20-F: TryHard Holdings FY25: Net Income Plunges Amid Growth

TryHard Holdings Limited reported a sharp 89% decline in net income for fiscal year 2025 to JPY15.1 million, despite a 2.2% increase in total revenue, signaling significant profitability challenges.

Summary

• Total revenues increased by 2.2% to JPY3,538.9 million (US$24.5 million) for the year ended June 30, 2025, from JPY3,461.2 million in the prior year.
• Net income significantly decreased by 89% to JPY15.1 million (US$0.1 million) for FY2025, compared to JPY137.4 million for FY2024.
• The Consultancy and Management segment's revenue grew by 14.3% to JPY2,480.3 million in FY2025, driven by the opening of three new clubs and enhanced marketing efforts.
• Event Curation revenue remained relatively stable at JPY898.8 million for FY2025.
• Sub-leasing revenue experienced a significant decline of 76.2% to JPY67.3 million in FY2025, primarily due to a head lease term modification reclassifying an arrangement as a finance sublease and liquidated damages from early lease termination.
• Restaurant segment revenue decreased by 17.9% to JPY92.5 million in FY2025, mainly due to the closure of a restaurant.
• Gross profit decreased by 10.3% to JPY700.5 million (US$4.9 million) for FY2025, with the overall gross margin declining from 22.6% in FY2024 to 19.8% in FY2025.
• Operating expenses increased by 22.5% to JPY774.5 million (US$5.4 million) for FY2025, outpacing revenue growth.
• General and administrative expenses rose by 24.3% to JPY502.3 million, impacted by a JPY26.7 million allowance for credit losses, JPY29.6 million in legal and professional fees related to the IPO, and increased staff and director fees.
• Other income saw a substantial increase, primarily due to a JPY162.2 million gain on derecognition of right-of-use assets and a JPY10.1 million gain on lease termination.
• Other expenses increased due to a JPY32.8 million loss on disposal of equipment and furniture following a restaurant closure.
• Net cash used in operating activities was JPY197.5 million (US$1.4 million) for FY2025, a reversal from JPY142.9 million generated in FY2024.
• Cash and cash equivalents decreased significantly by 85.8% from JPY94.1 million in FY2024 to JPY13.3 million (US$0.1 million) in FY2025.
• The company completed its Initial Public Offering (IPO) on August 29, 2025, raising approximately $2.7 million in net proceeds.

Sentiment

Score: 3

Explanation: While the company achieved slight revenue growth and successfully completed an IPO, the significant decline in net income, negative operating cash flow, and overall gross profit margin contraction indicate substantial deterioration in core profitability and operational efficiency. These financial headwinds outweigh the positive aspects, suggesting a challenging period for the company.

Positives

• Overall total revenues increased by 2.2% year-over-year to JPY3,538.9 million (US$24.5 million) in FY2025.
• The Consultancy and Management segment demonstrated strong growth, with revenue increasing by 14.3% to JPY2,480.3 million, driven by new club openings and enhanced marketing.
• Other income increased significantly by JPY166.0 million, primarily due to a JPY162.2 million gain on derecognition of right-of-use assets and a JPY10.1 million gain on lease termination.
• The negative gross margin in the restaurant segment improved from -58.2% in FY2024 to -30.2% in FY2025, indicating progress in optimizing operations.
• Successfully completed an Initial Public Offering (IPO) on the Nasdaq Capital Market on August 29, 2025, raising approximately $2.7 million in net proceeds.
• Established strategic partnerships and collaborations with government agencies and corporate entities to promote tourism and regional revitalization, and for event sponsorships and beverage promotions.

Negatives

• Net income plummeted by 89% from JPY137.4 million in FY2024 to JPY15.1 million (US$0.1 million) in FY2025.
• Gross profit decreased by 10.3% to JPY700.5 million, and the overall gross margin declined from 22.6% to 19.8% year-over-year.
• The Sub-leasing segment experienced a substantial revenue decrease of 76.2% to JPY67.3 million, attributed to a head lease reclassification and liquidated damages from early lease termination.
• Restaurant segment revenue declined by 17.9% to JPY92.5 million due to a restaurant closure, despite efforts to optimize operations.
• Event Curation gross margin decreased from 10.5% in FY2024 to 6.0% in FY2025, partly due to losses on several events undertaken for market expansion.
• Operating expenses increased by 22.5% to JPY774.5 million, significantly outpacing the 2.2% revenue growth, indicating rising operational costs.
• General and administrative expenses were impacted by a JPY26.7 million allowance for credit losses in FY2025, contrasting with a reversal in FY2024.
• Increased legal and professional fees of JPY29.6 million were incurred, primarily due to audit expenses associated with the IPO.
• A JPY32.8 million loss on disposal of equipment and furniture was recorded due to the closure of a restaurant.
• Net cash flow from operating activities turned negative, with JPY197.5 million used in FY2025, a significant deterioration from JPY142.9 million generated in FY2024.
• Cash and cash equivalents decreased by 85.8% to JPY13.3 million (US$0.1 million) at the end of FY2025.

