Japan Business Systems,Inc. Q2 FY2025 earnings call

Market Environment and Customer Trends

• Strong enterprise IT demand persists, centered on cloud-based digital transformation; Microsoft 365-based communication infrastructure projects have largely saturated the market, with the fastest growing demand now coming from other digital transformation use cases across core business operations.
• Customer demand for generative AI integration into business operations has grown sharply, and the company has accumulated substantial experience delivering Microsoft-based generative AI projects over the past two years, with delivery capabilities now fully established.

Organizational and Operational Progress

• The company implemented customer-specific integrated sales and delivery teams two years ago, which has driven successful deep penetration of existing enterprise clients, with both the number of projects and average project size growing, leading to record first half revenue and profit.
• New product development: The company has started developing Sales AIgent, an AI agent focused on supporting end-to-end sales activities from pre- to post-negotiation, targeting a fall 2025 launch. The service received strong interest at a recent AI expo, with numerous customer inquiries already received.
• Hiring and人才 expansion is progressing on plan for both new graduate and experienced hires, with continued investment in skill development.

Updated Strategic Direction

• The current mid-term plan successfully expanded the company's enterprise customer base via license sales, growing the business across all areas centered on cloud and generative AI. The next phase of strategy will shift to deepening penetration of the existing customer base to grow high-margin service revenue, rather than prioritizing new customer acquisition.
• Growth will be centered on expanding profit in the IT infrastructure space first, with expansion into multi-cloud capabilities (beyond Microsoft) to meet broader client demand, while building foundational capabilities in high-margin business solutions including application development, core business systems, and Data & AI for longer-term growth.
• The company will continue pursuing targeted M&A in the application development space, as well as strategic partnerships and external resource collaboration to expand capacity to meet customer demand.

1. Cloud Integration Business: This segment was the primary contributor to first half growth, driven by deepened client penetration from integrated sales-delivery teams, increased engineer unit prices to offset rising labor costs, and resolution of prior-period delayed large project cost overhangs. Segment revenue is included in the total 62.6 billion yen consolidated first half sales, with significantly improved profitability as cost adjustments for prior delayed projects were recognized in the period, and subsidiary Nextscape returned to stable operations after its prior long-drawn project issues stabilized. For the full year, the segment is guided to 28.0 billion yen in revenue and 5.1 billion yen in segment profit. It accounts for approximately 17% of total full-year guided revenue. 2. Cloud Service Business: This recurring stock business grew steadily, expanding service scope for existing clients and acquiring new incremental projects from the customer base built by the other two segments. For the full year, the segment is guided to 22.0 billion yen in revenue and 3.0 billion yen in segment profit, accounting for approximately 13% of total full-year guided revenue. 3. License & Products Business: This segment consists of Microsoft cloud licenses and product resale. Microsoft cloud license sales were flat year-over-year in the first half, following strong growth in prior periods as the business enters a phase of deepening client relationships rather than expanding new client reach. Product resale grew strongly in the first half, driven by multiple large orders, especially in public sector projects. For the full year, the segment is guided to 115.0 billion yen in revenue and 3.0 billion yen in segment profit, accounting for approximately 70% of total full-year guided revenue.

• Full year 2025 September term consolidated guidance has been upwardly revised across all metrics:
  • Revenue revised from 150.0 billion yen to 165.0 billion yen, a 10% upward increase
  • Operating profit revised from 5.7 billion yen to 7.5 billion yen, a 31% upward increase
  • Ordinary profit revised from 5.5 billion yen to 7.3 billion yen, a 32% upward increase
  • Net income attributable to parent shareholders revised from 3.7 billion yen to 5.0 billion yen, a 35% upward increase
• Full year segment guidance has been updated to 28.0 billion yen revenue / 5.1 billion yen profit for Cloud Integration, 22.0 billion yen revenue / 3.0 billion yen profit for Cloud Services, and 115.0 billion yen revenue / 3.0 billion yen profit for License & Products, with 3.6 billion yen in planned corporate overhead.
• Dividend guidance is maintained at 35 yen per share full year (18 yen per share final dividend), continuing the company's policy of stable dividends.
• A full updated mid-term strategic plan with quantified targets and KPIs is scheduled for disclosure alongside full year earnings in November.

• Persistent domestic IT industry talent shortage remains a key risk, particularly for scaling project manager capacity, which cannot be solved quickly despite heavy ongoing investment in training and hiring; generative AI is not expected to create a major paradigm shift that eases talent constraints in the near term.
• Recent industry consolidation among IT vendors and system integrators has created uncertainty, as supplier and competitor strategies are shifting, making competitive market conditions harder to forecast.
• The company has delayed updating its formal quantified mid-term strategic plan due to ongoing market uncertainty, and the lack of near-term published guidance has created investor uncertainty about long-term targets.

Q: Management has shared qualitative strategy direction, but a formal quantified mid-term plan is not coming until November, meaning the company has gone two years without published targets. Can the company provide even preliminary numeric guidance earlier than November? / A: Management acknowledges the lack of updated quantitative targets since pulling prior mid-term goals one year ago. Management is taking additional time to carefully assess ongoing market environment changes to set stable, achievable targets, and wants to avoid publishing incomplete or provisional targets that will need immediate revision. The company is working to release quantified targets as soon as possible, and asks for investor understanding of the careful approach to planning.