DIP Corporation (2379) Earnings Call Transcript & Summary

Thank you very much for participating Fiscal Year Ending February 2022 DIP Financial Results -- Q3 Results Briefing. We will use the presentation material we are showing on our website. The -- today's session will be explained by Mr. Tomita, the CEO of DIP, and Mr. Shidachi, COO of DIP; and Mr. Iwata, CDO of DIP; and CFO, Mr. Arai. At this session, first of all, Mr. Shidachi, COO, will share the business update. And then Mr. Tomita, CEO, will share the growth strategy and shareholder return. Then we will take your questions. [Operator Instructions] Now let's start the session. I will hand over to Mr. Shidachi, COO.

I am COO, Shidachi. Thank you very much for your participation. Let us start. Here's the contents for today. #1 to 4 will be explained by myself. The highlights, please take a look later. Let me move on to Page 4, Q4 consolidated results. We could raise our year sales, but profit declined on year-on-year basis. We've been quite proactive, aggressive. And as a result, we've been able to achieve these results. Talking about operating income factors. We are moving on to Page 5. Sales expenses and SG&A breakdowns are available on this page. Advertising and marketing and promotional expenses increased significantly, as you see on this page. Because of the strong recovery in job hiring, our intention has been to further grow our market share and also the new product Baituro PRO. To raise the product awareness, we've been proactively making the advertising investment. We discussed the vaccination incentive program and Baituro PRO large scale promotion at the previous session. And as a result, we did actually make a large size investment. Let me move on to our full year expectation. We are revising the expectation. We're moving on to Page 7. First of all, DX business, we are upwardly revising the guidance. The top line or sales is going to be higher than expected. The -- this is a subscription-type B2B SaaS business. And the nature of business is totally different compared to our core business. But this different type of business, we can use the same sales channel, but we have to say that it has been a relatively difficult initiative to work on. But we've been able to actually make it happen. The same salespersons are being able to sell both products, the advertising and VDX product. And as a result, now we are expecting the sales to be higher than expected. In that sense, our sales do now have stronger capability to sell both of the advertising and DX products. And now mix has been also improving. We are being able to sell more profitable products. In other words, these products we have been internally developing. Also, the products we are sourcing from third-parties, we need to pay the cost, so the profitability is going to be lower. But because we've been able to sell more internally developed products, the margin is now becoming higher. So we are upwardly revising the guidance. Please move on to the next page, the company-wide sales transition. Q4, starting from October, growth has been rapid following the end of state of emergency declaration. But now Omicron is gaining more momentum, so we are to expect costs, take that into consideration. And based on that, we do have 2 scenarios, the worst-case scenario and the best-case scenario. And how we think about the expected operating income taking the -- after COVID-19 into consideration, we are going to continuously focus on to further grow our market share, meaning that we are going to continuously make upfront investment in advertising. Once COVID-19 situation is normalizing, we want to make sure that we are going to be very strong. So we are to make JPY 1.4 billion so our upfront investment as an advertising investment. And as a result, the expected size of income and costs are as you see on the page. Now we are taking a look at Page 10. Here are the full year guidance we have. Please take a look at them. Now let me move on to DX business update. Page 12. We discussed this at the previous session as well, but the positioning of DX business is to let us achieve our vision, which is to become a labor force solution company. We want to make sure to create a society where, as many as possible, people can feel happiness through their working. And that is why we have this DX business. Routine work should be left to digital or technologies and -- which should enhance the corporate's productivity and which should enable workers to feel more job satisfaction. That is why we have this DX business. And this chart, we also shared at the previous meeting, session. Now the numbers are updated. But still, SMEs, the penetration of DX is still very low. That means that we do have big room to grow our DX business because we can consider the market to be a blue ocean market. The size of potential is quite big, so we will continuously promote the DX business, targeting SMEs. Next is about our KOBOT products. Nothing new here, so please take a look at this Page 14 later. Next is our strength in our DX business. As we are upwardly revising the guidance, we do have a very strong sales capability. 