Link and Motivation Inc. (2170.T) Earnings Call Transcript & Summary

I am Yoshihisa Ozasa, and I am Chairman and Representative Director of the Board of Link and Motivation. Welcome to our earnings webcast for the 6 months ended June 30, 2025. Let's get started. Here is today's agenda. First, I will give you our company overview. Second, I'm going to give you the business reports, which are about our consolidated financial results and our organizational condition. Third, I will share with you how much progress we've made with regards to our growth strategy centered on Consulting & Cloud business. Fourth, I will talk about the upward revision of the targets for the Motivation Cloud monthly fee revenue. Fifth, I will touch on the dividend increase. And last but not least, I'd like to announce our shareholder benefits program. So let's begin with the company overview. This is our mission: through Motivation Engineering, we provide organizations and individuals with opportunities to transform themselves and create a more meaningful society. And this mission unites us and is at the center of everything we do. We have 3 business divisions. From upper left, Organizational Development Division. This is a B2B business. Today, it is increasingly more important to create organizations that individuals choose or what we call motivation companies. It includes Consulting & Cloud business, which supports for corporate clients in practicing human capital management and IR Support business, which supports for corporate clients in disclosing human capital management information. Next to the right is Individual Development Division. This is a B2C business. It is necessary to create or develop individuals that organizations choose. We call them i-Company. It includes Career School business, which helps mostly working adults build and develop their professional career and Cram School business, which helps students from elementary to high school improve their academic abilities. And the third one, which is just below, is Matching Division, which provides opportunities to link organizations and individuals. It includes ALT Placement business, which provides matching services for local governments and the foreign workers in Japan who want to work as assistant language teacher teaching English to school children. The other is Personnel Placement business, which provides matching services for job seekers and companies. Today, I'm going to talk about how our earnings numbers will change as we turn 3 companies into wholly owned subsidiaries. One is Japan Strategic Finance, whose results are included in our second quarter earnings when it became a wholly owned subsidiary. Unipos and Chorus Call Asia, they became wholly owned subsidiaries in this month. So their results will be included in our third quarter earnings and beyond. The impact of the consolidation of these subsidiaries is minor, so we don't need to revise our business plan for 2025. As you can see, Unipos will be part of our Consulting & Cloud business. Japan Strategic Finance joins our IR Support business in the second quarter and Chorus Call Asia will join in the third quarter. Next, we move on to agenda item #2, management report on business results for the 6 months ended June 30, 2025. This is our P&L or statements of operations. Revenues increased 10.7% year-on-year, in line with our expectations, mainly driven by growth in the Consulting & Cloud business. Gross profit also jumped 11.1% year-on-year, thanks to strong growth in the high-margin Consulting & Cloud business and the Personnel Placement business, including OpenWork in line with expectations. Operating income also grew substantially, up 18.5% year-on-year. And finally, net income rose as expected, up 13.5% year-on-year following the increase in operating income. This table is showing revenues and gross profit by segment. Organizational Development Division saw its revenues increased substantially 12.4% year-on-year as a result of significant growth in the Consulting & Cloud category and its gross profit also increased by 8.5% year-on-year. When it comes to Individual Development Division, its revenues decreased 4% and gross profit was flat year-over-year as the Cram School business grew, but new enrollments in the Career School business slumped. Matching Division enjoys a substantial increase in both revenues and gross profit, up 15.2% and 18.6%, respectively, year-on-year, driven by strong growth in the Personnel Placement business centered on OpenWork. Let's take a look at the brief summary for each division. For Organizational Development Division, the Consulting & Cloud business saw its Motivation Cloud series monthly fee revenue rising sharply, sending revenues and gross profit up 13.5% and 11.2%, respectively, year-on-year. As shown in the graph, the Motivation Cloud series monthly fee revenue has been growing consistently, up 17.1% from a year earlier. With respect to IR Support business, its revenues rose by 2.5% year-on-year. An increase in the proportion of event orders led to a decrease in the gross profit margin, resulting in a slight decrease in gross profit. Next is the summary for Individual Development Division. For the Career School business, new enrollments in schools slumped, resulting in a year-over-year decrease in revenues and a slight decrease in gross profit. Online courses, a priority service generated substantial growth, up 23.1% as shown in the graph. When it comes to the Cram School business, its revenues increased 6.6% and gross profit jumped by 15.6% year-on-year as enrollment and revenues per enrollee increased as expected. This is the summary of Matching Division. For the ALT Placement business, the number of ALTs dispatched increased in line with expectations, resulting in a substantial increase in revenues, up 