O.B.System Inc. Q4 FY2025 earnings call

Company Background & Core Business Model

• Founded in 1972 with capital participation from Obic, initially as a software development provider for Obic, later partnered with Hitachi, Ltd. and listed on the Tokyo Stock Exchange Standard Market in June 2023
• Approximately 70% of revenue comes from the Hitachi Group, rising to nearly 80% when including Mitsubishi Electric; direct client sales now account for 12% of revenue, with additional major clients including NTT Data, Panasonic, and Toshiba
• The diversified segment structure creates balanced performance across business cycles, with stronger segments offsetting slower ones

FY2025 March Term Financial Performance

• Hit all-time high revenue of 7.68 billion yen, an 11.4% year-over-year increase, driven by strong system development demand and rising service unit prices
• Gross margin rose 1.3 percentage points to 18.9%; gross profit came in above plan
• Selling, general and administrative (SG&A) expenses increased by 263 million yen (a 40% year-over-year increase) due to hiring of ~50 new graduates, M&A-related costs and goodwill amortization
• Operating profit and ordinary profit came in below plan due to higher SG&A, which management frames as forward-looking investment for future growth
• Net income met plan due to special gains from the sale of policy-held Hitachi, Ltd. shares
• The company maintains a long-standing zero-debt balance sheet with net assets of 5.113 billion yen, cash and deposits of 2.638 billion yen, and increased investment securities driven by unrealized gains on remaining Hitachi shares

Recent Strategic Initiatives

1. Talent & Partner Expansion: Has hired ~50 new graduates annually for the past two years, targets 50+ new hires for 2026; aims to secure over 1,300 total personnel including external partners to support growth; acquired Human & Technology Inc. based in Sapporo (a region with strong IT talent pools) and Green Cat Inc.
2. R&D and Business Alliance Acceleration: Launched AI-integrated CLIP-AI clinical laboratory system for mid-sized hospitals in April 2025 via a partnership with AI firm MILIZE; prioritizes integration of generative AI into system development, working with key client Hitachi to upgrade internal technical capabilities to match industry technology shifts
3. M&A-Driven Growth: Completed 100% acquisition of Green Cat Inc. in May 2025; Green Cat is a 40+ year-old Tokyo-based firm with 91 employees and 70 external partners, 81% of revenue from BIPROGY with a focus on financial sector services that has strong strategic alignment with OB System

OB System organizes its business into four industry-based product segments, with total FY2025 March term revenue of 7.68 billion yen (all-time high):

1. Financial Business: 39.7% of total revenue, centered on core banking core system development
2. Industrial Distribution Business: 30% of total revenue
3. Social and Public Infrastructure Business: 22.4% of total revenue
4. IT Innovation Business: 7.8% of total revenue, the smallest segment focused on new technology initiatives

• FY2026 March Term (current fiscal year): Expects consolidated revenue of 9.4 billion yen, with 1.4 billion yen of incremental revenue from newly consolidated subsidiaries Human & Technology and Green Cat; targets gross profit of 1.825 billion yen, operating profit of 720 million yen (a 157 million yen year-over-year increase), ordinary profit of 767 million yen, net income of 590 million yen, and EPS of 254.3 yen; all profit lines are projected to grow over 20% year-over-year
• Dividend Guidance: Raised the prior term full-year dividend by 5 yen to 80 yen (payout ratio of 38%); plans a 20 yen increase to 100 yen per share for FY2026, for a payout ratio of 39.3%; targets a long-term payout ratio of 40% or higher to increase shareholder returns
• Mid-term (FY2027 March Term) Guidance: Reaffirms original targets of 10 billion yen in consolidated revenue, 10% operating profit margin, and 13% ROE; management states the 10 billion yen revenue target is now nearly within reach following recent M&A, expects synergies from the two new subsidiaries to drive profit achievement, and is targeting over 10 billion yen in operating profit and over 760 million yen in net income for FY2027

The provided transcript does not contain explicit discussion of operational risks, risk factors, or operational failures. The only temporary headwind noted was a delay in regional bank core system development that reduced short-term demand for external partner capacity, which management frames as a transient fluctuation rather than a material ongoing risk.

Q: Which of OB System's four business segments does management expect to deliver the strongest growth going forward, and what is the outlook for gross margins? / A: The full text of the answer is not included in the provided transcript, only the topic of this exchange is confirmed. Management has already publicly noted that the IT Innovation segment, which includes new AI-integrated solutions like CLIP-AI, is the company's key growth priority.

Q: What is OB System's strategy for future capital alliances and M&A activity? / A: The full answer text is not included in the provided transcript. Management has already stated that recent M&A of two companies has put the mid-term 10 billion yen revenue target nearly within reach, and will now focus on capturing synergies from existing acquisitions before pursuing further deals.

Q: What is OB System's operational and strategic plan after completing recent M&A? / A: The full answer text is not included in the provided transcript. Management has already highlighted that the two acquired companies have strong strategic alignment with OB System's core financial business, and expects measurable synergies to materialize over the current and next fiscal years to drive profit growth toward mid-term targets.