Sansan Inc

Thank you for joining our earnings results presentation today. I am Munayuki Hashimoto, CFO of the company. I will begin by outlining our full year results for the fiscal year ended May 31st, 2025 and our medium-term financial policy. Let me begin with highlights of our financial results for the fiscal year ended May 31st, 2025. First, net sales increased 27.5% year-over-year, remaining within the forecast range and demonstrating solid growth. As of May 2025, annual recurring revenue exceeded ¥41.5 billion. Second, adjusted operating profit increased significantly by 108.0% year-over-year. Third, regarding SanSan, our sales DX solution. The growth pace of recurring sales accelerated compared to the previous year due to enhancements to our sales structure, and the business continued to grow steadily. Group-wide financial results are shown on the slide. Net sales increased 27.5% year over year, gross profit margin rose 1.5 percentage points. Year over year, primarily due to improved profitability in Bill 1, driven by improved data digitization operations. Additionally, adjusted operating profit and ordinary profit increased substantially, up 108.0% and 124.1% year over year, respectively, reflecting a lower SG and A ratio and other factors. Profit attributable to owners of parent decreased 55.5% year over year due to an extraordinary loss of approximately 2.3 billion yen, recorded in connection with a series of transactions involving shares of Unipass Inc., as announced on May 22, 2025. Let me explain the factors behind changes in adjusted operating profit. Net sales increased 27.5% year-over-year, resulting in solid top-line growth. The cost-of-sales ratio declined by 1.5 percentage points, leading to an improvement in gross profit margin. Among SG&A expenses, personnel expenses increased approximately 3,348,000,000 yen year over year. However, the ratio of personnel expenses to net sales declined by 0.6 percentage points. On the other hand, advertising expenses rose by approximately 1,173,000,000 yen, mainly due to a large-scale promotion in Q4, and the ratio to net sales increased by 0.2 percentage points. As a result, adjusted operating profit increased approximately 1,845,000,000 yen year-over-year, and adjusted operating profit margin improved by 3.2 percentage points. Of the approximately 1.2 billion yen increase in rent and other expenses related to office relocation, approximately 550 million yen was a one-off expense recorded only in the fiscal year under review. Let me now discuss results by segment. The Sansan Bill 1 business achieved solid growth in net sales and a substantial increase in adjusted operating profit. The 8 business also posted significant net sales growth, while head office expenses and other costs have been allocated to segments from the fiscal year under review. The business achieved full-year profitability and adjusted operating profit even on this new basis. Let me now explain segment performance, beginning with the Sansan Bill 1 business. Net sales increased 26.2% year-over-year. By service, SanSan was up 16.9% year-over-year with an accelerated growth rate. Bill 1 continued its high-growth trend with a 58.7% year-over-year increase. As for adjusted operating profit, advertising expenses increased due to large-scale promotions, including TV commercials for SanSan, Bill 1, and Contract 1 starting in Q4. Nevertheless, driven by top-line growth and improved gross profit margin in Bill 1, adjusted operating profit rose 59.1% year over year. Creative Survey, Inc., a group company included in Net Sales of Others, changed its name to Nine Out, Inc. The company's services are growing steadily. As for Contract 1, also included in Net Sales of Others, its performance will be discussed later in the Growth Strategy section. Let me now explain Q4 KP is for SanSan. The left-hand graph shows SanSan's recurring sales, which increased 17.8% year-over-year, indicating accelerated growth. The center graph shows the number of subscriptions and monthly recurring sales per subscription. The number of subscriptions increased 10.4% year-over-year, and monthly recurring sales per subscription rose 6.6% year-over-year, both demonstrating solid performance. The right-hand graph shows the average monthly churn rate for the last 12 months. For the fiscal year under review, it was 0.49%, maintaining a low level below 1%. For your reference, let me touch on the status of new orders. The value of new orders shown here is a metric close to the additional recurring sales to be booked in the future, reflecting the impact of churn. It includes orders already recorded in Q4 net sales, as well as those to be booked from Q1 of the next fiscal year. The value of new orders in Q4 declined 12.6% year over year, mainly due to a slightly higher churn rate compared to the same period of the previous year. Q4 is typically a period with a high volume of contract renewals, and we believe this fluctuation was within the expected range. Excluding the impact of churn, the acquisition of new orders continues to be steady. Given that the churn rate remains low at 0.49% on a 12-month average basis, we see no significant concern regarding SanSan's growth trend. Let me now explain upselling for