Nihon Knowledge Co,Ltd. Q3 FY2026 earnings call

• Company Background and Milestones

  • Nihon Knowledge held its IPO in March 2023, and has executed a people-focused investment strategy from fiscal 2024 through fiscal 2026 ending March 2026. Employee count grew from 377 as of April 1, 2023 to over 500 as of April 1, 2026, representing significant growth even if it did not meet the original headcount target. The company celebrated its 40th anniversary in October 2025.
  • Mid-term management plan vision: Build the foundation to achieve the long-term goal of becoming a 10 billion yen revenue company, with the core mission of becoming a leading company for software quality improvement that stays ahead of customer changes, enabled by full AI integration.
  • Three core concepts for the mid-term plan: 1) Leverage development business strengths to provide end-to-end services from upstream to downstream of projects, rather than only accepting standalone testing contracts; 2) Full, thorough integration of AI across all operations; 3) Build an AI-powered scalable business model that can grow even amid ongoing IT talent shortages.

• Four Key Strategic Priorities

  • AI Consulting Strategy: A service that partners with companies looking to adopt AI but struggling with successful in-house implementation, to deliver better-than-expected outcomes. The offering provides end-to-end support from internal governance setup and user training at the AI adoption stage through to full practical implementation, solves common AI quality-related challenges, and accelerates adoption of AI-driven development and AI-era quality management/assurance, continuing to provide support aligned with international standards.
  • AI Testing Tool Strategy: Build on the company's existing test automation work by integrating AI to further improve test accuracy and execution speed to better serve customers. The protocol version of the AI-powered test automation tool digitest is already complete, and the company will continue aggressive development investment to keep pace with the extremely rapid evolution of AI environments. The tool differentiates from competitor offerings by combining the company's proprietary FaRSeT-# know-how with AI to enable prediction-based exploratory test automation, delivering a next-generation test automation foundation that balances both accuracy and speed.
  • Human Resource Development Strategy: The company's historical top priority strategy, which includes the elder mentoring system (where second and third-year employees provide one-on-one guidance to new first-year hires) and other proprietary development programs. The company will add enhanced AI utilization training to its existing technical education curriculum to upskill the workforce.
  • Regional Strategy: Centers the strategy on regional economic revitalization and local talent development, a core differentiator for the company. The company already has an established track record of collaboration with Shimosuwa Town in Nagano Prefecture, including joint initiatives for local workforce development.

• Core Segment Strategic Initiatives

  • Verification Service Business: While low-skill manual testing is expected to decline, the company will leverage its accumulated verification expertise and AI integration to support development of highly reliable systems that underpin modern society, and will address the major industry-wide challenge of quality verification for AI-generated code.
  • Development Service Business: Expand social infrastructure system development to serve a broad range of industries beyond traditional steel and lumber, and grow new high-margin offerings including exhibition services and security services. Key sub-initiatives include: 1) Continue expanding target industries for the core ERP solution business; 2) Develop packaged exhibition service software to enable end-to-end service from web promotion to attendee registration and data analysis; 3) Expand provision of traditional security products and solutions.

• Financial Strategy and Core Competitive Strengths

  • Financial strategy: To build a solid financial foundation for the 10 billion yen revenue goal, the company will actively pursue investment in AI test tool development and M&A, ensure consistent dividend shareholder returns, and will consider capital increases for required funding. Planned allocation of raised capital is 1.1 billion yen for accelerating AI adoption and 600 million yen for M&A investment for balance sheet growth.
  • Four core competitive strengths to support plan delivery: 1) A large workforce of highly skilled engineers, with accumulated organizational knowledge leveraged via AI; the company filed 3 patents last year (1 from industry-university collaboration with Tsukuba University, 2 in-house), which are expected to drive future revenue growth. 2) Rich talent development content and proven early workforce conversion methods to bring new hires up to speed quickly. 3) A large number of international standard experts and certified audit personnel; a CS division employee recently obtained ISO27001 certification auditor qualification, enabling stable support for AI utilization governance aligned with the latest risk research and global security standards including NIST and CISA. 4) Proprietary AI-powered test automation tool digitest, a unique offering that combines the company's development and testing business expertise, which most pure-play testing firms cannot develop independently.

• Sustainability and Governance

  • The company conducts regional contribution activities aligned with its regional strategy, including short-term intensive ICT workforce training in partnership with the Shimosuwa Chamber of Commerce and Shimosuwa Town, and popular drone programming体验 workshops to support local IT club activities, to jointly support sustainable regional communities and development of future talent. The company continues to prioritize SDG initiatives.
  • The company actively strengthens governance, including moving to a majority of outside board directors to improve corporate health.

For the third quarter ended December 2025 (the first quarter of consolidated reporting following the full acquisition of Altex Inc.), consolidated net sales totaled 3.314 billion yen, with an operating loss of 31 million yen and a net loss of 34 million yen. For the full fiscal year 2026 ending March 2026, consolidated net sales are projected at 4.69 billion yen, operating profit at 92 million yen, and net profit at 70 million yen. For the mid-term plan covering fiscal years 2027 to 2029 ending March, the company targets total net sales of 6.2 billion yen by fiscal 2028, with a 3-year average annual growth rate of 9.8%. The two core operating segments maintain a historical 60:40 revenue contribution split: 1) Verification Service Segment: Target annual sales growth of 9.6%, with a lower growth rate set to account for an expected decline in labor-intensive manual testing services, while demand for high-value quality improvement support services is projected to grow. 2) Development Service Segment: Target annual sales growth of 10.0%, expanding beyond the company's historical focus on steel and lumber industries to serve a broader range of sectors with social infrastructure system development. The Consulting Service Segment remains a core offering alongside the two core operating segments, with all three business segments to integrate AI to improve operational efficiency.

• Full fiscal year 2026 ending March 2026: Standalone Nihon Knowledge guidance is maintained unchanged, while consolidated guidance is slightly revised following the full acquisition of Altex Inc. Management projects consolidated net sales of 4.69 billion yen, operating profit of 92 million yen, and net profit of 70 million yen for the full fiscal year.
• Mid-term (covering fiscal 2027 to fiscal 2029 ending March) guidance: The company targets total net sales of 6.2 billion yen by fiscal 2028, representing a 3-year average annual growth rate of 9.8%, with operating profit projected to grow at a much faster 48.3% rate over the 3-year period.

The main risk explicitly referenced by management is the ongoing difficulty of securing IT talent in the current market environment, which the company plans to address by building an AI-powered scalable business model that reduces reliance on manual labor for low-value work. Additionally, the company notes that AI technology is spreading faster than originally anticipated, which creates structural industry change that requires proactive strategic adaptation; failure to adapt to this rapid AI evolution could hinder growth. No explicit operational failures were discussed in the available transcript.

No question and answer section content is included in the available transcript material.