This is Yasuyuki Higuchi from Panasonic Connect. Good afternoon, everyone. Thank you very much for joining our briefing sessions. Many media journalists and analysts and people have joined us today, and I'm privileged to have this session with you. In this briefing session, we'll talk about Blue Yonder, which is the strategic business of Panasonic Group, and we will share the status quo and also the growth strategy in the future. Myself and the CEO of Blue Yonder, Duncan, will directly brief you on those items. Duncan is visiting Japan, so we are broadcasting this from Japan. For today's briefing session, we'll have very brief presentations so that we can have sufficient time to answer your questions as much as possible. First, I would like to briefly explain about the post-acquisition flow and activities to date and how we think of the Blue Yonder growth going forward.
Blue Yonder was founded in 1985 as the supply chain management software company, and because of the very high performance and the reliability of its software, it has built the solid reputation and positions in the mission-critical area, which is the SCM, and it provides the wide range of the solutions and has the 76 out of the top 100 global retailers as companies. For the last couple of years, they are trying to transform the business model to the recurring type SaaS business and the company from the traditional on-premise one-off sellout type software company. We have the vision to support the manufacturing, logistics, and retail processes transformation and the technology and the solutions within our company, the Panasonic Connect. We believe the Blue Yonder has the high affinity, and we can expect the high synergy impact.
In addition to that, we think that it's strategically meaningful to shift towards the SaaS business, such as software and the solutions from Panasonic's hardware-driven business portfolio. That's why we have made acquisition decisions. On the other hand, there was a lack of the mid-to-long-term strategy and investment as it was operating under the fund, which tends to be the short-term forecast and also the short-term profitability forecast. Because of some of the headwinds attributable to the macro environment, the company faced the cost increase due to the inflation after the COVID and the attritions. Because of the acquisition, during the interim management structure period, there was the slight vacant period, and that has delayed some of the investment decision-making. Since the acquisition of September 2021, we had some delay to move forward, but in July 2022, we welcomed the new CEO to Blue Yonder, Duncan.
We started a new management team, and we are a full-fledged operation. Towards a full-fledged operation, we are laying the foundations and trying to generate the synergy with Panasonic. Out of the nine management team members, including Duncan, six are new members. We are accelerating hiring and rebuilding the sales capability and trying to differentiate the customer experience and trying to establish the scalability and creating the investment plan and joint solutions. We are trying to improve in the shorter time, and we have started the joint solution development with Panasonic as we make the investment plan. This might be preaching to the choir, but this is the general growth model and the SaaS business. The right-hand side is a real case. The company S, this is the enterprise business system SaaS company's case.
Basically, the software business competes on the economy of scale, and Japan used to be the software creation center, but now it's being driven out by the global scale standard software. The SaaS has even the furious competition, so the speed is important to take the dominance with the cloud infrastructure. Speed is the key in this SaaS business model. To do so or to compete in that environment, the key to be successful is having the scalability and the speed in our business model, and the upfront platform investment is critical. SaaS is the recurring business and stock business. The accumulation of the revenue becomes incremental and accelerated, but until we achieve the certain scale of the revenue, it requires the initial investment. In other words, even if you have to sacrifice the single-year profitability, you need to continue to make the investment.
On the other hand, we need to look at the KPI, for example, new orders and the recurring ratio and the recurring business and top lines. Those need to be carefully looked at. In the investment phase, you have to make the right investment, then that will hinder the growth of the revenue, so the revenue may slow down. During this investment phase, you have to accelerate the investment. In other words, instead of looking at short-term profitability, you need to have the mid-to-long-term strategy and run the business. This slide explains about what kind of investment we should make to enable that. We are looking into the two areas: scalable SaaS platform building to support the revenue growth. In addition to that, enhancement of the resource operation to differentiate the customer experience and improve the profitability.
We have the team with the extensive track record, and we want to make this SaaS business successful, and we would like to accelerate more. I'd like to ask Duncan to explain about more details.
