Nippon RAD Inc. Q4 FY2025 earnings call

• Operational Updates

  • Completed a purpose-driven downsizing and relocation of headquarters from the demolished Kyodo News Hall in Toranomon to Ark Hills, aligned with post-COVID new work models. The new office has improved working conditions, increased in-office attendance, and been well-received for young talent recruiting.
  • Nippon Rad operates as a unique system integrator capable of delivering integrated hardware and software solutions, running on two core business pillars: stable revenue-generating Enterprise Solutions, and DX/IoT Integration for manufacturing that combines accumulated hardware expertise.
  • The IoT Integration segment includes original medical products, large-scale government video solutions, and embedded security licensing.

• Mid-Term Plan First Year Progress

  • All three core mid-term strategic priorities were achieved: talent rotation and forward-investment shifts even with partial revenue conversion; development of a one-of-a-kind platform for manufacturing DX proposals; and resource investment for core technology acquisition and development, including progressed M&A and group expansion initiatives.
  • The first phase operating profit target of 0.3 billion yen with a 7% margin was achieved ahead of schedule, though this included a partial pull-forward of next fiscal year's projects.
  • Manufacturing DX business has maintained a compound annual growth rate over 20% against forecast.
  • The shift from a people-centered to product-centered business model is gaining traction internally and externally. The company has confirmed that deploying accumulated enterprise SI project management and coding capabilities to new product development delivers strong results. Reskilling for core AI product and platform development is ongoing, and this strategic direction will continue in coming periods.

• Rad Ecosystem and Platform Development

  • The company launched its core DataOps automation platform "Dereva" in January 2025, designed as a central data handling hub to build out an ecosystem with external partners. The platform leverages the company's accumulated hardware expertise across IoT, and expected to deliver synergies for medical, embedded, and video solution business lines, aligned with mid-term plan goals.

1. Enterprise Solutions Segment: Revenue grew year-over-year even after accounting for post-COVID concentrated investment concluding, a partial pull-forward of demand from the next fiscal year, and internal resource shifts to DX/AI product development. 2. IoT Integration Segment: Revenue grew more than 20% year-over-year, driven by larger DX/IOT project sizes, successful integration of the low-code business solution development division centered on kintone, accelerated large medical segment projects, and steady growth of the embedded license business. The segment is on track to reach its mid-term plan target of close to 45% of total company revenue.

• Fiscal 2026 (ending March 2026), the second year of the mid-term plan, is positioned as a springboard period for structural reform shifting from people-centered to product-centered business, with projected slightly lower sales and profit than originally planned in the mid-term framework.
• Profit guidance is 20% below the original mid-term plan forecast, to account for further expected personnel cost increases and core talent acquisition expenses for hardware solutions.
• Manufacturing DX business is expected to deliver further strong growth, with increased human and capital resources allocated to expanding solution, product, and platform capabilities.
• The company expects payout ratio to exceed 30% for fiscal 2026, balancing shareholder returns with required R&D investment for new business as an edge technology company.
• The Dereva platform will be rolled out with incremental feature expansion starting as a core DataOps service, with plans to act as a connecting hub across the company's AI, medical, security, and video solution business lines.
• AI product and service development remains the company's top priority, with development ongoing across edge AI product solutions, generative AI enterprise services, and related cloud services.

• Rising personnel and outsourcing costs, particularly for software development, are putting overall profitability under pressure, even though sales growth offset these costs in the 2025 fiscal year.
  • The 2025 fiscal year results include a partial pull-forward of 2026 fiscal year demand, which creates a baseline headwind for next year's results as planned.
  • One-time relocation costs pressured Q3 2025 results, though the relocation was completed with efficient cost controls.

No question and answer section is included in the provided earnings call transcript.