Mixi Inc

TSE:2121

Earnings Call Transcript 2020-Q1

[Koki Kimura, executive]

Thank you for joining us for our earnings result briefing session. I am Koki Kimura, President and Representative Director. I would now like to explain to you the results of the first quarter of fiscal 2020. My presentation will be divided into 2 parts: the financial status section and the business status section.

First, I explain about the financial status. Please look at Page 4. This is a consolidated income statement. Net sales for the quarter was JPY 20.7 billion, a year-on-year decline of 39.9%. And the operating income was JPY 1.6 billion, down 85.2% year-on-year, with profit attributable to owners of parent at JPY 1.1 billion, a drop of 84.4% year-on-year.

Please look at Page 5. I will explain the trend of divisional performance. Entertainment sales was JPY 19.9 billion, and Lifestyle sales was JPY 800 million. Entertainment sales were down year-on-year due mainly to lower MAU and ARPU of Monster Strike compared with the same quarter a year ago. However, since entering the second quarter, various measures, including holding of XFLAG PARK, collaboration with various popular IPs and countdown campaigns toward the sixth anniversary, were taken. And as a result, recently, the MAU has recovered to above year ago levels. Looking at these developments, we are confident that by taking effective measures, we can still continue high sales for Monster Strike.

Lifestyle sales also declined year-on-year. This is due mainly to lower sales resulting from share transfers of Diverse and nohana.

Please take a look at Page 6. This shows the trend of sales costs. You see outsourcing costs have increased year-on-year. This is mainly due to the booking of production costs for films Promare and Pandora and Akubi.

Please turn to Page 7. This shows the trend of SG&A expenses. Outsourcing costs have increased year-on-year. This is due mainly to R&D development for Mobileball and some other new projects. We state through development cost of such projects being transferred from other assets on the balance sheet to a onetime expense. Also with the consolidation of Chariloto company, goodwill amortization expenses were approved.

Please take a look at Page 8. This shows our performance up to the first quarter. It is more or less progressing in line with our earnings forecast. The progress rate of operating income and lower lines is higher than that of net sales. However, we expect to incur a temporary relocation expense of JPY 4 billion in the second half. So at this point, there is no revision of our full year forecast. Although both sales and income are down substantially from a year before, but as we will explain further, we are making progress in taking countermeasures such as revitalizing Monster Strike. Especially for Monster Strike, the most recent MAU has been trending higher than a year before. If changes occur in our forecast, it is our intention to promptly announce a revision of our performance forecasts.

Next, I explain the business status. Please take a look at Page 10. As we explained after the previous full year performance announcement, we have been exerting effort on revitalizing Monster Strike and growing sports businesses. First, I will explain about the revitalization of Monster Strike, the first quarter status and future initiatives. Here, I explain the revitalization plan and medium- to long-term plan for Monster Strike. Under the leadership of the new producer, short-term and mid- to long-term strategies have been formulated, and various reform initiatives are being promoted. The goal of the revitalization is a v-shaped recovery in the short term. But for the medium to long term, we will aim to maximize the value provided by the brand and maintain the profit volume in a sustainable manner.

In terms of our revitalization plan, at key timings such as the sixth anniversary and the year-end and the New Year, we will take initiatives, including in-game measures and PR activities to refocus on our core value of entertainment that brings people together.

Please take a look at Page 12. Here are the measures we took in the first quarter for Monster Strike. As a new PR campaign, we conducted the Monster Strike Suspense Theater prior to introducing a new character where we asked players to guess the culprit. The campaign helped to increase sales for the character. We would like to continue this and other PR activities successively in order to increase the level of excitement of our users.

Please look at Page 13. From here, we explain about second quarter initiatives. We held this year's XFLAG PARK over 2 days on the 13th and 14th of July. We had more than 40,000 visitors, released transcended forms of popular characters, and the event closed in a great success. Also, some of the attendees to the XFLAG PARK were granted Oraflags, which is a type of in-game benefit. And by conducting Oraflags Events where we encourage multiple plays with Oraflag holders, we promoted the dissemination of Oraflag and had many people enjoy playing with others. We will continue to conduct initiatives to encourage multiple-player games play and, thus, maintain the high MAU level we attained through XFLAG PARK and introduction of transcended forms of characters through the sixth anniversary and year-end campaign.