existing SanSan customers. We have consistently achieved a stable negative churn rate, meaning that revenue growth from existing subscriptions exceeds revenue loss from cancellations. We will continue working to improve our net revenue retention. Let me now explain Q4 KP is for Bill 1. The left-hand graph shows monthly recurring revenue, which was up 42.7% year over year as of May 2025. The center graph shows the number of paid subscriptions and monthly recurring sales per paid subscription. The number of paid subscriptions increased 39.6% year over year, while monthly recurring sales per paid subscription rose 2.2% year over year, although growth in price per subscription was relatively modest compared to the growth in the number of subscriptions. This reflects our recent initiatives and is not a cause for concern. The right-hand graph shows Bill 1's 12-month average of monthly churn rate, which remained very low at 0.33%. These KPIs include the performance of Bill 1 expense and Bill 1 account receivable, both of which were added last year. Among them, Bill 1 expense has been ramping up steadily, with around 30 to 50 new contracts acquired each month over the past six months. we plan to offer Bill 1 invoice receive, Bill 1 expense, and Bill 1 account receivable as a single package, aiming to maximize sales activity. Bill 1 has also consistently achieved a stable negative churn rate, and we will continue to focus on upselling going forward. For your reference, let me explain the status of new orders in Q4. The value of new orders increased 33.9% quarter over quarter and 14.9% year over year as the number of sales personnel increased and their ramp-up progressed. In the Q3 earnings presentation, we noted that the ramp-up of new sales force was slower than expected. However, we expect sufficient ramp-up in the second half of the fiscal year under review. and we also anticipate the positive impact of the new sales strategy introduced earlier. Accordingly, we expect the value of new orders to continue a gradual recovery. Let me now explain the eight business. BTOC services continue to deliver steady performance. Although the growth rate of B2B services slightly decelerated in Q4, due in part to the number of business events held, overall performance remains strong. As a result, net sales increased 42.4% year-over-year, and adjusted operating profit rose approximately 526 million yen year-over-year, turning the business profitable for the full year. Let me now explain the progress of our medium-term financial policy and the earnings forecast for the fiscal year ending May 31, 2026. The fiscal year ended May 31st, 2025, which was the first year of the policy, delivered solid results. We will present our earnings forecast for the second year, the fiscal year ending May 31st, 2026, shortly. The forecast is progressing smoothly and remains on track to achieve the targets for net sales and adjusted operating profit margin in the fiscal year, ending May 31, 2027, set forth in the medium-term financial policy. Accordingly, there is no change to our targets under the medium-term financial policy at this time. Let me now explain our full-year earnings forecast for the fiscal year ending May 31, 2026. We project net sales to increase by 22.0% to 25.0% year-over-year. Breaking this down by service, Sansan is expected to maintain stable growth with an increase of 15.0% to 17.0%. While the growth rate of Bill 1 is expected to slow, we anticipate growth of 35.0% to 40.0%, supported by the continued ramp-up of the sales force, which is expected to contribute to results in the second half. The 8 business is projected to grow by 27.0% to 33.0%, driven by business events and 8 team. As for adjusted operating profit, we expect a significant increase of 92.7% to 143.0% year-over-year due to solid net sales growth, improvements in gross profit margin, and a continued decline in the SG&A ratio. The adjusted operating profit margin is forecast to reach 13.0% to 16.0%, surpassing the 10% mark for the first time on a full-year basis. For you reference, let me touch on the composition of adjusted operating profit between the first and second half. Since the company's business model is centered around recurring revenue, sales accumulate gradually each quarter, resulting in earnings that tend to be weighted toward the second half. Accordingly, adjusted operating profit is also expected to be second-half weighted. Taking into account that advertising and promotion expenses tend to be concentrated in the first half, we anticipate approximately 25% of full-year adjusted operating profit to be recorded in the first half and around 75% in the second half. Let me now explain the outlook for major costs. Personnel and advertising expenses are the primary cost items associated with our growth strategy. First, regarding personnel expenses, we plan to hire approximately 370 people in fiscal year 2025, including both new graduates and mid-career recruits. Although this is a sufficient hiring plan, the number of hires is expected to decrease compared to fiscal year 2024. As a result, personnel expenses are projected to increase by approximately 19% year-over-year, while the personnel expenses to sales ratio is expected to