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

Thank you for watching Ateam Inc.'s Fiscal 2023 Third Quarter Business Report Zoom Conference. Let us get started First, the consolidated third quarter financial results. Overall revenue was JPY 6.771 billion. Operating income was JPY 162 million, and net income was JPY 153 million. As shown here, revenue declined year-on-year due to the transfer of bicycle retail business cyma on March 1. But quarter-on-quarter, profit increased as this was a peak period for services in the Lifestyle Support business. Next, progress of revenue and others. As you can see, generally, they all made steady progress. The revenue breakdown by segment is shown on the right-hand side. Lifestyle Support, 72.5%; Entertainment, 17.2% and E-Commerce, 10.3%. The details of each segment will be explained by the directors in charge, respectively. First, Fumio Mase on the Lifestyle Support business.

This is Fumio Mase to report on the Lifestyle Support business. Beginning with the segment revenue. The third quarter revenue was down 8% year-on-year. On the right-hand side of the slide, you can see the main factors for the changes, grading each subsegment in terms of the year-on-year growth rate, double circle, single circle and X. Revenue for human resources, media services and car services grew strongly year-on-year. Profit also grew strongly for financial media service and human resources media service. Both revenue and profit were down for moving-adjacent services, specifically customer referrals to electric utility companies and telecommunications carriers and others. In total, the segment revenue declined by 8% year-on-year. Let me elaborate on the subsegments of the Lifestyle Support business. Here, you can see the Lifestyle Support subsegment quarterly revenue trends. Digital marketing support was down year-on-year but up quarter-on-quarter. Platform was down both year-on-year and quarter-on-quarter. Looking more closely at main variable factors for digital marketing support. Revenue was down 7.2% year-on-year. On the lower right corner of the graph, we added bars showing the decline in the moving-adjacent services, specifically the customer referrals to electric utility companies and telecommunications carriers that I mentioned earlier. In contrast, other businesses posted strong growth. Looking at main variable factors for 5 businesses of financial media, car services, moving-adjacent, HR Media and bridal. Financial media recovered from the difficult period a year earlier to post a year-on-year growth. In car services, user account maintained continuous increase. We made new investments in a new car service in light of the thriving new car market. In moving-adjacent, moving service itself performed well, but customer referrals to electric utility companies and telecommunications carriers remained limited or suspended. In HR media, strong growth continued with this quarter being the peak period. In bridal, we strengthened the advertising in light of the gradual recovery in the market. Next, KPI trends. User count was down 2.6% year-on-year. Overall, usage and services with relatively higher ARPU increased, which served to partially make up for the decrease in moving-adjacent services. Next, platform business revenue trends, down significantly year-on-year by 30.4%. Main factors include temporary curtailment of ads placement in the job site Qiita by international enterprises, reflecting the current economic condition. This resulted in a big drop in revenue. Still, job offers for engineers in Japan are seeing strong momentum and exposure. And so we are enhancing sales activities, and we are seeing signs of pickup. Lalune also posted lower revenue as the business was affected by lower demand for in-feed ads along with higher demand for video ads. Some topics in the Lifestyle Support business. There are 2. First is the Navikuru New Car NET. Earlier, I mentioned that we made new investments in a new service. So far, we have been seeing strong used car market due to the shortage of semiconductors. But with recovery in the semiconductor supply, we expect the new car market to gain momentum going forward. And thus, we launched this new service. So far, we have focused on used cars, but 80% of the consumers in Japan prefer new cars. So by expanding the coverage, we plan to increase the number of users. We are starting with a service that enables easy booking with car dealers for visits and test drives. We believe that the expertise that we have gained and built so far could be fully leveraged here. The second topic is the enhancement of integrated brand, E-DESU in the Lifestyle Support business. We have been talking about brand integration for a while. Now we have started to offer new tools integrating ChatGPT for free. This is in line with the Ateam purpose of combining creativity and tech to deliver more convenience and more fun to all and offers opportunities for everyone to use artificial intelligence through intuitive, easy-to-understand tools for free within the realm of Lifestyle Support brand, E-DESU. They are designed to ease the small challenges that people face in their everyday life, such as recipe design as well as help job hunters to edit their personal CV or resume. Our plan is to integrate these new features and functions in existing and new services and to grow them as main features. That is all for Lifestyle Support business. Next, Yukimasa Nakauchi will explain the entertainment business.

I would like to report on the Entertainment business. These are the results. The year-on-year difference basically came from the service termination of Final Fantasy VII: The First Soldier. And the deal pattern with existing titles is that because the second quarter is strong, the third quarter tends to show a slight quarter-on-quarter decline, which was the case this year as well. As the combined effect of these 2 factors, the revenue declined by about 10% year-on-year. And accordingly, the operating profit declined year-on-year. The overseas revenue ratio declined slightly to 37% with the service termination of Final Fantasy VII: The First Soldier. Here, you can see the summary of the business environment we are in, as market conditions, development cost for large-scale titles has bloated and this is a challenge for us. In terms of the competitive landscape, hyper-casual games are gaining momentum in recent several years, and they continue to be on the growth trajectory. And Web3 services are poised to grow further going forward. As far as Ateam entertainment is concerned, we will continue to focus on multi-device games centering on traditional smartphone game market. That will remain unchanged. But at the same time, we would be more flexible in addressing other formats as well. As shown as the last bullet point, we are developing smartphone game titles in collaboration with other companies based on cost sharing to lessen the risk. As for pipeline, we have slightly changed the way we present this information. The pipeline has been reclassified. Number one, the multi-device games. This part remains unchanged. One title developed in-house and one being developed based on collaboration, so 2 titles in total. Number two, this is the new area, hyper-casual games. Already, we have released 1 title. Actually, the process we are trying is develop trial versions of multiple titles, repeat tests on them and from those choose those titles with better KPIs and brush them up for the official release. That is the process we are running. So currently, we are testing multiple titles. We will be restructuring the organization to support the mass production. So we expect the speed of title releases to accelerate going forward. Number three is Web3 services. We made the announcement at the end of May one blockchain game. In addition, we are engaged in the R&D of multiple titles using blockchain, not necessarily strictly sticking to games only. So this is the blockchain game that I just mentioned. There are various challenges related to laws and regulations and tax systems in this area. So by collaborating with a company in Singapore, BOBG, we are addressing them. BOBG is a company with extensive expertise and experience on blockchain games. So that should help us move forward. Next is E-Commerce business by Kazuhiro Mochizuki.

I will report on E-Commerce business. Results were as shown here. As for revenue, while cosmetics brand lujo made a remarkable growth year-on-year, the impact of transfer of cyma was significant, resulting in a big decline year-on-year. For your information, excluding the impact of cyma transfer, revenue grew by over 30%. Profit was down year-on-year, along with transfer of cyma as well as increased investment in pet food brand. That is all for E-Commerce Business.

Next is the FY 2023 guidance. No change. Almost the same as what was announced previously. Dividend is forecasted to be JPY 160 per share, the same as in recent years. And these are the initiatives and notes on FY 2023 guidance. Overall, work to improve the overall profitability. While continuing investments, we will try to make the management of existing businesses leaner, and we are aiming to improve overall profitability by focusing on operating value-added services at high quality. In the Lifestyle Support business, we will enhance foundation to increase medium-term profitability and carry out the brand building and digital transformation investment to increase the future profitability of existing services. And on new services, we will focus on increasing the revenue. In Entertainment, the profits generated through efficient operation of existing games will be allocated to future pipeline development and utilize acquired expertise to enter into new markets such as Web3. In E-Commerce, expand product lineup in pet food brand, Obremo, and develop and sell new products in cosmetics brand. 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.]