TWOSTONE&Sons Inc. Q2 FY2026 earnings call

• Core Business Milestone & Positioning:

  • Flagship service Midworks (engineer matching) marked its 10th anniversary since launch, and remains the company's core growth driver.
  • The company aims to become a one-stop capability provider for growing B2B clients, offering combinations of engineer resourcing, contracted development, web marketing, strategic consulting and M&A brokerage matching client growth stage needs.

• Strategic Investment in Talent:

  • The quarter added 41 full-time engineers and 17 consulting talent, with total hiring investment up 138 million yen YoY, and total new hires up 114.8% YoY. Management frames these hiring costs as temporary investments that will drive medium-to-long term revenue and margin growth.

• M&A Strategy Progress:

  • M&A deal review count hit 280, up 39.3% YoY. The company closed its first stock-swap structured M&A of FAM, a firm with strength in training inexperienced engineers, to expand share in the junior engineer talent segment and preserve on-hand cash for future growth investment.
  • The company pursues a roll-up M&A strategy focused on peripheral areas of its core business, and has updated its criteria to pursue more active deals while maintaining the no-goodwill-impairment rule.

• Governance Strengthening:

  • Former outside director Hasegawa joined as an inside director to leverage his large public company group management experience, speed up decision-making and strengthen the management structure.
  • The company continues post-merger integration for acquired firms and evaluates group company mergers to improve operational efficiency.

• New Business Launch:

  • The company entered the fintech space to build a comprehensive ecosystem for freelancers, launching Mid-CASH, a factoring service for freelance engineers registered on Midworks. The goal is to evolve from a job matching platform to an infrastructure supporting freelancers' long-term work and life, expanding the company's own freelance economic zone.

• AI Strategy and Competitive Advantage:

  • Management argues AI does not reduce engineer demand: AI automates routine "defensive development" (maintenance/operations), freeing engineer capacity for unaddressed high-value "offensive development" projects, which expands total development volume exponentially. Flexible freelance engineers are the optimal solution for companies needing rapid specialist capacity for these new projects, increasing demand for the company's offerings.
  • The company offers end-to-end AI implementation support covering AI strategy consulting, in-house system development with over 500 full-time engineers, and AI engineer resourcing from its 60,000+ freelance base, creating a unique competitive moat in the AI era.

• Shareholder Returns and External Recognition:

  • Despite the temporary quarterly operating loss from strategic investment, management declared an increased year-end dividend to balance growth investment and shareholder returns.
  • The company was selected for the JPX Startup Rapid Growth 100 Index, recognizing its strong growth trajectory.

1. Engineer Matching Segment (Midworks): Quarter revenue is 4.011 billion yen, with 9.2% YoY growth and 27 consecutive quarters of record high revenue. This segment contributes 81.5% of total company revenue in the quarter. Operating profit decreased 10.3% YoY due to increased hiring investment, but rose ~600 million yen from the 1st quarter. Active engineer count hit 5,645, up 10.1% YoY, and total registered users exceeded 60,000, both record highs.
2. Consulting & Advisory Segment: The 2025 August fiscal year 2nd quarter included a large M&A advisory closing that pushed up prior-year revenue, leading to an overall company revenue growth slowdown to 3.1% YoY in the 2026 2nd quarter. No separate absolute revenue figure is provided for this segment in the transcript.

• The company maintains its aggressive growth strategy, continuing offensive investment in the 3rd quarter to expand business scale, and pushing forward growth initiatives that will drive profit expansion in the 2027 August fiscal year.
• Full-year 2026 August fiscal year revenue guidance is maintained at 24.0 billion yen, building on 12 consecutive years of revenue growth through 2025, when revenue reached 18.0 billion yen.
• Management will accelerate strategic roll-up M&A focused on peripheral core business areas, combining organic growth of existing business with inorganic non-continuous growth from M&A and new business to drive group expansion and maximize corporate value.
• The company will strengthen hiring for executive candidate roles to support new business development, and aims to deliver sustainable non-continuous growth by launching new businesses that leverage the company's core engineering and marketing strengths.
• The company targets growth faster than the overall digital talent service market, which is projected to reach 1.8 trillion yen in 2026, to establish a top-tier industry position.

• The main near-term operational risk is internal bottlenecks in sales and matching functions, which have led to lower engineer utilization rates even as market demand and the company's registered talent base continue to grow.
• The slowdown in overall quarterly revenue growth (to 3.1% YoY) is driven by the difficult comparison to the prior year quarter, which included a large outlier M&A advisory deal; this creates near-term pressure on headline growth metrics.
• While current hiring investment is expected to pay off in the medium term, it created a temporary operating loss of -105 million yen in the quarter, which may pressure near-term profitability perceptions.

Q: How do you view the relationship between AI and engineers, and what positioning will TWOSTONE take in the AI era? / A: Management states AI only improves engineer productivity, it does not replace demand for engineering work. They analogize this to how Excel improved accountant productivity rather than eliminating the role: existing large pre-AI development costs for custom AI models are now reduced to affordable monthly API access to leading general models, which has dramatically increased corporate demand for AI implementation. The company aims to position itself as a full-service end-to-end provider that can answer all client AI needs, advising clients on the right AI implementations to drive their own growth. This leverages the company's existing three-pillar AI service capability, from strategy through development to resourcing.