GRID Inc. Q2 FY2025 earnings call

• Overall Financial Performance

  • Achieved steady revenue growth and maintained operating profit in Q2, driven by new customer acquisition and progress on full-scale commercial deployments in the power and energy sector.
  • Total revenue grew 39.5% year-over-year, while operating profit increased sharply from 3 million yen (0.003 billion yen) in the year-ago interim period to 62 million yen (0.062 billion yen) this period.
  • The main driver of profit growth is a 250+ million yen (0.25+ billion yen) combined increase in flow and stock revenue, offset by a 190 million yen (0.19 billion yen) total increase in costs, mostly driven by higher personnel and recruitment expenses. Selling, general and administrative costs excluding personnel were roughly flat year-over-year.
  • The company has a business structure where all revenue exceeding the break-even point flows directly to operating profit, supporting the strong profit growth this interim.

• Operational Progress

  • Upselling and cross-selling to existing customers are growing steadily, with increasing requests for new AI engine development from current clients.
  • Most upsell/cross-sell activity is concentrated in the power and energy sector, where successful initial projects lead to additional opportunities for other planning work across different business units of the same customer.
  • Grid's core power sector planning technology has been successfully adapted to supply chain use cases: the demand-supply management automation system deployed at Nisshin Seifun Welna develops production plans matching customer demand and automatic inventory transfer planning between factories and warehouses, and is already in active use by the client.
  • The company is currently working with most of Japan's 10 major incumbent electric power companies across multiple projects, with new customer acquisition and internal cross-departmental expansion growing steadily.

• Key Operating Metrics

  • Total current trading partners are 33 companies overall, 29 in core service segments, with average revenue per customer of 27 million yen (0.027 billion yen) in the interim period.
  • The company targets revenue per engineer of approximately 26 million yen (0.026 billion yen) for the full year, and expects to reach a mid-80s engineer headcount by year end, maintaining productivity while expanding capacity.

By industry domain:

1. Power and Energy: Revenue accounts for 50% of total revenue, and the proportion is expected to rise to around 60% by the full year end. It accounts for the majority of current order backlog.
2. Logistics and Supply Chain: Revenue accounts for 34.3% of total revenue.
3. Urban Transport and Smart City: Revenue accounts for 10.7% of total revenue, with new growth emerging from the railway sector recently.

By revenue model:

1. Flow-type revenue (AI engine development and system development): 643 million yen (0.643 billion yen) in the interim period, up from 456 million yen (0.456 billion yen) in the year-ago period.
2. Stock-type revenue (operation and support): Mid-250 million yen (0.25 billion yen) in the interim period, up from 182 million yen (0.182 billion yen) in the year-ago period, accounting for 27.7% of total interim revenue, in line with the expectation of staying slightly below 30%.

Overall: Total interim revenue is 890 million yen (0.89 billion yen), with year-over-year growth of 39.5%. Interim operating profit is 62 million yen (0.062 billion yen), and interim net profit is 38 million yen (0.038 billion yen), both growing sharply from the year-ago period. Order intake in the first half is approximately 800 million yen (0.8 billion yen), and ending order backlog is 1.032 billion yen. In Q2, 14 ongoing operation and support projects, 10 ongoing system development projects, and 23 ongoing AI engine development projects, with all categories showing increasing project counts year-over-year.

• Management maintains the original full-year guidance with no revisions: full-year revenue of 2.2 billion yen, operating profit of 0.4 billion yen, and an operating profit margin of over 18% is still expected to be fully achieved.
  • The proportion of revenue from the power and energy segment is expected to remain at roughly its current 50% level through the full 2025 June fiscal year, and will rise to around 60% this fiscal year.
  • Full-year average revenue per customer is expected to double the interim level, reaching approximately 54 million yen (0.054 billion yen).
  • Total trading partner count is expected to increase from 33 to just under 40 companies by full year end.
  • Q1 and Q2 profit levels were lower than planned, but management expects solid profit recognition in Q3 and Q4, and that the full-year plan will still be met. Most delayed revenue from the first half due to revenue recognition rules will be recognized in Q3.
  • Storage facility business will contribute only a very limited amount of revenue this fiscal year, with meaningful revenue growth starting from the next fiscal year, though limited revenue recognition will occur in the second half of this fiscal year.

• Power-related business requires solving complex, custom problems, so development lead times are long. The key ongoing challenge is improving development efficiency to shorten lead times for delivering working AI engines that meet customer requirements, and the company is making this an organization-wide priority.
  • Hiring growth is constrained by the company's policy of only hiring candidates that fit its culture and can deliver strong performance aligned with its vision, which may slow the pace of headcount expansion needed to meet growing demand.
  • The majority of the company's high-margin upsell/cross-sell activity is concentrated in the power and energy sector, creating some business concentration risk.

Q: How has Grid progressed in developing business with major electric power companies? / A: The number of major power company customers is growing steadily. Client confidentiality prevents public disclosure of most names for now, but new customer acquisitions are increasing steadily. Within existing power clients, cross-selling to separate retail, generation, and transmission/distribution business units has created growing upsell opportunities, so cross-sell/upsell remains strong.

Q: Why does first half performance look weak, and what is the outlook for the full year? / A: The weaker first half results are entirely due to revenue recognition rules that shifted planned first half revenue into Q3. All current operations are aligned to meet the full year sales and profit targets, and management remains confident the full original plan will be achieved despite the first half softness.

Q: What segment is driving the growth in order backlog, and what are the key features? / A: Over half of total revenue already comes from the power and energy segment, which is expected to rise to 60% by full year end, and the large majority of order backlog is from this segment. New customer development is also progressing in the supply chain and newly entered railway sector (within the urban transport segment), so order backlog for these segments will gradually increase in the second half.

Q: What is the future pace of employee headcount growth at Grid? / A: Grid targets growing total headcount to just under 130 this fiscal year from the current 120, and plans to add 40-50 new employees annually going forward. The company prioritizes hiring candidates that fit its culture and performance standards over hitting raw headcount targets, and hires cautiously. It aims to grow to 200-300 total employees as soon as possible to expand the company's capacity.