AUCNET INC. Q2 FY2025 earnings call

• Company Milestone: Aucnet celebrated its 40th anniversary in 2025, hosting a commemorative event with over 500 participating companies. The Q2 results represent a solid mid-year performance for this anniversary year.
• Overall Consolidated Performance: The first half of fiscal 2025 delivered increased revenue and profit, driven by strong performance in the Lifestyle Products segment. Total consolidated revenue was 32.532 billion yen, up 22.4% YoY, with a 53.3% progress rate against the prior full-year forecast. Operating profit was 5.836 billion yen, up 51.4% YoY, with a 77.8% progress rate, and operating margin improved 3.4pp to 17.9%.
• Recent M&A Integration: The 2024 acquisitions of Defacto Standard and JOYLAB were consolidated starting from Q2 FY2024, contributing to the strong year-over-year revenue growth in FY2025. Internal organizational restructuring is underway for D2C retail operations to capture synergies via operational integration and knowledge sharing.
• Capital Market & Shareholder Return Initiatives: Aucnet announced an off-exchange block distribution of 218,000 shares to improve stock liquidity. It also introduced a new tiered shareholder premium program "Aucnet Premium Premium Club" starting with December 2025 shareholders, designed to encourage individual investors to hold more units of stock.
• Sustainability & Materiality Alignment: The company identified four core material issues aligned with its mid-term plan Blue Print 2027: (1) Environment: Enable a circular economy by maximizing product lifespans and reducing environmental burden through reuse distribution, and partner with primary circulation companies to build economically viable circular business models; (2) Social: Embed the corporate philosophy of "authenticity", strengthen management, and drive innovation via partnerships with diverse stakeholders; (3) Governance: Improve governance transparency, fulfill accountability, foster an ownership mindset across employees, and build a robust group governance structure.
• Operational Investments: The company carried out a full renewal of the core shared system for automobile and motorcycle operations after more than 10 years, and incurred one-time costs for employee stock-based compensation, 40th anniversary event activities, and operational capability integration across the business.

1. Lifestyle Products: Segment operating profit reached 5.031 billion yen, up 62.6% year-over-year. Total handling volume was 80 billion yen, up 37% year-over-year. Revenue contribution accounts for ~70.7% of total consolidated revenue. Within the segment: B2B revenue (auction fees/membership dues) was 8.248 billion yen, up 55.5% YoY; D2C revenue was 14.738 billion yen, up 17.2% YoY. Digital Products saw strong growth driven by iPhone replacement demand and GIGA School related tablet demand, with 1.381 million units distributed (up 62.8% YoY) and 2,113 member companies (surpassing the 2,000 target). Fashion Resale had 802,965 items listed (up 33.7% YoY) and 6,310 member companies (up 20% YoY).
2. Mobility & Energy: Segment operating profit was 1.883 billion yen, up 2.8% year-over-year. Total handling volume was 278.2 billion yen, up 7.3% year-over-year, accounting for ~21.9% of total consolidated handling volume. Core automobile business saw 276,647 contracted vehicles (up 3% YoY), with strong demand from export buyers driving higher average contract prices. Motorcycle business handling volume grew 24.3% YoY to 6.493 billion yen, driven by increased domestic dealer listings and export growth. Combined inspection volume for used vehicles and motorcycles reached ~769,000 units, continuing a multi-year growth trend.
3. Other Businesses: Operating loss was 128 million yen, with a narrowed loss of ~100 million yen compared to last year. Handling volume was 5.766 billion yen, down 3.6% year-over-year. Agriculture (flower distribution) saw lower-than-expected collection volumes despite higher average prices, while the Kansai regional hub continues to build its member base and stabilize operations. Circular commerce reduced losses via exiting unprofitable projects, and one medical subsidiary was fully divested. After 950 million yen in unallocated corporate adjustments, total consolidated operating profit was 5.836 billion yen for the first half.

• Full-year consolidated guidance was upward revised following the strong first half performance, maintaining the company's original strategy of investing in future growth while raising targets. The revised guidance targets: revenue of 62.0 billion yen (10.9% YoY growth), operating profit of 8.2 billion yen (17.1% YoY growth), operating margin of 13.2%, net income of 5.1 billion yen (13.7% YoY growth), with EPS of 111.84 yen.
• Following the upward revision of earnings, the annual dividend forecast was raised to 45 yen per share (a 7 yen increase YoY). This results in an expected payout ratio of 40.2%, meeting the company's target of maintaining a 40%+ payout ratio. After the April 2025 stock split, this equals 90 yen per share on a pre-split basis.
• The company reaffirmed its unchanged strategy of continuing to allocate capital to future growth investments, despite the upward revision to earnings guidance.

• D2C branded goods purchasing in the domestic market has underperformed, and US and European D2C retail operations have been soft, partially due to negative impacts from US tariff policy, leading to handling volume coming in below original expectations.
• In the Agriculture (flower distribution) segment, collection volumes have fallen short of forecast, pressuring segment revenue performance.
• The Mobility & Energy segment saw lower Q2 profit year-over-year due to one-time costs for core system renewal and employee stock-based compensation; the segment would have delivered a small profit increase excluding these one-time impacts.
• Management acknowledges that two consecutive upward revisions to full-year guidance reflect shortcomings in forecasting accuracy, and the company will work to improve forecast precision going forward. There is also uncertainty around stock market volatility that could disrupt the planned off-exchange block share distribution, which may be postponed or canceled if market conditions are unfavorable.

Q: What is the current growth outlook for tablet handling in the Digital Products segment? / A: The company has deepened partnerships with domestic suppliers, and successfully captured growing demand from GIGA School program-related educational tablet replacement and circulation. This has become a meaningful new growth driver alongside the core smartphone business, contributing to overall segment volume and revenue expansion.

Q: What have been the integration results from the recent M&A deals in the Fashion Resale segment? / A: The acquired businesses have driven strong growth in B2B fashion resale, as elevated brand inventory liquidation demand has led to a 33.7% YoY increase in listed items. Fee structure adjustments have also positively contributed to profitability, while internal operational integration is ongoing to capture further synergies.

Q: What factors caused the lower margin in the Mobility & Energy segment in the most recent quarter? / A: The margin decline is entirely driven by one-time factors: the 10+ year full renewal of the shared core system for automobiles and motorcycles generated extra one-time costs, and the segment also bore a larger share of company-wide employee stock-based compensation costs. Excluding these one-time impacts, the segment would have delivered a slight profit increase, with core auto and motorcycle operations remaining solid.

Q: How does US tariff policy impact Aucnet's overall business performance? / A: The main impact is on D2C retail operations for branded goods in the North American and European markets, which have softened as a result of tariff policy changes. This has contributed to D2C handling volume coming in below original first half expectations, and the company is implementing adjustments to address this headwind.

Q: What is Aucnet's overall strategy for M&A going forward? / A: The company will prioritize M&A targets that align with its core circular economy strategy and expand its reuse business footprint, focusing on deals that can deliver clear synergies with existing operations and support long-term profitable growth aligned with the Blue Print 2027 mid-term plan.