CHANGE Holdings,Inc. Q1 FY2026 earnings call

Overall Financial Performance

• Total sales revenue was 9.908 billion yen, up 21.7% YoY. Operating profit was 0.678 billion yen, down 71.1% YoY, which is entirely within expectations due to the absence of a 1.569 billion yen one-off valuation gain from Digital Growth Academia that was recorded in the prior year period. Operating profit is ahead of the planned ~0.5 billion yen target for the quarter.
• The 4.8% progress vs full-year 14 billion yen operating profit target is typical for Q1, which historically sees weak seasonal progress.

Balance Sheet and Financial Discipline

• Net interest-bearing debt to EBITDA multiple is 0.3x, well below the 2x self-imposed limit, leaving ample borrowing capacity. Net debt to equity ratio is 13%, also well below the 50% limit.
• Management believes holding excess cash and limiting borrowing erodes enterprise value in an inflationary environment, and plans to appropriately utilize leverage to fund growth.
• Risk asset to equity ratio is at 90% of the 100% self-imposed cap, temporarily tightened due to goodwill from the fundbook M&A; management targets recovery this fiscal year via retained earnings from net income.

New Business Developments

• For fundbook post-acquisition PMI: Management is prioritizing M&A advisor training, DX for sales workflows (such as automatic proposal generation), alliance building via Change's existing customer network, and new end-to-end M&A strategy advisory services for buyers, with a clear path to competitive differentiation emerging.
• A new shareholder benefit program was introduced, with the goals of improving share investment attractiveness, expanding the investor base, incentivizing long-term holding, and reducing share price volatility. The program offers up to 20,000 yen in annual digital gift vouchers for holders of 300+ shares, with higher benefits for longer holding periods, resulting in a maximum total combined dividend and benefit yield of 7.7% at the current share price. Management estimates the program will cost 300-400 million yen annually.

Market Positioning for Furusato Nozei

• Following the upcoming September ban on point-based user acquisition for furusato nozei, management expects new entry barriers to rise, and competition to shift to platform unique value, where Change holds a competitive advantage as the operator of Japan's largest furusato nozei portal with 95% coverage of municipalities and 760,000+ return gifts. Change's strategies focus on OEM expansion, product/UX improvement, in-person outreach via partner physical locations, and community-based donation marketing.

1. NEW-IT Transformation (Private DX & M&A Brokerage): The segment saw a -3 million yen operating profit decrease year-over-year, with 1.32 billion yen in incremental revenue from the consolidation of fundbook. M&A brokerage is in early growth, with ongoing talent development and alliance building; e-Guardian's BPO business posted a revenue decrease due to large client sales declines and center relocation delays. Cybersecurity operations were in-line with plan in Q1, with new OT security SOC service launched via partnership with S&J. Robotics is expanding beyond serving robots to cleaning and snow removal robots, entering a re-growth phase.

2. PublicTech (Regional Revitalization + Public DX): Operating profit increased 127 million yen year-over-year, with 154 million yen in incremental revenue from furusato nozei (hometown tax donation) business and 264 million yen in incremental revenue from public DX from the consolidation of Toko Computer Service. For regional revitalization: Furusato nozei GMV grew 13.8% YoY, with OEM accounting for 19% of GMV, and OEM partners continue to expand. The new "Tsunagu Kyushoku" stable school lunch supply service launched in partnership with Kisarazu City, Chiba, targeting producer income growth and waste reduction. Change acquired 90% of Onwords for a full-scale entry into inbound tourism, with a 0.6 billion yen project pipeline already. For public DX: LoGo series products are adopted by over 1,500 municipalities for LoGo Chat and 800+ for LoGo Form; new central government-focused consulting firm G-Gravity was established, with under 0.1 billion yen in Q1 revenue from central government consulting projects, and GIGA School terminal renewal demand is supporting steady growth.

• Management maintains the full-year operating profit target of 14 billion yen, and expects accelerated progress from Q2 onwards, with detailed guidance currently being finalized.
• For the furusato nozei business, the September point ban will split annual peaks between Q2 (September) and Q3 (December), creating stronger Q2 performance than historical seasonality. Management targets raising OEM's share of furusato nozei GMV to the 20% range in the medium term.
• For the NEW-IT Transformation segment, management targets a 22% operating profit margin this fiscal year after excluding one-off factors, rising to 25% in the medium term as higher-margin fundbook grows.
• Onwords inbound business is expected to exceed the prior 1 billion yen annual sales target for tourism/carbon credit businesses, with further upside potential.
• The "Tsunagu Kyushoku" business plans to first prove success in Kisarazu City, then expand across Chiba Prefecture and eventually nationwide, expanding beyond school lunches to other food service segments to become a regional economic circulation platform.

• Intensified competition in the furusato nozei market from large industry incumbents including SoftBank Group and Rakuten Group.
• The NEW-IT Transformation segment is currently in an investment phase, with elevated costs as fundbook scales, so full profitability contributions will take time to materialize.
• e-Guardian's BPO business is currently underperforming due to client sales declines and operational restructuring, creating near-term pressure on segment results.
• The risk asset to equity ratio is near its self-imposed limit temporarily following the fundbook acquisition, requiring profit retention to restore headroom this fiscal year.
• Misinterpretation of the YoY operating profit decline by market participants could create unnecessary downward pressure on the share price, as the decline is solely due to the prior year's one-off gain.

Q: Why is the NEW-IT Transformation segment seeing strong revenue growth but no corresponding profit growth, even after excluding the one-off valuation gain? / A: The main driver of revenue growth is the consolidation of fundbook, which has also brought matching increases in operating costs as the business scales. After removing the one-off Digital Growth Academia valuation gain from the prior year, segment profit is roughly flat year-over-year. The business is still in a growth and investment phase, so it will take time for profitability to improve alongside scale.

Q: What impact will the upcoming ban on point-based user acquisition for furusato nozei have on Change's business, and how is competitive environment changing? / A: Competition is intensifying as rivals push aggressive advertising ahead of the ban. The ban will be a net positive for Change, as the company has long avoided point-based promotions and focused on building value through service quality and OEM partnerships, leaving it well-positioned for the new competitive environment. The leadership change at Trust Bank (Change's furusato nozei subsidiary) was made to update strategy to match this new market environment, with a new leadership team to be announced shortly.

Q: What is Change's long-term strategy for fundbook and M&A brokerage, and how will it differentiate from existing players? / A: Detailed strategy will be published once tangible results are achieved. In the short term, the focus is on building competitive differentiation and gaining market share from existing large M&A brokerage firms. In the medium to long term, Change aims to drive structural reform of the M&A market, addressing the unmet demand for business succession M&A that leads to very low deal completion rates today, with the goal of growing overall industry deal volumes.

Q: Which business areas does management expect to drive the most growth going forward? / A: Management identifies three priority high-growth areas: M&A brokerage, public DX, and inbound tourism. The company will focus resources on accelerating growth in these three segments.