No.1 Co.,Ltd Q2 FY2026 earnings call

• Company Overview & Growth Model

  • Founded in 1989, listed on the Tokyo Stock Exchange Standard market, with 960 consolidated employees as of the 2Q report, up from 680 in May 2025 driven by aggressive M&A activity.
  • Core mission: "To become the leading force to energize Japanese companies", focused on one-stop total support for small and medium-sized enterprises (SMEs), which represent 99.7% of all Japanese companies.
  • Growth model combines organic growth and M&A to achieve non-linear, stepwise growth, expanding the product portfolio from traditional information security and OA devices to add corporate mobile phones, new power, IT infrastructure support, and system development post-M&A.
  • Five new companies joined the group in the current fiscal year, rapidly expanding the business portfolio into new segments.

• 2Q 2026 Fiscal Year Financial Results

  • Record all-time highs for revenue, gross profit, and ordinary profit; revenue reached 7.655 billion yen, up 12.2% year-over-year.
  • Ordinary profit hit 660 million yen, up 37.5% year-over-year; operating profit grew 23.1% year-over-year to near the all-time high of 601 million yen, absorbing a 117 million yen increase in shareholder benefit expenses.
  • Revenue vs full-year target achievement rate: 42.7% for revenue, 45.4% for operating profit, which is on plan given the company's historical trend of second-half weighted earnings.
  • Recurring (stock) revenue grew 6.4% year-over-year; the slight decline in overall stock revenue share reflects stronger-than-expected flow revenue from device sales, indicating accelerated overall business growth.

• M&A Synergy Highlights

  • Geographic expansion: M&A of Shishindo Shoko and S.I.T allowed first-time entry into previously untapped prefectures: Iwate, Akita, Shiga, and Miyagi; cross-selling of high-margin information security devices to existing local customers is already underway.
  • Customer base expansion and cross-selling: Acquisition of Ai Station added 25,000 existing corporate clients, doubling the group's total customer base to ~41,000; on-site cross-selling collaboration has already started, offering No.1 security devices and management support services to Ai Station's existing mobile phone customers.
  • New market entry: Acquisition of LGIC, a specialist in IT infrastructure construction for local governments and schools, gives the group access to the public sector education DX market; LGIC has a competitive advantage over large incumbents with lower-cost, high-quality services and on-site companion support, and No.1 will deploy its national footprint to scale LGIC's model nationwide.
  • Synergy with Alexon: No.1 captures SME customer demand directly and collaborates with Alexon to develop market-fit security products; 80% of Alexon's sales go to third-party distributors, allowing the group to capture growing industry-wide security demand and improve group-wide margins.

• Shareholder Return

  • Follows a policy of 30% target payout ratio and progressive dividends (no cuts); current fiscal year plans a 1 yen dividend increase to 36 yen annually, marking 8 consecutive years of increases since the first dividend.
  • Acquired 630 million yen of treasury stock in July, equal to ~5% of outstanding shares, to improve capital efficiency and strengthen shareholder returns.
  • Expanded shareholder benefit program to add digital gift options (PayPay, Amazon Gift Card) alongside the existing QUO Card option, responding to shareholder feedback; the change received very positive feedback, and the combined dividend and benefit total yield reached 6.37% as of August.

1. No.1 (Parent Company): Operating profit grew ~3x year-over-year, from 61 million yen to 183 million yen, reaching an all-time high driven by productivity improvements and gross margin expansion. 2. Alexon (Information Security Device Manufacturing): Reported a temporary year-over-year profit decline due to planned future-focused human capital investment, which is in line with management projections. 3. Newly Consolidated Subsidiaries (アイ・ティ・エンジニアリング, コード, S.I.T): Combined total revenue of 317 million yen and combined operating profit of 98 million yen, contributing positively to group-wide earnings growth. 4. No.1 Business Support (Recurring Revenue Core): Total contracted clients reached 5,169, surpassing 5,000; average customer ARPU increased steadily to 14 thousand yen; average churn rate holds at a very low 0.8%.

• Full-year 2026 fiscal year: Upwardly revised revenue guidance from the original 16.0 billion yen to 17.921 billion yen, an increase of ~1.9 billion yen; maintained operating profit guidance at 1.3 billion yen, which already accounts for limited near-term contribution from newly consolidated subsidiaries, temporary M&A-related costs, and higher shareholder benefit expenses. Management confirmed core earning power has improved unambiguously.
• Full-year 2026 projected growth: 26.1% revenue increase and 30.9% ordinary profit increase vs prior year actual results; the full-year guidance does not yet include future expected group synergy benefits, leaving room for upward earnings upside from synergy realization.
• Mid-term 2027 fiscal year (end of current mid-term plan): Original revenue target of 16.0 billion yen will be hit in the 2026 fiscal year, so management will announce an upward revision after the current fiscal year ends; management confirmed there will be no revenue decline, and maintains the 2027 operating profit target of 1.83 billion yen.

No material operational risks or failures were explicitly discussed in the transcript. The only risk-related context is that M&A activity uses external borrowings in addition to operating cash flow, and management targets to maintain a minimum 30% equity ratio to preserve financial health. As of the call, equity ratio remains above 35% which is within management's target range.

Q: What payback period does management target for M&A investments, and how does it balance M&A growth with financial health? / A: Management selects M&A targets strictly for their group synergy potential, conducting thorough due diligence on all potential deals. Most acquired targets already have solid standalone performance, and large synergy gains from combination allow for early payback. The firm uses surplus operating cash flow as the primary funding source, and actively uses external borrowing only for high-quality opportunities while maintaining financial discipline. Acquired companies share the firm's core mission and collaboration is very smooth, with active idea generation across group companies.

Q: What is the target minimum equity ratio as M&A accelerates, and does management plan to conduct a capital increase? / A: Management targets to maintain equity ratio above 30% to preserve balance sheet health. After accelerating M&A over the past year, the current equity ratio remains above 35%, which is within the target range. Management funds M&A primarily with surplus operating cash flow, and has no plans for a capital increase at this time.

Q: What is the firm's core business, and how does it plan to grow the security device business going forward? / A: The firm started as an OA device sales business, and sales remains the core business today. The firm shifted to in-house maintenance early on after customer feedback, which allowed it to build direct long-term relationships with customers. For security devices, management will continue to focus on the underserved SME segment, which accounts for 66% of all ransomware attacks, and partner with Alexon to develop convenient, customer-aligned products to meet growing SME security demand.

Q: What is the firm's geographic expansion strategy for new regions? / A: Historically, the firm has had limited direct presence in eastern Japan, especially the Tohoku region. The firm plans to fill geographic gaps through M&A or minority equity investments with existing established regional companies that have long operating histories and existing customer bases, rather than building from scratch.