SHANON Inc. Q4 FY2025 earnings call

Overall Financial Results Summary

• Shannon changed its fiscal year end from October to December to align with parent company Innovation, resulting in a 14-month irregular fiscal year for FY2025. Reported total revenue for the 14-month period was approximately 3.2 billion yen, which was nearly flat compared to the prior 12-month fiscal year, reflecting the strategic exit from unprofitable businesses and completion of large one-off development projects. The core retained business generated roughly 12 months of equivalent revenue in the 14-month period.
• Operating profit reached a company all-time high, with operating and ordinary profit returning to positive. Net loss was reported due to one-time costs to resolve legacy liabilities, which will not recur in future periods.
• Stock-type (recurring subscription) revenue share increased to 64%, and churn rate improved 0.2 percentage points compared to the prior year end, demonstrating strengthened core subscription business.
• Over-balance sheet has improved significantly, with excess debt resolved, and the company expects to complete final balance sheet cleanup at the current fiscal year's shareholder meeting.

Cost Structure Reform

• The company had an inflated cost structure with excessive labor and marketing costs when it joined the Innovation Group. Labor cost optimization has been pursued gradually via natural attrition (no forced layoffs) with hiring freezes still in place, and labor costs are expected to continue adjusting gradually.
• Selling, general and administrative (SG&A) rate reduction is a core reform priority, with a 55% long-term target. Marketing cost strategy is being overhauled: instead of cutting total marketing spend, the company is shifting away from low-efficiency traditional SEO and online advertising (whose efficiency has dropped sharply due to AI advancement) to marketing that delivers payback within 1-2 years.

FY2026 Growth Strategy

• Core strategic goal: Become the undisputed number one player in Japan's domestic MA industry by expanding the total addressable market to include small and medium-sized businesses (SMB), having completed corporate restructuring in FY2025.
  • Product portfolio expansion: Acquired Innovation's List Finder MA tool (350 existing accounts targeting mid-market and SMB) in late December 2025, and launched the 30,000 yen/month Shakīn MA tool in partnership with Cybozu Group, plus a new 60,000 yen/month Digital Plan (excluding real event integration features, with upgrade paths available). A potential future 5,000 yen/month entry-level plan is also under consideration. This creates a full product tiered structure that allows customers to upgrade as they grow, from entry-level SMB up to enterprise.
  • Sales system restructuring: Maintaining existing enterprise sales while building out new digital marketing and BtoC-like go-to-market capabilities for SMB, which is a new area for the company.
  • Product capability upgrades: Updated UI/UX for legacy MA products to match modern new releases, and already implemented AI assist functionality that provides in-tool usage guidance. Restructuring unprofitable businesses allowed the internal development team to focus entirely on core product improvement without hiring new engineers, enabling accelerated development speed.
  • Customer acquisition campaign: Launched a 3-month free trial campaign to lower entry barriers, prioritizing account growth over near-term revenue, with revenue growth expected to follow in later periods.
• The company targets 3x total account growth to achieve the number one position in Japan by account count; List Finder acquisition already brought the company close to the top spot, and the company will solidify this position in FY2026. Lower average revenue per account from SMB expansion means account growth will not immediately translate to proportional revenue growth, but it will drive strong future profit growth as customers upgrade over time.

1. Marketing Cloud Business: Centered on the company's Marketing Automation (MA) offerings, it contains two internal sub-segments:

• Subscription Business: Recurring monthly subscription revenue from the SHANON MARKETING PLATFORM, which is the company's core stable growth business. It saw steady growth in FY2025, with its stock-type revenue contribution reaching 64% overall.
• Professional Services: One-time development-focused business with SIer-like characteristics, historically positioned as a growth driver. Due to its high revenue volatility (large swings between strong and weak order periods), the company strategically reduced the size of this segment, leading to a significant year-over-year decrease in revenue in FY2025.

1. Event Cloud Business: Provides DX support for physical exhibitions and events, which has strong strategic synergy with the company's MA offerings. Post-COVID, demand for in-person B2B events has rebounded strongly. This segment also explores opportunities in AR/XR and metaverse-enabled real-virtual fusion event solutions through its subsidiary Jiku's ZIKU metaverse business, with strong long-term growth potential.

• The 12-month FY2026 is not expected to exceed the 14-month FY2025 total revenue of approximately 3.2 billion yen, but monthly revenue is expected to be higher than FY2025.
• Full-year FY2026 operating profit is projected at 350 million yen, which is the first full-year of consistent profitability after the business turned profitable in the second half of FY2025. The company is confident it can deliver operating profit even with no revenue growth, with net profit also expected to reach a substantial positive figure due to the elimination of legacy liability costs and reduced tax burden from prior period losses.
• FY2026 will focus on laying the groundwork for future revenue growth, with full revenue growth targeted from FY2027 onward. The company targets doubling net profit by FY2027, which management expects will push market capitalization over 4 billion yen by the December 2027 Growth Market listing requirement assessment date.
• A 3-5 year medium-term management plan will be announced within calendar 2026.

• Traditional SEO and online marketing efficiency has declined sharply due to AI advancement, creating pressure to overhaul the company's entire marketing approach, which is a new unproven area for the company.
• SMB-focused digital marketing and sales is a new untested area for Shannon, which has historically only served enterprise clients, requiring the company to build entirely new capabilities.
• The company's legacy product architecture still has outdated components that have not been fully rewritten due to limited resources, creating a potential product competitiveness risk.
• Achieving the 4 billion yen market capitalization requirement by December 2027 is a close call based on organic growth alone, and failure to meet this requirement could force a market change.
• The entry into low-price SMB segments has near-term pressure on average revenue per account, meaning revenue growth will lag account growth for the next 1-3 years.

