Business Engineering Corporation Q3 FY2026 earnings call

Overall Financial Performance

• Both the third quarter and cumulative nine-month period achieved consecutive record-high results, with revenue growing 21.8% year-over-year to 18.579 billion yen, operating profit growing 40.3% year-over-year to 5.137 billion yen, and net profit growing 48.1% year-over-year to 3.699 billion yen. Both business segments achieved high levels of revenue and profit.
• Order backlog grew 10+% year-over-year for both 3Q and the cumulative period, with strong overall growth. Progress against the revised full-year guidance is on track: 76.5% of full-year revenue target and 80.3% of full-year operating profit target have been achieved through 3Q.
• Sales growth drove profit expansion; even after absorbing increased costs from the newly launched employee stock compensation program starting in 3Q, gross profit margin improved for both 3Q and the cumulative period.

Segment Operational Updates

• Solution Business: Some large projects entered full operation in 3Q. The company strengthened its solution delivery system to support digital transformation for pharmaceutical manufacturing in the global market. It has maintained high sales levels from Q1 through Q3, and even after accounting for performance-linked bonus impacts in Q2, it still retains a profit margin above 30%.
• Product Business: The SaaS-based mcframe X has entered full operation, and progress toward partner expansion is steady. High sales levels in 3Q were partially driven by revenue pulled forward from 4Q.

Balance Sheet Highlights

• Total assets reached approximately 20 billion yen, and net assets reached approximately 15 billion yen, representing a more than 10% increase from the end of the prior fiscal year. The temporary decrease in fixed assets is driven by larger reductions from policy-owned share sales than the increase in intangible fixed assets (software) from product development investment, and this is a one-time change limited to the current fiscal year.

Long-term Strategic Targets

• The company set long-term targets of 33 billion yen in revenue and 10 billion yen in operating profit by FY2030, and the current fiscal year (the first year of this plan) has gotten off to a strong start that exceeds initial expectations.

Position on AI Adoption

• Management does not believe ERP and business applications will be replaced by AI; instead, the company plans to evolve by integrating and coexisting with AI, for three core reasons:
  • ERP and business applications require strict accuracy and high processing speed (for example, accounting systems that ensure financial statement reliability, MRP that generates rapid production plans for large part inventories), requiring complex, structured architectures that AI cannot fully replace.
  • The company's software is industry and operation-specific, requiring built-in knowledge of unique industry characteristics (for example, support for on-site improvement practices in automotive, and compliance with strict quality assurance processes in pharmaceuticals) that generic AI does not possess.
  • The software supports on-site physical work processes, requiring integration with real-world operational activities that cannot be fully replicated by standalone AI.
• Management confirms that guaranteeing software accountability, consistency, and maintenance will grow in importance going forward, and the company will continue integrating AI technology into its offerings.

For the third quarter (3Q) of FY2026 March: 1. Solution Business: Revenue grew 20+% year-over-year, maintained a profit margin above 30%. Cumulative operating profit through 3Q grew just under 40% year-over-year. It accounts for 63.3% of total full-year projected revenue at the revised guidance. 2. Product Business: Revenue grew 20+% year-over-year in 3Q, with 3Q operating profit growing 47% year-over-year and cumulative operating profit through 3Q growing 24% year-over-year. It has maintained a stable profit margin of roughly 40%. mcframe license sales reached 1.624 billion yen in 3Q, with cumulative growth of 26.5% year-over-year. Product Business accounts for 34.6% of total full-year projected revenue at the revised guidance, and mcframe license sales account for 25.1% of total full-year projected revenue.

