Direct Marketing MiX Inc. (7354) Earnings Call Transcript & Summary

I'm Daisuke Uehara, President, CEO and Representative Executive Officer of Direct Marketing Mix Inc. I'll explain our financial results for the third quarter of the fiscal year ending December 2024, which were announced on the 14th of November. I'd like to start with the financial highlights for the third quarter of the fiscal year ending December 2024. Regarding the third quarter nonconsolidated financial results, sales reached JPY 5 billion and operating profit reached JPY 120 million. With regard to operating profit, approximately JPY 300 million was recorded through impairment losses on fixed assets associated with withdrawal from some low-profitability sites, as announced on August 14 in the notice concerning revisions to full-year consolidated financial results forecast. Regarding our forthcoming site strategy, the liquidation of business sites for optimization of capacities augmented in line with the rapid increase in COVID-19-related business was completed as of the end of this quarter. We plan to continue to implement flexible controls on sites in response to changing business conditions. Next, for the earnings forecast. The full-year earnings forecast was expressed in ranges when the second quarter results were announced. However, the earnings forecast was newly announced due to profits being stronger than initial expectations and the confirmation of the expenses associated with the aforementioned site liquidation. Finally, regarding the current business environment, a slowdown in performance associated with the temporary expenses review originating from a group reorganization by telecom carriers has bottomed out and demand is recovering. In the Web/IT sector too, existing cashless payments and eKYC are performing strongly and development of new areas is progressing. Going forward, we will continue to aim for further growth by steadily capturing demand. On the screen, you can see the third quarter profit and loss statement. Sales revenue decreased year-on-year, primarily due to the substantial contraction of inbound business in conjunction with the complete end of COVID-19-related projects. Regarding operating profit, this increased year-on-year despite the reporting of an impairment loss associated with withdrawal of some sites. Here you can see the profit and loss statement for the third quarter cumulative period. Regarding sales, these remained solid compared to the full year earnings forecast despite the substantial contraction of inbound business. For operating profit, progress proved steady compared to the full-year earnings forecast announced on August 14 despite the impact of temporary expenses associated with withdrawal of some sites. Next, I'd like to explain the quarterly business results. Regarding sales revenue, this increased quarter-on-quarter due to a recovery in demand in the telecom infrastructure sector as well as contributions from spot business despite a year-on-year decrease primarily due to contraction of inbound business. For EBITDA, this is increasing year-on-year as well as quarter-on-quarter. Here, you can see the results by segment. For the Marketing business, sales decreased year-on-year, primarily due to a substantial contraction of inbound business as previously mentioned. For operating profit too, this was down year-on-year due to the reporting of temporary expenses associated with withdrawal of sites but increased on a normal revenue basis when the impairment loss is excluded. In the on-site business, revenue and profit were down due to the contraction of demand for temporary staffing in inbound business. On the screen, you can see results by segment for the third quarter cumulative period. Here too, revenue and profit were down in both marketing and on-site business due to the substantial contraction of inbound business. The outbound and hybrid businesses made steady progress as initially anticipated. This page shows the trends in sales for each business. Regarding the outbound and hybrid businesses, which are indicated by the orange bar graph, the temporary slowdown phase caused by reorganization by some telecom carriers and other factors has hit bottom and demand is gradually recovering. In the inbound business, we have continued to adopt a policy of business prioritization and focusing our efforts only on highly profitable operations. When the market environment takes a turn for the better and profitability improves in the future, we plan to engage in aggressive sales activities and acquire projects. This page shows changes in the number of operating staff, the number of seats and the capacity cost ratio in the marketing business. The liquidation of business sites for optimization of capacities augmented in line with the rapid increase in COVID-19 related business from 2021 was completed and the capacity cost ratio has now improved slightly quarter-on-quarter. Going forward, we will implement appropriate controls at appropriate times according to changes in the business environment with the aim of improving profitability. On the screen, you can see the balance sheet and cash flow for the third quarter. Noncurrent assets decreased due to withdrawal from some low profitability sites. Investment cash flow was positive as new investments were limited and security deposits were funded in conjunction with the liquidation of business sites. The largest factor resulting in change was the acquisition of a subsidiary last year. On this page, you can see our capital investment plan and the status of progress of the plan. Expenses for buildings and accompanying facilities were slightly higher than initially planned due to the occurrence of unexpected construction costs in the first half of the year. But overall, capital investment progress was in accordance with our initial plan. Also, depreciation and amortization are progressing generally according to plan. We are planning a year-end dividend for the fiscal year ending December 2024 of JPY 3 per share. For our capital policy going forward, we will work to achieve ROE of 10% or more in the short to medium term under the premise of an investment phase for regrowth and to raise ROE to the 20% range in the medium to long term during the investment recovery phase. We have also set a target of continuously achieving a total return ratio of 40%, including stock repurchases. Lastly, I'd like to explain the outlook for the fiscal year ending December 2024. As I explained at the start of my presentation, since variation in the amounts for expenses associated with withdrawal from some low profitability sites and the timing of occurrence were possible, the earnings forecast was expressed as ranges in the second quarter financial results were announced. However, we newly announced the full year earnings forecast due to the confirmation of the amount of the relevant costs as well as profits being stronger than expected. We will continue to make diligent efforts to achieve the earnings forecast. I'd like to end the explanation of our financial results for the third quarter of the fiscal year ending December 2024. Thank you for watching. [Statements in English on this transcript were spoken by an interpreter present on the live call.]