Annual Report 2024 CFOʼs Message

Overall, I would evaluate FY2023 as an exceptionally good year. In last yearʼs Annual Report 2023, I said that the company, as a whole, was in an excellent position to accelerate growth. This fiscal yearʼs performance exceeded our initial forecasts for both net sales and adjusted operating profit,^*1 with room to spare.

　For FY2023, we had projected year-on-year sales growth of 28.0–32.0%. However, we achieved a 32.8% increase, to 33,878 million yen. Even excluding the impact of newly consolidated companies from M&A deals, our organic growth rate reached 30.2%, surpassing the upper limit of the range we had projected. Our ARR^*2 also grew strongly, up 30.9% year on year to 33,270 million yen. Adjusted operating profit rose by 81.5% year on year, to 1,709 million yen, driven by strong growth in net sales. This performance exceeded the median of our initial forecast range. We actively recruited new employees this fiscal year as part of our growth strategy. Consequently, personnel expenses were up 36.2% year on year, outpacing our net sales growth rate. However, the increase in advertising expenses was limited to 19.0%. As a result, our adjusted operating profit margin improved by 1.3 pts. year on year, to 5.0%.

　Profit attributable to owners of the parent significantly improved from the net loss recorded in the previous fiscal year, reaching 953 million yen (vs. a loss of 141 million yen in the previous year). This improvement mainly owed to a substantial increase in ordinary profit, a decrease in extraordinary losses compared with the previous fiscal year (which included a 980 million yen loss on valuation of investment securities), and the recording of income taxes–deferred. I believe we have firmly achieved the results that capital markets expected regarding financial performance. Moreover, employee motivation and the overall atmosphere within the company are very positive. All in all, I consider it a satisfying year.

*1 Operating profit + share-based payment expenses + expenses arising from business combinations (amortization of goodwill and amortization of intangible assets)
*2 ARR: Annual recurring revenue

In FY2023, we aggressively increased our workforce to maximize sales. For the Sansan sales DX solution, the effect of this increase in personnel surpassed our initial expectations, leading to a higher number of subscriptions and robust sales growth. Sansan continues to evolve beyond its conventional role as a business card and contact management solution, steadily advancing as a sales DX solution. We also have continued to achieve steady growth by realizing a positive return on our investment in human capital.

　For the Eight business card app, we achieved our first quarterly profit in the fourth quarter of the previous fiscal year. For this fiscal year, we targeted profitability for the full year. We also focused on profitability in our solution offerings, clarifying which areas to concentrate on and which to de-emphasize. Partly owing to this shift in business operations, we achieved full-year profitability for the first time since the solutionʼs launch, meeting our initial expectations. While both B2B and B2C solutions are growing steadily, Eight Team (providing business card management in Eight) and the event business are particularly driving sales growth. I believe the foundation for Eightʼs overall business has been solidly established.

　For our cloud-based invoice management solution “Bill One”, we certainly benefited from tailwinds related to Japanʼs invoice system implementation in autumn 2023, including a last-minute increase in demand. Bill Oneʼs growth rate slowed somewhat in the latter half of FY2023, but the post-invoice system growth rate aligns with expectations. In fact, throughout this year, I feel we achieved growth beyond what the tailwinds alone provided. Bill Oneʼs ARR reached 7,680 million yen, exceeding our initial target of 7,000 million yen, and the average monthly churn rate over the past 12 months remained extremely low, at 0.33%. We have also expanded Bill Oneʼs scope beyond invoice receipt, launching the Bill One Business Card last year and introducing Bill One Expense and Bill One Issue from June 2024. The performance contribution from these newly expanded areas and functions will be in the future. We actively recruited talent in FY2023, and as these new hires become productive members, we expect even more growth as we deploy Bill One with its new functions through a more robust sales system.

　Additionally, CREATIVE SURVEY INC., which joined the Sansan Group in FY2022, strongly contributed to our full-year performance. Contracts for the Contract One contract database also steadily increased.

