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

FreakOut Holdings (6094) reported FY2025 Q4 full-year revenue of ¥50.323bn, declining 2.7% YoY, highlighting a modest top-line contraction in a challenging advertising/marketing-tech demand backdrop. Gross profit was ¥14.650bn, implying a gross margin of 29.1%, which provides a reasonable buffer but did not translate into operating profitability. Operating income collapsed to ¥96m (c. 0.2% margin), down 99.9% YoY, indicating severe operating margin compression and/or higher operating expense intensity. Ordinary income recovered to ¥564m (c. 1.1% margin), suggesting material non-operating income helped offset weak core operations. Net income was ¥275m, up 81.5% YoY off a low base, but the improvement appears quality-light given the weak operating result and negative operating cash flow. DuPont decomposition yields ROE of 2.26% = 0.55% net margin × 1.252x asset turnover × 3.31x financial leverage, indicating low profitability partially masked by leverage. EBITDA was ¥984m (2.0% margin), highlighting thin operating cash-earnings capacity relative to revenue scale. Interest coverage was just 0.9x, underscoring tight headroom to service interest from operating profits. Operating cash flow was -¥36m versus positive net income, resulting in an OCF/NI ratio of -0.13, pointing to weak cash conversion likely driven by working capital movements and/or non-cash earnings items. Free cash flow was -¥1.022bn given ¥986m investing outflows, pointing to continued cash needs for capex/investments. Liquidity appears adequate with a current ratio of 183.9% and working capital of ¥14.255bn, providing near-term flexibility. On solvency, total assets were ¥40.21bn and equity ¥12.143bn, implying an equity ratio around 30.2% (despite the disclosed metric showing 0.0%, likely undisclosed), and financial leverage at 3.31x assets/equity remains elevated. Financing cash flow was -¥2.992bn, suggesting debt reduction and/or other financing outlays that tightened cash in the period. The company paid no dividends (DPS ¥0), consistent with conserving cash given negative FCF and thin profitability. Several disclosures (e.g., cash balance, inventory, share count, formal equity ratio) show as zero and should be treated as unreported rather than actual zero; conclusions are therefore based on available non-zero items and calculated metrics. Overall, FY2025 reflects resilient gross value creation but strained operating profitability, high operating leverage, and weak cash conversion, with adequate liquidity but tight interest coverage.

Profitability Analysis

ROE_decomposition: ROE 2.26% = Net profit margin 0.55% × Asset turnover 1.252× × Financial leverage 3.31×. Low ROE is driven primarily by thin net margins, with moderate asset efficiency and elevated leverage amplifying the result. margin_quality: Gross margin at 29.1% supports value-add in the model, but operating margin collapsed to ~0.2% (¥96m OI on ¥50.323bn revenue), indicating cost pressure and/or higher SG&A/R&D intensity. Ordinary margin improved to ~1.1% due to non-operating gains, while net margin remained low at 0.55%. EBITDA margin of 2.0% suggests limited operating cash-earnings capacity. operating_leverage: The near-wipeout of operating income despite only a 2.7% revenue decline implies high operating leverage and limited ability to flex opex in-year. Interest coverage at 0.9x points to insufficient operating profit to comfortably service interest, heightening sensitivity to further margin pressure.

Growth Assessment

revenue_sustainability: Revenue declined 2.7% YoY to ¥50.323bn, implying subdued demand or share/mix headwinds. Without segment detail, sustainability is uncertain; the level suggests a large recurring/transactional base but with cyclical exposure. profit_quality: Net income rose 81.5% YoY to ¥275m primarily on non-operating/extraordinary contributions rather than core operations, given the 99.9% YoY drop in operating income and negative OCF. Quality of earnings is therefore weak. outlook: Absent disclosure of order backlog or pipeline, near-term growth hinges on restoring operating margin via cost discipline and improving monetization. With thin EBITDA margin (2.0%) and tight interest coverage, the company must rebuild operating profit to sustain growth investments.

