■ Performance Trends of Dream Arts <4811>

1. Overview of Performance for the 2nd Quarter of the Fiscal Year Ending December 2024

For the cumulative consolidated performance of the second quarter of the fiscal year ending December 2024, sales were 24.15 billion yen (9.7% increase year-on-year), operating profit was 3.61 billion yen (2.4% decrease), ordinary profit was 3.57 billion yen (2.7% decrease), and net profit attributable to the parent company's shareholders was 2.50 billion yen (3.0% decrease), reflecting increased revenue and decreased profit. In order to finalize the business model transition to cloud operations, they have stopped acquiring new customers for on-premises operations and are actively promoting the transition to the cloud for existing on-premises clients. While the overall company growth has temporarily slowed down, the progress rates for the full-year performance forecast at the beginning of the period are positive, with sales at 50.3% and operating profit at 62.4%. The on-premises business experienced a 9.0% revenue decline compared to the previous year, while the professional services business, which is driving a pruning strategy to propose transitions to cloud and other cutting-edge platforms to some customers, saw a 33.8% revenue decline. However, the core cloud business maintained growth with a 25.6% revenue increase. The sales ratio of the cloud business reached 76.7% (a 9.7 point increase), and when combined with on-premises operations, the stock sales ratio reached 88.2% (an 8.4 point increase), establishing a stable revenue foundation. Within the cloud business, the number of companies adopting Horizontal SaaS increased by 36 from the previous year to 155, leading to a 33.4% revenue growth. The scalability of "SmartDB" and its high interoperability with core systems and other SaaS solutions have received high praise. The company's proposal capability accurately capturing the needs for updates of core systems in listed companies and their peripheral systems has led to larger new projects and successful upselling. The company's key performance indicator Net Revenue Retention (NRR) for Horizontal SaaS stands at 117.9%, driven by successful upselling to existing customers.

※ NRR: Abbreviation for Net Revenue Retention. The percentage change in monthly user fees for companies using the service one year later (June 2023 to June 2024).

On the profit and loss front, with the growth of the cloud business, costs such as infrastructure costs for cloud services like Microsoft Azure led to an increase in variable costs. However, due to continued appropriate cost control measures such as optimizing the operating environment, the gross profit margin increased by 2.2 points over the previous year to 57.2%. Gross profit reached 1.381 billion yen, a 14.0% increase compared to the same period last year. Additionally, an increase in employees geared towards new acquisitions (10 more employees) and a rise in salary levels primarily for younger employees, along with an increase in advertising and promotional expenses, resulted in selling, general, and administrative expenses rising to 1.019 billion yen, a 21.2% increase, leading to a 2.4% decrease in operating profit.

(Author: FISCO Guest Analyst Shuji Matsumoto)