*1 Operating profit + share-based payment expenses + expenses arising from business combinations (amortization of goodwill and amortization of intangible assets)
*2 Corporate costs not allocated to reporting segments, primarily general administrative costs not attributable to any segment. Starting from the first quarter of FY2024, costs will be allocated to each segment based on specific rules

For FY2024, we expect net sales to increase by 27.0–30.0% year on year, reaching 43,026–44,042 million yen. This includes projected year-on-year growth of 16.0–17.0% for Sansan, 60.0–70.0% for Bill One, and 32.0–38.0% for Eight.

　We anticipate adjusted operating profit to increase by 76.2–157.6% year on year, reaching 3,012–4,404 million yen. This translates to an expected improvement in the adjusted operating profit margin of 2.0-5.0 pts. year on year.

　Regarding major costs for FY2024, we continue to anticipate personnel and advertising expense increases. We also expect increased costs associated with our headquarters relocation in the first half of the year. These costs will mainly involve moving-related expenses and double rent payments before and after the move, but these are one-time costs that will not recur in FY2025 and beyond.

At the time of our FY2023 financial results announcement, we published our medium-term financial policy for the three years from FY2024 to FY2026. In our FY2021 financial results announcement, we had set medium-term financial targets for FY2022–2024, aiming for net sales growth in the 20%+ range and improvement in the adjusted operating profit margin each fiscal year. Two years after that announcement, we could see that we are close to achieving these initial targets, which is the main reason for announcing our new medium-term financial policy.

　Going beyond our previous disclosures by quantitatively publishing specific profit levels, I feel the market has responded positively to this announcement. We had sensed a considerable gap between the market consensus regarding our three-year growth trajectory and our own projections of achievable business and profit growth. Therefore, we felt we needed to provide more quantitative guidance in this medium-term financial policy to bridge this gap. Additionally, Eight achieved full-year profitability in FY2023, and we can now see a path for continued growth for Bill One following the invoice system implementation. The increased ease of forecasting our performance also supported the publication of a financial policy that includes quantitative profit guidance.

　Thereʼs also a reason why we are calling our three-year numerical targets a “medium-term financial policy.” Many listed companies announce medium-term management plans that typically start with a focus on business strategies for the medium term and then accumulate numerical targets based on these strategies. However, we are not changing our business strategies or actions just to publish medium-term figures. Rather, the numbers shown in this financial policy merely indicate the sales and profits we expect to achieve in three years if we continue with our current business policies. Also, as we continually consider and implement the optimal investment allocation to maximize our sales growth rate, we have not accumulated these figures by business segment. Therefore, there is no breakdown by business, nor is it used internally for business management. To avoid confusion with typical medium-term management plans, we chose to call it a medium-term financial policy. Internally, we are aiming for much higher target figures than those shown here.

In our medium-term financial policy, we announced a net sales CAGR(Compound Annual Growth Rate) of 22.0–27.0% through FY2026. As a result, we project net sales for FY2026 to be 61,518–69,396 million yen.

　Regarding the adjusted operating profit margin, while executing necessary investments for sales growth, we aim to achieve even faster growth than before, targeting 18.0–23.0% in FY2026. The sales growth rate remains our most important management indicator. However, given our expanded business scale and stable profit-generating financial foundation, we now have the basis to considerably expand our profit margin as well.

　As mentioned earlier, this disclosure represents the level we expect to achieve if we continue our business operations along existing lines. In other words, the various new initiatives we are now preparing are measures to potentially outperform these projections. New service development, new areas for Bill One, and potential M&A deals are not factored into this outlook.

　If we were to identify any potential downside risk to our outlook, it would be a decline in productivity per employee. Maintaining productivity has two aspects: what can be ensured through systems and individual awareness. Particularly concerning awareness, as we aggressively recruit talent and rapidly expand our workforce, there is a risk of our corporate ethos and culture being diluted, leading to “big company disease” and potentially decreasing productivity. We carefully share our mission-driven corporate culture and philosophy, which we have cherished since our founding, with all new employees, and we conduct ongoing training.

　Moreover, our reignition of growth is helping us with securing first-rate talent, and the overall mood and motivation within the company are improving daily. There is great enthusiasm for creating new things and improving existing ones, and given our current status, this risk is highly unlikely to materialize.

