Photosynth inc. Q4 FY2025 earnings call

Previous Mid-Term Management Plan Review

• The 2023-2025 mid-term plan focused on moving from consistent losses to profitability, with 2023 target of monthly positive profit and 2024 target of full-year consolidated positive profit. All targets were successfully achieved.
• Stable customer base was built: Churn Rate dropped sharply, customer retention reached an all-time high, and revenue per customer also hit a record high, so both qualitative and quantitative targets of the previous plan were met.

Updated Corporate Vision

• Management updated the company vision to "Liberalize society through autonomous physical spaces that do not rely on human labor", in response to Japan's severe and accelerating labor population decline, which is a shared core challenge across all of the company's customer industries.
• The company aims to transform existing service and space models that rely on human presence into models that operate without human labor, to address the labor shortage and support continued economic activity.

Three Core Growth Priorities for 2026-2028 Mid-Term Plan

1. Accelerated Expansion of Akerun
   • Partnership with Hikari Tsushin Group: Hikari Tsushin holds a minority stake in Photosynth, and has 20,000+ sales staff, over 1,000 distributor sales companies, and 1.3 million+ existing corporate customers. The partnership targets growing new revenue acquired via Hikari Tsushin Group to exceed the size of new revenue Photosynth generates organically. This is viewed as a highly promising new channel expansion opportunity.
   • Large customer and new vertical growth: Large deals, and underpenetrated segments including local governments, public agencies, and education are growing strongly. Akerun is now adopted across real estate, major electric/automotive manufacturers, golf facilities, public facilities, and digital student/ID cards for universities, with large-scale deployment potential for up to 145,000 students and staff at private universities.
2. Solution Development for Cross-selling/Up-selling
   • Package-based cross-selling to existing Akerun customers: Akerun has expanded beyond office use to multiple new verticals including convenience stores, supermarkets, bookstores, libraries, cram schools, fitness clubs, rental spaces, and restaurants, enabling fully unmanned operation and 24-hour opening. The company provides end-to-end unmanned space packages combining Akerun access control, security camera monitoring, self-checkout, and Migakun gig worker stocking support, delivering higher sales for retailers, better consumer convenience, and lower labor costs. The company aims to transform entire industries and spaces beyond just access control.
   • Accelerated M&A: Management has formed a dedicated M&A team led by the CFO with experienced PMI and subsidiary leadership members. The company targets acquiring businesses in complementary areas including cameras, security, authentication, payment, commerce, insurance, membership management, reception, and property management systems to expand package offerings. The company also plans to test first-party acquisitions of existing operated businesses such as supermarkets, apparel, and bookstores, implement unmanned labor-saving packages to boost sales and cut costs, as a new growth path. Unmanned/labor-saving technology is expected to become an industry standard, and the company will accelerate M&A and post-merger integration based on its proven playbook.
3. Physical AI Development
   • The company established the new Photosynth Physical AI Lab. Management notes the US and China lead physical AI globally, but Japan, as a leading manufacturing and robotics country, has very few venture companies focused on end-to-end physical AI development. The lab is already conducting in-house development ranging from AI basic research to mechanical development, including robotic arm projects and quadrupedal walking robots, with example use cases including automatic lock picking paired with computer vision detection.
   • Photosynth has in-house engineering capabilities covering all areas from hardware, mechanics, electronics, applications, firmware, to mass production. Currently, around half of all in-house source code is generated by AI, making the company very AI-friendly. The company plans to develop robots that deliver high added value to existing Akerun customers for use cases including cleaning, building maintenance, general affairs, security, product restocking, and welfare/nursing care, with the goal of becoming a leading robotics company in Japan.

Capital Allocation Policy

• All investment in new business, M&A, and physical AI R&D will follow a disciplined approach using existing cash on hand, operating cash flow, and interest-bearing debt, rather than unlimited spending that erodes operating profit.
• Physical AI development will follow a lean approach, with investment staged appropriately. Management has no current plans for equity fundraising to fund these investments.

Profitability and Growth Metric Target

• For the SaaS Rule of 40, which evaluates SaaS companies as high-performing if the sum of sales growth rate and profit margin exceeds 40%, Photosynth's 2025 result was 29%. The company targets 38% in 2026, and a minimum of 40% by 2028 with a target of 50% (Rule of 50) to maintain strong balanced growth and profitability.

