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

[Interpreted] I am Yoshihisa Ozasa, Chairman and Representative Director of Link and Motivation. I would now like to begin the earnings briefing for the six months ended June 30 of the fiscal year ending December 2026. This is today's agenda. First, I will provide an overview of the company. Second, under the management report, I will present, one, our report on business results; and two, our report on organizational conditions. Third, I will report on the progress of our medium-term growth strategy. Fourth, I will present the monthly fee revenue plan for Motivation Cloud and announce an upward revision to our MRR as of year-end. Fifth is concerning M&A, an announcement regarding the signing of a basic agreement on a share exchange to make SELF Inc. a wholly owned subsidiary. Sixth, I will report on the progress of our share repurchase program. And finally, seventh, I will announce the expansion of our shareholder benefits program. Now for the first agenda, company overview. Our mission is, through Motivation Engineering, we provide opportunities to transform organizations and individuals and create a more meaningful society. All group companies and divisions are united under this mission. Our business operations consist of three divisions. First is the Organizational Development Division. This is our B2B business targeting corporations and includes the Consulting & Cloud business and the IR support business. Next is the Individual Development Division, which is our B2C business. This includes our Career School business and Cram School business. Finally, shown at the bottom of the slide is the Matching Division. This division operates the ALT Placement business and the Personnel Placement business. Moving on to the second agenda, the management report. I will first report on our consolidated statements of operations. Regarding revenues, we saw growth primarily driven by the Consulting & Cloud business as well as the recognition of revenue from three companies that became wholly owned subsidiaries in the second quarter of 2025. We saw a substantial year-on-year increase of 11.7%. Progress is proceeding as expected. Gross profit also saw a significant year-on-year increase of 14.6% as the Consulting & Cloud business and the Personnel Placement business, including OpenWork, grew as anticipated. On the other hand, operating profit saw only a slight year-on-year increase due to higher SG&A expenses resulting from the full consolidation of these subsidiaries. However, progress towards our full year earnings forecast stands at 51.3%, indicating steady progress. Net income increased year-on-year. Here are the revenue and gross profit by segment. First, in the top row is the Organizational Development Division. As a result of growth in our core Consulting & Cloud business, both revenue and gross profit saw substantial year-on-year increases, with revenue up 14.6% and gross profit up 14.4%. Moving on to the Individual Development Division. Although the Cram School business grew, the number of enrollments at existing classes at Career Schools declined, resulting in both revenue and gross profit falling below the previous year's levels. Revenue was 93.7% of previous year's level and gross profit was 88.3% of the previous year's level. Next is the Matching Division. Due to significant growth in the Personnel Placement business centered on OpenWork, both revenue and gross profit saw substantial year-on-year increases, with revenue up 13.4% and gross profit up 17.8% year-on-year. Here is a summary by division. First, Consulting & Cloud business, driven by growth in Motivation Cloud, both revenue and gross profit increased year-on-year, with revenue up 9.2% and gross profit up 8.8%. The graph lower right shows the trend in Motivation Cloud's monthly fee revenue. As of the end of second quarter, monthly fee revenue came to approximately JPY 650 million, up 21.3% year-on-year, indicating steady growth. As for the IR support business, we made two IR support companies wholly owned subsidiaries starting in the second quarter of 2025. Thanks to the contribution from the high-margin video streaming services operated by these two companies, both revenue and gross profit saw substantial year-on-year increases. Revenue up 33.8%, gross profit up 48.6%. Next is the Individual Development Division. First, in the Career School business, both revenue and gross profit fell below previous year's levels due to a decline in the number of enrollments in existing classes. Revenue was 90.1% of the previous year's level and gross profit was 84.2% of the previous year's level. The graph lower right shows revenue from our online courses, which we have been focusing on. However, growth in this area has also been somewhat sluggish. Next is the Cram School business. As the number of enrollment and average revenue per enrollee increased as expected, both revenue and gross profit saw substantial increases, with revenue up 17.7% and gross profit up 18.6% year-on-year. Next, Matching Division. First, regarding the ALT Placement business, as the number of placements increased, both revenue and gross profit rose year-on-year, with revenue up 9% and gross profit up 7%. Next, Personnel Placement business. OpenWork Recruiting grew as expected, resulting in substantial year-on-year increases in both revenue and gross profit. Revenue up 25.3% and gross profit up 26.8%. The graph on the right shows the sales trend for OpenWork Recruiting. This segment also showed very strong growth, up 39.3% year-on-year. This slide shows the