Hoover Brain Maintains Double-Digit Growth in Core Business and Revises Full-Year Outlook Upward: Deep Dive into Mid-to-Long-Term Strategy as an 'AI Guardian' and Q1 FY2027 Results

1. Executive Summary

Hoover Brain Co., Ltd. (TSE Standard: 3927) reported its Q1 results for the fiscal year ending March 2027 , with adjusted revenue of ¥1,778 million (+3.5% YoY) and adjusted operating profit of ¥221 million (-51.3% YoY) . While the profit figure appears to show a significant decline, this is primarily due to the rebound effect from a large-scale sale of investment securities by a CVC subsidiary recorded in the same period last year (Q1 FY2026, ¥385 million). The core business (IT Tools and IT Services) , which drives the company's intrinsic value, continues to maintain a robust trend of significant revenue and profit growth.

Revenue from the core business achieved exceptionally strong growth of +29.3% (+¥385 million) YoY . The company is making steady progress against its full-year performance forecasts and has maintained its upwardly revised targets of ¥8,277 million in full-year revenue (+36.6% YoY) and ¥977 million in adjusted operating profit (+32.9% YoY) , both of which exceed the initial figures set in the medium-term management plan. Furthermore, the company has unveiled a new vision for 2030: "Japan's AI Guardian Company." It is now accelerating non-linear growth through the transformation of its proprietary products into AI agents and the strategic use of M&A.

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2. Q1 FY2027 Performance Highlights and Factor Analysis

Rapid Growth in Core Business and Rebound Factors in Investment Business

There is a significant divergence between the surface-level profit figures and the actual business trends in the Q1 consolidated results. Accurately interpreting this structure is crucial to understanding the company's current situation.

As shown in the slide above, a breakdown of the ¥1,778 million Q1 revenue reveals that revenue from the core business (IT Tools + IT Services) reached ¥1,689 million , a significant increase of +29.6% from ¥1,303 million in the same period last year. On an operating profit basis, the core business alone surged 2.3 times (+130.5%) from ¥36 million to ¥83 million year-on-year.

Meanwhile, because the gain on the sale of securities in the investment business shrank from ¥385 million in the same period last year to ¥84 million this term, the company-wide adjusted operating profit settled at ¥221 million. However, this is in line with the full-year plan for investment gains (¥340 million), confirming that organic expansion of the core business and M&A effects are simultaneously supporting and driving performance.

Item (Unit: ¥ million)	Q1 FY2026 Actual	Q1 FY2027 Actual	YoY Change	Full-Year Forecast	Progress Rate
Adjusted Revenue	1,719	1,778	+3.5%	8,277	21.5%
(Core Business)	1,303	1,689	+29.6%	-	-
(Investment Business)	415	89	-78.6%	-	-
Adjusted Operating Profit	453	221	-51.3%	977	22.6%
(Core Business)	36	83	+130.5%	-	-
Adjusted Ordinary Profit	457	220	-51.7%	948	23.3%
Quarterly Net Income Attributable to Owners of Parent	245	69	-71.5%	330	21.2%

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3. Detailed Segment Trends

(1) IT Tools Business: Driven by Cato SASE Cloud, Revenue Up 41.5% YoY

Q1 revenue for the IT Tools business was ¥1,006 million (+41.5% YoY) , surpassing ¥1 billion for the first time on a quarterly basis. The growth drivers for this segment are as follows:

• Security & Network aaS Products (e.g., Cato SASE Cloud): Revenue grew explosively by +44.0% YoY to ¥579 million . The expansion as a primary distributor of the world's first SASE (Secure Access Service Edge) platform, provided by Israel's Cato Networks, has borne fruit, strongly capturing cloud security demand from enterprises to mid-sized companies.
• Proprietary Security Products: Revenue increased by +41.3% YoY to ¥393 million . The endpoint security product "Eye"247" Safety Zone" and the new "Network Blackbox" offering are performing well.
• Work-Style Reform Products (SaaS): Revenue increased by +9.9% YoY to ¥33 million . "Eye"247" Work Smart Cloud" has received high customer acclaim, including winning the top "Leader" award in two categories of the "ITreview Grid Award 2026 Summer" for two consecutive terms.