Thank you, Higuchi . Hello, everyone. Good evening. I'm delighted to spend time with you explaining the strategy for Blue Yonder. Firstly, like Higuchisan said, we had a very strong Q4 and Q1. The business is doing well. We continue to grow our cloud and SaaS business double digits. That paints a very good prospect for the future for us. First of all, let's look at some key numbers and explain these. Like Higuchisan was just talking about the importance of SaaS revenue, and our annual recurring revenue is now, finishing calendar year 2022, was $575 million. In fact, we finished Q1 with $586 million in SaaS ARR. It is growing north of 20% year on year, which is obviously very, very good. In fact, the total % of recurring revenue at Blue Yonder is almost approaching 70%.
There is incredible power in the SaaS model in terms of having recurring revenue, and it's why SaaS companies are valued the way they are because of their financial profile. It gives you very, very predictable cash flow and operating income. It gives you tremendous gross margin and operating expense leverage as you grow. Over time, it actually lowers your cost of customer acquisition, and these are all very, very attractive. Obviously, that's a key metric that we're focused on continuing to grow. A second thing on here that relates to ARR is the 97% customer retention. Obviously, the SaaS, first of all, is generally a very sticky business, but supply chain management solutions in particular are mission-critical and difficult to replace once they're in. That also makes our model very, very attractive.
Lastly, another important metric on here is the 162 customers per year, which adds on to the 3,000-plus installed customers that we already have. It is a very important metric in software companies because it shows that we are vibrant. We have competitive products, really, really strong sales and marketing. We continue to bring new customers onto the Blue Yonder platform. It paints a very, very good platform for where we are as a business. Obviously, we have an incredible high-quality installed base where you can see them here, 53 of the top 100 manufacturers, 76 of the top 100 retailers. Very, very strong installed base. What excites me about the supply chain management space right now is that it is finally having what we call the zeitgeist moment. You do not have to explain to people anymore what a supply chain is.
It's amazing when something stops working, everyone notices. It's obviously something that we've lived through through the pandemic and a lot of supply and demand disruption. There are a lot of business trends out there that are pushing supply chain management to the top of the agenda for most C-level executive suites out there. From things like labor shortages, things like inflation, things like shipping costs, all the decoupling of global trading and manufacturing routes, all of these things are making it increasingly difficult to run the supply chain. People are trying to make them more resilient. They're trying to figure out how to manage costs, and they're trying to figure out how to deal with long-term demographics and labor shortages.
All of these things mean that we're seeing budgets shift from other categories to supply chain as companies are trying to wrestle with all of this. At the same time this is happening, we're also seeing the emergence of new technology that allow us to reimagine the way that supply chains are run and the way that our software works. The first is the emergence of what's called the data cloud. Higuchisan mentioned Snowflake, which is our data cloud. In essence, it represents a new technology platform to build enterprise software on top of. Our vision is that all the supply chains of the world and all the companies of the world run on a single data cloud, a single database.
This allows us to revolutionize the approach to analytics, the approach to AI, the approach to collaboration, which is very important in the supply chain space, and in essence, reimagine how enterprise software is built on the data cloud. We announced last week at our annual user conference, which I'll talk about more in a second, that we are the first enterprise software company in the world to write applications natively on the Snowflake data cloud. This is a very, very powerful and valuable concept for customers. The second part of our strategy and the second piece that's interesting here is integrating all of the Blue Yonder applications end-to-end. One of the true differentiators that we have relative to other competitors in the market is that we have an end-to-end set of solutions. We have both planning applications. We have warehouse management applications, transportation management, order management, commerce.
We have the full suite of applications. Most of the companies that we compete with are point solutions. We will compete with a company that only does planning or only does WMS. There is huge power for us to integrate all of our applications into a suite on a common platform. It is interesting. Supply chain management is one of the only enterprise categories that has not gone through consolidation yet, has not been pulled together as a suite, and that represents a huge opportunity for Blue Yonder. That is the next thing. This end-to-end connectivity will also extend down into the robotics layer. We are finally seeing robotics solutions and automation solutions out there get to the point where they are cheap and abundant and easier to deploy. That is something else. Edge connectivity is another big part of what we are going to be delivering here.
