Recruit : Conference Call Transcript (160 KB)

Recruit Holdings FY2020 Earnings Call May 17, 2021

Shen: Welcome to the Recruit Holdings FY2020 earnings conference call. I'm Shen from IR department and I will serve as a moderator.

This call is a simultaneous translation of the original call in Japanese and translation is provided for the convenience of investors only.

Today we have Hisayuki Idekoba, President and CEO, and Junichi Arai, Executive Officer of Corporate Planning Division.

Deko will begin with the vision and the overall business strategies for Recruit Holdings.

Then Jun will discuss the FY2020 results and FY2021 guidance, followed by the Q&A session.

We recommend that you refer to the financial results summary and FAQ for Q4 FY2020 posted on our IR website.

Now over to Deko.

Deko: Thank you for joining us today.

I am Hisayuki Idekoba, President and CEO of Recruit Holdings, but most people call me "Deko".

Today, I would like to introduce myself, and share my vision for Recruit.

I joined Recruit Co., Ltd. as a new graduate in 1999, so this is my 22nd year with the company.

Throughout my career, I have always focused on creating products and services that can make life easier and more convenient.

For example, about 20 years ago, I led the digital transformation of our travel magazine, Jalan, into an online travel booking platform.

At that time, most local inns and guesthouses didn't have computers. We started by asking the inn owners to purchase computers and sign up for internet access, and steadily increased the number of inns in Japan that can be booked online.

Similarly, in the Beauty business, we also created an online reservation system that allowed beauty salons across Japan to take reservations online.

Then in 2010, I was put in charge of the globalization of Recruit and traveled to many countries in Asia and around the world. I was really surprised to see with my own eyes that in many countries, the local people told me, "I don't even know how to find a job".

It made me realize that there should be services and products that made it easier for people all over the world to find jobs. Then I met CEOs of various kinds of companies, and fortunately met the founders of Indeed and asked them to join Recruit. Today, our services are used by millions of people around the world.

These are a few examples of how I have continually created products and services that can simplify and better our lives.

For the past three years, I have been in charge of formulating and executing the strategy for Recruit Holdings and the Recruit Group across all three SBUs.

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And that's why, with my appointment as CEO this April, there will be no major changes in our strategy. We will continue to work on our mission, "Opportunities for Life," which means connecting individuals and businesses faster, simpler and closer than ever before.

In pursuit of our mission, we are now outlining three specific pillars of our overall strategy: Simplify Hiring, Help Businesses Work Smarter, and Prosper Together.

The first is "Simplify Hiring," in other words, connecting people with jobs, faster and easier.

This is something we have been doing for more than 60 years since our founding, and I believe there is still so much more we can accomplish.

The second pillar is, "Help Businesses Work Smarter," in other words, improving business performance and productivity through SaaS solutions.

In the Japanese market, where the working population is expected to continue declining, we believe that simply making it easier to find a job will not be enough to improve the country's fundamental labor shortage.

I believe that we still have a lot to contribute to Japanese companies, which are said to be lagging behind in digitalization.

We are also now introducing a third strategic pillar, "Prosper Together," in other words, seeking mutual prosperity with all stakeholders.

While this philosophy has always been a part of Recruit's history, at this time we are elevating its importance. As the number of our users and clients increases around the world, we feel that our responsibility to contribute to a sustainable society is also increasing.

I would like to talk briefly about the current status of these management strategies.

Regarding the first pillar, "Simplify Hiring,"

The impact of the COVID-19 pandemic since last year has reaffirmed our belief in the importance of our HR services, including Indeed, Glassdoor, Townwork, Rikunabi and temporary staffing. All have played a crucial role in the lives of people all around the world.

When the spread of COVID-19 began, millions of people lost their jobs and needed to find a new one as soon as possible. But they weren't able to have in-person interviews. So since last year we have accelerated the development of various online recruitment processes.

For example, we created a tool for online job interviews, offered it for free, and as a result, we were able to help more than 20,000 people change jobs or find employment in a matter of weeks.

Also, in recent months, our Staffing business has been able to assist in expediting COVID-19 testing and vaccination in various countries.

