Key Positives From The 2Q Results
Revenue was flat YoY. However, profit-improvement measures such as site consolidation and billing-rate optimization continued to pay off, lifting operating income to JPY 6,173M (+4.4% YoY). Structural reform that raises per-capita productivity while reducing CM headcount underpins profit growth. AI initiatives are also moving from PoC (proof of concept) to live deployment, adding substance to the Mid-Term Plan 2028 growth story.
- SG&A Down:SG&A fell to JPY 7,520M (-2.6%). Wage increases pushed up personnel costs, but lower depreciation more than offset them, and OPM rose to 8.4% (+0.3pt)
- Record CM Productivity:Annualized gross profit per CM reached a record-high JPY 1.14M. CM headcount declined to 30,630, while the direct-hire CM ratio rose to 85.8%. The shift from volume to quality is progressing
- Equity-Method Contribution Rising:Equity-method investment income rose to JPY 313M (+55.0%). Both CTC First Contact and True Touch expanded their client bases, making them a growing non-operating profit source
- HOL Pipeline Building:The pipeline for HOL (an operating model combining AI and human agents) comprises 7 confirmed clients, 4 with informal commitments, and 9 in final negotiations. Live operations at a scale of around 500 staff are scheduled to begin in January 2027, marking the shift into the deployment phase
- AI-BPO Wins:AI-BPO, developed with subsidiary BA Intelligence, has won 4 contracts from clients including a major telecom carrier and an ISP. Talks are underway with more than 10 companies, including manufacturers and staffing-related firms
Key Concerns From The 2Q Results
Revenue was flat at JPY 73,159M (+0.0%). New business could not fully offset lower staffing-related work and the absence of last year's Upper House election work. Hitting the full-year plan requires 2H revenue growth of +8.5% YoY (our estimate), and HOL revenue recognition is running later than initially expected. Whether the company can return to top-line growth is the central issue.
- 2Q Standalone Profit Down:2Q standalone operating income was JPY 2,960M, down -2.1% YoY (our estimate). 1H profit growth was concentrated in 1Q
- Gross Margin Erosion:2Q standalone gross profit margin was 18.2%, down -0.5pt YoY (our estimate). Higher facility-related costs from inflation offset the benefit of profitability improvements
- Tax Tailwind Is One-Off:The +12.0% rise in interim profit attributable to owners of the parent was helped by lower income tax expense (-11.6%) from preferential tax treatment applied in 1Q. The company also describes this as one-off
- Higher Finance Costs:Finance costs rose to JPY 469M (+22.8%). Higher market rates increased interest on borrowings, partly offsetting the gain at the operating level
- Weaker Operating CF:Operating CF fell to JPY 9,568M (-13.5%), mainly due to higher income tax payments and a decrease in accrued consumption tax
Focus Areas / Items To Monitor Going Forward
- Feasibility of 2H Revenue Acceleration:We want to gauge how quickly the AI voicebot (scheduled for release in October 2026) and the ~500-staff HOL operation (starting January 2027) can contribute to revenue
- Earnings Impact of Horizon One Deconsolidation:Horizon One moves to the equity method, with a valuation gain of approximately JPY 800M expected in 3Q. The key question is the size of the revenue loss from its deconsolidation, given it has driven SB business growth
- Gross Margin Recovery:Gross margin declined on a 2Q standalone basis. The question is how far billing-rate optimization (price pass-through) can keep pace with rising facility-related costs
- Build-up of the 2H revenue plan, which requires +8.5% YoY growth (our estimate), and the status of new orders
- Assumptions behind the implied 2H gross profit margin of 19.6% (our estimate), and progress on price pass-through
- Whether the ~JPY 800M Horizon One valuation gain and the revenue loss from deconsolidation are reflected in the full-year plan
- Reasons for the delay in HOL revenue recognition, and the expected scale of its revenue and profit contribution in FY2027
- Whether the decline in staffing-related work is structural, and measures to reignite ITOCHU synergies
Key Financial Highlights
| Item | Value | YoY |
|---|---|---|
| Revenue | JPY 73,159M | +0.0% |
| Gross Profit | JPY 13,577M | +0.1% |
| └SG&A | JPY 7,520M | -2.6% |
| Operating Income | JPY 6,173M | +4.4% |
| Share of Profit of Equity-Method Investees | JPY 313M | +55.0% |
| Finance Costs | JPY 469M | +22.8% |
| Interim Profit Before Tax | JPY 6,059M | +5.1% |
| Income Tax Expense | JPY 1,661M | -11.6% |
| Interim Profit Attributable to Owners of the Parent | JPY 4,284M | +12.0% |
| Basic EPS | JPY 57.63 | +11.7% |
| Annualized Gross Profit per CM | JPY 1.14M | - |
The JPY 260M increase in operating income breaks down into gross profit +JPY 10M, lower SG&A +JPY 200M, and other income/expenses +JPY 50M (mainly FX gains) (company disclosure). At the net income level, equity-method income +JPY 110M and lower income tax expense +JPY 220M more than absorbed a JPY 80M deterioration in net finance income/costs and a JPY 50M drag from non-controlling interests.