The last thing, which is possibly the most interesting and disruptive, is this idea that we're going to power this next-generation supply chain solution with infinite intelligence. We've always been a very, very strong company in predictive AI. You would see on the previous slide, we have almost 400 patents that are either pending or have been granted, and a lot of those are in the machine learning and predictive AI space. Today, for our customers, we do 2.5 billion machine learning predictions a day. 2.5 billion. It's always been something very, very strong where we help customers see the future, whether you're a manufacturer or retailer. Now what we've seen is the emergence of generative AI and large language models. I think we've all been reading and exposed to ChatGPT and OpenAI. This has enormously positive applications in the supply chain space.
We, again, at our conference last week, announced a whole bunch of new generative AI-based applications that leverage things like ChatGPT. In essence, we're building copilots for all of our end users, copilots for planners, copilots for supply chain analysts, copilots for category managers that dramatically amplify and elevate what they're able to do as human beings. This is our new technology stack, a single data cloud that's powered by infinite intelligence and is connected to all of the applications and things and robots in the world that help things move. We're, in essence, building the supply chain operating system for the world. This is the vision that we outlaid last week. We're delivering a new class of applications on top of this that we're calling cognitive applications. It's incredibly exciting.
When you think about our longer-term sort of three-year plan, we call it the seven-point value creation plan. Each one of these pillars of our strategy ladder back to the financial metrics that are important to us that help create enterprise value. The first two are delivering a superior customer experience and building a pure SaaS offering. I'll explain these. Delivering a superior customer experience means we're getting better referenceability. We're getting happier customers, and that drives something called net revenue retention, which is both protecting the applications we're running for people, but also winning new business inside that account. If you have happy customers, that takes care of that. Building a pure SaaS offering, this is mostly about building multi-tenant applications, and that helps drive gross margins. That's sort of the focus of those two over the next three years.
On the top right-hand side, we have build differentiated products, like I just talked about cognitive applications, and then hire salespeople and accelerate the go-to-market engine. Those two things obviously take care of recurring revenue and total revenue growth. At the bottom, sort of simplify and optimize the business, drive productivity and efficiency across everything we do. That obviously helps fund the top two, the top pillars, and then obviously drives operating leverage and EBITDA. This is a value creation plan that we have built that we will be investing in over the next three years to improve all of those metrics and drive enterprise value. When you think about how it's reflected in our calendar year 2023, it's basically about laying the foundation for growth and for this long-term plan. You can see the calendar year 2022 metrics on the left-hand side here.
Very healthy. North of 20% SaaS revenue growth. Total revenue grew at 12%. Healthy adjusted EBITDA margins almost at 18%. Very, very good metrics. The idea of the value creation plan over the next three years is to invest in the seven-point value creation plan and improve those over time. We will be taking $200 million of our savings and profits over the next three years and investing them back in the business in these key areas. If you look at calendar year 2023, it's in these five areas. In sales, we'll be increasing our sales capacity by about 40%. We have implemented something called a commercial excellence program that will drive 10%-15% of sales productivity.
A huge focus on increasing capacity and going off to the market, particularly given how hot supply chain is now as a category. In the product area, we will be delivering integrated suites. We intend to deliver integrated suites by the end of the year that will allow us to more easily cross-sell back into our existing customers with applications that work with what they have already installed from us. Secondly, allowing us to sell larger transformational deals end-to-end. That will have a huge impact on the business. In the cloud area, we are very focused on driving margin optimization projects and providing a way to deliver incremental services to our customers that unlock value. Customer experience, this is also where our delivery and consulting teams sit. We had a very strong Q1. We grew bookings 15% there.
We are going to continue to invest in growing the customer experience business. We hired a new President of CX and Cloud earlier this year, and he has taken over that. We have built an end-to-end customer experience organization that he will be looking after. The last area is around operations and looking for productivity and efficiency across the business. We are launching something called the BYOS, which is the Blue Yonder operating system. This basically is our management system for how we drive the business. This will lay the foundation for our three-year value creation plan. We made some major announcements at our annual user conference last week in Las Vegas. We had almost 3,000 people attend it. We announced our next-generation cognitive applications. The first application we delivered was something called Cognitive Demand Planning.
