Science Arts,Inc. Q4 FY2025 earnings call

Company and Product Overview

• Science Arts targets frontline workers, which account for ~60% of Japan's labor force and ~80% of the global labor force, across retail, transportation, public services, healthcare/long-term care, manufacturing, construction, and other industries, providing DX solutions via the Buddycom platform.
• Buddycom is a combined software-hardware subscription service: it supports voice, text transcription, translation, and video streaming (international patents held for core features), with a 10-year operating history, over 1,500 contracted client companies, and coverage of 94 out of 99 industries, operating as a horizontal SaaS.
• All sales are indirect, distributed via carrier and partner channels, with no direct sales. The system has not had an outage in over 2 years, and maintains an extremely low churn rate, which enables partner confidence in selling the product.

Competitive Advantages

• Software: Compared to traditional IP radio, Buddycom offers differentiated AI, mapping, and video features, positioning it as the current market share leader. A new Safety Support feature was developed to address customer harassment risks, which adds ¥500 per user per month to increase ARPU, with active proofs of concept and strong order inflow targeting 22 million potential users across retail, transportation, and healthcare.
• Hardware: Customized hardware is offered for different industry use cases: MIL-standard speaker microphones for manufacturing/construction, open-ear earphone microphones for healthcare/long-term care, etc. Over 80% of hardware replacement purchases are repeat purchases from existing customers, creating a stable recurring revenue stream.

Operational Progress by Target Industry

• Public sector: The Buddycom Government Plan for disaster response has been well-received, after successful adoption and high praise during the 2024 Noto Peninsula earthquake, with ongoing proof of concept work with Japan's Fire and Disaster Management Agency, central government, and planned testing in Cabinet Office DMAT training with Starlink integration. The company will continue to invest heavily in the public sector market.
• Accommodation and Food Services: The capital and business alliance with Rakuten Group has driven nearly 100% year-over-year sales growth in this historically weak segment, with strong early progress in expanding to long-term care via the Rakuten ecosystem.
• Other priority industries: Retail will expand the Safety Support anti-customer harassment feature; Transportation will horizontally expand the Buddycom Bell feature already adopted by a major railway to additional carriers; Healthcare/long-term care will focus sales resources on replacing legacy PHS systems; Manufacturing will push on-premises versions for clients that cannot connect to public internet for security reasons.

New Growth Strategies

• IP Radio Market Entry: In partnership with JVC Kenwood, the company is co-developing dedicated IP radios with integrated Buddycom, for environments where smartphone use is impractical (e.g., construction sites, work with gloves). This targets an adjacent, separate market from smartphone-based deployments, and the global IP radio market is expected to grow 6x with the shift to digital and satellite communications. The company plans to build domestic share first before expanding to the North American market.
• AI-enabled worker matching: The company is developing AI features to lower barriers to entry for workers, including audio reading of on-site manuals to address language barriers and inexperience, and reduce onboarding and training costs for hiring companies facing labor shortages, with the goal of creating a new labor market via AI + Buddycom. The company is actively investing in AI via partnerships with SoftBank and Rakuten Group.
• **New device development: The company is developing new supporting devices including camera-equipped earphones, and plans to integrate AI with wearable sensors to further support frontline workers.

Science Arts operates two core product segments, all under its core offering Buddycom: 1) Buddycom subscription: Annual Recurring Revenue (ARR) grew 44.6% year-over-year in FY2025 August, with a planned FY2026 ARR of 1.377 billion yen. ID count grew 50.5% year-over-year, with ID average selling price holding above 90% of prior levels despite volume discounts. 2) Hardware/accessories: Hardware (custom microphones, earphones, specialized devices for different industries) also grows as a recurring stock-type business, as over 80% of replacement purchases are from existing Science Arts customers, and order volume for hardware exceeds the number of subscription IDs. In FY2025 full year, total operating profit reached 0.107 billion yen with a 6.5% operating margin, achieving the company's first full year of profitability. Gross margin has stayed stable around 60%, reaching 59% in Q4 FY2025, which reflects a positive impact from volume discounts on large orders. Total revenue for FY2026 is planned at 2.069 billion yen, with 0.15 billion yen in planned operating profit.

• For FY2026 August, management guides total revenue of 2.069 billion yen, operating profit of 0.15 billion yen, with a 7.3% operating profit margin. This guidance already includes a planned 43 million yen in one-time office relocation expenses tied to planned headcount growth, with total headcount planned to reach 77 employees. ARR is guided at 1.377 billion yen.
• Management expects FY2026 results will come in above the 2.069 billion yen revenue plan as of the earnings call.
• The long-term 2030 August fiscal year target is a compound annual growth rate of at least 30%, total revenue of at least 5 billion yen, and operating profit of at least 1 billion yen.
• The company's strategy prioritizes upfront investment in sales and R&D over near-term profit expansion, with planned increases in personnel expenses to support growth, while other operating costs are expected to remain stable relative to the prior year.

• The Q4 FY2025 churn rate increased slightly to 0.42%, driven by churn from a small share of customers using Buddycom exclusively for business continuity planning (BCP). These BCP-only customers account for less than 1% of total revenue, so any future churn from this segment is expected to have only a minor impact on overall performance.
• ID average selling price saw a slight decline due to volume discounts for large new orders, though average price has held above 90% of prior levels, so the impact is manageable.

No question and answer section was included in the provided transcript.