Mid-Market Growth Consulting Remains Strong into 4Q; Delivering Roughly JPY 30B of Operating Income in 4Q Is the Key to Meeting Full-Year Plan

Summary

9M revenue reached a record high for a third-quarter cumulative period. However, operating income declined. Heavy people investment in the first year of the new medium-term plan and costs from relocating the Osaka head office weighed on profit. Management said that meeting the full-year plan requires 4Q revenue growth of +29% and operating income growth of +26.3%. It added that the key swing factors are 4Q bookings in the still-strong JPY 100B company program, subsidy consulting and M&A, along with the timing of subsidy approvals. Management seminars, a leading indicator, have turned positive, and study group membership is also growing. Management framed the current upfront investment as following the same pattern as the first year of the previous medium-term plan.

Key Points (Earnings Takeaways and Growth Initiatives)

• Management Strategy and Market View
  • The company is front-loading talent investment in the first year of the new medium-term plan. Management described this as the same approach taken in the first year of the previous plan (FY23–25).
  • Mid-career hiring has accelerated since the second half of last year, and new-graduate hiring also rose steadily. Management views the headcount build as the foundation for earnings growth over the three-year plan.
  • Mid-market growth consulting is a priority area under the new plan. The company intends to keep scaling it as a new growth driver.
  • For management study groups, the focus is on membership rather than the number of groups. Similar groups are being consolidated ("scrap and build") to raise quality and client satisfaction.
• Current Business Progress and Drivers
  • 3Q (three-month) revenue from mid-market growth consulting was JPY 1,068M (+55.0% YoY), led by the JPY 100B company program and subsidy consulting.
  • Management seminars have shifted from a slight downtrend to positive growth. Management sees this as an encouraging leading indicator for orders.
  • Growth in monthly study group fees has moderated since the April 2024 fee increase. Even so, the average monthly fee now exceeds JPY 30,000 and continues to rise.
  • The main driver of the operating income decline was JPY 1,122M of people investment. Osaka head office investment of JPY 459M and JPY 140M of M&A-related costs, including goodwill amortization, added to the drag.
• Key Strategic Initiatives and Changes
  • The board approved a share buyback of up to 1.8M shares or JPY 20B, running from November 9, 2026 to March 31, 2027.
  • Since October, the company has rolled out seminars aligned with the Takaichi administration's 17 priority sectors. It is supporting clients' use of subsidies, starting with food tech.
  • The Osaka head office, which won the Nikkei New Office Award, will serve as a showcase to strengthen workplace consulting.
  • The shareholder benefit program was changed to grant points once a year to shareholders holding 400 or more shares (effective from the end-December 2026 record date).

Outlook and Strategy

• Full-year guidance (revenue JPY 37,000M, operating income JPY 9,100M) was maintained. 9M progress stands at 69.3% for revenue and 66.1% for operating income, each about 5pt behind the prior-year pace.
• Management said hitting the plan requires roughly JPY 30B of operating income in 4Q. The prior-year 4Q delivered JPY 24.4B and this year's 2Q JPY 26.3B. The key question is how far 4Q can build on those levels as a floor.
• Revenue recognition timing for subsidy consulting depends heavily on when approvals come through, and an approval window falls in 4Q. If approvals are granted, the related revenue will be booked.
• Targets for 2028, the final year of the medium-term plan, are revenue of JPY 460B, operating income of JPY 115B and ROE of 30%.
• On per-capita productivity, the company aims to get hires from the past year up to speed, lift productivity and drive operating income growth. Management did not give figures for next fiscal year.
• The company plans an annual dividend of JPY 48, which would mark a 16th consecutive year of dividend increases. It targets a payout ratio of 60% or higher and a total shareholder return ratio of 65% or higher. Management said it will do its utmost to deliver the full-year plan.

Positive Factors

• 9M mid-market growth consulting revenue reached JPY 2,935M (+69.2% YoY), 3.6x the 9M 2023 level (our estimate).
• By service line, M&A grew. By industry, manufacturing (+35.0%) and professional services (+31.4%) expanded, pointing to a widening cross-selling footprint.
• Monthly support is delivering both higher unit prices and more client companies. This is improving the quality and volume of recurring revenue at the same time.
• Offers for April 2027 new graduates hit a record 263, strengthening the consultant pipeline.
• The 99th National Management Study Group Convention in August targeted about 4,000 business owners, and attendance on the main day hit a record high.
• Government priority-sector policy and subsidy demand provide tailwinds. An equity ratio of 75.8% gives the balance sheet capacity to fund both growth investment and shareholder returns.