consolidated SG&A expenses. With focused investments to accelerate growth, SG&A expenses increased substantially year-on-year. The full consolidation of three companies, including Unipos, starting in the second quarter of 2025, resulted in an increase in each category of SG&A expenses. This is the consolidated statements of financial position. Both assets and liabilities increased due to an increase in deposits associated with the share repurchase and an increase in financial liabilities. Equity has decreased as a result of the share repurchase of JPY 934 million. Regarding the second quarter dividend, our policy is to continue paying quarterly dividends commensurate with our business performance, which allows for flexible returns to shareholders. For the second quarter, we plan to pay a dividend of JPY 4.1 per share on September 25. The annual dividend is projected to be JPY 16.4. Next, moving on to the management report on two, the organizational conditions. As part of our human capital management philosophy, we aim to firmly link our corporate business strategy with our organizational strategy. Within our organizational strategy, with the goal of maximizing human capital to improve productivity, we have set two objectives: enhancing human resource capabilities and improving organizational capability or engagement. This chart shows the engagement ratings for organizational capabilities. Utilizing one of Japan's largest databases, employees are ranked on an 11-point scale according to the engagement score, which is calculated based on the correlation between employees' expectations and their satisfaction with their company, their supervisors, and their workplace. On the right are the engagement ratings for each company. The engagement ratings for companies acquired last year in 2025 are also improving steadily. Agenda three is a progress report on our medium-term growth strategy. We aim to achieve an operating income of JPY 15 billion in 2030. Furthermore, we are focusing on building a recurring revenue model centered on our Consulting & Cloud business, with a goal of achieving an ARR of JPY 24 billion as a key indicator. As milestones towards this goal, we have set targets of JPY 10 billion in operating income and JPY 15 billion in ARR in 2028. To achieve this, we will expand the target customers for Motivation Cloud from major companies to midsized enterprises. By expanding our existing services and, in addition, focusing on the expansion of new services, primarily among our existing major customers, we will achieve accelerated growth in ARR. Point one refers to the expansion of existing services and point two refers to the expansion of new services. Now let me explain point one further, the expansion of existing services. We are rolling out this initiative by industry. For existing services, we are expanding our reach from leading companies to midsized enterprises within each industry and promoting the adoption of Motivation Cloud Engagement. As a result, adoption is accelerating, particularly in the manufacturing, construction, energy, and transportation industries. As highlighted on the right, in the transportation industry, we have secured introductions with Kyushu Rail Company, a major company, as well as the West Japan Railway Company. In the second quarter, we secured 21 new introductions in manufacturing, five in construction, two in energy, and five in transportation. Additionally, we're expanding our support beyond corporations to include local governments. There is a growing need for organizational diagnosis and transformation within local governments as well. As a result of expanding our support primarily for major local governments, the number of organizations we support has increased to 26, including nine government offices. By leveraging the knowledge we have cultivated through corporate transformation, we aim to further expand our support. Regarding new introductions, we have signed contracts with Tokushima and Miyagi Prefectural governments. Next, I would like to discuss the growth policy regarding the expansion of new services, point two. Motivation Engineering consists of two steps, diagnosis and transformation. First, our diagnosis service, that is Motivation Cloud Engagement, focuses on engagement. We also offer a diverse lineup of transformation services, to which we have added two new offerings. First is the recruiting support service that is Motivation Cloud Entry Management, released in April. And second is the management support service that is the AI Management or Motivation Cloud Management released this month in August. Regarding the recruiting support service, ARR surpassed JPY 200 million within three months of its release, and it is progressing smoothly. By shifting to a cloud-based service, we have dramatically improved efficiency and enabled more accurate recruitment support, leveraging data. I'd like to emphasize that this has been a very successful launch. Next, regarding the management support service, which was released this August, this AI agent autonomously supports management tasks, freeing up managers' time and helping them improve their management skills. As shown on the right, one common challenge is a lack of time due to frequent meetings with team members and customer interactions. To address this, the AI will assist with tasks such as handling inquiries and providing feedback, thereby freeing up time for managers. Another common issue is that, while managers may possess technical skills, they often lack management skills related to organizational management and member