Recruit Holdings Co., Ltd. (6098) Earnings Call Transcript & Summary

Thank you for joining the Recruit Holdings FY 2026 Q1 Earnings Call. This call is a simultaneous translation of the original call in Japanese and translation is provided for the convenience of investors only. Earlier at 3:30 p.m., we disclosed the earnings release, earnings summary and the presentation slides of this results on our IR page. The video and transcript of this results call will be posted on our website after the session. As announced in our website 2 days ago, Envolus, an independent research firm will publish a flash report on this earnings call. Please refer to it as well. Today's presenters are Hisayuki Idekoba, Representative Director, President and CEO; and Junichi Arai, Executive Vice President and Chief Financial Officer. In the further 30 minutes, Deko and Jun will provide a presentation followed by a Q&A session. Now I'll turn the call over to Deko.

I am Deko of Recruit Holdings. Today, I am pleased to share our Q1 FY 2026 results and to raise our full year consolidated guidance. HR Technology delivered a strong Q1 performance with U.S. revenue increasing 30% year-over-year. Based on this momentum, as of today, we are raising our full year HR technology revenue outlook to up 18.7% year-over-year globally and up 25.1% year-over-year for the U.S. As you all know, truly AI is evolving at such an incredible pace almost every single week and many of you are probably noticing how AI agents are rapidly taking off as automation tools across so many industries. We, ourselves, genuinely feel it that we've finally entered a whole new phase where our AI automated tools are boosting productivity for HR teams worldwide teams that have historically been bogged down by time-consuming manual work. First, let me walk you through why our Q1 performance came in stronger than expected, even in a market environment where U.S. hiring demand remains down year-over-year. Continuing the previous trends. Our revenue from small and medium businesses was very strong in Q1 for lean SMBs having an open role stay on field for too long can literally be a matter of life or death for their businesses. By adopting our AI products, their time-consuming manual tasks get automated, dramatically shortening their time to hire. In this environment, many of these clients prioritize hiring speed over cost. And as a result, growth in both the number of SMB clients and spend per client drove our overall top line expansion. On top of that, what we are seeing now is revenue growth from large enterprise clients becoming more pronounced. Enterprise clients typically take longer to onboard decision-making for budget adjustments takes time. and legal reviews, especially when it comes to AI products can be quite time-consuming. Even so in Q1, many larger customers were willing to trial our AI products. For instance, one healthcare client tested how much AI automation could boost their recruiters productivity. And they concluded that our AI products help them significantly reduce time spent screening candidates delivering output equivalent to several full-time recruiters. Hearing feedback like that is very rewarding. The reality is that many large enterprises employed dozens, sometimes even hundreds of recruiters incurring massive costs from manual processes. By enabling clients to dramatically boost their productivity by adopting our AI products, we believe we have a major source of growth ahead of us. So when you look at our recent revenue growth, it's really the result of 2 key drivers working in and higher spend per client, driven by the added value our AI delivers and a growing number of clients using our products. using AI automation tools to boost the productivity of HR teams around the world burdened with manual work isn't just a win for employers. It is a huge plus for job seekers too. By automating processes that previously required time-consuming manual work job seekers are now experiencing firsthand that using indeed means faster responses from employers, earlier access of first interviews and ultimately finding a job sooner. And that is precisely why more people than ever are engaging our platform. At the end of the day, getting people hired faster through AI automation creates a win for everyone, and we believe that's what matters most. At the same time, it's also true that average spend per client has risen rapidly over a short period to protect our sustainable long-term growth we'll continue to monitor clean satisfaction very closely. The excretable pace of AI evolution is amazing. But rapid change, natural drinks wider implications. As such, we intend to carefully gauge the pace at which our customers and society are adapting and navigate this with both caution and flexibility. Our ability to leverage AI to raise customer productivity is advancing faster than anticipated, which is welcoming but to be honest, precise forecasting genuinely challenging. Today's updated guidance represents our estimate based on what we can see as of today. As the picture becomes clearer over time, we will share our latest progress with you every quarter. That concludes my remarks for today. I will now turn it over to our CFO, Arai, to walk you through the detailed numbers. Aria, I hand over to you.

