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 forecast	FY forecast
Revenue		1,363	2,843	4,379	5,920	1,497	2,936	4,463		74.5%	5,989
	YoY	3.1%	8.4%	11.5%	11.2%	9.8%	3.3%	1.9%			1.2%
Gross profit		694	1,474	2,251	3,030	773	1,538	2,368
	YoY	2.2%	7.8%	9.5%	10.7%	11.4%	4.4%	5.2%
	Gross profit margin	50.9%	51.8%	51.4%	51.2%	51.7%	52.4%	53.1%
SG&A expenses		419	832	1,260	1,782	464	928	1,407
	YoY	5.5%	4.4%	2.3%	-1.9%	10.8%	11.5%	11.7%
	SG&A ratio	30.7%	29.3%	28.8%	30.1%	31.0%	31.6%	31.5%
Operating profit		275	642	991	1,247	309	610	961		87.8%	1,094
	YoY	-2.5%	12.6%	20.4%	35.5%	12.2%	-4.9%	-3.0%			-12.3%
	Operating profit margin	20.2%	22.6%	22.6%	21.1%	20.7%	20.8%	21.5%			18.3%
Recurring profit		350	724	1,089	1,361	328	687	1,053		89.1%	1,182
	YoY	18.8%	23.5%	30.2%	43.5%	-6.3%	-5.0%	-3.3%			-13.2%
	Recurring profit margin	25.7%	25.5%	24.9%	23.0%	21.9%	23.4%	23.6%			19.7%
Net income		237	494	742	866	221	463	707		90.5%	782
	YoY	18.3%	24.1%	43.8%	27.9%	-6.8%	-6.2%	-4.6%			-9.7%
	Net margin	17.4%	17.4%	16.9%	14.6%	14.8%	15.8%	15.9%			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	1,526
	YoY	3.1%	13.9%	17.8%	10.1%	9.8%	-2.7%	-0.6%
Gross profit		694	780	777	779	773	765	829
	YoY	2.2%	13.4%	13.0%	14.2%	11.4%	-1.8%	6.7%
	Gross profit margin	50.9%	52.7%	50.6%	50.5%	51.7%	53.2%	54.3%
SG&A expenses		419	413	427	523	464	464	479
	YoY	5.5%	3.3%	-1.7%	-10.5%	10.8%	12.2%	12.0%
	SG&A ratio	30.7%	27.9%	27.8%	33.9%	31.0%	32.2%	31.4%
Operating profit		275	366	349	256	309	301	351
	YoY	-2.5%	27.4%	38.1%	162.2%	12.2%	-17.7%	0.3%
	Operating profit margin	20.2%	24.7%	22.7%	16.6%	20.7%	20.9%	23.0%
Recurring profit		350	374	365	272	328	360	365
	YoY	18.8%	28.3%	45.7%	142.7%	-6.3%	-3.8%	0.0%
	Recurring profit margin	25.7%	25.3%	23.8%	17.7%	21.9%	25.0%	23.9%
Net income		237	257	248	124	221	242	244
	YoY	18.3%	30.0%	110.2%	-22.8%	-6.8%	-5.8%	-1.4%
	Net margin	17.4%	17.4%	16.1%	8.1%	14.8%	16.8%	16.0%

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.