development. To address this, the system will support the improvement of management skills by identifying areas for improvement among members and providing development advice to managers. We believe this market potential in this management domain is enormous. In this high-potential management support market, the advent of AI is leading to an increased emphasis on individualized and direct management support. We aim to leverage our competitive advantages to further increase monthly fee revenue. Additionally, with an eye towards long-term expansion, we are making progress on our overseas expansion. We are expanding overseas with a long-term goal of becoming a global human capital management platform provider. We are currently operating in five Asian countries, namely Singapore, Thailand, Vietnam, the Philippines, and Indonesia. And our monthly fee revenue has grown substantially, reaching approximately 160% year-on-year. Going forward, we aim to become a truly global human capital management platform provider by expanding into North America, Europe, Oceania, and other regions. Fourth agenda, I would like to explain the upward revision to the monthly fee revenue forecast for Motivation Cloud. As you see here, Motivation Cloud's monthly fee revenue is accumulating very steadily, and our new services are also off to a strong start. Initially, we had planned for monthly fee revenue of JPY 700 million by the end of the year, but we are revising this figure upward to JPY 730 million, representing a year-on-year increase of 16.4%. Now to the fifth agenda, M&A. We would like to announce the conclusion of a basic agreement on share exchange to make SELF Incorporated a wholly owned subsidiary. To summarize SELF in a nutshell, please consider it a generative AI company. On August 10, we concluded a basic agreement to begin discussions aimed at making SELF a wholly owned subsidiary of a company through a share exchange. The company offers various services related to generative AI and proprietary AI technologies, including SELFBOT. Let me explain this in a bit more detail. SELFBOT, provided by SELF Inc. is a service that centralizes management of learned information and facilitates customer support, internal use and the deployment of AI agents based on that centrally managed information. One of the benefits is that it streamlines operations by reducing communication costs. For example, in a common scenario where it takes time to respond to internal or customer inquiries, SELFBOT makes it possible to generate precise responses instantly. Additionally, while creating data materials while gathering information can be time-consuming, AI agents can summarize and output information tailored to specific requirements. Within the Motivation Cloud, we position this service as part of the diagnosis and transformation category, specifically as an AI agent bot service within that transformation framework. We are committed to helping our customers improve their productivity. Furthermore, by combining SELFBOT with our cloud and consulting services, we can achieve continuous enhanced customer transformation outcomes. For example, in the context of Personnel Placement consulting, rather than simply providing a one-time recruitment handbook after a few months of consulting and then ending the engagement, clients can subsequently use SELFBOT to provide information on topics such as building rapport during interviews, thereby fostering a long-term relationship even after the consulting engagement concludes. Similarly, whether it's sustaining the training effects in actual work after new employee orientation or improving the accuracy of managerial evaluations after providing an evaluation handbook, this SELFBOT is expected to generate significant synergy with our consulting services. Discussions have begun, and we plan to allocate treasury shares we hold as consideration. The effective date of the share exchange is scheduled for Thursday, October 1. Agenda six, progress on the share repurchase. With the aim of improving ROE, we decided in February of this year to conduct a share repurchase with a maximum acquisition amount of up to JPY 6 billion, the largest in our history. As shown on the right, as of July 31 of this year, we have acquired 47.01% of the total number of shares and 54.11% of the total acquisition cost. We will continue to steadily proceed with the share repurchase going forward. Agenda seven, announcement regarding the expansion of the shareholder benefits program. First, regarding our shareholder benefits program, simply put, it is a system that provides digital gifts whose value varies depending on the number of shares held and the length of continuous share ownership. To enhance shareholder returns, we have decided to increase the base amount of the shareholder benefits program by 10%. As a result, we will present shareholder benefits worth up to JPY 440,000 for the year. When the benefit yield is combined with the dividend yield, the total yield will exceed 6%, significantly above the prime market average. We intend to continue focusing on shareholder returns moving forward. This concludes the presentation of the second quarter financial results. In particular, the Organizational Development Division and the Matching Division are making steady progress. We are also focusing on building a sustainable revenue base, and including this upward revision, we will continue to prioritize the stable growth of our business. We hope you will continue to follow our progress closely. Thank you very much for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]