AXIS CO.,LTD. Q4 FY2024 earnings call

Overall Financial Performance:

• Total revenue for FY2024 was 7.434 billion yen, up 13.0% YoY; operating profit was 0.79 billion yen, up 21.1% YoY; operating margin was 10.6%, up 0.7 percentage points YoY, marking consecutive revenue and profit growth since listing.
• Recurring profit margin rose 1.3 percentage points YoY, boosted by dividend income from an unconsolidated Singapore subsidiary.
• The balance sheet remains healthy: net equity grew steadily, equity ratio held at 74.7%, and cash and deposits increased by 0.556 billion yen YoY, to be used for talent and growth investment.

2024 Key Initiatives Completion:

• System Integration: Shift to high-margin projects progressed smoothly, with increases in cloud implementation support and direct end-user contracts; partner count and sales capabilities expanded; trial collaboration with consulting firms started, and upskilling of existing staff for IT consulting roles proceeded on schedule.
• IT Services: KITARO exceeded contract targets; development of new cloud-based social problem-solving services continued, with a target launch in 2025; digital consulting for SME back-office efficiency progressed, with successful partnerships with local government SME support programs, regional financial institutions, and growth in the "Marutto Axis" outsourcing service.

Corporate Initiatives:

• Continued long-term support for community sports and youth welfare social initiatives; increased employee stock plan incentives to 30% to boost employee motivation and secure stable shareholders.
• Signed a sponsorship deal with e-sports team VARREL to improve brand recognition among young talent and support future recruitment, as a long-term strategic investment.

1. System Integration (System Service) Segment: Revenue increased 12.8% year-over-year, driven by growing demand for large-scale projects centered on banking system investment. Revenue per employee rose 5.1% year-over-year. Banking sector revenue grew 35.6% YoY, boosted by demand for large regulatory compliance projects, cloud migration, and modernization. Public and social infrastructure revenue was flat, with new public sector bids offsetting completed large infrastructure projects. Information communications revenue was flat, with a focus on new client acquisition for 2025. This segment accounts for approximately 86% of total company revenue based on 2025 guidance projections.
2. IT Services Segment: Revenue grew 15.7% year-over-year to a record high, driven by increasing new contracts for the cloud service KITARO, as well as strong construction and technical support for third-party services. KITARO contracts exceeded 9,000 units, beating plan, due to lower churn and higher new sign-ups. This segment accounts for approximately 14% of total company revenue based on 2025 guidance projections.

• Overall FY2025 (ending December 2025) guidance projects total revenue of 8.593 billion yen, up 15.6% YoY; operating profit of 0.919 billion yen, up 16.3% YoY; operating margin of 10.7%, up 0.1 percentage points YoY, projecting another year of record high revenue and profit despite increased talent investment costs.
• Segment growth guidance: System Integration (System Service) revenue projected to grow 13.6% YoY; IT Services revenue projected to grow 49.6% YoY, with strong growth driven by KITARO expansion and new service development.
• Dividend guidance: The company will achieve its 35%+ payout target one year ahead of schedule; FY2025 proposes a 45 yen per share dividend (up 9 yen YoY), representing a 30.2% payout ratio.
• Mid-term Vision2027 targets (on track): Target 12 billion yen+ revenue, 1.5 billion yen+ operating profit, 12.5%+ operating margin, 15%+ ROE, and 35%+ payout ratio by FY2027, with the company transitioning from a system integration-focused IT firm to an IT consulting firm. Current progress is on schedule, with 2025 projected ROE of 16.7%, well above the Tokyo Standard market average of 6.86%.

2025 Key Strategic Guidance:

• System Service: Accelerate shift to IT consulting, expand platform-based system integration (e.g. Salesforce), invest in generative AI R&D, push for larger project sizes and higher margins in core banking segments, and expand cloud native development and end-to-end cloud operation services.
• IT Services: Target 10,000+ KITARO contracts by end-2025 via expanded digital marketing, churn reduction, and enhanced enterprise client sales; launch new location-based services, expand DX consulting with regional financial institutions and governments.

• No explicit material operational risks were discussed in the call. The only ongoing challenge noted is that new social solution service development has not yet reached market launch, and will require continued R&D investment in 2025. The company also notes that it is still working to close the gap between current performance and the 2027 mid-term operating margin target of 12.5%. M&A pipeline is active but no deals were closed in 2024, with closing success targeted for 2025.

Q: What is the outlook for segment revenue and new orders for FY2025? / A: Management expects steady growth, with the banking sub-segment of system services seeing solid, strengthening demand. Public and social infrastructure is also progressing well, so the full-year system services outlook is solid. IT services, centered on KITARO, continues to see strong incoming inquiries, so management expects the segment to perform in line with the published growth guidance.

Q: What is the background for Axis's strength in the banking sector? / A: The company has focused on banking since its founding after the bubble burst, when management prioritized stable demand in recession. Instead of competing with larger firms on core banking core systems, Axis specialized in banking market-facing systems that require deep industry expertise. This strategic positioning has persisted, and the company continues to see strong, recurring orders in this niche.

Q: What is the current trend in banking digital investment, and is industry investment appetite rising? / A: Improved interest rates have boosted bank profitability, and the outlook for the sector is bright, leading to growing overall IT investment. Investment is not limited to core system cloud modernization; it is also expanding to customer-facing front-end functions and internal back-office IT that has historically been underinvested. Management expects banking IT investment to continue growing into the future.

Q: Why was the system integration business restructured, and what is the new cloud integration segment? / A: The restructuring, effective January 2025, was done to clarify strategic priorities and simplify business reporting. Cloud-related work, which was previously a sub-segment of system integration, was split into its own segment given rapidly growing demand for cloud migration, modernization, build, and operation services. The company expects this segment to grow significantly going forward.