4442.T

• Core Consolidated Financial Results: • Total consolidated revenue for the third quarter of the 2026 March fiscal year was 8.705 billion yen, an increase of 829 million yen (10.5%) year-over-year, marking an all-time high for a third quarter. Operating profit was 548 million yen, an increase of 7 million yen year-over-year; EBITDA (excluding goodwill amortization from M&A) was 759 million yen, an increase of 34 million yen (4.7%) year-over-year. Net income attributable to parent company shareholders was 333 million yen, a decrease of 8 million yen year-over-year, with stable year-over-year performance overall. • Gross margin expanded driven by improved profitability in the development business after Tabula Corp.'s group integration, but selling, general and administrative expenses (SG&A) increased due to generative AI tool development investment, goodwill amortization, higher shareholder benefit costs, and expansion-related costs, resulting in roughly flat profit year-over-year.
• Human Resources and Operational Milestones: • Total active engineers reached 1,321 (748 full-time employees, 477 business partners), an all-time high, with average unit price for the software testing segment reaching 841 thousand yen, also an all-time high, up 43 thousand yen year-over-year. As of the end of December 2025, 95% of Baltes engineers have obtained the JSTQB Foundation Level certification, achieved through standardized talent development design and structured training. • Won the 12th White Company Award in the "Balancing Engagement and Workability" category, recognized for building a circular growth environment that supports continuous employee learning via over 70 in-house training courses ("Baru-Zemi"), diverse work policies, and a culture that recognizes employee contribution. The company has held the Platinum rank in the White Company certification for three consecutive years. • Portfolio company FUNDINNO, which Baltes has invested in and partnered with for business, completed its initial public offering on the Tokyo Stock Exchange Growth Market on December 5, 2025. • Secured multiple large, high-profile enterprise quality improvement projects in critical infrastructure sectors, including full test phase support for West Japan Railway Company's (JR West) code payment service "Wesmo!", upstream quality improvement support for Shimadzu Corporation's electronic medical record system renewal, and full user acceptance testing (UAT) support for Sony Bank's core system full replacement. • New service launch: Subsidiary RSR began offering "AI-Driven Development (AI-DLC)", a service that supports the full development process from initial design through post-launch operation and improvement, to address the problem of increased maintenance burden from unstructured development when moving from PoC to production. • Tool-based business grew 96.6% year-over-year, maintaining strong growth momentum.
• Generative AI Investment Progress: • The full fiscal year plans for 400 million yen in generative AI-related investment; cumulative investment of 225 million yen had been completed as of the third quarter, with 211 million yen impacting the profit and loss statement (the remainder capitalized), representing 56.3% progress against the full-year plan, with faster progress expected in the fourth quarter. Excluding the impact of AI investment, underlying operating income reached 759 million yen, representing 72.3% progress against the full-year target of 1.05 billion yen, outperforming the 58.3% progress rate in the prior year third quarter. • The company pivoted to an aggressive investment strategy for generative AI test tool development in February 2025, launched the prototype of its proprietary generative AI test design tool "TestScape" and began internal use in March 2025, and launched the beta version of document analysis AI tool "QuintSpect" (which analyzes requirement documents and reports issues/improvements from the company's unique inspection perspective) in October 2025. The company's core competitive advantages in this space include full in-house development of tools across all test processes from design to execution enabling native generative AI integration, early implementation of TestScape, and possession of a large volume of test-specific proprietary data tailored for generative AI development.
• New Medium-Term Management Plan: • Updated the existing medium-term management plan in June 2025, revising core concepts and strategies to prioritize aggressive investment in generative AI test tool development, with the goal of transforming the core software testing business from a labor-intensive model to a human-independent model, and achieving full automation of all test processes. • The 3-year plan targets total investment of 12 billion yen in generative AI test tool development and 25 billion yen in balance sheet strategy investment, reaching 170 billion yen in revenue and 1.88 billion yen in consolidated operating profit by the final fiscal year FY2027, with average annual sales growth of 116% and average annual operating profit growth of 126%. Shareholder returns (dividends and shareholder benefits) are expected to total approximately 2.4 billion yen over the 3-year period. • The core priority strategy aims to automate the full software testing process via generative AI tool development, restructure the business model, upskill existing test engineers into "AI-Test Design Consultants", improve productivity, and overcome the industry challenge of IT talent shortage.
• Company Core Strengths:
  1. Large population of high-skill specialized test engineers, and accumulated knowledge for high-difficulty enterprise projects, with over 500 full-time engineers holding specialized training and majority holding JSTQB certification.
  2. Structured early talent development content including the "Baru-Zemi" in-house training program, with 320 hours of onboarding training for new graduates/inexperienced hires and 160 hours for experienced hires, plus over 120 ongoing education courses, enabling fast conversion of new hires to productive contributors.
  3. Ability to provide quality improvement support from upstream processes including requirement definition and basic design, covering the full software development lifecycle to deliver cost and workload reduction benefits to customers.
  4. Proprietary in-house development of test and quality improvement tools built on decades of service delivery experience, including T-DASH (test automation), PrimeWAF (cloud WAF), AnyTest (on-demand real device testing), Quality Tracker (test management), and the free Qbook test information platform, delivering quality and speed benefits to both customers and the broader industry.
  5. Expanded cyber security service offerings, enabling total proposals that combine security services with core software testing quality improvement.
  6. Proprietary generative AI test design tool TestScape, which automatically generates test cases from specification documents and can also create intermediate work products aligned with the company's proprietary QUINTEE test standard, delivering higher accuracy and transparency than competing tools.

