Ateam Holdings Co., Ltd. (3662.T) Earnings Call Transcript

Thank you for taking the time out of your busy schedules to attend Ateam's full year earnings presentation today. I'd like to begin my presentation. As you can see on this slide, Ateam is an IT company that develops business around the Internet. We offer a variety of services on the Internet using a variety of technologies in each market. This is our agenda for today. First, let me explain our mid- to long-term policy. I have explained this several times in the past, so please bear with me if you have heard this before. Ateam's strategy is to develop a diversified portfolio of businesses to ensure stability against different market environments. In fact, it was this portfolio that has enabled us to deliver earnings as planned this year despite the impact of COVID-19. Let me explain first about the Lifestyle Support business. This is what we are aiming for. From cradle to grave, we help consumers enrich their daily lives as well as important life events by providing convenient services. Our Lifestyle Support business has 3 strengths. One is web promotion, another is the synergy of multiple services and the other is a diverse system foundation covering a variety of fields. The Lifestyle Support business consists of 2 subsegments: the Digital Marketing Support business, shown on the left, offers services such as Hikkoshi Samurai, Hanayume, Navikuru and NaviNavi Cashing; and the Platform business, shown on the right, offers services such as Lalune and Qiita. These are the subsegments. The first subsegment, the Digital Marketing Support business, provides services in a variety of areas through our owned media and others. This subsegment first started with a moving service and then moved on to a used car trading service, bridal planning and venue booking service and others. We plan to introduce more services in the future to cater to various markets and to attain growth of the business. In the past, our Digital Marketing Support business has only been directing customers to our business partners over the Internet. However, we plan to expand our own business opportunities in the future while contributing also to the growth of each market. Next, we will move on to the Platform business. This business is easier to understand if we look at the specific services we offer. The first one is a health management tool for women called Lalune. Users can discuss various health concerns on the online platform, and other users can respond by offering advice on these concerns. That is the main description of the platform. In addition to offering that feature, we also sell diet supplements on the same platform. Furthermore, when a user signs up for a premium membership, she can consult with a professional doctor instead of other users about their conditions. We will continue to expand these offerings to activate the platform and achieve further growth. Next service is Qiita, which is a service for engineers. Engineers of different categories will be contributing technical information and comments to the platform. Other engineers will be able to learn how to achieve the same results by different approaches that they never knew existed before. On the same platform, we offer such services as Qiita Team, an information sharing tool; and Qiita Jobs, a manpower support service. And we are planning to add more services as they become available in the future. Next, I would like to talk about our Entertainment business. The slide shows our new policy. We are going to move away from being exclusively a smartphone game company. We will adopt a multi-device strategy and leverage well known intellectual properties of other companies to expand our business both domestically and internationally. These are the strength of our Entertainment business: technical capabilities, IP partnerships and a global business development know-how. Next, let me explain about our E-Commerce business. This is what we are aiming for. We will make good bicycles more accessible and deliver bicycles to our customers fully assembled. That's what we offer. These are the 3 main features of our E-Commerce business. One is wide selection of products. The second is the after-sales service we offer at bike shop across the country even though we sell our bikes online. And lastly, we deliver the products to their home in 100% assembled condition. These are the features of our E-Commerce business. Getting IT done, this is the slogan under which we are developing a variety of businesses. Next, I'd like to give you a summary of our full year consolidated financial results for fiscal year 2020. First, let me give you a summary of our financial results. Overall, revenue and OP are down Y-o-Y, and the net loss was recorded due to extraordinary losses. Revenue was JPY 31.739 billion; OP, JPY 1.273 billion; and net loss, JPY 519 million. Lifestyle Support was down both in revenue and profit Y-on-Y. Segment revenue, JPY 20.093 billion; and segment profit, JPY 1.896 billion. Sales were down due to COVID-19, reducing demand for some services. Segment share is 63.3%. Entertainment revenue and profit were down Y-o-Y with segment revenue JPY 8.45 billion and segment profit, JPY 776 million. Existing titles were still in downtrend, and the joint development costs for new titles were incurred. That's why profit decreased. Segment share is 26.6%. EC had a dramatic increase in revenue Y-o-Y, recording a historical high with segment revenue of JPY 3.196 billion and segment profit of negative JPY 43 million. Segment share is 10.1%. Record sales were achieved on the back of operational improvement as well as brisk demand for