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

I'm Yoshihisa Ozasa, Chairman and Representative Director of Link and Motivation Inc. We will now begin the earnings briefing for the 9 months ended September 30, 2025. Here's today's agenda. First, company overview; second, performance report; third, report on growth strategy of Consulting and Cloud business. Fourth, expansion of shareholder benefits program. Now for the first item, company overview. This is our group's mission. Through Motivation Engineering, we provide opportunities to transform organizations and individuals and create a more meaningful society. All our companies and businesses are united under this mission. Now the specifics of our business operations are structured into 3 divisions. First, the Organizational Development division. This encompasses our consulting and cloud business, which supports corporate clients in practicing human capital management. Another is our IR support business, which supports corporate clients in disclosing human capital management information. Next is the Individual Development division. This includes the Career School Business, which primarily supports career development for working adults and the Cram School Business, which supports improving the academic ability of elementary, junior high and high school students. Finally, the Matching Division, the ALT Placement business deploys native English-speaking assistant language teachers to local governments and boards of education. The other is the Personnel Placement Business, which supports matching job seekers and companies. Now I will proceed to the second point, the performance report. This is the consolidated statements of operations. Regarding revenues, we saw significant growth, primarily driven by the Consulting and Cloud business. Revenues increased substantially year-on-year by 11%, progressing as expected. Gross profit substantially increased by 12.7% year-on-year as the high-margin Consulting and Cloud business and the Personnel Placement business, including OpenWork progressed as expected. Regarding operating income, our core Consulting and Cloud business drove growth, resulting in a substantial year-on-year increase of 11.1%. Net income increased year-on-year, reflecting higher operating income despite an increase in income taxes and other factors. This shows revenues and gross profit by segment. First, the Organizational Development Division. Revenues and gross profit increased substantially year-on-year as a result of significant growth in the Consulting & Cloud business. Revenue increased by 11.9% year-on-year and gross profit grew by 12.7% year-on-year. Next is the Individual Development division in the middle. Revenues decreased and gross profit was flat year-on-year as the Cram School business grew, but new enrollments in existing classes in the Career School business slumped. Revenue decreased by 4.3% year-on-year and gross profit reduced by 0.9% year-on-year. Next is the Matching Division. Revenues and gross profit both increased substantially year-on-year, driven by strong growth in the Personnel Placement business centered on open work. Revenue increased by 14.1% year-on-year and gross profit grew by 17.7% year-on-year. Here's a summary by division. For the Organizational Development Division, revenues and gross profit increased significantly year-on-year because of substantial growth of 26.7% in monthly fee revenue of Motivation Cloud. For the Consulting and Cloud business, revenue was increased by 15.2% year-on-year and gross profit grew by 13.9% year-on-year. Moving to the IR Support business. Revenues decreased slightly by 2.4% year-on-year due to the absence of a major nonrecurring event that occurred in the previous year. However, an increase in the gross profit margin resulted in a substantial increase of 10.4% in gross profit. Next is the summary for the Individual Development division. First, for the Career School business, online courses, a priority service generated substantial growth. The number of enrollments in existing schools decreased, resulting in a year-on-year decrease of 5.9% in revenues and a slight decrease of 2.8% in gross profit. The graph on the right shows the trend in online course revenue. This segment grew steadily by 21.4% year-on-year. Moving to the Cram School business, revenues increased by 6.5% and gross profit increased substantially by 12.7% year-on-year as enrollment and revenues per enrollee increased as expected. Next, the summary for the Matching division. First, the ALT Placement Business. The number of ALTs dispatched increased in line with expectations, resulting in a substantial increase in revenues of 10.5% and an increase of 9.9% in gross profit year-on-year. Regarding the Personnel Placement business, revenues and gross profit both increased substantially by 25.6% and 24.1%, respectively, year-on-year due to growth in OpenWork recruiting in line with expectations. The graph on the right shows the trend in OpenWork recruiting revenue. It also grew sharply, increasing by 31.9% year-on-year. This shows the consolidated statements of operations. SG&A expenses, the total expenses increased by 14% year-on-year. First, number three, office and system expenses increased as a result of stronger technology development of Motivation Cloud. Additionally, number four, sales-related expenses increased due to expansion of advertising at OpenWork. Furthermore, number five, other expenses increased due to an increase in expenses related to the acquisition of Unipos. This is the consolidated statements of financial position. Assets increased due to an increase in receivables resulting from higher revenues and recording