TWOSTONE&Sons Inc. Q2 FY2025 earnings call

• Overall Financial Performance

  • Total Q2 revenue reached 4.771 billion yen, a 45.9% YoY increase. Total operating profit hit 519 million yen, with over 6,000% YoY growth, driven by prior strategic investments and successful AI-enabled operational efficiency improvements.
  • Revenue has grown for 11 consecutive years since founding, reaching 14 billion yen for the full 2024 August fiscal year, with a planned 30.2% YoY revenue increase for 2025.

• Market Position and Competitive Advantage

  • The digital talent service market is projected to grow to 1.05 trillion yen by 2025, and the company aims to outpace this market growth. Macroeconomic conditions including yen depreciation and inflation are net tailwinds to the business, as the shift of top talent from permanent full-time roles to freelance work is accelerating.
  • The company holds a top-tier position in the freelance engineer matching industry, which creates a self-reinforcing virtuous cycle: strong brand recognition attracts high-quality freelance engineers and high-value client projects, which in turn draws more of both groups, reducing marketing costs and increasing value that can be passed to stakeholders. This top position also accelerates strategic M&A activity.

• Strategic 2025 Fiscal Year Priorities & Progress

  1. Executive Hiring and Talent Development: 10 senior consulting and sales roles were hired in Q2, and organizational strengthening is progressing faster than expected. The company is building a robust sales structure through ongoing hiring and training of new employees.
  2. Existing Business Growth and Active M&A: The company completed the acquisition of SAICOOL, a strategic consulting firm serving large national clients. M&A deal pipeline volume is 125% higher YoY. M&A targets are focused on adjacent areas to the core engineer platform, with criteria of limited goodwill risk and high-confidence post-merger integration.
  3. Group Collaboration and Governance: Post-merger integration for acquired companies continues, with ongoing strengthening of group-level administrative functions and cross-group collaboration.

• SAICOOL Acquisition Synergies

  • SAICOOL's strategic consulting capabilities will complement the company's core engineering expertise, enabling end-to-end client support from upstream strategic planning to technical delivery when paired with the group's existing enableX consulting advisory business. Consolidation of SAICOOL's financial results is planned to start in Q4 of the 2025 fiscal year.

1. Engineer Platform Service (Midworks / Engineer Matching Business): Revenue of 3.672 billion yen, which represents 77% of total company revenue. It achieved 29.5% YoY revenue growth, and 38.9% YoY business profit growth, marking the 23rd consecutive quarter of record high revenue. The number of active engineers surpassed 5,000, and total registered engineers surpassed 50,000, both hitting consecutive record highs.
2. Consulting & Advisory Business: It delivered outsized growth that contributed significantly to the total company's revenue and profit expansion in the quarter, alongside the core Midworks segment beating initial quarterly forecasts.

• Full-year 2025 August fiscal year operating profit guidance was upwardly revised to over 1 billion yen, representing a 114.4% YoY increase, which will be the first time the company achieves over 1 billion yen in full-year operating profit. The strong H1 operating profit of 800 million yen will be used as capital for accelerated growth investments in the second half.
  • Second half 2025 operating profit is planned at 200 million yen, with the majority of H1 profits allocated to large-scale investment in hiring full-time engineers and senior consulting talent. Most hiring-related one-time costs will be recognized in the 2025 fiscal year, and newly hired talent will start contributing fully to profit starting from 2026.
  • The company targets at least 30% annual profit growth for the medium to long term, and will continue to prioritize growth investment over near-term profit maximization to set up continued expansion after 2025. It expects material profit growth in the 2026 August fiscal year from newly hired talent that will already be onboarded and contributing to projects.

No explicit material operational or macroeconomic risks were discussed in the available transcript. The company noted that accelerating inflation and yen depreciation are net tailwinds to the freelance talent matching market, and has structured its M&A strategy to avoid goodwill impairment risks by targeting only well-performing, strategically aligned targets.

Q: Why is full-year operating profit guidance split 800 million yen in H1 and only 200 million yen in H2, and how should we expect profit to trend after 2025 if hiring goes as planned? / A: The lower H2 profit target is intentional to accommodate large upfront growth investments for the medium term, focused on hiring full-time IT engineers and senior upstream consulting talent. Large one-time hiring fees are paid to recruiting agencies for new hires, and these costs are all recognized in the 2025 fiscal year. / A: After these hires are made, the full operating profit from their deployed projects will flow to the bottom line starting in the 2026 fiscal year. Management targets at least 30% annual profit growth long-term, will continue to invest in high-opportunity areas in 2026, and expects 2026 profit to exceed 2025 levels. / Q: What is the reasoning and expected synergy for the SAICOOL acquisition? / A: SAICOOL brings existing relationships with large national clients and strong upstream strategic consulting capabilities, which complement the company's core technical engineer placement business. / A: Combining SAICOOL with the company's existing enableX advisory unit allows the group to offer end-to-end client support from strategic planning through full technical delivery, a unique value proposition that competitors cannot match. / Q: What impact do you expect Trump-era tariffs to have on your business? / A: The company has no direct exposure to the import/export sectors affected by these tariffs, so it expects no material impact to its operational or financial performance.