Appirits Inc. Q1 FY2026 earnings call

• Corporate Overview & Long-Term Strategy: Appirits is an internet-focused company founded in 2000, with 878 consolidated employees as of the reporting period. It targets 10.4 billion yen in full-year 2026 January term revenue, and has a long-term target of 20 billion yen in revenue and 1,700 consolidated employees by 2030. Growth is driven by a combination of organic expansion of existing businesses and 1-2 small-to-medium M&As per year, with top-line growth prioritized currently. M&A targets focus on two categories: (1) 100 million yen to 300 million yen revenue system integrators (to address project manager shortages) or regionally-based firms for Web Solution, and (2) established SES/talent businesses with experienced staff for the Digital Talent segment. The company completed multiple corporate changes this term: absorbed Moving Crew in June, added JUT JOY in April, spun off the renamed Oshi Culture & Gaming segment as a subsidiary in August, and acquired Vietnamese development firm Bunbu Joint Stock Company (to be consolidated starting November 2025) for stable IT talent access and cost optimization. It also made its first startup investment in SportsTech Japan, a firm using AI to address youth sports coaching shortages. - Web Solution Segment Updates: The segment provides end-to-end development services including large-scale system development, mobile app development, digital marketing, and post-delivery maintenance. It is currently accelerating generative AI support services, including AI reskilling, operational efficiency support, and AI integration for client products, with completed deployments such as an AI-powered FAQ enhancement for Lotte. Inquiry volume remains steady, with 50 million yen+ projects accounting for 62% of total orders, and growth in projects over 200 million yen. - Digital Talent Segment Updates: The segment dispatches engineers to client companies facing development resource shortages, and provides in-house engineer training for clients with a proprietary curriculum and dedicated training team. It newly launched a lab-based development service this term, offering flexible custom development resources to clients for optimized speed and cost. - Oshi Culture & Gaming Segment Updates: The segment operates three core businesses: mobile game operation transfer/contract development, entertainment fan club site development/operation, and game-specific talent dispatching (to smooth out resource fluctuations from contract projects). It currently operates 8 active game titles focused on idol/oshi fan experiences, with strong growth from a newly transferred project.

1. Webソリューション (Web Solution) Segment: Q2 2026 January term revenue of 977 million yen, +24% YoY (124.0% of prior year), with 68 million yen in segment operating profit and 5.6% operating profit margin (well below target due to unprofitable projects). This segment accounts for ~36.4% of total consolidated Q2 revenue. 2. デジタル人材育成派遣 (Digital Talent Development & Dispatching) Segment: Q2 2026 January term revenue of 499 million yen, +39.3% YoY (139.3% of prior year), with 28 million yen in segment operating profit. Core subsidiary Y's records 38 million yen in operating profit (the gap vs segment profit comes from intercompany transactions and goodwill amortization for acquired entities). This segment accounts for ~18.6% of total consolidated Q2 revenue. 3. 推しカルチャー＆ゲーム (Oshi Culture & Gaming) Segment (renamed from Online Gaming Segment this term): Q2 2026 January term revenue of 1.225 billion yen, +59.7% YoY (159.7% of prior year, a segment record), with 99 million yen in segment operating profit (+205.8% YoY) and 7.4% operating profit margin. A newly transferred operating project contributed to the strong growth. This segment accounts for ~45.7% of total consolidated Q2 revenue.

• Full-year 2026 January term guidance was revised downward following the recognition of costs from the unprofitable Web Solution project, though all segments remain on track to hit revenue targets. The unprofitable project is expected to begin converging in Q3, with limited residual impact in the second half and no expected impact on future fiscal years. - The 30% payout ratio dividend policy is maintained, with the full-year dividend forecast kept unchanged at 28 yen per share (14 yen for the first half, 14 yen for the second half), despite the first half operating loss. - Long-term, the company will prioritize growth investment (hiring and M&A) while maintaining financial health, keeping the 30% payout ratio intact for the foreseeable future, with potential for increased shareholder returns once 2030 growth targets are achieved. - Web Solution segment operating margin is expected to recover gradually through the second half of the fiscal year as the unprofitable project is resolved. - Oshi Culture & Gaming segment revenue and profit are expected to rise in H2, as most operated titles hold anniversary events in Q3/Q4, and the rollout of off-platform billing to improve margins is timed to align with these events.

• Repeat unprofitable large-scale projects in the Web Solution segment: As project size and complexity have grown post-IPO, the company currently lacks sufficient senior professional talent for upstream project design, and existing cross-process governance checks have too few checkpoints, leading to late detection of scope/quality issues that require full rework, resulting in unexpected excess outsourcing costs that weigh on group profit. - Persistent industry-wide engineer shortages in Japan, driven by labor force decline paired with rapidly growing DX demand, which constrains growth potential across all segments. - For the Oshi Culture & Gaming segment, the key risk is slow adoption and penetration of off-platform billing, which is required to improve segment profit margins by reducing platform fee costs.

Q: Is the current unprofitable project a continuation of past issues, and when will it converge? / A: This is a separate new project, not a continuation of past unprofitable projects. The issue stems from the company still adapting to the qualitative shift toward larger, more complex projects. Management expects the project to converge starting in Q3, with no material impact on future fiscal years, once talent and governance adjustments are completed.

Q: What are your core prevention measures for repeat unprofitable large projects? / A: There are two core measures. First, the company is aggressively hiring senior professional talent with experience managing large upstream projects, and promoting qualified internal staff into these roles. Second, the company is adding more frequent cross-project checkpoints to the governance process, to identify issues much earlier in development before they become costly to fix.

Q: What are the growth drivers and risk management for each core segment, particularly for gaming? / A: For Web Solution, growth comes from increasing client count, project size, and average project pricing, and risk management is being improved by adding more checkpoints to cross-project quality monitoring. For Oshi Culture & Gaming, the company is rolling out off-platform billing to improve margin stability, and most annual revenue and profit come around anniversary events for existing titles, which are concentrated in H2, so strong H2 results are expected.

Q: What is the key constraint on Oshi Culture & Gaming segment growth, and how does off-platform billing improve performance? / A: The main constraint on growth and margin is how quickly off-platform billing can be rolled out and adopted across all segment projects. Off-platform billing avoids high platform transaction fees, which directly improves segment profitability, so the speed of penetration is the key metric for segment performance.