4847.T

Overall Mid-term Issues

The company identified three core strategic challenges:

• Optimizing the development organization and environment to match the growing scale and diversification of payment projects, addressing resource constraints, suboptimal resource allocation, and inefficient cost structures for infrastructure and development environments
• Increasing the added value of payment solutions and expanding into new business areas beyond FEP and fraud detection
• Addressing stagnant growth in the security segment by improving the product appeal of the in-house solution CWAT

Revenue Base Strengthening: Quality Improvement and Productivity Growth

• Following the recent quality issue, the company has conducted company-wide problem analysis, developed and implemented institutional and organizational corrections, and is working to improve review accuracy via AI tools and rebuild employee training programs
• Shifted from project-specific individual infrastructure construction and operation to company-wide aggregation, standardization, and automation. Environment construction for standardized operation is already underway, with ongoing work to improve efficiency of infrastructure and operation for cloud services to boost profitability, alongside cross-company optimization of on-premise development efficiency
• Progressing with the consolidation of DNP's (Dai Nippon Printing) payment system into Intelligent Wave. Currently in the concrete review phase starting with the aggregation of operation business

Payment Solutions: Added Value Improvement and Business Expansion

• Development of a new cloud-enabled version of the core FEP product is complete. End-of-life notifications and migration to the new version have started for existing customers. Migration is scheduled to align with customers' own system renewal timelines, and is expected to take 3 to 5 years to complete. The migration will improve development and operation efficiency, and the company is simultaneously training engineers for on-premise open platform FEP projects and strengthening the development organization
• The company is advancing anti-fraud collaboration between payment service providers: working on integration with DNP's 3D Secure system and strengthening collaboration with JCB's delivery suspension function to improve fraud detection accuracy and reduce operational burden for card issuers
• The company is exploring new combined solutions leveraging its existing cloud-based FEP and acquiring services, building on the shift to cloud-based payment solutions that has simplified collaboration between internal services and with external third-party services, with a goal to launch new services as early as possible to drive revenue growth

Security Segment: Added Value Improvement and Sales Channel Strengthening

• The in-house internal information leakage prevention product CWAT is undergoing product improvements to reduce adoption barriers, including functional segmentation and UI/UX redesign to lower operation burden. A refreshed version is scheduled for launch in July
• Growing demand for CWAT is expected from the perspective of economic security, so the company is working to improve product appeal to expand sales
• In January, the company signed a sales agency agreement with a Philippine IT trading company to start overseas expansion
• The company is transforming its security business model from single-product endpoint sales to a more comprehensive offering: expanding the product lineup to include network security products and building a 24/7/365 security operation monitoring system in collaboration with the company's existing payment system operation team. The company has started offering comprehensive security services to mid-sized enterprises that lack internal security resources, to drive steady growth in the security segment

• The full-year 2026 June fiscal year earnings guidance is maintained unchanged from the initial release, despite ongoing operational challenges
• For the second half of the fiscal year, system renewal projects for major credit card companies are scheduled to start. The company will target further gross profit margin improvement via incremental flow-type development project wins and productivity gains, with the goal of meeting the full-year plan
• The security segment has set a higher target for the second half than it achieved in the first half. The company will strengthen efforts on both quality and volume to deliver early results aligned with its growth strategy
• Interim dividend is maintained as planned at 17 yen per share, and the planned year-end dividend also remains unchanged

By Business Domain

• Payment Segment: Revenue increased, driven by growth in cloud services, FEP system renewal projects for existing customers, and the launch of infrastructure operation services for financial institutions that started in January of the prior year. The segment remained the core growth driver for the company.
• Security Segment: Revenue increased, supported by the deployment of security products to large enterprise clients.

By Product Category

• System Development: Revenue decreased year-on-year as multi-year large-scale projects have entered the wind-down phase. The results still met the pre-planned targets that accounted for this expected decline. System development order intake reached 3.484 billion yen, a slight year-on-year increase, driven by multiple renewal projects from major credit card companies.
• Cloud Services: Revenue increased, driven by growing customer numbers and additional feature adoption from existing clients.
• Third-party Products: Revenue increased due to the recognition of large hardware sales associated with FEP system renewal projects in the second quarter.

