f-code Inc. Q2 FY2025 earnings call

• Overall Financial and Operational Results

  • Achieved record-high quarterly revenue and operating profit for the second consecutive quarter after the first quarter of 2025, with strong first half results that are on track to meet full-year targets.
  • Generated growing operating cash flow, and secured more than 5 billion yen in cumulative new loans from major Japanese banks as of the second quarter, maintaining sufficient financial capacity for organic investment and M&A.

• Group Operating Model

  • Operates a 15-company group under a "federal system" that preserves the strengths of each acquired company while pursuing integration initiatives to create synergy, including joint sales, combined business development, joint purchasing, and function consolidation to leverage scale benefits, improve cost efficiency, and deliver profit growth.

• New Acquisitions and School Business Expansion

  • Added three new online digital skill school businesses to the group in the second quarter: Daytra (digital skill school with over 30,000 cumulative students over 5 years), Real us (influencer business support and career school with over 1,000 influencers supported over 3 years), and Vist (video editing school with over 700 students over 2.5 years of operation).
  • The group now has 6 school-related businesses with a total of ~50,000 cumulative students, enabling content improvement, shared marketing knowledge, and cross-company synergy including job placement for graduates.

• New Service Launches

  • Launched LLMO (Large Language Model Optimization) service, which optimizes client websites to be referenced by AI search engines, helping clients secure new user traffic, improve credibility, and expand brand recognition. The service has already received strong market interest and inquiries from multiple industries.
  • Confirmed the upcoming launch of a new internet advertiser training course, combining the expertise of a well-known industry author based in the group with the group's existing online school content development capabilities, expanding the group's existing training portfolio that already covers SNS marketers, engineers, and creators.

• Approach to Japan's IT/Digital Talent Shortage

  • Addresses the issue from two angles: training digital talent via the group's portfolio of school businesses, and helping companies reduce labor demand via rolling out AI-related software, tools, and training solutions.

1. Marketing Segment: Drives overall revenue growth for the group, pulling ahead of the AI·Technology segment in revenue contribution. No specific absolute financial figures are broken out for the segment in the transcript, but the group as a whole reported first half total revenue of 5.212 billion yen (up ~2.6x year-over-year) and operating profit of 1.177 billion yen (up ~2.0x year-over-year).
2. AI·Technology Segment: Drives overall profit growth for the group. Both segments have generated comfortable operating profit relative to the full-year forecast despite ongoing business and M&A investment.

• Full-year 2025 guidance is maintained, with the company targeting roughly 2x year-over-year growth consistent with its historical annual doubling trend. First half progress against the full-year forecast is 52.1% for revenue and 53.5% for operating profit, which is considered a strong start given the group's historically second-half weighted revenue structure.
• The medium-term target for the 2027 December fiscal year remains unchanged at ≥15 billion yen in total revenue and ≥5 billion yen in operating profit, representing a target compound annual operating profit growth rate of 50% starting from 2024's actual results of 5.1 billion yen revenue and 1.4 billion yen operating profit.
• The company plans to continue focusing on expanding the AI·Technology/DX segment through 2025, before potentially expanding into competitive digital-related real business and/or overseas markets from 2026 onward to hit the 2027 medium-term targets.

There is no explicit discussion of material operational risks or failures in the provided transcript. The company notes that higher M&A deal volume requires maintaining strict screening standards, and will evaluate upward revision to full-year guidance conservatively given the recent closing of multiple new acquisitions, but no material negative risks are disclosed.

Q: Can you share details on the LLMO service and its initial market response? / A: LLMO optimizes existing or new client websites to be easily crawled and referenced by large language models, so client content appears in AI search results on search engines and generative AI apps. This creates new user acquisition channels, improves brand credibility, and expands exposure for clients. The service was launched in response to strong pre-existing client demand, and has already received significant interest and inquiries, especially from B2B companies dependent on website leads and consumer-facing industries like beauty, real estate, and travel. Client seminars for the service are also oversubscribed, and the company aims to roll it out to its existing group client base first to drive adoption. (398 characters)

Q: Why do target companies choose to be acquired by F-Code instead of other potential acquirers? / A: F-Code's core M&A policy is to acquire profitable companies at roughly 5x annual profit, while allowing the original management team and employees to stay with the business post-acquisition, rather than replacing leadership for succession purposes. This model appeals to ambitious growth-oriented management that want to leverage F-Code Group's existing customer assets, marketing expertise, technology, and talent to scale their own business faster than they could independently. F-Code also provides clear performance-based economic incentives for retained management, and its 3-year track record of delivering post-acquisition growth for acquired companies has built word-of-mouth reputation that attracts new targets. (407 characters)

Q: Will the company upward revise full-year guidance after completing 4 unplanned M&As so far this year? / A: Four M&As (SmartContact, Daytra, Real us, Vist) have been completed after the initial full-year guidance was set, and their full-year revenue and profit contributions have been conservatively estimated given that they joined the group mid-year. While there is a reasonable chance that performance will exceed these conservative estimates, the company will wait to see actual performance trends before making any decision on upward revision, and will announce any change appropriately once a clear view is available. (330 characters)

Q: What is the company's view on the Tokyo Exchange's revised listing maintenance standards and small IPO reforms, and what opportunity does this create? / A: As a former small IPO that has now grown to exceed the new 10 billion yen market capitalization requirement, the company takes the new standards and criticism of small IPOs seriously, and will continue working to grow enterprise value to meet requirements. The reforms have already reduced the number of new listings, which has increased M&A opportunities for the company among unlisted firms that no longer pursue IPO, and the company is preparing to take advantage of these opportunities as they arise. (327 characters)