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

Thank you for joining our FY 2023 Second Quarter Business Report Briefing despite your busy schedule. Let us get started. First is the notice. As already explained, we decided to transfer the shares of cyma Inc. to Y. International, Inc., and the transfer was completed as scheduled on March 1. We decided on this transfer as a measure to continue optimizing management resources, as described on the slide. Details of the e-commerce business will be provided by Kazuhiro Mochizuki later. We also decided to reduce a part of the office headquarters and accordingly, recorded lump sum expenses. Under the impact of COVID-19, we have seen an advancement of working remotely, resulting in idle office space. Thus, we decided to reduce the floor space and recorded depreciation and other expenses. Initially, we were expecting the operating income for the first half of the year to be around JPY 570 million. But with the recording of JPY 360 million as depreciation and other expenses, the actual results for the first half was JPY 210 million. From Q3, an income increase is expected with the decrease in fixed expenses. Next, revision of the full year forecast. We recorded extraordinary loss, including the provision of allowance for a loss on the sale of stocks associated with the share transfer of cyma. Accordingly, we revised FY '23 full year forecast as follows: revenue forecast revised from JPY 31 billion to JPY 28 billion, reflecting the absence of revenue at cyma. Operating income forecast remains unchanged at JPY 500 million. Net income forecast revised from JPY 400 million to 0 due to the recording of the extraordinary loss. Forecast by segment is, as you can see here. First, on revenue. Lifestyle Support continues to exhibit strong business performance. Entertainment, down slightly due to some delay in new game title releases. E-commerce down due to declined revenue coming from the share transfer of cyma. As for operating income, Lifestyle Support expect an increase, while Entertainment expects a decline due to delayed release of new game titles. Now some details of the FY '23 Q2 financial results. Revenue was JPY 7.339 billion. Operating loss was JPY 2 million, and net loss was JPY 271 million. While there were cost increases associated with the decision to reduce office area, as mentioned earlier, income recovered significantly year-on-year. Thanks to strong business performance in Lifestyle Support business. And also because last year, there were large advertising and promotional expenses on Final Fantasy VII The First Soldier, which were not repeated this fiscal year. Here, you can see the progress against the revised consolidated forecast. Revenue reflects the decline in revenue at cyma. Operating income reflects the year-on-year difference in game-related investments in Entertainment business and strong performance of Lifestyle Support business. Here you can see the slide that shows ratio. Details will be explained by segment later. This is the consolidated quarterly financial trends. From here, details of each business, starting with Lifestyle Support from Fumio Mase.

