Macromill : FY6/2023 Q2 Financial Results Summary of Q&A

FY6/2023 Q2 Financial Results: Summary of Q&A(1)

February 14, 2023 Macromill, Inc.

(Q1)

• In the results briefing video, it is mentioned that continued losses of opportunities could have decreased inquiries from client companies, i.e. causing client companies to defect, and that deterioration of the business confidence had a negative impact on some client companies.
• You mention you will focus on outbound sales in the second half and beyond. What are the current status of sales activities and your projections for the busy season in March?

(A1)

• As you understand, our operational capacity has been constrained. Even though we wanted to carry out proactive sales activities, we were unable to. However, our operational capacity is gradually expanding. Currently, we are increasing sales activities and contacts with clients.
• As a result, points of contact with client companies are increasing, including the number of appointments. So far, inquiries that lead to contracts are also growing, so outbound sales are expanding steadily.
• Regarding business confidence, there have always been some client companies who tighten their budgets due to macroeconomic circumstances. At the same time, there have also always been some who actively spend their budgets even in the same circumstances. This situation is the same now. We observe that some client companies are being negatively impacted, but more companies are currently achieving Revenue growth.
• The morale of sales personnel is turning around very strongly. We believe we will be able to firmly capture the increased demand from client companies by increasing the total volume of outbound sales activities.

(Q2)

• You explained that your current forecast is that harsh conditions in the digital field would continue in the Digital and Other New Business in Japan partly due to the worsening advertising market.
• How will you revitalize this area to return to rapid growth over the medium to long term in coming fiscal years? What are the key points?

(A2)

• As you said, currently in the digital field Revenue has grown negatively from the same period in the previous year. Our projection is that a short-term recovery is unlikely.
• We are considering various new measures to address the situation, including collaborating with global platform providers. We speculate that their effect will come into being in the next fiscal year and beyond.
• More specifically, we are striving to construct an environment that will replace Cookies for the proper handling of the personal information that serves as credentials on digital platforms. We are taking actions to use e-mail addresses and other data as credentials after obtaining the permission of panel members.
• We have an advantage in working to acquire the permission to use information directly from our proprietary consumer panel, and it allows us to take these measures. We believe that implementation of these measures in collaboration with platform providers and advertising agents will lead to the expansion of Revenue over the medium term and it will support our growth.

(Q3)

• According to your Initial Guidance, Revenue was projected to be 27.0 billion yen and Operating Profit was projected to be 2.7 billion yen for the first half, and Revenue and Operating Profit were projected to be 29.0 billion yen and 3.8 billion yen respectively for the second half.
• As mentioned in the results briefing video, results for the first half were as forecast at the beginning of

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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fiscal year. Currently, do you see the business environment in the second half more positively or negatively than at the start of the fiscal year? Is there any change in your Initial Guidance of the business environment and performance for the second half?

(A3)

• Performance is bullish in the Overseas (ex-Korea) Business Segment. We expect this trend to last throughout the fiscal year. For the second half as well, we estimate Revenue to surpass the Initial Guidance.
• The Japan Business accounts for a large percentage of our Profit. There will be no changes in our profit-generation structure. If we succeed in firmly expanding Revenue in the second half by, for example, increasing outbound sale activities which I mentioned earlier, we will be able to generate a solid Profit. This is why we foresee that results will meet the Initial Guidance.
• Some of you may be concerned about the changes in business environment, including the impact of macroeconomic conditions. To date, we have seen internal measures positively impact Revenue, such as 1) the expansion of operational capacity and 2) the growth of outbound sales based on the aforementioned expansion, and we think this will be greater than the negative impact of the changes in the macroeconomic environment.
• We believe that we will achieve the Initial Guidance if we steadily advance actions 1 and 2.

(Q4)

• Is it correct to understand that you forecast the growth of outbound sales in the second half at the start of the fiscal year and that progress is being made as forecast?

(A4)

• We are stepping up our sales activities according to the expansion of operational capacity as initially expected.
• However, it is impossible to completely visualize and quantify the extent of the decrease in inquiries. We will manage the degree to which we increase our sales activities according to the circumstances in a timely manner in consideration of operational capacity, the volume of activities, the total amount of orders we fail to accept as a result of having to decline them and other factors.
• Our judgment is that it is now time to proactively accelerate sales activities and we are currently working hard to expand outbound sales.

(Q5)

• What is the achievement of productivity improvement up to Q2 and what actions will be taken in Q3 and beyond?

(A5)

• We introduced a new program offering incentives tailored to performance to the operating divisions. We have also worked to improve operations and revised operational flows. We succeeded particularly in reducing turnover in the division responsible for Online Research operations more effectively than initially expected. As a result, the competence of our workforce increased throughout the company.
• We understand that we have built sufficient operational capacity to meet demand in Q3, which is a busy season. If we increase orders received through the outbound sales activities mentioned earlier, it is certain that we will increase Revenue and Profit as expected.

