FRONTEO (2158): FY2025 Results Summary — Life Science AI and Alnetz Drive 25% Revenue Growth

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FRONTEO, Inc. (TSE Growth Market, securities code 2158) reported consolidated revenue of 7,643 million yen for FY2025, the fiscal year ended March 31, 2026, up 25.3% year on year, with operating income of 739 million yen, up 40.1%. Growth in the Life Science AI segment (AI drug discovery field) and the acquisition of Alnetz in the DX segment more than offset a revenue decline in the Risk Management segment stemming from the company’s withdrawal from the U.S. business. Ordinary income rose 24.1% to 675 million yen, while net income edged down 2.0% to 544 million yen. For FY2026, the fiscal year ending March 31, 2027, the company forecasts revenue of 7,600 million yen and operating income of 300 million yen.

Consolidated Results (Full-Year Actual)

Operating income came in at 105.6% of the company’s upwardly revised forecast of 700 million yen, while revenue reached 99.3% of the 7,700 million yen forecast. Ordinary income was 94.4% of the 715 million yen forecast and net income 88.5% of the 615 million yen forecast. EBITDA was 1,182 million yen. Note that segments have been reclassified beginning with the fiscal year ended March 31, 2026, and FY2024 figures have been restated to match the new classification.

Item (¥M)	FY2024	FY2025	Change	Change (%)
Revenue	6,099	7,643	+1,543	+25.3%
(Life Science AI)	354	1,033	+678	+191.4%
(Risk Management)	5,374	4,019	-1,354	-25.2%
(DX)	370	2,590	+2,219	+598.9%
Cost of Sales	2,646	3,737	+1,090	+41.2%
Gross Profit	3,452	3,905	+453	+13.1%
SG&A Expenses	2,925	3,166	+241	+8.3%
Operating Income	527	739	+211	+40.1%
(Life Science AI)	-231	-16	+215	–
(Risk Management)	659	606	-53	-8.1%
(DX)	99	149	+49	+49.6%
Ordinary Income	543	675	+131	+24.1%
Net Income	555	544	-10	-2.0%

The company notes that earnings weakened in the first half due to one-time expenses (withdrawal from the U.S. business, M&A-related expenses, and human resources investment in the Life Science AI segment), but operating income rose significantly in the second half on better-than-expected progress in the AI drug discovery field and the DX segment, so that results outperformed the earnings forecast.

Balance Sheet

Cash and cash equivalents decreased and liabilities increased mainly due to the acquisition of Alnetz. The equity ratio stood at 39.7%, which the company describes as a safe level, and it says it is pursuing a capital policy that balances management stability and growth.

Item (¥M)	Mar. 2025	Mar. 2026	Change	Change (%)
Current Assets	4,003	3,834	-168	-4.2%
Cash and Cash Equivalents	2,598	1,734	-864	-33.3%
Accounts Receivable and Contract Assets	1,025	1,506	+480	+46.9%
Intangible Assets	824	2,478	+1,654	+200.8%
Goodwill / Customer-related assets	–	1,239	+1,239	–
Total Assets	6,466	9,202	+2,735	+42.3%
Current Liabilities	2,844	4,181	+1,336	+47.0%
Non-current Liabilities	394	1,176	+781	+198.1%
Equity	3,227	3,844	+616	+19.1%

Segment Results

Life Science AI segment revenue grew approximately three times year on year to 1,033 million yen, with the AI drug discovery field alone up 6.3 times to 751 million yen. Drug Discovery AI Factory (DDAIF) landed 22 co-creation projects, up from 7 in FY2024 and against an annual KPI of 10, a progress rate of 220%. The segment posted positive operating income in the second half, narrowing the full-year operating loss to 16 million yen. In the AI medical devices field, the company received manufacturing and marketing approval for an AI conversational cognitive function testing programmed medical device, and Talk Lab KIBIT began contributing to earnings in FY2025.

Risk Management segment revenue fell 25.2% to 4,019 million yen and operating income fell 8.1% to 606 million yen. LegalTech AI field revenue declined 38.8% to 2,136 million yen as e-discovery sales fell on the withdrawal from the U.S. and Taiwan businesses, while domestic digital forensics demand remained firm. BI Compliance Support field revenue declined 8.2% to 1,338 million yen with a recurring rate of 85%. The Economic Security field grew 28.2% to 545 million yen, with public sector sales approximately doubling year on year and a recurring rate of 68%. The DX segment grew revenue seven-fold to 2,590 million yen and operating income 49.6% to 149 million yen, driven by the Alnetz acquisition, which contributed 2,325 million yen of revenue.

