AXIS CO.,LTD. Q2 FY2025 earnings call

Overall Financial Performance

• Total Q2 revenue was 3.913 billion yen, up 7.2% YoY, marking consecutive revenue growth across all quarters since listing, with Q2 revenue hitting an all-time high.
• Operating profit was 422 million yen, up 1.7% YoY; operating margin was 10.8%, down 0.6 percentage points YoY, which management attributes to seasonal patterns and lapping an unusually strong year-ago quarter.
• Higher revenue and favorable outsourcing dynamics added 167 million yen and 58 million yen to operating profit respectively, but higher personnel costs from hiring high-skilled engineers cut 170 million yen from operating profit, resulting in net growth.
• The balance sheet remains strong: cash reserves are ample, equity ratio increased 1.2 percentage points YoY to 75.9%, maintaining very high financial stability.

Operational Updates & Strategic Highlights

• The company has an active growth investment strategy: ample cash will be allocated to M&A (with a focus on synergy with existing businesses and appropriate valuation), service development, and talent investment to drive corporate value growth.
• 45 new hires joined in April 2025, and a uniform 10 thousand yen base salary increase was implemented, bringing a total annual pay raise of approximately 6%, to support employee retention and a stable working environment.
• Axis' digital consulting service was ranked top (1st place out of 350 companies) and certified as Saitama DX Gold Partner 2025, marking strong market recognition for the company's DX consulting offerings.
• KITARO added a new on-demand video capture function to its KITARO x Drive Recorder service based on customer feedback, to improve product competitiveness and market presence.
• A progressive dividend policy was introduced in August 2025: the policy commits to no dividend cuts in principle, with a target of maintaining or increasing dividends annually. The full-year 2025 forecast dividend of 45 yen per share is set as the minimum base dividend, with a planned payout ratio of 30.2%.
• Axis secured an exclusive license for the AI Communication Insight generative AI platform in July 2025. The platform uses text mining and RAG to accurately understand ambiguous user queries, supports API integration and multi-language processing, and can be used for facility inquiry response, chatbots, and call center answer recommendations.

1. System Services Segment: Revenue was 3.707 billion yen, a 7.7% increase year-over-year, accounting for 94.7% of total company revenue. By industry: Financial/banking grew 3.3% YoY, public/social infrastructure fell 4.2% YoY (due to a lost bid and ongoing contraction in transportation/aviation projects), and information communications grew 19.6% YoY. Revenue per employee decreased slightly YoY due to an increase in internal non-billable development engineers for growth investments. Order backlog grew 5.1% YoY. 2. IT Services Segment: Revenue was flat year-over-year with a 0.1% increase, accounting for 5.3% of total company revenue. Core cloud service KITARO (commercial vehicle operation management) grew steadily, reaching 9,250 contracted units, a 5.8% increase YoY. Technical support for third-party services saw slower-than-planned growth, which offset KITARO's growth and left the segment overall flat.

• Full-year 2025 (December fiscal year) guidance is maintained unchanged from the initial forecast: total revenue is projected at 8.593 billion yen (up 15.6% YoY), operating profit at 919 million yen (up 16.3% YoY), operating margin of 10.7%, and a full-year dividend of 45 yen per share.
• System Services is projected to grow 13.6% YoY, while IT Services is projected to grow 49.6% YoY for the full year.
• Gross margin is expected to increase 2.2 percentage points YoY from a shift to higher-margin, larger-value projects, while operating margin will see a slight 0.1 percentage point increase YoY due to ongoing upfront investment in talent and growth initiatives.
• KITARO remains targeted to reach 10,000 contracted units by the end of 2025; while the half-year total of 9,250 units is slightly below plan, management confirms the full-year target remains achievable.

• A lost bid for a public social infrastructure cloud project negatively impacted System Services performance and pushed full-year progress slightly behind plan in H1.
• Third-party technical support services within IT Services have seen slower-than-planned growth, which contributed to the segment's flat H1 revenue and full-year progress delay.
• Hiring of high-skilled engineers increased personnel costs in the quarter, pressuring near-term operating margins as the company invests in future growth.
• Competition for large KITARO contracts has increased, with counter-bidding from competitors becoming more common for deals of 100+ units.
• Revenue per employee has seen a slight decline due to the increase in internal non-billable engineering headcount for new product development and strategic initiatives.

Q: What is the overall outlook for the full year and next fiscal year after the H1 performance? / A: Management notes H1 faced negative headwinds: the lost public infrastructure bid and slower-than-planned third-party support growth in IT Services. However, order backlog has built steadily, and new inquiries have picked up since October. Management will pursue alternative projects to offset the H1 lost bid and expects to cover the H1 shortfall to hit the full-year target. For next year, management expects the overall market to continue expanding, and will strengthen the sales organization to avoid avoidable lost bids and drive continued growth.

Q: What is the purpose of hiring high-class talent, and what focus areas are targeted? / A: Hiring is focused on supporting the company's key strategic priorities. Specifically, the company is adding talent that can lead consulting and upstream system integration work, including PM, PMO, and senior consulting roles. It is also prioritizing hiring highly skilled talent that can support growing high-priority areas including cloud development and Salesforce-based system integration.

Q: What is driving KITARO's contract growth, and is churn increasing? / A: Growth is driven by a post-COVID pickup in business activity, which has increased demand for commercial vehicle operation management services from small and medium enterprises. Churn has fallen sharply from COVID-era levels, with no major waves of cancellations seen currently. Large deals (100 to several hundred units per contract) are becoming more common, and while competition has increased, customers consistently rate KITARO higher on usability than competitors, so the company is confident it can win deals and hit the full-year 10,000 unit target.

Q: What is AI Communication Insight, what role will Axis play, and what is the go-to-market plan? / A: AI Communication Insight is an AI service platform that uses text mining and RAG with generative AI to generate high-accuracy answers to user queries. Axis holds an exclusive license to the platform and will lead direct customer delivery as the primary service provider. Key use cases include AI-powered facility information, AI helpdesk for product inquiries, and call center answer recommendation. The business model includes recurring license and usage fees (a recurring revenue model), and Axis will also provide paid system integration work for any required custom surrounding systems for clients.