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

Thank you for joining us for the FY 2023 business report despite your busy schedule. Let us get started. First is the FY 2023 full year consolidated financial results. Revenue declined from JPY 31.79 billion in FY 2022 to JPY 27.552 billion in FY 2023, a year-on-year decline due to the impact of the transfer of cyma business. Operating profit improved from a loss of JPY 298 million in FY 2022 to a profit of JPY 543 million in FY 2023, achieving a V-shaped recovery. Net income improved from a loss of JPY 1.337 billion to a profit of JPY 143 million, achieving a V-shaped recovery despite recording of extraordinary losses. Here, you can see the results against the revised consolidated forecast. 98.4% for revenue, almost on par with the forecast. Operating income, 108.8% at JPY 543 million versus the forecast of JPY 500 million. And net income against the forecast of 0, the actual was JPY 143 million. Here is the review of FY 2023. Overall, profit margin improved by optimizing resources, including the decision to terminate the FINAL FANTASY VII, THE FIRST SOLDIER and the transfer of cyma, the bicycle retail business. As you can see, we implemented resource optimization. As a result, the profit margin improved overall. That was a major trend for FY 2023. For each business from lifestyle support to entertainment and e-commerce, we will provide you with the details later, but the summary is as shown here. This is the consolidated financial results for the fourth quarter. As mentioned at the outset, as of March 1, we transferred cyma and added with the impact from customer referrals to electric utility companies and telecommunications carriers, we posted a year-on-year decline in revenue and profit. Revenue was JPY 6.307 billion, operating income, JPY 170 million and net income JPY 141 million. These are the results by segment. Again, segment details will be provided later. In terms of revenue ratio, Lifestyle Support accounted for 60.2% (sic) [ 68.2% ], entertainment, 23.4% and e-commerce, 8.4%. Here, you can see the quarterly financial trends. From here, details of each business to be reported from respective directors in charge. First, Fumio Mase to report on the Lifestyle Support business.

I will be reporting on the Lifestyle Support business. First, quarterly performance trends. year-on-year, minus 17.5%. Main variable factors are shown on the right-hand side. The double circle represents the year-on-year growth rate at more than 50%, a single circle growth rate of between 10% and 50% and ex negative 10% or less. First, for revenue, we saw a big increase in insurance agency services, which is a new business. For Human Resources media services with the market getting aggressive recently, a single circle. And as we have been talking for some time now, a big drop in customer referrals to electric utility companies and telecommunications carriers because of the sluggish market situation. We will be showing a graphical representation of this later. As for profit, National Media Service posted an over 50% growth with the impact of COVID-19 subsiding. Compared to the worst period, we see people's activities picking up with economic impact. Customer referrals was an X as the market itself is shrinking. As for bridal services, with the market recovery, we increased investment in advertising in preparation for that, which resulted in a decline in profit. As a result, looking at subsegments of Digital Marketing Support and Platform, both saw revenue decline year-on-year, whereas quarter-on-quarter, Digital Marketing Support posted a decline while Platform saw an increase. Next, details of Customer Referrals to Electric Utility Companies and Telecommunications Carriers. Gray bars represent the revenue from that part of the business, the Customer Referral. As you can see, it became almost nonexistent, but this absence did not directly translate into the revenue decline of the subsegment because we concentrated our efforts in other services, which helped to somewhat make up for the difference. That's the main message of this graph. The main variable factors, rough descriptions on the right-hand side, financial media and car, both a single circle. Moving adjacent and as described earlier, with electricity rate hikes, incumbent utilities are picking up, but a recovery has yet to be seen among power producers and suppliers. Human Resources Media, a double circle, partly as we launched comparison of job search sites specializing in the nursing field. Bridal, a gradual recovery from the impact of COVID-19, a single circle as a result. As mentioned earlier, we have made some investments, and therefore, profit declined year-on-year. Insurance Agency Services, a double circle as the number of customers are steadily building up over time. KPI trends year-on-year, minus 8.4% in terms of user count. As a Customer Referral to Electric Utility Companies and Carriers had higher unit price, its impact was great in terms of the revenue decline. But in terms of the user count felt by users for other services, the rate of decline was kept at 8.4%. Looking at ARPU and CPA. ARPU picked up at a slightly higher rate. And as a result, we see an improvement in the difference between ARPU and CPA. From here, I'd like to talk about the future of the Digital Marketing Support business, what we hope to achieve in the future. In February 2022, we integrated 5 subsidiaries into Ateam LifeDesign Inc. We've explained this before, but here on this slide, you can see the summary of that integration, including the intent. Under this integrated structure, practically since August of last year, we have shifted from divisional organization to role function organization. As a result, as a company, we've become more agile and expedited in our major decision-making for overall planning and strategy development, which involve human resource allocation, while, of course, decision-making on each business level should be business-specific. Also by having cross-functional organization on sales, promotion, customer marketing and design development, we are seeing steady progress in enhancement of functions. So now that we have made organizational integration, what we are working on right now is to create and achieve continuous or discontinuous growth. How are we going to do that? A key word here is the common assets to make it a source of our strength. For example, it used to be we managed customers and client relationships separately for each business. But going forward, customers and clients for all businesses together with their respective situation will be managed in an integrated manner so that they could be consolidated into usable data, which then would provide insights into the customers and clients, so as to build better relationships with customer and clients. This should contribute to new business creation as well as improved efficiency of existing businesses requiring less resources. And this should also improve ARPU. So major strategic decision-making and our strengths are to be honed and enhanced further as well as creating common assets. There are 3 elements of key common assets. By combining these, we are to achieve discontinuous growth in Digital Marketing Support business. That's the concept that we have in mind. In the area of Platform business, year-on-year, minus 11.3% in revenue, especially Qiita. It did achieve a quarter-on-quarter growth. Last year, we had a large number of ad placements by international enterprises. We are seeing some recovery but not to a full extent yet. The Lalune business affected by a big change in the business environment as well as lower demand for in-feed ads as a part of changes in the market, resulting in a slight decline in revenue. Moving on to the future focus points, especially regarding Qiita, we are implementing various initiatives, especially focusing on organizing events. There is a growth both in demand and revenue. When we first organized an event, there were only hundreds of participants, whereas in the latest Qiita conference, over 3,000 engineers signed up. So we can now claim that it is one of the largest in Japan. And accordingly, we are receiving an increasing number of inquiries from companies that are trying to emphasize the technology and engineering aspect in their company brand. So in Qiita, in addition to our conventional media approach, we are focusing on physical events as well. So as to grow this brand as a total community of engineers. Next is Entertainment business by Yukimasa Nakauchi.