Performance By Business Segment
The CRM business is the only reportable segment, accounting for 99.9% of external revenue. From FY2026, the company discloses revenue split into Smart Contact Center (SC) business and Smart Business Support (SB) business. Revenue growth in SB is offsetting a slight decline in SC.
Segment Performance Table
| Segment | Revenue | YoY | Pre-Tax Income | YoY | Margin |
|---|---|---|---|---|---|
| CRM Business | JPY 73,106M | +0.2% | JPY 6,039M | +5.6% | 8.3% |
| Other | JPY 53M | -69.6% | JPY 20M | -57.3% | - |
| (Revenue Category) SC Business | JPY 62.54B | -0.4% | - | - | - |
| (Revenue Category) SB Business | JPY 10.62B | +2.4% | - | - | - |
*Revenue is on an external revenue basis; segment profit is interim profit before tax (company disclosure). SC business includes the former Other business.
- SB Business: JPY 10.62B (+2.4%). Customer and transaction management work for telecom carriers and other clients expanded, as did HR and accounting work at Horizon One
- Finance & Insurance: +JPY 520M to JPY 13.49B. Solid performance led by life insurers, helped by more spot work
- Transport & Telecom: +JPY 410M to JPY 15.17B. Growth was led by telecom carriers, and the sector remains the largest by industry
- Other Industries / Other Subsidiaries: Other industries rose +JPY 340M, led by new-entrant power retailers and property management. Other subsidiaries added +JPY 560M, underpinning SC business
- Services: -JPY 810M to JPY 19.77B. Growth in internet-related and IT services could not offset a sharp decline in staffing-related work
- Manufacturing: -JPY 670M to JPY 5.12B. Beyond the absence of last July's Upper House election work, equipment manufacturers and pharma-related work declined
- Wholesale & Retail: -JPY 340M to JPY 8.21B. Some product sales service work declined. ITOCHU synergies (JPY 8.65B, +0.1%) also stalled due to contract terminations in this sector
- Other Segment: External revenue fell -69.6% on lower content sales revenue
Progress Versus Full-Year Guidance
Operating income progress was 47.5%, ahead of 46.7% in the prior-year period (our estimate). The company described results as "broadly in line with the 1H plan." Revenue progress, however, was 48.1%, below 50.2% a year earlier (our estimate). Achieving the full-year plan requires 2H revenue of JPY 78,841M (+8.5% YoY) and an improvement in gross profit margin.