Our main solutions are at different phases in terms of the net sales growth rate and adjusted operating profit margin.

　Sansan accounted for nearly 68% of our total sales in FY2023. Its net sales growth rate rose from 15.0% in FY2022 to 15.6% this fiscal year. The adjusted operating profit margin (before the allocation of headquarters expenses) stood at 52.1%, demonstrating high profitability. For FY2024, we expect the net sales growth rate to tick up to 16.0–17.0%, and with this acceleration, we anticipate the adjusted operating profit margin to increase further.

　Bill One, which has grown rapidly in recent years, accounted for over 18% of our total sales in FY2023. Its net sales this fiscal year grew by 155.5% year on year. However, maintaining this growth rate will become difficult as its scale increases, so we expect a more moderate growth rate going forward. While Bill One is not yet profitable because of its recent launch, we anticipate the profit margin to increase as the fiscal year progresses, and we aim for profitability as soon as possible. The Bill One Business Card, launched in 2023, is also growing steadily. As our balance sheet has become more robust, there is currently no need for additional funding, but we hope to quickly expand our scale to a stage where we can consider raising funds.

　Eight, which accounts for over 10% of our total sales, saw a net sales growth rate of 23.8% year on year, greatly exceeding the guidance announced at the beginning of the fiscal year. However, this growth rate is somewhat more modest than before, as we scaled down some solutions through refinement and focusing to achieve full-year profitability. We did achieve profitability, with an adjusted operating profit margin of 8.9%. We believe we can pursue further improvement in both sales growth and profitability for Eight, and we are aiming for 32.0–38.0% year-on-year sales growth in FY2024.

Regarding capital allocation, while predicting the scale of future cash flows is challenging, we plan to allocate capital based on the assumption of increasing profitability. Our policy is to focus on growth investments in highly efficient businesses while maintaining and expanding the shareholder returns we initiated this fiscal year.

　For growth investments, as Eight achieved full-year profitability this fiscal year, we will now channel some of the cash that Sansan and Eight generated into Bill One, which continues to show strong growth.

　Recruitment and advertising continue to be the mainstay of our growth investments. In FY2023, we focused heavily on recruitment, but we view FY2024 as a time to concentrate on developing the recruited talent. Therefore, we are planning more moderate recruitment than in FY2023. Productivity and sales efficiency metrics, such as the value of orders per sales staff and customer lifetime value, are the key indicators we consider when making capital allocation decisions.

　We will continue to invest in advertising, but not in line with sales growth; the rate of increase will be quite moderate. In the future, the proportion of both personnel expenses and advertising expenses to net sales will decrease.

　We will also continue considering M&A opportunities and investments in new business areas as they arise. In such areas, logmi, Inc., which we made a group company in 2020 and handles transcription media, is already creating synergy by supporting Eightʼs business growth. Including such group companies, we already see potential for future growth in some new businesses that have established their foundations. We will make decisions about additional investments while monitoring their progress.

　We currently do not set specific investment limits for M&A deals or new businesses. We make investment decisions on a case-by-case basis, maintaining some leeway to make investments that we deem necessary at the appropriate time.

Creation of Cash Flow

*1 Cash flows from operating activities + cash flows from investing activities
*2 Excluding the spending on the security deposit arising from relocation of the head office, free cash flow is 4.2 billion yen (free cash flow margin: 12.6％)

We are in a business growth phase, and strengthening our financial position, bolstering our internal reserves, and reinforcing investments for business expansion will lead to the greatest return for our shareholders. This remains our fundamental view.

　In FY2023, we achieved strong performance results. Moreover, as indicated in our medium-term financial policy, we are more confident that we can accelerate profit growth while continuing to invest for sales growth. Consequently, we determined that our financial situation now allows for returns to our shareholders. After comprehensively considering recent stock price trends and the dilution rate due to stock option issuances, we initiated a share buyback program with an upper limit of 300 million yen as part of our shareholder return initiative.

