OKINAWA CELLULAR TELEPHONE COMPANY Q3 FY2025 earnings call

Overall Financial Results

• Total operating revenue for the third quarter was 62.409 billion yen, +6.8% year-over-year; operating profit was 13.7 billion yen, +0.4% year-over-year, achieving both revenue and profit growth.
• Ordinary profit was 13.778 billion yen, +114 million yen year-over-year; net income was 9.477 billion yen, -100 million yen year-over-year, a pullback from the prior year's investment tax break for the completed island submarine cable project. EBITDA was 18.881 billion yen, +125 million yen year-over-year.
• Free cash flow was 10.062 billion yen, -5.436 billion yen year-over-year due to a pullback from the prior year's increased investment cash flow for TOB-related expenses; excluding related party loan changes, FCF was 4.356 billion yen, +733 million yen year-over-year.
• Cumulative capital expenditure through the third quarter was 4.177 billion yen, -2.193 billion yen year-over-year due to the pullback from the prior year's submarine cable completion, and it is broadly on track with plan.

Core Business Updates

• Mobile business: Despite intensified competition, Q3 mobile net additions hit 3,500 contracts, +2,100 quarter-over-quarter. The churn rate remains stubbornly high at 1.14%, which is an urgent priority to address. 5G penetration among au smartphones reached 75%. Communication ARPU for Q3 was 9.153 billion yen, -0.9% quarter-over-quarter, driven by slower inbound tourist growth reducing roaming revenue with KDDI. Value-added ARPU grew 5.9% quarter-over-quarter (excluding retroactive adjustment), led by strong growth in device insurance services.
• FTTH business: Q3 net additions hit 1,600 lines, +300 quarter-over-quarter, reaching 102% of the full-year net addition target of 4,000 lines. The company launched Okinawa's first 10Gigabit FTTH service, with plans to expand coverage to 75% of the existing 1Gigabit service area by October 2025 and to the entire prefecture by June 2026; the service will be bundled with mobile to improve customer engagement and reduce churn.
• au Denki business: Rising fuel procurement costs have worsened profitability since Q1, leading the company to restrict sales activities. Q3 alone saw a net loss of 400 contracts, and sales restrictions will continue in Q4 to prioritize cost control.
• Solution business growth: Completed a large integrated communication solution project for the relocation of University of the Ryukyus Hospital, including FMC mobile internal line service, in-ward data access, projection mapping and digital signage. Starlink Business adoption has expanded across Okinawa, with use cases including on-board Wi-Fi for Ryukyu Kaiun shipping and remote inspection for underground tunnel construction sites.

ESG and Local Contribution

• Sponsored Naha City's Out of KidZania event that drew over 5,000 applicants and 2,100 participating primary school students. Donated 1.5 million yen in relief funds to three northern Okinawa municipalities affected by heavy rain in November 2024, with cumulative support from the 8-year Children's Fund reaching 35.7 million yen.
• Supports the Shuri Castle reconstruction project, and provided audio equipment for school outreach activities. The company's participation in conservation of the endangered seagrass Enhalus acoroides on Ishigaki Island led to the site being certified as Japan's Ministry of the Environment

1. Telecommunications Business: Reported a +17 million yen increase in revenue year-over-year, contributed 0.04% of the total operating revenue growth. Core mobile ARPU performance: Total multi-brand ARPU revenue was 32.945 billion yen, +382 million yen year-over-year, with communication ARPU at 27.43 billion yen (+41 million yen YoY) and value-added ARPU at 5.515 billion yen (+341 million yen YoY). Mobile handset net additions reached 8,800 contracts, total mobile contracts hit 686,400, terminal sales volume was 112,900 units. FTTH (au Hikari Chura) net additions were 4,100 lines, total cumulative lines reached 128,400. 2. Ancillary Business: Reported a +3.954 billion yen increase in revenue year-over-year, contributed 99.96% of the total operating revenue growth. Breakdown: au Denki sales grew +2.031 billion yen YoY, other ancillary revenue (mainly terminal sales and solution sales) grew +1.923 billion yen YoY. au Denki cumulative net additions for the first three quarters were 3,100 contracts, total contracts reached 78,100.

• Full-year operating revenue is upward revised from 80 billion yen to 83 billion yen, a +3 billion yen increase from the initial forecast, driven by higher-than-expected au Denki sales and terminal sales revenue; no other profit forecast items are revised.
• Full-year free cash flow is upward revised from the initial forecast to 11.6 billion yen, a +1.9 billion yen increase, following the increased share buyback in the second quarter.
• Full-year completion-based capital expenditure is downward revised by 3 billion yen to 6 billion yen; the company confirms cost reduction is on track and capital expenditure remains in line with plan.
• Full-year FTTH net addition target is upward revised from 4,000 lines to 4,400 lines, after the target was already achieved in the first three quarters.
• Full-year au Denki net addition target is downward revised by 5,000 contracts to 1,800 contracts, due to continued profitability pressure and sales activity restrictions; the company will provide an update on next fiscal year's improvements once preparations are complete.

• Mobile business: The industry faces intensified competition, and the mobile churn rate has stayed at a high level of 1.14%, which is an urgent operational risk that requires active mitigation.
• au Denki business: Sustained rising fuel procurement costs have worsened profitability, forcing the company to restrict sales activities, resulting in a net contraction of 400 contracts in Q3, which creates pressure on medium-term customer growth.
• Communication ARPU: Q3 communication ARPU declined quarter-over-quarter, driven by slower growth in inbound tourist numbers reducing KDDI roaming revenue, creating near-term pressure on core communication revenue.
• Net addition progress: Mobile full-year net additions are at 65% of the full-year target through three quarters, slightly behind the prior year's progress, requiring additional effort to hit the full-year target.

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