Risks

• The event curation business is exposed to significant risks from unpredictable demand and potential event cancellations due to economic conditions, consumer preferences, competition, adverse weather, or public health concerns.
• The club business is subject to substantial regulatory and operational risks, including changes in licensing, noise restrictions, health and safety standards, alcohol laws, and potential liabilities from accidents or security incidents.
• The sub-leasing business faces risks related to lease agreements, such as inability to secure favorable rates for tenants, tenant defaults, and fluctuations in the real estate market affecting rental prices and property values.
• Operating in a highly competitive restaurant and F&B market with high operating costs, evolving consumer preferences, and fluctuating food supply costs can adversely affect profitability.
• Failure to attract and retain key entertainers and highly skilled employees, particularly in a competitive hiring environment in Japan and globally, could harm growth prospects.
• Vulnerability to changes in consumer preferences and broader economic conditions, including economic downturns, rapid inflation, tight labor markets, and increased lease expenses, could reduce consumer spending and negatively impact revenue.
• Cyber-attacks and security vulnerabilities pose a serious threat, as evidenced by a recent ransomware incident at an underwriter, potentially leading to substantial liability, regulatory actions, financial penalties, and reputational harm, especially given the lack of errors, omissions, and cyber liability insurance.
• Exposure to natural disasters, unusual weather conditions, pandemics, political events, war, terrorism, and unfavorable macroeconomic conditions like inflation and rising interest rates could disrupt business operations and increase costs.
• Risk of accidents and injuries during events, which could lead to substantial liabilities, litigation costs, increased insurance premiums, and reputational damage.
• Current insurance coverage may not sufficiently protect against all risks, and insurance premiums may increase in the future.
• The company may need to raise additional capital to fund growth, and there is no assurance that financing will be available on acceptable terms or at all.
• Executive officers lack prior experience in operating a U.S. public company, which could lead to compliance challenges and regulatory scrutiny.
• Planned increases in executive officer compensation will raise operating costs, requiring commensurately higher revenue to maintain profitability.
• The market price of Ordinary Shares may be volatile or decline regardless of operating performance, making it difficult for investors to assess value.
• Mr. Rakuyo Otsuki, the CEO, holds Series A Preferred Shares and controls approximately 70.48% of the voting power, giving him significant influence over corporate decisions that may not align with other shareholders' interests.
• As a relatively small-capitalization company with a small public float, the Ordinary Shares may experience extreme price volatility, low trading volume, and large bid-ask spreads.
• Failure to implement and maintain an effective system of internal controls could lead to inaccurate or untimely financial reporting, fraud, and a decline in investor confidence.
• Incurring substantial increased costs as a public company, including compliance with Sarbanes-Oxley Act and SEC/Nasdaq rules.
• Substantial future sales of Ordinary Shares, including potential resales, could cause the share price to decline.
• If securities or industry analysts do not publish research or publish negative reports, the price and trading volume of Ordinary Shares could decline.
• Management has broad discretion over the use of IPO proceeds, which may not enhance results of operations or the share price.
• Ceasing to qualify as a foreign private issuer would require full compliance with U.S. domestic issuer reporting requirements, incurring significant additional expenses.
• Difficulties in protecting shareholder interests and limited ability to protect rights through U.S. courts due to incorporation under Cayman Islands law, which provides less protection than U.S. securities laws.
• Risk of delisting from the Nasdaq Capital Market if listing requirements are not continuously met.
• As an emerging growth company, taking advantage of certain exemptions from disclosure requirements may make it difficult to compare performance with other public companies and could affect investor confidence.
• As a controlled company, the company may elect to rely on exemptions from certain Nasdaq corporate governance requirements, potentially reducing protections for public shareholders.
• Potential classification as a Passive Foreign Investment Company (PFIC) could result in adverse U.S. federal income tax consequences for U.S. taxpayers holding Ordinary Shares.

Future Outlook

The company plans to expand its consultancy and management segment through strategic collaborations with advertising companies to reach new markets and secure long-term partnerships. It anticipates significant growth by increasing self-produced events, leveraging brand strength, diversifying event types, and creating cross-promotional opportunities. The company will also explore opportunities to enhance its sub-leasing and restaurant segments, including geographic expansion, investing in technology to improve customer experiences, and optimizing internal processes for sustainable growth. Management is committed to optimizing revenue streams and driving operational efficiencies, while closely monitoring market demand, regulatory changes, competition, and broader economic conditions.

Management Comments

• We're dedicated to improving operational efficiency and streamlining our cost structure. These strategic measures are designed to enhance our net profit margins, ensuring the company's long-term financial stability and profitability.
• As we move forward, we believe we are poised to capture new opportunities and drive sustainable growth within the entertainment and hospitality sectors.
• Management remains focused on delivering long-term value to our stakeholders and is confident in our ability to adapt to evolving market conditions while capitalizing on growth opportunities.
• Over time, we believe we have established ourselves as a premier event curator, delivering exceptional experiences that captivate audiences and foster memorable connections.
• We are proactively taking steps to optimize restaurant operations. Our focus lies on implementing strategies to reduce the share of fixed costs in the total cost structure, thereby boosting the segment's profitability.

