Ateam Inc

TSE:3662

Earnings Call Transcript 2018-Q2

[Takao Hayashi, executive]

I am Takao Hayashi, President of Ateam, Inc. Thank you very much for coming to our earnings briefing despite your busy schedule.

Let me start our presentation of financial results for the second quarter of fiscal year 2018. The first item is notice on acquisition of Increments Inc. as our subsidiary. For some time, we were looking for a company to acquire and had certain criteria for judgment. One of them was synergy with existing businesses of Ateam, and another was cultural fit or similarity with our corporate culture. Fortunately, we were able to find Increments Inc., the company which operates the service called Qiita, which is a technical information sharing service for engineers. When I asked our Ateam engineers whether they knew about the service, the response was that Qiita is a service any engineers would know. That's how popular it is. As you can see on the slide, in expectation of a positive impact on Ateam's brand awareness as well as on talent recruitment, we have decided to acquire the company. When we announced the news internally, it was received extremely positively by our engineers. Many of them said they are grateful and thrilled to have an opportunity to work together with the service that they respected and admired. So that was a very positive development for engineers.

The slide depicts the business model of Increments. The first service, Qiita, is a knowledge sharing platform for programmers. The business model of Qiita is advertisement income. The other service, Qiita:Team, is a tool for sharing information among employees of the same company. Here, the business model is subscription fee income. The company has 2 different business models. The slide shows the trends in monthly UU growth and the monthly PV growth. As you can see, both are showing consistently positive trends. Mr. Umino, representative of Increments Inc., will give you more details later. Turning to page 7, fiscal year 2018 Q2 financial summary. Both revenue and profit increased year-on-year and quarter-on-quarter, with JPY 9.164 million (sic) [ JPY 9,164 million ] in revenue, JPY 1.093 million (sic) [ JPY 1,093 million ] in operating income and JPY 754 million in net income. In Entertainment business, revenue was down and profit was up year-on-year while both revenue and profit were up quarter-on-quarter. In the Lifestyle Support business, revenue and profit were up both year-on-year and a quarter-on-quarter. In the E-Commerce business, revenue was up year-on-year and down quarter-on-quarter, partly due to the seasonality. Please notice that the share of revenue is exactly the same for Entertainment and the Lifestyle Support. Going forward, further growth is expected for all of these businesses. Entertainment, we have launch of new titles. Going forward, Lifestyle Support will have its peak season in Q3, and E-Commerce will also have its peak season in Q3. Page 8 shows fiscal year 2018 second quarter financial results versus revised forecast: revenue 45.2%; operating income, 43.8%; and net income 46.2%. That's the progress of our -- vis-à-vis the full year target.

Page 9 shows more details on Q2 6-month results: revenue 118.2%, operating income 201.1% and net income 193.9% of the results for the previous year.

Page 10 shows trends in quarterly revenue. The Entertainment business reached its peak in Q3 2017, fell slightly after that and remained almost flat, while the Lifestyle Support business and E-Commerce business grew steadily. The overall trend, as a result, is favorable. That's our perception. Page 11 shows trends in key management indicators. No major change was experienced during the last quarter. Page 12 shows trends in promotion expenses. The Entertainment business did not incur any major expenses with no new titles during the quarter, while Lifestyle Support business had some increase due to expenses for the heavier promotional activities in preparation for a busy season. Page 13 shows the number of employees by segment. The 15 people added through Increments Inc. are included in the Lifestyle Support business. The trend in the Entertainment business has been steady over the last several years, while the trend in the Lifestyle Support business is moving upward, as you can see on the slide. The E-Commerce business, the number of employees exceeded 50.

Page 14 shows the balance sheet. With the acquisition of Increments Inc., we booked a temporary goodwill of JPY 1,283 million, which is recorded as intangible assets on the balance sheet. That's the biggest change we had during the quarter. Page 16 shows Entertainment business quarterly performance trends. As I explained earlier, the business hit the peak in Q3 2017. Thereafter, the trend is stable or down for some titles. The situation varies by title, but overall, we have a stable trend with solid margin due to promotion expenses well under control. Page 17 shows Entertainment business overall revenue trends. The overseas revenue ratio is largely unchanged at around 28%. Page 18 shows Lifestyle Support business quarterly performance trends. As mentioned earlier, there's a steady growth over these years. For the second quarter, the year-on-year growth is 46.1%. We anticipate that we might have another record high revenue in Q3. Page 19 shows Lifestyle Support revenue trends by subsegment. The overall trend is positive, not because of any particular subsegment, but because of each subsegment growing equally positively. As shown on the upper left corner, all of the arrows are looking upward for the first time in a while.

