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Edited Transcript of 2170.T earnings conference call or presentation 14-Nov-19 10:59am GMT

Q3 2019 Link and Motivation Inc Earnings Presentation

Chuo-Ku, Tokyo Jan 23, 2020 (Thomson StreetEvents) -- Edited Transcript of Link and Motivation Inc earnings conference call or presentation Thursday, November 14, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Hideki Sakashita

Link and Motivation Inc. - President & Representative Director

* Hiroyuki Kitsu

Link and Motivation Inc. - Director

* Takashi Oguri

Link and Motivation Inc. - Director

* Yoshihisa Ozasa

Link and Motivation Inc. - Chairman of the Board

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Presentation

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Yoshihisa Ozasa, Link and Motivation Inc. - Chairman of the Board [1]

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I am Ozasa, Chairman and Representative Director of Link and Motivation. I will start earnings presentation for the 9 months of 2019.

Here is today's presentation agenda. Firstly, I will give you a company overview; secondly, business report; thirdly, I'll report on conditions by business in some detail; fourthly, conclusion of agreement to make OpenWork Inc., a subsidiary; fifthly, incubation business update.

Let me move on to the first item, a company overview. This page shows operating structure of our group: Organizational Development Division that provides support for creating organizations that individuals choose; Individual Development Division that provides support for creating individuals that organizations choose; Matching Division, connecting the 2 businesses; and Venture Incubation, that is the operating structure of our company.

This page shows 3 strengths and characteristics of our group. Strength #1 is only one status. We promote businesses that are the only one of their kind in their market through the application of our core technology, Motivation Engineering.

Strength #2 is profit stability and growth. We operate businesses that can pursue both profit stability and growth in business fields, ranging widely from individuals to corporations.

Strength #3 is employee engagement in the company. We realized an organization with a very high level of engagement through the application of our core technology, Motivation Engineering, to enhance our own employee engagement.

Those 3 points are our strengths and characteristics.

Now I'll move on to business report. Revenues decreased slightly year-on-year. Operating income and net income decreased substantially year-on-year. The second column from the right shows 2019 forecast. Progress of revenues towards the 2019 forecast was 74.2%, which was as planned. Progress of operating income and net income exceeded 100%, 103.0% for operating income and 109.6% for net income. However, we decided not to make an upward revision of operating income and net income forecast because we have conservatively estimated loss on impairment of goodwill in the fourth quarter of 2019.

This page shows SG&A expenses. Total SG&A expenses increased slightly year-on-year by 4.3%. Sales-related expenses increased substantially year-on-year by 34.7% as we stepped up investment in Motivation Cloud and other priority projects. We consider we are currently in a phase of investment.

This page shows revenues and gross profit by segment. In the Organizational Development Division, revenues and gross profit both decreased substantially year-on-year. Revenues decreased by 12.2% and gross profit by 12.6%. In the Individual Development Division, revenues increased slightly year-on-year by 0.9% and gross profit decreased slightly year-on-year by 1.8%. In the Matching Division, both revenues and gross profit decreased slightly year-on-year by 3.5%.

This page shows Organizational Development Division product revenues by business. In Consulting & Outsourcing business, revenues and gross profit both decreased substantially year-on-year. In Event & Media business, revenues decreased substantially year-on-year and gross profit decreased slightly year-on-year.

I want you to pay attention to the fact that member and database services steadily increased in Consulting & Outsourcing business. Member and database services steadily grew and accounted for 29.4%, up from 18.3% year-on-year as the business structure gradually changes. I think we are in a phase of transformation.

This page shows Individual Development Division. In the Career School business, revenues and gross profit both increased slightly year-on-year. Revenues increased 1.6% and gross profit increased 0.2% year-on-year. In the Cram School business, revenues decreased and gross profit decreased substantially year-on-year. The Career School business performed well due to a concentration on English conversation and revenues of English conversation increased significantly by 58.9%.

This page shows Matching Division. In the ALT Placement business, revenues and gross profit both increased slightly year-on-year. Revenues increased 4.7% and gross profit increased 3.4% year-on-year. The business grew steadily. In the Personnel Placement & Temp Staff business, revenues decreased substantially and gross profit decreased year-on-year. The ALT Placement business continued its stable growth.