bicycles amid pandemic. This is a review of fiscal year 2020. Overall, it's been a year of planting seeds to nurturing them, and we are almost ready for harvesting. That's our perception of where we are. Despite the impact of COVID-19, we were able to secure a reasonable operating income thanks to a diversified business portfolio. During this year, we invested aggressively in each of our businesses while maintaining solid profitability. Lifestyle Support struggled due to the unexpected impact of coronavirus outbreak. The 2 services that struggled most were Hanayume within the bridal industry and NaviNavi Cashing, a card loan comparison site. We have been very selective and focused during this year with a close examination of several new services for which we have planted the seeds for sustainable growth. In Entertainment, we were largely able to sustain ourselves with our existing titles during the year while focusing on new co-developed and IP-based game titles. We achieved better-than-expected results for existing titles by implementing a variety of measures while limiting downtrends to maximum extent possible. Under the new policy, we made steady progress in expanding the new product pipeline. E-commerce is on track for a full year of positive returns. Structural and operational changes have paid off. In addition to improved fulfillment, the pandemic led to strong sales growth due to increased demand for bicycles. We have achieved 2 quarters of positive profit in the second half of the year. We are on track to achieve full year profitability in FY 2020 as planned. We can even dream of reaching the JPY 10 billion level of sales within next several years. Here is a summary of the impact of the pandemic for fiscal year 2020. Lifestyle Support business continued to be negatively impacted with a limited impact on Entertainment and a positive impact on E-Commerce with an overall negative impact on sales of JPY 2 billion. In Lifestyle Support, as I explained before, Hanayume and NaviNavi Cashing as well as Qiita, whose main resource of revenue is ad placement fees, were negatively impacted. Qiita Jobs was also affected by lower ad placements and a decline in the number of employees hired. On the other hand, our relocation-related Internet provider referral service increased slightly as people began to telework. Entertainment had a slight positive impact overseas. New game title development was not adversely affected thanks to the smooth transfer to telework. E-Commerce was positively impacted by the increased need for bicycles amid the 3C instruction given by the government. There were some delays in purchasing materials due to COVID-19, but we were able to limit the negative impact by adequately stocking our best-selling products. This slide shows the fourth quarter fiscal 2020 financial summary. Overall, both revenue and operating income were down Y-o-Y and Q-o-Q. Recognition of an impairment loss drove quarterly net profit into a negative territory. Revenues, JPY 7.339 billion; operating income, JPY 222 million; and net loss, JPY 135 million. Lifestyle Support is down on both revenue and profit Y-o-Y and Q-o-Q with segment revenue JPY 3.956 billion and segment profit JPY 113 million. Entertainment is down in revenue and up in profit year-on-year and up in revenue and profit quarter-on-quarter. Segment revenue, JPY 2.405 billion; and segment profit, JPY 365 million. EC is up in revenue and profit Y-o-Y, hitting the highest sales in history and a positive profit for 2 straight quarters. Segment revenue, JPY 976 million; and segment profit, JPY 8 million. That was the result. Next page shows the consolidated financial results and the percentage of achievement of the fiscal year 2020 forecast. This is a percentage of achievement against the revised forecast: sales, 101.7%; operating income, 108.9%; and net loss, JPY 519 million despite the forecasted net loss of JPY 400 million due to the recognition of an impairment loss associated with the cancellation of an office contract. Please refer to the full year financial results by segment. Sales in the Lifestyle Support business decreased compared to the previous year. That was due to a JPY 600 million decrease in sales as a result of the withdrawal from the air conditioner distribution business; and the impact of COVID-19, which is estimated to be JPY 2.3 billion. If not for the impact of coronavirus, Lifestyle Support would have grown steadily. Next page shows a comparison with the previous year. Please refer to it later. This is a summary of our consolidated quarterly results. I will provide an explanation by segment later. These are KPIs quarterly trend. Please look at the line for advertising expenses. In the most recent quarter, the expenses hit a record low. We will discuss this in more detail on the next page. The Lifestyle Support business suffered from reduced Internet advertising due to COVID-19. This was the biggest factor behind the decline. In addition, there was also an impact of seasonality, which led to a decline quarter-on-quarter. This slide shows quarterly headcount by segment. We have curtailed hiring, so our headcount is down slightly for the first time in a while. This is the balance sheet. A partial office contract termination resulted in an impairment loss of JPY 206 million and a decrease in fixed assets. Let me explain the details of our fourth quarter results by segment. First, let's look at the quarterly results of the Lifestyle Support business. As I explained earlier, segment revenue fell 35.6% year-on-year due to the withdrawal from the air conditioner sales and a significant drop in demand for Hanayume in bridal and NaviNavi