Cross Marketing : Minutes of the Financial results Briefing for FY2024/6 Q3(held on May 20, 2024)

Cross Marketing Group Inc.

Q3 Financial Results Briefing for the Fiscal Year Ending June 2024

May 20, 2024

Event Summary

[Company Name]	Cross Marketing Group Inc.
[Company ID]	3675-QCODE
[Event Language]	JPN
[Event Type]	Earnings Announcement
[Event Name]	Q3 Financial Results Briefing for the Fiscal Year Ending June 2024
[Fiscal Period]	FY2024 Q3
[Date]	May 20, 2024
[Number of Pages]	18
[Time]	15:30 - 15:58
	(Total: 28 minutes, Presentation: 17 minutes, Q&A: 11 minutes)
[Venue]	Webcast
[Venue Size]
[Participants]
[Number of Speakers]	3
	Miki Igarashi	Representative Director, President and CEO
	Koji Onozuka	Managing Director and CFO
	Shigeo Muto	Head of Investor Relations

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Presentation

Muto: We will now begin the briefing on the financial results of Q3 of the fiscal year ending June 30, 2024 for Cross Marketing Group Inc.

Thank you very much for joining us today.

Miki Igarashi, Representative Director, President and CEO and Koji Onozuka, Managing Director and CFO are attending the briefing. I, Muto, Manager of Investor Relations, will be the moderator.

Today's briefing will begin with greetings from Mr. Igarashi, who will explain Q3 results and outlook for the current fiscal year. Next, we will briefly explain our company profile and business model. After the explanation, we will have time for Q&A.

Igarashi: I am Miki Igarashi, Representative Director, President and CEO of Cross Marketing Group.

I am pleased to present the financial results and company presentation for Q3 of the year ending June 30, 2024 of Cross Marketing Group.

This is the contents of today's event.

First, I will present a summary of Q3 financial results, followed by topics, then the full-year results forecast and dividend plan for the fiscal year ending June 30, 2024 and, if time allows, an overview of the Group and its businesses.

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First, I would like to provide an overview of the financial results for Q3 of the fiscal year ending June 30, 2024.

There are three major points.

First, from Q1 to Q3 in total, revenue was JPY19.34 billion, down 2% from the same period last year, and operating profit was JPY1.69 billion, down 22% from the same period last year.

On the other hand, after bottoming out in Q1, the recovery continued in Q2 and Q3. As we are in the process of recovery, we have revised our full-year and interim financial results, and we believe that we will reach the full-year forecast level.

Second, as an overview, the digital marketing business has recovered significantly from the previous year, with double-digit revenue growth and 13% revenue growth. Regarding this area, the recovery of the unit prices of media/promotion has been a major contributor.

In research, revenue declined 9% in total. While domestic research has been growing steadily, the main reason for the decline in revenue was settled down demand overseas, particularly in developed countries, North America. With the impact of overseas, the research business is in the process of recovery.

Including these factors, there is no change to the full-year forecast for the fiscal year ending June 30, 2024, which is revenue of JPY26 billion and operating profit of JPY1.9 billion. The outlook for Q4 is favorable due to the recovery process and the progress being made sequentially. Digital marketing and domestic research are continuing to perform well, and overseas research is also moving into a revenue growth phase, so we have not made any changes to this plan.

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This is how the recovery is taking place.

First, digital marketing, in January to March, turned into an increase in revenues. Compared to the same period last year, revenue was 2% decrease in Q1, 23% increase in Q2 and 16% increase in Q3, showing a change to an increasing trend in revenue. Digital marketing business is recovering well with double-digit growth of 13% in the first nine months of the year.

On the other hand, the data marketing business had 15% decrease in Q1, bottoming out with 25% decrease in Q2 and 12% decrease in Q3, which is also in the phase of revenue recovery. Although the growth rate was negative 17%, bases of developed countries overseas had the major impact.

The insight business has turned positive for revenue since Q2, with 6% decrease in Q1, 7% increase in Q2, and 10% increase in Q3. It has turned positive 4% on YoY basis.

