SOLITON SYSTEMS K.K. Q1 FY2025 earnings call

Overall Consolidated Performance

• Consolidated revenue: 4.585 billion yen, up 0.2% YoY. The negative impact of transferring 500 million yen annual revenue Chinese subsidiary Soliton Shanghai (removed from the consolidation scope) was offset by growth in high-margin in-house products, keeping revenue flat with prior year.
• Gross profit: 2.106 billion yen, up 2.7% YoY; gross margin improved 1% YoY.
• Operating profit: 593 million yen, up 21.3% YoY, driven by higher share of high-margin products and a 3.1% YoY decrease in SG&A from lower office investment and reduced rent after office downsizing.
• Ordinary profit: 528 million yen, down 7.4% YoY due to 60 million yen in foreign exchange losses from rapid yen appreciation against the US dollar.
• Net profit attributable to parent shareholders: 400 million yen, up 2.4% YoY, supported by tax benefits from prior-period impairment of the transferred Chinese subsidiary.
• Capital structure remains healthy: equity ratio stays above 50%.

IT Security Business Strategic Updates

• Core product lines cover four growth areas: zero-trust authentication, secure hybrid work, risk visualization and data protection, and network security. The company is the largest domestic Japanese-owned IT security vendor in the authentication space, with leading market share for flagship products SmartOn ID (50% share in client authentication) and NetAttest (around 50% share in network authentication).
• 2025 business initiatives include strategic product price revisions, updated long-term support policies, hardware model refreshes for improved performance to serve large-scale customers, new feature expansions for broader industry coverage, and two new internal organizations: one focused on DX-specific services and another focused on product promotion to accelerate new product expansion.
• Key recent topics: Launched a new remote management-enabled product for Phase 2 of the GIGA School Initiative to retain existing customers and acquire new education segment clients; announced a technical partnership with Internet Initiative Japan (IIJ), where the company's Soliton SecureBrowser and Soliton SecureWorkspace are integrated into IIJ's cloud service offering as a secure terminal isolation solution.

Video Communication Business Updates

• Core technology is stable high-quality low-latency video transmission over unstable networks, serving public safety, remote control, and live broadcast end markets. The company is expanding global growth in the remote control segment for autonomous driving and remote construction use cases, which has strong global demand.
• Recently joined the Japan-Ukraine Public-Private Council for Infrastructure Reconstruction (JUPITeR) to contribute to Ukraine's post-war infrastructure reconstruction, using the company's Zao-series uninterrupted low-latency multi-mobile-line video transmission devices to enable remote control of construction equipment in dangerous mine-contaminated war zones.

Eco New Business Development Updates

• Core competency is low-power semiconductor technology. Key ongoing projects include space-grade FPGA design that supported navigation for the Japanese lunar landing satellite in January 2024, and continued support for the navigation system of the upcoming LUPEX lunar rover.
• The company is actively developing an ultra-low power analog AI chip that can operate on fully self-contained power, targeting edge AI use cases including implanted medical devices and solar-powered distributed AI sensors. Development is ongoing with partner collaborations for future monetization.

Overall Growth Strategy

• The company holds unique niche leading positions in all three business segments, leveraging deep technical expertise. The near-term strategy is to strengthen niche leadership by increasing market share in each existing market, and cross-combine unique core technologies from each segment to develop new high-value solutions (examples: real-time video + security, autonomous driving + low-power AI).
• Medium-to-long term goal: Exit niche markets to become a core technology provider supporting Japan's 4 trillion yen DX market. A new three-year plan with detailed strategic targets and investment figures will be completed within the current fiscal year.

1. IT Security Business: Product sales decreased 8.4% YoY due to the disposal of the Chinese subsidiary, while maintenance and cloud services grew, with cloud services up 20.2% YoY driven by recurring revenue. Overall segment revenue stayed flat YoY, and profitability improved 5.1% YoY from the growing share of high-margin in-house products and services. This segment is the company's core business, holding 50% market share in its core authentication product lines. Revenue contribution is majority of the company's total 4.585 billion yen consolidated revenue.
2. Video Communication Business: The segment saw a year-over-year decline in revenue and profit due to the absence of large public sector projects that occurred in the prior year quarter, though cloud service revenue for remote operation use cases grew steadily. This is an investment-stage segment focused on public safety and remote control markets.
3. Eco New Business Development: Revenue increased YoY supported by stable revenue from human detection sensor ICs (cumulative shipments of 24 million units) and one-time orders for video transmission systems. Analog AI chip development continues with additional resources allocated for prototype production.

• Full-year 2025 December fiscal year consolidated earnings guidance is maintained unchanged from the February 2024 year-end disclosure, despite uncertain impacts of US reciprocal tariffs on the Japanese economy.
• Dividend policy is maintained unchanged from prior disclosure: Targeting a 50% payout ratio and 8% return on equity, with a planned full-year dividend of 52 yen per share (26 yen per share interim dividend).
• First quarter progress against full-year targets is in line with plan: Revenue progress is 23.5% of full-year target, and operating profit progress is 27% of full-year target.

• Uncertain macroeconomic risk from potential impacts of US reciprocal tariffs on the Japanese economy
• Sharp yen appreciation against the US dollar created foreign exchange losses in the quarter, presenting ongoing currency risk for the company's international operations
• Core on-premise authentication products, while stable, do not have high expected growth outlook, requiring successful expansion into cloud and new market segments to drive long-term growth
• Video Communication Business revenue is dependent on large infrequent public sector projects, leading to quarter-to-quarter revenue volatility
• Analog AI chip development is still in pre-prototype stage with no guaranteed monetization timeline or commercial success

The full Q&A content is not included in the provided transcript snippet, so key exchanges cannot be extracted. No additional Q&A details are available beyond the listed question topics: key customers and products, cybersecurity business performance, status of large projects, and analog AI chip development.