rakumo Inc. Q4 FY2024 earnings call

2024 Full Year Financial Results

• Total company revenue reached 1.443 billion yen, an 11.4% year-over-year increase, marking continued revenue growth
• Cost of goods sold ratio improved 1.7 percentage points year-over-year; selling, general and administrative (SG&A) ratio improved 1.4 percentage points year-over-year, even with full-year amortization of goodwill from the 2023 H2 acquisition of Aivision and increased R&D and labor costs for new product development
• EBITA reached 436 million yen, a 30.4% year-over-year increase, with an EBITA margin of 30.2% (up 4.4 percentage points year-over-year); operating profit reached 383 million yen, a 26.1% year-over-year increase, with an operating margin of 26.6% (up 3.1 percentage points year-over-year), meeting the full year profit guidance
• Unique user (UU) count and client count saw limited growth in H1 2024 due to Google Workspace reseller margin changes and price adjustment impacts, but recovered in H2: client count grew by 6 clients quarter-over-quarter in Q4, full year churn rate stabilized at 1.03%, and H2 churn fell to 0.71%, back to normal historical levels

Strategic and Operational Updates

• The company is transitioning to a new management structure: incoming representative director CEO candidate Koji Shimizu has deep experience in SaaS, AI business development, M&A and PMI, and will take office after the March 2025 shareholder general meeting, with outgoing CEO Daisuke Mitarai becoming chairman of the board
• The company maintains its unchanged vision of "Make work easier, more interesting" and is expanding into the organizational reform support domain: it will continue growing its core rakumo service for Google Workspace (and evaluate adding support for new platforms), develop HR Tech products for HR departments, and build AI-powered efficiency improvement tools
• Three core strategic priorities for the medium-term plan:
  • Grow the existing rakumo business: Revise partner sales programs to improve partner-driven sales, launch a new business development representative (BDR) team to boost direct sales, expand product lines to strengthen cross-selling, leverage the Vietnamese subsidiary's agile development capability to accelerate product releases, and integrate generative AI functions by expanding AI engineering teams and strengthening collaboration with platform providers
  • Expand products into new domains: The company is currently negotiating business partnerships with HR-focused experienced firms, and has begun building product development, sales and development teams for the new HR product
  • Accelerate M&A: The company has expanded its network of M&A intermediaries to source more candidate deals, and is building internal and external specialized teams to rapidly execute due diligence, acquisition and post-merger integration (PMI), targeting medium-large scale acquisition opportunities
• Core competitive advantages leveraged for growth: 570,000 existing unique users, strong partnerships with platform providers like Google and Salesforce plus over 100 sales partners, proven development capability that supports a sub-1% churn rate and award-winning product quality, and existing experience with 3 cross-border M&A and PMI transactions

1. SaaS Service: Total 2024 full year revenue of 1.40171 billion yen, accounting for 97% of the company's total revenue, achieved 18.7% year-over-year growth driven by price adjustments. Average revenue per client increased significantly to 55,286 yen per company due to price adjustments. 2. Solution and IT Offshore Development Service: This segment is currently in contraction, with the remaining 3% of total company revenue (42.59 million yen) coming from this business.

• 2025 December Full Year Guidance: Total revenue is projected to be 1.612 billion yen, an 11.7% year-over-year increase; adjusted EBITA is projected to reach 500 million yen, a 14.7% year-over-year increase; operating profit is projected to reach 400 million yen, a 4.4% year-over-year increase. The guidance does not include material contributions from new products or M&A, so upside is possible if these initiatives progress well. A 1.8 percentage point improvement in cost of goods sold ratio is expected, while SG&A ratio is projected to rise 3.6 percentage points due to increased growth investments.
• 2025 Key Initiatives Targets: Launch the new HR product in H1 2025, launch new AI features for existing rakumo services in Q1 2025, complete one M&A transaction in 2025, and continue rolling out price adjustments for existing clients in February-March 2025.
• Medium-Term (2025-2027) Targets: Achieve 3 billion yen ARR, 1 billion yen adjusted EBITA, and 700 million yen operating profit by 2027 (approximately doubling from 2024 levels); reach a 30% payout ratio for dividends by 2027.
• Medium-Term Annual Milestones: In 2026, continue adding new rakumo services, achieve profitability for the new HR product, and complete one M&A; in 2027, expand supported platforms for the rakumo product line, scale HR product profits, and complete one additional M&A.
• Three-Year Capital Allocation: Allocate 800 million yen to new and existing business investment (new product development, headcount expansion), 3 billion yen total to M&A over the three years (half funded by bank borrowing, 2 billion yen borrowing target), and target 1 billion yen for shareholder returns; the company expects 1.8 billion yen in cumulative operating cash flow over the period, and has introduced executive incentives tied to medium-term plan targets.

• In H1 2024, Google's adjustment to Google Workspace reseller margins forced reseller partners to focus on existing client management, limiting new sales, and caused some existing rakumo Google Workspace resale clients to switch to other partners, leading to stagnant client and user growth in the first half of the year.
• The company uses US-based cloud services, so yen depreciation has increased server costs, putting upward pressure on cost of goods sold.
• The company has not launched major new services since its IPO, and will need to execute successfully on new product development and M&A to accelerate growth, which carries execution risk.

The provided transcript does not include a question and answer section.