Quarterly trends and results

Quarterly results

Earnings (cumulative)		FY01/22				FY01/23				FY01/23
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	% of Est.	FY Est.
Revenue		1,363	2,843	4,379	5,920	1,497	2,936			49.0%	5,989
	YoY	3.1%	8.4%	11.5%	11.2%	9.8%	3.3%				1.2%
Gross profit		694	1,474	2,251	3,030	773	1,538
	YoY	2.2%	7.8%	9.5%	10.7%	11.4%	4.4%
	Gross profit margin	50.9%	51.8%	51.4%	51.2%	51.7%	52.4%
SG&A expenses		419	832	1,260	1,782	464	928
	YoY	5.5%	4.4%	2.3%	-1.9%	10.8%	11.5%
	SG&A ratio	30.7%	29.3%	28.8%	30.1%	31.0%	31.6%
Operating profit		275	642	991	1,247	309	610			55.8%	1,094
	YoY	-2.5%	12.6%	20.4%	35.5%	12.2%	-4.9%				-12.3%
	Operating profit margin	20.2%	22.6%	22.6%	21.1%	20.7%	20.8%				18.3%
Recurring profit		350	724	1,089	1,361	328	687			58.2%	1,182
	YoY	18.8%	23.5%	30.2%	43.5%	-6.3%	-5.0%				-13.2%
	Recurring profit margin	25.7%	25.5%	24.9%	23.0%	21.9%	23.4%				19.7%
Net income		237	494	742	866	221	463			59.2%	782
	YoY	18.3%	24.1%	43.8%	27.9%	-6.8%	-6.2%				-9.7%
	Net margin	17.4%	17.4%	16.9%	14.6%	14.8%	15.8%				13.1%
Earnings (quarterly)		FY01/22				FY01/23
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue		1,363	1,480	1,536	1,541	1,497	1,439
	YoY	3.1%	13.9%	17.8%	10.1%	9.8%	-2.7%
Gross profit		694	780	777	779	773	765
	YoY	2.2%	13.4%	13.0%	14.2%	11.4%	-1.8%
	Gross profit margin	50.9%	52.7%	50.6%	50.5%	51.7%	53.2%
SG&A expenses		419	413	427	523	464	464
	YoY	5.5%	3.3%	-1.7%	-10.5%	10.8%	12.2%
	SG&A ratio	30.7%	27.9%	27.8%	33.9%	31.0%	32.2%
Operating profit		275	366	349	256	309	301
	YoY	-2.5%	27.4%	38.1%	162.2%	12.2%	-17.7%
	Operating profit margin	20.2%	24.7%	22.7%	16.6%	20.7%	20.9%
Recurring profit		350	374	365	272	328	360
	YoY	18.8%	28.3%	45.7%	142.7%	-6.3%	-3.8%
	Recurring profit margin	25.7%	25.3%	23.8%	17.7%	21.9%	25.0%
Net income		237	257	248	124	221	242
	YoY	18.3%	30.0%	110.2%	-22.8%	-6.8%	-5.8%
	Net margin	17.4%	17.4%	16.1%	8.1%	14.8%	16.8%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: The company transitioned to consolidated accounting in Q3 FY01/20; consolidated accounts were not prepared before then.

