FreakOut Holdings,inc. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥50.32B
• Operating Income: ¥96M
• Net Income: ¥-657M
• EPS: ¥15.85

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: A mixed quarter—topline declined and operating profit nearly vanished, but ordinary and net income improved YoY on sizable non-operating and equity-method contributions, masking weak core profitability. Revenue fell 2.7% YoY to 503.23, while gross profit was 140.63 and SG&A was 139.67, leaving operating income at just 0.96. Despite the operating weakness, ordinary income rose 53.9% YoY to 5.64 and net income rose 81.5% YoY to 2.75, aided by 8.89 in non-operating income (including 6.64 of equity-method income) against 4.21 of non-operating expenses. Gross margin stood at 27.9%, but operating margin compressed to 0.19%, reflecting SG&A absorbing nearly all gross profit. Ordinary margin reached 1.12%, which is roughly 93 bps higher than operating margin due to non-operating gains; net margin was 0.55%. Earnings quality is weak: OCF was -0.36 versus positive net income of 2.75, yielding an OCF/NI ratio of -0.13x, and free cash flow was -10.22. Leverage is elevated (D/E 2.31x) and interest coverage is thin at 0.52x on an EBIT basis, highlighting sensitivity to financing costs. Liquidity, however, is adequate with a current ratio of 156.7% and cash of 163.68 exceeding short-term loans of 64.08. ROE was a modest 2.3% (NPM 0.6% × AT 1.252 × leverage 3.31x), with leverage propping up returns amid slim margins. ROIC was only 0.5%, well below typical cost of capital, signaling poor capital efficiency. Equity-method income accounted for more than total pretax profit (equity-method income ratio 128.5%) and non-operating income ratio was 564.8%, underscoring heavy reliance on affiliates and non-core items. The effective tax rate was high at 44.2%, likely reflecting mix effects and non-deductible items. With investing CF -9.86 and financing CF -29.92, the company drew down cash but still holds a sizable cash buffer. Forward-looking, stabilization of the core ad-tech operations, tighter SG&A discipline, and improved cash conversion are essential; reliance on affiliates and non-operating gains introduces volatility risk. Absent visible dividend disclosure and given negative FCF, capital return capacity appears limited near term. Overall, near-term profit optics benefited from affiliates, but core margin repair and balance sheet de-risking remain the key drivers for sustainable improvement.

Profitability Analysis

ROE decomposition: 2.3% ROE = 0.6% net profit margin × 1.252 asset turnover × 3.31x financial leverage. The weakest link is net profit margin at 0.6%, given operating margin of just 0.19% before non-operating lift. Financial leverage is relatively high at 3.31x and is effectively compensating for weak margins to keep ROE positive. The biggest change driver vs the operating line is non-operating income (notably 6.64 equity-method income), which elevated ordinary and net profit despite negligible operating profit. Business-wise, near-equality of SG&A (139.67) to gross profit (140.63) indicates limited operating leverage and pressure from fixed costs, implying that even stable revenue yields minimal EBIT. This margin structure is unlikely to be sustainably offset by non-operating items; equity-method contributions can be volatile and are outside direct operational control. The improvement at ordinary and net levels suggests affiliate strength or one-time gains, not fundamental margin expansion in the core. Red flags include SG&A intensity: SG&A/gross profit ~99% and SG&A/revenue ~27.7%, leaving little room for profit. Without a clear path to reduce SG&A or expand gross margin, ROE will likely remain leverage-dependent and low.

Growth Assessment

Revenue declined 2.7% YoY to 503.23, indicating soft end-demand or client spend moderation in the core ad-tech businesses. Operating income collapsed to 0.96, but ordinary income increased 53.9% YoY to 5.64 and net income rose 81.5% YoY to 2.75, driven by 8.89 in non-operating income. The profit mix is skewed toward affiliates and non-operating factors (equity-method income 6.64), rather than core operations. EBITDA of 11.50 (2.3% margin) offers limited cushion against interest (1.84) and ongoing investment needs. With ROIC at 0.5%, incremental growth that requires capital will be value-destructive unless returns improve. Near-term outlook hinges on: (1) SG&A containment to restore operating margin above 1%, (2) improved monetization or mix shift in the media/advertising platform businesses to lift gross margin, and (3) stability of equity-method profits. Absent clearer signs of core margin repair and cash conversion, revenue stabilization alone will not translate into quality earnings.

