Direct-Sales Cameras Up 32.0% Drive Growth; 2Q Earnings Decline on Front-Loaded Hiring, Full-Year Guidance Maintained; Enterprise Demand Remains Solid

Summary

FY2026 2Q revenue reached JPY 5,311M (+18.3%) and gross profit JPY 2,765M (+22.0%), sustaining growth momentum. However, adjusted operating income came in at JPY 18M, down QoQ. The decline stems from deliberate front-loaded investment, primarily in hiring. Management framed this as appropriate upfront investment rather than an earnings deterioration and left full-year guidance unchanged. On the call, management disclosed that it had pre-secured over JPY 1B of camera inventory in anticipation of tightening semiconductor and flash memory supply. Management also noted that rising hard disk prices are putting on-premise systems at a relative disadvantage, making the competitive landscape more favorable for Safie. Retail enterprise ARR rose +35.4%, 49 of the top 50 construction companies now use the service, and logistics ARR has compounded at +35.7% CAGR — evidence that industry-specific on-site AX is scaling horizontally.

Key Points (Results Highlights and Growth Initiatives)

• Management Strategy and Market View
  • The business strategy comprises four stages: cameras → monitoring → industry-specific on-site AX → new AI-enabled businesses.
  • Rather than limiting itself to the cloud recording market of roughly 550K units, the company targets the installed camera base, projected at roughly 9M units by 2028, as its main battleground.
  • Against a JPY 1.92T security industry market, the job-openings-to-applicants ratio for security personnel stands at 6.55x. Management expressed conviction that AI-based security can close this labor supply-demand gap.
  • Management characterized the earnings decline as appropriate upfront investment rather than profit deterioration, prioritizing the build-out of an increasing-returns model.
• Current Business Progress and Drivers
  • Safie PRO direct-sales billable cameras rose +32.0% YoY (169K units), with expanding enterprise adoption driving growth.
  • Recurring gross margin edged down on higher costs from yen depreciation and cloud feature expansion; spot gross margin was flat QoQ.
  • SG&A rose JPY 203M QoQ to JPY 2,767M, with S&M and G&A ratios to revenue both increasing.
  • Headcount grew from 557 in January 2026 to 644 in July, and gross profit per employee declined to JPY 17.6M.
• Key Strategic Initiatives and Inflection Points
  • Anticipating tight semiconductor supply, the company pre-procured over JPY 1B of camera inventory in the first half. Merchandise inventory rose from JPY 874M to JPY 1,906M.
  • Safie Security, 18 months after establishment, is advancing toward full-scale service launch, with bear detection AI and visual monitoring services launched in July 2026.
  • Unsafe-behavior detection using Ailytics-equipped Safie GO PTZ has been validated at major construction and infrastructure players, with a growing pipeline of planned deployments.
  • Centered on Safie Trail Station, which brings installed cameras to the cloud, the company is opening up mid- to large-scale store customers — a previously underpenetrated segment.

Outlook and Strategy

• Full-year guidance is unchanged at revenue of JPY 23.2B and adjusted operating income of JPY 450–650M, with positive adjusted operating income expected in both 3Q and the full year.
• Management sees second-half revenue as achievable on the back of strong enterprise inquiries, while noting deployment timing may shift somewhat either way.
• SG&A policy is to continue hiring while modulating the pace to stay within the disclosed profit range.
• In retail, the company will cross-sell RURA remote customer service and BONX cloud intercom, expanding into banks, telecom carrier shops, and other customer-facing service sectors.
• In logistics, WMS integration and automatic license plate recognition serve as entry points, with demand tied to logistics efficiency legislation being cultivated as the next pillar.
• Management explicitly stated its intention to recover gross profit per employee in 3Q and 4Q.

Positive Factors

• ARR of JPY 15,791M (+22.8%) and 385K billable cameras (+20.7%) demonstrate an expanding recurring base.
• Retail/service enterprise ARR grew +35.4%, with customer count up +16.5% and ARPC up +16.2% — growth on both axes.
• In construction, annual ARR from the five largest general contractors has grown roughly 3.1x over five years, with 49 of the top 50 companies now using the service.
• Logistics customer year-end ARR compounded at +35.7% CAGR from FY2022 to FY2025; at MonotaRO, deployment reached roughly 1,000 cameras across all sites, about 2.6x the 2020 level.
• Pre-secured inventory has turned supply capability into a competitive advantage, with enterprise customers facing procurement difficulties now relying on Safie's stock.
• Company-wide churn remained low and stable at 0.8%, with the direct sales channel at 0.5%.

Concerns and Risks

• Adjusted operating income narrowed to JPY 18M from JPY 203M in the prior quarter; balancing upfront investment against profit is the near-term focus.
• Recurring gross margin is trending lower on FX and rising cloud costs, leaving further pressure if yen weakness persists.
• Gross profit per employee fell from JPY 20.5M (4Q25) to JPY 17.6M; how quickly new hires become productive is key to recovering productivity.
• A JPY 200M impairment on fixed assets related to office expansion was booked. The company will maintain conservative treatment as long as bottom-line losses persist.
• Continued price increases in flash memory, hard disks, and other components could amplify the impact on procurement costs and COGS.
• The monitoring/security domain requires regulatory compliance, so lead times to full-scale service launch will determine when revenue contribution materializes.

