OBIC BUSINESS CONSULTANTS CO.,LTD. Q2 FY2026 earnings call

Core Financial & Operational Metric Highlights

• Annualized Recurring Revenue (ARR) reached 42.5 billion yen at quarter-end, growing 12.3% year-over-year. Cloud ARP grew 2.7x over 3 years from 11.1 billion yen to 30.3 billion yen, while on-premise maintenance ARR has gradually declined as users migrate to cloud.
• Cloud average revenue per user (ARPU) reached 562 thousand yen, up 1.7x over 3 years. Recent ARPU growth is driven by a shift to higher-priced products like Obpyou V ERP Cloud and Obpyou Cloud DX Suite, rather than price changes, and this trend is expected to continue.
• Total cloud active systems grew 13.2% year-over-year to 132,000 units, with 5,000 net new systems added in the most recent quarter (exceeding the prior quarter's net add). Actual Obpyou Cloud Edge growth is understated in reported counts, as bundled Edge solutions in DX Suite are only counted as a single core system.
• Recurring revenue now makes up 83.7% of total revenue, with 3-year average annual recurring revenue growth of 19%. Contract retention remains stable at the 99%+ level, indicating very low churn.
• First half operating profit hit a record 11.16 billion yen, growing 10.4% year-over-year, with an operating margin of 44.8%. Gross margin expanded 0.8 percentage points to 84.5%, driven by product mix improvement and lower outsourcing costs.

Strategic Priorities

• 1. Obpyou 11 Series Up to Cloud: Actively migrating existing ~110,000 on-premise Obpyou 11 systems to cloud, paired with maintenance price adjustments and user engagement initiatives to drive conversion.
• 2. Obpyou V ERP Cloud Expansion: Leverages AI cloud for new lease accounting to drive adoption of Fixed Asset Obpyou V ERP Cloud. Uses low-code/no-code API integration with third-party solutions to deliver "cloud-to-cloud" interoperability without custom development.
• 3. Obpyou Cloud Edge Digital Transformation: Drives digitalization of peripheral business tasks, and is targeting invoicing digitalization aligned with the government's mandatory Peppol specification, which is already natively supported in OBC products. Currently core and peripheral solutions each make up roughly half of cloud sales.
• 4. BPaaS (BPO + SaaS) Strategy: Evolves legacy on-premise BPO to cloud-based BPaaS, enabling collaborative remote work between partner BPO firms and OBC. The offering has strong market traction and already makes up a material share of sales, with growth driven by large enterprise partners.
• 5. AI & Security Enhancement: Deploys two AI models: embedded AI Assistants built into core products (for automated journal entry, OCR receipt processing, generative AI chat support, natural language search, and multi-lingual translation) and standalone AI Agents that integrate with any system (including new lease accounting identification and consolidated intercompany matching). For security, OBC uses a two-layer approach combining Microsoft Azure platform security and OBC application-level security, holds top-tier security certifications including ISMAP registration (the first domestic SaaS ERP to achieve full line ISMAP registration, supporting expansion into the public sector market), and received the top A rating in ASM tool security assessment.

Shareholder Return

• OBC maintains a long-term policy of stable increasing dividends with a target payout ratio of ~45%. The interim dividend has been increased from 50 yen to 53 yen per share this period.

OBC reported total first half 2026 fiscal year revenue of 24.931 billion yen, with the following segment performance:

1. Solutions Segment: Total revenue of 15.215 billion yen, contributing 61% of total revenue. Of this, 14.865 billion yen (97.7% of the segment, 59.6% of total revenue) came from cloud solutions, which grew 21% year-over-year. Cloud solutions are split into:
   • Core Business Cloud: 26.8% year-over-year revenue growth
   • Obpyou Cloud Edge: 10% year-over-year revenue growth On-premise solutions within the segment saw large year-over-year revenue decline, in line with expectations after ending new on-premise shipments in February 2025.
2. Related Products Segment: Revenue of 2.485 billion yen, growing 37.2% year-over-year, contributing 10% of total revenue. Growth was driven by increasing sales of linked solutions and concentrated impacts from IaaS pricing plan revisions.
3. Services Segment: Total revenue of 7.231 billion yen, declining 5.6% year-over-year, contributing 29% of total revenue. On-premise maintenance revenue (the largest sub-segment) declined 4.5% year-over-year, driven by gradual on-premise user migration to cloud solutions. Other services (mostly user training/guidance) saw minor year-over-year revenue decline after elevated demand in the prior year period.

• Management maintains its full year cloud transition target: currently ~50% of shipment volume is cloud-based, and cloud sales have nearly doubled over 3 years. Management expects nearly 100% cloud conversion within the next 3 years, completing the company's full transformation to a cloud-native SaaS business.
• First half results exceeded management's original budget expectations, with on-premise revenue declines meeting forecasted projections, and cloud growth outperforming initial plans.
• Management expects continued ARPU growth from the ongoing shift to higher-priced product mix, with no expected slowdown in this trend.

• No material operational risks or failures were explicitly discussed in the transcript. The primary ongoing structural shift is the decline of on-premise revenue as users migrate to cloud solutions, which is fully expected, planned for, and aligned with management's long-term cloud transition strategy.

The provided transcript does not include a Question and Answer section.