Page 20 shows the trends in KPIs the company is tracking internally, namely: user count, ARPU & CPA, excluding the LaLune women's health consultation application. The trend is positive in terms of user count. An upward trend for ARPU and a downward trend for CPA means the business structure is getting stronger. Gross profit on the right-hand side shows a positive trend as well. Page 21 shows E-Commerce performance trends. The second quarter performance is down quarter-on-quarter, partly due to seasonality. On the year-on-year basis, however, revenue is up 72.5%. Segment profit was negative JPY 68 million because the business is still in a phase where prior investment is required. Let me move on to an update on Q3. Overall, we opened an office in February in Fukuoka. That's a new office. To date, we only have a few people there. The office is temporary. We are moving to a new office in the summer this year when the new building is completed. So the one in Fukuoka is a temporary office. We have also relocated our Vietnamese office recently to a newly completed building. So our working environment has improved greatly. On the hiring front, in cooperation with Increments Inc., we are trying to enhance our recruitment activities, both for new graduates and the mid-career talents. This was reported by media. In Nagoya, we have stopped recruiting at a joint recruitment fair starting this year, and we are concentrating our hiring activities on the Internet, showing all the information on video. This will help alleviating the workload of our HR staff and improve access for students to the information about the company through more accessible media. The recruitment video we had in the past may have given viewers somewhat aggressive and assertive image with the aspiration of our new business and the growth and so forth, whereas the latest version of the video focused more on the communication of the true nature of Ateam. The slide shows more details each for Entertainment and Lifestyle Support. There are no additional comments that I want to make on these points. Let me now move on to the full year guidance of fiscal year 2018. Our Entertainment business is on a flat trend. It was slightly lower than the budget during the first half, though Lifestyle Support was slightly higher than the budget for the same period. We have many uncertainties, including the contribution of new titles to the overall performance, therefore, the full year forecasts were kept unchanged at this time. Page 26 shows initiatives carried out during fiscal year 2018. Overall, we are trying to enhance talent recruitment and the working environment to uplift employee satisfaction. This is to build a company that is worthwhile for all employees. That's how we believe we can motivate employees to become more proactive and innovative and realize further growth of existing businesses as well as development of new businesses. Page 27 shows the year-end dividend forecast, which is 20% in terms of payout ratio.

The rest of the presentation materials are unchanged from the past, so this concludes my part. Thank you very much for your kind attention.

Let me briefly introduce Mr. Umino, representative of Increments Inc. He would like to say a few words.

[Hiroshige Umino, executive]

Good afternoon, ladies and gentlemen. I am Umino, representative of Increments Inc. Thank you very much for giving me this opportunity to say a few words about the company as well as the background of the integration into Ateam, which was concluded last year.

Increments was established on February 29, 2012, the same day as Ateam. The business marked the sixth anniversary last month. We are providing 2 services: Qiita is an information sharing platform for programmers and Qiita:Team is an internal information sharing tool among employees. Qiita earns its revenue through advertising income and Qiita:Team through monthly subscription fees. So we have 2 distinct business models. Over the past 5 or 6 years, this year, our UU and PV have grown steadily, as you can see on the slide.

When we thought about how we should grow our business further, we decided that merging with another company was a way forward. So last year, we were approached by several different companies, and among them, Ateam was the company that we wanted to work with. There are several reasons why we decided to grow as part of Ateam, such as: cultural fit or proximity, as mentioned earlier; and Ateam's track record and know-how of simultaneously starting up and sustainably growing businesses in different domains. That's a know-how that -- and advantage we wanted to apply to our services. That's the reason why we decided to join that group.

It's been only 2 months since we joined the group. We are very encouraged to have received various support for our business and management. We look forward to contributing to Ateam business creation and expansion of the business in the areas of recruitment and engineering, with myself being an engineer, and I appreciate your guidance.

Thank you very much. I look forward to working with you.

[Takao Hayashi, executive]

It was a coincidence that both companies were established on February 29. They say great minds think alike. I would say genius programmers think alike.

That's the end of the briefing. Thank you very much for your kind attention.