This is Arai speaking. Today, I will be using the slides to focus on our upward revision to the FY 2026 full year consolidated guidance. First, our consolidated results for Q1 FY 2026 revenue, EBITDA plus and basic EPS each substantially exceeded our initial expectations and reached record highs revenue increased 18.9% year-over-year to JPY 1.04 trillion, EBITDA plus increased 56.5% year-over-year to JPY 292.8 billion and EBITDA plus margin was 28.0%. Basic EPS was JPY 145.48, up 73.2% year-over-year. As of the end of July, we have repurchased 12.5 million shares for JPY 120 billion under the ongoing JPY 350.0 billion share repurchase program representing 34.3% of the total program. Gross cash and cash equivalents were JPY 908.5 billion at the end of June. Based on these Q1 results and the latest outlook for each segment, we have revised upward the FY 2026 full year consolidated guidance disclosed in May. This revision is mainly driven by HR technology where Q1 results significantly exceeded our initial expectations, and we expect this trend to continue from Q2 onward. We assume an exchange rate of JPY 159.0 per U.S. dollar for FY 2026. We now expect consolidated revenue to increase 14.4% year-over-year to JPY 4.23 trillion compared with our initial guidance of JPY 4.03 trillion. We expect EBITDA plus S to increase 39.1% year-over-year to JPY 1.105 trillion, surpassing the JPY 1 trillion mark for the first time compared with our initial guidance of JPY 949 billion. We have revised the EBITDA plus S margin from 23.5% to 26.1%, and we have also revised the basic EPS upward from JPY 447 to JPY 543, an increase of 55.2% year-over-year reflects the upward revision to net income from our initial guidance of JPY 623.0 billion to JPY 755.0 billion, an increase of 51.9% year-over-year as well as the number of shares repurchased from through the end of July 2026. Staffing in Japan was subject to an on-site inspection by the Japan Fair Trade Commission in June 2026 in connection with suspected violations of the anti-monopoly app. As we are currently cooperating with the inspection, it is difficult to reasonably estimate the financial impact at this time. Accordingly, this guidance does not reflect any such impact. Of our 3 business segments, HR technology continues to drive our growth and remains the core of our consolidated financial performance. The segment will account for approximately 43% of revenue in approximately 75% of EBITDA plus S. I will now discuss the full year outlook for HR technology. We now expect segment revenue on a U.S. dollar basis increased 18.7% year-over-year to $11.4 billion above our initial outlook of 11% growth. On a Japanese yen basis, we have revised our outlook from growth of 13.4% year-over-year to growth of 24.9% year-over-year or JPY 1.82 trillion. By continuing to focus on revenue growth and disciplined business management, we have revised the segment EBITDA plus margin outlook from 41.0% to 45%. Looking at the segment revenue outlook by region. The USD 615 million increase in the U.S. was a key factor behind the substantial upward revisions to both the segment outlook and consolidated guidance. for the U.S., which is expected to account for 58% of segment revenue. We have upwardly revised our year-over-year revenue growth outlook from 13.6% to 25.1%, reaching USD 6.6 billion. For Europe and others, we have revised our year-over-year revenue growth outlook from 17.1% to 23.2%, reaching USD 2.5 billion. For Japan, we have revised our initial outlook up by JPY 11.5 billion from growth of 2.1% year-over-year to growth of 5.4% year-over-year or JPY 367.0 billion. On a U.S. dollar basis, we expect revenue to be virtually flat year-over-year at USD 2.3 billion. I will provide further details later. Now on to Q1 segment results. As stated at the outset, Q1 results substantially exceeded our initial outlook revenue on a U.S. dollar basis increased 20.9% year-over-year to USD 2.8 billion. On a Japanese yen basis, revenue increased 33.2% year-over-year to JPY 455.4 billion. Segment EBITDA plus margin increased significantly to 47.4%, driven by strong revenue growth and continued discipline in cost management. Employee benefit expenses, including share-based payment expenses, together with outsourcing expenses, which represent broadly defined personnel expenses were approximately 37% of revenue, down significantly from approximately 48% in Q1 FY 2025. While AI rated compute and infrastructure expenses are growing and reflect our expanded capabilities, they remain a small portion of our cost base and are not yet a material factor in our margin profile. We will continue managing them with a clear focus on return on investment. I will next discuss the results by region, starting with the U.S. followed by Europe and others in Japan. Before discussing the U.S. results and outlook, I will again explain the definition of the U.S. ARPJ growth rate, which we began disclosing with our Q2 FY 2025 results. The U.S. ARPJ growth rate is the year-over-year rate of change in average revenue per job posting on indeed which we disclose each quarterly earnings announcement to demonstrate how our monetization progress is on track, driven by the expansion of higher-value features and packages even as business clients higher in demand and activity fluctuate due to macroeconomic and other factors. U.S. ARPJ as average revenue per job posting on Indeed is calculated by dividing HR technology revenue in the U.S. by the total number of U.S. job postings on Indeed. The numerator total HR Technology U.S. revenue comprises revenue from sponsored jobs which consists of paid job ads like standard and premium sponsored jobs as well as other products