It is a revolutionary application that we're going to see. We're very, very excited about it. We announced this idea of delivering end-to-end integrated suites. We had Frank Slootman, who is the CEO of Snowflake, on main stage with me talking about how excited he was about what Blue Yonder were doing on the data cloud. We also had the CEO of Accenture Technology on main stage with me as well, announcing a co-innovation partnership with Accenture, where they will help provide development resources to help deliver on the vision that I just talked about, and also a programmatic way of going to market globally together. Of course, we had Jon Rahm, who is the Blue Yonder brand ambassador, come and spend time with key executives and customers there and talk about winning the Masters. That was fantastic.
Just a quick update on the Panasonic Blue Yonder synergies. This is on track and doing well. It's predominantly in sort of three main areas. The first is in the supply chain and store software operations space and leveraging some of the capabilities that the Zetes business has got around voice picking, a mobile platform, and basically allowing us to more easily extend our solutions down into the warehouse, down into the robotics and automation areas. We are very, very excited about that. We are continuing to develop joint solutions together that leverage things like computer vision and AI. We are in pilots with a few customers with something called Yard Visibility, for example. We are also leveraging AI for labor standards and things like that. That project continues to go well. We are particularly excited about the go-to-market business in Japan.
Last quarter, it was one of the highest-growing regions for us across the world. It has the highest target it's ever had from a SaaS bookings perspective. We're continuing to win brand new customers in the Japan market and very, very excited about that. Just to round things out, some key sort of revenue and SaaS KPI trends. I pointed out the fact that we had $586 million exiting last quarter in ARR, so continue to grow at double digits. You can see in the top right, our recurring sales now is 69% of the business, which gives us a lot of predictability in terms of cash flow and profit. We continue to have very, very healthy net revenue retention north of 100%. We're in a very strong position. We're executing to the VCP, and we feel good about where we're headed. Hi. [Foreign language] .
Thank you, Duncan. Lastly, I would like to talk about the forecast of Blue Yonder for FY 2023. Based on Duncan's presentation so far, Blue Yonder's fiscal year is the calendar year. However, this is based on the Panasonic fiscal year, FY 2023 of the Panasonic year. First, on a standalone basis without the amortization cost of the acquisition, the adjusted operating profit is minus JPY 2.5 billion. This is minus JPY 7.8 billion year on year. On a consolidated basis, the amortization cost of the acquisition is recognized, and the adjusted OP is minus JPY 23.6 billion. This is a minus JPY 5.4 billion year on year. However, as we explained, we have been making the strategic investment, additional investment, and the synergy investment. The total is JPY 11.2 billion. That's included.
In terms of the standalone adjusted OP, excluding that, that is circled in red. That is JPY 8.7 billion. It is 5.1% in revenue. This is going to be the plus JPY 1.9 billion year on year. If we do not make those investments, of course, we can generate the profit. However, as I mentioned earlier, we will make those strategic investments for the next three years. The progress against the profit plan is important. In addition to that, new customers and the new deals and the project is even more important. Also, how much recurring revenue we have and how low our churn rate is, those will be the all-important factor for the future profitability. We will continue to monitor such KPIs.
We would like to have the opportunity like today and the future so that we can keep providing the open disclosure. With that, I would like to close the session by myself and Duncan. Thank you very much. [Foreign language]
[Foreign language] From Panasonic Connect, CSO Harada-san, CFO Nishikawa-san, as well as Blue Yonder's CFO, Mark Henry, are also joining to respond to your questions. Now, due to time constraints, we will accept only those questions which have been spoken after you use the raise your hand function. If you enter your question in the question and answers box from the screen, your questions will be responded to at a later date. Nevertheless, we expect that you enter your name and your affiliations in the QA box. Today, we would like to start off with the questions from the media, followed by the questions from analysts and investors.
Later on, once again, we will ask the media journalists to ask their questions once again. Let's start with our media friends. If you have any questions, please use the raise your hand icon on your Zoom screen to indicate. Thank you Park-san w ould you like to ask your question? Thank you very much.