1,600 salespeople are being able to sell the products, and we are to continuously focus on customer success. No change here. Page 16, please. Here is the guideline -- sorry, overview of the DX business. On the left, you see recruiting and personal administration related, including corporate recruiting base KOBOT, interview scheduling KOBOT and personnel administration KOBOT. These are the core products as of today. When we are being able to sell our job advertising, we can sell these products. And as a result, we are being able to upwardly revise our guidance. From now on to further expand the size of total market, we are to start focusing on non-HR related as well. That is why we are releasing this new product called Patronage KOBOT, which is to provide marketing support to our clients. And as a result, the cost will be more efficient, but also our clients' top line should be able to be higher. That is what this product is going to achieve what should be a potential product entering especially into the next fiscal year. And let me just briefly talk about this new product called Patronage KOBOT. We are taking a look at Page 17. The target customers are small size, midsize restaurants, dinings. This is quite easy to introduce our product using LINE Mini app. Before restaurants marketing promotions, maybe [ Kudanabi ], [ Tablog ], maybe products you are familiar with, but these are to approach to new customers. But what we can provide support is to make sure these new customers are going to be coming back again and again. On top of that, SME operators, it should be difficult for them to develop an app by themselves. That is why we are focusing on LINE. Our clients can use LINE. And just by using QR code, they can start using this service. It is called Mini app. This is a LINE service. And you may already know this, but in China, there are products like WeChat on chat functions. These mini programs are becoming more and more popular. The commerce transaction generated by these mini apps in China is now becoming even larger than the traditional apps. In that sense, what has been successful with WeChat is going to be now introduced with LINE. It is about to start. We are continuously collaborating with LINE very deeply. And together with LINE, we are to release products, including this Patronage KOBOT, to further make mini app popular in Japan. We are to capture this trend from now on. We do have a very high expectation with this products. Let me move on to Q3 results. Thankfully, personnel recruiting services have been able to grow. And as a result, Q3 growth speed has been faster. On year-on-year basis, the growth ratio has been positive 185%, meaning that sales almost tripled. And as a B2B SaaS business, we believe that this is quite an ideal speed of growth. The number of paid accounts or paid users has been positive, 28% growth, and on year-on-year basis, which has more than doubled. So DX business, we can tell you, we are being able to make a steady growth. Page 19, sales breakdown for the DX business. Before the nonrecurring product has beat the main, but now we have additional recurring type of products. And our intention has been to further increase the nonrecurring portion, as we've been discussing. And we've been able to make it happen. The ratio of nonrecurring products have been -- the growth ratio has been faster than the nonrecurring. And these nonrecurring -- sorry, recurring businesses products, the speed of growth has been more than 50% higher than the nonrecurring product. Page 20. Let us take a look at the KPIs. I can tell you we are achieving a steady results here, especially ARPU has been growing faster than expected. And stock sales ratio, we are making a good progress to achieve the full year target. Page 21, Q4 initiatives. Q4 initiatives, again, following Q3, we are to continuously focus on these 3 items: expand customer base; enhance product lineup and strengthen customer success system. We are going to -- in short, we are going to continuously focus on what we are strong at. Page 22. We have acquired DX certificate by the Ministry of Economy, Trade and Industry. On top of promoting DX in -- within DIP, we've been focusing on and growing our DX business to provide more DX support to our clients. And these have been highly appreciated by the ministry, and we've been able to be sell -- certified by the ministry. And from now on, we are aiming to be selected as DX Stock. We will continuously make our efforts. Now let me talk about the progress we're making with personnel recruiting services. Sales, as you see on Page 24, we've been able to achieve steady growth. Next, 25. Baitoru sales is now coming back to pre-COVID-19 level. At the end of September, we had 4 set of emergency declarations. And under such a situation, anytime we were about to start seeing a recovery. The next declaration was being made. But finally, from October, we -- there is no additional state of emergency declaration. And we've been proactively making advertising-related expenses -- investment and being able to keep growing our sales. And our user side situation has been also favorable. To further grow our market share, we are making proactive investment. And the number of app download has been further accelerating compared to pre-COVID-19. Page 27, monthly number of contracts. Following the lifting of the latest declaration, the numbers have been increasing significantly. Compared to February 2020, the growth has been 26.4%. Next, number of job listing. [ Tawuk ] and Mynavi are our competitors. But compared with these competitors, our trend has been better. So our market share in terms of job listing has been also becoming higher. Lastly, let me briefly talk about Hatarako.net. As you see, sales have been able to achieve a steady growth. This will conclude my presentation. Thank you very much.