and services, including smart sourcing and smart screening, employer branding and Indeed, Flex the denominator, the total number of U.S. job postings is measured by the Indeed hiring Lab U.S. Job Postings index. Indeed hiring lab U.S. job postings index tracks hiring demand in the U.S. labor market and includes hosted jobs, which are jobs employers post directly on Indeed and index jobs, which are jobs indeed received from employers career sites applicant tracking systems or ADSs and other sources across the web. The total number of U.S. job postings includes all job posting on Indeed in the U.S., whether or not they are job ads. In other words, U.S. ARPJ is the average revenue per job posting on indeed, not the average unit price per sponsored job ad. The premium sponsored jobs is the primary driver of U.S. revenue growth in HR Technology in fiscal year 2026. This slide shows the features currently included in the premium package that support employees throughout the hiring process compared to standard sponsored jobs and free listings, premium sponsor goes well beyond the basic features, offering a broader range of advanced features to deliver greater value for business clients looking to make their hiring process faster and more efficient. The U.S. ARPJ growth rate reached 35% in the first quarter substantially about the quarterly levels recorded in fiscal year 2025. So the total number of used post and declined approximately year-over-year, our revenue increase of 30.0% year-over-year a quarterly record of USD 1.6 billion. This was driven by freezer monetization development led by premium sponsor job package. The previous record was USD 1.61 billion in first quarter 2022, when revenue grew significantly, up 24.9% year-over-year. However, the total number of U.S. job posting was approximately 57% higher than in first quarter 2026 and also increase approximately 24% year-over-year leverage in the U.S. ARPJ growth rate at just 1%. These results demonstrate that extend and pace of our current monetization development, as you see in the difference in the U.S. ARPJ growth rates. Our model has evolved from 1 centered on search engine and the paper click or PPC job as to an AI-powered faster and more price than the high-value machine platform in a 2-sided decision-making marketplace. Our full year outlook is based on the first quarter results together with our later performance outlook for second quarter through for quarter, which assumes an approximately 4% year-over-year decline in the total number of U.S. job posting consistent with some assumption at the beginning of the fiscal year. We have a substantial revise our year-over-year U.S. revenue growth outlook from 13.6% to 25.1%, reaching USD 6.6 billion which would be a record high for full year revenue on a U.S. dollar basis. We expect the U.S. ARPJ growth rate to be approximately 30% of our fiscal year 2026. For context, the previous revenue record was USD 6.0 billion in fiscal 2022. In fiscal year, the total number of U.S. job posting increase approximately 3% year-over-year. Revenue increased by 4.9% year-over-year and the U.S. ARPJ growth rate was 2%. Next, Europe and others. First quarter revenue increased 28.5% year-over-year to USD 0.6 billion. On a local currency basis, revenue increased approximately 34% year-over-year in the U.K. and approximately 46% year-over-year in Canada. This growth was mainly driven by continued monetization development through the expanded adoption of premium sponsor jobs for fiscal year 2026, we have revised our full year revenue growth on local from 17.1% to 23.2% year-over-year, reaching USD 2.5 billion. As in previous years, approximately 2/3 of this revenue is expected to come from the U.K., Canada and Germany. In Japan, our first quarter revenue increased 67% year-over-year to JPY 93.3 billion. In German advertising services, indeed France performed above our initial expectations, driven by an increase in the number of paid jobs and the growing price per job while placement services have recovered faster than elected. For fiscal year 2026, we expect diesel trend to continue more than setting certain headwinds specific to this fiscal year, namely changes in revenue recognition from gross to net and withdraw from or downsizing of unprofitable businesses. Therefore, we have revised the full year revenue outlook upward on the Japanese yen basis from growth of 2.1% year-over-year to growth of 5.4% year-over-year or JPY 367 billion. On a U.S. dollar basis, we expect revenue to be flat [indiscernible] year-over-year at USD 2.3 billion. So in the [indiscernible] revision of revenue and the EBITDA process margin, we believe some of you might be concerned that the HR technology has already peaked and has limited upside. However, we firmly believe the business has a significant long-term expansion ahead as we leverage AI to build out a comprehensible suite of hiring product and the services. As Deko has been explaining since I made HR Technology is not simply aiming to expand within the 34 billion job advertising market, we believe we can achieve greater growth over the mid to long term by converting business clients or hiring expenditure as the market of approximately USD 200 billion, that includes placement services as well as an estimated USD 68 billion for hiring automation into our revenue. Many companies worldwide are actively using AI to improve efficiency across areas of G&A and the hiring processes with its many manual task of HR teams is no exception. By further improving matching accuracy and speed for job seekers and business clients in 2-sided decision-making marketplace and by using AI automation tools to help improve the productive