Performance trends of Ii Seikatsu <3796>

1. Performance Overview of the 2nd Quarter of the Fiscal Year Ending March 2025

For the second quarter of the fiscal year ending March 2025, revenue increased by 8.2% year-on-year to 1,447 million yen, EBITDA decreased by 16.1% to 232 million yen, operating loss was 27 million yen (profit of 41 million yen in the same period of the previous year), ordinary loss was 30 million yen (profit of 72 million yen in the same period of the previous year), and the interim net loss attributable to the parent company shareholders was 25 million yen (profit of 45 million yen in the same period of the previous year).

On the revenue front, subscription revenue showed a steady growth due to acquiring new customers, upselling and cross-selling to existing customers, reaching 1,257 million yen, a 4.7% increase compared to the previous year. On the other hand, solution revenue significantly increased by 38.5% to 190 million yen due to the partial recognition of ongoing projects. In terms of profit, investments in human capital led to increased costs related to hiring new graduates, recruiting personnel, and training, particularly for development activities. Additionally, usage fees for Cloud-based SaaS infrastructure (IaaS) increased by 12.8% to 652 million yen due to the weakening yen in dollar-denominated transactions. Furthermore, expenses related to marketing for lead generation, investments in inside sales, and strengthening functionalities of in-house systems such as customer management SaaS increased, leading to a 14.4% rise in sales and general administrative expenses to 822 million yen.

Although the company utilizes foreign exchange reserve for managing exchange rate risks, the appreciation of the yen during the period resulted in foreign exchange losses as non-operating losses. These factors contributed to the expansion of ordinary losses, leading to a significant decrease from the ordinary profit of 72 million yen in the previous year to an ordinary loss of 30 million yen.

(1) Number of Corporate Users and Stores

Looking at the trend of the company's number of corporate users and stores from the first quarter of the fiscal year ending March 2023 to the second quarter of the fiscal year ending March 2025, the number of corporate users has been gradually increasing from 1,455 companies to 1,517 companies. The number of stores has also increased from 4,406 stores to 4,718 stores, with a notable increase particularly from the first quarter to the second quarter of the fiscal year ending March 2025. This highlights the success of the company's market expansion strategy, showing effective progress in acquiring new customers and expanding its store network in existing markets.

(2) Key Performance Indicators

The company uses 'ARPU' as a key performance indicator (KPI), which includes the number of corporate users, the average monthly unit price per customer (ARPU), and the Monthly Recurring Revenue (MRR) cancellation rate, which is the customer revenue base cancellation rate over a specific period (monthly). 'ARPU' is used in the communications industry to evaluate the health and profitability of the business and is also utilized as an indicator to devise strategies to maximize revenue from customers. 'MRR cancellation rate' is used to determine how many customers are lost based on revenue and to assess the sustainability and revenue forecast of the business.

(a) ARPU

Looking at the company's quarterly revenue and ARPU (average monthly unit price) trends, from the first quarter of the fiscal year ending March 2023 to the second quarter of the fiscal year ending March 2025, quarterly revenue has steadily increased from 617 million yen to 735 million yen. During the same period, ARPU has increased from 125,000 yen to 140,000 yen, indicating an increase in revenue per customer. This increase in ARPU is likely due to optimized pricing strategies and improved value-added services. However, although there is a temporary decrease in revenue from the fourth quarter of March 2024 to the first quarter of March 2025, it subsequently recovers, showing an overall positive revenue growth trend. By expanding a comprehensive product lineup, the company can understand customer challenges deeply and enable gradual cross-selling. This approach is expected to sustainably increase ARPU per customer.

(b) MRR Cancellation Rate

Examining the trend of Monthly Recurring Revenue (MRR) cancellation rates from the first quarter of the fiscal year ending March 2023 to the second quarter of the fiscal year ending March 2025 reveals a situation of 'Negative Churn.' Negative Churn is a phenomenon where revenue loss due to cancellations is outweighed by revenue increase from upselling to existing customers (resulting in a negative cancellation amount), indicating high customer satisfaction. The data shows that there are multiple periods where the cancellation rate is negative, particularly recording -0.43% in the second quarter of March 2025, indicating that upselling significantly surpasses cancellations.

Although there is a temporary increase in the cancellation rate up to 0.65% in the first quarter of March 2024, this may be due to seasonal factors or temporary market fluctuations. However, the cancellation rate returns to negative in subsequent periods, indicating the effectiveness of the company's strategies in maintaining customer satisfaction. Overall, the trend of MRR cancellation rate strongly reflects the success of the company's customer retention strategy, with continuous customer engagement and improvement in service quality promising long-term revenue growth.

(3) Workforce Composition

Examining the changes in the company's workforce composition in the second quarter of the fiscal year ending March 2024 and the second quarter of the fiscal year ending March 2025. Among the five main departments (Sales & Marketing, Engineering, Customer Success & Support, Implementation & Operational Support Services, Corporate), the Engineering department stands out. In the second quarter of March 2024, the Engineering department has the largest number with 73 employees. However, in the second quarter of March 2025, this department has further increased to 87 employees, indicating the company's focus on enhancing technical capabilities. The number of employees in the Sales & Marketing department was 65 in the second quarter of March 2024 and slightly increased to 66 in the second quarter of March 2025, with a smaller growth compared to the Engineering department. This data suggests that the company is emphasizing product development and technological innovation to meet market demand. Additionally, the Customer Success & Support department has also increased its workforce slightly, highlighting the company's commitment to improving customer service and internal support. Overall, the company is believed to focus its strategy on technological innovation and improvement of customer satisfaction.

(Reported by FISCO guest analyst Hiroshi Nakayama)