Core Concept Technologies Inc. Q4 FY2025 earnings call

• Overall 2025 Fiscal Year Business Restructuring Summary

  • Management increased sales activity volume as planned to address prior period growth slowdown. While progress was slightly slower than initially planned, increased focus on DX Support sales drove visible improvements in orders and backlog starting in the second half of 2025, with a clear shift to strong revenue growth in the 4th quarter. Management will continue positioning DX Support revenue and profit growth as the core growth driver for 2026 to fully resolve the prior growth slowdown.
  • Post-reporting period event: Group subsidiary Pros Cons, which operates the "Gemini eye" visual inspection product, will be merged into CCT, as management expects strong growth potential from integrating the business with CCT's DX business, particularly the Orizuru MES product.
  • Internal key performance indicators show strong momentum: the number of large customers with annual revenue of 100 million yen to 500 million yen, and over 500 million yen, continues to grow steadily, with room for further expansion.

• 2026 Organic Growth Strategic Initiatives

  • Manufacturing DX (CCT's core strength): Strengthen sales efforts to win large-scale projects, with a specific focus on large-ticket offerings including ERP, MES, and PLM, targeting planned acquisition of large contracts.
  • Construction DX and Logistics DX (secondary core segments): CCT has already built strong trusted relationships with large customers in these segments. It will pursue efficient expansion by horizontally deploying existing know-how and solutions built with anchor clients to other peers in the same industries. CCT has already expanded direct client relationships to major general contractors including Takenaka Corporation, Kajima Corporation, and Maeda Corporation in construction, and supports Senko in logistics DX, creating a base for wider horizontal expansion.
  • New dedicated sales headquarters: With over 500 existing customers, CCT will establish a centralized sales headquarters to systematically manage cross-selling to the existing customer base, improving sales efficiency to existing accounts.
  • IT Human Resource Sourcing Support: The business follows a highly systematic operating model. CCT will drive planned top-line growth by using statistical data to tightly manage lead volume, negotiation volume, proposal closure, and placement separation processes.

• 2026 M&A Strategy

  • As the CCT group has scaled up, management will raise the target transaction size for individual M&A deals. It will continue to avoid overpaying for acquisitions, evaluate each opportunity based on return on investment, and deploy capital to M&A when attractive opportunities arise to drive growth. The M&A scope has shifted from primarily focusing on regional IT firms to prioritize companies with strong expertise in upstream project processes and on-site manufacturing industry knowledge, rather than targeting M&A purely to gain capacity for simple coding work.

• Capital Allocation and Shareholder Return

  • CCT follows a balanced allocation approach that prioritizes growth investment while maintaining stable retained earnings and returning capital to shareholders. It will continue its progressive dividend policy: a 19 yen per share dividend is planned for 2025, with a planned increase to 21 yen per share for 2026 based on the earnings outlook. Between November 14, 2025 and February 2, 2026, CCT completed a share repurchase program. Repurchased shares are earmarked for M&A and equity incentive use; if the share count becomes excessively large, CCT will consider retiring shares as appropriate.

• Organizational Update: Starting March 30, CCT will move to a dual representative director system to strengthen governance and support growth.

CCT operates two business segments: DX Support and IT Human Resource Sourcing Support. For the full 2025 December fiscal year, both segments achieved year-over-year revenue and profit growth, and both saw gross profit margin improvement. In the 4th quarter of 2025 December fiscal year: 1. DX Support: Revenue grew more than 10% compared to the previous quarter, reaching a new all-time high for quarterly revenue. Backlog remains solid amid growing revenue, though gross profit margin has not fully recovered due to remaining unprofitable legacy projects. Revenue per employee plus business partner is steadily increasing, driven by higher average project prices from growing large contract wins and falling outsourcing ratios as new graduate hires gradually become productive. 2. IT Human Resource Sourcing Support: Top-line growth remains a work in progress, but strict cost control has kept gross profit margin at a relatively high 17.5%. On a consolidated basis, the 4th quarter of 2025 saw all-time record quarterly revenue, gross profit, and operating profit, with an operating profit margin of 11.2%. Gross profit margin for the full year improved year-over-year due to a lower outsourcing ratio, while operating profit margin stayed flat year-over-year as a result of increased selling, general and administrative expenses. Net equity ended the period slightly above 5 billion yen, with a regulatory capital ratio of 59.1%. Total group headcount exceeded 600 after adding 58 new graduate hires in 2025.

• For the 2026 December fiscal year, CCT targets total group revenue exceeding 23 billion yen, with just over 10% year-over-year growth for both revenue and operating profit. The planned operating profit margin is 10.6%, representing a 0.1 percentage point year-over-year increase.
  • Revenue is split into approximately 11 billion yen for the first half and 11.9 billion yen for the second half. The first half plan is moderately conservative, while the second half plan incorporates the already secured large ERP order.
  • Planned adjusted net income for 2026 is 1.684 billion yen. A one-off special loss will be recorded in 2026 due to recent changes to Japanese tax rules for trust-type stock options, which is a transitory, technical change with zero full-year impact on net equity.
  • The plan already incorporates increased SG&A from the planned integration of all three group Osaka offices into a single location near Osaka Station to improve sales and collaboration efficiency. No new M&A is included in the baseline 2026 plan, though management will actively pursue attractive opportunities if they arise.
• Headcount plan: 93 new graduate hires are planned for the full group (75 for CCT standalone), bringing total group headcount to approximately 685. Hiring will focus on high-potential new graduates to support DX business growth, while mid-career hiring will be targeted to focus on quality: hiring senior leaders that can mentor new graduates and serve as core sales and delivery ready-now talent, with a focus on smaller volume of higher quality hires.
• The plan already incorporates the remaining impact of legacy unprofitable DX projects, which are expected to be largely resolved by the first half of 2026 with no material residual impact on full-year results.