| Item | Value (1H Cumulative) | Full-Year Forecast | Progress Rate |
|---|---|---|---|
| Revenue | JPY 73,159M | JPY 152,000M | 48.1% |
| Gross Profit | JPY 13,577M | JPY 29,000M | 46.8% |
| Operating Income | JPY 6,173M | JPY 13,000M | 47.5% |
| Pre-Tax Income | JPY 6,059M | JPY 12,600M | 48.1% |
| Profit Attributable to Owners of the Parent | JPY 4,284M | JPY 8,500M | 50.4% |
- Over the past three fiscal years, 1H accounted for 50-52% of revenue, indicating limited seasonality on the top line (our estimate)
- Operating income is 2H-weighted in some years, with 1H accounting for 46.7% last fiscal year. The company's plan for this year also assumes a 2H-weighted profile
- 2Q last year included spot work tied to the July Upper House election, creating a tough comparison for 2Q this year
Changes To Guidance
The company maintained the full-year consolidated guidance announced on April 8, 2026 (revenue JPY 152,000M, operating income JPY 13,000M, profit attributable to owners of the parent JPY 8,500M). A valuation gain of approximately JPY 800M is expected to be booked in "other income" in 3Q. However, the earnings release does not state that this gain or the deconsolidation impact has been reflected in guidance.
Commentary On Shareholder Returns
The interim dividend is JPY 30 (total payout JPY 2,236M), funded partly from capital surplus. The annual dividend forecast is unchanged at JPY 60 (year-end JPY 30), implying a forecast payout ratio of 52.5%. The company's basic policy targets a consolidated payout ratio of 50%, with the aim of raising dividends through profit growth.
Financial Position
Scheduled loan repayments reduced net interest-bearing debt, and the ratio of equity attributable to owners of the parent rose to 45.7%, extending the improvement in the balance sheet. The asset mix is unchanged, with goodwill accounting for 57% of total assets.
- Key Figures
- Leverage Metrics
| Item | Value | Additional Information |
|---|---|---|
| Cash and Cash Equivalents | JPY 6,956M | -3.3% vs. prior FY-end |
| Equity Attributable to Owners of the Parent | JPY 75,970M | +2.8% vs. prior FY-end |
| Interest-Bearing Debt (Borrowings) | JPY 45,640M | -6.4% vs. prior FY-end (our estimate) |
| └Borrowings (Current) | JPY 16,300M | -JPY 1,000M vs. prior FY-end |
| └Long-Term Borrowings | JPY 29,340M | -JPY 2,098M vs. prior FY-end |
| Net Interest-Bearing Debt | JPY 38.68B | Company disclosure; -JPY 2.87B vs. prior FY-end |
| Goodwill | JPY 94,691M | 124.6% of equity attributable to owners of the parent (our estimate) |
| Operating CF | JPY 9,568M | -13.5% YoY |
| Free CF | JPY 8.44B | Company disclosure; -JPY 2.40B YoY |
| EBITDA | JPY 10,429M | Operating income + depreciation and amortization (our estimate); +0.8% YoY |
| Metric | Value | Notes |
|---|---|---|
| Debt/Equity | 0.60x | Borrowings ÷ equity attributable to owners of the parent; our estimate (prior FY-end: 0.66x) |
| Net DER | 0.51x | Company disclosure (prior FY-end: 0.56x) |
| Interest Coverage Ratio | 13.2x | Operating income ÷ finance costs; our estimate (prior-year period: 15.5x) |
| Equity Ratio | 45.7% | Ratio of equity attributable to owners of the parent; +2.2pt vs. prior FY-end |
Disclosures Released Alongside The Earnings Announcement
- 2026/10/14Resolved an interim dividend of JPY 30. The annual forecast of JPY 60 is maintained, continuing stable dividends (Notice Regarding Dividends of Surplus (Interim Dividend))
- 2026/10/14Disclosed the HOL pipeline (7 confirmed clients) and an expected valuation gain of approximately JPY 800M from moving Horizon One to the equity method (Supplementary Materials for 2Q (Interim) Results, FY2/27 (FY2026))
Major Announcements During The Quarter
- 2026/10/14Paid an interim dividend funded partly from capital surplus, maintaining the return policy based on a 50% payout ratio (Notice Regarding Dividends of Surplus (Interim Dividend))
- 2026/10/14As progress on "Deepening AI Utilization" under Mid-Term Plan 2028, disclosed the planned October release of the AI voicebot and 4 AI-BPO contract wins (Supplementary Materials for 2Q (Interim) Results, FY2/27 (FY2026))
Large-Shareholding Filings / Material Proposals Over The Past Year
- SOMPO Asset Management: -→5.19% (2026/05/21) - Pure investment via discretionary investment contracts and investment trusts
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