Macromill : FY6/2024 Q1 Financial Results Summary of Q&A

FY6/2024 Q1 Financial Results: Summary of Q&A (1)

November 16, 2023 Macromill, Inc.

(Q1)

• In your latest earnings announcement for Q1 of the fiscal year ending June 30, 2024, a share of loss on investments in Toluna accounted for using equity method of approximately 0.38 billion yen was recorded. Was this loss expected at the start of the fiscal year?
• According to your estimates, what will the share of profit (loss) on investments in Toluna accounted for using equity method be on a full-year basis this fiscal year?
  (A1)
• • At the start of this fiscal year, we estimated that it would break even on a full-year basis. In our first assumptions regarding share of profit (loss) on investments in Toluna accounted for using equity method, there would be upfront PMI expenses related to the business integration of Toluna and MetrixLab. We estimated a successful PMI would put an end to these expenses, and fixed costs would come down, at which point Toluna would start contributing to profit.
  • We did not anticipate a loss exceeding 0.1 billion yen in Q1, and this result is unexpected.
  • There are two factors that the loss became bigger than our expectation. The first factor is that Toluna's business itself performed weak, reflecting the business sentiment of the global market. The other factor is that the PMI process is taking place faster than anticipated and PMI expenses have also been incurred earlier than expected. On the second point, we see this as a positive development and think that if the PMI process continues to go well, cost reductions will also be achieved earlier than projected.
  • If the global business sentiment becomes even worse, on a full year basis, the share of loss on investments accounted for using equity method could grow to just under 1 billion yen at most. However, at this moment, we estimate that we would be breakeven from Q2 onwards. Accordingly, in the remaining three quarters of this fiscal year, we do not expect to see losses on a similar scale to the one recorded in Q1.
  • Through acceleration of the PMI process, the integration of team structure and offices will take place earlier than planned and PMI expenses will be reduced from the second half onwards. Meanwhile, in face of the deteriorating global business sentiment, Toluna's founder and CEO is currently demonstrating leadership, implementing the recovery plan, and working to turn the business around. On this basis, we expect that Toluna will start making a positive contribution to our consolidated financial results from next fiscal year.
  • Most important for us is to reliably generate Business Profit from our main business and to keep up the momentum shown in Q1, aiming to steadily achieve the Company Guidance.

(Q2)

• You said that Toluna is also considering going public in the future. What would the timeline and conditions be for this?
  (A2)
• • We cannot give any specific details as Toluna is a private company and the conditions and timing of an IPO will also depend to some extent on market conditions. However, in terms of exiting the fund that is Toluna's parent company, we think Toluna has other options besides an IPO, such as M&A.
  • At any rate, Toluna has become structurally stronger as a result of its integration with MetrixLab, and we think that the probability of some kind of change such as an IPO event in the future is now higher.

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1 This material is not a transcript of questions and answers at the results briefing but a concise summary of them including additions and revisions made at our own discretion to facilitate reader understanding.

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(Q3)

• Roughly how much of the share of loss on investments accounted for using equity method of approximately 0.38 billion yen recorded in Q1 is attributable to one-time expenses for PMI and how much is attributable to the deteriorating global business sentiment?
• Given all the noise surrounding your share of the bottom-line profit of Toluna as an entity accounted for using the equity method, it is difficult to grasp Toluna's actual situation. I would, therefore, like to hear your comments on the progress Toluna has made in terms of Revenue and Operating Profit.
  (A3)
• • As explained earlier, MetrixLab and Toluna have already begun the business integration process, including the integration of personnel, organizations and offices, and it is difficult to separate out the Revenue and Fixed costs of each of the two companies or to separate out the impacts of PMI expenses and the global business sentiment.
  • Given also that Toluna is a private company and is making preparations to go public, we have an agreement with Toluna that prevents us from disclosing detailed information about Toluna including its Revenue and Operating Profit.
  • However, as explained earlier, the PMI process is ahead of schedule and progress is also being made with reducing and optimizing costs. Moreover, Q2 is Toluna's busy period, and the impact of fixed cost reductions are likely to emerge from the second half. In addition, Toluna's founder and CEO is demonstrating leadership and taking action to turn the business around and, going forward, we expect to see improvement, at least compared to Q1.

