Link and Motivation Inc. Q4 FY2025 earnings call

• Company Overview & Mission - The company operates under the mission: "Through motivation engineering, we provide opportunities for organizational and personal transformation to realize a society full of meaning." - The company is organized into three core divisions: Organizational Development (Consulting & Cloud, IR Support), Personal Development (Career School, Cram School), and Matching (ALT Placement, Recruitment). - Consolidated Financial & Balance Sheet Updates - Selling, general and administrative (SG&A) expenses increased 119.2% YoY, driven by investments to accelerate growth, the full consolidation of 3 companies including Unipos, and increased marketing spend for OpenWork and Motivation Cloud. - Total assets increased due to higher accounts receivable from sales growth and goodwill recorded from M&A activity. Total liabilities increased primarily from higher borrowings. - Net assets increased by 2.432 billion yen, driven by net income and the share swap acquisition of Unipos. Return on Equity (ROE) declined due to lower net income and increased equity from the Unipos acquisition. - Goodwill Update - Goodwill balance increased YoY following the full acquisition of Unipos and two companies in the IR support business. - Full goodwill impairment for the Career School business eliminated all goodwill for that segment. All other business segments have favorable operating environments, so future goodwill impairment risk has been greatly reduced. - Dividend Policy - The company will continue its quarterly dividend policy to enable flexible shareholder returns. A dividend of 4.1 yen per share for Q4 2025 is scheduled for distribution on March 25. The company aims to continue increasing dividends through future earnings growth. - Shareholder Return: Treasury Stock Acquisition - The company has approved the largest treasury stock acquisition in its history, with a maximum acquisition amount of 6 billion yen, running from February 13, 2026 to August 31, 2026. The purpose of the acquisition is to improve ROE; prior acquisitions were 1 billion yen and 2 billion yen, so this represents a material increase in size. - Long-Term Growth Strategy: 2030 Vision - The company announced a public target of 15 billion yen operating profit by 2030, with a milestone of 10 billion yen operating profit by 2028. It also targets 24 billion yen annual recurring revenue (ARR) by 2030, with a 15 billion yen ARR milestone for 2028. - The company has maintained the No.1 market share in the employee engagement space for 9 consecutive years following the cloud transformation of its consulting business. - Current customer segmentation: ~1,000 clients only use engagement diagnostic services, 1,200 clients only use transformation support services, and only ~250 clients use both. Going forward, the company will cross-sell transformation services to diagnostic-only clients and diagnostic services to transformation-only clients to grow the combined client base 2x to 3x. - New Service Expansion - In 2026, the company will launch two new AI-powered cloud services in new transformation domains: - Motivation Cloud Entry Management, a hiring support service launching in April 2026, built in partnership with ZENKIGEN (integrating ZENKIGEN's AI-powered harutaka hiring DX product). The service provides end-to-end one-stop support (including BPO) from hiring marketing to closing and onboarding, and leverages the company's database to improve both the quantity and quality of hiring by visualizing applicant characteristics and fit. - A new management support cloud service, scheduled to launch within 2026. - Global Expansion - The company is expanding beyond Japan to international markets, with existing operations in Singapore, Thailand, Vietnam, the Philippines, and Indonesia. Future expansion is planned for North America, Europe, and Australia, with the goal of establishing a position as a global HR consulting firm. - Existing Asian operations are growing faster than planned: overseas Motivation Cloud monthly revenue is up ~450% YoY. Vietnam added a new Hanoi office and won a client from Japan's largest food manufacturer, Singapore's client count doubled in six months, and Thailand grew ~600% YoY. The company believes Motivation Cloud is competitive in global markets.

1. Organizational Development Division: Both sales revenue and gross profit hit all-time highs, with a 113.4% year-over-year (YoY) increase in sales revenue and 114.7% YoY increase in gross profit, coming in slightly below forecast. Within this division: - Consulting & Cloud Business: Driven by Motivation Cloud, sales revenue grew 114.8% YoY and gross profit grew 113.9% YoY. As of the end of 2025, Motivation Cloud monthly recurring revenue (MRR) reached 627.382 million yen (0.627 billion yen), 121.6% YoY, slightly below the 650 million yen (0.65 billion yen) forecast. - IR Support Business: Driven by growth in integrated report production and video streaming services, sales revenue grew 106.2% YoY and gross profit grew 124.2% YoY. 2. Personal Development Division: Both sales revenue and gross profit declined YoY due to structural reform prioritization at the Career School business. Sales revenue was 94.7% YoY, and gross profit was 94.8% YoY. Within this division: - Career School Business: In-person enrollment at existing classrooms declined, but online course revenue grew 117.0% YoY, with structural reform progressing steadily. - Cram School Business: Both enrollment and average customer spending grew as expected, with sales revenue up 108.7% YoY and gross profit up 114.3% YoY. 3. Matching Division: Both sales revenue and gross profit grew sharply YoY, led by strong growth from the OpenWork-led recruitment business. Sales revenue grew 114.7% YoY and gross profit grew 119.7% YoY. Within this division: - ALT Placement Business: Placement volume grew as expected, with sales revenue up 111.0% YoY and gross profit up 111.9% YoY. - Recruitment Business: OpenWork Recruiting grew as expected, with sales revenue up 127.4% YoY, gross profit up 126.7% YoY, and OpenWork Recruiting revenue up 134.2% YoY. Total consolidated sales revenue for the 2025 December fiscal year was 41.522 billion yen, 110.9% YoY, an all-time high. Total consolidated gross profit was 113.7% YoY, beating the company's forecast. Operating profit and net profit declined YoY due to a full goodwill impairment charge recorded for the Career School business.

• The company maintains its strategic focus on concentrating management resources on its core Consulting & Cloud business. For the 2026 December fiscal year, it forecasts a new all-time high consolidated sales revenue of 46.7 billion yen, and a new all-time high operating profit of 6.31 billion yen, driven by strong growth from Consulting & Cloud. It also forecasts ROE to remain at a high level above 30%. - Segment-level guidance: - Organizational Development Division: Strong growth is forecast, centered on the core Consulting & Cloud business. - Personal Development Division: Slight growth is forecast as Career School structural reform continues. - Matching Division: Strong growth is forecast, driven by further share gains in ALT placement and continued growth from OpenWork-led recruitment. - Motivation Cloud guidance: Forecast monthly recurring revenue of ~700 million yen (0.7 billion yen) by the end of 2026, 111.6% YoY, led by growth from Motivation Cloud Engagement. - Organizational performance target: For 2026, the company targets 10 out of 10 corporate clients to achieve AA rating or higher in engagement ratings, as it links business and organizational strategy to drive productivity growth through a focus on people and organizational capability.

• The rise of generative AI changed customer search behavior, which led to 2025 Motivation Cloud MRR coming in slightly below the company's forecast. To address this, the company has optimized marketing channels and increased marketing budgets, and H2 2025 deal volumes have already recovered. - The Career School business faced declining in-person enrollment during its ongoing structural shift to online courses, leading to YoY revenue and profit declines for the Personal Development Division in 2025. The company recorded a full goodwill impairment for the business to complete this restructuring. - Prior to the 2025 impairment, goodwill balance carried risk of future write-downs; the Career School impairment has eliminated this risk for the segment, greatly reducing overall goodwill impairment risk for the company, as all other segments have favorable operating environments.

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