Key Positives From The 2Q Results
1H cumulative operating income came in at JPY 1,282M (-24.3% YoY). However, adding back JPY 269M in one-off Tokyo HQ relocation costs and JPY 80M from two loss-making projects gives adjusted operating income of JPY 1,632M (-3.6% YoY, company reference figure). One-off factors therefore explain most of the profit decline. The core DX&SI business sustained profit growth, and all one-off costs were booked in 1H.
- One-Offs Behind Us: The JPY 350M in one-off items was fully booked in 1H, and no new loss-making projects have emerged. Of the two loss-making projects, one has been wrapped up and the other has returned to normal operations.
- DX&SI Margin Expansion: Under the new portfolio classification, DX&SI operating income rose +16.6%, with margin at 17.3% (+1.7pt). Improved profitability on prime contracts underpinned company-wide earnings.
- BankNeo Ahead of Target: BankNeo's adoption share reached 13.9%, beating the full-year target of 13.5% within 1H. The company is capturing sustained IT investment by financial institutions, a leading indicator for expansion of its proprietary brands.
- Healthcare Big Data Backlog Growth: Order backlog rose to JPY 2,449M (+22.4%). Budget execution by insurers and local governments concentrates in the second half of the fiscal year, leaving substantial room for 2H revenue recognition.
- Shareholder Returns Stepped Up: The company executed JPY 720M of its first-ever share buyback by end-September and raised the interim dividend to JPY 15 (prior year: JPY 11). Its commitment to improving capital efficiency is now translating into concrete action.
Key Concerns From The 2Q Results
Profit declined even on an adjusted basis. Labor costs within COGS rose JPY 310M (+6.9%), outpacing revenue growth of +2.7%, and this cost structure persists. Delivering the full-year plan requires 2H operating income to grow +29.3% versus 2H of the prior year. That leaves the plan heavily dependent on the timing of vendor selection for new GAKUEN projects.
- Gross Margin Compression: Gross profit margin fell to 26.7% (-2.1pt). Price pass-through has not kept pace with rising labor costs, and adjusted operating income still fell -3.6%, pointing to structural profit headwinds.
- GAKUEN Share Gap: GAKUEN's share of adopting institutions stands at 27.9%, still short of the full-year target of 29.7% (244 institutions). Only six universities completed vendor selection in 1H, so results could swing widely depending on 2H selection outcomes.
- Weaker DX&SI Backlog: DX&SI order backlog fell to JPY 5,729M (-7.2%), and the company-wide secured-order ratio dropped to 66.2% (prior year: 71.6%). Management attributes this to timing slippage in orders, but a 2H recovery in order intake needs to be confirmed.
- Recurring Relocation Costs: Ongoing costs from the Tokyo HQ relocation (incremental rent and depreciation) are expected to total JPY 223M in 2H. Unlike the one-off costs, these will remain in the fixed-cost base from next fiscal year onward.
- Upfront Investment Weighing on Profits: Healthcare Big Data and Packages posted lower profits due to upfront investment in personnel and organizational capacity. No payback timeline has been provided, leaving the timing of profit contribution unclear.
Focus Areas / Items To Monitor Going Forward
- GAKUEN 2H Pipeline: Vendor-selection opportunities for GAKUEN in 2H have expanded to roughly 1.9x the prior-year level. The number of wins and the timing of package revenue recognition will determine whether the Education domain delivers the required 2H revenue of JPY 5,017M (+22.4% vs. 2H of the prior year).
- Labor Cost Absorption: The key structural question for restoring adjusted margins is whether rising labor costs can be absorbed through unit-price revisions and productivity gains from generative AI-driven development. The company plans to disclose measured productivity results going forward.
- DX&SI Order Recovery: Monitor the build-up of new DX&SI orders expected from October onward and the completion timing of BankNeo implementation projects. 3Q results should confirm whether the backlog is recovering and how 2H profit is progressing.
- Number of universities in the GAKUEN 2H vendor-selection pipeline, expected number of wins, and the level assumed in the full-year plan
- Progress Rate on unit-price revisions and cost pass-through to offset rising labor costs, and the gross margin outlook for next fiscal year
- Quantitative metrics for productivity gains from generative AI-driven development, and the timing of disclosure
- Background to the decline in DX&SI's prime-contract ratio (59.6%→56.3%) and the shrinking backlog, and confidence in an order recovery from October onward
- Timeline for reaching a 50% payout ratio, status of M&A candidate screening, and criteria for additional shareholder returns
- Annualized level of ongoing Tokyo HQ relocation costs from next fiscal year onward, and expected sales results from the Tokyo base
Key Financial Highlights
| Item | Value | YoY |
|---|---|---|
| Revenue | JPY 15,337M | +2.7% |
| Cost of Goods Sold | JPY 11,249M | +5.8% |
| └Labor Costs | JPY 4,809M | +6.9% |
| Gross Profit | JPY 4,087M | -4.9% |
| Gross Profit Margin | 26.7% | -2.1pt |
| SG&A | JPY 2,804M | +7.7% |
| └Tokyo HQ Relocation-Related Costs (SG&A Portion) | JPY 211M | - |
| Operating Income | JPY 1,282M | -24.3% |
| Operating Income Margin | 8.4% | -3.0pt |
| Adjusted Operating Income (Company Reference Figure) | JPY 1,632M | -3.6% |
| Recurring Profit | JPY 1,358M | -21.0% |
| Extraordinary Losses (Impairment Losses) | JPY 155M | - |
| Interim Net Income Attributable to Owners of Parent Company | JPY 745M | -32.6% |
| EPS | JPY 30.26 | -32.4% |
| 2Q Standalone Revenue | JPY 7,900M | +0.1% |
| 2Q Standalone Operating Income | JPY 892M | -25.6% |
| Order Backlog (End-September) | JPY 12,559M | +0.1% |
- Drivers of the Profit Decline: Operating income fell JPY 410M YoY. Against this, Tokyo HQ relocation-related costs of JPY 399M and the two loss-making projects (JPY 80M) had a combined impact of JPY 480M (company disclosure). The relocation-related costs include both one-off and recurring components.