decline. Next, advertising expenses are projected to increase by approximately 28% year-over-year. as we launched a large-scale promotional campaign in Q4 FY2024 and are continuing the campaign in Q1 FY2025. Consequently, the advertising expenses to sales ratio is expected to rise slightly. Although we had previously stated that the advertising expenses ratio would gradually decline, we have decided to increase advertising investments based on several factors. the smooth rollout of new services such as Bill 1 expense and Contract 1, the current strong pace of profit generation, and our ample investment capacity. That said, there are no significant changes to the overall cost plan, which remains in line with our medium-term financial policy. Let me explain the medium-term improvement in profitability based on the current status of our key products. The profit margins presented here reflect the allocation of indirect costs, such as head office expenses. Sansan maintained stable top-line growth and achieved an adjusted operating profit margin of 37.9%, up from the previous fiscal year. We expect this margin to continue improving gradually over time. On the other hand, Bill 1 remains in an upfront investment phase and is currently operating at a loss. However, as top-line growth accelerates, the business has made significant progress toward profitability. If this growth trajectory continues, we expect Bill 1 to turn into profitability in the fiscal year ending May 31, 2027. In the medium to long term, we believe it has the potential to generate a high profit margin. similar to Sanson. 8 saw a 14.3 percentage point improvement in adjusted operating profit margin compared to the previous fiscal year, achieving full-year profitability. As such, each product is steadily progressing toward our long-term group-wide goal of achieving an adjusted operating profit margin of over 30%. I will now explain the status of our free cash flow. Backed by solid sales growth and improved profitability, our free cash flow has steadily expanded. In the fiscal year ended May 31, 2025, we recorded one-time capital expenditures of approximately 2 billion yen related to the relocation of our head office. Even under these circumstances, our free cash flow margin reached 16.1%. We expect further expansion of free cash flow in line with our medium-term financial policy. Lastly, I would like to briefly touch on our policy for enhancing corporate value. Based on the Tokyo Stock Exchange's guidance for management that is conscious of cost of capital and stock price, we have summarized our current thinking. While many of the items remain at the basic policy level, today I will explain our views on capital efficiency, particularly capital allocation. We believe that striking a balance between growth investment and shareholder returns is important. Given our current growth stage, our capital allocation priorities at this point are as follows. The highest priority is creation of new businesses, including M&A, followed by share buybacks, and lastly, dividends. We conducted a share buyback in the previous fiscal year. While there is nothing to announce at this time as a result of our comprehensive assessment of various factors, our policy of considering share buybacks in a flexible manner remains unchanged. Regarding our shareholder return policy, including dividends, we are not in a position to provide a quantitative target at this time due to the limited amount available for distribution under the Companies Act. Looking ahead, we expect to see further expansion in free cash flow. At the appropriate time, we intend to clarify our capital allocation policy with a focus on capital efficiency and maximizing shareholder value. This concludes my presentation. Next, our CEO, Tarada, will present our growth strategy. I am Chikahiro Terada, the CEO. Since CFO Hashimoto has already explained the short-term outlook, I would now like to talk about our medium to long-term growth strategy. I will focus on the utilization of generative AI, which is essential when discussing our future direction and share specific topics related to each of our products. The content I will be covering today can be broadly categorized into two areas, initiatives related to top-line growth and those related to cost reduction. Let me explain our initiatives that contribute to top-line growth. I will start with the AI utilization strategy for Sanson. In recent years, solutions utilizing generative AI have been rapidly evolving. While many companies have begun efforts to improve operational efficiency and utilize knowledge, these efforts often focus on how to use generative AI. However, to fully leverage generative AI, it is critical to determine what data it learns from, what it infers, and what kind of data is provided to it. In other words, it is essential to extract and digitize various forms of information scattered across an organization, such as business cards, contracts, invoices, and meeting notes, which often remain in analog and unstructured formats. Furthermore, this data must be organized and contextualized to make it useful. This is the starting point and the most critical step. In addition, the Model Context Protocol, or MCP server, has recently