Earnings Call: Q3 2024

Jun 20, 2024

Summary

FY24 Q3 revenue declined YoY while operating and net income rose, including a Lalune sale gain; FY revenue guidance was reduced, with income forecasts held. Growth plans center on the Business Boost strategy, acquisitions and Advantage Advisors support.

Thank you very much for participating in the financial results meeting of Ateam for FY 2024 third quarter. Without further ado, let me get started. These are the four main points of this meeting. Today, please kindly note in advance that we have more content than usual. This is the executive summary, but let me skip this page now, and I'd like to come back here at the end. First, I'll explain progress of growth strategy. Previously, we regarded our company as the comprehensive IT company. Since 2006, we have been leveraging digital marketing capabilities we have developed through media management, and we are transforming ourselves into a Business Boost Company, not only for the existing clients, but also for the other potential clients' companies. Strategy overview is described on this slide. Let me explain it one by one. We have three categories. As shown on the left, areas supporting customer attraction. As shown on the right, support for improving business efficiency, and overall support of sales growth. As existing services in areas supporting customer attraction, we offer service through Hikkoshi Samurai, Hanayume, Navikuru, Ides, and other financial and media services. We are acquiring prospective customers. Going forward, we enhance our capability of customer referrals through M&A and new media. We already acquired media business of Bit Start and Bit Walk, and we further enhance customer referrals for partner companies through them. We also would like to support digital advertising and the customer attraction services that are done by clients or other ad agencies through media and customer referral supports. Through effective search engines, for example, we can optimize ad placement and improve their efficiency, and serve as planning an operational agency of clients' owned media, including social networking services. As shown at the bottom, we have already started BPO as sales agency. We like to enhance the matching between clients and the client's customers or consumers. Support for improving business efficiency is shown on the right. We use various business support tools in our media operation, and we like to offer advice to provide them. We already have existing business of Qiita, and we will support the improvement of client's business efficiency by offering this service. We acquired microCMS through M&A, which I will explain in detail. This will serve to support client company's efficient website production. We have digital marketing capabilities to operate our website efficiency that we have been accumulating since 2006, as shown below. We will leverage this in SEO consulting with production support and software selection support, among others, as shown below, with consulting service as a hub, and support customer attraction and support improving business efficiency, as mentioned before. Thus, we will become a one-stop service providing solutions needed for sales growth. In order to increase ability to execute new strategy and accelerate the execution, we decided business alliance and financing arrangement with Advantage Advisors. Advantage Advisors is a pioneer in domestic private equity funds in Japan with the longest history. They adapt the investment strategy that engages in acquiring shares in publicly listed companies, as well as enhancing corporate value by integrating management team, as described below. Two companies are now considering these four areas as potential support areas. First, we will accelerate the M&A promotion and PMI supported by Advantage Advisors to expand the business beyond the existing one. Second, we'll be able to improve the profitability of our existing businesses, so we work together in planning a strategy, advice, and execution. Third, business management enhancement. We continue to promote portfolio management, and we also develop system for optimal resource allocation, including cash, goods, personnel, and improve investment efficiency. Fourth, in investors relations, we like to strengthen the system together so that market will better understand our strengths and growth drivers. These four points are the specific contents of business alliance with Advantage Advisors. This is the overview of financing of two types. They are CB on the left and new share acquisition rights on the right. Issue date is June 26, 2024 for both, and amount to be procured is JPY 2.5 billion respectively. Conversion exercise period is from December 2024 for almost five years. You may have a concern for dilution, but it is not likely for Advantage Advisors to sell drastically. So rest assured, you don't have to have such concern. Conversion exercise price is JPY 643, and interest rate of CB is 0%. Allotee is a fund listed here. Specific use of fund is as described here. We'd like to organize Zoom webinar for institutional investors separately about business alliance and financing. I'll explain again on June 20 from 3:30 to 4:30 P.M. Japan time, including Q&A session. I would appreciate if you can join this opportunity. This is the progress of M&A. As already announced, M&As of two companies, microCMS and Paddle, are already fixed. First, as for microCMS Inc., acquisition amount was JPY 1.5 billion. And the number of employees is 17 or 18 at present. Headless CMS provided by microCMS is, simply put, a content management system, CMS. A tool to create and manage website. In conventional CMS, as shown on the left, CMS provider was in charge of management screen and display of website via various devices, including smartphone and PCs. While in headless CMS service, they provide only management screen. Recently, the needs for SEO measures, analytics tools, and high-speed standardization are increasing. But in conventional CMS, each individual company was not able to meet those needs. In this new service of microCMS, company's own engineer or web production company can use language for web, and display the contents of management screen of microCMS using API content. Also, microCMS