On Deck (7360) Q2 FY2026 Earnings Deep Dive Report: Pursuing 'Quality' in a Growing Market and Mid-Term Growth Strategy

On Deck Co., Ltd. (Securities Code: 7360) is an advisory firm primarily focused on M&A advisory services for small and medium-sized enterprises (SMEs) in Japan. It organically links investment and consulting businesses to create high-value-added deals. For the second quarter of the fiscal year ending November 2026 (December 1, 2025, to May 31, 2026), the company reported an increase in net sales year-on-year and an improvement in ordinary profit. The full-year earnings forecast remains unchanged.

Q2 FY2026 Earnings Highlights

For the cumulative second quarter of FY2026, net sales reached 416 million JPY , marking a 16.6% increase compared to the previous year. Ordinary profit was -104 million JPY , an improvement from the -124 million JPY loss in the same period last year, indicating a trend towards recovery. Notably, for the second quarter alone, net sales were 311 million JPY and ordinary profit turned positive at 12 million JPY.

The number of completed deals was 8 for Q2 alone, bringing the cumulative total to 10. New mandates totaled 17 for Q2 and 40 cumulatively. These figures are important indicators of the company's active business operations.

This slide clearly presents the company's performance for the current period. It is crucial for understanding the 16.6% year-on-year increase in net sales and the narrowing of the ordinary loss , which indicates an improving trend. The number of completed deals and new mandates also serve as indicators of business activity. The fact that ordinary profit turned positive in Q2 alone is a notable change, suggesting a positive shift in the recent business environment.

Performance Analysis and Quarterly Trends

While the first quarter saw a sluggish performance, net sales recovered in the second quarter, and ordinary profit turned positive. This improvement is attributed to enhanced deal management, including the utilization of internal communication tools for real-time monitoring, a reflection of lessons learned from challenges in the execution phase in the previous period. Net sales tend to be influenced by the proportion of high-value deals, and the status of the pipeline continues to significantly impact future performance.

This graph visually illustrates On Deck's quarterly trends in net sales, completed deals, and ordinary profit . It is indispensable for understanding the business's seasonality and the impact of larger deals on performance fluctuations. The recovery in net sales and the return to profitability in ordinary profit during Q2 FY2026 suggest a recent positive turn in business activities. However, the historical periods of ordinary losses also highlight challenges in achieving stable profitability. The correlation between net sales and completed deals also demonstrates the characteristic of a business model where deal progress directly translates to performance.

New Mandates and Pipeline Status

New mandates in the second quarter totaled 17, bringing the cumulative total to 40. Notably, the average estimated referral fee per deal reached 119 million JPY , an all-time high. Consequently, the total estimated referral fees from new mandates amounted to 2,023 million JPY , also a record high. This was primarily due to securing multiple large-scale deals.

Regarding the deal phase status, as of the end of May, there were 22 deals in the origination phase, 44 in the matching phase, and 16 in the execution phase. Deals in the execution phase have a high probability of completion, and some in the matching phase are expected to close within the current period. A healthy pipeline, including multiple large-scale deals, forms a crucial foundation for achieving the full-year plan.

Cost Structure Analysis

Cost of sales amounted to 255 million JPY (a 17.2% increase year-on-year). The main factors for this increase were a rise in personnel costs (+19 million JPY) due to an increase in the number of consultants, and an increase in referral fees (+18 million JPY) due to a higher number of completed deals. Selling, general, and administrative (SG&A) expenses remained largely flat at 266 million JPY (a 0.8% increase year-on-year). Within SG&A, personnel costs decreased by 5 million JPY due to reclassification, while rent increased by 4 million JPY due to higher office rental costs.

Talent Strategy and Organizational Strengthening

For the cumulative second quarter of FY2026, the number of consultants increased by 2 against the plan, with Tokyo consultants increasing by 5 to 22. On Deck aims to acquire a large number of talented individuals with relevant work experience. The company is reviewing its recruitment KPIs and standards, and strengthening referral recruitment, leading to an increasing trend in recruitment leads . The policy is to continue proactive recruitment activities to achieve its plans.

