmanagement tasks, continues to progress. Most recently, the company is working on
reproducing the quality of responses from skilled operators using LLM.

◼ Expand the scope of managed service support and strengthen competitivenessIn addition to gateway security, expand coverage area from LAN to cloud computing andstrengthen competitiveness by leveraging other companies' productsIn the fourth quarter, launchof IDaaS business and release of high-end endpoint security services are planned.

Initiatives for
FY04/2024◼ Launch of IDaaS Business
Zero Trust deployment for small and midsize companies and managed services to realize.
Zero Trust securityDeployment of cloud-based network security "Vario SASE" and businessapplication portal "Vario IDaaS" as new services to realize zero-trust security with minimum
configuration from cloud to office environment.
© 2024 HEROZ Co., ltd.

33

Topics①

Launched vulnerability assessment service◼ Strengthened one-stop corporate security support services with the launch of vulnerability assessment services.

Diagnose and report on vulnerabilities incustomer networks and applications.
Flexible support for security enhancements
based on vulnerability assessments throughVarioSecure's extensive security-related
services.

© 2024 HEROZ Co., ltd.

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Topics ② AI SOC Project◼ Promoting a project to streamline network security operation and management tasks using HEROZ's AI technology.
Full-scale verification of LLM utilization began in this quarter“AI SOC“ project• Automation of operational tasks andsystemization of highly technical tasks with AI.
• Expected benefits include reduced costs andimproved service quality• Currently, AI has been introduced for somesetting change operations to achieve semiautomation of a series of operations.
• In the future, AI will be introduced into support
operations.
The project will be promoted with a view toproviding this service on an OEM basis.

© 2024 HEROZ Co., ltd.

35

Topics③ VarioSecure's Services
Qualified for IT Subsidy in Japan◼ VarioSecure's Information Security Service, "Security Help Pack," Now Available with IT Subsidy◼ About IT Subsidy• Subsidy for small and medium enterprises (SMEs) to
support the introduction of IT tools that meet theirchallenges and needs.
• VarioSecure's service was certified by the IPA's Cyber
Help Corps, which supports the implementation of
security measures and is eligible for IT subsidies.

© 2024 HEROZ Co., ltd.

36

05
Frequently Asked Questions and Answers© 2023 HEROZ Co., ltd.

37

Frequently Asked Questions and Answers◼ Some of the frequently asked questions and answers we receive in relation to our most recent financial results announcement.

Q1. Questions regarding the customer base currently using the beta versionof the HEROZ ASK and the size of companies that will be targeted in the future.

（Answer）
The beta version of HEROZ ASK and the recently released early access version are currently being used mainly byexisting clients and mainly by enterprises (major domestic companies).
As we expand sales in earnest in the future, we will also target small and medium-sized enterprises, but at this point,
we expect our customer base to be centered on large enterprises.

Q2. Question on how to create synergies with HEROZ
by making A.I. Squared a group company（Answer）
A.I. Squared, which became a consolidated subsidiary in November last year, develops AI-based solutions forcontact centers.
The operational work in contact centers and AI are highly compatible, and the use of AI is expected to drasticallyresolve issues such as human resource shortages and high turnover rates in contact centers.
By utilizing HEROZ's expertise in social implementation of AI solutions in addition to A.I. Squared's domain
knowledge in the contact center domain, the scope of operations to be covered will be expanded, and a wider range of
support for contact centers is expected to become possible.
© 2024 HEROZ Co., ltd.

38

Notes◼ The forward-looking statements contained in this material are based on information currently
available to the Company, But are not guarantees of future performance and are subject to various
risks and uncertainties. Actual results may differ from the forward-looking statements contained ordeemed to be contained herein due to changes in the business environment and other factors.

◼ This document contains information about our company and other companies, etc., and we makeno representations or warranties as to the accuracy or completeness of the information contained
herein.

© 2024 HEROZ Co., ltd.

39