OBIC BUSINESS CONSULTANTS CO.,LTD. Q4 FY2025 earnings call

Key Operational Metrics

• Annual Recurring Revenue (ARR): Total ARR reached 40.5 billion yen at quarter-end, up 14% YoY. Cloud ARR grew 22.5% YoY and has quadrupled over the past 4 years, while on-premises maintenance ARR has declined gradually due to cloud migration. Core business cloud ARR now exceeds Oobeya Cloud Edge ARR, representing a major shift in the cloud business mix.
• Cloud ARPU: Average annual revenue per customer has grown 1.7x over the past 3+ years to over 530 thousand yen. After the full effect of 2024 price increases was realized in 2024, ARPU has resumed growth driven by a higher mix of higher-priced products and large enterprise customers.
• Cloud Operating Systems: Total operating cloud systems grew 13.2% YoY. As of the 2025 March fiscal year, the number of core business cloud systems operating exceeds the number of Oobeya Cloud Edge systems, reflecting the shift toward larger core system cloud adoption.
• Revenue Mix: Over 80% of total revenue is now recurring revenue, with the share of one-time revenue declining gradually. This is expected to reduce annual revenue volatility going forward.
• Contract Retention: A 99%+ annual retention rate (value-based, for recurring revenue contracts) has been maintained consistently, indicating very low churn.

Growth Strategy

OBC is building a full cloud-native SaaS offering on Microsoft Azure, planning for a full transition from on-premises to cloud, aligned with industry shifts driven by digital transformation, regulatory changes, and labor shortages. Key 2026 March fiscal year strategic priorities are:

• Leverage Japanese IT subsidies to drive migration of 110,000 existing Oobeya 11 Series on-premises systems to cloud, split across two phases starting in April 2025
• Full commercial launch of Oobeya V ERP Cloud, with focused investment to scale the cloud business. Oobeya V ERP supports the upcoming mandatory new lease accounting standard (effective April 2027) and includes a new AI-powered consolidated accounting support agent, with low-code/no-code API integration capabilities to connect to third-party systems
• Accelerate digital transformation of peripheral business operations via expanded Oobeya Cloud Edge offerings, including fully automated paperless invoice processing (supporting the international Peppol standard) with AI-powered OCR for data extraction and automatic integration with accounting and payment systems
• Strengthen AI and security capabilities: AI is already integrated across offerings, including deep learning for OCR of handwritten/receipt data, automatic transaction matching and journaling, generative AI chatbot support for product questions, and AI for consolidated accounting. On security, OBC leverages Microsoft Azure's top-tier security, expects to receive ISMAP certification in spring 2025, and maintains 24/7 monitoring and regular vulnerability assessments
• Build out the new BPaaS (BPO + SaaS) business model, developing combined business process outsourcing and cloud service offerings that can serve customers nationwide via cloud-based delivery

Overall total revenue for the 2025 March fiscal year was 46.984 billion yen, up 12% year-over-year. Gross profit was 39.337 billion yen, up 14.5% YoY with an 83.7% gross margin, a 1.8 percentage point improvement driven by a higher mix of higher-margin solution sales. Operating profit was 21.744 billion yen, up 16% YoY, with an operating margin of 46.3%, a 1.6 percentage point improvement. Net income was 16.182 billion yen, up 16.9% YoY.

1. Solutions Total: 27.68 billion yen (58.9% of total revenue)

   • Cloud Solutions: 25.94 billion yen (55.2% of total revenue), up 36.5% YoY
     • Core Business Cloud: +45.6% YoY growth, driven by strong demand for high-value offerings like Oobeya Cloud DX Suite
     • Oobeya Cloud Edge: +21.5% YoY growth, serving peripheral business operations including attendance, My Number management, and payroll distribution
   • On-premises Solutions: down ~40% YoY, following the end of support for the Oobeya 10 Series in December 2024 and the conclusion of pre-end-of-support version-up orders

2. Related Products: 4.19 billion yen (8.9% of total revenue), up 10.6% YoY. Growth was driven by expanding Oobeya-linked third-party solutions, offset partially by a gradual decline in supply product shipments.

3. Services Total: 15.11 billion yen (32.2% of total revenue), down 6.8% YoY

   • On-premises Maintenance: down 2.4% YoY, as on-premises users gradually shift to cloud solutions
   • Other (Installation guidance, etc.): down ~0.8 billion yen YoY, returning to normal levels after a prior-year surge driven by legal change-related special demand for new user guidance

• Revenue: OBC expects a temporary 500-600 million yen decline in full-year revenue for the 2026 March fiscal year, driven by revenue recognition timing changes from accelerated cloud migration: 1 billion yen of on-premises one-time revenue will be lost, but only roughly half or less of that will be recognized as cloud recurring revenue within the fiscal year.
• Profitability: Management targets maintenance of the prior year's operating margin, with a planned operating profit of 24.0 billion yen. Net income is targeted at 17.35 billion yen, an increase of 1.17 billion yen year-over-year.
• Costs: Selling, general and administrative expenses are planned to increase by 1.5 billion yen year-over-year, driven by continued headcount growth, base salary increases, and increased advertising and promotion investment to support cloud migration efforts.
• Dividend: Annual dividend per share is planned to increase from 100 yen to 106 yen, with an interim dividend increase from 50 yen to 53 yen. This aligns with the company's longstanding policy of continuous dividend increases and a ~45% dividend payout ratio, marking the 9th consecutive year of dividend increases.
• On-premises policy: OBC will limit new on-premises product shipments and increase on-premises maintenance prices to further accelerate user migration to cloud.

• Q4 2025 core business system new orders (including version upgrades) declined 25.7% quarter-over-quarter, with SaaS cloud orders down 18.2% QoQ and on-premises orders down more than 50% QoQ. The decline is driven by temporary factors: the post-end-of-support lull for Oobeya 10 Series migrations and temporary buying ahead of 2025 IT subsidy access, and management expects a recovery in the new fiscal year, but a slower-than-expected recovery would negatively impact near-term growth.
• The long-term shift from one-time on-premises revenue to recurring cloud revenue creates temporary downward pressure on near-term top-line growth as revenue is recognized over multiple years, rather than upfront.
• While ongoing cloud migration creates strong growth, it is dependent on customer demand for digital transformation and the continued availability of Japanese government IT subsidies to support migration projects. A reduction or elimination of subsidies could slow migration momentum.

No question-and-answer section was included in the provided transcript.