unerry,Inc. Q2 FY2025 earnings call

• Overall Financial Performance

  • Total revenue reached 938 million yen, up 43% year-over-year, a new all-time quarterly record that exceeded internal forecasts. Operating profit reached 56 million yen, up 341% (4.4x) year-over-year, also exceeded plan, with operating margin up 4 percentage points year-over-year. Gross profit reached 329 million yen, up 60% year-over-year.
  • Recurring customer metrics are strong: recurring customer count reached 127, up 27 year-over-year and 18 from the previous quarter-end. Net Retention Rate (NRR) hit 138%, and annual recurring revenue per customer stays at a high level of 25 million yen, showing strong expansion of existing customer spend.

• Strategic Partnerships

  • Completed a capital and business alliance with DearOne, a firm backed by NTT Docomo and Hakuhodo. This adds DearOne's 120 million app downloads and 33 million monthly active users to unerry's data pool, standardizes unerry's location technology as a built-in feature for DearOne's retail app development platform, and enables cross-selling of each company's retail media services (including co-development of location-enabled ad targeting and measurement for DearOne's ARUTANA in-app ad platform).

• Mid-term Growth Strategies

  • 1. Data Scaling Law Strategy: Prioritizes continuous expansion of data volume and ID count to maintain competitive advantage, with the DearOne alliance as a key recent milestone to grow data scale.
  • 1. Key Partner Strategy: Adds DearOne to existing key partnerships with CMI, Braze, and CRITEO to jointly expand go-to-market reach.
  • 1. Flywheel Product Strategy: Leverages cross-selling across the three service lines to expand recurring customer spend, with DearOne's services added to the product portfolio to enable more cross-selling opportunities. The business model allows customer average contract value to grow as much as 80x from initial onboarding via incremental cross-selling.
  • 1. Human Capital Strategy: Grew revenue per employee to 3.768 million yen per month, up 15% year-over-year despite increased headcount, and won the Semi-Excellence Award in the Standard Growth category of the Human Capital Disclosure Award.

• Operational Initiatives

  • Ongoing pilot projects: Partnered on remote autonomous driving demonstration using local 5G in Komae City, Tokyo, where unerry provided pedestrian flow data for route planning and traffic demand simulation; expanded tourism projects via the Blogwatcher partnership; currently provides services to 21 prefectural governments across Japan.
  • Global service expansion: Clarified four categories of global services, with inbound services for Japanese clients seeing the strongest growth driven by the post-pandemic inbound boom, followed by overseas store opening support for Japanese firms and Japanese entry support for foreign firms, while pure-play overseas services for foreign firms are still in early stage.

By service segment: 1. Analysis and Visualization Service: Gross profit grew sharply year-over-year, gross margin remains at a high level around 90% (dipped slightly temporarily this quarter). 2. Behavior Change Service: Revenue grew sharply year-over-year, gross margin dipped slightly due to increased reliance on external outsourcing to handle high order volume, overall gross profit still increased sharply. 3. One to One Service: Revenue decreased slightly year-over-year, but gross margin improved significantly to 52% due to a higher share of low-cost in-house service projects, so gross profit amount still increased despite lower revenue. Overall, total company gross margin stayed flat year-over-year at 46%. By business line: 1. Retail DX Business: Solid growth, driven by the DearOne capital and business alliance that standardized unerry's location technology for app integrations. 2. Retail Media Business: Very strong growth, exceeded internal expectations, benefited from successful end-of-year demand capture and new cross-selling arrangements with DearOne. 3. Smart City Business: Steady progress, expanded tourism footprint via partnership with Blogwatcher, with most revenue scheduled to be recognized in Q3. 4. Global Business: Still a challenge area but saw meaningful progress, with the strongest growth in inbound services, followed by Japanese overseas expansion support and foreign entry support for overseas firms, while overseas enterprise support remains in early stage. Revenue contribution percentages were not explicitly disclosed in the transcript.

• Full-year 2025 June-Term guidance is maintained, with the Q2 over-performance not leading to an upward revision at this stage due to remaining uncertainty around Q3 and Q4 performance. Both revenue and operating profit are tracking above 40% progress against full-year targets through the first half.
  • Quarterly sales volatility is expected to gradually decrease, though some seasonality across service lines will remain. Management notes that historical Q3 sales concentration is easing, and investors are encouraged to focus on full-year rather than quarterly results.
  • Mid-term guidance is maintained: 36% compound annual growth rate through the June 2028 term, targeting 10 billion yen in total revenue by 2028. Management reaffirms this growth target, noting it is a balanced target that avoids over-hiring that would strain corporate culture, and puts the probability of hitting the 10 billion yen target at 80-100%.
  • Profit margin is expected to improve gradually as sales grow, since fixed cost (indirect cost, SG&A) as a percentage of sales will decline with scale. Current break-even is already exceeded, so the probability of negative full-year profit is seen as very low at this stage.

• The primary risk to hitting growth targets is talent acquisition and retention: the company's growth depends on attracting and retaining high-quality talent, which is the most critical factor for long-term success, though current hiring is progressing ahead of plan.
  • Quarterly sales volatility remains an issue, driven by customer timing of revenue recognition and project delivery that can shift sales between quarters.
  • Data privacy regulation risk: While management believes current proposed changes to Japan's Personal Information Protection Act will not reclassify unerry's anonymized location data as personal information, regulatory changes could still impact operations if classifications change.
  • Cyber security risk: The company holds large volumes of consumer location data, so a data breach would create significant operational and reputational risk; unerry has implemented high-level security measures led directly by the CTO to mitigate this risk.

Q: What is unerry's use of generative AI in ad delivery, and what is your view on DeepSeek? / A: unerry already uses generative AI for multiple ad-related processes: automating target audience analysis, generating ad creative (copy and visuals), and automating performance reporting for clients. Management maintains a neutral stance towards all AI model providers including DeepSeek, OpenAI, and Google. DeepSeek is still under evaluation, with the company exploring both its potential low-cost, low-GPU advantages and privacy risks. Management notes that advances in AI are broadly positive for unerry, as AI models only deliver value when paired with high-quality big data like unerry's location dataset.

Q: What is the risk of customer churn, and how do you drive sustained service usage? / A: Churn risk is low due to the company's flywheel cross-selling model. Customers typically start with a single analysis service, and over time expand to ad services then app development solutions, creating deep lock-in. One-off analysis projects have higher churn, but customers often return to repeat use after seeing initial results, and most eventually convert to long-term recurring clients via cross-selling. The rotating cross-selling across the three service lines is the core of the business model that keeps churn low and recurring growth high.

Q: What is your CAGR target rationale, and why not raise it after strong early growth? / A: Management maintains the 36% CAGR target because excessively fast growth would require rapid over-hiring that outpaces the development of corporate culture and internal systems, which has led to long-term collapse at other growth companies. The 36% target is balanced to allow the company to hire quality talent at a sustainable pace, while continuing to improve per-employee productivity, which is the right approach for long-term stable growth.

Q: What is the probability of hitting the 10 billion yen 2028 revenue target, and what are the key risks? / A: Management puts the probability of hitting the target at 80-100%, noting that the total addressable market in Japan alone is over 2,000 retail/ food service chains, and unerry currently only has ~100 recurring clients, leaving massive room for expansion. Expanding into additional verticals like agriculture, finance, manufacturing, and healthcare further increases TAM. The biggest risk is talent acquisition: success depends on attracting and retaining high-quality employees, though current hiring is progressing well so this is currently a manageable challenge.