- Non-Operating Support: Recurring profit fell less than operating income because non-operating income rose to JPY 84M (prior year: JPY 31M), including JPY 43M in insurance surrender proceeds.
- Extraordinary Loss: The extraordinary loss reflects a JPY 155M impairment following the decision to sell an employee dormitory in Hirakata City, Osaka Prefecture. The asset is classified as a shared corporate asset and is excluded from segment profit.
- 2Q Standalone Rebound: 2Q standalone operating income was JPY 892M, up +128.7% from 1Q (JPY 390M) (this report's estimate). Note, however, that JPY 337M of relocation costs were concentrated in 2Q.
Performance By Business Segment
DX&SI sustained revenue and profit growth and served as the company's earnings base. Packages posted the steepest profit decline. Vendor selection for new GAKUEN projects is concentrated in 2H, and growth investment added to the burden. Corporate expenses (JPY 1,351M, +26.5%) include Tokyo HQ relocation-related costs of JPY 399M, comprising JPY 269M in one-off costs and JPY 130M in recurring costs.
Segment Performance Table
| Segment | Revenue | YoY | Operating Income | YoY | Margin |
|---|---|---|---|---|---|
| DX&SI | JPY 9,788M | +3.7% | JPY 1,737M | +4.3% | 17.7% |
| Packages | JPY 3,204M | -2.9% | JPY 857M | -23.5% | 26.8% |
| Healthcare Big Data | JPY 1,410M | +13.0% | JPY 147M | -23.9% | 10.5% |
| Global | JPY 933M | -0.9% | JPY -109M | Loss narrowed (prior year: JPY -219M) | -11.7% |
| Adjustments (Corporate Expenses, etc.) | - | - | JPY -1,351M | - | - |
| Total | JPY 15,337M | +2.7% | JPY 1,282M | -24.3% | 8.4% |
(Revenue reflects sales to external customers. Margins are this report's estimates based on external customer revenue.)
- DX&SI: Prime contracts held firm, led by telecommunications and financial services, securities and insurance, driving higher revenue and profit. By customer, the NTT Group's share of revenue rose to 28.7% (+2.6pt).
- BankNeo (Packages Business): Adopting financial institutions totaled 72 at end-September. As Japan shifts to a "world with interest rates," IT spending by major financial institutions continues. The company is expanding into online banks, life and non-life insurers, and securities firms.
- Healthcare Big Data (Revenue): Revenue rose +13.0% on strong analytics services and medical claims (receipt) review services. Data health promotion projects also drove growth.
- Global (Profit): An impairment of fixed assets at the Malaysian subsidiary at the end of last fiscal year reduced the depreciation burden. As a result, the operating loss narrowed from JPY -219M to JPY -109M. In Thailand, contract development projects drove revenue growth.
- Packages (GAKUEN): Revenue fell for GAKUEN series sales and EUC development. Investment in talent development and training, plus build-out of consulting capacity to strengthen offerings, pushed operating income down -23.5%. Under the new classification, the Education domain's operating income fell -34.6%.
- Healthcare Big Data (Profit): Revenue growth could not fully absorb upfront investment in personnel and organizational capacity for new business expansion. Margin fell to 10.5% (prior year: 15.5%).
- Global (Malaysia): Revenue declined on weak inquiries for SAP implementation support projects, offsetting revenue growth in Thailand. Segment revenue was flat overall.
Progress Versus Full-Year Guidance
1H operating income progress was 30.9%, below both the prior-year level of 43.3% and the low end of the past three years' range (32.8–43.3%). Management says progress would be 36.3% after adjusting for one-off factors, which is within the range. However, the full-year plan requires 2H operating income of JPY 2,867M (+29.3% vs. 2H of the prior year). This assumes new GAKUEN wins and a recovery in DX&SI orders. Net income progress was only 25.3% (prior year: 42.2%), requiring +45.5% growth in 2H versus 2H of the prior year.
| Account | Value (2Q Cumulative) | Full-Year Forecast | Progress |
|---|---|---|---|
| Revenue | JPY 15,337M | JPY 34,300M | 44.7% |
| Operating Income | JPY 1,282M | JPY 4,150M | 30.9% |
| Recurring Profit | JPY 1,358M | JPY 4,200M | 32.4% |
| Net Income Attributable to Owners of Parent Company | JPY 745M | JPY 2,950M | 25.3% |
| EPS | JPY 30.26 | JPY 119.34 | 25.4% |
Changes To Guidance
Full-year guidance was left unchanged from the figures announced on May 14, 2026. Management cited three reasons: the drivers of the 1H profit decline have been identified, one-off costs were fully booked in 1H, and the loss-making projects have been resolved. The company will report 2H progress with 3Q results and intends to disclose promptly if a revision becomes necessary.
