Ateam Inc

TSE:3662

Earnings Call Transcript

[Takao Hayashi, executive]

Thank you very much for joining us in the earnings briefing of Ateam Inc. for the second quarter of fiscal 2022. This is Takao Hayashi speaking. Let us get started.

This is the outline for today's presentation. First, the financial forecasts for fiscal 2022. At the time of the first quarter earnings briefing, the numbers related to the release of a new game title, the Final Fantasy VII The First Soldier, were not yet clear. So we stated that we would be giving you the consolidated forecast once all figures are in. Now that the title has been released, today, we are showing the forecast based on the results during the second quarter.

First, the second half forecast. During the first half of this fiscal year, JPY 1.2 billion was recorded in the Entertainment business in relation to the temporary investment, including the development and advertisement expenses on the new title. In the absence of that burden, forecast for the second half year are revenue, JPY 17.517 billion; operating income, JPY 443 million; and net income, minus JPY 120 million. Full year forecasts are revenue, JPY 32.5 billion; operating income, minus JPY 700 million; and net income, minus JPY 850 million.

Here, you can see the progress relative to the full year forecast.

Next, the results for the second quarter. As mentioned earlier, we recorded development and advertisement costs associated with the final development phase of the new title First Soldier. As a result, a significant decline in income. Revenue was JPY 7.647 billion, 103% year-on-year and 104% quarter-on-quarter. Operating income was minus JPY 891 million. Net income was minus JPY 584 million.

Here, you can see the breakdown by business segment. The pie chart on the right shows the revenue ratio: Lifestyle Support accounting for 63.5%; Entertainment, 23.9% and E-Commerce, 12.6%. Details of each business segment will be given later.

Here, you can see the quarterly financial trends.

Now details of the second quarter results by segment. First, Lifestyle Support business by Fumio Mase.

[Fumio Mase, executive]

This is Mase speaking. Lifestyle Support business performance trends were as shown here. Year-on-year, revenue increased by 0.3%. Some businesses did feel the continued impact of COVID-19, especially the financial media, but we saw growth in car services and new services. So overall, revenue and profit posted a slight increase.

This is a new slide that we have added. We are showing the details of the performance trends in existing services and new services. On the extreme left, the dark blue bar represents the existing service revenue, and next to that is the existing service profit. And the blue line graph shows the existing service profit margin. Those in greenish blue represent new service revenue, new service profit and new service profit margin, respectively.

Overall, as you can see, operating margin for Lifestyle Support trended downward due to investment in new services and continued slowdown in existing services sales. But we see an upward trend for new services, and the percentage of new services to the total is increasing as well. As was mentioned earlier, among existing services, financial media, in particular, felt the strong impact, resulting in the decreasing trends in revenue and profit.

Shown here is the Lifestyle Support subsegment business quarterly revenue trends. Digital Marketing Support is mostly existing services and posted a decline both year-on-year and quarter-on-quarter. Platform and Others were up both year-on-year and quarter-on-quarter.

Revenue trends for Digital Marketing Support business are shown here, somewhat similar to the existing services year-on-year, minus 2.9%. Financial media continued to see revenue decrease due to changes in SEO ranking and a decline in customer acquisitions from competitors. In car services, revenue was up year-on-year, thanks to an increase in ARPU and the number of customer acquisitions by expanding partner companies as the semiconductor shortage is driving the demand for used vehicles.

Here are KPI trends for the Digital Marketing Support business. User account was down 4.2% year-on-year due to decline in financial media, along with demand decrease and intensive competition despite the increase in car services and bridal services coming from the easing of COVID impact. Overall, minus 4% year-on-year.

These were platform business revenue trends. Due to the revision in the Pharmaceutical and Medical Device Act, revenue for Luna (sic) [ Lalune ] decreased due to a decline in units of sales. But overall, revenue was up 8.4% year-on-year with strong Qiita and Qiita Jobs. In particular, Qiita Jobs event held in December led to a remarkable revenue increase.

In terms of topics for the Lifestyle Support business, Qiita Discussions, the forum for users and operators, has been launched. There is a global drive for digital transformation, resulting in shortage of engineers. We plan to promote Qiita as the biggest engineer community, but conventionally, users and operators were not integrated in forming Qiita. Rather, each party was sort of guessing the counterpart's intentions. To address this, the Qiita Discussions is a forum in which the user's voice could directly be shared with the operators. And conversely, the operators can share their information to users. So this is designed to promote the open 2-way communication. We are receiving positive feedback from users.

That is all for our Lifestyle Support business. Next is Entertainment business from Yukimasa Nakauchi.

