YRGLM Inc. Q2 FY2025 earnings call

• Core Financial & Strategic Themes

  • The company reported consecutive all-time high quarterly consolidated revenue in Q1 and Q2, driven by the Ruby Group consolidation, with total half-year revenue up 28.7% year-over-year. Consolidated operating profit fell 33.1% year-over-year due to planned aggressive investment across both segments, which management expects to be weighted to the first half with full-year results hitting prior guidance.
  • The company's 24-year operating history has delivered 24 straight years of revenue growth, and it maintains a healthy 55.9% equity ratio.
  • Current fiscal year priorities are growing the commerce business and monetizing new services in the marketing process segment, aligned with the mid-term VISION2027 strategy targeting 10.0 billion yen in total revenue.

• Commerce Support Business Updates

  • The company completed multiple new service releases for EC-CUBE Enterprise for enterprise clients, and launched EC-CUBE EQ which uses generative AI to improve EC development productivity.
  • Subsidiary EC Cube Inc. began a partnership with global payments leader Stripe, and Irglum is the first Japanese company registered on the Stripe Apps global platform.
  • The business operates a vertically integrated end-to-end model covering EC site build, operation, customer acquisition, and logistics following the Ruby Group acquisition, filling a gap in the company's prior service coverage.
  • EC-CUBE construction and operation revenue has grown steadily since 2022, with a mix of low-margin new construction projects and high-margin recurring existing site maintenance and expansion that builds into a stable stock revenue base over time with very low churn.

• Marketing DX Support Business Updates

  • The company launched the paid version of its new AI-powered SaaS, AD EBiS Campaign Manager, in Q3, which is the first marketing campaign management platform of its kind in Japan.
  • The new product addresses a common enterprise pain point: marketing knowledge is often held solely by individual employees, leading to lost institutional knowledge and repeated mistakes when staff turn over. It complements AD EBiS (which focused only on the measurement/check step of the marketing PDCA cycle) by enabling end-to-end PDCA cycle management, with automatic sync of existing AD EBiS data, generative AI-powered knowledge retrieval from a company's unique historical marketing data, and structured knowledge sharing across teams.
  • The new product uses a usage-based pricing model tied to the number of registered campaigns, starting at 25,000 yen per month for AD EBiS customers, designed to lower the barrier to entry. It will first be rolled out to AD EBiS' 1,000+ existing customers before expanding to non-AD EBiS customers.
  • Management believes the campaign management market is larger than the existing ad measurement market, and the company holds five key competitive advantages: existing large customer base, decades of SaaS operational experience from AD EBiS, existing complementary data integration functionality, 20+ years of accumulated marketing data, and secured patent protection for the product.

• Mid-term VISION2027 Strategic Progress

  • The strategy focuses on two core growth drivers: the vertically integrated commerce support business and the new marketing process services business, with investment funded by stable profits from mature core businesses (AD EBiS and open-source EC-CUBE). M&A will continue to be used to acquire missing capabilities and expand the business, following the successful acquisitions that built the current EC construction business and the Ruby Group logistics/fulfillment acquisition. As of the current quarter, new service development for marketing DX and commerce, M&A for commerce, and EC-CUBE Enterprise development are all ahead of or on track with plan.

1. Commerce Support Business: Revenue increased 2.2x year-over-year, driven primarily by the consolidation of Ruby Group which added ~1.0 billion yen in expected annual revenue. Operating loss expanded to -63 million yen (from 25 million yen in profit the prior year), with the expansion driven by one-time costs at Ruby Group's overseas subsidiary and upfront investment in headcount. EC-CUBE core business has narrowed its Q2 deficit after a larger Q1 loss, and is on track to return to black ink. This segment accounts for an increasing share of total consolidated revenue following the Ruby Group acquisition, as the company diversifies away from its core marketing product. 2. Marketing DX Support Business: Revenue was nearly flat with a +1.4% year-over-year increase. Operating profit increased 72.1% year-over-year, driven by the high profitability of the core AD EBiS ad measurement product and productivity improvements from generative AI adoption. Core AD EBiS account counts bottomed out in FY2023 September and have started growing slightly again after the company shifted strategy from increasing average pricing to growing accounts, and churn has now fallen below 2%, a new low for the business. This segment's revenue share has fallen from over 80% in 2020 to below 50% as of the current half, reflecting the company's diversification strategy.

• Full-year 2025 September fiscal year guidance is unchanged from the January 17, 2025 announcement. Management targets 4.8 billion yen in consolidated revenue, 0.2 billion yen in operating profit, 0.19 billion yen in ordinary profit, and 0.1 billion yen in net income attributable to parent company shareholders.
• Shareholder return guidance is unchanged from the January announcement: the company maintains a target 2.5% DOE, with a planned year-end dividend of 7.9 yen per share (a slight increase), and unchanged annual shareholder dividends of 1,000 yen in Amazon gift cards distributed twice per year to all shareholders.
• Under VISION2027, core mature business (AD EBiS) is expected to remain flat in revenue while generating steady profits to fund growth investments. The commerce business is expected to enter a high-growth phase starting in 2025, with the new Campaign Manager product starting monetization this fiscal year and growing into a meaningful revenue contributor in coming years.

• The company is currently not meeting the Tokyo Exchange's updated market capitalization listing requirement, with a 3.4 billion yen market capitalization as of the end of April. Management has outlined three priority actions to address this: accelerating business growth to hit VISION2027 targets, strengthening IR activities including launching 10-minute quarterly digest videos for individual investors, and continuing consistent shareholder returns.
• The commerce business is currently in an investment phase with expanded operating losses, driven by upfront headcount investment and one-time costs at the newly acquired Ruby Group. While management expects deficits to narrow over time and move toward profitability, there is risk that the turn around takes longer than expected.
• The new Campaign Manager product is targeting a new, untapped market in Japan, so there is risk that customer adoption is slower than currently expected.

Q: Will AD EBiS Campaign Manager eventually become larger than the core AD EBiS product in terms of revenue, and what is the timeline for this growth?

A: Management confirms the campaign management market is far larger than the ad measurement market that AD EBiS serves. AD EBiS currently targets higher-spend enterprises with a relatively high price point for measurement, while all marketing organizations need support for running iterative PDCA improvement cycles, creating a much broader addressable market. Management expects the long-term business model to shift: Campaign Manager will become the core offering, with AD EBiS serving as a premium add-on for customers that need advanced measurement. While AD EBiS took 21 years to reach its current scale, the company already has an established organization, customer base, data, and intellectual property, so management expects it will take 3 to 5 years for Campaign Manager to exceed AD EBiS' revenue size.