Therefore, as for overall business conditions, the digital marketing and insight businesses, excluding the data marketing business, have already turned positive YoY. The data marketing business is also in the phase of recovery, and although we announced one-year extension of our medium-term management plan in the interim financial results, we can say that the business is steadily recovering toward that goal.

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As I mentioned earlier, the largest impact on gross profit was the decrease in gross profit from the data marketing business, which was affected by the decline in revenue, but other areas were under control.

We would like to report on the business overview of each area.

First is the digital marketing business.

As I mentioned earlier, the cumulative total through Q3 has changed to double-digit growth for revenue. Segment profit also increased by 26%, double-digit growth.

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The biggest impact on revenue was the full-fledged recovery in media/promotion, and IT solutions have remained mostly flat, which were the factors of significant contribution on improved profit.

Highlights include a recovery in unit prices and the contribution of newly consolidated companies such as Tokyo Gets Co., Ltd., a Manga IP licensing agency. As you can see here, unit price increased 7% in Q1, 54% in Q2, and 33% in Q3, showing a significant improvement from the downward trend in unit price.

For IT Solutions, the improvement in the SG&A ratio with 2.6 percentage points decrease has contributed to a segment profit, resulting in a 26% increase in segment profit. We have secured a 10% segment profitability in Q2 and Q3, so we are in a full recovery phase.

Here is data marketing business.

Revenue declined 17% and segment profit declined 23% in the first three quarters in total. As I mentioned earlier, domestic revenue has turned to increase steadily.

On the other hand, overseas demand, mainly from developed countries, has settled down, and this decline has had a major impact. As for highlights, domestic revenue was up 4%. For the lowlights, overseas revenue declined 50% in this quarter, especially in the mainstay North America, where demand, including for large projects, has settled down.

The effect of weak yen on revenue was JPY110 million, which was minor impact on the profit. Major impact on this segment was from developed countries, especially from North America.

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Next is insight business.

Revenue from Q1 to Q3 rose 4%. Segment profit was down 15% due to a partial increase in cost of sales.

First of all, both domestic and overseas revenue increased, and although the profit decreased due to the decline in gross profit margin, it is now in the phase of recovery. Domestic revenue increased 2% and overseas revenue increased 8%, with developing countries in particular continuing to perform well. I am talking about Indonesia.

As for lowlights, gross profit margins declined due to cost increases and other factors in the medical and healthcare fields in developed countries and partially in Japan. The effect of weak yen on revenue was JPY110 million and the effect on profit was minor. We expect recovery, including improvement in top line and cost of revenue.

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I would like to talk about the situation of our overseas subsidiaries, which had the greatest impact on our performance in the first nine months of the fiscal year.

Total overseas revenue declined 34%, mainly due to settled down demand after the COVID-19. Particularly affected were the bases in developed countries. On the other hand, with regard to developing countries, the continued growth of India and Indonesia, including the problem with China, has made a positive contribution,

The highlights are that Indonesia has performed very well, receiving orders for government, automobiles, consumer goods, regardless of industry. India was also performing well, including the survey business of consulting and research firms.

For lowlights, North America, as I mentioned earlier, has been the most influential factor.

The effect of the weak yen on total overseas revenue was JPY210 million.

As for the outlook, since Q4, the bases in developed countries have entered the recovery phase in a manner that will not affect the full-year forecast.

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I will talk about topics.

This year, we have been pursuing one business acquisition and two M&As. First, in April, we acquired shares of Creative Resource Institute, Co., Ltd. (CRI) in order to further expand our digital marketing business.

In this regard, we are further strengthening our digital marketing business, and at the same time, the industry is facing a shortage of human resources and is in a very difficult environment. By acquiring CRI that operates so-called digital marketing staffing and outsourcing business, we are increasing our ability to provide human resources support to other digital marketing companies in our portfolio and to our clients.

Anticipated business synergies include maximizing customer support, and we will be able to provide human resources who support operational aspects. This will also lead to the expansion of the engineering and digital marketing human resource base for the Group companies. Within the Group as a whole, various production departments and digital human resources are outsourced in some areas, so we are adding this to our new portfolio to improve productivity and design.

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