9211.T

• Core 2025 Fiscal Year Performance

  • The company achieved results that exceeded its upwardly revised full year guidance, delivering sustained high growth after completing planned investments in business, talent, and AI in the fourth quarter.
  • EPS has grown approximately 9x over the 4 years since the company's listing.
  • 6 M&A transactions were completed in fiscal 2025. Acquired businesses have delivered strong average annual profit growth of approximately 50% since listing.
  • 80% of acquired companies have delivered growth exceeding or meeting expectations; the remaining 20% were in the upfront investment phase, and all but one completed investment in 2025 and are expected to contribute meaningful operating profit in 2026.

• M&A Strategy

  • The company continues to pursue roll-up M&A along two axes: horizontal expansion of general-purpose services applicable to all industries (e.g. digital marketing, AI utilization, system development), and vertical deep dives into specific sectors (currently the school/education sector, with plans to identify additional sectors for future deep dives).
  • Target M&A markets remain large, high-growth fragmented markets: IT services, digital marketing, generative AI, and online education. M&A deal sourcing is growing steadily, with increasing inbound inquiries directly from selling parties in addition to existing inbound flows from M&A intermediaries, banks, and securities firms. There is a sufficient pipeline of potential acquisition targets, and the company can now more rigorously select high-quality targets.
  • Key synergies from consolidated school businesses: 1) Cross-referral and operational knowledge sharing between acquired school businesses; 2) High-performing graduates of the company's IT/AI skill schools become internal talent for the group, addressing industry-wide labor shortages and building competitive advantage for the group's corporate service business.

• Post-Acquisition Governance and Value Creation

  • Post-acquisition integration: Immediately implement strengthened monitoring for PMI, governance, and compliance; provide shared corporate functions (accounting, finance, HR, legal, general affairs) to meet listed company standards; strengthen organization and talent, and build structured succession plans for founder-reliant small venture businesses. This three-phase process first establishes stable operations, then builds sustained value creation capabilities, then executes value-up measures.
  • Value-up measures: Cross-selling, sales channel sharing, and integrated sales to enable multiple group companies to sell solutions to the same client; shared back-office functions, joint purchasing, and internal alternative purchasing routes to create synergies through both revenue growth and cost reduction.
  • Track record: Relative to M&A expected performance at acquisition, acquired businesses deliver average annual profit growth of approximately 50%; relative to pre-acquisition performance, they deliver 76% total profit growth.

• Financial Model and Capital Strategy

  • The company conducted two public offerings in the 3 years after listing (fiscal 2023 and 2024, none in fiscal 2025), which delivered ~100% annual profit growth using equity financing. Going forward, the company will shift to a debt-only financing model.
  • Management estimates that 50% annual profit growth is achievable without additional public offerings, leveraging growing operating cash flow and net assets as leverage for bank borrowing. The model assumes even a conservative 15% annual organic growth, combined with inorganic growth from M&A will deliver over 50% total annual operating profit growth; organic growth in fiscal 2025 was 35% organically alone.
  • Goodwill breakdown: Total goodwill of 11.6 billion yen, split between fixed goodwill already paid for acquisitions, and contingent goodwill only payable if acquired businesses exceed performance targets. Fixed goodwill is expected to be recovered within 2.7 years based on fiscal 2026 projected annual EBITDA of 3.3 billion yen, down from 3.5 years in the third quarter of fiscal 2025, meaning goodwill impairment risk is extremely low.
  • Adjusted tangible common equity ratio: After deducting 3.5 billion yen in other financial liabilities linked to contingent goodwill, the current adjusted ratio is 32.5%, up from 30.2% in Q3 fiscal 2025, reflecting an improving and stable balance sheet. The company leverages long-term low-interest loans to keep WACC low relative to projected ROIC.

• Recent AI One Acquisition

  • This is an acquisition of an AI-focused school business, with a total transaction consideration of 1.2 billion yen, projected annual operating profit of 280 million yen for the acquired stake, and 500 million yen projected annual operating profit for the full AI One group on 1.5 billion yen projected annual revenue. The transfer is expected to complete in mid-February 2026, and is projected to contribute ~10 months of profit to fiscal 2026.

• For the full year ending December 2026, the company projects: 14.5 billion yen total sales revenue (+21.5% year-over-year), 3.3 billion yen total operating profit (+40.8% year-over-year). This guidance does not include the impact of the recently announced AI One acquisition; the company will update guidance once the impact can be fully quantified after transaction close.
• By segment: Marketing & School segment is projected to deliver ~20% growth, while AI・Technology segment is projected to deliver ~60% growth.
• The 950 million yen total operating profit growth (to reach 3.3 billion yen) breaks down as: ~850 million yen from organic growth of existing businesses, plus incremental full-year contribution from 2025 acquisitions (which only contributed ~10 months of profit in fiscal 2025), minus ~100 million yen in incremental headquarter costs for M&A, value-up, and corporate functions.
• The company expects that the new debt-funded growth model can be sustained indefinitely as long as it is executed appropriately, and is not limited to just the next 1-2 years. The model projects 21x operating profit growth and 11x EPS growth over 5 years.

For the full year ending December 2025:

1. Marketing segment: Business profit grew approximately 1.5x year-over-year. Revenue contribution % was not explicitly disclosed.
2. AI・Technology segment: Business profit grew approximately 2.5x year-over-year, which is the company's current focus area. Revenue contribution % was not explicitly disclosed. Total consolidated sales revenue: 11.93 billion yen (2.3x year-over-year), total operating profit: 2.34 billion yen (1.8x year-over-year).