of goodwill associated with M&A. Liabilities increased primarily because of an increase in borrowings. Equity increased by JPY 3.797 billion due to the recording of net income and the acquisition of shares of Unipos through a share exchange. This concerns the dividends for the first 3 quarters of 2025. Our policy is to continue paying quarterly dividends, allowing for flexible payments. We also maintain our policy of continuing dividends linked to performance. For 2025 3Q, we plan to pay a dividend of JPY 4.1 per share on Thursday, December 25. Next, report on growth strategy of Consulting and Cloud business. First, market environment in core businesses. Given the current decline in Japan's workforce and the rapidly shifting industries toward knowledge and service-based models, diversifying motivations to work and so on, human capital management continues to attract increasing attention. In this context, we recognize a growing need for enhancing human resources capabilities, starting with recruitment, followed by development and improving engagement. Therefore, among our 3 divisions, our focus is on accelerating the Consulting and Cloud business within the Organizational Development division. Regarding the competitive advantage of the Consulting and Cloud business, our strength lies in providing a one-stop solution for human capital management, diagnosis, transformation and disclosure. Furthermore, in each individual area, for example, in the diagnosis domain, we have held the #1 market share for 9 consecutive years in the engagement segment. This is Motivation Cloud. We possess one of the largest databases in Japan. Moving to that Transformation domain. We offer one-stop solutions for challenges across the entire spectrum of organizational and HR matters, including recruiting, training, development, evaluation, compensation systems and corporate culture transformations. This comprehensive capability is another competitive advantage. Annually, we support approximately 900 companies through these consulting services. Regarding disclosure, which falls under our IR support services, we assist companies in disclosing the growth of their human capital based on diagnosis and transformation. Following the recent acquisition of 2 companies, we have now secured approximately 1,000 client accounts, representing about 1/4 of the roughly 4,000 listed companies. Let me now discuss our initiatives to accelerate growth. First, for diagnosis, we plan to increase the number of clients supported. For transformation, we aim to expand our service areas. Regarding increasing diagnosis support, number one, large domestic companies; and number two, domestic SMEs, while we also serve local governments and overseas clients. Today, we will focus on number one and number two, for transformation and expansion of service offerings; number three, we plan to enhance service offerings through internal development, M&As and business partnerships. Regarding number one, further expand relationships with major companies in Japan. We are focused on expanding the introduction of Motivation Cloud at major companies as a key growth driver. Motivation Cloud monthly fee revenue from companies with 5,000 or more employees increased significantly by 30% year-on-year. We will continue to promote adoption across a wide range of industries and among leading companies within those sectors to accelerate growth. Next, regarding number two, expand relationships with small- and medium-sized enterprises in Japan. Our partner companies such as FCE, San-in Godo Bank, Awa Bank and starting this October, Fukuoka Financial Group have a combined customer base of up to 52,000 companies. Leveraging this customer asset, we will launch a new SME-focused service, Motivation Cloud Basic. This is an affordable version of Motivation Cloud designed for SMEs, offering one-stop solutions for challenges such as recruiting, training talent development and enhancement, compensation systems and corporate cultural transformation. Number three, expansion of Motivation Cloud transformation Services. For instance, to revitalize internal communication, we offer motivation cloud sharing. For training managers, we have Motivation Cloud role development. Additionally, we have RoboPat and FCE Prompt Gate as well as Unipos, which recently joined our group. These services developed in-house through business partnerships or via M&A will expand our transformation offerings. Moving forward, many companies currently face recruitment challenges. We plan to expand our services to address these challenges, such as developing junior employees or cultivating senior management through new offerings developed in-house via M&A or through business partnerships. Here's the trend in Motivation Cloud's monthly fee revenue. Monthly fee revenue of Motivation Cloud increased by 26.7% year-on-year and surpassed JPY 620 million with the addition of the peer bonus Unipos service. We will achieve further growth by focusing on the development of transformation services as well as the introduction at major companies. Next, as you can see here, in August 2025, we decided that shareholders who have held 1,000 or more shares for 1 year or longer as of the record date for the fiscal year ending December 2025 will receive Digital Gift, which can be redeemed in various forms such as electronic money or points. In addition, in response to feedback from shareholders regarding the gift, a QUO card has been added to the lineup of rewards. This concludes the presentation of our third quarter financial results. Overall recurring revenue is growing steadily. We hope you will continue to watch for our future growth. Thank you for your attention.