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Edited Transcript of 3662.T earnings conference call or presentation 6-Dec-19 8:30am GMT

Q1 2020 Ateam Inc Earnings Presentation

Nagoya-Shi, Aichi Jan 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Ateam Inc earnings conference call or presentation Friday, December 6, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Hayashi Takao

Ateam Inc. - President & Representative Director

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Presentation

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Hayashi Takao, Ateam Inc. - President & Representative Director [1]

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Thank you for your attendance in Ateam's financial results briefing for the first quarter of fiscal year 2020. Let me jump-start my presentation. As shown in this regular slide, Ateam is an IT company that develops businesses around the Internet. Today, I will take you through the medium- to long-term policy of the company, once again, as I did last quarter.

First, the management strategy of the group. We have a strong base of shared strengths that are shared among different businesses, namely digital marketing know-how, business development strategy and technological capabilities. We leverage these advantages in promoting 3 businesses of e-commerce, entertainment and Lifestyle Support, while building such a business portfolio that optimizes management's stability and the business growth. The Lifestyle Support business provides various online services related to major life events of customers through the entire life cycle, literally from cradle to grave. Our business is to provide value relevant to each person.

Moving to next page. The business has recently reviewed the segmentation and newly defined these two subsegments. In the past, the business used to disclose the breakdown by market, such as moving, automobile, bridal and financial media. From now on, however, those businesses whose main role is referring potential consumer traffic over the Internet to partner websites are classified as part of the digital marketing support business. Whereas, LaLune and Qiita, whose source of value is data and information exchanged and posted over the Internet by consumers using those websites are defined as part of the platform business. The Digital Marketing Support business supports partners in moving, bridal and other sectors. We will continue to expand our services and market share in each existing area while accumulating and leveraging know-how to enter into new areas.

Next page illustrates how we are expanding services. We start with digital marketing support, which is a customer referral service using our websites. We will continue to enhance our website's presence in each market with both consumers and business partners. For example, in the case of the bridal market, we conduct offline bridal events for consumers and the business seminars and conferences for bridal ceremony facilities and service operators. We also provide consulting services and distributor support tools to business partners to facilitate their businesses. This is the model we are pursuing.

Let me move on to the other subsegment, the Platform business. Currently, we have 2 platforms, namely, LaLune and Qiita. LaLune is a woman's health management tool, whose main contents are menstrual cycle prediction and health-related counseling. The app enjoys a steady growth in the number of registered users to reach 1.3 million in monthly active users who are posting various user-generated content. We offer our personal counseling service where users can seek personal health-related advice from experts for a small fee. And we also started recently to market supplements through our e-commerce site.

Fortunately, we see a steady growth in these additional services. The other service, Qiita has 6.79 average active users. It's the most popular technology-related information-sharing website among engineers and programmers, who want to post and disseminate diverse range of information. Such as the work they did and the technique they tried in their jobs with their peers.

With the addition recently over service, we have recently introduced called Qiita Jobs, a job search site for those engineers who are seeking to change their jobs. We intend to continue to enhance the value of Qiita as a whole.

Moving on to the Entertainment business. This business has been offering game apps so far, solely on smartphones, with strong emphasis on the world of proprietary characters. Going forward, however, we will use the intellectual properties of third parties, offer game content globally rather than just in Japan, not only on smartphones but also on other devices.

In other words, we aspire to attain growth in a much larger market than in the past. For the E-commerce business, our online shop delivers fully assembled bicycles to consumers' homes rather than just selling kits for consumers to assemble by themselves, offering greater convenience for consumers through innovation of the industry practice. This slide shows our initiatives of medium- to long-term growth. We started our business basically with retail operations. We will further enhance and strive for perfection in this area through further automation of sales and order placement processes to drive costs down and margin up while continuing to grow the business. This is our vision of future sales growth. Under the slowdown of getting IT done, we will continue to promote diverse range of businesses going forward.

Now let me move on to the financial results for the first quarter of fiscal year 2020. Page 22, please. We had a slight decrease in revenue by Y-o-Y and Q-o-Q. While profit declined significantly due to the investment burden for our new business initiatives, revenue was JPY 8.148 billion; operating income, JPY 149 million and net income JPY 75 million. Life sales support saw an increase in revenue and decrease in profit Y-o-Y, while both were down Q-o-Q, with segment revenue of JPY 5.521 billion, profit JPY 471 million and segment share of 67.8%.

Next, the Entertainment business saw both revenue and profit down, Y-o-Y and Q-o-Q. Segment revenue was JPY 1.989 billion, profit was JPY 43 million and segment share 24.4%. The EC business saw both revenue and profit increasing Y-o-Y and Q-o-Q, with segment revenue JPY 637 million, profit negative JPY 50 million and segment share 7.8%.

Page 23 shows consolidated financial results, trends and progress. The progress was 23.3% in revenue and a 15% in operating income. Since the company's seasonality is concentrated more towards the second half of the year, the progress so far is in line with our expectation.

Jumping to Page 25. Consolidated quarterly financial trends. As you can see, the Lifestyle Support business has been growing steadily, while the Entertainment business is contracting.

