Plaid Inc

TSE:4165

Earnings Call Analysis

Earnings Call Transcript 2024-Q1

[武藤 健太郎, executive]

Hi. Good morning or good evening, everyone. Let me start our earning result announcement for first quarter, for the fiscal year ending 2024.

Please read carefully this forward-looking statement.

First, I would like to give you financial results summary. As a conclusion, I would say that this is an excellent financial performance. First of all, the growth rate, both consolidated and nonconsolidated is approaching to 30%. Especially on nonconsolidated basis, the growth rate was 28.8%. And with adjusted operating margin of 7.6%, the total was 36.4%, already achieving the 30% rule and approaching to 40% rule. This is showing that we are delivering results in accordance with what we committed to -- at the beginning of fiscal year 2023, to achieve profitable growth on a stand-alone basis.

Plaid is well balancing its growth rate and also profitability. Not only that, our Group companies have achieved a growth rate over 70%, which we think is another growth engine within the Plaid Group.

Okay. As a result, our progress rate towards the consolidated sales target, sales guidance for this fiscal year is on track 23.7% for first quarter, which is higher than the 22.6% of progress rate in the previous fiscal year.

From here, I'd like to walk you through our financial results on a consolidated basis. Q1 consolidated net sales was JPY 2.53 billion, up 29.7%. With a large contribution from growth in service and consulting sales. Subscription sales out of consolidated net sales was JPY 2.06 billion, up 22.6%.

In addition to -- this is a result in addition to Plaid's nonconsolidated growth, Group companies, such as RightTouch made a significant contribution. Consolidated ARR on the right-hand side chart, which is a leading indicator of subscription revenue, rose to JPY 8.4 billion or 22.5% year-on-year basis.

Despite the increase in the service and consulting sales, as I described in the previous page, the gross profit margin -- consolidated gross profit margin was capped above 70%. This is because our service and consulting sales have a decent gross profit margin of around 40% to 50%. This is lower than our SaaS software gross profit margin on the right-hand side. But still, this business itself, I would say, profitable.

So some SaaS companies using professional services, just other cost to increase SaaS businesses. But for Plaid, for us, service and the consulting revenue is also another source of revenue or another source of profit. That's why we would like to further increase this service and consulting revenues.

If you take a look at our -- on the right hand side chart, the SaaS software gross profit margin kept above 75%, which is our long-term goal target. So from this, I would say that our [ KARTE ], our SaaS business, gross profit margin is still in a good shape.

Okay. This is about the SG&A. And our SG&A for the first quarter was JPY 1.86 billion, up 18.9% year-on-year basis. In the previous quarter, the Q4 for fiscal year 2023, R&D-related expenses temporarily increased due to the consumption of overcommitted -- over commitment for annual or contract, resulting in an increase in telecommunication cost.

We have not stopped investing to increase profitability to make [ block ] for this fiscal year. We continue to invest in the human resources and all on the for this fiscal year and try to achieve profit for this fiscal year because there are some companies, I'd say, some -- we try -- if we want to make profit, we can kind of reduce investment. But we're not -- we are making a wise investment, but we are not stopping investment. We continue to invest and also we can make profit. This is our -- that's why we're, I would say, very sound financial condition, sound performance -- financial performance we are showing.

Okay. As a result, our consolidated adjusted operating income was JPY 44 million. Although the prime cause for a loss in Q1 and Q2 and a profit from Q3. Advertisement expense were shifted from Q1 to Q2 and a large -- some large projects for consulting businesses, STUDIO ZERO was received. As a result, our profit, there was a kind of upward swing with our bottom line. Then -- so I would say this EUR 44 million profit was not planned. Actually, it's kind of exceeded our plan.

But the important thing with us, with this is that our fiscal year bottom line target is, well, it is possible to achieve the fiscal year bottom line target and the possibility of achieving profit is increasing as a result of this past quarter.

Finally, on the consolidated side, the balance is still robust. Our net cash as of the end of the first quarter was JPY 2.33 billion. And on the right-hand side, the equity ratio is over 40%, showing a slight increase from the previous quarter. So as a summary, our balance sheet or our cash flow -- cash on hand are at a sound level.

From here, I'd like to explain some nonconsolidated result. Our nonconsolidated stand-alone net sales rose to close to JPY 2.27 billion by 28.8% year-on-year basis. Subscription sales was JPY 1.85 billion, up 12.1%. In contrast, ARR growth was 17.7%, which imply that our subscription sales revenue will be accelerated because ARR is our leading indicator for subscription sales. Service and consulting sales were JPY 411 million, up 229%.

Okay. And this is about breakdown of ARR growth of 17.7%. Out of 17.7%, 10.9% was coming from new customer acquisition and 6.8% was coming from existing customer expansion, net expansion. And as a result, the very important KPI with us, which is, net revenue retention is further increased to 106.8% from 104.9%. This is reflecting our successful retention of enterprise customers and also successful upselling and cross-selling to result in enterprise customers.

Okay. We can see those indicators, those figures in this page. This page is about customers and average revenue per customers. And from this fiscal -- from this quarter, we are showing the number of customers and average revenue per customer by the size of customers.

