Mixi Inc

TSE:2121

Earnings Call Transcript 2019-Q3

[Hiroyuki Ohsawa, executive]

I am Hiroyuki Ohsawa, Director and Corporate Officer. I will present the fiscal 2019 Third Quarter Earnings Results. This is a 2-part presentation consisting of financial status and business status.

First, the financial status. Please turn to Page 4. Net sales were JPY 34.9 billion year-on-year, down 17.2%. Operating income was JPY 6.1 billion, down 43.6% year-on-year. Profit attributable to owners of parent was JPY 4.1 billion, improving from a negative figure last year to a positive result this year. This was because in the same period of the previous year, we recorded, as an extraordinary loss item, goodwill impairment of JPY 7.7 billion following the decision to terminate the TicketCamp service.

Please turn to Page 5. Cumulative consolidated profit and loss for 9 months, April through December, net sales were JPY 105.9 billion, down 21.7% year-on-year. Operating income was JPY 26.8 billion year-on-year, down 43.8%.

Page 6, quarterly divisional performance. Entertainment sales totaled JPY 33.5 billion. Lifestyle sales were JPY 1.3 billion. Entertainment sales dropped by 12.4% compared to the same period of the previous year. This year-on-year decline was smaller than in the second quarter, which was 14.4%. As in the previous year of the orbs bought in December for Entertainment business, about JPY 4 billion used in January were recorded as sales.

Lifestyle sales posted a major decline year-on-year. This was mainly due to lower sales resulting from the termination of the TicketCamp business and the share transfer of Diverse Incorporated.

Please turn to Page 7, quarterly sales costs. Outsourcing expenses increased year-on-year. This is mainly due to the recording of production expenses of Monster Strike the Movie released in October 2018.

Please turn to Page 8, quarterly SG&A expenses. The total was JPY 23.1 billion, 10.9% lower than in the previous year. Compared to the second quarter, settlement fees were JPY 500 million higher, and advertising expenses were JPY 1.1 billion higher. Settlement fees increased in ratio in the third quarter due to the increase in orbs bought in December for Entertainment business, as mentioned earlier. Increase in advertising expenses was due to Monster Strike 5-year anniversary campaign and year-end New Year's campaign. This was a trend observed in the previous year as well.

Please turn to Page 9. Performance up to the third quarter, top half for this fiscal year and the bottom half for the previous fiscal year. Performance up to the third quarter is slightly behind compared to last year. The current situation does not allow us to be optimistic about the revised performance forecast, but we will take necessary actions to achieve the full year forecasts.

I would now like to move on to the business status. Please turn to Page 11. Here, we're posting the presentation material for the second quarter earnings briefing. Entertainment business comprised of digital entertainment, live experience and sports.

In digital entertainment, we are developing services to achieve 2 goals: creating new IPs and moving to make Monster Strike a nationally known IP. In live experience area, we are creating spaces where people can meet and have fun together, opening new stores and actively working on planning and expanding events. In sports, we are working on building relationships with the sports industry and accelerating growth of the clubs that we support.

Please turn to Page 12. Monster Strike celebrated its fifth anniversary in October 2018. During October and the year-end, we held large-scale fifth anniversary campaigns featuring popular entertainment personalities. Particularly during the year-end season, we organize such events as [ all-star thank you, Gacha ] and Monster Strike Max Luck Bingo, which were enjoyed by a large number of participants. As a result, in December, Monster Strike cumulative number of users in Japan exceeded 41 million. We will continue to organize various programs to raise the excitement of the users.

Page 13 describes an example of Monster Strike in-game collaboration. In November, there was an in-game collaboration with Pretty Guardian Sailor Moon Crystal, which was the first collaboration with the game based on the shojo manga aimed at teenage female readership. By providing opportunities for female users to access the game through these collaborations, we plan to expand Monster Strike's user base to make it a nationally known IP.

Please turn to Page 14. So as to make Monster Strike a nationally known IP, we are approaching a wide group of people. In November, we opened an interactive educational digital theme park in DiverCity Tokyo Plaza, where the children and their entire family get to know characters of Monster Strike better while enjoying various attractions. During November and January, we held a collaboration event with Tokyo Dome attractions, which provided visitors with opportunities to meet characters and try Monster Strike car games. Through these events, we will work on raising the recognition level of Monster Strike among the people who do not play the game so as to expand the user base.

Please turn to Page 15. In the area of life experiences, we held a nationwide eSports tournament for professional Monster Strike teams between October and December. The tournament, which is to decide the #1 Monster Strike professional, offers prize money totaling up to JPY 60 million and is one of the largest scale national eSports professional tours in Japan.

In January, we opened the third XFlag store at Haneda Airport Terminal 1 following Shibuya and Shinsaibashi stores. It offers great access from different parts of Japan. We will expand the opportunities for the people to be exposed to Monster Strike, including high-level eSport events of professionals and meeting game characters at store fronts.

Please turn to Page 16. In the area of sports, in addition to sponsoring professional sport teams, we started sponsoring individual players in December. Also, it's been decided that XFlag's logo is to be put on the chest of FC Tokyo uniform starting in the 2019 season. We signed marketing partnership contract to provide wide-ranging support. We plan to strengthen our support to teams and individual players.

Moving on to the Lifestyle business, Page 18. Lifestyle business consists of media and wellness. In media, we are working on the growth for existing businesses and development of new ones, while in wellness, we are promoting development of exercise program services for the elderly.

Please turn to Page 19. In media, Family Album, formerly Mitene, saw its cumulative number of users exceed 4 million in January 2019. The rate of growth is accelerating. Also, a steady increase of users has been maintained in English-speaking regions.

Please turn to Page 20. In wellness, in January 2019, we opened our first women's-only conditioning studio Cococise in Setagaya Ward, Tokyo. Cococise is different from other fitness clubs aimed at weight control and body making, and that it is designed specifically for women to help them live longer, healthier lives. With aging society, there is growing attention on long healthy life. Leveraging mixi's strong suit analysis using AI and providing various forms of communication, we aim at building a unique position in the market.

I would now like to talk about our investment policy. Please turn to Page 22. Previously, we said JPY 100 billion will be invested over 3 to 5 years for business development and mergers and acquisitions. For greater levels of M&As, we issued a press release today announcing a creation of an M&A development system together with XTech. We will promote M&A combining the proven expertise of XTech's Mr. Saijo and Mr. Teshima as entrepreneurs and investors and mixi's own expertise in our strong areas. The M&A policy is to target sizeable companies and businesses in areas that can expect synergy with our business, including listed companies.

Please turn to Page 23. In addition to M&As, we decided to establish a fund specialized in seed and early-stage businesses for flexible management. By covering the whole spectrum of M&A of listed companies to investing in seed and early-stage businesses, we aim to build a well-balanced business portfolio over the medium to long term.

In addition to inorganic growth through investments, we will make internal investment within the mixi Group to grow sports and wellness businesses as new pillars to follow Monster Strike so as to diversify business and stabilize management. I ask for your continued support and understanding.

That concludes my presentation. Thank you for your kind attention.