been attracting attention. An MCP server plays a bridging role between accumulated data and generative AI, enabling the construction of an environment where necessary information can be retrieved in natural language. At Sanson, we have spent more than 18 years digitizing analog information accurately, including manual data entry. we have built a massive database of corporate, individual, and activity information, such as who met with whom and when, what was discussed, and whether or not the company has actual contact with key persons identified based on the department they belong to or their position. It is precisely because we have this foundation that Sansan holds an exceptionally rare position in the generative AI era, capable of providing practical and useful data Looking ahead, we plan to offer an MCP server that will allow integration with AI services like ChatGPT, enabling users to reference and effectively utilize data within SanSan through natural language prompts. In addition to conventional use cases of SanSan, customers will be able to connect and utilize their proprietary data stored in SanSan through AI, thereby maximizing the value that SanSan delivers. We are currently developing the MCP server with a goal of launching the service in the second half of the fiscal year, ending March 31st, 2026 at the earliest. We have already received numerous inquiries from companies and expect that this will contribute to an increase in both monthly recurring revenue per paid subscription and unit price of Sanson. In addition to linking with third-party AI services, we have already begun providing generative AI-based data utilization features as native functions within SanSan. These features are offered under the name SanSan BY and are positioned as a solution that drives sales behavior transformation based on data. By leveraging this feature, data within our other products, such as Bill 1 and Contract 1, as well as data stored in customers' internal core systems or other services, can be integrated with data in Sanson and utilized more effectively. Examples of how AI is used include automatically generating suggested proposal stories for cross-selling and upselling, or identifying potential next actions based on transaction history and current sales activity with a target company through simple prompts. These features are currently provided using SanSan Data Hub, a data integration solution. At the same time, we are also developing a new data integration service that goes beyond the framework of SanSan, aiming to further enhance functionality and service offerings. Although my presentation today is just an overview, the massive database we have built in SanSan as well as our advanced technologies for data capture, integration, and structuring will provide us with a significant competitive advantage that supports medium to long-term growth in business scenarios where AI utilization is essential. Let me explain our AI utilization strategy for Bill 1. As is the case with all of our services, we have been working to sophisticate the data generation capabilities of Bill 1. We have a group company named Institute of Language Understanding. Leveraging this company's natural language processing technologies, we are working to expand the scope of data generation to include elements that were previously difficult to digitize, such as itemized invoice details, which are a unique challenge for Bill 1. Furthermore, by combining these technologies with generative AI, we are not only advancing the digitization of invoice line items, but also developing new services and features that will accelerate the monthly financial closing process. For example, in accounting operations, it is necessary to check whether the itemized information on received invoices matches the corresponding purchase order data. Depending on the industry or type of business, this verification process, when performed by visual inspection, can be highly inefficient and time-consuming. To address this issue, we are planning to launch a new service within this year that utilizes generative AI based on the generated and itemized data mentioned earlier. This is just one example. For Bill 1, we aim to combine advanced data generation with generative AI to develop innovative services and features that fully automate the monthly financial closing process. We believe that Bill 1 has significant revenue opportunities going forward. As the final initiative for top-line growth, I will now explain our AI utilization strategy for Contract 1. ContractOne is an AI-driven contract database that transforms company-wide work styles by creating an environment where contract data can be used on a daily basis. Leveraging our proprietary technologies and operations, we convert all contracts, whether paper-based or digital, into structured data and build a database that enables centralized management. By combining this contract database with a variety of functions utilizing generative AI and language processing technologies, we aim to improve productivity not only in legal departments responsible for contract management, but also in business units that serve as the point of contact for concluding contracts with other companies. We offer a variety of