Performance by segment

Cumulative			FY01/22				FY01/23
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Revenue			1,363	2,843	4,379	5,920	1,497	2,936
	YoY		3.1%	8.4%	11.5%	11.2%	9.8%	3.3%
	Software		880	1,859	2,885	3,925	1,048	2,050
		YoY	0.6%	9.4%	13.7%	13.4%	19.1%	10.2%
	System Development Service		483	983	1,493	1,992	448	881
		YoY	7.8%	6.6%	7.8%	7.0%	-7.1%	-10.3%
	Overseas		0	1	1	3	1	5
		YoY	-	-	-	-	127.0%	649.0%
Operating profit			275	642	991	1,247	309	610
	YoY		-2.5%	12.6%	20.4%	35.5%	12.2%	-4.9%
	Operating profit margin		20.2%	22.6%	22.6%	21.1%	20.7%	20.8%
	Software		270	615	924	1,166	323	636
		YoY	13.7%	30.0%	32.5%	51.2%	19.4%	3.5%
		Operating profit margin	30.7%	33.1%	32.0%	29.7%	30.8%	31.0%
	System Development Service		22	50	101	127	8	18
		YoY	-50.6%	-48.7%	-25.4%	-21.7%	-64.4%	-63.7%
		Operating profit margin	4.6%	5.1%	6.8%	6.4%	1.8%	2.0%
	Overseas		-16	-22	-35	-45	-21	-44
		YoY	-	-	-	-	-	-
		Operating profit margin	-	-	-	-	-	-
	Adjustments		-1	-1	0	0	0	0
Quarterly			FY01/22				FY01/23
(JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue			1,363	1,480	1,536	1,541	1,497	1,439
	YoY		3.1%	13.9%	17.8%	10.1%	9.8%	-2.7%
	Software		880	980	1,026	1,040	1,048	1,002
		YoY	0.6%	18.7%	22.3%	12.7%	19.1%	2.3%
	System Development Service		483	500	510	499	448	433
		YoY	7.8%	5.5%	10.2%	4.8%	-7.1%	-13.5%
	Overseas		0	0	1	2	1	5
		YoY	-	-	-77.9%	-	127.0%	-
Operating profit			275	366	349	256	309	301
	YoY		-2.5%	27.4%	38.1%	162.2%	12.2%	-17.7%
	Operating profit margin		20.2%	24.7%	22.7%	16.6%	20.7%	20.9%
	Software		270	345	310	241	323	314
		YoY	13.7%	46.4%	37.9%	227.8%	19.4%	-9.0%
		Operating profit margin	30.7%	35.2%	30.2%	23.2%	30.8%	31.3%
	System Development Service		22	28	52	26	8	10
		YoY	-50.6%	-47.0%	32.3%	-2.2%	-64.4%	-63.1%
		Operating profit margin	4.6%	5.5%	10.1%	5.1%	1.8%	2.3%
	Overseas		-16	-6	-12	-11	-21	-22
		YoY	-	-	-	-	-	-
		Operating profit margin	-	-	-	-	-	-
	Adjustments		-1	0	1	0	0	0

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: The company transitioned to consolidated accounting in Q3 FY01/20; consolidated accounts were not prepared before then.
Note: The company established the System Development Service segment in Q4 FY01/20.
Note: The company established the Overseas segment in Q3 FY01/21.

Software segment revenue

Cumulative			FY01/22				FY01/23
(JPYmn)			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Revenue			880	1,859	2,885	3,925	1,048	2,050
	YoY		0.6%	9.4%	13.7%	13.4%	19.1%	10.2%
	Cloud service		572	1,162	1,768	2,412	644	1,309
		YoY	13.6%	14.4%	14.2%	15.1%	12.4%	12.6%
	Product		295	667	1,069	1,448	385	704
		YoY	-15.4%	2.5%	12.6%	11.2%	30.7%	5.6%
	Technical development		13	31	49	68	19	38
		YoY	-41.7%	-5.9%	15.6%	3.8%	47.6%	22.4%
	Internal revenue		1	1	1	2	0	1
Operating profit			270	615	924	1,166	323	636
	YoY		13.7%	30.0%	32.5%	51.2%	19.4%	3.5%
	Operating profit margin		30.7%	33.1%	32.0%	29.7%	30.8%	31.0%
Quarterly			FY01/22				FY01/23
(JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue			880	980	1,026	1,040	1,048	1,002
	YoY		0.6%	18.7%	22.3%	12.7%	19.1%	2.3%
	Cloud service		572	590	606	643	644	665
		YoY	13.6%	15.2%	13.9%	17.6%	12.4%	12.8%
	Product		295	372	402	379	385	319
		YoY	-15.4%	23.0%	34.9%	7.3%	30.7%	-14.3%
	Technical development		13	18	18	18	19	19
		YoY	-41.7%	67.4%	89.8%	-18.8%	47.6%	4.5%
	Internal revenue		1	0	0	1	0	1
Operating profit			270	345	310	241	323	314
	YoY		13.7%	46.4%	37.9%	227.8%	19.4%	-9.0%
	Operating profit margin		30.7%	35.2%	30.2%	23.2%	30.8%	31.3%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Revenue from cloud services

