AViC Co.,Ltd. Q3 FY2025 earnings call

Market and Competitive Environment: • The Japanese internet advertising market is a 3.7 trillion yen market that is expected to continue growing at a stable annual rate of 5% to 10%, with double-digit historical growth. • The market has a high number of competing players including many small and medium firms, leading to persistently high difficulty in customer acquisition. Platform automation has also homogenized service quality, making differentiation harder, and clients increasingly demand end-to-end marketing strategy and expanded product offerings instead of siloed services. Traditional siloed, bloated organizations struggle to deliver profitable services in this environment.

Competitive Advantage: • AViC has secured steady organic growth and ongoing enterprise customer acquisition via direct outreach and partnership with ADK Marketing Solutions. • The company uses in-house developed tools and data-driven, scientific talent development to consistently produce multi-skilled workers, enabling it to deliver high-quality non-person-dependent service at scale. It uses quantitative data to manage staffing and workflow matching customer service requirements, maintaining high productivity and profitability. • From FY2023 September to FY2025 September, AViC achieved an average annual revenue growth of 26.5% and an average operating profit margin of 23.7%, which are top-tier levels in the industry.

Growth Strategy: • 1. Planned workforce expansion: Conduct structured new graduate hiring and mid-career hiring of experienced talent to grow the organization in line with business growth; 19 new graduates are scheduled to join next fiscal year. • 2. Further customer base expansion: Leverage direct outreach and partnerships like the ADK joint venture ASY Marketing to scale enterprise client acquisition, earning consistent fees regardless of ownership stake. • 3. Continue operating the company's core "balanced growth and high productivity" management methodology to maintain reproducible high margins and productivity. • 4. Roll out this management methodology horizontally to newly acquired services and newly developed offerings to replicate strong growth and profitability across the expanded business, expanding AViC's addressable market and improving customer lifetime value and retention.

Recent Strategic Moves: • Established ASY Marketing, a joint venture with Chinese live commerce leader Simiaoyouwang, to enter the live commerce space, targeting fiscal 2026 for first earnings contributions. • Acquired Riareation, a leading vertical short video advertising firm that is an official TikTok Creative Exchange creative partner with deep TikTok expertise and industry awards. This acquisition strengthens AViC's capabilities in the fast-growing vertical video advertising market (projected 31.7% CAGR through 2028), which is core to supporting live commerce and TikTok Shop operations.

AViC operates two core business segments: 1. Internet Advertising Business: This is the company's primary revenue driver, with total third quarter revenue growing 50.3% YoY, driven largely by 45.1% YoY growth in revenue from enterprise clients. The segment achieved a 28.0% operating profit margin in the quarter. 2. SEO Consulting Business: This is a smaller, high-stock business focused on improving clients' organic search rankings while reducing client advertising costs. No separate absolute financial figures are provided for this segment in the transcript. Enterprise client revenue, which contributes the majority of overall revenue, grew 45.1% YoY in the quarter.

• For the fourth quarter of FY2025 September, AViC expects operating profit to exceed 0.2 billion yen, which will be a new all-time high quarterly operating profit, driven by strong enterprise order flow and entrenched structural profit improvement initiatives. • Full-year FY2025 September results are expected to come in above the original plan, with full-year operating profit projected to exceed 0.7 billion yen. Management has not revised the official full-year guidance at this stage because strong late-period order flow makes it difficult to accurately estimate the magnitude of the upward revision currently. • Full-year FY2026 September is expected to deliver another year of year-over-year revenue and profit growth, building on the expected strong fourth quarter performance of FY2025 as a launchpad. • All new strategic initiatives including M&A, Chinese business and live commerce are progressing on schedule, and the company is fully prepared to achieve non-continuous growth.

• Intense competition: The industry has a large number of competitors, leading to persistently high difficulty in customer acquisition, and service homogenization driven by platform automation increases the challenge of differentiation. • Industry headwinds: Some clients have reduced advertising budgets in the current market environment, creating pressure for industry incumbents. • SEO market shift: Widespread adoption of AI-powered search could gradually reduce demand for traditional SEO consulting services over time. • Uncertainty in new live commerce market: The Japanese live commerce market is still in an early undeveloped stage, and no player has yet established a clear path to success, creating execution uncertainty.

Q: Does AViC have plans to expand the live commerce business globally after focusing on Japan? / A: AViC will prioritize establishing the business in Japan first. The company notes that many Japanese manufacturers have global expansion goals, and plans to pursue international expansion of the live commerce business in line with these client objectives in the future.

Q: What is AViC's M&A strategy going forward? / A: AViC will continue to actively evaluate M&A opportunities, targeting both peer companies in the digital advertising space and firms that hold capabilities AViC does not currently have in-house to expand its service offerings and market reach.

Q: What is AViC's competitive advantage in the nascent Japanese live commerce market? / A: AViC's advantage is its end-to-end comprehensive capability: while opening a TikTok Shop is accessible to most players, successful live commerce requires KOL management, content planning, and high-volume short-form video production. Riareation's deep expertise in video production complements AViC's strength in end-to-end marketing planning, and the joint venture with a proven Chinese live commerce player lets AViC import established best practices to deliver full-service live commerce solutions for clients.

Q: How is AViC navigating the current advertising industry environment, where some clients are cutting ad spend? / A: AViC believes its own growth opportunities from competitive strength outweigh any industry headwinds. While the overall internet ad market is growing, few competitors have achieved high single-digit or better revenue growth currently; AViC has sustained ~30% annual revenue growth, and has been able to outperform the market even as some competitors face pressure from budget cuts. The company's strategy is to continue growing market share faster than industry headwinds can impact results.

Q: How will the SEO consulting business adapt to the rise of AI-powered search? / A: Management believes traditional SEO is unlikely to disappear entirely, but expects gradual demand contraction over time. It also anticipates that new forms of SEO consulting will emerge to support visibility in AI-powered search, and AViC plans to adapt its service offerings to meet these changing market demands over time.