AUN CONSULTING,Inc. Q2 FY2025 earnings call

• Corporate Restructuring and Resource Consolidation

  • The company has completed the consolidation of most previously Asia-based regional hubs into its Tokyo headquarters, and now has a fully functional centralized support structure from Tokyo that will not experience negative impacts from closed overseas locations. Two consolidated subsidiaries have been dissolved and liquidated to streamline group operations and improve efficiency, which has laid the groundwork for future growth by increasing inquiry volumes and supporting retention and expansion of existing clients.
  • The restructuring has strengthened sales operations centered at the Japanese headquarters to capture growing overseas and multilingual demand.

• Core Business and Service Structure

  • The company's operations are split into two core categories: sales promotion (directly tied to client revenue, which is the company's primary focus) and branding (offered as an add-on service to expand revenue). The business is focused on three global customer segments: outbound (Japanese companies expanding overseas), inbound (foreign tourists visiting Japan), and resident (foreigners residing in Japan). Outbound is concentrated on manufacturing clients, while inbound has seen growing client demand from logistics, real estate, and consumer services.
  • The company has launched a new mid-market focused service called SEO In-House, developed in partnership with Oropas Inc., which enables in-house client SEO teams to run their own search engine optimization, targeting small and medium-sized enterprises that were previously underserved by the company's traditional large enterprise-focused consulting offering.
  • A client success case for Casio Computer demonstrates the company's capabilities: US-focused SEO delivered over 10x growth in site traffic in 6 months, with 3x growth across the firm's global footprint.

• Human Resources and Workplace Strategy

  • The company is prioritizing talent recruitment, development, and organizational strengthening, with a focused effort to hire professionals returning to Japan from overseas work assignments. It has maintained a fully remote work model since February 2020, paired with a monthly total working hour system that allows flexible scheduling from 5AM to 10PM in one-minute increments, which is popular with employees seeking flexible work arrangements. The company has also pursued ongoing wage increases and been certified as a Tokyo Sustainable Work Company (Miraiwaka) for its inclusive, accessible work environment.

The call does not provide segmented financial data split by individual product or geographic segment with separate absolute revenue and contribution percentage figures. Aggregate company-wide results for the second quarter are: net sales of 133 million yen, gross profit of 87 million yen, operating loss of 31 million yen, and net loss attributable to parent company shareholders of 38 million yen. Total assets as of the end of the quarter stood at 799 million yen, with total liabilities of 386 million yen. Cash and cash equivalents decreased by 142 million yen from the prior year second quarter end to 444 million yen. Revenue declined year-over-year due to the dissolution and liquidation of 2 consolidated subsidiaries as part of corporate slimming efforts, though the operating loss margin narrowed following the restructuring.

• Management is targeting a rebound in performance in the second half of the fiscal year, and is actively working to exit full-year deficit status.
• For the next fiscal year, management aims to maintain the current 3x increase in inquiry volumes and grow to a 5x increase from prior levels, while working to shorten average sales lead time from the current 6 months to 3-4 months to accelerate revenue conversion and achieve sustained profitability.
• The company sees strong growth potential in the large outbound pipeline, with current prospective large enterprise deals at the highest level in company history, and many large enterprise deals scheduled to start after April following the March fiscal year close for most Japanese large firms. Existing client accounts such as Casio have potential for incremental budget expansion in the coming year, which supports positive growth prospects for the next fiscal period.
• Recruitment will continue at the current pace in both this fiscal year and the next, as personnel costs make up the majority of the company's SG&A, and hiring and fast onboarding of skilled talent is a core priority for growth.

• Large enterprise outbound deals have inherently long sales lead times due to complex organizational approval processes, which can delay revenue recognition and impact near-term profitability targets.
• The inbound tourism segment is exposed to downside risk from external shocks such as pandemic outbreaks or sharp yen appreciation that could reduce visitor volumes and client marketing budgets.
• Small and micro-enterprises often have limited budgets that are incompatible with the company's traditional full consulting service model, requiring the development of new lower-cost tool-based offerings to serve this segment effectively.

Q: The first half performance remains sluggish. What rebound can be expected in the second half, and will the full year exit deficit status? / A: Management is actively working to rebound performance, with CEO-led sales reinforcement starting in June and a major SEO-focused website refresh completed in September 2024 that has already delivered a 3x increase in site traffic and inquiries. Inquiries are currently in the negotiation stage, with average lead times running to 6 months for larger deals. Management is focused on shortening lead times and converting higher volumes of inquiries to orders, and is working full out to exit the full-year deficit. Growth in inquiries spans both SEO and internet advertising: SEO sees more large enterprise outbound deals, while advertising sees more mid-sized enterprise inbound deals. Growth in opportunities covers both large/medium enterprises and the SME segment, with specialized tool-based offerings planned for budget-constrained SMEs.

Q: What is the growth outlook and priority for the next fiscal year, and is there enough room to shorten lead times to hit targets? / A: Management will maintain current 3x inquiry growth and target 5x growth, and aims to cut lead times from 6 months to 3-4 months to achieve reliable profitability. Lead time reduction will come from focusing on more mid-sized and small enterprise deals, where owner-CEOs can approve orders quickly, compared to large enterprises that require slow multi-layer internal approvals. Current prospective deal volume is at an all-time high, with many large deals expected to close for projects starting after the March fiscal year close, so there is strong visibility for growth. Existing client accounts also have high potential for incremental budget expansion after initial success, which adds further upside.

Q: Are there any specific services ready for the resident segment, and which segment offers the highest growth potential next year? / A: The company has not yet developed specific services for the resident segment. Priority is currently placed first on outbound SEO for large manufacturing clients, then on inbound advertising, with resident development to follow after the first two segments are advanced. The highest growth priority remains the outbound manufacturing segment, as this is the company's traditional core strength, and strengthening outbound SEO creates a more resilient business model that can offset potential downturns in the inbound segment from external shocks like pandemics or exchange rate swings.