SHIFT INC.

Business Details

Provides software testing & quality assurance, consulting/PMO, customer support, and security as its main services. Leverages its proprietary CAT (Test Support Tool) certification and tools for standardization and efficiency as a strength to develop the enterprise-oriented test outsourcing market. Key affiliated companies include SHIFT itself, along with SHIFT PLUS, SHIFT SECURITY, SHIFT ASIA, and SHIFT GLOBAL. The domestic software testing market is estimated at approximately ¥5.5 trillion, and the company is establishing an overwhelming position in this market, where outsourcing has not yet become widespread.

Recent Overview

Net sales rose 20.5% YoY, remaining solid, but operating profit declined 3.1% due to higher recruitment costs.

During the cumulative nine months of the current third quarter (September 2025 to May 2026), net sales grew steadily to ¥74,534 million (up 20.5% YoY) due to thorough proposal-making from the customer's perspective. On the other hand, SG&A expenses rose substantially to ¥10,173 million (up 52.3% YoY) due to increased recruitment costs associated with the normalization of hiring activities, which had been strategically curtailed in the previous fiscal year, resulting in operating profit of only ¥15,662 million (down 3.1% YoY). Progress also continued on creating generative AI-related services, including the launch of the AI Test Agent.

Key Products

Growth Drivers

• Rising quality assurance needs driven by the continued expansion of DX demand and the accelerating real-business implementation of new technologies such as generative AI
• Deepening penetration into untapped areas of the enterprise software testing outsourcing market (estimated at approximately ¥5.5 trillion)
• Continued increase in per-customer monthly sales unit price and number of monthly transacting customers through thorough proposal-making from the customer's perspective (standalone per-customer monthly sales unit price of ¥9,121 thousand, 2,228 monthly transacting customers)
• Transition to non-linear growth driven by the launch of generative AI-related services such as the AI Test Agent (testing-category AI-related sales of ¥5,791 million)
• Expansion of service areas and customer base, as well as expansion of the scope of consolidation, through M&A

Risks

• Profit margin pressure from increased recruitment and personnel costs associated with the normalization of hiring activities (evident in the 52.3% YoY increase in SG&A expenses for the cumulative nine months of the current third quarter)
• Risk of temporary deterioration in utilization rates due to strategic concentration of sales resources aimed at securing large-scale projects
• Risk of short-term profitability decline due to upfront investment in AI-related initiatives
• Intensifying competition for engineer recruitment and rising talent acquisition costs
• Risk of demand decline due to client companies' restraint on IT investment or economic deterioration (including US trade and tariff policy trends, instability in the Middle East, etc.)
• Risk of security incidents or information leaks (given the business characteristic of handling clients' critical information assets)

Business Details

Provides services directly involved in the software development process, including System Development Services, System Performance Improvement Services, IT Strategy Formulation & Consulting, system planning/design, the Engineer Matching Platform, and Data Analytics Services. Serves both end-user companies and partner companies as customers, accounting for approximately 31% of consolidated net sales for the cumulative nine months of the third quarter of FY2026 (ending August 2026). Nissay Com joined the scope of consolidation from the current third quarter, resulting in a substantial increase in goodwill.

Recent Overview

Goodwill of ¥12,528 million newly arose from the consolidation of Nissay Com; operating profit declined 19.4% YoY due to upfront recruitment costs

During the cumulative nine months of the third quarter of FY2026 (ending August 2026), the acquisition of all shares and consolidation of Nissay Com increased segment assets by ¥29,768 million, generating provisional goodwill of ¥12,528 million. Net sales grew steadily to ¥35,978 million (up 20.7% YoY), while SG&A expenses swelled 36.0% to ¥7,613 million due to upfront investment in recruitment costs, resulting in a decline in operating profit to ¥1,761 million (down 19.4% YoY). EBITDA also came in at only ¥2,785 million (down 6.7% YoY).

