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

Thank you very much for participating in the Financial Results Meeting of Ateam for FY 2024 Third Quarter. Without further ado, let me get started. These are the 4 main points of this meeting. Today, please kindly note in advance that we have more contents than usual. This is the executive summary, but let me skip this page now, and I'd like to come back here again. First, I will explain progress of growth strategy. Previously, we regarded our company as the comprehensive IT company. But since 2006, we have been leveraging digital marketing capabilities we have developed through media management. And we are transforming ourselves into a business boost company, not only for the existing clients, but also for the other potential clients' companies. Strategy overview is described on this slide. And let me explain it one by one. We have 3 categories. As shown on the left, areas supporting customer attraction. And shown on the right, support for improving business efficiency and overall support of sales growth as existing services in areas supporting customer attraction. We offer service through Hikkoshi Samurai, Hanayume, [ Navicle, Edes ] and other financial and media services, we are acquiring prospective customers. Going forward, we will enhance our capability of customer referrals through M&A and new media. We already acquired Media business a Bit Start and Bit Walk. And we will further enhance customer referrals for partner companies through them. We also would like to support digital advertising and customer attraction services that are done by clients or other ad agencies through media and customer referral support. Through effective search engines, for example, we can optimize ad placement and improve their efficiency and serve as planning and operational agency of clients' owned media, including social networking services. As shown at the bottom, we have already started BPO as sales agency and we'd like to enhance the matching between clients and the clients' customers or consumers. Support for improving business efficiency is shown on the right. We use various business support tools in our media operation. And we'd like to offer advice to provide them. We already have existing business of Qiita TEAM, and we will support the improvement of clients' business efficiency by offering this service. We acquired microCMS through M&A, which I will explain in detail. And this will serve to support client companies efficient website production. We have digital marketing capabilities to operate our website efficiency that we have been accumulating since 2006, as shown below. We will leverage this in CEO Consulting web production support and software selection support, among others, is shown below, with consulting service as a hub and support customer attraction and support improving business efficiency, as mentioned before. Thus, we will become a one-stop service providing solutions needed for sales growth. In order to increase ability to execute new strategy and accelerate the execution, we decided business alliance and financing arrangement with Advantage Advisors. Advantage Advisors is a pioneer in domestic private equity funds in Japan with the longest history. They adopt the investment strategy that engages in acquiring shares in publicly listed companies as well as enhancing corporate value by integrating management team as described below. Two companies are now considering these 4 areas as potential support areas. First, we will accelerate the M&A promotion and PMI supported by Advantage Advisors to expand the business beyond the existing one. Second, we'll be able to improve the profitability of our existing businesses. So we work together in planning strategy, advice and execution. Third, business management enhancement. We continue to promote portfolio management. And we also developed system for optimal resource allocation, including cash, goods, personnel and improve investment efficiency. Fourth, in investors relations, we'd like to strengthen the system together so that market will better understand our strengths and growth drivers. These 4 points add specific contents of business alliance with Advantage Advisors. This is the overview of financing of 2 types. They are CB on the left and new share acquisition rights on the right. Issuance date is June 26, 2024, for both and the amount to be procured is JPY 2.5 billion, respectively. Conversion exercise period is from December 2024 for almost 5 years. You may have a concern for dilution but it is not likely for Advantage Advisors to sell drastically. So rest assured, you don't have to have such concern. Conversion exercise price is JPY 643, and interest rate of CB is 0%. Allottee is a fund listed here. Specific use of fund is as described here. We would like to organize Zoom webinar for institutional investors separately about business alliance and financing. I'll explain again on June 20 from 3:30 to 4:30 p.m. Japan time, including Q&A session. I would appreciate if you can join this opportunity. This is the progress of M&A. As already announced, M&As of 2 companies, microCMS and Paddle are already fixed. First, as for microCMS Inc., acquisition amount was JPY 1.5 billion and the number of employees is 17 or 18 at present. headless CMS provided by microCMS is simply put, a content management system, CMS, a tool to create and manage website. In conventional CMS as shown on the left, CMS provider was in charge of management screen and display a website via various devices, including smartphone and PCs. While in headless CMS service, they provide only management screen. Recently, the needs for SEO measures, analytics tools and high-speed standardization are increasing. But in conventional CMS, each individual company was not able to meet those needs. In this new service of microCMS, company's own engineer or web production company can use language for web and display the contents management screen of microCMS using API content. Also, microCMS enables the integrated management of information via various devices, including smartphone and PCs. And we'll be able to meet