Last One Mile Co.,Ltd. Q1 FY2026 earnings call

• Overall 1Q 2026.8 Financial Results • Consolidated sales revenue increased 27.7% year-over-year, operating profit increased 93.9% year-over-year, stock-type sales revenue increased 19.8% year-over-year, and EPS increased 117.6% year-over-year. Sales revenue received a double circle (◎) rating for exceeding plan by more than 10%, driven by M&A effects in the Alliance Business. The strong profit growth is attributed to the realization of benefits from prior period upfront investments and the addition of the newly consolidated subsidiary Terbell. • The 1Q result is in line with the company's expectations, and operating profit is tracking ahead of plan at 28.3% of the full-year target.

• Group Structure Definition • New subsidiary Terbell was added to the consolidated group starting this quarter. The company divides group companies into existing companies (included in 12+ months of prior period financial results) and new companies (shorter operating periods). Main business segments are Alliance Business and free internet for multi-unit dwellings, and businesses with operating profit of 0.1 billion yen or more are defined as core businesses.

• Stock/Flow Business Model Strategy • The overarching priority is maximizing long-term earnings per share. For each product, the company selects the most profitable model: stock-type (recurring monthly revenue with stable fixed SG&A, accumulating profit over time) or flow-type (one-time revenue like referral fees). The company handles over 100 products, including pure stock, pure flow, and mixed models, and selects the optimal approach for each product.

• LOM Single Entity Performance • The apparent 2025.8 period operating profit dip for LOM single entity is temporary. LOM absorbs most M&A brokerage fees, consolidation costs, and listing maintenance costs for the entire group, so burdens grow as the number of group companies increases. Gross profit for LOM continues to grow steadily, and it is back to a growth trajectory in the current period.

• Mid-Term Growth Strategy • 1. Strengthen business foundation: Concentrate management resources through inter-group collaboration as the number of group companies grows. 2. Share know-how: Hold weekly sales meetings to share different sales expertise across group companies, leveraging each other's strengths. 3. Continue to pursue M&A: Past M&A targets have continued to grow steadily after acquisition, so the company will keep推进 M&A. 4. Proactive shareholder returns: The company will continue shareholder return activities based on its financial position and investment performance. Growth will continue to center on core business expansion and M&A; new business will be pursued only when opportunities arise, either via M&A into new areas or spin-offs from existing businesses.

• Capital and Shareholder Management • Most treasury shares acquired via buybacks are used for share exchanges in M&A transactions. The company prioritizes EPS growth, and only pursues M&A that will drive EPS growth over time after any near-term dilution. For the current full year, management expects full-year EPS of approximately 414 yen, which is tracking in line with plan.

1. Alliance Business: This is the largest revenue segment for Last One Mile, accounting for the majority of total revenue. Customer referral fees (lead information procurement costs) for this business increased from ~23% to ~30% of total revenue year-over-year, and all such costs are recorded in SG&A rather than cost of goods sold. 2. Free Internet for Multi-Unit Dwellings Business: This is another core business, with very low customer churn and long-term stable recurring revenue from stock-type sales. 3. Stock-Type Sales (excluding Hotel Business): Stock-type annual revenue grew 19.8% year-over-year in the 1Q. Internet access is the top contributor to this segment, showing strong growth. Water servers saw a slight increase, driven by growing unit holdings. Security-related products (including surveillance camera rentals) have seen gradual growth recently. Electricity stock-type sales have slightly decreased, as the company almost no longer sells electricity as a stock-type product. 4. Flow-Type Sales: Flow-type revenue has automatically increased alongside a significant year-over-year rise in the number of lead information purchases for Alliance Business, as sales activities have outperformed expectations. Flow-type revenue for internet access is seasonal, with peak demand in the February-April period, and 1Q results were in line with seasonal expectations.

• Full year 2026.8 sales revenue target is maintained at 18.8 billion yen, with 1Q progress of 23.5%. Full year operating profit target is maintained at 1.8 billion yen, with 1Q progress of 28.3%, and management confirms progress is on track. Next fiscal year targets are 22.0 billion yen in sales revenue and 2.2 billion yen in operating profit, which are unchanged.
  • If 1Q performance continues through the remainder of the year, an upward revision to the full-year operating profit plan is possible. However, management also notes that if attractive investment opportunities for the next fiscal year arise, the company will make upfront investments rather than accelerate profit recognition, so no upward revision can be confirmed at this stage.
  • Management expects strong performance in the upcoming busy seasons (Q2 and Q3), and continues to target the full-year medium-term plan that is on track to be achieved.

• Currently unconsolidated accounting systems across group companies lead to reduced capital efficiency: cash is dispersed across individual subsidiaries, so it cannot be efficiently deployed for M&A or other corporate uses. The company is working to resolve this issue via system integration this fiscal year.
  • Customer referral fee unit prices had been rising in prior periods, though they have stabilized at current levels and are not expected to rise further from here.
  • Upfront investments for stock-type products generate returns over multi-year periods, so returns do not materialize rapidly.
  • The majority of electricity customers are renters in multi-family properties, who often cancel service when moving, so stock-type electricity sales have slightly declined and the company now prioritizes flow-type sales for electricity.

Q: What are the drivers of the large increase in operating profit margin from 7.5% in 1Q 2025.8 to 11.6% in 1Q 2026.8?

A: The increase comes from two main sources: first, the payoff of upfront investments made in the 2025.8 fiscal year, and second, M&A acquisitions that added companies with large holdings of stock-type products, which improved the overall profit margin.

