MicroAd,Inc. Q3 FY2025 earnings call

• Overall Financial Results

  • For the 9-month cumulative period, consolidated revenue grew 13% year-over-year, and adjusted operating profit grew 68% year-over-year. The positive results came from ramp-up of the expanded workforce hired in prior periods, paired with productivity improvements that lifted gross margin.
  • The 3rd quarter is seasonally the weakest quarter for the Japanese advertising industry, with increased hiring costs concentrated in April for the company's new graduate hiring cycle, making it the lowest-demand, highest-cost quarter of the full fiscal year. Despite this headwind, the company achieved large top-line and profit growth, moving from an operating loss in the prior year 3rd quarter to solid profitability, confirming the effectiveness of ongoing productivity improvement initiatives which are delivering results faster than expected.
  • Cumulative results through 3Q reached 80% of the prior full-year revenue forecast, 125% of the adjusted operating profit forecast, ~150% of operating profit forecast, and ~300% of net income forecast, all exceeding prior expectations.

• Operational Productivity Improvements

  • The company's multi-year strategic target is to reach 1.5 billion yen in operating profit within 2-3 years, which management believes is fully achievable via organic growth alone.
  • Workforce expansion from prior periods continues to ramp up effectively. AI adoption has reduced time spent on non-sales activities, increasing time allocated to sales outreach, which lifted the number of customer proposals per sales employee to 1.5x prior levels, driving large productivity gains. Gross margin has remained at the strong high level achieved in Q2, and selling, general and administrative expenses remain tightly controlled.

• Strategic New Initiatives

  • Two new TikTok Shop-related subsidiaries were established in Q3 as part of the company's previously announced new business and partnership plan for the second half of the fiscal year:
    1. A joint venture with China's Pinspace Group, which has established live commerce experience on TikTok, to source and sell digital gadgets and other products that Pinspace has validated to the Japanese market.
    2. A wholly-owned subsidiary UNIVERSE PULSE, which leverages UNIVERSE data for TikTok commerce, and has been selected as an official TikTok Shop partner holding both Affiliate Partner (TAP) and Creator Agency Partner (CAP) accreditations. The business combines product networks, creator/influencer networks, and UNIVERSE data to grow live commerce revenue. TikTok Shop launched in Japan only in June 2025, offering large long-term growth headroom after reaching 5 trillion yen in global GMV last year. Official partner slots are limited to dozens of firms, as the business requires significant operational scale to integrate products, creator communities, and content.
  • Subsidiary IPmixer, which supports Japanese manufacturers' overseas market expansion, delivered successful results for a collaboration campaign selling a Japanese-made frying pan from an Osaka-based company via a popular Japanese cooking YouTuber in Taiwan, achieving strong sales volume for the higher-priced product. The company will expand this model to more campaigns next fiscal year, broadening its scope beyond anime/IP content to include Japanese manufactured goods.
  • The company expanded its existing media services to launch a new connected TV video advertising service using its MicroAd COMPASS platform and Google Ad Manager, responding to rapidly growing connected TV demand. This is an expansion of the company's existing business rather than an entirely new initiative, and management expects results to emerge relatively early next fiscal year.
  • The company's long-term goal is to become a comprehensive data company, moving beyond its core B2B advertising focus. With the establishment of 3 new B2C-focused subsidiaries this fiscal year, the company has formally entered the B2C space, creating a new large growth avenue to complement its core B2B business. Initial initiatives are progressing steadily, marking a key milestone in the company's long-term transformation.

1. Data Products (including UNIVERSE): Total data product revenue grew 12% year-over-year, fully offsetting the revenue decline from the deconsolidation of MADS' signage business. UNIVERSE standalone revenue increased 12% year-over-year, and gross profit grew 32% year-over-year. Active UNIVERSE accounts rose 17% year-over-year, with average customer revenue per account holding steady at prior levels. Industry-specific UNIVERSE products saw strong performance from the beverage and food industry during the 3rd quarter, with no large shifts in industry share, maintaining a balanced portfolio across sectors. 2. Consulting: Overall consulting achieved revenue and gross profit growth. Domestic media-focused consulting revenue grew 14% year-over-year, and gross profit grew 7% year-over-year, performing solidly. Overseas consulting revenue was roughly flat year-over-year, due to the absence of one-off product sales revenue from IPmixer that was recorded in the prior year 3rd quarter; this revenue is now scheduled to be recorded in Q4, so material growth is expected for Q4. 3. Alternative Data Business: The alternative data business delivered very weak results in the 3rd quarter, as the existing algorithm was unable to fully support some use cases, and operations for these underperforming segments have been paused pending a transition to a new model.

• Management upwardly revised full-year 2025 September fiscal year guidance, following stronger than expected results through the first 9 months. Adjusted operating profit was raised from just over 0.5 billion yen to just over 0.7 billion yen, a 41% upward revision.
• Net income guidance was raised from 30 million yen to 160 million yen, a more than 4x increase, even after absorbing large impairment charges taken this fiscal year, as productivity gains have more than offset these one-time costs.

• The alternative data business underperformed significantly in Q3 due to unaddressed gaps in the existing algorithm, requiring a pause to affected operations and a full transition to a new model.
• TikTok Shop live commerce is a complex, multi-element business that requires integrating products, creator networks, community management, and content development, which requires significant operational scale and capability to succeed, even with official partner accreditation.

No question and answer section is included in the provided transcript.