So that was the presentation from Mr. Shidachi. Next, here are President Tomita, who will provide operations.

So this is about the future growth strategies. Please go to Page 31. And #1 was explained by Mr. Shidachi. So I would -- let's start from 2. Baitoru PRO. For this fiscal year, for the specialized jobs, this is a portal site for specialized jobs. From medical, have done nursing care and child care, which have the shortage of the resources or talents for such job postings like Baitoru. Rather than comprehensive side, for the specialized side is getting a traction. And how to acquire this market, we have been considering it. The portal site for specialized jobs, so based on such concept, we started this. First, in order to win such a special site players, we need to increase the number of information or amount of information and to increase recognition and to increase user satisfaction. So the amount of information. In order to make it #1, this fiscal year, we have implemented this initiative. And on Q3, for nursing care, beauty care and child care, we were able to become #1 in the number of postings. These are great bars. Dark ones, the competitor sites, the original job postings. In light ones, the job postings with Hello Work, which is available on competitor side. So together with it, Hello Work part, as shown here. From the original part, for all 3 categories, we are #1. What I will all post on Hello Work. But so far, we have not posted our information on Hello Work site. Market share. As Mr. Shidachi mentioned, that our market share is increasing before COVID and was #2 in this market. And after the long war with us, they decided to discontinue. And thanks to that, because of that effect, we were able to increase our market share. And now after the COVID pandemic, our sales decreased, but our share, triggered by COVID, a lot of initiatives to support the COVID pandemic. For example, the salary compensation or the payment waiver or free of charge postings. So various initiatives were implemented, and we were able to expand our market share. The #1 side for the only one powered. In March 2020, the single month sales was more than JPY 3 billion. There was a gap of more than JPY 3 billion, but now, on a single month basis, is less than JPY 500 million. So we were able to reduce the gap. And finally, there's a time that we are going to become a #1. Due to Omicron, even though we got momentum, but now it's dampened by Omicron. But we -- even so, even under such circumstances, through proactive promotion, we will increase market share. And once COVID stabilizes, we will become a #1. So we will be implementing proactive initiatives. So as one of the proactive strategies, DIP provisional incentive project. A little time ago, we encouraged the vaccination to give some benefits. So we did such our unique initiatives, so vaccination incentive. And this was very well received by users and by clients as well. So more than 300,000 postings are posted, so we gained momentum. And also, we were able to contribute to society. And this time, whether we going to have the vaccine or not, separately from that, for those employees who are on limited contract, before Baitoru PRO or Baitoru Next, in -- including our full-time employees, but especially for the -- those employees working for the fixed term to improve their compensation, so we have decided to clearly demonstrate it, for Baitoru to increase hourly wage. We call this consulting our sales force visit customers and to asking them to increase hourly wage or salary. So such negotiation are done by sales force. And through this, to increase the power to attract customers. And in reality, there are 1 million job posting information. But of them, more than 70%, 720,000 of them has agreed with us in -- to increase the hourly wage or the pay -- the bonus, the cash gift coupon employment. And WPS share the project, so I would like to share the program by spending about 10 minutes. And we have shown in about 3 minutes. So we'd like to share the program with you. This is a new site launched this month by DIP, the company that runs job information such sites as Baitoru. The site features only jobs that have recently raised the hourly wage for part-time workers and jobs that offer a bonus upon joining the company. For example, at this part, they have increased hourly wage by JPY 500. And this is one is restaurant, which pays JPY 10,500 for the first day of work and the further JPY 10,000 bonus after new employee completes 10 days on the job. So with the resumption of economic activities, the competition for part-time jobs is getting fierce. Against this backdrop, hourly wage increases for part-time workers are even being seen at major pop chains. United Collective has raised the hourly wage for part timers by JPY 300, as is directly managed Yakitori Izakaya ticketing in Tokyo. Watami has also raised hourly wages for part time workers already employed at about 140 stores in Tokyo metropolitan area, including Mira Izakaya and Toromiro by JPY 50 to JPY 100. The service shortage of partner worker is not limited to the restaurant industry. Last month, about 257,000 jobs were posted on the part-time job posting website Baitoru. This is a 1.6-fold increase compared to last year. Therefore, overall, the everyday, hourly wage is JPY 1,191. Compared to the previous year, this is up by about 7%. Not only the food and beverage industry, but also jobs in light work and logistics were up by about 10% from the previous year. In response to this trend of improving the condition part-time workers, DIP, the operator of Baitoru, opened a special website this month that allows users to search for jobs by focusing on those employers who are working to improve conditions. When I selected high-paying jobs in the Tokyo area, I found that there were over 30,000 heads, including jobs at distribution centers, with an average hourly wage of JPY 1,610. The numbers, including a JPY 200 increase in hourly wage and JPY 40,000 hiring bonus, show that companies are working hard to attract talent. In an effort to improve working condition for part-timers, DIP itself has raised the hourly wage by JPY 100 this month. I feel that there is still more work to be done to increase salaries. We would like to develop services that contribute to improve recruitment and retention and to move towards better working conditions. Thank you. So services to search for the jobs where to get compensation or attractive compensation. So what is most important in this incentive project? That our customers wrote companies to ask them to increase hourly wage, to conduct such a negotiation. So that is very unique. And is the services that we are appealing to others. And by doing so, loyalty, because currently, the job posting sites all the same. That is a result of the survey, but that is completely different, so that the -- we will ask users to understanding. So that is such initiative. In this time, to promote this project, we made a large investment. Starting from January 20, we will issue the TV commercial. In this time, we have centered on TVs and online advertisement or sort of sub. But this time, the web advertisement is the web -- the advertisement such as YouTube and the TV commercial will be sub in the transportation advertisements or outdoor advertisement will be also be used. So in various forms, we will issue advertisements. And that -- so this was created last time in -- this will be released on January 20. [Presentation]