Cumulative				FY01/22				FY01/23
(JPYmn)				Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Cloud service revenue				572	1,162	1,768	2,412	644	1,309
	YoY			13.6%	14.4%	14.2%	15.1%	12.4%	12.6%
	Monthly revenue			563	1,144	1,737	2,352	636	1,287
		YoY		18.4%	16.8%	15.8%	15.5%	12.9%	12.5%
		desknet's NEO Cloud		481	977	1,480	2,002	539	1,092
			YoY	21.6%	19.2%	17.6%	16.7%	12.0%	11.8%
		AppSuite Cloud		19	40	65	92	30	63
			YoY	67.2%	69.6%	71.8%	75.0%	62.8%	56.0%
		ChatLuck Cloud		14	29	45	63	17	34
			YoY	7.6%	4.8%	4.8%	7.0%	21.3%	17.2%
		Other monthly revenue		47	98	147	196	49	98
			YoY	-15.2%	-9.7%	-7.8%	-6.4%	4.0%	0.3%
	Other service work			9	18	31	59	8	22
		YoY		-67.7%	-50.6%	-35.9%	-0.4%	-13.8%	20.9%
Quarterly				FY01/22				FY01/23
(JPYmn)				Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Cloud service revenue				572	590	606	643	644	665
	YoY			13.6%	15.2%	13.9%	17.6%	12.4%	12.8%
	Monthly revenue			563	581	593	615	636	651
		YoY		18.4%	15.4%	14.0%	14.7%	12.9%	12.1%
		desknet's NEO Cloud		481	495	504	522	539	552
			YoY	21.6%	17.0%	14.4%	14.3%	12.0%	11.5%
		AppSuite Cloud		19	22	24	28	30	33
			YoY	67.2%	71.6%	75.6%	82.9%	62.8%	50.3%
		ChatLuck Cloud		14	15	16	17	17	17
			YoY	7.6%	2.2%	4.8%	13.5%	21.3%	13.2%
		Other monthly revenue		47	51	49	49	49	49
			YoY	-15.2%	-3.8%	-3.9%	-1.8%	4.0%	-3.1%
	Other service work			9	9	13	28	8	14
		YoY		-67.7%	4.9%	9.0%	154.5%	-13.8%	55.7%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Revenue from product sales

Cumulative				FY01/22				FY01/23
(JPYmn)				Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4
Revenue from product sales				295	667	1,069	1,448	385	704
	YoY			-15.4%	2.5%	12.6%	11.2%	30.7%	5.6%
	Revenue from licenses			67	179	275	370	105	178
		YoY		-	-5.9%	1.7%	13.1%	57.8%	-0.7%
		desknet's NEOｴﾝﾀ-ﾌﾟﾗｲｽﾞ		38	98	145	203	58	89
			YoY	-39.7%	-1.2%	4.8%	24.7%	51.5%	-9.3%
		desknet's NEOｽﾓｰﾙ		15	28	41	52	10	21
			YoY	-30.3%	-22.8%	-13.3%	-13.4%	-32.0%	-25.4%
		AppSuite		7	28	51	60	22	44
			YoY	-52.2%	-3.0%	-2.6%	-8.0%	217.0%	55.7%
		ChatLuck		4	21	33	48	12	19
			YoY	-71.5%	-5.1%	35.8%	69.2%	203.4%	-10.5%
		Other licenses		3	4	5	6	3	5
			YoY	-	-	-38.4%	-38.8%	17.3%	38.7%
	Revenue from support services			175	351	531	715	195	394
		YoY		7.6%	5.3%	5.1%	4.8%	11.6%	12.3%
		desknet's NEO (including former products)		155	311	470	630	169	341
			YoY	5.0%	3.3%	3.3%	3.0%	9.1%	9.4%
	Revenue from customization			3	43	94	169	16	34
		YoY		-83.1%	-22.0%	28.4%	12.2%	448.5%	-21.5%
	Other service work			51	94	168	194	69	98
		YoY		-	-	68.8%	36.6%	36.5%	4.8%
Quarterly				FY01/22				FY01/23
(JPYmn)				Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue from product sales				295	372	402	379	385	319
	YoY			-15.4%	23.0%	34.9%	7.3%	30.7%	-14.3%
	Revenue from licenses			67	112	96	95	105	72
		YoY		-42.2%	50.7%	19.6%	67.5%	57.8%	-35.6%
		desknet's NEOｴﾝﾀ-ﾌﾟﾗｲｽﾞ		38	60	47	58	58	31
			YoY	-39.7%	67.5%	20.1%	136.9%	51.5%	-48.3%
		desknet's NEOｽﾓｰﾙ		15	13	13	11	10	11
			YoY	-30.3%	-12.3%	17.4%	-13.8%	-32.0%	-17.9%
		AppSuite		7	21	22	10	22	22
			YoY	-52.2%	45.0%	-2.0%	-28.8%	217.0%	3.9%
		ChatLuck		4	17	12	15	12	6
			YoY	-71.5%	117.8%	438.2%	263.8%	203.4%	-62.3%
		Other licenses		3			1	3	2
			YoY	-			-40.5%	17.3%	-
	Support Service			175	176	181	184	195	199
		YoY		7.6%	3.0%	4.8%	3.8%	11.6%	13.1%
		desknet's NEO (including former products)		155	156	159	160	169	172
			YoY	5.0%	1.7%	3.4%	2.1%	9.1%	9.8%
	Customization			3	40	51	75	16	18
		YoY		-83.1%	5.6%	188.3%	-3.2%	448.5%	-55.4%
	Other service work			51			26	69	29
		YoY		-			-38.7%	36.5%	-

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: In Q3 FY01/22 (August–October 2021), the company began posting in “other service work, etc.” revenue that had previously been included in “other licenses.” Figures until 1H FY01/22 and corresponding earlier periods are presented using the previous method. Figures from Q3 FY01/22 and corresponding periods are based on the revised presentation method.

