WingArc1st Inc. Q2 FY2026 earnings call

Core Financial Performance

• Reported Q2 FY2026 total revenue of 14.712 billion yen (-1.1% YoY), EBITDA of 4.856 billion yen (-14.3% YoY), and net profit of 2.938 billion yen (-18.3% YoY). The decline was expected, driven by tough comparables from a concentration of large on-premise license deals in the prior year period, and cost increases from wage hikes and consolidation of WingArc NEX. Recurring revenue grew 12.9% YoY, with the company noting a strong, steadily building recurring revenue base.
• Financial health remains very strong, with a Net debt/EBITDA ratio of 0.63x.
• The interim dividend is set at 52 yen per share (+10 yen YoY), with a planned year-end dividend of 52 yen per share in line with plan.

Strategic Business Updates

• New Business Launches: Launched the digital trust service Trustee in August 2025, with the first offering being a time-stamp service targeted at preventing document tampering amid widespread generative AI use. The company targets 1,000 customer adopters within 3 years. Trustee is Japan's fastest time-stamp service (processing over 1,000 documents per second), offers high availability via redundant configuration, and low-cost pricing, with strong synergies with existing SVF and invoiceAgent products.
• Public Sector (Local Government DX): Targeting the DX market for Japan's 1,741 local governments, leveraging existing product penetration, scalable business models from similar government operations, and strong policy tailwinds from mandatory local government system standardization. Established the specialized subsidiary WingArc NEX to focus on digital government services, which already has 400 local government customers for its CMS platform. The company offers pre-built standard-compliant content (1,400 data table definitions, 1,912 standard form layouts, 380 interface definitions) to capture standardization demand, and complements this with Govlong series solutions for non-standard custom work that fills gaps left by the mandated standardization.
• Generative AI Integration: Actively building generative AI capabilities into all core products. The December 2025 update to MotionBoard will enable natural language-powered auto-generation of dashboards and business screens, with clear permission controls and the ability to write data back to the core database, balancing generative AI flexibility with stable, reproducible enterprise operations. The company addresses both the opportunities (lower barrier to data access) and risks (AI-powered data tampering) of generative AI through its product roadmap.
• M&A and Capital Allocation: The 4-year plan targets over 10 billion yen in growth investment for M&A, with 4 billion yen deployed to date as the company selectively targets deals that complement its core business: 1) middleware around large enterprise core systems, 2) public sector business enhancement, 3) AI technology and talent acquisition, 4) accelerating cloud business growth. Shareholder return policy was updated to a 50% total payout ratio, up from the prior 30% dividend payout ratio, and the company is on track to exceed this target in the current fiscal year.

Governance and External Recognition

• Won 1st place for 4 consecutive years in the Nikkei Computer customer satisfaction survey for data analysis/platform software. Customer support received the top 3-star rating from HDI-Japan. MSCI awarded the company an AA ESG rating, and CDP gave a B rating for climate change disclosure.

1. 帳票・文書管理ソリューション (BDS): Prior full year revenue was 18.7 billion yen. - SVF: Cloud segment saw increased upsell activity, growth in customer count and ARPU from larger contracts; on-premise license revenue decreased year-over-year due to tough comp from prior year large deals, while maintenance/subscription revenue held steady. - invoiceAgent: Cloud revenue continued growing but at a slower rate, following the end of the tailwind from Japan's Electronic Bookkeeping Preservation Act; on-premise revenue was flat, while subscription/maintenance revenue increased. 2. データエンパワーメントソリューション (DE): Prior full year revenue was 9.9 billion yen. - Dr.Sum: Cloud revenue maintained steady growth driven by expanding large deals; on-premise license was impacted by prior year large deals, while subscription/maintenance revenue increased. - MotionBoard: Cloud revenue grew but with a slower growth rate, with a new product release planned for the current fiscal year; on-premise license saw a slight decrease due to prior year large deal impact. 3. By contract type: Overall license/service revenue decreased 19.9% year-over-year, while recurring revenue increased 12.9% year-over-year, boosted by the consolidation of WingArc NEX.

• Full-year FY2026 guidance is maintained unchanged, with the company confident of achieving the full-year plan despite a slight first-half miss against plan, as large deals are scheduled for the second half. Second half revenue is projected at approximately 16.4 billion yen, with earnings heavily concentrated in the second half.
• Excluding M&A impacts, organic EBITDA margin is projected to improve to 36% in FY2026, up from 34.6% last year, with overall group margin flat due to newly consolidated subsidiaries.
• For the final year of the mid-term management plan (FY2027), the company sees high probability of achieving the targets of 32.0 billion yen in total revenue and 12.0 billion yen in EBITDA.
• Recurring revenue is projected to maintain a 14% CAGR, with cloud revenue growing at 28% CAGR and subscription revenue growing at 38% CAGR.

• The concentration of large deals in the second half creates execution risk, though management notes the pipeline is solid and no weakening of client demand is observed.
• Local government system standardization consumes vendor resources for the next 2-3 years, though management assesses this risk as low currently, and the company's pre-built standard content reduces long-term exposure to the risk of being displaced by in-house developed tools.
• Achieving the mid-term EBITDA target requires meaningful margin improvement from recently acquired M&A subsidiaries, though management has already started focused improvement efforts.
• New businesses like Trustee and public sector DX are still in early stages, with market adoption and revenue scale still unproven.

Q: Management reaffirmed that H1 performance is almost in line with plan, but noted full year results are back-loaded. Is the second half pipeline still on track, given some originally planned H1 deals slid to H2? / A: While a small number of planned H1 deals have slipped to the second half, the company holds a large enough pipeline to meet full year targets. There is no evidence of weakening win rates or client demand, so management remains fully confident in achieving H2 and full year results.

Q: The mid-term plan targets 12 billion yen EBITDA in the final year, requiring 1.5 billion yen in EBITDA growth from current levels. What gives management confidence this target is achievable? / A: Confidence comes from two factors. First, large public sector deals are already in the pipeline for next year, so topline growth is on track. Second, over the past 2-3 years the company shifted strategy from investment-led growth to focusing on profitability improvement, and these efforts are now maturing. The combination of topline growth and margin improvement puts the target well within reach.

Q: What is the revenue outlook and maximum potential for Trustee, given the 1,000 customer in 3 years target? / A: Switching existing external time-stamp usage used within invoiceAgent to in-house Trustee already makes the 1,000 customer target achievable. The company is currently testing the market, focusing on financial services and public sector as the most promising verticals, and will formalize a sales forecast after gathering more traction this fiscal year, so no quantified target is available today. The 1,000 customer count only counts new standalone adoption, not automatic inclusion for existing SVF users, so the long-term potential is much larger than the near-term target.

Q: From the outside, performance looks solid, what is the biggest challenge you see as an external director? / A: The main challenge for the next phase of growth (the company's "Chapter 2") is securing sufficient high-quality talent, especially talent with diverse backgrounds and global perspective. The existing team is very cohesive, but adding more heterogeneous experience will help support expansion into new business areas like public sector DX and digital trust. This is the most critical priority to support the next stage of growth.