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

Thank you very much for joining us today for the fiscal 2025 full year business results briefing. Let me begin my presentation. These are the highlights. First of all, for the full year of fiscal 2025, we achieved a significant year-on-year increase in profit. Results also generally landed strongly against our forecast. Revenue was JPY 23.917 billion, which was 100% year-on-year and 95.7% against forecast. Adjusted EBITDA for the full year was JPY 1.719 billion, 232.2% year-on-year and 114.6% against forecast. For the fourth quarter, revenue increased, but profit decreased year-on-year, while both revenue and profit decreased on a quarter-on-quarter basis. I will explain this in more details later. Today, I will mainly cover 4 points. First, compliance with the prime market listing maintenance criteria. On October 27, 2022, we submitted a plan to meet the continued listing criteria. I'd like to report that we have now received notice from the Tokyo Stock Exchange confirming that we are in full compliance. The part where we have not met the criteria was the market capitalization of tradable shares. The requirement was JPY 10 billion. As of 2023, it was JPY 8.1 billion, but it has now reached JPY 13.9 billion, so we have successfully met the requirement. The 5 key initiatives we undertook were execution of growth strategy, increase of market capitalization of tradable shares, active shareholder returns, enhancement of corporate governance and extensive IR activities. First, execution of growth strategy. As we have stated before, we are actively promoting M&A as a new growth driver, and we have been advancing this in partnership with advantaged partners with whom we have formed a capital and business alliance. Next, stock market-centric management. We have focused a capital cost and share price-centric management. To enhance liquidity, we established a new shareholder benefit program. We also announced a target average total return ratio of 100% and total shareholder return of JPY 4 billion to JPY 5 billion, and we have already executed share buybacks. As for enhancement of corporate governance, our corporate strategy division has led efforts to ensure company-wide optimization and rigorous budget management. As a result, we have been able to meet the listing maintenance criteria. Toward achieving our medium-term business plan, we will continue to promote these 4 strategies. First, whereas we previously were centered around B2B2C or B2C areas, we are now going to penetrate into the B2B market by providing our expertise, especially to customers in the digital marketing field, we hope to support their digital customer acquisition and business efficiency. Also, we'd like to continue to pursue inorganic growth driven by M&A, which I talked about earlier. These 2 points are expected to lead to PER growth as indicated on the right. Until now, we had no particular insistence on being debt-free, but because we had no major policy of how to invest our cash, we ended up being debt-free. Going forward, we will actively invest in M&A and other opportunities. For that, we plan to take on borrowings and lower our capital cost. In terms of organizational strategy by strengthening monitoring under the holding company structure, we plan to further promote M&A. We believe that advancing M&A and borrowing money will also help to reduce WACC. Here is the consolidated financial results summary, as I have already mentioned. Ordinary income was JPY 1.585 billion, 260.3% year-on-year and 122% against forecast. Net income was JPY 1.036 billion, 108.7% year-on-year and 103.6% against forecast. As written at the top, we achieved a significant year-on-year increase in profit. Through enhanced business management and optimized business portfolio, we successfully generated profit. Specifically, we sold unprofitable or noncore businesses and acquired new businesses. Here are the results compared with our forecast and also the results compared with the previous fiscal year. Revenue remained flat at 100% year-on-year, while all profit indicators increased. We'd like to continue to disclose adjusted EBITDA as an indicator that appropriately measure our core business profitability. As explained previously, our adjusted EBITDA starts with operating income as amortization of goodwill and depreciation to obtain EBITDA and further adjust for M&A-related expenses and provision for sales promotion allowances. The newly consolidated paddle has a business model where users earn points by walking and those points can be exchanged for Bitcoin. For points that will be traded to Bitcoin and provided to users, we need to provide an allowance. Now fluctuations in Bitcoin prices affect the allowance, which in turn impacts operating income. Accordingly, we add this back when calculating adjusted EBITDA. We also add sales promotion expenses and subtract the actual cost of points granted. So the biggest part is expenses related to M&A and then the impact of crypto asset price fluctuations. We deduct such impacts and derive the adjusted EBITDA to measure our core business profitability. As mentioned earlier, when crypto asset prices rise, the allowance increases, which lowers operating income, but because the asset value increases, ordinary income rises. The diagram on the right illustrates the