AZOOM CO.,LTD Q2 FY2025 earnings call

• Core Parking Subletting Business Performance

  • Total contracted parking units exceeded 31,000, with a net increase of 1,362 operating units in the 2nd quarter. Operating rate rose 0.4pp quarter-over-quarter to 92.9%, driving a 1.2pp year-over-year improvement in operating margin.
  • Annual Recurring Revenue (ARR) for parking subletting surpassed 12.4 billion yen, with 8.3% quarter-over-quarter and 27.1% year-over-year revenue growth. Revenue growth outpaced cost increases, which were limited to payroll expenses, and the company is benefiting from scale economies as SG&A ratio declines with expansion.
  • Parking lot introduction service inquiry volumes returned to growth after a period of stagnation, driven by UI/UX improvements and adjusted listing strategies, though referral revenue remains flat as more contracts are for the company's own managed properties.
  • Subsidiary Teppeki's parking rent guarantee service has exceeded 20,000 contracted cases, making it one of the largest dedicated parking rent guarantee businesses in Japan.

• Business Model and Operational Improvements

  • The company operates a predominantly stock-based recurring revenue model, with 91.4% of total revenue coming from recurring sources as of the first half, growing from 80% at IPO. Lower half of the fiscal year is naturally weighted for revenue, as first half contracted parking lots contribute full earnings to the second half.
  • Nearly all core operational systems are developed in-house, with 23.4% of total employees as IT engineers: 30 based in Japan handling planning and project management, and 60 based in Vietnam handling development to reduce overall engineering costs.
  • Internal processes are fully digitized via RPA, with the entire parking application to contract workflow completed online, and heatmap demand visualization and crowd-sourced parking data collection via the in-house coconi app support data-driven expansion.

• Mid-term Growth Strategy

  • Prioritize expanding stock revenue in the existing parking subletting business: there is a large untapped TAM of 600,000 to 700,000 vacant required parking spaces across Japan, with the company holding just 32,000 contracted units to date. Expansion will target new regional markets including Sendai and Hiroshima beyond the current six branch locations.
  • Capture new stock revenue in adjacent parking-related new areas: growing adoption of corporate parking management service Tomemiru among large enterprises, expanding Teppeki's rent guarantee service to the external market beyond the company's own properties, offering customized development for smart space reservation to meet client-specific demands while maintaining high margin thanks to offshore development.
  • Expand into new business areas: growing the visualization business via the new AI-powered SaaS rendering service MyRenderer, and continuing to leverage the Vietnam development center for cost-efficient development capacity.

1. Idle Asset Utilization Segment: 6.2 billion yen in revenue, 1.16 billion yen in segment profit. This segment contributes 98.2% of total company revenue, and includes core parking lot subletting service (91.4% of total revenue), parking lot introduction service (3.3% of total revenue), and related new services such as rent guarantee, corporate parking management, and smart space reservation. 96% of the segment's revenue is recurring stock-based revenue. 2. Visualization Business Segment: 114 million yen in revenue, -4.6 million yen in segment loss. This segment accounts for 1.8% of total company revenue, consisting of 3DCG perspective production and the new AI-powered SaaS rendering service MyRenderer.

• Full year 2025 September fiscal year guidance is maintained at 12.5 billion yen in consolidated revenue (19% year-over-year growth), 2.5 billion yen in operating profit (37% year-over-year growth), with a target operating margin of 20%. The first half revenue reached 6.3 billion yen, putting full year achievement on very strong track, even though first half operating profit has not yet reached half of the full year target due to the company's inherent second-half weighted earnings pattern, with large high-margin custom development projects scheduled for the second half.
  • The 2023-2025 mid-term management plan is on track to hit its full year targets of 12.5 billion yen revenue and 2.5 billion yen operating profit, with the first two years of the three-year plan meeting all planned targets.
  • The company maintains a medium-term target of 30-40% CAGR for operating profit, and a target ROE of 35% or higher long-term.
  • Full year dividend guidance is maintained at 40 yen per share, with an expected payout ratio of 14.6%. A new 3-to-5 year strategic plan will be released after the end of the current 2023-2025 mid-term plan.

• Gradual long-term decline in national vehicle ownership due to population decline could increase the number of vacant parking lots, expanding the pool of potential subletting targets, but requires the company to maintain high operating rates to deliver profit growth, which is a core operational challenge.
  • The visualization business is still in an early investment stage and currently operates at a net loss.

Q: Why has contracted parking unit growth hit an all-time high this quarter, and how is the competitive landscape in the existing core market?

A: The strong net unit growth comes from continued focused expansion into required attached parking lots at condominiums and office buildings, which have large amounts of persistent vacant space. The competitive landscape remains stable, with total industry contracted units at just over 100,000 out of 600,000-700,000 available vacant units, leaving significant room for growth without excessive competition.

Q: What is the outlook for the visualization business and its new AI SaaS offering?

A: The business is still in early investment stages, which explains the current operating loss. The company is focused on scaling the new AI-powered MyRenderer SaaS service, which has stronger margin and recurring revenue characteristics compared to traditional custom CG production, and expects it to drive profitable growth for the segment over time.

Q: What is the pipeline and outlook for large custom development projects in the smart space reservation business?

A: The company secured multiple large customization projects in the first half, with additional projects expected to deliver in the second half. Offshore development in Vietnam allows the company to deliver customized projects at much higher margins than domestic competitors, and client demand for tailored solutions remains strong going forward.