• Full fiscal year 2026 March guidance is maintained unchanged from the initial announcement made in May 2025, with no upward or downward revision. • Full year revenue is projected at 12 billion yen, up 11.2% year-over-year. • Full year operating profit is projected at 650 million yen, down 30.9% year-over-year. • Full year EBITDA (excluding goodwill amortization from M&A) is projected at 930 million yen, down 21.3% year-over-year. • Full year ordinary income is projected at 647 million yen, down 31.5% year-over-year. • Full year net income attributable to parent company shareholders is projected at 390 million yen, down 33.8% year-over-year.
• Going forward, the company plans to add generative AI functionality to all existing tool products, promote full automation of test processes, and actively expand tool and education businesses. For the development business, the company will strengthen cross-selling and group sales, and expand customer problem-solving services via M&A to acquire new technologies and services. For the security business, the company will strengthen analyst training and headcount, and expand the scope of security service offerings.

1. Software Testing Business: Revenue of 7.507 billion yen, up 11.8% year-over-year, accounting for 86.2% of total consolidated revenue. Operating profit of 566 million yen, down 23.4% year-over-year, with the decline driven by active investment in generative AI test tool development, though performance is above plan. 2. Development Business: Revenue of 1.467 billion yen, up 16.7% year-over-year, accounting for 16.9% of total consolidated revenue. Operating profit of 38 million yen, returning to growth after the elimination of prior period unprofitable project losses and improvement in gross margin following the integration of Tabula Corp. into the group. 3. Security Business: Revenue of 161 million yen, up 31.7% year-over-year, accounting for 1.8% of total consolidated revenue. Reported a segment operating loss of 2 million yen, with steady business expansion and narrowing operating losses compared to prior periods.

• The company notes that the domestic IT industry faces a persistent and growing talent shortage, which creates pressure on hiring for the software testing business, though the company also views this trend as a long-term driver of increased outsourcing demand for specialized test services. • Investment in generative AI tool development increases near-term SG&A and reduces near-term reported profit, which has already been fully incorporated into the company's current guidance and medium-term plan, with all investment staying within the originally budgeted scope. • Direct comparison of pre-AI investment operating profit between the current fiscal year and the prior fiscal year is not valid, as the bulk of current development spending has been reallocated to AI development from other prior development initiatives, so AI investment spending is not entirely net new incremental cost.

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