Link and Motivation Inc

TSE:2170

Earnings Call Transcript 2019-Q1

[Yoshihisa Ozasa, executive]

I'm Yoshihisa Ozasa, Chairman and Representative Director of the Board of Link and Motivation. Welcome and thank you for taking the time to watch our earnings presentation for the first quarter of 2019.

Here's today's agenda. First, I'm going to give you an overview of our company and then I'd like to move on to talk about our results.

So let's begin with the company overview. This diagram shows the operating structure of our group. The blue circle on the left is Organizational Development Division, which consists of Consulting and Outsourcing business and Event and Media business. And this division supports creating organizations that individuals choose.

Next to that is Individual Development Division, which includes Career School business as well as Cram School business. And it supports creating individuals that organizations choose. And to the one beneath the 2 circles represents Matching Division, which provides opportunities to Link organizations and individuals, and it does ALT Placement business and a Personnel Placement & Temp Staff business. At the bottom is Venture Incubation business.

On this page, we are explaining our distinctive strengths. Strength #1 is our only one status. We apply our core technology, Motivation Engineering, to promote businesses that are only one of the kind in the markets.

Strength #2 is profit stability and growth. We do business in wide ranging fields from individuals to corporations that allow us to pursue both profit stability and growth. And strength #3 is our employee engagement. We live motivation engineering and we are a highly engaged organization. These are our distinctive strengths.

The next topic is business report in which we're going to talk about our results for the first quarter of 2019. First, we're going to look at our consolidated P&L.

Revenues from Organizational Development Division as well as Individual Development Division came in far below our expectations. And that's why total revenues fell short of forecast, and of the same quarter of the year before, the Q1 revenues came in at 91.6% of our forecast. Operating income took a big drop from the year earlier because of an unexpected onetime increase in SG&A expenses, but it came in better than forecast, thanks to a strong growth in Motivation Cloud business within Organizational Development Division as well as solid performance of ALT Placement business in Matching Division. Operating income beat the forecast by 6.2%.

This page shows our SG&A expenses on a consolidated basis. The first item is personnel expenses. It went down slightly from a year earlier because we have streamlined management operations and increased the number of on-site staff. With respect to sales-related expenses, we spent a lot on sales promotions for our priority businesses such as Motivation Cloud, and that's why you see quite a big jump from the same quarter of the year before. All those things considered, SG&A expenses increased to 6.2% year-on-year for the first quarter of 2019.

Now this table shows actuals and year-on-year change of revenues and gross profit by segment.

For Organizational Development Division, revenues and gross profit took a big drop from a year before due to a lackluster performance of Consulting and Outsourcing business.

With respect to Individual Development Division, Cram School business' lackluster results were offset by a solid performance of Career School business, sending the revenues slightly higher than a year before, but the gross profit a little lower than a year before.

When it comes to Matching Division, revenues edged down from the first quarter of last year, but gross profit came in better because ALT Placement business was doing pretty well, making up for the lackluster performance of Temp Staff business.

This page shows the breakdown of Organizational Development division's revenues by product and by business types.

You could take a look at Consulting and Outsourcing business, you will see the revenues of Package and Consulting Products suffered a big drop from the year before. Revenues of Package and Consulting Products came in far below our expectations for the first quarter of 2019, basically because during the fourth quarter of 2018, we focused the human resource of the Consulting and Outsourcing business into the sales activities for Motivation Cloud. So in order to put this business back on track, we have created a team dedicated to Motivation Cloud business and also a different team focused on Package and Consulting Products. And there will be a clear demarcation of roles and responsibilities between these 2 teams going forward.

This slide describes business KPIs by segment.

For Organizational Development Division, their KPIs are Motivation Cloud's monthly fee revenue and gross profit per customer. With respect to Individual Development Division, the number of enrollees and lifetime value, or LTV, are KPIs. And when it comes to Matching Division, their KPIs include the number of staff dispatched and the number of introductions.

Let me give you a little bit more details about Motivation Cloud's monthly fee revenue. For the first quarter of 2019, the monthly fee revenue was JPY 140,201,000. This is a subscription business model. So the monthly fee revenue is the KPI. And for Q1 of 2019, the monthly fee revenue increased to 7.3% from the previous quarter. And as we announced before, our target of the monthly fee revenue by the end of the fourth quarter of 2019 is set at JPY 210 million and by the end of the fourth quarter of 2020 is JPY 330 million.

For the Consulting and Outsourcing model, the rolling 12 months average of gross profit per customer is the KPI. The result for the first quarter of 2019 is at 94.6% of what it was a quarter before.

For Individual Development Division, the rolling 12 months average of the number of enrollees and the rolling average of LTV are the business KPIs. For the first quarter of 2019, the average number of enrollees was up 0.3% from the previous quarter and the average LTV increased 2.3% from a quarter before.

When it comes to the Matching Division, the rolling 12 months average of the number of Temp Staff dispatched and the number of instructions for the prior 12 months are the business KPIs. The average number of Temp Staff dispatched edged down 1.1% from the previous quarter because of the poor performance of the domestic Temp Staff business, but ALT business is doing pretty well. The average number of introductions has also risen steadily, up 3.7% from the previous quarter.

This page describes the changes made due to our consolidated balance sheet for the first quarter of 2019 because of the accounting changes in the lease standard as required by IFRS 16.

So what's changed? Assets increased because the leases are now recognized as a right-of-use asset. Liabilities also increased because the obligation to make future lease payments is now recognized as a liability. Total equity decreased instead, mainly because the past impairment of the right-of-use assets is accounted for a deduction from retained earnings.

Now this page shows the balance sheet for the fourth quarter of 2018 as revised using IFRS 16 and compares that to the balance sheet for the first quarter of 2019.

To pick up a few details, you can notice that assets decreased by JPY 546 million because cash and cash equivalents as well as operating receivables decreased. Liabilities dragged by JPY 800 million as we repaid some of our debt. Total equity increased by JPY 254 million, thanks to our net income as well as a rise in the value of equity of our Incubation business.

It's showing the amount of dividend payout for the first quarter of 2019. We started to pay quarterly dividend of last year and we will continue to do so for this year as well. We're going to pay JPY 1.80 a share on Tuesday, June 25, as announced before.

Once more, this is the operating structure of our group.

For the first quarter of 2019, Consulting and Outsourcing business had to suffer subpar performance because we've made a mistake in the allocation of our resources. On the other hand, Motivation Cloud is a very promising business that is sure to bring in profit in the future, and this business was doing pretty strongly during the first quarter.

So please stay tuned for more exciting news. Thank you for watching.