[Yukimasa Nakauchi, executive]

Entertainment business revenue and profit were as shown here. With the release of the new game title, the Financial Fantasy VII The First Soldier (sic) [ Final Fantasy VII The First Soldier ], we recorded the last phase of the prerelease development cost and advertisement expenses, which had not been fully recovered, resulting in a decline in profit. As for this new game, currently, we are working on improving the KPIs, and we are incorporating the input feedback from the users for updates. We are still weak in terms of monetization, and we are addressing that issue.

Here, you can see the overseas revenue ratio, no change at 34%. Final Fantasy VII The First Soldier, the plan is to start a new season once every 3 months. We started a new season, season 2 was released. In terms of KPIs, we are seeing gradual improvement. We will be promoting various collaborations and updates to improve on monetization. And we will develop this to make it a main source of revenue. Your patience is appreciated. So we will be promoting the Final Fantasy VII The First Soldier through further improvement.

Now in terms of a bigger picture, what we'll be doing in the Entertainment business is shown here. We are going to embark into new market. Since last fiscal year, we have been seeing momentum growing for NFT games. We have been conducting research, and we will be entering NFT games as well as metaverse markets, and preparations are underway.

These are the 3 strengths that we can leverage in entering these new markets. Conventionally, we have been publishing directly globally, covering many countries and regions in maximum 16 languages. This experience is our strength that we can leverage.

We have developed -- we have development experience and expertise in various genre. What we see in NFT games today is the diversity similar to what we saw in the smartphone-based games in their initial phase, so we see opportunities here.

The third is in relation to metaverse. The First Soldier is a global interactive game offered in sophisticated 3D graphics. We have sophisticated graphics expertise, so we are to leverage these and other experiences accumulated up to now to address the metaverse market.

So you can see what we are doing to capture the new trends so as to boost the existing businesses and put the Entertainment business back on the growing trajectory. In terms of the development pipeline, we have 3 -- we have these 4 categories.

For number one, this has been a conventional approach, original mid-scale and multidevice. The development effort is steadily underway.

Number 2 is what we announced at the last briefing, collaboration with other players. We are in a more concrete phase now, and we expect things to move more smoothly going forward.

Now new items are number three and number four. Number three, we have been engaged in basic research activities, and we are hoping to make releases this and next fiscal year.

Number four is metaverse. And this is rather heavier in terms of resources. So it may take some time. That is the current pipeline.

And that is all for the Entertainment business. For E-Commerce, Kazuhiro Mochizuki will explain.

[Kazuhiro Mochizuki, executive]

I will be covering the E-Commerce business. First, the second quarter results. Revenue was up as we revised strategies in accordance with changes in the market, resulting in increase in cyma sales volume on online shopping malls, so revenue was up year-on-year.

Profit declined year-on-year as a result of profit margin decline due to the price revision for some cyma products as well as investment in new service Obremo, which started this year. For your information, for cyma business alone, profitability was attained during this quarter.

Next, KPIs. Gross profit trends improved in the second quarter with increased sales. And as sales grew, the inventory turnover has improved as well. So we are seeing a very healthy trend here.

Lastly, but not the least, the topics in the E-Commerce business. The total sales volume of Obremo food has reached over 50,000 meals. In addition to product sales, we are conducting surveys of the customers to get their input and feedback. The analysis of the responses shows that 80% of the dog owners say they are concerned about the health of their dogs. This indicates that our product, Obremo, is being preferred and appreciated by those owners that care about and are concerned about the health of their dogs. We will continue to address the needs of the customers in our product development to further increase the sales.

That's all for E-Commerce. Last but not the least, the fiscal 2022 guidance by Hayashi again.

[Takao Hayashi, executive]

Here, you can see the forecast by segment. For operating income, we are seeing a steady improvement in Lifestyle Support and E-Commerce. In Entertainment business, there were temporary expenses recording during the first quarter -- or the first half of the year, but we don't expect these to be repeated in the second half. So we will be driving the business to generate the profit toward the next fiscal year. The dividend forecast remains unchanged at JPY 16 per share.

Here, you can see the initiatives for fiscal year 2022. Overall, we are building a foundation for a new stage. As you can see there, we have been focusing on steady earnings from existing services and building a foundation for new services to make them become new earnings sources. Foundation includes the reorganization of subsidiaries and others.

For Lifestyle Support, we are working on improving the customer experience to increase LTV. We have started to make full-scale digital transformation investment in the Digital Marketing Support business. Businesses of focus like Qiita Jobs and the insurance business are transitioning from the development phase into the expansion phase.

For Entertainment business, we are working on entering new markets. We are working to make Final Fantasy VII The First Soldier a global hit and, as Nakauchi explained earlier, we will utilize accumulated expertise to enter new markets such as NFT and metaverse.

In terms of initiatives for E-Commerce to add to cyma, we are developing multiple EC products. And we are investing in human-grade dog food Obremo.

That concludes our presentation. Thank you very much for your kind attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]