I am Park from ITm edia [crosstalk]. You were talking about some investment. Last year, you lost your revenues a little bit. Now, for Q1 and Q4, you have regained your business as you described earlier. Now, Higuchi-san was once talking about the supply chain part. Business is a blue ocean market with lots of opportunities out there. However, in the later part of last year, in supply chain areas, many IT vendors and providers, do you expect a red ocean there in terms of SCM solutions? What is your view on the current market landscape and the $200 million of investment in the next three years? Do you regard that as sufficient?
Park-san, thank you very much. Now, shift to cloud continues, and only 20% of supply chain management is on cloud. Therefore, there is a lot of white space, lots of opportunities going forward, especially when it comes to supply chain. It is a hot area, Duncan. We certainly believe that competitors are keenly looking at this market. Probably I should ask Duncan to share his view on that. Duncan?
Yes. The market today is the supply chain software market today is served by very fragmented point solutions that do one particular thing. Our belief is, like all other software categories, that it will shift from fragmented point solutions to integrated suites of software.
We saw this happen in the ERP market with the back office, finance, HR, procurement all became one solution served by vendors like SAP and Oracle. We saw the same thing in the front office with sales, service, and marketing, and Salesforce consolidating that. That same dynamic will play out in the supply chain management space. You could argue that in the supply chain space, it's even more important that you have integrated systems where logistics are talking to warehousing, are talking to stores, are talking to forecasting and replenishment, right? That is our belief. That will change the basis of competition, and companies will want to buy suites of software on common platforms. That's our belief.
Duncan, I mean, he mentioned AWS. Do you specifically have a comment?
Yes. The comment on AWS, I mean, our perspective is we call them hyperscalers. You have Azure, you have Google, you have Amazon. It's becoming more and more of a commodity. Amazon are also a customer. We don't view them as a competitor. They're just the utility that underlies next-generation applications for us.
Thank you very much. Moving on to the next question.
This is Umegaki from Toyo Keizai. I have two questions. You may have mentioned one of those somewhere during your session, but the page three part of the presentation. Currently, where are you in this investment phase or profit or margin phase? In order to go in the profit phase, what needs to be done? Also, the another question is page six, the annual customer, 162 new customers per year. Can you talk about the breakdown? What kind of customer do you see among those new customers? Can I just confirm the first question because I think I got the question?
Where are we in the life cycle of this graph? Yeah. We would be in the investment phase, probably a third through the investment phase. The $200 million, in addition to the regular research and development expenses over the next three years, we hope to be getting to the investment return phase probably at the very line, starting in 2026. The other question on the 162 new customers, we are very fortunate that we have incredibly strong products. If you think about broadly, we're in the supply chain planning space. We're in the transportation management solution space. We're in the warehouse management space. In all three markets, we are ranked top by the industry analysts, right? Top right quadrant. We compete very, very strongly.
Even though I said we compete as a suite, we compete very, very strongly in those individual businesses. I would say in terms of the new customer breakdown, probably half of them came from the supply chain planning arena, mostly in manufacturing and retail. The other half would be split evenly between transportation management and warehouse management is what I would say. We had a particularly strong in Q4 and Q1, particularly strong in 3PL, third-party logistics. As you can imagine, that has a lot of very powerful sector tailwinds behind it, particularly as it relates to e-commerce. That business grew over 100% for us over the last six months. Very, very strong.
Arigato gozaimashita.
Umegaki-san, did we answer the question?
Yes, thank you.
Thank you very much. Let us move on to the next question. Hirajima-san, you have raised your hand. Please ask your question.
Thank you. I am Hirajima from Nikkei. Thank you for this opportunity to ask your questions. Now, you're having this briefing session. [Foreign language] I would like to ask you why you decided to have this session before the announcement from the holdings company? Now, as Blue Yonder joined the Panasonic Group of companies, do you think you're seeing the expected progress, or have there been any unexpected disappointments?
