OBIC BUSINESS CONSULTANTS CO.,LTD. Q3 FY2026 earnings call

Key Operational and Financial Highlights

• Continued growth in core cloud metrics:
  • Cloud ARPU increased 10% year-over-year to 573,000 yen, growing 1.75x over 3.5 years. Growth is driven by increasing share of high-priced products such as Bugyo V ERP Cloud and Bugyo Cloud DX Suite, and this upward trend is expected to continue.
  • Recurring revenue ratio rose to 83.9% year-over-year, with recurring revenue now accounting for approximately 84% of total revenue, and achieved a 19% average annual growth rate over the past 3 years.
  • Unearned revenue balance reached over 33.2 billion yen, a 0.9 billion yen year-over-year increase. The 1-year contract portion increased 2.9 billion yen year-over-year, indicating strengthening recent order intake. The decline in long-term (over 2-year) contracts stems from a deliberate policy change to reserve future growth room from price adjustments, and does not represent an actual decline in orders.
  • Contract renewal rate remains stable in the 99% range, with an annual average value-based monthly churn rate below 1%, demonstrating high customer retention.
• Profitability performance:
  • 9-month cumulative gross margin increased 1.2 percentage points year-over-year to 84.7%, driven by sales mix improvement (higher share of high-margin solution sales) and reduced outsourcing costs for instructor training.
  • 9-month cumulative operating income reached a record high of 17.27 billion yen, an 8.5% year-over-year increase, with an operating margin of 45.6%. Net income reached 12.561 billion yen, a 7.2% year-over-year increase.
  • Selling, general and administrative expenses (SG&A) increased 1.689 billion yen year-over-year to 14.818 billion yen. Increases are driven by headcount growth from 104 new graduate hires, salary increases, strategic expansion of advertising for brand penetration, headquarter floor expansion, and higher business activity-related expenses.
• Product strategy:
  • New on-premise product shipments have been fundamentally ended, with ongoing migration of existing on-premise users to cloud solutions, which shifts revenue from on-premise maintenance ARR to cloud usage ARR.
  • Bugyo Cloud DX Suite, a bundled package of core systems and multiple Edge solutions, counts as 1 core cloud system in operating volume statistics, so actual Bugyo Cloud Edge operating volume growth is understated in reported figures.
• Cloud security positioning:
  • OBC positions Bugyo Cloud built on Microsoft Azure PaaS as the optimal security solution against rising ransomware and cyberattack risks. The platform uses privilege separation design: system administrator privileges for the database are managed by Microsoft Azure and physically isolated from both users and OBC, blocking common ransomware attack vectors. The platform also automatically updates to the latest environment, eliminating vulnerability risks from unupdated system components.
• Shareholder return:
  • OBC has never cut dividends since its founding, and follows a policy of gradually increasing payout ratio while maintaining stable long-term shareholder returns.
  • The company announced an increase in year-end dividend from 53 yen to 58 yen per share, bringing full-year annual dividend to 111 yen per share, an 11 yen increase from the prior year. The projected full-year payout ratio is 48%, aligned with the target of approximately 45% payout ratio. OBC aims to continue stable long-term returns and increase dividends in line with profit growth.

Total 9-month cumulative revenue for the third quarter is 37.877 billion yen, a 9% year-over-year increase. Breakdown by product segment:

1. Solutions segment: Total revenue of 23.399 billion yen, accounting for 61.8% of total revenue.
   • Cloud Solutions: Revenue of 22.883 billion yen, a 20.7% year-over-year increase, accounting for 97.8% of the Solutions segment and 60.4% of total revenue.
     • Core Business Cloud: 26.2% year-over-year revenue growth, driven by accelerating growth of high-value offerings for mid-sized listed companies.
     • Bugyo Cloud Edge: 9.9% year-over-year revenue growth, focused on peripheral business workflows.
   • On-premise Solutions: Sharp year-over-year revenue decline due to the end of new on-premise product shipments in February 2025, in line with original budget expectations.
2. Related Products segment: Revenue of 3.602 billion yen, a nearly 22% year-over-year increase, accounting for 9.5% of total revenue, driven by growth in Bugyo-linked solutions and concentrated impact of IaaS environment setup price plan revisions in the first half.
3. Services segment: Total revenue of 10.874 billion yen, a 4.7% year-over-year decrease, accounting for 28.7% of total revenue.
   • On-premise Maintenance: 4.1% year-over-year revenue decline, driven by gradual on-premise user migration to cloud solutions.
   • Other Services: Slight year-over-year revenue decline due to normalization of operations after digesting a backlog of instruction orders from the prior period's special demand.

Annual recurring revenue (ARR) as of the third quarter end reached 44.2 billion yen, a 12% year-over-year increase. Cloud ARR reached 32.2 billion yen, growing 2.9x over 3.5 years, while total ARR grew 1.8x over the same period. On-premise maintenance ARR has declined gradually due to cloud migration. Cloud operating systems increased 16,000 units year-over-year to 137,000 units, a 14% year-over-year increase.

The provided transcript does not include explicit full-year financial guidance revision or maintenance statements, but notes the following forward-looking expectations:

• The continued shift in sales mix toward higher-margin cloud products is expected to sustain gross margin improvement.
• The upward trend in cloud ARPU driven by increasing share of high-priced cloud products is expected to continue.
• Ongoing migration of existing on-premise users to cloud solutions will continue to reallocate recurring revenue from on-premise maintenance to cloud usage revenue, supporting long-term recurring revenue growth.

• Cyber security risk: Rising frequency of ransomware attacks and phishing incidents pose operational continuity risks for businesses across all sizes, and management failure to implement adequate security measures can lead to claims of breach of fiduciary duty for corporate management. OBC mitigates this risk for customers via the PaaS-based privileged separation architecture of Bugyo Cloud.
• On-premise revenue decline: Gradual migration of existing on-premise users to cloud solutions is expected to continue driving gradual declines in on-premise maintenance revenue, which is already factored into the company's strategic plan and budget expectations.

The provided transcript does not include any question and answer exchange content.