Ateam Holdings Co., Ltd. (3662.T) Earnings Call Transcript & Summary

Welcome to Ateam Inc.'s Fiscal 2021 First Quarter Financial Results Briefing. Let me start my presentation. Ateam is a comprehensive IT company that conducts business in various technological and business fields, centered around the Internet. We aspire to leverage our technology to continue developing and deploying business in various markets through the Internet. First, the summary of the fiscal 2021 Q1 financial results. Overall, on the consolidated basis, revenue decreased while income increased year-on-year. Quarter-on-quarter, both revenue and income were higher. Revenue was JPY 7.493 billion; operating income, JPY 378 million; and net income, JPY 258 million. Lifestyle Support business posted a year-on-year decrease in revenue and profit and quarter-on-quarter increase in revenue and profit, with revenue of JPY 4.744 billion and profit of JPY 446 million. Profit margin was 63.3% (sic) [ 9.4% ]. The segment posted a year-on-year decrease on weaker bridal demand due to the impact of COVID-19, but made a steady recovery quarter-on-quarter. In the Entertainment business, revenue decreased and profit increased year-on-year, while quarter-on-quarter revenue and profit decreased. Revenue was JPY 1.785 billion, profit was JPY 93 million and profit margin was 23.8% (sic) [ 5.2% ]. Revenue of existing game apps decreased year-on-year, but profit increased with continuous improvement of operational efficiency. The Q-on-Q decrease was a reactionary decline from various events held in the previous quarter. E-Commerce achieved a year-on-year increase in revenue and profit with a record high quarterly profit. Revenue was JPY 963 million, profit was JPY 74 million and profit margin was 12.9% (sic) [ 7.68% ]. In addition to business growth, growing demand for bicycles resulted in a significant year-on-year revenue increase. The segment recorded profitability for the third consecutive quarter. This slide shows trends in consolidated earnings and progress against the full year forecast. Revenue was generally in line with the full year consolidated forecast and income exceeded forecast. The Q1 achievement rate of revenue was 22.4%; operating income, 75.8%; and net income, 129%, respectively. Nothing in particular to note on this slide, so I will move on to the next slide. And here, you can see the consolidated quarterly financial trends. The quarterly trends of key management indicators, no particular changes here either. This is the quarterly promotional expense trends by segment. In Lifestyle Support, expense increased Q-on-Q due to rise in acquisitions in the financial media, which was greatly impacted by COVID-19 in the previous quarter. In Entertainment, promotional expense decreased Q-on-Q owing to the improved operational efficiency. This is the quarterly trends in the number of employees by segment, no significant change here either. And the balance sheet, no major changes. Next, fiscal 2021 Q1 business details. First, the Lifestyle Support business, the General Manager of the division, Fumio Mase, will explain.

This is Mase. I would like to go over the Lifestyle Support business performance trends. As was mentioned earlier, in relation to the overall results, revenue and profit dropped year-on-year as demand for Hanayume and others decreased due to the impact of COVID-19. But quarter-on-quarter, revenue and profit increased as a result of a strong recovery in businesses other than Hanayume, centering on NaviNavi Cashing. Next, the quarterly revenue trends by subsegment in the Lifestyle Support business. Revenue of the Digital Marketing Support business decreased year-on-year but recovered quarter-on-quarter. In the Platform business, revenue and profit increased year-on-year but remained unchanged quarter-on-quarter. Other, consists of new businesses, saw revenue increase both year-on-year and quarter-on-quarter. Please note the footnotes below regarding the classification of the Other. Next is the revenue trends of the Digital Marketing Support business. It decreased by 16.8% year-on-year. As mentioned earlier, revenue of this business decreased year-on-year, greatly affected by the decline in demand for Hanayume, but recovered quarter-on-quarter. As mentioned earlier, recovery was mainly driven by NaviNavi Cashing. Next is the trend of KPIs in the Digital Marketing Support business. The user count dropped significantly in Q4 of fiscal 2020 due to the impact of COVID-19, but has recovered since. ARPU is at a slightly lower level than in the past as Hanayume business, which enjoys high ARPU, remained sluggish. But CPA is moving in the same way as ARPU, so the overall profit margin has not changed much. Next is the revenue trends of the Platform business, which also recorded a year-on-year increase in Q1. In particular, revenue has been steadily increasing since Q3 of fiscal 2020. This is because Qiita advertising has been steadily recovering from previously suppressed advertising under the impact of COVID-19, and it is returning to and exceeding the pre-COVID level. That concludes my presentation on the Lifestyle Support business. Next is Entertainment business to be explained by Yukimasa Nakauchi, General Manager of the division.

