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

I am Yoshihisa Ozasa, Representative Director of Link and Motivation Inc. I would now like to begin the financial information briefing for the fiscal year ended December 31, 2025. Here's today's agenda, which consists of 5 items. First, I will provide a company overview. And second, our performance report. Third, I will present our outlook for 2026. Fourth, I will share details regarding our announcement of our largest average share repurchase to date. Finally, as the fifth item, I will discuss our medium-term growth strategy, targeting operating income of JPY 15 billion in 2030. Moving on to the first item, company overview. Our mission is through motivation engineering. We provide opportunities to transform organizations and individuals and create a more meaningful society. All of our group companies and business units are aligned and united under this single mission. Regarding our specific operations, our business is structured into 3 divisions. First is the Organizational Development Division which oversees our Consulting & Cloud business and IR Support business. Second is the Individual Development Division, which operates our Career School and Cram School businesses. And finally, the Matching Division shown in the bottom section, this division operates our ALT, Assistant Language Teacher Placement business, which bridges foreign talent with local boards of education. In addition, we also provide Personnel Placement business within this division. Now let's move on to the second item, performance report. This is our consolidated statements of operations. Regarding revenues, performance exceeded our forecast due to growth in all businesses, except the Career School business. We achieved a significant year-on-year increase, reaching record high revenues. Revenues reached JPY 41.522 billion, representing 110.9% of the previous year's level. Next, regarding gross profit, our high-margin Consulting & Cloud business and personnel Placement business, including OpenWork and grew as expected. As a result, gross profit also exceeded our forecast showing a significant increase to 113.7% year-on-year. On the other hand, regarding operating income, we have decided to implement further structural reforms in the Career School business. Consequently, we made the decision to record the full amount of goodwill for this business as an impairment loss. As a result, operating income fell below the previous year's level. Similarly, net income resulted in a year-on-year decrease due to the impact of recording this impairment loss. Next, here are the revenues and gross profit by segment. In the Organizational Development Division, both revenues and gross profit saw significant year-on-year growth. While we fell slightly short of our forecast, we achieved record-high figures for both revenues and gross profit. Year-on-year, revenues reached 113.4% and gross profit reached 114.7% of the previous year's level. In the Individual Development Division, the number of students attending our existing classes decreased as we prioritize restructuring within the Career School business. As a result of our transition toward online services, both revenues and gross profit for this division decreased year-on-year. Revenues were 94.7% and gross profit was 94.8% of the previous year's levels. Conversely, the Matching Division achieved significant year-on-year growth in both revenues and gross profit. Our Personnel Placement business centered on OpenWork has grown significantly. Revenues reached 114.7% of the previous year's level and gross profit rose to 119.7% year-on-year. Here's a summary of each division. First, in the Consulting & Cloud business, Motivation Cloud acted as the primary driver of growth. As a result, both revenue and gross profit saw significant year-on-year increases with revenues reaching 114.8% and gross profit reaching 113.9% of the previous year's levels. The graph on the right shows the Motivation Cloud monthly fee revenue. We achieved 121.6% year-on-year growth, and our MRR as of the end of last December reached JPY 627.382 million. Next is our IR Support business. In addition to the production of an integrated report, the video streaming service saw strong growth. As a result, revenues increased to 106.2% year-on-year and gross profit achieved a significant jump to 124.2% compared to the previous year. Allow me to provide more detail regarding the Motivation Cloud monthly fee revenue. While our forecast for the end of last year was JPY 650 million, the actual results fell slightly short of this target. This was due to various factors, including shifts in customer search behavior driven by the rise of generative AI. In response, we're optimizing our marketing channels and increasing our marketing budget. The number of sales negotiations recovered in the second half, and we have secured a number of sales negotiations required for growth. We invite you to stay tuned for our future progress. Next, let's look at the Individual Development Division. Regarding the Career School business, while student enrollment in existing classes decreased, our online classes grew significantly as expected. This demonstrates that our structural reforms are progressing steadily. Also in that graph on the right side, our online course revenues expanded to 117% year-on-year. To further accelerate our restructuring, we have decided to recognize a full impairment loss on the goodwill associated with this business. Moving forward, we aim for renewed growth by continuing to expand our online course offerings. Regarding the Cram School business, both the number of students enrolled and the revenues per enrollee increased as expected. As a result, revenues reached 108.7% year-on-year, while gross profit saw a significant increase to 114.3%. Next, I will discuss the Matching Division. In our ALT Placement business, the number of placements increased as expected. As a result, both revenues and gross profit grew substantially with revenues reaching 111% and gross profit reaching 111.9% compared to the previous year. In our Personnel Placement business, OpenWork recruiting grew as expected. As a result, both revenues and gross profit showed a significant year-on-year increases with revenues reaching 127.4% and gross profit reaching 126.7% compared to the previous year. As shown in the graph on the right side, OpenWork recruiting sales are growing steadily, reaching 134.2% compared to the previous year. Next, I will discuss our