AIPHONE CO.,LTD. Q2 FY2026 earnings call

Long-term and Mid-term Strategy

• Over the next 10 years, management expects continued growth in renovation demand centered on the domestic multi-family housing market. While this domestic growth window remains open, the company will shift its strategic growth focus to overseas markets, while accelerating new service-based (as opposed to purely product-based) revenue initiatives that address social issues.
• The company aims to establish more efficient profit-generating capabilities including growth investment in high-margin overseas markets, and targets long-term ROE of 10% or higher.
• The 8th Mid-term Management Plan, which ends in the 2026 March fiscal year, has three core strategic themes: expansion of domestic customer services, expansion of overseas business, and strengthening development capabilities, with the goal of building a resilient business foundation for future growth in the 9th and 10th mid-term plans.

New Service Initiative: Pabbit

• Pabbit is a secure delivery solution for multi-family housing that allows couriers to unlock the building auto-lock for unattended safe delivery, reducing the social problem of redelivery. Cost is paid per use by delivery companies rather than residents, property managers, or developers, creating benefits for all stakeholders: reduced costs and lower carbon emissions for couriers, shorter work hours for delivery staff, free convenience for residents, and less need for excess parcel lockers plus property differentiation for developers.
• The service not only generates recurring service revenue, but also drives increased intercom hardware sales as developers adopt the solution. Business partnerships have expanded beyond parcel couriers to include online grocery delivery, consumer co-op delivery, and cleaning services, with the first in-nation food delivery integration launching in a new condominium to positive reception.
• Japan's Ministry of Land, Infrastructure, Transport and Tourism recently issued public guidance for lockerless delivery adoption, which included pre-coordination with fire department regulators on evacuation route compliance. Management expects this to reduce developer reluctance to adopt the service and will accelerate expansion and market penetration.

New Service Initiative: CareRings Contact

• CareRings Contact is an address book application for medical and nursing facility staff designed to improve handoff and communication for shift-based workers using shared smartphones, providing real-time visibility into on-duty staff roles and attributes.
• Amid Japan's physician work style reform, more nurses are now performing specific medical procedures, increasing the need for quick communication between physicians and nurses. The app solves the common problem of difficulty tracking which qualified nurses are on duty. A hospital trial found that ward inquiry volume dropped 93% from 263 to 18 inquiries per month after implementation, confirming significant efficiency improvements.

Development Capability Strengthening

• To expand software development capacity, the company acquired Nihon Micro Link Corp., a Tokyo-based custom software development firm, in December last year, following prior acquisitions of Hokkaido-based Software Sapporo and Aichi-based Teshio Technology. The acquisitions are intended to secure development resources, accumulate technical know-how, and accelerate development capability improvements amid rising demand for software-enabled solutions.

Shareholder Return

• The company maintains a policy of stable dividends with increasing payout levels during the 8th Mid-term Management Plan. The interim dividend is set at 50 yen per share as originally planned, the year-end dividend is planned at 80 yen per share, bringing full year dividend to 130 yen per share as originally guided, including additional return as part of the mid-term plan's shareholder return initiative.

Consolidated net sales for the first half (first 2 quarters) of the 2026 March fiscal year totaled 30.21 billion yen, a 2.5% decrease year-over-year. Operating profit decreased sharply due to lower sales mix from higher-margin overseas markets and increased development and personnel investment costs.

Domestic Market (total 22.66 billion yen, +4.0% YoY, 75% of total consolidated revenue):

• Domestic Detached Housing Market: 2.54 billion yen, +27.9% YoY. New construction sales grew 27.6% YoY on rush demand from price revisions and aggressive new customer acquisition; renovation sales grew 28.9% YoY driven by rising crime prevention awareness.
• Domestic Multi-Family Housing Market: 15.12 billion yen, -1.2% YoY (50% of total consolidated revenue). New construction sales grew 2.5% YoY, with strong sales of PATMOα for rental apartments driven by Pabbit service proposals, despite falling new condominium construction starts. Renovation sales fell 2.8% YoY, which management attributes to a very strong prior year comparability, with underlying share growth continuing amid high security demand.
• Domestic Care Market: 3.68 billion yen, +8.5% YoY. New construction sales fell 2.7% YoY amid falling hospital construction starts, while renovation sales grew 13.7% YoY driven by sustained high demand for monitoring support, supported by local government subsidies for facility upgrades and ICT investment.

Overseas Market (total 7.54 billion yen, -17.8% YoY, 25% of total consolidated revenue):

• North America: 4.61 billion yen, -24% YoY in yen terms. The decline is driven by a pullback after prior year backlog clearing, and dealer inventory cuts amid U.S. economic uncertainty from tariff policy.
• Europe: 2.06 billion yen, -6.3% YoY in yen terms. While IP intercom sales grew in France, broader economic stagnation from the prolonged Ukraine war and political chaos, plus intensifying price competition with European and Chinese firms, drove an overall sales decline.

• Management maintains the original full-year 2026 March fiscal year guidance, with consolidated net sales of 65.4 billion yen (+3.3% YoY) and operating profit of 4.5 billion yen (+18.0% YoY).
• While the first half result makes the full year target appear ambitious, management plans to prioritize securing in-period orders for higher-margin domestic renovation sales, and expects the full positive impact of recent sales price revisions to materialize starting in the middle of the second half, driving profit improvement in the second half.
• The 8th Mid-term Management Plan's final year operating profit target was previously revised downward in 2025, and the current full year guidance of 4.5 billion yen is 1.1 billion yen below the revised mid-term target, due to higher costs from currency, R&D, and wages. Management did not revise full year guidance in this call.
• Uncertain impacts from U.S. tariff policy, including changes to second half market conditions and customer reaction to passing through tariff costs to selling prices, are not included in the current guidance. Management will disclose a revision if the impact becomes clear and material.

• Persistent yen depreciation against the U.S. dollar and Thai baht has a net negative impact on operating profit, because the company's share of production sourced overseas is much higher than its share of overseas sales, so higher raw material and operating costs from yen depreciation outpace the revenue benefit from translated overseas sales. A 1-yen depreciation against the U.S. dollar reduces annual operating profit by 20 million to 30 million yen, while a 0.01-yen depreciation against the Thai baht reduces annual operating profit by 10 million to 20 million yen. The full year guidance assumes USD/JPY of 148 and THB/JPY of 4.3.
• Research and development costs have remained elevated after rising steadily, driven by growing software development scale, rising outsourcing costs, delayed development schedules from lower development efficiency caused by pandemic after-effects and component shortages that forced product design changes, and multiple large R&D projects running in parallel.
• North American market demand is uncertain due to ongoing trade policy volatility, which has caused dealers to cut inventory and reduce purchases, leading to a sharp year-over-year sales decline in the first half.
• The European economic outlook remains weak due to the prolonged Ukraine war and political instability, leading to stagnant economic activity and slower sales. Intensified price competition with European and Chinese firms has also pressured performance.
• Construction investment remains stagnant across Asia-Oceania amid unstable real estate market conditions in China.
• New condominium construction starts in Japan are declining, creating a challenging competitive environment for domestic new construction sales.

No question and answer section was included in the provided transcript.