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	4,463
	YoY		3.1%	8.4%	11.5%	11.2%	9.8%	3.3%	1.9%
	Software		880	1,859	2,885	3,925	1,048	2,050	3,147
		YoY	0.6%	9.4%	13.7%	13.4%	19.1%	10.2%	9.1%
	System Development Service		483	983	1,493	1,992	448	881	1,308
		YoY	7.8%	6.6%	7.8%	7.0%	-7.1%	-10.3%	-12.3%
	Overseas		0	1	1	3	1	5	7
		YoY	-	-	-	-	127.0%	649.0%	416.9%
Operating profit			275	642	991	1,247	309	610	961
	YoY		-2.5%	12.6%	20.4%	35.5%	12.2%	-4.9%	-3.0%
	Operating profit margin		20.2%	22.6%	22.6%	21.1%	20.7%	20.8%	21.5%
	Software		270	615	924	1,166	323	636	985
		YoY	13.7%	30.0%	32.5%	51.2%	19.4%	3.5%	6.6%
		Operating profit margin	30.7%	33.1%	32.0%	29.7%	30.8%	31.0%	31.3%
	System Development Service		22	50	101	127	8	18	49
		YoY	-50.6%	-48.7%	-25.4%	-21.7%	-64.4%	-63.7%	-51.9%
		Operating profit margin	4.6%	5.1%	6.8%	6.4%	1.8%	2.0%	3.7%
	Overseas		-16	-22	-35	-45	-21	-44	-73
		YoY	-	-	-	-	-	-	-
		Operating profit margin	-	-	-	-	-	-	-
	Adjustments		-1	-1	0	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	1,526
	YoY		3.1%	13.9%	17.8%	10.1%	9.8%	-2.7%	-0.6%
	Software		880	980	1,026	1,040	1,048	1,002	1,097
		YoY	0.6%	18.7%	22.3%	12.7%	19.1%	2.3%	7.0%
	System Development Service		483	500	510	499	448	433	427
		YoY	7.8%	5.5%	10.2%	4.8%	-7.1%	-13.5%	-16.2%
	Overseas		0	0	1	2	1	5	2
		YoY	-	-	-77.9%	-	127.0%	-	164.2%
Operating profit			275	366	349	256	309	301	351
	YoY		-2.5%	27.4%	38.1%	162.2%	12.2%	-17.7%	0.3%
	Operating profit margin		20.2%	24.7%	22.7%	16.6%	20.7%	20.9%	23.0%
	Software		270	345	310	241	323	314	349
		YoY	13.7%	46.4%	37.9%	227.8%	19.4%	-9.0%	12.7%
		Operating profit margin	30.7%	35.2%	30.2%	23.2%	30.8%	31.3%	31.8%
	System Development Service		22	28	52	26	8	10	31
		YoY	-50.6%	-47.0%	32.3%	-2.2%	-64.4%	-63.1%	-40.5%
		Operating profit margin	4.6%	5.5%	10.1%	5.1%	1.8%	2.3%	7.2%
	Overseas		-16	-6	-12	-11	-21	-22	-29
		YoY	-	-	-	-	-	-	-
		Operating profit margin	-	-	-	-	-	-	-
	Adjustments		-1	0	1	0	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	3,147
	YoY		0.6%	9.4%	13.7%	13.4%	19.1%	10.2%	9.1%
	Cloud service		572	1,162	1,768	2,412	644	1,309	1,998
		YoY	13.6%	14.4%	14.2%	15.1%	12.4%	12.6%	13.0%
	Product		295	667	1,069	1,448	385	704	1,095
		YoY	-15.4%	2.5%	12.6%	11.2%	30.7%	5.6%	2.4%
	Technical development		13	31	49	68	19	38	57
		YoY	-41.7%	-5.9%	15.6%	3.8%	47.6%	22.4%	14.4%
	Internal revenue		1	1	1	2	0	1	2
Operating profit			270	615	924	1,166	323	636	985
	YoY		13.7%	30.0%	32.5%	51.2%	19.4%	3.5%	6.6%
	Operating profit margin		30.7%	33.1%	32.0%	29.7%	30.8%	31.0%	31.3%
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	1,097
	YoY		0.6%	18.7%	22.3%	12.7%	19.1%	2.3%	7.0%
	Cloud service		572	590	606	643	644	665	689
		YoY	13.6%	15.2%	13.9%	17.6%	12.4%	12.8%	13.7%
	Product		295	372	402	379	385	319	391
		YoY	-15.4%	23.0%	34.9%	7.3%	30.7%	-14.3%	-2.8%
	Technical development		13	18	18	18	19	19	18
		YoY	-41.7%	67.4%	89.8%	-18.8%	47.6%	4.5%	0.7%
	Internal revenue		1	0	0	1	0	1	1
Operating profit			270	345	310	241	323	314	349
	YoY		13.7%	46.4%	37.9%	227.8%	19.4%	-9.0%	12.7%
	Operating profit margin		30.7%	35.2%	30.2%	23.2%	30.8%	31.3%	31.8%