This page shows consolidated balance sheet. Assets decreased JPY 2.741 trillion due to depreciation of fixed assets, et cetera. Liabilities decreased JPY 2.913 trillion due to repayment of financial liabilities, et cetera. Equity increased JPY 171 million due to recording of retained earnings.

This page shows dividends. We continue to pay quarterly dividends. A dividend of JPY 1.8 per share is scheduled to be paid on Wednesday, December 25.

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Hideki Sakashita, Link and Motivation Inc. - President & Representative Director [2]

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I am Sakashita, President and Representative Director of Link and Motivation. I will report on business KPIs and highlights of Organizational Development Division. Let me start with subscription model. We have set Motivation Cloud monthly fee revenue as a business KPI for the subscription model. Motivation Cloud monthly fee revenue was JPY 167.497 million. Revenue increased 9.4% quarter-on-quarter and 61.9% year-on-year. Factors for the increase include a steady increase in delivered orders to big corporations and a subsequent increase in average monthly fee.

Next, as a highlight of subscription model, I will talk about progress of Motivation Cloud Series sales. Sales are on track to achieve forecast for 2019. We expect full-scale upselling of new products such as Communication Cloud and Teamwork Cloud from 2020 onward, so please stay tuned.

Let me move on to KPI of Consulting & Outsourcing model. We set average gross profit per customer for the past 12 months as a business KPI for the Consulting & Outsourcing model. It was JPY 5.417 million, a decrease of 2.2% quarter-on-quarter. Gross profit didn't grow. Average for the past 12 months didn't increase. However, gross profit recovered steadily in the third quarter.

As you see in this slide showing quarterly gross profit, the year-on-year decrease in gross profit recovered to less than 20% in the third quarter from around 30% in the first half. In the fourth quarter, we intend to recover Consulting & Outsourcing model.

That's all for business KPIs and highlights of Organizational Development Division.

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Takashi Oguri, Link and Motivation Inc. - Director [3]

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I am Oguri, Director of Link and Motivation. I will talk about business KPIs and highlights of Individual Development Division.

We set average number of enrollees for the past 12 months and average LTV for the past 12 months as a business KPI for the Individual Development Division. The average number of enrollees decreased slightly by 0.3% from the previous quarter. However, average LTV increased steadily by 2.1% from the previous quarter.

That's all for my report on business KPIs.

Next, as a highlight, I will discuss new i-Company CLUB service. We launched a subscription model service to support habits of self-improvement on November 8. Factors in the background include the changing times in career development of individuals. There was value in educational content materials to learn from such as textbooks and classes in the past. Now that we can get educational content easily with the spread of the Internet and others, value in education is shifting from what to learn to how to maintain motivation to learn. However, many people give up learning in reality. That is because learning has not become a habit for career development not only in learning but also in health and work. It is important to have more good habits. The service we launched against such a background is i-Company CLUB. There are 3 supports: periodic face-to-face support through counseling and reporting by employees; visualization of status of daily practice of habit and support through daily approach with the use of dedicated app; lastly, supports through content such as questions and answers workbooks to build a habit of learning. Prices are as shown on this slide. We encourage enrollees to be members and aim at enhancement of retention rate or LTV.

That's all for business KPIs and highlights of Individual Development Division.

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Hiroyuki Kitsu, Link and Motivation Inc. - Director [4]

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I am Kitsu, Director of Link and Motivation. I will talk about business KPIs and highlights of Matching Division.

We set the average number of temp staff dispatched during the past 12 months and the total number of introductions during the past 12 months as business KPIs for the Matching Division. The average number of temp staff dispatched was 5,290, down 0.8% from the previous quarter mainly due to sluggishness of domestic temp staff dispatched. The total number of introductions decreased 8.7% from the previous quarter to 1,280. Length of ALT service increased in the ALT Placement business in our division as we reinforced various engagement measures for ALT. As a result, the necessary number of hiring of ALTs was lower than expectation. Consequently, the number of internal introductions decreased.

That's all for my report on business KPIs. The highlight of Matching Division is about increasing ALT engagement. As I mentioned in my report on KPIs, we are holding lectures on individual career planning, team building exercises and others. We will aim to raise quality, the repeat rate or increase the number of temp staff dispatched by increasing ALT engagement through various measures. So please stay tuned.

That's all for my report on Matching Division.

