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

Ladies and gentlemen, Thank you very much for taking time out of your busy schedule to attend our business results briefing for the third quarter. We'd like to begin our presentation. This slide may look familiar to you. Ateam utilizes its technological capability to develop businesses and provide services to markets through the Internet. This is our agenda for today. Let us begin by the summary of financial results in FY 2021 Q3. Overall, revenue was up both year-on-year and Q-on-Q, while operating income was down year-on-year, but was up Q-on-Q. Revenue topped JPY 8.637 billion, up 3% year-on-year. Operating income was JPY 359 million or 50.7% of last year's revenue. Net income was JPY 239 million. On the Lifestyle Support segment, revenue was up and profit was down year-on-year. However, both revenue and profit were up Q-on-Q. Segment revenue was JPY 5.752 billion, up 5.2% year-on-year. Segment profit was JPY 502 million or 60.4% year-on-year. This segment accounted for 66.6% of the total revenue. With the Entertainment segment, both revenue and profit were down year-on-year as well as Q-on-Q. Segment revenue and profit were JPY 1,787 million and JPY 108 million, respectively. Percentage of revenue was 20.7%. On the e-commerce or EC segment, revenue increased year-on-year, while profit was flat. It achieved a record quarterly revenue. Segment revenue and profit were JPY 1,097 million and JPY 52 million, respectively. The segment accounted for 12.7% of the total revenue. This slide shows the progress towards forecast. Revenue was mostly in line with the forecast. Profit exceeded the full year target in Q3, but the full year projection is in line with the forecast. Achievement rates for revenue and operating income were 70.2% and 116.2%, respectively. The rate for net income was 136.3%. We already achieved a full year profit target in Q3. However, because of the impacts of COVID-19, sales of the wedding service will be slightly lower than the amount we projected for Q4 in the initial forecast. In addition, R&D expenses are expected to rise because of the new large-scale titles that are under development in the Entertainment segment. To further expand EC services, promotional expense will increase. Therefore, we project that the profit in Q4 will be lower than Q3. That is why our full year forecast remains unchanged from the initial forecast. This slide shows the overview of Q3 results. The results for the past 9 months are shown in the table. As you can see, year-to-date, revenue was JPY 23,509 million, operating income; JPY 580 million; ordinary income, JPY 733 million; net income, JPY 981 million. This slide shows the consolidated quarterly financial results. Revenue was JPY 8,637 million. Last year, entertainment revenue declined for the existing titles. And the Lifestyle segment was severely impacted by COVID. For the first time in a while, we are pleased that revenue was up year-on-year this quarter. This slide shows quarterly KPI trends. Most notable was the office rental fees, which decreased from JPY 298 million to JPY 270 million. That translates to a monthly reduction of JPY 10 million. This is attributable to the adoption of telecommuting work style. With more employees working from home, office lease was personally terminated to save the rent. We'd like to continue saving JPY 100 million plus on an annual basis in this term. This graph indicates quarterly trends of promotional expense. Many of our services tend to peak in Q3, resulting in promotional expenses shown on the graph. This graph shows quarterly evolution of the number of employees in each segment. No major changes were observed. We hired 21 new graduates this year. They were already assigned to each business this April. This slide shows our balance sheet. As we continued buying back treasury shares, the amount of cash declined. With the profit increase, total net assets increased. From now on, we'd like to discuss segment-wise results. First, I'd like to invite Mase to present the results of the Lifestyle segment.

