DreamArts Corporation Q4 FY2024 earnings call

• Strategic Market Positioning

• The company targets the "Big Donuts (BD)" market: the rapidly expanding DX area surrounding core mission-critical ERP systems at large Japanese enterprises, focusing on enabling "digital democratization" where non-IT business teams can build their own workflow systems via no-code tools.
• SmartDB is positioned as a low learning-cost, fully no-code tool capable of handling complex large enterprise requirements, differentiated from legacy SIer development models and foreign low-code vendors focused on IT-led development.

• Product and Growth Milestones

• Secured two major large enterprise client wins in H2 2024: MS&AD Gran Assistance (information platform for ~6,000 group companies) and Tokyu Corporation (approval and legal consultation workflow for 2,000 headquarters employees), both high-visibility reference cases for future upselling.
• Launched the Global Connect initiative to support Japanese large enterprises with overseas digital transformation, adding features including AI-powered multi-language translation for over 20 languages, global regulatory compliance check tools, gate-based granular access control, and ongoing development of 24/7 non-stop operation support.
• SmartDB certified user count grew to 1,735 total by end-2024 (now approaching 2,000), 71% of certifiers are from client enterprises, with growing female participation. Hosted the 20th anniversary user event, with another large user community event (Sumadebi Jamboree) scheduled for July 2025 to build user momentum.
• The SmartDB Certified Partner Program has grown in partner count as expected, though partner-led revenue has not yet seen large-scale growth, with more time needed for partners to build digital democratization-focused capabilities. MyNumber adoption is expected to drive new demand that will benefit the expanded partner network.

• Business Model Advantages

• The pricing model supports easy upselling to increase average customer value: starting from base monthly fees and expanding via added users and options, leading to long customer lifetimes (often over 10 years for MCSA area deployments, with the longest client tenure at 20 years). While the traditional small-start, large-grow adoption pattern continues, enterprise-wide and group-wide deployment cases are growing rapidly.

1. Cloud Business: Revenue grew 24.4% year-over-year, nearly reached the upward revised target. Operating profit grew 33.9% year-over-year, as infrastructure cost increases were controlled via engineering optimization. It accounts for 77.3% of total stock revenue, contributing to 88% of overall stock revenue for the company.
2. Horizontal SaaS: Revenue grew 30.7% year-over-year, net retention rate (NRR) hit a strong 117.5%. SmartDB, the core growth driver, accounts for 81.9% of horizontal SaaS revenue. Average monthly revenue per account (ARPA) maintained an upward trend at 1.669 million yen.
3. On-premise Business: Revenue is expected to decline as the company pushes migration to pure cloud versions of its products as part of its "pruning strategy".
4. Professional Services Business: Currently constrained by limited headcount, so near-term revenue growth is limited, but it is positioned as a key long-term driver for increasing customer lifetime value.

• For 2025 December fiscal year, cloud business revenue is guided to increase by 0.6 billion yen year-over-year (16% growth), with operating profit planned to remain flat year-over-year as the company allocates all incremental revenue to growth investment. The guidance already incorporates expected customer churn from the ongoing pruning strategy. • The company targets to reach ~90% stock revenue share, with over 80% of stock revenue coming from cloud business by end of 2025, which will mark a milestone completion for the pruning strategy. • The two core areas for 2025 growth investment are: 1) Expanded headcount across all functions (sales, marketing, R&D, engineering, back office) with company-wide prioritization of recruiting; 2) Testing and validating advertising and promotion activities as a pre-cursor to larger investment in 2026, to address the company's still low brand awareness among large enterprises. • 2025 is positioned as the final preparation year for a key growth push in 2026, focused on re-building the business foundation to enable non-continuous growth. The company plans to release a full detailed mid-term growth strategy including M&A consideration in 2025. • 40 new client deployments of SmartDB are targeted for 2025, nearly double the 21 new clients acquired in the prior year.

• The company has low current brand awareness among large Japanese enterprises, leaving many potential matching customer segments unreached, which constrains growth. It will take multi-year investment to close this awareness gap. • Partner-led revenue growth is taking longer than expected, as partners need time to transform their capabilities to support digital democratization and no-code deployment models. • Expected legacy on-premise system churn will continue in 2025, with material planned churn from decades-old systems reaching end-of-life already incorporated into guidance. This large churn wave is expected to end after 2025, with no expected large churn of pure cloud SmartDB. • Recruiting high-quality aligned talent has become increasingly challenging in the current market environment.

Q: What future priority option areas and differentiation points does SmartDB have? / A: Management outlines three priority option development areas. First, security options will be further strengthened to keep up with evolving threats, as SmartDB increasingly handles high-sensitivity enterprise data. Second, additional Global Connect-focused options will be added to support Japanese enterprises' overseas operations. Third, practical AI-powered options will be launched. The company avoids non-useful "showcase AI" and prioritizes practical, business-focused AI integrations that combine SmartDB's existing capabilities with AI to amplify value, with products launching in 2025.

Q: What is Dream Arts' approach to overseas expansion? / A: Management states the company does not plan to target overseas-based enterprises for the foreseeable future. The large untapped potential of the domestic Japanese large enterprise market means expanding overseas to markets with different cultural backgrounds is inefficient. Instead, the company will focus exclusively on supporting the overseas digital operations of Japanese large enterprises already expanding abroad via its Global Connect initiative, accompanying Japanese firms' global growth.

Q: Why is the current 16% cloud growth guidance conservative given high NRR and a target of 40 new clients? Is this a bottom-line target? / A: Management explains new client wins are accumulated gradually across quarters, and the plan already incorporates a certain level of expected churn. At the start of the fiscal year, some client wins are already confirmed, with the first half planned with visible upside, while the second half reflects a realistic win rate. It is not set as an absolute minimum floor, but a realistic planning assumption for the full year.

Q: How does Dream Arts view non-continuous growth, and why are current investments the foundation for this? / A: Management explains that the company currently relies on a pull-based sales model, which lets less experienced sales staff handle large enterprise deals, but low brand awareness means many potential matching potential clients are unreached. Closing this reach gap in the large untapped Big Donuts market will enable non-continuous growth, so 2025-2026 investment in recruiting and brand awareness is the required foundation to unlock this step-change growth.

Q: What is the competitive landscape for SmartDB, and what is the company's strategy to compete? / A: Smaller cases see competition from domestic small and medium-focused no-code tools, while the enterprise area competes indirectly with players like ServiceNow, but direct competition for cases is rare. The key competitive strategy is to build awareness of the digital democratization model, showing how non-IT teams can lead their own DX in the MCSA area. The company will focus on its core strength: large enterprise complex use cases requiring high security and large data handling, rather than competing in the small and medium business segment.