Pharmarise Holdings Corporation Q2 FY2026 earnings call

• Overall Financial Performance:

  • Consolidated revenue increased 3.057 billion yen (10%) year-over-year to 33.602 billion yen, driven primarily by M&A-related store count growth in the core pharmacy business.
  • Operating profit increased 298 million yen (296.3%) year-over-year to 399 million yen, with significant recovery driven by head office operational efficiency and labor cost reduction at acquired companies, plus effective labor cost control in store operations. A change in accounting classification moved area manager and roving employee labor costs from SG&A to cost of goods sold, which increased the apparent cost of goods sold ratio, but the combined total labor cost ratio for cost of goods sold and SG&A actually decreased, supporting the operating profit improvement.
  • Ordinary profit increased 299 million yen (1018.6%) year-over-year to 328 million yen, achieving very large growth off of the prior year's low base. Ordinary profit missed plan due to the absence of expected non-operating revenue, but net income attributable to parent company shareholders beat plan due to special gains from fixed asset sales and bad debt reserve reversals.

• Balance Sheet and Cash Flow:

  • Cash and deposits decreased significantly, driven by planned debt repayment and the timing of working capital changes. Goods and products inventory increased 531 million yen, of which over 350 million yen is a temporary effect from consolidating a new subsidiary with a different fiscal year end; the real underlying increase is just over 150 million yen. Goodwill decreased 322 million yen, as only 2 new stores were acquired via M&A in the period and amortization of prior acquisitions proceeded as scheduled.
  • Accounts payable decreased 311 million yen, of which ~300 million yen is a temporary effect from consolidating the new subsidiary with a different fiscal year end, with almost no real underlying change. Borrowings decreased 1.37 billion yen, as the company proceeded with planned repayment and completed no new debt financing through November last year.
  • Net assets decreased 83 million yen, as 111 million yen in interim net income attributable to parent shareholders was more than offset by 159 million yen in prior year annual dividend payments and a 30 million yen decrease in non-controlling interests from additional acquisition of subsidiary shares.
  • EBITDA (operating profit plus depreciation and goodwill amortization) was 1.165 billion yen, an increase of 360 million yen year-over-year. Operating cash flow was negative 220 million yen, roughly flat year-over-year, as a 438 million yen negative swing in other working capital accounts driven by calendar day timing offset the higher EBITDA. Investing cash flow was negative 449 million yen, an improvement of 87 million yen year-over-year due to lower M&A investment, though the company continues to invest in system unification for newly acquired companies to improve productivity. Financing cash flow was negative 1.666 billion yen, a decrease of 2.804 billion yen year-over-year due to planned debt repayment with no new financing. Total cash and cash equivalents decreased 2.737 billion yen in the period.

• Pharmacy Reward Reform Response:

  • Following the large reduction in technical service pricing for chains with over 300 stores implemented in April 2024 (Reiwa 6), the company's focused push to qualify for additional add-on payments such as the regional support system add-on has returned technical service pricing to near pre-cut levels, and the second quarter continued to outperform plan. While technical service unit price beat plan, lower prescription volumes meant total technical service revenue missed plan for the quarter, but still increased significantly year-over-year.
  • On an existing store basis, average prescription price increased 480 yen year-over-year to 10,242 yen. Drug pricing increased 4.7% (339 yen) year-over-year, while technical service pricing increased 3.5% (90 yen) year-over-year. The technical service revenue share decreased 0.4 percentage points to 25.9% due to the faster increase in drug pricing driven by longer prescription durations, but technical service pricing itself still increased.
  • Total pharmacy prescription revenue grew significantly, with existing store prescription revenue up just 1.2% year-over-year to 20.853 billion yen, while non-existing store (mostly M&A-acquired) prescription revenue grew 82.8% year-over-year to 7.422 billion yen. Product sales decreased 25.1% year-over-year to 203 million yen, driven by the end of over-the-counter sales of ethical drugs at GOOD AID per Ministry of Health, Labour and Welfare notification. Drug revenue grew 13.1% year-over-year to 20.717 billion yen, while technical service revenue grew 18.1% year-over-year to 7.384 billion yen, with the faster technical service growth coming from progress qualifying for add-on payments such as the regional support system add-on.
  • For existing stores, total prescription volume decreased 2.9% year-over-year driven by longer prescription durations, but a 4.2% increase in average prescription price drove a 1.2% increase in existing store prescription revenue. The rate of prescription volume decline shrank from 3.4% year-over-year in the first quarter, showing a gradual improving trend.
  • Generic drug volume share has remained at a high level in the period, following a large increase after the introduction of the co-payment requirement for patients receiving brand-name long-listed drugs last October.
  • 50% of all stores now qualify for the regional support system add-on, with stores from acquired next PH now gaining qualification, and the company continues to target new qualification and ranking up of existing qualified stores.
  • The total number of stores qualifying for the generic drug dispensing system add-on already exceeds the full-year plan, with a large increase in the share of stores qualifying for the highest rank 3, driven by the impact of the long-listed drug selection care system.
  • My Number Insurance Card utilization has grown steadily, reaching a preliminary 61% as of November 2025 (Reiwa 7), exceeding the 60% threshold required for the highest tier 1 medical DX promotion system add-on. A further increase in the required utilization threshold is scheduled for March 2026, and the company is working to raise utilization across all stores to maintain qualification and achieve ranking up in line with plan.
  • The company is on track to hit its full-year target of 167,000 family pharmacist agreement, with 13,000 new agreements expected in the current half-year period. As of November 2025, the company has 76 certified health support pharmacies, 89 certified regional collaboration pharmacies, and 4 certified specialized medical institution collaboration pharmacies, and will prioritize gaining certification for uncertified stores from recent M&A.
  • Full-year total technical service growth is now expected to be 523 million yen higher than the prior year, which is 14 million yen above the original plan, driven by higher-than-planned add-on payments for regional support and generic drug systems that offset the miss from lower prescription volumes in basic dispensing fees.