Q: 1Q operating profit is already at 28.3% of full-year plan ahead of the peak season, so will you do an upward revision to the operating profit plan given the impact on share price that investors expect?

A: The 1Q progress is indeed strong, and we expect Q2 and Q3 (the peak season) to also perform well. If this trend continues, an upward revision is possible. That said, we are also planning for upfront investments for the next fiscal year if attractive opportunities are available; if no investment opportunities arise, we will report profit as planned. At this point, we cannot confirm a revision, even though the possibility exists.

Q: You previously noted that customer referral fee unit prices are on the rise; is this trend still continuing?

A: While customer referral fees did rise in prior periods, the upward trend has now stabilized. I personally do not expect further significant increases, as prices have already risen to their current plateau.

Q: What portion of the 28.4% year-over-year increase in SG&A is attributable to higher customer referral fees?

A: The increase in SG&A is driven primarily by an increase in the number of customer referrals, not by a higher unit price of referral fees. The impact of rising unit prices on the overall SG&A growth rate is not large.

Q: You noted that profit growth is coming from recovered upfront investments; how much uncollected upfront investment remains, and what is the remaining upside for H2 and beyond?

A: We have made upfront investments in both flow-type and stock-type products, and the benefits of stock-type investments will continue to be reflected in results starting from Q2. Stock-type investments produce returns over many years, so benefits will continue to flow in over a long period. There will not be a sudden sharp increase in profits from uncollected investments, but returns will continue to gradually materialize.

Q: We can see that stock-type sales growth is driven by internet access from M&A, but other products are stagnant or declining. What is your plan to hit overall targets going forward?

A: We prioritize product-specific strategy based on long-term EPS maximization: for internet access, we have found that holding it as a stock-type product is far more profitable, so we are prioritizing this segment. For electricity, most of our customers are renters who cancel when moving, so we prioritize flow-type sales over stock-type, which explains the decline in stock-type electricity sales. Water servers are growing slightly because customers can bring them when moving, and we do not have aggressive growth targets for this product. Security-related products such as surveillance camera rentals are also growing slightly, and we are optimistic about their future trajectory. Overall, with internet access as our core growth driver, we are on track to hit overall targets.

Q: What are your criteria for investment payback speed that shareholders can rely on as you continue to pursue aggressive growth investment?

A: For investments in bulk lead information purchases, we target full payback within the next year. For M&A investments, we have a general target of 5-year payback, and we only pursue acquisitions that meet this criteria. For long-duration investments such as free internet for apartment buildings, which have very low churn and produce long-term steady profits, we are comfortable with payback periods longer than 5 years.

Q: Why does the sum of stock and flow sales not match the total consolidated sales number?

A: The discrepancy comes from the presentation of flow-type sales: the flow-type sales figure includes gross presentation for agent transactions under the new revenue recognition standard, and also includes internal transactions. This is noted on the slide presentation. For reference, the flow-type sales share is calculated as total revenue minus stock-type sales revenue.

Q: Flow-type internet access sales seem to have slower progress in 1Q compared to last full year; is this due to seasonality or other issues?

A: Flow-type internet access sales do have clear seasonality, with peak seasons in February, March, and April. In contrast, the free internet for multi-family dwellings business (which comes from M&A) has almost no seasonality. The slower 1Q progress is entirely due to seasonality, and there is no underlying issue. We expect solid results in Q2 and Q3.

Q: You have grown EPS significantly even with dilution from M&A, aligned with your goal of maximizing EPS for shareholder returns. What is your current achievement level and how confident are you going forward?

A: We created the medium-term plan with the expectation that we would achieve this goal, and we would not have published the plan if we did not have confidence in achieving it. We are fully confident that we will hit our targets.

Q: Your medium-term plan calls for SG&A reduction via inter-group operational integration and system unification. How much can operating profit margin improve from these efficiency efforts, and what progress have you made?

A: The biggest current inefficiency from having multiple group companies is lower capital efficiency: each subsidiary holds its own cash and budget, so cash is dispersed across the group and cannot be efficiently deployed for M&A or other uses, because accounting systems are not integrated. We plan to complete system integration this fiscal year to improve capital liquidity and efficiency, allowing us to use the aggregate cash on the balance sheet more effectively. On the sales side, we are using RPA and AI to drive efficiency improvements, which come from incremental 0.1% to 1% improvements accumulated over time. We target accumulating these small improvements to deliver a total 1% to 10% improvement over time; changes do not happen rapidly, but we are making incremental progress every month, and we review progress monthly.

Q: Can revenue be recognized before the customer referral fee cost is incurred for lead purchases?

A: No, there is basically no case where revenue is recognized before the cost is incurred; the cost is always paid upfront before revenue is generated.

Q: How long does it take from when you purchase lead information to when you monetize it into revenue?

A: For standard lead lists such as resident lists and member lists, monetization is completed within 3 to 6 months, less than a year. For specialty lists such as real estate owner lists, which are used to sell free internet for apartment buildings, payback can take 4 to 5 years. The vast majority of lead information for Alliance Business, which makes up most of our revenue, is monetized within 1 year.

Q: You have a telemarketing-focused business model, and AI is changing telephone communication (such as AI voicemail). What positive and negative impacts do you expect AI to have on your business?

A: AI has both positive and negative sides, but I do not expect major negative impacts overall. The key is how we use AI. For example, AI can handle return calls from customers for certain products. We are testing AI for sales and outbound calling, but it is not easy to get good results for direct sales yet. However, for customer support and inquiry handling at customer service centers, AI is already quite practical and effective. At this point, I do not see any material negative impacts from AI adoption.