I will be reporting about the entertainment business. These are the key performance trends. Revenue down year-on-year due to a decrease in existing game titles. But in terms of profit, profit margin was retained year-on-year due to efficient operation and cost control, while we continue to invest in the development of new games. Here, you can see overseas revenue ratio trends, a little less than 40%. Market situation and our actions are summarized here. development cost of smartphone games continues to bloat, and we are seeing the red ocean situation. Success rate is declining. That is the overall trend. Looking at competitors, they are focusing more on hyper-casual games and Web3 services, including blockchain games. On our part, while focusing on multi-device games as mainstream, we are addressing Web3 and hyper-casual games within the extent possible. Pipelines are shown here. As for new original blockchain game, we released 1 title this quarter. While we see blockchain games losing momentum somewhat recently, there was a strong interest shown to our new title as indicated by the fact that we sold out in presale. So from the market and users, we are seeing very positive reaction. In developing this new title, we emphasized retaining the game aspect of fund to play. So we are seeing very strong good reaction, and we plan to collaborate further going forward. As for the future revenue trend image with existing titles expected to decline gradually, we aim to accumulate revenue through successes of hyper-casual games and Web3 services with multi-device titles contributing to additional earnings as they become available. Next is e-commerce from Kazuhiro Mochizuki.

I will start my presentation on E-Commerce. First, the financial performance. Revenue was down 60.3% year-on-year, a big decline due largely to the transfer of cyma on March 1. But there was a remarkable growth in revenue in the new cosmetics brand, Lujo. In terms of profit, while we continued investment in OBREMO, the amount of loss was reduced year-on-year as Lujo turned profitable in the fourth quarter. Focusing more on Cosmetics brand Lujo. We achieved profitability in the fourth quarter. This was a result of combining the 2 strengths that we have, namely product development and digital marketing, which brought about the achievement of continuous revenue growth and turning profitable in the fourth quarter. In terms of strength 1, Product Development, since we are selling directly to customers, we are closer to customers. And through this close interface, we get insight for compelling products. As for strength 2, Digital Marketing, we are utilizing the Digital Marketing skills and expertise cultivated in the Lifestyle Support business. As for OBREMO, we renewed the brand to increase its brand value. More specifically, we changed the tagline and updated the logo and package for further growth. That is all for E-Commerce.

Moving on to FY 2024 guidance on financial performance and dividends. Revenue up from JPY 27.552 billion in FY 2023 to JPY 28.7 billion. operating income up from JPY 543 million in FY 2023 to JPY 600 million and net income up from JPY 143 million to JPY 360 million. Dividend is forecast stay the same at JPY 16 per share. Moving on to initiatives and notes on the coming fiscal years. As described in the upper right-hand side, we aim to achieve the criteria for the listing on the TSC prime market by the end of July 2025. And for that, we will strive to recover the revenue to pre-COVID levels and to significantly increase operating income, improve profitability through profit growth by ensuring payback on investments we are currently making in such areas as insurance and e-commerce. So how are we to achieve this? Here's a recap on the strength or the competency of the company. which bolts down to digital marketing skills and know-how. In the Lifestyle Support business alone, we are seeing 600,000 to 700,000 convergence on a quarterly basis, meaning close to 3 million conversions on a full year basis and we're doing this in -- we are doing this in-house on our own. That is our competency that is our strength. Clearly, we are acquiring customers through Internet, the web acquisition. But going forward, in addition to Internet or web acquisition, we'll use SNS as well, although SNS is part of the Internet as well as artificial intelligence. To acquire customers, we will strengthen our skills there as well. And a long marketing process, shown on the top for brand recognition, retention and others, we will expand into those areas as well. And through this, we will enter new markets as well as for organic and inorganic growth. And we will be making investment for that purpose. Elaborating on the investments. On the left-hand side, you can see our current balance sheet. And practically, we have been debt free so far. But going forward, as shown on the right-hand side, we will get external financing and use that for aggressive investment so as to support the inorganic growth. And that concludes our presentation. Thank you very much for your kind attention. [This call has been translated by an interpreter present on the live call]