the diverse needs of website operators through excellent fine-tuning. Displayed website is regarded as head. And the management screen is regarded as body or back end. And this system without head is called headless CMS. This slide shows the growth since the launch of service and the prominent growth has been sustained. The service started in September 2019 and the cumulative number of user companies is 8,000, and the number of active user companies is 2,450, showing the strong growth. One of our strengths is Qiita, which is a content site for engineers and which has joined us before. And the promotional campaign through Qiita will be effective. Use of microCMS will be decided by engineers and the product selection is done by engineers. So we have a medium for efficient reach to engineers. And by joining us, they will be able to achieve even further growth. One of the features of microCMS service is that as shown on the left, they were under product-led growth, PLG, driven by the product. And only with that, they have achieved a strong growth. Thus through collaboration with us, we can achieve sales-led growth as shown on the right, and by the establishment of new sales team, second direct approach corporate customers. Qiita and the new sales team, we realized that even stronger growth of microCMS. Next, Paddle Inc. Share acquisition is in 2 phases. The acquisition price in the first phase is JPY 368 million. Paddle Inc. offers a number of apps for smartphone. And the 2 major apps are shown here, Bit Start and Bit Walk. Put it simply, Bit Work is the app to earn points exchangeable for crypto asset or Bitcoin based on a number of steps in walking. It showed significant growth in MAU approximately 20-fold in 5 years. MAU continue to grow very steadily. Paddle Inc. is now in the black and its key point 1 is high profitability. Point 2 is expertise in operating point apps, and we'll be able to enhance customer referrals when they join us. Second point, I will explain FY 2024 guidance. We revised down consolidated revenue forecast for FY 2024 from JPY 28.7 billion to JPY 23.8 billion. Operating income and net income remain unchanged at JPY 600 million and JPY 780 million, respectively. This slide shows main causes and action to be taken for downward revision. First, in Entertainment segment, hypercasual games underperformed compared to the initial forecast. We are developing many hypercasual games. But in terms of KPI standards in terms of cost per acquisition and ROAS, Return Of Advertisement Spend, we were not able to ensure the profitability in the development. But recently, we began to have some apps that meet the KPI requirement. So we'd like to continue to focus on them in their development. In Lifestyle Support segment, as shown here, major financial media services client reduced their budget and the acquisition number decreased due to the lower SEO ranking resulting from the update to Google's core algorithm. We probably strengthened SEO measures to recover acquisition numbers. A short and medium-term measures to be taken from FY 2025 onward, will improve results by pursuing transformation into business boost company and enhancing business management. Dividend forecast, given the stable profit at present and continuous growth in the future, we decided to increase ordinary dividend from JPY 16 to JPY 18, up by JPY 2. And including a special dividend, year-end dividend was revised to JPY 22 per share. We continue to strive for the return to shareholders. Consolidated financial results for FY 2024 Q3. Revenue was down and profit was up year-on-year. Revenue was JPY 6,266 million. Operating income was JPY 330 million, and the net income was JPY 771 million. Net income increased due to gain on sales of Lalune. This is the progress against the forecast. Revenue growth was solid. The progress in operating income was better than the initial forecast as our operating income is skewed to the second half. Q4 forecast remains unchanged as JPY 456 million, and we did not change the forecast for the full year. Information by segment. Usually, each head of division explain from here. But this time, I will cover this part as well. Lifestyle Support was 94.5% of the previous year and this is due to SEO, as mentioned before. You see various marks in the table on the right. Double circle is more than plus 10%, and cross is more than minus 10%. In most of the businesses' results were double circle. But in financial media, reduced budget and lower rating in SEO led to these results, as mentioned. Financial Media and HR Media were heavily affected by SEO. We continue to secure stable profit by optimizing cost as a fundamental business. Entertainment Business. Though the revenue from the existing titles declined in the last 5 years, by enhancing collaborative project, we secured a stable profit as explained before. To be specific, we are developing 2 collaboration titles and 1 regional IP title as well as multiple hypercasual games, of which 2 titles are already released. In Web3 Services of cryptocurrency, one title was already raised. We will invest in a balanced manner between collaborative project, where we can share development costs and our original IP titles have not a very huge one. E-commerce Business. As explained in the previous meeting, so far, we have engaged in cyma business, and we learned that it is difficult to achieve the stable growth through onetime purchase model. And we are shifting to the subscription-based D2C business model. We launched the cosmetics brand lujo and OBREMO, dog food brand. After the transfer of cyma, revenue fell, but OBREMO revenue increased year-on-year with customers increase. We expect that the results will improve in the second half of next year or at the end of the next fiscal year. In conclusion, as described here, we will pursue transformation into the new business boost company by leveraging business alliance and financing arrangement with Advantage Advisors to the utmost and combining them with our expertise that we have accumulated since 2006. And we like to continue to have your support and the cooperation. This concludes my presentation.