I would like to report on the Entertainment business. This is the performance trends. We are focusing on existing main game apps. Q1 results were moderate in reaction to the strong event-driven performance in the previous quarter. In addition, development cost for the upcoming large-scale IP game was recorded in advance. But through continued emphasis on maximizing profit on existing titles, profit increased year-on-year. This is the overseas revenue ratio trends, 31% in Q1.

I'd like to explain the quarterly results of the E-Commerce business. Revenue continued to increase significantly year-on-year due to improved operations and increased demand for bicycles. The segment also maintained a quarterly profit for the third consecutive quarter. Segment profit was also a record high. Profitability has been recorded since Q3 of fiscal 2020. In Q4, profit declined temporarily as shown in the graph, as we made upfront investment as advertising expenses and investment for future business growth. But Q1 results prove that the business is growing steadily.

I would like to make a supplementary comment on that. Revenue in the last 3 quarters appear to be flat. Q3 of fiscal 2020 grew sharply due to 3 factors: increased demand under COVID-19, increased demand due to seasonality and business growth. In Q4, although the peak season was over, we were able to achieve the same level as in the previous quarter as the business continued to grow. And in Q1, although the peak season was behind us, similar level was sustained thanks to the business growth. We believe we can expect continued growth into the future. That's all for the additional comment.

Business growth has been mentioned. What has improved, in particular, is the gross profit as shown on the left side of this slide. The point of this business is that the gross profit per unit is increasing significantly. Next is segment topics. Regarding the Lifestyle Support business. First, in Digital Marketing support, we made a stock acquisition of Links Inc., a company that operates a recruitment agency comparison website, Career Picks, and made it a wholly owned subsidiary. We aim to expand entry into the human resources business while integrating with the know-how and expertise that we have accumulated through the Digital Marketing Support. Up to now, we have expanded services from moving to the automobile, wedding and to financial market. With the addition of Career Picks, we aim to expand entry into the HR business. Regarding Hanayume, the current situation is very challenging under COVID-19. But with the conviction that there are things that can be done because of the current situation, we organized online events called Bridal Festa Online by Hanayume in lieu of usual physical events, which are held at rented facilities. The events were well accepted and highly appreciated by a large number of online visitors. Another example of online format, as shown below. So far, Hanayume service has been offered mainly in conjunction with physical stores where users can visit. On November 4, we expanded the service area to cover Hiroshima, Okayama and Kagawa to provide wedding venue search services via the website and app, along with Hanayume online consultation. We would like to further expand to various areas in the future. Next, our Platform business topics. Regarding Qiita, we released a collaboration site with Hitachi Limited that summarizes content and articles related to the latest technical data and initiatives of Hitachi. We believe that providing the Qiita users with such latest information on a major blue-chip company has contributed to enhancing the value of the user experience. We would like to continue to increase such initiatives in our operation in the future. That's all for Lifestyle Support.

In Entertainment business, we are collaborating with various anime and games, as you can see here. In our current operation, we are working on regular collaboration regarding existing apps and managing in-game updates. There is no particular change in new game pipeline developments. Currently, we are focusing on developing a large-scale IP game in collaboration with another company.

Lastly, but not the least, fiscal 2021 guidance. Full year revenue forecast is JPY 33.5 billion and operating income forecast is JPY 500 million. The achievement rate in Q1 was high with the revenue (sic) [ operating income ] of JPY 378 million. But for now, we are not making any revisions to the full year forecasts. The concept of initiatives and notes on fiscal 2021 guidance remains unchanged. We believe that fiscal 2021 will be a year to hit bottom for the leap in fiscal 2022 and beyond, and working from home is gaining traction. We are starting to terminate some of office lease contracts as a result. In the Entertainment business, almost 95% of employees are working from home. Regarding Lifestyle Support, we expect the impact of COVID-19 to continue to partially affect the Hanayume bridal industry. And additional investment in new services is scheduled, as will be explained later. Some notes on the remainder of fiscal 2021. Operating income in fiscal 2020 was JPY 1.273 billion. For this fiscal year, we are projecting the operating income of JPY 500 million due to an increase in costs in new game development, with an impact of minus JPY 750 million in Entertainment, and Others amounting to minus JPY 23 million. In other words, the decrease does not mean a decline in our earnings capability. The only notable impact is in relation to Hanayume. And it is assumed that the impact of COVID-19 will continue for some time in and beyond Q2 fiscal 2021. Against this backdrop, we are scheduled to increase upfront investment for new services, including NaviNavi Insurance. And in the Entertainment business, new IP collaboration and game development, upfront investment is expected to increase from the initial expectations. Regarding E-Commerce, albeit with some quarterly fluctuations, we expect the full year results to be generally in line with forecasts. As for the dividend, our forecast remains unchanged at JPY 16 per share. That's your presentation. Thank you for your kind attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]