Financial Health

liquidity: Current assets ¥31.252bn vs. current liabilities ¥16.998bn yield a current ratio of 183.9% and quick ratio of 183.9% (inventories undisclosed). Working capital is a solid ¥14.255bn, indicating near-term liquidity is adequate. solvency: Total assets ¥40.21bn and equity ¥12.143bn imply an equity ratio of ~30.2% and financial leverage of 3.31x. Debt-to-equity is 2.03x (likely interest-bearing debt basis), a moderate-to-elevated leverage profile. Interest coverage of 0.9x is a key weakness. capital_structure: Financing CF of -¥2.992bn suggests deleveraging and/or other financing outflows during the period. Maintaining covenant headroom will require improved operating income and positive OCF.

Cash Flow Quality

earnings_quality: OCF/Net income at -0.13 indicates poor cash conversion; positive accounting earnings did not translate into cash, pointing to working capital build and/or non-cash gains. EBITDA of ¥984m vs. OI of ¥96m implies large non-cash D&A, but after working capital effects, cash generation was negative. FCF_analysis: Free cash flow was -¥1.022bn (OCF -¥36m and investing CF -¥986m), indicating external funding or cash reserves were needed to support investments. Negative FCF in a low-margin year increases reliance on financing or balance sheet. working_capital: Absolute working capital is strong at ¥14.255bn; however, the negative OCF suggests net working capital outflows in the year. Without component detail (receivables, payables), the exact drivers are unclear.

Dividend Sustainability

payout_ratio_assessment: DPS was ¥0 and payout ratio 0.0%, consistent with conserving cash amid weak profitability (ROE 2.26%) and negative FCF. FCF_coverage: With FCF at -¥1.022bn, dividends would not be covered; suspension is prudent until OCF turns positive and capex/investment cash needs moderate. policy_outlook: Given leverage (D/E 2.03x) and sub-1x interest coverage, capital allocation likely prioritizes profitability recovery, cash generation, and balance sheet resilience over shareholder distributions in the near term.

Risk Assessment

Business Risks:

• High operating leverage: small revenue declines translate into disproportionate operating profit compression.
• Client/industry cyclicality typical of digital advertising and marketing technology demand.
• Execution risk in restoring operating margins amid competitive pricing and platform changes.
• Dependence on non-operating income to achieve ordinary profit in a weak year.
• Potential volatility from technology/platform policy shifts affecting ad-tech monetization.

Financial Risks:

• Interest coverage at 0.9x indicates limited buffer to service debt costs from operations.
• Negative OCF and FCF increase reliance on financing or cash reserves.
• Leverage (financial leverage 3.31x; D/E 2.03x) amplifies earnings volatility and ROE sensitivity.
• Tax cash flows and effective tax rate visibility are limited; reported effective tax metric appears non-representative.
• Refinancing risk if credit conditions tighten given weak operating profitability.

Key Concerns:

• Sustainability of core operating earnings after a 99.9% YoY decline in operating income.
• Weak cash conversion (OCF/NI -0.13) in conjunction with negative FCF.
• Tight interest coverage with need to stabilize EBITDA and OI.
• Data gaps in key disclosures (cash, inventories, equity ratio, share count) complicate per-share and liquidity analysis.

Investment Implications

Key Takeaways:

• Revenue contracted 2.7% YoY to ¥50.323bn amid a challenging backdrop.
• Gross margin at 29.1% but operating margin collapsed to ~0.2%, indicating severe cost pressure.
• ROE at 2.26% is low and leverage-driven; core profitability is insufficient.
• OCF negative and FCF -¥1.022bn, underscoring weak cash generation.
• Liquidity is adequate (current ratio 183.9%), but solvency headroom is constrained by 0.9x interest coverage.
• No dividend, consistent with conserving cash and focusing on recovery/deleveraging.

Metrics to Watch:

• Operating income and EBITDA trend and margin recovery versus revenue trajectory.
• OCF and OCF/NI ratio for improvement in cash conversion.
• Working capital movements (DSO/DPO) once disclosed.
• Interest coverage and net debt/EBITDA to assess solvency buffer.
• Capex/investment cash outflows and their payback.
• Equity ratio and D/E trend following financing cash flows.

Relative Positioning: The company exhibits adequate liquidity but weaker operating profitability and cash conversion than would be expected for the revenue scale, leaving it more vulnerable than peers with stronger EBITDA margins and interest coverage, though leverage is manageable if operating metrics normalize.

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