EXEO Group,Inc. Q2 FY2026 earnings call

Core Financial and Overall Performance

• Overall results hit all-time records: total orders reached 421.8 billion yen (+15% YoY), total sales reached 321.3 billion yen (+17% YoY), carried forward construction work hit 489.9 billion yen (all-time high), and aggregate operating profit grew 59% YoY, with all segments delivering profit growth. A 33 yen per share interim dividend is planned as guided, and a 3.0 billion yen share repurchase program announced in May is in progress.

Communication Carrier Segment Initiatives

• NTT Group orders are very strong: NTT Docomo has increased 5G capacity expansion orders with accelerated completion requests, and NTT Access is seeing rising orders for 10Gigabit fiber optic (Flets Hikari Cross) rollout driven by user growth and area expansion. NCC carrier investment remains suppressed, but efficiency gains have lifted overall segment margins.
• Active disaster recovery support: The company deployed 400 total staff to support recovery for NTT East Japan after Typhoons 22 and 23 hit the Izu Islands, and continues to promote disaster-resistant infrastructure construction using its proprietary Earth Shuttle and compact Marine Shuttle construction methods for island submarine cable landing zones.
• Global talent utilization: To address domestic labor shortages from aging demographics, the company pursues two initiatives: (1) offshoring of inspection, design, and costing work to the Philippines and Vietnam, and (2) in-country employment of skilled foreign workers via partnerships with overseas universities, with ~30 foreign workers currently active, building a global talent circulation model.

Urban Infrastructure Segment Initiatives

• Data center business expansion: While large project order volume is slightly lower than the prior year's record level, overall segment orders remain strong, and the company is expanding its service scope beyond core electrical work to cover full project scope. The company is accumulating know-how via in-house installation of GPU cooling systems at its own operated data center to support external customer projects, and has partnered with global firm X1Studio to win installation and instrumentation work for X1Studio's Niagara Framework data center BMS systems to expand order scope.
• Inverter-less solar power system commercialization: The company holds a patent for this higher-output solar technology, which received positive feedback at an international conference. Pilot testing at the company's Shonan Comprehensive Technology Center has confirmed practical viability, and commercial pilot testing is now underway for solar carport applications for EV buses as future growth seed.

System Solutions Segment Initiatives

• Next-GIGA growth plan: Most current Next-GIGA orders are for terminal replacement, with short lead times that mean nearly all orders will be recognized as revenue this fiscal year. The company is now developing higher-margin follow-on opportunities including infrastructure upgrades, security overhauls, school administrative cloud services, and data integration platforms for existing government and education clients.
• Generative AI as a growth engine: A dedicated Generative AI Promotion Center was launched in April 2025 to centralize group knowledge for internal and external AI use cases. 9,000 employees have obtained the company's internal "Generative AI Passport" certification, and AI is already deployed for software development, automated network configuration, meeting minute creation and other internal tasks. The company is now leveraging internal know-how to offer external AI consulting and AI agent solution sales.
• Recent M&A activity: Two acquisitions were completed this fiscal year to expand the segment's value chain: (1) SAT, a specialist in third-party server hardware maintenance, fills a gap in the group's end-to-end maintenance value chain covering post-maintenance hardware refresh and ongoing maintenance, and (2) Olivier, a financial sector specialist with blockchain and security expertise, which complements the group's existing ServiceNow and AWS capabilities to enable cross-selling and upselling for both firms' customer bases.
• Global business restructuring: The company has consolidated 8 overseas group entities so far, targeting 10 consolidations by year-end on schedule. Full ownership of largest global subsidiary Procurri was completed in September 2025, enabling full-speed structural reform. The company has also launched new growth initiatives including refurbished GPU server offerings and hyperscale data center fit-out work, now active in Malaysia and India, to leverage growing AI demand. Reaching break-even for the global business this fiscal year remains a top priority.

Mid-Term Strategic Planning

• The current mid-term plan's sales target was achieved last fiscal year (reaching 670.0 billion yen vs the 630.0 billion yen target), and operating profit, ROE, and EPS are all on track to hit full targets this fiscal year, leaving only the profit margin target unmet from the original plan.
• The next 5-year mid-term plan is currently under development, centered on adapting to rapidly changing business conditions and addressing the unmet profit improvement goal. Key strategic pillars under discussion include customer focus and advanced technology adoption, profit-first management, aggressive growth investment to outpace market growth, talent acquisition and partner network strengthening, and enhanced shareholder returns. ROE is the top quantitative priority: the company expects to hit >9% ROE this fiscal year, and is targeting >10% ROE for the next plan period. Full details will be announced in May 2026 alongside full year results.

Shareholder Return

• The company maintains its existing dividend policy of targeting 4.0% DOE, and plans its 14th consecutive year of dividend increases, with a planned full year dividend of 66 yen per share (33 yen interim). The company will continue to conduct opportunistic share repurchases, and management has committed to continuing the prior CEO's streak of annual dividend increases.

1. Communication Carrier Segment: Sales were nearly flat year-over-year, but operating profit increased by 2.0 billion yen driven by large efficiency improvements from prior efficiency initiatives including subsidiary integration, digital transformation, and indirect work consolidation. Margin improved significantly.
2. Urban Infrastructure Segment: Sales increased year-over-year, with operating profit up 2.2 billion yen. Data center-related sales grew approximately 15.0 billion yen versus the prior year, as progress on large 2024 data center projects was very smooth. Public infrastructure sales are flat due to selective order intake policies, but margin is rising as backlog digestion progresses. This segment outperformed the rebound from an 1.1 billion yen unprofitable project that depressed 2024 results.
3. System Solutions Segment: Sales grew strongly driven by Next-GIGA projects, with operating profit up 1.7 billion yen. Approximately 15.0 billion yen in Next-GIGA sales were recorded in the first half, with total Next-GIGA orders standing at 60.0 billion yen (well above original forecasts). DX and security solutions also grew both sales and profit. The global sub-segment saw nearly flat sales and a slight profit decline, while ongoing restructuring continues.

• Full year 2025 (fiscal 2026 ending March 2026) guidance is maintained at the original initial targets: 720.0 billion yen in total orders, 710.0 billion yen in total sales, and 47.0 billion yen in operating profit. Management notes that upper-half progress is generally solid, and sales are not a concern given the large volume of Next-GIGA orders, but tight on-site capacity requires careful project management to hit the profit target.
• The current mid-term plan is on track to have all core targets achieved by the end of this fiscal year, with only the profit margin target being carried into the next planning period.
• The next 5-year mid-term plan is targeting an ROE of 10% or higher, with full guidance to be released in May 2026.

• Domestic labor shortages: Aging demographics are projected to reduce the pool of skilled technical workers supporting Japan's information and communications infrastructure long-term, requiring proactive talent recruitment, development, and global sourcing to secure sufficient capacity.
• IT talent shortage: The System Solutions segment faces a critical shortage of domestic IT personnel, requiring the company to rely on offshoring, increased hiring, and M&A to support segment growth.
• On-site operational capacity constraints: Strong order growth has left construction sites extremely busy, creating execution risk that could impact full-year profit performance if project management is not tightly controlled.
• Global business underperformance: The global System Solutions sub-segment has not yet reached break-even, requiring ongoing restructuring that is expected to take additional time to deliver full results. The business is the company's top outstanding management priority.
• Rising competition in data center services: As data center technology evolves, more competitors have entered the market, requiring the company to expand its capabilities and service scope to maintain market share.

No formal question and answer section was included in the provided transcript.