WingArc1st Inc. (4432) Q1 2027 Earnings Call Transcript

Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

[Title] [Q&A Session: Included] WingArc1st Achieves Revenue and Profit Growth in Q1; Pursues Both Greater Capital Efficiency and Enhanced Shareholder Returns through Share Repurchase and a New Shareholder Benefit Program

Results for FY2027 Q1: Financial Results Highlights

Taisuke Fujimoto (hereinafter, Fujimoto), Director, Executive Officer and CFO: Hello, everyone. I am Taisuke Fujimoto, Director, Executive Officer and CFO of WingArc1st Inc. Thank you very much for joining our financial results briefing for FY2027 Q1. Let me begin the presentation. I will start with the financial results highlights. The slide presents three key points. First, we achieved both revenue and profit growth in Q1. I will discuss the details shortly, but although license revenue declined slightly year on year, recurring revenue, particularly from cloud services, remained strong, resulting in overall revenue growth. As I briefly mentioned at our previous financial results briefing, achieving profit growth presented a relatively high hurdle. Nevertheless, by controlling expenses and taking other measures, we achieved growth in both revenue and profit. The second point is that the number of organizations using Govlong EUC has exceeded 500. For the past two years, we have focused on expanding Govlong, our solutions for local governments centered on system standardization. As shown on the slide, Govlong EUC has now been implemented by more than 500 organizations, and we expect this number to increase further during the current fiscal year. We also expect these EUC implementations to enable us to expand into local government DX services following system standardization. The third point is not directly related to our financial results, but today we announced a repurchase of own shares. We have decided to repurchase up to 1.2 million shares.

We believe that our current share price is significantly below the level warranted by our corporate value. We therefore decided to carry out the share repurchase to further enhance shareholder returns and improve capital efficiency.

Results for FY2027 Q1: Financial Results Highlights

This slide summarizes our P&L. Revenue exceeded ¥7.8 billion, representing a 6.7% increase year on year. By solution, revenue from the Business Document Solutions (BDS) was somewhat weak, while revenue from the Data Empowerment Solutions (DE) grew by double digits. As I mentioned at the outset, EBITDA and profit also increased. We believe that our review and control of internal expenses have put us in a position to deliver steady earnings growth.

Results for FY2027 Q1: EBITDA Fluctuation Factors

This slide shows the factors affecting EBITDA. Revenue increased by just under ¥500 million, while SG&A expenses rose by just under ¥400 million. The main reason for the increase in SG&A expenses was that Q1 included expenses for WingArcNEX, which became a consolidated subsidiary in July 2025. Of the approximately ¥400 million increase, the organic increase excluding M&A was around ¥100 million to ¥200 million. The remainder was attributable to the newly consolidated subsidiary.

Results for FY2027 Q1: Revenue by Solution

This slide shows revenue by solution. The left side presents BDS, where SVF revenue declined year on year. The main factor was weaker on-premises license revenue in Q1 than in the same period last year. Although we have built up a reasonable project pipeline, delays in project delivery also affected the result. We expect a recovery from Q2 onward. SVF A/T is the former invoiceAgent business. License, maintenance service, and subscription revenue all performed well, and overall revenue growth accelerated to 15.5% year on year. Revenue in Others also increased substantially, reflecting the contribution from WingArcNEX that I mentioned earlier. As this revenue was not included in Q1 last year, the addition of just under ¥300 million resulted in a significant increase of approximately 81% year on year. The right side shows the Data Empowerment Solutions (DE). All products and services performed well. Dr.Sum in particular recorded 13% revenue growth year on year, supported by strong on-premises license revenue and robust growth in cloud services. MotionBoard also recorded 7% revenue growth year on year, driven by strong on-premises performance in Q1. Finally, revenue in Others increased significantly as delivery progressed on a relatively large integration services project during Q1.

Results for FY2027 Q1: BDS: SVF

I will now discuss our services by segment. I will begin with SVF. As shown in the on-premises section on the right, on-premises license revenue was at its lowest level in the past three years. The main reason was that a large-scale project we had expected was pushed back to Q2 or later. Subscriptions and maintenance continued to grow steadily. We therefore view the weakness in license revenue as temporary. Cloud services, shown on the left, continued to perform well, with both revenue and the number of companies increasing substantially. As we have explained at previous briefings, this growth reflects rising ERP-related demand and the strong performance of embedded offerings through vendors such as Salesforce and ServiceNow. We expect cloud services to continue growing from Q2 onward.