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	1,998
	YoY			13.6%	14.4%	14.2%	15.1%	12.4%	12.6%	13.0%
	Monthly revenue			563	1,144	1,737	2,352	636	1,287	1,953
		YoY		18.4%	16.8%	15.8%	15.5%	12.9%	12.5%	12.4%
		desknet's NEO Cloud		481	977	1,480	2,002	539	1,092	1,657
			YoY	21.6%	19.2%	17.6%	16.7%	12.0%	11.8%	11.9%
		AppSuite Cloud		19	40	65	92	30	63	98
			YoY	67.2%	69.6%	71.8%	75.0%	62.8%	56.0%	51.1%
		ChatLuck Cloud		14	29	45	63	17	34	50
			YoY	7.6%	4.8%	4.8%	7.0%	21.3%	17.2%	10.8%
		Other monthly revenue		47	98	147	196	49	98	148
			YoY	-15.2%	-9.7%	-7.8%	-6.4%	4.0%	0.3%	0.6%
	Other service work			9	18	31	59	8	22	45
		YoY		-67.7%	-50.6%	-35.9%	-0.4%	-13.8%	20.9%	45.2%
Quarterly				FY01/22				FY01/23
(JPYmn)				Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Cloud service revenue				572	590	606	643	644	665	689
	YoY			13.6%	15.2%	13.9%	17.6%	12.4%	12.8%	13.7%
	Monthly revenue			563	581	593	615	636	651	666
		YoY		18.4%	15.4%	14.0%	14.7%	12.9%	12.1%	12.3%
		desknet's NEO Cloud		481	495	504	522	539	552	565
			YoY	21.6%	17.0%	14.4%	14.3%	12.0%	11.5%	12.2%
		AppSuite Cloud		19	22	24	28	30	33	35
			YoY	67.2%	71.6%	75.6%	82.9%	62.8%	50.3%	43.1%
		ChatLuck Cloud		14	15	16	17	17	17	16
			YoY	7.6%	2.2%	4.8%	13.5%	21.3%	13.2%	-0.8%
		Other monthly revenue		47	51	49	49	49	49	50
			YoY	-15.2%	-3.8%	-3.9%	-1.8%	4.0%	-3.1%	1.3%
	Other service work			9	9	13	28	8	14	23
		YoY		-67.7%	4.9%	9.0%	154.5%	-13.8%	55.7%	78.8%

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	1,095
	YoY			-15.4%	2.5%	12.6%	11.2%	30.7%	5.6%	2.4%
	Revenue from licenses			67	179	275	370	105	178	268
		YoY		-	-5.9%	1.7%	13.1%	57.8%	-0.7%	-2.8%
		desknet's NEO Enterprise		38	98	145	203	58	89	137
			YoY	-39.7%	-1.2%	4.8%	24.7%	51.5%	-9.3%	-5.7%
		desknet's NEO Small		15	28	41	52	10	21	32
			YoY	-30.3%	-22.8%	-13.3%	-13.4%	-32.0%	-25.4%	-22.5%
		AppSuite		7	28	51	60	22	44	68
			YoY	-52.2%	-3.0%	-2.6%	-8.0%	217.0%	55.7%	35.1%
		ChatLuck		4	21	33	48	12	19	23
			YoY	-71.5%	-5.1%	35.8%	69.2%	203.4%	-10.5%	-30.5%
		Other licenses		3	4	5	6	3	5	7
			YoY	-	-	-38.4%	-38.8%	17.3%	38.7%	47.4%
	Revenue from support services			175	351	531	715	195	394	596
		YoY		7.6%	5.3%	5.1%	4.8%	11.6%	12.3%	12.2%
		desknet's NEO (including former products)		155	311	470	630	169	341	515
			YoY	5.0%	3.3%	3.3%	3.0%	9.1%	9.4%	9.6%
	Revenue from customization			3	43	94	169	16	34	55
		YoY		-83.1%	-22.0%	28.4%	12.2%	448.5%	-21.5%	-41.8%
	Other service work			51	94	168	194	69	98	176
		YoY		-	-	68.8%	36.6%	36.5%	4.8%	4.7%
Quarterly				FY01/22				FY01/23
(JPYmn)				Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Revenue from product sales				295	372	402	379	385	319	391
	YoY			-15.4%	23.0%	34.9%	7.3%	30.7%	-14.3%	-2.8%
	Revenue from licenses			67	112	96	95	105	72	90
		YoY		-42.2%	50.7%	19.6%	67.5%	57.8%	-35.6%	-6.5%
		desknet's NEO Enterprise		38	60	47	58	58	31	48
			YoY	-39.7%	67.5%	20.1%	136.9%	51.5%	-48.3%	1.7%
		desknet's NEO Small		15	13	13	11	10	11	11
			YoY	-30.3%	-12.3%	17.4%	-13.8%	-32.0%	-17.9%	-16.3%
		AppSuite		7	21	22	10	22	22	25
			YoY	-52.2%	45.0%	-2.0%	-28.8%	217.0%	3.9%	9.3%
		ChatLuck		4	17	12	15	12	6	4
			YoY	-71.5%	117.8%	438.2%	263.8%	203.4%	-62.3%	-65.1%
		Other licenses		3			1	3	2
			YoY	-			-40.5%	17.3%	-
	Support Service			175	176	181	184	195	199	202
		YoY		7.6%	3.0%	4.8%	3.8%	11.6%	13.1%	12.0%
		desknet's NEO (including former products)		155	156	159	160	169	172	174
			YoY	5.0%	1.7%	3.4%	2.1%	9.1%	9.8%	9.8%
	Customization			3	40	51	75	16	18	21
		YoY		-83.1%	5.6%	188.3%	-3.2%	448.5%	-55.4%	-59.3%
	Other service work			51			26	69	29	78
		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.