• The company acknowledges that potential bottlenecks to sustained 50% annual growth include: 1) whether there will continue to be a sufficient number of attractive acquisition targets; 2) whether organic growth can continue to exceed 15% annually.
• There is inherent bottleneck risk to M&A acceleration from limited PMI/integration team and supporting talent capacity. The company has proactively addressed this risk by accelerating senior talent hiring, led by experienced CHROs, and currently sees no risk of disruption, though future scalability remains dependent on continued hiring success.
• Generative AI creates downward price pressure on tool-based and operational outsourcing work. While AI also improves the productivity of outsourcing providers, it remains unclear whether this productivity gain will fully offset downward price pressure, so the impact on future operating profit remains uncertain.
• Goodwill impairment risk exists for companies where the probability of achieving earnout targets has declined, which can happen if earnout targets were set too high initially, or if acquired companies have entered a temporary upfront investment phase that temporarily reduces current profit.

Q: 440 million yen in other gains/losses was included in Q4 fiscal 2025 operating profit. What are the main components, how much comes from M&A-related valuation gains on contingent consideration remeasurement, and do these items impact cash flow?

A: Most changes in special gains and losses are related to changes in the valuation of contingent goodwill and corresponding other financial liabilities linked to earnout provisions. Each period, auditors and third-party valuators assess whether acquired companies will hit their earnout targets, and changes in the valuation of these contingent items are recorded as special gains or losses. These items do not impact current cash flow.

Q: What are the core drivers of the projected 63.3% year-over-year profit growth for the AI・Technology segment in fiscal 2026 (is it driven by higher unit prices, more projects, or higher utilization)? Can we expect gross margin to continue rising?

A: The AI・Technology segment is split into two parts. For the technology services arm that provides engineers and tech talent to clients: all three drivers are positive: the number of projects is steadily increasing, talent utilization is improving, and unit rates are also rising. Excluding upfront investment for new acquisitions, gross margin and operating margin are expected to grow meaningfully. For the AI product arm, which uses a SaaS model with no manual labor requirement: user adoption is already growing rapidly after launch, and the product has received strong market feedback.

Q: Can you provide more detail on companies that did not hit earnout targets, and how earnout valuation is treated under IFRS?

A: It is not the case that there are companies that definitively failed to achieve earnouts. Under IFRS, contingent goodwill and corresponding financial liabilities for earnouts must be marked to market each quarter. Every quarter, valuators calculate the probability that each acquired company will hit its earnout target, and this is audited by the firm's auditors. The net change in the total valuation across all acquired companies is what creates the special gain or loss each period, not a binary outcome of a specific company hitting or missing its target.

Q: How does generative AI impact the trend of in-sourcing vs. outsourcing in the IT industry, what work will remain people-based, and what work will be replaced?

A: We need to separate two different questions: whether the outsourcing market will remain large, and what parts of work will be disrupted/replaced by AI. First, we believe the Japanese outsourcing market will remain large for the foreseeable future: demand for outsourcing marketing, IT, and other business functions (including work related to AI adoption) will continue. Second, we agree that generative AI creates downward price pressure on outsourced work, but outsourcing providers will also adopt AI to improve their own productivity, so it is still unclear whether net operating profit will decline. Third, routine work including basic design, pure programming, data entry, and basic data analysis is already being replaced by AI (we see this firsthand across our group companies: AI can code faster than junior engineers, and generate hundreds of banner design options in minutes). However, high-value work that requires understanding business context, such as requirement definition, internal stakeholder alignment, PMO, planning, stakeholder negotiation, quality assurance, and testing will remain people-based for the foreseeable future.

Q: Can you describe the structure and background of your PMI team, and is team size a bottleneck to accelerating M&A?

A: We split our post-acquisition teams into two groups. The initial PMI team that takes over acquired companies is a cross-functional team covering accounting/finance, legal/internal control, HR, sales, and product, to cover all required work post-acquisition. The value-up team that grows the business after integration is mostly staffed by people with extensive direct operating experience, led by our COO, with many members that have held senior leadership roles at other companies; the team is focused on actual operating experience rather than just consulting or investing experience. Bottleneck risk does exist for both the core teams and supporting talent assigned to acquired companies, so we have built out our HR team with senior CHROs from other listed companies and are actively accelerating hiring for high-end senior talent. We have baked this risk into our planning, so there is no near-term risk of disruption, but future scalability is dependent on continued successful hiring.

Q: What do impaired companies have in common?

A: Most impairments relate to the contingent portion of goodwill, and come from valuators lowering the estimated probability of achieving earnout targets. There are two common scenarios: first, when the initial agreed earnout target was overly aggressive, even though this is agreed through mutual discussion with the selling party; second, when an acquired company has intentionally entered an upfront investment phase, which temporarily reduces current profit and leads to a lower estimated probability of hitting the near-term earnout target.

Q: How long do you expect to maintain 50% annual profit growth without additional equity issuances? What is your target debt-to-equity ratio, and will banks accept this level of leverage?

A: This model is built in ongoing discussion with banks, and as long as the model continues to perform as expected, it can be sustained indefinitely; it is not just a short-term plan for the next 1-2 years. That said, there is no guarantee it can continue forever, but the model is designed to be repeatable. The two key potential bottlenecks we have identified are the availability of attractive acquisition targets, and the ability to sustain at least 15% annual organic growth. We have proven this over 4 years since listing, and we expect to continue proving this in future years: we already project 35% organic growth for fiscal 2026, and our acquired companies continue to deliver 50% average annual growth relative to original acquisition expectations, so we will continue working to sustain this growth. To add a note on the recent 'SaaS is Dead' market discussion: SaaS products account for less than 10% of our group's total profit, so there is no material risk to our business from this trend.