Rococo Co.Ltd. Q2 FY2025 earnings call

Corporate Philosophy & Culture

• Core philosophy "Shashin" (Company's Heart) holds that "Trust is the foundation of all", modeled after traditional stone wall construction that leverages stones of all sizes, reflecting a focus on valuing diverse employee individualities
• Current headcount: 776 total employees, 60.9% male / 39.1% female, 86.5% Japanese / 13.5% foreign nationality, with 7 female executives. The company maintains an inclusive workplace regardless of gender or nationality
• Turnover rate for engineers is half the industry average (below 6.4%, vs industry average 12.8%), driven by internal mobility that allows employees to move to desired roles without leaving the company, and low client cancellation rates: ~80% of transactions with large listed enterprises have almost no cancellations

Operational Updates

• Expanded facial recognition R&D with a new Poland office opened in January 2025, led by a locally hired new graduate engineer, with full support from local government and the Japanese embassy, to access high-skilled local talent and improve product quality
• Opened Matsue BASE in August 2025 as a nearshore development center for ServiceNow, with 12 current developers. The center caters to local talent who do not wish to relocate to Tokyo/Osaka, to reduce turnover and secure additional skilled workers amid industry-wide labor shortages
• Planned future domestic expansion to Wakkanai, Hiroshima, and Nagoya; new client engagement with Toyota Motor is expected to drive further ServiceNow business growth from the Nagoya hub
• Proactive global talent recruitment: Partnership with Waseda University Graduate School (Kitakyushu campus) to recruit top foreign engineering students, existing international hires from the Philippines, Thailand, and China work on core development projects

1. ITO&BPO Business (primary revenue source):
   • 2025 Q2 revenue: 2.822 billion yen, operating profit: 172 million yen
   • YoY growth: +12.2% for revenue, +492.3% for operating profit
   • The segment includes four sub-businesses:
     • IT Service Management: ~80% of transactions with listed/equivalent large enterprises, all direct contracts, 450 dedicated staff serving clients including Panasonic and SoftBank
     • Customer Communication: 24/365 contact center and BPO services built on in-house proprietary systems
     • Event Services: Live ticket seating allocation, distribution, and applicant management (including facial recognition verification for events like Kumamoto Castle Marathon) expanded to cultural facilities
     • Solution Business: In-house high-precision facial recognition systems, improved to conduct 200 focus adjustments per few hundredths of a second (double competitors' rate) to reduce misidentification
   1. Cloud Solution Business:
   • ServiceNow sub-business: Fastest growing segment across Rokoco's 7 total businesses, maintained 30% annual growth over the past 4 years, with consistent 4.64/5 customer satisfaction score from ServiceNow. Grew to 61 client enterprises for FY2025 (up 7 YoY), characterized by high revenue per employee and high margins
   • HR Solution sub-business: Attendance management systems with integrated facial recognition, serves ~100 client companies including Resona Bank, Maruhan, with ~100,000 total system users
   • System Solution sub-business: Software contracted development, with offshore development centers in Cebu and Manila (Philippines, 80 total staff, mostly supporting ServiceNow development) and Ningbo (China, 30 staff supporting ServiceNow development)

• Full fiscal year 2025 revenue is expected to grow, with ServiceNow business projected to deliver strong performance in H2 after slower Q2 growth, so full-year guidance is maintained at the originally announced level
• Management maintains confidence in continued stable growth by leveraging existing cross-selling and upselling opportunities across the company's 7 business lines
• The company is retaining current full-year guidance at a conservative level to account for ongoing investments in talent acquisition, facial recognition R&D (including the Poland expansion), new office expansion, and potential M&A that will prioritize long-term growth over near-term profit

• Industry-wide IT talent shortage: Even with client demand for services, the company faces difficulty recruiting and training enough qualified engineers to meet all demand, which is a core operational challenge
• High external market uncertainty: Rapidly changing business conditions driven by geopolitical conflict, trade policy shifts (including new tax risks for large corporate clients), and macroeconomic volatility make long-term quantitative forecasting unreliable
• Only limited medium-term planning can be published, as the volatility of the external environment means publicized numerical targets could easily be missed, which would create unnecessary confusion for clients and investors

Q: Why did ServiceNow revenue not grow much in Q2 compared to Q1, and what is the outlook for the rest of the year? / A: ServiceNow growth requires long lead times from client proposal to closing, and also requires time to train enough specialized talent to meet strong demand for the high-value service. Management expects ServiceNow to deliver strong growth that will drive full-year results in Q3 and Q4, so investors can still expect solid full-year growth from the segment.

Q: Why does Rokoco not publish a formal medium-term management plan? / A: Current business and macroeconomic conditions are extremely volatile, with rapid shifts in market and regulatory environments that make stable long-term forecasting impossible. While management sees abundant upselling and cross-selling opportunities to deliver stable growth, publishing binding quantitative medium-term targets would create unnecessary risk of confusing stakeholders if conditions shift, so the company chooses not to disclose a formal plan.

Q: Why is full-year guidance maintained even after a strong Q2? Is there downside risk in the second half? / A: Revenue growth is still expected in H2, but the company is facing ongoing difficulty hiring enough skilled talent to meet all existing demand. Additionally, the company is prioritizing investment in future growth including the Poland facial recognition R&D hub, new domestic office expansion, and potential M&A, which will weigh on near-term profit. Guidance is kept conservative to reflect these investments for future growth.

Q: Is ITO&BPO a subcontractor business, and do you plan to increase in-house product sales? / A: ITO&BPO is not a subcontractor or traditional派遣 business. All contracts are direct with large clients, and employees proactively work to identify and eliminate waste to reduce client costs, rather than only performing pre-defined assigned tasks. The company will continue expanding high-margin in-house products (especially facial recognition) alongside its core outsourcing services.