Q3 FY01/23 results

Revenue: JPY4.5bn (+1.9% YoY)
Operating profit: JPY961mn (-3.0% YoY)
Recurring profit: JPY1.1bn (-3.3% YoY)
Net income attributable to owners of the parent: JPY707mn (-4.6% YoY)

Revenue rose YoY. Although revenue had been declining since Q1 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 Q3 results was a JPY22mn increase in revenue and a JPY14mn 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 74.5% for revenue (compared with 74.0% in Q3 FY01/22 against full-year results), 87.8% for operating profit (79.4%), 89.1% for recurring profit (80.0%), and 90.5% for profit attributable to owners of the parent (85.6%).

Performance by segment is outlined below.

Software segment

Revenue: JPY3.1bn (+9.1% YoY)
Operating profit: JPY985mn (+6.6% YoY)

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

Revenue from cloud services: JPY2.0bn (+13.0% YoY)

Total monthly revenue: JPY2.0bn (+12.4% YoY)

desknet’s NEO Cloud: JPY1.7bn (+11.9% YoY)
AppSuite Cloud: JPY98mn (+51.1% YoY)
ChatLuck Cloud: JPY50mn (+10.8% YoY)
Other monthly revenue: JPY148mn (+0.6% YoY)

Other service work, etc.: JPY45mn (+45.2% 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 97% of the initial plan, even though they were 100% of the revised consolidated forecast released on September 14, 2022. Thus, the company plans to put additional measures in place to raise awareness in Q4. Monthly churn averaged 0.29%.

AppSuite Cloud user numbers increased, boosting revenue. As of end-October 2022, only around 9% 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: JPY1.1bn (+2.4% YoY)

Total license revenue: JPY268mn (-2.8% YoY)

desknet’s NEO Enterprise: JPY137mn (-5.7% YoY)
desknet’s NEO Small: JPY32mn (-22.5% YoY)
AppSuite: JPY68mn (+35.1% YoY)
ChatLuck: JPY23mn (-30.5% YoY)
Other licenses: JPY7mn (+47.4% YoY)

Revenue from support services: JPY596mn (+12.2% YoY)

Of which desknet’s NEO (including former products): JPY515mn (+9.6% YoY)

Revenue from customization: JPY55mn (-41.8% YoY)
Other service work, etc.: JPY176mn (+4.7% 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 significant decline in demand for desknet’s NEO Enterprise licenses. The company believes that it should promote desknet’s NEO Enterprise licenses along with the cloud service since this is an area where the company can demonstrate the strength of its products.

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. However, the company expects that demand will remain for the time being, especially for licenses for 100 users or more, even as the use of cloud services becomes more common.

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 JPY515mn (+9.6% 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: JPY57mn (+14.4% YoY)

As for technology development, revenue increased mainly because of ongoing projects from the past, even though the company does not have a policy of actively undertaking outsourced development.

System Development Service segment

Revenue: JPY1.3bn (-12.3% YoY)
Operating profit: JPY49mn (-51.9% 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 rose along with an increase in personnel costs, training costs, and system maintenance fees, even though the cost of revenue fell because of lower revenue. In response to the revenue decline, the company is making additional proposals to existing clients, developing new clients, implementing measures to retain employees, and increasing the hiring of mid-career employees.

Overseas segment

Revenue: JPY7mn (+416.9% YoY)
Operating loss: JPY73mn (loss of JPY35mn in Q3 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. However, since Q1 FY01/23, the company has been focusing on generating business by hiring local sales representatives, revising its marketing approach, and participating in local trade shows to fully resume sales activities as the two countries' economies began to normalize. The company aims to return to profitability in Q4 (November 2022–January 2023) in both countries. Nevertheless, it expects a loss for full-year FY01/23 in part because growth in recurring revenue is slower than projected. The company must also generate more business in Malaysia and more quickly win new projects in Thailand.

In the US, the company maintained efforts to provide new services based on local market research, but there was a decline in transactions commissioned by the company.

NEOJAPAN 3921