• Overall full-year guidance upward revision: Full-year revenue is revised up by 0.3 billion yen to 24.3 billion yen, operating profit is revised up by 0.4 billion yen to 6.4 billion yen, and net profit is revised up by 0.4 billion yen to 4.8 billion yen. Gross profit is also revised up by 0.4 billion yen from the prior forecast, and total order backlog is revised up by 0.2 billion yen to 24.5 billion yen. ROE is now projected at 32.5%, an improvement of 2.7 percentage points from the prior forecast.
• Segment-specific guidance adjustments: The Solution Business full-year revenue forecast is maintained at 15.4 billion yen, representing 17.1% year-over-year growth; the Product Business full-year revenue forecast is revised up by 0.3 billion yen to 8.4 billion yen, representing 18.6% year-over-year growth. mcframe license sales full-year forecast is revised up by 0.1 billion yen to 6.1 billion yen, representing 19.1% year-over-year growth (exceeding the prior year's 17.3% growth rate).
• Compared to the initial beginning-of-year forecast, the Solution Business was already revised up by 10% in the prior forecast update, and the Product Business is now 10.5% above the initial beginning-of-year forecast after this revision, with both segments seeing large upward adjustments from initial projections.
• The company expects Solution Business sales to moderate in 4Q after the completion of large project go-lives in 3Q, as the business reallocates staff to growth-focused activities for future periods. Product Business sales in 4Q will moderate after pulling some license sales forward to 3Q, with many ongoing inquiries expected to close in the first quarter of the next fiscal year.
• Dividend guidance upward revision: Following the policy of maintaining a payout ratio above 50%, the full-year dividend per share is increased by 4 yen to 41.6 yen (after stock split adjustment), representing an 11th consecutive year of dividend increases. The projected payout ratio is 51.8%, which is more than double the 20 yen per share dividend paid last year.

No material risks or operational failures were discussed in the provided transcript.

Q: The projected 4Q performance level looks low compared to the cumulative results through 3Q. Does this reflect any negative underlying factors?

A: There are no negative factors driving the lower projected 4Q performance. The moderation is driven by two structural factors: (1) For the Solution Business, large projects completed their go-live and reached a natural milestone in 3Q, so sales will moderate, and the company is reallocating project staff to future-focused activities such as employee training during 4Q. (2) For the Product Business, some license sales originally planned for 4Q were pulled forward to 3Q, and while there are many active inquiries, a large number are expected to close in 1Q of the next fiscal year. This does not represent a continuing downward trend.

Q: Progress against the 2030 long-term target is very strong this year. Does this mean this year's results are overly strong, and growth will slow next year, or can you achieve the target ahead of schedule?

A: While this year has seen stronger-than-expected performance, management does not expect this current pace to continue in a straight line, but still aims to deliver continued growth in next year and beyond. Since this is only the first year of the 2030 target period, full forecasts for all remaining years are not yet finalized, so the 2030 target will remain unchanged. However, management will aim to outperform the original average growth trajectory instead of aligning with the original plan, and at a minimum, plans to deliver further growth next year.

Q: Does AI technology such as AI-driven development bring positive benefits such as productivity improvements?

A: AI is already used internally and externally, and is delivering clear positive benefits. Internally, AI is used to create initial development drafts, which improves development process productivity. The company also integrates AI functionality into its own products and services to improve customer convenience.

Q: In the full-year guidance revision, operating profit was revised up by 0.4 billion yen and net profit was also revised up by the same 0.4 billion yen. Does this mean you are expecting special gains in 4Q?

A: The equal upward adjustment is not due to special gains. It reflects higher-than-expected tax deductions from the wage increase promotion tax cut, which reduces overall tax burden and pushes up net income by the same amount as the operating profit upgrade.

Q: What is the goal of the additional capital contribution to Tokai Soft, and why is the ownership stake kept below 5%?

A: The goal is to strengthen collaboration in the MES (Manufacturing Execution System) space within the Solution Business. The company wanted to more firmly secure Tokai Soft's resources to grow this business. The ownership stake ended up just below 5% as a result of the transfer from existing shareholders, after negotiating for a target stake around 5%.

Q: Is it correct to say that MES has grown to become the second-largest segment after SAP ERP in the Solution Business, and can this space continue to deliver strong growth?

A: That understanding is correct. The company refers to this space as supply chain execution, which includes MES, and it is now the second-largest solution area after ERP, with a growing solution scale. The company expects continued strong growth in this space, and specifically expects the Apriso product business to grow with the support of Tokai Soft following this capital contribution.