Cashing in card loan due to the pandemic. Here is the quarterly results by subsegment for the Lifestyle Support business. Sales in the Platform business are very small, so I will skip this page. Next page is the Digital Marketing Support business. The situation is as explained earlier. On next page, you can see the KPI trend for this business. Blue bar shows usage, which has fallen due to the pandemic. Hanayume and NaviNavi Cashing are 2 services with high ARPU whose declines have led to a decline in the overall ARPU. CPA declined as a result of advertising cut amid the pandemic. This slide shows sales trends in the Platform business. Sales were up from Q3 to Q4. This is due to sales picking up in the fourth quarter after being down in the third quarter due to the reduction in advertising due to the COVID-19 outbreak. Next, let me turn to the quarterly results of our Entertainment business. This business made a V-shaped recovery from the previous quarter due to improved event initiatives in existing game titles. This business generated the largest sales in the fourth quarter during fiscal year 2020. Segment profit increased compared to the previous year due to profit secured by efficient operation on existing game titles despite nearly JPY 700 million incurred as new title development costs. This slide shows quarterly changes in overseas sales in the Entertainment business. The percentage of overseas sales that were in the 20% range before the outbreak increased to 30% due to the outbreak of COVID-19. This document is only shown once a year. It shows the trend in native game sales by vintage year. As you can see, titles launched in fiscal year 2015 and 2016 still underpin overall sales. Next, let me explain the quarterly results for the E-Commerce business. As I mentioned earlier, sales increased significantly year-on-year, reaching a record high, although sales in the third quarter and fourth quarter were the same. But since the E-Commerce business was becoming more profitable, in order to grow sales next year onwards, we increased investment in advertising during the fourth quarter, which resulted in a decrease in profit for the fourth quarter on a quarter-to-quarter basis. However, we were able to achieve positive profitability in the fourth quarter as well as in the third quarter. This is the quarterly trend of KPIs for the EC business. The gross profit has been increasing steadily from the third quarter of fiscal year 2020 due to some operational improvements we have made. Inventory turnover has remained steady as well. Next is segment topics. We have organized our very first online Bridal Festa. The Hanayume wedding desk has been the #1 content on ORICON's ranking for 4 years in a row. In our Platform business, Lalune has begun to link data with OMRON'S electronic thermometers for women. If you take your temperature with an electronic thermometer, the data will be automatically transferred to Lalune. Just over 10,000 Lalune users is using this service as of August 31. Lalune is also taking over Karada No Kimochi, which is operated by NTT DOCOMO, to be discontinued shortly. Already, 34,000 users have migrated to Lalune. The Entertainment business released Hatsune Miku Tap Wonder on June 25. The business also hosted these events of Valkyrie Connect and Unison League. One-Punch Man collaboration produced good results as well. Other game titles also held these events as shown here. The new game development pipeline is currently in the state shown on this slide. First, we have a major title under development, which is a smartphone game using intellectual properties of other companies. The other title under development is our original middle-sized title to be offered in multiple device formats. We are developing this title for global distribution. We have one more title in the pipeline that we are currently coordinating for fiscal year 2022 or later. This is our full year earnings forecast for fiscal year 2021. We have JPY 33.5 billion in revenue, JPY 500 million in operating income, JPY 500 million in ordinary income and JPY 200 million in net income. I would like to explain our approach to earnings forecast. We consider fiscal year 2021 as a year of bottoming out to preparing for the rapid growth in FY 2022 and beyond. In our forecast for the Lifestyle Support business, we assume that the impact of COVID-19 will partially continue, in particular, for Hanayume and NaviNavi Cashing. In the Entertainment business, in addition to the efficient operation of existing games, we will focus on the joint development of new titles with IP holders. We plan to invest in our E-Commerce business to improve our brand awareness while aiming for our first full year of profitability. We aim to build a strong brand awareness so that people will always think about cyma whenever they talk about bicycles. These are some of the points to note in our fiscal year 2021 earnings forecast. Against FY 2020, operating income of JPY 1.273 billion, the Entertainment business is estimated to invest about JPY 700 million more in collaboration with intellectual property holders. This is a significant impact. We are assuming a onetime burden from new investments and office contract partial cancellation. That's JPY 23 million. As a result, we expect operating income of JPY 500 million for fiscal year 2021. Except for the impact of COVID-19, there are no significant negative factors. The reason for the low profit is mainly due to investments for the future Entertainment business. The projected dividend for fiscal year 2021 is JPY 16 per share. With that, I would like to conclude my 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.]