Thank you very much. I'd like to talk about the timing of holding this event, and Nishikawa-san will also follow. Now, Panasonic's business model used to be hardware-oriented and standalone unit product-oriented as well. Therefore, we always ran a risk of commoditization. Therefore, within Panasonic Connect, we wanted to look for some more selective-focused areas for growth. Actually, we closed down two factories because we wanted to shift to solution-oriented business as well as service-oriented business.
Now, when we look at the portfolio, recurring sales business had a very strategic significance, and just like, well, this is the area where it required new ways of communicating with you, the media and investors and analysts. That is the reason why we are holding this briefing session today. Now, have there been any disappointments? I've been in the software business for long, and I believe this first model is very attractive, and certainly, Blue Yonder has high affinity with what we do. There were not any surprises. Of course, they had to face great resignation, decline in the sales capacity in terms of garnering new logos. There was this influence of inflation as well. Under the fund, the short-term profit was focused on more before our acquisition. Now, Nishikawa-san, would you like to add something?
Of course. Thank you very much. There are two reasons why we are holding this event today. Number one, as you know, the first quarter and the second quarter, there has been some sluggishness in business, but in Q3 and Q4, a large recovery was seen. Under the new management team, very strong strategic initiatives have been executed. Number two, as Hiroji-san mentioned, as Panasonic Connect, the long-term profitable business is something that we focus on growing and developing. As you can see on page three, we have longer-term vision with a big dream. We are making a $200 million investment at the strategic decision we made. This certainly reduces 2023 profit. After we have announced the 2023 outlook, Blue Yonder may be seen as being sluggish in business, but we had to explain that that is not true because we are making this scale of investment. That's the second reason why we are holding this event.
Thank you very much. Have they answered your question?
Yes, certainly. Thank you very much.
Next question. I would like to ask the analysts and investors to ask questions. Please use the hand-raise button if you have any questions. Hirakawa-san, please. Thank you.
BofA Securities, I have two questions. The first question is, as you presented earlier, the supply chain management is becoming more and more important in the market. Before and after the COVID, how did the supply chain management market and service CAGR category gross outlook change before and after the COVID? You talked about the strengths of the Blue Yonder business and what kind of growth is realized by the Blue Yonder. That's the first question. Can I continue on to the second question? Rather, we would like to answer the first question first.
Yes. I would say that the COVID and the pandemic sort of was an accelerator to pushing supply chain as a top initiative for companies. I mean, you have to even think before COVID, we had the volcano in Iceland, which disrupted supply chains. We had the Suez Canal disruption. We had the pandemic, which changed a lot of behavior on the demand side. If you think about stores, people were not visiting stores anymore. There was home delivery. We had a whole bunch of supply disruptions. You think about chip shortages. You think about all the regional instability. Supply chains became a lot, lot more brittle and uncertain. There was a much greater focus on resiliency versus just-in-time, which is how we basically built our supply chains.
Layer on top of that, bigger trends like e-commerce, right? Supply chains were not built to ship eaches in the last mile. They were not built to bring billions of dollars' merchandise in the opposite direction. A much greater focus on sustainability and climate change and waste, right? All of these things have brought supply chains to be even more important. It is an extraordinarily fast-growing category of enterprise software. Like Higuchi-san said, 80% of the market still has not gone to SaaS, right? That opportunity is also ahead of us. It is an extraordinarily attractive market to be in now for all of those reasons. That is the opportunity of why we are investing the $200 million, because the opportunity can be even bigger given the importance of where supply chains are and all the new technology that is coming along.
We believe we can build an incredibly enduring long-run business on the back of this. As you saw from a SaaS revenue perspective, we continue to grow at a 20% rate. Obviously, the investments we're making, the investments in sales, is the idea that we grow even faster. That's the answer to the first question.
[Foreign language] Please move on to the second question.
Yes, thank you. Second question is, you mentioned about the $200 million investment. If you look at the three years from today, the impact or the return of the investment, how do you think will change? For example, the service revenue size, can you foresee the size of the service revenue and the gross profit margin in three years or could be five years from now? If you can mention some numerical focus or target, please. Also, I couldn't really understand some terminologies in Japanese and English answers. I want to just make sure my understanding. You mentioned about 2026 and this phase. Are you saying that you're going into the investment to return phase in 2026 or cash-generative phase in 2026?