Results for FY2027 Q1: BDS: SVF A/T

Turning to SVF A/T, on-premises revenue grew due to the delivery of a relatively large project. Demand for subscriptions also remained strong, and we continued to win new projects at a steady pace, adding to our existing subscription base. As a result, recurring revenue from subscriptions and maintenance continued to grow. In cloud services, growth in the number of companies may appear to have slowed slightly, but we continue to win projects steadily. We also view the increase in average revenue per customer as a very positive development.

Results for FY2027 Q1: DE: Dr.Sum

Next is Dr.Sum in the DE segment. For on-premises solutions, subscription revenue remains relatively small in absolute terms but has doubled. Customer demand in this type of recurring revenue model remains very strong. Cloud services, shown on the left, also recorded very strong growth. The number of companies increased substantially, and revenue rose steadily in line with that growth. We therefore believe that customer interest and demand remain robust.

Results for FY2027 Q1: DE: MotionBoard

Turning to MotionBoard, on-premises revenue increased year on year due to the delivery of a relatively large project. As with our other products, subscriptions and maintenance also continued to grow. For cloud services, the number of companies appears to have declined slightly from Q1 last year. As we have explained since the previous fiscal year, this reflects a change in the method used to count companies following a revision to the licensing model for certain OEM services. Revenue itself increased, so we do not believe the change had a significant impact.

Results for FY2027 Q1: Revenue by Contract Category

This slide presents revenue by contract category. As I mentioned earlier, license revenue was somewhat weak in Q1. By contrast, cloud and subscription revenue within recurring revenue grew substantially, and total recurring revenue increased by approximately 18% year on year.

Results for FY2027 Q1: Cloud Services Growth Rate

This table provides a breakdown of the cloud services included in recurring revenue. As discussed earlier, SVF Cloud performed very well, growing approximately 36% year on year. SVF A/T and Dr.Sum Cloud also recorded strong growth. The substantial increase in the subsidiary category reflects the addition of WingArcNEX, as mentioned earlier.

Results for FY2027 Q1: Profit Index

Although the margins shown here are slightly lower, our earnings are again weighted somewhat toward the second half of the fiscal year. We therefore expect profitability and margins to improve from Q2 onward.

Results for FY2027 Q1: Financial Soundness

Turning to financial soundness, the Net Debt/EBITDA ratio remains on a downward trend, supported by continued strong cash flow.

Business Topics

I will now move to our business topics. We have selected three for this quarter. The first concerns SVF and Trustee in the BDS segment. Trustee is a trust service launched last year, and we are working with Cybertrust Japan Co., Ltd. in this area. Through this collaboration, we aim to create new business opportunities by ensuring the security of various forms of inter-company communication and document exchange in the age of AI, while promoting the distribution of highly reliable data with assured authenticity. I will briefly explain an example next. The second topic also concerns SVF. SVF Archiver, our cloud-based document storage service and the successor to invoiceAgent, now supports MCP. This enables users to retrieve a wide range of documents stored in SVF Archiver through AI agents and use them to improve operational efficiency and conduct various types of analysis within their organizations. The final topic, Govlong, is as I explained at the beginning of the presentation.

Business Topics: Launch of Trustee eSeal

The next business topic concerns the collaboration with Cybertrust Japan that I just mentioned. Last year, we launched a timestamp service under the Trustee name. As the second offering under the Trustee business, we have now jointly developed Trustee eSeal with Cybertrust Japan. E-seals may not yet be widely used in Japan, but in Europe they are used as a legally recognized mechanism for preserving the authenticity of documents issued by companies and individuals. We developed and launched this eSeal service on June 30, 2026. Some customers have already decided to adopt it. We believe the Trustee business will become an important part of our business going forward.

Forecast for FY2027

There is no change to our full-year forecast of ¥34.3 billion in revenue and ¥12.1 billion in EBITDA. At the end of Q1, progress against the full-year forecast stood at approximately 23% for revenue and 22% for EBITDA. As I mentioned earlier, however, revenue is weighted toward Q2 and subsequent quarters, so we view this progress as in line with plan.

