freee K.K. Q1 FY2026 earnings call

• Growth Strategy & Core Positioning

  • Focus strategically on small businesses, targeting over 30% market share to become the de facto standard integrated management platform for small businesses, aiming to achieve Rule of 40 by the June 2028 term. 2026 is positioned as a year of strategic investment toward this 3-year goal.
  • Strong brand positioning in the Small corporate segment: freee is the top recalled software for people considering starting a business, with efficient customer acquisition via accounting firm partnerships and direct channels, and cross-selling of freee Payroll to existing freee Accounting users, reaching an attach rate of ~20%.

• High-Growth Card Business

  • freee Card Unlimited (corporate credit card) has delivered a CAGR of over 80% since Q1 2023, driven by unique integrated value with freee Accounting: real-time statement import, automatic receipt matching and journal entry, built-in internal control approval workflows, and flexible credit limits based on user accounting data.
  • Newly launched physical shared branch cards for retail and food service businesses to enable cashless petty cash management, with flexible handling of employee turnover, addressing industry pain points.

• AI-Powered Product Expansion for Accounting Firms

  • Strengthening partnership with accounting firms by building out a full operational infrastructure platform, not just providing cloud accounting software. The annual freee Advisor Day event has grown into the industry's largest offline event with growing attendance.
  • Launched beta AI-powered services for accounting firms: AI Data Entry (automates journal creation from paper vouchers to drastically streamline bookkeeping and shorten turnaround) and AI Year-End Tax Adjustment (automates data entry from paper documents and error checking), both receiving high demand from accounting firms.

• AI-Powered New Services for End Users (HR & Payroll Segment)

  • Launched freee Anshin Payroll Outsourcing: AI handles client inquiry and information processing, automatically scans documents for defects, reduces operational costs vs. traditional outsourced services, priced at 60-70% of typical social labor office offerings, addressing the pain point of unchanged workload for small businesses using traditional outsourcing.
  • Imminent launch of freee Survey, an AI-powered talent management product for small businesses: priced at 200 yen per ID per month, combines survey responses and attendance data to score employee status and automatically detect turnover risk, filling the gap of affordable talent management tools for small businesses.

• Cost Efficiency and Investment Allocation

  • Sales & Marketing (S&M) cost-to-revenue ratio improved significantly quarter-over-quarter due to lower one-time advertising expenses and sustained productivity gains from AI and sales training.
  • Continued cost optimization will offset higher COGS from the growing card business and onboarding investment; R&D is increasing engineer headcount to accelerate core product feature development for industry-specific needs and new service launches, with AI coding improving development productivity.

1. Total Platform ARR: 37.12 billion yen, +28.9% YoY. 2. Subscription ARR: 35.5 billion yen total; Corporate segment ARR: 27.8 billion yen, +30.0% YoY; Sole proprietor segment ARR: +17.5% YoY. 3. Transaction ARR (newly disclosed): 1.58 billion yen, +91.5% YoY, accounts for the majority of new high-growth revenue driven by the freee card business. 4. Paid user companies: 621,963 total, +13.7% YoY; Corporate segment: 245,000 companies, +18.1% YoY; Sole proprietor segment: +11.0% YoY. Within Corporate, the Small (≤20 employees) segment outperformed the Mid segment in growth rate, with over 10,000 net new corporate users added in the quarter. 5. ARPU (subscription-based): Total company 57,100 yen, +10%+ YoY; Corporate only 113,400 yen, +10.1% YoY; Sole proprietor +5.9% YoY. 6. Total revenue: 9.743 billion yen, +32.1% YoY. 7. Gross profit: 7.882 billion yen, gross margin 80.9%; gross margin excluding software amortization 82.8%, slightly improved quarter-over-quarter and maintained historical levels. 8. Adjusted operating profit: 0.69 billion yen, adjusted operating margin 7.1%, in line with full-year expectations.

• Management maintains the original full-year FY2026 guidance with no upward or downward revision: revenue growth of 23% to 25%, adjusted operating margin of 6.0%, adjusted free cash flow margin of 3% to 6%.
  • The positive impact of last year's plan revision is largest in Q1, and growth will gradually decline in subsequent quarters, but management expects full-year growth to land near the upper end of the 23-25% guidance range, with a meaningful risk of exceeding 25%, and rules out a large miss below the 23% lower bound.
  • Full-year cost outlook remains broadly unchanged from prior guidance: COGS will increase due to card business growth and onboarding investment, R&D investment ratio will trend down steadily long-term, adjusted G&A will be flat or slightly up YoY as a percentage of revenue due to higher hiring and training costs and office expansion.

• The growing credit card business has a higher inherent cost ratio than core SaaS, which could put pressure on overall margins if growth outpaces offsetting cost savings from productivity improvements in other departments.
  • Software asset capitalization from increased product development investment leads to rising amortization expenses quarter-over-quarter, which will gradually increase the negative impact on reported gross margin over time.
  • Revenue growth is dependent on the sustained impact of last year's plan revision, which will fade through successive quarters, creating sequential slowing growth that could miss expectations if new growth drivers do not scale fast enough.

Q: With Q1 growth of 32.1% (driven by the lagged impact of last year's plan revision), should we expect full-year growth to converge to the 23-25% guidance range by Q4, and is the lower bound of 23% at significant risk of being missed? / A: Management confirms no change to the existing 23-25% full-year growth guidance. The impact of last year's plan revision will decline sequentially, so growth will gradually slow over coming quarters. However, management expects full-year growth to land near the 25% upper bound and confirms the 23% lower bound will not be meaningfully missed, with even some possibility of exceeding the upper bound.

Q: What are the plans for promotion spending after Q1, and are there any planned large campaigns in coming quarters? / A: S&M spending will be planned to avoid large quarter-over-quarter fluctuations. As in typical years, advertising spending will be moderately higher in Q3 to coincide with the Japanese tax filing season. For Q4, management will make a final decision on whether to run large brand awareness campaigns based on year-to-date ARR growth performance, matching the type of campaigns run in prior quarters.

Q: What drove the quarter-over-quarter increase in gross margin excluding software amortization, and what is the outlook for this metric after Q1? / A: Management notes that small quarter-over-quarter fluctuations in this margin come from multiple overlapping factors, not one single large driver. The company's core policy is to maintain this margin at a stable level on an annual basis, with no expected material long-term shifts.

Q: What are the price points and cost structures for the new AI products freee Anshin Payroll Outsourcing and freee Survey, and what is the go-to-market approach for these products? / A: freee Anshin Payroll Outsourcing is priced at 60-70% of typical social labor office offerings, enabled by AI replacing human operator work to reduce costs. freee Survey is priced at 200 yen per ID, enabled by freee's existing large ARR base that allows for affordable small-unit product development for small businesses, unlike standalone vendors that must target large enterprise clients to hit profitability. Go-to-market will first target existing freee Payroll users, promoted via events and marketing, with sales following up on inbound inquiries.