COVER Corporation Q1 FY2026 earnings call

Core Financial Results

• Total Q1 revenue was 9.6 billion yen, 50.1% higher year-over-year; operating profit was 1 billion yen, 16.5% higher year-over-year
• The quarter's sequential profit decline was in line with expected seasonal patterns, and results landed within management's projection range. Strong sales growth was led by TCG business expansion
• Despite near-term downward pressure on operating margin from pre-production investments in R&D, logistics, and overseas expansion, the company still achieved year-over-year profit growth

Content and Community Growth

• Continued building replicable hit frameworks for sustained growth via expanding content from emerging and overseas VTuber talent
• Delivered multiple high-engagement major online and offline events, including sold-out live concerts and large story events that earned strong social media traction
• Expanded community building outside the Tokyo metro area via regional events and a new pop-up official store in Osaka, which has already received strong positive response from local fans
• Secured high-profile external brand opportunities including ending theme performance for Mobile Suit Gundam GQuuuuuuX and performance at Expo 2025 Osaka Kansai to accelerate overall Cover/hololive brand awareness

Mid-Term Growth Strategy Progress

• Strengthen co-created content supply: The annual Shishiro Cup 3rd gaming event attracted over 100,000 peak concurrent viewers via partnerships with popular streamers, sponsors, and an official collaboration with Capcom. R&D for simplified motion capture technology is progressing, enabling more flexible talent content creation outside major studio facilities.
• Establish global revenue foundation: Partnership structures for a dedicated North American local EC platform are under development. Participation in the 2025 Las Vegas Licensing Expo generated over 130 business negotiations over 3 days, leading to new large North American collab deals. Brand awareness expansion is also progressing via partnerships with East Asian game companies.
• Expand revenue from new business areas: Manufacturing and distribution for the English edition of the official hololive TCG was completed ahead of the July general sales launch. New indie game titles under the holo indie brand and licensed partner titles have launched on Nintendo Switch. The HoloEarth metaverse platform has added new features that allow VTuber talent to interact directly with fans via their own avatars in a shared 3D space, driving higher user engagement and user-generated content creation.
• Optimize human capital management: Management is updating internal hiring policies, cross-departmental transfer processes, and organizational structures to support more flexible talent deployment and long-term efficient growth. Structural reforms including organizational restructuring under a new executive team that launched in April 2025 have strengthened cross-department collaboration.

Pre-Investment Progress

• Expression technology R&D: Simplified motion capture technology now enables VTuber content creation in external settings like TV production sites, supporting more cost-efficient 3D content creation for talent. R&D continues on advanced virtual live production using Unreal Engine, enabling real-time environmental effect adjustments for more immersive virtual live experiences.
• Logistics optimization: A new consolidated logistics center launched in June 2025 in partnership with Transcosmos, merging previously scattered warehouse facilities. This will improve supply chain flexibility, enable better inventory management, reduce costs, and improve delivery speed to customers.
• HoloEarth development: New direct interaction features were rolled out in late June 2025, increasing community engagement and user retention, with continued development planned to improve the shared experience value for fans and talent.
• Operational efficiency improvements: An ongoing cost optimization initiative already achieved 25 million yen in cost cuts in Q1, with a full-year target of 70 million yen in annual savings. Talent support has been strengthened via regular check-in meetings with talent to improve operations and address talent needs.

