f-code Inc. Q1 FY2025 earnings call

• Core Business Overview

  • F Code operates with a 12-company group structure under a "federal system" governance model: individual acquired companies retain operational independence and their original culture to preserve their growth momentum, while core functions that create group-level synergies are integrated.
  • Key integration priorities are cross-selling of services across group companies, improving operational efficiency, and aligning corporate culture. Centralized shared back-office operations support all 12 group companies with a small core team, driving meaningful efficiency gains.
  • The company prioritizes recurring revenue, which currently makes up 76% of total revenue, to support stable growth and profitability.

• Q1 2025 Operational Milestones

  • Released a new AI product that lets business users access and select from multiple AI engines through a single entry point, simplifying AI adoption for corporate clients.
  • Launched a joint engineer training school between two group companies, focused on teaching AI skills to boost engineer value and meet industry demand for AI-capable technical staff.
  • Hosted the online "SNS Summit 2025" marketing conference, which drew approximately 8,000 attendees.
  • Completed acquisitions of 3 new companies in Q1, with a combined 12-month expected operating profit of 360 million yen (contribution to full year 2025 results will vary based on each acquisition's closing date).

• M&A Strategy

  • M&A is a core strategic priority to accelerate corporate value growth, expand customer value, acquire experienced entrepreneurial management talent, and improve group-level operational efficiency. The company maintains a dedicated in-house M&A team and has completed 16 acquisitions since IPO in 2021.

• Capital Return and Capital Allocation

  • Completed two rounds of treasury stock purchases in Q1 2025. Acquired shares are planned to be used for M&A currency and incentives for acquired company management and alliance partners; share cancellation will be considered if there is no immediate use for the stock.
  • The company prioritizes EPS growth to deliver capital gains for shareholders, and will continue to evaluate opportunistic treasury stock purchases as a return measure while prioritizing reinvestment for growth over dividend payouts at this stage.

1. Marketing segment: This is the larger of the two segments in terms of total revenue size, and has seen steady growth alongside the broader business expansion. It contributes a majority share of total group revenue. 2. AI・Technology segment: This segment has a faster growth rate than the Marketing segment, aligned with broader industry trends, and its relative revenue contribution is growing over time. Overall, 76% of the group's total revenue comes from recurring, repeat service contracts across both segments.

• Full year 2025 results are tracking in line with management forecasts, with Q1 results hitting the ~25% progress target expected for the first quarter.
  • The company expects EPS to grow approximately 8x over the 4-year period from IPO at the end of 2021 to the end of 2025, with total revenue growing ~15x and operating profit growing ~14x over the same period, in line with prior projections.
  • Management maintains its guidance that the AI・Technology segment will continue to outgrow the Marketing segment in terms of revenue growth, expanding its relative contribution to group revenue over time.

No explicit material operational risks or risk factors were discussed in the provided transcript section.

Q: Does F Code conduct personnel exchanges for non-executive managers and junior staff across group companies after M&A, given the federal governance structure? / A: Management holds quarterly group-wide meetings for all group company CEOs to align on strategy. There are also regular meetings for middle managers across the AI・Technology segment to share practices and align on direction. The company does not currently actively do forced cross-company executive transfers, but will consider this type of personnel move in the future if it would increase corporate value.

Q: What is the average timeline for completing one M&A deal, and how does F Code source deal flow? / A: From the first meeting with the target company's leadership to closing, the average timeline is roughly 6 months, with some well-aligned deals closing in less than 3 months. This is faster than the typical M&A timeline for comparable listed firms. Most deals are sourced through specialized M&A advisory brokers, but the company also gets direct referrals from existing acquired company owners, who often recommend similar aligned firms that would be a good fit for the F Code group, which is a unique channel for the company.

Q: How has F Code's M&A target criteria and priority areas changed, and will they expand into new areas or overseas acquisitions? / A: The core criteria have stayed consistent: targets are profitable, growing companies in the Marketing or AI・Technology sectors. The company will keep an open, flexible mind to expanding into new adjacent areas that align with its mission. Overseas acquisitions are also on the table as long as they fit the mission and create shareholder value, though the company has not completed any overseas acquisitions to date. The company is also open to considering client-side business acquisitions if they would create multiplied value for the group.

Q: How does F Code assess the sustainability of its rapid sales and profit growth, especially for growth from M&A? / A: Management prioritizes both profit margin and sales growth sustainability when evaluating M&A targets. Low-growth, low-margin businesses are deprioritized regardless of other attributes. Firms with lower relative margins but large scale and strong consistent sales growth are considered attractive. The company evaluates the long-term sustainability of each target's business model carefully, and pursues both organic and inorganic growth to steadily increase corporate value for shareholders.