DIGITAL HOLDINGS,INC. Q1 FY2025 earnings call

Core Group Strategy & Purpose

• The company's core purpose remains solving social issues through industrial transformation, with unchanged founding values focused on acting as "honest ambitious individuals" that prioritize sincerity to stakeholders while pursuing ambitious growth.
• After completing multi-year group restructuring (completed 2024), the company has entered a new growth phase, with Marketing (core legacy business) prioritized as the primary growth driver. The three business segments operate as independent revenue sources while delivering cross-segment synergies.
• Last year, 7 group companies across advertising, DX and IX businesses were merged into Opt (the core Marketing subsidiary), which significantly accelerated decision-making and execution speed.

Marketing Business: "Marketing × AI" and LTVM Strategy

• Management redefined the Marketing segment mission beyond ad optimization to maximize client lifetime value (LTV) and overall enterprise value, launching the Life Time Value Marketing (LTVM) framework.
• LTVM shifts from short-term conversion/CPA focus to long-term client-end user relationship value, integrating ad strategy, CRM, UX design, content development and in-house client support to deliver holistic growth for clients. Key strengths include AI-powered repeatable improvement, industry-specific expertise, and end-to-end partnered support.
• The company is pursuing open innovation via external partnerships with aligned mission partners to accelerate non-linear growth and maximize AI impact.

Company-Wide AI Adoption

• Top-down company-wide adoption of Google Gemini reached 100% employee utilization within 2 months of launch, delivering approximately 3,000 hours of cumulative productivity gains, freeing employees to focus on higher-value strategic and creative work.
• For advertising creative development, the company's in-house AI solution Murmuration delivers end-to-end AI-powered improvement: 1) bulk creative generation for broad initial hypothesis testing, 2) AI pre-prediction of click-through rate to prioritize high-potential creatives before launch, 3) AI-powered auto-replanning based on performance results to speed up PDCA cycles and reduce labor reliance. The solution is already live in daily operations, reduces reliance on individual expertise, and makes consistent performance replicable across teams.
• Management notes that AI adoption is not limited to internal operations; future plans include embedding AI into client-facing products and selling AI expertise as a client solution.

1. Marketing Segment: Revenue of 3.094 billion yen (-0.9% YoY), gross profit of 2.283 billion yen (+1.3% YoY), operating profit of 826 million yen (+19.2% YoY), EBITDA of 987 million yen (+34.4% YoY). Overall revenue contribution: ~85% of total group revenue. Revenue grew 0.8% YoY overall, and excluding the impact of one large client with reduced budgets, the segment achieved double-digit growth. Advertising support, the core sub-segment, grew 1.1% YoY, serving as a stable growth base. Operating margin improved from 4.6% YoY to 5.5%.
2. Financial Services Segment: Revenue of 84 million yen (-37.2% YoY), gross profit of 75 million yen (-33.2% YoY), operating loss of 29 million yen (improved from a 190 million yen loss YoY). Revenue contribution: ~2.3% of total group revenue. The revenue decline was within expectations as part of the ongoing small-lot diversification strategy; the number of client companies grew 230.3% YoY to 578, while GMV fell 58.8% YoY to 2.308 billion yen, also within planned ranges. The loss narrowed sharply due to improved portfolio quality and operating efficiency.
3. Investment Segment: Revenue and gross profit/operating profit declined YoY due to the timing of profit realization, which management noted is temporary. EBITDA grew 136.6% YoY to 3.106 billion yen, driven by the recognition of non-operating income. Cumulative IPO support portfolio reached 36 companies, with steady exit progress and ongoing stable gains expected from the segment. Revenue contribution: ~12.7% of total group revenue.

• The first quarter saw a stronger-than-expected start, with Marketing and Investment segments outperforming expectations, and EBITDA and net profit already exceeding 90% of the full-year target in Q1 alone, while revenue/sales progress hit ~25% of full-year targets, in line with quarterly pacing.
• Management is maintaining the original full-year 2025 guidance (no upward revision despite the strong Q1 start), citing the need to monitor uncertainty in the business environment for the remaining quarters.
• The full-year 2025 dividend guidance is maintained at a total of 46 yen per share (23 yen interim, 23 yen final), consistent with the company's shareholder return policy that targets the higher of 20% of non-goodwill amortization net income or 3% DOE (return on equity) over the 2024-2026 three-year period.

• External uncertainty around broader macroeconomic trends and investment market volatility for the remainder of the fiscal year is the primary cited risk, prompting management to keep guidance unchanged despite strong Q1 results.
• Marketing segment remains exposed to revenue volatility from large client budget fluctuations (one large client's budget cut already impacted Q1 overall revenue growth).
• Full in-house development of the end-to-end LTVM solution will take time, requiring ongoing external partnership collaboration to accelerate delivery.

Q: What key changes to management strategy have come with the recent CEO leadership change? / A: The new leadership has implemented three core changes, building on preparations that began last year. First, the group completed restructuring by merging 7 separate group companies into a single Opt entity, integrating the holding company function with the Marketing business frontline to create a streamlined organization where strategic decision-making is directly connected to on-the-ground execution, speeding up the strategy-execution-improvement loop. Second, management launched a full top-down company-wide AI adoption push, because bottom-up AI rollout had failed to deliver large-scale change; this approach delivered 100% Gemini adoption within 2 months, with 3,000+ hours of annualized productivity gains already achieved. Third, the business has shifted from a short-term ROI optimization focus to a medium-long term LTVM strategy, expanding into development, consulting and in-house support to build a more diversified revenue structure less reliant on large single clients or one-off projects. Management notes the business is still in early stages of this shift, but the combination of organizational, strategic and technological reform has put Marketing into a phase of restoring both profitability and growth, and future plans will target non-linear growth via M&A and expansion. (1982 chars)