NEOJAPAN Inc. Q2 FY2026 earnings call

Overall Financial Performance

• Consolidated cumulative first half revenue was 3.973 billion yen, up 18.0% year-over-year. Q2 consolidated revenue hit 1.977 billion yen, an all-time high for a second quarter. Consolidated operating profit margin at the half-year mark rose 6.3 percentage points year-over-year to 31.5%, and Q2 operating profit also hit a new all-time high for a second quarter. All profit metrics reached ~60% of full-year guidance at the midpoint, outperforming initial forecasts. Equity ratio remains at a strong 69.3%.

Core Growth Strategies

• desknet's NEO Expansion: The firm targets growth for both cloud and on-premises versions of the product. Cloud new adoption slowed slightly over the past year post-price change, but lead volumes are growing and churn remains low, so management expects growth to reaccelerate. In the on-premises market, many competitors are exiting the segment, and the firm aims to capture displaced customer demand to become the top market player; this delivers short-term license revenue, mid-term recurring support revenue, and long-term cloud transition opportunities.
• AppSuite Cross-Sell: After launching new bundled plans and promotions, AppSuite user growth has been strong across both on-premises and cloud. The firm held its first AppSuite AWARD event to collect and share user-built application use cases, aiming to grow the user base and create a positive growth cycle, with a target of raising AppSuite adoption among desknet's NEO users to over 30%. Price adjustment and cross-sell progress lifted ARPU 39.0% year-over-year.
• AI Product Development: The firm has built out its AI development capability via hiring AI engineers at US subsidiary DELCUI and a strategic partnership with neoAI, and recently launched two new generative AI-powered offerings: 1) neoAI Chat for desknet's, a dedicated customer AI assistant that leverages internal data stored in desknet's NEO with separated creator/user access to reduce management burden; 2) NEOPORT v2.0 beta with AI agent functionality, targeting full automation of email inquiry response and positioning it as the next growth engine after AppSuite.
• Overseas Expansion: The firm operates sales subsidiaries in Malaysia, Thailand, and the Philippines, and recently signed a framework agreement with Invest Johor to establish a Southeast Asia Excellence Center. AppSuite is already in use at Malaysian investment authorities, and the long-term goal is to grow the ASEAN business to match the scale of the Japanese domestic business.

1. Software Business: This segment is the primary revenue driver for the firm. Cumulative first half revenue grew 26.4% year-over-year, with Q2 revenue up 25.9% year-over-year. Within the segment: Cloud service revenue grew 37.2% year-over-year; product revenue saw a slight year-over-year decline due to lower non-core customization/third-party product sales, but core license and support service revenue grew steadily. Stock revenue grew 16.1% year-over-year for product support services, and 39.5% year-over-year for cloud services. Flagship product desknet's NEO contributes over 70% of standalone software revenue, with product revenue up 19.0% year-over-year and cloud revenue up 37.4% year-over-year; its cloud churn rate held steady at 0.30% in Q2, matching pre-price change levels. Cross-sell product AppSuite saw product user growth of 29.1% year-over-year, cloud user growth of 46.2% year-over-year, product revenue growth of 31.9% year-over-year, and cloud revenue growth of 74.4% year-over-year. 17% of desknet's NEO users currently use AppSuite. Revenue contribution: Software business accounts for the large majority (over 90%) of total consolidated revenue. 2. System Development Service Business: Q2 revenue decreased 3.3% year-over-year due to a Q1 contracted project delay, but sales recovered from June onward. Operating profit increased year-over-year due to reduced outsourcing costs. This segment contributes a small single-digit percentage of total revenue. 3. Overseas Business: First half revenue reached 36 million yen, growing 2.6x year-over-year (a 22 million yen increase). This segment is currently small in scale, contributing less than 1% of total consolidated revenue.

• Full-year 2026 January fiscal year guidance is maintained at the initially announced levels, despite the firm being well ahead of plan with 60% of full-year profit achieved in the first half. Management confirmed it expects to exceed the full-year forecast, and will update guidance promptly if a material revision meets disclosure requirements.
• The mid-term performance plan (with the current fiscal year as the first year) maintains its targets of 9.1% average annual revenue growth and 10.3% average annual operating profit growth. Management stated the 3-year target of 9.4 billion yen in revenue and 2.6 billion yen in operating profit is fully achievable, and the longer-term target of 10 billion yen in revenue by 2030 is likely to be achieved ahead of schedule.
• Interim dividend is maintained at 21 yen per share, in line with initial guidance. After raising the target payout ratio to 40% in March this year, management will work to deliver dividend increases as profit grows.

• Cloud new customer adoption for desknet's NEO has slowed slightly due to a lengthening sales cycle from customer evaluation to contract, though lead volumes are growing and management expects growth to recover.
• Business adoption of AI tools is still at an early stage, with unclear specific use cases that deliver measurable bottom-line benefits for enterprises, which may slow customer adoption of the firm's new AI offerings.
• System development service business performance was impacted by project delays in the first half of the fiscal year, though the effect has already ended and sales recovered from June.

Q: Why does the mid-term profit target appear conservative, and will the long-term revenue target be met ahead of schedule? / A: Management has built planned R&D investment for AI and new product development into the mid-term targets, leading to a seemingly conservative profit outlook. The firm prioritizes investing in AI development now to deliver clearly valuable, use case-driven AI products to the market, and avoids presenting unrealistic performance targets. Management confirms the 3-year mid-term targets are fully achievable, and the 2030 10 billion yen revenue target is likely to be delivered ahead of schedule.

Q: What is NEOJAPAN's direction for AI product development, and how do you differentiate from general-purpose AI tools? / A: Management notes most market available general-purpose AI tools lack clear, actionable use cases that deliver concrete revenue growth or cost reduction for enterprise customers, who often struggle to implement them effectively. NEOJAPAN focuses on building practical AI-powered products that deliver measurable business outcomes, rather than developing foundational AI models. The firm is currently conducting experiments on multiple AI product concepts and aims to launch customer-ready, outcome-focused offerings as soon as possible.

Q: Will NEOJAPAN revise full-year guidance upward, given that 60% of full-year profit has already been achieved in the first half? / A: Management confirms first half performance is very strong and full-year results will likely exceed the current full-year forecast. At present, a material upward revision does not yet meet regulatory disclosure requirements, but the firm will announce an update promptly if the situation changes to require a public revision.