Plus Alpha Consulting Co.,LTD. Q2 FY2025 earnings call

Overall Financial Results

• Total consolidated revenue for the first half: 8.178 billion yen, 26.5% YoY increase; operating profit: 2.792 billion yen, 28.9% YoY increase; operating profit margin 34.1%
• Progress against full-year plan: 46.1% for revenue, ~50% for operating profit, ahead of prior year's progress rate

Strategic Shift

• The company shifted its focus to acquiring large enterprise clients, re-evaluated lead generation channels, optimized and reduced marketing spend while improving lead conversion quality
• Marketing spend was controlled to 400 million to 500 million yen per quarter, with only high ROI channels retaining investment; this optimization is not temporary and will be maintained going forward

Key Operational Milestones

1. Launched comprehensive business partnership with Mynavi, a leading Japanese recruitment firm, to build an end-to-end talent platform covering recruitment to on-the-job development, leverage Mynavi's tens of thousands of enterprise clients to expand penetration of Talent Palette
2. Talent Palette adoption by large enterprise clients is on track; most clients use it for advanced HR initiatives such as job-based HR restructuring and workforce placement planning, beyond basic personnel database and digital evaluation
3. Accelerated rollout of high-value add services for enterprises: upstream HR consulting and generative AI utilization support, including generative AI for performance feedback improvement and talent matching for job-based restructuring
4. Accelerated adoption of paid optional services for HR Solutions to boost ARPU, including popular training management LMS and alumni recruitment functions
5. Launched new generative AI-powered customer service training function for Mieruka Engine (its marketing solution for call centers), which uses historical interaction data to simulate customer calls and provide improvement feedback to operators
6. Appointed professional golfer Reika Usui as brand ambassador to improve Talent Palette awareness among enterprise clients

1. HR Solutions (main business, including Talent Palette, Yorisol, Attack Inc., D4DR Inc., Grow Up Inc., and OM Network Inc.):
   • Revenue: 5.451 billion yen, 31.3% YoY increase, accounting for 66.66% of total consolidated revenue
   • Operating profit: 2.674 billion yen, 30.2% YoY increase, with a 49% operating profit margin
   • MRR (monthly recurring revenue): 30.9% YoY increase
   • Churn rate: 0.37% (slight increase, still well below full-year target of 0.47%)
   • ARPU: 429 thousand yen, 6.7% YoY increase
   • Sub-segment performance:
     • Yorisol (new business): 235.1% YoY revenue growth, still in investment phase
     • Grow Up Inc.: Weak order growth, YoY sales underperformance; cost cutting has narrowed losses
     • OM Network Inc. (consolidated since Q4 FY2024, shift management SaaS): Revenue and profit outperformed plan, growing enough to offset Grow Up Inc.'s weakness
2. Marketing Solutions (including Mieruka Engine, Customer Rings):
   • Total revenue: 2.727 billion yen, ~4% YoY growth, accounting for 33.34% of total consolidated revenue
   • Customer count decreased 11 quarter-over-quarter and 24 year-over-year, with churn rate above 1% (driven by smaller social media analytics customers amid a strategic product shift); ARPU increased due to upselling to enterprise clients, leading to expanded total revenue and profit

• Full-year 2025 September fiscal year guidance maintained unchanged from initial plan: total revenue 17.73 billion yen, 27.4% YoY growth; operating profit 5.6 billion yen, 23.6% YoY growth; operating profit margin 31.6%
• Medium-term to long-term growth target maintained: by 2028 September fiscal year, target total revenue of 30 billion yen and operating profit of over 10 billion yen
• Shareholder return policy maintained: retain internal reserves for new business investment and M&A, target a 20% dividend payout ratio for stable dividends; maintain ROE above 20% as a key performance target
• Marketing spend will be maintained at the current optimized 400 million to 500 million yen per quarter level, with no large increase planned in coming quarters

• HR Solutions churn rate has seen a slight upward trend; most churn comes from smaller clients, so revenue-based churn remains low but the trend is monitored
• Marketing Solutions has higher churn with net customer decline, driven by smaller clients during its strategic generative AI-focused product shift
• Grow Up Inc.'s new graduate direct recruitment business has underperformed order expectations for a prolonged period, with ongoing weakness
• The enterprise client-focused strategy faces a limited total pool of large enterprises in Japan, which could constrain long-term volume growth if ARPU growth does not offset it

Q: With the company's strategy focused on limited-number enterprise clients, how much ARPU growth is needed to hit medium-term growth targets, and is there enough remaining market opportunity for enterprise clients?

A: There are 3,500 to 4,000 Japanese enterprises with over 1,000 employees, 40-50% already use some talent management tool, and Talent Palette only holds ~25% market share, so there is substantial remaining white space. The company adds ~150 enterprise clients per year, which is sustainable. To hit 20% medium-term sales growth, volume growth will contribute ~15% and ARPU growth will cover the remaining ~5%, driven by paid options, partnership-related services and upstream consulting.

Q: Why continue developing in-house recruitment business with Grow Up when partnering with Mynavi is more efficient, and what is the strategic path for this segment?

A: Grow Up was acquired to expand into recruitment by linking its Kimisca direct recruitment service with Talent Palette, to gain know-how in recruitment matching. While the direct recruitment market is volatile and difficult to develop independently, the know-how from Grow Up can be leveraged in the new Mynavi partnership. Going forward, Grow Up's team will shift to expanding broader recruitment services such as HR consulting and RPO, while co-developing the combined business with Mynavi, and the future of the original Kimisca service is still under review.