(Q4)

• Looking at progress against the Guidance, I have to say that you have made a slow start on the Operating Profit front. In terms of downside risk, you explained that you might record a share of loss on investments accounted for using equity method of up to around 1 billion yen.
• Do you expect at the moment that topline will grow enough to offset this? Or is the probability of a recovery in Toluna's financial results from the Q2 high and is it okay to be optimistic?
  (A4)
• • The downside risk is the worst-case scenario assuming the current business sentiment deteriorates further.
  • It is not the case that we are optimistic about current conditions from a management perspective; however, in light of the smooth progress of the PMI process, we believe that the timeline for the integration of organizations and systems will be accelerated and that fixed costs will be reduced earlier than anticipated.
  • Accordingly, our current estimate of share of profit (loss) on investments in Toluna accounted for using equity method is that we will break even over the coming quarters and that our full-year results will show a loss for Q1 only.
  • Of course, on the upside, there is also the possibility that the Q1 loss is offset by recovery, resulting in a share of profit on investments in Toluna accounted for using equity method on a full year basis instead of a loss, and we intend to keep a close eye on future developments.

(Q5)

• Looking at developments in related sectors, there have been TOB in your competitor. What are your views on your competition environment? Also, do you think that such moves within these sectors might continue in the future?
  (A5)
• • The Marketing Research sector itself is in a period of great change and its transition to an Insight Industry is underway. Amid such developments, companies in the Marketing Research sector that own data, which is clearly authorized to be used for the marketing purposes, are attracting and increasing attention.
  • We believe that the industry will see the strengthening of consumer panels, improvement in the quality and quantity of the data provided, and further acceleration of the development of services

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using this data. In July, we made Monitas, Inc. into a consolidated subsidiary for the purpose of strengthening the consumer panel infrastructure.

• For our part, we will continue transforming our business model, aiming to partner our client companies as a Professional Marketing Services Company.

(Q6)

• Could GAFA's tighter privacy protections be a business opportunity for Macromill?
  (A6)
• • We believe that this will be a good business opportunity for us in the future.
  • Each of the global platform providers proceed business in a protected environment that preserves privacy such as a data clean room.
  • We are building strong relationships and partnerships with each of the platform providers to open the way for business collaboration with these platform providers in the future and you can look forward to announcements on this in the future.

(Q7)

• While the financial results of other companies in the same industry and the advertising industry were generally weak, your Q1 financial results were comparatively strong. Why was that?
  (A7)
• • By steadily implementing measures to address the problems with our operational capacity seen in previous fiscal years, including reducing employee turnover and reviewing our operational flow, we have succeeded in increasing our internal resources and solving these issues.
  • As a result, measures that we had to hold off on until our operational capacity improved, such as stepping up proactive sales activities (outbound sales) again, have paid off, and the weak business sentiment has eased as we could win projects from our competitors, and we have succeeded in posting strong results.

(Q8)

• Regarding Online Research services, which are part of your Focus Business, you said that the drive to strengthen sales activities by increasing personnel initiated in the second half of the previous fiscal year is going well. Do you expect to be able to achieve your full-year financial forecast with the current number of headcounts? Are you planning to increase the headcount even further?
  (A8)
• • While keeping the number of headcount and Total Employee Expenses within the range that is factored into the full-year financial forecast, we aim to achieve it.
  • This fiscal year, we plan to continue increasing the number of headcount in line with our full-year forecast of increased Revenue and Profits and we plan to continue increasing headcounts to some extent in the coming quarters.
  • However, headcount increase in Focus Business is already completed and we believe there is no need for any further expansion. We, therefore, plan to strategically increase headcounts in the areas of IT and information security as well as headcounts at subsidiaries; however, we anticipate to steadily increase Profit by keeping the cost of increased headcount lower than Revenue growth.

