f-code Inc. Q4 FY2024 earnings call

• Overall 2024 Performance

  • F.Code achieved record-high profits across all levels, with 8x sales growth, 9x operating profit growth, and 10x EBITDA growth in the three years since IPO, averaging approximately 2x annual growth. EPS grew approximately 6x over the three years post-IPO.
  • The company executed new investments in business, talent, and AI in the second half of 2024 to support future expansion.
  • The company grew from fewer than 30 employees at IPO to over 800 employees today, across 11 group companies, and serves more than 2,000 clients across diverse industries, with 75% of total revenue from recurring monthly subscriptions.

• M&A Strategy and Execution

  • M&A is focused on accelerating corporate value growth, expanding customer value, acquiring high-quality talent and teams, and driving group-wide operational efficiency. The firm targets only profitable, growing companies that align with its mission and create clear synergies across its two core segments.
  • F.Code uses a "federal" post-acquisition operating model, respecting the operational independence of acquired companies while guaranteeing public company governance, and integrating functions to drive cross-selling, shared distribution, joint product development, and cost efficiency improvements.
  • The PMI model has delivered proven results: CRAFT grew sales 25% and operating profit 29% post-acquisition, JITT grew sales 54%, and BINKS grew sales ~30% and operating profit 10%.
  • The firm set a total M&A investment budget of 5 billion yen in May 2024, and has completed 4 deals in 9 months for 2.36 billion yen in total investment, delivering incremental operating profit of 470 million yen at an average multiple of ~5x, with roughly half the budget remaining and strong operating cash flow supporting additional investment.

• Medium-Term Strategic Plan

  • F.Code has set a 3-year target to reach at least 5 billion yen in operating profit by the 2027 December fiscal year, requiring a minimum 50% annual operating profit growth from 2024 levels.
  • The firm operates in three large, fast-growing markets: digital advertising, DX services, and generative AI, and plans to expand by combining its marketing and AI capabilities to offer end-to-end support for client digital businesses, with new business segment expansion targeted for 2026 onward.
  • The federal organizational structure created by M&A has fostered multiple experienced management teams and spontaneous synergies and new initiatives, supporting non-linear growth.
  • Financially, EPS remains the top priority metric, with a focus on maintaining financial safety by controlling the ratio of next-period EBITDA to net debt below 2.5x, supported by 10x growth in operating cash flow generation since IPO.

For the 2024 December full fiscal year, F.Code reports 5.13 billion yen in total sales revenue, a 2.1x increase year-over-year, and 1.41 billion yen in operating profit, a 2.2x increase year-over-year. The firm now discloses results for two business segments: 1) Marketing segment: The segment saw segment profit grow 1.5x year-over-year, and currently accounts for the majority of the company's total revenue. 2) AI･Technology segment: The segment saw segment profit grow approximately 5x year-over-year in 2024.

• For the 2025 December full fiscal year, F.Code guides 10 billion yen in total sales revenue (a 2x increase year-over-year) and 2.2 billion yen in operating profit (a 1.5x increase year-over-year). This guidance includes already disclosed M&A deals, but excludes any future M&A that may be completed during the year.
  • For 2025, segment-level guidance calls for 1.5x segment profit growth for the Marketing segment, and 1.7x segment profit growth for the AI･Technology segment, with AI･Technology segment sales projected to grow 381.3% (~4x) year-over-year.
  • 2025 EPS is projected to exceed 100 yen for the first time, representing 8x EPS growth over the four years since IPO.
  • If the 2025 guidance is met, F.Code will deliver 15x sales growth and 14x operating profit growth over the four years since IPO, maintaining its historical high growth pace.
  • F.Code's 3-year medium-term plan targets a minimum 50% annual operating profit growth to reach at least 5 billion yen in operating profit by 2027.

The transcript does not explicitly disclose material operational risks, business risks, or operational failures. Management acknowledges that maintaining historical high growth rates becomes more difficult as the company scales, but notes that the company's diversified business model, proven M&A and synergy framework, and strong investment pipeline mitigate this challenge.

Q: What has driven the recent improvement in operating margin, and what is the outlook for margin going forward? / A: Management reports that operating margin improved from 26% to 28% in 2024, outperforming the typical trend of declining margin as sales scale. Key drivers include synergy gains from cross-selling and integrated sales that allow organic growth with lower incremental sales spending, operational efficiency from consolidating shared functions such as product development and back-office operations, and AI-driven reductions in required labor hours. Management states there remains significant room for further margin improvements and will continue pursuing efficiency gains. (207 characters)

Q: Does the 2025 earnings guidance include future M&A, and how should investors interpret the growth outlook? / A: The 2025 guidance only includes already closed and disclosed M&A deals, and excludes any future M&A. Management notes that over the past 3 years, it has upwardly revised guidance 5 times, and the current guidance uses reasonably conservative assumptions for organic growth of existing group companies. Management aims to deliver better than guided results and will update the market promptly if performance improves. (223 characters)

Q: Why is F.Code announcing its first medium-term plan now, and how likely is the 2027 target to be achieved? / A: Management announced the plan after 3 years of strong post-IPO performance (8x sales growth, 5x share price growth) to clearly communicate its future goals and commitment to continued corporate value growth. While larger scale makes historical doubling growth harder, management notes it has built a proven framework for delivering synergistic, multiplicative growth from acquisitions, has a rapidly growing pipeline of M&A opportunities, and maintains sufficient investment capacity, resulting in high probability of achieving the target. (281 characters)

Q: Why does F.Code only target profitable companies for M&A, and what is the outlook for continued M&A activity? / A: Management notes that turning around unprofitable companies is theoretically possible, but as a young public company it prioritizes delivering near-term EPS growth to shareholders, and acquiring already profitable growing companies delivers faster EPS gains. Additionally, profitable acquisitions are much more likely to receive favorable bank financing, which allows the firm to use debt rather than equity to fund deals, lowering capital costs. M&A deal flow has more than doubled year-over-year, more than half the 5 billion yen budget remains, and activity will continue at pace. (321 characters)