Q3 2023 Recruit Holdings Co Ltd Earnings Call - Pre-Recorded

February 9, 2024

At year over year, unless otherwise stated.

Junichi Arai: FY2024. All the growth comparisons are year-over-year unless otherwise stated. I am Junichi Arai, Senior Vice President, Corporate Strategy and Investor Relations of Recruit Holdings. First of all, I would like to talk a little about Indeed PLUS, which has already been covered by several analysts in their reports, and very important for our business strategy. The company has been contributing to the establishment and expansion of the HR matching market in Japan over the last 60 years since Recruit started the job advertising business for new graduate students. Japan is the second-largest HR matching market in the world after the US. It has become essential, a business project in 2021, leading to the nationwide launch of a new service called Indeed PLUS on 30 January.

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First of all I would like to talk a little about <unk>, plus which has already been covered by several analysts in their reports and very important for our business strategy.

The company has been contributing to the establishment and expansion of the HR matching market in Japan over the last 60 years since recruit started the job advertising business from new graduate students.

Pain is the second largest HR matching market in the world after the U S. It is becoming.

This project in 2021, leading to the nationwide launch of a new service called Indeed, plus on January 30.

The caution word is a job distribution platform to automatically distribute job postings to the most appropriate jobs.

Junichi Arai: Indeed Plus, in a word, is a job distribution platform that automatically distributes job postings to the most appropriate job board. The US. The job boards such as TOWNWORK and Rikunabi NEXT will continue to exist as job boards linked to Indeed Plus. HR Solutions will become a partner with Indeed to support the sales and marketing activities of Indeed Plus. For your information, in the 12 months ending 31 December 2023, Indeed Plus on consolidated business performance in Q4 and the impact of changes in the recording of revenue between HR Solutions and HR Technology is expected to be minor. Now I would like to discuss the consolidated results of operations for Q3. Consolidated revenue in Q3 decreased 1.5% to JPY 866.7 billion.

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Java words, such as <unk> and <unk> will continue to exist that job was linked to indeed, plush and HR solutions will become a partner with indeed to support the sales and marketing activities 70, plus <unk>.

The information in the 12 months ending December 31, 2023, HR solutions revenue for the full time.

Or indeed, plus our consolidated business performance in Q4, and the impact of changes in the recording of revenue between HR.

The nature of technology is expected to be mined.

Now I would like to discuss the consolidated results of operations for Q3.

Consolidated revenue in Q3 decreased one 5% to $866 7 billion, excluding the positive impact of foreign exchange revenue decreased four 5%.

Junichi Arai: Excluding the positive impact of foreign exchange, revenue decreased 4.5%. Consolidated revenue was slightly above the upper end of the outlook range of JPY 840 to 860 billion yen, which we provided at the earnings announcement in November. Consolidated adjusted EBITDA increased 14.4% to JPY 158.2 billion yen, which was above the outlook range of JPY 130 to 145 billion yen. Adjusted EBITDA margin increased 2.5 percentage points to 18.3% due to higher adjusted EBITDA margins in HR Technology and Matching & Solutions. Operating income increased 12.5% to JPY 108.9 billion yen.

Consolidated revenue was slightly above the upper end of the outlook range of 840 260 billion yen, which we provided at the earnings announcement in November consolidated.

<unk> adjusted EBITDA increased 14, 4% to $158 2 billion, which was above the outlook range of 130 to 145 billion net adjusted EBITDA margin increased two five percentage points to 18, 3% due to higher adjusted EBITDA margins and ensure technology and matching and solutions.

Operating income increased 12, 5% to $108 9 billion net profit attributable to owners of the parent increased 36.6% to $106 3 billion due to the impact of an internal legal entity restructuring and HR technology, which decreased the consolidated income tax rate as we announced in November.

Junichi Arai: Profit attributable to owners of the parent increased 36.6% to JPY 106.3 billion due to the impact of an internal legal entity restructuring in HR Technology, which decreased the consolidated income tax rate as we announced in November. This decrease in the consolidated income tax rate is a one-time impact only for FY2023. Basic EPS was JPY 68.03, an increase of 40%, and Adjusted EPS after excluding one-time gains and losses was JPY 68.03. The number of shares held as treasury stock as of 31 December 2023 was 140.52 million, which includes 29.4 million shares acquired through the self-tender offers announced last May and October.

This decrease in the consolidated income tax rate and a one time impact only for FY 2023, basic EPS was $68 <unk>, an increase of 40% and adjusted EPS. After excluding one time gains and losses was 68.03 yet.

The number of shares held as Treasury stock as of December 31, 2023 was $145 2 million, which includes $29 4 million shares acquired through the self tender offers and as West May and October and 352 million shares acquired through December 31 under the share repurchase program executed since December 14th.

Junichi Arai: 3.52 million shares acquired through 31 December under the share purchase program executed since 14 December. The number of shares held as treasury stock includes 58.5 million shares held in the trust account of the board incentive plan trust and the employee stock ownership plan trust. Excluding those shares, the number of shares held as treasury stock was 81.97 million shares or 4.83% of the total number of outstanding shares. The number of shares acquired through the ongoing share repurchase program through 31 January was 8.9 million shares. We plan to use treasury stock for share-based compensation plans, delivery of shares upon stock option execution, or for strategic M&A.

The number of shares held as Treasury stock includes $58 five 5 million shares held in trust account of the board incentive plan Trust any employee stock ownership plan Trust.

Excluding our shares the number should held as Treasury stock was $81 nine 7 million shares or $4, 83% of the total number of outstanding shares.

The number of shares acquired through the ongoing share repurchase program through January 31 was $8 9 million shares.

We plan to use treasury stock for share based compensation plans delivery of shares upon stock option execution or for strategic M&A. After taking into account the number of shares to be used for these purposes in the next fiscal year, we will consider the cancellation of some treasury stocks.

Junichi Arai: After taking into account the number of shares to be used for these purposes in the next fiscal year, we will consider the cancellation of some treasury stock. Today, we disclose our guidance for FY2023 full year and the outlook for Q4 FY2023, assuming there will not be a sudden deterioration in the economic environment. Q4, we expect consolidated revenue to be approximately JPY 830 billion, approximately flat compared to the previous year. We expect revenue to increase in Matching & Solutions and Staffing, while revenue in HR Technology is expected to decrease but is expected to be approximately flat quarter-over-quarter. Consolidated adjusted EBITDA is expected to decrease 9.3% to approximately JPY 99 billion, with consolidated adjusted EBITDA margin expected to be approximately 11.9%.

Today, we disclosed our guidance for FY 2023, full year and the outlook for Q4, FY 2023, assuming there will not be a sudden deterioration in the economic environment Q4, we expect consolidated revenue to be approximately 830 billion approximately flat compared to the previous year, we expect revenue to increase in matching solutions and staffing while revenue in Asia technology is.

Checked it to decrease but is expected to be approximately flat quarter over quarter.

Consolidated adjusted EBITDA is expected to decrease by 3% to approximately 99 billion with consolidated adjusted EBITDA margin expected to be approximately 11, 9%. This is due to anticipated decline in adjusted EBITDA margins in HR technology, and staffing, which are expected to outweigh the adjusted EBITA margin increase in matching and solutions intertechnology margins are expect.

Junichi Arai: This is due to anticipated declines in adjusted EBITDA margins in HR Technology and Staffing, which are expected to outweigh the adjusted EBITDA margin increase in Matching & Solutions. HR Technology margins are expected to be impacted by seasonal increases in personnel costs and advertising expenses, as well as expenses related to Indeed PLUS, while Staffing margins are expected to be impacted by strategically allocated advertising expenses in Japan. When we announced our Q2 results in November, we said that although revenue for FY2023 is expected to decline based on the H1 performance and assuming the current business environment does not deteriorate significantly, adjusted EBITDA for the full year will either decrease slightly or remain at the same level compared to last year.

It can be impacted by seasonal increases in personnel costs and advertising expenses as well as expenses related to an D plus while staffing margins are expected to be impacted by strategically allocated advertising expenses in Japan.

When we announced our Q2 results in November we said that although revenue for FY 2023 is expected to decline based on the first half performance I'm, assuming the current business environment does not deteriorate significantly adjusted EBITDA for the full year will either decreased slightly but remained at the same level compared to last year. We now expect consolidated revenue to be approximately flat quarter over quarter approximately <unk> <unk>.

Junichi Arai: We now expect consolidated revenue to be approximately flat quarter over quarter at approximately JPY 3.4 trillion, down slightly less than 1% year over year. Consolidated adjusted EBITDA is now expected to increase 7.3% to approximately JPY 585 billion, a record high. Adjusted EBITDA margin is expected to increase approximately 1.3 percentage points to 17.2% due to a significant increase in adjusted EBITDA margin in Matching & Solutions and a margin increase in HR Technology resulting from cost controls throughout the fiscal year. The company expects operating income to increase 18.2% to approximately JPY 407 billion, including one-time losses that are expected to be recorded in Q4.

<unk> four trillion yen down slightly less than 1% year over year.

Consolidated adjusted EBITDA increased seven 3% to approximately 585 billion a record high adjusted EBITDA margin is expected to increase approximately 1.3 percentage points to 17, 2% due to a significant increase in adjusted EBITDA margin in matching our solutions and margin increase in HR technology, resulting from cost controls throughout the fiscal year.

The company expects operating income increased 18, 2% to approximately 407 billion yen, including onetime losses that are expected to be greater in Q4.

Profit attributable to owners of the parent is expected to increase significantly 30 monthly 2% to approximately 354 billion a record high including the impact of a onetime decrease in the income tax rate in FY 2023 from an internal legal entity restructuring in nature technology.

Junichi Arai: Profit attributable to owners of the parent is expected to increase significantly 31.2% to approximately JPY 354 billion, a record high, including the impact of a one-time decrease in the income tax rate in FY2023 from an internal legal entity restructuring in HR Technology. Basic EPS and Adjusted EPS are expected to increase approximately 34.1% and 16.9% respectively. Now, I will explain the Q3 results and the Q4 outlook for each SBU. First, I will talk about HR Technology. US dollar-based revenue was $1.64 billion, a decrease of 17.2% year-over-year, which was slightly better than the November outlook for an 18% decrease. Revenue decreased 7.6% quarter over quarter.

Basic EPS and adjusted EPS are expected to increase approximately 34, 1% at 16, 9% respectively.

Now I will explain the Q3 results and our Q4 outlook for each SBU.

First I will talk about future technology.

Celebration revenue was 1.64 billion a decrease of 17, 2% year over year, which was slightly better than the November outlook for an 18% decrease revenue decreased seven 6% quarter over quarter on U S. Dollar basis revenue in the U S decreased eight 3% quarter over quarter, while revenue outside of the U S decreased 6% quarter over quarter on a year over year basis.

Junichi Arai: On a US dollar basis, revenue in the US decreased 8.3% quarter over quarter, while revenue outside of the US decreased 6% quarter over quarter. On a year-over-year basis, revenue in the US decreased 21.3% and decreased 6.3% outside of the US. On the Japanese yen basis, revenue decreased 5.5% quarter over quarter and 13.4% year over year. Globally, total job openings remained above the pre-pandemic level of 1 February 2020. However, the supply and demand mismatch between job seekers and employers continued to ease. This was also reflected on Indeed and Glassdoor in Q3. In the US, total job postings, which include both free and paid job ads, continued to decrease by approximately 13% year over year.

Revenue in the U S decreased 21, 3% and decreased six 3% outside of the U S and <unk>.

Japanese yen basis revenue decreased five 5% quarter over quarter, and 34% year over year globally total job openings remain above the pre pandemic level of February one 2020, however, the supply and demand mismatch between Jobseekers and employers continue to ease.

This was also reflected on indeed English store in Q3.

The U S total job postings, which include both free and paid job is continue to decrease by approximately 13% year over year at the same time Jesse for engagement as measured by traffic and applies on our hired platforms continued to acreage.

Junichi Arai: At the same time, job seeker engagement, as measured by traffic and applies on our hiring platforms, continued to increase. Continued declines in both total and paid job ads in the US were partially offset by year-over-year increases in revenue per paid job listing. Similar trends were observed in markets outside the US. The decline in both total and paid job ads were largely driven by the same factors that we detailed in November, an easing of the labor market imbalance and further improvements in updates to Indeed's pricing model, including the implementation of Pay Per Started Application and minimum budgets. These enhancements are designed to deliver a better job search and hiring experience for job seekers and employers at the core of our simplify hiring strategy.

Continued declines in both total and paint job and in the U S. Partially offset by year over year increases in revenue per paid job listing similar trends were observed in markets outside the U S.

The timing of total and pay job ads were largely driven by the same factors that we detailed in November and easing of the labor market imbalance and further improvements and updates to induce pricing model, including the implementation of papers started application and minimum budgets. These enhancements are designed to deliver a better job search and hiring experienced with job seekers and employers at core of our simplify hiring strategy.

Likewise at the end of Q3 response to customer feedback and engagement with the product and they decided to stop offering paper application pricing or PPA discount formidable market overtime, how employers utilizing valued the ability to select and pay for qualified applicants diverged from our original expectations Ingalls. This.

Junichi Arai: Likewise, at the end of Q3, in response to customer feedback and engagement with the product, Indeed decided to stop offering pay per application pricing or PPA in its current form in all markets. Over time, how employers utilized and valued the ability to select and pay for qualified applicants diverged from our original expectations and goals. This decision did not have a negative impact on Q3 HR Technology revenue, and we do not expect it will have a negative impact in Q4. Indeed will continue to explore various tests to innovate the HR matching industry and deliver value to job seekers and employers. Adjusted EBITDA was JPY 80.7 billion and adjusted EBITDA margin was 33.2%, which is above the outlook announced in November as a result of slightly better than expected Q3 revenue, cost savings, and timing of advertising expenses.

This decision did not have a negative impact on our Q3 HR technology revenue and we do not expect that will have a negative impact in Q4. Indeed will continue to explore various test to innovate the HR matching industry and deliver value to jobseekers and employers adjust.

Adjusted EBITDA was $80 7 billion and adjusted EBITDA margin was 33, 2%, which is a bumpy out looking us in November as a resolve slightly better than expected Q3 revenue and cost savings and timing of advertising expenses adjust.

Adjusted EBITDA margin increased cycled, one percentage points year over year, primarily due to lower personnel costs and advertising expenses.

Junichi Arai: Adjusted EBITDA margin increased 5.1 percentage points year-over-year, primarily due to lower personnel costs and advertising expenses. Regarding our Q4 and FY2023 outlook, we expect revenue in Q4 to be approximately flat quarter-over-quarter with a potential incremental benefit from Indeed Plus. Revenue on a US dollar basis in January decreased approximately 14%. Adjusted EBITDA margin for Q4 is expected to be approximately 27% as we expect operating expenses to increase quarter-over-quarter due primarily to seasonal increases in personnel costs and advertising expenses, and incremental costs related to Indeed Plus. Based on our Q4 outlook for HR Technology, for FY2023, we expect revenue on a US dollar basis will decline approximately 15.5%.

Regarding our Q4 and FY 2023 outlook.

Revenue in Q4 to be approximately flat quarter over quarter with the potential incremental benefit from a D plus revenue on a us dollar basis in January decreased approximately 14% adjust.

Adjusted EBITDA margin for Q4 is expected to be approximately 27% as we expect operating expenses to increase quarter over quarter due primarily to seasonal increases in personnel costs and advertising expenses and incremental costs related to India plus.

Based on our Q4 outlook for HR technology.

For FY 2023 we expect revenue on a U S. Dollar basis will decline approximately 15, 5% adjusted EBITDA margin for FY 2023 is expected to be approximately 34% as we carefully control costs throughout the fiscal year.

Junichi Arai: adjusted EBITDA margin for FY2023 is expected to be approximately 34% as we carefully control costs throughout the fiscal year. We announced in May that the total amount of share-based payment expense in FY2023 is expected to be slightly above $700 million. However, we revised our expectations to be approximately $550 million, mainly due to a change in the timing of share-based compensation grants to existing employees due to changes in the fiscal year of Indeed. Going forward, we will promote efficient business operations by responding to changes in the business environment and implementing appropriate cost control measures as needed while balancing continued strategic investments for long-term growth. As we mentioned previously in May, we do not prioritize maintaining a specific adjusted EBITDA margin level. Next, I will talk about the results of Matching & Solutions.

In us in Maine, It's total amount of share based payment expense in FY 2023, and expect it to be slightly above $700 million. However, we've revised our expectations to be approximately $550 million, mainly due to a change in the timing of share based compensation grants existing in place due to changes in the fiscal year are indeed.

Going forward, we will promote efficient business operation by responding to changes in the business environment and implementing appropriate cost control measures as needed a balancing continued strategic investments for long term growth.

As we mentioned previously in May we do not prioritize maintaining a specific adjusted EBITDA margin level.

Next I will talk about the results of matching and solutions for Q3 and HR solutions. The outlook provided in November was a revenue increase of approximately 2%. However, while revenue in the placement service increase revenue in the job advertising service decrease as a result revenue in HR solutions Secrets, Europe with 8% to 70 frequent 1 billion yet.

Junichi Arai: In Q3, in HR Solutions, the outlook provided in November was a revenue increase of approximately 2%. However, while revenue in the placement service increased, revenue in the job advertising service decreased. As a result, revenue in HR Solutions decreased 0.8% to JPY 73.1 billion. Adjusted EBITDA margin for HR Solutions was approximately 18%. Revenue in Marketing Solutions was JPY 123.6 billion, an increase of 7.1%, exceeding our outlook. Revenue increased as the business environment in Japan remained strong compared to Q2. Revenue in housing and real estate increased due to increased advertising demand from business clients. Revenue in beauty increased due to continued growth in new business clients. Revenue in travel increased mainly due to the impact of higher room rates driven by stronger demand from overseas travelers.

Adjusted EBITDA margin for HR solutions was approximately 18% revenue and marketing solutions was $123 6 billion, an increase of 7.1% exceeding our outlook revenue increase as the business environment in Japan remains strong compared to Q2.

Revenue in housing and real estate increased due to increased advertising demand for business clients revenue due to increased due to continued growth in new business clients revenue travel increased mainly due to the impact of higher roommates driven by stronger demand from overseas travelers.

Adjusted EBITA margin for marketing solutions was approximately 34% due to appropriate cost controls mainly related to advertising expenses.

Junichi Arai: Adjusted EBITDA margin for Marketing Solutions was approximately 34% due to appropriate cost controls, mainly related to advertising expenses. The SaaS business represented by Air Business Tools is included in Marketing Solutions. During Q3, the number of SaaS accounts rose 19.7% to 3.6 million, driven by growth in AirPAY and AirSHIFT accounts. Overall revenue in Matching & Solutions was JPY 199.5 billion, an increase of 3.9%. Adjusted EBITDA increased 47.1% to JPY 46.4 billion, and adjusted EBITDA margin was 23.3%, an increase of 6.8 percentage points.

This business represented by Air business tools that included a marketing solutions turnkey free the number of SaaS accounts rose, 19.7% to $3 6 million driven by growth in air pain and are shipped accounts overall.

Overall revenue matching and solutions was $199 5 billion, an increase of three 9% adjusted EBITDA increased 47.1% to $46 4 billion yen and adjusted EBIT margin was 23, 3% an increase of $6 eight percentage point.

Regarding the Q4 outlook for measurement solutions based on the assumption that Japan economic environment will not change significantly revenue in HR solutions for Q4 is expected to decrease approximately 4.5% year over year due to the continued downward revenue trend in the job advertising services and the impact from the transition of revenue to HR technology did indeed plus.

Junichi Arai: Regarding the Q4 outlook for Matching & Solutions, based on the assumption that Japan's economic environment will not change significantly, revenue in HR Solutions for Q4 is expected to decrease approximately 4.5% year over year due to the continued downward revenue trend in the job advertising service and the impact from the transition of revenue to HR Technology due to Indeed PLUS. Revenue in Marketing Solutions for Q4 is expected to increase approximately 7% year over year. Adjusted EBITDA margin is expected to be approximately 12.5%, as we expect to strategically invest in advertising expenses, especially in Marketing Solutions in Q4. These investments are timed in anticipation of active consumer spending in April, which is the start of the business year and a new school year in Japan, in order to meet the demand of both individual users and business clients.

Revenue and marketing solutions for Q4 is expected to increase approximately 7% year over year.

Adjusted EBITDA margin is expected to be approximately <unk>, 5% with respect to strategically invest in advertising expenses, especially marketing solutions. In Q4. These investments are timed in anticipation of active consumer spending in April which is the start of the business year and a new school year in Japan in order to meet the demand of both individual users and business clients.

Regarding the FY 2023 outlook in HR solutions revenue in the first half increased eight 4%. However in the second half we expect revenue in the job advertising service will decrease in addition to the revenue impact from the transition to a deep blush, resulting in a full year increase of approximately 2.5% there.

Junichi Arai: Regarding the FY2023 outlook. In HR Solutions, revenue in H1 increased 8.4%. However, in H2, we expect revenue in the job advertising service will decrease, in addition to the revenue impact from the transition to Indeed PLUS, resulting in a full year increase of approximately 2.5%. On the other hand, in Marketing Solutions, revenue is expected to increase approximately 9% with stable quarterly performance throughout the year. The outlook for adjusted EBITDA margin of approximately 20% in Matching & Solutions for FY2023 remains unchanged. Next, I will talk about the results of Staffing. Revenue in Q3 was JPY 433.6 billion, an increase of 4.3% or an increase of 0.6% on a constant currency basis.

Other hand, and market solutions revenue expected to increase approximately 9% with stable quarterly performance throughout the year.

The outlook for adjusted EBITDA margin of approximately 20% matching our solutions for FY 2023 remains unchanged.

Next I will talk about the results of staffing.

Revenue in Q3 was $433 6 billion, an increase of four 3% or an increase of <unk>, 6% on a constant currency basis revenue in Japan was $193 4 billion, an increase of 10, 9% driven by an increase in the number of temporary staff on assignment as a result of continued growth in demand for staffing services.

Junichi Arai: Revenue in Japan was JPY 193.4 billion, an increase of 10.9%, driven by an increase in the number of temporary staff on assignment as a result of continued growth in demand for Staffing services. Revenue in Europe, US, and Australia was JPY 240.2 billion, a decrease of 0.4% or a decrease of 6.9% on a constant currency basis, as demand for temporary Staffing services slowed continuously against the backdrop of an uncertain economic outlook. adjusted EBITDA for the segment was JPY 32.5 billion, an increase of 9.2%, and adjusted EBITDA margin was 7.5%. Regarding the Q4 outlook for Staffing, quarter over quarter, revenue for Staffing is expected to decrease approximately 9%.

Revenue in Europe U S and Australia was $240 2 billion a decrease of 0.4% a decrease of six 9% on a constant currency basis as demand for temporary staffing services slow continuously against the backdrop of an uncertain economic outlook.

Is it EBITDA for the segment was $32 5 billion, an increase of 19, 2% and adjusted EBITDA margin was seven 5% regarding with you for outlook for staffing quarter over quarter revenue for staffing is expected to decrease approximately 9% year over year revenue, Japan is expected to increase approximately 5% revenue in Europe U S and Australia is expected to increase approximately <unk> <unk>.

Junichi Arai: Year over year, revenue in Japan is expected to increase approximately 5%, and revenue in Europe, US, and Australia is expected to increase approximately 1%. Adjusted EBITDA margin is expected to be approximately 3%, as we expect to strategically invest in advertising expenses in Japan. For FY2023, revenue is expected to increase approximately 3% year over year. Revenue in Japan is expected to increase approximately 10%, while revenue in Europe, US, and Australia is expected to decrease approximately 2%. Adjusted EBITDA margin is expected to be approximately 6%. Please refer to the IR website for more details. This concludes my presentation. Thank you.

1% adjusted EBITDA margin is expected to be approximately 3% do you expect to strategically invest in advertising expenses in Japan.

For FY 2023 revenue is expected to increase approximately 3% year over year revenue in Japan expected to increase approximately 10% while revenue in Europe U S and Australia is expected to decrease approximately 2% adjusted EBITDA margin is expected to be approximately 6%. Please refer to the IR website for more details. This concludes my presentation.

Thank you.

Q3 2023 Recruit Holdings Co Ltd Earnings Call - Pre-Recorded

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