(Q9)

• I understand that growth in the number of client companies and the number of projects in Focus Business is gradually picking up pace. Am I right in thinking that the strengthening of your team structure has paid off? In this case, is there also the possibility that growth will accelerate further in the coming quarters?
  (A9)
• • The growth in the number of client companies and the number of projects in our Focus Business

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reflects elimination of the shortfall in our operational capacity, enabling us to step up outbound sales again. More specifically, we have made progress redeveloping client companies, including clients who had defected because of our lack of operational capacity and long-tail clients we had failed to capture for the same reason.

• While we expect to be impacted to some extent by the business sentiment, we believe that now we have sorted out our internal issues, we can expand our market share, including by winning projects from our competitors, and accelerate growth in the coming quarters.

(Q10)

• I feel that the consulting business, which is included in Future Business, has grown considerably and is a focus of your efforts.
• What are the features and scale of your consulting business? And why do clients choose you?
  (A10)
• • Our consulting business has three main features.
  • The first feature is that we specialize in the area of marketing; another feature is that utilizing our proprietary consumer panels gives us strength both in terms of the quantity and quality of the data we can collect; and the final feature is that we have many data natives capable of drawing insights from collected data and providing consulting services that address the marketing challenges faced by clients.
  • These strengths have served as the basis for our competitive edge and enabled us to establish our position in the industry, and we expect to grow the consulting business into a growth driver going forward.

(Q11)

• You made a comment about expanding headcount in IT-related areas. What progress has been made with IT initiatives such as automation?
  (A11)
• • As announced in our new Medium-term Business Plan, Profit improvement is our top priority. Therefore, we implement initiatives such as automation and we think that Profit bottomed out last fiscal year.
  • At the same time, we believe that we also need to push ahead with investment for the future based on an assessment of business conditions and we are implementing initiatives such as the renewal of our core research system.
  • We intend to report the results and progress of measures related to such system investment again in the future.

(Q12)

• You appear to post something similar to an extraordinary loss in Q4 of every fiscal year. Could there be additional losses this fiscal year?
  (A12)
• • We do not consider any losses in particular at the moment.

(Q13)

• You said you were carefully examining the effects of acquisition of Monitas, Inc. at the time of the full- year earnings announcement for last fiscal year. After the three months, what effects have you seen?
  (A13)
• • Our success in increasing the total number of consumer research panel that can be accessed in Japan to 36 million members has made us more appealing to clients and broadened the scope of client companies and has contributed to the development of long-tail clients in particular.

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• Stressing the number of panel is effective especially for developing new clients or capturing inbound projects and the acquisition has had a positive effect not only in terms of our sales activities but also in terms of our branding.

(Q14)

• While I welcome the fact that you have announced a share buyback and a dividend increase and have also shared some positive information, your stock price remains weak. What is your approach to further share buybacks and dividend increases in the future, and what IR measures will you take in the future?
  (A14)
• • You are right as regards our stock price. We think this is largely attributable to the fact that we posted a Profit decline on a full-year basis, having failed to fully tap into client demand in Q3, which is our busiest period, despite performing according to plan in the first half in the previous fiscal year.
  • However, we think Profit bottomed out last fiscal year and believe that it is important to post solid results this fiscal year to win back the trust of investors.
  • Our dividend policy is to continue paying stable dividends and we will also consider share buybacks based on an assessment of business conditions and our stock price.
  • As for IR measures, we have decided to revise our operating segments from this fiscal year and to divide our operations into the Japan business and the Korea business. To align with this, we have also changed our method of disclosure, dividing the Japan business into three business areas. We have also changed the structure of materials and explanations to give a more accurate understanding of our business by disclosing not only Revenue but also KPIs.
  • Going forward, we intend to continue implementing measures such as these and making improvements to prepare materials that are easier to understand and give more careful explanations.

Ends

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