Currently, Recruit's services and platforms match searches by hundreds of millions of job seekers each month with more than three million employers searching for talent, resulting in more than 10 hires every minute.

We will continue to strive to make it as easy as possible for as many people as possible to get a job by fully utilizing AI and machine learning, so that "people who want a job can change jobs in one second" or "people can find a new job with the push of a button."

Regarding the second pillar of our strategy, "Help Businesses Work Smarter", in another word, improving business performance and productivity through SaaS solutions.

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Let me introduce an example that made me wish that cashless payments was more commonplace in the world.

Long before, when my wife was working as a manager at a restaurant in Japan, I remember her saying that she had to go to the bank at least three times a week to make deposits and exchange money, and that it was such a waste of time.

I thought that if the world became more cashless, people would be able to spend time focusing on their business instead of on this kind of administrative work.

We now have more than 210,000 AirPay customers, and the number of solutions we can provide is constantly increasing. In the future, I believe the promotion of cashless transactions and the automation of marketing will continue to evolve.

In the near future, I even believe that it will be possible for store owners to realize that they can run their business using only a smartphone, and then they can concentrate on selling their products, food or services.

Through the businesses we have conducted over the years, we've built relationships with many stores and companies throughout Japan, and we believe that the evolution of the solutions we provide can greatly improve the productivity of Japan.

Regarding the third pillar of our strategy, "Prosper Together",

When the spread of COVID-19 began, many people, especially in the US, lost their jobs. And in February this year, we had one of the heaviest snowfalls in 100 years in Austin, Texas, where Indeed is headquartered.

There was widespread loss of power and heat, so our Indeed office welcomed people suffering from the cold to keep them warm. This experience highlighted for me that many people are really in a difficult situation.

Of course, it's important to support people in need through charitable activities, but to solve the issue fundamentally, it is critical for people to have a job and earn a living, and I believe there are so many things that we can do.

We have been making efforts to provide new opportunities and new jobs to as many people as possible, but as disparities continue to widen in many parts of the world, the Board of Directors has discussed whether we can take more responsibility for creating a sustainable society, and decided to proceed with setting clear ESG goals. Please refer to the press release we released today for details.

Those are our management strategies.

As for the short term business environment, in places where the vaccination is progressing, such as the US, there has been a temporary surge in demand as economic activity has resumed.

However, we assume that the economic and business environment will continue to be very uncertain due to the slow vaccination rate in many regions, the impact of new strains of virus spreading in various countries, which rages in India for example, and furthermore, how the economic support of governments will change.

There is a possibility that short-term business performance may be negatively affected by the responses to the state of emergency in each country.

However, just as in 2020, I hope to make steady progress in the execution of our management strategies in parallel with prudent short-termdecision-making, while achieving solid results in the mid- to long-term.

Even now, Recruit has a relatively small presence in the competitive global technology landscape. However, when I started running Indeed about 10 years ago, there were 30 to 40 engineers as a team at Indeed.

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Also, Recruit's overseas revenue ratio was only 3% about ten years ago, and is about to become the majority in this fiscal year. Given this track record I believe we have an opportunity to be even more successful.

If we focus on our strength and expertise in niche areas such as HR Matching technology and apply the unique insights and knowledge we have through our relationships with our business clients in Japan, I believe we can create new products and services that make people wonder "How did we live without them?"

We will continue to provide new products and services to society. This is the role and responsibility we must fulfill and will be our lasting contribution to society. By fulfilling this responsibility, I believe we can achieve a sustainable increase in our enterprise value.

Now, I will turn it over to Jun Arai, Executive Officer of Corporate Planning to discuss the fiscal year results and guidance for FY2021.

Arai: I am Jun Arai.

Now, I will explain the Consolidated Results of Operations for FY2020, the Financial Forecast for FY2021, and finally, Shareholder Returns and Capital Allocation. Please refer to the table on the second page of the financial results summary during my remarks.

For details on our Q4 financial performance, please refer to the earnings materials disclosed earlier today.

I will begin with the financial results for the last fiscal year ending March 2021.

In the first half of FY2020, HR Technology and Media & Solutions segments implemented rapid cost-cutting measures amid a sharp drop in revenue due to the rapid deterioration of the global market caused by the spread of COVID-19.

