VELTRA Corporation Q2 FY2025 earnings call

• Overall Financial Performance
  • Driven by recovering travel demand and expanding business portfolio, cumulative first half operating revenue reached 2.101 billion yen, with operating loss narrowing to 89 million yen (a 108 million yen improvement year-over-year), and ordinary loss narrowing to 104 million yen (a 180 million yen improvement year-over-year). Second quarter standalone operating loss was 145 million yen, an 80 million yen improvement year-over-year, which was in-line with planned losses for the off-peak travel season. Cumulative first half operating revenue reached 91.8% of the full-year plan, with operating costs controlled to 92% of plan, resulting in operating loss that is nearly in-line with plan.
  • Cash and deposits increased 453 million yen from the end of the prior period to 5.62 billion yen, driven by improving operating cash flow from growing revenue. Customer advance payments increased 862 million yen due to higher pre-bookings from improving revenue, leading to a temporary 2.8 percentage point drop in equity ratio, which is a normal dynamic for the OTA business model as higher bookings increase customer liabilities. Operating cash flow has turned stable positive on higher OTA transaction volumes.

• Cost and Human Resource Management
  • The company will continue cost control aligned with revenue achievement in the second half. A temporary increase in advertising expense is planned for the peak third quarter, but no large-scale awareness advertising investment comparable to last year is budgeted this fiscal year. Total headcount will be maintained at last year's level, with limited headcount increases planned for the second half to support LINKTIVITY business expansion. The company is implementing productivity improvement initiatives including AI adoption, and advancing organizational reform to decouple headcount expansion from sales growth starting from next fiscal year.
• LINKTIVITY Business Expansion
  • LINKTIVITY has expanded its business model from initial railway-focused digital services to cover a broad range of Japanese tourist attractions. This fiscal year, the company began pursuing horizontal expansion by winning contracts with transportation and tourism facilities across Asian markets including South Korea and China, and has started selling these services to Japanese travelers. Recent key milestones include launching joint digital free rail passes with three major Japanese railway companies, launching combined rail and attraction passes with Keio Corporation, and launching a WeChat mini-program taxi booking and payment service for Chinese travelers in partnership with GO and Tencent. The company is also developing new bundled products that combine multiple services to improve customer value.
• New Strategic Initiative: VELTRA Cruise
  • As an example of focused niche global expansion, the company launched its AI-powered dedicated online cruise sales platform. The cruise market is largely undeveloped for online travel agencies, as low-price short cruises are under-recognized by consumers, and creating and marketing full cruise lineups was previously uneconomical. Leveraging AI, the company can automatically list all cruise products with no manual input, enable real-time booking, support a wide product range from 10 thousand yen short cruises to luxury adventure cruises, target cruises to first-time cruiser demographics including younger and family travelers in addition to seniors, and leverage the company's existing on-destination experience strength to offer integrated port-of-call tours. The company targets creating a 5 billion yen independent cruise traveler market by 2028.

Veltra operates two core reportable segments: OTA (Online Travel Agency) and Tourism IT (LINKTIVITY). For the 2025 December fiscal year first half cumulative period, total operating revenue reached 2.101 billion yen, an increase of 285 million yen year-over-year. For the second quarter standalone period, total operating revenue was 969 million yen, up 15.7% year-over-year.

1. OTA Segment: The OTA segment includes overseas travel, domestic travel, and HawaiiActivities sub-segments. After corporate overhead allocation, the OTA segment achieved positive operating profit with an operating margin of 15.7% in the reporting period. - Overseas Travel: Revenue grew 17.4% year-over-year, outpacing the 12% year-over-year growth in Japanese overseas traveler numbers. The segment continues developing new revenue streams including advertising revenue and B2B2C service expansion. - Domestic Travel: Facing intense market competition and low profitability, the segment has focused on productivity improvements via geographic focus adjustments and headcount reduction, resulting in improved profitability but declining sales. The segment is currently pivoting its growth strategy to target new markets such as cruise port-of-call tours and B2B sales for inbound travelers. - HawaiiActivities: While overall sales remain above pre-COVID levels, bookings are trending downward due to intensifying competition with global firms and declining US mainland visitor numbers driven by high inflation.
2. Tourism IT (LINKTIVITY) Segment: The segment is currently unprofitable, but gross transaction value grew 42% year-over-year, outpacing the 19.1% year-over-year growth in inbound visitor numbers to Japan. Revenue contribution from the LINKTIVITY segment has been growing year-over-year driven by inbound demand.

• Full-year 2025 guidance is maintained, with planned operating revenue of 5.4 billion yen, representing 25.4% year-over-year growth. The company confirms it will achieve full-year net profitability via strict cost control including constrained hiring and advertising investment, driven by OTA segment operating margin improvement and LINKTIVITY business expansion.
• Profit improvement is expected in the second half (the peak travel season from summer to fall), with full-year profitability secured in the second half. For the LINKTIVITY segment, revenue growth in the second half is expected to reduce the full-year deficit, with a target of achieving profitability starting from next fiscal year.
• The company's underlying market outlook for travel industry recovery is unchanged from prior guidance.
• Long-term, the company targets 5 billion yen in cruise segment revenue by 2028.

• Cumulative first half operating revenue missed the planned target, driven by two core OTA segment headwinds: intensifying competition in the faster-recovering Asian market, and slower-than-expected travel recovery in the company's core beach resort markets including Hawaii.
• Japanese overseas traveler numbers remain at approximately 70% of pre-COVID levels, meaning overall industry recovery is still in progress. Recovery has been uneven: the company's core markets of Hawaii, Guam, and North America still remain at low recovery levels, while Asia/Oceania and Europe have seen stronger recovery.
• Growth of inbound traveler numbers to Japan has recently slowed, though it still maintains 19% year-over-year growth.
• Long-term industry risks include intensifying competition driven by travel industry globalization and rapid online market evolution driven by AI adoption; focusing exclusively on the Japanese market could lead to lost long-term growth opportunities.
• HawaiiActivities faces headwinds from declining US mainland visitor numbers driven by inflation and intensifying competition with global travel firms.

There is no question and answer section included in the provided earnings call transcript.