Financial Health

Liquidity is adequate: current ratio 156.7% and cash of 163.68 comfortably covering short-term loans of 64.08 and accounts payable of 68.06. No warning on current ratio (<1.0) is triggered. Solvency is pressured: D/E at 2.31x exceeds the 2.0 threshold and total interest-bearing debt of roughly 144.83 (short + long) is high relative to EBITDA (Debt/EBITDA ~12.6x per provided metric). Interest coverage based on operating income is 0.52x, signaling tight debt service capacity if non-operating support fades. Maturity mismatch risk is moderate: near-term funding needs appear covered by cash, but sustained negative FCF would erode the buffer. Off-balance sheet obligations are not disclosed in the data; none can be assessed.

Cash Flow Quality

OCF was -0.36 versus net income of 2.75, giving OCF/NI of -0.13x—a quality concern. Free cash flow was -10.22, indicating external funding or cash reserves are required to support operations and investments. Investing CF of -9.86 includes capex of -2.16 and additional investment outlays; the scale suggests ongoing growth or maintenance spending not yet yielding cash returns. Working capital likely consumed cash (e.g., receivables 98.84 are sizable versus revenue scale), but detailed drivers are not disclosed. With interest expense of 1.84 and thin EBIT, internally funded deleveraging is challenging. No obvious signs of deliberate working capital manipulation are evident from the limited snapshot, but the divergence between NI and OCF warrants caution and closer monitoring of collections and payables timing.

Dividend Sustainability

Dividend data are unreported; payout ratio and total dividends paid are N/A. Given negative FCF (-10.22), weak operating margin (0.19%), and high leverage (D/E 2.31x), internal coverage for dividends would be constrained if any were paid. Policy outlook cannot be inferred from the data; however, prudent capital allocation would prioritize cash preservation and deleveraging until operating cash flow turns sustainably positive.

Risk Assessment

Business Risks:

• Core operating margin at 0.19% leaves little buffer against revenue shocks.
• High SG&A intensity (~99% of gross profit) limits operating leverage.
• Reliance on equity-method income (6.64) for profitability; affiliate volatility can materially swing results.
• Industry cyclicality in digital advertising spend and pricing pressure in ad-tech platforms.
• Execution risk in integrating/intangibles (intangible assets 47.86; goodwill 13.68) if growth does not materialize.

Financial Risks:

• High leverage: D/E 2.31x and Debt/EBITDA ~12.6x.
• Weak interest coverage (0.52x on EBIT) increases refinancing and rate sensitivity.
• Negative OCF and FCF (-0.36 and -10.22) strain internal funding.
• Elevated effective tax rate (44.2%) could persist, reducing net cash generation.
• Potential impairment risk if low ROIC (0.5%) persists.

Key Concerns:

• EARNINGS_QUALITY: OCF/Net Income -0.13x signals low cash conversion.
• EQUITY_METHOD_DEPENDENCY: Equity-method income exceeds pretax profit (128.5%).
• CAPITAL_EFFICIENCY: ROIC 0.5% well below cost of capital.
• DEBT_SERVICE: Interest coverage 0.52x; ordinary income supported by non-operating items.

Investment Implications

Key Takeaways:

• Headline profit improved YoY at ordinary/net levels due to non-operating and affiliate income, not core operations.
• Operating margin is essentially flatlined; SG&A discipline is the immediate lever to restore EBIT.
• Cash conversion is weak and FCF negative; deleveraging from internal cash is difficult near term.
• Equity-method dependence introduces volatility; sustainability of affiliate earnings is pivotal.
• Liquidity is decent today, but leverage and debt service metrics constrain financial flexibility.

Metrics to Watch:

• Operating margin (target >1% near term) and SG&A/gross profit ratio.
• OCF/Net income (>1.0 over time) and FCF trajectory.
• Equity-method income trend and composition by affiliate/business.
• Interest coverage (>2x) and net debt movement.
• ROIC improvement toward >5% medium term.

Relative Positioning: Within Japan small/mid-cap ad-tech peers, profitability and cash conversion appear weaker, with higher leverage and heavier reliance on non-operating/affiliate income; balance sheet liquidity is comparatively adequate, but capital efficiency and core margin quality lag.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis