Photosynth inc. Q2 FY2025 earnings call

Core Competencies and Business Model

• Four core competitive strengths: smart lock authentication technology combining IoT and offline/real-space access control, in-house hardware development capability, SaaS development capability, and a gig worker platform for on-demand facility services
• Business strategy built on two core axes: expanding the total customer base via Akerun, and increasing average revenue per user via vertical-specific solution development (including cross-selling and upselling additional services to existing Akerun customers)
• The company focuses on asset-light growth for new services, leveraging existing Akerun customer and infrastructure assets rather than large upfront J-curve investments

Market Expansion Updates

• The company expanded beyond its core office vertical in H1, growing adoption in commercial facilities, residential, education, and public/government sectors
• Notable new adoption cases include unmanned convenience stores, public space management in Toyooka City Hyogo, and reserved private lactation rooms at Keikyu stations
• Channel development was strengthened by adding new agency partners with existing commercial facility customer relationships, beyond the company's historic office-focused interior design and brokerage partners

Product and Partnership Updates

• Akerun (Corporate/Commercial): Accelerated solution value improvement via API integrations with third-party services including Sansan's Eight digital business card, Instabase space rental, and Smart Hello reservation tools. A new revenue-share model was launched with Instabase that eliminates upfront and monthly fees for space owners, collecting revenue as a share of usage revenue, which has been well received and accelerated adoption
• Akerun (Residential): Adoption is accelerating, centered on multi-family rental properties. Akerun was selected as a standard feature for the Pregio rental apartment series, delivering value via improved viewing efficiency, resident convenience, and reduced key exchange costs for moves
• Akerun Digital ID: Inquiries for use as digital student IDs at educational institutions are growing amid industry-wide movement to replace physical student IDs, and the product is in active R&D
• Migakun: Captured growing demand for on-demand cleaning, facility maintenance, and supply restocking from unmanned/light-staffed facilities including indoor golf, gyms, co-working spaces, and hotels. Launched a partnership with GOLFZON Japan to co-market the service to new golf facility customers

Financial Operational Highlights

• Sales, general and administrative expenses grew only 8.3% year-over-year in H1, below the revenue growth rate of 11.4%, demonstrating disciplined cost control
• Growth investment is prioritized: the company increased hiring and development spending in the first half, with a focus on improving engineer productivity via AI tools to keep growth investments efficient

The company operates two core product segments: Akerun and Migakun. For the single second quarter (Q2 2025), total revenue was 0.78 billion yen, up 6.2% year-over-year, with recurring revenue accounting for 95.3% of total revenue. Gross profit was 0.6 billion yen, up 7.1% year-over-year, and operating profit was 49 million yen, up 0.6% year-over-year. For the first half (cumulative H1 2025), total revenue reached 1.614 billion yen, up 11.4% year-over-year against the full-year plan, with a 48% progress rate (a strong result for the company's H2-heavy recurring business model). Cumulative gross profit was 1.235 billion yen, up 10.7% year-over-year, with gross margin holding a high 76.5%. Cumulative operating profit was 144 million yen, up 33.4% year-over-year, representing 90.8% progress against the full-year operating profit plan. Key segment KPIs across the business: ARPU hit 44,572 yen per company, up 5.8% year-over-year; churn rate improved to 1.11%, beating the full-year target of 1.15%; total annual recurring revenue (ARR) across segments was 3.03 billion yen, up 8% year-over-year. Akerun (smart lock and access management): Akerun is the larger core segment, with growing adoption across corporate, commercial, residential, and education verticals. Migakun (facility operation outsourced BPaaS): Migakun is growing steadily, capturing demand from labor shortage and unmanned facility trends, with strong synergies when sold as a cross-sell to Akerun customers.

• Full-year guidance is maintained, with H1 results already exceeding planned progress for profitability, putting the company on track to meet or beat full-year targets
• The company expects continued growth in the second half, consistent with its historic H2-heavy business model driven by recurring revenue accumulation
• Management expects medium-term ARPU growth of 5% to 10% annually, driven by larger multi-unit installations, growth in large enterprise customers, and cross-selling additional services including Migakun
• The company expects continued improvement in churn rate over the medium term, driven by expansion to larger customers, deeper API integrations, and increased cross-selling that increases customer stickiness

• Q2 revenue was lower sequentially compared to Q1, due to the one-time seasonal concentration of one-off equipment sales and construction revenue from MIWA Akerun Technologies in Q1. Management classifies this as a temporary, non-recurring impact, but sequential revenue volatility could create short-term market expectations risk

Q: What is the expected trend for profitability margin in the second half of the year? / A: The company already achieved 90.8% of its full-year operating profit target in the first half. This is partially because the full-year budget planned for year-end expenses including bonus payouts and additional hiring that will be recognized in the second half. Margin is expected to remain consistent with management's original full-year plan, with no expected material deviation from the original guidance.

Q: Why did one-off sales from MIWA Akerun Technologies concentrate in the first quarter? / A: The concentration of these equipment and construction one-off sales in Q1 was driven by seasonal project timing for the residential multi-family developments that are the primary customers for this joint venture product line. It is a temporary seasonal timing impact, not a structural change in demand or sales patterns.

Q: What is the sales outlook from Q3 onward? / A: Management expects sales to return to sequential growth in the second half, in line with the company's normal seasonal pattern of stronger second half performance for its recurring business model. The first half's stronger than expected profitability progress puts the company in a solid position to hit full-year targets even with planned second half expense investments.

Q: What types of companies does Photosynth target for M&A? / A: The company is actively sourcing M&A targets that align with its cross-selling and upselling strategy: specifically, products and services that share the same target customer (corporate facility managers and SMB owners) and the same decision timing (relocation or expansion) that matches Akerun's sales cycle. Targets will help the company accelerate its product expansion roadmap faster than in-house development alone, to grow ARPU via expanding the solution portfolio offered to existing Akerun customers. A dedicated M&A team is already active in sourcing and evaluating specific deals.