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

Thank you for taking time out of your busy schedule to join us in the earnings call of Ateam Inc. for the fiscal year ended July 31, 2021. This is Takao Hayashi, President and CEO. Without further ado, let us start our presentation. Ateam is an IT company that develops business around the Internet. We cover various markets, leveraging our advanced technological capabilities for businesses provided over the Internet. This is the outline of today's presentation. First, some important announcements. There are 2. First is with regard to the additional acquisition of treasury stock. In March of this year, we announced the acquisition of treasury stock. And today, we resolved to execute another round of treasury stock acquisition with the maximum set at the larger of the total number of shares of 350,000 shares and the total acquisition cost of JPY 500 million. The acquisition is to be carried out during the period as indicated here. Another important announcement is with regard to the Lifestyle Support business reorganization. Currently, within the Ateam Group, we have Ateam Inc., Hikkoshi Samurai Inc., Ateam Lifestyle Inc., and Ateam Brides Inc., which is providing bridal services as well as Ateam Finergy Inc., which is engaged in the financial media service and others. These entities are operating in different businesses separately. But as shown here, with the target date of February 1, 2022, we will integrate all these entities under Ateam Hikkoshi Samurai Inc., and continue with their businesses under that integrated entity. The purpose of this reorganization is, as described here, to optimize and strengthen functions by consolidating the digital marketing support business organization and to promote growth and gain competitive advantage through concentrated investment in digital transformation and artificial intelligence. The name of the new integrated entity is still under consideration. We will announce it as soon as it is decided. Moving on to the medium- and long-term policy. Based on the foundation of our shared strength shown as the gray portion at the very bottom, namely the digital marketing know-how and expertise, the business development strategy and technological capabilities, we operate the e-commerce business; the entertainment business, which has extremely high growth potential by providing content globally; and the Lifestyle Support business, which is a reliable business with stable continuous growth. By engaging in these multiple businesses, we have a business portfolio that optimizes operational stability and high growth potential. Regarding the medium- to long-term management strategy for the Lifestyle Support business, I now give the floor to Fumio Mase of the Lifestyle Support division.

A vision of the Lifestyle Support business is shown on this slide. As you are well aware, we are to provide services along daily lives and various life events of the people, so as to contribute to the richer and more convenient lives of the people. As subsegments within the Lifestyle Support business, we have the Digital Marketing Support business and the Platform business. In the Digital Marketing Support business, we have been ensuring growth by providing various new services on our owned media, and we will continue with that strategy for further growth going forward. As CEO Hayashi said earlier, toward February of next year, we are preparing for the integration and consolidation of different subsidiaries. Under the current structure, different services have been provided by different subsidiaries, making it difficult to promote cross-reference between services to individual users. Just about the only means available has been through mail magazines. So going forward, we will be using our user database and by integrating our employees by job types, we will create a united database, so as to look at each user, not only as a user of each service but also as the user of the entire Ateam Group, so that even when a user starts with a single service, he or she could be guided to other services as well. By building such a common database, we are to focus more on improving LTV, the Life Time Value, as opposed to the conventional ARPU, Average Revenue Per User. Once this is realized in entering a new service area, we don't need to start from scratch, meaning 0, but rather start from 3 and quickly move to 10. That's the perception that we have. Conventionally, in Digital Marketing Support, we have been referring potential users to other services, but through this new scheme, we can more clearly refer users to relevant peripheral services and relevant content and refer customers to partner company support based on a large amount of relevant data accumulated and analyzed. We can thereby contribute more to users and clients, and we can increase the speed of that process as well. Regarding the Platform business, we have 2 platforms. We are providing a platform of information where our user data are gathered and utilized. We are currently building market advantage in health care and engineered community segments. First is the women's health care service, the Lalune Platform. Currently, the service has over 100 million page views per month for health care management as well as supporting women who are trying to get pregnant. We sell nutritional supplements as e-commerce as well as provide information regarding the time of the month where they are more likely to get pregnant, as well as other types of relevant support and services for premium members for a fee. We also have the advertisement business, taking advantage of the large traffic to this platform. With regard to platform for engineers, we have Qiita Platform, which is the largest platform for engineers in Japan. We have added an information-sharing platform Qiita Team and Qiita Jobs to support the recruitment of engineers. In addition, we are collaborating with many business partners to expand the Qiita Platform. Our strength is the web promotion capability, the system development capabilities supported by our own designers and engineers and synergy based on large amount of data accumulated on the platforms. With the reorganization, we will leverage these strengths further, to further accelerate our growth going forward.