Commentary On Shareholder Returns
- Dividend: The interim dividend is JPY 15 (prior year: JPY 11). The annual dividend forecast of JPY 50 (previous fiscal year: JPY 45) is unchanged, implying a forecast payout ratio of 41.9%. The medium-term management plan targets a 50% payout ratio, a total return ratio of 50% or higher, and DOE of 10.0% by FY3/2029.
- Share Buyback: The buyback approved on June 26, 2026 (up to 2 million shares / JPY 2.5B, through June 25, 2027) is the company's first since listing. By end-September, it had repurchased 357,700 shares for JPY 720M, or 29.1% progress by value.
- Cancellation and Additional Returns: All repurchased shares, except those allocated to incentive plans, are slated for cancellation. Management has indicated it will consider additional shareholder returns absent attractive investment opportunities.
Financial Position
The company remains effectively debt-free, with a high equity ratio of 67.8%. Cash and deposits declined in 1H due to capex for the Tokyo HQ relocation, the share buyback and dividends. Management views this as effective deployment of cash, consistent with the capital-efficiency goals in its medium-term plan's capital policy.
- Key Figures
- Leverage Metrics
| Account | Value | Additional Information |
|---|---|---|
| Cash and Deposits | JPY 8,904M | -2.3% vs. prior fiscal year-end |
| Cash and Cash Equivalents | JPY 8,647M | -1.8% vs. prior fiscal year-end |
| Notes and Accounts Receivable, and Contract Assets | JPY 6,832M | -24.9% vs. prior fiscal year-end |
| Property, Plant and Equipment | JPY 1,771M | +64.3% vs. prior fiscal year-end; increase in buildings, etc. from Tokyo HQ relocation |
| Contract Liabilities | JPY 1,512M | +199.3% vs. prior fiscal year-end |
| Shareholders' Equity | JPY 16,027M | -4.3% vs. prior fiscal year-end; treasury shares JPY -758M |
| Interest-Bearing Debt | JPY 49M | Total long-term borrowings |
| └ Long-Term Borrowings | JPY 38M | - |
| └ Current Portion of Long-Term Borrowings | JPY 11M | - |
| EBITDA | JPY 1,447M | Operating income + depreciation and amortization (incl. software amortization and goodwill amortization); this report's estimate. -22.2% YoY |
| Metric | Value | Notes |
|---|---|---|
| Net Debt/EBITDA | Net Cash | Cash and deposits exceed interest-bearing debt by JPY 8,855M; this report's estimate |
| Debt/Equity | 0.003x | This report's estimate; 0.003x at prior fiscal year-end |
| Interest Coverage Ratio | 356.4x | Operating income ÷ interest expense of JPY 3.6M; this report's estimate |
| Equity Ratio | 67.8% | Company disclosure; 66.2% at prior fiscal year-end |
Disclosures Released Alongside The Earnings Announcement
None
Major Announcements During The Quarter
- 2026/09/08Launched an end-to-end service supporting small and mid-sized organizations in obtaining "Certified Health & Productivity Management Outstanding Organization" status. Part of new business expansion in the healthcare and medical domain
- 2026/09/25Disposed of treasury shares as restricted stock compensation. An incentive measure to strengthen talent and organizational capabilities
- 2026/10/28Approved an interim dividend of JPY 15 (prior year: JPY 11), confirming the dividend growth trend toward the JPY 50 annual forecast
- 2026/11/02Disclosed progress on the first share buyback since listing. Open-market purchases under a discretionary trading agreement are continuing
- 2026/11/04Surveyed 1,305 undergraduate and graduate students on their use of AI and digital tools. Roughly 40% had missed important communications from their university, highlighting challenges in the Education domain centered on GAKUEN
Large-Shareholding Filings / Material Proposals Over The Past Year
- MIRI Capital Management LLC: 27.3%→28.3% (2025/12/11) - Purpose: investment (management of client assets under funds and discretionary investment agreements). May provide advice to management or make material proposals depending on circumstances
- MIRI Capital Management LLC: 28.3%→29.3% (2026/02/04) - Purpose: investment (management of client assets under funds and discretionary investment agreements). May provide advice to management or make material proposals depending on circumstances
- Takeaki Hirabayashi: 28.8%→28.8% (2026/03/31) - Amendment report. Reason for filing: change in material contracts such as collateral agreements. Holds shares as founder for the purpose of participating in management; founding-family joint holders hold long-term as stable shareholders
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