SPACE SHOWER SKIYAKI HOLDINGS INC. Q4 FY2025 earnings call

Company Overview & Industry Context

• Space Shower SKIYAKI Holdings was formed via the merger of Space Shower Network and SKIYAKI in April 2024, with 350 consolidated employees and 5 operating subsidiaries under the holding company structure.
• The Japanese entertainment/content industry is the second-largest export industry in Japan after automotive, with 2023 exports of 0.58 trillion yen, and the Japanese government's Cool Japan strategy targets growing content exports to 2 trillion yen by 2033, matching the current size of automotive exports.
• The company has two core focuses: creating original edgy independent entertainment content for consumers, and providing end-to-end support services for independent artists and small creator teams, who increasingly operate independently without major corporate backing.
• The company's core competitive advantage is its unique 360-degree one-stop service platform covering all needs of independent creators across different career stages, which no other independent Japanese entertainment firm offers.

Operational Highlights for Key Businesses

• Live Events: SWEET LOVE SHOWER, a 30-year running outdoor rock festival at Lake Yamanaka, draws 80,000 attendees annually and consistently sells out. POP YOURS, a 4-year-old HIPHOP festival targeting Gen Z, has grown to 35,000 attendees, with 80% of attendees under 25; a second Osaka edition will launch in fall 2025, with plans for further national expansion.
• Maid Cafe: @Home Cafe is a well-established 20-year leading brand in Akihabara, with strong demand supporting ongoing regional expansion, with the new Nagoya locations off to a strong start.
• Fan Club & E-commerce: The in-house developed platform serves a wide range of clients beyond music artists, including the Japan Sumo Association and Macross anime fan clubs, covering both large custom clients and small independent creators.

Strategic Plan & Capital Allocation

• The core 3-year medium-term strategic plan is built on leveraging synergies between the content and solution segments: growing content creates more demand for solution services, and expanding solution services creates more content development opportunities, as seen in the new member club service for SWEET LOVE SHOWER built using SKIYAKI's fan club platform.
• Capital allocation: The company held 6.5 billion yen in cash at the end of FY2025, and plans to allocate 1.3 billion to 1.6 billion yen for shareholder returns and 3 billion to 4 billion yen for capital expenditure, business investment and M&A over the 3-year medium-term plan period.
• Shareholder return policy: The company committed to progressive increasing dividends, targeting a payout ratio of 35% to 45%, with planned annual dividends of 16 yen per share for FY2026 following 10 yen and 13 yen in the prior two years. The company also plans to purchase 200 million yen of treasury stock annually, with repurchases already 60% complete after 6 months. A new shareholder benefit was added for September record date shareholders, offering lottery tickets for the company's popular sold-out live events.

The company operates two reportable segments: 1) Content Segment: This segment develops and distributes original B2C content, operated by Space Shower Network and Infinia. Business lines include outdoor music festivals (SWEET LOVE SHOWER, POP YOURS), live house operations, artist management, record label activities, Space Shower TV pay broadcast, and the long-running @Home Cafe maid cafe chain. As of the 2025 March period, @Home Cafe operates 12 locations (7 in Akihabara, 3 in Osaka, 2 newly opened in Nagoya's Osu district), with annual customers growing more than 2x from 370,000 8 years ago to 770,000 currently. 2) Solution Segment: This segment provides end-to-end support services for artists and clients, operated by SKIYAKI, Space Shower Entertainment Producing, and SPACE SHOWER FUGA. Business lines include fan club operation and e-commerce/merchandising (1.325 million total paid members across over 1,300 fan clubs, with two service tiers: custom Bitfan Pro for large clients and all-in-one Bitfan for independent creators), music video production, event production, agency services, and global music distribution connected to over 200 streaming platforms worldwide. The full fiscal 2025 period saw gross profit increase 78.2% year-over-year, with all major line items showing significant revenue and profit growth, following the April 2024 merger of Space Shower Network and SKIYAKI that added SKIYAKI's full financial results to the consolidated total.

• The company maintains its medium-term targets for FY2028 (ending March 2028): 24 billion yen in revenue, 1.6 billion yen in operating profit, ROE of over 10%, and 4.4 billion yen in cumulative operating cash flow over the 3-year plan period.
• Management expects ROE to reach ~9% in FY2026, putting the company on track to hit the 10%+ medium-term target by FY2028.
• PBR has already recovered to ~1.1x as of the current period, meeting the management's target of exceeding 1x ahead of schedule.
• The company expects all major financial metrics to increase in FY2026, as the one-time merger and restructuring costs that suppressed net income in FY2025 will not recur.

• For AI adoption in content creation, there is ongoing unresolved legal and copyright debate around AI training on existing copyrighted works, particularly active in the U.S. around the fair use doctrine, and the outcome of this debate will impact how extensively AI can be used for content development.
• The company's current operations have varying degrees of readiness for overseas expansion, with some segments (distribution, fan clubs) well-positioned but others requiring more preparation to enter foreign markets at scale.

Q: What is the current status and outlook for hitting the medium-term ROE and PBR targets?

A: Management currently estimates the company's cost of capital is ~7.5%. FY2024 ROE came in well below the cost of capital due to one-time merger and restructuring costs. For FY2025, these special factors are eliminated, and if performance meets current expectations, ROE will land at ~9%, putting the company on track to hit the 10%+ target by FY2028 as planned. PBR has already recovered to ~1.1x, meeting the early 1x target earlier than expected.

Q: What is the company's core growth strategy?

A: Growth will be driven by two priorities. First, expanding existing successful content via horizontal expansion: POP YOURS will expand to Osaka and grow capacity at the existing Tokyo location, while the maid cafe business will continue geographic expansion, as there is still strong unmet demand for the brand. Second, developing new original hit content for future growth, with details to be disclosed at an appropriate time. The combined content-solution structure is a unique advantage: content operations give the company direct insight into creator needs, allowing it to build more relevant solution services that drive mutual growth.

Q: How is the company using AI, and what impact will AI have on the business?

A: AI is already a major positive boost to platform product development. The in-house engineering team is actively testing the latest AI tools, including autonomous AI agents that can complete development tasks overnight. Management estimates AI has already increased engineering development speed 4x to 5x, with potential to reach 10x as tools improve, making AI adoption mandatory for competitive development. Human work will shift to defining customer needs, product specifications, and final verification, which plays to the company's advantage of having direct real-world insight from both content and solution operations. For content creation, AI can be a powerful creative assistant, but unresolved copyright disputes around training data remain a key open issue.

Q: What are the company's plans for overseas expansion?

A: Overseas expansion is a key priority aligned with national growth policy for Japanese content, but expansion progress will differ by segment. The music distribution business, via joint venture SPACE SHOWER FUGA with the Dutch firm FUGA, already has a global network, and the company will deepen cooperation to help more Japanese artists reach global audiences and grow the distribution business. The @Home Cafe maid cafe business already gets invitations to participate in overseas Japanese culture events, and management sees potential for future full overseas expansion given demand for Japanese pop culture experiences. The fan club platform already supports multi-language for existing international fans, and the company will work with FUGA to prepare for broader international expansion of the solution business.