consolidated SG&A expenses. As a result of our focused investment to accelerate growth, SG&A expenses saw a significant increase, reaching 119.2% compared to the previous year. In addition to the increase in various SG&A expense items resulting from acquiring 3 companies, including Unipos, Inc., sales-related expenses, Item #4, increased due to intensified advertising for OpenWork and bolstered marketing for Motivation Cloud. This is our consolidated statements for financial position. Assets increased, primarily driven by a rise in accounts receivable, reflecting the increase in sales as well as the recognition of goodwill from our M&A activities. Liabilities also increased mainly due to higher borrowings regarding net assets, this rose due to the recording of net income and the acquisition of Unipos Inc. shares through a share exchange. The total increase in net staff has amounted to JPY 2.432 billion. ROE decline is a result of lower net income and an increase in shareholders' equity following the acquisition of Unipos Inc. Next, I would like to elaborate on the status of our goodwill. The goodwill balance has increased year-on-year. This is primarily due to the acquisition of Unipos Inc. as well as the acquisition of 2 additional companies within our IR Support business. On the other hand, due to the impairment loss in the Career School business, the goodwill associated with that segment has been eliminated. Given that the business environment for our other segments remain strong, we believe that our risk of future goodwill impairment has been significantly reduced. Next, I would like to discuss our dividends. We will continue to pay quarterly dividends, which allow for flexible shareholder returns. For the fourth quarter, we plan to distribute a dividend of JPY 4.1 per share on March 25 from the next fiscal year 2026 onwards. We intend to pursue a continuous dividend increases through growth in business performance. Now let's move on to our outlook for 2026. Here is a summary of our forecast of results for 2026. Our policy of concentrating management resources on our core Consulting & Cloud business remains unchanged. Regarding revenues, we're projecting a record high of JPY 46.7 billion, driven by the substantial growth of our Consulting & Cloud business, we expect operating income to also reach a record high of JPY 6.31 billion. Regarding ROE, we anticipate maintaining a high level of 30% or more. The next slide presents our revenues and gross profit by segment. First, for the Organizational Development Division, we expect significant growth driven primarily by the expansion of our core Consulting & Cloud business. In the Individual Development Division, we will continue to steadily implement restructuring in our Career School business. We expect growth to slightly exceed the previous year's level. For the Matching Division, we're anticipating significant growth driven by further market share expansion in the ALT Placement business as well as the continued expansion of our Personnel Placement business, including OpenWork. Next is the growth outlook for Motivation Cloud. We project that monthly fee revenue at the end of 2026 will reach approximately JPY 700 million, 111.6% of the previous year's level, driven primarily by the steady accumulation of Motivation Cloud engagement revenue. These are our organizational indicators. First, we aim to link our business strategy with our organizational strategy and achieve enhanced productivity. To this end, we will maintain high levels of human resources and organizational capabilities. Regarding talent strength, we have projected the ratio of employees with a role survey rating of A or higher as illustrated in this diagram. Regarding our engagement rating, we will strive to ensure that 10 out of 10 companies achieve a rank of AA or higher. Next, I would like to announce our largest share repurchase to date. Aiming to improve ROE through share repurchases, we have decided to implement our largest ever share buyback program with an upper limit of JPY 6 billion. The acquisition period will run from February 13 to August 31 of this year. While our past repurchases have been on the scale of JPY 1 billion to JPY 2 billion, we have authorized this record-breaking JPY 6 billion for the current program. Now I'd like to discuss our medium-term growth strategy. While we have rarely touched upon specific medium-term figures in the past today, for the first time, I would like to outline our road map toward achieving JPY 15 billion in operating income by 2030. First, I would like to share our mindset back when we founded the company in 2000. Fortunately, we were flooded with requests from clients right from the very beginning. It became clear that we needed to bolster our workforce immediately. So we began placing job advertisements for mid-career recruitment. Our core message at the time was this, corporations are leaving the most important management issue to last. Despite being a startup with only 7 members, we were overwhelmed by the response receiving 230 applicants through that 1 job advertisement. At the time, against the backdrop of the dot-com bubble's collapse, many companies were undergoing large-scale restructuring and layoffs. In such an environment, I felt a lingering sense of anxiety wondering if anyone would truly listen to us when we spoke about the importance of human capital and employee motivation. However, the overwhelming success of that job [ advertisement ] gave me the firm conviction that this business would succeed, that was exactly how I felt at the time. Regarding our journey, we took our first steps in 2000 as an organizational transformation consulting firm. After growing steadily and achieving a public listing, we expanded our scope from organizations to individuals starting in 2010. This expansion led to the establishment of our Individual Development Division as well as the birth of our Matching Division. Subsequently, in 2016, we launched Japan's first cloud service for improving employee engagement. By transforming our consulting expertise into our cloud solution, we have probably maintained the #1 market share in the engagement field for 9 constitutive years. Moving forward, if we plan to further accelerate our growth, leveraging the solid foundation we have built over the years, my current conviction is that to realize a more meaningful society, we must further expand the possibilities of human capital. Given the favorable external environment, we will achieve further