reverse when crypto asset prices fall. On the left is the Digital Marketing segment. Revenue was 101% year-on-year and adjusted EBITDA was 159.5%. The main drivers were the inclusion of the newly consolidated revenue of companies that joined our group through M&A as well as strong performance in car service business, which is the used car purchase comparison site and the moving business and moving cost comparison site. On the right is the Entertainment segment. Revenue was 95.4% year-on-year. Although there was a decline in sales of existing titles, thanks to entrusted development revenue from the collaborative projects we are focusing on with companies possessing strong IP, the decline in revenue was minimal. As a result, adjusted EBITDA turned positive. In the fourth quarter, adjusted EBITDA declined both year-on-year and quarter-on-quarter. The main reason is that we made strategic investments in Q4 toward the current fiscal year 2026. This included human resource investments such as bonuses and issuance of paid stock options as well as investments aimed at business growth for the current fiscal year, which resulted in a decline in profit. This is illustrated in this chart, showing human resource investments and business investments and the difference in amortization from the provisional PPA calculation. These items were the primary additional costs and investments recorded in this Q4. Here are the segment results. This is a quarterly trend for the Digital Marketing segment. Revenue grew 105.3% year-on-year. Quarter-on-quarter, there is the usual seasonal pattern in which Q3 is a busy season for the moving-related business. So Q4 typically dips slightly compared to Q3. The Entertainment segment's quarterly performance is shown here. We will continue to manage existing titles and reduce costs. And by steadily handling collaborative projects, we aim to avoid major fluctuations and secure profit as we move forward. Although the timing is not yet certain, we expect that when titles are released in the future, there will be significant contributions to revenue and profit. This figure shows the ratio of collaborative projects in the entertainment business. From fiscal '24 to fiscal '25, about 20% of projects have become collaboration based. The graph on the right shows the overseas ratio. Here is the consolidated quarterly performance trend. This is a medium-term management plan for fiscal '25 to '28 and within it, the shareholder return policy. We have announced that we will introduce progressive dividends to achieve a total shareholder return of JPY 4 billion to JPY 5 billion and an average total return ratio of 100%. First, in fiscal 2025, we executed share buybacks totaling about JPY 3.2 billion. We plan to continue flexible share buybacks over the next 3 years. The gray figures in the table are still provisional and therefore, expressed as such. Below that, the figure of JPY 112 million represents the dividend. We will first fix this amount and then in line with business performance, consider dividend increases. In these ways, we have decided to strengthen shareholder returns. Second, to increase the opportunity for profit returns, we will pay semiannual dividends, an interim dividend and a year-end dividend. In addition to moving to twice a year dividends, we have decided to increase the annual dividend per share from JPY 22 to JPY 28, which means JPY 14 each at the interim and year-end stages. So we decided on the 3 initiatives of progressive dividends, interim dividends and the increase in dividends with the objective of strengthening shareholder returns. This is the forecast that we have announced for the new fiscal year fiscal 2026. Revenue, JPY 24.5 billion, adjusted EBITDA, JPY 1.5 billion; ordinary income, JPY 900 million and net income JPY 600 million. You may notice that compared with fiscal '25, adjusted EBITDA and profit are projected to decline. The main reason is the closure of one of the Entertainment segment's collaborative projects. So we subtracted that from the core business figures. Despite this, as written, we are implementing measures to increase our profit level through new M&A and improved functions in our existing businesses. We, therefore, are announcing these figures as a conservative forecast as of now. As noted, we do not expect any major disruptions in the near term. And given our sound financial position, we have decided to shift to a progressive dividend policy. Starting in fiscal '24 and continuing into fiscal '25, we face the challenge of maintaining our prime market listing. Together with advantaged partners and with the newly established corporate strategy division taking the lead, we work to make the company more attractive to the stock market, foster new business growth and promote initiatives aimed at enhancing corporate value. We will continue to execute the strategies I mentioned earlier to achieve the medium-term target of JPY 4 billion in adjusted EBITDA. In fiscal 2025, we gained strong confidence in these initiatives. We see fiscal 2026 as a year to lay the groundwork toward achieving that goal. Within the company, we have set the goal of new growth for the year, meaning this will be a year we aim for new growth and all employees will unite in working toward this target. We ask for your continued support in our endeavors. That concludes my presentation.