TeamSpirit Inc.

The Group's applications are built on the Lightning Platform provided by Salesforce Japan Co., Ltd. If Salesforce were to change its management strategy resulting in discontinuation or suspension of the platform, functional failures, loss of competitive advantage, fee increases, or termination of the OEM partner agreement, the Group's business continuity would be directly and severely impacted. Although there is currently no breach of termination clauses and no plan for Salesforce to withdraw from Japan, the extremely high degree of dependence on a single platform, combined with the difficulty of securing alternatives, constitutes a structural risk.

Because the Group employs a subscription-based recurring revenue model, an increase in the churn rate directly reduces revenue. A certain level of churn occurs every year due to changes in customer usage patterns and business environments, and the budget and business plan incorporate expected future churn. However, if churn exceeds expectations, it could materially affect operating results. Although the Group strives to keep the churn rate low through initiatives to improve customer satisfaction, increases in churn resulting from changes in the external environment are difficult to control.

In the front-office solutions area such as attendance management and expense reimbursement, numerous competitors exist, particularly in the mid-size and small business markets, and competition may intensify due to competitors' technological advances or the unexpected emergence of new services. Intensifying competition could slow the pace of new contract acquisitions and increase churn among existing customers, affecting the Group's financial position and operating results. The Company seeks to differentiate itself through integrated multi-function offerings and the introduction of a single-function plan in September 2023, but the increase in cloud-based competitors in the enterprise market is also a concern going forward.

The Group's revenue consists solely of the SaaS Business, comprising "TeamSpirit" and related services, and the Group's structure does not benefit from risk hedging through business diversification. If growth in the cloud market or demand for improved labor productivity slows, or if the Group fails to respond appropriately to changes in the business environment, its financial position and operating results would be directly and broadly affected. While the Group anticipates continued demand for productivity improvement due to Japan's declining working population, dependence on a single business increases vulnerability to changes in the external environment.

The Group handles information assets belonging to numerous customer companies, and if important information assets were to leak externally for any reason, the resulting loss of social trust and potential liability for damages could affect the Group's financial position and operating results. Although the Group strives to strengthen its information management framework through the formulation of a basic information security policy and training and education for officers and employees, it is difficult to completely eliminate risks such as cyberattacks and internal misconduct.

The Group's applications are provided over the internet and depend on the availability of communication networks and infrastructure. If a large-scale system failure were to occur due to unexpected trouble such as a natural disaster or accident, service provision would be interrupted, affecting the Group's financial position and operating results. Although the Group seeks to reduce this risk by building its applications on the Lightning Platform, complete avoidance is difficult, including failures on the platform side.

Sustaining business growth requires the stable acquisition of engineers, consultants, and sales personnel; however, if recruitment and training do not proceed as planned, or if employee attrition increases, smooth service delivery and proactive order-acquisition activities would be hindered. Although the Group continues to implement recruitment and training initiatives, securing excellent talent is becoming increasingly difficult amid intensifying competition in the IT talent market, raising concerns about the impact on the Group's financial position and operating results.

The Group's flagship product "TeamSpirit" includes attendance and work management functions as one of its main features; however, if performance-based work styles become widespread, or if regulatory amendments alter the significance of attendance and work management, demand for the product could decline, affecting business activities. Because trends in work-style reform-related legislation and changes in corporate labor management policies directly affect the market value of the product, continuous regulatory monitoring and adaptation of product functionality are required.

New contract timing tends to be concentrated in the second half of the Company's fiscal year (based on the assumption that customers' fiscal year-end is March), influenced by customer companies' HR and IT budgeting schedules and system renewal plans. If the number of contracts acquired falls significantly short of expectations due to changes in system renewal plans or other factors, this could adversely affect the Group's financial position and operating results. Fluctuations in the timing of revenue recognition may be further amplified by the lengthening of sales negotiations resulting from increased focus on enterprise customers.

Although the Group conducts development processes and quality checks from the planning stage through to production release, if a serious defect (such as a bug) occurs after delivery to customers, the resulting additional costs for repairs, loss of trust, and potential liability for damages could adversely affect business activities and operating results. Because the Group provides mission-critical functions, such as attendance management, that employees use daily, a distinctive feature of this risk is that the impact of defects tends to be wide-ranging and can cause significant actual harm to customers.