Pacific Net Co.,Ltd. Q4 FY2025 earnings call

• Company Overview & Core Value Proposition

  • Pacific Net is an independent listed B2B IT service provider founded in 1988, with 275 employees, 7 domestic locations, and 2 M&A-acquired group subsidiaries.
  • The company provides end-to-end one-stop IT device Lifecycle Management (LCM) services covering procurement, deployment, operation, management, and compliant disposal, addressing resource shortages for in-house IT teams amid widespread industry IT talent shortages and growing outsourcing demand.
  • It is the only listed company in Japan that can provide end-to-end LCM services, with competitive advantages including long-term customer relationships, independence from manufacturer capital ties, and fast decision-making.

• Consolidated Financial Performance

  • 2025 May Term consolidated revenue hit 8.099 billion yen, operating profit hit 0.842 billion yen, with all key metrics achieving double-digit growth. Both revenue and operating profit set all-time highs since the company's founding. Operating profit margin reached 10.4%, ROE reached 16.5%, marking three consecutive years of increases for both metrics.
  • Total assets reached 12.364 billion yen, more than doubling in size over the past four years. Operating cash flow was 3.569 billion yen, with negative free cash flow driven by borrowing to fund growing subscription contract balances, which management frames as evidence of ongoing growth.
  • Stock revenue now accounts for over 70% of total revenue, building a stable business base that is less vulnerable to external market fluctuations. Per-employee revenue and operating profit have increased in recent years, achieving growth without relying solely on headcount increases.

• Capital & Shareholder Strategy

  • The company uses ROE as its core capital efficiency metric, estimating its current cost of capital at 7.8%. Current ROE significantly exceeds the estimated cost of capital.
  • Improving corporate recognition is the top priority, as the company's market capitalization has long remained below 10 billion yen. The company has expanded IR activities including radio appearances and YouTube IR interviews targeting individual investors.
  • Dividend policy targets a payout ratio of at least 30% and a DOE of at least 5%, with a 9th consecutive dividend increase planned for the 2026 May Term.

1. IT Subscription Business: Revenue grew 18.3% year-over-year, segment profit grew 9.1% year-over-year. Contracted asset balance increased to 15.5 billion yen on an acquisition cost basis, and utilization rate rose 3pp to 81%. The segment has maintained an average annual growth rate of 24.3% since 2019. It accounts for approximately 48.7% of total consolidated revenue. 2. ITAD Business: Revenue was 2.063 billion yen, segment profit was 0.741 billion yen, achieving double-digit year-over-year growth in both metrics. It accounts for approximately 25.5% of total consolidated revenue. 3. Communication Device Business: Revenue grew 32.8% year-over-year, segment profit grew 61.0% year-over-year, marking the strongest growth among all three segments. Shipment volumes have recovered to pre-COVID-19 levels as tourism demand rebounds. It accounts for approximately 25.8% of total consolidated revenue. Overall, all three segments achieved year-over-year revenue and profit growth in the 2025 May Term.

• Management maintains a positive outlook for all three business segments, expecting the Japanese IT industry to remain resilient amid potential economic slowdown, supported by structural demand from labor shortages and ongoing DX promotion.
  • 2026 May Term consolidated guidance projects revenue of 9.0 billion yen and operating profit of 0.91 billion yen, representing continued double-digit growth from the 2025 May Term. The 10 billion yen revenue milestone is now within reach.
  • The 2026 May Term is expected to see strong industry tailwinds from the end of Windows 10 support and the full maturation of GIGA School program device replacement demand.
  • The guidance already incorporates expected costs from a significant base pay increase for employees and planned investments in personnel, IT, and productivity improvements.
  • A 52 yen per share dividend is planned for the 2026 May Term, marking a 9th consecutive annual dividend increase, consistent with the company's progressive dividend policy.

• The primary near-term risk identified by management is talent acquisition and retention, as growing industry demand for the company's services requires sufficient skilled human capital to match.
  • Negative free cash flow is a structural feature of the IT subscription business, which relies on leverage to build device assets for long-term revenue; the intentional lower equity ratio from leverage-driven growth requires ongoing maintenance of financial health.
  • ITAD business carries inherent information leakage risk from processing retired end-user devices, which acts as a high barrier to entry for competitors but requires strict operational compliance to maintain trust.
  • A moderate post-OS update demand pullback is expected for the PC market in the fiscal year following the 2026 May Term, though management expects its stable LCM-focused business model to offset this volatility.
  • While tariff and foreign exchange volatility are widely cited market concerns, management expects these factors to have negligible impact on its business based on historical performance and its current operating structure.

No question and answer section is included in the provided earnings call transcript.