1H FY01/23 results

Revenue: JPY2.9bn (+3.3% YoY)
Operating profit: JPY610mn (-4.9% YoY)
Recurring profit: JPY687mn (-5.0% YoY)
Net income attributable to owners of the parent: JPY463mn (-6.2% YoY)

Revenue rose YoY. Although revenue continued to decline in the System Development Service segment due to structural contraction and smaller headcount due to retirement and other factors among major customers, the Software segment remained strong.

On the profit front, operating profit and all profit categories below this declined due to an increase in SG&A costs, notwithstanding the impact of higher revenue.

The company applied the Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 31, 2020) in Q1. Compared to the previous accounting standard, the impact on 1H results was a JPY1mn increase in revenue and a JPY1mn increase in operating profit, recurring profit, and pre-tax profit.

The rate of progress against the company forecast for FY01/23 (revised on September 14, 2022) was 49.0% for revenue (compared with 48.0% in 1H FY01/22 against full-year results), 55.8% for operating profit (51.4%), 58.2% for recurring profit (53.2%), and 59.2% for profit attributable to owners of the parent (57.0%).

Performance by segment is outlined below.

Software segment

Revenue: JPY2.1bn (+10.2% YoY)
Operating profit: JPY636mn (+3.5% YoY)

In the Software segment, desknet’s NEO Cloud performed well, leading to YoY increases in revenue and profit.

Revenue from cloud services: JPY1.3bn (+12.6% YoY)

Total monthly revenue: JPY1.3bn (+12.5% YoY)

desknet’s NEO Cloud: JPY1.1bn (+11.8% YoY)
AppSuite Cloud: JPY63mn (+56.0% YoY)
ChatLuck Cloud: JPY34mn (+17.2% YoY)
Other monthly revenue: JPY98mn (+0.3% YoY)

Other service work, etc.: JPY22mn (+20.9% YoY)

Revenue from desknet's NEO Cloud increased due to an increase in the number of users. The YoY growth rate slowed due to an increase in migration to the cloud version following the end of the “bring your own” license service in 1H FY01/22. Sales of desknet's NEO Cloud were only about 98% of the initial plan, so the company plans to put additional measures in place to raise awareness in 2H. Monthly churn averaged 0.35% (-0.05pp YoY).

AppSuite Cloud user numbers increased, boosting revenue. As of end-July 2022, only around 8% of desknet’s NEO Cloud users also used AppSuite Cloud. On this basis, the company sees significant room for growth by focusing on raising awareness and cross-selling.

Other monthly revenue was generally flat YoY.

Revenue from product sales: JPY704mn (+5.6% YoY)

Total license revenue: JPY178mn (-0.7% YoY)

desknet’s NEO Enterprise: JPY89mn (-9.3% YoY)
desknet’s NEO Small: JPY21mn (-25.4% YoY)
AppSuite: JPY44mn (+55.7% YoY)
ChatLuck: JPY19mn (-10.5% YoY)
Other licenses: JPY5mn (+38.7% YoY)

Revenue from support services: JPY394mn (+12.3% YoY)

Of which desknet’s NEO (including former products): JPY341mn (+9.4% YoY)

Revenue from customization: JPY34mn (-21.5% YoY)
Other service work, etc.: JPY98mn (+4.8% YoY)

License revenue from desknet’s NEO Enterprise, which targets large companies, was generally in line with the budget, but overall revenue declined mainly due to a decrease in sales of additional licenses for 100 users or less. For large companies, which tend to have IT systems and personnel in place, purchasing more desknet’s NEO Enterprise licenses is less expensive than using the cloud service, with unit prices falling as user numbers increase. For this reason, the company does not anticipate any major decrease in demand for desknet’s NEO Enterprise licenses.

License revenue from desknet’s NEO Small, which targets small and medium-sized companies, declined. The company attributes this drop to the ongoing shift to cloud software and the impact of the application of revenue recognition accounting standards.