So it's very straightforward and impactful commercial was created. And Kishida administration is also working to improve the compensation for workers. So that is one of their major themes. So such a preferential tax system and for -- through various initiatives, there is a following for us. So we would like to win and to become the #1, which has been our long dream. Next, I'd like to talk about shareholder return. I don't remember when was the last time, but that this has been -- we have been achieving the plan. And the term's forecast was very difficult. In the using various think tanks' data, we forecast where we will recover from COVID-19 pandemic, and we developed a plan. The major think tank also missed the forecast. So we would not -- did not expect that the Delta will prolong too long. And the emergence of Omicron, also we could not forecast. So I think it is reasonable to decrease the dividend. But to our next fiscal year, we are very confident. And as being our policy, the previous term dividend amount will be guaranteed. So similarly, as previous fiscal year, we decided to pay JPY 29 per share. So the downward revision is very unfortunate and disappointing. But as Mr. Shidachi said, the profit decrease was caused by our proactive initiatives. So please look forward to DIP's growth going forward, and I appreciate your support. Thank you.

So this will conclude Mr. Tomita's presentation. Now I would like to move to Q&A.

[Operator Instructions] First question will be made by Daiwa Securities, Mr. Sekine.

Q3 personnel expenses increased significantly. What was the reason?

CFO Arai will respond to the question.

Thank you very much for the question. Q3, rapid increase, but it increased from JPY 3.2 billion to JPY 3.6 billion, so maybe JPY 400 million or so increase. The first reason was related to vaccination related benefit. In Q3, in October and in November, we held vaccination campaign. And accordingly, we also paid benefit to our employees who got vaccinated. And sales compared to the previous fiscal year has been recovering. So accordingly, the variable portion, the incentive reflecting the stronger sales increased on a year-on-year basis. These should be the 2 major reasons.

Next is the question from us from Mr. Sekine from Daiwa Securities.

How did you stay for the advertisement going forward? Whether the advanced investment will continue? Or the -- by looking at the sales for Baitoru or depending on competitors?

This question will be responded to Mr. Arai.

The promotion investment policy for next fiscal year, we are in the middle of creating budget. And based on that, I would like to explain enough when we announce the full year results. But the structure of advertisement expenses, as Mr. Tomita or Mr. Shidachi explained, the existing advertisement portion, the ratio has been maintained as before COVID and to increase market share, to become the #1 in the digital advertisement, advanced investment for the investment for Baitoru PRO will be added. So it's not that the -- there will be a major change in revenue structure. So advertisement expense before COVID, that will be used as a benchmark. And in order to increase market share, such a strategic investment or the investment in Baitoru PRO, will be added, and for KOBOT related advertisement or investment. So such strategic investments being promoted. So the conclusion is that we cannot give you clear numbers, but that is a basic policy.

Another question from Mr. Sekine from Daiwa Securities.

Compared to pre-COVID-19, sales per client for Baitoru is now staying at a low level. How do you think you can recover this? Or do you think it is difficult to recover? And is that why we should have more expectation on DX business?

The question will be answered by the CDO, Mr. Iwata.

Thank you very much for the question. Yes, it's true that Baitoru PRO client sales, our ASP has been yet to recover to pre-COVID-19 level. But if you look at the latest situation, December, compared to pre-COVID-19, now it's getting closer. Not 100% yet, but it's getting closer to 100% compared to pre COVID-19. Especially, why the average ASP becoming lower is because of -- it's led by the major size enterprises. The small size clients, the ASP is now trending around 90% compared to pre COVID-19. And because of the mix contribution coming from large-scale enterprises, is big. How COVID-19 -- we are being able to recover from the COVID-19 is going to be the key because this should have a major impact on the large size enterprises.

Next question from Mr. Sekine from Daiwa Token.

For DX to increase sales, the product lineup expansion is the best? Or other than existing customers, should we expand approaches to other customers?

And a discussion will be answered by Mr. Shidachi.

Thank you for your question, Mr. Sekine. To expand DX sales or the expansion of product lineup or the -- other than existing customers, to expand channels or to expand approaches to customers, I think the answer is both. The product lineup, as I explained earlier, the -- for the better operation for the interview KOBOT. So that is also one known option. And so the sales promotion, like Patronage KOBOT, also need to be expanded going forward. So if the product lineup is expanded, the opportunity to expand channels will also increase. So other than our channels, for example, using agents for sales promotion, and to sell with our products with their products, to handle such products, so such channel expansion also will be implemented proactively. So in that sense, product lineup will also be expanded appropriately. At the same time, together with it, the existing equipment business, in addition to our recent channel, we would like increase the channel. So we'll use both wheels to increase or expand DX business sales. That will be my answer.

Next question is from Mr. Watanabe from Metro Securities.