Nalnet Communications Inc. Q4 FY2025 earnings call

Company Overview & Core Strengths

• Founded in 1978 starting from auto leasing, the company pivoted to maintenance management BPO and now operates as a mobility service provider, with a core stock-based revenue model built on long-term client relationships.
• Key asset: A national network of 13,031 partnered maintenance workshops, supported by cost-reduction partnerships with external firms (e.g., Itochu Enex) for low-cost private label automotive parts.

Updated Strategic Positioning

• The company redefined its long-term vision to become a "Mobility Infrastructure Company" that solves industry-wide challenges, moving beyond serving only traditional leasing clients to supporting the broader mobility market.
• Reorganized business into three core domains: Vehicle Support (core maintenance management), Mobility Platform (workshop and industry infrastructure support), and Mobility Support (peripheral services).

Vehicle Support Domain Growth Strategies

• Expand distribution to automaker-affiliated leasing companies: Launched a new joint service with a major automaker starting February 2025, aiming for 951 million yen in incremental revenue and growing automaker-affiliated managed vehicles to over 20% of total managed units. This partnership enables automakers to collect full vehicle maintenance data while leveraging Narnet's national workshop network.
• EV solution services: Leverages existing vehicle management expertise to support corporate fleet EV transitions, including 4R (reuse/recycle) services for EV batteries and building out dedicated after-support networks, growing with increasing corporate EV adoption driven by ESG goals.
• Enter the used vehicle market: Launched trial pre-delivery maintenance services for WECARS starting August 2024, added vehicle management services for IDOM CaaS Technology's subscription mobility services starting September 2024, and plans to develop used vehicle-specific maintenance packages and warranty products.

Mobility Platform Domain Growth Strategies

• Vehicle inspection platform development: Developing an AI-powered automated quoting system that leverages historical maintenance data to match users with workshops, planning partnerships with retail chains to enable convenient vehicle drop-off/pick-up and booking through existing retail locations.
• Strengthen workshop partnership: Launched the "MobiNow Management Support" consulting service for partnered workshops in March 2025, providing support for technician recruitment, business succession, operational efficiency, and DX tool implementation to improve partner network stability.
• Expand automotive BPO services: Offers flexible end-to-end back-office support for new mobility entrants (carsharing, e-commerce, used vehicle sales, foreign automaker Japan expansion), including call center operations, data management, and parts management.

1. Maintenance Contracting Business (core segment): Revenue of 6.984 billion yen, an 11.5% increase year-over-year, accounting for 81.8% of total company revenue. Revenue and managed vehicle units grew steadily, with new contracts from automaker-affiliated leasing companies starting in February 2025, but cost increases outpaced revenue growth, leading to a decline in gross profit. 2. MLS Business (personal car lease support): Grew in line with managed vehicle volume increases, with over 10% YoY growth in managed units. The business earns fee-based revenue and is largely unaffected by input cost inflation; price adjustments to absorb management costs have delivered immediate positive results, leading to steady profit growth. 3. BPO Business: Revenue and gross profit increased YoY, with managed units up 12.1% YoY. Growth was driven by new pre-delivery preparation work for used vehicles in partnership with WECARS, a new business area for the company that serves as a foothold for entering the used vehicle market. Higher personnel expenses for business expansion and governance improvement acted as a headwind to net profit growth.

Consolidated total results: Total revenue 8.542 billion yen, +11.3% YoY; operating profit 442 million yen, -16.1% YoY.

• FY2026 (March 2026) consolidated guidance: Expects 21.9% YoY revenue growth to 10.41 billion yen, and 57.6% YoY growth in ordinary profit to 678 million yen.
• Margin improvement is expected for the core maintenance contracting business, driven by full-year contribution from new automaker-affiliated leasing contracts and the impact of price adjustments that will catch up to prior cost increases.
• BPO business revenue will grow substantially from the new WECARS used vehicle preparation business; while gross margin will decline due to outsourced workshop costs, total gross profit will increase.
• Dividend guidance: Maintains a 15 yen per share dividend for FY2026, consistent with FY2025, aligned with the long-term target 30% payout ratio, with future adjustments to be made based on business progress.

• Inflation has pushed up costs for automotive parts (especially tires) and maintenance services faster than the company can implement price adjustments for existing long-term contracts, leading to near-term margin compression.
• The first year of new vehicle contracts incurs upfront costs such as winter tire provision, so higher-than-expected new vehicle contract growth amplified near-term cost pressure in FY2025.
• Delays in receiving expected new contracts from automaker-affiliated clients negatively impacted FY2025 profitability, despite offsetting growth from other clients.
• The automotive industry is facing structural challenges including technician shortages, need for upgraded capabilities to service EVs/next-generation vehicles, and inadequate infrastructure to meet diversifying user mobility needs, which create industry-wide operating headwinds.

Q: What benefits does the partnership with automaker-affiliated leasing companies bring to Narnet? / A: The partnership opens a large new high-growth customer segment beyond Narnet's traditional non-automaker leasing client base. It allows the company to leverage its existing workshop network and maintenance expertise to win large-volume new contracts, with the full-year impact of new business expected to drive substantial top-line growth in FY2026. The partnership also lets Narnet build new capabilities that support expansion into other industry segments. /

Q: What is Narnet's role in the growing used vehicle market, and what is the growth outlook? / A: The used vehicle market has growing demand for trusted standardized maintenance as rising new car prices increase consumer interest in used vehicles. Narnet leverages its decades of maintenance expertise to provide standardized pre-delivery preparation and ongoing maintenance services, helping increase consumer trust in the used vehicle market. The business is already in a trial phase with multiple partners, and will expand gradually by adding specialized products for the segment. /

Q: How will the global slowdown in EV adoption impact Narnet's EV strategy and performance? / A: While global EV adoption has slowed relative to earlier projections, large Japanese corporations are still proactively switching fleet vehicles to EVs for ESG reasons, creating steady demand for Narnet's EV management support services. Narnet is building out EV-specific support capabilities incrementally to match market demand, so near-term downside risk from slower adoption is limited, and the company is well positioned to benefit from long-term EV market growth.