Growth Opportunities in the Domestic SME M&A Market

The domestic SME M&A market is experiencing significant expansion in potential demand, driven by the aging of business owners and the severe problem of a lack of successors. In 2025, the successor-less rate reached 50.1% , indicating a growing need for M&A as a business succession solution. Furthermore, M&A is increasingly being utilized as an exit strategy for young entrepreneurs, with a rising trend of M&A exits among venture companies in Japan. This market environment provides a significant tailwind for On Deck's business growth.

Mid-Term 5-Year Growth Target and Key KPIs

On Deck has set a mid-term 5-year growth target to achieve 30% CAGR in net sales and sustainable improvement in corporate value. This is to be accomplished through the organic linkage of its three businesses: M&A advisory, investment, and consulting, creating a unique business model. To achieve this goal, the company emphasizes the following key performance indicators (KPIs):

• Number of completed deals : Increasing deals and creating high-value-added transactions.
• Completed deals per person : Improving consultant productivity.
• Average referral fee : Securing large-scale deals and enhancing proposal capabilities.
• Number of consultants : Securing and developing excellent talent.

This slide presents On Deck's mid-term growth vision and the specific financial indicators and KPIs to achieve it, making it crucial for understanding the company's path to future value creation. The ambitious 30% CAGR in net sales target, in particular, suggests the company's aggressive business expansion. Furthermore, the interconnectedness of key KPIs such as number of completed deals, completed deals per person, average referral fee, and number of consultants is shown, indicating that the progress of these metrics will be key to future performance. The strategy to expand net sales and enhance corporate value through the improvement of each KPI is clearly outlined.

Virtuous Growth Model Driven by 'Consulting Quality'

Based on the 'ONDECK WAY,' On Deck positions the thorough pursuit of 'Consulting Quality' as the source of its growth. This pursuit of quality leads to an increase in referrals from highly-regarded partners and former clients, which in turn generates an increase in profit through steady deal acquisition and revenue. Furthermore, increased profit enables the growth of excellent talent through a unique selection process and high retention rates, completing a virtuous growth cycle that further enhances quality.

To support this model, the company is strengthening its 'Consulting Quality' through a fundamental review of training curricula and the utilization of IT tools for deal management. It is also enhancing its 'Information Development Capabilities' (sourcing and matching) through alliance strengthening, AI matching, and business domain expansion. Notably, the fact that approximately 80% of deals are received through referrals indicates the high quality and trustworthiness of the company's services.

Business Domain Expansion and Enhanced Proposal Capabilities through Organic Linkage

While M&A advisory remains its core, On Deck enhances its proposal capabilities to clients by strengthening the organic linkage between its investment business and consulting business . In the investment business, the company directly invests in businesses and provides hands-on support for their growth. In the consulting business, it expands its support scope to related areas such as business succession, IPOs, and growth support, offering more sophisticated specialized services.

By deepening bilateral partnerships with diverse collaborators (public institutions, financial institutions, securities companies, accountants/tax accountants, consultants, business owners, investment companies, credit research companies, etc.), On Deck provides multi-faceted solutions to clients' management challenges beyond M&A, while also strengthening its information development capabilities. This enables the company to offer solutions for a wide range of management issues, including asset management, fundraising, IPOs, strategy formulation, human resource recruitment/development, labor affairs, and marketing, thereby deepening relationships with client companies.

Conclusion

On Deck is leveraging the tailwind of the expanding domestic SME M&A market, driving a unique virtuous growth model centered on 'Consulting Quality.' For Q2 FY2026, the company showed improved performance with increased net sales and a reduced ordinary loss, notably achieving profitability in Q2 alone. Record-high average estimated referral fees per deal and total estimated referral fees from new mandates raise expectations for future revenue growth. Key focus areas moving forward include the progress of key KPIs towards the ambitious mid-term target of 30% CAGR in net sales, the enhancement of proposal capabilities through the organic linkage of its M&A advisory, investment, and consulting businesses, and the execution of its talent strategy.