Ateam Inc

TSE:3662

Earnings Call Transcript

[Takao Hayashi, executive]

Thank you for attending the FY 2022 Q3 Financial Results Briefing of Ateam Inc. Let me start my presentation, which covers 4 items shown on the slide.

The first item is FY 2022 Q3 financial results. The slide shows the financial summary for the third quarter. Our main businesses were in the peak season and showed strong performances leading to an overall growth Q-on-Q in both revenue and income. The overall results are as shown on the slides mainly driven by the peak season during the third quarter from February to April. Overall, revenue was JPY 8.559 billion. Operating income was JPY 180 million.

Next slide shows FY 2022 quarterly operating income trends. During the first and second quarters, we had a negative income trend due to promotion expenses and development costs for new titles. From the third quarter, however, the income trend turned positive helped by lower promotion expenses and development costs for new titles as well as profit contribution from the Lifestyle Support business, the Entertainment business existing titles and the E-Commerce business. Operating income was JPY 180 billion (sic) [ JPY 180 million ] for the third quarter and is projected to exceed the previous quarter's level for the fourth quarter and is expected to grow further in next fiscal year, securing a substantial level of earnings on a full year basis.

Next slide shows the progress on full year consolidated guidance for this fiscal year. Overall, the progress is in line with our expectations.

The slide shows the third quarter results for each segment, which will be explained more in detail by the executive in charge of each business. As you can see on the right-hand side, revenue ratio is 66.5% for Lifestyle Support, 15.3% for Entertainment and 18.2% for E-Commerce.

Next is consolidated quarterly financial trends. That was my summary of the overall results for Q3 FY 2022.

Next, we will have the executive in charge of each business take you through the details, starting with Mr. Mase, Head of the Lifestyle Support business.

[Fumio Mase, executive]

Thank you. This is Mase speaking. I would like to take you through the details of the Lifestyle Support business.

First, I would like to present the future direction of the Digital Marketing Support business, which is part of the Lifestyle Support segment. In the previous analyst meeting, we mentioned our plan to review the organizational structure. Now that the organizational change has been completed, let me take this opportunity to explain the future direction of the Digital Marketing Support business, which aims to enhance LTV or customer lifetime value.

To fulfill this goal, we will focus on 4 points, namely stronger connection with customers, enhanced customer experience, higher brand awareness and a stronger business foundation. Let me explain what we mean by a stronger connection with customers. In the past, many of our services were the ones that were used only once. We focused on ARPU or average revenue per user. Going forward, we will focus more on LTV by devising a mechanism so that our services will be used multiple times while they are linked with other services. Those are what we would like to promote going forward.

At the same time, we will make sure customers are satisfied with our services each time they use them so that they will become repeaters. We are focusing on customer satisfaction as well. Enhanced customer experience also helps increasing repeaters. And so does higher brand awareness, it will help reminding customers of our services when they need them. When we try to realize all of these 3, we need a stronger business foundation, without which we will have to build new services one by one from the scratch as we did in the past. We would like to start up new services more smoothly and effectively than in the past.

To realize a stronger business foundation, we will review our existing as well as new businesses through the selection and focus approach, reallocating financial and human resources to those initiatives listed on the left as well as to priority businesses defined through the business portfolio review. We will classify our main businesses into 3 categories listed below. That's how we are defining the future direction of the Digital Marketing Support business.

In terms of performance, let me first discuss the details for the third quarter. Revenue was down 1% year-on-year. It's almost flat or down slightly. As for profit, despite a sharp decline in financial media driven by car used services and moving services, we had a significant increase year-on-year.

The chart shows the trends in existing services and new services separately. The definition of existing and new services are shown in the lower right of the slide.

Existing services are down 9.6% year-on-year. This is due to the sluggish finance business such as card loan and credit card businesses. Due to the ongoing difficulty in the financial market, our clients were not able to execute planned expenses. Except for finance, other existing services are showing healthy growth.

In the meantime, new services are up almost 100% year-on-year. In other words, they are doubled. Profitability-wise, while new services are growing revenues, they are quickly reducing operating losses that they had in the past just as we had expected.

Next is revenue trends by subsegment. As I already mentioned, Digital Marketing Support is down year-on-year and up quarter-over-quarter in terms of revenue, while Platform is up year-on-year and flat quarter-on-quarter, and Other is up year-on-year and slightly down quarter-on-quarter.

Next is revenue trends of Digital Marketing Support. In car services, revenue is up year-on-year helped by the continuously booming used car market. As I explained earlier, when I talked about the underperformance of existing services, financial media suffered from declining revenues with higher CPA due to aggressive advertising activities of competitors while we were suffering from reduced advertising activities amid our clients' budget cuts. Bridal services finally saw an upward revenue trend year-on-year as the number of COVID-19 cases declined and the restrictions were lifted gradually.

