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

We will now start the Earnings Briefing for the First Quarter of FY 2024. Thank you very much for taking time out of your busy schedule to join us today. Items to be covered are as shown here. First is on notice on financing. We have decided to enter into a commitment line agreement with Sumitomo Mitsui Banking Corporation. The commitment amount is JPY 3 billion. The contract date is December 29, 2023. The period is 1 year, until December 29, 2024. The purpose is to secure necessary cash on hand for uses described here. Next is the initiatives to meet the continued listing criteria for the Tokyo Stock Exchange Prime Market. Currently, we are not complying with the criterion for tradable share market capitalization of JPY 10 billion. We are making various efforts to meet this so let me describe what they are. We are making 2 major efforts aiming for rejuvenating growth. First is the execution of a revamped growth strategy. And the second is growth of investment businesses and turnaround of businesses with winning profitability. These are the 2 main pillars. Regarding the first, we will focus on our strength in digital marketing to expand peripheral markets and functions for delivering services to a larger number of clients. Also, we will aim for further business growth by acquiring media and functions through inorganic investments. We recognize that the strength of our group is our digital marketing capabilities. Currently, we are attracting and gathering customers through web ad management and content management, SEO. Our business is to refer the customers we have attracted as potential customers to our partner clients, and in return, receive compensation from our partner clients in the form of prospect referral fees. In terms of customer acquisition through inorganic investments that I mentioned, in addition to adding new media to the legacy media in the middle over the medium to long term, our goal is to achieve this continuous growth by expanding into businesses that generate a greater impact through a rollout and expansion of our digital marketing platforms and support functions for business outside of our in-house media. The specific progress of our current activities is shown here. This is the status from February to November 2023. The details are as shown here. Our target size is up to approximately JPY 5 billion. The other pillar is number two, growth of investment businesses and turnaround of businesses with weighting profitability. In particular, the business where profitability has waned most significantly is the bridal business, which was affected by COVID-19, but we expect it to recover now that the COVID-19 has subsided. In terms of investment businesses, there are 2 main areas. In E-Commerce area, Obremo for pet food, and lujo for cosmetics. These investments amounted to hundreds of millions of yen over several years. But we believe that return on these investment projects will soon begin. We believe that there will be a profit impact of approximately JPY 600 million on top of what we have spent as investments so far. We expect similar developments for Qiita and insurance agent businesses, where we have invested hundreds of millions of yen. Regarding the bridal-related business at its peak, we were making an annual profit of about JPY 500 million. But after that, we went into the red. We now expect its recovery. Compared to when we were in the red, we believe there will be a profit contribution impact of approximately JPY 300 million from this business. These are number one that I explained earlier, the inorganic growth. The far left is the base profit of JPY 500 million in 2023. M&A, number one, is expected to contribute JPY 500 million to JPY 1 billion to profits. And number two is the payback from the investment businesses that I explained earlier, and JPY 300 million is recovery in the unprofitable businesses and JPY 600 million is growth of existing businesses. If you add them up, it will be around JPY 3.1 billion to JPY 3.6 billion. In the meantime, there might be negative results in some businesses, so we are forecasting a loss of JPY 500 million. As a result, the net operating profit will be between JPY 2.6 billion and JPY 3.1 billion. When this is achieved, we believe we'll be able to achieve a tradable share market capitalization of JPY 10 billion. Please be advised that this graph does not include profits from the Entertainment business. So as far as the Entertainment business is concerned, we will strive to keep it profitable. And should there be hit game titles, they will make additional contribution. With this new financing facility, balance sheet should look like this in the future. Up until now, we have been largely debt free. But as we establish this large-scale financing facility for the first time, we believe the balance sheet would look like this. Moving on to the first quarter results. Revenues decreased year-on-year to JPY 5,974 million. But this was due to the transfer of bicycle retail business, cyma. Regarding operating income, we are progressing generally as planned from a full year perspective in accordance with the full year guidance. Operating loss was JPY 170 million, and net losses attributable to shareholders of the parent company were JPY 142 million. This is the progress status. Here, you can see the revenue by segment. Lifestyle Support JPY 4,387 million. Entertainment, JPY 1,039 million, and E-Commerce JPY 547 million. The sales composition ratio was Lifestyle Support, 73.4%, Entertainment, 17.4% and E-Commerce, 9.2%. This is the summary of operating results, but the details of each business will be provided by the head of each business. First, Fumio Mase will go over the Lifestyle Support business.

