CUBE SYSTEM INC. Q4 FY2025 earnings call

Strategic Direction & Mid-Term Plan

• The 2nd mid-term management plan (Vision 2026) is positioned as the company's "second founding", focused on expanding three core business lines:
  1. SIer-facing contracted business: Leverage abundant order opportunities to expand across industries, accumulate expertise and intellectual property through active work with advanced technologies
  2. Prime-facing contracted business: Leverage expertise from SIer-facing work to deliver high value-added services directly to end clients
  3. Planning-focused service business: Expand order opportunities through collaboration with solution vendors, build internal competitive services through technology and expertise accumulation
• The company targets sustained ROE of 14% or higher through profit margin improvement and higher capital efficiency, and prioritizes sustainability-focused value creation for all stakeholders.

2025 March Fiscal (FY1 of mid-term plan) Operational Progress

• Business foundation: R&D investment delivered visible progress: internal development of the company's proprietary service H・CUBiC advanced in planning and implementation, and internally solicited R&D projects included investments in generative AI for operational efficiency.
• Collaboration push: Relationships with existing large SIers and solution vendors were strengthened to create new order opportunities.
• Production system expansion: Vietnamese subsidiary employees are brought to Japan for training, and preparation for a new domestic development location is underway. However, quality management faced material issues: unaddressed risk in small and medium projects led to unprofitable projects, which diverted personnel from new business acquisition and caused lost order opportunities.
• Human capital management: Progress was made across three priorities: (1) Quantative expansion: strengthened hiring delivered solid results, improved compensation and engagement initiatives lowered turnover; (2) Qualitative improvement: developed structured training programs, clarified career paths to build employee capability; (3) Motivation improvement: launched targeted engagement initiatives to boost employee buy-in.

By business model:

1. Digital Business: Grew steadily, secured opportunities for energy sector IoT infrastructure construction and increased consulting service engagements; no absolute numerical value provided.
2. SI Business: Market demand for cloud construction projects remained strong, but a large canceled project pulled full-year revenue down year-over-year.
3. Enhance Business: Grew year-over-year, driven by steady accumulation of new derivative development orders from existing projects.

By end-user industry:

• Finance: Flat year-over-year, with solid growth in securities market infrastructure and megabank projects offset by declines in insurance-related projects.
• Distribution, transportation and communications: Revenue fell below prior year levels due to slow progress in securing core client projects.
• Public sector and energy: Expanded, with public sector revenue growing 72% year-over-year.

By business style:

• SIer-facing business: Flat year-over-year, with strong order growth from one major SIer offset by large project cancellations and scaling at other SIers due to end-client factors.
• Prime-facing business: Grew year-over-year, driven by improved project acquisition from existing clients.
• Service provision business: Grew year-over-year, driven by deepening collaboration with solution vendors and progress in technology solution development and deployment.

Overall full-year 2025 March fiscal results: Total revenue of 18.351 billion yen, up 1.8% year-over-year; operating profit of 1.38 billion yen, down 10.1% year-over-year; net profit attributable to parent company shareholders of 1.261 billion yen, up 18.2% year-over-year (driven by a special gain from retirement benefit system revisions). Total group headcount reached 918 employees as of March 2025, with 775 domestic and 143 overseas employees. ROE for the period was 12%, below the company's long-term 14% target.

• Full-year 2026 March fiscal guidance: Total revenue of 19.5 billion yen, up 6.3% year-over-year; operating profit of 1.75 billion yen, up 26.7% year-over-year (double-digit operating profit growth); net profit attributable to parent company shareholders of 1.22 billion yen, down 3.3% year-over-year (no special gain expected in the period, following the prior year's retirement benefit system revision gain).
• Half-year 2026 March fiscal guidance: Revenue of 9.3 billion yen, operating profit of 540 million yen, net profit attributable to parent company shareholders of 460 million yen. The forecast reflects the company's typical business structure, where new hires are trained in the first half and gradually contribute to projects in the second half.
• Mid-term 2nd mid-term plan targets: 23 billion yen in revenue for the 2027 March fiscal year, with a focus on consistent growth and high profitability.
• Dividend guidance: Full-year 2026 March fiscal dividend planned at 42 yen per share (20 yen interim, 22 yen year-end), with an expected payout ratio of 51.8%, aligned with the company's target 50% consolidated payout ratio for shareholder returns.
• Key 2026 March fiscal priorities: Expand business footprint in industrial, financial, and public sector markets, pursue growth in popular system modernization projects, and drive profitability improvement through quality strengthening and productivity gains.

• Customer project changes led to canceled projects, and the resulting diversion of personnel to resolve unprofitable projects caused stagnant sales activity and weak order intake, which limited top-line growth.
• Rising personnel costs from employee compensation improvements, combined with continued investment in expansion (R&D, new locations, hiring) and the impact of unprofitable projects led to an overall 155 million yen year-over-year decline in operating profit.
• While current order backlog is higher year-over-year, it is still insufficient to meet the 2026 March fiscal full-year plan, requiring intensified business acquisition efforts to grow backlog.
• Inadequate risk assessment for small and medium-sized projects led to material unprofitable projects, which caused lost order opportunities and reduced profitability in the 2025 March fiscal year.

The full text of the question and answer exchanges is not included in the provided transcript. The transcript only lists the topics of the three scheduled exchanges: (1) Key underlying assumptions and planned headcount for the 2026 March fiscal year forecast; (2) Achievement probability for the 2026 March fiscal year plan; (3) Transaction details with the four major client groups (Nomura Research Institute Group, Fujitsu Group, Mizuho Group, Aeon Group).