Concerns and Risks

• The 4Q growth required is steep at +29% YoY for revenue and +26.3% YoY for operating income, setting a high bar.
• Subsidy consulting results hinge on approval timing, leaving a risk that revenue slips into the next fiscal year.
• The Osaka head office relocation adds roughly JPY 6B per year in fixed costs. If new hires take longer to become productive, the recovery in per-capita profit will also be delayed.
• The revenue decline in ad operations widened from the 1H level. Logistics BPO is being scaled back as a matter of policy and remains a drag on revenue.
• Housing, real estate and construction, the largest industry vertical, was flat at +0.3%. Restaurants and food (-54.2%) and licensed professionals (-3.7%) also posted declines.
• Subsidy-related demand is sensitive to policy shifts, and SME business sentiment is an additional external uncertainty.

Performance Highlights

9M revenue set a record for a third-quarter cumulative period. Operating income, however, declined due to the upfront burden of people, office and M&A investment. Recurring profit was JPY 6,225M (-2.7%). Net income attributable to owners of parent company was JPY 3,992M (+54.4%). The increase reflects a favorable base effect from the extraordinary loss booked in 1Q of the prior year on the sale of the Gotanda office.

Segment Performance

• Number of Consultants: 1,175 (+6.7% YoY)
• Number of Employees: 1,775 (+7.3% YoY)
• Management Study Group Members: 8,414 (+5.4% YoY)
• Number of Management Study Groups: 199 (-3.9% YoY)
• Management Study Group Monthly Fee per Member: JPY 31,260 (+3.5% YoY)
• Monthly Support Fee per Client: JPY 292,557 (+6.1% YoY)
• Monthly Consulting Clients (September): 4,315 companies (+1.8% YoY)
• Management Seminars Held: 1,378 (+12.2% YoY)
• Management Seminar Attendees: 22,201 (+4.3% YoY)
• Revenue per Employee: JPY 14,445K (-2.6% YoY)
• Operating Income per Employee: JPY 3,389K (-11.9% YoY)

Q&A List

• Q

  How are you tracking against the full-year plan?

  A

  At the end of 3Q, progress stands at 69.3% for revenue and 66.1% for operating income. That is roughly 5 points behind the same period last year on both measures. Mathematically, delivering the full-year plan requires a 29% increase in revenue and a 26.3% increase in operating income in 4Q. Operating income is the easier way to frame it in absolute terms: we need roughly JPY 30B in the quarter to hit plan. Last year's 4Q was JPY 24.4B and this year's 2Q was JPY 26.3B. The question is how far we can build on those levels as a floor.

• Q

  How confident are you in achieving the full-year plan?

  A

  With two months remaining, we will win orders and then convert them into revenue. The JPY 100B company program, subsidy consulting and M&A, shown on the mid-market growth consulting page, have all remained strong in 4Q. One key point is how much of that can be booked as revenue within this fiscal year. Subsidy consulting in particular is highly sensitive to approval timing, which significantly affects when revenue is recognized. There is an approval window in 4Q, so if approvals go through, the corresponding revenue will be added. Beyond that, it depends on how much our core SME consulting business, centered on monthly support, can build up. We will do our utmost to deliver the plan.

• Q

  Could you explain again how we should interpret the decline in the number of management study groups?

  A

  I believe this question refers to the KPIs in the summary. We disclose both the number of study groups and the number of members, but membership is the metric we prioritize. Fewer groups alongside more members means membership per group is rising. Larger groups also deliver higher satisfaction, because members can exchange information with more peers and gain more useful insights. Ideally membership would grow in every group, but some groups are not growing, depending on the industry or sector. We therefore regularly consolidate similar groups as part of a "scrap and build" approach to raise quality and sustain high satisfaction. We do add new groups as well. However, we prioritize running groups that satisfy our clients over increasing the group count, and that is why the numbers look this way.

• Q

  Are there any new metrics you plan to emphasize going forward?

  A

  As mentioned, management study group membership is a key KPI, and we would like you to view it as the metric we prioritize.

• Q

  How do you view the decline in operating income per employee?

  A

  I believe this refers to the operating income per employee trend in the executive summary, and it is true that it has declined. In the first year of the previous three-year medium-term plan, covering 2023 to 2025, we also invested aggressively in talent by hiring consultants and expanding into new areas. This year is the first year of the new three-year plan. We accelerated mid-career hiring from the second half of last year, and new-graduate hiring also rose steadily. We expanded headcount as an upfront investment to drive solid growth over the three years. The Osaka office relocation came on top of that, pushing up expenses and lowering operating income. As a result, revenue per employee fell 2.6% while operating income per employee fell a steeper 11.9%. We recognize this may have raised some concerns.

• Q

  Will operating income per employee start to rise from next fiscal year onward?

  A

  Looking ahead, study group membership is growing, as discussed, and seminar attendance is also rising. We see the leading indicators for consulting orders and consulting revenue growth as quite positive. We intend to capitalize on this by getting the people who have joined since last year fully productive. That should lift productivity and grow operating income.