So left, out of those bar -- thick red area is showing about customer with more than JPY 10 million revenues -- JPY 10 million subscription revenues. As you can see, the JPY 10 million subscription revenue on annual basis, customers are increasing rapidly from the previous quarter and not only with the number increase but also average revenue per customer from a large size of customer from which is -- which is customer paying more than JPY 10 million is actually increasing. So the average revenue per customer -- was also with this large size customer was also increased. So this is as a result of our strategic focus on enterprise customers.

Over the last, I would say, 1 -- 2 years, we've been invested into our customer success resources. And we have shifted, we have made them focus on only large size customers. As a result, large-size customers churn was decreased and also they're upselling and cross-selling was accelerated. And this result of number of customers and average revenue per customer are showing that we're making success with our strategic focus on enterprise customers.

So this is adjusted operating income on a nonconsolidated basis. And our adjusted operating income on nonconsolidated basis was JPY 172 million. And as I explained in a consolidated base -- consolidated adjusted operating income after this result was much higher than we expected.

We were planning to have a negative result on Q1 and Q2, after that, we are expecting to have a positive adjusted operating income in Q3 and Q4. However, as a result of some big consulting project we acquired, the STUDIO ZERO, business domain and also some [ derailment ] of spending -- advertising in Q2. Unexpectedly, we had a high positive operating -- adjusted operating income for first quarter.

Having said that and because of that, I think Q2 adjusted operating income should be smaller. And this were -- it is possible that we are still making loss in Q2. But the important thing is that we are kind of exceeding this fiscal year bottom line. So I would say the possibility of making profit or exceeding our bottom line guidance is increasing as a result of this Q1 result.

As I explain in SG&A of nonconsolidated page, we have not decreased our pace to invest. We've been continuing to invest in hiring. So we're continuing to invest in human resources. And that is -- that can be confirmed with this -- the progress of hiring. We are investing in customer success area and also sales area. And also, we are -- we continue to hire some product members such as engineers and designers.

Okay. Finally, this is about a Group company. So as I said at the beginning, the Group company has been increasing its net sales more than 70%. While Plaid standalone business is shifting to profitable growth, making profit and then generating moderate growth. Those Group companies are still in early stage to grow. So they are making losses. But on the other hand, they are making a great business growth. They are achieving great business growth of more than 70%. So all I say that Plaid Group has had a well-balanced business portfolio.

Plaid standalone is a profitable growth stage, but Group companies are still in early stage, in high-growth stage. So by having this can diversify profile over growth and profitability. We will be able to cut mistakes, we will be able to balance both growth and also profitability with our Group.

Finally, I want to give you some update. I'll give you some business update for Q1. We have done several major product update with some new product areas. I have listed those 3 products, which are KARTE Blocks; KARTE Signals; KARTE Messages.

KARTE Blocks is on-site marketing tool but different from KARTE itself. With KARTE Blocks, our customer can maintain their website and do some A/B testing with the website.

KARTE Signals is a product that allow our customer to use KARTE user data for the advertisement. And KARTE Message is our tool to send e-mails or messages to offline customers, which is complemental with KARTE [ Web ], which is personalizing website on real-time basis.

So KARTE [ Web ] on site, real-time and KARTE Message offside, not real-time basis. And this KARTE Message area is a so-called marketing automation. So yes, we have some competency in this market. But the good thing with this is that -- huge market potential because the marketing automation is our existing market area. So there are many confirmed need -- from potential customers. And those 3 are new product within KARTE Business area.

And we've been upgrading those product and also we are strengthening our product within those product area as we do this year. And this is the ARR growth rate of those 3 new product areas. As of the end of first quarter, ARR from those 3 products was almost JPY 700 million, consisting almost 10% of our ARR, and that is -- that has been growing more than 250% on an annual basis.

As you can see, those 3 products are achieving quite high growth rate. So at the beginning, I said, Group companies are kind of a growth driver with us. But those Group companies are not only growth driver, even within our KARTE Business area, even within KARTE Web product area, we have some new product, which is growing much higher than our core product. So we -- in terms of our product portfolio, we also have kind of balanced product portfolio, some of which are moderately growing and also generating profits and some new products, like those 3 are achieving very high growth rate.

So not only with standalone, our Plaid standalone Group company, but also this KARTE [acquire] area and also KARTE new product area, we have a past business or product portfolio.

So let me summarize this message for Q1 annual results. 2.1 is net sales has been accelerated. Subscription revenues have increased due to a strong net revenue retention and new customer acquisition. And then those 3 new products, which are Blocks, KARTE Signals, KARTE Message are showing strong growth. And with those products, we are successfully increasing or we are successfully making upselling and cross-selling. And also not only product, but also service and consulting revenues, are key driver for growth with KARTE -- Plaid.

And also not only growing business, we have successfully made a result of positive adjusted operating income. And for the fiscal year 2024, our operating income is on track. And we -- I think, as a result of Q1, the possibility of achieving positive operating -- adjusted operating income is increasing. So those are 2 important takeaways for the Q1 results, Q1 earnings results.

Thank you for your patience to listening to today's financial results announcement. And looking forward to seeing you all in Q2. Again, thank you very much.