NEOJAPAN Inc. Q4 FY2025 earnings call

Core Business Operations & Pricing Update

• The firm implemented its first ever cloud service price adjustment in September 2024, raising individual prices of desknet's NEO and AppSuite to approximately 1.5x original levels, while introducing discounted bundle plans to drive cross-selling. Monthly contract customers are already on new pricing, while annual contract customers will shift to new pricing at contract renewal, with impacts phasing into results gradually. Management expected significant churn impact from the large price hike, but observed no material impact on overall churn rate, with only a temporary small dip in new cloud signups, making the overall outcome extremely strong.
• desknet's NEO cloud Q4 churn rose to 0.64% solely due to one large user migrating to an on-prem product version; excluding this user, full-year average churn was 0.35% and post-price-hike 5-month average churn was 0.36%, with no meaningful change from pre-hike levels. Average revenue per user (ARPU) across core products grew 31.1% from 400.9 yen in January 2024 to 525.8 yen in January 2025.
• The firm has met all Tokyo Stock Exchange Prime Market listing maintenance standards as of the end of January 2025, after previously failing the tradable market capitalization requirement one year prior.
• New product and feature updates launched: desknet's NEO version 9.0 added a secure large file transfer function, and new cloud add-on RoomMgr for meeting room scheduling and management was released. New brand ambassadors (Eiko Noguchi and Ken Noguchi) were appointed to boost brand awareness.

Shareholder Return Update

• The firm introduced a formal progressive dividend policy and raised the target payout ratio from 30% to 40% of net profit. The year-end dividend will be 26 yen per share, marking 9 consecutive years of dividend increases since listing. The firm will maintain sufficient capital for business expansion while returning profits aligned with performance. The firm also completed 950 million yen in share buybacks this period.

1. Software Business (NEOJAPAN core segment): This segment drove all top-line and bottom-line growth, with product revenue up 9.0% YoY and cloud service revenue up 16.1% YoY, both hitting all-time annual highs. Within the segment: core product desknet's NEO accounts for over 70% of total standalone revenue; its product cumulative sales grew 4.0% YoY, cloud user count grew 3.5% YoY, with growth supported by price hikes and expanding support service revenue. AppSuite grew much faster, with cumulative product sales up 29.3% YoY, cloud user count up 37.9% YoY, and cloud sales up 58% YoY. The segment's stock revenue grew 19.1% YoY for product lines and 33.6% YoY for cloud services, ARR increased 30.7% YoY, and stock revenue maintained a high 81.0% of total segment revenue. In Q4, the software business grew revenue 29.0% YoY, with standalone product up 26.4% YoY and cloud services up 30.3% YoY. 2. System Development Service Business (Pro-SPIRE subsidiary): The segment saw a 2.8% YoY revenue decrease in Q4, driven by lower sales from a major key client. The firm is working to reduce reliance on large clients and expand its customer base. 3. Overseas Business: Revenue has grown gradually, but operating profit was 95 million yen lower YoY, due to pre-generation expansion costs: increased engineer hiring and labor costs at US subsidiary DELCU for development expansion, and new establishment costs for the Philippine subsidiary. 4. Consolidated Performance: Full-year consolidated revenue grew 9.8% YoY, gross profit grew 10.8% YoY, and all profit lines grew approximately 50% YoY; operating profit grew 50.5% YoY, hitting a new Q4 quarterly record. The firm achieved 13 consecutive years of revenue growth, ROE improved significantly to 22.4%, and overall performance exceeded the revised full-year profit forecast due to lower-than-expected costs. Advertising expenses fell 330 million yen YoY as no TV CM was run this period.

• The firm expects continued revenue and profit growth for the 2026 January fiscal year, driven by ongoing expansion of cloud services. It projects 20% revenue growth for desknet's NEO cloud, 35% revenue growth for AppSuite cloud, and 5% revenue growth for the Pro-SPIRE system development business.
• Cost increases are expected for the coming year, including higher personnel expenses, data center fees, software amortization, R&D spending, office expansion costs due to headcount growth, and increased advertising expenses.
• Three core strategic growth priorities are set for the coming period:
  1. Expand desknet's NEO user base: Target to reach 10 million cumulative total users across product and cloud lines, recover growth rates from temporary slowdown after the 2024 price adjustment via product updates and strengthened promotion. The Japanese cloud groupware market is projected to grow at 8% annual rate over the next 3 years.
  2. Accelerate AppSuite cross-selling: Current AppSuite cloud users account for 15% of desknet's NEO cloud users, with a target to raise this ratio to over 30%. Growth will be driven by: new discounted bundle plans (add AppSuite for 200 yen per user monthly), new promotion as a "no-code tool integrated groupware", and a partner program certifying qualified AppSuite integrators to support customer implementation.
  3. Expand AI functionality: The firm already added ChatGPT integration to core products, and will next improve search, summarization, and analysis accuracy using internal customer business data to drive larger productivity gains, plus simplify no-code application building on AppSuite. It has hired AI engineers at DELCU and entered a strategic partnership with neoAI to develop new capabilities for the coming year.
  4. Advance overseas expansion in ASEAN: The firm has established subsidiaries in Malaysia, Thailand, and the Philippines, with growing cloud user counts and strong demand for efficiency improvements from persistent paper-based work cultures, especially for AppSuite. Malaysia and Thailand are approaching profitability, and the firm targets long-term growth that will make overseas sales exceed domestic sales.

• There was a temporary, small reduction in new cloud customer signups following the 2024 price adjustment, though no material churn impact has been observed to date.
• The overseas business is still in an early pre-profit stage, with current expansion costs pressuring near-term profitability, and success of long-term ASEAN expansion is not guaranteed.
• The Pro-SPIRE system development business remains reliant on a small number of large key clients, leading to near-term revenue volatility from client demand shifts.
• While the firm has now met Prime Market listing requirements, sustained compliance depends on continued growth in enterprise value.

No formal question and answer section is included in the provided transcript.