SOLITON SYSTEMS K.K. Q4 FY2025 earnings call

• Overall Consolidated Performance

  • For the full year FY2025 (ending December 2025), consolidated net sales grew 6.2% YoY to 19.762 billion yen, despite a negative revenue impact from the share transfer and deconsolidation of a 500 million yen annual revenue Chinese subsidiary in March 2025.
  • Gross profit grew 11.4% YoY to 9.237 billion yen, operating profit grew 39.2% YoY to 2.844 billion yen, and net income attributable to parent shareholders grew 33.2% YoY to 2.298 billion yen. All three profit metrics achieved double-digit growth and hit new all-time records. Gross margin improved to 46.7% and operating margin improved to 14.4% driven by a higher proportion of in-house high-margin products.
  • Non-operating income of 152 million yen was recorded from interest income and foreign exchange gains. The balance sheet remains healthy, with equity ratio maintained above 50%. The decrease in cash and deposits is due to the shift of some funds to low-risk financial products amid rising interest rates.

• Public Sector Market Outlook and Traction

  • Public sector sales (excluding maintenance) grew 13% YoY, leading overall segment growth, with strong performance in central government disaster prevention/defense contracts and educational Kōmu DX projects in H2 FY2025. Private demand grew 7% YoY centered on cloud services.
  • Multiple policy-driven pipeline is expected through 2030: Local government network internal separation and administrative terminal consolidation projects from the 3rd resilience initiative will launch in earnest from FY2026; terminal and network infrastructure renewal under the 2nd GIGA School Initiative will accelerate from FY2026, with continued demand for Kōmu system cloud migration and security measures; mandatory two-factor authentication for medical information systems by 2027 will drive continued demand for hospital DX-related security strengthening in FY2026.

• Business Model Transformation for Revenue Stability

  • The IT Security segment is progressing with a shift from a flow-based to a stock-based business model by accelerating product cloudification, gradually raising the stock business ratio (including maintenance sales). The ratio increased from 40% in FY2022 to 44% in FY2025, led by the flagship Soliton OneGate service.
  • Starting in 2026, strategic migration licenses will be offered for core on-premise products to support customer cloud shift. The company targets raising the stock business ratio to approximately 60% within the next 3 years.

• FY2026 Key Initiatives for IT Security Segment

  • Accelerate cloud shift: Cloud offerings are being rolled out sequentially for core on-premise products, including the newly released SmartOn ID Cloud and Soliton OneGate integration for NetAttest EPS, to capture cloud migration demand and expand stock business share.
  • Strengthen differentiation and competitiveness: Strategic price revision has been implemented for Soliton OneGate to maximize customer value and business profitability. A new partnership with domestic vendor Amiya Corporation was launched, combining Amiya's SASE product Verona for SMEs with Soliton SecureBrowser to deliver a zero-trust solution tailored to Japanese enterprises. AI-powered feature expansion is ongoing, including personal information detection and deepfake face authentication spoofing detection.
  • Improve productivity: The regional sales structure covering areas outside the Tokyo metropolitan area has been restructured to improve sales efficiency and increase cross-industry deployment opportunities. The customer success department has been strengthened to drive upsell to existing customers and improve contract retention rates.
  • The latest update to core product NetAttest EPS enables integration with cloud-based Soliton OneGate, allowing centralized management of user IDs and digital certificates on the cloud, drastically reducing operational overhead and supporting smooth gradual cloud migration for the large base of existing EPS customers.