I will go over the Lifestyle Support business. First, please note that while until now, we have divided the segment into 2 subsegments. We have decided to unify them into the digital marketing support business. Platform business originally had 2 businesses, Lalune and Qiita. But Lalune has recently been transferred. And as for Qiita, as recruitment information and the human resources information service for engineers, we were expecting its revenue source to be based on the platform business. But in reality, in its current state, most of the revenue is coming from advertising. So we concluded that even if we integrate them into digital marketing support business, there would not be a problem, and therefore, we combine them into one. Next is the quarterly performance trend. Revenue was 96.6% year-on-year. The main variance factors are shown on the right-hand side. Businesses with growth of 10% or more are marked with a double circle, others with a decrease of 10% or more are identified with an x. As for revenue, as shown here, insurance, human resources medium and car services posted a growth by double-digit percent, while revenue from customer referrals to electric utility companies and telecommunications carriers are currently almost 0 as we have been reporting for some time. Regarding profits, although revenue in the car services was strong, advertising expenses increased due to intensifying competition. Also, although it's not written here, regarding the bridal whole information website, Hanayume, we are expecting a profit increase of JPY 300 million in FY 2025, as CEO, Takao Hayashi, just explained. So towards that goal, we are currently investing in mass advertising. As for advertising costs, we are now dividing them into 2 parts, ads like mass branding that I mentioned earlier are categorized as brand recognition advertising costs. Whereas ads for procuring information are classified as sales-linked advertising costs, which vary in relation to revenue. Ratio to revenue has remained constant at around 60%, not increasing much. This also is newly updated information for each of major businesses, external factors and the status of our business are described. In Financial Media, as external factor with Google's core algorithm update, E-E-A-T has been enhanced. Our business performance has generally remained flat. Regarding the car services, although used car prices have fallen from their peak at 1 point due to the increased activity in the new car market, still, they have remained at a relatively high level compared to the past. The business situation is, as mentioned earlier, advertising investment has increased in the face of competition from competing services. For moving-related, market was generally flat and our revenue also remained flat. In Human Resources Media services, demand continues to be high from both companies and job seekers. Human Resources media business continued to see revenue and profits increase year-on-year. The accumulated losses were eliminated in August 2023, and we will now be in the phase of building up profits. Regarding bridal, we believe the market has recovered to about 80% of the pre-COVID levels. We are currently strengthening our sales while investing in mass advertisement, and we will continue to consider how much to invest while keeping in mind the recovery trends and the number of listed wedding venues, investment efficiency and the market environment. Regarding the insurance agency business, the market remains flat as special demand due to concerns of COVID has subsided. Regarding the status of this business, the number of customers has increased steadily due to past accumulation, and we have bolstered efforts to increase the number of partner companies and sales advertising space on our website. Next is KPIs. The user counts have remained flat year-on-year. CPA has slightly increased due to an increase in advertising expenses, mainly for car services. Some topical items. The comprehensive lifestyle media, E-DESU has celebrated its first anniversary, and the cumulative number of visitors has exceeded 28 million. We started this with various small things and gradually increase the number of users. We will invest in the E-DESU brand to ensure brand search for E-DESU specifically, with the aim of attracting customers not only through linked advertising, we will grow this business from a long-term perspective. Next is on the Lalune business. As I explained at the beginning about the subsegment integration, we have decided to transfer the Lalune business via simplified absorption type split. The effective date of the business succession is scheduled to be February 1 of next year. We have made the decision to make full use of our strengths and to focus our resources on those businesses and have concluded that Lalune does not fall under that category and decided that transferring the Lalune business to Medley Inc. would be the best way to maximize the value of Lalune. That is all for Lifestyle Support business. Next, Yukimasa Nakauchi will explain the Entertainment business.

I would like to go over the Entertainment business. These are the performance results. We are operating existing titles efficiently, but there were some that did not perform well during this quarter, resulting in operating loss. Overseas revenue ratio has increased slightly due partly to the weaker yen. This slide describes the surrounding environment and our current situation. Although the smartphone game market is expanding, development costs for large-scale titles has bloated. So we are working on collaborations to ease costs and create a stable situation and work on new titles. At the same time, we continue to challenge new genera such as hypercasual games. This approach remains unchanged. This is the new game pipeline development. There are 2 multi-platform game titles regarding hyper-casual games. We have created multiple titles, but only one has been released going beyond the test versions. As for web free services, we have released one title and multiple others are in the planning and development phase. This is supplementary information for hyper-casual games. Currently, the global market size of the hyper-casual games is JPY 4 trillion. The PDCA cycle is extremely important for speedy development. As you can see from the left, conduct market research for trends and development, test develop multiple titles, repeat, test launch and verification, then carefully conduct full-scale development of products that meet certain KPI standards before official distribution. So far, we have tested dozens of titles. This is our medium-term plan. We are currently moving forward with a plan to efficiently operate existing game apps, regularly release hyper-casual and web free games and aim global hits in original multi-device game titles. That is all for Entertainment business. Next is Kazuhiro Mochizuki in charge of E-Commerce business.

I would like to go over the E-Commerce business. First, the quarterly results. Revenue were minus 57.8% year-on-year. This significant decrease in revenue is due to the transfer of cyma on March 1, 2023. However, the number of customers for cosmetics brand, lujo, and pet food brand, Obremo, increased steadily, resulting in a significant increase in revenue. Regarding profits, the loss for the entire segment was reduced significantly due to the business transfer of cyma, which had been incurring operating losses, and lujo having achieved a profit for the second quarter in a row following the fourth quarter of the previous fiscal year. This is the current business model and features of the E-Commerce business. Before the transfer of cyma business, our E-Commerce business was based on a onetime purchase business model, and the number of web use per customer was small. Following the business transfer, we are currently promoting the D2C multiplied by subscription-based business model to drive regular purchase in 2 businesses, so as to build an earnings structure with stable growth through the increase of repeated customers. Next is on KPIs. In line with the change in our business model, we have decided to monitor 2 new KPIs: number of repeat customers and CAC payback months. Customers has been steadily increasing since the start of services. The number of months for CAC payback will be kept constant to some extent while maintaining efficiency. Some details about the cosmetics brand, lujo. Revenue has been growing steadily, achieving the record high quarterly revenue. In addition, the steady increase in the number of repeat customers led to achieving profitability in the first quarter. This is an image of the future growth of lujo. Until now, lujo has been accumulating revenue by releasing new products one after another. We will continue to focus on new product development and steadily grow the business. That's all for the E-Commerce business.

Finally but not the least, here are the FY 2024 financial forecast and dividend forecast. Our earnings forecast is as shown here. The bottom line, the net income was originally forecasted to be JPY 360 million, but has been revised to JPY 780 million following the sale of the Lalune business. Dividend forecast remains unchanged at 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.]