GDEP ADVANCE,Inc. Q4 FY2025 earnings call

Overall Financial Performance

• 2025 May fiscal year total revenue hit 6.63 billion yen, 50% year-over-year growth, achieving 100.3% of the upwardly revised full-year forecast, a new all-time high
• Operating profit reached 839 million yen, 26.7% year-over-year growth, hitting 104.7% of the revised forecast, also an all-time high; marked 9 consecutive years of profit growth since founding
• All tiered profit metrics grew over 20% year-over-year: gross profit rose 29.8% to 1.33757 billion yen, ordinary profit grew 22% to 796.08 million yen, net profit grew 24.2% to 536.8 million yen
• Selling, general and administrative expenses increased 35.5% year-over-year to 497.66 million yen, driven by higher personnel costs from team expansion and increased depreciation from capital investment

Operational Highlights

• Customer retention: Repeat order rate reached 82.8%, and 54.7% of customers placed orders in each of the past 4 years (excluding large one-off special projects), reflecting strong customer loyalty from the company's focus on customer experience
• Talent expansion: Headcount grew from 21 at the start of the fiscal year to 31 at year-end, with successful hires across engineering, sales, and administrative roles; the company will continue strengthening hiring to support timely growth
• Capital investment: The company has introduced NVIDIA's latest NVIDIA DGX B200 GPU server, which will be used for new service development and customer test drives; it will continue active capital investment to maintain access to cutting-edge technology
• Ecosystem enhancement (core strategic priority): The company has launched multiple collaborative solutions with partners: expanded the mobility industry PoC environment GAT with Nexty Electronics (Toyota Tsusho Group), launched on-premise local RAG starter BOX with Ridge-i, and built the private cloud service GX CLOUD with partners to support generative AI development with TDSE
• Strategic direction: The company will pursue three core growth strategies: 1) Grow top line by expanding portfolio and strengthening partner ecosystem to handle growing project size and increasing project count; 2) Continue shifting to higher-layer business, with internal capabilities already built for large-scale AI system proposal, implementation, and operation support; 3) Expand business domains, including entering new businesses and pursuing M&A in high-compatibility areas to provide comprehensive solutions beyond just computing resources
• The company already offers specialized cloud services (not general bare-metal cloud): GAT provides automotive-focused PoC environments for autonomous driving simulation trials, and GX CLOUD includes low-code generative AI development support, with differentiation via solutions that include services beyond hardware provision
• Governance and investor relations: Separated executive officers and directors in April to strengthen supervisory functions; implemented a 1-for-4 stock split to improve liquidity, which increased shareholder count by ~30%; expanded investor communication to 4 annual briefing sessions including mid-year results, and added detailed quarterly forecast data and industry segmentation to disclosures

By service segment:

• DX Services: Over 50% year-over-year revenue growth
• Service & Support: Over 30% year-over-year revenue growth
• Over 90% of total revenue comes from one-time flow business, of which 82.8% is from repeat customer orders (up from 75.7% in the prior fiscal year). By industry segment:
• Automotive segment: More than doubled year-over-year revenue
• Research institutions: Expanding demand for AI in disaster prevention and defense sectors
• Cloud service providers: Generated new revenue in 2025 May fiscal year from capital investment projects under Japan's Ministry of Economy, Trade and Industry cloud program

• For 2026 May fiscal year, the company expects 10.2% year-over-year revenue growth to 7.308 billion yen, 11.2% year-over-year operating profit growth to 934 million yen; ordinary profit is expected to grow 17.3% year-over-year, and net profit is expected to grow 15.0% year-over-year, with double-digit growth across all profit metrics even with continued active investment in talent and equipment
• The company's 3-year mid-term management plan targets 1 billion yen operating profit by the final 2027 May fiscal year, with a compound annual growth rate of 24% from 2024 to 2027, aligned with the growth of the AI market
• The company did not include high-volatility cloud service provider revenue from the METI cloud program in 2026 May fiscal year and beyond forecasts, but will pursue opportunities if value and profit expectations align, and will update disclosures accordingly
• The 2026 May fiscal year forecast expects cumulative revenue to exceed prior-year levels by the third quarter; the company notes quarterly revenue can fluctuate sharply due to large project recognition timing, so short-term year-over-year quarterly comparisons have limited value for investment decisions
• The company expects 2026 May fiscal year dividend payout ratio of 25.4%, with a planned dividend of 29 yen per share, following a policy of increasing the payout ratio annually after completing required investments
• Long-term, the company targets 100 billion yen in revenue after the mid-term plan period
• The domestic AI market is forecast to grow from 1.4735 trillion yen in 2024 to 2.778 trillion yen in 2028 (17.2% CAGR), with generative AI expected to account for 60% of the AI market by 2028; the GPU server market is forecast to reach 260 billion yen by 2028, and the GPU cloud market is forecast to reach 240.3 billion yen by 2028

• Large-scale AI projects typically take several months from quotation to acceptance, creating foreign exchange exposure from long-term U.S. dollar holdings; the company recorded foreign exchange losses this fiscal year due to yen appreciation, and identifies FX risk reduction as a key priority, planning to address it via shorter project timelines and revised procurement methods
• Trump tariffs are a major external concern: major customers in the manufacturing and automotive sectors may hold off on capital investment until the tariff situation becomes clearer, creating near-term demand uncertainty
• Quarterly revenue volatility: As project sizes grow with the large-scale AI trend, quarterly revenue fluctuates sharply based on project recognition timing, making short-term year-over-year comparisons misleading
• GPU procurement lead time uncertainty for new NVIDIA products creates potential project timing risks
• Assembly delays for server components can create potential delivery risks for customer projects

Q: What is the probability of achieving the 2026 May fiscal year Q2 and Q3 revenue targets, especially the 2.794 billion yen Q2 target that the analyst assumes relies on cloud vendor projects? How does this impact the credibility of the full-year plan? / A: The large cloud vendor project the company completed this year was a strategic move to build internal experience handling large-scale projects, and the company does not plan to retreat from this market segment. The 2.794 billion yen Q2 target is based on two solid foundations: first, a multi-hundred million yen large-scale won contract disclosed in February 2025, secured using experience gained from prior cloud vendor work; second, the company maintains detailed internal pipeline tracking of project probability and progression, and the forecast is built on confirmed high-probability projects from education, manufacturing and other sectors, not unconfirmed cloud vendor opportunities. (1012 characters)