If we look at the KPI trends of the Digital Marketing Support business, the user count is almost flat year-on-year, and CPA is down thanks to an increase in moving services. Revenue trends of the Platform business show a slightly upward trend year-on-year. Revenue of Lalune was down again due to reduced unit price caused by the amendment to the Pharmaceutical and Medical Device Act, which was more than offset by an increase in revenue of Qiita and Qiita Jobs.

Let me go through key topics of the Digital Marketing Support business, starting from Qiita. Currently, we are focusing on increasing the frequency of events and improving the quality of content. As a result, the number of events held is 2.7x more, and the number of participants is twice more compared with the previous year. We are holding 2 events in June: Qiita Engineering Fest 2022 (sic) [ Qiita Engineer Festa 2022 ] and Qiita Conference. These biggest events ever for engineers are targeting to attract 1,000 or 2,000 participants.

Qiita is well known as an engineer know-how sharing platform by holding these on-site events. However, we would like to promote interactions among engineers more as well as engineers and companies to expand the scope of the service from just know-how sharing to broader interaction among participants.

The other key topic is the participation of Lalune in the femtech pop-up store as a marketing partner. Amid the rising interest in femtech in general, we are receiving many inquiries about Lalune these days This initiative at the femtech pop-up store called byeASU or A-S-U evolved out of such inquiries. We are providing POP, or point of purchase, ads and questionnaire services to help analyze the best selection of merchandise for different types of customers using functionalities available through Lalune to understand the customer needs.

Lalune's business model so far was basically advertising revenue service. Going forward, however, we would like to capitalize on the unique database that can be offered only through Lalune using their database to realize business opportunities in the emerging femtech market.

This concludes my presentation on the Lifestyle Support business. Thank you. Next, Mr. Nakauchi, Head of the Entertainment business, will present the Entertainment business.

[Yukimasa Nakauchi, executive]

Hello. This is Nakauchi. I would like to begin my presentation on the Entertainment business.

This slide shows the progress so far this year. In the previous quarter, we had a negative operating results due to the advertising expenses of new apps. Now that the initial advertising activity is over and completed, we are focusing on efficiency and KPI improvement. In the overseas markets, we are seeing an increase in revenues of existing apps driving the overseas revenue ratio higher.

On FINAL FANTASY VII THE FIRST SOLDIER, every 3 months, a new season is introduced. In Season 3, we had a major update including a brand-new map, which is received very well by users, leading to improved KPIs.

Moving on to the development pipeline, we have these 4 items at the moment. On Item #1, which is an in-house original title on multiple devices as well as an NFT game, we had a good progress so far. We believe we can make a certain announcement by the beginning of next fiscal year.

That's all from Entertainment. Next, Mr. Mochizuki, Head of the E-Commerce business, will review the business.

[Kazuhiro Mochizuki, executive]

Thank you. Let me take you through the details of the EC business starting from performance trends.

Revenue is up significantly year-on-year mainly driven by cyma online shopping mall EC site amidst the peak season. This was as a result of the strategic shift we have announced last summer in order to cope with changes in the market. On the profit front, segment profit is down year-on-year because we have continued with the investment in the new service Obremo. For the stand-alone cyma business, however, we were able to record a JPY 30 million positive profit for the third quarter this year.

Next, let me review KPI trends. This year, we are focusing on increasing sales volume, which allowed us to secure a high level of gross profit and significantly improve inventory turnover as well.

Lastly, there is a key topic on Obremo. It's been almost a year since the product line was introduced. Total sales since the release have reached over 200,000 meals, showing a favorable growth. We believe we still have room to improve our response to meet customer needs better. Specifically, we are planning to expand our product lineup of both dog food and treats. We will be applying our know-how so far accumulated in dog food planning and development activities to develop more recipes and treats not only for dogs but also for other types of pets to expand the overall lineup.

That's all from the EC business.

[Takao Hayashi, executive]

This is Hayashi again. I would like to take you through the full year guidance for FY 2022.

Our forecast is shown on the second column from the left. Our forecast for FY '22 is as follows from the left. Revenue is JPY 32.5 billion. Operating income is negative JPY 700 million. And net income is negative JPY 850 million. As for FY 2022 dividend forecast, based on the policy of continuous and stable shareholder returns, we will maintain the same level of dividend as in FY 2021 at JPY 16 per share.

Initiatives for FY 2022 have been shared a few times since the beginning of this fiscal year. As a company-wide initiative, we are building a foundation for the next stage of growth. The Lifestyle Support business is trying to improve customer experience, aiming to achieve a higher LTV. The Entertainment's goal is to make a successful full-fledged entry into new markets. The EC business is focusing on the development of multiple EC products.

With this, we would like to conclude the FY 2022 Q3 financial results briefing. Thank you.

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