Industry Context

The lifestyle entertainment industry is poised for significant growth, driven by increasing demand for experiential events and nightlife experiences. Japan's tourism industry is projected to grow at a CAGR of 3.8% from $210 billion in 2024 to $245 billion in 2028, with a growing middle class seeking unique experiences. Globally, the lifestyle entertainment market is expected to grow at a CAGR of 7% from $2.71 trillion in 2024 to $3.55 trillion in 2028, with the Asia Pacific region leading this growth at a 7.5% CAGR. Japan's event industry is forecast to increase at a CAGR of 6.8% from $90 billion in 2023 to $140 billion in 2030, and its nightclub industry at a CAGR of 5.2% from $12 billion in 2023 to $16 billion in 2030. The company believes its existing service offerings position it well to capitalize on these market trends and drive growth.

Comparison to Industry Standards

• The filing highlights significant growth projections for the lifestyle entertainment, tourism, event, and nightclub industries in Japan and the Asia-Pacific region, indicating a favorable market environment.
• The company states it is 'well-positioned and in line with the market trends' to take advantage of these opportunities, leveraging its expertise in event curation, nightclub management, and tourism-related services.
• However, the filing does not provide specific comparable companies, projects, or detailed performance benchmarks against global or regional industry leaders to assess the company's relative standing or specific competitive advantages beyond its general market positioning.

Management Changes

Corporate Governance

Related Party Transactions

• Revenue from Music Circus Co. (an associate) amounted to JPY135.890 million (US$0.943 million) for FY2025.
• Cost of revenue from Music Circus Co. was JPY30.977 million (US$0.215 million) for FY2025.
• Selling and marketing expenses paid to Music Circus Co. totaled JPY7.331 million (US$0.051 million) for FY2025.
• Capital contributions from the shareholder (Mr. Otsuki) were JPY30.0 million for FY2024 and JPY379.364 million (US$2.631 million) for FY2025.
• Accounts receivable from Music Circus Co. were JPY0.107 million (US$0.001 million) as of June 30, 2025.
• Accounts payable to Music Circus Co. were JPY12.900 million (US$0.089 million) as of June 30, 2025.
• Amount due to Music Circus Co. was JPY26.629 million (US$0.185 million) as of June 30, 2025.
• Compensation for key management personnel (including Mr. Otsuki and Mr. Hiraoka) totaled JPY110.282 million (US$0.765 million) for FY2025.

Stakeholder Impact

• Shareholders face potential stock price volatility, dilution from future capital raises, and significant influence from the controlling shareholder (Mr. Otsuki) due to his substantial voting power. Limited shareholder rights under Cayman Islands law compared to U.S. jurisdictions may also impact their ability to protect interests.
• Employees may benefit from the provision of dormitories and increased staff-related costs, but the company's ability to attract and retain key talent remains a risk in a competitive market.
• Customers are targeted with enhanced marketing and new entertainment offerings, but unpredictable event demand, potential cancellations, and operational issues could impact their experience.
• Creditors are exposed to the company's liquidity risk, with a shift to negative operating cash flow in FY2025 and increased interest expenses on borrowings.
• Suppliers and vendors could be impacted by economic downturns affecting overall demand for the company's services and products.

Next Steps

• Expand the consultancy and management segment through strategic collaborations with advertising companies to reach new markets and secure long-term partnerships.
• Increase self-produced events to maximize revenue, leverage brand strength, diversify event types, and create cross-promotional opportunities.
• Explore opportunities to enhance the sub-leasing and restaurant segments, including potential geographic expansion, investing in technology to improve customer experiences, and optimizing internal processes.
• Implement additional review procedures within the accounting and finance department, hire additional staff, and engage external accounting experts to improve accounting processes and remediate the identified material weakness in internal controls over financial reporting.
• Monitor market demand for entertainment services, regulatory changes, competition, and broader economic conditions to adjust strategies as needed.

Key Dates

Recommendation

The company's financial performance for FY2025 shows a significant deterioration in profitability, with net income plunging by 89% and gross profit declining by 10.3%, despite a modest 2.2% increase in total revenue. Operating expenses grew substantially, outpacing revenue growth, and the company shifted from generating cash to using cash in its operating activities. Key segments like sub-leasing and restaurants experienced significant revenue declines. While the recent IPO provides some capital, the underlying operational challenges and declining profitability metrics are concerning. The concentration of voting power with the CEO also presents a governance risk for minority shareholders. These factors suggest a negative outlook for the stock, warranting a 'sell' recommendation for seasoned investors.

Keywords

Japan entertainment, event curation, club management, sub-leasing, restaurant operations, lifestyle entertainment, Nasdaq IPO, financial performance, risk factors, corporate governance, JPY revenue, net income, operating expenses, capital raise, cybersecurity, related party transactions, Rakuyo Otsuki, Series A Preferred Shares, Cayman Islands, tourism industry Japan, economic volatility, internal controls