Quest Co.,Ltd. Q4 FY2025 earnings call

Company Milestone & M&A Update

• Quest celebrated its 60th anniversary in 2025, and added a 5 yen per share commemorative dividend to the regular payout for the 2024 fiscal year.
• Completed the full acquisition of 株式会社セプト (Sept Co., Ltd.) as a wholly owned subsidiary on April 15, 2025. Sept is a 100-person technology firm with an average employee age of 34, based in Iwamotocho near Akihabara.
• The core goal of the acquisition is to add critical engineering resources, shift lower-margin routine work from Quest to the new subsidiary, and improve overall group profitability. The acquisition brought total group headcount to ~1,250 employees, from ~1,100 pre-acquisition.

Business Portfolio Transformation

• Management is actively rebalancing the customer portfolio to maintain ~50% exposure to the semiconductor/manufacturing segment, to avoid profit volatility from the silicon cycle while retaining access to the segment's high margins.
• Targets 30% of total revenue from high-value solution services by 2030, and is gradually shifting internal resources and training employees to support this growth. The four core solution service pillars are: Engineering Solutions (centered on PLM), Supply Chain Solutions, Data Engineering Solutions, and Cloud Managed Services.
• Deepening core services in the social issue solution segment: Quest was selected as one of two strategic infrastructure partners for a major Japanese power company, leveraging its established expertise in IT infrastructure maintenance and operation.

Strategic Investment & Operational Improvements

• Continues prioritized investment in people and technology to support long-term 2030 growth targets, rather than focusing exclusively on near-term profit. Increased shareholding scheme incentives for employees, well above the industry average, to build management awareness among staff and secure stable long-term shareholders.
• Generative AI integration is in progress: Currently prototyping a service desk application incorporating generative AI and RAG, in internal proof of concept. Management plans to gradually embed AI functionality into development, maintenance and operation services over time.
• The company has delivered 12 consecutive years of revenue growth and 7 consecutive years of operating profit growth as of the 2024 fiscal year.

By customer industry segment:

1. Priority Growth Segment (Semiconductor and Manufacturing): This segment declined 5 percentage points in revenue contribution year-over-year, in line with the company's internal target of maintaining ~50% revenue contribution to avoid overexposure to the volatile silicon cycle. The decline came from reduced system development projects at some manufacturing clients, partially offset by returning memory chip project volumes. This segment has a very high margin that fluctuates sharply with market conditions.
2. Stable Growth Segment (Finance, Entertainment, Information and Communications): No specific absolute revenue or percentage change was reported in the available transcript, this segment is maintained as a balanced core of the customer portfolio.
3. Social Issue Solution Segment (Public infrastructure, Mobility & Logistics, Healthcare): This segment grew 5 percentage points in revenue contribution year-over-year, driven by increased public infrastructure service contracts and growing system development projects for mobility and logistics clients.

Overall 2024 full year consolidated results: Total revenue was 14.936 billion yen, operating profit was 1.055 billion yen, ordinary profit was 1.112 billion yen. All core KPIs improved year-over-year. Revenue missed the company's prior guidance of 15 billion yen by 640 million yen, but all other KPIs exceeded prior guidance.

• For the 2025 full fiscal year (including the newly acquired Sept subsidiary), consolidated revenue is projected to be 16.86 billion yen, a 1.924 billion yen increase year-over-year. Operating profit is projected to be 1.18 billion yen, representing an 8th consecutive year of profit growth.
• The basic operational framework of the mid-term management plan (2024-2026) remains unchanged, with the 2026 revenue target of 16.8 billion yen now expected to be achieved ahead of schedule following the Sept acquisition. Management will update guidance after a full review at the half-year mark.
• Dividend guidance for 2025: A 55 yen per share ordinary dividend is planned, a 2 yen increase from the 2024 ordinary dividend (excluding the 60th anniversary commemorative dividend). This follows the mid-term capital policy target of a consolidated payout ratio of 35% or higher and a DOE of 4% or higher.

• The most significant near- and medium-term risk is industry-wide engineering talent and resource shortage. Quest has historically used ad-hoc partner support for overflow work, which does not support stable long-term growth. Management plans to address this by increasing long-term strategic partner relationships, shifting routine work to external partners to free internal resources for higher-value work, alongside M&A to add in-house capacity.
• Indirect exposure to global economic volatility: While Quest does not operate overseas and is not directly exposed to foreign exchange fluctuations or US tariff risks, over 60% of its customers are global large manufacturing and financial firms. This creates indirect risk of delayed projects, cost-cutting requests, and project reviews from clients that may be impacted by global economic shifts, which management will monitor closely for medium-term planning.
• Overconcentration in the volatile semiconductor segment: Excessive exposure to semiconductors would create unstable profit due to the silicon cycle, which is why management actively rebalances the portfolio to hold exposure around 50%.

The provided transcript cuts off before the full exchange is available; the only incomplete question is shown below: Q: The slide references "securing trusted development partners" and notes that this refers to outsourcing routine work. What specific types of work does this involve?

A: No answer is included in the provided partial transcript.