I'd like to report the Lifestyle segment results. The slide indicates quarterly business performance in our segment. As mentioned earlier, the wedding service continues facing persistent COVID impacts. Looking back last year, it was during Q3 or more specifically in April that COVID starts to -- started to show its impact. In other words, only 1 month in Q3 was affected by the pandemic last year. In contrast, this year, the entire 3 months in Q3 were impacted by the pandemic. However, other businesses as well as new services where we continue to invest are growing. The overall segment revenue, therefore, increased year-on-year. This slide shows subsegment quarterly revenue trends in the Lifestyle segment. On digital marketing support and platform, I'm going to report the details later. Overall, revenue for digital marketing support was flat year-on-year and was up Q-on-Q. Platform revenue was up both year-on-year and Q-on-Q. Other revenue was up year-on-year and was down Q-on-Q because of the curtailed promotional expense. Digital marketing support revenue trends are shown here. As I mentioned earlier, wedding service continues to be impacted by COVID. However, other businesses were at a peak period and new services grew during Q3. Thus, we made a steady progress, resulting in a slight increase year-on-year. On KPI trends, user count was down for some services, but was up for others. Overall, the user count was either flat or slightly increased year-on-year. ARPU, which remains to be overwhelmingly high in the wedding service. Because of the slowdown, the overall ARPU declined year-on-year. This graph indicates platform business revenue trends. The pandemic is accelerating the pace of DX. This is propelling the enhanced media value of Qiita whose revenue increased significantly. Qiita has a pool of capable engineers. We offer Qiita jobs as a job matching services, which can connect those talented engineers with companies intended to hire engineers. Since its launch, informal job offers are being offered to our engineers. We also received positive feedbacks during Q3. Taken together, revenue rose significantly year-on-year. This slide shows segment topics with digital marketing support. On Hanayume, which is heavily impacted by the pandemic, we organized a real event called Hanayume Festa 2021 Tokai for the first time in a year in April in Nagoya, in the Tokai region. We were initially worried about possible cancellation of many customers, but we received a huge turnout at the venue with very few cancellations. The event was more successful than expected. With more vaccine rollouts, one day, the pandemic will subside, and we may be able to return to our previous lifestyles. This event gave us that hope. The other is an ongoing item. The Tokyo metropolitan government is issuing what is called Tokyo Marriage Support Passport to encourage couples who are planning to get married in a year. Ateam joins the efforts to support more couples to get married and have a wedding. This slide shows segment topics with platform subsegment. Until last year, we organized Qiita Summer Festival. Starting from this year, we renamed it to Qiita Engineer Festa 2021, and the arrangements are underway. Last year's event was rated favorably by a number of users and sponsors. We officially decided to institute this into an annual event under the new name. The event is scheduled to be held in July. Please look forward to it. Second, also on Qiita. At the previous briefing, a collaboration project with Hitachi was introduced. This time, I'd like to introduce a collaboration project with Toyota. Our collaboration website was launched under the theme of realizing the future of mobility. Qiita has been known as a platform for IT companies to place ads and promote themselves. What is new this time is that in order to attract attention from manufacturers and other target customers. This is a big change. The collaboration project with Toyota is well received. A number of famous companies are approaching us for possible collaboration in the future. Qiita would like to release cutting-edge programs to be conducive to businesses. And also to create more options for future engineers in parallel. We'd like to double down on efforts in that direction. That concludes my presentation in the Lifestyle segment. From now on, Nakauchi will discuss the results of Entertainment segment.

I'd like to outline the Entertainment business performance. The graph shows revenue trends. Q3 saw a backlash after a surge in Q2 boosted by the year-end and New Year season. However, the Q3 trend was in line with the Q1 trend. The resulting profit, including R&D expense is shown on the graph. On overseas revenue ratio. Unison League and Valkyrie Connect steadily grew overseas. As a result, overseas ratio was 41%. Topics for each application are described in the slide. Basically, we have a number of long-run titles, which we celebrate very popular anniversary events. This slide shows the status of a new title under development. Final Fantasy VII The First Soldier. We performed a closed beta test, CBT, the other day. By recruiting 10,000 iOS users and another 10,000 Android users in Japan. Users gave us positive feedbacks and posted messages and videos on SNS. We are collecting users' opinions on any defects that they might have noticed during the test as well as soliciting requests in areas of improvement for further development of the title. The slide shows the current game pipeline, which remains the same from the previous quarter. Final Fantasy VII The First Soldier is scheduled to be released during 2021. Two titles are under development to be released sometime after 2022. We'd like to invite Mochizuki to present EC business performance.

First, quarterly results. Segment revenue topped JPY 1 billion for the first time. Operating income level was the same as last year. Q3 is the peak season for bicycle sales. We were able to enhance our product lineup and promotional activities to successfully capture the peak demand. Let me share KPI trends. Revenue were brisk, and gross profit was record high. Inventory turnover was managed properly without causing overage or shortage against the surging revenue. That concludes our EC business presentation. Among overall topics listed here, as part of talent development strategy, we provided basic AI training to all employees. With the full support from Kikagaku, a venture firm specializing in AI education. Video content prepared by both Kikagaku and Ateam were shown to the trainees. To endow with basic AI knowledge, each participant spent approximately 10 hours for the in-depth training. As a result, the training raised the entire level of understanding towards AI among our employees. Existing services already harness AI to improve the quality of services and to reduce costs. The other is announcement of a work-experience internship program for the class of 2023. Next, FY 2021 guidance and dividend forecast. As mentioned earlier, full year forecasting JPY 33.5 billion in revenue; JPY 500 million in operating income; JPY 500 million in ordinary income; and JPY 720 million in net income. The slide is a repetition of our previous material. Overall, we'd like to bottom out in year 2021 to leap forward in 2022 and onwards. Through various cost-cutting exercises, including office lease cancellation, we'd like to realize a lean structure. To harvest in later years, we'd like to continue developing and investing in new businesses. With that, we'd like to conclude our presentation. Thank you very much for your kind attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]