productivity and efficiency of the hiring process from candidate traction as reserve sequence stages we can achieve sustainable growth. The segment revenue outlook for fiscal year 20266 is only USD 11.4 billion. There remains a substantial white space in the long runway for growth. Next, staffing. First quarter segment revenue increased 11.5% year-over-year to JPY 455.2 billion. In Japan, revenue increased 3.5% year-over-year to JPY 2 billion, reflecting continued stable performance. In Europe and the U.S. and Australia, revenue increased 20.3% year-over-year to JPY 25.0 billion, including a positive impact from foreign currency falling exchange rate fluctuations and reflecting strong performance in the U.S. capturing solid demand as well as signs of a recovery in staffing demand in Europe and Australia despite market condition in both the region remaining challenging. EBITDA process margin was 6.2%. We are making only minor a revision to our initial full year look. We now expect segment revenue of JPY 1.83 trillion and the Sigma EBITDA plus S margin of 5.6%. Finally, marketing margin technology or MMT. MMT operates One of the largest margin platform in Japan connecting the individual user account base of approximately 99 million recruit IDs with 980,000 business plan across multiple verticals. Our individual user base on our point program maintain and increase the number of action taken on our platform by providing fulfillment functions or efficient income please sequence a process from customer acquisition through a payment, we accumulate the unique data on our platform. leveraging this unique data, MLT uses AI to propose optimal services and pricing tailored to each business client, most of whom are small and mid-sized businesses are driving growth in their GMV. By shifting multiple platform including beauty and the customer home building and renovation consulting, which we discussed in February and May as well as automotive, which I will discuss today from fixed monthly listing fees to GMV linked model, we believe we can achieve sustainable revenue growth even as the AI technology becomes a more wider spread and continues to evolve. MMD consists of lifestyle, including beauty, travel, dining and the son solutions, housing and real estate and others. Before discussing the results and the outlook, I will explain the evolution of automobile within others, where we introduced a GMV linked model starting this fiscal year. Since 1984, automobile has operated an automobile inventory advertising service in Japan under the car sensor brand, the primarily covering used vehicles listed by business clients such as used car dealers. Today, it is 1 of the largest margin platform in Japan the used car market. Individual users can search business clients vehicle inventories and make inquiries and reserve dealership visits through the mobile application of our website. So it is a business model transition from print media to online services in remain based on the fixed monthly distinct fiscal year 2025. Revenue in fiscal year 2025 was JPY 33.4 billion. Starting in fiscal year 2026. In addition to the existing fixed monthly listing fees, we induced a GMV linked model under which business clients under business clients based on purchasing intent action taken by individual users such as inquiries on the dealership renovations business alliance vehicle inventory data and the data such as the number we inquired from individual users synchronized within -- with our platform through vertical source solutions. In addition, the use of AI to substantially reduce the workload required for business clients to upload the vehicle images, these capability have increased the volume of vehicle inventory images on the platform as well as the strategic allocation of sales and promotion expenses by driving growth in individual user action and the number of these deliveries through this contributed to increasing business clients pleased the transaction revenue leading that increasingly recognize the value provided by the platform, which is the driver behind this model. The introduction are first quarter revenue increased to 15.8% year-over-year the introduction of GMV linked the model led to an increase in the number of vehicles listed resulting in a year-over-year increase of 12.5% in individual user actions, which was the main driver of the revenue increase. I will now discuss the results and the outlook for MMT. In the first quarter, revenue in lifestyle increased 9.6% year-over-year, driven largely by revenue growth in beauty resulting from the addition of GMV linked model. revenue in housing and real estate increased 2.8% year-over-year, reflecting stronger user action growth both in custom homebuilding and the renovation coming where the GMV linked model was introduced as well as in residential resale. As a result, segment revenue increased 3.7% year-over-year to JPY 141.8 billion. Segment EBITDA process margin was as a result of revenue growth as well as our cost optimization efforts, including reducing service outsourcing expenses. As discussed in May, starting in fiscal year 2026, the MMT is smoothing out the quality seasonality of the sales promotion and advertising expenses, the following strategic promotion and advertising spending in the core quarter in areas where we expect return on investment on the GMV linked model, including beauty, travel, housing and real estate, we expect the first half EBITDA process margin to be approximately 31% in line with our initial outlook. Full year outlook is unchanged for May. We segment revenue increased 7.1% year-over-year to JPY 605 billion with a segment EBITDA plus margin of 30%. Now we would like to go on Q&A.