Q: Shannon and its parent company Innovation are both listed on the Growth Market, creating a parent-child listing structure. Do you plan to maintain this structure going forward?

A: Parent company Innovation intends for Shannon to maintain its listing, and Shannon aims to grow as an independent listed company while collaborating with Innovation. We expect to maintain the current parent-child listing structure.

Q: The Growth Market requires a 4 billion yen market capitalization by December 2027, right? Current market capitalization is in the 2 billion yen range. What are your plans to hit this target, and are you considering M&A via equity financing to get there?

A: The assessment date is indeed December 2027. Our top priority is to dramatically improve operating results, targeting double the net profit of FY2026 by FY2027, which should result in a market capitalization over 4 billion yen in normal market conditions. We have a core goal of becoming the number one player in the MA industry, so M&A of peer companies is already on the table. We cannot pursue 10 billion yen-scale M&A in the current environment, but many unlisted SaaS MA companies are unprofitable and lack exit strategies after being overvalued in prior years. We believe we are uniquely positioned to lead industry consolidation in this environment, which will help us hit the 4 billion yen target while growing our market share. If we are still stuck between 2 billion yen and 3 billion yen even after our efforts, we may consider a market change, but maintaining our listing is our baseline intention. We also plan to initiate dividend payments in the future to support shareholder returns.

Q: Moving into the low price segment will lower average order values to 30,000 yen and 60,000 yen per month. Will this segment be profitable with proper cost control?

A: We started our low-price segment expansion based on the already profitable 350-account List Finder business, so it was profitable from the beginning of FY2026. All low-price plans are already fully developed, not built from scratch, so as long as we do not spend excessively on marketing, we can maintain profitability. The business is already monthly profitable as we start the fiscal year.

Q: How did operating profit jump from 120 million yen in the prior period to a projected 350 million yen in FY2026, with revenue flat? Can you explain the drivers in more detail?

A: Excluding List Finder, our core existing business already generates 260 million yen in operating profit. List Finder contributes an additional 100 million yen in profit, for a total of 360 million yen, so we conservatively project 350 million yen. When we acquired List Finder from Innovation, we only acquired the customer base and the solution, leaving all SG&A costs with Innovation. We run List Finder within our existing SG&A cost structure, so it delivers full incremental profit. SG&A is expected to be flat year-over-year, and labor costs will remain at the prior period's level of just under 1.3 billion yen. If FY2026 revenue hits 3 billion yen, the SG&A ratio will rise and will not reach the 55% target, but we will still hit our operating profit target, and there is still room for further SG&A reduction down the line.

Q: What synergies have you realized with parent company Innovation?

A: The largest synergy for Shannon is that we were able to acquire the already profitable List Finder business, which would have been impossible outside of the group. This acquisition allowed us to pivot to the low-price segment without building the business from scratch, which is a huge advantage. For Innovation, List Finder was a small, profitable but slow-growing business that could not reach its potential inside Innovation. Moving it to Shannon allows it to grow, which is positive for Innovation. We also transferred our legacy advertising business to Innovation, which is a core advertising and media company, so that business can now grow under Innovation where it could not under Shannon. This creates a clean balanced structure under the Innovation Group holding company, with Shannon focusing on SaaS and Innovation focusing on media and advertising. We are now the overall operator for all IT solution businesses within the Innovation Group, and absorbing all of the group's existing IT assets has allowed us to pivot from stagnation to growth, which is the core synergy. Maximizing this synergy is our key priority for FY2026.

Q: What was the root cause of Shannon's inability to generate profit in prior years?

A: The root cause was the company's corporate culture: we were a "good, gentle" company that focused on steadily building good products, believing that results would come over time rather than aggressively pursuing profit and growth. This culture was not suited for competing in the current market, so we needed to become more aggressive. We are not doing forced layoffs, and we expect natural attrition to align headcount with our new growth focus, and we will need to add headcount again as we grow in the future.

Q: Is there a risk that AI will displace SaaS MA services, and how do you position AI in your business?

A: We do not develop foundational AI engines, which very few Japanese companies can do anyway. We focus on integrating AI into our B2B marketing tools to deliver usable value to business users. General purpose AI can handle basic conversation and document creation, but it cannot end-to-end drive B2B marketing processes effectively for most business users. We position ourselves as the intermediate layer between foundational AI engines and business users, building easy-to-use AI-powered features tailored specifically for B2B marketing. We are still working toward the optimal implementation of AI in our space, and we will need partner companies to fully roll out usable AI capabilities over the next 3-5 years.

Q: How do you differentiate your Event Cloud business from competitors, and what is your opportunity?

A: There are not many companies offering full-service event cloud DX, and delivering workable solutions requires a deep understanding of how real B2B marketing events work. We differentiate ourselves by integrating end-to-end: from understanding real-world event activity, capturing event data, and integrating that data into the MA system, all supported by AI. We believe this end-to-end capability is unique to Shannon, and we are preparing to scale this business in FY2026. Our core strength is our ability to build repeatable solutions that accurately reflect how real business events operate, which we believe will allow us to become the leading player in this niche segment.