Performance Highlights

FY2026 2Q revenue was JPY 5,311M (+18.3% YoY), gross profit JPY 2,765M (+22.0% YoY), and gross profit margin 52.1%. The recurring revenue ratio was flat QoQ at 73%, reflecting continued progress toward a recurring revenue structure. With SG&A of JPY 2,767M, operating income was ▲JPY 1M, while adjusted operating income remained positive at JPY 18M.

Segment Results

• ARR: JPY 15,791M (+22.8% YoY)
• Billable Cameras: 385K units (+20.7% YoY)
• Safie PRO Direct Sales Channel Cameras: 169K units (+32.0% YoY)
• Safie PRO Wholesale Channel Cameras: 159K units (+12.8% YoY)
• Solutions Revenue: JPY 242M (+63.5% YoY, estimated in this report)
• ARPC: JPY 40.9K (vs. JPY 40.2K in the prior-year quarter)
• Gross Profit per Employee: JPY 17.6M (vs. JPY 17.5M in the prior-year quarter)
• Safie PRO 12-Month Average Churn Rate (Company-Wide): 0.8% (vs. 0.8% in the prior-year quarter)
• Gross Profit Margin: 52.1% (vs. 50.5% in the prior-year quarter)

Q&A List

• Q: You attribute the 2Q earnings decline to front-loaded investment. Could you elaborate on the specifics?
  A: The decline is almost entirely attributable to front-loaded investment in people — specifically, aggressive hiring. We see substantial headroom across our target industries and in the monitoring domain. In addition to new graduates who joined in April, we pursued mid-career hiring from April through June at a pace equal to or exceeding new graduate intake. We are actively adding headcount in both sales and development as investment for future needs, and this accounts for the bulk of the earnings decline. Promotional expenses and office expansion costs, which recur every 2Q, also had a marginal impact, but the primary driver is front-loaded investment in talent.
• Q: Full-year guidance calls for revenue of JPY 23.2B and adjusted operating income of JPY 450–650M. Could you comment on your outlook for achieving each in the second half?
  A: We are maintaining our full-year outlook unchanged. We intend to deliver solid profit for the full year, and our revenue outlook is likewise unchanged.
• Q: What drove the JPY 200M impairment?
  A: As separately disclosed, this impairment relates to fixed assets arising from office expansion, booked as an extraordinary loss. We consistently apply fairly conservative accounting: each time new fixed assets are capitalized, we review them quarterly and record impairments. We continued that policy this time. As long as bottom-line losses persist, we will continue impairing such assets on a quarterly or semiannual basis. If net income turns positive going forward, these may shift to normal depreciation rather than impairment, but this quarter's treatment follows the same rationale as before.
• Q: You said 2Q is tracking well against the full-year revenue plan, but backing that out implies roughly JPY 12.8B in the second half. Seasonality does build from 1Q to 4Q, but that still looks somewhat high. Do you currently have visibility into orders sufficient to keep second-half revenue on track?
  A: We believe the revenue plan is progressing well. Historically, revenue builds seasonally from 2Q through 4Q, and inquiries from enterprise customers are particularly strong for solutions revenue. Deployment timing may shift somewhat, but we expect to accumulate orders and achieve the plan.
• Q: Camera procurement costs appear to be rising and sourcing seems harder than before. Is there any negative impact on Safie from the changing procurement environment or higher costs? And should we assume little change to gross margin going forward?
  A: The procurement environment has indeed changed significantly. We saw this trend well in advance, so we conducted substantial pre-procurement in the first half of this year and built up inventory. Because we secured stock before costs began rising in earnest, we are managing to avoid any major near-term adverse impact.
  From a competitive standpoint, rising hard disk prices are putting non-cloud, on-premise solutions in a tougher market position. While we are also exposed to cost increases, there is a good chance we end up in a relatively advantaged position.
  To add context, the current shift in the procurement environment stems from the semiconductor supply-demand balance. During COVID, our purchasing power was limited and we could not build sufficient buffer stock against shortages of capacitors and similar components. This time, flash memory is being affected by the AI boom. Investment in server systems is running at roughly JPY 1T in Japan and JPY several hundred trillion globally, tightening memory supply-demand and driving prices higher. Anticipating this, we made the decision to purchase over JPY 1B worth.
  Some small and mid-sized camera distributors can no longer manage procurement, and we already have enterprise customers relying on our inventory. Moving aggressively on pre-procurement has been a major advantage. Cost increases are unavoidable for future new product development as well, so we are also advancing development of lower-cost cameras ahead of time. On this front, too, developments are tracking in line with our expectations.