(Q6)

• It appears to me that the personnel plan and the turnover have deviated from the initial plan.
• Do the Total Employee Expenses differ from the initial projection at the start of the year? Were they higher than expected due to the reduced turnover? What can you tell us about this, including any trade- offs with Other Expenses?

(A6)

• In the current fiscal year, we are prioritizing the expansion of operational capacity through the improvement of productivity over the increase of personnel.
• In Japan, we have succeeded in keeping turnover below the initial target, particularly in the division directly linked to our Online Research capacity. Accordingly, operational capacity is increasing as

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planned.

• In the Overseas Business, we have managed to control turnover through employee retention measures. In addition, Revenue has surpassed projections. Currently, we are increasing recruitment efforts to increase the number of employees.
• It will take some time until the newly hired employees are sufficiently developed. However, the reduction of departing employees means that no lead-time is necessary and that productivity is improved. This is expected to have some positive impacts, such as the expansion of internal capacity and the increase of Revenue and Profit.
• If you focus solely on Total Employee Expenses, retention indeed will result in a higher figure than initially projected. However, it is expected to positively impact us in two ways. One is the increase of internal capacity, and the other is the lowering of Outsourcing Expenses due to the enhanced internal capacity.

(Q7)

• Will you be affected by Cookie regulations when you distribute questionnaires to a selection of proper consumer panel members for survey purposes?

(A7)

• We have a direct channel of communication with the proprietary consumer panel. When panel members are registered, we receive detailed attribution data. We do not always need Cookie data when selecting who to send questionnaires to.
• To put it more specifically, let me use a survey on yoghurt consumption trends and on preferences of brands and products as an example. In this survey, we start by sending panel members a basic screening survey including questions about the frequency of their eating yoghurt and about where they purchase yoghurt. Then, we select the panel respondents to whom we will send the real survey. I hope this explains why we do not need Cookie data for the distribution of questionnaires.
• Meanwhile, we sometimes distribute questionnaires based on digital log data, such as surveys of people who visited the product webpages of a manufacturer in a predetermined period. In this case, we currently use Cookie data of consumer panel members.
• The Cookie regulations that are being talked about recently are targeted at third-party Cookies. We obtain information from first-party Cookies. In this case, the regulations will have a limited impact.
• However, in some cases, client companies use third-party Cookies when using the information we offer. In situations like this, the regulations discourage them from using related solutions in consideration of the regulations on third-party Cookies, resulting in decreasing Revenue from these solutions.
• To summarize, we can say that the Cookie regulations will have no impact at all on the Research business in Macromill's Japan Business. They have had an adverse impact on the digital field in the Digital and Other New Business, particularly on DMP solutions, in which client companies use third-party Cookies when using the data we provide.

(Q8)

• Does the same system apply to competitors' online surveys?

(A8)

• They can carry out the screening that we have just explained if they obtain attribute data as we do. We do not think that Cookies are necessary for their distribution of questionnaires.
• At the same time, regarding surveys in the digital field, specifically questionnaires based on digital log data, the size of the consumer panel, or the digital panel, that agrees to the sharing of digital log data in Cookies is important.
• Since we have one of the largest digital panels in Japan, we believe that we still have a great competitive advantage over our competitors in this field.

(Q9)

• The Digital and Other New Business is defined as a growth driver. What are the details of this business and what is behind its growth?

(A9)

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• The Digital and Other New Business is composed of two elements. One is the digital field and the other is the field of other new businesses.
• As we mentioned earlier, the digital field offers services such as the measurement of the effectiveness of advertisement on YouTube and ads based on digital log data. Due to the shift away from Cookies and advertising market conditions, it is struggling a little in this fiscal year.
• The field of other new businesses includes Data Consulting, Life Science and Southeast Asia business.
• Looking at Data Consulting in particular, we established a subsidiary earlier this fiscal year to start the full-scale expansion of business. It is the greatest driver of the growth of Digital and Other New Business.
• Second to that, Life Science is also driving the growth of Revenue in this segment. This business provides services that examine health and skin condition based on biological sample data to study the functionality of foods for specified health uses. A characteristic of the business is that individual projects are conducted over long periods. They may often be subject to change the scheduled end date. It is important to pay attention to the fact that the timing of the posting of Revenue is volatile in this business.
• While the divisions for product development and marketing at client companies acted as contacts in the conventional Research Business, the research and development division, the research institute and others act as contacts in Life Science. Thus, we have expanded our points of contact with client companies.

Ends,

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