YE DIGITAL Corporation Q4 FY2025 earnings call

• Overall Financial Summary

• YE DIGITAL achieved 3 consecutive years of revenue growth for the full fiscal year ending February 2025, with total consolidated revenue of 19.944 billion yen (+2.3% year-over-year).
• Operating profit was 1.408 billion yen (-5.4% year-over-year), with an operating margin of 7.1% (down 0.5pp year-over-year), due to the negative impact of the quality issue response in the logistics DX business. Net profit attributable to parent shareholders was 1.038 billion yen, with EPS of 56.84 yen.
• The quality issue in the logistics business that arose in autumn 2024 was resolved, with normal operations expected to resume by February 2025.

• 2022-2024 Previous Medium-Term Management Plan Review

• All annual revenue targets were met; operating profit exceeded the 2023 target but missed the 2024 target due to the quality issue, though 1.4 billion yen in operating profit was still secured.
• Key achievements include completion of the Smart Service AQUa relocation/expansion, opening of the logistics DX service center and Shibuya office, and execution of human capital investments including wage increases and employee challenge support programs; 2023 and 2024 both set all-time revenue records, with 2023 achieving a record high profit.
• Key outstanding challenges: stabilizing IoT business quality, growing new business verticals as core segments, uncovering new projects after large-scale project completion, and strengthening strategic management capabilities.

• 2025-2027 New Medium-Term Management Plan

• Vision: Become a digital service company that supports the best customer experience, delivering medium-long term returns for shareholders, data-driven problem solving for customers and society, and a rewarding workplace for employees.
• Core strategic shift: Transition from a product/service functional value-focused model to a customer experience value-focused business model, centered on achieving customer success.
• Four core strategic pillars:
  1. Customer-centric marketing strategy: Leverage cross-organizational and cross-partner resources to expand existing DX expertise to new clients, strengthen partner collaboration in logistics, and deliver continuous value via PDCA for DX implementation and data utilization.
  2. Build product/service capabilities that deliver customer success: Shift from one-time system implementation support to end-to-end accompanying support that includes data utilization and business transformation, improving overall DX quality.
  3. Investment strategy to support business expansion: Strengthen business portfolio management, shift from pure profitability focus to capital efficiency-focused management, and advance data-driven decision making.
  4. Promote sustainability management for long-term growth: Established 9 material sustainability issues with mid-term targets and KPIs to build a resilient operating base.
• 2027 (final plan year) numerical targets: 25.0 billion yen in consolidated revenue, 3.0 billion yen in consolidated operating profit, 25% ROE, with a target operating margin of 10% in 2026 rising to 12% in 2027.

• Key Operational Highlights

• Announced a 400 million yen capped share repurchase program to run from April 2025 to February 2026, targeting up to 500 thousand shares, to improve shareholder returns and capital efficiency. A full year dividend of 20 yen per share is planned for the 2026 February term, for a total payout ratio of 31.8% and total shareholder return of 66.6% including the buyback.
• Strengthened partnership with top market share WMS vendor Logizard: Integrating YE DIGITAL's MMLogiStation WES package with Logizard's WMS eliminates the need for custom WMS development, cutting lead time for automation deployment and costs significantly while reducing the risk of future quality issues.
• Smart bus stop solutions expanded to new markets: New installations were added in Hakodate (Hokkaido), Sakaide (Kagawa), and Kuwana (Mie) to improve public transit convenience for residents and tourists.
• Milfee livestock feed tank monitoring solution surpassed 1,000 client farms, with 1,057 farms confirmed as of November 2024, with adoption spreading across Japan especially in Hokkaido and Kyushu. Additional delivery and ordering application features launched in 2024 are driving further expansion from single-farm to regional area adoption.
• The company is positioned to capture Second GIGA school network infrastructure demand over the 2025-2027 period, with its NetSHAKER W-NAC product receiving positive industry feedback for enabling digital textbook-based learning and reducing teacher workload.
• AQUA DataFusion service will launch in June 2025 from the Smart Service AQUA operations center, combining accumulated operational data with AI analytics to cut troubleshooting time by 35% and knowledge search time by 63% for logistics and manufacturing clients.

1. Business Solutions Segment: Revenue of 15.837 billion yen, +5.4% year-over-year, contributing 79.4% of total consolidated revenue. It achieved 4 consecutive years of revenue growth, driven by strong demand for ERP solutions (up ~0.6 billion yen year-over-year) and system construction for automotive manufacturers (up ~0.3 billion yen year-over-year); system construction for health insurers declined after the completion of a large-scale project. 2. IoT Solutions Segment: Revenue of 4.107 billion yen, -8.3% year-over-year, contributing 20.6% of total consolidated revenue. Within the segment, logistics DX remained strong but only grew ~0.1 billion yen year-over-year due to the impact of the H2 2024 quality issue response; smart city solutions and internet/security-related products increased year-over-year; livestock DX decreased due to delayed closing of large incoming orders.

• For the 2026 February full year, YE DIGITAL guides 20.0 billion yen in consolidated revenue (+0.3% year-over-year), 1.6 billion yen in operating profit, 1.7 billion yen in ordinary profit, 1.15 billion yen in net profit attributable to parent shareholders, and EPS of 62.93 yen.
• Business Solutions segment guidance is 15.0 billion yen (flat year-over-year) after the completion of a large-scale project; IoT Solutions segment guidance is 5.0 billion yen, with strong growth expected from the reacceleration of logistics DX.
• The company will continue to execute planned investments in priority growth areas including IoT and human capital in the 2026 fiscal year.
• The new 2025-2027 medium-term plan targets 25.0 billion yen in consolidated revenue, 3.0 billion yen in operating profit, 25% ROE, and 12% operating margin by the final 2027 fiscal year.

• A major quality issue occurred in the logistics business in autumn 2024, which reduced full year 2025 operating profit by pulling down overall profitability and caused the company to miss its previous medium-term operating profit target for the year.
• Key outstanding growth risks include: maintaining stable order and revenue levels after the completion of large-scale projects in the Business Solutions segment, stabilizing product and service quality in the growing IoT segment, and establishing a scalable recurring business model in emerging verticals including livestock DX, smart cities, and education.
• The company must adapt to changing market expectations by shifting to capital efficiency-focused management, which requires strengthening strategic management and portfolio allocation capabilities.

Q: Is the projected growth of the IoT Solutions segment primarily driven by the reacceleration of logistics DX, and what concrete growth plans are in place?

A: Logistics DX is the core driver of IoT segment growth. The recent partnership with Logizard eliminates custom WMS development, cutting project timelines, costs, and quality risk, which will support a return to strong growth after the 2024 quality issue resolution. Other growing sub-segments including smart city solutions, livestock DX, and security products will also contribute to overall expansion.