Overall Financial Performance

• Total first half revenue: 8.352 billion yen, up 10.8% year-on-year. Excluding the impact of one-time FEP hardware sales, revenue maintained steady growth consistent with the first quarter.
• Operating profit: 0.875 billion yen, up 2.1% year-on-year. Growth was limited by quality response costs for a cloud service client, which pulled down the overall gross profit margin of the entire payment segment (including maintenance). Profit only increased by 18 million yen year-on-year, and missed the initial profit target due to quality response costs, while revenue was nearly in line with plan.
• Total order intake: 7.065 billion yen, down 44.6% year-on-year, as the prior-year period had multiple large multi-year contract projects in cloud services and security. Total order backlog: 19.024 billion yen, down 12.7% year-on-year. Flow-type order backlog increased compared to the second quarter of the 2025 June fiscal year, despite ongoing quality issues. The company has already secured multiple orders for new version FEP migration and multiple large-scale renewal projects in the fraud detection space that will start development in the second half.

• The ongoing quality response work for a strategic cloud-based payment client project has created delays in resolution, depressed gross profit margin in the payment segment, caused profit to miss the first half target, and created opportunity loss for some new order intake
• The quality issue has increased workload on internal teams, created elevated operational load during the launch of new version FEP migration, though no other projects have reported material profit issues to date
• The overall backlog level is still not sufficient to meet the full-year plan, requiring continued focused effort to secure new projects to grow backlog
• The security segment has faced stagnant scale growth and underwhelming product performance for CWAT, which is a core strategic challenge for the business

Q: FEP hardware sales came in above plan. Is this due to early recognition into the first half, or is it driven by larger project size?

A: Both early recognition into the first half and larger project size contributed to the upside. For the second half, the company will properly manage the impact of the first half early recognition and continue to respond to growing project size to meet plan.

Q: Since the quality issue will take until the end of this month to resolve, should we expect the impact to remain on the third quarter results?

A: It is correct that the impact will remain into the third quarter. However, the project is in the final stage, and service launch is planned for this month (earlier than the end of the month). While there will still be some limited impact on the third quarter, it will not materially affect overall results. All core technical work is already complete, resource reallocation for new business development and other projects is already progressing, and the company expects to see improvement in gross profit margin going forward.

Q: FEP is traditionally dominated by on-premise deployments. What is the current status of customer adoption of cloud-based FEP, and what is your outlook?

A: The company offers FEP in a hybrid on-premise/cloud model to meet customer needs. The company has already secured multiple orders by capturing demand for cloud-enabled and open-platform FEP. At the same time, demand for on-premise hardware renewal remains steady, driven by concerns over cloud quality and pricing. The company will continue to support both deployment models. Leveraging its core strength in FEP, the company will deliver customer value via a full range of options, and pursue new value creation via cloud-based FEP, including new feature delivery and easier collaboration with other services.

Q: Can you share more details on the plan to consolidate DNP's payment system into your company?

A: DNP also provides payment services, with a payment system infrastructure similar to the company's. From the perspective of improving efficiency for the entire DNP Group, the company has started the process by first consolidating DNP's payment operation business, which is the company's area of expertise. The company will proceed with the work while keeping the potential for full consolidation of DNP's entire payment business into Intelligent Wave in the longer term, as part of DNP Group's efforts to improve productivity and profitability in the payment service space.

Q: Can you share more details on the overseas expansion of CWAT, including your sales targets, demand outlook, and go-to-market plans?

A: The company will base its overseas security expansion on the in-house product CWAT. Currently, the business is in the market exploration phase. After prior progress in Taiwan, the company has confirmed meaningful demand for internal information leakage prevention products in the Philippines. The company will not expand independently, instead partnering with leading local IT service providers, trading companies, and security firms to expand distribution and deliver customer value. The company will pursue both standalone sales and integration of CWAT functionality into partner services as potential models. The Philippines is on track for meaningful near-term progress, as the framework for training local technical support staff is nearly complete. The company will first establish a strong foothold in the Philippine market, then use that success as a basis to expand into other Southeast Asian countries.