• New Growth Initiatives for Video Communication Segment

  • Deregulation enabling LTE use above 150 meters altitude has created a new market for disaster prevention helicopter video transmission using the company's Zao-X device. The solution is lower cost and higher quality than dedicated frequency or satellite options, and has already been adopted by multiple local governments and organizations; it was successfully used for situational awareness during the June 2025 Tokara Islands earthquake swarm. The company plans to expand into police, fire and security domains beyond disaster prevention.
  • The Zao series video transmission technology was selected for the Ministry of Land, Infrastructure, Transport and Tourism's November 2025 remote construction machinery demonstration from Kasumigaseki to the Noto Peninsula, and is recognized as core infrastructure for construction DX. Demand for remote operation is growing rapidly for labor saving and safety improvement, and the company is pursuing business expansion targeting both domestic projects and overseas reconstruction demand.
  • The company's video transmission technology was selected for the remote assist autonomous driving demonstration held in Shijonawate City in late 2025, which enables unmanned operation with remote operator support in scenarios where full autonomous driving is challenging, and progressed to near-real-world testing with local volunteer operators. This is positioned as a new growth area amid progressing social implementation of autonomous driving.

• New Growth Initiatives for Eco New Business Development Segment

  • The company has begun distributing mSense's Digital Eyes and Digital Eyes solutions, which use AI to enable advanced real-time quality monitoring on factory production lines, detecting abnormality and defect signs instantly via video and audio analysis. The solution is already being adopted in automotive and tire production lines, and delivers benefits including preventing unplanned line stops, standardizing inspection, and reducing re-inspection and disposal costs. Future integration with the company's in-development analog edge AI chip is planned to create additional value through technological fusion.

• Shareholder Return Policy

  • The company's basic policy is to continue stable medium- to long-term shareholder returns while securing internal reserves required for future business growth.

1. IT Security Segment: Total segment net sales increased 5.9% year-over-year to 18.516 billion yen. Product sales grew 8.3% YoY to 7.321 billion yen, with strong performance in public sector disaster prevention/defense and educational DX despite a negative impact from the sale of the Chinese subsidiary. Maintenance sales decreased slightly YoY to 5.452 billion yen due to the shift to cloud services, while cloud service sales grew 14% YoY to 2.652 billion yen. Segment profit increased 17.3% YoY to 3.717 billion yen, and the operating profit margin improved 2 percentage points to 20.1%. This segment accounts for 93.7% of total consolidated net sales.
2. Video Communication Segment: Total segment net sales increased year-over-year, with corresponding growth in segment profit. Strong product sales in the disaster prevention/defense sector drove growth, particularly from the newly developed video transmission market for disaster prevention helicopters using over-the-air LTE. The recurring revenue model combining cloud and line services is expanding, improving base revenue stability. This segment is positioned as a growth investment segment.
3. Eco New Business Development Segment: Total segment net sales increased year-over-year, driven by the expansion of mass-produced products and service revenue. Mass-produced products including ICs for human sensors grew 30% YoY, and new high-value-added orders (such as radios for marine drones and special video equipment for government agencies) also contributed to revenue growth. Due to continued development investment for analog edge AI chips, the segment loss widened year-over-year, though development is progressing steadily toward prototype evaluation.

• For FY2026 (ending December 2026), the company's core priorities are simultaneous expansion of sales scale and improvement of profit margin. The guidance calls for: 7.3% YoY growth in net sales to 21.2 billion yen, 10.7% YoY growth in operating profit to 3.15 billion yen, with operating profit margin improving 0.5 percentage points to 14.9%. Ordinary profit is projected to grow 7.5% YoY to 3.2 billion yen, and net income attributable to parent shareholders is projected at 2.35 billion yen, all above FY2025 levels.
• A 7 consecutive-year dividend increase is planned for FY2026, with a full-year dividend of 60 yen per share (30 yen interim dividend), representing a 6 yen increase from FY2025. The dividend payout ratio is set at 47.3% (slightly below the target of ~50%) to accommodate continued strategic investment in analog AI chip development and new development for cloud service migration. The return on equity is targeted at 7.8%.
• A new medium-term plan covering FY2026 to FY2028 is currently under development, and is scheduled to be published in the first half of March 2026.

No specific material or operational risks were explicitly discussed in the available transcript.

No question and answer section is included in the available transcript.