Forecast for the First Half of FY2027

This slide shows our first-half forecast. We expect to achieve the first-half guidance of ¥16.63 billion in revenue and ¥5.59 billion in EBITDA that we presented in our FY2026 financial results materials, despite the timing risk for on-premises license revenue discussed today.

Repurchase of own shares

Turning to the repurchase of own shares, as noted in the financial results highlights, we have decided to repurchase up to 1.2 million shares, equivalent to approximately 3.4% of total shares issued, excluding treasury shares. The maximum total purchase amount is ¥3.0 billion. Given our current trading volume, we expect the repurchase to take some time. We have therefore set the purchase period from August 2026 through May 2027. We are considering market purchases under a discretionary trading agreement or purchases through ToSTNeT-3, the Tokyo Stock Exchange's off-auction own share repurchase trading system. We plan to proceed with the repurchase while monitoring future developments.

Introduction of a Shareholder Benefit Program

As part of our shareholder return initiatives, we are introducing a shareholder benefit program. Beginning in August 2026, shareholders who hold at least one unit, or 100 shares, and are recorded in the shareholder register as of the end of August or February will receive points that can be redeemed for more than 5,000 products and services, including electronic money. The first award will be based on the shareholder register at the end of August, and shareholders are expected to be able to redeem their points from around October. That concludes my presentation.

Q&A: Impact of Consolidating WingArcNEX Question: I would like to ask about the impact of consolidating WingArcNEX. You referred earlier to its effect on revenue and SG&A expenses. Could you clarify the impact of WingArcNEX on Q1 revenue and operating profit, including specific figures if possible? You also commented previously that Q1 is typically weak because of seasonality. How did the quarter actually develop, including the performance of WingArcNEX? Fujimoto: WingArcNEX generated just under ¥300 million in revenue in Q1. Looking at last year, its quarterly revenue increased to between ¥400 million and ¥500 million in Q4. We are seeing a similar pattern this year, so revenue recognition tends to be lower in Q1 and Q2. Its profit contribution was roughly break-even. On a consolidated basis, WingArcNEX currently contributes very little profit. Question: Is it fair to say that this was broadly in line with your expectations? Fujimoto: Yes, it was in line with plan. Q&A: Q1 Progress Question: I understand that overall Q1 progress was in line with plan. Could you describe any areas of relative strength or weakness by service compared with your expectations? Fujimoto: Put simply, SVF on-premises license revenue was affected by project deliveries being pushed back. On the other hand, the services I discussed earlier and DE license revenue were solid and offset that weakness, leaving the overall result broadly in line with plan.

Q&A: Expense Control Plan for FY2027

Question: You discussed expense control, which I understand is one of the themes for the current fiscal year. At the planning stage, you indicated that controls would primarily affect personnel expenses. Could you explain your hiring plans and any specific measures you intend to use to control expenses going forward? Fujimoto: As you noted, personnel expenses account for the largest share of our costs, and hiring is proceeding in line with our original plan. At the same time, employees hired over the past several years are increasingly contributing to the business. As shown on the slide, the use of AI is also enabling us to reduce the engineering resources required. This has enabled us to control and reduce outsourcing expenses by more than we initially expected, which is one of the main factors behind the improvement. Another factor, although smaller as a proportion of total costs, is our use of Amazon Web Services (AWS) for cloud infrastructure. We have also been able to contain infrastructure procurement costs through product tuning and other measures. As a result, we believe profitability is improving steadily and in line with plan. Q&A: DE Order Environment and Outlook Question: DE appears to be performing well, posting strong growth in Q1. At the outset, however, I believe you had some concerns about business conditions in the manufacturing sector and the possibility that customers might increasingly develop solutions in-house using