• Some legacy unprofitable DX projects will have a limited residual impact on the first half of 2026, though the impact is already incorporated into guidance and expected to be largely resolved by the end of the first half.
• Large ERP projects carry inherent profitability risk: without strict quality and project management, cost overruns could lead to worse-than-expected profitability. CCT mitigates this by conducting weekly QCD (quality, cost, delivery) management to keep projects on track.
• AI automatic coding faces hallucination risk: AI may generate incorrect code, and uncaught errors can lead to unforeseen defects that are only caught by end customers, creating reputational and profitability risk. This means strict mandatory checking will remain required for the foreseeable future, adding a layer of oversight work.
• The original Ohgi growth model based on growing engineer headcount faces structural change from AI automation: demand for engineers for simple coding and testing work is expected to decline, requiring a shift in the skill mix of the Ohgi partner network, though management believes the existing portfolio management model can adapt effectively to this change.

Q: Is it correct that unprofitable DX projects ended in 2025 and will have no impact on 2026?

A: There will still be a small amount of residual impact on 2026, but this impact is already fully incorporated into the published 2026 plan. Management expects that these legacy projects will be largely wrapped up by the first half of 2026, so there will be no material impact on full-year 2026 results.

Q: Can you share more details on the progress, project content, and profitability risk of the large manufacturing DX ERP order that is expected to be recognized in the second half of 2026?

A: This is a manufacturing DX ERP project based on mcframe, and multiple of these projects have been awarded since last fall, with work already underway. The first phase focuses on business design and requirement definition, so revenue recognition will start at a relatively low level. Once requirements are finalized, the project will move into system design and development, with project cost and revenue ramping up through the second half. If the project progresses as planned, it will be a very large-scale project that supports strong revenue and profit growth for the DX business in the second half. Because it is a large project, strict quality management is required, and there is inherent profitability risk if project management fails. To mitigate this, we are conducting weekly QCD management to ensure the project stays on track and does not result in unprofitable results for 2026. If executed well, the project could even outperform the current plan.

Q: What impact will AI automatic coding and agent AI have on CCT's business? Can AI handle full automatic coding for ERP and MES projects? What are CCT's AI utilization efforts, and what are the key advantages and disadvantages?

A: This is a critical industry topic that will shape future growth and decline. CCT is already actively utilizing AI coding and AI testing in live awarded projects, and has moved beyond feasibility testing among engineers. As of this year, we are already operating AI automatic coding and automatic testing in two large-scale live projects. Currently, we are able to automate 30% to 40% of total work and replace human labor, which is a very material improvement even at this early stage. That said, it is not possible to apply this to all projects: for fully custom one-off projects, AI cannot always generate appropriate output. For product-based, structured systems like CCT's MES and mcframe-based ERP, AI can potentially replace up to half of total project work with proper application, based on our current assessment. The entire industry is moving forward with this trend, and CCT aims to stay ahead of the curve to drive faster productivity improvements and boost profitability. The key downside and risk is AI hallucination: AI sometimes generates incorrect output, and if errors are missed in checking, they can lead to unforeseen defects that are only caught by the customer. This means that checking will remain a critical, non-negotiable step for the foreseeable future, which is the key recognized risk and disadvantage of current AI utilization.

Q: The original Ohgi growth story was that securing engineers drives profit, and engineering capacity equals revenue. How has this long-term growth story changed with the advancement of AI?

A: You are correct that this is a period of change that brings some risk on the volume side. The Ohgi model is built on a portfolio of all skill sets across an external partner network of approximately 150,000 people across thousands of partner firms. AI will split skill areas into growing areas and shrinking areas: demand for engineers for simple work like routine coding and automated testing will shrink as AI adoption grows. However, for large-scale projects in manufacturing, construction, and other on-site industries that require deep domain knowledge, upstream work that leverages AI to configure solutions will remain in strong demand for the foreseeable future. As AI changes the required skill mix, CCT will adjust the allocation of orders across the partner network: reduce orders to partners focused on shrinking skill areas, and increase utilization of partners in growing, high-demand skill areas. This means CCT's existing outsourced cost control model will continue to work effectively, and the adaptability of the Ohgi model remains fully intact. By continuing to strengthen sales strategy and adapt to the new market environment, the Ohgi network will continue to drive CCT's growth, and management will continue to expand the network as before. As a reflection of this shift, our M&A focus has changed: we still consider regional IT firms, but we now prioritize acquiring firms with unique strengths in upstream engineering and deep on-site manufacturing knowledge, rather than acquiring firms purely to gain simple coding capacity.

Q: What is the specific role split for the new dual representative director system starting March 30?

A: We moved to a dual representative director system to strengthen overall group governance, expand our existing corporate culture of collaborative decision-making with check-and-balance, and support further growth. We have aligned on a direction where the two of us will grow the company together, which we believe is the best approach. While we have a split between offensive and defensive responsibilities, the overall approach is to "attack while defending". Key decisions like M&A and hiring have a large impact on company culture and long-term strategy, so the dual structure helps strengthen cost control and governance to align spending with growth goals, while solidifying defense and executing on the growth strategy. My role focuses on the offensive side, leading business strategy and growth initiatives. The other representative director, Nakashima, leads overall group governance, hiring, and M&A, and will drive execution of overall group growth. We will both work together to deliver company growth under this role split.