AGEHA Inc. Q3 FY2025 earnings call

• Financial Performance: • Total revenue increased 8.7% year-over-year, driven by strong demand for upstream design services and event projects in inner branding • Gross profit grew 5.7% year-over-year, with cost increases from higher outsourcing expenses for event and graphic projects partially offsetting revenue gains • Operating profit declined year-over-year due to new, previously non-existent shareholder benefit costs and increased hiring expenses for skilled mid-career employees • Ordinary profit and net quarterly profit also declined year-over-year because the prior year period included an insurance cancellation gain not repeated this quarter • Revenue hit 66.7% of the full-year budget as of the third quarter, in line with expectations • The balance sheet remains stable with a consistently high equity ratio

• Corporate Milestones: • The company now meets all listing maintenance requirements for the Tokyo Stock Exchange Growth Market, after successfully correcting a prior non-compliance in tradable market capitalization as of May 21, 2025 • Received approval for dual listing on the Nagoya Stock Exchange NEXT Market • Launched its first shareholder benefits program, including 1st listing anniversary benefits and continued holding benefits, with plans to evaluate ongoing shareholder return initiatives going forward • Won two awards (including a gold prize) at the Japan BtoB Advertising Awards for work with IHI Aerospace and Timee, marking another in a series of annual industry awards for the firm • Launched an exclusive joint advertising series on human capital management with the Nihon Keizai Shimbun, which will continue with additional installments

• Growth Strategy: • Core strategy focuses on two pillars: cross-selling to existing key clients and increasing new order acquisition • For existing clients: the company has 920 total cumulative clients (mostly large enterprises) with 70% annual repeat client retention. It targets expanding per-client revenue via cross-selling across multiple departments of large client firms, expanding from initial projects (e.g. website production) to inner branding and corporate branding services • For new clients: the total addressable target market includes approximately 10,000 eligible large and mid-sized firms, leaving significant room for expansion. The firm combines marketing technology with traditional outreach (seminars, direct mail, telemarketing, owned media) to generate inquiries • Three KPIs have been adopted for fiscal 2025: total order value (as a leading indicator for revenue growth), number of existing clients with annual order value over 1 million yen (to grow average client size), and number of new client acquisitions

• Mid-Term Growth Initiatives: • Merged low-demand sustainability branding into corporate branding to form a new corporate communications segment, which will also include corporate websites and corporate advertising • Established a new product & service marketing segment to capitalize on growing market demand, focused on product/service advertising rather than corporate advertising • Hired approximately 10 experienced veteran sales, planning and creative employees from large and mid-sized incumbent advertising agencies, allowing the firm to pursue large campaigns historically dominated by Dentsu and Hakuhodo. Multiple large-scale projects over 100 million yen have already been secured • Inner branding, which launched as a dedicated team several years ago, has grown into a core profit pillar driven by strong societal demand for improving employee engagement, and will continue to be expanded. The firm's competitive advantage in the new corporate communications and product marketing segments is its specialized expertise serving BtoB companies, compared to incumbents that focus primarily on BtoC

Aguha operates as a single-segment branding business, broken into two core business areas: Corporate/Recruiting Support. Both areas exceeded prior period results, with the inner branding sub-segment (within the corporate support domain) growing 34.5% year-over-year, acting as the primary driver of overall revenue growth. Overall consolidated revenue increased 8.7% year-over-year, gross profit increased 5.7% year-over-year, while operating profit declined due to higher incremental expenses. Sustainability branding is being merged into corporate branding due to declining demand, and the combined area will be renamed the corporate communications domain.

• Full-year revenue is tracking to plan at 66.7% of budget as of the third quarter, with management confirming they remain on track to hit full-year 2025 September fiscal year targets
• Management is prioritizing two key activities for the fourth quarter: closing out short-lead projects due for delivery by September, and advancing partial delivery of next fiscal year's large projects to pull some revenue forward into the current fiscal year. Order intake is currently tracking on track for these efforts
• The company's hiring plan has proceeded faster than expected, so hiring expenses will be lower than originally projected in the fourth quarter, supporting profitability
• Third quarter KPI performance was mixed: order value saw some slow growth, and the number of existing clients over 1 million yen annual order value also saw muted growth, but management expects to recover missed targets in the fourth quarter
• New client acquisition saw lower conversion rates because veteran sales staff were focused on expanding existing client accounts (with new clients handled by junior staff), but the successful hiring of veteran sales staff in the first half of the year will allow the firm to recover new client acquisition performance in the fourth quarter
• Management expects the newly established corporate communications and product & service marketing segments, which already have multiple large over-100-million-yen projects secured, to become a new core growth driver for earnings starting from next fiscal year

• Third quarter 2025 saw slower-than-expected growth in core KPIs including total order value, existing client revenue expansion, and new client acquisition, requiring recovery efforts in the fourth quarter
• New client conversion rates have been depressed because the firm reallocated veteran sales resources to existing client expansion, leaving new client acquisition to less experienced junior staff
• Demand for sustainability branding has declined, requiring a segment reorganization that could create near-term integration disruption
• The firm was previously non-compliant with Tokyo Stock Exchange Growth Market listing maintenance requirements for tradable market capitalization, though this issue has since been resolved

No question and answer section was included in the provided earnings call transcript.