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

Thank you for joining us in the Ateam Fiscal Year 2025 Quarter 1 Earnings Call. Now let me begin. This is the agenda for today. These are the highlights. In terms of the operating income, we saw a significant increase. Turning to profit. On December 3, we announced specific shareholder return measures, which I will be explaining in detail a little later. So first off, in the first quarter, revenue decreased, but profit increased year-on-year basis. Quarter-on-quarter basis, both the revenue and the profit were down. Because of significant increase in profit, we have turned into generating profit. In each segment, profits grew, and you can see the results here on this page. Revenue, JPY 5.677 billion; EBITDA was JPY 308 million; operating income, JPY 227 million; and net income was JPY 129 million. This shows the progress against the full year forecast, and we're making a steady progress. Starting this fiscal year, the segments have been reorganized. The Digital Marketing business includes Hikkoshi Samurai and various media as well as D2C. Regarding the revenue in the financial media, major clients cut back on their budgets and the competitors were aggressive in their advertisement activities. Therefore, revenue declined. However, in terms of profit, we placed priority on profit in operating the business. As a result of optimizing advertising investment, year-on-year basis, the segment enjoyed increase in profit. In addition, D2C. Here, we have cosmetics product called lujo and Obremo, which is a dog food. This business has been successful, improving the top line. So as a segment, profit increased year-on-year basis. Next, the Entertainment business. The revenue decreased, but the profit increased compared to same period of last year. Efficient operation of existing titles and collaborative projects were the drivers behind this growth. The existing titles are in the downtrend. However, due to shifting the structure to focus on collaborative projects, the segment saw an increase in the profit. This next chart is shown for the first time. It is a line graph, which is the ratio of collaboration. Over the past year, it has grown to reach 13.7%. Eventually, this percentage is expected to continue increasing. We hope to change the structure in such a way. This is how overseas ratio is trending. This is the overall revenue trend on a quarterly basis. From here onwards, I will report on the update and progress of medium-term business plan. First of all, the update on the medium-term plan. As we have been operating the business, our cash has reached roughly JPY 10 billion, including investment securities and debt is very small. Nevertheless, we have not been able to use our cash effectively. Currently, the cost of capital, or WACC, is 6.5%. By controlling this capital cost, we hope to optimize the capital structure. We have made an announcement in this regard. Our policy is to utilize leverage and excess fund will be allocated to appropriate returns to reduce the cost of capital. As you can note on the right side of the screen, the goal is to achieve optimal capital cost. Our finance activity will be geared towards that end. Right now, we're at the very far left. Debt equity ratio is 0.3x and the cost of capital is 6.5%. But going forward, we will focus mainly on M&A. For M&A, we will rely on debt. As a result, EBITDA will go up, further raising the credit limit, which will allow us to do more M&As. By turning this cycle, as you can see on the right, we aim to achieve a D/E ratio of 1.4x and the capital cost of 3.5%. To give you more specific idea in terms of numbers, on the left, you can see cash in, whereas on the right is cash out. On the bottom left, it says JPY 2.5 billion and JPY 8 billion. As I mentioned earlier, we will do M&As, and we will have operating cash flow, which will be JPY 6 billion. And through utilization of leverage further raised about JPY 10 billion. Meanwhile, on the right side of this slide is the breakdown of what funds will be used for. 2028 is the final year of the current midterm business plan. With an eye to that year, we are thinking of investing in M&A about JPY 15 billion. And on the bottom right, is the shareholder returns. The goal is total return ratio of 100% or more in average. That is what this JPY 7 billion will be used for. Consequently, we will utilize M&As to expand the profit, raise the credit limit to generate virtuous cycle, thereby achieving accelerated enhancement of corporate value. We will be working to be more conscious of the stock market. This is the progress of the medium-term business plan. As was announced in the past, under the plan, we are working on these 3 initiatives. The first initiative is implementation of growth strategies to improve growth potential. Most of the growth here will come from M&As. The second initiative is reduction of risks and volatilities and the third initiative, enhancement of shareholder returns. These 3 initiatives are well underway. Regarding initiative one, that is M&As. The progress here is that we have reinforced our M&A team, which has allowed us to increase contacts with candidate companies and top executive interviews. We will continue to expand our activities and aggressive M&A activities will be carried out. You can see some figures on the slide. Target verticals of M&As are shown here. But by 2028, as I mentioned earlier, at least JPY 15 billion. So we intend to allocate minimum JPY 10 billion for M&As. In terms of verticals on the left are 3 industries. In the previous midterm business plan, we explained about turning into a company supporting sales improvements or so-called business boost company, making our way into 2B area. Consequently, we believe what's missing in Ateam are these 3. In terms of scale, these are about the size of the companies we have in mind. Now in fact, after the execution of M&A follows PMI. The progress of PMI, first of all, microCMS. This company offers administrators screen when creating a website. It adopt SaaS business model. As you can see, microCMS joined our group in June. During the past 6 months, its MRR increased by 12.4%. The number of companies that have introduced the service is now over 10,000 and the number of contacts has roughly doubled. And what are we doing here? As you can see, product-led growth, or PLG. We operate Japan's largest community site for engineers called Qiita. We are strengthening communication about microCMS service offerings. MicroCMS service tends to be adopted by engineers. They are the ones who eventually decide. Therefore, to these engineers directly through Qiita, we are communicating about strong features of the service. That is perhaps the reason why PLG has been successful. These 3 initiatives on the right are underway. Next is sales-led growth. Here, we created a business team or sales structure. And as you can see on the right, the 3 initiatives are taking place. As a result, the number of leads has doubled and the number of partners has exceeded 50. So going forward as well, after M&A, we hope to create areas where the strengths of the 2 companies can be leveraged to generate synergies. Next is reducing risks and volatilities. As you can see, thorough management of business and management of actual performance against forecast were carried out, which enabled investment and cost optimization. That is how I would describe the quarter. The second blue bar from the left, this is optimization of advertising cost as well as D2C revenue improvement through the growth of business, it was up by JPY 266 million. And orange indicates efficient operation of existing titles and collaborative projects. Increase in revenue has improved the profit. As a result, year-on-year basis, operating income increased by JPY 397 million. And finally, initiative three, enhancing profit returns to our shareholders. First of all, the announcement was made about QUO card to enhance the liquidity. This is our new shareholder benefit program. The shareholders with 5 or more units of shares will be presented with JPY 20,000 worth of QUO card. The breakdown of benefits is at the end of January and the end of July. The plan is split into 2. Through this, we hope to see higher liquidity and have a wider group of investors be interested in our stock. Last, but not least, financial and dividend forecast. Our guidance has not changed. Revenue is JPY 25 billion; EBITDA, JPY 1.215 billion; operating income, JPY 1 billion; and net income, JPY 560 million. Regarding the dividend, JPY 22 per share. These are our forecast. This concludes my presentation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]