System Integrator Corp. Q2 FY2026 earnings call

• Strategic Focus Restructuring

  • Completed resource concentration by exiting non-core businesses, narrowing operations to three core domains: ERP, Object Browser development tools, and AI
  • Primary strategic mission is to support digital transformation of Japanese manufacturing, the company's core target customer segment, to improve its global competitiveness
  • Company-wide "AI First" initiative: Integrate AI into internal development workflows to boost engineer productivity, embed AI capabilities into existing core products, and develop new customer-facing AI solutions; company-wide AI literacy and capability training is underway

• Product and Business Development

  • For mature core products (GRANDIT, Object Browser, project management tool), launched strategic planning this period to adapt these products to the AI era and reinforce product differentiation
  • Focused resource allocation this period to build out next-generation core businesses: AI, manufacturing solutions, and SAP-related services
  • Maintains a policy of investing 3% to 4% of annual revenue in continuous in-house product development, totaling nearly 100 million yen this fiscal year; holds an annual company-wide new business idea contest to source and incubate new product projects

• Group Strategy and Synergy

  • Two consolidated subsidiaries: Vietnam-based KEYSTONE SOLUTIONS (offshore development for SAP and ERP projects, with external third-party development revenue) and Osaka-based System Development Laboratory (specialized in manufacturing production management systems, acquired at the start of this fiscal year)
  • Plans to develop AI-focused business at KEYSTONE SOLUTIONS to turn it into a differentiated competitive business unit
  • Pursuing full group synergy with System Development Laboratory by integrating project pipelines, technical know-how, and resources to deepen manufacturing-focused solutions and improve group profitability and competitiveness

• Human Resource Strategy

  • Hires around 20 new graduate and experienced hires annually, with growing hiring volumes; Fukuoka is the primary hiring hub
  • Reforming training programs to reduce the time required for new hires to become productive, given the high knowledge barrier to ERP business (requires customer industry, accounting, product, and cloud expertise)
  • Prioritizes M&A as a fast way to acquire skilled talent, given intense market competition for engineers, while organic hiring remains on track to meet plan
  • Per-employee revenue and profit metrics have started to improve this period, as hires made 3 years prior have now become fully productive

• Capital Policy and Shareholder Return

  • Historically focused on cash-rich zero-debt operations with little formal capital strategy; now moving to formalize planned capital allocation starting next fiscal year
  • Will start tracking ROIC as a core management metric from next fiscal year, and evaluate all investments based on capital efficiency and growth potential
  • Current 30% payout ratio will be reviewed alongside broader return policy, after building a stable and repeatable profit model
  • Will implement planned share repurchases as part of formal capital policy going forward, to improve shareholder value; the current full year dividend forecast is 9 yen per share, which will be reviewed alongside the broader return policy review

1. ERP Segment: Contributes 60% to 65% of total annual revenue, is the core stable profit base of the company. Driven by legacy system replacement demand from mid-sized and larger enterprises and version update demand for its core product GRANDIT, performance is moving smoothly, and management expects current strong momentum to continue for another 2 to 3 years. The segment expanded its product portfolio this period to include GRANDIT, SAP, and production-focused mcframe, supporting both one-time purchase and monthly subscription models to grow stable recurring revenue. 2. Object Browser Segment: This segment has two fully recurring stock-type product lines: database-focused development tools and project management tools. The project management tool line sees steady growth in both customer count and revenue, driven by widespread industry demand for project progress, cost, and stakeholder communication management. The company is integrating AI capabilities into the segment's products, and notes that its database design focus for critical enterprise systems is not yet displaceable by general generative AI. 3. AI Segment: The company is pivoting this segment away from its historical focus on manufacturing visual inspection, and is currently developing new AI automation solutions including construction automation, automatic bill of materials generation for manufacturing design, similar design drawing search, and design know-how extraction. The segment is still in product development phase.

• Full year 2026 February fiscal year guidance is maintained at 5.5 billion yen in revenue and 450 million yen in operating profit. First half performance hit 49.5% of full year revenue target and 56.7% of full year operating profit target, progressing in line with plan.
• Two-year management plan guidance is maintained: 2027 February fiscal year target is 6.3 billion yen in revenue and 600 million yen in operating profit.
• Long-term guidance is maintained: 2028 fiscal year target of 7.1 billion yen revenue and 710 million yen operating profit (10% operating margin); 2033 fiscal year long-term target of 12.0 billion yen revenue and 2.0 billion yen operating profit (16.7% operating margin), with the company noting the 2033 target is very challenging and requires significant additional improvements and new initiatives.
• ERP segment guidance: Current strong growth driven by replacement demand is expected to continue for 2 to 3 more years.

• Achieving the 2033 long-term revenue and profit target is assessed as very challenging, requiring multiple unproven improvements and new business initiatives to succeed.
• Intense market competition for skilled IT engineers increases difficulty of scaling the business at the planned growth rate.
• ERP business has inherently high barriers to entry, which means new hires require 3 to 4 years to become fully productive, slowing scaling efforts.
• Generative AI development is rapidly changing the software development and tools market, requiring continuous adaptation of existing products and business models to remain competitive.
• The AI product market is already crowded with many competitors, creating execution risk for the company's new AI solution pivot.

The provided transcript does not include transcribed content from the question and answer session.