10.8% and a 9.9% increase in gross profit year-on-year. With respect to the Personnel Placement business, revenues and gross profit both increased substantially, up 29.1% and 27.1%, respectively, year-on-year, thanks to healthy growth in OpenWork recruiting in line with expectations. The graph at the bottom right shows OpenWork Recruiting's sales figures, which grew very strongly, up 36.2% from the same quarter last year. These are SG&A expenses on a consolidated basis. SG&A expenses increased 9.5% year-over-year because personnel expenses increased as projected at the beginning of the year and other expenses rose following an increase in expenses related to the acquisition of Unipos as a wholly owned subsidiary. These are consolidated statements of our financial position. Assets increased due to an increase in receivables resulting from higher revenues and the posting of goodwill for the acquisition of Japan Strategic Finance. Liabilities increased primarily because of an increase in borrowings. Equity increased to JPY 1.1 billion due to the posting of net income. Let's move on to the next topic, management report on organizational conditions in the second quarter of 2025. This shows our approach to human capital management. First of all, it is fundamental that we create the links between business strategy and organizational strategy. When it comes to organizational strategy, it boils down to human resource capabilities and organizational capabilities. And we believe that we can raise productivity by enhancing both capabilities. Let me give you more details about human resource capabilities. We measure human resource capabilities using our own Role Survey Rating. This is an 11-level rating scale calculated by measuring the degree of alignment between the expectation and satisfaction of peers regarding the performance of the survey subject. And here is our latest result. More than 55% of our people were ranked A or above. In particular, 79.1% of those who are our managers or at higher job levels were ranked A or above. This is higher than expected and indicates that we maintain a relatively high degree of human resource capabilities. Stronger mid-management is critically important when an organization is growing and its business is expanding. These numbers show that we do as we preach. The other equally important factor is, of course, engagement. Using one of the largest databases in Japan, employees are ranked on an 11-point scale according to their Engagement Score, which is calculated based on the correlation between their expectations and their satisfaction with their company, supervisor and workplace. And here's our latest survey results. In August, out of the 8 group companies, 7 had a rating of AAA and 1 had a rating of AA, meaning that group achieved its target of all 8 companies ranked AA or higher. Next, I want to move on to agenda item #3, report on growth strategy centered on Consulting & Cloud business. This is our core business and how we understand the market environment. As you all know, Japan's workforce keeps shrinking and economy and the industry are rapidly shifting towards knowledge and service-based models, coupled with the diversification of employees' motivation to work. So it seems only natural that human capital management as a means to enhance human resource capabilities and organizational capabilities or engagement continues to garner more attention. And that's exactly why we particularly focus on our Consulting & Cloud business in the Organizational Development Division. This slide describes our competitive advantage. To put it simply, we have the capability to provide our clients with comprehensive human capital management support. And more specifically, first and foremost, we provide diagnostic services from the perspective of engagement. We have one of the largest databases in Japan and Motivation Cloud engagements, a product that holds the largest market share in the engagement domain for 7 consecutive years in Japan. Our services do not end there like other usual research firms. In addition to our diagnostic services, we also provide consulting services and products to help our clients transform their organizations based on the diagnosis. And we offer one-stop support that covers from recruiting to training, developing compensation and/or evaluation schemes and even transforming corporate culture. On top of these advantages, we can also support the disclosure of changes in human capital indicators based on diagnosis and transformation through our IR Support business. And in this regard, I just want to emphasize that we are now supporting about 1/4 of around 4,000 listed companies in Japan as 2 IR Support companies become our wholly owned subsidiaries. And this is also a big part of our competitive advantage. We have launched a number of initiatives to accelerate growth of this business. Of course, diagnosing the state of the organization and implementing measures for transformation based on the identified issues is our bread and butter. With respect to the diagnosis services, we are working to expand our client base and focusing on large corporations, small businesses and the local governments in Japan as well as companies and organizations outside of Japan. When it comes to the transformation services, we are expanding our offerings through M&As and business partnerships, but also creating more services on our own. Here's what we are doing to have more Japanese large corporations as our clients. We are primarily targeting approximately 4,000 companies with over 1,000 employees. We are exploring on our own. And these are the logos of some of our big corporate clients, and each and every one of them is a leading company, and they are from across a wide range of industries and using our Motivation Cloud. I want