In the second half of FY2020, while revenue from HR Technology improved rapidly, in Media & Solutions, it was a six-month period with intense ups and downs, with the positive impact of the Go To campaign in Japan and the negative impact of the subsequent state of emergency period.

During this period, we continued to aggressively make investments that we believe are necessary for future growth in line with our management strategy.

As a result, full year revenue excluding the Rent Assistance Program decreased 8.7%, consolidated adjusted EBITDA decreased 25.7%, and adjusted EPS decreased 31.8% year on year.

Adjusted EBITDA for FY2020 was 241.6 billion yen, which was 9.7 billion yen higher than the revised forecast of 231.9 billion yen disclosed on February 15.

The full-year dividend will be 20.0 yen per share, which is 1.0 yen higher than our prior guidance.

For the consolidated financial guidance for the fiscal year ending March 2022, the business environment continues to evolve rapidly, as restrictions in some countries have variously been relaxed and reintroduced, making forecasting difficult.

Assuming that new large scale lockdowns and states of emergency will not cause long-term stagnation of economic activities, we disclosed FY2021 guidance in ranges today.

Revenue and adjusted EBITDA are expected to increase in the HR Technology and Staffing segments, while revenue in the Media & Solutions segment is expected to increase compared to the previous year's revenue when excluding the Rent Assistance Program.

Adjusted EBITDA is expected to be 270 billion yen to 335 billion yen, compared to the previous year.

Adjusted EPS is expected to be 95.51 yen to 126.10 yen.

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The dividend forecast for the half year and the full year for FY2021 has not been determined at this time.

Next, I will talk about the full-year financial results and outlook by segment,

For HR Technology, in the first half of FY2020, revenue declined significantly in the first quarter due to the spread of COVID-19, followed by a recovery driven by the US, resulting in revenue reaching close to pre pandemic levels during the second quarter.

During the second half of FY2020, hiring demand surged, particularly driven by small and medium size employers in the US, which created an imbalance between dampened job seeker activity in the US and significant hiring demand, driving revenue growth higher.

As a result, revenue for the full year decreased 0.4% year on year. On a US dollar basis, reported revenue was 3.99 billion US dollars, an increase of 2.2% year on year.

HR Technology pulled back marketing investments and paused hiring during the first half of FY2020, while prioritizing investments to simplify hiring, which put us in a strong position to support employer's hiring activities during the second half of FY2020.

As a result, adjusted EBITDA margin for FY2020 was 15.8%.

HR Technology's results for the next fiscal year may be significantly impacted by the success of vaccine rollouts, the reopening of schools, the reduction of government stimulus, and job seekers becoming more comfortable returning to work, which make it difficult for the Company to forecast the business environment during the second half of FY2021.

While the overheated competition for talent in the US is continuing in the first quarter of FY2021, we expect US dollar based revenue growth to be 40% to 50% for FY2021 which is based on the assumption that this competition will ease during the first half and the imbalance between supply and demand for labor will return to normal thereafter.

For the full year, adjusted EBITDA margin is expected to be approximately 20%, as we continue investing in sales and marketing activities to acquire new users and clients, while increasing investments in product and technology to transform HR Matching markets in order to realize our "Simplify Hiring" business strategy that Deko mentioned earlier.

The timing of these investments, combined with the continued strong revenue performance expected in Q1, is expected to result in the highest quarterly adjusted EBITDA margin to date in the first quarter.

Regarding the definition and quantification of the HR Matching market, please refer to our earnings release and question 4 in the FAQ.

Next, for Media & Solutions, revenue for the first half of FY2020 dropped significantly due to the first state of emergency in Japan.

For the second half, revenue in the third quarter showed signs of recovery benefitting from the Go To Campaigns, however, in the fourth quarter, the positive revenue trends reversed due to the second state of emergency.

As a result, revenue for FY2020 decreased 11.1%, and excluding the Rent Assistance Program, it decreased 21.6% year on year.

While Media & Solutions reduced operating expenses quickly during the first half, during the second half, Media & Solutions made strategic and proactive marketing investments to seize future growth opportunities.

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