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 will explain our financial results for the fiscal year end of December 2024, which were announced on the 14th of February. I'll start with the results for the fiscal year ended December 2024, following with the outlook for the fiscal year ending December 2025 and the medium- to long-term growth strategy. Firstly, I'd like to discuss the financial results for the fiscal year ended December 2024. The financial highlights for the fiscal year ended December 2024 are as you see here. Sales revenue was down 22% year-on-year. The substantial reduction in inbound business, including COVID-19-related projects, which was a factor in the decrease in sales revenue came to a complete end in this fiscal year. As a result, the causes of the decline in sales revenue have been eliminated. We expect results to enter a recovery phase starting in fiscal 2025. Also, in the core telecom infrastructure sector, negative impacts, including reviews of expenses by our main client have been eliminated, and sales revenue is recovering. In the web IT, mobility and other sectors, business in new areas is expanding, and we expect these sectors to contribute to growth starting in the next fiscal year. Operating profit increased by 17.5% year-on-year despite the decrease in sales revenue and the recording of impairment losses in the third quarter. In the fourth quarter, despite increases in personnel and training expenses as a result of recruiting human resources in preparation for year-end sales campaigns and development of new areas, profit was secured due to unit price negotiations with clients and higher productivity. A summary of the full year earnings for the fiscal year ended December 2024 are as you see here. As mentioned earlier, sales revenue was down, but hit bottom in the fiscal year ended December 2024 as a result of the elimination of the main factor causing the decline. That is the substantial contraction of inbound business in conjunction with the complete end of COVID-19-related projects. Despite effects from differences in the timing of orders placed and received for some projects, and higher costs associated with recruiting human resources in conjunction with development of new areas, operating profit increased. Next, I'd like to explain the quarterly business results. In addition to a recovery in demand in the telecom infrastructure sector, business in new areas, including mobility expanded. And as a result, sales revenue increased year-on-year and quarter-on-quarter. Despite the effects of increased advanced personnel expenses incurred for development of new business areas, EBITDA increased year-on-year. Here, you can see the results by segment. 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 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 a 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 capacity is augmented in line with the rapid increase in COVID-19 related business from 2021 was completed. Recently, the capacity cost ratio increased slightly in conjunction with higher personnel expenses for advanced measures to develop new areas. This page shows the consolidated balance sheet and cash flow Noncurrent assets declined, primarily due to decreases in property, plant and equipment and right-of-use assets in conjunction withdrawal from some low profitability sides. The contraction of investment cash flow declined substantially as new capital investments were limited and security deposits were refunded in conjunction with the liquidation of business sites. The largest factor resulting in change was the acquisition of a subsidiary last year. Next, I'd like to talk about our financial forecast for the fiscal year ending December 2025 and our medium- to long-term growth strategy. I'd like to discuss our medium- to long-term growth image. First, I'll provide an overview of our growth strategy. In the short to medium term, our growth drivers will be the outbound business and telecom infrastructure, which are our existing core domains. But we believe that in the medium to long term, there will be the hybrid business and multiple sector business. Looking first at the definition of hybrid business. I will explain why the company is focusing its efforts on the hybrid business. What we mean by the hybrid business is outbound business as well as inbound business that requires interactive communication and comprehensive care center business, including BPO business other than contact centers. There are three main reasons why the company is focusing its efforts on the hybrid business: The first is that the market is appealing; the second is that this is an area where we can leverage the company's strengths; and the third is that there are also positive effects on the outbound business, which is the company's core business. I will explain this further on the following and subsequent pages. But by focusing on the hybrid business, we were able to apply clients in industries that previously we were unable to reach with just solutions in the outbound business. As shown in the figure on the right. Recently, the number of clients has been increasing in new areas, including finance, mobility and media with hybrid business leading the way. On this page, I'll explain our understanding of the business environment in discussing our growth strategy. Recently, I've been asked many times, when your business be replaced by AI? My response to this question is, that parts of the company's business, including backyard business, will be replaced by AI, but only people can perform operations in the areas involving user interfaces, which are the core of our business and it would be difficult for AI to replace these operations. The area where we particularly excel is the outbound business. In this business, we call end users and conduct sales and marketing activities by talking directly to them. In the inbound business, in contrast, end users calls, and we take calls and respond to inquiries. Part of this inbound business is already being replaced by AI. However, not only the outbound business, but the inbound business, too, has a strong sales aspect in the business, including cross-selling and up-selling. And in business that requires communication with people who have low digital literate, particularly seniors, replacement by AI would be difficult, and we believe that the power of people will remain necessary into the future. In addition, against the backdrop of a decline in working population, which has become a major issue for the entire Japanese economy, we believe that corporate use of BPO will expand and based on the idea of leaving it to experts adoption of BPO will advance even further for operations that can be outsourced. In this business environment, we believe that the value of the company, which has abundant talent pools and structures that can maximize the power of people will increase even more. In addition, the massive and unique data that we have accumulated through direct dialogue with customers has high value. And we believe that there is ample possibility for business development using this data