[Operator Instructions] First Minami Munakata from Goldman Sachs Securities.

This is Minami Munakata of Goldman Sachs. Can you hear me?

Yes, please.

Regarding U.S. ARPJ, it increased 35% year-over-year in the fourth it was already high at 25%, but you have further accelerated, which is quite amazing. And in Deko's presentation, HR manual works are automated, and you are now entering a new phase as per your comment. And Arizon also talks about the expansion of the TAM. So the areas where you compete have changed. I believe the TAM is expanding. Do you actually feel that? Do you feel that where you play have changed? For example, compared to the existing online job at a domain to from automating manual processes, you are seeing the expansion of TAM going ahead of the recruiting automation domain. Is that true? In other words, the wallet share that you will be able to go after is expanding. Do you feel that Deko, what do you think?

Well, currently, I am in conversation with various clients. And looking at the logs of those conversations that we've had with clients, it is particularly true for small and medium businesses. How should I say -- this may not be a good example. If you think, for example, food delivery service, -- when I use food delivery service, and I shared this with my wife, she said, how wasteful, it's much cheaper to buy at a nearby supermarket. But for me, I have the urge to eat quicker. So I was ready -- I was prepared to pay a certain delivery fees that was an unacceptable fee. But for small and medium-sized businesses, what's happening today is that they have certain roles that remain vacant for 2 months, and they are pay additional $1,000 or $2,000, that's the kind of conversation that we are hearing more from SMBs. And by having these business clients using for HR teams in SMBs, they usually have other responsibilities besides HR. And by using our services, they can now free up some of their time to spend on other tasks and starting from SMBs to more larger clients, clients with 1 million or 2 million of budget, as I heard an example earlier, sometimes clients have the needs to check the ROI. So for instance, AI sourcing, AI screening, these type of services. that are introduced in order to compare with human recruiters that they have internally. And ultimately, the kind of rules or tasks assigned to internal agents have reduced. After trial of 1 month, they see the ROI and then make a decision to introduce the service. So that's what's happening in some cases. So for us, it's more than just selling tools rather than simple sales of course, simply put the back-end process is ultimately, you don't want to hire 20 or 30 people, and you don't want to screen these candidates. You check their resumes, make sure they have their licenses, they contact them to confirm. So that's what's happening in the backend processes. So sending high-quality candidates by targeting, we have been successfully emanating all these back-end processes. Maybe my explanation is poor. But for SMBs, ultimately, they are able to hire faster. They have more time to spend on other tasks from medium to larger enterprises, they are realizing that their manual work has been reduced significantly after a trial of our products for maybe a month or so, they realize that they are able to reduce manual tasks. Maybe they started with 1 task in mind. But by looking at the results, they are now expanding to cover other tasks. I apologize for the poor explanation, but that's what's happening.