Segment / Field	Metric (¥M)	FY2024	FY2025
Life Science AI	Revenue	354	1,033
Life Science AI	Operating Income	-231	-16
AI Drug Discovery	Revenue	122	751
AI Medical Devices / Others	Revenue	231	281
Risk Management	Revenue	5,374	4,019
Risk Management	Operating Income	659	606
BI Compliance Support	Revenue	1,457	1,338
LegalTech AI	Revenue	3,491	2,136
Economic Security	Revenue	425	545
DX	Revenue	370	2,590
DX	Operating Income	99	149
BI Professional Support	Revenue	370	264
Alnetz	Revenue	–	2,325

FY2026 Forecast

For the fiscal year ending March 31, 2027, FRONTEO forecasts revenue of 7,600 million yen and operating income of 300 million yen. Segments have again been reclassified beginning with the fiscal year ending March 31, 2027, and the FY2025 comparison figures in the forecast table below have been restated to match the new classification. The company expects lower revenue and profits in the Risk Management segment due to the cancellation and downsizing of certain recurring projects, while pursuing selection and concentration across its product and service portfolios. Plans across all divisions are weighted toward the second half, and the company expects a one-time operating loss in the first quarter of FY2026 but profitability for the full year.

Item (¥M)	FY2025	FY2026 Forecast	YoY
Revenue	7,643	7,600	▲0.6%
(Life Science AI)	1,033	1,500	+45.2%
(Risk Management)	4,284	3,500	▲18.3%
(DX)	2,325	2,600	+11.8%
Operating Income	739	300	▲59.4%
(Life Science AI)	▲16	100	–
(Risk Management)	643	95	▲85.2%
(DX)	112	105	▲6.3%
Ordinary Income	675	250	▲63.0%
Net Income	544	150	▲72.4%
EBITDA	1,182	890	▲24.7%

The company states that in FY2026 it intends to accelerate growth of the Life Science AI segment further, moving into a full-fledged monetization phase and clearly positioning the business as its core and as an established growth driver over the medium to long term. It plans to shift the AI drug discovery field from an up-front revenue model based on one-off co-creation projects to an upside revenue model based on one-time payments, milestone payments and royalties from pipeline out-licensing.

Shareholder Returns

The results presentation does not contain a dividend or shareholder return policy. This cannot be confirmed from the materials. On capital policy, the company states only that its equity ratio was at a safe level of 39.7% and that it is pursuing a capital policy that balances management stability and growth.

Medium-Term Plan and Topics

FRONTEO’s Stage 4 medium-term plan targets the fiscal year ending March 2029 (FY2028). In the Life Science AI segment, the company is aiming for revenue of 13,000 million yen in FY2028, comprising 10 billion yen from AI drug discovery and 3 billion yen from AI medical devices, using the number of co-creation projects as a KPI (0 in FY2023, 7 in FY2024, target 10 for FY2025 rising to 39 by FY2028). Within Risk Management, the FY2028 targets are 8,000 million yen for the BI Compliance Support field, 2,000 million yen for the LegalTech AI field and 5,000 million yen for the Economic Security field; the DX segment targets 5,000 million yen.

Business topics disclosed in the presentation include: completion of clinical trials in March 2026 for the AI conversational cognitive function testing programmed medical device SDS-881, developed jointly with Shionogi, with approval targeted in FY2026; the launch of Talk Lab KIBIT, already in use at Nippon Life Insurance and Asahi Mutual Life Insurance; an April 2026 agreement with Astellas Pharma for target molecule discovery; the April 1, 2026 opening of the FRONTEO AI Drug Discovery Ecosystem Collaborative Research Center at the Institute of Science Tokyo; the May 13, 2026 opening of the KIBIT AI Biology Lab; and confirmation in May 2026 by the University of Oklahoma of cell proliferation inhibition for a novel pancreatic cancer target molecule candidate discovered through DDAIF, with animal studies planned as the next step. The company also notes the NB Health Laboratory project aims for out-licensing to a pharmaceutical company by the end of FY2026 at the earliest.

As of March 31, 2026, FRONTEO had capital of 915,057,000 yen and 272 consolidated employees, and held 92 active registered patents worldwide.

This article is an analysis based on publicly available information and is not a recommendation to buy or sell any specific securities. Investment decisions are your own responsibility.