The call does not split out explicit absolute financial performance and revenue contribution percentage for individual product segments. The aggregated full-year 2025 results across all business are as follows: Total net sales: 3.38 billion yen; Operating profit: 230 million yen, which is more than 3 times higher year-over-year. Core product Akerun drove strong performance through successful large customer acquisition. Product Migakun and consolidated subsidiary MIWA Akerun Technologies also delivered steady growth. All financial line items met the full-year guidance, with operating profit and ordinary income significantly exceeding planned targets. Key segment-related KPIs: ARPU hit an all-time high, growing 14.5% year-over-year driven by increased large customers and expanded cross-selling; Churn Rate improved to an all-time low of 0.93%, representing the highest ever customer retention rate.

• 2026 December Full-Year Guidance: Net sales target of 4.062 billion yen, representing 20% year-over-year growth, accelerating from 14% growth in 2025. Adjusted EBITDA (defined as operating profit + amortization + stock compensation expense + physical AI R&D expenditure) is targeted at 720 million yen, a 40.6% year-over-year increase. Operating profit is only projected to have a minor increase due to expected non-cash expenses from goodwill amortization and new stock compensation plans. Adjusted EBITDA is highlighted as the better metric to reflect the company's core operating performance.
• 2026-2028 Mid-Term Quantitative Guidance: Target annual year-over-year sales growth of 20% to 30%, reaccelerating from 2025's 14% growth. By the 2028 December full-year, the company targets net sales of 5.8 billion yen to 7.5 billion yen, and adjusted EBITDA of 1.16 billion yen to 1.5 billion yen. These targets reflect only organic organic growth, and do not include the upside potential from the Hikari Tsushin partnership, M&A, or physical AI new business.
• The 2026-2028 mid-term plan targets to exceed the core Rule of 40 benchmark by 2028, with an aspirational target of reaching the Rule of 50 level.

The call does not explicitly discuss material risks or operational failures. Management only notes that upside from the Hikari Tsushin partnership has not been included in the mid-term plan targets due to remaining uncertainty at this stage of partnership rollout.

Q: What quantitative level of growth can be expected from the partnership with Hikari Tsushin, and is this upside already included in the mid-term plan targets?

A: The company is currently actively finalizing sales partnership agreements with Hikari Tsushin Group sales entities. The shared goal of both parties is for new contracted revenue from Hikari Tsushin Group sales to reach at least the same size as the new billing revenue Photosynth generates organically on its own. The current mid-term plan targets only reflect organic stand-alone growth from Photosynth, and do not include any contribution from the Hikari Tsushin partnership, since the partnership is still in the early rollout stage and there is remaining uncertainty around outcomes. However, management expects this partnership to deliver material upside growth on top of the current organic plan, and the two companies are fully aligned to execute aggressively on the collaboration.

Q: What is the approximate target investment amount for physical AI development over the mid-term plan period?

A: Contrary to the common expectation that physical AI requires very large up-front investment, the company plans to pursue a lean development model. The company will start development at the application layer, with work centered on AI rather than requiring a large team of hardware engineers, so development will be carried out with a small elite team. Photosynth already has the in-house capability to develop full end-to-end solutions from software all the way to mechanical and hardware development, which is a capability very few other venture companies in this space have. The company will provide updates on investment and commercialization plans as the business progresses, and does not include large investment impacts in the current mid-term plan. No large up-front outlay is budgeted at this stage.

Q: What size of M&A deals is the company targeting over the mid-term plan period?

A: The company believes that the execution and post-merger integration effort is roughly similar for small and large M&A deals, so the company's core strategy is to target companies that can become a meaningful new pillar of the combined business. The general threshold is companies that are expected to reach at least 1 billion yen in annual sales within a few years of acquisition. That said, the company does note that for the planned first-party operating business acquisitions, smaller experimental deals may be pursued.

Q: The mid-term plan targets look quite ambitious, does management have confidence in achieving these goals?

A: Management can definitively state that it has full confidence in achieving the targets. The targets are not seen as unreasonably aggressive, as the core Akerun business already has a strong track record of solid performance, with strong momentum in up-selling and cross-selling, improving ARPU, and falling churn, so the business already has a strong foundation of results to hit the stated sales targets. In addition, all upside from the Hikari Tsushin partnership, new alliances, and new physical AI business is not included in the current targets, so there is significant upside potential to exceed the 20%-30% annual growth target if these new initiatives progress well. Internal discussions are already centered on the potential to outperform the plan, so management is fully committed to delivering on the stated targets.