R&D COMPUTER CO.,LTD. Q3 FY2025 earnings call

• Company Overview & Core Strengths • Founded in 1971, originated from a school法人 with a 54-year history of consistent profitability; total annual revenue reached 13.7 billion yen last fiscal year, with ~600 employees. The company maintains a strong balance sheet with 70% equity ratio and zero interest-bearing debt. • Core competitive strengths: 50+ years of profitable operations, a strong customer base backed by technical capability and industry expertise, proactive investment in talent development rooted in its educational origin (average 4.08 qualifications per employee, including both IT and client industry-specific certifications), and long-term collaborative partnerships with ~30 core business partners and global platform providers including Fujitsu, Salesforce, and AWS.

• 2025 March Fiscal Year 3rd Quarter Cumulative Performance • Total cumulative revenue is just under 10 billion yen, flat year-over-year. Profit decreased 27% year-over-year due to one large unprofitable project, the largest loss project in company history. Rerouting resources to resolve this project required sacrificing potential new revenue from other projects, but the project is now on track for handover by end-March with no remaining issues. • The VISION2025 mid-term plan hit its original 12.4 billion yen revenue target one year early at 13.7 billion yen, so the full-year 2025 revenue target was raised to 14.2 billion yen; cumulative revenue and profit progress through December is ~70%, on track to hit the full-year target.

• Mid-Term VISION2025 Key Strategic Priorities • 1. Actively pursue M&A: Two prior M&As of an SAP consulting specialist and a SuperStream specialist have delivered clear synergies, and the company will continue pursuing complementary M&A opportunities with no fixed target for deal count. • 2. Strengthen collaboration with business partners: Signed a strategic business alliance with Toho System Science, a Tokyo Prime-listed company strong in financial/insurance systems with non-overlapping business areas, to complement capabilities and accelerate DX service delivery. • 3. Promote DX business: Continue growing the fast-expanding package-based SI service and advance agile development practices. • 4. Invest in talent development and strengthen core business areas, rooted in the company's educational origin. • 5. Expand revenue in the legacy system integration business. • 5. Generate AI initiatives: Researching Salesforce/Microsoft AI solutions, developing client-facing proposal models, and deploying Generative AI internally to improve productivity across requirement definition, design, and testing processes, shortening development cycles and reducing costs.

• Capital Policy & Shareholder Returns • As a human-capital focused IT services firm, capital is allocated to talent development, business expansion, and M&A. The company upgraded its shareholder return policy to target a consolidated payout ratio of 50% or higher, up from the prior 40% target. Despite the 2025 unprofitable project, the company maintained its full-year dividend forecast at 36 yen per share (no dividend cut), resulting in a 2025 payout ratio of 76.9%, and is committed to maintaining the 50%+ payout ratio going forward.

• ESG & Sustainability • Implemented climate actions including full LED lighting conversion across all locations and paper use reduction. Maintains structured talent development programs open to partner employees, covers D&I (1:1 new hire gender ratio, 100% return to work rate from parental leave for all genders, D&I Award recipient), and certified as a 2023 Excellent Health Management Corporation.

1. System Integration Service: This is the company's founding core business, accounting for approximately 40% of total revenue. It primarily serves clients in the financial sector (banks, online banks, securities, insurance), with additional clients across industrial/distribution, public, and medical sectors. 2. Package-based SI Service: Revenue contribution grew from 4% 10 years ago to 34% in 2024, making up roughly one-third of total company revenue. It provides custom add-on development and implementation support for leading enterprise packages including Salesforce, SAP, SuperStream-NX,奉行V ERP10, and COMPANY. This segment has been rapidly growing in recent years. 3. Infrastructure Solution Service: Provides system infrastructure construction (cloud migration, server/network setup, application foundation development) to support the company's application services, with growing demand for on-premise to cloud migration projects.

• Full-year 2025 (March fiscal year) revenue guidance was raised from 13.7 billion yen to 14.2 billion yen, and the company expects to nearly hit this target by year-end. 2026 (March fiscal year) revenue is targeted at 15 billion yen, reaching the accelerated VISION2025 target ahead of schedule.
• The company maintains its commitment to a minimum 50% consolidated payout ratio for shareholder returns going forward, and committed no dividend cut for 2025 despite the one-time unprofitable project loss, holding the full-year dividend at 36 yen per share.
• The company will continue actively pursuing complementary M&A and strategic partnerships to accelerate growth, and will invest in Generative AI initiatives (both client-facing solutions and internal productivity improvements) going forward.

• The company experienced a large one-time unprofitable project in the 2025 fiscal year, which caused a 27% year-over-year cumulative profit decline through the third quarter. The project is now stabilized with no expected residual impact on future fiscal years, but the company acknowledged that no IT project has zero risk, and risks can arise from changing client requirements, team changes, and unforeseen issues even with thorough pre-project risk identification.
• The cross-divisional structure of the large project and slow response to emerging risks contributed to the loss; the company is conducting a full 5W root cause analysis to apply lessons to future project management.

Q: The company had a large unprofitable project in FY2025; will this have any impact on future fiscal years? / A: Management confirms there is no residual impact, as the project went live in December and is on track for handover at the end of March, with all remaining scope fully visible. The company is conducting a full root cause analysis to identify what went wrong, and will apply lessons learned to improve project management and quality control for future projects. Management notes that IT projects can never eliminate all risk, but will improve pre-project risk identification and ensure all team members align on risk mitigation plans going forward, while still continuing to pursue large, growth-oriented projects.

Q: What is your outlook for continued growth in demand for Salesforce and SAP services? / A: Management expects continued strong growth for both segments, as both are de facto industry standard platforms. For SAP, many Japanese large enterprises run legacy SAP ERP 6.0 systems that need to be upgraded or rebuilt by 2027, when standard support ends, creating large ongoing demand for modernization that integrates new technology and AI, with plenty of white space for new client acquisition and existing client rebuild work.

Q: What is Land Computer's core competitive advantage compared to other IT services firms? / A: Management highlights the company's unique origin as a spin-off from an educational institution, which creates a deep cultural focus on talent development unmatched by most peers. The company prioritizes growing employee capabilities through structured training and qualification support, which attracts job seekers who value clear career development, and builds a higher-skilled engineering team to deliver better client solutions.

Q: What changes are you making to reduce future unprofitable projects? / A: Management announced an organizational change coming in April next year: quality management will be moved from central corporate planning to direct business-line alignment to improve visibility into active projects. The company will also add dedicated PMO (project management office) resources to the quality management team, with dedicated PMO staff assigned to each division to catch emerging issues earlier, allowing faster risk mitigation before losses escalate.