AppSuite and ChatLuck licenses tend to be purchased at the same time as desknet's NEO enterprise license. However, while AppSuite license revenue increased, ChatLuck license revenue declined.

Revenue from support services rose, due to an increase in the desknet's NEO's support service. Revenue for desknet’s NEO was JPY169mn (+9.1% YoY).

Revenue from customization exceeded the initial forecast, but was still lower YoY due to the relatively large scale of projects in 1H FY01/22.

Technical development: JPY38mn (+22.4% YoY)

In the Software segment, the company’s policy is to develop its own products in house. However, it also undertakes outsourced development work in some cases, when it believes such work could lead to the development of future products or services. In Q2 FY01/23, the company recorded revenue from ongoing projects.

System Development Service segment

Revenue: JPY881mn (-10.3% YoY)
Operating profit: JPY18mn (-63.7% YoY)

A subsidiary, Pro-SPIRE Inc., handles the System Development Service segment. Revenue was down YoY due to structural contraction and smaller headcount due to retirement and other factors among major customers. Profit declined because SG&A expenses remained at the same level as 1H FY01/22, despite a decline in the cost of revenue.

Overseas segment

Revenue: JPY5mn (+649.0% YoY)
Operating loss: JPY44mn (loss of JPY22mn in 1H FY01/22)

The Overseas segment comprises three overseas subsidiaries. Consolidated subsidiaries in Malaysia and Thailand sell the company’s products to local companies in their respective countries. Meanwhile, a US subsidiary plans and develops products for the global market and cultivates alliance partners.

In Malaysia and Thailand, sales efforts were not going according to the company’s plan, owing to government restrictions on activities during COVID-19. From Q1 FY01/23, though, as economic activities in both countries headed back toward normalization, the company's focus is on generating business to achive its annual plan through hiring local sales representatives and revising its marketing approach to resume sales activities. The company aims to return to profitability in Q4 (November 2022–January 2023) in both countries. However, it expects to record a loss for full year FY01/23.

In the US, while the company began preparing to launch new services based on local market research, there was a decline in transactions commissioned by the company.

Full-year company forecasts

Est.		FY01/22			FY01/23
(JPYmn)		1H Act.	2H Act.	FY Act.	FY Est.
Revenue		2,843	3,077	5,920	5,989
	YoY	8.4%	13.8%	11.2%	1.2%
Cost of revenue		1,369	1,522	2,891
	YoY	9.1%	14.1%	11.7%
	Cost ratio	48.2%	49.4%	48.8%
Gross profit		1,474	1,556	3,030
	Gross profit margin	51.8%	50.6%	51.2%
	YoY	-0.6%	-0.2%	-0.4%
SG&A expenses		832	950	1,782
	YoY	4.4%	-6.8%	-1.9%
	SG&A ratio	29.3%	30.9%	30.1%
Operating profit		642	606	1,247	1,094
	YoY	12.6%	72.7%	35.5%	-12.3%
	Operating profit margin	22.6%	19.7%	21.1%	18.3%
Recurring profit		724	638	1,361	1,182
	YoY	23.5%	75.7%	43.5%	-13.2%
	Recurring profit margin	25.5%	20.7%	23.0%	19.7%
Net income		494	372	866	782
	YoY	24.1%	33.4%	27.9%	-9.7%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

On September 14, 2022, the company revised its full-year FY01/23 forecast. The new forecast calls for revenue of JPY6.0bn (+1.2% YoY), operating profit of JPY1.1bn (-12.3% YoY), recurring profit of JPY1.2bn (-13.2% YoY), and net income attributable to owners of the parent of JPY782mn (-9.7% YoY).

Revenue is expected to fall short of the initial forecast by around JPY230mn due to the impact of lower revenue in the System Development Service segment, which is expected to continue in 2H due to structural contraction and smaller headcount due to retirement and other factors among major customers. For the Software business, revenue is expected to be around JPY42mn lower than initially forecast, as although sales of products and other items are expected to exceed the initial forecast, cloud services are expected to fall short.

Operating profit is expected to be about JPY82mn below the initial forecast, primarily reflecting lower-than-expected revenue in the Software segment and the company's plan to spend around JPY64mn in 2H on additional advertising to raise the brand profile. In the System Development Service segment, operating profit is expected to fall about JPY64mn short of the initial forecast, mainly due to lower revenue. In the Overseas segment, operating profit is expected to be about JPY32mn below the initial forecast due to increased investment in development of new services at the company's US subsidiary and higher personnel costs at its ASEAN subsidiaries.

NEOJAPAN 3921