OBIC BUSINESS CONSULTANTS CO.,LTD. Q1 FY2026 earnings call

• Core Growth Metrics

  • Annual Recurring Revenue (ARR) reached 41.6 billion yen at quarter-end, up 13.5% YoY, with total ARR growing ~1.7x over the past 3 years from 24.4 billion yen. Cloud ARR grew to 29.3 billion yen (up 2.6x over 3 years, 22% YoY overall growth) while on-premise maintenance ARR has gradually declined due to cloud migration.
  • Cloud ARPU (average annual revenue per customer) rose to 546 thousand yen, up from 327 thousand yen 3 years ago (~1.7x growth). After a temporary stagnation following the full absorption of 2023 price increase effects, ARPU resumed growth driven by higher sales of high-priced products and a shift to customers with more licenses.
  • Total active cloud systems grew 13.1% net YoY to 127,000 units, with a quarterly net increase of 4,000 units that exceeded the prior quarter's gain. Actual growth of Bugyo Cloud Edge systems is understated because bundled Edge solutions in Bugyo Cloud DX Suite are not counted separately.
  • Continuation rate for recurring revenue rose to ~85%, with dollar-based contract renewal rate stable in the 99% range (average monthly churn below 1%).

• Profitability

  • Total quarterly revenue: 12.15 billion yen, up 8.2% YoY, in line with budget.
  • Gross profit: 10.337 billion yen, up 10.6% YoY, with gross margin improving 1.8pp to 85.1% driven by product mix shift to higher-margin cloud solutions and lower outsourced instruction costs.
  • Operating profit: 5.57 billion yen (record high for a first quarter), up 7.5% YoY, with an operating margin of 45.8%. Net profit: 4.073 billion yen, up 2.9% YoY.
  • Selling, general and administrative (SG&A) expenses totaled 4.766 billion yen, up ~0.6 billion yen YoY, driven by headcount growth from 104 new graduate hires, salary increases, overtime rate adjustments, and higher facility costs from headquarter expansion.

• Business Model Transition

  • 85% of total revenue is now recurring revenue, which has grown at a 19.1% compound annual average over the past 3 years. One-time revenue volume and share will continue to shrink gradually, reducing annual earnings volatility.
  • Unearned revenue balance stood at just over 31.1 billion yen, flat YoY. The decline in long-term (over 2-year) contract balances reflects a policy change to eliminate long-term contracts in principle, which does not represent an actual reduction in future revenue.

1. Solutions segment: Total revenue 7.462 billion yen, accounting for 61.4% of total quarterly revenue. Of this:

• Cloud Solutions: 7.273 billion yen (59.9% of total revenue), up 21.7% year-over-year (YoY). Broken into:
  • Core Business Cloud: up 27.9% YoY
  • Bugyo Cloud Edge: up 10.3% YoY
• On-premise Products: Less than 0.2 billion yen, one-third of YoY levels, in line with budget after OBC ended new on-premise shipments in principle at the end of February 2025.

1. Related Products segment: Total revenue 1.168 billion yen (9.6% of total revenue), up over 22% YoY, driven by pull-forward demand ahead of a June 2025 price increase for supply products.

2. Services segment: Total revenue 3.519 billion yen (29.0% of total revenue), down 6.4% YoY. Of this:

• On-premise Maintenance: down 2.3% YoY, as existing on-premise users gradually migrate to cloud solutions
• Other (instruction/guidance services): Revenue in the 500 million yen range, down from a YoY high driven by special demand and backlog digestion in the year-ago quarter.

• No explicit quarterly or full-year numeric guidance was provided in the first quarter earnings call.
• Management expects continued ARPU growth from the ongoing mix shift toward high-priced cloud products and larger multi-license customers.
• Management expects the share of recurring revenue to continue increasing, and on-premise product revenue to continue declining, in line with the completed transition away from new on-premise shipments.
• The earnings release reference notes that management plans to maintain the current operating margin level for the full fiscal year and plans an increase in annual dividend to 106 yen per share.

• No explicit material operational or financial risks were discussed in the first quarter earnings call.
• The only ongoing gradual headwind is the natural decline in on-premise maintenance revenue as users migrate to cloud solutions, a shift that is planned and expected by management.

The provided transcript does not include a question and answer section, so there are no exchanges to summarize.