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

Thank you for joining us today for the 2025 Second Quarter Business Report Presentation. Let me begin my presentation. This is today's agenda. These two items are today's highlights. I will explain each of these points. The first is the introduction of adjusted EBITDA, which we will use to measure our core business' profitability. Currently, we position M&A as one pillar of our growth strategy, such M&A generates onetime expenses. Also, we have Paddle, a crypto asset-related business operator, which has recently joined us. Paddle owns crypto assets and its PL is significantly affected by fluctuations in the market prices of crypto assets. I'd like to explain these points today. If we break down our definition of adjusted EBITDA by item, it looks like this on the left. Starting from operating income, amortization of goodwill and depreciation is added to derive EBITDA and then M&A-related expenses are added and the next three lines are major items added as a result of the consolidation of Paddle. Before moving on to Paddle, let me explain these items. You add M&A-related expenses to EBITDA and then also reflect the provision of allowance for sales promotion expenses and the cost of points actually granted to users and you arrive at the adjusted EBITDA. This is how it looks if we apply the actual cumulative second quarter numbers. Starting from EBITDA of JPY 260 million, M&A-related expenses of JPY 25 million, provision of allowance for sales promotion expenses of JPY 432 million, sales promotion expenses of JPY 52 million are added. And the expenses for points granted of JPY 60 million are subtracted and you get the adjusted EBITDA of JPY 711 million. This is a figure you get when you apply the adjusted EBITDA concept to past results. Going forward, operating income will be impacted by the price of crypto assets. So we believe that ordinary income rather than operating income is a better indicator of the true capability of our business. I will explain this in more detail. First, Paddle offers a service of the point collection app, BitWalk, where users are awarded points based on the number of steps they have walked and these points can be converted into crypto assets. Users can exchange points for actual crypto assets. We need to provide an allowance for the points exchangeable for crypto assets. If the market price of crypto assets rises, the provision amount will increase, meaning operating expenses will rise and operating income will decrease. However, if the market price of crypto assets rises, valuation of the cryptocurrency increases within ordinary income. Therefore, we believe that ordinary income would be a better indicator for the state of our business. In the other direction, if the market price of crypto asset declines, the provision amount will decrease, so operating income will increase and ordinary income will decrease. To repeat, we think that ordinary income is useful as a comparable accounting performance indicator as written here. This shows the relationship between operating income and ordinary income. The second quarter cumulative adjusted EBITDA was JPY 711 million. Ordinary income was JPY 775 million. Next, here are the results for the second quarter. Revenue was JPY 5.862 billion. Adjusted EBITDA was JPY 400 million. Ordinary income was JPY 543 million. And net income was JPY 430 million. This is the achievement rate for the full year. Next is the quarterly financial trends. Sorry, let me go back a little. We have had seasonality in our business with higher numbers in the second half of the year and the first and second quarters tended to trend lower. But looking at the market response, we decided we need to grow not just year-on-year but also quarter-on-quarter. So we have taken measures, including controlling investments and have achieved these figures. As a result, we were able to achieve an increase on a Q-on-Q basis as well. This is a breakdown by segment. As you can see on the left, we have two main segments, Digital Marketing and Entertainment. Both of these segments have continued to perform well following the first quarter. In Digital Marketing, we have recorded revenue from companies that have joined us through M&A. On the other hand, in Financial Media, we have seen a decrease due to a slump in areas such as SEO. As I mentioned, adjusted EBITDA has increased year-on-year and also quarter-on-quarter basis due to optimization of advertising cost. For Entertainment, although existing titles are in a downtrend, we have been able to secure stable profits through collaborative projects with other companies. The graph on the left shows the collaborative ratio. The graph on the right shows the overseas ratio. And here is the progress and results of our M&A activities. First, WCA Inc. is a web advertising management agency and consulting services provider. It has 50 employees. The acquisition price was JPY 150 million and the due diligence cost was JPY 3.8 million. The total acquisition price, including the cost was JPY 153.8 million. By having this company join us, we believe that we can strengthen our capabilities for supporting online customer attraction for our clients from channels other than our own media. We also expect synergies such as referring customers from our own media to WCA's existing customers. With such expectations, we conducted this M&A. This is a company that has been operating for 20 years and has accumulated a great deal of know-how. This is the second company. Strainer Inc., which holds a large amount of economic news media as data. On March 3, they joined our company. They operate the News Media Strainer and the financial database Finboard. This is a progress that has been made to date by our M&A team. We will continue to strengthen our M&A activities. As for the types of companies we are looking at, we are thinking that the targets will be web marketing consulting, web marketing management, SaaS business and customer referral media. As for our performance and dividend forecast, we are expecting revenue of JPY 25 billion, adjusted EBITDA of JPY 1.3 billion, operating income of JPY 1 billion and net income of JPY 560 million. We are also planning to pay a dividend of JPY 22 per share. As for our shareholder benefit program, shareholders who hold at least 5 units of stock will receive JPY 20,000 benefit for the full year. twice a year. We have decided to present QUO Cards worth JPY 10,000 to holders who are listed in the shareholder register as of the last day of January and July each year. The first shipment will be made in early April. The next shipment will be for holders as of end of July. Based on our future direction of accelerating M&A, we have decided to change the corporate name from Ateam Inc. to Ateam Holdings on April 4, commemorating the day we were listed on Mothers Market in 2012. This concludes my explanation.