4412.T

• Company and Product Overview

  • Science Arts provides Buddycom, the 5-year running market share No.1 IP radio app for frontline workers, who account for 60% of Japan's working population and 80% globally. Buddycom is sold exclusively through agency partners (no direct sales), enabling service delivery to a large customer base with ~70 total employees. Over 1,700 companies across 94 of 99 domestic industries have adopted Buddycom, including major clients such as JAL, JR, and Aeon.
  • Revenue comes from two main sources: recurring subscription revenue for the Buddycom software, and recurring hardware/accessory revenue from initial purchases and periodic replacement cycles (2-5 year product lifespan), making both segments stock-based revenue streams.
  • Key product competitive advantages: multi-functional core/optional features (voice calls, video streaming, location sharing, customer harassment protection, staff calling paging, remote customer service currently in development), and industry-customized hardware peripherals (waterproof/dustproof mics for construction, long-use tie-clip earphones for retail, open-ear bone conduction headsets for healthcare).

• Industry-Specific Operational Progress

  • Public sector: Adoption by fire departments and local governments for disaster prevention has grown sharply, with annual recurring revenue (ARR) up 236.6% year-over-year from the prior fiscal year end, fueled by positive performance during the 2024 Noto Peninsula earthquake disaster response.
  • Manufacturing: The new on-premise version of Buddycom, built to target on-site PHS replacement demand, secured its first order, with multiple additional projects currently in progress.
  • Nursing and welfare: Secured the TAIS code eligible for ICT subsidies, leading to strong performance in Q1 and Q2, with continued positive momentum expected for the remainder of the fiscal year.
  • Retail and transportation: Continued user ID growth from cross-selling to existing customers. The partnership with Rakuten Group has already delivered clear, measurable growth in the accommodation and food service vertical, with plans to expand to additional industries and develop combined AI-powered offerings leveraging Rakuten's AI capabilities.

• Strategic Growth Priorities

  • Near-term: Expand adoption by addressing industry-specific challenges and diversifying deployment options to reach more frontline workplaces. This includes co-developing an integrated IP radio device with JVC Kenwood, which combines JVC Kenwood's hardware expertise with Buddycom's software features to enable DX for harsh-environment workplaces.
  • Mid-term: Evolve Buddycom from an internal on-site communication tool to connect frontline workers with consumers and across enterprise boundaries, with cross-enterprise communication, customer-staff connection, and remote customer service features already adopted by major domestic transport and retail clients.
  • Long-term: Launch global expansion starting with the large North American IP radio market, leveraging the JVC Kenwood partnership. AI integration is a key focus, with existing deployments including AI-enabled manual lookup with Keio Electric Railway and AI-powered camera monitoring, targeting faster problem resolution and proactive incident prevention for frontline teams.

• Full-year operating profit is expected to come in above the original plan, as first-half performance already achieved ~70% of the full-year target. Management expects sales and selling, general and administrative expenses to stay on plan in the second half, with gross margin improvement and first-half accessory revenue overperformance driving the full-year upside.
• The 2030 August term long-term numerical targets disclosed in November 2023 remain in place, with performance already exceeding plan starting in 2024. Management now aims to deliver results above the original 2030 target.
• Hiring is progressing well, with the second half hiring target expected to be nearly met as of the call date. The company will continue aggressive hiring to support growth, and will relocate its office in April 2027 to accommodate expanded headcount.

For the first half of FY2026 August term, total revenue was 1.027 billion yen: the core Buddycom software subscription segment met performance expectations, while hardware/accessory segment revenue exceeded plan, driving the overall top-line result. Operating profit for the first half came in at 104 million yen, beating plan and reaching approximately 70% of the full-year operating profit target. No separate revenue contribution percentages for individual segments were disclosed in the provided transcript.

No specific risks or operational failures were discussed in the provided transcript section.

Q: What is the progress update on the co-developed IP radio hardware with JVC Kenwood? / A: The partnership combines JVC Kenwood's proven hardware manufacturing expertise and existing North American public sector customer base with Buddycom's software capabilities. The device integrates smart software features including call recording, transcription, and translation, bringing advanced DX to all types of frontline workplaces. No specific launch timeline or delivery milestones were shared in the available transcript content.

Q: Does management plan to update full-year earnings guidance following the strong first-half result? / A: Management confirmed that full-year results are on track to beat the original forecast, but did not disclose an official timeline for a potential guidance revision in the available exchange content.