Page 26 shows key management indicators. There is no major change from previous reports.

Page 27 shows quarterly promotional expense trends. During the first quarter, Internet advertising expenses increased due to the launch of new services as well as the Bridal business being in the peak season. The Entertainment business was able to secure positive profit by controlling ad expenses.

Page 28 shows number of employees by segment. While there is no major change in total, Lifestyle is up and entertainment is down slightly.

Next is the balance sheet. Cash and cash equivalents is down due to payment of income taxes and dividends.

Next is Lifestyle Support business' quarterly performance trends. Sales trends are stable on a year-on-year basis, while quarter-on-quarter from the fourth quarter to the first quarter, there was a sharper decline than in the past. This is due to a collection of a large credit receivable during this fourth quarter. That is the reason behind the decline from the fourth quarter to the first quarter as well as the decrease in Air Conditioner business. There was a decline in sales in this area. And also, there was a decline in some services as well.

Page 32 is a new slide we have added to the deck. It shows the quarterly revenue trend of new services in the Lifestyle Support business. Revenue for the first quarter of the previous year was JPY 15 million. Since then, there is a steady progress to JPY 169 million for the first quarter this year. Let me comment on the red figures. Mr. Mase explained this in the past. As we started new services, there was a steady increase in the number of users, and we have already entered into the phase where we are increasing market share. That is the reason why we started spending more internet promotion expenses. That's the factor behind expanding losses. Some services, if not all, have already started to show strong performance as we had anticipated.

Next slide shows the Lifestyle Support business trends by subsegment. This is the chart that I mentioned earlier, we used to show the breakdown by market. But from this quarter on, the breakdown by subsegment, namely digital marketing support and the platform will be shown instead. The platform business is still small in size, but we are planning to expand this portion of the business going forward. This is the revenue trend for the digital marketing support business alone. As shown here, Hikkoshi Samurai, Credit Card and the Mortgage Loan Services are performing well and are increasing year-on-year. On a quarter-on-quarter basis, sales declined mainly due to a decrease in air conditioner sales, as mentioned earlier. The slide shows the trend of key performance indicators of the Digital Marketing Support business now represented on a larger chart. While the user count has been growing steadily, ARPU is down due to a decrease in air conditioner sales.

Next is revenue trends of the Platform business. This is when we have acquired Increments. The operator of Qiita in the third quarter of fiscal year 2018. Revenue is down slightly on a quarter-to-quarter basis, mainly because of the allocation of some sales resources or add revenues to Qiita Jobs.

Page 37 shows the quarterly performance trends of the Entertainment business. This business suffered from a decline again due to the continued underperformance of the existing titles. While we are trying to stop the downward trend of the existing titles, we are also focusing on the development of new titles in collaboration with other companies. Incidentally, I had a chance to see some of the movies from the new titles under development and I felt that they are turning out to be great products.

Page 38 shows quarterly trends of overseas sales. During the quarter, the overseas sales ratio remained around 30%. Our know-how or competitive advantages in overseas distribution, including the management of relationship with the media and the marketing activities in each country should be instrumental in our launching the new titles, currently under development.

Next is e-commerce on Page 39. Partly due to the last minute demand before consumption tax hike, the business grew 24.8% year-on-year. Since last year, we have been focused on operational improvement. Some of the operational activities have been cut back. That's part of the reason why the business is growing year-on-year.

Page 40 shows the quarterly KPI trends of the E-commerce business. We have been monitoring inventory turnover as the main KPI of the business. As you can see, there is a clear sign of improvement, which is encouraging.

Please turn to Page 42 for segment topics. For Hikkoshi Samurai, we are providing a one-stop service in cooperation with the Cabinet Secretariat. Users can collectively complete all paper works online for utility and other public services, including electricity, gas, water and the resident registry.

We have already launched this service called Marugoto Switch. At the moment, users can make an application only for electricity and gas services on our website. However, we have been increasing the available options one-by-one to make sure that all consumers are motivated to use Hikkoshi Samurai as a comprehensive moving website.

As for Hanayume, we have changed the TV CM celebrity from [Logres] to Naomi Watanabe to continue to enhance branding.

Next is about platform business. We have introduced artificial intelligence to improve the accuracy of our menstrual cycle prediction service under LaLune. Qiita is holding an annual event, inviting programmers to post their comments on a different subject each day for the month of December. This event is boosting the access volume for the time of the year, which would give a positive impact on Qiita jobs and other related services. On the other hand, Qiita:Team, which is an easy-to-use information sharing tool where work teams offered to corporate customers for several hundred yen per account has won an ASPIC President Award. In the Entertainment business, we are holding these events, as shown on the slide. The new game development pipeline is shown on Page 45. We are developing one game title in the casual app category, which is not a multi-device platform and is relatively easy to develop in a short period of time based on a third-party intellectual property. As explained in the news release, to be announced shortly, this title is supposed to be of a smaller scale compared with the other 2 under development, which are IP, global and multi service titles. Of which one is large-scale title under development explained previously and the other is a new development we have initiated. The rest of the slides are unchanged from last time. With this, I will conclude my remarks. Thank you for your kind attention.

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

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