AVANT GROUP CORPORATION Q2 FY2025 earnings call

• Corporate Vision and Mid-term Strategy: The company's 5-year mid-term plan BE GLOBAL 2028 (BG28) aims to become a global software company that helps clients improve enterprise value, centered on a software-driven strategy. The plan is built from bottom-up business unit targets combined with top-down stretch goals, based on organic growth (with M&A as an optional enhancement). This corrects the prior plan's mistake of a disconnected top-down 70% recurring revenue target that missed execution realities.
• Core Strategic Initiative: Enterprise Value Management SaaS Suite: The company is building a unified SaaS suite of tools to improve client enterprise value, based on the enterprise value formula (increasing FCF generation and reducing cost of capital to boost valuation). The suite combines existing consolidated accounting tools (DivaSystem LCA), management accounting tools (AVANT Cruise), new board management tools (TRINITY BOARD), joint-developed enterprise value analysis tools (AVANT Compass with Nomura Securities), and planned modules (ESG Cloud, Succession Cloud, which will be built in-house or via partnerships for non-core capabilities). All 5-year BG28 growth investment is allocated to completing and expanding this SaaS Suite.
• Recent Product Launches and New Ventures: The company launched the AVANT Cruise Business Segment ROIC Package, which enables shortest 1-week deployment (vs. the industry standard 2 years) for segment-level ROIC visibility at a fixed price. As of end-January, new products TRINITY BOARD has 10 orders and AVANT Compass has 5 orders, confirming initial market demand. The company also established new subsidiary VISTA, which provides IR consulting and finance literacy training to help clients understand investor perspectives on enterprise value, to drive adoption of the company's SaaS tools.
• Capital Allocation and Shareholder Returns: The company uses Dividend on Equity (DOE) instead of payout ratio for dividend guidance, achieved 5.5% DOE in 2024 June term (above the TSE listed average of 3.2%), and targets raising DOE to 8% by the end of BG28. The company completed its first share repurchase last year, driven by investor input that share repurchases can preserve acquisition optionality and increase available capital via higher share prices. Future share repurchases will be considered when there is excess capital and the share price is meaningfully below management's intrinsic value estimate. Total planned growth investment across BG28 is 20 billion yen, with 5 billion yen allocated to the first 2-3 years to identify investment priorities.
• Strategic Targeting for Market Positioning: The company focuses on management-focused DX (not operational DX), combining consolidated group management experience with enterprise value-focused management accounting to create differentiated value against foreign vendors like Anaplan and domestic ERP providers. The company leverages its own practical experience scaling a group business to build solutions that balance standardization and operational flexibility, a point of difference from pure consulting firms.

AVANT Group operates three product segments, all of which achieved year-over-year revenue and profit growth in the 2025 June Term 2Q cumulative period, with all segments posting positive year-over-year growth in orders and order backlog. All three segments are currently roughly equal in size:

1. Consolidated Financial Reporting Business: This is the company's legacy business, combining software and outsourcing services. Its core product DivaSystem LCA holds over 40% market share in Japan. The outsourcing sub-segment has maintained over 20% revenue growth and is the current growth driver, while the mature software sub-segment faces limited new large contract growth. Through pricing optimization (raising prices at contract renewal for underpriced accounts), the segment is growing both revenue and margins.
2. DX Promotion Business: Operated by group company ZEAL, this segment provides consulting for data platform development and implementation. Market demand for DX services is robust, with market growth estimated at 30% annually. While the segment is people-hour based and faces challenges in dramatically raising margins, it has grown supply capacity to match strong demand, and has achieved margin improvement through focusing sales on higher-unit-price clients. Recent demand trends show growing interest in AI-enhanced improvements for existing data platform implementations.
3. Management Management Solutions Business: This segment focuses on value-focused management accounting (including consolidated business segment ROIC tracking) and includes services from newly established VISTA. Demand for enterprise value-focused management has grown sharply over the past year, and the segment is seeing strong emerging demand. The strong year-over-year growth comparison is partially due to negative impact from 2022 business restructuring (which required rewriting 1,000 client contracts and diverted sales resources from new business in the prior year) that has now fully cleared, with operations normalized.

• Full-year 2025 June term guidance is maintained at 28.8 billion yen revenue and 4.9 billion yen operating profit, representing ~20% year-over-year growth for both metrics.
• Cumulative 2Q revenue reached 48.6% of the full-year guidance, in line with historical 4-year trends and on track to meet full-year targets.
• The company maintains its mid-term BG28 targets: 8x PBR (current ~5x), driven by maintaining ROE above 20% (current ~24%) and raising PER from ~22x to 40x. The PER increase is expected to come from shifting to a SaaS/product-focused revenue mix, which commands higher market valuations, with growing high-quality software gross profit as the key leading indicator for this transition. Software gross profit grew 10.5% year-over-year in 2Q and 5.5% quarter-over-quarter, in an upward trend on plan.
• The company maintains its DOE target of 8% by the end of the BG28 period.

• The company's shift to higher-value enterprise value management solutions means it is more exposed to recession risk than its legacy business model. Consolidated financial reporting is a mandatory compliance activity that is resilient to recessions, but in a downturn clients may delay discretionary investments in higher-value enterprise value management solutions, which is an unavoidable risk of the company's current strategic shift.
• DX Promotion Business operates on a people-hour based model, which creates natural limits to margin expansion and supply-side capacity constraints that cap growth.
• While recurring revenue growth is trending positive, the legacy consolidated software business is mature and faces limited new large contract growth.
• The planned SaaS Suite still has uncompleted modules that require external development or partnerships, carrying execution risk for the full suite rollout.

Q: How would a global recession affect AVANT's earnings?

A: Management confirms recession will impact the business, as the legacy consolidated financial reporting business is highly resilient (mandatory compliance regardless of economic conditions), but discretionary new investments in enterprise value management solutions may get cut in a downturn. This is an accepted unavoidable risk that comes with the company's strategic shift to higher-value added products.

Q: What is AVANT's competitive difference versus other accounting/management system providers?

A: For consolidated accounting, AVANT holds 40+% market share alongside competitor STRAVIS. The key difference is AVANT uses a ToBe model that provides a standardized best-practice approach to consolidated reporting, while STRAVIS offers higher customization. For management accounting, AVANT's deep experience allows much faster (shortest 1-week vs industry average 2-year) lower-cost deployment, which is a major competitive advantage.

Q: Are there plans for overseas expansion via M&A?

A: Management confirms overseas expansion is a strategic priority, since the Japanese market is mature. The largest potential market for the combined consolidated/management offering is the US, and the company is also focused on India given its high GDP growth expectations. M&A is explicitly on the table for entering these overseas markets and is currently under active consideration.

Q: What are the key characteristics of AVANT's target customer base?

A: For consolidated accounting systems, customers are primarily large listed firms with many subsidiaries, as small firms can manage with Excel, and market share increases with client market capitalization, with no meaningful industry concentration. For management accounting solutions, global large foreign vendors are stronger for firms over 1 trillion yen in revenue, so AVANT's core target market is listed firms with market capitalization between 100 billion yen and 1 trillion yen, which is a large underserved segment.