Key Products

Growth Drivers

• Expansion of sales scale and acquisition of a new customer base through the consolidation of Nissay Com Co., Ltd.
• Strengthening of the engineer workforce and expansion of active projects through the normalization of hiring activities
• Expansion of DX demand and growth in generative AI utilization projects (consolidated AI-related sales of ¥2,615 million for the cumulative nine months of the third quarter)
• Increase in per-customer unit price through strengthened direct proposals to end-user companies
• Expansion of development services to software testing clients through intra-group cross-selling
• Full-year effect of the performance of consolidated subsidiaries acquired through M&A in the prior fiscal year

Risks

• Profit margin pressure from upfront increases in recruitment and personnel costs (operating profit down 19.4% YoY for the cumulative nine months of the third quarter)
• Risk of impairment in the event of business deterioration due to the substantial increase in goodwill balance (consolidated total of ¥19,296 million), including provisional goodwill of ¥12,528 million related to the Nissay Com acquisition
• Risk of delayed PMI or increased integration costs related to Nissay Com (allocation of acquisition cost remains a provisional figure not yet finalized)
• Rising talent acquisition costs due to intensifying competition for engineer recruitment
• Risk of profitability decline due to dependence on a subcontracting structure, given the high proportion of sales through partner companies
• Risk of elevated M&A-related costs remaining high, as seen in the sharp increase in M&A acquisition-related expenses (¥62 million, 29.7 times the prior-year period)

Business Details

A segment providing services based on business models distinct from the existing software testing and development businesses, including Web Planning & Production / Marketing, Kitting & Cloud Services, Localization & Bilingual Staffing, M&A/PMI Support, and bilingual staffing placement. Key affiliated companies include Nadia Corporation, xbs Co., Ltd., SNC Co., Ltd., CLUTCH Co., Ltd., VISH Co., Ltd., DICO Co., Ltd., and SHIFT Growth Capital Co., Ltd. This segment accounts for approximately 8.5% of group-wide net sales composition (cumulative nine months of the third quarter of FY2026 ending August 2026).

Recent Overview

Driven by Windows 11 replacement demand, net sales grew 29.4% and operating profit grew 94.7%, showing substantial improvement

During the cumulative nine months of the third quarter of FY2026 (ending August 2026), sales at some group companies performed strongly, centered on Windows 11-equipped PC replacement demand, resulting in net sales of ¥9,892 million (up 29.4% YoY) and operating profit of ¥786 million (up 94.7% YoY), a substantial improvement. Both goodwill amortization (¥341 million) and depreciation related to customer-related assets (¥203 million) decreased YoY. Impairment losses shrank to ¥501 million (from ¥977 million in the same period prior year), although impairment of business assets continued to occur at some consolidated subsidiaries within Other Adjacent Services where excess earning power was no longer expected. M&A acquisition-related expenses decreased to ¥145 million (down 15.1% YoY).

Key Products

Growth Drivers

• Continued strong performance in the product sales and kitting business, centered on demand for Windows 11-equipped PC replacements
• Sales increase effect from the full-year contribution of subsidiaries consolidated mid-year through M&A in the previous fiscal year
• Promotion of cross-selling leveraging the SHIFT Group's existing customer base
• Continued incorporation of new group companies and business expansion leveraging M&A/PMI capabilities
• Increased demand for Web Planning & Production / Marketing and cloud services amid expanding DX demand

Risks

• Risk of impairment of goodwill and customer-related assets: impairment losses of ¥501 million recognized for the cumulative nine months of the third quarter of FY2026 ending August 2026 (¥977 million in the same period prior year), with cases continuing to occur at some consolidated subsidiaries where excess earning power is no longer expected
• The product sales business (kitting, etc.) is partly dependent on temporary demand such as Windows 11 replacement, creating a risk of a rebound decline once such demand has run its course
• As an aggregation of diverse business models, performance varies significantly among individual companies, resulting in lower overall earnings stability for the segment
• M&A acquisition-related expenses: ¥145 million for the cumulative nine months of the third quarter, a decrease YoY, but the potential for further cost increases remains depending on future M&A activity
• Unamortized goodwill balance remains (group-wide goodwill balance of ¥19,296 million as of the end of May 2026), leaving a residual risk of further impairment should the business environment deteriorate