3937.T

Overall Consolidated Performance

• Consolidated revenue for Q2 FY2026 is 2.975 billion yen, 94.8% of the prior year period. Operating profit hit 665 million yen (0.665 billion yen, 112.6% YoY), operating margin 22.4%, with operating profit, ordinary profit, and net profit all reaching all-time record highs.
• The company is undergoing a strategic business model shift focused on AI and M&A to build a higher value-added business, targeting maximized operating profit for future growth.

Medical Segment Operational Highlights

• Core AI-powered subscription solutions under the "Mighty" series now serve 22,415 medical institutions, increasing by 471 users YoY. The segment maintains a 60%+ operating margin and 99.6% recurring subscription retention rate.
• Favorable market tailwinds: Widespread medical facility deficits, the Japanese government's 2030 universal electronic medical record mandate, and slow DX adoption in healthcare create strong growth opportunities for the company's efficiency solutions.
• The company's long-term M&A strategy targets 8 to 10 acquisitions of regionally rooted medical sales agencies (with annual revenue of several hundred million to 1 billion yen each) between 2025 and 2030; multiple candidate deals are already in negotiation. Acquisitions are expected to improve the LTV/CAC ratio from 9.3x (2025) to 14.2x (2030) via higher direct sales margins, cross-selling, price increases from product upgrades, and lower customer acquisition costs.
• Post-ISM acquisition integration is already underway: 104 of ISM's 132 client facilities are targeted for new MightyChecker EX adoption, representing an estimated 56 million yen (0.056 billion yen) annual market opportunity, with 10% already in implementation. The company also targets the 600 million yen (0.6 billion yen) market opportunity from 835 facilities in the Fukuoka Medical Association's Tobiume Net network over several years.

Technology Consulting Segment Operational Highlights

• The segment is undergoing a strategic shift from a traditional person-hour based development model to an AI-driven development model centered on IBM's watsonx platform, with a new AI center under construction at the company's Philippines hub. The shift aims to dramatically improve productivity and value-add, enabling scalable growth not possible under the old model.
• The company's core competitive advantages for this shift include: combined global AI development capabilities and direct access to large Japanese enterprise clients, Filipino engineers with strong English skills to absorb cutting-edge Western AI technology and Japanese language capabilities to adapt solutions for the domestic market, and a 10+ year strong strategic partnership with IBM Japan.
• The company has started preparation to capture growth in the system modernization market, which is projected to reach 1 trillion yen by 2028.

Corporate Strategic Updates

• The company has begun preparation to transition from the Tokyo Stock Exchange Prime Market to the Standard Market, to support its aggressive growth strategy focused on M&A and AI investment.
• The company targets a medium-term 15% increase in operating profit, and targets a payout ratio of 50% or higher for shareholders.

• For the Technology Consulting segment, management expects a revenue and profit recovery in H2 FY2026 following weak H1 results driven by strategic order cuts and one-off project factors.
• For the Medical segment, full profit contribution from recent and pending M&A deals is expected starting from Q3 FY2026.
• Strategic investment in the Philippines AI center for the Technology Consulting segment will begin in Q3 FY2026.
• The 2026 March term full-year dividend is guided at a minimum of 40 yen per share, with upside potential depending on performance.
• Management maintains a medium-term target of 15% operating profit growth and a 50%+ payout ratio to shareholders.
• The company targets 8-10 M&A deals in the Medical segment between 2025 and 2030 to drive non-linear growth alongside organic expansion of its recurring subscription business.

1. Medical Segment: Revenue reached 948 million yen (0.948 billion yen), 112.8% of the prior year period, with operating profit of 602 million yen (0.602 billion yen), 111.1% of the prior year period. It accounts for approximately 31.9% of total consolidated revenue, and delivered all-time record high revenue and operating profit, absorbing post-M&A integration (PMI) costs from the acquisition of Kyushu-based ISM. 2. Technology Consulting Segment: Revenue reached 2.026 billion yen, 88.2% of the prior year period, with operating profit of 180 million yen (0.18 billion yen), 75.5% of the prior year period. It accounts for approximately 68.1% of total consolidated revenue, with lower results driven by strategic order restrictions and one-off project factors.

• Ongoing US tariff impacts continue to pressure the Technology Consulting segment's top and bottom line, though the impact has lessened compared to prior periods.
• The Medical segment's M&A-led growth strategy depends on successful integration of acquired agencies and cross-selling of the company's core solutions to acquired client bases, with full profit contribution subject to integration timelines.
• The Technology Consulting segment's AI-driven business model transformation requires successful talent development and market adoption of the new service offering, with a staged rollout over the medium term.
• Revenue decline in the Technology Consulting segment in the first half is partially driven by strategic choices to cut low-margin orders, but the shift to a higher-margin AI model has not yet generated full revenue replacement.

This earnings call transcript provided in the source does not include a published question and answer section, so no key exchanges can be extracted.