SYSTEM RESEARCH CO.,LTD. Q4 FY2025 earnings call

• Company Overview and Operational Milestones

  • System Research is listed on the Tokyo Stock Exchange Prime Market, with a secondary listing on the Nagoya Stock Exchange Premier Market completed in March 2025. It has 1,656 consolidated employees as of April 2025, with approximately 30% of total revenue coming from the Toyota Group.
  • Won the "Minkabu Award 2024" and the 2025 IBM Partner Plus Awards in the "AI for Business in Japan" category for its AI solution DejiQuery.
  • 171 new employees joined in April 2025, maintaining 4 consecutive years of revenue and profit growth starting from FY2022.

• Strategic Priorities (Next Vision 50th)

  • Expand and upgrade core business: Acquire high-value customers in the Kanto and Kansai markets in addition to the traditional Chubu region, and deepen specialization and solution expansion for core competitive business areas.
  • Develop next-generation core business: Leverage existing core business expertise to create new growth engines beyond traditional SI and software development.
  • Strengthen technical capabilities to create new value: Build engineering capabilities to solve social and corporate management problems through digital technology, with a focus on generative AI applications.
  • Strengthen human capital and back-office operations: Support organizational expansion through internal DX promotion, enhanced security, improved governance, strengthened branding and recruitment.
  • Deepen employee engagement: Build mechanisms for shared corporate vision, increased solidarity, and mutual growth between the company and employees.

• Sustainability Initiatives

  • Focuses on 4 core areas: diversity, equity and inclusion promotion, health management, technical adaptation for the DX era, and initiatives for a safe, secure and prosperous lifestyle.
  • As of March 2025: women account for 11.2% of total employees, 95.2% of female employees retain employment long-term, paternity leave take-up rate for men is 53% (above national average), average overtime is 14.2 hours per month, paid leave take-up rate is 79.2%, and turnover rate is 8.4% (below the industry average of 12.4%).
  • Has obtained multiple external certifications including DX Certified Business Operator, information security certifications, and healthy workplace certifications.

• Solution Portfolio Highlights

  • Core SI and software development cover sectors including automotive, logistics, retail, communication and control, and production process control, with end-to-end capabilities from consulting to system operation and maintenance, generating stable recurring revenue from repeat orders for upgrades and replacements.
  • Small and medium enterprise business packages: Irii Product line includes Simplex (mail-order specialized package, 750 clients), CTI Connectel (call center efficiency, 1,700 clients), WArm+ CRM (5,000 clients), and the BIG Series (around 3,000 clients).
  • AI solutions: DejiQuery is a generative AI-powered document search service that supports information extraction, translation and summarization; the company has launched joint R&D with Nagoya University Hospital to develop an improved medical version of DejiQuery, with plans to expand to other industries after validation. It also co-developed an AI-powered automatic claims payment service for damaged luggage with IBM and JI Damage Fire Insurance.

1. SI Service Business: 10.48 billion yen (+14.1% YoY), accounting for 40.4% of total revenue, driven by increased contracted project orders
2. Software Development Business: 14.248 billion yen (+8.4% YoY), accounting for 54.9% of total revenue, supported by strong repeat customer orders
3. Software Products: 0.421 billion yen (+18.6% YoY), accounting for 1.6% of total revenue, with growth in package software sales and maintenance
4. Product Sales: 0.410 billion yen (+7.8% YoY), accounting for 1.6% of total revenue
5. WEB Services and Others: 0.371 billion yen (+36.3% YoY), accounting for 1.4% of total revenue, driven by growing new customers and gross merchandise value for the "Easy My Shop" EC platform. Total consolidated revenue for FY2025 was 25.931 billion yen, an 11.1% YoY increase. Gross profit reached 6.028 billion yen (+12.5% YoY), operating profit 2.997 billion yen (+10.8% YoY), ordinary profit 3.066 billion yen (+10.7% YoY), and net profit attributable to parent company shareholders 2.194 billion yen (+11.4% YoY), with all profit metrics growing double-digit and hitting all-time records. The "Easy My Shop" EC platform surpassed 11 billion yen in cumulative gross merchandise value, with approximately 17,000 total contracted customers as of March 2025.

• FY2026 (March 2026) consolidated guidance calls for 13.0% YoY revenue growth to 29.314 billion yen, 14.9% YoY operating profit growth, 14.3% YoY ordinary profit growth, and 15.5% YoY net profit growth to 2.535 billion yen.
  • FY2026 basic corporate targets: 15% growth rate, 15% profit margin, 2,000 total employees, and 200 million yen in revenue per employee, aligned with the goal of improving market positioning amid active industry consolidation.
  • Medium-term (3-year) plan: Target at least 10% annual revenue growth, reaching 36.776 billion yen in consolidated revenue and 4.4 billion yen in consolidated operating profit by FY2028 (March 2028), with a target of 2,000 consolidated employees.
  • Long-term targets: 500 billion yen in mid-term total revenue, and 1 trillion yen in long-term total revenue.
  • Shareholder return: Maintains a stable dividend basic policy, targets a 40% payout ratio, with a 3.35% dividend yield based on the opening price stated in the call.

• Uncertainty from U.S. trade policy may lead to customer companies holding back on IT investment, particularly given that 30% of the company's revenue comes from the Toyota Group, which has released conservative earnings forecasts amid the Trump tariff environment.
  • The Japanese IT industry faces a growing severe shortage of IT engineers, which may constrain the company's growth capacity.
  • The macroeconomic outlook for Japan has only moderate recovery, with continued overall forward-looking uncertainty.

Q: 30% of the company's revenue comes from the Toyota Group, which has issued conservative earnings forecasts amid the Trump tariff shock. Does this have any impact on the company's system order received? / A: The full answer to this question was not included in the provided transcript. Management has not yet released updated commentary on the scale of potential impact as of the earnings call. The question is focused on the top customer concentration risk tied to U.S. trade policy changes, which is one of the key market risks the company faces.

Q: How does the company plan to engage in large enterprise legacy system renewal projects? / A: The full answer to this question was not included in the provided transcript. This question targets the company's strategic direction in the large-scale core system renewal market, which is a major growth opportunity for domestic SI players.

Q: What are the company's revenue forecasts broken down by segment? / A: The full answer to this question was not included in the provided transcript. The question asks for more detailed forward-looking performance breakdown per business segment beyond the consolidated guidance provided in management's opening statement.

Q: What is the company's strategy for engineer recruitment? / A: The full answer to this question was not included in the provided transcript. The question addresses the key operational constraint of engineer shortage that the company and the broader industry face, and the company's approach to hitting its 2,000 employee target.

Q: What is the company's plan for utilizing offshore development? / A: The full answer to this question was not included in the provided transcript. The question explores the company's operational strategy to mitigate the domestic engineer shortage through overseas development resources.