This is the Lifestyle Support business performance trends. Revenue was up 5.3% year-on-year. In moving adjacent services, customer referrals to electric utility companies and telecommunication carriers were limited or suspended against the backdrop of market changes. But thanks to continued growth in Car Services and Human Resources Media Service revenue increased 5.3% year-on-year. Profit increased remarkably year-on-year. Thanks to improved web marketing operations in financial media and a temporary transaction with one of the clients in the Electric Power industry and Moving-Adjacent services. This is subsegment business revenue trends. Digital Marketing Support, up both year-on-year and quarter-on-quarter. Platform down year-on-year but up quarter-on-quarter. Details on subsegments will be given later. This is Digital Marketing Support business revenue trends, somewhat a repeat of what was explained earlier, up 5.7% year-on-year. Revenue was up year-on-year in Car Services and Human Resources media service due to enhanced ability to draw customers. But as mentioned earlier, revenue was down year-on-year in customer referrals to Electric Utility companies and Telecommunication Carriers, amid market changes, including the impact of World affairs and customers' changing strategies under the impact of COVID-19, which resulted in intense competition and obtaining customers in the Telecommunication-related market. But as positives outweighed the negatives, year-on-year growth of 5.7% was achieved. Looking at KPI trends. Revenue increased, but due to a decrease in the number of customer referrals to Electric Utility companies and Telecommunications carriers, user count decreased 2% year-on-year. As shown in the graph, ARPU improved over the previous year, while CPA remained almost the same, resulting in improved profit. This is the platform business revenue trends. We have 2 platforms, Qiita and Lalune. Qiita's revenue was up year-on-year, along with strong sales in the "Qiita Advent Calendar" event held in December. Lalune's revenue declined due to the continued competitive market caused by an increase in the number of players in the health care application market. Another factor for the decline is the shift in advertising placements, which is the revenue source of Lalune. We are seeing a shift to video format advertising, which is having an impact. As this decline in Lalune could not be covered by an increase in Qiita, the revenue was down 5.9%. Some topics in the Lifestyle Support business. First is what we briefly talked about in the previous briefing, our aspiration of what we aim to achieve going forward. Previously, we focused on increasing numbers in search and service use. But going forward, we aim to develop and build the integrated brand E-DESU, to promote awareness and understanding as means of new customer acquisition and create solid customer base based on database for all services to increase customer contract, customer development and eventually link to cross-selling opportunities. As a new function for enhancement of customer targeting and long-term relationship building, we have released "E-DESU Expert Q&A Consultation", in which users can consult with experts that we have gathered on living and finance-related matters, and reference comments from financial planners with abundant experience in mortgage asset management, insurance and others. All free of charge. This has just been released, so we will further refine and add products so as to cater to diverse needs to increase users. Another topic is Qiita. Earlier, I said that Qiita revenue increased. Revenue almost doubled year-on-year. While the number of participants was up 7.8% and the number of article posts, up 11.8%, a solid growth. Reflecting stronger demand for "Qiita Advent Calendar" event, which provides direct approach, revenue is growing at a faster rate than the number of participants or article posts. That is all for Lifestyle Support business. Next is Entertainment business by Yukimasa Nakauchi.

These are the results for the Entertainment Business. Revenue was down 18.5% year-on-year due to a decrease in existing game titles and the service termination of "Final Fantasy VII The First Soldier", which was released in Q2 of the previous year. And this resulted in the year-on-year difference. Profit was up significantly year-on-year due to efficient operation and smaller investments in new game titles year-on-year. Entertainment overseas revenue ratio remained high at 41%. This is new game pipeline development. No major changes. For original titles, we are continuing to explore various approaches. NFT game is in development in the brush up phase. Since it will be our first NFT game, we are giving sufficient time on confirming legal requirements and others. That is all for Entertainment. Next is E-Commerce business by Kazuhiro Mochizuki.

This is E-Commerce business performance trends. Revenue was down 15.5% year-on-year. This, in spite of strong increase in the number of new customers in cosmetics brand and pet food brand due to revenue decline in cyma amid market changes, including lockdown in China and surging resource prices. As cyma business accounts for a large portion, the segment posted a year-on-year revenue decline. Segment loss increased year-on-year due to an increase in loss in cyma coming from declined revenue as well as increased investments in pet food brand, Obremo. As for E-Commerce business topic, I would like to talk about "lujo" skincare brand in Cosmetics. Lujo was launched in March 2020, targeting new revenue opportunities by utilizing the customer database and knowledge gained through the operation of Lalune, a women's health application. Products are planned and promoted in-house while using OEM to outsource manufacturing. We are seeing continued sales growth through product planning based on rigorous data analysis and speedy improvement of sales promotion measures. That is all for E-Commerce. Next, FY '23 full year guidance and dividend forecast, again by Takao Hayashi.

We have revised the consolidated financial forecast for FY '23. Revenue forecast is revised downward, reflecting the transfer of cyma, as mentioned at the outset. Operating income forecast remains unchanged. Net income projected to be 0, as mentioned earlier. Dividend forecast remains unchanged at JPY 16 per share. These are initiatives and notes on FY '23 guidance. No change from what we explained previously, our initiatives and business are progressing as planned. 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.]