Moving on to the Entertainment Business. I, Yukimasa Nakauchi, will present. The policy, as shown here, remains unchanged, multiplication of IT and Global and Multi-Devices. In addition to smartphones, global markets based on PCs and consumer game consoles is expanding rapidly. And we have a strategy that are taking very effective approach to these different markets. These are our strengths. Regarding the technological capabilities, we were the very first launch Japan's very first mobile online game, MMORPG. And this provides the foundation of where we are based on communications technology. We do have a global deployment expertise built over 6 years since the released of Dark Summoner. We are collaborating with many players, and we have our IP collaboration network. We will be targeting JPY 20 trillion global market leveraging these strengths.

Moving on to the E-commerce Business, I Kazuhiro Mochizuki, will present. What we are aiming at is to realize the platform that will allow easy purchase, more convenient than physical stores. Currently, e-commerce has some aspects that consumers find to be inconvenient and inferior to physical stores. We are providing solutions to address those issues, providing customers with better shopping experience than physical stores. Going forward, we plan to increase products that we offer by identifying items and markets where consumer will find great value in shopping online. We will try to identify where our expertise built on business can be leveraged. In the e-commerce business, these 3 are our strengths. From supply to shipments, we have the entire supply chain. And we have the capability to support consumers, emulate the physical experience of trying out potential purchase by optimizing the physical customer experience on smartphones and PCs. We also have the capability to capture the needs and complaints that the consumers and customers cannot describe verbally and proactively define them by analyzing the data accumulated. We plan to leverage this strength for further growth.

This is Hayashi again, Getting IT Done. Based on this banner slogan, we will continue to drive various businesses. So let me give you the overview of the financial results for the fiscal year ended July 2021. This is the full year summary. Overall, both revenue and profit decreased year-on-year. We recorded a gain on the sale of investment securities to achieve an increase in net income: revenue JPY 31.252 billion; operating income, JPY 701 million; and net income, JPY 877 million. Net income was 55% year-on-year, but was higher and better than the forecast of JPY 500 million. Lifestyle Support posted year-on-year higher revenue and lower profit. Segment revenue was JPY 20.384 billion. Segment profit was JPY 1.45 billion, accounting for 65.2% of total revenue. Entertainment, year-on-year, lower revenue and lower profit. Segment revenue was JPY 7.272 billion, and segment profit was JPY 369 million. Existing game titles continue to trend downward, and we recorded development cost for a new title. Still, we managed to secure a profit. The segment revenue accounted for 23.3% of total. For e-commerce, a year-on-year growth for the highest ever revenue and the segment achieved full year profitability for the very first time. Segment revenue was JPY 3.595 billion. Segment profit was JPY 84 million. Segment revenue accounted for 11.5% of total. The summary of fiscal 2021. For the last several years, we have been describing that we are in the plateau phase to prepare for the next leap. And we believe that we were able to build the foundation for the growth going forward during this 1-year period. Impact of COVID-19 was felt in many areas, but as described earlier, by operating in many different business areas, we successfully secured stable management and operating profit. Lifestyle Support business did feel the impact of COVID-19, primarily in Hanayume Bridal Service. For about 3 years, we have been investing in 10 or so new services. And while we've withdrew from some, we were able to achieve profitability in all of the remaining services, and they are poised for growth going forward. For Entertainment business, we have concentrated our efforts in the development of Final Fantasy VII First Soldier in collaboration with SQUARE ENIX during this 1-year period. This new title successfully completed the closed beta test and was received favorably by many global users. We have thus, successfully generated very high expectation toward its release. In E-commerce, as was explained earlier, profitability on a full year basis was achieved for the very first time. So as you can see, this has been a year focused on moving into a new stage. Next, the fourth quarter financial summary. Total revenue increased year-on-year, but was down quarter-on-quarter. Operating profit was down year-on-year and quarter-on-quarter. Revenue was JPY 7.742 billion, and the operating income was JPY 120 million. Net loss was JPY 103 million. For Lifestyle Support and Entertainment, I think you can see the figures here. And the same is true for E-commerce. E-commerce posted a negative figure as we started TV commercials in the fourth quarter to promote further growth in the next period. This is the consolidated results and the progress vis-à-vis the forecast. As you can see, revenue was almost on par with the forecast, and profit exceeded the forecast, as explained earlier. This is the consolidated results by segment. Lifestyle Support on the left-hand side was flat, due partly to the impact of COVID-19. But as it was explained earlier, the businesses that we had previously invested in did grow, and so the revenue did not decrease year-on-year. In Entertainment, the existing titles were on a slightly downward trend and still, we were able to secure a profitability. As for E-commerce, we saw a growth over the previous year. So skipping one slide, the quarterly trend. On consolidated basis, in the fourth quarter, we achieved an increase year-on-year. Entertainment declined, but growth in the Lifestyle Support business drove the increase. These are the main KPIs, a quarterly trend. I would like to highlight the fourth quarter subcontractor expenses, which increased due to the increase in development cost of the new title in Entertainment. In the office rental fees, with more people working at home, we saw progress in canceling the office rental agreements, resulting in approximately 10% reduction in office rental fees. Next, promotional expense by segment. As the third quarter was the peak season, it declined in the fourth quarter. This is the number of employees by segment. No major change. Balance sheet. As you can see, with the progress in the acquisition of treasury stock, net assets decreased. From here details by segment, and I'll pass the microphone to the head of each division.