Please turn to Page 14. Since July '18, we have started the Countdown campaign toward the 6-year anniversary of Monster Strike, which will be in October. The original Monster Strike PR strategy was that we create a buzz with an unconventional character, dominate the trends and build our unique position. However, recently, as the size of the operations has grown bigger, I feel that our character has become more benign and uncontroversial. So we decided to go back to our roots and ventures to solicit users to post their dissatisfactions to Monster Strike. This is returning to our approach of doing things that are unexpected, thereby, high-impact campaign. By returning to our original brand proposition, we were successful in bringing Monster Strike to the center of our customers' attentions, and we are observing the recent MAU recovering to above year ago levels, so we think we have made a good start. We will continue to deliver surprises to our users, create buzz, realize a successful 6-year anniversary event and aim for the v-shaped recovery of earnings.

Please now turn to Page 15. For our second focus theme of growing the sports businesses, we have been promoting various measures. Chariloto, the company that we made our subsidiary this past February, has now become consolidated. Integration with the group has been proceeding well. And this record sales being posted, it is growing well.

Similarly, we are proceeding with the closing of our share acquisition of Chiba Jets Funabashi. And also, for our arena construction plan, we are discussing and negotiating with various stakeholders to bring about the best solution for the team and the boosters.

Please take a look at Page 16. These are the measures we are taking in the second quarter. We are currently holding the XFLAG Sports Week, a joint event among the 3 teams that we are sponsoring: Chiba Jets, FC Tokyo and the Tokyo Yakult Swallows. At the Yakult Swallows game on August 7, we had Keigo Higashi, team captain of FC Tokyo, throw the ceremonial first pitch with the team mascot. Through such events that transcend different sports, we'd like to energize the whole sports team.

Please take a look at page 17. From here, we will explain the state of progress of other businesses. First, as we have already announced, we are still planning to release a new game, which is a Monster Strike spin-off called the Monst Dream Company. It is a pull-and-shoot board game that uses the Monster Strike IP. Like Monster Strike, it allows simultaneous cooperative play among up to 4 players. It is a more casual game that can bring together family and friends. It is appealing to not just Monster Strike players, but it is a game that is easy to approach even for those who have not played Monster Strike or those who usually are not keen to play action games. We will continue to develop games that utilize the Monster Strike IP.

Now please turn to Page 18. As we have announced today, we have acquired a game from SEGA Games called the cooperative wordplay PRG (sic) [ RPG ] Kotodaman. In Kotodaman, players combine letters to make words with which they attack the enemy and clear stages. It is a new type of PRG where you fight with words. Up to 4 players can simultaneously enjoy the game. Wordplay games have been enjoyed by many people over the years, and we see a big potential in that concept.

By capitalizing on our knowledge developed through Monster Strike to add new functionalities to the games and also to conduct marketing and make strong investments, we believe we can grow Kotodaman further. So please watch how this develops with high anticipation.

Please take a look at Page 19. As for the future direction of our game business, we are being very selective in building our pipeline, so that we will be able to offer high-quality games. For the new games, members who have been engaged in Monster Strike will apply the know-how they have developed in management, sustained growth and operation of games. We are progressing in our development of games, utilizing IPs from other companies, and we are also developing titles that are being led by external game creators.

Now take a look at Page 20. In nongame initiatives, we released nationwide an animated feature film, which we coproduced with Trigger titled from Promare on May 24. It has been received very well, reaching an audience of more than 500,000. We also did a collaboration with Monster Strike, and the film is set to be shown in 62 countries around the world. In such ways, we aim to build not just domestic but global IP.

Next, I talk about the state of the Lifestyle business. Please take a look at Page 22. In June, FamilyAlbum surpassed 5 million users. Premium plan began in April, and we plan to add more menus to monetize this service and grow revenue. Also, at the end of June, we made SFIDANTE into a fully owned subsidiary. SFIDANTE's business domain is printing photos to taken by smartphones. They have multiple apps for creating New Year's cards using your smartphone photos and has an industry-leading volume of orders. We'd like to combine the business assets of FamilyAlbum and the high-quality offerings of SFIDANTE and jointly develop new services.

Lastly, I'd like to explain about the performance outlook and future policies. First quarter results were much lower, both in terms of sales and income compared with the same period the year before. We cannot allow ourselves to be optimistic, but we are seeing some very good signs, including recent Monster Strike MAU exceeding year before levels.

We are making steady progress in promoting measures to revitalize Monster Strike and to grow the sports business, which are the 2 focus areas for this fiscal year, and we are confident that these businesses where we are focusing our efforts will contribute to earnings going forward. We are also making preparations, so that we may deliver some good news during this fiscal year. So we ask for your continued support.

That concludes my presentation. Thank you very much.

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