Power Solutions,Ltd. Q4 FY2024 earnings call

Company Positioning & Core Differentiation

• Power Solutions is a niche top IT company focused on the "last mile" DX gap between existing enterprise core systems and on-site end user needs. It fills unmet gap tasks that are often unaddressed by large IT vendors which focus on common core system needs.
• Compared to large IT vendors: Power Solutions focuses on frontline on-site business needs rather than common enterprise requirements, prioritizes speed/agility/flexibility rather than long-term large system robustness, and runs small to medium projects that take months to 1 year rather than multi-year large-scale projects, with faster on-site decision-making by empowered managers. It also maintains a high ratio of direct prime client contracts.

Growth Strategy: Dual-focus (Two-sided) Business Model

• Deepen: Continue to expandDX services for the financial/asset management industry, leveraging the tailwind from "from savings to asset formation" policy shifts including NISA reform. The company is already a niche top player in this space with long-standing major clients including Nomura Holdings and Sumitomo Mitsui Trust Group.
• Explore: Expand DX services across all industries, leveraging the general tailwind for business automation, using M&A and alliances to expand capabilities. The 2024 acquisition of Innovative Solutions, which has strength in logistics and manufacturing, reduced the company's over-reliance on the financial sector and added low-code GeneXus development capabilities.

Partnership & Capability Expansion

• The company is a Platinum Tier partner for UiPath (the top RPA vendor in Japan's market), and was the only Japanese recipient of UiPath's 2023 Industry Solutions Partner of the Year award. It also holds partnership agreements with Smartsheet and Boomi for global SaaS solutions, and plans to continue adding new relevant SaaS partnerships.
• The company has completed multiple strategic M&A/alliance moves post-2019 IPO: 2021 acquisition of Execution to add cloud infrastructure capabilities, 2023 capital alliance with Australia's Sazae to add SaaS DX expertise and spun out OLDE to strengthen RPA services, 2024 acquisition of Innovative Solutions to add low-code capabilities and non-financial industry access.

Human Capital Development

• The company opened the in-house corporate university Next Mile University in January 2023, which provides ~100 hours of annual training content. The model is flipped learning: employees identify their own skill gaps from on-site work and select targeted courses, with in-house experts sharing project knowledge as instructors to create a cycle of learning and teaching. The program also supports reskilling from traditional IT roles to DX roles.
• The company partners with Chiba University for industry-academia collaboration, runs a joint DX design research lab, and operates an owned media focused on SaaS-enabled DX to support talent sourcing and branding.

Power Solutions operates 4 business segments: 1. DX Promotion & DX Consulting: This is the largest segment, with steady growth, and includes the newly acquired subsidiary Innovative Solutions. It is the primary growth driver for the company alongside RPA-related services. 2. Outsourcing: This segment is in a shrinking trend as the company shifts its workforce to DX-focused roles. 3. Infrastructure Engineering (operated by subsidiary Execution): This segment delivered steady solid performance in 2024. 4. RPA-related Services (operated by subsidiary OLDE): While it does not account for a large share of total revenue, it achieved a very high growth rate, significantly outperforming the original plan for the 2022-2024 mid-term management plan due to strong market demand. For the full 2024 fiscal year, total consolidated revenue and operating income both achieved double-digit year-over-year growth. Excluding the impact of large VC fund returns that occurred in the prior year, core recurring operating income grew 8.4% year-over-year.

• For the 2025 December fiscal year, the company expects continued steady growth centered on DX Promotion & DX Consulting and RPA-related Services, with double-digit growth expected for ordinary income. The projected single-digit growth for revenue and operating income is because the guidance excludes potential M&A contribution, as M&A deals are opportunistic and uncertain in timing and size.
• A new 3-year mid-term management plan will be published in late February to early March 2025, which will include updated longer-term outlook.
• For shareholder returns, the company updated its policy in 2024 to increase return to shareholders. It implemented a stock split to improve liquidity, paid its first ever interim dividend, and plans a full year dividend of 25 yen per share for 2025, a 3 yen per share increase from 2024. The company's long-term policy is to aim for stable, continuous dividend increases.

• The 2024 full year results missed the company's original published guidance. The primary causes were increased SG&A expenses from consolidating Innovative Solutions, which weighed on operating income growth, plus delayed VC fund returns and recognition of valuation losses on VC fund investments that reduced ordinary income.
• There is ongoing tight market competition for experienced IT talent, which requires the company to use non-traditional sourcing channels and invest heavily in training and reskilling to meet headcount growth targets.

Q: What is Power Solutions' unique differentiator compared to the many other DX service competitors? / A: Management explains the company's core unique offering is its focus on last-mile gap filling via cross-cutting SaaS solutions that connect disparate existing systems, rather than building full vertical core systems like most competitors. This cross-cutting last-mile focus is a distinct market position that sets the company apart from other DX players.

Q: Will you continue to pursue M&A going forward, and what is your M&A strategy? / A: Management confirms it will continue to pursue regular small to middle-market M&A, not large-scale deals. The goal of M&A is to acquire talent and expand the range of products and services the company can offer, consistent with its strategy of expanding cross-cutting SaaS DX capabilities.

Q: What business segment does Power Solutions plan to prioritize for growth going forward? / A: Management states DX Promotion & DX Consulting, the company's largest segment, will be the primary growth focus. RPA services are used as a key tool within DX consulting, so growth of these two segments is layered together. New clients increasingly come from referrals by partner SaaS vendors that cannot handle end-user implementation demand, so adding more SaaS partnerships directly drives new customer acquisition.

Q: What is your strategy for talent acquisition in a tight market, and what advantages do you have? / A: Management says the company uses multiple non-traditional sourcing channels, including potential hiring for underutilized talent pools like former SEs who left work for childcare, and second-career inexperienced workers from other industries up to age 30. The structured training and learning environment offered by Next Mile University is a key recruiting advantage that helps attract candidates and convert them to productive employees.