Okay. Because of the IPO matters, I can't really talk about the specific numbers about 2025 and 2026, but beyond the four years or the four years from now and beyond, how the KPI changes and also FY26, is this going to be the investment to return phase or cash-generative phase? Duncan, do you have any comment on this?
Yes, that's right. Yeah. The idea is to invest in 2023, 2024, and 2025, and then in 2026, we're in the return phase.
We will see different KPIs?
Yes, yes. We will see different KPIs. Obviously, the goal of the intent of the value creation plan, the seven pillars, is to improve all of the key metrics: improve ARR, improve total revenue growth, and improve gross margins. Obviously, we get a lot of leverage on a fixed operating expense base as well. That is the goal of what we are doing over the next three years.
[Foreign language] Thank you.
Thank you very much for your question. Now, Okazaki-san, you have raised your hand. Please.
Thank you. I am Okazaki from Nomura Securities. Now, Mr. Duncan, you are here in Japan. What is your impression of the Panasonic Connect team? Which area of your collaboration would you like to further strengthen? Compared to as far as in the world, probably Japan's market has lagged behind. Therefore, there is a lot of opportunities. Now, what is your impression of your Japanese customers? How fast will they be adopting SaaS in this area?
Yeah. The first question is, we actually have really incredible alignment between Blue Yonder and Panasonic Connect. We had a shared vision and purpose. We think that obviously, we can build a more high-growth, profitable business, but at the same time, we can help make the planet a better place. Supply chains are responsible for a lot of carbon emissions. Making companies run their supply chains more efficiently obviously benefits the planet as well. There is a lot of alignment around the goal of sustainability and carbon emissions reduction. That is kind of a key purpose.
I will also say the thing that drives Blue Yonder is innovation, which again is very, very aligned to the engine that drives Panasonic Connect and inventing new things on behalf of society and the planet. We have really, really good collaboration. A lot of the things that we're building together around leveraging computer vision, leveraging AI, leveraging things that touch the edge in terms of robotics, these are all things that are highly innovative, and we've built very, very good teamwork there to go after all of that. I couldn't imagine Blue Yonder being in a better place than with Panasonic Connect. By the way, the shared vision around investing now to capture something even bigger down the road, right? That's not something you come across every day.
I will say if you look at the way we're growing the business in Japan, it's actually we're winning net new customers, right? We have new brands that are interested in innovating, interested in looking at SaaS. Almost all the customers we're talking to are interested in artificial intelligence. Leveraging both our machine learning, predictive intelligence, but also now what we can do with generative AI. There is a tremendous amount of interest in that. I think the SaaS adoption will only accelerate over time. The interesting thing about artificial intelligence is it requires the data cloud to run because it needs access to lots of computing power and storage and data and all of that. I think these will be things that will act as a catalyst to accelerate the adoption of SaaS.
Any impression about the team connect?
Yeah, that's what I talked about at the beginning. Yes, of course. Yes. The team is fantastic. Yes. Thank you. Yes. Thank you. Did I answer your question?
Yes, thank you.
Next, Harada-san, please.
Goldman Sachs Securities. My name is Harada. Thank you very much for your business. I have two questions. First question is, the synergy with Panasonic JPY 2.8 billion will be made as an investment this year. The synergy investment, what will be the future size of the synergy investment? Previously, I heard about the Panasonic image recognition to create autonomous supply chain management that was mentioned before. Today, you did not mention about that. Please elaborate more on that. Another question is, generative AI was mentioned. How does it relate to the Blue Yonder in more detail? Can you clarify that? Can you educate me?
Thank you, Harada-san, for asking questions. First, joint solution between Panasonic and Blue Yonder in pursuit of the synergy effect. Our Harada-san will explain about this. After that, we work with Penske for the Yard Visibility. Maybe Duncan can talk about that. After that, Duncan will continue to answer the generative AI topic. Thank you. 2023 synergy $2.8 billion is included. For 2024 and 2025, the numbers are not allocated, but we assume the same level of the investment will continue. As you can see in the materials, Blue Yonder will make the Japan market investment. As Duncan mentioned earlier, we are seeing some reactions in this market as well. Zettis that was mentioned in our presentation materials, this is the belching supply chain company or warehouse solution company that Panasonic acquired.
