Ateam Inc

TSE:3662

Earnings Call Transcript 2019-Q2

[Takao Hayashi, executive]

Thank you very much for taking time out of your busy schedules to attend the financial results briefing of Ateam Inc. for the second quarter of fiscal year 2019. Please allow me to start my presentation.

This slide is what we have been doing, and this is something we are using since early this year to explain what we do at Ateam. People may have an image that Ateam is a gaming company, whereas we consider ourselves as a comprehensive Internet player. That's the idea we wanted to show with this 1-page slide.

Page 3 shows the list of logos we use for our services. Compared with the last time, we have added some additional services. Please turn to Page 6, Q2 financial summary. Overall, revenue was up and the profit was down both Q-on-Q and Y-o-Y, with revenue of JPY 9.597 billion; operating income JPY 692 million and net income, JPY 484 million. In terms of segment breakdown, Lifestyle Support accounted for 54.1% of the total revenue with revenue of JPY 5.191 billion, a strong increase of 20.4% Y-o-Y. Entertainment accounted for 41.7% of the total revenue. Revenue and profit were down Y-o-Y and up Q-o-Q with segment revenue JPY 4.005 billion and segment profit of JPY 610 million. E-Commerce accounted for 4.2% of the total revenue. Revenue was down Y-o-Y and Q-o-Q with segment revenue of JPY 400 million and segment profit of negative JPY 67 million. Page 7 shows progress so far on full year guidance. Starting this quarter, we are showing the progress using different color coding, as you can see. Red refers to the second half result and the pink refers to the first half result of each year.

As you may recall, our performance tends to be stronger on the second half of the year. To show the trends more clearly, we changed the format of the chart.

Progress on revenue is 46.3% and operating income 29.4%, which is in line with our historical trends of 3-7 split between the first half and the second half except for last year FY 2018 when the first half was exceptionally strong due to one-off factors. I will skip Page 8 and jump to Page 9, consolidated quarterly financial trends. As you can see, we had the strongest ever revenue for a quarter except for third quarters.

Please skip Page 10 because I'll cover this content on a later page.

Please go to Page 11. The chart shows trends in promotional expenses. Promotional expenses of each business have been increasing as we keep introducing new services. As you can see here, Lifestyle Support increased its promotional expenses during the peak season while Entertainment increased its promotional expenses to support the year-end and New Year events.

Next page shows trends in the number of employees in each segment. The number has increased in each segment except for E-Commerce whose headcount is down by 1. Page 13 shows the balance sheet. The balance of interest-bearing debt has been reduced to 0 due to the repayment of loans. Let me move on to the details of each segment.

Please turn to Page 15, starting with the Lifestyle Support business. A significant revenue growth was recorded year-on-year, thanks to the strong performance of each subsegment. The Y-o-Y growth was more than 20%. As a profit, however, as discussed at the beginning of this fiscal year, due to the launch of several new services this year incurring an increase in personnel cost and advertising expenses, profits were down year-on-year. Page 16 shows the breakdown of subsegment. All of the services had positive growth year-on-year. The bridal-related business and the financial media business are down quarter-on-quarter. But this is due to seasonality, and these services are expected to show strong growth in third quarter onward, as it did in the past years. Page 17 shows trends in user count, ARPU and CPA. ARPU, shown by the red line, is down because of the volume of relatively high-ARPU businesses such as the bridal-related business and the financial media business are down. Meanwhile, the user count has been growing consistently.

The chart on the right-hand side shows gross profit and the gross profit margin. Trends in gross profit has been robust despite the fact that we are increasing the number of services and incurring additional cost and expenses. Page 18 shows the quarterly trends of the Entertainment business. As mentioned during Q1, the new game title Revue Starlight contributed fully during Q2. As a result, the segment recorded Q-on-Q growth of 23.5%. On the other hand, segment profit was down year-on-year due to the promotional expenses incurred during the start-up phase. Page 19 shows quarterly trends in overseas sales. Revue Starlight has not been launched in overseas markets yet and so the overseas revenue ratio is down, but we already have a planned launch in the near future and expect overseas sales to start growing going forward. Page 20 shows the performance trend of the E-Commerce business. As we informed you previously, we are trying to restructure and optimize logistics and other operations, and we are not trying to increase orders at the expense of pricing. As a result, sales are down year-on-year. But our intention is to improve the business structure while reaching 0 operating profit for the full year. Please turn to Page 22, segment topics. The first topic concerns the overall business. We have established a new subsidiary, called Ateam Finergy Inc., as announced previously. The Financial Media business is transferred from Ateam Lifestyle Inc. to the new company. The purpose of the establishment of the new company is to accelerate the speed of decision-making. The operation of the company, however, is not yet started. It's scheduled to commence on May 1. The second topic concerns the Lifestyle Support business. Our service LaLune has been ranked the third in the App Annie Top Publisher Awards 2018 in terms of the number of active users. It's been a while since LaLune was launched. The service has been steadily growing its membership month-by-month as well as active users. Page 23, please. TOYOTA NEXT is an open innovation program initiated by Toyota. The program supports Toyota's collaboration with third parties. We were chosen as a partner and developed a new service, Kuruma-DELI. After a certain trial period, we have officially launched the service under the new name remobii, which allows consumers to find and buy a secondhand car simply by using a smartphone. Page 24 shows a bridal-related service, called HIMARI. This is a first-in-the-industry service targeting those who would not hold wedding ceremony otherwise due to financial constraints and other reasons. It's an online booking services for people who are looking for easier and a simpler way of booking wedding ceremonies. The service is also designed to alleviate the chronic problem of the shortage of wedding planners. As you can see on the slide, users can book wedding halls and packages just as they book hotels and inns. Besides, the special search key available here is the budget amount. After making a temporary booking, users can actually visit the halls and confirm their booking if they like the place and move to the next stage of planning and wedding ceremony.

The new service should enable us to acquire new groups of customers whom we wouldn't access in the past, with the existing service, Hanayume. And we can also approach the market toward wedding halls in areas outside of our existing operations, namely Tokyo, Osaka, Nagoya and Fukuoka. Page 25 shows a new service we are preparing to launch called Qiita Jobs, an Internet site for job search and outplacement. Qiita Jobs is based on Qiita, an information sharing site for engineers owned by Increments Inc., a subsidiary we acquired back in December 2017. The advantage of Qiita Jobs over conventional services is that Qiita Jobs allows engineers to apply for jobs within specific project teams rather than for the entire company. This is important because engineers want to know exactly for which products they will be working in addition to the company. And from the company's perspective, it was difficult to assess the skills of engineers correctly. But by reading the comments posted by engineers on the Qiita site, companies can assess the skills of engineers. So the service provides benefits to both sides, engineers and the companies. More importantly, for our company, the service provider, the cost of acquiring engineers is free. So we believe that this will give us an advantage over our competitors. So far, we have received applications from about 80 companies and pre-registrations of about 800 engineers.

For the Entertainment business, these are types of promotion activities we are conducting. Unison League confirmed a collaboration with its former rival, Logres. I believe we were able to build a very positive relationship.

With this, I would like to include my remarks. Thank you very much for your kind attention.