FreakOut Holdings,inc. Q1 FY2025 earnings call

• Overall Performance

  • Consolidated revenue saw a slight 1.2% YoY increase, while EBITDA decreased 30% YoY primarily due to weak performance in North America, which was partially offset by profit growth across Japan, Asia, and UUUM. Both revenue and EBITDA are a few percentage points behind internal budget, but management expects this gap to be recovered in subsequent quarters.
  • A 0.4 billion yen foreign exchange gain was recognized this quarter due to sharp yen depreciation against the USD, driving a large increase in profit below operating income.

• Japan Business

  • Growth is driven by the high-margin video/Connected TV segment, GP product which exceeded 0.3 billion yen in quarterly revenue (a new all-time high), and early revenue contribution from High Impact ads. Third-party cookie-based DSP products continue to decline, but overall profit has recovered strongly.
  • IRIS has returned to 0.13 billion yen in quarterly equity method investment profit, up from prior weak quarters, though it still has not reached its target quarterly level of 0.14-0.15 billion yen.

• North America Business

  • Programmatic ad sales continue to grow steadily, but direct sales recovery has been slower than expected, pulling down overall gross margin. A 0.1 billion yen annual cost is expected for new business proof-of-concept work.
  • Headcount was reduced by 8 positions as part of ongoing team restructuring, with no negative operational impact.

• Asia Business

  • Profit has recovered to a stable 0.12 billion yen per quarter following stabilization of adGeek and improved performance across regional hubs, and dividend distributions from some hubs have begun.

• Influencer Marketing (UUUM)

  • The second tender offer for full ownership was completed in February 2025, turning UUUM into a 100% subsidiary. Cost optimization has progressed, driving strong EBITDA growth even as revenue remains below prior year levels.
  • The acquisition was funded by cash proceeds from the 2023 sale of Kamu Inc., so the company maintains stable cash and net equity ratios post-transaction.

1. North America: Revenue of 5.18 billion yen, +9.5% YoY; EBITDA of 0.12 billion yen (excluding new business PoC costs), down 4.9 billion yen YoY. In USD terms, revenue is 33.6 million USD (+3.8% YoY) and EBITDA is 0.8 million USD (-81.5% YoY). Revenue contribution is ~37.7% of total consolidated revenue.

2. Japan (including IRIS): Revenue of 1.94 billion yen, +17% YoY; EBITDA of 0.45 billion yen, +17.5% YoY. Revenue contribution is ~14.1% of total consolidated revenue.

3. Asia: Revenue of 1.97 billion yen, nearly flat YoY; EBITDA of 0.12 billion yen, up from 0.02 billion yen YoY. Revenue contribution is ~14.3% of total consolidated revenue.

4. Influencer Marketing (UUUM): EBITDA of 0.18 billion yen, up 100% YoY from 0.09 billion yen YoY. Revenue missed internal budget by ~10%.

Total consolidated revenue is 13.75 billion yen, +1.2% YoY; total consolidated EBITDA is 0.57 billion yen, down 0.24 billion yen (-~30%) YoY.

• Q2 2025: Management expects revenue of 12.0 billion yen and EBITDA of 0.3 billion yen, which is achievable if Japan business continues its current trend and North America stays on its recovery path.
• North America full year: Management maintains its target of 0.6-0.7 billion yen in full-year EBITDA, with Q2 expected to be near break-even, and gradual recovery starting from Q3, driven by new client media acquisitions and improved direct sales execution.
• Asia full year: Management expects full-year EBITDA to land in the mid-0.3 billion yen range, after a seasonal Q2 decline.
• UUUM: Additional total annual cost savings of ~0.3 billion yen (0.1 billion yen from eliminating listing costs, ~0.2 billion yen from office consolidation) are expected, with full annual benefits realized starting from the fiscal year after 2025.
• UUUM post full acquisition: After completing cost cuts, management expects to drive top-line re-growth and larger profit improvements through internal restructuring of underperforming marketing segments.

• North America direct sales recovery could take longer than currently expected, leading to continued low gross margins and missed full-year EBITDA targets.
• For Japan's video/Connected TV segment, there is a risk of upcoming renegotiations of commercial terms with major clients, which could negatively impact short-term profitability even as the company prioritizes long-term relationship retention.
• UUUM's revenue continues to decline YoY, with top-line growth still dependent on successful restructuring of its marketing segment, which carries execution risk.
• Office consolidation for UUUM is still unconfirmed in timing and scope, so full cost savings may take longer than the current expected timeline.

Q: What is the basis for expecting North American direct sales to recover starting from Q3? / A: Programmatic sales have already grown steadily by securing new client media inventory, and the business cycle converts this inventory to higher-margin direct sales over 4-6 months. In 2024, late media acquisition and ongoing team restructuring left insufficient time to close direct sales for Q1, leading to the weak result. This year, inventory is already secured, and North America CEO Jayson is personally leading direct sales efforts with a restructured team, so management expects solid results starting from Q3.

Q: How did IRIS achieve its stronger-than-expected recovery, and can this improvement continue? / A: After the end of the 2020-2023 taxi ad bubble, IRIS restructured its sales team, redeployed FreakOut personnel to the business, and rebuilt a consistent, disciplined digital marketing sales organization. This is a structural change rather than a one-off improvement, so management expects continued steady progress through the full 2025 September term.

Q: What is the expected amount and timing of additional cost cuts at UUUM after full 100% acquisition? / A: There are two main areas of cuts. First, eliminating listing costs will save ~0.1 billion yen annually, with only 0.01-0.02 billion yen in savings this fiscal year and full savings starting next year. Second, office consolidation is expected to cut total rent by ~30% (about 0.2 billion yen annually), with savings starting to appear in the second half of next fiscal year and full annual impact the following year. Total annual savings will reach ~0.3 billion yen.

Q: What is the current status of the retail media signage business? / A: Deployment of 3,000 units is on track for completion in May 2025, with placements confirmed at major Japanese drugstore chains. The business is expanding from oral care to skin care, hair care, household goods, and eventually pharmaceuticals/health supplements. This fiscal year is focused on building awareness and proving in-store sales lift to retail clients, with meaningful revenue and EBITDA contribution expected starting next fiscal year.