• Mid-Term Management Plan Progress:

  • The company published its mid-term management plan "Make a Leap 2027: Solidify Our Foundation for Further Growth" in June 2025, with a long-term vision to become a pharmacy group selected and trusted by local patients, focused on meeting the health, medical, and long-term care needs of elderly patients. 8 dedicated task forces with assigned leaders and KPIs have been established to advance growth initiatives.
  • The company's dementia café initiative "Cafe Nyaramaize" hit its original target of 50 locations hosting events early, reaching 78 locations as of the end of November 2025. A new target of 100 locations has been set, to expand community engagement and increase pharmacy visits to drive prescription volume growth.
  • In-home and facility prescription services grew 14.1% year-over-year to 1.153 billion yen in the second quarter. The full-year plan calls for 690 covered facilities, 585,000 prescriptions, and 4.521 billion yen in sales, and the company is on track to hit this target, with M&A expanding the serviceable geographic area. The company also launched an official LINE account to improve patient convenience, reduce wait times via online prescription submission, distribute repeat purchase coupons, share event information, and drive repeat visits. The initiative launched in December 2025 and is already growing followers at a rate of 100 net new users per day.
  • As part of the company's sustainability strategy, the company completed a large-scale tabletop disaster response exercise at the head office in November 2025, aligned with materiality KPIs for twice-yearly disaster drills and BCP plan updates. All stores also conducted company-wide checks of evacuation routes and emergency supplies, to maintain disaster preparedness for employees and patients.

1. 調剤薬局事業 (Pharmacy Business): Segment revenue increased 3.548 billion yen (14.2%) year-over-year, reaching 28.528 billion yen. It beat plan by 411 million yen. Revenue growth came from M&A-driven store count expansion that increased prescription volumes by 380,000 (15.3%) year-over-year. Prescription volume missed plan due to heatwave-related reduced doctor visits, longer prescription durations, and lower incidence of seasonal diseases in pediatrics and otolaryngology, but the average prescription price of 406 yen beat plan, allowing the segment to hit its revenue target. Segment operating profit increased 386 million yen year-over-year, with next PH and GOOD AID contributing 133 million yen of the gain and existing stores contributing the remainder. Versus plan, operating profit came in 40 million yen lower than planned, as lower prescription volumes offset higher drug and technical service pricing and selling, general and administrative (SG&A) cost reductions.

2. 物販事業 (Retail Merchandising Business): Segment revenue decreased 417 million yen (9.3%) year-over-year, driven by closure of unprofitable stores completed by the end of the prior year. It beat plan by 85 million yen. The segment is split into two sub-segments: drugstore sales missed plan due to lower-than-expected sales of over-the-counter cold medicine and hygiene products such as masks, but convenience store sales performed well driven by higher average customer spending, resulting in the full segment beating revenue plan. Versus plan, operating profit came in 22 million yen lower than planned, as higher labor costs, increasing fees, and lower-than-expected drugstore sales offset the convenience store strength.

3. 医学資料保管・管理事業 (Medical Document Storage and Management Business): Operating profit beat plan by 42 million yen, continuing strong growth from the prior quarter driven by unbudgeted additional revenue from film disposal.

4. 医療モール事業 (Medical Mall Business): Operating profit beat plan by 19 million yen, as large-scale investment projects were pushed back, reducing depreciation expense versus plan.

5. その他事業 (Other Business): Operating profit decreased 86 million yen year-over-year. This was driven by 58 million yen in losses at medical IT solutions provider Muthes, which incurred amortization expenses tied to new product development, plus 35 million yen in losses at the home-visit nursing business due to delayed hiring of nursing staff.

• The company remains on track to achieve its V-shaped recovery target outlined in the mid-term management plan, with the first half of fiscal 2026 progressing as planned after the prior year base period.
  • Full-year total technical service revenue is expected to come in 14 million yen above the original plan, representing a 523 million yen increase year-over-year, which is considered a smooth, on-track progress.
  • The company reaffirms its commitment to achieving the full-year fiscal 2026 plan, and plans to continue parallel progress on initiatives to set up growth for the next fiscal year.

• Prescription volume came in below plan in the second quarter due to exogenous factors: extreme heatwave-driven patient avoidance of doctor visits, longer prescription durations, and lower prevalence of seasonal epidemic diseases in pediatrics and otolaryngology.
  • Other business segments face ongoing headwinds: medical IT subsidiary Muthes has incurred amortization costs from new product development that pressured profits, while the home-visit nursing business has faced delays in nurse hiring that hurt results.
  • The upcoming scheduled increase in the My Number Insurance Card utilization threshold for the medical DX promotion add-on in March 2026 requires the company to continue raising utilization across all stores to maintain qualification, which creates near-term execution risk.
  • Many recently M&A-acquired stores are still uncertified for key add-on payments and specialty certifications, requiring additional focused work to gain these certifications and unlock higher revenue.

No question and answer section was included in the provided transcript.