to stress that sales to these big companies hiring more than 1,000 employees now account for approximately 60% of our total sales. We are also trying to increase our engagements with small businesses in Japan. Small- and medium-sized companies are businesses that hire 50 employees or more, and there are approximately 100,000 small businesses in Japan. And we're already in partnership with different small businesses. FCE, San-in Godo Bank and Awa Bank are our valuable business partners whose customer base when combined, can reach up to 36,000 small companies in Japan. We are going to provide them with our new service called Motivation Cloud Basic. It's a more affordable addition of our Motivation Cloud series to increase our footprint. When it comes to our approach to local governments, municipalities in Japan, it's important to note that not only private companies, big or small, but also local municipalities are showing more interest in our services recently. And we build on the knowledge and experiences we've gained from our interactions with our corporate clients, and now we are providing our services to more local municipalities. There are about 1,700 local municipalities in Japan, and we are providing our services to several perfectural offices and local municipalities in major prefectures, including Tokyo, as you can see the map. And we hope to further increase our engagement with the public sector going forward. Last but not least, we are working to expand outside Japan as well. There are around 7,000 local subsidiaries of Japanese companies in the ASEAN region. And in this context, you can say we're going global as more and more Japanese companies are expanding outside Japan. We already have our local offices in the region in Singapore, Vietnam, Thailand and the Philippines, and we are going to establish a subsidiary in Indonesia in January next year to further expand our footprint and drive growth. The monthly fee revenue from our overseas operations increased more than 210%, and the number of contracts is up 200% year-on-year, making very good progress, although overseas sales make up only a small fraction of the total. We believe that Unipos is going to make a significant contribution to boosting the transformation domain of our services. Unipos became a consolidated subsidiary on August 1. Its signature service is called Peer Bonus. Peer Bonus is a mechanism that encourages employees to identify, celebrate and learn from positive behaviors of their peers, providing emotional rewards for positive behaviors, thereby driving engagement of employees. We believe that the synergy between the 2 companies' assets will definitely drive growth of our Consulting & Cloud business for years to come. That's how we map our services. Within our Motivation Cloud series, we have engagement services to provide diagnostics. We measure and quantify engagement so that we can support our clients towards transformation. And here, we have sharing service to revitalize corporate culture, role development service to enhance human resource capabilities, DX support services such as Robo-Pat or FCE Prompt Gate to increase productivity. They are long-time partners. And then we've added Peer Bonus service on top of that. And as I said earlier, we are expanding our offerings through M&As and business partnerships, but also creating more services on our own. Next, I want to move on to agenda item #4, upward revision of targets for Motivation Cloud monthly fee revenue. Peer Bonus Unipos revenue is included in our consolidated earnings from August 2025. As a result, we revised up the 2025 target for Motivation Cloud monthly fee revenue to JPY 650 million, which represents a 26% year-over-year increase. The next agenda item is announcement of dividend increase. We intend to continue paying quarterly dividends to enable flexible returns. In light of current business performance and the future business environment, we will raise the dividend by JPY 0.2 a share beginning with the third quarter of the year ending December 31, 2025. And that means that the full year dividend will increase by 31.1% year-on-year to JPY 16 a share. The final topic for today is the reinstatement of our shareholder benefits program. We ended our shareholder benefits program in February 2023 on the grounds of ensuring equal treatment of all shareholders and started to focus on raising dividends instead. Since then, however, developments such as the increase in individual investors due to the launch of NISA, individual savings account in Japan and the Tokyo Stock Exchange's call for capital cost and stock price conscious management have sort of set the stage for us to once again revise our shareholder return guidelines, and we decided to reinstate our shareholder benefits program. These are the details of the program. Incentives valued up to JPY 400,000 per year will be awarded in line with the number of shares held and the length of share ownership. We have introduced a Digital Gift to give shareholders multiple ways to take advantage of special offers. The reinstatement of the shareholder benefits program, coupled with the quarterly dividend payments will make owning our shares even more attractive with a 3.2% dividend yield and an up to 4% incentive yield and our total yield of 7.2% is way higher than the 2.36% yield on average for the TSE Prime Market. That almost brings to an end to my presentation. The current business environment is extremely favorable for our Organizational Development Division, but we also focus on creating new products and services for the Individual Development Division and Matching Division. So stay tuned to what we are up to. That's it. Thank you very much for watching. [Statements in English on this transcript were spoken by an interpreter present on the live call.]