growth as a human capital management partner for core clients. This slide illustrates the projected growth of our operating income and ARR. Our goal is to achieve JPY 15 billion in operating income by 2030 with JPY 10 billion as a key milestone in 2028. Regarding ARR, we are targeting JPY 24 billion in 2030 with a milestone of JPY 15 billion scheduled for 2028. As a result of steadily promoting the shift of consulting services to the cloud, Motivation Cloud enables us to diagnose organizational health, primarily through the lens of engagement. Consequently, Motivation Cloud engagement has partly maintained the #1 market share for 9 consecutive years. Furthermore, we're expanding our scope of transformation services. This includes Motivation Cloud sharing, which is designed to provide like organizational culture and our role development service which focuses on enhancing talent capabilities and individual strength. In addition, our DX Support Service is designated to drive productivity improvements. We have also our Peer Bonus Service, which we recently acquired through M&A. This service also contributes significantly to enhancing engagement. To provide some specific figures, there are currently approximately 1,000 companies that we support through our diagnostic services alone. These 1,000 companies continue to attract their engagement scores through our diagnostics but have not yet progressed to receiving transformation support. On the other hand, we have 1,200 companies that utilize our transformation services alone, such as recruitment support the evaluation and compensation system design or human capital development. Consequently, the number of companies receiving our ideal integrated approach, both diagnosis and transformation is currently limited to approximately 250. Going forward, we will implement a two-pronged cross-selling strategy. First, we will propose our transformation solutions to build 1,000 clients currently using only our diagnostic services. Second, we will encourage the adoption of engagement diagnostics for those companies that only receive transformation support. Through these efforts, we aim to increase the number of clients utilizing both diagnostics and transformation services twofold or even threefold. Furthermore, we are driving the cloudification of new segments within our transformation services. In addition to the 4 areas mentioned earlier, we will introduce Recruitment Support Services to enhance the volume and quality of hiring activities as well as Management Support Services. Both are scheduled for release within this year. Needless to say, these services will be fully AI integrated. Next, regarding the expansion of our existing services, we will broaden our reach beyond major domestic corporations to include midsized and small domestic enterprises as well as overseas markets. In addition, we're expanding our new services by driving cloudification in new domains within our transformation business. Specifically, we plan to launch a new cloud service for Recruitment Support in April of this year. Another is our Management Support Service and also a new cloud-based offering, which we intend to release by the end of this year. Naturally, both of these services are AI-powered. We are pleased to announce that the new Recruitment Support Service scheduled for release in April will be named Motivation Cloud Entry Management. Our goal is to achieve recruitment that not only increases the number of hires, but also continuously enhances their quality. We provide a one-stop solution that spans the entire process from marketing and closing to onboarding including support for BPO. A key differentiator is our ability to leverage our proprietary database to visualize the specific characteristics and aptitude of each applicant. By leveraging our consulting expertise, we'll support the simultaneous improvement of both the quantity and quality of recruitment, covering everything from talent pool development to candidate interviews. Furthermore, we will collaborate with harutaka, the recruitment DX service provided by ZENKIGEN Inc. with whom we recently formed a capital and business alliance. The harutaka product also leverages AI-powered web interviews to centralized recruitment-related data, enabling highly accurate optimization of the entire hiring process. It already has a proven track record with adoption by over 1,000 companies, primarily in major corporations. By integrating this functionality into Motivation Cloud Entry Management, we will launch it as a new cloud service in the recruitment field starting this April. For long-term growth, we're also driving expansion into international markets, moving beyond the domestic market. At present, we have established a footprint in Asia, specifically in Singapore, Thailand, Vietnam, the Philippines and Indonesia. Looking ahead, we plan to expand into North America, followed by Europe and Australia. Our ultimate goal is to solidify our position as a premier global HR consulting firm. Our operations in the Asian market are progressing exceptionally well with growth outpacing our initial projections. Overseas, the monthly subscription revenue for Motivation Cloud has achieved a remarkable growth of about 450% year-on-year. In Vietnam, our platform has been adopted by a leading Japanese food manufacturer and we have further strengthened our presence by opening a new office in Hanoi. In Singapore, the number of [ information ] has almost doubled in just 6 months. In Thailand, we have achieved a growth rate of about 600% year-on-year. These results have led us to our firm conviction that Motivation Cloud is globally competitive and has significant potential in international markets. Regarding my vision for the future, I believe that Motivation Engineering is a technology for developing our relationship-based perspective rather than being things through the prism of elemental productionism akin to the laws of physics. This perspective allows us to perceive organizations through their interconnectedness closer to biology than physics. I see Motivation Engineering as the movement to distribute this lens to society and to the entire world. Going forward, we'll expand our reach, not only within Japan, but across the entire globe. We invite you to stay tuned for the exciting developments ahead. The core message today is that we are experiencing exceptionally strong tailwinds. I hope you will keep a close eye on our future growth as we accelerate toward our goals. Thank you very much.