YE DIGITAL Corporation Q2 FY2026 earnings call

• Overall Positioning and Mid-Term Basic Policy

  • YE DIGITAL targets becoming a digital service company that supports superior customer experience, transforming its business model from focusing on product functional value to customer experience value, accelerating customer and societal DX/CX.
  • The 2025-2027 Mid-Term Management Plan has 4 core directions: customer-centric marketing strategy, building product/service capability to drive customer success, investment strategy to support business expansion, and sustainability-focused management to support long-term growth.
  • Mid-term final targets for FY2027: 25 billion yen total revenue, 3 billion yen operating profit, 25% ROE.

• Progress on 4 Core Mid-Term Directions (H1 2025)

  • Customer-centric marketing: Business Solutions strengthened customer collaboration via Prime DX projects, and started new projects in partnership with strategic partner Fujitsu. IoT Solutions expanded collaboration with WMS and material handling companies in logistics (including Toyota Industries, Logizad, Plus Automation). Livestock DX expanded from single-site to broad adoption, with 8,000 units in operation, on track to exceed 10,000 units in H2. Cultural and educational DX is focused on maintaining market share, as Second GIGA demand is delayed 1 year. Smart City won the Okayama City digital signage public transit smart bus stop contract. The new BusOne packaged product is being rolled out to other municipalities.
  • Product/service capability improvement: Secured the first customer for the new integrated Business DX platform. Won a large order for the MMLogiStation logistics package from a major manufacturing client. Secured the first customer for the logistics-specific AQUA DataFusion BCP solution, with large client deals pending. Established a president-led Quality Assurance Headquarters after last year's logistics quality failure, which has reduced quality issue incidence via deep on-site checks.
  • Investment strategy: Shifted the generative AI team from external sales to internal use, focusing on reducing development man-hours and improving productivity; contributed tens of millions of yen in profit in H1, with over 100 million yen annual productivity gain expected. Implemented strengthened business portfolio management to visualize profitability of new investments, enabling clearer strategic decisions. Migrating internal management systems to an IT industry-suitable ERP, targeting launch next year (mid-term plan Year 2), on track currently. Started developing a talent portfolio framework.
  • Sustainability and governance: Strengthened governance via the establishment of an audit committee. Completed repurchase of 500,000 own shares totaling 310 million yen by July 2025 to improve capital efficiency.

• New Product and Marketing Highlights

  • The new AQUA Operation Monitoring Service for logistics will launch in December, using AQUA DataFusion to aggregate customer troubleshooting data and apply AI to reduce troubleshooting time from 2 hours to ~30 minutes; inquiries are already very strong.
  • Productized the Okayama City smart bus stop integrated multi-operator transit information system as BusOne, and is actively pursuing similar opportunities across other Japanese municipalities.
  • Exhibited at the 2025 International Logistics Exhibition in Tokyo, and held a livestock industry seminar at its headquarters to expand adoption of its Milfee livestock DX solution.

1. Business Solutions Segment: Total revenue of 7.834 billion yen, accounting for 81% of total consolidated revenue, a 1.2% decrease year-over-year. Within this segment: ERP and Business DX related revenue is 5.541 billion yen, an increase of 235 million yen year-over-year, driven by prime DX project delivery, new customer acquisition and new project wins. Other fields (mobile communication, automotive business system development, health insurer system construction) revenue is 2.292 billion yen, a 12.7% decrease year-over-year, due to the completion of a large health insurer system project, which was an expected decline. 2. IoT Solutions Segment: Total revenue of 1.831 billion yen, accounting for 19% of total consolidated revenue, a 14.8% decrease year-over-year. Within this segment: Logistics DX revenue is 758 million yen, a 12.1% decrease year-over-year, caused by lower order backlog at the start of the period from last year's quality issue-related order decline. Cultural and Educational business revenue is 357 million yen, a 14.4% decrease year-over-year, due to the Second GIGA program focusing on terminal/PC procurement this year, delaying demand for the company's network equipment. Other fields (livestock DX, smart city, information equipment) revenue is 715 million yen, a 17.6% decrease year-over-year, mainly due to timing shifts pushing information equipment orders from H1 to H2, which is expected to stay on track for the full year.

• Full year 2026 February term guidance is maintained unchanged from initial projections: 20 billion yen total revenue, 1.6 billion yen operating profit, 1.7 billion yen ordinary profit, 1.15 billion yen net profit attributable to parent company shareholders, 64.06 yen diluted EPS, annual dividend of 20 yen per share (10 yen interim, 10 yen year-end).
  • The 2025-2027 mid-term plan remains on track: H1 2025 hit all planned targets, with full year 2025 targeting 20 billion yen revenue and 1.6 billion yen operating profit, aligned with the plan's first year targets.
  • The 2027 mid-term final target of 25 billion yen revenue (15 billion yen from Business Solutions, 10 billion yen from IoT Solutions) and 3 billion yen operating profit remains unchanged, and is set as a achievable bottom-up target from aggregated business unit projections.

• Last fiscal year, YE DIGITAL experienced a major quality failure in its logistics DX business, which led to a significant decline in orders that negatively impacted H1 revenue of the current fiscal year. The company responded by establishing a president-led Quality Assurance Headquarters to implement strict pre-delivery quality checks, and has reduced quality issue incidence so far, but recurrence of quality issues remains a key risk.
  • The company operates in a highly competitive digital industry, and securing skilled digital talent is a market-wide challenge that could impact growth targets if hiring falls short of plans.
  • Demand for cultural and educational DX network solutions is delayed by the Japanese government's Second GIGA program budget allocation shift, which could lead to lower-than-expected revenue from this segment in the current fiscal year.
  • Information equipment revenue is delayed from H1 to H2 due to order timing shifts; failure to realize these delayed orders in H2 would lead to full year revenue misses.

Q: What industries are seeing the strongest demand for MMLogiStation, and which industries is YE DIGITAL targeting? / A: The company originally focused on the 3PL market when launching MMLogiStation, but demand from in-factory logistics for manufacturing has grown rapidly over the past year, driven by reshoring of production to Japan. In-factory manufacturing logistics is the company's core strength and key target for accelerated order acquisition today, with strong inquiry volume currently.

Q: H1 results are below last year's levels; can the company still hit full year targets and exceed last year's full year performance? / A: Last year saw a very strong H1 that hit record levels, but a late-year quality issue limited full year results to 19.9 billion yen revenue and 1.4 billion yen operating profit. Current year H1 was weighed down by last year's order decline, but H2 has strong tailwinds: robust logistics DX inquiries, large orders already secured, growing demand for new AQUA services, so the company remains on track to hit full year plan targets.

Q: What changes did the company make after last year's quality issue, and how is the new Quality Assurance Headquarters operating? / A: Last year's quality issue was the worst the company has experienced, requiring over six months to resolve. In response, the company established a president-direct Quality Assurance Headquarters at the start of this fiscal year, with authority to conduct deep checks on all key projects and respond on-site to any issues. H1 has seen a clear reduction in quality issues from this new process, and the entire management team is committed to preventing a recurrence.

Q: What is YE DIGITAL's core growth strategy for IoT Solutions and the logistics business? / A: In the previous mid-term plan, the company prepared to scale IoT Solutions, with logistics DX as the core growth driver in the current 2025-2027 plan. The company is using MMLogiStation as its core logistics product, accelerating growth via partnerships with material handling manufacturers and WMS vendors. The company also aims to scale recurring service business, with AQUA DataFusion expected to be the key catalyst for growing high-margin service revenue by the end of the mid-term plan.