Power Solutions,Ltd. Q2 FY2025 earnings call

• Company Overview & Positioning

  • Power Solutions is a 23-year-old B2B IT company listed on the Tokyo Exchange since 2019, specializing in DX for the "last-mile" gap between standard enterprise system packages and end-user needs, which are typically unautomated and inefficient.
  • The firm has expanded its service scope through M&A and alliances post-listing: 2021 added Execution Inc. for infrastructure services, 2023 capital alliance with Australia's Sazae for SaaS DX expertise, 2024 consolidated Innovative Solutions to strengthen consulting capabilities, and 2025 made Cats Inc. an equity-method affiliate.
  • The firm practices "ambidextrous management": deepening industry-specific DX expertise (especially in financial/asset management, its core legacy sector) while expanding cross-industry DX services powered by AI-enabled SaaS.

• 2025-2027 Mid-Term Management Plan

  • The 2022-2024 pre-period focused on building foundations: talent acquisition/development, expanding partnerships with global AI-enabled SaaS providers via R&D and M&A. The 2025-2027 period is positioned as a "transformational period for future growth", with core strategies shifting from custom development ("build") to AI SaaS-based solutions ("use") and expanding into upstream DX consulting. 2027 targets: 9.0 billion yen revenue, 1,000 total employees, 0.8 billion yen EBITDA.
  • Key competitive advantages built in the pre-period: 1) Expertise in global standard AI-enabled SaaS, with plans to build a composable combined SaaS platform for long-term recurring revenue; 2) Stable long-term relationships with top clients, including all top 7 asset management firms in Japan, built on deep industry expertise and SaaS know-how; 3) Multi-channel talent acquisition covering new grads, experienced hires, cross-industry career changes, returning housewife SEs, global hires and M&A; 4) Continuous upskilling via internal Next Mile University and joint research/training with Chiba University's DX Design Research Lab.
  • Four core strategic initiatives: 1) Expand revenue with existing clients via SaaS-enabled faster development and improved ongoing proposal quality; 2) Acquire new clients leveraging the brand recognition of partnered global SaaS; 3) Grow headcount and increase average client billing via continuous upskilling; 4) Expand into upstream DX design consulting to optimize SaaS placement for clients.
  • The firm will continue programmatic M&A targeting small to mid-sized firms, with M&A goals focused on acquiring talent and adding new AI-enabled SaaS product offerings.

• 2025 H1 Financial Performance

  • Consolidated revenue grew 26.8% year-over-year, operating profit grew 75.7% year-over-year, with EBITDA also growing more than 75% year-over-year. Strong gross margin improvement was driven by higher utilization across the business and growing SaaS license sales, in addition to Innovative Solutions contribution.
  • H1 operational highlights: Equity stake acquisition of Cats Inc. as an affiliate, deepened partnerships with AI SaaS providers, and held joint DX talent training programs with Chiba University.

1. DX Promotion & DX Consulting: This is the firm's largest segment, combining the businesses of Power Solutions and Innovative Solutions Inc. The segment recorded strong year-over-year revenue growth, driven by solid growth in Power Solutions standalone revenue and the full first-half contribution of Innovative Solutions (which only became consolidated in H2 2024). This segment accounted for the majority of the firm's total consolidated revenue growth for the half. 2. Infrastructure Engineering: Operated by Execution Inc., focused on cloud infrastructure services, with steady revenue growth in the half. 3. RPA-related Services: Operated by OLDE Inc., uses UiPath products to deliver business innovation through the combination of AI and automation. The segment also saw growing revenue in the half, and the firm received 2025 recognition from UiPath for its work in AI-automation fusion solutions.

• The 2025 full-year consolidated earnings guidance is maintained unchanged from the original release, despite strong H1 progress that puts profit near 100% of the full-year target as of the half.
  • Management states that an upward revision is not currently warranted per Tokyo Exchange disclosure requirements, which require a 10% upward revenue deviation and 30% upward profit deviation to trigger a revision. Unspent H1 budgeted expenses are planned to be utilized in the second half, and the full mid-term plan is progressing on track: as the first year of the 2025-2027 plan, H1 performance is described as very strong, with synergy from the acquired Innovative Solutions performing above expectations.
  • The firm expects continued gross margin and average billing improvement going forward, driven by growing SaaS license sales and higher value-added services from upskilled talent.
  • For shareholder returns: The firm targets stable continuous returns, maintains a plan for 25 yen annual dividend (a 3 yen increase from the prior year), and newly introduces an 8,000 yen annual QUO card shareholder benefit program to encourage long-term shareholding. A non-exchange offering of existing shares is scheduled for late August.

• Persistent domestic Japanese IT talent shortage, which is expected to worsen long-term, creating pressure on talent acquisition and wage costs.
  • Price increases from partnered foreign SaaS providers (such as the prior OutSystems price hike) create pricing pressure for client solutions; management notes this is a known risk and will address it by switching to alternative SaaS products if needed, maintaining flexible optimal SaaS placement.
  • Large IT vendors entering the low-code/no-code last-mile DX space: management believes deep industry-specific knowledge accumulated over decades cannot be quickly replicated, so the firm's competitive position is not threatened.
  • Large, industry-standard legacy core systems (many built on COBOL) do not directly compete with the firm's last-mile gap positioning, but growing end-user expectations for AI-enabled functionality are expanding the size of the last-mile gap the firm serves, actually increasing long-term opportunity.

Q: Why does the firm have so many direct engagements with large clients, especially in asset management, and do financial clients prefer repeat engagement with incumbent providers? / A: All top 7 Japanese asset management firms are long-term direct clients, built on 23 years of industry expertise the firm's founder developed, and specialized knowledge of existing industry system interfaces for last-mile problem solving. The firm continuously shares this industry knowledge via internal training, and long-standing relationships mean the firm already has in-depth knowledge of client internal data layouts, reducing onboarding friction and encouraging continuous repeat work. This dynamic makes sustainable long-term direct engagement stable.

Q: How does the firm plan to enter the upstream DX consulting space, and will higher consulting share improve margins? / A: The firm's strategy relies on M&A and existing alliance expertise. It acquired Innovative Solutions last year specifically to add consulting capabilities; that subsidiary already has a team experienced in business consulting and SaaS-enabled process analysis. It also leverages the optimal multi-SaaS placement expertise from its strategic partner Sazae in Australia. Entering consulting early in the DX process allows the firm to secure license sales upfront, and increased adoption of SaaS solutions by clients drives follow-on up-selling, which improves both average revenue per client and overall margins.

Q: What is the plan to reach 100 billion yen market capitalization, and what is the timeline? / A: Management states that completing the current mid-term plan targets (9.0 billion yen revenue and 0.8 billion yen EBITDA in 2027) is the required foundational step. Beyond the mid-term period, the firm has a longer-term target of 15.0 billion yen revenue and 1.5 billion yen EBITDA. Based on current market valuation multiples, hitting the mid-term and then long-term targets will result in reaching the 100 billion yen market capitalization goal, so the priority remains executing the current transformational mid-term plan.

Q: What impact is the growing trend of new firms entering asset management in Japan having on business demand? / A: The "from savings to investment" policy shift is driving rapid growth in the asset management industry, with increasing diversification into alternative investments like private equity. This is creating strong growth in new DX demand for last-mile solutions, which is the firm's core focus. High labor mobility in the industry means former clients at new firms often bring existing relationships with the firm, and successful project delivery generates word-of-mouth referrals that drive new business growth organically.