enables the integrated management of information via various devices, including smartphone and PCs, and will be able to meet the diverse needs of website operators through excellent fine-tuning. Displayed website is regarded as head, and the management screen is regarded as body or back end. And this system without head is called headless CMS. This slide shows the growth since the launch of service, and the prominent growth has been sustained. The service started in September 2019, and the cumulative number of user companies is 8,000, and the number of active user companies is 2,450, showing the strong growth. One of our strengths is Qiita, which is a content site for engineers and which has joined us before. And the promotional campaign through Qiita will be effective. Use of microCMS will be decided by engineers. And the product selection is done by engineers. So we have a media for efficient reach to engineers, and by joining us, they'll be able to achieve even further growth. One of the features of microCMS service is that, as shown on the left, they were on the product led growth, PLG, driven by the product. Only with that, they have achieved the strong growth. Through collaboration with us, they can achieve sales-led growth, as shown on the right, and by the establishment of new sales team, they can directly approach corporate customers. Qiita and the new sales team will realize the even stronger growth of microCMS. Next, Paddle Inc. share acquisition is in two phases. The acquisition price in the first phase is JPY 368 million. Paddle Inc. offers a number of apps for smartphone. The two major apps are shown here, Bit Start and BitWalk. Put it simply, BitWalk is the app to earn points exchangeable for crypto assets or Bitcoin based on the number of steps in walking. It showed significant growth in MAU, approximately 20-fold in five years. MAU continued to grow very steadily. Paddle Inc. is now in the black. Its key point one is high profitability. Point two is expertise in operating point apps. We will be able to enhance customer referrals when they join us. Second point, I will explain FY 2024 guidance. We revised down consolidated revenue forecast for FY 2024 from JPY 28.7 billion to JPY 23.8 billion. Operating income and net income remain unchanged at JPY 600 million and JPY 780 million respectively. This slide shows main causes and action to be taken for downward revision. First, in entertainment segment, hyper-casual games underperformed compared to the initial forecast. We are developing many hyper-casual games, but in terms of KPI standards, in terms of our cost per acquisition and ROAS, return on advertisement spent, we were not able to ensure the profitability in the development. Recently, we began to have some apps that meet the KPI requirement, so we would like to continue to focus on them in their development. In lifestyle support segment, as shown here, major financial media services client reduced their budget and acquisition number decreased due to the lower SEO ranking, resulting from the update to Google's core algorithm. We promptly strengthened SEO measures to recover acquisition numbers. Short and medium-term measures to be taken from FY 2025 onward will improve results by pursuing transformation into Business Boost Company and enhancing business management. Dividend forecast. Given the stable profit at present, and the continuous growth in the future, we decided to increase ordinary dividend from JPY 16 to JPY 18, up by JPY 2. Including special dividend, year-end dividend was revised to JPY 22 per share. We continue to strive for the return to shareholders. Consolidated financial results for FY 2024 Q3. Revenue was down and profit was up year-on-year. Revenue was JPY 6,266,000,000, operating income was JPY 330 million, and the net income was JPY 771 million. Net income increased due to gain on sales of Lalune. This is the progress against the forecast. Revenue growth was solid. The progress in operating income was better than the initial forecast as our operating income is skewed to the second half. Q4 forecast remains unchanged as JPY 456 million, and we did not change the forecast for the full year. Information by segment. Usually, each head of division explains from here, but this time I'll cover this part as well. Lifestyle support was 94.5% of the previous year, and this is due to SEO, as mentioned before. You see various marks in the table on the right. Double circle is more than +10% and cross is more than -10%. In most of the businesses, results were double circle, but in financial media, reduced budget and lower rating in SEO led to these results as mentioned. Financial media and HR media were heavily affected by SEO. We continue to secure stable profit by optimizing cost as a fundamental business. Entertainment business. Though the revenue from the existing titles declined in the last five years, by enhancing collaborative project, we secure stable profit as explained before. To be specific, we are developing two collaboration titles and one regional IP title, as well as multiple hyper-casual games, of which two titles are already released. In Web3 services of cryptocurrency, one title was already released. We will invest in balanced manner between collaborating project, where we can share development cost, and our original IP titles of not the very huge one. E-commerce business. As explained in previous meeting, so far, we have engaged in cyma business, and we learned that it is difficult to achieve the stable growth through one-time purchase model. We are shifting to the subscription-based D2C business model. We launched a cosmetics brand, lujo, and OBREMO dog food brand. After the transfer of cyma, revenue fell, but OBREMO revenue increased year-on-year with customers increase. We expect that the results will improve in the second half of next year or at the end of the next fiscal year. In conclusion, as described here, we will pursue transformation into the new Business Boost Company by leveraging business alliance and financing arrangement with Advantage Advisors to the utmost, and combining them with our expertise that we have accumulated since 2006. We'd like to continue to have your support and cooperation. This concludes my presentation.