I, Mase, will explain the Lifestyle Support business. Quarterly results. The impact of COVID-19 was partially relaxed compared to the previous year. So year-on-year, a major improvement was achieved. Our services peak towards the end of the fiscal year in February and March, and thus, a decline quarter-on-quarter. The quarterly revenue by subsegment. As was mentioned earlier, compared to the peak third quarter, digital marketing support declined quarter-on-quarter. Whereas for the Platform business, there is no such seasonality, so it was flat. Others posted steady growth. Year-on-year, steady growth in all businesses. This is the Digital Marketing Support business revenue trend. Compared to a year ago, the impact of COVID-19 relaxed. Even though the emergency declaration was still in force, people's movement was less affected, resulting in a year-on-year increase. KPIs for digital marketing support. Previously, COVID-19 had affected Bridal and Card Loan services, which have high ARPU. But with recovery in these services, year-on-year ARPU increased. User count increased year-on-year on all businesses. While COVID impact was still felt, growth was attained where possible during this 1-year period. Platform business revenue trend. With the increase in demand for digital transformation, we saw steady improvement in Qiita. We also saw the newly launched Qiita Jobs gaining traction. So all in all, revenue increased year-on-year. Some topics by segment. In Digital Marketing Support, Hanayume was affected by COVID-19, but still, it managed to win the first place in ORICON Customer Satisfaction Ranking, Wedding Hall Consultation Center for the fifth year in a row. Even under COVID impact, without having to spend a large promotional cost through a -- with COVID era promotion activities, we focused on attaining recognition through official Instagram and others and recognition increased by close to 150% from the previous year. In the Platform business, Qiita Jobs topped 10,000 registered users seeking jobs. And Qiita Team won the 2021 Japan HR Reward in the organizational change and development section. Next, Nakauchi will report on the Entertainment business.

Revenue and profit trend was as shown here. While the existing titles continue to follow a moderate downward trend, we successfully managed to absorb increasing new total development costs. This is the overseas ratio, currently at 35%. This is the trend of the titles by vintage or release year. Overall, declining trend. Here are segment topics, mainly collaborations. Each title is well appreciated with periodic updates enjoying long-lasting support by the users. New total development is steadily progressing. The closed beta test was well appreciated based on the results of the surveys of the users, both in Japan and overseas. And currently, we are working to further refine this for the release. Development pipeline going forward. We are going to release the new title this year as explained earlier. And as for the medium-scale titles, development is underway. Next is e-commerce business by Mochizuki.

This is the quarterly trend of the operating results. With the completion of operational efficiency improvement efforts last year and the weakening of favorable wins related to COVID-19, revenue decreased year-on-year. As for profitability, as was explained earlier, through TV commercial, we are trying to improve the brand recognition in the real world and incurred associated costs. Thus, a loss was recorded. As for KPIs, with a decline in revenue, gross margin declined, but we see an improvement in inventory turnover. Finally, some segment topics. Previously, we have been focusing on bicycle sales, but we have increased the products that we carry. Specifically, we added Obremo a human-grade dog food using domestically produced ingredients with no synthetic additives. We have accumulated experience, both positive and negative, through cyma. We will leverage that for future growth of this business.

Hayashi speaking again. As for other topics for the entire company, Ateam was selected as the Best Company in the best workplace ranking. And we issued the very first integrated report, Ateam Value Report 2020. We hope that this will help global investors to better understand and appreciate our philosophy and the strength. Moving on to fiscal 2022 guidance. These are the initiatives for the group overall in a nutshell, moving to a new stage. As mentioned earlier, in Lifestyle Support in various services, we now have achieved profitability. In entertainment, a new title would be released by the end of this year. So we believe we are ready to move into the next stage. In the Lifestyle Support business, digital transformation toward improving LTV, will benefit further from reorganization. In Entertainment, we already explained. And in E-commerce, we are expanding the merchandise that we carry, which should translate into new growth. This is the last slide. The forecast for fiscal 2022. Previously, we were disclosing full year forecast, but this year, we opted not to disclose the forecast for a full fiscal 2022. As we have concluded that, given that depending on the release dates and the launch status of the new IP game, business performance may fluctuate significantly making it difficult to make a reasonable earnings forecast at this time. We will be disclosing that as soon as we complete the reasonable calculation following the release of this new title. As for dividends, we are forecasting JPY 16 per share. That concludes our presentation. Thank you for your kind attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]