Zettis and Blue Yonder have already started to collaborate together. Also, the warehouse solution, we will be accelerating activities to help customers' warehouse solutions and the sensing to capture or fetch the data of the image recognitions. As Hiroji-san mentioned, the yard management, there is a company called Penske, and we are working on the proof of concept. Other than this company, Penske, we are running the POC with a couple of other companies. We are going to reflect into the business model in the future.
Thank you for asking the question about autonomous supply chain and generative AI. They are actually related. The generative AI, the ChatGPT type of thing, is very important to it.
In essence, what we do is we take the large language model and the generative AI, and we train it with all of the Blue Yonder intellectual property, right? Our user manuals, the conceptual designs for our code, our machine learning algorithms, all of it. We train the generative AI to be basically a copilot that works hand in hand with different end users. Obviously, when you go to a specific customer, you train it on that customer's supply chain and that customer's data. You have an expert in each area. What it does is it means you can take someone that has just joined a company, and they are able to operate like someone that's been there for 20 years, okay? Take an example of someone in the category management space, and they're responsible for managing a certain category.
Say it's the soup category in a supermarket. They have to figure out assortments, what prices to do, what brands to carry, how much inventory to carry, all of that. Now you can interact with a generative AI, a ChatGPT copilot for category management. They operate like someone that's been there for 20 years, even if that person has only been there for six months. The quality of the decision-making, the quality of all of that is dramatically amplified and augmented. Not only that, the generative AI solution and the predictive solution is connected to all of our systems. Once you've figured out what you want the assortment to look like and you've had a dialogue back and forth with this category management copilot, everything else starts to move. A robot starts moving in a warehouse and picking inventory.
We've rebalanced the loads in a truck. We've rescheduled the delivery. We've rebuilt the employee schedule in the store. Everything starts to happen automatically. That's where you start to get to the vision of an autonomous supply chain, right? That's basically how all of this hangs together. It's incredibly powerful because it amplifies and augments human potential for all of our end users and delivers massive benefits in terms of productivity and efficiency and effectiveness.
Because of the time constraint, we would like to take the last question. Yasui-san, you have raised your hand. Please go ahead.
Thank you. I am Yasui from UBS Securities. I have two questions. Number one, there was an area where you failed to make sufficient investment in the past. Which area of investment was lacking, and what do you plan to do about it?
Second question, when your SaaS vision is realized, what sort of benefits can you get? Where were you understanding? Was the first question. Understanding? You were probably talking about Blue Yonder under a private fund. That's right. Right. Thank you for the clarification. Now, when it comes to private equity fund, of course, they have to consider what time frame they want to exit. From that perspective, of course, if you limit your investment in certain areas, you can raise your EBITDA and raise your valuation. When it comes to pure SaaS or native SaaS, you really want to be truly scalable, but probably there was not enough investment to realize that vision. I wasn't too sure about your second question. Could you repeat your second question? I wasn't too sure what the question was. Right. Thank you.
If you make sufficient investment in the area of SaaS, you expect growth in your revenues probably in two or three years. Is that the time frame that we should look at this?
Yes. I mean, just the first point about investments is that I would also say there are opportunities that have emerged because of what has happened in supply chains over the last two years, right? There has been new technology that has come along. We did not even know what ChatGPT was in November, right? These present opportunities where we can invest in something that is growing very, very rapidly and reimagine how supply chains run. The opportunity to integrate everything into a suite is there. Those are investment areas that with Panasonic Connect, we see a bigger opportunity than perhaps what we saw even when the acquisition was done.
In terms of the investments that we're making in SaaS, when you get to multi-tenant applications, you have much, much higher gross margins, right? That obviously helps. You have higher ARR, so it gives you more predictable cash flow, more predictable profits. You just get on a flywheel where you start to get gross margin leverage and operating leverage, and you get expanding EBITDA margins. That is where you end up. [Foreign language]
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