AI. Could you describe the current demand environment and customer inquiry levels for DE, including whether AI is having any actual impact? Fujimoto: As you said, the possibility of AI replacing solutions in the DE segment has often been discussed. However, based on the information currently available to us, there has been no material change in customer feedback or the pipeline. If anything, inquiries have strengthened. We have also seen no marked differences in demand strength across industries, including manufacturing. As there has been no material change in actual demand conditions, we expect DE to continue performing strongly from Q2 onward. Q&A: Factors Behind Delays in SVF Project Delivery Question: In your earlier response, you mentioned delays in the delivery of SVF on-premises projects. Could you explain in more detail whether these delays were caused by internal factors or by external factors? Fujimoto: They were not caused by factors on our side, but mainly by customers and partners. In addition to schedule changes caused by project postponements, changes in project scope also had an impact. Large projects may be scaled down, but in some cases they expand beyond our initial expectations. In this case, the combined impact of project postponements and the scaling down of certain projects we had expected was significant. However, these large projects have been underway for some time, and we are working with customers and partners on requirements definition and other preparations. We therefore do not expect the projects to be canceled. Rather, we are carefully assessing when they will be delivered from Q2 onward and whether any may slip into the next fiscal year. Q&A: Outlook from Q2 Onward Question: If projects begin to materialize smoothly from Q2 onward, the strength of services and DE license revenue should, as you explained, offset the weaker SVF performance in Q1. On that basis, is it reasonable to expect revenue to trend ahead of the full-year plan from Q2 onward? Fujimoto: The pipeline is relatively strong, so we are not pessimistic. However, the timing of large projects remains difficult to predict. We have reasonable visibility for the first half and expect to achieve the forecast we have just outlined. For Q3 and beyond, we will continue to assess project delivery timing and provide updates on the outlook at future briefings.

Q&A: Impact of Maintenance Price Increases and Outlook Question: I recall that you said previously that you would raise maintenance prices for existing customers during the current fiscal year. The effect was not very visible in the Q1 figures. Could you explain how much the price increases contributed, how much further contribution you expect from Q2 onward, and how this is reflected in the full-year plan? Fujimoto: Maintenance renewals are most heavily concentrated from April through June, which is the largest renewal window in the annual cycle. Renewals are progressing smoothly, and maintenance revenue is currently up approximately 4% year on year. We expect the growth rate to rise further toward the fiscal year-end. At this point, we believe maintenance revenue growth of approximately 10%, in line with our original guidance, remains realistic. On the other hand, as shown on the slide, the maintenance retention rate currently appears slightly lower than last year. Renewals gradually progress from around April through June each year, so we expect the renewal and retention rates to converge toward 94% to 95% as we approach the fiscal yearend. The maintenance business has therefore not been affected by customer attrition resulting from the price increases, and we believe it is progressing well. Q&A: Use of ToSTNeT for the Share Repurchase

Question: I would like to ask about the share repurchase. I understand that you intend to carry it out steadily over the longer term. Regarding the possible use of ToSTNeT, should we interpret this as meaning that you see a specific opportunity to acquire a block of cross-held shares, or was it included simply as a precautionary option? Fujimoto: At present, we have no plan to use ToSTNeT to acquire shares from any specific counterparty. However, we included it because we may consider that method depending on future circumstances. Our policy is to pursue the share repurchase using every available method. Q&A: Rationale for Introducing the Shareholder Benefit Program Question: I would like to ask about the shareholder benefit program. What challenges had you identified, particularly with respect to individual shareholders, and why did you decide to adopt a points-based benefit program? Fujimoto: As a B2B company, we have long faced the challenge of relatively low awareness among individual investors. As a result, the proportion of individual shareholders has remained very low. We also want to broaden our shareholder base and improve trading volume. To increase daily trading value, it is important for individual investors to become more familiar with the Company and trade our shares. This was the background to introducing the points-based program. Question: I understand that the related expenses will not be tax-deductible. What impact do you expect on net profit, and do you have an estimate of the amount? Fujimoto: As the program will apply for only half of the current fiscal year, we expect approximately ¥20 million to ¥30 million in operating expenses. The impact on overall profit will be limited, and we expect to absorb it during the fiscal year. Q&A: Strengthening Collaboration with Other Companies and Future Initiatives in AI Question: With AI remaining a central focus, do you expect your partnerships with ITOCHU Corporation through IW.DX Partners and with Toshiba Digital Solutions Corporation to deepen further? Or are you considering other initiatives? Fujimoto: We hold regular discussions with our two strategic corporate partners. With ITOCHU Corporation, we are working through our collaboration with ITOCHU Techno-Solutions Corporation (CTC) to offer our AI-enabled services to customers through ITOCHU and CTC. We are also drawing on Toshiba Digital Solutions Corporation's AI initiatives while working together to strengthen our respective AI capabilities and deepen our collaboration. Although

we cannot disclose any specific initiatives at this stage, this remains an important theme that we continue to explore.