System Integrator Corp. Q4 FY2025 earnings call

• Overall Financial Performance

  • Consolidated total revenue for FY2025 (February 2025) was 4.768 billion yen, exceeding the company's prior guidance of 4.508 billion yen by over 200 million yen.
  • Gross profit was 1.549 billion yen, with a consolidated gross margin of 32.5% (31.8% for the parent company standalone). Gross margin decreased slightly year-over-year due to office relocation costs and increased product development investment, though total gross profit increased.
  • Operating profit was 271 million yen, which also exceeded management's conservative pre-report guidance, driven by company-wide continuous 1% improvement initiatives for profit and cost efficiency.
  • Vietnam-based Keystone was added to the consolidated group in FY2025, while the company fully divested its 40% stake in DG Commerce, which is now a wholly-owned subsidiary of Digital Garage.

• Strategic Focus and Portfolio Restructuring

  • The company's core mission is to develop in-house packaged software that frees up worker time and improves enterprise productivity, with a long-term vision to become a true integrator of solutions for client business problems.
  • Non-core businesses were divested to concentrate resources on three core verticals: ERP, Object Browser development tools, and AI, completing the TOPSIC divestiture in FY2025.
  • Management is actively pursuing M&A and joint ventures to strengthen manufacturing-focused solutions capabilities. In March 2025 (after the end of FY2025), the company acquired Osaka-based System Kaihatsu Kenkyusho, a firm with deep expertise in production management systems that will accelerate mcframe development and deployment, faster than hiring and training new staff internally.

• Recurring Revenue Expansion

  • The company divides its business into one-time flow-type sales and recurring stock-type (SaaS/ subscription) models, and targets increasing the stock-type revenue share from the current 30% to 50% over time. Core recurring revenue streams come from long-term maintenance contracts for installed core ERP systems and monthly subscriptions for cloud-based tools including SAP and Object Browser.

• Talent Development

  • The company is proactively hiring and training young IT talent, a critical need for the ERP business which requires broad industry, product, and client engagement expertise. Management is restructuring to a job-based role system that speeds up development by leveraging new hires' existing strengths, cutting the time to full productivity from the traditional 3-year timeline.

• AI Transformation

  • The company has launched an internal AI-first initiative to integrate AI into all internal development and indirect work, shifting routine tasks to AI so employees can focus on high-value work. The company is preparing to launch AI agent solutions targeted at the manufacturing sector, starting with phased releases beginning in May 2025, focused on automating non-standardized manual and craft-based processes that remain common in Japanese manufacturing.

• Shareholder Returns and ESG

  • The company maintains a target payout ratio of 30%, and will continue its shareholder bonus program providing new rice to shareholders in FY2026. The company also conducts local community CSR initiatives based in its Saitama headquarters, including a community cafeteria portal and work experience programs for local middle school students.

1. ERP Segment: Reported revenue of 3.85 billion yen, which grew significantly year-over-year driven by strong market demand for core enterprise systems. The segment added new offerings including SAP S/4HANA and manufacturing-focused production management solutions mcframe and Asprova in the 2025 fiscal year. Gross profit grew year-over-year, though growth was slower than revenue growth due to heavy proactive investment in talent development, which requires 3 years to fully scale into productive capacity. This segment accounts for approximately 80.7% of total consolidated revenue.
2. Object Browser (OB) Segment: Reports steady growth in both revenue and profit, with strong inbound demand for its development tools and OBPM Neo project management platform. Demand has grown as cross-functional project management becomes standard across industries, to the point that the segment occasionally faces capacity constraints for implementation staff. This is primarily a recurring revenue stock-type business.
3. AI Segment: Reported revenue of 92 million yen in FY2025, and remained in a net loss position. Its legacy visual inspection business faces long lead times and low order conversion rates due to limited available image data at Japanese firms and current AI technology not matching manual inspection accuracy. The company is pivoting the AI segment to focus on AI agent solutions for manufacturing clients.
4. Other Segment: The TOPSIC programming skill assessment business was sold to AtCoder in February 2025 as part of the company's strategic focus on core businesses, as TOPSIC had failed to reach profitability.

• For FY2026 (ending February 2026), the company guides consolidated revenue of 5.5 billion yen and operating profit of 450 million yen; for FY2027, it guides revenue of 6.3 billion yen and operating profit of 600 million yen. The 2-year plan is focused on stabilizing the business and revenue base to create a repeatable growth model.
• For the ERP segment, FY2026 revenue is guided to 4.585 billion yen (an increase of ~700 million yen year-over-year), with segment profit targeted at 870 million yen. As of the earnings call, the segment is progressing in line with plan, with existing secured orders and strong inbound inquiries supporting the target. Management has a long-term goal to reach 2 billion yen in revenue from the new manufacturing-focused and SAP sub-segments of the ERP business as soon as possible.
• For the Object Browser segment, management plans to invest nearly 100 million yen in new product development for project management tools in FY2026, which will reduce reported segment profit for the period relative to FY2025, while recurring monthly revenue continues to grow steadily.
• For the AI segment, FY2026 revenue is guided to 100 million yen (up from 92 million yen in FY2025), with profit expected to be near break-even as the segment completes its pivot to AI agent solutions.
• Long-term, management targets 120 billion yen in revenue and 20 billion yen in operating profit by 2033. The company will continuously allocate 3-4% of annual annual revenue to new product development investment to build future growth offerings.
• M&A will remain an active strategic priority in FY2026, focused on adding capabilities that strengthen the company's core business domain rather than just growing headcount for top-line expansion.

• ERP talent development: Full productivity for new hires takes approximately 3 years, creating a lag between current talent investment and future profit growth. The company is working to shorten this timeline but it remains a key operational constraint.
• AI visual inspection business challenges: The legacy AI visual inspection offering faces long lead times and low order conversion due to limited labeled image data available at Japanese customers and current AI technology not matching the accuracy of manual inspection.
• Margin pressure: Aggressive investment in talent, new product development, and office expansion has put downward pressure on near-term gross and operating margins, even as top-line growth remains strong.
• Capacity constraints: High demand for Object Browser solutions has at times outstripped available implementation staff, limiting near-term growth for the segment.

Q: How does System Integrator plan to organize its sales and development structure for the expanded ERP product line, which now includes five distinct offerings after recent additions, and what initial market traction has the company seen for these new products? / A: (Full answer text was cut off in the provided transcript, the question is focused on organizational structure for the expanded product portfolio and early market response, which aligns with management's stated priority of scaling manufacturing and SAP-focused ERP sub-businesses through targeted hiring and M&A.)

Q: What exposure does System Integrator have to potential costs or demand disruptions from Trump-era tariffs on trade between the US and Asia? / A: (Full answer text was cut off in the provided transcript, the question addresses potential macroeconomic risks to the company's cross-border operations including its new Vietnamese subsidiary.)