(2) IT Services Business: +15.3% Growth via M&A Effects and Higher Engineer Unit Prices

Q1 revenue for the IT Services business was ¥682 million (+15.3% YoY) . In addition to the full-year contribution from Youth Planet Co., Ltd. (recruitment support/staffing) and ProofX Co., Ltd. , which were acquired at the end of the previous fiscal year, the company saw an increase in project unit prices due to engineer training and sophistication measures in existing contract development and SES areas, contributing to higher revenue and profit.

(3) Financial Foundation and Accumulation of Contract Stocks

Notable movements in the balance sheet (B/S) include a sharp increase in prepaid expenses to ¥1,785 million (+¥330 million from the end of the previous fiscal year) and a combined total of ¥4,153 million in advances received and long-term advances received (+¥697 million) . This is evidence of the extremely steady accumulation of multi-year and long-term security & network contract orders, including Cato products, further strengthening the foundation for stable future revenue recognition.

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4. Growth Strategy: Evolving into an 'AI Guardian' for the 'AI Agent Era'

Anticipating the mega-trend of autonomous AI becoming social infrastructure, Hoover Brain has declared its evolution from a mere security vendor to "Japan's AI Guardian Company."

This slide illustrates the technology roadmap toward 2030 for the company's core product, the "Eye"247" series:

1. Conventional Endpoint Security (2025): External threat countermeasures, internal information leakage prevention, and operational visualization.
2. Addition of AI Analysis Functions (2026–2029): A phase to integrate the AI expertise of the acquired ProofX Co., Ltd. to dramatically improve the accuracy of detection, visualization, and analysis.
3. AI Agent Transformation (2030): Completion of the "AI Guardian" that executes autonomous defense, optimization, and decision-making.

To accelerate this strategy, the company has appointed Ryota Natsume as CAIO (Chief AI Officer) , a finalist at the world's top AI international conference (CVPR 2019) with an international track record in AI research. The company plans to invest a total of ¥500 million in R&D and strategic investments during the medium-term management plan period to pioneer a unique AI governance market that combines PC log data assets with AI. Furthermore, it has launched the "AI Security" portal site to disseminate the latest trends and is strengthening marketing, including the deployment of Cato AI Security.

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5. Medium-Term Management Plan (FY2030) and Capital Policy

FY2030 Targets: ¥15 Billion in Revenue, ¥1.5 Billion in Operating Profit

For the fiscal year ending March 2030, the company has set mid-to-long-term numerical targets of ¥15 billion in adjusted revenue (CAGR 27%) , ¥1.5 billion in adjusted operating profit (CAGR 38%, operating margin of 10% or more) , and an ROE of 15% or more .

As the roadmap above shows, the growth structure consists of three pillars: "IT Tools Business (especially the rapid expansion of Cato)," "Organic growth of the IT Services business," and "Strategic M&A at a pace of two companies per year." Notably, for the fiscal year ending March 2027, the company has shifted its full-year performance forecast upward (to ¥8,277 million in revenue and ¥977 million in operating profit) compared to the initial medium-term management plan (¥7,700 million in revenue, ¥830 million in operating profit), driven by the effects of M&As involving three companies accelerated from the end of the previous fiscal year to the beginning of this term.

Cash Allocation and Shareholder Returns

The company plans to generate a total of ¥4.5 billion in cumulative cash-in during the medium-term management plan period, consisting of ¥2.5 billion from business income, ¥1.0 billion from investment recovery, and ¥1.0 billion from financing. The allocation is as follows:

• Growth Investment: ¥3.5 billion (¥2.5 billion for M&A, ¥0.5 billion for R&D/strategic investment, ¥0.5 billion for pure investment)
• Shareholder Returns: ¥1.0 billion

Regarding shareholder returns, following the initial dividend of ¥15 (payout ratio 26%) in the previous fiscal year (FY2026), the company plans to increase the dividend to ¥16 per share this term. It has explicitly stated its intention to introduce progressive dividends and raise the payout ratio to 30% in the medium term, demonstrating a capital policy that balances growth investment with shareholder returns.