No, that's very clear.

I believe for SMBs and larger enterprises, there are pains and issues that differ, I surmise. So the points that they emphasize to understand the needs, their demands and by matching solutions to address their issues, automation will further proceed. Well, actually, they are the same. The issues are the same, but the way and how they realize the pains are different. So as I said before, why is there such steps as screening and sourcing afterward? Let's say, 20 people apply, and you did not find qualified candidates, you want to see more qualified candidates, and that's what leads to sourcing. Companies do their own sourcing, they search for resumes, they contact the candidates, but it's not producing results. So maybe they will use an agent. So what is happening in most cases. So it's not that they are looking at the ROI from the very beginning and trying to reduce costs. But rather looking at the conversations we've had with these companies, they've decided to hire and in some larger enterprises as well because the hiring is already decided, they now have the budget. So ultimately, this ends up in more payments to us. But I don't feel that we are competing with automation to our providers. I think value propositions are slightly different.

I have 1 follow-up question. The annual U.S. ARJP outlook is what I would like to ask about. You've mentioned that it has become more difficult to have a precise forecasting. But as of today, after second quarter, and later, what do you think will happen? What are your expectations? For instance, as the example you've shared growth from large enterprises remains firm. So do you consider that a growth driver. How are you building your guidance right now? What factors do you consider?

That is a wonderful question. for me as well, I am working hard to better understand what will be the drivers going ahead. I have looked at various factors. But at present, SMBs you spend per client increase. is going to contribute. For ARPJ, it's not simply the unit price increase. But if you look at the breakdown increase in the number of paying clients also contributes as well as the number of paid job postings and unit price per job increase. The 3 factors that I've just mentioned contribute to ARPJ growth. So for SMBs, I think each factor contributes 1/3. So that's roughly the combination of a contribution that we are seeing from those factors. So as I've just mentioned before, clients are starting to realize that our services do help them reduce the manual work, and they are now applying the services in other areas. So we are seeing customers returning and also increasing the number of new clients all driving of the growth as well as the unit price per job. For larger enterprises, they have introduced automating automation tools and some are like SMBs they see rules vacant for 2 months or so, and they see that people on the ground are struggling. So that's why they want to trial our products and services. And if you think about it, it makes sense, if you think of a good targeting advertisement, it basically uses AI sourcing and from among resumes, comparing to human recruiter reaching out to candidates versus AI sourcing. I think over a few years' time, I think the results will be the same. So advertising targeting is also being enhanced and this is going into the sourcing domain. So maybe companies will focus on several different roles, so the number of jobs may decrease, but on the other hand, unit price may increase. So it's a combination of all these different factors. So what I'm trying to say is that we are seeing such an amazing pace of AI introduction and AI growth. So of course, we are making an effort every day. The market is huge. But what accuracy is it percent, 25% or 30% growth rate is very difficult to calculate and forecast. That's the situation.

Again, another very clear answer. I admit. No, not at all. One thing that got my attention is in Deko's comments. You said an increase in unit price, other factors are robust and client satisfaction is to be closely monitored. I believe that was part of the comments. And at present, do you consider this any risk, rather, things are performing well. And it's difficult to predict 9 months from now, what will the levels be figures be? But you are looking at the U.S. OP outlook based on various perspectives, do I understand that correctly?

Right. So rather than 2 or 3 quarters ahead, it's easier to think longer term. no matter how you think about it, manually going through 20 or 30 resumes, making sure these candidates have licenses, calling them to make sure and scheduling meetings and such communication take place, and that's still not enough, you need to go into the resume database, you need to contact the candidates, and they say they're not thinking about switching jobs right now. That's an enormous task. And I don't think this will continue. So that manual process will be automated. And this is certain, I'm sure it -- so we need to ascertain changes in customers' demand as well as changes happening in the market, and we need to keep pace with that change. That's the background to my comment earlier.

I see. That's very clear. My apologies.

No, no, no. The insightful comments she said, Well, that's the only way we can describe this. Maybe in September with Munakata-san we will have a face-to-face meeting. So we will come back to this topic.

[Operator Instructions] From Normura Securities, Jiyong Oum, please?