Next, I'll report on a new M&A deal, conclusion of agreement to make OpenWork Inc. a subsidiary. Both companies agreed that we will acquire additional stock of our equity-method associate OpenWork Inc. and make it a consolidated subsidiary. Date of stock acquisition is January 1 next year. OpenWork will be included in consolidated results starting from the first quarter of 2020.

OpenWork has 2 main businesses. Firstly, development and operation of OpenWork, the job search information platform. The former name of the platform was Vorkers. Secondly, with the use of this information platform, OpenWork is involved in development and operation of OpenWork Recruiting, employment support for companies.

Now I will show you a video of OpenWork for about 1 minute.

(presentation)

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Hiroyuki Kitsu, Link and Motivation Inc. - Director [5]

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As you saw in the video, support is provided for better matching between companies and employees through OpenWork, one of Japan's largest platforms for making corporate organizational conditions more open. OpenWork information platform on organizational conditions is shown in the middle of the chart. It displays information or online reviews from current and former employees and give scores for companies' organizational conditions. Organizational conditions are judged from various viewpoints, including openness, degree of penetration of philosophy or vision, situation of overtime work and salary, and shown as numerical scores.

There are 3 sources of revenue. Firstly, as shown on the right, membership fees are received from individuals. Individuals post or read online reviews. This is B2C business.

Secondly, as shown on the top left, by opening the platform of OpenWork to other HR introduction companies, revenue is generated as customer referral fees.

Thirdly, as shown on the bottom left, companies directly scout or recruit individuals through the platform of OpenWork. Introduction fees of OpenWork Recruiting is another source of revenue.

As for advantages, OpenWork is using one of Japan's largest platforms with the strength of a database compiled since the company's establishment. Firstly, extensive database, approximately 8.5 million reviews and evaluations of workplace environments were accumulated over more than a decade since the company was established. Secondly, high-quality database. Employees can check reviews at any time for thorough quality control. Thirdly, early-stage first contact with individual users. Users are not only current job applicants, there are also many pre-application viewers and registrants at the research exchange of their job search.

Going forward, an important challenge for companies will be how to adapt to the labor market. For example, due to delay in or failure to adaptation to labor market, 24-hour operation may become impossible or new business cannot be launched. Such cases already happened. OpenWork and our company will support corporate adaptation to the labor market to help realize a society with many companies with high employee engagement.

For vision, firstly, a rapid increase in registrants will result in companies with more open organizations. Then secondly, polarization will increase between the companies job seekers will and will not choose to work for. Companies which place lots of job advertisements attracted people so far. But going forward, companies will be chosen based on their organizational conditions. Such an era is about to come. Certainly, I think many companies will work to improve employee engagement to be chosen by job seekers. If that is the case, demand for our Motivation Cloud Series, consulting and others will expand. Fourthly, personal information or resume will be disclosed to companies with high employee engagement for scouting and recruiting.

With the use of OpenWork recruiting, I think companies with high employee engagement will be the ones to attract capable job seekers.

As shown in the chart at the bottom, companies have PL and BS as a record to show status of adaptation to the product market. In the same way, as a measure of adaptation to the labor market, we disclose no financial information through Motivation Cloud Series and others. With the addition of OpenWork Score in external labor markets to engagement score in internal labor markets, measure of adaptation to labor markets will be clearer for companies. So it is expected that tendency to enhance employee engagement will be enhanced.

Let me move on to incubation business update. We completed new investment in UniFa, Inc. on September 26 this year. The company was established in 2013. President and CEO is Mr. Yasuyuki Toki. The company provides total solution using IoT and AI to support nurseries and create smart childcare facilities. Main services include Look-mee Nap Check, a health care service that uses medical equipment to monitor infants while napping.

It is a socially meaningful and promising company. Through investment, we will continue to support HR aspects and lead the company to listing.

We will continue to contribute to the business expansion of 24 companies that aim to list their stock with support in the organizational and HR fields. There are 2 selection criteria of investments, including sympathy with creating a motivation company and aim to list stock. Out of 24 companies aiming at listing, 3 companies were listed and buyout deal of 1 company was realized. I hope you will continue to pay attention to our Venture Incubation Business.

That concludes results presentation of Link and Motivation. Also in Individual Development Division, including cloud series, ratio of subscription-type businesses such as i-Company Cloud (sic) [i-Company CLUB] is increasing. We will make group-wide efforts to realize transformation. Please watch for our future development.

That concludes results presentation for the 9 months. Thank you very much for your attention.