　Our overall financial position has strengthened considerably. In FY2023, we recruited a record number of personnel, and even with such investments, we achieved definite profit growth, with our cash on hand increasing to 24.8 billion yen. While the upper limit for the share buyback is around 300 million yen, which is still a relatively small return, our business portfolio as a company has become more established, and our outlookʼs overall profitability and certainty have improved. Therefore, we will continue to consider flexibly implementing share buybacks going forward. In the medium term, we aim to disclose a quantitative shareholder return policy. We also intend to implement shareholder returns through dividends when our profit stage shifts to the next phase.

Regarding the need for fundraising, considering our cash-on-hand level at the end of May 2024 and our ability to generate sufficient operating cash flow, we are securing enough funds for business operations. Our recognition and credibility have also improved, and our fundraising environment is better than ever, based on a sound financial structure, including financial liquidity and robust performance.

　Although a “world with interest” has returned to Japan, this has little impact on us for the above reasons. Our balance sheet is sound and if additional funding needs arise from large M&A deals that could accelerate our growth or steep expansion of the Bill One Business Card corporate credit card going forward, along with using our own funds, we will flexibly determine the optimal financing methods. These include borrowing from financial institutions and equity financing.

　Regarding market conditions, we have seen environmental changes, such as rapid yen depreciation, over the past year. However, the scale of our overseas business is still limited. While we plan to grow our overseas business in the future, we currently expect our domestic business to grow at a rate that far exceeds the growth of our overseas operations. Therefore, the impact of foreign exchange fluctuations on our performance should be very minimal.

Among our material issues (priority issues), I am responsible for strengthening corporate governance and ensuring compliance.

　Looking back on the past year, we have made significant progress in governance. A year has passed since we established the Nomination and Remuneration Advisory Committee in May 2023. During this time, we partially revised the remuneration for Directors (excluding Audit & Supervisory Committee members) and introduced performance-linked bonuses as short-term incentive compensation and stock compensation-type stock options as non-monetary remuneration. Additionally, the performance targets affecting compensation now include profit in addition to the existing sales targets. Executive compensation is a priority consideration in corporate governance, so the implementation of these necessary measures is a step forward. Also, following approval at the August 2024 General Meeting of Shareholders, the ratio of independent Outside Directors to internal directors became 5:5. We also initiated a new practice of holding open discussion sessions among Board members from FY2023. These discussions have energized long-term perspective debates on topics such as our medium-term financial policy and case studies of other growing companies. I believe this governance enhancement contributes to a sustainable increase in our corporate value.

　Regarding compliance, we have met our current targets, and we believe it is essential to continue maintaining this level through system development and various initiatives.

As a forerunner in Japanʼs SaaS industry, we have grown by highly valuing a pioneering spirit of delivering unprecedented solutions.

　We have been actively engaged in investor relations since going public in 2019. In FY2023, I visited three locations in Europe, the United States, and Asia and had many opportunities for dialogue with overseas institutional investors. More investors now understand our intellectual capital, such as the technology for digitizing analog information that underpins Sansan and Bill One. As CFO, I am pleased to see an increase in well-informed institutional investors and a broadening domestic and international investor base.

　The results of our shift toward maximizing sales over the past two years are now evident, with our sales growth rate reignited. In FY2023, the rate exceeded 30% for the first time in a while, and multiple businesses are now contributing to profits. In this respect as well, our growth stage has advanced to the next level.

　Our corporate growth achievement also helps us attract top talent. Every day, I see our employees engaging in their work with high energy and motivation while feeling a sense of growth. While itʼs difficult to quantitatively explain how this sense of progress translates into performance, I have firm confidence in our further growth.

　In the autumn of 2024, we relocated our head office to Shibuya, a part of Tokyo where venture companies are growing into leading Japanese tech companies. From our new headquarters, weʼll also be able to see the Japan headquarters of global tech companies. While feeling the growth momentum of the entire area, we are also aware of our relatively early growth stage. As a leading company in Japanʼs SaaS industry, we will continue to grow while developing new markets.

Director, Executive Officer, CFO
Muneyuki Hashimoto