PROGRIT Inc. Q2 FY2025 earnings call

• Mission & Value Proposition: The company's mission is to increase the number of people who can thrive freely globally, addressing the unmet market need where Japanese consumers spend 169 billion yen annually on English education without seeing consistent improvements in English ability. Progrit uses a "people × technology" model to deliver results-focused English learning, with consistent high customer satisfaction, 70% continuation rate for customers who complete the initial 3-month course, and 15%-20% of new customers coming from customer referrals.
• Operational Performance: The 2025 August fiscal year first half is tracking very well, with gross margin maintained at ~75% (rising slightly year over year) and operating margin at 26% in Q2 and 31% in Q1, which are higher than prior year levels.
• Portfolio Strategy: The company follows a tiered portfolio strategy from high-unit-price core coaching down to low-unit-price subscription apps, targeting increasingly broader audience segments and creating a customer conversion funnel to improve lifetime value. The company operates 11 campuses across Japan, primarily in Tokyo, with 209 total employees.
• Growth Strategies: 1. Core coaching: Strengthen branding via sustained Tokyo train advertising to boost first-recall recognition, expand corporate training (currently 313 client companies, large untapped market vs competitors with 3,000-5,000 clients), and improve service quality via analysis of accumulated customer learning data. 2. Subscription services: Scale Shadoten while maintaining human-led feedback capacity, invest in product development for Spifull and DearTalk to leverage AI for better learning outcomes. 3. M&A: Actively pursue M&A as a core growth strategy, targeting both adjacent English learning (adult/children, B2C/B2B) and broader human resource development sectors, with deal sizes ranging from hundreds of millions to tens of billions of yen.
• Shareholder Returns: The company targets a 30% payout ratio for dividends, plans to increase dividends annually alongside profit growth, with a planned 18 yen per share dividend this year (up from 13 yen last year). The 2025 share repurchase was a one-time decision amid market volatility, and the long-term priority is sustained dividends over active share repurchases.

Progrit has two core business segments: 1. Flagship English Coaching Service (Progrit): Contributes 64% of total revenue, it is a high-end, high-priced service focused on supporting self-study for busy business people. For the full 2025 August fiscal year, the company expects total group revenue of 5.7 billion yen and operating profit of 1.07 billion yen, with 30% YoY growth for both the segment and the group. 2. Subscription-based English learning apps: Contributes 36% of total revenue, growing at a faster rate than the core coaching segment. Within this segment: a. Shadoten (listening-focused app): 8,458 paid members as of Q2 2025, monthly revenue of 154 million yen; b. Spifull (speaking-training app): Early-stage new business, small current revenue; c. DearTalk (AI conversational English app): New stage offering on-demand AI practice.

• The company maintains its full-year 2025 August fiscal year guidance of 5.7 billion yen total revenue and 1.07 billion yen operating profit, representing 30% YoY growth for both metrics.
• Management targets 30% annual revenue growth over the next 3-5 years, with operating profit growing faster than revenue.
• Dividends will be increased annually in line with profit growth, consistent with the 30% target payout ratio.

• The high price point of the core coaching service is the top reason for customer non-continuation after the initial 3-month course.
• Public concern exists that AI advancement will eliminate overall demand for English learning, which management acknowledges has mixed impacts on hobby-purpose learning.
• The large untapped corporate training market remains underpenetrated by Progrit, requiring significant investment to expand.
• Progrit's brand recognition is still 5x lower than leading competitors, leaving room for growth but requiring sustained marketing investment.

Q: What are the differences between customers who continue Progrit and those who do not, and what is your goal for the continuation rate going forward? / A: Most continuing customers choose to re-enroll after seeing tangible English ability improvements from their initial 3-month commitment, rather than planning to continue upfront. The most common reason for non-continuation is the service's high price point, as many customers set a fixed initial investment budget. Management aims to increase the current 70% continuation rate toward 100% through ongoing service quality improvements.

Q: Can Progrit sustain 30% annual growth over the next 3-5 years, given its high price point positioning? / A: There is still substantial untapped market size: Progrit's brand recognition is still 5x lower than leading competitors, even after recent increased advertising in Tokyo. Sustained growth will come from expanding brand recognition, gaining market share in the large existing English education market, so management maintains the 30% annual revenue growth target with faster operating profit growth.

Q: What is Progrit's M&A strategy for the next 3-5 years? / A: M&A is a core top priority for Progrit, and the company receives many inbound inquiries while also proactively approaching targets. Management actively evaluates both deals in adjacent, high-synergy English learning sectors and deals in new, non-adjacent human resource development sectors, with no priority between the two categories as M&A depends heavily on timing and opportunity. Progrit plans to leverage its expertise in generating high profit margins in the education sector to improve acquired companies' performance after closing.

Q: What is the current waiting period for Progrit coaching, and is this a comfortable level for the business? / A: The current waiting period is approximately 1 month, which is an optimal level for the company. Historical data shows almost no customers cancel due to a 1-2 month wait, while wait times over 2.5 months start to increase customer cancellation rates.