over the long term. Next, I'll again discuss our understanding of the business environment in each area. First, in the outbound business, strong demand arises when new products and services are introduced to the market. The converse to this, however, is that the business is characterized by high volatility in the workload. We believe that with the decline in the working population, the shortage of sales personnel will become increasingly severe. But against the backdrop of this environment, demand for sales BPO will not be limited to telecom infrastructure but will also expand to multiple sector business. Next is a hybrid business with the advancement of DX in multiple industries, customer contact, which is mainly off-line, is steadily shifting to digital. As indicated on the previous page, however, areas with work that can be performed only by people will remain, and we believe that BPO demand will increase in those areas. The market is still in the early stages, and there are many business areas where profitability is not good, but we believe that they will improve as BPO becomes more common in the future. As I discussed on the previous page, we believe that in the inbound business, operations corresponding to simple inquiries and so on will be replaced by AI. This page shows our immediate market growth. At the top is the outbound business market. The upbound business market has grown driven by the telecom infrastructure sector. But as indicated earlier, this is a high volatility business. And currently, business volume is temporarily declining. However, we believe that over the medium to long term, the telecom infrastructure sector will resume growth and demand will increase in multiple sector areas and business will expand. The hybrid business market is expected to expand as a result of digitalization, as discussed earlier. Recently, the company has been focusing on the hybrid business. The reasons for this are that the hybrid business market is a growth market. We can leverage our strength in this business, and there is good compatibility with the outbound business. Specifically, the volatility of business volume in the hybrid business is relatively low, and this means that it is possible to compensate for the high level of volatility in the upbound business. In addition, we are using the hybrid business as a hook to approach clients for which outbound business demand is not emerging. And after we gain their trust, this may lead to orders in the outbound business. This page shows our image of growth for the hybrid business in the telecom infrastructure sector. Against the backdrop of advances in digital technology and calls for higher cost efficiency major carriers are consolidating mobile stores and the shift to digital customer contact is advancing. Under these circumstances, the role that the company plays is also changing. In the past, our role was limited to marketing support for targeting segments that could not be fully addressed in charms and segments that were difficult to reach. But as the digital shift progresses, carriers are also entrusting to us customer contact points for end users who have been handled through our fine channels until now. In addition, as the products and services that mobile carriers provide become increasingly diverse and advanced. There is a need for specialists in each area to conduct sales of individual products and services. And we believe that our characteristic of having all of these specialists available is compatible with the trend towards digitalization of customer contact points. As I stated earlier, the growth drivers over the medium to long term will be the development of multiple sector business and expansion of business areas. And in closing, I would like to explain how we will achieve multiple sector business development. In the telecom infrastructure industry, the opportunity for expansion of the outbound market with the intensification of competition and the opportunity for expansion of the hybrid business as digitalization if the intensification of competition and digitalization also occur in multiple sector business, we believe that we can expect expansion of the outbound and hybrid markets similar to in the telecom infrastructure industry. In fact, demand for outbound and hybrid business is simply expanding in conjunction with the intensification of competition and digitalization in multiple sector business. To use the intensification of competition and digitalization in the finance industry as an example, when online settlement services were first introduced, intense competition arose among multiple business operators. We perform social implementation of services as we were able to provide comprehensive services in businesses that require the power of people from opening member stores to acquisition of users, provision of human resources and customer service. Also regarding digitalization of conventional in-person services shown at the top left of the slide. As I mentioned earlier, consolidation of mobile phone stores is taking place in the telecom infrastructure industries, and we expanded our role in conjunction with this the trend towards digitalization of conventional in-person services is also starting to occur in customer contact by financial institution and real estate service help desks and other businesses and expansion of the hybrid business is expected. This page shows our earnings forecast for the fiscal year ending December 2025. In this fiscal year, we plan on sales revenue of approximately JPY 22 billion, operating profit of approximately JPY 1.8 billion, net income of approximately JPY 1.1 billion and EBITDA of approximately JPY 3.1 billion. Regarding sales revenue, despite a recovery trend in the telecom infrastructure sector, we are maintaining a conservative outlook due to low visibility for orders received throughout the year. But we expect an expansion of business, mainly new business areas. Regarding operating profit, we anticipate higher costs associated with recruiting human resources including forming a customer development team to accelerate development of new areas, but we expect steady profit growth. On this page, you can see our capital investment plan and the status of progress of the plan. Overall capital investment in the fiscal year ended December 2024 was generally in line with initial plans regarding capital investment in the fiscal year ending December 2025, the main reason why expenses for tools, equipment and fixtures will be high is for work to switch PCs in conjunction with the end of support for Windows 10. The year-end dividend for the fiscal year ended December 2024 will be JPY 4.5 per share. We are planning a year-end dividend for the fiscal year ending December 2025 of JPY 6 per share. For our capital policy going forward, we will work to achieve ROE of 10% or more in the short to medium term 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 achieving a total return ratio of 40%, including stock repurchases. This concludes my explanation of our financial results for the fiscal year ended December 2024. Thank you for watching.