features in Contract One, and going forward, we intend to focus on Contract One AI, our generative AI-based functionality, as a key growth driver. Here's how it works. Users can simply ask questions about specific parts of a contract and instantly understand the relevant details Even in cases where large numbers of individual contracts have been signed over many years under a master agreement, the system can automatically structure the contracts for each counterparty and generate a hierarchical contract tree that visualizes parent-child relationships. This enables users to gain a clear picture of complex contract relationships at a glance. Looking ahead, we are also developing features that will allow for the creation of summary reports by company, as well as custom reports tailored to specific themes. Tasks that previously required several hours to days to complete by checking with relevant departments can now be accomplished in an instant through the use of generative AI and data utilization. We aim to support a wide range of use cases, including faster decision making by management, streamlining client negotiations, and enhancing sales strategies. Contracts, by nature, are highly compatible with generative AI from a language processing perspective. We intend to leverage this unique affinity to further develop functionality going forward. While the KPIs for Contract One were not mentioned in the performance section, I would like to briefly share the current status here. Although still in its early stages, Contract One has been steadily growing in both revenue and number of contracts since its launch in 2022. For the fiscal year ending May 31, 2025, revenue increased 38.2% year-over-year to approximately 574 million yen, and the number of contracts as of May 31, 2025, rose 77.0% to 393. Currently, we are working to strengthen our sales organization. And as of May 31, 2025, we have also launched TV commercials. These initiatives are expected to accelerate revenue growth in the fiscal year ending May 31, 2026, pushing the year-on-year growth rate above 70%. Looking ahead, we are also exploring the possibility of offering ContractOne as an MCP server, as discussed earlier in relation to Sanson. In addition to expanding adoption among small and medium-sized enterprises, we aim to drive further growth by promoting broader use among large enterprises. Lastly, as an initiative contributing to cost reduction, I would like to introduce our efforts to digitize analog information by leveraging our proprietary generative AI. To digitize analog information, such as business cards, we combine AI-based and manual entry to ensure 99.9% accuracy. While maintaining the high accuracy of AI-based automation, reducing the share of manual entry is key to enhancing the product's competitiveness and differentiation. We have been working hard to improve our automatic digitization rate by independently developing various image recognition technologies and AI capabilities. These include functionality that can determine language without reading any characters, and technology that learns from common error patterns in data entry to predict potential mistakes. By utilizing our proprietary AIOCR engine, specialized for business cards, 9OCR, we have significantly improved the automatic digitization rate of business card data entry As a result, while the volume of business cards requiring data conversion has increased, our cost per card has been reduced to less than 1 20th of what it was at the time of our founding. Even today, it is possible to deliver the same service quality at just around 5% of the original cost. By combining this digitization operation with Viola, a proprietary generative AI developed in-house, we aim to achieve further improvements at an unprecedented speed. Viola is a generative AI with advanced character recognition capabilities that learns from a wide range of data For example, it can perform high accuracy estimation and recognition of multiple data points, such as names, company names, and email addresses from images, taking into account not only visual information, but also context and structural meaning. Viola can also learn large volumes of data in a single business day, enabling it to support new languages. Unlike 9OCR, which was previously discussed, Viola can also be applied to invoices and contracts. It is now being deployed across all major products. As a result, Viola is enabling further automation of processes that still required manual entry even after applying 9OCR. We expect this to reduce costs by approximately 100 million yen this fiscal year. This achievement is made possible by our extensive experience and expertise accumulated over many years of working on data capture operations while leveraging manual entry. We believe this is a significant competitive advantage for us. We will continue to refine our capabilities and achieve further cost reduction through digitization. In addition, beyond the initiatives discussed thus far, we are also expanding the use of AI across a wide range of internal operations. Our goal is to improve productivity for all employees and drive a steady increase in our medium-term profit margin. That concludes my presentation. Thank you very much.