1. Distribution/Content: Short-term earnings are in a correction phase due to seasonality and reduced YouTube membership revenue from graduated VTuber talent, but year-over-year audience growth continues driven by rising traffic from emerging talent and expanded content for overseas talent. No explicit absolute revenue figure is provided in the transcript.
2. Live/Events: The quarter saw fewer events overall due to seasonal patterns. Key events in the quarter included a 2nd solo live for talent Nekomata Okayu that drew over 8,000 in-person attendees and ~10,000 streaming viewers (410% in-person growth and 138% streaming growth over the talent's first live), plus regional community events held across 6 Japanese cities outside the Tokyo metro area. No explicit absolute revenue figure is provided.
3. Merchandising: 99.2% year-over-year revenue growth, driven by the ongoing expansion of the hololive OFFICIAL CARD GAME (TCG) business. TCG sales hit an all-time quarterly high in Q1, with ongoing store campaigns and large tournaments growing player counts steadily. US tariffs caused a temporary 50% year-over-year drop in monthly North American EC sales for non-TCG merchandise, though sales have returned to a recovery trend as of Q1 end. Overall merchandising revenue maintained a high level relative to the prior quarter supported by TCG growth. No explicit absolute overall segment revenue is provided.
4. Licensing/Collaborations: Q1 segment revenue was 1.18 billion yen, which was adjusted lower quarter-over-quarter due to seasonality but remained at a high year-over-year level. The segment saw steady growth driven by ongoing strong global demand for VTuber figurines (with consistent reissues contributing to stable revenue expansion), plus high-profile collaborations including an in-game collab with NetEase's globally popular mobile title Knives Out. Overseas licensing partner count grew over 60% year-over-year, with new large-scale collaborations like a North American food franchise partnership secured.

• Management maintains that Q1's sequential performance decline was an expected seasonal outcome, within original planning assumptions
• Q2 planned activity includes: the Holo Natsu Paradise summer promotional event featuring expanded content, linked events, and related merchandise sales; 2 medium-sized domestic in-person concerts, plus the launch of a world concert tour running from July to December 2025; the large Ultra Ultra Ultra Ultra Gamers 2 gaming event co-hosted with AbemaTV in July
• Merchandising guidance: Management expects demand growth for TCG to continue after the July launch of English edition general sales, with expansion into North American and global markets. Summer promotional campaigns will be run to offset ongoing North American tariff impacts on non-TCG EC sales
• Licensing and collaborations guidance: Continued growth is expected from expanding deal volume in North America and Asia, with a large upcoming collaboration with the Dodgers expected to drive major global brand awareness growth
• Global TCG expansion guidance: Management expects a gradual player build phase for international TCG, with full material revenue contribution not expected for at least 6 months after launch. New product releases will be rolled out every 2-3 months to grow the global player base via tournaments and onboarding events, with the English edition gradually catching up to the Japanese edition's release cadence
• Cost optimization guidance: Full-year cost savings of 70 million yen are expected from the ongoing initiative, with 25 million yen already delivered in Q1

• US import tariffs have caused a temporary sharp drop in North American e-commerce sales for non-TCG merchandise, with ongoing uncertainty requiring continued close monitoring of trade policy trends
• Upfront pre-investment spending on R&D, logistics infrastructure, and overseas expansion has put near-term downward pressure on operating margin
• The North American TCG market has different consumer behavior and distribution structures than Japan, requiring adjustments to strategy that create near-term execution uncertainty
• Seasonal patterns mean most revenue for the company's segments is generated in the second half of the fiscal year, so Q1 sequential performance is typically weaker

Q: When will the overseas TCG business start meaningfully contributing to earnings, will it follow the same strategy and timeline as the domestic Japanese business, and could there be material revenue timing differences? / A: Cover is currently in the phase of gradually rolling out promotions to grow the international TCG player base, and management expects meaningful earnings contribution will take at least 6 months. The North American TCG market has more scattered player locations and different consumer habits than Japan, so Cover is adjusting its distribution strategy to fit the market while gradually aligning the English edition release cadence with the Japanese edition. There is a small timing difference where wholesale purchases happen slightly earlier than in Japan, but this impact is negligible and not material to overall financial results. The only minor early revenue recognition came from small-scale pre-sales at anime conventions, which did not move overall results.

Q: What is the impact of the VShojo business closure on Cover's operations and financials? / A: The VShojo business closure has no material impact on Cover. Cover had only a minor partnership with VShojo, with no material ownership stake or ongoing operational integration, so the closure does not affect Cover's existing business or financial performance.

Q: How is the VTuber talent discovery and nurturing strategy progressing, what priorities is Cover focused on? / A: Cover continues to prioritize building a structured, sustainable nurturing pipeline to grow its talent roster steadily. The company is focused on supporting emerging talent to grow their audiences consistently, while also maintaining strong support for existing top talent. Improved internal communication and talent support systems implemented this year are addressing talent needs and improving retention, aligned with the company's long-term goal of steady sustainable roster growth rather than aggressive overexpansion.